Group insolvency law 2017

Updates to the EU Insolvency Regulation and the law relating to group insolvencies, German parliamentary publication (BT Drucksache) 18/11436 of 8 March 2017

The German legislative authorities have reformed the rules regarding group insolvency. In future, concentrating proceedings at a single court will improve the chances of successful restructuring for subsidiaries of an insolvent corporate group. This concentration will allow improved coordination between individual sets of proceedings.

Below, Schultze & Braun has compiled various information on group insolvency law in PDF format to download or print out.

1. Europe

Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, OJ L 141/19 of 5 June 2015, p. 19

Link to the Regulation

See Chapter V: Insolvency proceedings of members of a group of companies

Please see the separate page dealing with the 2015 Insolvency Regulation reform EU Insolvency Regulation reform 2015

2. Germany
a. Introductory Act to the Insolvency Code (Einführungsgesetz zur Insolvenzordnung, EGInsO)

1) Act enabling implementation of Regulation (EU) 2015/848 on insolvency proceedings of 5 June 2017 (Gesetz zur Durchführung der Verordnung (EU) 2015/848 über Insolvenzverfahren vom 5. Juni 2017), BGBl. I 2017, 1476 , Cf. Art. 102c paragraphs 22 et seq. EGInsO

Link to PDF (in German)

2) Decision recommendation and report by the Parliamentary Committee for Law and Consumer Protection of 26 April 2017, BT-Drs. 18/12154 

Link to PDF (in German)

3) Federal Government bill of 11 January 2017, BT-Drs. 18/10823 

Link to PDF (in German)

b. Insolvency Code (Insolvenzordnung)

1) Act for the Facilitation of the Management of Group Insolvencies (Gesetz zur Erleichterung der Bewältigung von Konzerninsolvenzen) of 13 April 2017, BGBl. I 2017, 866

Link to PDF (in German)

2) Decision recommendation and report by the Parliamentary Committee for Law and Consumer Protection of 08 March 2017, BT-Drs. 18/11436

Link to PDF (in German)

3) Federal Government bill of 30 January 2014, BT-Drs. 18/407

Link to PDF (in German)

3. Synopsis: Group insolvency law: EU Insolvency Regulation vs the German Insolvency Code

Download synopsis PDF

4. Overview: Corporate insolvency law abroad
a. USA

In the United States, insolvency proceedings relating to multiple members of a corporate group can be combined at the same insolvency court, by way of either “joint administration” or “substantive consolidation”.

1) Joint administration: The assets and liabilities of the debtor companies in the group are not combined. Instead, each debtor is treated as a separate legal entity, although the procedural aspects (hearings, pleadings, judgments, reports, etc.) are dealt with together for all debtors. This is the mechanism used most often for group insolvencies, and has no effect on creditors’ rights.

2) Substantive consolidation: Here, all assets and liabilities of the debtor group companies are merged to form a single insolvency estate and are then distributed. This mechanism is controversial as it impacts on key rights of the parties to the proceedings and can affect creditors’ rights.

3) A summary of joint administration and substantive consolidation is available here as a PDF.

4) The United States Court of Appeals for the Sixth Circuit has recently examined the issue of substantive consolidation and set out why the Chapter 7 trustee’s submission failed to fulfil the requirements regarding proof of the criteria for substantive consolidation. The court’s reasoning in relation to substantive consolidation are contained section III (B) of the judgment. Access the PDF here

5) For a brief overview of US insolvency proceedings: 

Link to the US Courts website

b. France

1) General concentration of jurisdiction 

Article L. 662-8 (new version) of the French Commercial Code, introduced by the “Macron law” of 6 August 2015, provides that an insolvency court dealing with proceedings in respect of a group company also has jurisdiction over subsequent insolvency proceedings concerning other companies in the group.

The court dealing with the proceedings is still able to appoint joint administrators for the various sets of proceedings. There is no longer any provision for coordination.

This means that companies can determine jurisdiction for the entire group by controlling the order in which applications are lodged.

However, the law does provide that proceedings commenced in respect of controlled companies must be referred to a specialised commercial court if that court is already dealing with the insolvency of the parent company.

2) Concentration of jurisdiction at specialised commercial courts  <br/> With effect from 1 March 2016, the Macron law also established 18 specialised commercial courts and one specialised commercial division at Strasbourg Regional Court (tribunal de grande instance) so as to ensure that large-scale proceedings, group insolvencies and international proceedings are handled effectively.

2.1 Subject matter jurisdiction<br/> These courts have exclusive jurisdiction if a company or the companies it holds or controls generate net sales of at least EUR 40 million or employ at least 250 staff and generate net sales of at least EUR 20 million.

They also have jurisdiction over international proceedings both within and outside the scope of the EU Insolvency Regulation.

This applies both to insolvency proceedings (sauvegarde, redressement, liquidation) and to conciliation.

2.2 Territorial jurisdiction

Territorial jurisdiction lies with the court at the place of the registered office of the parent company.

Where it is in the interests of the parties involved, the courts of appeal (cours d’appel) or the Court of Cassation (Cour de cassation) may refer pending proceedings to other courts and in particular to the specialised insolvency courts, on application by the debtor, a creditor which lodged the original application for commencement of proceedings, the president of the court, or the public prosecutor’s office. If conciliation proceedings are referred in this way, this also applies for any insolvency proceedings commenced subsequently.

b. Italy

The Insolvency Act (legge fallimentare) does not address group insolvency. Nevertheless, attempts have been made in practice to bring some elements of coordination into composition proceedings involving companies that form part of a group However, the Court of Cassation (Corte di Cassazione) has refused to approve such efforts, holding that in the absence of a statutory arrangement, group composition proceedings are impermissible. As a result, each group-affiliated company must file an application for commencement of composition proceedings with the insolvency court having jurisdiction over it, whereby an amalgamation of assets and liabilities is excluded a priori.

By contrast, there are special legislative provisions that apply broadly to groups, particularly Law No. 95 of 3 April 1979, (also known as Legge Prodi) concerning the insolvency of enterprises with a high number of employees.

With regard to the future development of this area of the law, the draft bill submitted by what is known as the Rordorf Commission, which concerns the comprehensive reform of insolvency law, was adopted by the Renzi government on 10 February 2016. It contains provisions that are designed to permit uniform insolvency proceedings to be carried out for a variety of different group companies. To that end, it provides for the implementation of special rules for the purposes of determining local jurisdiction, as well as of reciprocal informational duties of the relevant company organs where proceedings are pending before various court authorities. In addition, it is possible to file a uniform application directed at obtaining court confirmation of a debt-restructuring agreement concerning all group liabilities or, as the case may be, of preventive composition proceedings concerning all group companies, for which purpose a uniform plan or a variety of plans may be created. In any case, the autonomy of the assets and liabilities of the individual group companies is also to be preserved in connection with group insolvency so as to prevent amalgamation from occurring. On 1 February 2017, the Italian Chamber of Deputies (camera dei deputati) adopted the draft bill (Law (legge) No. 3671bis) concerning implementation of the Rordorf reforms, which is now awaiting the required approval by the Italian Senate (senato della repubblica).