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A new European Regulation on insolvency proceedings

In June 2015, EU Regulation 2015/848 of 20 May 2015 on insolvency proceedings entered into force. This Regulation reformed – or, to be more precise, recast – EC Regulation 1346/2000, in order to tackle in a much more modern way cross-border insolvency cases involving at least one Member State of the EU (except Denmark). Practitioners and academics had awaited this reform anxiously: first, because Regulation 1346/2000 was hardly the first attempt to regulate cross-border insolvencies at a European level; secondly, because the present socio-economic scenario is very different from that existing at the time of Regulation 1346/2000. The present-day scenario is characterized by a severe economic crisis and by a consequent new tendency in insolvency law towards rescuing distressed firms and discharging over-indebted individuals by means of an array of regulatory instruments. These sometimes involve courts at every stage of the procedure; sometimes they involve courts at only some stages; sometimes they do not involve them at all.

Like Regulation 1346/2000, Regulation 2015/848 does not aim at harmonizing national insolvency laws across Europe, but only at providing international private law rules. This implies that, like Regulation 1346/2000, Regulation 2015/848 contains for the most part rules of European uniform private international law concerning jurisdiction, applicable law, and the recognition and enforcement of foreign judgments.

It is immediately apparent that Regulation 2015/848 is a significant improvement on Regulation 1346/2000.

The rules concerning jurisdiction are crucial. Consider the following example. Company A has its registered office in Germany; it runs its business mostly in Italy; and it has most of its assets in France. Let us suppose that this company becomes insolvent, and that it does not pay a creditor who is resident in Italy. Understandably, this creditor would prefer to apply to an Italian court for the opening of an Italian insolvency proceeding. But here an important question arises: may this creditor apply to a court in Italy? And, further, what happens if the company decides to prevent the opening of a bankruptcy proceeding and attempts to be rescued? Has this company the right to choose the jurisdiction which is most rescue-friendly?

The rules concerning the applicable law are also important. Regulation 2015/848 seeks to synchronize jurisdiction and applicable law, with the result that – as a general rule – the Italian court applies Italian law, the German court applies German law, and so on. Though this choice of policy seems to be the most reasonable, this is not always the case. Suppose that the court of Cologne has opened insolvency proceedings against a German company, and suppose again that a creditor of that company has secured its claim by means of an English floating charge. Which law will allow that creditor to enforce that security? Will it be German law, which does not “know” floating charges? Will it be English law, which has no connection with the German proceeding? Are they both applicable? And, if yes, how and to what extent?

Finally, Regulation 2015/848 contains some prescriptions concerning the recognition and enforcement of foreign judgments. On this point, Regulation 2015/848 lays down a simple and effective rule which could be summarized as follows: any judgement opening insolvency proceedings in one Member State automatically produces the same effects in any other Member State. Regulation 2015/848 further supplements this prescription with a legal framework allowing the insolvency practitioners appointed in the insolvency proceedings which have been opened to enforce their rights abroad and, if necessary, to be assisted in performing this task by local authorities. Specific rules of enforcement are also provided for cases where secondary insolvency proceedings are opened.

It is immediately apparent that Regulation 2015/848 is a significant improvement on Regulation 1346/2000. Not only does Regulation 2015/848 contain almost twice as many articles as Regulation 1346/2000, plus eighty-nine recitals, and four annexes, it also elucidates many doubts concerning the application of Regulation 1346/2000 and regulates a number of issues which had not previously been addressed. For example, Regulation 2015/848 enlarges the scope of Regulation 1346/2000; it provides a detailed regime to ascertain the centre of main interests (COMI) and to challenge the decision of opening insolvency proceedings on the grounds that the court seised lacks jurisdiction; it introduces a regulation on the jurisdiction for the so-called “related actions”; it establishes a detailed regime on coordination and cooperation aimed at achieving a smoother interplay between the main and the secondary proceedings; it regulates the practice by which the insolvency practitioner in the main proceedings may “swap” a local creditor’s agreement not to request the opening of secondary proceedings with the insolvency practitioner’s promise that the distribution of the debtor’s local assets will be distributed in accordance with local national law; it provides an interconnection of insolvency registers across Europe; it standardises the procedures aiming at lodging claims; and last but not least, it regulates the insolvencies of multinational groups of companies – the first time that such a measure has been achieved anywhere in the world by means of a hard law instrument.

The date of entry into force of EU Regulation 2015/848 does not coincide with the date when it becomes applicable. In fact, Art 92 lays down that Regulation 2015/848 “shall apply from 26 June 2017”, with the exception of some articles which will become applicable from June 2016, June 2018 and June 2019, respectively. This system of vacation and staged applicability makes sense. It gives practitioners time to grasp the rationale of the new prescriptions and to interpret them systematically in the light of decisions made by the Court of Justice of the European Union (CJEU); these still maintain their authoritative role – Regulation 2015/848 has technically recast, but not reformed, Regulation 1346/2000.

Featured image credit: Untitled, by Didlier Weemaels. CC0 Public Domain via Unsplash.

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