Explanatory Memorandum to COM(2012)744 - Amendment of Council Regulation (EC) No 1346/2000 on insolvency proceedings - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2012)744 - Amendment of Council Regulation (EC) No 1346/2000 on insolvency proceedings. |
|---|---|
| source | COM(2012)744  |
| date | 12-12-2012 |
This proposal is amending Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (the 'Insolvency Regulation' or 'Regulation').
The Insolvency Regulation establishes a European framework for cross-border insolvency proceedings. The Regulation applies whenever the debtor has assets or creditors in more than one Member State, irrespective of whether he is a natural or legal person. The Regulation determines which court has jurisdiction for opening insolvency proceedings: Main proceedings have to be opened in the Member State where the debtor has its centre of main interests (COMI) and the effects of these proceedings are recognised EU-wide. Secondary proceedings can be opened where the debtor has an establishment; the effects of these proceedings are limited to the assets located in that State. The Regulation also contains rules on applicable law and certain rules on the coordination of main and secondary insolvency proceedings. The Insolvency Regulation applies to all Member States with the exception of Denmark which does not participate in judicial cooperation under the Treaty on the Functioning of the European Union.
Adopted in May 2000, the Insolvency Regulation applies since 31 May 2002. Ten years after its entry into force, the Commission has reviewed its operation in practice and considers it necessary to amend the instrument.
While the Insolvency Regulation is generally considered to operate successfully in facilitating cross-border insolvency proceedings within the European Union, the consultation of stakeholders and legal and empirical studies commissioned by the Commission revealed a range of problems in the application of the Regulation in practice. Moreover, the Regulation does not sufficiently reflect current EU priorities and national practices in insolvency law, in particular in promoting the rescue of enterprises in difficulties. Essentially, the evaluation of the Insolvency Regulation identified five main shortcomings:
· The Regulation's scope does not cover national procedures which provide for the restructuring of a company at a pre-insolvency stage (“pre-insolvency proceedings”) or proceedings which leave the existing management in place (“hybrid proceedings”). However, such proceedings have recently been introduced in many Member States and are considered to increase the chances of successful restructuring of businesses. In addition, a number of personal insolvency proceedings are currently outside the Regulation's scope.
· There are difficulties in determining which Member State is competent to open insolvency proceedings. While there is wide support for granting jurisdiction for opening main insolvency proceedings to the Member State where the debtor's COMI is located, there have been difficulties in applying the concept in practice. The Regulation's jurisdiction rules have also been criticised for allowing forum shopping by companies and natural persons through abusive COMI-relocation.
· Problems have also been identified with respect to secondary proceedings. The opening of secondary proceedings can hamper the efficient administration of the debtor's estate. With the opening of secondary proceedings, the liquidator in the main proceedings no longer has control over the assets located in the other Member State which makes a sale of the debtor on a going concern basis more difficult. Moreover, secondary proceedings currently have to be winding-up proceedings which constitutes an obstacle to the successful restructuring of a debtor.
· There are problems relating to the rules on publicity of insolvency proceedings and the lodging of claims. There is currently no mandatory publication or registration of the decisions in the Member States where a proceeding is opened, nor in Member States where there is an establishment. There is also no European Insolvency Register which would permit searches in several national registers. However, the good functioning of cross-border insolvency proceedings relies to a significant extent on the publicity of the relevant decisions relating to an insolvency procedure. Judges need to be aware whether proceedings have already been opened in another Member State; creditors or potential creditors need to be aware that proceedings have commenced. In addition, creditors, particularly small creditors and SMEs, face difficulties and costs in lodging claims under the Insolvency Regulation.
· Finally, the Regulation does not contain specific rules dealing with the insolvency of a multi-national enterprise group although a large number of cross-border insolvencies involve groups of companies. The basic premise of the Insolvency Regulation is that separate proceedings must be opened for each individual member of the group and that these proceedings are entirely independent of each other. The lack of specific provisions for group insolvency often diminishes the prospects of successful restructuring of the group as a whole and may lead to a break-up of the group in its constituting parts.
The detailed evaluation of the Regulation's application in practice is set out in the Commission's report which accompanies this proposal. An in-depth analysis of the problems of the current Regulation as well as the impacts of the different options considered for addressing them can be found in the Commission's Impact Assessment which equally accompanies this proposal.
The overall objective of the revision of the Insolvency Regulation is to improve the efficiency of the European framework for resolving cross-border insolvency cases in view of ensuring a smooth functioning of the internal market and its resilience in economic crises. This objective links in with the EU's current political priorities to promote economic recovery and sustainable growth, a higher investment rate and the preservation of employment, as set out in the Europe 2020 strategy. The revision of the Regulation will contribute to ensuring a smooth development and the survival of businesses, as stated in the Small Business Act. The revision is also one of the key actions listed in the Single Market Act II.
This proposal was preceded by a consultation of the interested public, Member States, other institutions and experts on the existing problems of the current Regulation and possible solutions to these problems. On 29 March 2012, the Commission launched a public consultation to which a total of 134 answers were received. The Commission also took into account the results of an external study for the evaluation of the application of the Insolvency Regulation carried out by a consortium of the Universities of Heidelberg and Vienna. Empirical data on the impact of the different options for reform were collected by another external study carried out by a consortium of GHK and Milieu. Both studies will be published together with this proposal on the internet site of DG JUSTICE. Two meetings with national experts were held in April and October 2012. In addition, the Commission set up a group of private experts in the field of cross-border insolvencies which met five times from May to October 2012 and provided input on the problems, the options and the drafting of the revised Regulation.
Views of stakeholders on the main elements of the reform can be summarised as follows:
· With respect to the extension of the scope of the Regulation, a significant majority felt that the Regulation should cover pre-insolvency and hybrid proceedings. Views were mixed on exactly which proceedings should be covered and, in particular, where court oversight should be required. A majority of respondents agreed that the Insolvency Regulation should apply to private individuals and self-employed.
· With respect to jurisdiction, three quarters of respondents approved of the use of the COMI concept to locate the main proceedings. However a majority considered that the interpretation of the term COMI by case-law caused practical problems. Almost half of the respondents indicated evidence of abusive relocation of COMI.
· As to the relation of main and secondary insolvency proceedings, almost half of the respondents were dissatisfied with the coordination between main and secondary proceedings.
· With respect to publication of proceedings, three quarters of respondents agreed that the absence of mandatory publication of the decision opening insolvency is a problem. Almost half of those who expressed an opinion considered there were problems with lodging claims.
· Concerning group insolvency, almost half of respondents felt the EIR does not work efficiently for the insolvency of members of a multinational group of companies.
The Commission analysed the costs and benefits of the main aspects of the proposed reform in its Impact Assessment which accompanies this proposal.
Contents
- LEGAL ELEMENTS OF THE PROPOSAL
- BUDGETARY IMPLICATION
- 1.1. General context
- 1.2. Need for a revision of the Insolvency Regulation
- 2. CONSULTATION AND IMPACT ASSESSMENT
- 3.1. Summary of the proposed action
- 3.1.1. Scope of the Insolvency Regulation
- 3.1.2. Jurisdiction for opening insolvency proceedings
- 3.1.3. Secondary insolvency proceedings
- 3.1.4. Publicity of insolvency proceedings and lodging of claims
- 3.1.5. Insolvency of members of a group of companies
- 3.2. Legal Basis
- 3.3. Subsidiarity and Proportionality
- 3.4. Impact on fundamental rights
The elements of the proposed reform of the Insolvency Regulation can be summarised as follows: · Scope: The proposal extends the scope of the Regulation by revising the definition of insolvency proceedings to include hybrid and pre-insolvency proceedings as well as debt discharge proceedings and other insolvency proceedings for natural persons which currently do not fit the definition;
· Jurisdiction: The proposal clarifies the jurisdiction rules and improves the procedural framework for determining jurisdiction;
· Secondary proceedings: the proposal provides for a more efficient administration of insolvency proceedings by enabling the court to refuse the opening of secondary proceedings if this is not necessary to protect the interests of local creditors, by abolishing the requirement that secondary proceedings must be winding-up proceedings and by improving the cooperation between main and secondary proceedings, in particular by extending the cooperation requirements to the courts involved; · Publicity of proceedings and lodging of claims: The proposal requires Member States to publish the relevant court decisions in cross-border insolvency cases in a publicly accessible electronic register and provides for the interconnection of national insolvency registers. It also introduces standard forms for the lodging of claims;
· Groups of companies: The proposal provides for a coordination of the insolvency proceedings concerning different members of the same group of companies by obliging the liquidators and courts involved in the different main proceedings to cooperate and communicate with each other; in addition, it gives the liquidators involved in such proceedings the procedural tools to request a stay of the respective other proceedings and to propose a rescue plan for the members of the group subject to insolvency proceedings.
The proposal extends the scope of the Insolvency Regulation by amending the current definition of 'insolvency proceedings' in its Article 1 . In this respect, it is proposed to open the scope to proceedings which do not involve a liquidator but in which the assets and affairs of the debtor are subject to control or supervision by a court. This amendment would allow proceedings where the debtor remains in possession without a liquidator being appointed to benefit from the EU-wide recognition of the effects of insolvency proceedings which the Regulation brings about. It would also allow more personal insolvency procedures to be covered by the Regulation. In addition, it is proposed to make an express reference to proceedings for the adjustment of debts and to the purpose of rescue in order to include also those proceedings which enable the debtor to find an arrangement with his creditors at a pre-insolvency stage. The amendments would also bring the Regulation more in line with the approach taken by the UNCITRAL Model Law on cross-border insolvency.
While the extension of the Regulation's scope is important to ensure the efficient conduct of pre-insolvency and hybrid proceedings in a cross-border context, it should not encompass insolvency proceedings which are confidential. There are indeed a number of national pre-insolvency proceedings where the debtor enters into negotiations with (certain) creditors in view of reaching an agreement on its refinancing or reorganisation but this information is not made public. These proceedings may entail a moratorium of individual enforcement proceedings or prevent creditors from filing for insolvency proceedings during a certain time period in order to give the debtor some 'breathing space'. While these proceedings may play an important role in some Member States, their contractual and confidential nature would make it difficult to recognise their effects EU-wide because a court or creditor located in another Member State would not know that such proceedings are pending. This does, however, not prevent such a procedure from being subsequently covered by the scope of the Insolvency Regulation as from the moment it becomes public.
This proposal does not envisage changing the existing mechanism according to which the national insolvency procedures covered by the Regulation are listed in Annex A and the Member States decide whether to notify a particular insolvency procedure to be included in that Annex. However, the proposal introduces a procedure by which the Commission scrutinises whether a national insolvency procedure notified actually fulfils the conditions of the revised definition. This will ensure that only proceedings which fit the rules of the Regulation are listed in the Annex.
The proposal retains the concept of the centre of main interest (COMI) because that concept ensures that the case will be handled in a jurisdiction with which the debtor has a genuine connection rather than in the one chosen by the incorporators. The COMI approach is also in line with international developments since it has been chosen as a jurisdictional standard by UNCITRAL in its Model Law on cross-border insolvency. In order to give guidance to legal practitioners in determining COMI, the proposal complements the definition of COMI; it also introduces a provision determining the COMI of natural persons. In addition, a new recital clarifies the circumstances in which the presumption that the COMI of a legal person is located at the place of its registered office can be rebutted; the language of this recital is taken from the 'Interedil' decision of the Court of Justice of the European Union[7].
The proposal also improves the procedural framework for determining jurisdiction for the opening of proceedings. The proposal requires the court to examine its jurisdiction ex officio prior to opening insolvency proceedings and to specify in its decision on which grounds it based its jurisdiction. Furthermore, the proposal grants all foreign creditors a right to challenge the opening decision and ensures that these creditors are informed of the opening decision in order to be able to effectively exercise their rights. These changes aim at ensuring that proceedings are only opened if the Member State concerned actually has jurisdiction. It should therefore reduce the cases of forum shopping through abusive and non-genuine relocation of the COMI.
Thirdly, the proposal clarifies that the courts opening insolvency proceedings also have jurisdiction for actions which derive directly from insolvency proceedings or are closely linked with them such as avoidance actions. This amendment codifies the case-law of the CJEU in the 'DekoMarty' decision[8]. Where such an action is related to another action against the same defendant which is based on general civil and commercial law, the proposal gives the liquidator the possibility to bring both actions in the courts of the defendant's domicile if these courts are competent pursuant to Regulation (EC) 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters[9] (as amended). This rule would allow a liquidator to bring, for example, an action for directors' liability based on insolvency law together with an action against that director based on tort law or company law in the same court.
Several modifications are proposed with the aim of improving the efficient administration of the debtor's estate in situations where the debtor has an establishment in another Member State.
· The court seised with a request for opening secondary proceedings should be able, if so requested by the liquidator in the main proceedings, to refuse the opening or to postpone the decision if such opening would not be necessary to protect the interests of local creditors. This could, for example, be the case if an investor made an offer to buy the company on a going-concern basis and that offer would give more to the local creditors than a liquidation of the company's assets. The opening of secondary proceedings should also not be necessary, if the liquidator of the main proceedings promises to the local creditors that they would be treated in the main proceedings as if secondary proceedings had been opened and that the rights they would have had in such a case with respect to the determination and ranking of their claims would be respected in the distribution of the assets. The practice of such 'synthetic secondary proceedings' has been developed in several cross-border insolvency cases where main proceedings were opened in the United Kingdom (notably in the insolvency proceedings concerning Collins&Aikman, MG Rover and Nortel Networks). The English courts accepted that the English liquidators were entitled to distribute part of the assets according to the law of the Member State where the establishment was located. Since such a practice is currently not possible under the law of many Member States, the proposal introduces a rule of substantive law enabling the liquidator to give such undertakings to local creditors with binding effect on the estate.
· The proposed amendment will not affect the possibility of the liquidator to request the opening of secondary proceedings where this would facilitate the administration of complex cases, for example where a considerable number of employees have to be laid off in the State of the establishment. In such cases, the opening of local proceedings and the appointment of a local liquidator may still be useful to ensure an efficient administration of the debtor's estate.
· The proposal obliges the court seised with a request to open secondary proceedings to hear the liquidator of the main proceedings prior to taking its decision. This amendment aims to ensure that the court seised with a request for opening secondary proceedings is fully aware of any rescue or reorganisation options explored by the liquidator and is able to properly assess the consequences of the opening of secondary proceedings. This obligation is complemented by the right of the liquidator to challenge the decision opening secondary proceedings.
· The proposal abolishes the current requirement that secondary proceedings have to be winding-up proceedings. Where secondary proceedings are opened, the opening court can choose from the full range of proceedings available under national law including restructuring. This amendment ensures that the opening of secondary proceedings does not automatically thwart the rescue or restructuring of a debtor as a whole. This amendment should be without prejudice to the rules on the recovery of state aid and the jurisprudence of the Court of Justice of the European Union on recovery from insolvent companies[10].
· In addition, the proposal improves the coordination of main and secondary proceedings by extending the obligation to cooperate, which currently only applies to the liquidators, to the courts involved in the main and secondary proceedings. Consequently, courts will be obliged to cooperate and communicate with each other; moreover, liquidators will have to cooperate and communicate with the court in the other Member State involved in the proceedings. Cooperation between courts will improve the coordination of main and secondary proceedings. It can notably be crucial to ensure a successful restructuring, e.g. concerning the approval of a protocol setting out a rescue plan.
The proposal provides that certain minimum information relating to the insolvency proceedings have to be published in an electronic register available to the public free of charge via the internet. This obligation concerns the court opening the insolvency proceedings, the date of opening and – for main proceedings, the date of closing proceedings, the type of proceedings, the debtor, the liquidator appointed, the decision opening proceedings as well as the decision appointing the liquidator, if different, and the deadline for lodging claims. In light of the disparities in national legal systems as to the publication of insolvency proceedings and the different needs of creditors, the obligation to publish this information is limited to companies, self-employed and independent professionals; it does not extend to insolvency proceedings relating to consumers. The proposal provides for the establishment of a system for the interconnection of national registers which will be accessed via the European e-justice portal. The Commission will determine minimum common criteria for searching the registers and for obtaining results which will be based on the information to be published in the insolvency registers by way of implementing act. The interconnection of national registers will ensure that a court seised with a request for opening insolvency proceedings will be able to determine whether proceedings relating to the same debtor have already been opened in another Member State; it will also enable creditors to find out whether proceedings have been opened concerning the same debtor and, if so, which powers the liquidator has, if any. For debtors which are companies, Member States will be able to build on the obligations arising from Directive 2012/17/EU of 13 June 2012 on the interconnection of central, commercial and companies registers[11]. However, for the purpose of this Regulation, the mere information that proceedings have been opened concerning a debtor is insufficient for the purpose of coordinating cross-border insolvency proceedings and enabling creditors to make use of their rights in relation to such proceedings.
The proposal facilitates the lodging of claims for foreign creditors, particularly small creditors and SMEs, in three ways: First, it provides for two standard forms to be introduced by way of implementing act, one for the notice to be sent to creditors and the other for the lodging of claims. These standard forms will be available in all official languages of the European Union, thereby reducing translation costs. Second, the proposal gives foreign creditors at least 45 days following publication of the notice of opening of proceedings in the insolvency register to lodge their claims, irrespective of any shorter periods applicable under national law. They will also have to be informed in case their claim is contested and be given the possibility to supplement the evidence provided in order to prove their claim. Finally, legal representation will not be mandatory for lodging a claim in a foreign jurisdiction, thereby reducing costs for creditors.
The proposal creates a specific legal framework to deal with the insolvency of members of a group of companies while maintaining the entity-by-entity approach which underlies the current Insolvency Regulation. The proposal introduces an obligation to coordinate insolvency proceedings relating to different members of the same group of companies by obliging the liquidators and the courts involved to cooperate with each other in a similar way as this is proposed in the context of main and secondary proceedings. Such cooperation could take different forms depending on the circumstances of the case. Liquidators should notably exchange relevant information and cooperate in the elaboration of a rescue or reorganisation plan where this is appropriate. The possibility to cooperate by way of protocols is explicitly mentioned in order to acknowledge the practical importance of these instruments and further promote their use. Courts should cooperate, in particular, by exchanging information, coordinating, where appropriate, the appointment of liquidators which can cooperate with each other, and approving protocols put before them by the liquidators.
In addition, the proposal gives each liquidator standing in the proceedings concerning another member of the same group. In particular, the liquidator has a right to be heard in these other proceedings, to request a stay of the other proceedings and to propose a reorganisation plan in a way which would enable the respective creditors' committee or court to take a decision on it. The liquidator also has the right to attend the meeting of creditors. These procedural tools enable the liquidator which has the biggest interest in the successful restructuring of all companies concerned to officially submit his reorganisation plan in the proceedings concerning a group member, even if the liquidator in these proceedings is unwilling to cooperate or is opposed to the plan.
In providing for the coordination of different proceedings relating to members of the same group, the proposal does not intend to prevent the existing practice in relation to highly integrated groups of companies to determine that the centre of main interests of all members of the group is located in one and the same place and, consequently, to open proceedings only in a single jurisdiction.
This proposal amends Regulation 1346/2000 which was based on Articles 61 (c) and 67 of the Treaty establishing the European Community. Since the entry into force of the Treaty of Lisbon, the corresponding legal basis is Article 81 (a), (c) and (f) of the Treaty on the Functioning of the European Union.
Title V of Part Three of the Treaty on the Functioning of the European Union is not applicable to Denmark by reason of the Protocol on the position of Denmark annexed to the Treaties. Title V is also not applicable to the United Kingdom and Ireland, unless those two countries decide otherwise, in accordance with the relevant rules of the Protocol on their position in respect of the area of Freedom, Security and Justice. However, where a Commission proposal amends an existing act and the United Kingdom or Ireland do not exercise their right to opt into the amending measure, the Council, acting on a proposal from the Commission, can determine that the non-participation of the respective country in the amended version of the existing measure makes the application of that measure inoperable for other Member States or the Union, in which case the period for making the notification is extended. If the respective country has not opted in at the expiry of the extended period, the existing measure shall no longer be binding upon or applicable to it.
The different elements of the revision of the Insolvency Regulation outlined above comply with the requirements of subsidiarity and proportionality. As to subsidiarity, the proposed amendments cannot be achieved by the Member States alone because they require the modification of existing rules of the Insolvency Regulation relating to scope, jurisdiction for opening insolvency proceedings, provisions concerning secondary proceedings, publication of decisions and the lodging of claims. The modification of the Insolvency Regulation requires – by definition – the intervention of the Union legislator. While the creation of electronic insolvency registers could in theory be achieved by the Member States alone, the interconnection of such registers requires action at Union level. Therefore, the objectives of the proposed action – to enable the interconnection of insolvency registers EU-wide – cannot sufficiently be achieved by the Member States alone but can be better achieved by action at Union level.
As to proportionality, the content and form of the proposed action does not exceed what is necessary to achieve the objectives of the Treaty. Moreover, the Impact Assessment attached to this proposal demonstrates that the benefits of each of the proposed amendments outweigh their costs and that they are therefore proportionate.
As set out in detail in the Impact Assessment accompanying this proposal and in accordance with the Union's strategy for the effective implementation of the Charter of Fundamental Rights of the European Union, all elements of the reform respect the rights set out in the Charter of fundamental Rights. The amendments improve the situation of persons involved in cross-border insolvencies with respect to their right to property, the freedom to conduct business and the right to engage in work, the freedom of movement and residence, and the right to an effective remedy. The proposed amendment to create publicly accessible electronic insolvency registers respects the right of protection of personal data in a way which is proportionate to the objectives because measures will be put in place to ensure compliance with Directive 95/46/EC on data protection.
The proposal would have limited impact on the EU budget. The IT application for the interconnection of the insolvency registers has already been developed and will be hosted on the e-Justice Portal. The implication on the EU budget over 2014-2020 will comprise only of hosting and maintenance costs of the IT application. In total these costs would amount to EUR 1 500 000 for the period 2014-2020 and would be covered by the financial envelope of the future Justice programme[12].