One Day International Conference Ten Years EU Insolvency Regulation 31 May 2012 Offices of DLA Piper Amsterdam, the Netherlands

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1 One Day International Conference Ten Years EU Insolvency Regulation 31 May 2012 Offices of DLA Piper Amsterdam, the Netherlands On 31 May 2012, the one-day international conference Ten Years EU Insolvency Regulation took place in the offices of DLA Piper located in the heart of the financial and business centre of Amsterdam. This conference was organised by the Netherlands Association for Comparative and International Insolvency Law (NACIIL). The goal of NACIIL is to promote the interest in and knowledge of comparative and international insolvency law and all that is related thereto in the broadest sense. Some 65 delegates and 15 distinguished speakers from different jurisdictions attended this event. The conference achieved its objective, which was, not only to celebrate an important birthday: the 10 years of the entry into force of the EU Insolvency Regulation, but also to bring together the experience and expertise of high level speakers and delegates. I. The Insolvency Regulation and its application by national courts Myriam Mailly PhD candidate at the University of Kent (UK)/ Lille Nord de France (France) Member of LARJ (Laboratoire de Recherche Juridique) at the University Littoral Côte d'opale (France) and Kent law School (UK) As chairman of the Netherlands Association for Comparative and International Insolvency Law (NACIIL), Prof. Bob Wessels welcomed the audience, reminding them on the necessity to debate on the application of the EU Insolvency Regulation by national jurisdictions. The first presentations provided subsequently an overview of the most significant court cases in UK, Germany and France. From a UK practitioner s point of view (Glen Flannery, Nabarro, London), the application of the EU Insolvency Regulation in England highlighted the attractiveness of the UK insolvency legislation which led to some famous COMI migration processes. The pragmatic approach of English courts were also underlined on the interpretation of the concept of COMI (Stanford International Bank (2010) 1 ) even if it was said that a case-by-case analysis should prevail in some cases in order to protect third parties rights. From a German point of view, Prof. Dr. Andreas Piekenbrock (University of Heidelberg) pointed out the fact that German courts applied the EU Insolvency Regulation in a strict sense. Prof. Piekenbrock illustrated his view with a few examples referring to the EIR law applicable system. German courts reminded that pursuant Article 4(2) the law of the opening State of main insolvency proceedings shall apply where there were claims of third parties regarding the rank of loans (Bundesgerichtshof )) or when loans were borrowed from members of 1 Under the provisions of the CBIR 2006.

2 German limited companies (Oberlandgericht Naumburg )) while the law of the opening State of secondary insolvency proceedings shall determine the powers of liquidators in that secondary proceedings regarding the application of national provisions relating to the liability of members of the insolvent debtor (Kammergericht Berlin ) on the application of Articles 3(2), 4(2) and 32(2) and 18 EIR). Regarding the location of the COMI of a company situated abroad and which has seized its economic activities without being wound up, the Bundesgerichtshof ( ) ruled that its COMI should be determined at the time of the seizure of the debtor s economic activities. It should be noted that this case was delivered after the CJEU s Interedil decision of (C-396/09). It has also been ruled by German courts that all actions to set a transaction aside by virtue of insolvency, regardless the location of the registered office of the debtor, should be brought in the member state where the debtor has its COMI (Landgericht Essen). Reinhard Dammann (Clifford Chance, Paris) provided an overview of the application of the EU Insolvency Regulation by French courts which dealt with some important issues. The first of them was the location of the COMI of operational (or trading) subsidiaries (Nortel Network) or of holding companies (Coeur Défense) in another member state than where they had their registered offices. The second main question which arose before French courts was whether it was desirable or not to open secondary proceedings after the opening of main proceedings in another member state and especially when main proceedings to be recognised are preliminary proceedings (subsequent questions arose on the powers of main administrators over secondary proceedings and the (non) determination of the cessation of payments criterion (within the French insolvency law meaning) when secondary proceedings are opened). It was finally said that main insolvency proceedings should not lead to make the cake disappear at the expense of the stakeholders of any subsidiaries, especially when pension funds are involved (Nortel). During the opened discussion with the audience, it was clear that uncertainty remains in determining the COMI of companies within a group and in particular with regard to the location of the central administration of operating subsidiaries. The second set of presentations gave an overview of the most significant court cases in Belgium, the Netherlands and the ECJ. Prof. Melissa Vanmeenen (University of Antwerp) shared the opinion that the scope of the EU Insolvency Regulation should be revised as to make sure that all proceedings added by national legislators after the entry into force of the Regulation (in particular the new Belgium reorganisation procedure which entails neither the divestment of the debtor nor the appointment of a liquidator) meet all the requirements of Article 1(1) EIR. The Belgium cases also highlighted the fact that clarity was necessary with regard to the interpretation of the concept of COMI especially in respect of a non operational subsidiary (DFrance) and of the concept of establishment where it ceased to trade (Court of Appeal Gent, 19 January 2009) (issue also put into the light by Prof. Ian Fletcher during the opened discussion). According to the Belgium reporter, clarity is further needed with regard to the application of Article 3(4)(a) where main insolvency proceedings can be opened within the member state of which the centre of the debtor s main interests is situated even if there were not still opened (Court of Appeal Antwerp 9 October 2008). If the CJEU has clarified the meaning of creditor to deny it to the (Belgium) public prosecutor in the case C-

3 112/10 (relating to Article 3 4(a) following the request for preliminary ruling (Cass. 4 February 2010)), the Belgium cases result in the emphasis that main and secondary should remain separate proceedings without any prejudice to the cooperation duties of liquidators under the EU Insolvency Regulation s provisions (Commercial Court Charleroi, 14 September 2004). With regard to court cases from the Netherlands, Michael Broeders (Freshfields, Amsterdam) referred to the action pauliana claims and the subsequent interaction between the EU Insolvency Regulation and the Brussels I Regulation. The Gold-Zach AG case was the occasion for the Amsterdam court of Appeal (3 November 2009) to remind that Article 3(1) EIR gives exclusive jurisdiction in respect of the action pauliana claims by virtue of insolvency to the member state where the COMI is located, while the Olympic Airlines case (District Court Haarlem, 7 September 2010) reminded that insolvency is not a test to open secondary proceedings and that opposition on the basis of a abuse of rights or on the public policy ground (Article 26 EIR) should only be applicable in very extraordinary circumstances. In conclusion, the courts seem to have applied all the EU Insolvency regulation s provisions in a strict manner. Prof. Ian F. Fletcher (University College London) closed this second session in providing an overview of the last torrent of ECJ cases (F-Tex Sia, Rastelli, Interedil, Zaza Retail ). After underlying the fact that the numerous preliminary rulings have demonstrated that both the application and the interpretation of the EU Insolvency Regulation lead this text to be reconsidered by the EU legislator, Prof. Ian Fletcher was of the opinion that, unfortunately, the Interedil case did not give all the expected answers. As uncertainty remains due to the specific language of the EU Insolvency Regulation, the application of the present text would still lead to supplementary delays and costs contrary to its primary goals. In conclusion, the audience could see that the interpretation of the EU Insolvency Regulation s provisions still provokes passionate debates! After the lunch, the history of the genesis of the EU Insolvency Regulation has then been reminded by Prof. Bob Wessels interviewing Miguel Virgós, the co-author of the well-known Virgós-Schmit report. Miguel Virgós (Uría Menéndez, Madrid) explained why the European legislator finally retained the concept of the debtor s COMI without any definition (sufficient description made by Recital 13 to stick to varying circumstances regarding the debtors insolvencies). With respect to groups, Miguel Virgós reminded that there was no unified set of national rules and theories regarding groups of companies which would have permitted to include corporate groups, as they are (groups of separate legal entities), within the scope of the EU Insolvency Regulation. In fact, Miguel Virgós drew the audience s attention to the fact that the whole structure of the EU Insolvency Regulation specifically focusing on the important role of liquidators (communication and cooperation) explains why the appointment of a liquidator is included into Article 1(1) EIR (the definition of insolvency proceedings under the scope of the EIR). Miguel Virgós finally proposed to think about a European common status of insolvency practitioners in Europe in order to make the primary spirit of the Insolvency Regulation working. The BenQ (Holding) case made the audience aware that the cooperation system between liquidators as it currently stands in the EU Insolvency Regulation should be strongly developed. In addition to the importance of the publication of

4 opening decisions in EU member states, both the Dutch liquidator (Jasper Berkenbosch, DLA Piper, Amsterdam) and the German liquidator (Martin Prager, Pluta, München) involved in that large case did agree to recognise the main role of each liquidator in each (main and secondary) insolvency proceedings. It was also demonstrated how cooperation may be difficult when the liquidators had different (creditors ) interests to deal with in order to ensure them the better position. In conclusion, the fist set of presentations demonstrated that it is high time to put thoughts on the future of the EU Insolvency Regulation. II. The Future of the Insolvency Regulation Emmanuelle Inacio PhD candidate at the University Littoral Côte d Opale (France) Researcher at Laboratoire de Recherche Juridique (LA.R.J.) of the University Littoral Côte d Opale (France) Lecturer at Lille SKEMA Business School (France) The conference was the occasion for Robert Van Galen (Nauta Dutilh, Amsterdam) to make a presentation on the draft amended version of the special INSOL Europe drafting committee on the revision of the EU Insolvency Regulation. Indeed, Robert Van Galen reminded the audience that the European Commission has the obligation under Article 46 of the EU Insolvency Regulation to report on the application of the aforementioned Regulation and to propose amendments if needed no later than 1 st June Besides, the European Commission has decided that the revision of the EU Insolvency Regulation is one of the spearheads for INSOL Europe has been the first to propose a draft on the revision of the EU Insolvency Regulation. One of the main proposals of the special INSOL Europe drafting committee, chaired by Robert Van Galen, is the amendment of Article 1 with regard to the scope of the Regulation. In order to provide for proceedings in which the debtor remains in possession of the assets, the requirement that the debtor is partially or totally divested and that a liquidator is appointed should be deleted. Correlatively, the special INSOL Europe drafting committee is also of the opinion that the requirement that the proceedings must be conducted under the supervision of the court should be added. Furthermore, according to INSOL Europe, Article 1 should clarify that the EU Insolvency Regulation shall not apply to insurance undertakings, credit institutions and, investment undertakings to the extent that they are the subject of separate regimes created by regulations or provided for by directives of the European Community. Another main INSOL Europe proposal is the amendment of Article 2. Indeed, it is suggested that the definition of the centre of main interests should be included within Article 2, because this term is relevant not only with regard to the determination of the Member State where proceedings can be opened, but also in relation to the location of receivables. In addition to the definition of the centre of main interest, a provision on a look back period is suggested by the special INSOL Europe drafting committee. Regarding Article 3 concerning international jurisdiction, it is suggested there should be deleted the requirement that secondary proceedings are winding up

5 proceedings and there should be included territorial proceedings if the centre of main interests is located outside the EU. The speaker then reminded the audience that Article 25 paragraph 1 provides that insolvency related judgments, which are not under the scope of the Brussels I Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, shall be recognised and enforced in the other Member States. However this Article does not provide that the courts of the Member State where the proceedings have been opened have jurisdiction in these cases. The special INSOL Europe drafting committee therefore suggests that an explicit provision should be included to this effect as Article 3. Another INSOL Europe primary proposal is to amend Article 5 by providing that rights in rem are governed by the law of their location including insolvency law. As the EU Insolvency Regulation applies only to single companies, the special INSOL Europe drafting committee led by Robert Van Galen proposes to add a chapter regarding the groups of companies. The principal proposal regarding groups of companies is that if a subsidiary and its ultimate parent company both enter into insolvency proceedings, the liquidator of the parent company should be given powers similar to those that the liquidator in main proceedings has with respect to secondary proceedings. The speaker informed the audience that the centrepiece of the group provisions should be the possibility for the liquidator of the ultimate parent company of proposing a European Rescue Plan covering two or more group companies which have been inspired by the U.S. Chapter 11 regime. The Chapter on the European Rescue Plan constitutes substantive rules on the adoption of such plan which therefore apply regardless the Member State where the proceedings are conducted and these should be rules of community law. Finally, INSOL Europe is of the opinion that it is desirable that the UNCITRAL Model Law be incorporated within the Regulation. In conclusion, Robert Van Galen informed the audience that the draft amended version of the special INSOL Europe drafting committee on the revision of the EU Insolvency Regulation will be sent shortly to the European Commission. The first steps towards harmonisation of insolvency law in Europe were then presented by Prof. Bob Wessels (Leiden Law School). First of all, Prof. Bob Wessels reminded the audience the impossibility of introducing insolvency proceedings with universal scope in the European Union in the EU Insolvency Regulation due to the widely differing substantive laws as laid down in Recital 12 of the aforementioned Regulation. Despite of this assessment, the European Parliament has taken the initiative to ask INSOL Europe to do a first study on the possibility of harmonising insolvency law which was published on May On April 2011, a conference (including workshops) was organised by the European Parliament on this subject which led up the European Parliament to adopt a resolution on 15 November Prof. Bob Wessels pointed out that the resolution addresses 31 recommendations to the European Commission and the Council to take legislative proposals related to (1) harmonisation of national insolvency law; (2) improvement of the EU Insolvency Regulation, especially regarding groups of companies, (3) introduction of corporate rescue as an alternative to liquidation, whereas insolvency law should be a tool for the rescue of companies at Union level ; (4) creation of a generally accessible and comprehensive EU database of insolvency proceedings ; (5) measures regarding cross-border groups of financial institutions, such as credit institutions and insurance undertakings and (6) employment. Indeed,

6 the European Parliament requests the Commission to submit, on the basis of Articles 50, 81(2) and 114 TFEU one or more proposals relating to an EU corporate insolvency framework, following the detailed recommendations set out in the Annex hereto, in order to ensure a level playing field, based on a profound analysis of all viable alternatives;.... The speaker then shortly discussed the legislative basis of the European Commission to taken harmonising measures, reminding the audience that approximation is the European term for harmonisation. Professor Bob Wessels then raised the question whether there are common features in the Member States applying the EU Insolvency Regulation. Prof. Bob Wessels highlighted that, in the last ten years, national insolvency laws in Europe are based on principles of collective proceedings, common pool of assets, equal treatment of creditors and respect for preinsolvency rights. Prof. Bob Wessels also pointed out the flexibility of the legislation because, in the last ten years, many Member States changed their insolvency legislation to include forms of reorganisation. Common features regarding international insolvency law were also noted by Prof. Bob Wessels. Indeed, legislation based on the UNCITRAL Model Law has been adopted in Poland, Romania, Slovenia and Greece while Spanish insolvency law and the draft of the Dutch insolvency law are inspired by the UNCITRAL Model Law. Common characteristics can also be seen regarding others matters than insolvency law as corporate and commercial law as rules regarding accounting and reporting, good governance systems and combating late payments. Harmonisation - as recognised in literature - can also be found in the EU Insolvency Regulation, in particular in Article 40 which establishes the duty for every liquidator who is appointed in main or secondary proceedings to inform creditors. Prof. Bob Wessels reminded the audience that the European Parliament establishes four categories of recommendations to the Commission: (1) harmonisation of certain aspects of insolvency and company law, (2) revision of the EU Insolvency Regulation, (3) insolvency of groups of companies and (4) creation of an EU insolvency register. Regarding the harmonisation of certain aspects of insolvency and company law, this first category is classified again in five issues, one of which is harmonisation of general aspects of the requirements for the qualification and work by liquidators. He then briefly discussed the European Parliament s 6 subrecommendations: - the liquidator must be approved by a competent authority of a Member State or appointed by a court of competent jurisdiction of a Member State, must be of good repute and must have the educational background needed for the performance of his/her duties; the liquidator must be competent and qualified to assess the situation of the debtor s entity and to take over management duties for the company; when main insolvency proceedings are opened, the liquidator should be empowered for a period of six months to decide on the protection of assets with retroactive effect in cases where companies have moved capital; the liquidator must be empowered to use appropriate priority procedures to recover monies owing to companies, in advance of settlement with creditors and as an alternative to transfers of claims; the liquidator must be independent of the creditors and other stakeholders in the insolvency proceedings; in the event of a conflict of interest, the liquidator must resign from his/her office. Finally, Prof. Bob Wessels wondered where we stand in As an answer, Bob Wessels reminded the four-fold structure of future legislative initiatives of the German rapporteur Klaus-Heiner Lehne for the resolution of the European Parliament: (1) harmonisation where possible, (2) revision of the Insolvency

7 Regulation where it will remain - in addition to harmonisation - relevant and where the practice has proven that improvement can be made, (3) improvement of the cooperation of liquidators and cooperation in general on administrative level in cases where enterprises that are part of a group of companies become insolvent and (4) creation of an EU Registry for insolvency cases. In conclusion, Prof. Bob Wessels pointed out that the European Commission had now a structure to adopt regulations or directives according to Article 288 TFEU, which could include measures of soft law. Lucas Kortmann (RESOR, Amsterdam) presented one of the primary issues of the last three years which is the scope of the EU Insolvency Regulation, in particular, the definition of collective proceedings of Article 1 which does not comply with hybrid proceedings, including English schemes of arrangements. Lucas Kortmann began his presentation by defining hybrid proceedings which are in between out-of-court restructurings and formal insolvency proceedings. Indeed, the out-of-court restructurings are contractual transactions based on voluntary negotiations between the debtor and his creditors while formal insolvency proceedings are collective proceedings subject to the divestment of the debtor and the supervision of a court. He added that hybrid proceedings use the mechanism of cram down which means that the individual consent of all affected creditors required in outof-court restructurings is replaced by the majority rule. It should be noted that generally, the mechanism of cram-down is used to prevent the liquidation of the debtor and need the sanction of a court. Lucas Kortmann highlighted that hybrid proceedings are very popular. He decided then to describe one of the most outstanding examples of hybrid proceedings: English schemes of arrangements which are useful cram down mechanisms used in both solvent and insolvent arrangements such as (de)mergers, take-overs but also restructurings an organised in three phases. First of all, the court has to decide as to whether to convene creditors meeting. Then, the creditors vote on the scheme. Finally, the court sanctions the scheme. For voting purposes, creditors must be grouped into classes. In principle, a majority in number representing 75% in value of the creditors voting at the meeting must agree. Regarding jurisdiction of English courts, Lucas Kortmann informed the audience that a scheme of arrangement can be sanctioned regarding any company liable to be wound up under the Insolvency Act, which includes foreign companies. Then, the speaker raised the issue that the Insolvency Act does not specify the conditions under which an English court may have jurisdiction regarding foreign companies. Normally, the conditions would be that the company has its centre of main interests in England, but only sufficient connection with the English jurisdiction is required. Regarding recognition of schemes of arrangement, Lukas Kortmann raised the question whether EU Insolvency Regulation applies to schemes of arrangement. According to Article 1(1) of the EU Insolvency Regulation, the aforementioned Regulation applies to collective insolvency proceedings entailing the partial or total divestment of a debtor and the appointment of a liquidator. Moreover, these proceedings are notified in Annex A of the EU Insolvency Regulation according to Article 2(a). Lucas Kortmann concluded schemes of arrangements do not fit the definition of Article 1 and are not included in Annex A. As the EU Insolvency Regulation does not apply to schemes arrangements, he raised the question whether the Rome I Regulation on the law applicable to contractual obligations is applicable to schemes of arrangement. The argument suggested is that a scheme amends (or waives) the contractual obligations between the parties, i.e. it is not a jurisdictional issue. The problem is that according to English

8 law, schemes are collective proceedings over classes of creditors and not an issue of contract. Furthermore, the intervention of the court to sanction the collective consent is required. Indeed, without the sanctioning court order being recognised, such amended contract could not be enforced. Lucas Kortmann concluded schemes of arrangement do not fit the Rome I Regulation. As the Rome I Regulation on the law applicable to contractual obligations do not apply to schemes arrangements, Lukas Kortmann raised the question whether the Brussels I Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters is applicable to schemes of arrangement. Indeed, schemes of arrangement are relevant to commercial or civil matter and the court order can be considered as a judgment. Furthermore, schemes of arrangement are not excluded by art 1(2) (b) which excludes bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings since there should be no gap between the EU Insolvency Regulation and the Brussels I Regulation. However, the rules on jurisdiction of the Brussels I Regulation apply to contentious or adversary proceedings and schemes of arrangement cannot be considered of such nature. Moreover, the rules on jurisdiction of the Brussels I Regulation presuppose the existence of a defendant but in schemes of arrangement there is no defendant. He concluded that schemes of arrangement do not fit the Brussels I Regulation. If there is no recognition under the EU Insolvency Regulation, the Rome I Regulation or the Brussels I Regulation, Lukas Kortmann concluded that national rules of international private law may lead to recognition. To conclude on the schemes, the EU law does not comply with schemes of arrangements. Lucas Kortmann was on the opinion that hybrid procedures should be included into EU Insolvency Regulation but another issue raises whether a small revision is adequate or a large revision achievable... The conference ended with a forum discussion with Sijmen de Ranitz (RESOR, Amsterdam), Dr. André Berends (Dutch Ministry of Finance), Reinhard Dammann (Clifford Chance, Paris), Martin Prager (Pluta, München), Prof. Miguel Virgos (Uría Menéndez, Madrid), Lukas Kortmann (RESOR, Amsterdam) and Prof. Ian Fletcher (University College London). They discussed on the possibilities for improvement of the EU Regulation in the near future as, for example, the extension of its scope to hybrid proceedings, such as the English schemes of arrangement, further cooperation between liquidators and the creation of an EU insolvency register. In his closing address, Prof. Bob Wessels thanked both the speakers as well as the participants in the lively discussions. He also expressed gratitude to those making this NACIIL-conference possible: Baker & McKenzie, Borsboom & Hamm, DLA Piper, DVDW Advocaten, Stibbe and INSOL Europe. We both invite you to consult the speakers presentations at: