Universal Effects of Corporate Restructuring Proceedings: A View from Europe

During the last few years, several EU Member States have amended their Insolvency Laws in order to provide market participants with an appropriate pre-insolvency restructuring framework. This framework departs from the general rules of contract law since individual consent is replaced by collective consent, which prevents hold-out strategies without the need for opening formal insolvency proceedings.

In Spain, for example, this new framework has been built upon two main elements: an automatic stay on enforcement actions and the court´s approval of restructuring plans (see Article 5 bis and 4^th Additional Provision of the Spanish Insolvency Act). The automatic stay gives the debtor a “breathing space” period: it provides the possibility of a stay of individual enforcement actions and the adjournment of insolvency proceedings for a certain period of time. The court approval mechanism provides a court with the discretion to sanction the restructuring plan in order to make it binding upon dissenting creditors and shield it against claw-back rules. This pre-insolvency framework fits relatively well within the 2014 Commission Recommendation.

The practical application of these two provisions has given rise to many legal issues. In my recent paper, I focus on one of them: their world-wide effects, ie the effectiveness of those provisions in preventing individual enforcement proceedings by dissenting creditors abroad. In practice, this issue is key to the success of the restructuring plan when the debtor has a very significant portion of her assets outside Spain. This analysis may be useful for other EU jurisdictions that have introduced similar proceedings into their national laws, as well as for future EU legal instruments laying down harmonized rules on restructuring proceedings.

The main conclusions of my paper may be summarized as follows:

(i) Within the EU, the European Insolvency recast ensures the cross-border effectiveness of those national restructuring proceedings that are included in Annex A of the Regulation.

(ii) With regard to third countries, the question is more uncertain since it depends on the national law of the relevant country. There is no international convention that ensures the recognition of the EU restructuring proceedings outside the EU.

(iii) Even in those countries that have adopted the UNCITRAL Model law on cross-border insolvency the issue is not clear, since it is debatable whether and to what extent certain EU restructuring proceedings qualify as “foreign (insolvency) proceedings” under that instrument. A clarification by UNCITRAL will be helpful.

(iv) In any event, Member States may resort to unilateral mechanisms to promote a “voluntary” acceptance by dissenting creditors of the restructuring proceedings carried out in their courts.

(v) Article 218 of the Spanish Insolvency Act may serve as a model for those mechanisms. This provision addresses the situation where main insolvency proceedings, with universal effects, have opened in Spain and, nevertheless, an individual dissenting creditor enforces his claims against the assets of the debtor in a third country. In such a case, the creditor may be obliged by the Spanish courts to make restitution of assets he has unduly obtained abroad. This provision is based on the general principle of unjust enrichment (Articles 1895-1896 Spanish Civil Code) and thus also applies to pre-insolvency proceedings.

(vi) To reduce the risk of lack of cooperation by third countries, an equivalent provision should be incorporated in any future EU instrument on restructuring proceedings. 

Francisco Garcimartín is a Professor of Law at University Autónoma of Madrid and a Consultant at Linklaters SLP.