Faculty of law blogs / UNIVERSITY OF OXFORD

Inconsistent realisation of the EU Insolvency Regulation across Europe calls for better coordination

Author(s)

Bob Wessels
Emeritus Professor of international insolvency law at Leiden University
Stephan Madaus
Professor of Civil Law and Insolvency Law, Martin Luther University Halle-Wittenberg

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3 Minutes

On 26 June 2018, the Insolvency Regulation (Recast) (hereafter, EIR 2015) celebrated its first anniversary. It covers (i) the international jurisdiction of a court in a member state to open insolvency proceedings, and the applicable law; (ii) the (automatic) recognition of these proceedings in other member states; (iii) the competencies of the insolvency practitioner to act in other member states; (iv) the duties for insolvency practitioners and courts to cooperate, and to communicate with each other in cross-border insolvency matters; and (v) a specific system for the insolvency proceedings of members of a group of companies. The Regulation is binding in its entirety and directly applicable in the member states. As a result, no member state may divert from the provisions of the EIR 2015.

However, previous experience with the ‘original’ Insolvency Regulation (EIR 2000) proved that national legislators should nonetheless act to ensure a seamless and effective adoption of the Regulation, by ‘incorporating’ its procedures and provisions on the competencies of insolvency practitioners and courts into national law (and ensuring compatibility with other elements of domestic law). Indeed, confronted with the EIR 2000, member states such as Austria, the UK, Germany, France and the Netherlands all observed that certain procedural measures were necessary to put the Insolvency Regulation into effect, and secure its seamless application into domestic legal environments. To characterise this type of legislative activity, the term ‘implementation’ does not fit well (the text of the EIR is, after all, already binding), and ‘realisation’ is to be preferred.

Therefore, drawing lessons from the past, the EIR 2015 explicitly mentions that certain matters should be further addressed by national law (see recitals 21, 34, and 64, and Articles 24, 27 and 29). However, the text of the Regulation itself raises numerous (detailed) questions of both a procedural and substantial nature, paving the way to many different interpretations by Member States. As an illustration, we provide two examples. Firstly, should a request for the opening of insolvency proceedings specifically state to which type of proceeding the request refers, i.e. main or secondary insolvency proceedings (Article 3(1) or Article 3(2) EIR 2015)? Note that Article 4(1), second sentence, EIR 2015 provides: ‘The judgment opening insolvency proceedings shall specify the grounds on which the jurisdiction of the court is based, and, in particular, whether jurisdiction is based on Article 3(1) or (2)’. Secondly, does a foreign insolvency practitioner (IP) need mandatory administrative support (e.g., by a local clerk or court official) when he or she submits a request (e.g. (a) to open secondary proceedings, or (b) to not open secondary proceedings when the foreign IP has given an undertaking, (c) to challenge the opening of secondary proceedings, (d) to open group proceedings or (e) to be heard in already pending secondary proceedings) in the proceedings of another member state?

Therefore, between October 2017 and March 2018, a group of European academics and practitioners – brought together and chaired by the authors of this post – conducted a survey investigating the different ways in which a number of member states (Finland, France, Germany, the Netherlands, and Italy in a draft legislation) are ‘realising’ the EIR 2015. Ten queries were formulated, especially related to the new norms and concepts developed in the EIR 2015 (particularly those related to points (i), (ii), (iv) and (v) above). The results suggest that legislators in member states are somewhat at a loss when drafting legislation to realise the recast Insolvency Regulation. Significant variations can be seen between legislative approaches. Some legislators consider that the provisions of the EIR 2015 are rather complete, leaving little or no room for supplemental national rules. Others, however, prefer to detail the decision-making processes, and the venues of courts competent to hear and decide on remedies provided for in the Regulation.

As a consequence, the study calls on national legislators to go through the provisions of the EIR 2015 again – if not to study the EIR 2015 in-depth – and to better coordinate their efforts in order to (i) prevent unnecessary and confusing differences; (ii) save costs, precious court time and efforts; and (iii) to encourage/strengthen the effective and efficient application of the EIR 2015 by providing detailed rules, which would ease the EIR 2015’s realisation within domestic law. The European Commission is also invited to promote coordination efforts by appropriate initiatives, which could include the creation of a knowledge bank / ‘know-how’ database to support member states, or the drafting of best practices in aligning their efforts.

For an overview of the organisation supporting the conclusions of this survey, the Conference of European Restructuring and Insolvency Law (CERIL), click here.

 

Stephan Madaus is Professor of Civil, Procedural and Insolvency Law at Martin Luther University, Halle-Wittenberg (Germany)

Bob Wessels is Emeritus Professor of International Insolvency Law at the University of Leiden (the Netherlands)

 

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