Vol 2 (2005) - Issue 6

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It’s Time to Cooperate

The EC Insolvency Regulation contains a list of tools for the main liquidator to become involved in one or more secondary proceedings, pending against the same debtor in another jurisdiction. The main liquidator is for instance able to participate in these secondary proceedings, may request to stay the process of liquidation and may request for a rescue plan where the law applicable to secondary proceedings allows for such a plan. Should the main liquidator involve the secondary liquidator in drafting this plan? The main liquidator may expect to receive relevant information, as both the liquidator in the main proceeding and the liquidators in the secondary proceedings are duty bound to communicate information to each other. If the strategy in the main proceedings is clear though and all relevant information is available, should nevertheless the secondary liquidators have to be heard by the main liquidator? The Virgós/Schmit Report (1996), par. 229, refers to the interdependency of main proceedings and the secondary proceedings, emphasizing the necessity of cooperation and communication of information between the liquidators ‘to ensure the smooth course of operations in the various proceedings’. The Report specifically addresses the exchange of information between the liquidators with regard to the assets, the actions planned or under way in order to recover assets, actions to obtain payment or actions for set aside, possibilities for liquidating certain assets, claims lodged, verification of claims and disputes concerning claims, the ranking of creditors, planned reorganization measures, proposed compositions, plans for the allocation of dividends, and the progress of operations in the proceedings. The Report (par. 232) then submits that the duty to exchange information ‘is complemented by the obligation to cooperate with each other. The liquidators have a duty to act in concert with a view to the development of proceedings and their coordination, and to facilitate their respective work’. These fine intentions have found their way into the vague wording of Article 31 Insolvency Regulation, in that the liquidator in the main proceedings and the liquidators in the secondary proceedings shall be duty bound to communicate information to each other and shall be duty bound to cooperate with each other.
In the system laid down by the Regulation, the main insolvency proceedings and any secondary proceedings are interdependent proceedings which concern only one debtor, though the assets, operations and activities of that debtor may be spread over several European countries. The general idea behind the duties to communicate and to cooperate is to ensure the smooth course of operations in the various proceedings and the alignment of distributions. Recital 20 to the Regulation uses strong words (‘Main insolvency proceedings and secondary proceedings can contribute to the effective realization of the total assets only if all the concurrent proceedings pending are coordinated. The main condition here is that the various liquidators must cooperate closely, in particular by exchanging a sufficient amount of information’). What the text of the Regulation misses is appropriate guidance and detail. Will there be additional issues of which to inform each other than the ones mentioned in the Report? Moreover: what will be the language to use, the items of evidence to be provided, and queries with regard to translations and costs. Who will ultimately decide which information has to be provided? Will it be the ‘COMI’ court, the court of the secondary proceeding or the liquidator in the main proceeding, given its leading position? Which law is applicable when a liquidator does not (sufficiently) communicate and cooperate?
Herein lies a key problem that, given the laxity of governments in issues of international insolvency law, should be addressed by the European insolvency community itself. Would it be possible to create a realistic framework, a sort of protocol for communication and cooperation, within which the ‘dominant’ player respects the legal position of the secondary liquidator (including his professional and ethical duties) and which lays down some rules of the game?
There is mutual interwovenness of the main insolvency proceedings and the secondary proceedings not only on the level of the insolvency practitioners. The claims in all proceedings are closely knit too.