Vol 10 (2013) - Issue 1

Article preview

European Insolvency Regulation: Where Does It Go Next?

This article contains largely the personal views of the author. Although the author was a member of the drafting Committee formed by INSOL Europe with regard to considering a revision of the EC Insolvency Regulation, it is only fair to say that there are obvious grounds for stating that many of the recommendations made in the published proposal, published in booklet form earlier this year, are clearly contentious and justify the taking of many views which are not necessarily those of the drafting Committee itself.
The EC Regulation on its face is to be reviewed every five years. The INSOL Europe recommendations are numerous. Only the principal ones need be mentioned here. With regard to Article 1, it is suggested that the liquidity test be included in order to promote further harmonisation of the substantive insolvency laws in the Member States. This does no more than echo a prior report issued by INSOL Europe with regard to possible harmonisation of major insolvency laws across the European Union.
The definition of COMI in Article 2 is addressed. COMI is expanded so as to mean the place of the registered office except where the operational head office functions of the relevant company or of any legal person are carried out in another Member State. Moreover that other Member State must be ascertainable to prospective creditors as the place where such operational head office functions are carried out. In such a case, it shall mean and refer to the Member State where such head office functions are carried out. The mere fact that economic choices and decisions of a company are, or might be controlled by a parent company in a Member State other than the Member State of the original office, will not cause a centre of main interests to be located in this other Member State.
Of much more importance however is the suggested insertion in the EC Regulation of a chapter on the insolvency of groups of companies. There are suggested definitions of the following expressions, namely, 'group of companies', 'parent company', 'subsidiary', and 'group main proceedings', those definitions being included in a draft amended Article 2. Furthermore, there is an inclusion of the definition of, amongst other things, 'non-EU proceedings', 'non-EU main proceedings' and similar associated definitions in view of a new suggested Chapter VII regarding provisions on insolvency proceedings opened outside the European Union.
Although the insolvency of groups of companies has been for many years a contentious, or at least a much debated, area, the Report also addresses an equally contentious area, namely a look-back period with regard to COMI itself. A new suggested Article 3(1) provides that if a company has moved its COMI less than one year prior to the request for the opening of the insolvency proceedings, only the courts of the Member State where the COMI was located in that one year prior to the request will have jurisdiction to open insolvency proceedings. That will be the case if the debtor has left unpaid liabilities caused at the time when its centre of main interests was located in this Member State unless all creditors agree in writing to the transfer of the COMI out of that Member State.
There are also far reaching suggested reforms to Article 5(1). The Report took the view that the discrepancy of the treatment of security rights depending on whether insolvency proceedings had been actually opened in the Member State where the assets were located had also been the cause of much debate. It was felt that in general terms such a distinction was no longer justified even though it had historical justification. The suggested amended Article 5(1) in effect means that the effects of insolvency proceedings on the rights in rem of creditors or third parties in respect of tangible or intangible assets belonging to a debtor and which are situated within the territory of another Member State at the time of the opening of proceedings shall be governed solely by the law of the Member State within which those assets are situated.