This is a relatively detailed report on the essential matters debated at an event organised by INSOL Europe held in the Supreme Court on 6 July 2012. The event was to reflect the issuance and publication by INSOL Europe of its recent report entitled “Revision of the European Insolvency Regulation: Proposals by INSOL Europe”. The event was held at the imposing United Kingdom Supreme Court and was chaired by Chris Laughton. He and the staff at INSOL Europe are to be thanked for the efficient and quick way they organised the event which attracted a sizeable number of attendees invited especially for the event from both the UK and abroad.
The drafting committee set up by INSOL Europe to produce the report, which is 196 pages in length, was chaired by Robert van Galen and a number of representatives from some of the main European countries dealing with the Regulation, namely Marc André from France, Daniel Fritz from Germany, Vincent Gladel from France, David Marks QC from the United Kingdom and Nora Wouters from Belgium. The Committee was assisted in its drafting by a colleague of Robert van Galen, namely Frans van Koppen.
The debate concerned a motion which was to be proposed and resisted to the effect that the INSOL Europe report and recommendation were to be adopted largely in their entirety in connection with proposed amendments to the EC Regulation as distinct from what could otherwise be called light touch amendments, more particularly that ‘This house believes that detailed substantive and technical changes to the European insolvency Regulation, as proposed by INSOL Europe, are now required’.
Making presentations in favour of the motion were Robert van Galen and David Marks QC. The debate was opened by Robert van Galen who pointed to a number of key elements arising out of the Regulation itself. First he pointed to the obligation under article 46 that there was an inbuilt duty to report and propose amendments if needed. This reflected the revision now being spearheaded by the European Commission which had already indicated in formal terms that a number of areas would be looked at. In addition, there was substantial research being conducted by both Vienna and Heidelberg Universities. The European Commission had in turn gathered together a group of individuals eminent in the field, loosely called the experts’ group, to consider to what extent any reforms suggested should be considered and implemented. Robert van Galen then went on to take an example of a multi-national case in support of the proposition that the extensive group suggestions made by the INSOL Europe report needed to be, if not implemented, then seriously considered coupled with what the report itself called a European rescue plan. He postulated the case of a French company holding real estate in France with that company being on the fringe of insolvency. A lender then indicates that it is not prepared to start enforcement action provided that mortgages are taken on all the real estate coupled with agreements to perfect the mortgages subject to the law of a particular Member State with a final COMI shift to Luxembourg. He then considered the effects in particular of articles 3, 5 and 13 of the present Regulation.
He then pointed out that domestic insolvency law provided a balance between the powers of a court supervised liquidator and an individual stakeholder but that articles 5 and 13 in particular provided a bias in favour of certain individual stakeholders with the same applying to some extent to article 3. Further consideration of these three articles was then left to David Marks QC whose main contentions and arguments will be dealt with later.
Insofar as groups are concerned and the new Chapter V proposed by the INSOL Europe report, Robert van Galen pointed out that there were very different kinds of groups which needed to be addressed. There might be a group situation in which there was a common policy which was controlled by a parent company or there might be integrated businesses involving, for example, parallel activities in different countries, which could in effect be referred to as a form if integration with or without some form of monopoly or oligopoly. Moreover, consideration had to be given to such particular sets of circumstances such as integrated assets and shared financial facilities. Therefore when it came to regimes dealing with the insolvency of groups there had to be some due coordination between the courts supervising the insolvency proceedings on what he called a non-hierarchical basis. Moreover, there had to be coordination between the officeholders on a similar basis. It was therefore proposed that the liquidator of a group, and in particular of the group’s main proceedings, retain and enjoy powers of coordination with the possibility of there being a mutual liquidator or set of liquidators across the group. Therefore there would have to be an opening of what can be regarded as group main proceedings across the group as a whole with, if necessary, the importation of what US law calls ‘substantive consolidation’.
The end result and desired effect of the proposed reforms was that the redistributive effect in the context of the designation of the group COMI should be as limited as possible but that the group COMI should be determined on the basis of a simple objective criterion.He therefore pointed out that ideally group main proceedings should be the proceedings of the ultimate parent. Moreover, the coordinating powers of a liquidator of the ultimate parent should be similar to the coordinating powers of liquidators in main proceedings as against secondary proceedings with, for example, the power to ask for a suspension of actions levelled against the liquidation and the enjoyment of certain rights to intervene.
He then turned to the European Rescue Plan as proposed by the report. This could be proposed by the ultimate parent with regard to two or more companies. There would be an overall structure similar to that of the US Chapter 11 style plan but community law would be engaged. There would have to be information which related to the entire group in the form of an information memorandum with class schedules and plans etc.
The motion was then challenged by Gabriel Moss QC. He was seconded by Felicity Toube QC and her observations will be set out below. Gabriel Moss pointed out that the event in question was merely a debate and therefore it followed that the view or views expressed by any of the speakers, opponents or dissenters, were not necessarily their own individual or even collective views on the questions which were being addressed. Gabriel Moss pointed out that there was an old adage in English law and indeed in other areas, namely “if it ain’t broke, don’t fix it”. He stated that there was really no point in legislating for legislation’s own sake. Any new legislation had to be shown to be necessary or at least beneficial. Moreover, it needed to be clear, concise and not cause commercial uncertainty or injustice. This meant that overall it could not be denied that the insolvency regulation in its present case had been working well. Some aspects had been clarified by the courts and where there was ambiguity it might make sense to legislate but only to some degree to make the intention clear. But even in the cases of omissions or errors they could be put right without extensive changes similar to those recommended by INSOL Europe. Overall he pointed out that the Regulation as a whole represented a form of compromise in any event. He claimed that it was a fair criticism of the INSOL Europe report that if anything it was biased somewhat in favour of debtors and creditors rather than in favour of counterparties. He maintained that the fundamental balance which was presently reflected in the Regulation needed to be maintained and respected.
He then turned to the suggestion made by INSOL Europe that there be a one year period in which to readdress the question of COMI as proposed in an amended article 3(1). He said that not only did the proposal put forward a completely arbitrary period, but it also failed to deal with the real issue namely whether a particular case involved “good” forum shopping or “bad” forum shopping. Indeed recital 4 said that it was necessary for the proper functioning of the internal market to avoid incentives for the parties to transfer assets in judicial proceedings from one Member State to another seeking to obtain a more favourable legal position, ie forum shopping. He referred to comments made by the Advocates-General in the recent cases of Staubitz-Schrieber and Seagon in the European Court of Justice in which reference had been made to that recital but only in the sense he claimed of referring to what could be called fraudulent shifts of COMI designed to disadvantage creditors. He therefore argued that the INSOL Europe proposal ignored the recent successful shifts of COMI in corporate cases designed to benefit creditors by enabling a more beneficial reorganisation. He then pointed to various examples in recent years of so called good and so called bad forum shopping, the former being a reference to such cases as the Hans Brochier case and the latter including the recent events in Ireland involving the Quinn insolvency. It was therefore wrong to impose an arbitrary time limit. Moreover, any exception for a shift of COMI where all the creditors agreed was he said completely unrealistic. It was quite exceptional he said that every single creditor could be persuaded to agree anything. If there was a change to be made then what was required was a change which actually dealt with the particular problem for example of allowing a court to reject a COMI shift where it was designed to disadvantage the general body of creditors as a whole.
He pointed to the particular problem of a court being unable to determine whether and if so how a COMI shift was good or bad. However, sorting out the good from the bad was he said an everyday role of the courts in all European countries and he therefore suggested that this would not cause any fundamental difficulty. The purpose of any move involving COMI he said should be looked at objectively on the basis of the facts in any particular case. In particular he pointed to the fact that in relation to shifts of COMI when it benefited some creditors but not others the notion of the good of the general body of creditors often had to be considered by insolvency courts. Thus article 4(2)(m) referred to “the rules relating to the voidance, voidability or unenforceability of legal acts detrimental to all the creditors.” He claimed that the phase “all the creditors” was a mistranslation and could not be read literally. He therefore adopted a suggestion made in the text book on the Regulation of which he was co-editor (to which David Marks and Felicity Toube were also contributors) that in this context it had to refer to “creditors as a whole” or “general body of creditors”. That meaning he said was supported by the French and German language versions. With regard to article 13 and the proposed change that article 4(2)(m) should not apply if the law of the Member State where the centre of main interests of the debtor was situated at the time of the legal act did not allow any means of challenging that legal act in the relevant case, he said that the proposed change illustrated the tendency within the INSOL Europe report to lean in favour of the interests of creditors and again to upset the balance on which the Regulation itself was based, ie reflecting those of the creditors’ interests on the one hand and those of counterparties on the other. Under the present text of article 13 he claimed a counterparty could agree to specify the law of a Member State and could take advice under that law as to whether the act was valid. That provided due certainty in a commercial context. He said that the proposed text would remove this certainty and thereby diminish the protection of the counterparty. Secondly, he said that under the proposal at the time of the voidability challenge the court of another Member State which had found the COMI to be located in that Member State would be required to make a judgment first as to where the COMI was at the precise time of the transaction and secondly, make a decision on the issue of voidability under the law of another Member State. That would add unduly he said to the complexity and costs of litigation with regard to this article, ie article 4(2)(m).
He also took issue with the proposed changes to article 27. Here INSOL Europe had proposed that there should be a limit to the ability to open secondary proceedings to situations where it is “justified by the interests of one or more creditors or inadequate administration of the estate”. Again he said article 27 particularly taken along with article 3(2) represented a compromise between the ideal of universalism and the principle of territoriality. The purpose of allowing secondary proceedings by way of exception to the general universal rule was to protect local creditors. His proposed amendment would be that the interests of creditors meant in effect the interests of the general body of creditors as already explained. It did not mean the interests of “one or more creditors”, as he said was suggested by INSOL Europe. It therefore followed that secondary proceedings should be allowed only in addition to the existing criteria if the local court was given sufficient proof that the opening would be in the interests of the general body.
He then turned to the question of groups which had been at the forefront of Robert van Galen’s proposal in favour of the motion. He admitted that there had been, from an early stage in the Regulation’s life, a problem in relation to groups. However, he said that this was not just a problem with insolvency proceedings: there was simply no European general rule of groups upon which the Insolvency Regulation could build. He referred to the Virgos-Schmit Report particularly at paragraph 76 in support of his contention that insolvency law had to follow the general corporate law structure. Therefore, however desirable it might be to have some insolvency provision in respect of groups, it was simply unrealistic to start with insolvency law when that general law said little, if anything, about this area. He added in particular that it made no sense, given the real world complexities of groups, to have the liquidator of the parent company be given power similar to those that the liquidator in main proceedings had vis-à-vis secondary proceedings. If there was an insolvency of a subsidiary, particularly if that was a substantial trading company, the parent company and the liquidator could really have no stake or interest in the insolvency of the subsidiary. It would make more sense for the liquidator of the subsidiary to have powers similar to the liquidator in main proceedings in relation to a pure holding company parent. By referring to the parent company as the ultimate parent he claimed that INSOL Europe misrepresented the truth of the position. There may in fact be a partnership of group of individuals and in any event an entity might well not be insolvent or even considering entering into a simple insolvency process. In the real world, therefore, it was quite impossible to apply the type of proposals suggested by INSOL Europe since it simply did not need the complexities of all the potential structures that groups nowadays have.
The same type of problem undermined the INSOL Europe suggestion that the liquidator of the ultimate parent have a right to file a European Rescue Plan. This again he said ran contrary to the general law and in particular the corporate law. It also cut across the fact that insolvency proceedings are based on an entity principle and not on a group basis. In any event he claimed not to be a heavy supporter of US Chapter 11 type approaches which required massive expense and judicial application and rarely in practice resulted in a satisfactory rescue. A shift to the Chapter 11 model or something like it he said would be a fundamental altering of the balance of powers from creditors to the debtor and again would undermine the fundamental balance represented by the EC Regulation which presently obtained. David Marks QC then responded in order to second the motion. He pointed to a number of different considerations. He freely admitted that the motion as framed was based on the INSOL Europe proposals which on any view were numerous and extensive. He urged the audience however to think in terms of a general need to seek amendments, perhaps not as extensively as those set out along the lines suggested by the recent report, but in any event on much more than a light touch basis. He reminded the audience that the Regulation had to be interpreted in the manner which avoided the easy evasion of jurisdiction. He referred to Gabriel Moss’s own publication on the EC Regulation published by the Oxford University Press (referred to above) to the effect that the court should react in the case of undesirable forum shopping which took advantage of the prospects of easy evasion and to the fact that the courts should ignore any steps taken purely to avoid the appropriate jurisdiction. This did no more than reflect basic European Union principles namely those which reflected the equal treatment or non-discrimination between debtors and the principle of legal certainty for creditors. The second feature in particular showed the importance of the facts being addressed on a fixed basis or a frozen basis with regard to a certain point or reference date and which therefore took into account the prospective of ascertainability by potential creditors.
He drew an analogy with the concept of an establishment. An establishment had to be determined according to fixed principles and in particular had to be shown to be present and in place on the day of the opening decision. As a result, if only a few assets existed it could not be said that any establishment could be identified. Again Gabriel Moss’ book had argued that the importation of an English type principle which allowed there to be bankruptcy jurisdiction when a business had ceased but payments were still outstanding had to give way to the principle of freedom of establishment and in any event to apply such a rule would super impose a national rule against the system and philosophy of the Insolvency Regulation itself. David Marks pointed to various circulaires in France published throughout 2003 until 2005 which had rejected a French domestic law insolvency principle that if a registered office was transferred within six months prior to the opening, the jurisdiction to be applied by the court is that related to the previous registered office. French law had recognised that this clear fiction could not be maintained in cross border cases to which the EU Insolvency Regulation applied. Again in the Netherlands under its own domestic law, the court of the debtor’s last residence normally has jurisdiction if the debtor has left the jurisdiction within Europe. It appeared as if that rule had to give way to the Regulation’s own rules regarding international jurisdiction.
David Marks referred to the decision in England in the Court of Appeal in Shierson v Vlieland-Boddy in 2005. He reminded the audience that the objective question for the court which it had to answer was whether or not the debtor’s COMI had in fact moved. If there were reasonable grounds to suspect that the debtor had deliberately sought to relocate his COMI by moving his economic and personal affairs to another country in order to escape the jurisdiction of the English court, the court would not and should not accept that the debtor’s COMI had been relocated, unless the change of circumstances was a genuine matter and not a sham.
David Marks also reminded the audience that although in general the facts will be current at the time the court has to make a decision and in some ways what the courts were doing was to take a snap shot of the position at a given moment, nonetheless the question had to be asked as to whether it was possible to take into account historical facts. This question had been debated at large both in the courts and in the relevant literature. In such a case the suggestion would therefore be that there was nothing wrong with imposing a look back period albeit perhaps not necessarily tied to the time period proposed by INSOL Europe in which these principles could be adopted and reapplied. Indeed the snapshot theory if there was one seemed very much at odds with the criteria ascertainable by a third party as reflected in Recital 13 of the Regulation itself.
David Marks then turned to particular considerations concerning the workings of article 5 and the suggested amendments proposed by INSOL Europe. Again he pointed to a number of considerations which he asked the audience to take into account in casting their vote on the motion. Article 5 is only applicable to rights which are in existence at the time of the opening of insolvency proceedings. In the event that those rights had been created after the opening of proceedings article 4 will be fully applicable in accordance with the Virgos-Schmit Report at paragraph 96. David Marks suggested that it was questionable whether the division was as clear as the latter Report seemed to suggest. Very often it cannot be ignored that the national law of the Member State contains a right which between certain parties, eg a borrower and a bank will have certain “in rem” elements but only at the moment the holder of the right effectively pursues his right. In that kind of case the interpretation followed in a specific jurisdiction should prevail albeit that such interpretation would have to be viewed against the existing, i.e. unamended terms of article 5 as presently drafted. David Marks pointed out there has been quite a lot of periodical literature on this point.
David Marks also pointed to the fact that again both in the periodical literature and in cases across the Union, there had been traditionally at least two approaches to the treatment of rights in rem, particularly where those rights are or could be said to be situated in another country other than the country in which insolvency proceedings had been opened. These reflected the two basic tenets of this whole subject already pointed out by Gabriel Moss namely universality and territoriality. To apply the former would mean that the lex concursus of the country in which the insolvency proceedings are opened would be on a worldwide level. Any limitations to a so called foreign right in rem would therefore have to be determined in whole or in part by the lex concursus. It could be said that one benefit of this approach is that in general terms all existing rights in rem with regard to assets wherever they may be located would be treated accordingly to the lex concursus. This in turn would mean that the administration of those rights would be dealt with according to one single and consistent policy which overall might be said to favour equal treatment of creditors across the board. Another possible benefit would be that any form of reorganisation or restructuring would stand better chances of success since foreign rights in rem would lose any element of foreign-ness stemming from the fact that they emanated as legal creatures created by another system. Admittedly one problem would be that it would not always be possible to recharacterise a foreign right in rem into some form of recognisable category or domestic right in rem. Clearly across the Union there could be said to be similar categories and characteristics with regard to well-known secured rights such as mortgages and pledges but one outstanding example where there could be said to be fundamental and perhaps irreconcilable differences between Member States would be, of course, the English example of the floating charge not to mention the English concept of a trust.
On the other hand, where the concept of territoriality is to be employed, this would mean that all legal effects of the right in rem would be determined by the law according to which the right was created, including any effects of the rights in insolvency proceedings. The relevant governing law would be in this case what is known as the lex rei sitae being the law of the country where the asset was situated. In general terms this would mean that the holder of the right in rem would enjoy some degree of certainty with regard to the protection of and enforcement of his or its secured right. Against this there would be the difficulty of administering insolvency proceedings which would force an insolvency officeholder to have regard to all aspects of a right in rem which might otherwise be foreign to the lex concursus.
David Marks then said that the question which arose was which of these alternatives could be most convincingly deployed within an amended article 5 and indeed within the Regulation itself. Admittedly at paragraph 97 the Virgos-Schmit Report had reflected the reality that rights in rem could only properly fulfil their function insofar as they were not reflected by the opening of insolvency proceedings in another Member State. However, the same Report pointed out that to facilitate the administration of the estate, the simplicity of the formula laid down in the current article 5 was by a majority at least preferred. David Marks pointed out that the question was whether in the light of more commercial considerations and having regard to where and how the Regulation had worked in practice and whether or not reflected in the cases it was time for a change. Virgos himself had suggested, on at least one occasion, that the reason for the choice of law rule laid down in article 5 was that it was based on an idea of law coupled with economics. David Marks reminded the audience that clearly an economic or commercial view had to be taken about the way in which article 5 should be deployed in future and it was a question of policy in effect just as much as legal reality as to which way article 5 should now go with or without the extended amendments suggested by the INSOL Europe report.
David Marks also mentioned a number of subsidiary items for consideration. Article 5 refers to rights in rem but it does not define what those rights are. Admittedly article 5(2) sets out a list of such rights but steps back from providing the same definition of a right in rem. The question was whether that needed to be revisited. He also pointed to the fact that where assets are subject to rights in rem under the lex situs in one Member State but the main proceedings are being carried on in another Member State, then the liquidator in the main proceedings should be able to request the opening of secondary proceedings in the jurisdiction where the rights in rem arise if the debtor has an establishment there. This is no more than a reflection of the recital in recital 25. Virgos-Schmit in their report at paragraph 98 had shown that the term “not affected” did not immunise rights in rem against the debtor. A liquidator in the main proceeding therefore could only affect rights in rem which are in existence elsewhere by initiating secondary proceedings in that other country. That necessitates a showing of an establishment in the latter jurisdiction. That too leads to the possibility of abuse. Quite apart from this last factor, if there is no establishment in the other Member State or Member States, the applicability in Europe of the lex concursus would be stopped in effect by article 5 in any case where the secondary proceedings cannot be opened. The assets could be beyond the reach of the liquidator and the secured creditor could exercise his rights as if there were no insolvency at all. Again was that a situation to be tolerated or accepted?
David Marks also pointed to the fact that it could be said that the lex rei sitae approach could be the correct approach which most fully satisfies any expectations held by the holder of any such rights. The question was whether the present drafting of article 5 is clear even when coupled with the Virgos-Schmit Report in addressing a situation where the liquidator has power to remove the debtor’s assets from the territory of the Member State in which they are situated “subject to articles 5 and 7”.
Finally, David Marks drew attention to possible issues arising from a right to redeem. In paragraph 99 of the Virgos-Schmit Report it says that article 5 at the moment gives the liquidator the power to decide on the immediate payment of a guarantee claim. Payment of the claim would therefore in effect extinguish any right in rem. Many commentators, however, have doubted whether this conclusion is acceptable let alone correct since the powers of the main liquidator to pay the claim in full to which the right in rem relates could be said to be determined and determined only by the lex concursus. In many domestic systems, e.g. in the Netherlands, the main liquidator does possess such power but it is not clear that the domestic law of other Member States provide the same. The related question is whether when a right to redeem exists and such a right is employed or exercised by the main liquidator whether the right in rem is in any way affected when the claim on which the right in rem is located is based is fully paid up. Again there is a division of views in the literature. One view is that a liquidator’s right to redeem does not affect the rights of the holder in rem: the question is whether or not article 5 should be amended to reflect difficulties stemming from these issues.
David Marks then ended his short presentation by dealing with article 13. He reminded the audience that according to the overall system within the Regulation article 4(2)(m) reflected the general rule that the lex concursus of the state of the opening of the main proceedings should determine the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to all creditors. Article 13 in other words was set up to uphold the legitimate expectations of creditors and third parties of the validity of the act in accordance with the normally applicable national law against the interference of a different lex concursus: see generally the Virgos-Schmit Report at paragraph 138. There has been much criticism about the rationale underlying article 13 and whether it properly reflects the protection or legitimate expectations of creditors and third parties. Quite apart from the reforms suggested by INSOL Europe David Marks drew attention to a number of isolated considerations which he asked the audience to ponder. First, it could be said that article 13 did not intend that the term “all” creditors should exclude transactions such as preferences. Second, he wondered whether the requirements of benefit and detriment were properly addressed and taken account of in the present format. The lex concursus will not apply if the person challenging the act in question provides the proof required by article 13. This demands the proving of these well-known notions of benefit and detriment to all creditors. They have to be governed by the lex concursus and have to be stated and proved by the party in breaking the exception. Again this is noted by Virgos in his related treatise on the Regulation at paragraph 240. A separate question concerns how the lex causae, i.e. the law of the Member State other than the lex concursus should be determined. There are clearly legal problems concerning the detrimental acts, a matter again discussed by Virgos in his book on the Regulation at paragraph 231. One suggestion is that the lex causae of the act, i.e. the contract should be relevant to the application of article 13 for acts concerning the transfer of property of assets and therefore the lex rei sitae should be assessed first in the event of a transfer or encumbrance of assets and secondly, with regard to the voidness of the underlying contract. Against this David Marks wondered whether in a case where the alleged detrimental act is a payment, whether the present drafting properly reflects the arguable desired result that the lex causae of the payment should be the law which governs the obligation to pay and not the lex contractus which governs the method of payment.
Finally, he pointed out that article 13 is sufficiently broadly based as presently drafted to allow a choice as specific applicable law which in turn might restrict the number of possibilities pursuant to which the voidness of the detrimental act could be invoked. The question is whether the disadvantage of international forum shopping is less important than providing the possibility of protection for a third party against a sudden confrontation with foreign law. Again this is a matter which has been dealt with in periodical literature.
The fourth and final session was presented by Felicity Toube QC supporting the views of Gabriel Moss but dealing with a number of specified articles. These were articles 1, 5, 10, 20, 33 and Chapter 7. With regard to article 1 she took issue with the proposal that a liquidity test be included in article 1. She asked where the line would be drawn and what other changes of substantive law would necessarily follow. Even a liquidity test she said raised issues, e.g. what about illiquid assets? She also raised the question of where that left such other bases for corporate liquidations such as just and equitable grounds and balance sheet insolvency. With regard to article 5 she questioned whether it would happen when a company might move. So a Member State B might work out what the insolvency law of Member State A would be and also what the effect on security rights would be which she said was a complex exercise not necessarily desirable in the wake of the suggested changes. She admitted there was an element of balance between the rights of debtors, creditors and counterparties but she maintained that the balance presently struck was about right. With regard to article 10 and the proposed additional paragraph that the effects of the transfer should be governed by the law of the Member State where the undertaking or business was located prior to the transfer was prompted simply by looking at matters from the point of view of the insolvent estate, this also she said involved the expanded view of things taken by INSOL Europe with regard to groups. She questioned why an employee should have to give up his rights. She claimed that there was no need to change employee contracts unilaterally to being governed by the law of the COMI. An employee would not know this and it would in effect constitute a unilateral change to his or her contract. With regard to article 20 she claimed that the proposals put forward by INSOL Europe made no sense. More assets should not be “punished by” more expenses. Expenses should be borne by the place that actually incurred them and there was no warrant for imposing the proposal by INSOL Europe that if administrative expenses had been incurred during the course of proceedings and caused by the liquidator or a court then those costs had to be borne in proportion to the proceeds realised in each of the insolvency proceedings. She claimed simply that expenses should be borne by the place that actually incurred them. She referred to the question of pensions particularly as analysed in recent case law in the United Kingdom as the best example.
With regard to article 33 she reminded the audience that the EC Regulation provided that the court should stay the process of liquidation and secondary proceedings on receipt of request from the liquidator in the main proceedings. She noted that INSOL Europe suggested that the process of liquidation was ambiguous and could be just the process of liquidating the assets. She admittedly noted that this view had been taken by at least one court within the Union, namely Austria. She criticised the excessive wording to be added on to article 33 in the proposed amendment by INSOL Europe. If there was a need to clarify the manner and extent of any stay of the process of liquidation it would be enough simply to say that there should be a stay of the secondary proceedings in whole or in part. That would leave sufficient flexibility with the officeholders in the main proceedings. She did, however, agree that secondary proceedings as proposed by INSOL Europe should be reorganisation as well as winding up proceedings. With regard to Chapter 7 echoing a point made by Gabriel Moss in passing she admitted that it might be a good idea to have the UNCITRAL model law incorporated by all the EU Member States but that this change was probably better adopted by means of an EC Directive rather than by direct implementation through an amended Regulation.
There was then a short summing up by both Robert van Galen and by Gabriel Moss which did no more than reflect the principle points that the four speakers had already touched on. The chairman, Chris Laughton, then turned to a number of questions which had been filed beforehand, some by people who unfortunately could not attend the debate.
This article which is perhaps already sufficiently lengthy will simply summarise the main ones which were dealt with by the chairman and by certain members of the panel without providing inordinate detail given the length of the explanation of the presentations made above.
The first question concerned whether there was a need to have any reference to secondary proceedings at all. This was coupled with the question that with regard to cooperation and coordination in particular with regard to groups whether the panel felt that there were practical complications surrounding that issue and whether further rules meant an improvement. He responded in pointing out that there had been extensive work done, e.g. by the International Institute of Insolvency with regard to cooperation referring in particular to a substantial report prepared under the auspices of III and the American Law Institute co-authored by Professors Wessels and Fletcher in which cooperation, coordination had been carefully considered against the background of the EC Regulation.
The chairman then drew attention to a number of points which were made by one speaker who could not attend with regard to the draft provisions. Again for the sake of brevity what will be summarised are simply the points made by the questioner. First, the questioner pointed out that he was doubtful that the look back period referred to above and dealt with particularly by Gabriel Moss QC was workable since it could seriously damage what Gabriel Moss had described as “good” forum shopping. With regard to article 5 the questioner queried the proposal made by INSOL Europe that one should look at how secured assets insulated in another Member State from the impact of main proceedings should be affected or would be affected if there were insolvency proceedings under the lex situs. The questioner queried how one would know what insolvency proceedings to take into account with regard to that situation. It might sometimes be difficult to work out what the analogous proceedings of the main proceedings were. He therefore felt that article 3 as currently drafted was somewhat clearer in that regard. With regard to article 13 and claw back challenges the suggested INSOL Europe proposal that only article 13 defence should apply by reference to the law of the COMI would it was suggested make it impossible to give clear advice to restructuring transactions. This was on the basis that COMI could be said to be a fact specific criterion and therefore inevitably to a certain extent inherently uncertain. In any event it was claimed that freedom of contract could be regarded as a good thing in general.
Finally, with regard to group insolvency proceedings the questioner noted that the proposed plan seemed to be in addition to any reorganisation proceeding or plan that might be available under local law. As a practical matter many English practitioners at least claimed that the lack of a group proceeding was not really a problem in practice and the market had found ways around this point to such restructurings and insolvencies as the Nortel and MG Rover cases. In any event the set-up of each group of companies might be different with some being interconnected while others would have virtually stand-alone subsidiaries. Uncertainly might well be reflected in increased costs of borrowing.
The Chairman then called for a show of hands with regard to the proposed motion. Although there were quite a few of those present who supported the motion perhaps with no undue surprise felt by all those who were there, the motion was defeated by a solid majority.
The above is no more than a relatively long snapshot of what occurred at a very stimulating and profitable exchange. Hopefully it will be the first of many similar debates in the light of the stated intention of the Commission to have another look at the workings of this vital component of insolvency legislation.
David Marks QC
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