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    Inside Stories


    INSOL Europe's Inside Stories are all written by our members, experts in their fields and their regions within Europe. Every month these stories are published in our e-newsletter which are emailed to our membership. The articles are topical and provide real insight into cases and points of law. If you would like to send in an Inside Story, please email Paul Newson. We hope you enjoy the collection below.
     
    2018

    June 2018 - The Development of Insolvency Law in Kosovo
    Following the end of the Kosovo war in 1999, the country’s governing structures including its banking system had collapsed. The rush to establish legal frameworks and governing mechanisms caused gaps in various areas. One of those areas was insolvency proceedings. Four years after the war ended, in 2003, the provisional Self-Government of Kosovo adopted the UNMIK Regulation No. 2003/7 on Liquidation and Reorganization of Legal Persons in Bankruptcy. In 2016, this Regulation was replaced by the Law on Bankruptcy, which was adopted by the Kosovo Parliament. This law has been harmonized with EU Regulation 2015/848 on insolvency proceedings (recast). The new Law on Bankruptcy includes many features left out by the previous regulation. The adoption of this law was positively evaluated, as a result of which Kosovo improved its position in the World Bank Doing Business Report, jumping from 163rd to 43rd place. In addition, in March this year, the Parliament of Kosovo adopted the new Law on Business Organizations, which regulates bankruptcy and insolvency proceedings for limited liability companies, joint stock companies, the enforcement of creditor claims on a limited liability company subject to voluntary dissolution as well as protection of creditors upon a cross-border merger. Yet, the enforcement of the new laws remains questionable, leaving interested parties confronting unwritten practices in the context of different insolvency procedures. Drini Grazhdani, Legal Specialist, USAID/Millennium DPI Partners, Justice System Strengthening Program in Kosovo; Lecturer, European College Juridica writes this month's Inside Story. Download the full story here.

    May 2018 - When Bitcoin meets Insolvency: Is Bitcoin Property? Dutch and Russian Responses
    The capital structures of companies in the 21st century will be starkly different from those of the last century. Once driven by hard assets, such as real estate, natural resources and machinery, modern businesses have become highly dependent and valued mostly on the basis of intangible assets – contracts, intellectual property and goodwill. Recent years have seen a rapid development of new technologies allowing for the creation of novel types of intangible assets with their own value and characteristics. There is hardly anyone these days who has not heard about Bitcoin or cryptocurrencies in general. As the world’s first decentralised digital currency, Bitcoin has become possible thanks to the blockchain technology – based on publicly distributed, shared and immutable digital ledgers. Anonymity and irreversibility of transactions on blockchain have made it attractive for users.

    A lot does, however, depend on public perception (i.e. trust) and government reaction. The latter so far has been rather mixed. Among rising fears of the technology being used for illicit activities (money laundering, extortion, financing of terrorism, etc.) and weak investor protection, state authorities struggle to find a balanced solution. But while regulatory and legislative bodies take their time to establish legal frameworks for the operation of the crypto market, courts have no such time and are faced with the need to expeditiously resolve real disputes. This is particularly so in the context of insolvency cases, in which several questions may arise. For instance, how to treat various types of digital assets belonging to the debtor, how to trace them in cases where the debtor refuses to disclose their existence, transfers them to third parties or simply refuses to provide access to the insolvency practitioner or court? And lastly, how to dispose of them and at what exchange rate, if any?

    This Inside Story by Ilya Kokorin (of Counsel, Buzko and Partners, Russia; Lecturer, Leiden University) follows two recent cases, one from Russia and the other from the Netherlands, where the courts considered whether Bitcoin constituted ‘property’ and could provide a valid legal ground to initiate insolvency proceedings. Download the full story here.

    April 2018 - Implementing the Recast EIR: Potential Problems in the Hungarian Legislation
    Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings has been replaced by Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) on 26 June 2017 (“Recast EIR”). The Recast EIR has not revolutionised European insolvency law. Instead, it codified the case law produced by European courts in the last more than one decade and addressed some further issues that emerged since the entry into force of the 2000 EIR. Notwithstanding, the Recast EIR undoubtedly made it necessary to adjust the domestic insolvency regimes on some points. The Hungarian Parliament adopted some amendments (“Amendments”) to the Hungarian Insolvency Act (“HIA”) in October 2017. The purpose of the new legislation is to harmonise the domestic insolvency framework with the new provisions of the Recast EIR. While, admittedly, the legislative proposal went through significant improvements before adoption, there are still several legislative solutions that should be criticised. In this piece, some of those issues are pointed out by Zoltán Fabók, Counsel, DLA Piper Budapest; Fellow, INSOL Global Insolvency Practice Course. Download the full story here.

    March 2018 - Italian Insolvency Reforms: Comments on the Feb. 2018 draft Legislative Decree
    During the past three decades, the gradual and fast tendency of the markets to “globalization” have determined the recent tendency of States to adopt legal provisions dedicated to the prevention of financial crises and to avoid insolvencies of market operators. In fact, the adoption of such measures is today one of the essential elements in the determination of international ratings for the evaluation of the integrity of internal market. “Predictability” and “risk management” have gradually become common words, essential for the prevention of crisis, opening also the possibility for entrepreneurs to have a second chance and remerge in the markets after a “dark night” period. In this particular context, therefore, an efficient system for the resolution of issues related to insolvency becomes an essential task for a State in order to guarantee the right balance to the internal market of a country, also with the scope of attracting foreign interested investors and implement the economy. To this extent, various States, including Italy, have recently started to move towards reform projects of insolvency law, in order to facilitate and speed up, efficiently, the approach to insolvency issues. Carlo Ghia, Partner, Studio Ghia Legale, comments on the reforms. Download the full story here.

    February 2018 - A Second-Chance for Consumers in Cyprus: Reorganisations go Virtual
    In the last few decades the promotion of a corporate rescue culture has been a key objective for many EU jurisdictions, but particularly since the 2008 financial crisis, corporate rescue has been at the top of the agenda. Although the significance of corporate rescue is not to be underestimated, it can be argued that consumer bankruptcy carries no less significance. The adverse impact of consumer bankruptcy has been intensely experienced at very large scales in countries like Greece and Cyprus. However, as opposed to the sporadic attempts that were made in the shadow of the financial crisis in Greece, Cyprus appears to have approached both corporate and consumer reorganisation in a more methodical manner and has noticeably placed greater emphasis on laying the foundations of a strong second-chance culture. This Inside Story by Alexandra Kastrinou, Senior Lecturer, Nottingham Law School (UK) looks at the steps taken in Cyprus to improve the position of consumer debtors and offers a brief overview of the recently introduced legislative framework, which is now bedding into use following the introduction of an Interactive Reorganisation Tool and accompanying Guide in January 2018. Download the full story here.

    January 2018 - Cross-Border Assistance in Guernsey: Recent 2017 Cases
    In a cross-border insolvency, there are likely to be international elements that present themselves during the course of local proceedings in circumstances where an foreign office-holder wishes to seek recognition and exercise their powers in another jurisdiction. There are several English common-law jurisdictions that are party to the Cross-Border Insolvency Regulations 2006 (UK SI 2006/1030). These regulations give effect to the UNCITRAL Model Law on Cross-Border Insolvency 1997 (“Model Law”) and prescribe how the powers of foreign office-holders are recognised. There is also the Recast European Insolvency Regulation (2015/848) that governs cross border insolvency. However, the Channel Islands, and Guernsey in particular, are not parties to either of these instruments. Alex Horsbrugh-Porter and Michael Rogers explain the relevant provisions in Guernsey law. Download the full story here.
    2017

    December 2017 - Navigating Extensive and Complex Restructuring Processes in France
    CGG SA is the holding company of the CGG Group, one of the leaders in the geophysical and geological services industry in the world. The CGG Group provides a wide range of services for the acquisition, the processing and the interpretation of seismic data. Its clients are mainly oil and gas companies using seismic imaging as a support for exploring and developing their reserves, to whom the group provides the means for a comprehensive understanding of subsurface targets and their geological settings. The CGG Group has experienced problems in the past few years, leading to its consolidated turnover dropping from USD 3.766 billion (2013) to USD 1.196 billion (2016). Accumulated consolidated losses over the past three years totalled USD 3.170 billion. The inevitable need for a restructuring process also led to one of the most important cases seen in France in recent years for the financial, economic and social issues it contained. Hélène Bourbouloux, Administrateur Judiciaire in Paris, reports on the case. Download the full story here.

    November 2017 - Directors’ Duties in Jersey: In it for the Long Haul!
    The island of Jersey, along with most other international financial centres, offers a range of services to the corporations and individual who wish to take advantage of the benefits of doing business offshore. Among the most important sectors is the provision of corporate services, typically including a package of accounting, administrative and statutory filing services. More often than not, that package might also include providing local corporate or individual directors to supervise and manage complex offshore structures. Some of the latest legal analysis may have originated overseas and is familiar to most practitioners, but 2017 has seen one case with a particular Jersey gloss which will be relevant to professional directors in Jersey of whatever standing. Download the full story here.

    October 2017 - A Developing Threat to West Balkan Economies: The Agrokor Insolvency
    After the Greek economic and migrant crises, since April 2017, the Agrokor case has become the main concern for the governments of the states of the former Yugoslavia. Once the biggest Croatian company and economically very significant, it has become a serious problem for the Croatian Government. Its systematic importance for the country and the region recently required a legislative solution to be found for its problems. Dr Djuro M. Djuric and Dr Vladimir M. Jovanovic discuss the Agrokor case, an example of the rise and fall of a former Yugoslavian company which was, in many ways, granted privileges by the state, even though it was privately owned. Download the full story here.

    September 2017 - Risks for Insider-Financed Restructurings in Russia
    The first port of call in upstream restructurings is often the shareholders, particularly in private (closed) corporations, where the intention is to privilege the investment of a select few. When these companies contemplate restructurings, often they may be unable to obtain or extend conventional lending. Furthermore, the risk for the entrepreneurs from external (white knight) investment and the dilution of their capital may be something they are keen to avoid. In such situations, “recapitalizing” the company through soft loans is seen as a solution avoiding the need for greater investment in the equity. However, the issue is how these arrangements are treated should the company subsequently be unable to avoid formal insolvency proceedings. In a number of legal systems, such lenders are treated as “deferred” creditors, while, in others, they may be excluded entirely from the category of estate creditors. The risks for internally-financed restructurings are thus high if they do not work out. Ilya Kokorin reports. Download the full story here.

    June 2017 - Avoidance actions and good faith: what to observe when doing business with Lithuanian companies
    Recent Lithuanian case law confirms that businesses ought to be very cautious and take active steps before entering into transactions with Lithuanian companies potentially facing difficulties. Otherwise, they risk having to return what they received from the transaction if insolvency proceedings are opened against the company and the administrator brings a claw-back claim. Lithuanian insolvency administrators examine transactions of the debtor concluded within 36 months before the opening of the proceedings. They must start avoidance actions against the debtor’s counterparty if the conditions for an actio pauliana claim are met. Frank Heemann and Karolina Gasparke​ explain the details. Download the full story here.

    May 2017 - Great opportunity for creditors, debtors and investors in Polish bankruptcy law
    Starting from 1 January 2016, there is an exceptional way of acquiring businesses in crisis in Poland. This opportunity is pre-pack, introduced to Polish law by the Restructuring law, which significantly amended Insolvency law, adding i.a. Articles 56a – 56h, regulating pre-packaged liquidation. A pre-pack motion can be filed in the Bankruptcy Court together with a motion to declare bankruptcy, but can be also a separate motion, filed either by the debtor in crisis or the personal creditor. What is more, the debtor’s pre-pack motion may be an answer for creditor’s motion to declare bankruptcy. Karol Tatara and Mateusz Kaliński explain all. Download the full story here.

    April 2017 - The fall of an economic colossus in Czech Republic
    Of the about 15,000 insolvency procedures which are initiated in the Czech Republic in any given year, the overwhelming majority is actually conducted against private individuals seeking debt relief or against small entrepreneurs in the form of bankruptcy proceedings. But once in a while, a debtor comes on the stage of insolvency who can (or, in fact, has to) be saved, at least partially. It is in those ten or so cases every year that the debtor's insolvency is being resolved by imposing a restructuring, or “reorganization”.  David Fechtner, advokát / attorney-at-law in Czech Republic, explains why reorganization of debtors should only be attempted when it makes economic or social sense. Download the full story here.

    March 2017 - The clash between criminal procedure and insolvency in Romania
    For a couple of years now, the precautionary measures established during the criminal trial have given Romanian insolvency practitioners, judges, debtors and creditors a headache. In the first semester of 2015, the number of insolvency procedures which involved criminal precautionary measures against the debtor’s assets were as low as 75. A year later, from a total of 29,365 number of insolvency procedures, 377 of them involved criminal precautionary measures. At the end of 2015, the turnover of these debtors with assets encumbered by criminal precautionary measures amounted to 0.55% of the GDP. In this report, Niculina Somlea briefly explores the precautionary measure ‘sequestration’. Download the full story here.

    February 2017 - Paymill GmbH: Reorganisation by Transfer in Germany - Munich start-up sold to new investor three months after provisional debtor-in-possession insolvency is ordered
    Following successful provisional debtor-in-possession insolvency proceedings led by attorney Vincenz von Braun and a team from anchor Rechtsanwälte working in close collaboration with the provisional insolvency monitor, attorney Dr. Christian Gerloff (Gerloff Liebler Rechtsanwälte), Munich financial technology start-up Paymill GmbH has been transferred to the Swiss investor, Klick & Pay, in what is known as a reorganisation by transfer. Under the terms of the reorganisation, the company's management had to make only 18 of the original 65-strong workforce redundant. Florian Pfoser and Vincenz von Braun of anchor Rechtsanwälte Partnerschaftsgesellschaft mbB, Mannheim (Germany) take up the story. Download the full story here.

    January 2017 - Turkish Courts change their approach to the delicate balance of protecting matrimonial homes
    The Turkish Constitutional Court recently considered a claim seeking to remove a lien in favour of a bank, which the plaintiff’s spouse had placed over the “matrimonial home” without her consent. Traditionally, Turkish courts have ruled in favour of banks on this topic, reasoning that if the matrimonial home right is not annotated on the title deed, a bank’s good faith must be protected. However, an April 2015 decision by the highest body within the Court of Cassation changed this reasoning, instead placing the onus on banks to act as prudent merchants and undertake necessary examinations of the relevant real estate to determine whether it is a matrimonial home. Orçun Çetinkaya, Burak Baydar, and Hande Gurel of Moroglu Arseven, Istanbul, report on the case. Download the full story here.
    2016

    December 2016 - The insolvency of Dutch retail chain Etam Groep and the position of suppliers
    In the last two years quite a lot of Dutch retail chains have gone bankrupt. To name a few: Free Record Shop, Van Leest (music stores), DA (drugstore), Scapino, Dolcis, Manfield, Schoenenreus (shoe stores), Aktiesport, Perry Sport (sportswear), Mexx (fashion store) and, of course, V&D (the renowned warehouse). In this Inside Story, Ruud Brunninkhuis of Buren N.V.​ (The Netherlands) highlights the insolvency of another Dutch retail chain, Etam Groep. Download the full story here.

    November 2016 - The Curious Case of Vladimir Kekhman, and Treatment of Foreign Insolvencies in Russia
    A well-known Russian businessman Vladimir Kekhman successfully sought a bankruptcy order in the UK back in 2012, but despite that fell under the Russian insolvency procedure in 2015. Russian courts, including the Supreme Court of the Russian Federation, reasoned that foreign insolvency did not prevent Russian courts from hearing the case under the Russian insolvency law. Russian citizens do not initiate insolvency proceedings outside Russia regularly, and the case of Mr. Kekhman in this respect is exemplary in viewing a larger picture related to the treatment of foreign insolvencies in Russia. Ilya Kokorin (Buzko & Partners, St. Petersburg, Russia) explains the history behind this case. Download the full story here.

    October 2016 - Snooze and you lose in Slovakia
    A recent decision of the Slovak Courts suggests that if main proceedings have been opened in one member state and the debtor has assets in Slovakia, the insolvency practitioner in the main proceedings must act quickly and sell those assets before secondary proceedings are opened in Slovakia, otherwise he runs the risk of losing the assets to the secondary estate. Legal title to the assets must have passed to the buyer before the secondary proceedings are opened; it is not enough just for contracts to have been exchanged. If title has not passed when the secondary proceedings are opened, then the subsequently appointed Slovak trustee must ratify the transfer to avoid its validity being challenged in the future. Silvia Belovicova and Alexandre Le Ninivin of Squire Patton Boggs, Slovakia, explain all. Download the full story here.

    September 2016 - Abengoa insolvency proceeding, Spain
    In the beginning the Spanish multinational Abengoa was a problem for its financial creditors… then it was a legal issue… and now actually it is both things. Abengoa has two main problems. Firstly, it has a debt of €10,000 million and secondly, it needs at least €1,200 million to keep the business in operation. Mariano Hernandez​​ from Barcelona explains the situation. Download the full story here.

    August 2016 - Schoeller Electronics GmbH, Germany
    Schoeller Electronics GmbH, the printed conductor boards manufacturer located in Hesse has been sold to a new owner under the supervision of Rechtsanwalt Alexander Reus and his team from anchor and Dr. Jan Markus Plathner from Brinkmann  & Partner as custodian. The insolvency ended in a so-called dual track procedure in which Schoeller was acquired by the American investor AIAC. The insolvency procedure was used to refocus the company for the future. Dr. Christof Schiller takes up the story.​ Download the full story here.

    June 2016 - A story of troubled retailers in Russia
    According to statistics provided in the Competition Development Bulletin “Concentration on the Russian Markets: Trends in the Period of Recession” published in December 2015 by the Analytical Centre of the Government of the Russian Federation, the period from the 2nd quarter of 2013 to the 1st quarter of 2015 saw an upward trend in the number of insolvencies in the construction, real estate, retail and wholesale sectors of the Russian economy. In December 2014, 295 companies were in insolvency proceedings. By March 2015, the number of insolvencies had increased to 348 companies. Based on information provided by the analytical company “Nielsen”, in the 1st quarter of 2016 the index of consumers' trust was the lowest during the last 11 years. Sergey A. Treshchev, Partner, International Dispute Resolution, Squire Patton Boggs, Moscow (Russian Federation) reports. Download the full story here.

    May 2016 - Czech Republic: Frivolous insolvency motions
    According to a ruling by the Czech Supreme Court, filing a motion for the initiation of insolvency proceedings on the basis of knowingly false information (i.e., what is known as a "frivolous insolvency motion") may qualify as a criminal offense – that of defamation.  If the knowingly false insolvency motion moreover serves to coerce a third party (who is otherwise not bankrupt) into taking certain actions (such as making payments towards the party who filed the motion), the elements of the criminal offense of extortion may also be met. In this sense, filing a frivolous motion for insolvency may not only have civil-law consequences but also criminal-law consequences for the applicant. Mgr. David Fechtner (David.Fechtner@bnt.eu), Associate, bnt attorneys-at-law s.r.o., Prague (Czech Republic) reports. Download the full story here.

    April 2016 - The Netherlands: Modulus Group
    In November 2015, real estate developer Modulus Vastgoedondernemingen B.V. filed a winding-up petition. Just days after Modulus Vastgoedondernemingen went into liquidation, 45 of its subsidiaries followed suit. A delayed casualty of the real estate crisis, the high-profile Modulus Group liquidation poses specific challenges for the receivers. Since the remaining value of the company is almost exclusively held up in mortgaged real estate, managing a controlled liquidation of those mortgaged assets is an important part of the proceedings. Also the fact the group consists of 45 legal entities makes for a challenging liquidation with interesting (fiscal) complications. With this Inside Story, Rik Buitenhuis of receivers Udink & De Jong (The Netherlands) gives an insider’s perspective in the proceeding focusing on the Modulus Groups Mortgaged assets. Download the full story here.

    March 2016 - The Principle of Confidentiality
    In a recent French case law related to a company facing a “conciliation” proceedings, the French Supreme Court (the “Cour de cassation”) has been confronted to a conflict between, in one part, the confidentiality principle governing the pre-insolvency proceedings as mentioned in the Act (Article L 611-15 of the Commercial code) and, on the other part, civil liberties as such the freedom of the press and the freedom of speech. Georges-Louis Harang of HOCHE SOCIETE D’AVOCATS, Paris (France), asks: Which one should prevail on the other? Download the full story here.

    February 2016 - Orders for sale of properties in Europe: a helpful reminder
    Sarah May and Graham McPhie of Moon Beever Solicitors, London (UK) write on a recent decision which serves as a reminder that it is essential to choose the correct jurisdiction in which to issue proceedings for sale of a property in Europe. Komu & Others v Komu & Another - the facts: The three claimants and two defendants all lived in Finland. Together they were joint owners of two properties in Spain. The claimants had issued proceedings in Finland for the properties to be sold, on grounds equivalent to the UK’s Trusts of Land and Appointment of Trustees Act 1996 which a UK Trustee in Bankruptcy would use to seek possession and sale of a property. The three claimants wished the properties to be sold and the proceeds distributed in accordance with already established beneficial interests. Under Finnish law if they disagreed as to whether the properties were to be sold they had to apply to Court, as is the position in England. Download the full story here.

    January 2016 - UK: Insolvency Practitioners’ fees in England and Wales​
    Chris Laughton writes on the new fees regime for Insolvency Practitioners (IPs) in England and Wales which changed with effect from 1 October 2015 as a result of the Insolvency (Amendment) Rules 2015. The underlying reasons for the change include a perceived failure on the part of IPs properly to communicate the value of the work they did and apparent excesses by a minority of IPs. Historically, the creditors’ committee, the creditors or the court would approve the basis of an IP’s remuneration. That basis was most likely to be time costs, although fixed fees and percentages were also permitted. Once the basis was approved, IPs paid themselves from the assets. The principal control was that affected parties could object to the level of the IP’s fees by applying to court. Download the full story here.
    2015

    December 2015 - Germany
    Carlsson, an international luxury brand and the challenge of insolvency

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    November 2015 - Sweden
    Meltdown in Swedish peer-to-peer lending company on the rise

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    October 2015 - Germany
    DAF Deutsches Anleger Fernsehen AG

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    September 2015 - Spain
    La Seda de Barcelona

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    August 2015 - Ireland
    Irish Supreme Court Strengthens Lenders’ Security
     
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    July 2015 - Greece
    Do we need to fear a Grexit?

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    May 2015 - Slovakia
    Quick and (un)reasonable – Amendment of Slovak Bankruptcy and Restructuring Act

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    April 2015 – France
    Re-energising the French Economy: Mission Impossible?
     
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    March 2015 – Spain
    Merry-Go-Round of Amendments to the Spanish Insolvency Law: Setback to sale of productive units

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    February 2015 – Greece
    Recent attempts by the Greek government to deal with the mounting NPL problem

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