Good progress but some concerns regarding recent developments in European insolvency law: Group insolvency

By Dr. Mark C. Hilgard and Dr. Hanns Christoph Siebold

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In June 2017, Regulation 2015/848 of the European Parliament and of the Council on insolvency proceedings replaced Regulation 1346/2000, which has been the only act of secondary EU legislation on insolvency law for more than 15 years. AmCham, Germany’s Corporate and Business Law Committee, wanted to bring its members up to speed and thus held a meeting on March 7, 2017, in Frankfurt am Main, which focused on the main thrust of the recast Regulation, namely the new framework for group insolvency.

Dr. Marco Wilhelm, Rechtsanwalt and Betriebswirt (VWA) and Partner at Mayer Brown in Frankfurt am Main, and Prof. Dr. Stefan Reinhart, Rechtsanwalt and Solicitor as well as Partner at FPS in Frankfurt am Main, reported on the current situation.

Wilhelm highlighted that the EU group insolvency rule book applies when insolvency proceedings relate to two or more members of a group of companies located in different EU Member States. A group of companies means a parent undertaking and all its subsidiary undertakings (Article 2, [13]), whereas a parent undertaking is defined as an undertaking that directly or indirectly controls one or more subsidiary undertakings (Article 2, [14]). The main aim of this framework is to maximize the value of the group’s assets and the prospects for successful restructuring. There are two sets of rules in the group insolvency framework of the Regulation, namely (1) cooperation and communication and (2) coordination.

Cooperation and communication

Cooperation and communication (Article 56-60) demands that insolvency practitioners of different group members communicate to each other (Article 56) and the courts (Article 58) all information that may be relevant to other insolvency proceedings within the group. An obligation of reciprocal communication also applies to the courts (Article 57) in respect of the appointment of insolvency practitioners, the coordination of hearings, etc. Within this pillar of the group insolvency rule book, the insolvency practitioner has a right to be heard in the insolvency proceedings of another member of the group (Article 60 [1] a). Moreover, he or she has a right to request a suspension of measures related to proceedings in respect of any other member of the group (Article 60 [1] b). Last but not least, the insolvency practitioner has a right to apply for the opening of coordination proceedings (Article 60 [1] c).

Group coordination proceedings

Group coordination proceedings (Article 61-77) facilitate an integrated approach to resolving group members’ insolvencies under the supervision of the coordination court. This means that the procedure is still based on the principle of an individual insolvency proceeding for each group member rather than on a single insolvency proceeding for the entire group. In this procedure, a coordinator (i.e., coordinating insolvency practitioner) may develop a nonbinding group coordination plan (Article 70). The group coordination proceeding can be requested by the insolvency practitioner of any group member. Pursuant to the priority rule, the court seized first has jurisdiction to decide on the coordination procedure (Article 62), unless two-thirds of insolvency practitioners agree that a court of another Member State shall have exclusive jurisdiction (Article 66). Any insolvency practitioner may object to the inclusion of the insolvency proceeding of the group member for which he or she is appointed, or to the person put forward as group coordinator (Article 64 [1]).

The group coordination plan is the most important tool of the group coordination proceeding. It recommends a comprehensive set of measures that are appropriate for an integrated approach to resolving group members’ insolvencies (e.g., measures to reestablish economic performance, agreements between the appointed insolvency practitioners, settlements of intragroup disputes). The insolvency practitioners are not, however, obliged to follow either this plan or the coordinator’s recommendations. The group coordinator also has the right to participate and be heard in the relevant local proceedings, to mediate in disputes arising between the practitioners and to request information from them (article 72). Furthermore, he or she has the right to request a stay of the local proceedings for a period of up to six months if such a stay is necessary to ensure the proper implementation of the plan and if it would be to the benefit of the creditors for which the stay is requested (Article 72 [2] e).

Concerns

Although the recast Regulation offers a new framework for the handling of group insolvencies, Wilhelm expressed some concerns with it. Firstly, the group coordination cannot be requested ex officio or by the creditors, only by the insolvency practitioners. Moreover, the creditors are not entitled to vote for the coordination plan and could only use the influence they have on the insolvency practitioner pursuant to the relevant local insolvency law. Furthermore, the group coordination framework is only a voluntary concept that allows appointed practitioners to simply not follow the coordinator. The appointment of a coordinator will increase the cost of insolvency proceedings and may delay the process.

mhilgard@mayerbrown.com

hanns.christoph.siebold@morganstanley.com