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The Recast European Insolvency Regulation: what is changing?

The Recast European Insolvency Regulation (Recast EIR) applies to insolvencies commencing in the EU (but excluding Denmark) from 26 June 2017

Insolvency Practitioners will need to be familiar with the changes and the obligations imposed upon them by the Recast EIR.

What is changing?

There are five key areas of change from the Recast EIR's predecessor (Council Regulation (EC) 1346/2000 on Insolvency Proceedings):

Scope

The scope has been extended to include certain pre-insolvency rescue and restructuring proceedings.  UK schemes of arrangement, members' voluntary liquidations and receiverships continue to fall outside of the Recast EIR.

Centre of main interests (COMI)

The method for ascertaining a debtor's COMI has been codified within the Recast EIR.  It was previously set out in a number of key European Court of Justice judgments. 

The concept of COMI is central to cross border insolvency in the EU.  It determines the jurisdiction in which main insolvency proceedings can be commenced.  Rebuttable presumptions as to the location of a debtor's COMI are now set out in Article 3 of the Recast EIR. 

Insolvency Practitioners are obliged to examine whether or not COMI is in the jurisdiction in which they are appointed.  While the definition has not changed, the clarification and guidance given in the Recast EIR is helpful for practitioners taking appointments in EU member states. 

"Synthetic" or "virtual" secondary proceedings

Secondary proceedings are those opened in an EU member state where the debtor does not have their COMI but does have an economic presence known as an establishment. 

Secondary proceedings could originally only be opened if they were winding up proceedings.  The Recast EIR now expands the scope to include all rescue and pre-insolvency proceedings governed by the regulation.

Secondary proceedings are limited to the debtor's assets in the member state where they are opened.  They can cause difficulties for the office-holder in the main proceedings.  To avoid this, the office-holder may now give an undertaking to treat claims of foreign creditors in the same way as they would be treated in the local jurisdiction.  If the court which is being asked to open secondary proceedings considers that this undertaking adequately protects creditors, it may refuse to open secondary proceedings.

This is an approach that has been approved by the English courts for some time, and is now set out in Article 36 of the Recast EIR.

Multinational group insolvencies

The Recast EIR introduces an entirely new framework for cooperation and coordination where insolvency proceedings relating to different members of a corporate group are opened in more than one member state.

Insolvency Practitioners appointed in these circumstances are under an obligation to communicate and cooperate with office-holders in other member states.  This obligation does not apply if there is any conflict of interest or with national rules.  The relevant courts are similarly obliged to communicate and cooperate with one another.

The Recast EIR now sets out a new voluntary process overseen by the courts for coordinating some elements of the proceedings.  This process is referred to as group coordination proceedings. 

Registers of insolvencies

All member states are required to establish and maintain electronically searchable registers of insolvency proceedings by 26 June 2018.  These must be linked and searchable centrally via the European e-justice Portal by 26 June 2019.

What does this mean for Insolvency Practitioners?

Many of the changes in the Recast EIR are a codification of existing case law and current practice.  In particular, Insolvency Practitioners will be reassured that the definition of COMI has not changed.  The expansion and clarification of the concept within the Recast EIR will provide welcome assistance when examining whether or not there is jurisdiction to open proceedings in any particular member state.

Office-holders appointed where another member of the corporate group is also subject to insolvency proceedings should consider in each case whether or not the new group coordination proceedings will help to progress the insolvencies.  While Insolvency Practitioners are under a duty to cooperate and communicate with other practitioners in these circumstances, this obligation will not apply if it is incompatible with local rules or would lead to a conflict of interest.

What about Brexit?

R3 has called on the UK government to ensure that the benefits of the original and Recast EIR are preserved in an equivalent treaty as part of the UK's exit from the EU.  Whether or not this will be achieved remains to be seen.  In the absence of such an agreement, Insolvency Practitioners seeking recognition of proceedings in Europe will be reliant on a combination of domestic law, the UNCITRAL Model Law (in those states where it has been incorporated) and, if negotiated, bilateral agreements.  

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions



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