New rules governing cross-border insolvency procedures
Legal certainty demands that all cross-border procedures in the EU function properly, with insolvency procedures being no exception to the rule. Regulation (EU) 2015/848 on Cross-Border Insolvency (Regulation) is directly applicable throughout the EU and applies to insolvency proceedings commenced after 26 June 2017. Its goals are to enable a rescue of pre-insolvent company and to ensure fair insolvency proceedings for all persons involved.
The key characteristics of the Regulation include:
- introduction of new procedures, stimulating corporate rescue processes of companies;
- the conduct of secondary insolvency proceedings in parallel with the main insolvency proceedings;
- safeguards aimed at preventing fraudulent or abusive forum shopping;
- facilitating cross-border insolvency proceedings in different Member States that involve the same debtor.
The Regulation expands the scope of previously applicable legislation by introducing different instruments that can be introduced prior to the commencement of insolvency proceedings and that encourage the restructuring of distressed companies. In this light, the creditor can propose new measures, such as (partial) debt forgiveness, debt adjustment or extension of debt maturity.
Generally, the main insolvency proceedings can only be opened in the Member State where the company has its centre of main interests (COMI). The Regulation permits the opening of a secondary proceeding in every Member State, where a company has an establishment. The effects of such secondary proceedings must be coordinated with the main insolvency proceeding and can relate only to the property in that specific Member State.
In practice, some companies abused the more favourable legislation of insolvency proceedings in certain Member States. In that regard, these companies relocated their seats or main place of business to such Member States. The Regulation maintains the presumption of COMI being in the jurisdiction of the company’s registered office, but this presumption can now be challenged. Moreover, the presumption never applies if the seat of the company is relocated within three months of the insolvency proceedings being opened.
Additionally, the means of coordination and communication between the bankruptcy trustee, courts, debtor, creditors and other relevant person has also been modified. The expectation is that this will streamline the administration of bankruptcy estates. Bankruptcy trustees have been handed a more central role in the main insolvency proceedings, and can now actively influence the secondary proceedings and decide how adjustments and settlements are to be structured.
