Articoli
18/07/2017
Restructuring & Turnaround

The recast EU Regulation No. 2015/848 on insolvency procedures: a focus on group insolvencies

  1. Introduction

The new Regulation follows on the path of Regulation No. 1346/2000, representing the last step of a process which has been started years ago. European Union authorities resorted also to other means in this direction: aside to the Regulation, a Recommendation has been issued in 2014, inviting Member States to adopt internal procedures more favourable to restructuring (rather than liquidating) distressed businesses.

It should be noted that Regulation No. 2015/848, entered into force on 26 June 2015, but will be applicable only from 26 June 2017 and until then Regulation No. 1346/2000 will apply.

  1. The recast Regulation: an overview

The aims of the Regulation

The Regulation aims at updating and improving rules already in place, as well as at adding new rules in areas which were not previously regulated, with respect to effects of the procedures opened in each Member State.

The Recommendation No. 2014/135 is instead aimed at starting a process in order for the substantive rules in force in the various Member States to be harmonized. Of course, while the Regulation will be directly applicable in all jurisdictions, the implementation of the objectives of a more uniform substantive legislation in the various Member States will be left to the initiative of the same, but the relevant principles will work as a reference in the interpretation of insolvency rules in each jurisdiction.

The main changes brought about by the Regulation

The following main new features of the Regulation – among others – can be pointed out.

i) developments in certain key principles of the Regulation

An improvement is that relating to the restructuring and turnaround of the economic activities of distressed businesses: liquidation of the debtor’s assets is no longer representing, as it was still in the context of Regulation No. 1346/2000, the main aim of insolvency procedures.

In this context, it should be noted that, accordingly, the notions of insolvency, limitation of the debtor’s management powers and participation by creditors have been adapted and, with respect to the previous Regulation, significantly widened. Indeed, the new Regulation is not only applicable to procedures based on full insolvency, but also to distressed situations still allowing for a turnaround and restructuring effort to be carried out.

Moreover, insolvency procedures are now defined to include pre-insolvency situations and arrangements, which could not have fallen within the traditional definition (involving necessarily the generality of creditors and assets of the debtor, as well as limiting the debtor’s management powers).

ii) fine-tuning of jurisdiction rules

The proposal would stick to the “centre of main interests” (so-called COMI) notion, which would be better specified as “the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties”.

In particular, while COMI has been confirmed as the test for determining in which jurisdiction the main insolvency proceedings should be opened, on the other hand it has been specified that (a) the guiding principle is now one referring to what is “ascertainable” and “on a regular basis”, thus codifying precedents in EU and domestic case law (such as that of the ECJ in the Interedil case and of the Italian Court of Cassation, with the decision No. 5945 of 2013), and (b) that a Court requested to open an insolvency proceeding shall on its own motion examine whether it has jurisdiction and it has to state on which grounds this is based.

iii) improving secondary procedures

These will be procedures no longer limited to liquidation procedures and also the definition of “establishment” allowing the opening the same is widened. It will also be possible to avoid the opening of a secondary procedure, by an undertaking within the context of the main procedure, whereby affected creditors will be assured a treatment equal to that to which they would have been entitled in the secondary procedure.
iv) ensuring publicity to insolvency procedures

In order to create a wider access to information on insolvency procedures, the Regulation provides that the Commission put in place a system of “interconnected” insolvency registers, accessible to the public through the web at national level and also through a European portal of electronic justice (this will be effective only from 26 June 2018 and 2019, respectively).

  1. COMI and Coordination of Group Insolvency Proceedings in the recast Regulation

EC Regulation No. 2000/1346

The current Regulation refers to the debtor’s COMI as far as the main insolvency procedure shall be opened, while secondary proceedings can be opened in other Member States where the debtor has an “establishment”.

The same Regulation does not provide specific rules for determining the COMI when the debtor is a company based in a Member State and controlled by another company based in another Member State. In other words, there is no provision for the insolvency of groups of companies. As a consequence, each company of the group is subject to a separate (main) insolvency proceeding in each Member State and entrusted to its own administrator.

EC Regulation No. 2015/848

The As far as the COMI in groups of companies is concerned, no new specific rules have been introduced by the recast Regulation, as it was proposed by scholars and case law, relying instead on ways of cooperation among the administrators and the judges in charge of the procedure of each company.

Commentators had tried to suggest ways to resolve the problems of the traditional approach. As an example of this effort, the so-called “Group COMI Approach” can be mentioned, which, by resorting to a sort of a legal fiction, located the COMI of a subsidiary in the same jurisdiction as its holding company. However, this theory implied certain drawbacks, which were likely the reason why the new Regulation did not uphold it: in particular, if on the one side the “Group COMI Approach” allowed for a single Court to open the main insolvency procedure of each of the companies of the group (with the appointment of the same administrator for all the procedures), on the other hand, opening the main procedure of subsidiaries in a place different from that where they conduct their business – being that an “establishment” – left open the possibility that territorial secondary proceedings could be opened, thereby the same problems arising of a loss of control by the administrator of the main insolvency proceedings.

EU Regulation No. 2015/848 has indeed provided for new practical rules of coordination between the various actors involved in the different procedures of the companies of a group, in order to improve efficiency in handling such procedures.

In particular, various ways of interaction are envisaged among receivers and judges involved in the various procedures regarding the companies belonging to a group, including the duty for receivers to share pertinent information and to cooperate in setting up a rescue or reorganization plan. The proposal would give each receiver the right to participate to the procedure of another company of the same group, in particular the right to be heard, to apply for a stay of the procedure and to propose a restructuring plan.

  1. Group Insolvency procedures Italy

No provisions of Italian insolvency laws allow for group procedures, but for the government-led extraordinary administration procedure reserved to large businesses.

Lower Courts recently started to allow a single group concordato preventivo procedure (a flexible restructuring scheme of arrangement with creditors), but the Court of Cassation with a decision No. 20559 of 13 October 2015, decided that this is not admissible, as this involves a single proposal for all the creditors of the different companies, even if the relevant assets and liabilities are kept separated. From this point of view, the decision appears to be too inflexible and formalistic: a more permissive approach is arguably not barred, because the real critical factor is that of accounting for the different estates of each company of the group, and of allowing each creditor – also within the context of a single proposal – to assess whether it is treated more or less favourably in comparison with the alternative of a bankruptcy liquidation.

In February 2016, the Government has sent to the Parliament a proposal to enact a law authorizing the Government to draw up a new comprehensive insolvency law, which would also follow the guidelines set by the Recommendation No. 2014/135 of the European Commission. On 1st February 2017 the law has been approved by the Chamber of Representatives and has now passed to the Senate for the required approval, before it can be enacted.

The draft –among other things – is intended to introduce a new specific set of rules for conducting group insolvency procedures: this would be allowed by particular venue provisions, a single procedure all the companies of a group, provided that assets and liabilities of the various companies are not merged and are kept separated.

 

 

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