Academic Forum Sponsors:

1. Academic Forum Sponsors: www.edwincoe.com

2. Third Session: Reforming the European Insolvency Regulation III. Chair: Professor Christoph Paulus (Humboldt University Berlin)

3. The Reform of the EIR: Is there any Space for Private Autonomy? MatteoWinkler(BocconiSchool of Law)

4. The Commission’s Proposal of 2012 • Extension of the EIR’s scope • Clarification of COMI • Reform of the secondary proceedings • Publicity of insolvency proceedings • Ad hoc provisions of multinational enterprises

5. Private Autonomy and Insolvency • Relevance of private autonomy in insolvency (hold-out problem) • Role played in cross-border insolvency • Significance in domestic context (pre-insolvency proceedings and debtor-in-possession proceedings) • Practice of “insolvency protocols and agreements” – a very transnational contractual framework

6. Pre-Insolvency Proceedings • Now included in the EIR’s scope under the new Art. 1 • Components of an “insolvency proceedings”: • Divestment and a liquidator, or • Control or supervision by a court • List in Annex A

7. Critical Issues • The existing lack of EU-wide circulation of pre-insolvency arrangements • Which arrangements can circulate precisely? • Which limits? (public policy; non-public or without-court-supervision arrangements)

8. Insolvency Protocols and Agreements • Direct reference to “principles and guidelines … adopted by European and International associations …”(new Recital 20) • But piecemeal references in the context of: • Communication and cooperation in general • Cooperation in groups of companies

9. Critical Issues • Piecemeal structure: a bad drafting technique? • Limits? • “to the extent that [insolvency protocols] are not incompatible with the rules applicable to each of the proceedings” • This limit operates only in court-to-liquidator cooperation, and not in court-to-court cooperation: why?

10. Conclusions • Circulation of pre-insolvency arrangements (and restructuring plans) • A risk to a race to the bottom? • Open reference to the contractual practice of insolvency protocols and agreements: maximum flexibility • Piecemeal legislation: uncertainty as to the transnational effects of insolvency protocols?

11. The Insolvency of Members of a Group of Companies in the Proposal for Amendment of the EIR Giulia Vallar(University of Milan)

12. The status quo • No provisions on group insolvency • Separate proceedings must be opened for each individual member of a group • Liquidators and courts are under no duty to cooperate • Cooperation is possible between liquidators. It is more difficult for judges • Case-law has tried different ways to overcome such a lack of a discipline

13. Need for a revision • Public consultation on the future of European Insolvency Law (2012): half of respondents felt the EIR does not work efficiently for multinational group insolvencies. One third felt it does • The Commission agreed that the lack of a specific framework for group insolvency constitutes in certain cases an obstacle to the efficient administration of the insolvency of members of a group of companies • The proposed Regulation contains provisions on group insolvency

14. Definition of “group of companies” New Article 2(i) “group of companies” means a number of companies consisting of parent and subsidiary companies

15. Definition of “group of companies” New Article 2(j) further specifies that "parent company" means a company which (i) has a majority of the shareholders' or members' voting rights in another company (a "subsidiary company"); or (ii) is a shareholder or member of the subsidiary company and has the right to (aa) appoint or remove a majority of the members of the administrative, management or supervisory body of that subsidiary; or (bb) exercise a dominant influence over the subsidiary company pursuant to a contract entered into with that subsidiary or to a provision in its articles of association.

16. Definition of “group of companies” Such a definition should be understood as being limited to the context of insolvency and should not have any influence on the company aspects regarding groups (recital 7)

17. Two options(New recitals 20a and 20b) • Several proceedings relating to two or more members of a group of companies opened before different courts in several member states (default option) • Several proceedings relating to two or more members of a group of companies opened before the same court (therefore in a single jurisdiction) (residual option)

18. Default option Several proceedings opened before different courts in several member states New detailed discipline

19. New provisions Chapter IVa “Insolvency of members of a group of companies” (Articles 42a – 42d)

20. New provisions • Article 42a: Duty to cooperate and communicate information between liquidators • Article 42b: Communication and cooperation between courts • Article 42c: Cooperation and communication between liquidators and courts • Article 42d: Powers of the liquidators and stay of proceedings

21. Duty to cooperate and communicate information between liquidators Liquidators shall cooperate to the extent that such cooperation: • is appropriate to facilitate the effective administration of the proceedings • is not incompatible with the rules applicable to such proceedings • does not entail any conflict of interests Suggested means of cooperation: “agreements or protocols”

22. Duty to cooperate and communicate information between liquidators Liquidators shall: • immediately communicate any relevant information (keeping in mind confidentiality) • where the group can be restructured, negotiate a coordinated restructuring plan • coordinate the administration and supervision of the affairs of the group members A specific liquidator can be granted additional powers subject to the agreement of all the liquidators

23. Communication and cooperation between courts Actors Courts before which a request to open proceedings concerning a member of the group is pending or which has opened such proceedings Conditions Such cooperation should be appropriate to facilitate the effective administration of the proceedings andshould not be incompatible with the rules applicable to them How to These courts may either communicate and request information and assistance directly from each other or appoint a person or body for this purpose

24. Communication and cooperation between courts Suggested means of cooperation • Communication of information by any appropriate means which should (i) be free of charge and (ii) respect procedural rights of the parties and confidentiality • Coordination of the administration and supervision of the assets and affairs • Coordination of the conduct of the hearings • Coordination in the approval of protocols

25. Cooperation and communication between liquidators and courts Actors Any liquidator and any court involved in a proceedings concerning any member of the group Conditions Such cooperation should be appropriate to facilitate the effective administration of the proceedings and should not be incompatible with the rules applicable to them How to In particular, the liquidator may request information or assistance from the court

26. Powers of the liquidators … A liquidator shall have the right • to be heard and to participate in any of the other proceedings opened • to request a stay of the other proceedings • to propose a rescue plan, a composition or a comparable measure for all or some members of the group for which insolvency proceedings have been opened and to introduce it into any of the proceedings opened in accordance with law applicable to those proceedings • to request any additional procedural measures under the law applicable to the proceedings which may be necessary to promote rescue, including the conversion of proceedings

27. … and stay of proceedings A court requested to stay the proceedings shall act accordingly if it is proven that such a stay would be to the benefit of the creditors in that proceedings. In any case, the court can request to the liquidator any suitable measure to guarantee the interests of the creditors The proceedings can be stayed for up to three months and the stay can be continued or renewed for the same period

28. Residual option Several proceedings opened before the same court Just a hint in Recital 20(b)

29. Residual option Condition The COMI of all the companies of the group is deemed to be located in a single Member State Effects If appropriate, the court should appoint the same liquidator for all the proceedings

30. Comments to Articles 42a – 42d Even if they retain the entity by entity approach of the EIR, they take a step forward in providing a coordination of the proceedings The newly introduced system is built upon experience of coordination between liquidators of main and secondary proceedings The other envisaged solution was the one called “procedural consolidation” but it was considered less proportionate at the current stage

31. Comments to Articles 42a – 42d • The three forms of cooperation and communication are explicitly made subject to compatibility with the relevant norms applicable to the proceedings • Assuming these norms are the national procedural rules, such a condition involves the risk of spoiling the new provisions of their apparent benefits: is this limitation appropriate?

32. Present and Future of Judicial Cooperation in Insolvency Cases in Europe Professor Bob Wessels(University of Leiden)

33. Main topics: • Present status • Proposal • JudgeCo project

34. Chapter 3 “Judicial Cooperation in Civil Matters” Art. 81 TFEU (ex Art. 65 TEC): 1. The Union shall develop judicial cooperation in civil matters having cross-border implications, based on the principle of mutual recognition of judgments and of decisions in extrajudicial cases. Such cooperation may include the adoption of measures for the approximation of the laws and regulations of the Member States. 2. For the purposes of paragraph 1, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt measures, particularly when necessary for the proper functioning of the internal market, aimed at ensuring: (a) the mutual recognition and enforcement between Member States of judgments and of decisions in extrajudicial cases; (c) the compatibility of the rules applicable in the Member States concerning conflict of laws and of jurisdiction; (f) the elimination of obstacles to the proper functioning of civil proceedings, if necessary by promoting the compatibility of the rules on civil procedure applicable in the Member States

35. Model of coordination of proceedings Recital (12) …..To protect the diversity of interests, this Regulation permits secondary proceedings to be opened to run in parallel with the main proceedings. ….Mandatory rules of coordination with the main proceedings satisfy the need for unity in the Community. Recital (20) ….Main insolvency proceedings and secondary proceedings can, however, contribute to the effective realisation of the total assets only if all the concurrent proceedings pending are coordinated. The main condition here is that the various liquidators must cooperate closely, in particular by exchanging a sufficient amount of information. In order to ensure the dominant role of the main insolvency proceedings, the liquidator in such proceedings should be given several possibilities for intervening in secondary insolvency proceedings which are pending at the same time. For example, he should be able to propose a restructuring plan or composition or apply for realisation of the assets in the secondary insolvency proceedings to be suspended.

36. Model: COORDINATION RE PROCEEDINGS The liquidator in the main proceedings may: Request publication of opening judgment or registration of judgment in public registers kept in another MS (Art. 21, 22) Request opening of secondary proceedings in other MSs (art. 29) Participate in secondary proceedings (Art. 32(3)) Request stay of the process of liquidation of sec. proc. (Art. 33(1)) and may request measures ex Art. 34.1 (see Art. 34(3)) Request termination of this stay (Art. 33(2)) Propose a rescue plan, when allowed (Art. 34(1)) Dis-agree with finalizing liquidation in sec. proc. (Art. 34(1)) Claim the remaining assets (art. 35)

37. COORDINATION RE PROCEEDINGS (Cont’d) Key duties of liquidator in main and secondary proceedings: 1. To communicate information (Art. 31(1)) 2. To cooperate (Art. 31(2)) 3. To lodge all claims which have already been lodged in the main proceedings (Art. 32(2)) 4. To immediately inform all known creditors (Art. 40(1)) by individual notice (Art. 40(2))‏ Article 31 Duty to cooperate and communicate information: Text does not provide clear guidance - Applies only to liquidators

38. www.insol-europe.org

39. European Communication and Cooperation Guidelines For Cross-border Insolvency (2007) CoCo Guidelines - www.insol-europe.org My weblog 2007-09-doc1 - text CoCo Guidelines (18 in number) 2007-10-doc2 - endorsement by INSOL Europe Status – “Soft law” / best practices Promotes coordination, using ‘Protocols’ (includes “Checklist Protocol”) Examples: - Requirements for practitioners - Language

40. CoCo Guidelines - Guideline 4 4.2. A liquidator is required to act with the appropriate knowledge of the EC Insolvency Regulation and its application in practice.

41. 10.1. Liquidators shalldetermine the language in which Communications take place on the basis of convenience and the avoidance of costs. The court is advisedtoallowuse of otherlanguages in all or part of the proceedingsif no prejudiceto a party willresult. 10.2. Courts are encouraged, to the maximum extent permissibleundernationallaw, to accept anydocuments relatedtothosecommunications in languagedecidedupon underGuideline 10.1, without the needfor a translationinto the language of proceedingsbeforethem. CoCo Guidelines - Guideline 10

42. CoCo – A Useful Medicine?

43. CoCo Guidelines in Literature? 1. Literature: how to “include” in formal law? Annex to InsReg? In a national “Kodex”? Standard / yardstick to measure “national” duties? A “European” standard for liquidators? (An non-binding “Opinion” ex Art. 288 TFEU?)

44. CoCo Guidelines in Practice? 1. Literature: how to “include” in formal law? 2. Practice: BenQ Holding (NL court – German court; 2007) Order of judicial decisions Automold (German court – UK liquidator) re scheduling creditors meeting in Germany Restructuring Committee Landsbanki – ICESAVE? Kauptingh – Norway? Lehman Brothers Holdings Inc. (LBHI) CoCo Guidelines referred to in draft-global protocol PIN AG German & Lux court share info re “main proceedings”

45. Application Report COM(2012) 743 final (p. 14:) “….The duties to cooperate and communicate information under Article 31 of the Regulation are rather vague. The Regulation does not provide for cooperation duties between courts or liquidators and courts. There are examples where courts or liquidators did not sufficiently act in a cooperative manner. These findings are confirmed by the results of the public consultation where 48% of the respondents were dissatisfied with the coordination between main and secondary proceedings.”

46. Bank Handlowy w Warszawie SA, PPHU ‘ADAX’/Ryszard Adamiak,V Christianapol sp. z o.o. (Case C-116/11) • Case relates to the opening of insolvency proceedings, in Poland, further to an application made by Bank Handlowy and Adamiak in respect of Christianapol sp. z o.o., a company governed by Polish law, in respect of which rescue proceedings (procédure de sauvegarde) had previously been opened in France. Christianapol is a wholly-owned subsidiary of a German company, which in turn is 90% owned by a French company. • By judgment of 1 October 2008, the Tribunal de commerce de Meaux (France) opened insolvency proceedings against Christianapol (COMI in France). The court opened sauvegarde proceedings on the ground that the debtor was not in a situation calling for the cessation of payments, but that it would be in that situation if financial restructuring was not undertaken quickly. • On 21 April and 26 June 2009, Bank Handlowy, established in Warsaw (Poland), in its capacity as creditor of Christianapol, asked the referring court to open secondary insolvency proceedings against Christianapol under Article 27 of the Regulation. On 20 July 2009, the Tribunal de commerce de Meaux approved a rescue plan for Christianapol, under which debts would be paid off in instalments spread over 10 years and prohibiting the transfer of the undertaking of Christianopol, situated in Łowyń (Poland) and of certain defined assets belonging to the debtor. The French court maintained the appointment, made previously, of the persons responsible for representing the interests of creditors for the period up to the closure of the procedure for the verification of claims and the submission of a final report on the activities of those representatives. In its judgment it also appointed a person to oversee the implementation of the plan (commissaire à l’exécution du plan).

47. Bank Handlowy C-116/11 (cont’d) • On 2 August 2009, another creditor, Adamiak, established in Łęczyca (Poland), also asked for winding-up proceedings to be opened under Polish law. • Following the approval of the rescue plan by the French court, Christianapol contended that the secondary insolvency proceedings should be discontinued, since the main proceedings had been closed. It also contended that it was fulfilling its obligations under the plan approved by the French court, with the result that no pecuniary claims were outstanding against it under Polish law and there were therefore no grounds supporting a declaration of insolvency in respect of it. • “The referring court asked the Tribunal de commerce de Meaux whether the insolvency proceedings in France, which were main proceedings for the purposes of the Regulation, were still pending. The answer given by the French court did not provide the necessary clarification. The referring court then consulted an expert.” • The Sąd Rejonowy Poznań-Stare Miasto w Poznaniu decided to stay the proceedings and to refer questions to the Court of Justice of the EU for a preliminary ruling:

48. Bank Handlowy C-116/11 (Cont’d) • Article 4(2)(j) InsReg must be interpreted as meaning: that it is for the national law of the Member State in which insolvency proceedings have been opened to determine at which moment the closure of those proceedings occurs. • Article 27 InsReg must be interpreted as meaning: that the court before which an application to have secondary insolvency proceedings has been openedcannot examine the insolvency of a debtor against which main proceedings have been opened in another Member State, even where the latter proceedings have a protective purpose. • Article 27 InsReg must be interpreted as meaning: that it permits the opening of secondary insolvency proceedings in the Member State in which the debtor has an establishment, where the main proceedings have a protective purpose. It is for the court having jurisdiction to open secondary proceedings to have regard to the objectives of the main proceedings and to take account of the scheme of the Regulation, in keeping with the principle of sincere cooperation.

49. Bank Handlowy C-116/11 - argumentation • “59 …., the fact remains that the opening of secondary proceedings, which, …., must be winding-up proceedings, risks running counter to the purpose served by main proceedings, which are of a protective nature. • 60 It should be noted that the Regulation provides for a certain number of mandatory rules of coordination intended to ensure, as expressed in recital 12 in the preamble thereto, the need for unity in the Community. In that system, the main proceedings have a dominant role in relation to the secondary proceedings, as stated in recital 20 in the preamble to the Regulation.

50. Bank Handlowy C-116/11 - argumentation • 61 The liquidator in the main proceedings thus has certain prerogatives at his disposal which allow him to influence the secondary proceedings in such a way, that the protective purpose of the main proceedings is not jeopardised [follow examples; Wess.] • 62 The principle of sincere cooperation laid down in Article 4(3) EU requires the court having jurisdiction to open secondary proceedings, in applying those provisions, to have regard to the objectives of the main proceedings and to take account of the scheme of the Regulation, which, ……, aims to ensure efficient and effective cross-border insolvency proceedings through mandatory coordination of the main and secondary proceedings guaranteeing the priority of the main proceedings.”