Consultation on the future of European Insolvency Law

1. Consultation on the future of European Insolvency Law Liz Pope Property Registration Authority (Ireland) ELRA General Assembly Brussels 1st June 2012

2. Why? • Commission have put the revision of the Insolvency Regulation in its work programme 2012 • One of the measures in the field of “Justice for Growth” set out in Commission’s Action Plan implementing the Stockholm Programme • EU’s current political priorities: promote economic recovery, sustainable growth, higher investment rate, preservation of employment [Europe 2020 strategy] • Survival of business [Small Business Act]

3. Why? • 50% enterprises do not survive first 5 years • 220,000 businesses went into liquidation in 2010 in EU • =600 companies went bust every day • Trend continues, need modern laws and efficient procedures to help good companies survive, entrepreneurs to take risk and have second chance. If cannot survive, need orderly manner for business to close down.

4. Applicable law: Insolvency Regulation • Regulation (EC) No 1346/2000 • Applicable from 31st May 2002 • Outcome of very lengthy negotiation process • Rules on jurisprudence, recognition and applicable law • Co-ordination of insolvency proceedings opened in several MS • Applies whenever the debtor has assets or creditors in more than one MS

5. Application of the Directive • Improved legal certainty, facilitated judicial co-operation cross border cases • Importance developments in national insolvency laws and considerable changes in economic and political environment call for review • Most MS bankruptcy laws modernised • Economic environment for companies have changed, international groups/subsidiaries, corporate governance rules and access to capital in global financial market • Small companies operating increasingly cross border, continuously have to adapt financial crisis, globalisation and increase in risk of financial difficulty

6. Difficulties • Disparities in national insolvency law create competitive advantages/disadvantages lead to obstacles to successful restructuring and favour forum shopping • Even in creation or substantive insolvency law not possible, certain areas where harmonisation possible and achievable • Outdated on implementation, many sensitive issues not included

7. Report of European Parliament Oct 2011 • Recommendations to the Commission for revision A7-0355/2011; 4 parts • Part (1) Harmonisation of specific aspects of insolvency and company law: • Certain aspects of the opening of insolvency proceedings • Certain aspects of filing of claims • Aspects of avoidance actions • General aspects of the requirements for the qualifications and work of liquidators • Aspects of restructuring plans

8. Part 2: Recommendation revision of Regulation • Scope of Reg broadened • Definitions “centre of main interests” and “establishment” • Co-operation between courts • Recommendation on certain aspects of avoidance actions

9. Part 3 • Recommendations on insolvency of groups of companies: • Where functional ownership structure allows, proceedings should be opened in MS where operational HQ of group located, single insolvency practitioner appointed, committee established to defend interest local cr’s and ee’s • Decentralised groups: rules for mandatory co-operation between courts and insolvency reps • Rules on access to court by liquidators, crs’ • Rules to facilitate co-operation, appointment of common liquidator • Rules to promote cross border insolvency agreements

10. Part 4 • Recommendation on the creation of an EU Insolvency Register • E-Justice Portal which should contain for every cross border insolvency opened: • Relevant court orders and judgements • Appointment of liquidator and person’s contact details • Deadlines for filing claims Transmission of the data to the EU Registry should be compulsory expressed in official language of MS in which proceedings opened and in English

11. Consultation • Questionnaire available until 21st June 2012 • http://ec.europa.eu/justice/newsroom/civil/opinion/120326_en.htm • Should Reg be applicable to over indebted private individuals and self-employed persons? • Has Reg created problems in practice in that it does not contain provisions for recognition of proceedings outside EU or for co-ordination of proceedings inside and outside EU

12. Consultation • Is it appropriate that jurisdiction for opening main insolvency proceedings be determined by location of debtor’s centre of its main interests? • Does it work efficiently and effectively for the insolvency of a group of multinational companies? • Applicable law-e.g. employment law determined by law applicable to the contract or example of opening of proceedings in one MS does not affect creditor with security interests in immovable property (rights in rem) located in another MS. Qn: Do you consider provisions on applicable law satisfactory

13. Consultation • Are you aware of cases where MS has refused to recognise insolvency proceedings or to enforce a decision on grounds of public policy? • Are there problems in general with lodging of claims in another MS or in the treatment of foreign creditors • Do differences in national law create obstacles to proper administration of cross-border proceedings? • Are there important inefficiencies in your national insolvency law? • Are cost of cross-border proceedings disproportionate with respect to the debt? • Should there be simplified procedures/reduced cost for certain debtors such as s/e and SME’s

14. ELRA response • ELRA intends to submit a response to Part V1 qns 16-19-Section on applicable law: Part VI: General rule, law of State where proceedings conducted Exceptions (e.g. employee contracts, law applicable to contract) Also, opening of proceedings in one MS does not affect creditors with security interests in immovable property (rights in rem) located in another MS. Rights in rem continue to be governed by law State property situate in.

15. NB: However rule has been criticised as creating an imbalanced situation between interests of secured cr’s and other cr’s as it protects secured creditors not only effects of foreign insolvency but also from domestic law. • Law of State of opening proceedings determines the conditions under which the insolvency practitioner can attack transactions at undervalue (“detrimental acts”). Person benefitting from act can oblige court to apply the law applicable to the transaction instead. Creates legal uncertainty.

16. Questions 16-19 • Do you consider that the Insolvency Regulation’s provision on applicable law are in general satisfactory? • In particular, are the exceptions to the general rule justified by the need to protect legitimate expectations and the legal certainty of transactions? • Does the provision on rights in rem operate satisfactorily in practice? • Does the provision on detrimental acts operate satisfactorily in practice?

17. ELRA view • Rights in rem immoveable property, lex rei sitae • Nature of interest and its enforceability governed by the law of the place the land is situate • Security affects both lender, borrower and third parties who deal with them • Would lead to uncertainty • Potential for a security interest to affected [e.g. borrower and lender in country A, land in country B, applicable law country A would have consequences for state guarantee (if applicable) of mortgage registered in the register of country B)

18. Summary The End Thank you