INSOL International Global Insolvency Practice Course Module A Virginia Woolf Room Hotel Russell

1. INSOL International Global Insolvency Practice Course Module A Virginia Woolf Room Hotel Russell Monday 7th September- Wednesday 9th September 2015

2. Day Two

3. Welcome G. Ray Warner, Course Leader St. John’s University School of Law, Of Counsel, Greenberg Traurig LLP, USA

4. Session Five European Regulation on Insolvency Proceedings Bob Wessels University of Leiden The Netherlands

5. Themes of Today • Goals and Scope of InsReg • Some Cases of CJEU: • Focus: • Int.’l jurisdiction • Coordination of proceedings • Nortel Networks • Lehman Brothers • Alternatives for Treatment of Insolvency of Multinational Groups • EU Insolvency - Outlook

6. EU PRIVATE INT’L INSOLVENCY LAW FRAMEWORK 1. Int’l Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters 1968 Brussels Convention - now: 2002 Brussels Regulation (44/2001) Art. 1(2) excludes from its scope: (b) “bankruptcy” and analogous proceedings; 2. Int’l Jurisdiction, Recognition and Applicable Law in Insolvency Matters Regulation 1346/2000 on Insolvency Proceedings - Entry into force: 31 May 2002 Art. 1(2) excludes “financial institutions” from its scope

7. EU PRIVATE IIL LAW FRAMEWORK (Cont’d) 3. Insurance Undertakings / Credit Institutions “Insurance undertaking” Directive 2001/17 of 19th March 2001 [implementation date: 20 04 2003] (Art. 213 - 213kk Neth. BA) “Credit institution” Directive 2001/24 of 4th April 2001 [impl. date 05 05 2004] (Art. 212g – 212nn Neth. BA) Within context of Credit Institutions: Directive 94/19/EC on Deposit-guarantee Schemes EU Directive 98/26 on Netting and Securities settlement Systems EU Directive 2002/47 on Financial Collateral Arrangements The European Bank Recovery and Resolution Directive (BRRD): a minimum harmonization regime for resolution of banks and investment firms in the EU. Implementation: 1st January 2015 (with the exception of the part on the bail-in resolution tool – 1st January 2016).

8. Basis in TFEU (replaced TEC as of 1 December 2009 – O.J. C 115/171 (9.5.2008)) Title V (“Area of Freedom, Security and Justice”) Art. 67 TFEU (ex Art. 61 TEC): 1. The Union shall constitute an area of freedom, security and justice with respect for fundamental rights and the different legal systems and traditions of the Member States. 2. It shall ensure the absence of internal border controls for persons and shall frame a common policy on asylum, immigration and external border control,….. 3. The Union shall endeavour to ensure a high level of security through measures to prevent and combat crime, racism and xenophobia …., as well as through the mutual recognition of judgments in criminal matters and, if necessary, through the approximation of criminal laws. 4. The Union shall facilitate access to justice, in particular through the principle of mutual recognition of judicial and extrajudicial decisions in civil matters.

9. 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. ………….. versus Title IV “Free Movement of Persons, Services and Capital””; Art. 49 TFEU (ex Art. 43 TEC) “Right of Establishment”

10. GOALS of EU INSOLVENCY REGULATION Convention 1995 (Report Virgós / Schmit) > InsReg 2002 Rationale (object): EU wishes to coordinate measures to be taken regarding an insolvent debtor’s assets, while the proper functioning of the internal market requires that cross-border insolvency proceedings should operate efficiently and effectively InsReg aims to achieve this objective within the scope of judicial cooperation in civil matters within the meaning of Art. 65 [now Art. 81 TFEU] of the EC Treaty (“Freedom, Security and Justice”), so:

11. GOALS of EU INSOLVENCY REGULATION a. To determine the international jurisdiction of the courts or authorities with regard to the intra-Community effects of main insolvency proceedings b. To create certain uniform conflict-of-laws rules for such proceedings c. To ensure the recognition and enforcement of judgments given in such matters d. To make provisions for the possibility of opening secondary insolvency proceedings e. To ensure mutual coordination and communication between liquidators in main and secondary proceedings f. To guarantee information for creditors and a right to lodge claims

12. SCOPE IN SUBSTANCE EU InsReg is applicable to proceedings (Art. 1(1)): 1. That are “collective” : all creditors concerned may seek satisfaction only through these insolvency proceedings, as individual actions will be precluded 2. Based on “the debtors insolvency’” and not on other grounds the insolvency-test itself is rooted in the legislation of the lex concursus 3. The proceedings must entail the total or partial divestment of the debtor, and 4. The appointment of a ‘liquidator’.

13. SCOPE IN SUBSTANCE Limited framework: > “proceeding” and “liquidator” should be mentioned in one of the applicable Lists in the Annexes: A. Insolvency proceedings, referred to in Art. 2(a); B. Winding up proceedings, referred to in Art. 2(b), and C. “Liquidator”, as referred to in Article 2(c).

14. Check proceedings • Parmalat SpA: December 03 Amministrazione straordinaria delle grandi impressi in stato di insolvenza

15. Is this an “insolvency proceeding”?

16. “One or more of the Art. 1(1) requirements are lacking” Contentions: • No “proceedings” > contractual • No or only partly “collective” • No “divestment” > forms of DIP • No “appointment” of insolvency office holder • No “insolvency” > pre-insolvency rescue Major objection: Whose definitions to use, national, “Home” country or “Targetted Country”?? – there is no authorative (European) source

17. “One or more of the Art. 1(1) requirements are lacking” A G Jacobs (Opinion of 27 September 2005 re Eurofood), rejected such submissions: “84. The effect of Article 2(a) is that ‘the collective proceedings referred to in Article 1(1)’ are ‘listed in Annex A’. There is consensus among commentators on the Regulation that ‘once the proceedings have been included in the list, the Regulation applies without any further review by the courts of other Member States’. …. Since compulsory winding up by the court in Ireland is included in Annex A, I do not consider that the application of the Regulation to such proceedings may be put in doubt on the ground that certain aspects of the definition in Article 1(1) are not satisfied.”

18. France: “Provisional liquidator” in not mentioned in in Annex A A G Jacobs: “87. Again however that argument seems to me to betray a misunderstanding of the scheme of the Regulation. Compulsory winding up by the court in Ireland is listed in Annex A. The provisional liquidator, mentioned in the list in Annex C, was appointed in the context of such a proceeding. Those factors to my mind suffice.”

19. Italy: Amministrazione straordinaria France: Sauvegarde Amministrazionestraordinariadellegrandiimpressi in stato di insolvenza” (Extraordinary administration proceedings for huge undertakings), Sauvegardefinancièreaccélérée. “Subsumed by listed name in Annex A”

20. “Not (yet) in Annex” • 01-04-2009 Belgium “Act of Continuity of businesses” > Gerechtelijkereorganisatie, only since March 2010 in Annex A • 01-07-2010 Austria “SanierungsverfahrenmitEigenverwaltungunterAufsichteinesVerwalters” > June 2011 Annex? • Latvia - Annex A (of March 2010) listed 6 proceedings, but one misses the word “Ārpustiêsas” and three do not exist any more since 1 November 2010. The Annex of June 2011 only mentions three proceedings, but the cited word is still missing

21. Other examples • Since 2004 12 countries from Central and Eastern Europe joined the EU. These countries have mentioned the insolvencyproceedingsused in their national legislative body in Annex A, withoutpriorreview by the EU Commission or otherMSs • Estonia, since Dec 2008 included in national law a “reorganisation” proceeding (saneerimismenetlus) but it has not been added to Annex A • In Annex A of Italy: concordatopreventivo But it’s not “insolvency”, only a state of financial difficulty • 2012 Portugal included in national law “hybrid” proceeding processo especial de revitalização. Listed inAnnex A?

22. Other examples (cont’d) • Chapter 6 (or articles 99 ff) Greek Bankruptcy Code (as of September 2011) has introduced “rehabilitation” (εξυγίανση) (literally “restoration of health”). • It includes two types of agreements, a consensual agreement with a cram down feature and a kind of liquidation of the going concern that is styled “special liquidation” (ειδική εκκαθάριση), which is a similar proceeding to a proceeding with the same name that was abolished in A. • However Annex A already includes “special liquidation” which may have been meant for the proceeding that was abolished in 2007 that now has a different reference in the proceeding under the same name that was introduced in 2011.

23. Subsequent domestic changes – Annex A Given the goals of the Annex (avoid difficult characterisations and to provide other Member States certainty) an amendment of the Annex has to be awaited. Prof. Paulus submits: “The alternative, that the recognition of a foreign proceeding is dependent on the determination in an individual case, would disproportionately harm the efficiency of the Regulation compared to the acceptance and recognition of a questionable proceeding”.

24. SCOPE IN GEOGRAPHY As of 1 May 2004: 10 new Member States As of 21 April 2005: amended Annexes As of 7 May 2006: ditto As of 1 January 2007: Bulgaria, Romania join EU As of 13 June 2007: amended Annexes As of 8 August 2008: ditto As of 13 March 2010: ditto As of 9 June 2011: ditto And InsReg: Replaced 23 Bi-lateral Treaties and Conventions (Art. 44(1)) Shall not apply where it is irreconcilable with obligations arising “in relation to bankruptcy” from conventions between MSs and third country before 31 May 2002 Consolidated text: Archive 2006-2013, 2011-09-doc1

25. Changes to the Annexes in 2014 In a Council Implementation Regulation of 5 June 2014 the well-known Annexes to the EU Insolvency Regulation have been replaced. The Annexes have been replaced at the request of 8 EU Member States, generally reflecting changes in their national law level, most notably the withdrawal of 'old' national proceedings, being out-of-date or replaced by 'new' insolvency proceedings. Where it is common ground that only proceedings mentioned in Annex A can benefit from the Insolvency Regulation, this is an important regulation Do you wonder how Croatia, EU member since 1 July 2013, has been listed in the Annexes? Hrvatska's insolvency proceedings (and the name of its liquidators) was dealt with in the accession documents, see this blog 2014-03-doc7. For the new Annexes see blog 2014-06-doc12 

26. Croatia Regulation (EC) No 1346/2000 is amended as follows: (a) in Annex A, thefollowing is insertedafterthe entry for France: "HRVATSKA - Stečajnipostupak"; (b) in Annex B, thefollowing is insertedafterthe entry for France: "HRVATSKA - Stečajnipostupak"; (c) in Annex C, thefollowing is insertedafterthe entry for France: "HRVATSKA - Stečajniupravitelj - Privremenistečajniupravitelj - Stečajnipovjerenik - Povjerenik".

27. IMPACT The EU Insolvency Regulation applies to all (app. 100) listed insolvency proceedings in which a person/body (acting as “liquidator”) is appointed in 27 EU countries, whether the debtor is a natural person or a legal person, a trader, a merchant or an individual but not to insolvency proceedings concerning financial institutions (Art. 1(2)) ! 23 official EC languages !

28. InsReg: 5 Central Themes • 1. International Jurisdiction - Wessels • 2. Conflict of law rules (PIL / “IPR”) - • 3. Recognition - Wessels • 4. Coordination of proceedings - Wessels • 5. Creditors -

29. FORMAL SCOPE Main proceedings (Art. 3(1)): The courts of a Member State where the “centre of the debtor’s main interests” (COMI) is situated Universal scope and aim at encompassing all the debtor’s assets Recital 13: The ‘centre of main interests’ should correspond to “…. the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties” For a company or legal person COMI is the place of its registered office (rebuttable presumption)

30. FORMAL SCOPE Secondary proceedings (Art. 3(2) and Art. 27) The court of another Member State shall have only jurisdiction, if the debtor possesses an establishment within the territory of that other Member State (Art. 3(2)) Art. 2(h) – …. any place of operations where the debtor carries out a non-transitory economic activity with human means and goods Effects restricted to the assets of the debtor situated in the territory of the other Member State (Art. 3(2))

31. www.bobwessels.nl FORMAL SCOPE Secondary proceedings (Art. 3(2) + Art. 27): Purposes: (a) Protect – usually – local creditors from the main proceedings (b) Assist and support the main proceedings Opened after opening main proceedings: No “insolvency test” in other State Nature must be winding up proceedings (Annex B) (Art. (3)(3) and 27) Territorial scope

32. Impact of COMI decision • Art. 16 - recognition • Art. 4 - applicable law • Art. 18 - powers IOH • Art. 29(a) – request opening of sec. proc. in other MSs • Art. 31 - coordination main/secondary proc. • Art. 40 - duty to inform creditors

33. Theme 1 • Int’l Jurisdiction • Main – COMI – Recital 13 • Nature: Annex A • Universalism: lex concursus • COMI Presumption - companies • Secondary – establishment – 2(h) • Nature: liquidation - Annex B • No examination of debtor’s insolvency • Effects restricted to territory

34. www.bobwessels.nl COMI OUTSIDE EU?

35. Case law • Abstracts at http://www.insolvencycases.eu.index NB LexisNexis

37. 27. Turning to purposive interpretation, it seems to me that a reading of the Regulation which limited it (with regards legal persons) to debtors who are incorporated in any of the Member States would prevent the Regulation from achieving some of the purposes which are described in the recitals and would leave it open to avoidance, providing an incentive for artificial operations as regards the status of debtors comparable to those which, according to recital (4), it is part of the purpose of the Regulation to avoid. It would allow those who use corporate bodies to arrange that, although their business, assets and operations are based in a Member State, the relevant corporate body is incorporated outside the Community, so that the provisions of the Regulation would not apply to it or its assets. That would be inconsistent with the aim described in recital (3), and such an incentive for manipulation would be at least as inconsistent with the objectives of the Regulation as the examples of forum-shopping among Member States mentioned in recital (4). This is particularly the case since the Regulation contains no provisions dealing with affiliated companies or groups of companies, so that each debtor must be considered separately.

38. Cases

41. Daisytek • High Court of Justice Chancery Division – Leeds District Registry • Administration Order 16 May 2003 • Judgment 6 July 2003

44. AG Düsseldorf 6 June 2003 In three nearly similar judgments of 6 June 2003 AG Düsseldorf considers that the court is aware that the Leedsjudgment has to be respected, because it was first in time. Then follows: “The decision does not bring forward any legal effect towards the debtor-company. For the aforementioned decision has not mentioned and not respected the provisions of the Regulation. It is therefore rectified that the judgment of May 16 has its limits there, were the provisions of the German Insolvenzordnung have their own rules and insofar limit these effects to the preservation measures according to the decision of 19.5.2003.”

45. Race to the Court House ? Comments in Germany: Britannia rules the waves again!

47. High Court of Justice (Leeds) 12. The English Court has jurisdiction to open insolvency proceedings by making administration orders in respect of the German and French companies if “the centre of [the] debtor’s main interests” is centred in England or Wales (Article 3(1) of Council Regulation 1346/2000 – “the Regulation”). Recital (13) of the Regulation reads: “(13) The ‘centre of main interests’ shall correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties.” Article 3(1) provides that in the case of companies, “the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary”. Accordingly, before the English Court can open insolvency proceedings in respect of any of the German and French companies in the Group, the petitioning company must provide sufficient proof that its centre of main interests is in England to rebut the presumption in Article 3(1). 13. The three German companies have their registered offices in Neuss, Germany, but they conduct their business from premises in Freilassing, Magdeburg and Mulheim. The evidence was that the majority of the administration of the German companies is conducted from the Bradford office of International. In particular:

48. High Court of Justice (Leeds) 13.1. Although the German companies have separate bank accounts in Germany, the finance function is operated from Bradford, their business is funded by local subsidiaries of an English subsidiary of the Royal bank of Scotland and by a factoring agreement through an English subsidiary of the Royal Bank of Scotland, and their financial information is compiled in accordance with English accountancy principles and reviewed and approved by International in Bradford; 13.2. The German companies require the approval of International to buy anything in excess of 5000 euros; 13.3. All senior employees of the German companies are recruited in consultation with International; 13.4. All information technology and support are run from Bradford;

49. High Court of Justice (Leeds) 13.5. All pan-European customers are serviced by International in Bradford; contracts with such customers are negotiated by and entered into by International. These account for 15% of sales of the German companies; 13.6. 70% of purchases are under contracts negotiated and dealt with from Bradford. Purchases for major suppliers are made under contracts between the supplier and International; 13.7. All corporate identity and branding are run by International; 13.8. The German companies are required to carry out their business in accordance with a management strategy plan drawn up by the Chief Executive Officer of Daisytek-ISA Limited. He visits the German companies two days per month and spends 30% of his time (mainly in Bradford) on the management of the German companies.

50. High Court of Justice (Leeds) 14. I am satisfied from this evidence that Bradford is a place where each of the German Companies conducts the administration of its interests on a regular basis (Recital (13)). Recital (13) refers to the place “where the debtor conducts the administration of its interests on a regular basis and is therefore ascertainable by third parties”, while Article 3(1) requires that the centre of the debtor’s “main” interests should be in this country if an English Court is to have jurisdiction to open insolvency proceedings. ………