Update on the EU Regulation on Insolvency Proceedings
Regulation (EU) 2015/848 on Insolvency Proceedings (the Regulation) will come into force next 26 June 2017, replacing the former regulation dealing with this type of proceedings, Regulation (EU) 1346/2000.
The most significant aspects of the Regulation can be reduced to five points: (i) its scope of application has been extended to include pre-insolvency proceedings; (ii) it defines the “centre of main interests” (COMI) with a view to determining the territorial jurisdiction of the courts to avoid bogus transfers of the place of business and forum shopping; (iii) it enables secondary proceedings to be undertaken both during the composition phase and during the liquidation phase; (iv) it lays down the rules for information, publicity, and coordination in respect of insolvency proceedings opened in the European Union; and (v) it regulates insolvency proceedings for groups of companies.
Pre-insolvency proceedings in Spain subject to the provisions of the new Regulation are: (i) homologated (court-sanctioned) refinancing arrangement proceedings, in the words of the Regulation itself, “proceedings that promote the rescue of economically viable but distressed businesses and that give a second chance to entrepreneurs”; (ii) mediated settlement agreement proceedings, i.e., “proceedings providing for a debt discharge or a debt adjustment in relation to consumers and self-employed persons”; (iii) the notifications under art. 5bis of Spain’s Insolvency Act for concluding refinancing arrangements or preliminary composition proposals or any other regulated arrangement intended to secure temporary suspension of individual enforcement actions that might adversely affect negotiations between the debtor and its creditors and lower the prospects for successful restructuring.
At the same time, the following are outside the scope of application of the Regulation: (i) insolvency proceedings that have been declared confidential; and (ii) insolvency proceedings concerning insurance undertakings, credit institutions, investment firms and other entities subject to special arrangements.
Jurisdiction to hear the main insolvency proceedings is reserved to the court where the insolvent undertaking has its COMI. However, where a company has establishments in different Member States, secondary proceedings may be opened in the courts where the said establishments are located. Nevertheless, unlike the main proceedings, these secondary proceedings shall be limited solely to the assets located in the State in which the said secondary proceedings are being held.
For purposes of determining the COMI, the Regulation applies the case-law criteria handed down by the Court of Justice of the European Union, the COMI is defined as “the place where the debtor conducts the administration of its interests on a regular basis and that is ascertainable by third parties”. Accordingly, this definition opens the possibility that the COMI might not be located at the domicile listed on the relevant Register.
The Regulation makes provision for three cases for the presumptive location of the COMI: (i) the place in which the registered office is located; (ii) for individuals exercising an independent business or professional activity, it will be presumed to be located at the place where that professional activity is carried on; (iii) and for natural persons who are not businesspeople, it shall be deemed to be the place of habitual residence. To avoid bogus transfers of the place of business with the aim of having the insolvency proceedings heard by a specific court, the Regulation provides that relocation of the place of business of legal persons, independent professionals, and individuals exercising an independent business in the three months preceding the request to open insolvency proceedings shall not be valid for purposes of establishing the territorial jurisdiction of the court or body that should hear the insolvency proceedings. In the case of natural persons, the period is extended to the six months preceding the request to open insolvency proceedings.
The Regulation further allows both the debtor itself and the creditors to raise the challenge that the court that has opened the insolvency proceedings lacks jurisdiction, without prejudice to the court’s doing so itself, of its own motion, where this is alleged to be the case.
Applicable law governing insolvency proceedings shall, as a general rule, be the law of the Member State in which the said proceedings are held. Nevertheless, the Regulation provides for the following exceptions: (i) the law applicable to immovable property shall be that of the place where the said property is located; (ii) the law applicable to a contract of employment shall be the law governing the said contract, even though employment claims may be assessed in accordance with the rules for assessment under the laws of the State in which the proceedings are held.
To ensure that insolvency proceedings will be public, the Regulation stipulates that Member States shall establish an insolvency register (the Register) containing a minimum amount of mandatory information sufficient to enable creditors to ascertain the circumstances of the insolvency proceedings, e.g., the date of the opening of the proceedings, the court in charge of the matter, the particulars of the insolvency practitioner appointed, the time limit for creditors to lodge any claims they may hold against the insolvent company, etc. In this respect, the Regulation prescribes that the time limit for foreign creditors to lodge their claims shall be 30 days following publication of the opening of insolvency proceedings, hence it is necessary to keep abreast of publications issued by the Register. The time limit for lodging claims held by national creditors shall be as stipulated in the national laws regulating the proceedings. The various Registers established by each country are to be interconnected, so that the information will be readily available to the interested parties.
The last — but by no means the least important — new feature of the Regulation is the special status accorded to insolvencies of groups of companies, upholding the principles of coordination and cooperation among the companies while maintaining the separation of assets and the territorial separation of the companies in the group concerned, whereby each company shall be subject to its own insolvency proceedings separate from the proceedings of the other members of the group located in different Member States.
In short, these new features are a response to the internationalisation of the marketplace and the need for cooperation among the Member States of the European Union so that insolvency proceedings will not suffer from legal shortcomings and situations pending solution; and at all events, although they are a step forward compared with the previous regulation, they fall far short of providing a real solution to insolvencies of groups of companies.
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