The EU Insolvency Regulation Recast enters into force - overview of key innovations
On 26 June 2017 the main provisions of the Regulation EU 2015/848 of 20 May 2015 on insolvency proceedings (the Recast Regulation) have entered into force. This occasion marks a new milestone in the further development of an EU legal framework for cross-border insolvency proceedings.
Background to the recast
The Recast Regulation builds on the foundations of the original insolvency regulation (EC No. 1346/2000), which entered into force in 2002 and which has been instrumental in reducing risk and strengthening cross-border cooperation in insolvency proceedings across EU member states. Following a review and subsequent negotiations, it was determined that the original regulation needed improvement and updating in a number of areas, which ultimately lead to the adoption of the present Recast Regulation.
What are the main innovations?
1. The new rules apply to a wider range of national restructuring proceedings. Certain types of national restructuring proceedings were not covered by the old set of rules, meaning that they could not be used in cross-border cases. It will now be possible to use an increased set of national restructuring proceedings to rescue businesses or recover money from debtors in other EU member states.
For Belgium, the following insolvency proceedings have been listed and fall within the scope of the Recast Regulation:
- Bankruptcy (faillissement/faillite);
- The different types of judicial reorganisation (gerechtelijke reorganisatie/réorganisation judiciaire);
- Collective debt restructuring (collectieve schuldenregeling/règlement collectif de dettes);
- Voluntary liquidation (vrijwillige vereffening/liquidation volontaire);
- Judicial liquidation (gerechtelijke vereffening/liquidation judiciaire); and
- Provisionary removal of management (voorlopige ontneming van beheer/dessaisissement provisoire) pursuant to article 8 of the Belgian Bankruptcy Act.
2. The Recast Regulation also provides an additional safeguard against so-called bankruptcy tourism (forum shopping). Whereas the original insolvency regulation identified the insolvent company’s centre of main interests (COMI) as the jurisdiction of its registered office (relevant for the purposes of opening main insolvency proceedings), this automatic presumption does not apply in case a debtor has relocated within a 3-month period prior to the request for the opening of insolvency proceedings. In such case the relevant court will have to carefully determine whether the relocation during a “suspect period” is genuine and not to take advantage of more lenient bankruptcy rules.
3. A third material change involves the reform of secondary proceedings (i.e. insolvency proceedings opened in an EU member state other than the one where the main insolvency proceedings have been opened). Going forward, secondary proceedings may also be opened in respect of reorganisation proceedings, thus broadening their scope. However, the Recast Regulation also introduces a specific procedure pursuant to which it becomes possible to avoid secondary proceedings. In short, the insolvency practitioner in the main insolvency proceedings may give a so-called “undertaking” (toezegging/engagement) in respect of the assets located in the member state where secondary proceedings could be opened. The purpose of this undertaking is to safeguard local distribution and priority rights, as well as the interests of local creditors. Lastly, further rules have been introduced that make it possible for an insolvency practitioner to intervene in or even suspend secondary proceedings.
4. In addition, an enhanced legal framework for group insolvencies is put in place to help ensure an efficient administration and proper coordination in case several group companies in different jurisdictions are involved. Going forward, the Recast Regulation provides amongst others for the possibility to request the opening of so-called group coordination proceedings, pursuant to which a designated coordinator shall help to establish a more integrated approach. This in turn is expected to help increase the changes of rescuing the group as a whole.
5. Lastly, the Recast Regulation also takes a decisive step towards the establishment of electronically searchable insolvency registers. The Belgian national insolvency register (www.regsol.be) has been up and running since 1 April 2017, as discussed in further detail in our earlier newsletter on this topic http://www.klaw.be/news-and-events/belgium-launches-its-central-solvency-register-1-april-2017-important-changes-filing. By the summer of 2019 there will be an EU-wide interconnection of electronic national insolvency registers. This will make it easier to obtain information on insolvency proceedings in other EU member states. In addition, these efforts are supported by the introduction by the European Commission of a uniform standard claims form, whereby foreign creditors will have a minimum of 30 days to lodge their claims.
Are there any transitional rules?
Yes. The provisions of the new regulation will apply to insolvency proceedings opened after 26 June 2017. Acts committed by a debtor before that date shall continue to be governed by the law which was applicable to them at the time they were committed. In addition, the previous insolvency regulation (EC No 1346/2000) shall continue to apply to insolvency proceedings which fall within the scope of that regulation and which have been opened before 26 June 2017.
For further questions on this topic please contact Isabelle Blomme or Walter Jacob.