European Insolvency Regulation: Article-by-Article Commentary 9781509924103, 9781509924110

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Reemers Publishing Services GmbH o:/Beck/Brinkmann_978-3-406-69858-3/3d/00b_Preface.3d from 15.08.2019 12:48:40 3B2 9.1.580; Page size: 160.00mm  240.00mm

Preface The spring of 2019 marks the beginning of a new era for European insovency law: The Directive on Restructuring and Insolvency will soon enter into force and will be implemented in the Member States within the next two years. Many new and probably rather diverse kinds of proceedings will be created by the national legislators and made available as restructuring tools or as surrogates for traditional insolvency proceedings. This is happening against the backdrop of a potential Brexit, the details of which are still largely unclear at the time of writing. If the UK eventually leaves the EU – and the author of these lines has still not given up hope that this European catastrophe can be averted all together – the remaining Member States will compete for the then vacant position of the most attractive jurisdiction for restructuring in Europe. There is a manifest risk of a race to the bottom and in turn we might be confronted with a ‘Delaware-like situation’ regarding European restructuring proceedings. When the idea for this book was conceived back in 2014, the world looked very different, not only because populism was not a global phenomenon yet. The changes mentioned above were hardly predictable. To harmonise the substantive insolvency law of the Member States appeared to be a futuristic idea and mainly a topic for academic discussion. And that the UK would actually leave the EU was – at least for the author – an absurd notion. The coming years will be the ultimate test for the European Insolvency Regulation. As the economic situation in Europe and worldwide is deteriorating, insolvencies will probably rise. The new restructuring procedures will offer innovative options, but also pose new questions. It is our hope that this book can help to ensure that the Regulation is a valuable tool for addressing these issues. Many people have contributed to this project. First of all, I wish to thank my coauthors for their patience and flexibility through the years it took to finalise the book. Thomas Klich from Beck Hart Nomos deserves credit for always believing in this project and for providing great support particularly during difficult phases. Lastly, I wish to express my gratitude to the team of my chair at the University of Bonn – in particular, Hannah Freitag, Simon Kemper and Thomas Schmitz-Justen. They have done an impressive job in aligning the manuscripts, making them ready for print and putting together the indexes. Very few books can claim to be perfect, this one certainly does not. I shall be grateful for any comments or ideas to improve this commentary ([email protected]. de). Bonn, April 2019

Moritz Brinkmann

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Reemers Publishing Services GmbH o:/Beck/Brinkmann_978-3-406-69858-3/3d/00bb_List of Authors.3d from 15.08.2019 12:48:42 3B2 9.1.580; Page size: 160.00mm  240.00mm

List of Authors Moritz Brinkmann is a Full Professor at the University of Bonn, where he holds a chair for civil law and insolvency law. He is managing director at the Institute for the law of German and International Civil Procedure. He studied at the Universities of Hamburg and Heidelberg. Moritz Brinkmann holds an LL. M. from McGill University as well as a doctorate from the University of Heidelberg. He received the venia legendi for civil law, the law of civil procedure, insolvency law, international private law and comparative law in 2009 from the University of Cologne. [Introduction; Articles 1; 2 no. 1–8; 3–5] Michael Dahl is a lawyer in Cologne specialised in Insolvency and Corporate Law and operating consultatory as well as in forensic matters. He is author of numerous articles for insolvency legal magazines and books. He is Co-editor of the Neue Zeitschrift für Insolvenz- und Sanierungsrecht (NZI) and permanent author of Neue Juristische Wochenschrift – Spezial (NJW-Spezial). Up to 2016 he was editor in chief of the International Insolvency Law Review (IILR). He received his education at the universities of Bielefeld and Cologne. [Jointly with Justus Kortleben Articles 2 no. 9, 12; 8–11; 13–15; 17–18; 53–55] Béla Knof works as a lawyer out of the Hamburg office of a leading international law firm (www. whitecase.com). He received his legal education at the Leibniz University Hannover and the Hanseatic Higher Regional Court of Hamburg. He is the author of a variety of publications, particularly on German and European insolvency law as well as on company and banking law. [Jointly with Scott C. Maesch Articles 16; 45–52] Justus Kortleben is a lawyer based in Cologne. His practice focuses on Insolvency and Corporate Law. He regularly writes articles for law journals. He received his education at the Universities of Göttingen and Valencia (Spain) and holds a MLE and a doctorate from the University of Göttingen. [Jointly with Michael Dahl Articles 2 No. 9, 12; 8–11, 13–15; 17–18; 53–55] Björn Laukemann is a Senior Research Fellow at the Max Planck Institute Luxembourg for International, European and Regulatory Procedural Law. He graduated from the University of Tübingen and holds a Maîtrise en Droit (Aix-en-Provence). In 2009, he obtained a Ph.D. from the University of Heidelberg for a dissertation on comparative insolvency law. Björn Laukemann was awarded a lectureship for International and European procedural law as well as for Insolvency Law by the University of Trier. [Articles 36; 37] Marc D. Lienau is Head of Division at the Ministry of Justice and Gender Equality of the Land (German Federal State) Saxony-Anhalt. Previously he served for 15 years as a judge and dealt for several years with insolvency law issues at the Federal Ministry of Justice and Consumer Protection. [Articles 61–77] Stephan Madaus is a Professor at Martin Luther University Halle-Wittenberg (Germany) where he teaches German, European and international insolvency law as well as contract and tort law. He is a board member of the International Insolvency Institute and a Founding Member of the Executive of the Conference of European Restructuring and Insolvency Law (CERIL). [Articles 2 no. 10, 11; 6; 34; 35; 38–40] Scott C. Maesch works as a lawyer out of the Düsseldorf office of a leading international law firm (www.whitecase.com). He received his legal education at the University of Hamburg and the Hanseatic Higher Regional Court of Hamburg, holds a B.A. from Northwestern University in Evanston, Illinois, and a doctorate from the University of Cologne. [Jointly with Béla Knof Articles 16; 45–52] Andreas Piekenbrock has been the holder of the Chair for Private Law and Insolvency Law at Heidelberg University since 2009. He has qualified for the academic career at the University of Freiburg in 2005. From 1996 to 2009 he was admitted to the bar at Karlsruhe. He has participated in the External Evaluation of Regulation No. 1346/2000 on Insolvency Proceedings known as the Heidelberg Luxembourg-Report-Vienna in 2012. [Article 7] Johannes Richter is a senior researcher at the Institute for the law of German and International Civil Procedure, University of Bonn, and currently working on his habilitation. He received his

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List of Authors education at the Universities of Bonn and York and holds a doctor’s degree from the University of Bonn. [Article 12] David Rüther received his education at the Rheinische Friedrich-Wilhelms-University of Bonn. He holds an LL.M. from Columbia Law School (CLS), where he was a Harlan Fiske Stone Scholar. [Articles 78–86; 90–92] Dominik Skauradszun is a Full Professor of civil law and economic law at Fulda University and an of counsel at Gleiss Lutz. He is a visiting professor of European insolvency law at law schools in England, Ireland and the US. He received his law degree and a PhD at the University of Tuebingen. Prior to his academic career, he was appointed as a judge, working at courts of first and second instance.[Jointly with Andreas Spahlinger, Articles 2 no. 13, 14; 41–44; 56–60] Andreas Spahlinger is a partner with Gleiss Lutz and head of the Gleiss Lutz restructuring group. He received his education at the universities of Tübingen, Bonn and Aix-Marseille, holds a Maîtrise en Droit from the university Aix-Marseille and a doctorate from the university of Tübingen. [Jointly with Dominik Skauradszun Articles 2 no. 13 and 14; 41–44; 56–60] Pál Szirányi is a legal officer of the European Commission, currently working at DirectorateGeneral for Justice and Consumers, with an experience of more than fifteen years of policymaking and legislation in the EU policy area of judicial cooperation in civil and commercial matters. [Articles 24–30; 87–89] Christoph Thole is a law professor at the University of Cologne and Director of the Institute of International and European Insolvency Law and the Institute of Procedural and Insolvency Law. He received his education at the Universities of Bayreuth, Münster and Bonn. He also graduated in economics. His research focuses on European and German Insolvency Law. He is author of numerous articles on Insolvency Law as well as Civil and Procedural Law. [Articles 19–23; 31–33]

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Abbreviations A. C. ................................... ABGB ................................. acc. to ................................. Act. proc. coll. .................. ADD ................................... AG ....................................... AG ....................................... Am. Bankr. L.J ................. AnfG ................................... AnfO ................................... arg. ...................................... Art. ...................................... ASA Bulletin ..................... AUT .................................... BAG .................................... BAGE ................................. BB ........................................ BCC .................................... BeckRS ............................... Beschl. v. ............................ BFH .................................... BGB .................................... BGBl. .................................. BGH .................................... BGHZ ................................. BIL ...................................... BRIS .................................... Brook. J. Corp. Fin. & Com. L. .............................. Brooklyn J. Int. Law/ Brook J Int’l L .................. Brussels I Regulation ...... Brussels Ia Regulation .... BT-Drs. .............................. Bull. civ. ............................. BVerfG ............................... BW ...................................... C.A. ..................................... C.c. ...................................... c.c. ....................................... C.com. ................................ C.jud. .................................. Cass. ass. plèn. .................. Cass. civ. ............................ Cass. com. ......................... cf. ......................................... Ch. ...................................... chap. ................................... CJEU ...................................

Law Reports, Appeal Cases (England and Wales) Allgemeines bürgerliches Gesetzbuch (Austria) according to Actualités des procédures collectives (France) addendum Amtsgericht (Germany) Die Aktiengesellschaft (Germany) The American Bankruptcy Law Journal (United States of America) Anfechtungsgesetz (Germany) Anfechtungsordnung (Austria) argument Article Bulletin of the Swiss Arbitration Association (Switzerland) Austria Bundesarbeitsgericht (Germany) Entscheidungen des Bundesarbeitsgerichts (Germany) Betriebs-Berater (Germany) British Company Law Cases (United Kingdom) Beck online Rechtsprechung (Germany) Beschluss vom Bundesfinanzhof (Germany) Bürgerliches Gesetzbuch (Germany) Bundesgesetzblatt (Germany) Bundesgerichtshof (Germany) Entscheidungen des Bundesgerichtshofs in Zivilsachen (Germany) Banque Internationale à Luxembourg SA Business Registers Interconnection System Brooklyn Journal of Corporate, Financial & Commercial Law (United States) Brooklyn Journal of International Law (United States) Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters Bundestagsdrucksache Bulletin civil de la Cour de cassation (France) Bundesverfassungsgericht (Germany) Burgerlijk Wetboek (Netherlands) Court of Appeal of England and Wales Code civil (France) codice civile (Italy) Code de commerce (France) Code judiciaire (Belgium) Cour de cassation – Assemblée plénière (France) Cour de Cassation, chamber civile (France) Cour de cassation – Chambre commerciale (France) confer chapter chapter Court of Justice of the European Union

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Abbreviations CoCo Guidelines .............. COD ................................... COM .................................. COMI ................................. CVA .................................... DB ....................................... DEU .................................... DIP ..................................... Dir. Un. eur. ..................... diss. op. .............................. Doc. .................................... Dz. U. ................................. DZWIR .............................. e. g. ...................................... EBLR .................................. EBOR ................................. EC ....................................... ECFR .................................. ECGI ................................... ECL ..................................... ecolex .................................. ECP ..................................... ECR ..................................... ed. ........................................ EDPS .................................. EEC ..................................... EFTA .................................. EG ....................................... EGBGB ............................... EGInsO .............................. EIR/EIR 2015 .................... EIR 2000 ............................ ERA Forum ....................... ESMA ................................. EST ..................................... et al. .................................... et seq. ................................. etc. ....................................... EU ....................................... EUR .................................... EuZW ................................. EvBl .................................... EWCA Civ ........................ EWHC ............................... EWHC (Comm) .............. EWiR .................................. EWS .................................... f./ff. ..................................... Fasc. .................................... FG ....................................... fn. ........................................ FRA ..................................... Fw ....................................... GBR .................................... GG ......................................

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Communication and Cooperation Guidelines for Cross- Border Insolvency Ordinary legislative procedure and former Co-decision procedure European Commission documents Centre of main interests company voluntary arrangement Der Betrieb (Germany) Germany Debtor in Possession Diritto dell’Unione Europea (Italy) dissenting opinion Document Dziennik Ustaw Rzeczypospolitej Polskiej (Poland) Deutsche Zeitschrift für Wirtschafts- und Insolvenzrecht (Germany) exempli gratia European Business Law Report European Business Organisation Law Review European Community European Company and Financial Law Review (Germany) European Corporate Governance Institute European Company Law ecolex – Fachzeitschrift für Wirtschaftsrecht (Austria) European Central Platform “European Court Reports” – Reports of cases before the Court of Justice and the General Court edition European Data Protection Supervisor European Economic Community European Free Trade Association Europäische Gemeinschaft (Germany) Einführungsgesetz zum Bürgerlichen Gesetzbuch (Germany) Einführungsgesetz zur Insolvenzordnung (Germany) Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings Journal of the Academy of European Law European Securities and Markets Authority Estonia Et alii et sequentia et cetera European Union Euro Europäische Zeitschrift für Wirtschaftsrecht (Germany) Evidenzblatt (Austria) England and Wales Court of Appeal (Civil Division) England and Wales High Court High Court of England and Wales (Commercial Court) Entscheidungen zum Wirtschaftsrecht (Germany) Europäisches Wirtschafts- und Steuerrecht (Germany) and the following fascicule (France) Finanzgericht (Germany) footnote France Faillissementswet (Netherlands and Belgium) United Kingdom of Great Britain and Northern Ireland Grundgesetz (Germany)

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Abbreviations GmbH ................................ GmbHG ............................. GmbHR ............................. GPR .................................... GRUR ................................. Hastings Int. Comp. L. Rev. ..................................... HessLAG ........................... HGB .................................... HL ....................................... i. e. ....................................... IBAN .................................. ibid. ..................................... ICCLR ................................ id. ........................................ IFSC .................................... IILR ..................................... InDret ................................. InsBüro .............................. InsO .................................... INSOL ................................ Insolv. Int. ......................... Int. Arb. L. Rev. ............... Int. Insolv. Rev. ................ Int’l Fin. L. Rev. ............... IO ........................................ IPRax .................................. IPRspr ................................ IT ......................................... ITA ..................................... IWRZ ................................. J. Eur. L. ............................. J. Priv. Int. L. .................... J.O. ...................................... JCP G ................................. JOR ..................................... JudgeCo Guidelines ......... JudgeCo Pinciples ............ jurisPR-InsR ..................... K.c. ...................................... KG ....................................... KSchG ................................ KSzW ................................. KTS ..................................... l. fall. ................................... LAG .................................... LC ....................................... LG ....................................... Lisbon Treaty (2009) ...... lit. ........................................ LMK ...................................

Gesellschaft mit beschränkter Haftung GmbH-Gesetz (Germany/Austria) Die GmbH-Rundschau (Germany) Zeitschrift für das Privatrecht der Europäischen Union (Germany) Gewerblicher Rechtsschutz und Urheberrecht (Germany) Hastings International and Comparative Law Review (United States) Hessisches Landesarbeitsgericht (Germany) Handelsgesetzbuch (Germany) House of Lords of the United Kingdom (until 2009) id est international bank account number ibidem International Company and Commercial Law Review idem International Finance Services Centre International Insolvency Law Review Revista para el Análisis del Derecho (Spain) InsBüro- Zeitschrift für Insolvenzsachbearbeitung und Entschuldungsverfahren (Germany) Insolvenzordnung (Germany) Professional association for European restructuring and insolvency specialists Insolvency Intelligence (England) International Arbitration Law Review (England) International Insolvency Review (England) International Financial Law Review Insolvenzordnung (Austria) Praxis des Internationalen Privat- und Verfahrensrechts (Germany) Die deutsche Rechtsprechung auf dem Gebiete des Internationalen Privatrechts (Germany) Information Technology Italy Zeitschrift für internationales Wirtschaftsrecht (Germany) Journal of European Law Journal of Private International Law Journal officiel (France) Juris-Classeur périodique, édition générale (France) Jurisprudentie Onderneming & Recht (Netherlands) EU Cross- Border Insolvency Court- to- Court Communications Guidelines EU Cross- Border Insolvency Court- to- Court Communication Principles juris PraxisReport Insolvenzrecht (Germany) Kodeks Cywilny (Poland) Kammergericht Berlin (Germany) Konsumentenschutzgesetz (Austria) Kölner Schrift für Wirtschaftsrecht (Germany) Konkurs – Treuhand – Sanierung (Germany) legge fallimentare (Italy) Landesarbeitsgericht (Germany) Ley Concursal (Spain) Landgericht (Germany) Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, signed at Lisbon, 13 December 2007 Litera Kommentierte BGH-Rechtsprechung Lindenmaier-Möhring (Germany)

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Abbreviations Ltd. ...................................... Mich. L. Rev. .................... MiFID II ............................

mn. ...................................... MPI ..................................... n. ......................................... n. F. ..................................... n° ......................................... NBB-SSS ............................ NIPR ................................... NJ ........................................ NJW .................................... NJW-RR ............................ NLD .................................... no. ....................................... NSCR .................................. NZA .................................... NZG .................................... NZI ..................................... NZM ................................... ÖBA .................................... ÖBA .................................... OGH ................................... öGmbHG ........................... OJ ........................................ OJ L .................................... ÖJZ ..................................... OLG .................................... ONCA ................................ p./pp. .................................. para./paras. ........................ PC ....................................... POL ..................................... R.A. E. – L.E.A. ................. RabelsZ .............................. RdW ................................... Rep. Foro it. ...................... Rev. crit. dr. int. priv. ..... Rev. dr. comm. belge ...... Rev. proc. coll. .................. RI ......................................... Riv. dir. int. priv. proc. .. RIW .................................... Rome I Regulation .......... Rome II Regulation ......... RW ...................................... s. .......................................... S. I. ...................................... sch. ......................................

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Limited Michigan Law Review (United States) “Markets in Financial Instruments” – Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU marginal number Max Planck Institute number neue Fassung Numero Securities Settlement System of the National Bank of Belgium Nederlandse Internationaal Privaatrecht (Netherlands) Nederlandse Jurisprudentie (Netherlands) Neue Juristische Wochenschrift (Germany) Neue Juristische Wochenschrift Rechtsprechungs-Report Zivilrecht (Germany) Netherlands number Nejvyšší soud České republiky (Czech Republic) Neue Zeitschrift für Arbeitsrecht (Germany) Neue Zeitschrift für Gesellschaftsrecht (Germany) Neue Zeitschrift für Insolvenz- und Sanierungsrecht (Germany) Neue Zeitschrift für Miet- und Wohnungsrecht (Germany) Österreichisches Bankarchiv (Austria) Österreichisches Bank-Archiv (Austria) Oberster Gerichtshof (Austria) GmbH-Gesetz (Austria) Official Journal of the European Communities Official Journal of the European Union – Legislation Österreichische Juristen Zeitung (Austria) Oberlandesgericht (Germany/Austria) Ontario Court of Appeal (Canada) page/pages paragraph/paragraphs Privy Council Poland Revue des Affaires Européennes/Law & Europe Affairs (Belgium) Rabels Zeitschrift für ausländisches und internationales Privatrecht (Germany) Recht der Wirtschaft (Austria) Repertorio del Foro italiano (Italy) Revue critique de droit international privé (France) Revue de droit commercial belge (Belgium) Revue des procédures collectives (France) Rechtspraak Insolventierecht (Netherlands) Rivista di diritto internazionale privato e processuale (Italy) Recht der internationalen Wirtschaft (Germany) Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) Rechtskundig Weekblad (Belgium) sentence Statutory Instruments schedule

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Abbreviations sec. ...................................... SFD ..................................... SSRN .................................. subpara ............................... SWD ................................... Swiss Int’l. Arb. L. Rep. .. SZ ........................................ TEU .................................... Texas Int’l L. J. ................. TFEU .................................. U. S. .................................... UCL J. L. and J. ............... UGB .................................... UK ....................................... UKSC ................................. Uncitral .............................. Urt. v. ................................. v/vs. ..................................... VAT .................................... VGH ................................... Vienna Report .................. vol. ...................................... VSPH .................................. WM .................................... Yb. Priv. Int. L ................. ZEuP ................................... ZfRV ................................... ZGR .................................... ZHR .................................... ZIK ...................................... ZInsO ................................. ZIP ...................................... ZPO .................................... ZVG .................................... ZVglRWiss ........................ ZVI ..................................... ZZP ..................................... ZZPInt ................................

Section “Settlement Finality Directive” – Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems Social Science Research Network subparagraph staff working document Swiss International Arbitration Law Report (Switzerland) Sammlung Zivilrecht (Autria) Treaty on European Union (2007) Texas International Law Journal Treaty on the Functioning of the European Union United States of America UCL (University College London) Journal of Law and Jurisprudence (United Kingdom) Unternehmensgesetzbuch (Austria) United Kingdom of Great Britain and Northern Ireland United Kingdom Supreme Court United Nations Commission on International Trade law Urteil vom versus value added tax Verfassungsgerichtshof (Austria) External Evaluation of Regulation 1346/2000/EC on Insolvency Proceedings, Heidelberg- Luxembourg- Vienna Report Volume Vrchní soud v Praze (Czech Republic) Wertpapiermitteilungen (Germany) Yearbook of Private International Law Zeitschrift für Europäisches Privatrecht (Germany) Zeitschrift für Europarecht, Internationales Privatrecht und Rechtsvergleichung (Austria) Zeitschrift für Unternehmens- und Gesellschaftsrecht (Germany) Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (Germany) Zeitschrift für Insolvenzrecht & Kreditschutz (Germany) Zeitschrift für das gesamte Insolvenz- und Sanierungsrecht (Germany) Zeitschrift für Wirtschaftsrecht (Germany) Zivilprozessordnung (Germany) Gesetz über die Zwangsversteigerung und die Zwangsverwaltung (Germany) Zeitschrift für Vergleichende Rechtswissenschaft (Germany) Zeitschrift für Verbraucher- und Privat-Insolvenzrecht (Germany) Zeitschrift für Zivilprozessrecht (Germany) Zeitschrift für Zivilprozess International (Germany)

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General Bibliography Arts, Main and Secondary Proceedings in the recast of the European Insolvency Regulation, 24 Norton Journal of Bankruptcy Law and Practice 2015, 436 Balz, Das neue Europäische Insolvenzübereinkommen, ZIP 1996, 948 Balz, The European Convention on Insolvency Proceedings, 70 American Bankruptcy Law Journal 1996, 485 Bork, Principles of Cross-Border Insolvency Law, intersentia 2017 Bork/Mangano, European Cross-Border Insolvency Law, Oxford University Press 2016 Bork/van Zwieten, Commentary on the European Insolvency Regulation, Oxford University Press 2016 Braun, Insolvenzordnung, 7th ed., C. H. Beck 2017 Brinkmann, Grenzüberschreitende Sanierung und europäisches Insolvenzrecht, KTS 2014, 381 Brünkmans, Koordinierung von Insolvenzverfahren, Duncker & Humblot 2009 Dammann, Sinn und Zweck von Sekundärverfahren nach der Reform der EuInsVO, Festschrift für Siegfried Beck zum 70. Geburtstag, C. H. Beck 2016, 73 Dammann/Menjucq/Roussel Galle, Le nouveau règlement européen sur les procédures d’insolvabilité, Revue des procédures collectives n° 1 2015 Dammann/Rapp, La clarification du rôle joué par la procédure secondaire dans l’architecture du règlement relatif aux procédures d’insolvabilité transfrontalières, Recueil Dalloz 2015, 45 Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Springer 2002 Eidenmüller, Abuse of Law in the context of European Insolvency Law, ECFR 2009, 1 Eidenmüller, Was ist ein Insolvenzverfahren?, ZIP 2016, 145 Eidenmüller/Frobenius/Prusko, Regulierungswettbewerb im Unternehmensinsolvenzrecht: Ergebnisse einer empirischen Untersuchung, NZI 2010, 545 European Commission, Impact Assessment Accompanying the document Revision of Regulation (EC) No 1346/2000 on insolvency proceedings, 2012 Fehrenbach, Haupt- und Sekundärinsolvenzverfahren, Mohr Siebeck 2014 Fierbinteanu/Nemes, A New Approach In Cross Border Cases – Regulation (EU) No 2015/848 of the European Parliament And of the Council of 20th May 2015 On Insolvency Proceedings (Recast)?, Challenges of the Knowledge Society 2017, 227 Fletcher, Insolvency in Private International Law, 2nd ed., Oxford University Press 2005 Frankfurter Kommentar zur Insolvenzordnung see Wimmer Garcimartín, The Review of the Insolvency Regulation: Hybrid Procedures and other issues, IILR 2011, 321 Garcimartin, The EU Insolvency Regulation Recast: Scope, Jurisdiction and Applicable Law, Zeitschrift für Europäisches Privatrecht, ZEuP 2015, 694 Geimer/Schütze, Europäisches Zivilverfahrensrecht, 3rd ed., C. H. Beck 2010 Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, 56th ed., C. H. Beck 2018 Graf-Schlicker, Das europäische Insolvenzpaket – Aufbruch zu einem europäischen Insolvenzrecht?, Festschrift für Bruno M. Kübler zum 70. Geburtstag, C. H. Beck 2015, 195 Graf-Schlicker, Insolvenzordnung, 4th ed., RWS Verlag 2014 Hamburger Kommentar zum Insolvenzrecht see A. Schmidt Hanisch, ‘Universality’ versus Secondary Bankruptcy: A European Debate, International Insolvency Review 1993, 151

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General Bibliography Heidelberger Kommentar zur Insolvenzordnung see Kayser/Thole Hess/Oberhammer/Bariatti/Koller/Laukemann/Isidro/Villata, The Implementation of the New Insolvency Regulation, Nomos 2017 Hess/Oberhammer/Pfeiffer, European Insolvency Law: The Heidelberg-Vienna-Luxembourg Report, C. H. Beck 2014 Huber, Die Europäische Insolvenzverordnung, EuZW 2002, 490 Janger, Virtual Territoriality, 48 Columbia Journal of Transnational Law 2010, 401 Kayser/Thole, Heidelberger Kommentar zur Insolvenzordnung, 9th ed., C.F. Müller 2018 Kirchhof/Stürner/Eidenmüller, Münchener Kommentar zur Insolvenzordnung, 3rd ed., C. H. Beck, vol. 1: §§ 1–79, Insolvenzrechtliche Vergütungsverordnung (InsVV), 2013, vol. 2: §§ 80–216, 2013, vol. 3: §§ 217–359, Art. 103a-110 EGInsO, Konzerninsolvenzrecht, Insolvenzsteuerrecht, 2014, vol. 4: EuInsVO 2000, Art. 102 und 102 a EGInsO, EuInsVO 2015, Länderberichte, 2016 Kübler/Prütting/Bork, Kommentar zur Insolvenzordnung, 78th ed., RWS Verlag 2018 Kolmann, Thoughts on the governing insolvency law, IILR 2011, 272 Leible/Staudinger, Die europäische Verordnung über Insolvenzverfahren, KTS 2000, 533 Madaus, Insolvency proceedings for corporate groups under the new Insolvency Regulation, IILR 2015, 235 Mankowski, Internationale Nachlassinsolvenzen, ZIP 2011, 1501 Mankowski/Müller/J. Schmidt, EuInsVO 2015, C. H. Beck 2016 McCormack, Reforming The European Insolvency Regulation: A Legal And Policy Perspective, 10 J. Priv. Int. L. 2014, 41 Mendiola, Elisa Torralba, ‘Synthetic’ insolvency proceedings, November 2015, available at: https:// www.ga-p.com/wp-content/uploads/2018/07/synthetic-insolvency-proceedings.pdf (last visited June 2019) Moss, Group Insolvency – Choice of Forum and Law: The European Experience under the Influence of English Pragmatism, 32:3 Brooklyn Journal of International Law 2007, 1005 Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, 3rd ed., Oxford University Press 2016 Münchener Kommentar zum Bürgerlichen Gesetzbuch see Säcker/Rixecker/Oetker/Limperg Münchener Kommentar zur Insolvenzordnung see Kirchhof/Stürner/Eidenmüller Oberhammer, Zur internationalen Anfechtungsbefugnis des Sekundärverwalters nach Europäischem Insolvenzrecht, KTS 2008, 271 Oberhammer, Von der EuInsVO zum europäischen Insolvenzrecht, KTS 2009, 27 Pannen, European Insolvency Regulation, De Gruyter 2007 Pannen, Europäische Insolvenzverordnung, De Gruyter 2007 Paulus, Europäische Insolvenzverordnung, 5th ed., Fachmedien Recht und Wirtschaft 2017 Piekenbrock, Das ESUG – fit für Europa?, NZI 2012, 905 Piekenbrock, Das Europäische Insolvenzrecht im Umbruch, KSzW 2015, 191 Piekenbrock., The future scope of the European Insolvency Regulation, IILR 2014, 424 Pluta/Keller, Das virtuelle Sekundärinsolvenzverfahren nach der reformierten Europäischen Insolvenzverordnung, Festschrift für Heinz Vallender zum 65. Geburtstag, RWS Verlag 2015, 437 Pottow, A New Role for Secondary Proceedings in International Bankruptcies, 46 Texas Int’l L. J. 2011, 579 Prager/Keller, Der Entwicklungsstand des Europäischen Insolvenzrechts, WM 2015, 805 Rauscher, Europäisches Zivilprozess- und Kollisionsrecht, vol. 2, 4th ed., Otto Schmidt 2015 Säcker/Rixecker/Oetker/Limperg, Münchener Kommentar zum Bürgerlichen Gesetzbuch, vol. 12, 7th ed., C. H. Beck 2018 A. Schmidt, Hamburger Kommentar zum Insolvenzrecht, 6th ed., Carl Heymanns 2016

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General Bibliography K. Schmidt, Insolvenzordnung, 19th ed., C. H. Beck 2016 Schmiedeknecht, Der Anwendungsbereich der Europäischen Insolvenzverordnung und die Auswirkungen auf das deutsche Insolvenzrecht, Peter Lang 2004 M. Stürner, Jurisdiction for Avoidance Claims of Insolvent Investment Undertakings, Recht ohne Grenzen: Festschrift für Athanassios Kaissis zum 65. Geburtstag, Otto Schmidt 2012, 975 Thole, Die Anerkennung von (außerinsolvenzlichen) Sanierungs- und Restrukturierungsverfahren im Europäischen Verfahrensrecht, Europäische und Internationale Dimension des Rechts: Festschrift für Daphne-Ariane Simotta, 613, LexisNexis ARD ORAC 2012 Thole, Die Reform der Europäischen Insolvenzverordnung – Zentrale Aspekte des Kommissionsvorschlags und offene Fragen, ZEuP 2014, 39 Tollenaar, Proposal for Reform: Improving the ability to rescue multinational Enterprises under the European Insolvency Regulation, IILR 2011, 252 Uhlenbruck, Insolvenzordnung, 14th ed., Vahlen 2015 Undritz, Sekundärinsolvenzverfahren nach der Europäischen Insolvenzverordnung, Festschrift für Heinz Vallender zum 65. Geburtstag, RWS Verlag 2015, 745 Vallender, EuInsVO, RWS Verlag 2017 Veder, The Future of the European Insolvency Regulation – Applicable law, in particular security rights, IILR 2011, 285 Virgós/Garcimartín, The European Insolvency Regulation: Law and Practice, Kluwer Law International 2004 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, 1996 Wautelet, Insolvabilité européenne et procédures secondaires (Secondary Proceedings Under the Revised Insolvency Regulation), 8 June 2015, available for download at: https://ssrn.com/abstract=2687625 (last visited June 2019) M.-P. Weller, Die intertemporale Behandlung der Insolvenzverschleppungshaftung beim Insolvenzstatutenwechsel, Sanierung, Insolvenz, Berufsrecht der Rechtsanwälte und Notare: Festschrift für Hans-Georg Ganter zum 65. Geburtstag, C. H. Beck 2010, 439 Wessels, International Insolvency Law, 3rd ed., Kluwer Law International 2012 Wimmer, Die Besonderheiten von Sekundärinsolvenzverfahren unter besonderer Berücksichtigung des Europäischen Insolvenzübereinkommens, ZIP 1998, 982 Wimmer, Die Regelungen zu den synthetischen Sekundärinsolvenzverfahren in der Neufassung der EuInsVO, Festschrift für Siegfried Beck zum 70. Geburtstag, C. H. Beck 2016, 587 Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, Luchterhand 2016 Wimmer, Frankfurter Kommentar zur Insolvenzordnung, 9th ed., Luchterhand 2018 Würdinger, Die Anerkennung ausländischer Entscheidungen im europäischen Insolvenzrecht, IPRax 2011, 562

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INTRODUCTION Outline A. Four categories of questions in international insolvency law................................ B. The raison d’etre of the EIR: the need for harmonisation in the field of international insolvency law .......................................................................................... C. Principles underlying the provisions of the EIR....................................................... I. Limited universalism .............................................................................................. II. The applicability of the lex fori concursus......................................................... III. Protection of local interests .................................................................................. IV. Efficiency................................................................................................................... D. The EIR as part of European law................................................................................. I. Legislative basis ....................................................................................................... II. The interpretation of the EIR............................................................................... III. The interplay between rules on international insolvency in the law of the Member States and the EIR.................................................................................. IV. The interplay between the EIR and Directives 2001/24/EC and 2009/138/ EC ............................................................................................................................... E. The history and future of European insolvency law................................................ I. The history ............................................................................................................... II. Brexit.......................................................................................................................... III. The Directive on restructuring, insolvency and discharge of debt..............

1 4 10 11 19 21 26 33 33 34 36 39 41 41 46 47

A. Four categories of questions in international insolvency law In today’s globalised world, insolvency proceedings more often than not touch upon 1 cross-border issues. These can arise for example if an enterprise or individual owns assets in more than one jurisdiction or creditors are located in different jurisdictions. Questions that may originate from cross-border issues can be divided into four 2 categories: – questions regarding international jurisdiction, – questions regarding the applicable law, – questions regarding the cross-border-effects of proceedings, – questions regarding the coordination and harmonisation of proceedings opened in different jurisdictions. As these questions are of partly procedural and partly substantive nature, interna- 3 tional insolvency law is a field in which questions of international civil procedural law and questions of private international law are intertwined.

B. The raison d’etre of the EIR: the need for harmonisation in the field of international insolvency law The European internal market seeks to guarantee the free movement of goods, 4 capital, services and labour. In a common market, businesses will ideally distribute their assets across several jurisdictions and contract with business partners and customers that are situated in other Member States. If assessing their position in potential insolvency proceedings over their (foreign) business partners was difficult, trade within Brinkmann

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the European internal market would be hampered. The progressing integration of the European internal market is thus inseparably connected to the questions regarding international insolvency law, see recital 3 EIR. In order to overcome this problem of foreseeability, two solutions are conceivable: one way would be to harmonise or unify the insolvency laws of the Member States in order to reduce the differences or to even wipe them out completely. While this might theoretically be the optimal solution of foreseeability issues, it would practically be difficult – if not impossible – to harmonise the fundamentally differing insolvency laws of the Member States. Such an attempt further faced serious political obstacles, as it necessarily interfered with the property laws of the Member States which are typically a sensitive subject due to their traditionally strong nexus to questions regarding national sovereignty. Hence, the European legislator has adopted another approach. Rather than unifying the substantive law, the EU has addressed the problem at the levels of procedural as well as private international law. The result is the EIR, which unifies the provisions on international jurisdiction and recognition as well as the conflict of laws-rules. Such an approach is not only politically less problematic given the EU’s mandate for the unification of private international law pursuant to Article 81 TFEU, but is also conceptually easier to realise. Along with improving the foreseeability with respect to the applicable law, a unified international insolvency law will enhance legal certainty and efficiency in insolvency proceedings with cross-border effects. Legal certainty will in particular profit from clear rules on international jurisdiction. If these rules are carefully designed, they will function as an obstacle to forum shopping and in turn improve foreseeability of the applicable law. Efficiency is improved by the unification of international insolvency law insofar it involves the adoption of an, albeit limited, universalistic approach. Such an approach allows for insolvency proceedings to encompass all of the debtor’s assets, no matter in which Member State they are located. Including all of the debtor’s assets in the proceedings not only renders concurrent proceedings in several States regarding the same debtor unnecessary, but also facilitates restructurings and going concern sales.

C. Principles underlying the provisions of the EIR 10

Four principles govern the rules of international insolvency law, namely universalism, the applicability of the lex fori concursus, the protection of local interests and efficiency.1 These principles and the way the EU legislator balances them are the basis of the EIR’s answers to the four questions of international insolvency law, see above mn. 2.

I. Limited universalism 11

The most important principle of the EIR is the idea of limited universalism. According to this concept, insolvency proceedings commenced at the debtor’s centre of main interests (COMI) pertain in principle to all assets of the debtor, regardless of their location. Article 19 EIR guarantees these universal effects by acknowledging that any judgment opening insolvency proceedings handed down by a court of a Member 1

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On principles of international insolvency law see Bork, Principles of Cross-Border Insolvency Law.

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State is recognised in every other Member State. Recognition is automatic and does not require any formalities. The idea of automatic recognition, which is subject to the public policy-exception of Article 33 EIR, is built upon the principle of mutual trust (recital 65 EIR) between the Member States. It is crucial to ensure the non-degradation of this principle of European law to a mere fiction. Hence, the EIR contains a number of safeguards in order for the proceedings to – be opened on the basis of a careful examination as to international jurisdiction (Articles 4 and 5 EIR), – meet certain basic transparency requirements (Articles 24–27 EIR), and – provide for the fair treatment of foreign creditors (Articles 53–55 EIR). Two effects of recognition deserve highlighting. First, if a judgement opening main insolvency proceedings is recognised in another Member State, this State is prevented from opening additional main proceedings, Article 3(3) EIR. The opening of main insolvency proceedings bars courts of all other Member States from opening concurrent main insolvency proceedings, see Brinkmann below Art. 3 mn. 46 et seq. The second effect of recognition is set out in Article 20 EIR, according to which the judgement opening main insolvency proceedings “shall produce the same effects in any other Member State as under the law of the State of the opening of proceedings”. Hence, the proceedings principally have the same legal effects in all Member States. As the same law consequentially governs these steps and measures in all Member States, reorganisation of the debtor, asset sales, and discharge decisions are facilitated. This makes it – even though subject to exceptions, such as Articles 8 and 10 EIR – irrelevant in which Member State an asset or an affected creditor is situated. Another aspect of the universalistic approach is Article 21 EIR, which ensures that an insolvency practitioner appointed in main insolvency proceedings enjoys the same rights in all Member States. This provision also enhances the efficacy of the administration of the estate since it remedies the need to appoint practitioners in each jurisdiction where assets of the debtor are located. The EU-wide effects of insolvency proceedings and the powers of the insolvency practitioner can, however, be restricted by the opening of secondary proceedings in one or several Member States pursuant to Articles 3(2), 34–52 EIR. These proceedings only pertain to assets of the debtor that are situated in the territory of the Member State in which the proceedings have been opened, Article 3(2)(sentence 2) EIR. At the same time, the opening of secondary proceedings displaces the effects of the main proceedings with respect to these assets. The opening of proceedings with only territorial effects requires that the debtor has an establishment (Article 2 no. 10 EIR) within the territory of the Member State opening the proceedings. There are two kinds of proceedings with only territorial effects: secondary proceedings pursuant to Articles 34–52 EIR are proceedings that are opened after main proceedings have been opened in the COMI-State, see Article 3(3) EIR; and independent territorial proceedings, i. e. insolvency proceedings in another Member State than the COMI-State without parallel main insolvency proceedings. The opening of independent territorial proceedings is only possible if the situation meets the conditions specified in Article 3(4) EIR.

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II. The applicability of the lex fori concursus It is helpful to distinguish the (principally) EU-wide effects of main insolvency 19 proceedings and the question of the governing law. Regarding the latter, the EIR Brinkmann

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Introduction 20–25 generally follows the rule that the insolvency law of the Member State, in which the insolvency proceedings have been opened, is applicable (lex fori concursus). The lex fori concursus-rule is a principle that applies to main (Article 7 EIR) as well as secondary proceedings (Article 35 EIR). 20 This principle, however, is subject to a number of exceptions. These exceptions can be assorted into two categories: conflict of laws-rules and substantive provisions. First, Articles 8–18 EIR refer to other laws than the the lex fori concursus. These provisions are conflict of laws-rules (disputed for Articles 8 and 10, see Dahlt/Kortleben below Art. 8, mn. 25 as well as Article 10, mn. 12), which supersede the lex fori concursus-rule as lex specialis. Secondly, another type of exceptions are, for example, Articles 22–24, 28–31, and 53–55 EIR. These Articles contain substantive provisions rather than conflict of lawsrules. They replace and supersede the national rules on insolvency proceedings to the effect that conflict of laws-provisions, such as the lex fori concursus-rule, are inapplicable.

III. Protection of local interests 21

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The exceptions to the lex fori concursus-rule as well as the exceptions to the universalistic approach, i. e. the option to restrict the EU-wide effects of main insolvency proceedings by way of opening secondary proceedings pursuant to Articles 3(2), 34 EIR, are both implementing and underpinning another principle of the EIR, namely the protection of local interests. These interests can be those of another Member State or interests of creditors, that are located in another Member State than the State in which proceedings have been opened. The interests of foreign creditors are protected by several provisions of substantive law. Article 5 EIR, for example, bestows upon the creditors the right to “challenge the decision opening main insolvency proceedings on grounds of international jurisdiction.” By exercising this right, creditors can protect themselves against the effects of main proceedings that have been opened in another Member State than the COMIState. Similarly, some exceptions to the lex fori concursus serve to protect the interests of creditors if their position has certain ties to another Member State than the State in which proceedings have been opened, see for example Articles 8, 9, 10 and 16 EIR. Another example for substantive provisions protecting the rights of foreign creditors are Articles 53–55 EIR regarding the lodgement of claims. Other exceptions to the lex fori concursus protect the interests of Member States. Article 13 EIR, for example, prevents the interference of the lex fori concursus with another Member State’s labour law or social security law. Similarly, Article 11 EIR protects the interests of a State by determining that its own national law governs all questions regarding immovable property in its territory (lex rei sitae). Pursuant to recital 40 EIR, secondary proceedings can serve the purpose of protecting “local interests”. These interests, however, are not necessarily the interests of “local” creditors who have a special connection to the State where the establishment is located. The right to request the opening of secondary proceedings does, on the contrary, not presuppose the existence of any nexus between the petitioner and the State where the petition is filed, see Article 37 EIR. Hence, secondary proceedings primarily protect the interests of the State in whose territory the establishment is located. The State has an interest in exercising control over the winding-up or reorganization of businesses which possess an establishment within its territory. Article 33 EIR, i. e. the public policy exception, works as an ultima ratio to protect the interests of other Member States.

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IV. Efficiency The EIR puts great emphasis on fostering and improving the efficiency of insolvency proceedings (see recital 3 EIR), as can be seen in the number of mechanisms and provisions serving this goal. One of the most important provisions in this field is Article 3(3) EIR. According to this provision, the opening of main insolvency proceedings has the effect that all subsequently opened proceedings regarding the same debtor are by definition secondary proceedings. This blocking effect avoids (at least to some extent) conflicting opening decisions leading to concurrent and thus inefficient proceedings. In order to ensure the proper functioning of the priority principle, which is the basis of Article 3(3) EIR, it is paramount that courts and creditors have efficient means to inform themselves about insolvency proceedings pending in other Member States. A fast and easy access to such information is provided by the registry system, which is implemented by the EIR 2015 (Articles 24–29 EIR). This system not only helps to avoid parallel proceedings (recital 76 EIR), but is a precondition for the effective exercise of the creditors’ procedural rights, such as the remedy under Article 5 EIR or the lodgement of claims under Article 53 EIR. Another provision, which helps to foster efficiency, is the vis attractiva concursus, which is the consequence of Article 6 EIR. This provision has the effect that actions, which are closely linked to the insolvency proceedings, can be brought before the courts of that State where the proceedings have been opened. The law applicable to those actions will often be the lex fori concursus pursuant to Article 7 EIR. This improves efficiency, as the court can apply its own domestic law.2 In terms of efficiency, secondary proceedings are a double-edged sword: on the one hand they can facilitate the administration of the estate (recital 40 EIR); on the other hand, they may impede the effectiveness of the main proceedings, in particular concerning sales or reorganisations (see recital 41). The EIR offers two mechanisms to contain these detrimental effects of secondary proceedings: the first one is to avoid the formal opening of secondary proceedings by using undertakings pursuant to Article 36 EIR. If an undertaking is approved, no secondary proceedings will be opened. The practitioner of the main proceedings, however, “will comply with the distribution and priority rights under national law that creditors would have if secondary insolvency proceedings were opened in that Member State” (“synthetical secondary proceedings”). The other mechanism is the coordination of proceedings. If no undertaking has been given and secondary proceedings are opened, it is important that the involved courts and practitioners cooperate rather than work against each other. Articles 43–52 EIR aim to facilitate cross-border cooperation and communication between courts and practitioners. The extent to which the reform and expansion of these provisions will help to improve the often unfriendly climate between the various players in main and secondary proceedings remains to be seen. The purpose of Articles 56–77 EIR is to foster efficiency with respect to group insolvencies. Articles 56–59 EIR, which resemble Articles 41–43 EIR, import the principle of cooperation and communication from the interplay between main and secondary proceedings to insolvency proceedings of different debtors that belong to the same group of companies. In addition, Articles 61–77 EIR provide for the possibility of coordination proceedings. The rules on coordination proceedings are, however, highly 2

On the efficiency advantages of a lex fori-rule see Brinkmann, ZZP 2015, 461, 467.

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Introduction 33–37 technical and complicated, and thus unlikely to be a significant contribution to the efficiency of group insolvencies.

D. The EIR as part of European law I. Legislative basis 33

Under Article 81 TFEU, the EU has a mandate to “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”. Even if these measures should “in particular” (Article 81(2) TFEU) aim at the proper functioning of the internal market, the application of the EIR does not per se require the proceedings to have effects in another Member State. It suffices if the debtor’s COMI is located in a Member State and the proceedings have effects in at least one other State, be it a Member or non-Member State.3

II. The interpretation of the EIR Like all EU-law, the EIR is to be interpreted autonomously. Hence, concepts and connotations of legal terms of a given Member State are as such not determinative for the understanding of European law. To the contrary, the provisions of the EIR must be interpreted primarily in light of other European law and the decisions of the CJEU. The autonomous interpretation ensures the uniform application and understanding of European law in all Member States. 35 Referral proceedings are the procedural tool to safeguard the uniform application of the EIR, Article 267 TFEU. By way of such a procedure, national courts may refer questions regarding the application and interpretation of European law to the CJEU if the court or tribunal in a Member State “considers that a decision on the question is necessary to enable it to give judgment.” According to Article 267(3) TFEU, a court shall refer such questions to the CJEU if “there is no judicial remedy under national law” against the decision of the national court. Failure to comply with this obligation to refer may violate national due process-rules which allows recourse against the decision before the constitutional court.4 34

III. The interplay between rules on international insolvency in the law of the Member States and the EIR The EU legislator chose to adopt the provisions on insolvency proceedings in a Regulation instead of a Directive, which needs to be implemented by the national authorities. As a Regulation, the EIR is directly applicable and supersedes any provisions in the laws of the Member States in the field of international insolvency law. Domestic provisions only remain applicable if the proceedings are outside the scope of the EIR, see Brinkmann below Art. 1 mn. 2. 37 In some respects, however, the EIR needs implementing provisions in the national laws in order to be executable in the Member States. For example, the laws of the 36

3 CJEU Case C-328/12 Ralph Schmid ECLI:EU:C:2014:6, NZI 2014, 134 = IPRax 2014, 425 – Schmid [comment by Arts, IPRax 2014, 390]. 4 See BVerfG (DEU), Beschl. v. 6.7.2010 – 2 BvR 2661/06, NJW 2010, 3422.

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Member States determine, which national courts have jurisdiction to open insolvency proceedings. The laws of the Member States also define the time limitations and formal requirements that apply to the remedies mentioned in Article 5 EIR. It would be extremely helpful if information on national rules pertaining to the 38 application of the EIR in the different Member States were accessible via the European e-Justice Portal.5 Currently, this website only provides overviews on the insolvency regimes of many, albeit not all, Member States. These overviews should be accompanied by information on the function of certain provisions of the EIR in a given Member State. To be able to easily access information on the content of the applicable national law, is essential for creditors wishing to exercise their rights under the EIR.

IV. The interplay between the EIR and Directives 2001/24/EC and 2009/138/EC The EIR is not the only piece of legislation in the field of insolvency and restructuring 39 in European law. In particular the Directives 2001/24/EC on the reorganisation and winding up of credit institutions and 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) contain provisions on insolvency proceedings of the covered institutions. According to Article 1(2) EIR, the EIR does not apply to insolvency proceedings of 40 insurance undertakings and credit institutions. The transferability of certain concepts of the EIR, is, however, debatable. In particular, the Deko Marty-doctrine, which was developed by the CJEU6 and is now incorporated in Article 6 EIR, should also be applied with regard to actions deriving directly from insolvency proceedings of credit institutions or insurance undertakings. Such a transfer would beg the question, however, whether national provisions that implement the Directives can be interpreted accordingly.

E. The history and future of European insolvency law I. The history The roots of the EIR 2015 go back into the 60ies of the last century.7 In 1963 the EEC 41 endowed a committee with the task to develop a convention on the recognition and enforcement of judgements in bankruptcy matters. The committee produced a draft convention in 1970.8 Several years of difficult negotiations eventually led to a new draft which was published in 1982.9 The process, however, came to a halt, as it was impossible to come to an agreement. As the process on the level of the EEC had thus been suspended, an initiative developed 42 on the level of the Council of Europe. This resulted in the Istanbul Convention of 1990.10 5

https://e-justice.europa.eu/content_insolvency-447-en.do?init=true, last visited November 2018. CJEU, 12 February 2009, Case C-339/07, Deko Marty, ECLI:EU:C:2009:83. 7 A detailed analysis of the history of European Insolvency law is presented by van Zwieten, in Bork/ van Zwieten, Commentary on EIR, Introduction, mn. 0.15.–0.29. 8 EEC Preliminary Draft Convention on Bankruptcy, Winding-up, Arrangements, Compositions, and Similar Proceedings (1970). The English version from August 1974 was subsequently published as Commission Document 3.327/1/XIV/70-E. 9 Bulletin of the European Communities Supplement 2/82. 10 European Convention on Certain International Aspects of Bankruptcy, Istanbul 5 June 1990. 6

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Introduction 43–46 This convention, however, was not ratified by the necessary number of signatory states so it never entered into force. 43 Even before the Istanbul Convention was opened for signature, the EEC had revived its efforts to create a framework for the recognition and enforcement of bankruptcy proceedings in the Member States: In 1989 a working group was established, which produced a first draft in 1992.11 Three years later, on 23 November 1995, the Convention on Insolvency Proceedings was opened for ratification by the Member States of the (now) European Union.12 This convention, however, never entered into force, as the required ratification by all Member States failed due to the hold out of the UK. 44 After the Treaty of Amsterdam was signed on 2 October 1997, and entered into force on 1 Mai 1999 a new approach in the field of cross border insolvency law in the EU was initiated by Finland and Germany. It was suggested that the EU should adopt the substance of the Convention on Insolvency Proceedings as a Council Regulation.13 This approach led to the adoption of the Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (EIR 2000). The EIR 2000 entered into force on 31 May 2002. 45 The EIR 2000 contained in Article 46 a review clause, pursuant to which the Commission had to present a report on the application of the Regulation. This report14 was based on the Heidelberg-Luxembourg-Vienna Report15, which was published along with a proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings.16 This proposal was significantly changed and expanded during the subsequent negotiations. On 20 May 2015 the Regulation (EU) 2015/848 of the European Parliament and of the Council on insolvency proceedings (recast) was finalized. Pursuant to the (subsequently revised) Article 84 EIR 2015 the recast Regulation applies to insolvency proceedings opened on or after 26 June 2017, see Rüther below Art. 84 mn. 3.

II. Brexit 46

To what extent a (at the time of writing – future) Brexit will affect European insolvency law is impossible to determine. It is yet completely unclear what the terms of a Brexit will look like. Furthermore, there is still hope that this European catastrophe can at the last moment be averted altogether. If the EIR should after a hard Brexit indeed no longer be applicable with respect to the UK, the UK would be in a position similar to the one in which Denmark currently is, recital 88 EIR, see Brinkmann below Art. 1 mn. 30. The laws of the Member States and of the UK jurisdictions would govern the cross-border effects of insolvency proceedings. This would fundamentally affect cross border financing and the effective administration on insolvency proceedings in Europe. It would be highly advisable to mitigate these effects by setting up a sister convention to the EIR, which – following the role model of the Brussels Ia Regulation and the Lugano Convention –would in substance extend the rules that apply among the Member States to the UK. Such a convention also offered the chance to extend the EIR rules in substance also to those non-EU States that are Members of the European Free Trade Association. 11

SN/1831 2/92 DRS (CFC). Council Document CONV/INSOL/X1. 13 Resolution on the Convention on Insolvency Proceedings of 23 November 1995. 14 Com [2012] 743 final. 15 JUST/2011/JCIV/PR/0049/A4. 16 COM/2012/0744 final. 12

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47–48 Introduction

III. The Directive on restructuring and insolvency The Directive on restructuring and insolvency17 will significantly affect the practice of 47 restructurings and insolvency in the EU. It is one of the goals of the Directive to harmonize the law of the Member States in the field of restructuring in order to facilitate cross-border financing (recital 8 of the Directive). To what extent this goal will be achieved depends largely upon the question whether the types of proceedings that will be implemented in the Member States will be included in Annex A EIR. Only if Annex A EIR is expanded accordingly, cross-border recognition of preventive restructuring schemes is guaranteed. If a given type of proceedings is not included in Annex A EIR, the EIR is inapplicable. 48 Whether the effects of such schemes can be recognized under the Brussels Ia Regulation or on a substantive level under the Rome I Regulation or on the basis of autonomous rules in the field of international insolvency law of the Member States is unclear. The inclusion of preventive restructuring proceedings in Annex A EIR is, however, not selfevident. Under the EIR, only “public” proceedings qualify as insolvency proceedings, see Brinkmann below Art. 1 mn. 14 et seq. As the Directive (EU) 2017/1132 does not require publicity (recital 13 of the Directive), some Member States will adopt non-public preventive restructuring schemes, which technically cannot be brought under the EIR. The likely outcome of the Directive is a confusing patchwork of significantly differing national restructuring procedures, some of which will be covered by the EIR, whereas others will not. 17 Directive of the European Parliament and of the Council on preventive restructuring frameworks, on discharge of debt and disqualifications, and measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.

Brinkmann

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REGULATION (EU) 2015/848 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 20 May 2015 on insolvency proceedings (recast)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 81 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee1, Acting in accordance with the ordinary legislative procedure2, Whereas: (1) On 12 December 2012, the Commission adopted a report on the application of Council Regulation (EC) No 1346/20003. The report concluded that the Regulation is functioning well in general but that it would be desirable to improve the application of certain of its provisions in order to enhance the effective administration of crossborder insolvency proceedings. Since that Regulation has been amended several times and further amendments are to be made, it should be recast in the interest of clarity. (2) The Union has set the objective of establishing an area of freedom, security and justice. (3) The proper functioning of the internal market requires that cross-border insolvency proceedings should operate efficiently and effectively. This Regulation needs to be adopted in order to achieve that objective, which falls within the scope of judicial cooperation in civil matters within the meaning of Article 81 of the Treaty. (4) The activities of undertakings have more and more cross-border effects and are therefore increasingly being regulated by Union law. The insolvency of such undertakings also affects the proper functioning of the internal market, and there is a need for a Union act requiring coordination of the measures to be taken regarding an insolvent debtor’s assets. (5) It is necessary for the proper functioning of the internal market to avoid incentives for parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position to the detriment of the general body of creditors (forum shopping). 1

OJ C 271, 19.9.2013, p. 55. Position of the European Parliament of 5 February 2014 (not yet published in the Official Journal) and position of the Council at first reading of 12 March 2015 (not yet published in the Official Journal). Position of the European Parliament of 20 May 2015 (not yet published in the Official Journal). 3 Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (OJ L 160, 30.6.2000, p. 1). 2

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Regulation 2015/848 (6) This Regulation should include provisions governing jurisdiction for opening insolvency proceedings and actions which are directly derived from insolvency proceedings and are closely linked with them. This Regulation should also contain provisions regarding the recognition and enforcement of judgments issued in such proceedings, and provisions regarding the law applicable to insolvency proceedings. In addition, this Regulation should lay down rules on the coordination of insolvency proceedings which relate to the same debtor or to several members of the same group of companies. (7) Bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings and actions related to such proceedings are excluded from the scope of Regulation (EU) No 1215/2012 of the European Parliament and of the Council4. Those proceedings should be covered by this Regulation. The interpretation of this Regulation should as much as possible avoid regulatory loopholes between the two instruments. However, the mere fact that a national procedure is not listed in Annex A to this Regulation should not imply that it is covered by Regulation (EU) No 1215/2012. (8) In order to achieve the aim of improving the efficiency and effectiveness of insolvency proceedings having cross-border effects, it is necessary, and appropriate, that the provisions on jurisdiction, recognition and applicable law in this area should be contained in a Union measure which is binding and directly applicable in Member States. (9) This Regulation should apply to insolvency proceedings which meet the conditions set out in it, irrespective of whether the debtor is a natural person or a legal person, a trader or an individual. Those insolvency proceedings are listed exhaustively in Annex A. In respect of the national procedures contained in Annex A, this Regulation should apply without any further examination by the courts of another Member State as to whether the conditions set out in this Regulation are met. National insolvency procedures not listed in Annex A should not be covered by this Regulation. (10) The scope of this Regulation should extend to proceedings which promote the rescue of economically viable but distressed businesses and which give a second chance to entrepreneurs. It should, in particular, extend to proceedings which provide for restructuring of a debtor at a stage where there is only a likelihood of insolvency, and to proceedings which leave the debtor fully or partially in control of its assets and affairs. It should also extend to proceedings providing for a debt discharge or a debt adjustment in relation to consumers and self-employed persons, for example by reducing the amount to be paid by the debtor or by extending the payment period granted to the debtor. Since such proceedings do not necessarily entail the appointment of an insolvency practitioner, they should be covered by this Regulation if they take place under the control or supervision of a court. In this context, the term “control” should include situations where the court only intervenes on appeal by a creditor or other interested parties. (11) This Regulation should also apply to procedures which grant a temporary stay on enforcement actions brought by individual creditors where such actions could adversely affect negotiations and hamper the prospects of a restructuring of the debtor’s business. Such procedures should not be detrimental to the general body of creditors and, if no agreement on a restructuring plan can be reached, should be preliminary to other procedures covered by this Regulation. 4 Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (OJ L 351, 20.12.2012, p. 1).

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Regulation 2015/848 (12) This Regulation should apply to proceedings the opening of which is subject to publicity in order to allow creditors to become aware of the proceedings and to lodge their claims, thereby ensuring the collective nature of the proceedings, and in order to give creditors the opportunity to challenge the jurisdiction of the court which has opened the proceedings. (13) Accordingly, insolvency proceedings which are confidential should be excluded from the scope of this Regulation. While such proceedings may play an important role in some Member States, their confidential nature makes it impossible for a creditor or a court located in another Member State to know that such proceedings have been opened, thereby making it difficult to provide for the recognition of their effects throughout the Union. (14) The collective proceedings which are covered by this Regulation should include all or a significant part of the creditors to whom a debtor owes all or a substantial proportion of the debtor’s outstanding debts provided that the claims of those creditors who are not involved in such proceedings remain unaffected. Proceedings which involve only the financial creditors of a debtor should also be covered. Proceedings which do not include all the creditors of a debtor should be proceedings aimed at rescuing the debtor. Proceedings that lead to a definitive cessation of the debtor’s activities or the liquidation of the debtor’s assets should include all the debtor’s creditors. Moreover, the fact that some insolvency proceedings for natural persons exclude specific categories of claims, such as maintenance claims, from the possibility of a debt-discharge should not mean that such proceedings are not collective. (15) This Regulation should also apply to proceedings that, under the law of some Member States, are opened and conducted for a certain period of time on an interim or provisional basis before a court issues an order confirming the continuation of the proceedings on a non-interim basis. Although labelled as “interim”, such proceedings should meet all other requirements of this Regulation. (16) This Regulation should apply to proceedings which are based on laws relating to insolvency. However, proceedings that are based on general company law not designed exclusively for insolvency situations should not be considered to be based on laws relating to insolvency. Similarly, the purpose of adjustment of debt should not include specific proceedings in which debts of a natural person of very low income and very low asset value are written off, provided that this type of proceedings never makes provision for payment to creditors. (17) This Regulation’s scope should extend to proceedings which are triggered by situations in which the debtor faces non-financial difficulties, provided that such difficulties give rise to a real and serious threat to the debtor’s actual or future ability to pay its debts as they fall due. The time frame relevant for the determination of such threat may extend to a period of several months or even longer in order to account for cases in which the debtor is faced with non-financial difficulties threatening the status of its business as a going concern and, in the medium term, its liquidity. This may be the case, for example, where the debtor has lost a contract which is of key importance to it. (18) This Regulation should be without prejudice to the rules on the recovery of State aid from insolvent companies as interpreted by the case-law of the Court of Justice of the European Union. (19) Insolvency proceedings concerning insurance undertakings, credit institutions, investment firms and other firms, institutions or undertakings covered by

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Regulation 2015/848 Directive 2001/24/EC of the European Parliament and of the Council5 and collective investment undertakings should be excluded from the scope of this Regulation, as they are all subject to special arrangements and the national supervisory authorities have wide-ranging powers of intervention. (20) Insolvency proceedings do not necessarily involve the intervention of a judicial authority. Therefore, the term “court” in this Regulation should, in certain provisions, be given a broad meaning and include a person or body empowered by national law to open insolvency proceedings. In order for this Regulation to apply, proceedings (comprising acts and formalities set down in law) should not only have to comply with the provisions of this Regulation, but they should also be officially recognised and legally effective in the Member State in which the insolvency proceedings are opened. (21) Insolvency practitioners are defined in this Regulation and listed in Annex B. Insolvency practitioners who are appointed without the involvement of a judicial body should, under national law, be appropriately regulated and authorised to act in insolvency proceedings. The national regulatory framework should provide for proper arrangements to deal with potential conflicts of interest. (22) This Regulation acknowledges the fact that as a result of widely differing substantive laws it is not practical to introduce insolvency proceedings with universal scope throughout the Union. The application without exception of the law of the State of the opening of proceedings would, against this background, frequently lead to difficulties. This applies, for example, to the widely differing national laws on security interests to be found in the Member States. Furthermore, the preferential rights enjoyed by some creditors in insolvency proceedings are, in some cases, completely different. At the next review of this Regulation, it will be necessary to identify further measures in order to improve the preferential rights of employees at European level. This Regulation should take account of such differing national laws in two different ways. On the one hand, provision should be made for special rules on the applicable law in the case of particularly significant rights and legal relationships (e. g. rights in rem and contracts of employment). On the other hand, national proceedings covering only assets situated in the State of the opening of proceedings should also be allowed alongside main insolvency proceedings with universal scope. (23) This Regulation enables the main insolvency proceedings to be opened in the Member State where the debtor has the centre of its main interests. Those proceedings have universal scope and are aimed at encompassing all the debtor’s assets. To protect the diversity of interests, this Regulation permits secondary insolvency proceedings to be opened to run in parallel with the main insolvency proceedings. Secondary insolvency proceedings may be opened in the Member State where the debtor has an establishment. The effects of secondary insolvency proceedings are limited to the assets located in that State. Mandatory rules of coordination with the main insolvency proceedings satisfy the need for unity in the Union. (24) Where main insolvency proceedings concerning a legal person or company have been opened in a Member State other than that of its registered office, it should be possible to open secondary insolvency proceedings in the Member State of the registered office, provided that the debtor is carrying out an economic activity with human means and assets in that State, in accordance with the case-law of the Court of Justice of the European Union. 5 Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding-up of credit institutions (OJ L 125, 5.5.2001, p. 15).

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Regulation 2015/848 (25) This Regulation applies only to proceedings in respect of a debtor whose centre of main interests is located in the Union. (26) The rules of jurisdiction set out in this Regulation establish only international jurisdiction, that is to say, they designate the Member State the courts of which may open insolvency proceedings. Territorial jurisdiction within that Member State should be established by the national law of the Member State concerned. (27) Before opening insolvency proceedings, the competent court should examine of its own motion whether the centre of the debtor’s main interests or the debtor’s establishment is actually located within its jurisdiction. (28) When determining whether the centre of the debtor’s main interests is ascertainable by third parties, special consideration should be given to the creditors and to their perception as to where a debtor conducts the administration of its interests. This may require, in the event of a shift of centre of main interests, informing creditors of the new location from which the debtor is carrying out its activities in due course, for example by drawing attention to the change of address in commercial correspondence, or by making the new location public through other appropriate means. (29) This Regulation should contain a number of safeguards aimed at preventing fraudulent or abusive forum shopping. (30) Accordingly, the presumptions that the registered office, the principal place of business and the habitual residence are the centre of main interests should be rebuttable, and the relevant court of a Member State should carefully assess whether the centre of the debtor’s main interests is genuinely located in that Member State. In the case of a company, it should be possible to rebut this presumption where the company’s central administration is located in a Member State other than that of its registered office, and where a comprehensive assessment of all the relevant factors establishes, in a manner that is ascertainable by third parties, that the company’s actual centre of management and supervision and of the management of its interests is located in that other Member State. In the case of an individual not exercising an independent business or professional activity, it should be possible to rebut this presumption, for example where the major part of the debtor’s assets is located outside the Member State of the debtor’s habitual residence, or where it can be established that the principal reason for moving was to file for insolvency proceedings in the new jurisdiction and where such filing would materially impair the interests of creditors whose dealings with the debtor took place prior to the relocation. (31) With the same objective of preventing fraudulent or abusive forum shopping, the presumption that the centre of main interests is at the place of the registered office, at the individual’s principal place of business or at the individual’s habitual residence should not apply where, respectively, in the case of a company, legal person or individual exercising an independent business or professional activity, the debtor has relocated its registered office or principal place of business to another Member State within the 3-month period prior to the request for opening insolvency proceedings, or, in the case of an individual not exercising an independent business or professional activity, the debtor has relocated his habitual residence to another Member State within the 6-month period prior to the request for opening insolvency proceedings. (32) In all cases, where the circumstances of the matter give rise to doubts about the court’s jurisdiction, the court should require the debtor to submit additional evidence to support its assertions and, where the law applicable to the insolvency 15

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Regulation 2015/848 proceedings so allows, give the debtor’s creditors the opportunity to present their views on the question of jurisdiction. (33) In the event that the court seised of the request to open insolvency proceedings finds that the centre of main interests is not located on its territory, it should not open main insolvency proceedings. (34) In addition, any creditor of the debtor should have an effective remedy against the decision to open insolvency proceedings. The consequences of any challenge to the decision to open insolvency proceedings should be governed by national law. (35) The courts of the Member State within the territory of which insolvency proceedings have been opened should also have jurisdiction for actions which derive directly from the insolvency proceedings and are closely linked with them. Such actions should include avoidance actions against defendants in other Member States and actions concerning obligations that arise in the course of the insolvency proceedings, such as advance payment for costs of the proceedings. In contrast, actions for the performance of the obligations under a contract concluded by the debtor prior to the opening of proceedings do not derive directly from the proceedings. Where such an action is related to another action based on general civil and commercial law, the insolvency practitioner should be able to bring both actions in the courts of the defendant’s domicile if he considers it more efficient to bring the action in that forum. This could, for example, be the case where the insolvency practitioner wishes to combine an action for director’s liability on the basis of insolvency law with an action based on company law or general tort law. (36) The court having jurisdiction to open the main insolvency proceedings should be able to order provisional and protective measures as from the time of the request to open proceedings. Preservation measures both prior to and after the commencement of the insolvency proceedings are important to guarantee the effectiveness of the insolvency proceedings. In that connection, this Regulation should provide for various possibilities. On the one hand, the court competent for the main insolvency proceedings should also be able to order provisional and protective measures covering assets situated in the territory of other Member States. On the other hand, an insolvency practitioner temporarily appointed prior to the opening of the main insolvency proceedings should be able, in the Member States in which an establishment belonging to the debtor is to be found, to apply for the preservation measures which are possible under the law of those Member States. (37) Prior to the opening of the main insolvency proceedings, the right to request the opening of insolvency proceedings in the Member State where the debtor has an establishment should be limited to local creditors and public authorities, or to cases in which main insolvency proceedings cannot be opened under the law of the Member State where the debtor has the centre of its main interests. The reason for this restriction is that cases in which territorial insolvency proceedings are requested before the main insolvency proceedings are intended to be limited to what is absolutely necessary. (38) Following the opening of the main insolvency proceedings, this Regulation does not restrict the right to request the opening of insolvency proceedings in a Member State where the debtor has an establishment. The insolvency practitioner in the main insolvency proceedings or any other person empowered under the national law of that Member State may request the opening of secondary insolvency proceedings. (39) This Regulation should provide for rules to determine the location of the debtor’s assets, which should apply when determining which assets belong to the main or secondary insolvency proceedings, or to situations involving third parties’ 16

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Regulation 2015/848 rights in rem. In particular, this Regulation should provide that European patents with unitary effect, a Community trade mark or any other similar rights, such as Community plant variety rights or Community designs, should only be included in the main insolvency proceedings. (40) Secondary insolvency proceedings can serve different purposes, besides the protection of local interests. Cases may arise in which the insolvency estate of the debtor is too complex to administer as a unit, or the differences in the legal systems concerned are so great that difficulties may arise from the extension of effects deriving from the law of the State of the opening of proceedings to the other Member States where the assets are located. For that reason, the insolvency practitioner in the main insolvency proceedings may request the opening of secondary insolvency proceedings where the efficient administration of the insolvency estate so requires. (41) Secondary insolvency proceedings may also hamper the efficient administration of the insolvency estate. Therefore, this Regulation sets out two specific situations in which the court seised of a request to open secondary insolvency proceedings should be able, at the request of the insolvency practitioner in the main insolvency proceedings, to postpone or refuse the opening of such proceedings. (42) First, this Regulation confers on the insolvency practitioner in main insolvency proceedings the possibility of giving an undertaking to local creditors that they will be treated as if secondary insolvency proceedings had been opened. That undertaking has to meet a number of conditions set out in this Regulation, in particular that it be approved by a qualified majority of local creditors. Where such an undertaking has been given, the court seised of a request to open secondary insolvency proceedings should be able to refuse that request if it is satisfied that the undertaking adequately protects the general interests of local creditors. When assessing those interests, the court should take into account the fact that the undertaking has been approved by a qualified majority of local creditors. (43) For the purposes of giving an undertaking to local creditors, the assets and rights located in the Member State where the debtor has an establishment should form a sub-category of the insolvency estate, and, when distributing them or the proceeds resulting from their realisation, the insolvency practitioner in the main insolvency proceedings should respect the priority rights that creditors would have had if secondary insolvency proceedings had been opened in that Member State. (44) National law should be applicable, as appropriate, in relation to the approval of an undertaking. In particular, where under national law the voting rules for adopting a restructuring plan require the prior approval of creditors’ claims, those claims should be deemed to be approved for the purpose of voting on the undertaking. Where there are different procedures for the adoption of restructuring plans under national law, Member States should designate the specific procedure which should be relevant in this context. (45) Second, this Regulation should provide for the possibility that the court temporarily stays the opening of secondary insolvency proceedings, when a temporary stay of individual enforcement proceedings has been granted in the main insolvency proceedings, in order to preserve the efficiency of the stay granted in the main insolvency proceedings. The court should be able to grant the temporary stay if it is satisfied that suitable measures are in place to protect the general interest of local creditors. In such a case, all creditors that could be affected by the outcome of the negotiations on a restructuring plan should be informed of the negotiations and be allowed to participate in them. 17

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Regulation 2015/848 (46) In order to ensure effective protection of local interests, the insolvency practitioner in the main insolvency proceedings should not be able to realise or relocate, in an abusive manner, assets situated in the Member State where an establishment is located, in particular, with the purpose of frustrating the possibility that such interests can be effectively satisfied if secondary insolvency proceedings are opened subsequently. (47) This Regulation should not prevent the courts of a Member State in which secondary insolvency proceedings have been opened from sanctioning a debtor’s directors for violation of their duties, provided that those courts have jurisdiction to address such disputes under their national law. (48) Main insolvency proceedings and secondary insolvency proceedings can contribute to the efficient administration of the debtor’s insolvency estate or to the effective realisation of the total assets if there is proper cooperation between the actors involved in all the concurrent proceedings. Proper cooperation implies the various insolvency practitioners and the courts involved cooperating closely, in particular by exchanging a sufficient amount of information. In order to ensure the dominant role of the main insolvency proceedings, the insolvency practitioner in such proceedings should be given several possibilities for intervening in secondary insolvency proceedings which are pending at the same time. In particular, the insolvency practitioner should be able to propose a restructuring plan or composition or apply for a suspension of the realisation of the assets in the secondary insolvency proceedings. When cooperating, insolvency practitioners and courts should take into account best practices for cooperation in cross-border insolvency cases, as set out in principles and guidelines on communication and cooperation adopted by European and international organisations active in the area of insolvency law, and in particular the relevant guidelines prepared by the United Nations Commission on International Trade Law (Uncitral). (49) In light of such cooperation, insolvency practitioners and courts should be able to enter into agreements and protocols for the purpose of facilitating crossborder cooperation of multiple insolvency proceedings in different Member States concerning the same debtor or members of the same group of companies, where this is compatible with the rules applicable to each of the proceedings. Such agreements and protocols may vary in form, in that they may be written or oral, and in scope, in that they may range from generic to specific, and may be entered into by different parties. Simple generic agreements may emphasise the need for close cooperation between the parties, without addressing specific issues, while more detailed, specific agreements may establish a framework of principles to govern multiple insolvency proceedings and may be approved by the courts involved, where the national law so requires. They may reflect an agreement between the parties to take, or to refrain from taking, certain steps or actions. (50) Similarly, the courts of different Member States may cooperate by coordinating the appointment of insolvency practitioners. In that context, they may appoint a single insolvency practitioner for several insolvency proceedings concerning the same debtor or for different members of a group of companies, provided that this is compatible with the rules applicable to each of the proceedings, in particular with any requirements concerning the qualification and licensing of the insolvency practitioner. (51) This Regulation should ensure the efficient administration of insolvency proceedings relating to different companies forming part of a group of companies. (52) Where insolvency proceedings have been opened for several companies of the same group, there should be proper cooperation between the actors involved in 18

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Regulation 2015/848 those proceedings. The various insolvency practitioners and the courts involved should therefore be under a similar obligation to cooperate and communicate with each other as those involved in main and secondary insolvency proceedings relating to the same debtor. Cooperation between the insolvency practitioners should not run counter to the interests of the creditors in each of the proceedings, and such cooperation should be aimed at finding a solution that would leverage synergies across the group. (53) The introduction of rules on the insolvency proceedings of groups of companies should not limit the possibility for a court to open insolvency proceedings for several companies belonging to the same group in a single jurisdiction if the court finds that the centre of main interests of those companies is located in a single Member State. In such cases, the court should also be able to appoint, if appropriate, the same insolvency practitioner in all proceedings concerned, provided that this is not incompatible with the rules applicable to them. (54) With a view to further improving the coordination of the insolvency proceedings of members of a group of companies, and to allow for a coordinated restructuring of the group, this Regulation should introduce procedural rules on the coordination of the insolvency proceedings of members of a group of companies. Such coordination should strive to ensure the efficiency of the coordination, whilst at the same time respecting each group member’s separate legal personality. (55) An insolvency practitioner appointed in insolvency proceedings opened in relation to a member of a group of companies should be able to request the opening of group coordination proceedings. However, where the law applicable to the insolvency so requires, that insolvency practitioner should obtain the necessary authorisation before making such a request. The request should specify the essential elements of the coordination, in particular an outline of the coordination plan, a proposal as to whom should be appointed as coordinator and an outline of the estimated costs of the coordination. (56) In order to ensure the voluntary nature of group coordination proceedings, the insolvency practitioners involved should be able to object to their participation in the proceedings within a specified time period. In order to allow the insolvency practitioners involved to take an informed decision on participation in the group coordination proceedings, they should be informed at an early stage of the essential elements of the coordination. However, any insolvency practitioner who initially objects to inclusion in the group coordination proceedings should be able to subsequently request to participate in them. In such a case, the coordinator should take a decision on the admissibility of the request. All insolvency practitioners, including the requesting insolvency practitioner, should be informed of the coordinator’s decision and should have the opportunity of challenging that decision before the court which has opened the group coordination proceedings. (57) Group coordination proceedings should always strive to facilitate the effective administration of the insolvency proceedings of the group members, and to have a generally positive impact for the creditors. This Regulation should therefore ensure that the court with which a request for group coordination proceedings has been filed makes an assessment of those criteria prior to opening group coordination proceedings. (58) The advantages of group coordination proceedings should not be outweighed by the costs of those proceedings. Therefore, it is necessary to ensure that the costs of the coordination, and the share of those costs that each group member will bear, are adequate, proportionate and reasonable, and are determined in accordance with 19

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Regulation 2015/848 the national law of the Member State in which group coordination proceedings have been opened. The insolvency practitioners involved should also have the possibility of controlling those costs from an early stage of the proceedings. Where the national law so requires, controlling costs from an early stage of proceedings could involve the insolvency practitioner seeking the approval of a court or creditors’ committee. (59) Where the coordinator considers that the fulfilment of his or her tasks requires a significant increase in costs compared to the initially estimated costs and, in any case, where the costs exceed 10 % of the estimated costs, the coordinator should be authorised by the court which has opened the group coordination proceedings to exceed such costs. Before taking its decision, the court which has opened the group coordination proceedings should give the possibility to the participating insolvency practitioners to be heard before it in order to allow them to communicate their observations on the appropriateness of the coordinator’s request. (60) For members of a group of companies which are not participating in group coordination proceedings, this Regulation should also provide for an alternative mechanism to achieve a coordinated restructuring of the group. An insolvency practitioner appointed in proceedings relating to a member of a group of companies should have standing to request a stay of any measure related to the realisation of the assets in the proceedings opened with respect to other members of the group which are not subject to group coordination proceedings. It should only be possible to request such a stay if a restructuring plan is presented for the members of the group concerned, if the plan is to the benefit of the creditors in the proceedings in respect of which the stay is requested, and if the stay is necessary to ensure that the plan can be properly implemented. (61) This Regulation should not prevent Member States from establishing national rules which would supplement the rules on cooperation, communication and coordination with regard to the insolvency of members of groups of companies set out in this Regulation, provided that the scope of application of those national rules is limited to the national jurisdiction and that their application would not impair the efficiency of the rules laid down by this Regulation. (62) The rules on cooperation, communication and coordination in the framework of the insolvency of members of a group of companies provided for in this Regulation should only apply to the extent that proceedings relating to different members of the same group of companies have been opened in more than one Member State. (63) Any creditor which has its habitual residence, domicile or registered office in the Union should have the right to lodge its claims in each of the insolvency proceedings pending in the Union relating to the debtor’s assets. This should also apply to tax authorities and social insurance institutions. This Regulation should not prevent the insolvency practitioner from lodging claims on behalf of certain groups of creditors, for example employees, where the national law so provides. However, in order to ensure the equal treatment of creditors, the distribution of proceeds should be coordinated. Every creditor should be able to keep what it has received in the course of insolvency proceedings, but should be entitled only to participate in the distribution of total assets in other proceedings if creditors with the same standing have obtained the same proportion of their claims. (64) It is essential that creditors which have their habitual residence, domicile or registered office in the Union be informed about the opening of insolvency proceedings relating to their debtor’s assets. In order to ensure a swift transmission 20

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Regulation 2015/848 of information to creditors, Regulation (EC) No 1393/2007 of the European Parliament and of the Council6 should not apply where this Regulation refers to the obligation to inform creditors. The use of standard forms available in all official languages of the institutions of the Union should facilitate the task of creditors when lodging claims in proceedings opened in another Member State. The consequences of the incomplete filing of the standard forms should be a matter for national law. (65) This Regulation should provide for the immediate recognition of judgments concerning the opening, conduct and closure of insolvency proceedings which fall within its scope, and of judgments handed down in direct connection with such insolvency proceedings. Automatic recognition should therefore mean that the effects attributed to the proceedings by the law of the Member State in which the proceedings were opened extend to all other Member States. The recognition of judgments delivered by the courts of the Member States should be based on the principle of mutual trust. To that end, grounds for non-recognition should be reduced to the minimum necessary. This is also the basis on which any dispute should be resolved where the courts of two Member States both claim competence to open the main insolvency proceedings. The decision of the first court to open proceedings should be recognised in the other Member States without those Member States having the power to scrutinise that court’s decision. (66) This Regulation should set out, for the matters covered by it, uniform rules on conflict of laws which replace, within their scope of application, national rules of private international law. Unless otherwise stated, the law of the Member State of the opening of proceedings should be applicable (lex concursus). This rule on conflict of laws should be valid both for the main insolvency proceedings and for local proceedings. The lex concursus determines all the effects of the insolvency proceedings, both procedural and substantive, on the persons and legal relations concerned. It governs all the conditions for the opening, conduct and closure of the insolvency proceedings. (67) Automatic recognition of insolvency proceedings to which the law of the State of the opening of proceedings normally applies may interfere with the rules under which transactions are carried out in other Member States. To protect legitimate expectations and the certainty of transactions in Member States other than that in which proceedings are opened, provision should be made for a number of exceptions to the general rule. (68) There is a particular need for a special reference diverging from the law of the opening State in the case of rights in rem, since such rights are of considerable importance for the granting of credit. The basis, validity and extent of rights in rem should therefore normally be determined according to the lex situs and not be affected by the opening of insolvency proceedings. The proprietor of a right in rem should therefore be able to continue to assert its right to segregation or separate settlement of the collateral security. Where assets are subject to rights in rem under the lex situs in one Member State but the main insolvency proceedings are being carried out in another Member State, the insolvency practitioner in the main insolvency proceedings should be able to request the opening of secondary insolvency proceedings in the jurisdiction where the rights in rem arise if the debtor has an establishment there. If secondary insolvency proceedings are not opened, any 6 Regulation (EC) No 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and extrajudicial documents in civil and commercial matters (service of documents), and repealing Council Regulation (EC) No 1348/2000 (OJ L 324, 10.12.2007, p. 79).

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Regulation 2015/848 surplus on the sale of an asset covered by rights in rem should be paid to the insolvency practitioner in the main insolvency proceedings. (69) This Regulation lays down several provisions for a court to order a stay of opening proceedings or a stay of enforcement proceedings. Any such stay should not affect the rights in rem of creditors or third parties. (70) If a set-off of claims is not permitted under the law of the State of the opening of proceedings, a creditor should nevertheless be entitled to the set-off if it is possible under the law applicable to the claim of the insolvent debtor. In this way, set-off would acquire a kind of guarantee function based on legal provisions on which the creditor concerned can rely at the time when the claim arises. (71) There is also a need for special protection in the case of payment systems and financial markets, for example in relation to the position-closing agreements and netting agreements to be found in such systems, as well as the sale of securities and the guarantees provided for such transactions as governed in particular by Directive 98/26/EC of the European Parliament and of the Council7. For such transactions, the only law which is relevant should be that applicable to the system or market concerned. That law is intended to prevent the possibility of mechanisms for the payment and settlement of transactions, and provided for in payment and set-off systems or on the regulated financial markets of the Member States, being altered in the case of insolvency of a business partner. Directive 98/26/EC contains special provisions which should take precedence over the general rules laid down in this Regulation. (72) In order to protect employees and jobs, the effects of insolvency proceedings on the continuation or termination of employment and on the rights and obligations of all parties to such employment should be determined by the law applicable to the relevant employment agreement, in accordance with the general rules on conflict of laws. Moreover, in cases where the termination of employment contracts requires approval by a court or administrative authority, the Member State in which an establishment of the debtor is located should retain jurisdiction to grant such approval even if no insolvency proceedings have been opened in that Member State. Any other questions relating to the law of insolvency, such as whether the employees’ claims are protected by preferential rights and the status such preferential rights may have, should be determined by the law of the Member State in which the insolvency proceedings (main or secondary) have been opened, except in cases where an undertaking to avoid secondary insolvency proceedings has been given in accordance with this Regulation. (73) The law applicable to the effects of insolvency proceedings on any pending lawsuit or pending arbitral proceedings concerning an asset or right which forms part of the debtor’s insolvency estate should be the law of the Member State where the lawsuit is pending or where the arbitration has its seat. However, this rule should not affect national rules on recognition and enforcement of arbitral awards. (74) In order to take account of the specific procedural rules of court systems in certain Member States flexibility should be provided with regard to certain rules of this Regulation. Accordingly, references in this Regulation to notice being given by a judicial body of a Member State should include, where a Member State’s procedural rules so require, an order by that judicial body directing that notice be given. (75) For business considerations, the main content of the decision opening the proceedings should be published, at the request of the insolvency practitioner, in a 7 Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (OJ L 166, 11.6.1998, p. 45).

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Regulation 2015/848 Member State other than that of the court which delivered that decision. If there is an establishment in the Member State concerned, such publication should be mandatory. In neither case, however, should publication be a prior condition for recognition of the foreign proceedings. (76) In order to improve the provision of information to relevant creditors and courts and to prevent the opening of parallel insolvency proceedings, Member States should be required to publish relevant information in cross-border insolvency cases in a publicly accessible electronic register. In order to facilitate access to that information for creditors and courts domiciled or located in other Member States, this Regulation should provide for the interconnection of such insolvency registers via the European e-Justice Portal. Member States should be free to publish relevant information in several registers and it should be possible to interconnect more than one register per Member State. (77) This Regulation should determine the minimum amount of information to be published in the insolvency registers. Member States should not be precluded from including additional information. Where the debtor is an individual, the insolvency registers should only have to indicate a registration number if the debtor is exercising an independent business or professional activity. That registration number should be understood to be the unique registration number of the debtor’s independent business or professional activity published in the trade register, if any. (78) Information on certain aspects of insolvency proceedings is essential for creditors, such as time limits for lodging claims or for challenging decisions. This Regulation should, however, not require Member States to calculate those timelimits on a case-by-case basis. Member States should be able to fulfil their obligations by adding hyperlinks to the European e-Justice Portal, where self-explanatory information on the criteria for calculating those time-limits is to be provided. (79) In order to grant sufficient protection to information relating to individuals not exercising an independent business or professional activity, Member States should be able to make access to that information subject to supplementary search criteria such as the debtor’s personal identification number, address, date of birth or the district of the competent court, or to make access conditional upon a request to a competent authority or upon the verification of a legitimate interest. (80) Member States should also be able not to include in their insolvency registers information on individuals not exercising an independent business or professional activity. In such cases, Member States should ensure that the relevant information is given to the creditors by individual notice, and that claims of creditors who have not received the information are not affected by the proceedings. (81) It may be the case that some of the persons concerned are not aware that insolvency proceedings have been opened, and act in good faith in a way that conflicts with the new circumstances. In order to protect such persons who, unaware that foreign proceedings have been opened, make a payment to the debtor instead of to the foreign insolvency practitioner, provision should be made for such a payment to have a debt-discharging effect. (82) In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council8. 8 Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by the Member States of the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13).

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Regulation 2015/848 (83) This Regulation respects the fundamental rights and observes the principles recognised in the Charter of Fundamental Rights of the European Union. In particular, this Regulation seeks to promote the application of Articles 8, 17 and 47 concerning, respectively, the protection of personal data, the right to property and the right to an effective remedy and to a fair trial. (84) Directive 95/46/EC of the European Parliament and of the Council9 and Regulation (EC) No 45/2001 of the European Parliament and of the Council10 apply to the processing of personal data within the framework of this Regulation. (85) This Regulation is without prejudice to Regulation (EEC, Euratom) No 1182/ 71 of the Council11. (86) Since the objective of this Regulation cannot be sufficiently achieved by the Member States but can rather, by reason of the creation of a legal framework for the proper administration of cross-border insolvency proceedings, be better achieved at Union level, the Union may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective. (87) In accordance with Article 3 and Article 4a(1) of Protocol No 21 on the position of the United Kingdom and Ireland in respect of the area of freedom, security and justice, annexed to the Treaty on European Union and the Treaty on the Functioning of the European Union, the United Kingdom and Ireland have notified their wish to take part in the adoption and application of this Regulation. (88) In accordance with Articles 1 and 2 of Protocol No 22 on the position of Denmark annexed to the Treaty on European Union and the Treaty on the Functioning of the European Union, Denmark is not taking part in the adoption of this Regulation and is not bound by it or subject to its application. (89) The European Data Protection Supervisor was consulted and delivered an opinion on 27 March 201312, HAVE ADOPTED THIS REGULATION: 9 Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (OJ L 281, 23.11.1995, p. 31). 10 Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data (OJ L 8, 12.1.2001, p. 1). 11 Regulation (EEC, Euratom) No 1182/71 of the Council of 3 June 1971 determining the rules applicable to periods, dates and time limits (OJ L 124, 8.6.1971, p. 1). 12 OJ C 358, 7.12.2013, p. 15.

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CHAPTER I GENERAL PROVISIONS Article 1 Scope 1. This Regulation shall apply to public collective proceedings, including interim proceedings, which are based on laws relating to insolvency and in which, for the purpose of rescue, adjustment of debt, reorganisation or liquidation: (a) a debtor is totally or partially divested of its assets and an insolvency practitioner is appointed; (b) the assets and affairs of a debtor are subject to control or supervision by a court; or (c) a temporary stay of individual enforcement proceedings is granted by a court or by operation of law, in order to allow for negotiations between the debtor and its creditors, provided that the proceedings in which the stay is granted provide for suitable measures to protect the general body of creditors, and, where no agreement is reached, are preliminary to one of the proceedings referred to in point (a) or (b). Where the proceedings referred to in this paragraph may be commenced in situations where there is only a likelihood of insolvency, their purpose shall be to avoid the debtor’s insolvency or the cessation of the debtor’s business activities. The proceedings referred to in this paragraph are listed in Annex A. 2. This Regulation shall not apply to proceedings referred to in paragraph 1 that concern: (a) insurance undertakings; (b) credit institutions; (c) investment firms and other firms, institutions and undertakings to the extent that they are covered by Directive 2001/24/EC; or (d) collective investment undertakings. Recitals: 7–19, 88. Specific bibliography: Paulus, The ECJ’s understanding of the universality principle, 27 Insolvency Intelligence 2014, 70; Eidenmüller, Was ist ein Insolvenzverfahren?, ZIP 2016, 145; Mankowski, Internationale Nachlassinsolvenzen, ZIP 2011, 1501; M. Stürner, Jurisdiction for Avoidance Claims of Insolvent Investment Undertakings, in Festschrift für Kaissis, 2012, 975; Leible/Staudinger, Die europäische Verordnung über Insolvenzverfahren, KTS 2000, 533; Schmiedeknecht, Der Anwendungsbereich der Europäischen Insolvenzverordnung und die Auswirkungen auf das deutsche Insolvenzrecht, 2004. Case law: EU: CJEU, 22 February 1979, Case C-133/78, Gourdain v Nadler, ECLI:EU:C:1979:49; CJEU, 12 February 2009, Case C-339/07, Seagon v Deko Marty, ECLI:EU:C:2009:83; CJEU, 16 January 2014, Case C-328/12, Schmid, ECLI:EU:C:2014:6; CJEU, 11 June 2015, Case C-649/13, Comité d’entreprise de Nortel Networks and Others, ECLI:EU: C:2015:384. UK: Re BRAC Rent-A-Car International Inc. [2003] EWHC 128 (Ch); Financial Services Authority v Dobb White [2003] EWHC 3146 (Ch). Germany: OLG Frankfurt a. M., Urt. v. 17.12.2012 – 1 U 17/11, IPRax 2014, 276.

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Art. 1 1–4

Chapter I. General Provisions Outline

A. Overview ............................................................................................................................ B. Substantive scope of application, Article 1(1) EIR ................................................... I. Insolvency proceedings under the EIR 2015 .................................................... 1. The function of Annex A EIR......................................................................... 2. The criteria set out in Article 1(1) EIR ......................................................... a) “collective proceedings”............................................................................... b) “based on laws relating to insolvency” .................................................... aa) Schemes of arrangement and contractual restructuring mechanisms ............................................................................................ bb) Interim proceedings and pre-emptive proceedings....................... c) “public” ........................................................................................................... d) Alternative criteria pursuant to Article 1(1)(a-c) EIR.......................... 3. The EIR and the Brussels Ia Regulation ....................................................... C. Types of debtors to which the EIR is not applicable, Article 1(2) EIR ............... D. Territorial scope of application..................................................................................... I. Insolvency proceedings in a Member State ...................................................... II. Relevance for cross-border issues........................................................................ III. No general requirement of contacts with another Member State ...............

1 4 4 4 6 8 9 9 11 14 17 21 23 28 28 31 32

A. Overview Article 1 EIR outlines the scope of application of the EIR. Article 1(1) EIR lists the characteristic features of “insolvency proceedings” in the context of the EIR. The provision states the different types of national proceedings to which the EIR applies (“substantive scope of application”).1 Article 1(2) EIR prescribes the personal scope of application, by excluding certain types of debtors from the EIR.2 2 The definition of the scope of application simultaneously clarifies the scope of application of any national rules on international insolvency adopted by the Member States (for Germany: §§ 335–358 InsO). As national law is superseded by the EIR, national rules on international insolvency apply only if the matter is outside the EIR’s substantive, personal or territorial scope of application. 3 The applicability in time is set out in Article 84 EIR, according to which the EIR applies to proceedings which are within the substantive, personal or territorial scope of application of the EIR and opened from3 26 June 2017 on, see Rüther below Art. 84 mn. 3. 1

B. Substantive scope of application, Article 1(1) EIR I. Insolvency proceedings under the EIR 2015 1. The function of Annex A EIR 4

The criteria set out in Article 1(1) EIR are relevant for the decision of the legislator whether a given type of proceedings under national law can be added to Annex A EIR.4 1 Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 1; van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 1, mn. 1.03. 2 Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 1; van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 1, mn. 1.04. 3 See Corrigendum to Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, 21.12.2016 L 349/9. 4 van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 1, mn. 1.03. For the procedure by which the Annex may be revised see van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 1, mn. 1.09.

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Scope

5–9

Art. 1

For all other purposes the list in Annex A EIR is exhaustive,5 in particular to determine whether certain proceedings, which have been opened in a Member State, fall under the EIR: Hence, a court will have to apply the EIR if the type of proceedings is listed in Annex A EIR, even if the proceedings do not meet the criteria set out in Article 1(1) EIR.6 In turn, the EIR will not be applicable if the type of proceedings is unlisted but does fulfil the requirements of Article 1(1) EIR. The exhaustive character of Annex A EIR is clarified by Article 1(1)(sentence 3) and 5 Article 2 no. 4 EIR.7

2. The criteria set out in Article 1(1) EIR Under the EIR 2000, national insolvency proceedings had to meet four criteria in 6 order to be regarded as insolvency proceedings for the purposes of the EIR 2000: a) The proceedings had a collective nature, b) the insolvency of the debtor was a condition of the opening of the proceedings, c) the proceedings entailed the total or partial divestment of the debtor, and d) the opening of the proceedings entailed the appointment of a liquidator. The definition of “insolvency proceedings” in Article 1(1) EIR 2015 is significantly 7 wider compared to Article 1(1) EIR 2000. Among other things, the recast does not require the appointment of an insolvency practitioner or the insolvency of the debtor.8 a) “collective proceedings”. The EIR 2015 retains the condition that insolvency 8 proceedings have to be “collective proceedings”. The meaning of this phrase is now explained in Article 2 no. 1 EIR, according to which the term also comprises proceedings that “include all or a significant part of a debtor’s creditors, provided that, in the latter case, the proceedings do not affect the claims of creditors which are not involved in them”. Hence, even proceedings that affect only a subgroup of the creditors, such as financial creditors, are eligible to be listed in Annex A EIR as insolvency proceedings (recital 14 EIR).9 To include such proceedings that do not necessarily affect and involve all creditors is important and helpful as it ensures that the EIR will cover those types of proceedings that will be created by the Member States under the Directive on restructuring and insolvency, see Brinkmann above Introduction, mn. 47. b) “based on laws relating to insolvency”. aa) Schemes of arrangement and 9 contractual restructuring mechanisms. Schemes of arrangement under English or Welsh law remain outside the scope of application of the EIR 2015. They are not included in Annex A EIR and fail to fulfil all of the criteria of Article 1(1) EIR, namely the requirement that the proceedings must be “based on laws relating to insolvency”.10 As the scheme of arrangement is part of English/Welsh company law, it is not “based on laws relating to insolvency” and consequently outside of the scope of the EIR. The UK fought hard for the exclusion of the scheme since an inclusion would have had the 5 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 2.48 et seq.; Moss/Fletcher/ Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.475. 6 Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 36; van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 1, mn. 1.35. 7 cf. for the situation under the EIR 2000 CJEU Case C-116/11 Bank Handlowy v Christianapol ECLI: EU:C:2012:739, para. 33. 8 Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 6 et seq.; Vallender, in Vallender, EuInsVO, Art. 1, mn. 10. 9 Paulus, EuInsVO, Art. 1, mn. 13; van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 1, mn. 1.18. 10 Vallender, in Vallender, EuInsVO, Art. 1, mn. 31; van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 1, mn. 1.26.

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negative effect of schemes of arrangement as a restructuring tool only being available for companies that have their COMI in the UK (for the territorial scope of application of the EIR see below mn. 28 et seq.). As COMI shifts are often difficult and always expensive, the “market” for scheme of arrangements would have been significantly reduced by bringing schemes of arrangement within the scope of the EIR. 10 Restructuring mechanisms that are based on contract law – such as collective action clauses – rather than on laws relating to insolvency, are equally excluded from the application of the EIR. bb) Interim proceedings and pre-emptive proceedings. Article 1(1) EIR specifies, in conjunction with recitals 10 and 17 EIR, that the insolvency of the debtor is not a condition for the application of the Regulation. It suffices if the proceedings take place “before a court issues an order confirming the continuation of the proceedings on a non-interim basis.” 12 As a consequence, also interim proceedings are within the scope of application.11 This is particularly important in jurisdictions such as Germany, where the opening of proceedings – i. e. the time between the filing of the petition and the formal commencement of proceedings – often takes several months. The EIR 2015 further includes this stage of insolvency proceedings into the scope of application of the Regulation,12 as can be seen by the inclusion of “vorläufiger Insolvenzverwalter” und “vorläufiger Sachwalter” in Annex B EIR.13 13 The recast furthermore clarifies that proceedings, opened on the basis of the likelihood of the debtor’s insolvency, are eligible to be included in Annex A EIR (recital 10 EIR). Hence, pre-emptive proceedings, which are initiated before the debtor is insolvent, are “insolvency proceedings” for the purposes of the EIR 2015. Pursuant to Article 1(1) (sentence 2) EIR, such pre-insolvency proceedings shall have the purpose “to avoid the debtor’s insolvency or the cessation of the debtor’s business activities.” The requirement of aiming at the rescue of the debtor and/or its business does not mean that they may not end with the liquidation of the debtor in case the attempted reorganization fails. According to its Article 1(1), the EIR is open and flexible with regard to the purposes of insolvency proceedings: they may be aimed at the satisfaction of the creditors as well as – and in pre-insolvency situations must be – directed at restructuring the debtor and the preservation of the business. 11

c) “public”. Article 1 EIR 2015 requires insolvency proceedings to be “public”, i. e. the commencement of the proceedings must be registered in a way that third parties, in particular creditors (cf. recital 12 EIR), may find out about the proceedings by consulting a publicly accessible register, (see Szirányi below Art. 24 mn. 3, 5).14 This criterion excludes proceedings under national law from the EIR which do not require the registration or another form of publicity.15 15 In order to meet the publicity-criterion the proceedings in question have to be actually registered. A mere legal requirement to register the proceedings does not suffice.16 For 14

11 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.484; Vallender, in Vallender, EuInsVO, Art. 1, mn. 25 et seq. 12 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.485. 13 See also Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 24. 14 Vallender, in Vallender, EuInsVO, Art. 1, mn. 21. 15 cf. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 19; but see Moss/Fletcher/ Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.476- 8.478 who also emphasises on public hearings. 16 Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 19; ambiguous Paulus, EuInsVO, Art. 1, mn. 19.

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reasons of legal certainty as well as practicability, the EIR may only apply to proceedings once they have been registered.17 Before having been made public via the register, proceedings cannot be expected to be recognized in other Member States. It would further violate the rights of foreign creditors if confidential proceedings could compromise their rights such as the right to have the opening decision reviewed pursuant to Article 5 EIR. Hence, German proceedings pursuant to § 270 b InsO only fall under the EIR 2015 16 once they have been registered. This is not to be mistaken as a legal requirement to register proceedings pursuant to § 270 b InsO. Such a requirement is neither stipulated by German national law nor does it follow from the EIR.18 The decision not to register the opening of proceedings pursuant to § 270 b InsO has, however, the consequence that the EIR will not govern any cross-border issues in the context of the proceedings. d) Alternative criteria pursuant to Article 1(1)(a-c) EIR. Article 1(1)(a-c) EIR lists three additional criteria, of which only one must be met by the proceedings. Point (a) echoes Article 1(1) EIR 2000 when requiring a total or partial divestment of the debtor and the appointment of an insolvency practitioner. For a definition of “insolvency practitioner” see Article 2 no. 5 EIR and the list in Annex B EIR. Point (b) clarifies that proceedings of a debtor in possession can be regarded as insolvency proceedings as long as “the assets and affairs of a debtor are subject to control or supervision by a court”. The term “court” is to be understood in the strict sense of Article 2 no. 6 EIR, i. e. a judicial body. Point (c) ensures that pre-emptive restructuring proceedings may fall under the EIR if they entail a temporary stay “in order to allow for negotiations between the debtor and its creditors”. Point (c) warrants that the EIR will be able to cover also those proceedings which will be adopted pursuant to the Directive on restructuring and insolvency, for details see Brinkmann above Introduction, mn. 47 et seq.

17 18

19

20

3. The EIR and the Brussels Ia Regulation According to its Article 1(1)(b), the Brussels Ia Regulation does not apply to “bank- 21 ruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings”. Hence, the Brussels Ia Regulation does not apply to insolvency proceedings as such.19 In Gourdain v Nadler the CJEU decided that Article 1(2) no. 2 of the Brussels 22 Convention excludes actions and proceedings that have a specific nexus to the insolvency proceedings of the Brussels Convention if the proceedings “derive directly from bankruptcy or winding-up” and are closely connected with the proceedings.20 In later decisions the CJEU has used this phrase to delineate the successors of the Brussels Convention, the Brussels I and Brussels Ia Regulation, from the EIR.21 In 17 See regarding the time of registration as the relevant point of time for the applicability of the EIR the Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, COM (2012) 744, p. 6; Reinhart, in Münchener Kommentar zur InsO, Art. 1 EuInsVO, mn. 5. 18 Vallender, in Vallender, EuInsVO, Art. 1, mn. 23; but see Paulus, EuInsVO, Art. 2, mn. 9. 19 van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 1, mn. 1.52. 20 CJEU Case 133/78 Gourdain v Nadler ECLI:EU:C:1979:49. 21 See CJEU Case C-111/08 SCT Industri v Alpenblume ECLI:EU:C:2009:419, para. 21; CJEU Case C339/07 Seagon v Deko Marty ECLI:EU:C:2009:83, para. 21; CJEU Case C-292/08 German Graphics v Alice van der Schee ECLI:EU:C:2009:544, para. 26; CJEU Case C-213/10 F-Tex v. Lietuvos Anglijos ECLI:EU: C:2009:544, para. 29.

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Deko Marty22 it was held that claims which meet the Gourdain v Nadler-test fall under the EIR 2000. The CJEU applied Article 3 EIR 2000 and ruled that the courts of the Member State, in which the insolvency proceedings had been opened, had international jurisdiction for closely related actions, such as avoidance actions. In a subsequent line of cases the CJEU has confirmed and refined the Gourdain v Nadler-formula, which eventually found its way into Article 6 EIR 2015, see Madaus below Art. 6 mn. 14.

C. Types of debtors to which the EIR is not applicable, Article 1(2) EIR 23

24

25

26

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Pursuant to its Article 1(2), the EIR does not apply to insolvency proceedings of (a) insurance undertakings; (b) credit institutions;23 (c) investment firms and other firms, institutions and undertakings to the extent that they are covered by Directive 2001/24/ EC; or (d) collective investment undertakings. Insolvency proceedings of credit institutions and insurance undertakings are governed by special rules contained in the Directive 2001/24/EC on the reorganisation and winding up of credit institutions and Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II). In order to avoid gaps between the Directives and the EIR, the definitions of the terms “credit institution” and “insurance undertakings” in these directives should also be applied in the context of the EIR.24 The question of how to deal with closely related actions regarding credit institutions and insurance undertakings is yet to be resolved. It is, however, likely that the CJEU will apply Deko Marty25 and Article 6 EIR to closely related actions in the context of insolvency proceedings of credit institutions and insurance undertakings. Hence, the CJEU will presumably apply the provisions on international jurisdiction for restructuring proceedings26 also to questions of international jurisdiction regarding closely related actions in the context of insolvency proceedings of such institutions. Provisions in national law that implement the Directives will have to be interpreted accordingly. Investment firms are defined in Article 4 of the Directive 2004/39/EC on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC as a “legal person whose regular occupation or business is the provision of one or more investment services to third parties and/or the performance of one or more investment activities on a professional basis”. Pursuant to Article 2 no. 2 EIR, “collective investment undertakings” means undertakings for collective investment in transferable securities (UCITS) as defined in Directive 2009/65/EC of the European Parliament and of the Council and alternative investment funds (AIFs) as defined in Directive 2011/61/EU of the European Parliament and of the Council. Only such undertakings that fall under the Directive are excluded from the EIR.27 22

CJEU Case C-339/07 Seagon v Deko Marty ECLI:EU:C:2009:83, para. 20 et seq. OLG Frankfurt a. M., Urt. v. 17.12.2012 – 1 U 17/11, IPRax 2014, 276 on the insolvency proceedings regarding the German subsidiary of Lehman Brothers. 24 van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 1, mn. 1.58. 25 CJEU Case C-339/07 Seagon v Deko Marty ECLI:EU:C:2009:83, para. 20 et seq. 26 Article 9 of the Directive 2001/24/EC on the reorganisation and winding up of credit institutions and Article 269 and 273 of the Solvency II-Directive. 27 See Financial Services Authority v Dobb White, [2003] EWHC 3146 (Ch) on Article 1(2) EIR 2000; Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 2.38 et seq. 23

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D. Territorial scope of application I. Insolvency proceedings in a Member State The EIR applies only to proceedings that are listed in Annex A EIR.28 From the fact 28 that Annex A EIR comprises only proceedings of the EU Member States (with the exception of Denmark), it follows that the EIR is only applicable to insolvency proceedings which take place in a Member State.29 The national laws of the Member States apply regarding the recognition of foreign – non-Member State – insolvency proceedings. Further, cooperation with and coordination of proceedings in third States are governed not by the EIR but by national law. The EIR applies to main, i. e. universal, proceedings as well as to territorial proceed- 29 ings. With respect to territorial proceedings, however, it is required, that main proceedings have been opened in a Member State (with the exception of Denmark) or – in case of Article 3(4) EIR – that the debtor has its COMI in a Member State, see recital 25 EIR. According to recital 88 EIR, Denmark is not considered a Member State in the 30 sense of the EIR. For the purposes of the EIR, Danish proceedings are deemed proceedings which have been opened in a non-Member State.30 As the EIR is not applicable, Member States may recognize Danish proceedings pursuant to their national law. The same logic will apply to proceedings opened in England, Wales or Scotland after Brexit given that no specific measures, such as a convention which ensures the applicability of the EIR, are agreed upon during the Brexit negotiations.

II. Relevance for cross-border issues The EIR contains provisions on international civil procedure as well as private 31 international law. As such, it pertains to questions that arise in cross border situations. The EIR may only be applied if the proceedings have a connecting factor to a Member State other than the Member State in which they have been opened. Such cross-border effects arise, for example, if a creditor resides in another Member State or if parts of the estate are located abroad.31 If the proceedings have no cross-border effects at all, they will pose no questions to which rules on international insolvency can be applied.

III. No general requirement of contacts with another Member State In general, the EIR is applicable if the debtor has its COMI in a Member State.32 32 Contacts to a Member State other than the State of the COMI are not per se a prerequisite of the application of the EIR. Hence, the EIR is also applicable to proceedings that have connections only to third States (i. e. non-Member States) as

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Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 2.51. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 51 et seq. 30 Vallender, in Vallender, EuInsVO, Art. 1, mn. 64; van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 1, mn. 1.05. 31 AG Hamburg, Beschl. v. 16.8.2006 – 67 a IE 1/06, NZI 2006, 652 (DEU); Reinhart, in Münchener Kommentar zur InsO, Art. 1 EuInsVO, mn. 13; Reinhart, NZI 2009, 73, 76. 32 Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 54 et seq. 29

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long as the debtor has its COMI within the territory of a Member State.33 Consequently, a court of a Member State, which is seized with a petition to open insolvency proceedings, can always determine its international jurisdiction by applying the EIR, unless the debtor falls under Article 1(2) EIR. If one required a connection to another Member State for the applicability of the EIR, a court would have to verify that such a connection exists – which can raise significant difficulties at the outset of proceedings – in order to find the basis for determining its international jurisdiction; either the EIR or national law on international insolvency. Adopting such a requirement would, hence, greatly and unnecessarily impede the determination of international jurisdiction. 33 Some provisions of the EIR, however, explicitly require a connection to another Member State.34 Article 8 EIR for example requires that the collateral is situated in another Member State. Similarly, Article 10 EIR requires that the sold asset is situated in another Member State at the time of the opening of the proceedings. Other provisions with similar requirements are Articles 11, 12, 13, 14, 16 and 18 EIR. These provisions have in common that they contain exceptions from the applicability of the lex fori concursus, the general conflicts rule of the EIR, which is set out in Article 7 EIR. It is not completely clear whether Article 7 EIR can be applied if the reason for the inapplicability of its exceptions is that the situation lacks the required contacts to another Member State. This problem arises for example when insolvency proceedings have been opened in a Member State and the law governing a contract of employment is the law of a third State. The question is whether the lex fori concursus governs the effects of the opening of insolvency proceedings on the contract pursuant to Article 7 EIR (as Article 11 EIR is not applicable) or whether Article 7 EIR is rendered inapplicable by the inapplicability of Article 11 EIR. The gaps resulting from the latter solution could be filled by the rules on international insolvency of the Member State in the territory of which the proceedings have been opened. In many instances, these rules will contain similar exceptions to the lex fori.35 34 In the end, it seems preferable to use the private international law of the Member State where the proceedings have been opened.36 To simply apply the lex fori concursus pursuant to Article 7 EIR would unduly discriminate parties to contracts to which the law of a third State applies. European insolvency law should not punish parties just because their lex contractus is not the law of a Member State. 33 See regarding the international jurisdiction of closely related actions CJEU Case C-328/12 Schmid ECLI:EU:C:2014:6, para. 28 et seq. and CJEU Case C-649/13 Comité d’entreprise de Nortel Networks and Others ECLI:EU:C:2015:384, para. 51 et seq.; CJEU Case C-295/13 H. v H. K. ECLI:EU:C:2014:2410, para. 27 et seq. (regarding an action brought against the managing director of a company for reimbursement of payments made after that company has become insolvent); Re BRAC Rent-A-Car International Inc. [2003] EWHC 128 (Ch) (GBR); Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 56 et seq.; Vallender, in Vallender, EuInsVO, Art. 1, mn. 72; Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 2.71 et seq., 2.81; Reinhart, in Münchener Kommentar zur InsO, Art. 1 EuInsVO, mn. 16; Huber, in Geimer/Schütze, Internationaler Rechtsverkehr, B Vor I 20 b Art. 1 EIR 2000, mn. 19 et seq.; Paulus, 27 Insolvency Intelligence 2014, 70 (criticizing the holding in CJEU Case C-328/12 Schmid). 34 See also Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 1, mn. 64 et seq. 35 See for example § 337 InsO (DEU). 36 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 44; Haubold, in Gebauer/ Wiedmann, EuInsVO, Art. 4 EIR 2000 mn. 108; Leible/Staudinger, KTS 2000, 533, 551; Reinhart, in Münchener Kommentar zur InsO, Art. 1 EuInsVO 2000, mn. 12; Paulus, EuInsVO, Art. 10, mn. 4; Schmiedeknecht, Der Anwendungsbereich der Europäischen Insolvenzverordnung und die Auswirkungen auf das deutsche Insolvenzrecht, p. 108; but see Maesch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 4 EG-InsVO 2000, mn. 5. The private international law of a Member State should be applicable; see also Reinhart, in Münchener Kommentar zur InsO, Art. 1 EuInsVO 2000, mn. 19; but see Huber, ZZP 114 (2001), 133, 152 regarding setoffs; regarding avoidance actions Gruber, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 13 VO Nr. 1346/2000, mn. 3.

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Article 2 Definitions For the purposes of this Regulation: (1) “collective proceedings” means proceedings which include all or a significant part of a debtor’s creditors, provided that, in the latter case, the proceedings do not affect the claims of creditors which are not involved in them; (2) “collective investment undertakings” means undertakings for collective investment in transferable securities (UCITS) as defined in Directive 2009/65/EC of the European Parliament and of the Council1 and alternative investment funds (AIFs) as defined in Directive 2011/61/EU of the European Parliament and of the Council2; (3) “debtor in possession” means a debtor in respect of which insolvency proceedings have been opened which do not necessarily involve the appointment of an insolvency practitioner or the complete transfer of the rights and duties to administer the debtor’s assets to an insolvency practitioner and where, therefore, the debtor remains totally or at least partially in control of its assets and affairs; (4) “insolvency proceedings” means the proceedings listed in Annex A; (5) “insolvency practitioner” means any person or body whose function, including on an interim basis, is to: (i) verify and admit claims submitted in insolvency proceedings; (ii) represent the collective interest of the creditors; (iii) administer, either in full or in part, assets of which the debtor has been divested; (iv) liquidate the assets referred to in point (iii); or (v) supervise the administration of the debtor’s affairs. The persons and bodies referred to in the first subparagraph are listed in Annex B; (6) “court” means: (i) in points (b) and (c) of Article 1(1), Article 4(2), Articles 5 and 6, Article 21(3), point (j) of Article 24(2), Articles 36 and 39, and Articles 61 to 77, the judicial body of a Member State; (ii) in all other articles, the judicial body or any other competent body of a Member State empowered to open insolvency proceedings, to confirm such opening or to take decisions in the course of such proceedings; (7) “judgment opening insolvency proceedings” includes: (i) the decision of any court to open insolvency proceedings or to confirm the opening of such proceedings; and (ii) the decision of a court to appoint an insolvency practitioner; (8) “the time of the opening of proceedings” means the time at which the judgment opening insolvency proceedings becomes effective, regardless of whether the judgment is final or not; (9) “the Member State in which assets are situated” means, in the case of:

1 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32). 2 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1).

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(i)

registered shares in companies other than those referred to in point (ii), the Member State within the territory of which the company having issued the shares has its registered office; (ii) financial instruments, the title to which is evidenced by entries in a register or account maintained by or on behalf of an intermediary (“book entry securities”), the Member State in which the register or account in which the entries are made is maintained; (iii) cash held in accounts with a credit institution, the Member State indicated in the account’s IBAN, or, for cash held in accounts with a credit institution which does not have an IBAN, the Member State in which the credit institution holding the account has its central administration or, where the account is held with a branch, agency or other establishment, the Member State in which the branch, agency or other establishment is located; (iv) property and rights, ownership of or entitlement to which is entered in a public register other than those referred to in point (i), the Member State under the authority of which the register is kept; (v) European patents, the Member State for which the European patent is granted; (vi) copyright and related rights, the Member State within the territory of which the owner of such rights has its habitual residence or registered office; (vii) tangible property, other than that referred to in points (i) to (iv), the Member State within the territory of which the property is situated; (viii) claims against third parties, other than those relating to assets referred to in point (iii), the Member State within the territory of which the third party required to meet the claims has the centre of its main interests, as determined in accordance with Article 3(1); (10) “establishment” means any place of operations where a debtor carries out or has carried out in the 3-month period prior to the request to open main insolvency proceedings a non-transitory economic activity with human means and assets; (11) “local creditor” means a creditor whose claims against a debtor arose from or in connection with the operation of an establishment situated in a Member State other than the Member State in which the centre of the debtor’s main interests is located; (12) “foreign creditor” means a creditor which has its habitual residence, domicile or registered office in a Member State other than the State of the opening of proceedings, including the tax authorities and social security authorities of Member States; (13) “group of companies” means a parent undertaking and all its subsidiary undertakings; (14) “parent undertaking” means an undertaking which controls, either directly or indirectly, one or more subsidiary undertakings. An undertaking which prepares consolidated financial statements in accordance with Directive 2013/34/EU of the European Parliament and of the Council3 shall be deemed to be a parent undertaking.

3 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertaking, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, p. 19).

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Art. 2

Outline A. Collective proceedings, Article 2 no. 1 EIR................................................................ B. Collective investment undertakings, Article 2 no. 2 EIR ........................................ C. Debtor in possession, Article 2 no. 3 EIR................................................................... D. Insolvency proceedings, Article 2 no. 4 EIR .............................................................. E. Insolvency practitioner, Article 2 no. 5 EIR............................................................... F. Court, Article 2 no. 6 EIR .............................................................................................. G. Judgment opening insolvency proceedings, Article 2 no. 7 EIR ........................... I. Relevance................................................................................................................... II. Historical background............................................................................................ III. Content...................................................................................................................... H. The time of the opening of proceedings, Article 2 no. 8 EIR................................ I. Relevance................................................................................................................... II. Historic background............................................................................................... III. Content...................................................................................................................... J. The Member State in which assets are situated, Article 2 no. 9 EIR ................... I. Relevance................................................................................................................... II. Historical background............................................................................................ III. Content...................................................................................................................... 1. Registered shares, (i).......................................................................................... 2. Financial instruments, (ii) ................................................................................ 3. Cash held in accounts, (iii) .............................................................................. 4. Rights entered in a public register, (iv)......................................................... 5. European patents, (v) ........................................................................................ 6. Copyrights and related rights, (vi) ................................................................. 7. Other tangible property, (vii) .......................................................................... 8. Claims against third parties, (viii) .................................................................. K. Establishment, Article 2 no. 10 EIR ............................................................................. L. Local creditor, Article 2 no. 11 EIR ............................................................................. M. Foreign creditor, Article 2 no. 12 EIR ......................................................................... I. Purpose...................................................................................................................... II. Historic development ............................................................................................. III. Interpretation ........................................................................................................... N. Group of companies, Article 2 no. 13 EIR ................................................................. O. Parent undertaking, Article 2 no. 14 EIR ...................................................................

1 2 3 5 9 11 12 12 13 15 17 17 18 19 20 20 21 22 25 26 27 30 31 32 33 34 35 41 44 44 45 49 52

A. Collective proceedings, Article 2 no. 1 EIR Recitals: 12, 14.

The term “collective proceedings” is used in the EIR only in recital 14 EIR as well as 1 in Article 1(1) EIR. The term has little practical relevance though, as the proceedings that are “insolvency proceedings” in the sense of the EIR are exhaustively listed in Annex A EIR, see Article 2 no. 4 EIR. The definition of “collective proceedings” merely clarifies that insolvency proceedings need not include all of a debtor’s creditors. Hence, restructuring proceedings, that may be limited to financial creditors, are equally “insolvency proceedings” in terms of the EIR.

B. Collective investment undertakings, Article 2 no. 2 EIR Recital: 19.

The Regulation refers to the definitions in Article 1(2) Directive 2009/65/EC on the 2 coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as well as Article 4(1)(a) Directive 2011/61/EU on Alternative Investment Fund Managers and amending DirecBrinkmann

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Art. 2 3–7

Chapter I. General Provisions

tives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010.

C. Debtor in possession, Article 2 no. 3 EIR The term “debtor in possession” is used in Articles 6(2)(sentence 2), 28, 29, 38, 55(5) and (7), and 76 EIR. 4 In these Articles the debtor in possession is explicitly treated as equal to the insolvency practitioner (for example Articles 28, 29, 43(2), 76 EIR). Many other parts lack such clarification. Nevertheless, this should not lead to the conclusion, that provisions without explicit equalisation only apply to an insolvency practitioner listed in Annex B EIR. On the contrary, the term “insolvency practitioner” also includes – as far as procedural rights and obligations are concerned – the debtor in possession (in particular in Articles 6, 7, 21–23, 36–39 and 42–49 EIR; not though in Articles 4(2) and 31 EIR). 3

D. Insolvency proceedings, Article 2 no. 4 EIR Recitals: 9, 10, 13, 14, 16.

Article 2 no. 4 EIR clarifies that only proceedings that can be attributed to a type of proceedings listed in Annex A EIR are “insolvency proceedings” in terms of the EIR. 6 The criteria in Article 1 EIR are therefore primarily relevant for determining whether a type of proceedings should be included in the list of Annex A EIR. Any type of proceedings listed in Annex A EIR qualifies ex lege as “insolvency proceedings” for the purposes of the EIR. In turn, any proceedings not listed are not within the scope of the Regulation, whether or not the proceedings meet the criteria of Article 1(1) EIR. This system of enumeration serves legal certainty and legal clarity.4 Schemes of Arrangement under English law therefore fall outside the scope of the EIR.5 Their recognition is governed by the Brussels Ia Regulation6 or – in case of its inapplicability – by domestic rules on international civil procedure. 7 The list in Annex A EIR is to be interpreted to the effect that it includes special types of the listed proceedings, such as insolvency proceedings of a decedent’s estate pursuant to §§ 315–331 InsO (DEU)7 as well as debtor in possession proceedings pursuant to §§ 270–285 InsO (DEU). Whether proceedings according to Article 14 A of the Greek Law No. 3429/2005 fall under “insolvency proceedings” is subject to controversial debate.8 5

4

CJEU, Case C-461/11, Radziejewski, ECLI:EU:C:2012:704, para. 24; Mankowski, NZI 2011, 876 et seq. Petrovic, ZInsO 2010, 265; Bormann, NZI 2011, 892, 896; Eidenmüller/Frobenius, WM 2011, 1210, 1214; Laier, GWR 2011, 252; Mankowski, WM 2011, 1201, 1202]; Schümann/Kleber, IILR 2011, 447, 449; Westpfahl/Knapp, ZIP 2011, 2033, 2044; Lüke/Scherz, ZIP 2012, 1101, 1104; Thole, ZGR 2013, 109, 114. 6 BGH, Urt. v. 15. 2. 2012 – IV ZR 194/09, NZI 2012, 425 = KTS 2013, 63 (DEU), with annotations by Oberhammer = ZIP 2012, 74, mn. 25; critically on this Maesch, IPRax 2013, 234; likewise Kusche, Die Anerkennung des Scheme of Arrangement in Deutschland, p. 126; Mankowski, EWiR 2009, 711, 712; Petrovic, ZInsO 2010, 265; Mankowski, WM 2011, 1201, 1203; Westpfahl/Knapp, ZIP 2011, 2033, 2044; Freund, Die Sanierung der Kapitalgesellschaft, pp. 185 et seq.; Thole, ZGR 2013, 109, 113; Carli/Weissinger, DB 2014, 1474, 1479. See on a Greek restructuring instrument BAG, Urt. v. 13.12.2012 – 6 AZR 752/11, BeckRS 2013, 68180 (DEU); LAG Düsseldorf, Urt. v. 14.7.2011 – 15 Sa786/10, NZI 2011, 874 (DEU)with consenting annotations by Mankowski; Paulus, EuInsVO, mn. 11. 7 AG Köln, Beschl. v. 12.11.2010 – 71 IN 343/10, NZI 2011, 159 (DEU); likewise Schmiedeknecht, Anwendungsbereich p. 144. 8 In favor of the applicability of the EIR HessLAG, Urt. v. 25.7.2011 – 17 Sa 118/11, ZIP 2011, 2218; (DEU) against the applicability LAG Düsseldorf, Urt. v. 14.7.2011 – 15 Sa786/10, NZI 2011, 874 (DEU). 5

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Definitions

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Art. 2

Considering the exhaustive nature of Annex A EIR, the elimination of the procedure 8 concerning amendment of Annexes laid out by Article 45 EIR 2000 by the EIR 2015 is highly problematic. Under the EIR 2015, an amendment of Annex A EIR can solely be realised by amendment of the Regulation itself. Two amendments have already been adopted.9 Ireland, however, has in both instances initially failed to declare that it whishes to be bund not only by the EIR 2015, but also by the amending Regulations (see their recitals 5, respectively 4 of the amending Regulations). With respect to Regulation (EU) 2017/353 this initial failure, however, has been subsequently amended (Commission Decision (EU) 2017/1518 of 31 August 2017). Such a subsequent optin-in of Ireland still lacks regarding Regulation (EU) 2018/946. Hence vis-à-vis Ireland the version of the Annexes in Regulation (EU) 2017/353 applies as long as Ireland does not notify the Commission that it wishes to be bound by Regulation (EU) 2018/946.

E. Insolvency practitioner, Article 2 no. 5 EIR Recital: 21.

“Insolvency practitioners” in terms of Article 2 no. 5 EIR are all authorities and 9 persons listed in Annex B EIR. This enumeration, too, is exhaustive, wherefore the relevance of Article 2 no. 5 (i) EIR is reduced to the question which authorities and persons should be included in the list. For the immediate application of the EIR the criteria listed in (i)–(v) are irrelevant. For the question under which circumstances the term “insolvency practitioner” 10 includes a debtor in possession, see above mn. 4.

F. Court, Article 2 no. 6 EIR Recital: 20.

As per Article 2 no. 6 (ii) EIR the term “court” comprises not only courts in the sense 11 of a judicial body, but also other public or private authorities to whom responsibilities of supporting and carrying out insolvency proceedings have been assigned by national law. In the context of the provisions listed in Article 2 no. 6 (i) EIR, however “court” refers only to the impartial authorities of a Member State empowered to make judgements. These decisions affect issues which are of such importance that a certain standard of procedural fairness must be guaranteed.

9 Regulation (EU) 2018/946 of 4 July 2018 incorporating new procedures from Bulgaria, the Republic of Croatia, the Republic of Latvia, the Portuguese Republic and the Kingdom of Belgium. Regulation (EU) 2017/353 of 15 February 2017 incorporating new procedures in Polish law.

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Art. 2 12–17

Chapter I. General Provisions

G. Judgment opening insolvency proceedings, Article 2 no. 7 EIR Case Law: EU: CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:C:2006:281, para. 54.

I. Relevance 12

The term “judgment opening insolvency proceedings” is used in Articles 4, 19, 20, 28, 32 and 52 EIR (sometimes with slight deviations). Even though Article 3 EIR does not explicitly use the term defined in Article 2 no. 7 EIR, it is nevertheless the most crucial in this context, as Article 3 EIR deals with the question which courts have jurisdiction over a “judgment opening insolvency proceedings” and which effects this decision has.

II. Historical background Article 2 no. 7 EIR 2015 contains a revised version of Article 2(e) EIR 2000. Article 2 (e) EIR 2000 had the following wording: “‘judgment’ in relation to the opening of insolvency proceedings or the appointment of a liquidator shall include the decision of any court empowered to open such proceedings or to appoint a liquidator”. 14 It was felt that Article 2(e) EIR 2000 was too broad in the sense that the reader might be misled to believe that the definition applied to all judgments. The new wording makes clear that the definition only applies to opening decisions. 13

III. Content Under the EIR the decision to open insolvency proceedings in the sense of Annex A EIR is called a “judgment” regardless of the form in which the proceedings are opened under national law. Even if under national law proceedings are commenced by a court order or by an act of an administrative body (which is for the purposes of Article 2 no. 7 EIR a court in the sense of Article 2 no. 6 EIR), the opening act is by definition a “judgment”. 16 Pursuant to Article 2 no. 7 (ii) EIR, the term “judgment opening insolvency proceedings” also comprises decisions to appoint an insolvency practitioner in the sense of Article 2 no. 5 EIR. Thus, under the EIR the appointment of an insolvency practitioner has the effects of a judgment opening insolvency proceedings, even if under national law the commencement of insolvency proceedings and the appointment are separate acts that may take place at different points of time. 15

H. The time of the opening of proceedings, Article 2 no. 8 EIR Case Law: EU: CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:C:2006:281.

I. Relevance 17

The term “time of the opening of proceedings” is used in Articles 8(1), 10(1) and (2) EIR. Furthermore, the question when insolvency proceedings are opened is of relevance in the context of Article 3(3) and (4) EIR. 38

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Art. 2

II. Historic background Article 2 no. 8 EIR 2015 contains a revised version of Article 2(f) EIR 2000, which 18 read: “the time of the opening of proceedings shall mean the time at which the judgment opening proceedings becomes effective, whether it is a final judgment or not”. The new wording does not change the meaning of the provision.

III. Content Pursuant to Article 2 no. 8 EIR, the relevant point of time is when the effects of the 19 opening decision (such as divestment of assets, stay of enforcement) first come into force. It is irrelevant whether the judgment opening insolvency proceedings (in the sense of Article 2 no. 7 EIR) is subsequently challenged, even if under national law the remedy has suspensory effect. In a situation where a court of first instance refusing to open insolvency proceedings is subsequently overruled by the appellate court before opening insolvency proceedings or remanding the decision back to the court of first instance, the latter opening decision by the appellate court and not the initial dismissal is the relevant point of time. See Rüther below Art. 84 mn. 5.

J. The Member State in which assets are situated, Article 2 no. 9 EIR Specific bibliography: Mankowski, in Festschrift für Pannen, p. 243. Case Law: EU: CJEU, 11 June 2015, Case C-649/13, Nortel, ECLI:EU:C:2015:384.

I. Relevance The term “the Member State in which assets are situated” is of relevance in several 20 Articles, especially in Articles 3, 8, 10, 11, 14, 15, 17, 21 and 34 EIR.

II. Historical background Article 2 no. 9 EIR 2015 contains a revised version of Article 2(g) EIR 2000. The 21 provisions contained in (i) to (iii) and (v) and (vi) have been newly added.

III. Content The provision on the location of assets is especially relevant when regarding whether 22 such assets are allocated to the main or specific particular (ancillary) insolvency proceedings; see Article 3(2)(sentence 2) EIR. The site of the assets is also relevant in connection with the treatment of the rights of creditors with in rem security interests, since these enjoy special protection under Article 8 EIR. It must be noted that, according to the CJEU, even where the provision expressly 23 refers only to assets, rights and claims that are situated in a Member State, this wording

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Art. 2 24–31

Chapter I. General Provisions

does not indicate that the provision does not apply where the asset, right or claim in question is regarded as being situated in a third country.10 24 The legal definition contained in Article 2 no. 9 EIR is especially aimed at intangible and immaterial assets, since the attribution of those frequently poses considerable difficulties:

1. Registered shares, (i) 25

Registered shares (see for instance in Germany: § 67 AktG) that are not financial instruments under (ii) are situated in the Member State in which the corporation that has issued the shares has its registered office.

2. Financial instruments, (ii) 26

Subparagraph (ii) defines “book entry securities” as financial instruments, the title to which is evidenced by entries in a register or account maintained by or on behalf of an intermediary. The State where these book entry securities are situated is the Member State in which the relevant register or account is maintained. The term “financial instruments” is legally defined in Article 4 no. 15 read together with Part C of Annex I of the EU Financial Instruments Directive 2014/65/EU.

3. Cash held in accounts, (iii) Credit balances on accounts at a credit institution are situated in the Member State which is set out in the international bank account number (IBAN). 28 Where the credit institution does not have an IBAN, the State in which the cash held in the account is situated is the Member State in which the credit institution that maintains the account has its administrative centre or, when the account is maintained at a branch, with an agent or other permanent establishment, the Member State in which that branch, agent or permanent establishment is located. 29 The term “credit institution” is legally defined in Article 1 no. 1 of Directive 2000/12/ EG relating to the taking up and pursuit of the business of credit institutions. 27

4. Rights entered in a public register, (iv) 30

The rule contained in (iv) corresponds to Article 2(g)(second dash) EIR 2000. For assets or rights for which title or ownership is registered in public registers other than those referred to in (i), the State in which the right is situated is the Member State that supervises the maintenance of the register. The provision covers both registers that are maintained by public authorities and those that are maintained by private entities.11 It is decisive that the register is publicly-accessible and that the registrations have an effect upon third parties.12

5. European patents, (v) 31

Pursuant to subparagraph (v), European patents are deemed to be situated in the Member State for which the European patent was issued. The European patents referred to in (v) are not equal to the “European patents with unitary effect” discussed in Article 15 EIR. (v) relates to the “European patent” on the basis of the European Patent Convention from 1973 (Community Patent Convention (EEC) No 76/76).

10

CJEU, Case C-649/13, Nortel, ECLI:EU:C:2015:384, mn. 52. See Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 69. 12 See Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 69. 11

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Definitions

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Art. 2

6. Copyrights and related rights, (vi) For copyrights and related protective rights, the State in which these rights are 32 situated is the Member State in whose sovereign territory the holder of such rights has his habitual residence or seat. Related protective rights include, in particular, the rights of practising artists, sound producers and film-makers, broadcasting businesses and the issuers of unpublished works (see the European Parliament and Council Directive (EC) No 115/2006 and the European Parliament and Council Directive (EC) No 116/2006) as well as the rights of database providers (see the European Parliament and Council Directive (EC) No 9/96).

7. Other tangible property, (vii) In accordance with the authoritative principle of the lex sitae, tangible property other 33 than that set out in subparagraphs (i) to (iv) is situated in the Member State in whose sovereign territory the property is located.

8. Claims against third parties, (viii) Subparagraph (viii) relates to claims against third parties other than those that relate 34 to assets covered by (iii). For the claims covered by (viii), the State in which the claim is situated is the Member State in which the third party who is required to pay is located, i. e. the centre of its main interests in terms of Article 3(1) EIR. Reference is made to the comments on Article 3 EIR with respect to the determination of the centre of main interests (COMI).13

K. Establishment, Article 2 no. 10 EIR Specific bibliography: Bork/Harten, NZI 2018, 673. Case Law: EU: CJEU, 4 September 2014, Case C-327/13, Burgo Group SpA, ECLI:EU:C:2014:2158; CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671.

The definition in Article 2 no. 10 EIR of what constitutes an establishment is 35 significant as secondary proceedings under Articles 3(2) and 34 EIR may only be opened in the Member State where the debtor has an establishment. The definition in the EIR 2015 is similar but not identical to the one used in the 36 previous EIR 2000. The new definition introduces a new temporal qualification according to which an establishment must not necessarily exist anymore when secondary proceedings are requested or opened.14 Instead, any establishment closed within a period of three months prior to the request to open main insolvency proceedings suffices.15 By giving relevance to establishments that were active in the period immediately preceding the

13

Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 69. The temporal element of the definition was debated under the EIR 2000; see, for instance, Trustees of the Olympic Airlines SA Pension & Life Assurance Scheme v Olympic Airlines SA [2015] UKSC 27 (holding that the relevant date for determining the existence of an establishment is the date of the request to open the secondary proceedings). 15 Such a temporal qualification was proposed by the Lehne Report (European Parliament, Committee on Legal Affairs, A7-0481/2013). See also Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.549-8.553. 14

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Art. 2 37–41

37

38

39

40

Chapter I. General Provisions

request to open main proceedings, the EIR addresses the practice of dissolving establishments for the sole purpose of preventing secondary proceedings.16 Article 2 no. 10 EIR also describes, of course, what constitutes an establishment. The interpretation of the definition must reflect the specific purpose of an establishment in the Regulation as it limits the universal effects of main proceedings by allowing for secondary proceedings in Member States with an establishment. It follows that the definition in Article 2 no. 10 neither corresponds to the concept of a “branch, agency or other establishment” in Article 7 no. 5 of the Brussels Ia Regulation17 nor to the meaning of such terms provided in other European instruments or in national legislation. Instead, the definition must be interpreted autonomously. An establishment under Article 2 No. 10 EIR is more than just assets located in a Member State because, as it was already stressed in the Virgós Schmit Report18, the mere presence of assets does not enable territorial proceedings to be opened. The simple presence of “goods in isolation” or bank accounts does not, in principle, satisfy the requirements to be qualified an establishment.19 An establishment is a place of operations; it requires a non-transitory economic activity of the debtor with human means and assets. The three components of an establishment – human resources, assets, relevant economic activity – were already mentioned by the CJEU in Interedil when the Court held that the definition of an establishment requires a “minimum level of organisation and a degree of stability”, because it links the pursuit of an economic activity to the presence of human resources.20 The existence of these components must be determined on the basis of objective factors which are ascertainable by third parties, because they also serve to confer jurisdiction on the courts of the Member State of the establishment to open secondary insolvency proceedings.21 The definition in Article 2 No. 10 EIR gives no relevance at all to the place of the registered office of the debtor. In Burgo Group, the CJEU held that an establishment of the debtor may also be situated within the territory of the Member State in which that company has its registered office if the COMI of the company is in another Member State.22 Such a situation may occur in cases of insolvency of corporate groups where group companies’ main proceedings are opened in a single Member State.

L. Local creditor, Article 2 no. 11 EIR Recitals: 37, 40, 42, 43.

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Article 2 no. 11 EIR defines local creditors as those whose claims against a debtor arose from or in connection with the operation of an establishment situated in a Member State other than the Member State in which the centre of the debtor’s main 16 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.26; Garcimartín, ZEuP 2015, 694, 724–725. 17 Mangano, in Bork/van Zwieten, mn. 34.15; Wessels, International Insolvency Law, para. 10537; Riedemann, in Pannen, Europäische Insolvenzverordnung, Art. 2 EIR 2000, mn. 47; Virgós/Garcimartín, The European Insolvency Regulation, pp. 158–162. 18 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 70. 19 CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671, para. 62; confirmed in CJEU, 4 September 2014, Case C-327/13, Burgo Group SpA, ECLI:EU:C:2014:2158, para. 31. 20 CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671, para. 62; confirmed in CJEU, 4 September 2014, Case C-327/13, Burgo Group SpA, ECLI:EU:C:2014:2158, para. 31. 21 CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671, para. 63. 22 CJEU, 4 September 2014, Case C-327/13, Burgo Group SpA, ECLI:EU:C:2014:2158, paras. 35–38.

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Definitions

42–43

Art. 2

interests is located.23 In the EIR 2000 such a definition was missing, and a reference to local creditors could only be found in recital 17 EIR 2000, concerning the right to request the opening of insolvency proceedings. In the EIR 2015, this concept is particularly relevant for the availability of new tools in the hands of the insolvency practitioner, aimed at protecting local creditors in the context of secondary proceedings,24 such as those provided in Article 36 (right to give an undertaking in order to avoid secondary insolvency proceedings), Article 38 (decision to open secondary insolvency proceedings) and Article 51 EIR (conversion of secondary insolvency proceedings). Concerning the first case, for instance, Article 36(5) EIR requires the undertaking to be supported by a qualified majority of known local creditors. While foreign creditors are identified under Article 2 no. 12 EIR based on their 42 residence, domicile or registered office, the notion of local creditors builds upon the origin of the claim. The deviation follows from the CJEU decision in Burgo Group where the court held that any limitation of the right to request secondary proceedings to local creditors would operate mainly to the detriment of nationals of other Member States and thus constitute a prohibited indirect discrimination on grounds of nationality.25 While the court acknowledged that secondary proceedings serve to protect local interests amongst other purposes, it concluded that the right to seek the opening of secondary proceedings cannot be restricted to creditors “who have their domicile or registered office within the Member State in whose territory the relevant establishment is situated, or to creditors whose claims arise from the operation of that establishment.”26 The CJEU’s definition of a local creditor was only partially adopted in the recast Regulation. In order to avoid any indirect discrimination on grounds of nationality, Article 2 no. 11 EIR does not refer to a foreign domicile or residence. Instead, a connection between the creditor’s claim and the establishment is essential. Such a connection is established where a claim arises directly or indirectly (“in connection with”) from the operation of the establishment. A direct or indirect connection between the creditor and the establishment requires 43 two facts. First, there must be a claim between the debtor and the creditor, because Article 2 no. 11 EIR does not, of course, interfere in any way with the role of lex fori concurcus in determining who qualifies as a creditor for the purpose of insolvency proceedings.27 Second, the claim, in other words the underlying liability, must have a sufficient connection to the debtor’s establishment. This is the case if, for instance, local representatives of the debtor concluded the contract (for example the establishment’s management) or if the contract was concluded by the debtor at the place of the establishment regardless of the place of performance.28 A sufficient connection may also result from a contractual and non-contractual liability arising from the actual management of the establishment, a contractual liability entered into on behalf of the parent company, or a non-contractual obligation arising out of the activity carried out by the subsidiary for the account of the parent company.29

23 Differently, with a formula which is also used by Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 85, Article 7(5) of Regulation (EU) No 1215/2012 concerns only “dispute[s] arising out of the operations of a branch, agency or other establishment”, and not also those “in connection with”. 24 van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 2, mn. 2.34. 25 CJEU, 4 September 2014, Case C-327/13, Burgo Group SpA, ECLI:EU:C:2014:2158, para. 49. 26 Ibid., para. 51; see also recital 40 EIR. 27 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 2, mn. 62. 28 Thole, in Münchener Kommentar zur InsO, Art. 2 VO 2015/848, mn. 17. 29 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 2, mn. 63.

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Art. 2 44–49

Chapter I. General Provisions

M. Foreign creditor, Article 2 no. 12 EIR Case Law: EU: CJEU, 17 November 2011, Case C-112/10, Zaza Retail BV, ECLI:EU:C:2011:743.

I. Purpose The term “foreign creditor” is used in Article 24(4) EIR as well as Articles 53, 54 and 55 EIR.

II. Historic development 44

The definition of the term “foreign creditor” was introduced by the reform of the EIR. The term definition refers to the content of Article 39 EIR 2000.

III. Interpretation A “foreign creditor” in terms of Article 2 no. 12 EIR is a creditor who has his habitual residence, domicile or seat in another Member State than the Member State in which proceedings were opened. 46 The State of habitual residence, domicile or seat must be a Member State. Creditors from third countries are not covered by the definition contained in Article 2 no. 12 EIR. 47 The term “creditor” includes not only private law creditors, but also public law creditors. This is expressly clarified by the second half-sentence (“including the tax authorities and the social security authorities”). The references to the tax authorities and the social security authorities, however, only serve as examples (“including”), which is why generally all other public law creditors are also included. In contrast, an authority of a Member State which has the mandate to act in the public interest under its national law, but which does not act as a creditor or on behalf of and for the account of creditors, is not included.30 48 The determining of who is regarded as a creditor in the relevant insolvency proceedings is made by the lex fori concursus.31 For example, for proceedings opened in Germany, the recording and allocation of creditors contained in § 38 et seq. InsO must be complied with. 45

N. Group of companies, Article 2 no. 13 EIR Recitals: 51, 53–55. Specific bibliography: Eble, NZI 2016, 115.

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The entirely new Chapter V on insolvency proceedings of members of a group of companies uses the new term “group of companies”, which is now defined in Article 2 no. 13 EIR. Both the definition in Article 2 no. 13, 14 EIR and Chapter V itself are new 30 cf. CJEU, Case C-112/10, Procureur-generaal bij het hof van beroep te Antwerpen v Zaza Retail BV, ECLI:EU:C:2011:743, mn. 34. 31 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 2, mn. 65.

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topics in the EIR 2015. The definition corresponds to the definition in Article 2 no. 11 of the Accounting Directive 2013/34/EU on the annual financial statements. Group of companies means a parent undertaking and all its subsidiary undertakings 50 (vertically integrated group). The actual legal form of the parent undertaking or subsidiary undertaking is not decisive.32 The wording also covers a group with only one subsidiary.33 Although Article 2 no. 13 EIR does not mention sub-subsidiaries, it is clear from the context of Article 2 no. 14 EIR that the term “subsidiary undertakings” covers all levels of subsidiaries since indirect control is sufficient according to Article 2 no. 14 EIR.34 Hence, Article 2 no. 13 EIR covers sub-subsidiary undertakings as well as further indirectly controlled undertakings. There is dispute as to whether Article 2 no. 13 EIR also covers cooperations between 51 two or more corporations on the same level (horizontally integrated group; “Gleichordnungskonzern”). Some authors are of the opinion that Article 2 no. 13 EIR does not cover a horizontally coordinated group with corporations on the same level.35 According to the wording of Article 2 no. 13 EIR, there is no subsidiary undertaking since there is no hierarchy between two corporations on the same level. In our view, despite the wording, it is clear from the rationale of Article 2 no. 13 EIR that a group with two or more equal undertakings is also included within the scope of Article 2 no. 13 EIR and therefore within the scope of Article 56 EIR et seq.36 This understanding is in line with recital 51 EIR, which states that the EIR should ensure the efficient administration of insolvency proceedings relating to different companies forming part of a group of companies. Recital 51 EIR obviously focuses on the group regardless of whether it is vertically or horizontally structured. Hence, Article 2 no. 13 EIR should be understood broadly.37

O. Parent undertaking, Article 2 no. 14 EIR Article 2 no. 14 EIR offers two options for the assessment of a company as a “parent 52 undertaking” according to Article 2 no. 14 EIR. Either the undertaking directly or indirectly controls one or more subsidiary undertakings (sentence 1), or the undertaking prepares consolidated financial statements in accordance with the Accounting Directive 2013/34/EU (sentence 2). The first part of Article 2 no. 14 EIR is close to the definition of “parent undertakings” according to Article 2 no. 9 Accounting Directive 2013/34/EU. In case of doubt, Article 2 no. 14 EIR and the Accounting Directive 2013/34/EU should be construed accordingly.38 Sentence 2 states that “an undertaking which prepares consolidated financial statements 53 in accordance with Directive 2013/34/EU of the European Parliament and of the Council shall be deemed to be a parent undertaking”. The majority of legal scholars understand 32

Esser, American Bankruptcy Institute Journal 2015, p. 38, 39. Madaus, IILR 2015, 235, 236; J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 2 mn. 75. 34 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 2 mn. 77; Sutschet, in Vallender, EuInsVO, Art. 2 mn. 60. 35 Madaus, IILR 2015, 235, 237; Eble, NZI 2016, 115, 120; Pleister/Sturm, ZIP 2017, 2329, 2332. 36 Sutschet, in Vallender, EuInsVO, Art. 2 mn. 61; J. Schmidt, KTS 2018, 1, 3, if the Member State has used the option according to Article 22(7) Accounting Directive; Prosteder, NZI Beilage 1/2018, 10, also argues that a broad understanding of a group of companies includes horizontally integrated groups in German insolvency law (Sec. 3 InsO) and is, therefore, more reasonable and beneficial in cases of insolvency. 37 Esser, American Bankruptcy Institute Journal 2015, p. 38, 39. 38 van Zwieten, in Bork/van Zwieten, Commentary on EIR, mn 2.38. 33

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sentence 2 to be a non-rebuttable presumption.39 In this case, even the voluntary preparation of a consolidated financial statement by an undertaking leads to the presumption that this undertaking is the “parent undertaking” within the meaning of Article 2 no. 14 EIR.40 Furthermore, an incorrect assessment of whether or not the undertaking is subject to the requirements of the Accounting Directive 2013/34/EU is irrelevant.41 Other legal commentators do not agree with this view and interpret Article 2 no. 14 (sentence 2) EIR as a rebuttable presumption.42 In their opinion, the undertaking must be legally obliged to prepare a consolidated financial statement, otherwise Article 2 no. 14 EIR shall not apply.43 In our view, the first opinion is more convincing. Three reasons can be given for why Article 2 no. 14 (sentence 2) EIR should be understood as a non-rebuttable presumption: Firstly, the wording of sentence 2 (“shall be deemed”) underpins the understanding of a non-rebuttable presumption. Secondly, it is highly unlikely that an undertaking will prepare a consolidated financial statement and will spend time and effort on the preparation, which mostly includes public auditors, if this undertaking does not even indirectly control a subsidiary undertaking. Thirdly, insolvency proceedings are usually pressed for time. A time-consuming assessment of whether the undertaking was obliged to prepare a consolidated financial statement and a time period of potential uncertainty about the outcome of the assessment (as a result of an attempt to rebut the presumption) is obviously not what the European legislator had in mind.44 39

Esser, American Bankruptcy Institute Journal 2015, p. 38, 39. Sutschet, in Vallender, EuInsVO, Art. 2 mn. 63. 41 Sutschet, in Vallender, EuInsVO, Art. 2 mn. 63. 42 Eble, NZI 2016, 115, 117; Tashiro, in Braun, Insolvenzordnung, Art. 2 mn. 83. 43 Eble, NZI 2016, 115, 116. 44 Similar Sutschet, in Vallender, EuInsVO, Art. 2 mn. 65. Eble, NZI 2016, 115, 117, however, wants to review whether the parent undertaking does not use its influence on the subsidiary undertaking that a coordination according to Article 56 et seq. is not necessary. 40

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Article 3 International jurisdiction 1. The courts of the Member State within the territory of which the centre of the debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings (“main insolvency proceedings”). The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties. In the case of a company or legal person, 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. That presumption shall only apply if the registered office has not been moved to another Member State within the three-month period prior to the request for the opening of insolvency proceedings. In the case of an individual exercising an independent business or professional activity, the centre of main interests shall be presumed to be that individual’s principal place of business in the absence of proof to the contrary. That presumption shall only apply if the individual’s principal place of business has not been moved to another Member State within the three-month period prior to the request for the opening of insolvency proceedings. In the case of any other individual, the centre of main interests shall be presumed to be the place of the individual’s habitual residence in the absence of proof to the contrary. This presumption shall only apply if the habitual residence has not been moved to another Member State within the six-month period prior to the request for the opening of insolvency proceedings. 2. Where the centre of the debtor’s main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if it possesses an establishment within the territory of that other Member State. The effects of those proceedings shall be restricted to the assets of the debtor situated in the territory of the latter Member State. 3. Where insolvency proceedings have been opened in accordance with paragraph 1, any proceedings opened subsequently in accordance with paragraph 2 shall be secondary insolvency proceedings. 4. The territorial insolvency proceedings referred to in paragraph 2 may only be opened prior to the opening of main insolvency proceedings in accordance with paragraph 1 where (a) insolvency proceedings under paragraph 1 cannot be opened because of the conditions laid down by the law of the Member State within the territory of which the centre of the debtor’s main interests is situated; or (b) the opening of territorial insolvency proceedings is requested by: (i) a creditor whose claim arises from or is in connection with the operation of an establishment situated within the territory of the Member State where the opening of territorial proceedings is requested; or (ii) a public authority which, under the law of the Member State within the territory of which the establishment is situated, has the right to request the opening of insolvency proceedings. When main insolvency proceedings are opened, the territorial insolvency proceedings shall become secondary insolvency proceedings.

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Recitals: Sects. 1, 3: 23–31; Sects. 2, 4: 23, 40. Specific bibliography: Brünkmans, Die Koordinierung von Insolvenzverfahren konzernverbundener Unternehmen nach deutschem und europäischem Insolvenzrecht, 2009; Eidenmüller, Abuse of Law in the context of European Insolvency Law, ECFR 2009, 1; Eidenmüller/Frobenius/Prusko, Regulierungswettbewerb im Unternehmensinsolvenzrecht: Ergebnisse einer empirischen Untersuchung, NZI 2010, 545; Oberhammer, Von der EuInsVO zum europäischen Insolvenzrecht, KTS 2009, 27; M.-P. Weller, Die intertemporale Behandlung der Insolvenzverschleppungshaftung beim Insolvenzstatutenwechsel, in Festschrift für Ganter, 2010, p. 439. Case Law: Sects. 1, 3: EU: CJEU, 17 January 2006, Case C-1/04, Susanne Staubitz-Schreiber, ECR I-00701, ECLI:EU:C:2006:39; CJEU, 2 May 2006, Case C-341/04, Eurofood, ECR I-3854, ECLI:EU:C:2006:281; CJEU, 12 February 2009, Case C-339/07, Seagon v Deko Marty, ECR I-00767, ECLI:EU:C:2009:83; CJEU, 20 October 2011, Case C-396/09, Interedil, ECR I-09915, ECLI:EU:C:2011:671; CJEU, 15 December 2011, Case C-191/10, Rastelli Davide, ECR I-13209, ECLI:EU:C:2011:838. Sects. 2, 4: EU: CJEU, 22 November 2012, Case C-116/11, Bank Handlowy, ECLI:EU:C:2012:739; CJEU, 17 November 2011, Case C-112/10, Zaza Retail BV, ECR I-11525, ECLI:EU:C:2011:743.

Outline A. Overview ............................................................................................................................ B. Introduction to international jurisdiction under the EIR....................................... C. International jurisdiction to open main insolvency proceedings, Article 3(1) EIR I. The centre of the debtor’s main interests (COMI) ......................................... 1. Definition of COMI, Article 3(1) EIR ........................................................... a) Autonomous interpretation........................................................................ b) Debtors’s interests ........................................................................................ c) Ascertainability by third parties................................................................ d) Groups of companies................................................................................... 2. The relevant point in time ............................................................................... 3. Presumptions as to the location of the COMI ............................................ a) Article 3(1.2) EIR: The COMI of companies and legal persons........ aa) The presumption and its rebuttal ..................................................... bb) No central jurisdiction for corporate groups.................................. cc) COMI shifts prior to the filing of the request ............................... dd) COMI of companies with no business activity.............................. b) Article 3(1.3) EIR: The COMI of individuals exercising an independent business or professional activity ....................................... c) Article 3(1.4) EIR: The COMI of individuals not exercising an independent business or professional ...................................................... d) COMI shifts of natural persons – bankruptcy tourism....................... II. Scope of application of Article 3(1) EIR............................................................ D. The blocking effect of the opening of main insolvency proceedings, Article 3(3) EIR.......................................................................................................................................... E. Territorial insolvency proceedings, Article 3(2) EIR ............................................... I. Effect and purpose of territorial insolvency proceedings .............................. II. International jurisdiction for the opening of territorial insolvency proceedings, Article 3(2) EIR ............................................................................... III. Secondary insolvency proceedings, Article 3(3) EIR ...................................... IV. Independent territorial insolvency proceedings, Article 3(4) EIR ............... 1. Conditions for the opening of independent territorial proceedings, Article 3(4)(a) and (b) EIR............................................................................... a) Main insolvency proceedings cannot be opened, Article 3(4)(a) EIR b) Connection of petition to Member State, Article 3(4)(b) EIR ........... aa) Claim of requesting creditor has connection to establishment, Article 3(4)(b)(i) EIR............................................................................ bb) Public authority has right to request the opening of proceedings, Article 3(4)(b)(ii) EIR .................................................. F. Territorial jurisdiction for insolvency proceedings ..................................................

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A. Overview Article 3 EIR addresses in its paragraphs 1, 2 and 4 the question of international 1 jurisdiction for the opening of main (paragraph 1) and territorial insolvency proceedings. Paragraph 3 decides conflicts of jurisdiction between courts of different Member States on the basis of priority, see below mn. 46 et seq. In Deko Marty1 the CJEU further applied Article 3 EIR 2000 to “actions which derive directly from [insolvency] proceedings and which are closely connected to them” (so called “annex proceedings”). The EIR 2015 deals with related actions explicitly in Article 6 EIR. The location of the insolvency proceedings determines the applicable law, as the law of 2 the Member State in which the insolvency proceedings are opened governs the insolvency proceedings (Article 7 EIR, lex fori concursus).2 The interrelation of international jurisdiction and applicable law makes forum shopping possible and attractive: a party may influence the applicable insolvency law if it is able to strategically select the place where insolvency proceedings are opened.3 Recital 5 EIR underlines the importance of rendering such forum shopping strategies futile.4 The changes introduced with respect to Article 3 EIR 2015 and the addition of Article 4 and 5 EIR 2015 are attempts by the legislator to strengthen the safeguards against forum shopping. It is, however, doubtful that these changes will significantly hamper the success of forum shopping strategies.

B. Introduction to international jurisdiction under the EIR Article 3(1) and (2) EIR deal with international jurisdiction for the opening of main 3 and territorial insolvency proceedings. Pursuant to Article 4 and recital 27 EIR, a court must examine on its own motion whether it has jurisdiction under Article 3 EIR. This obligation is in line with the dominant view – at least on the continent – regarding international jurisdiction under the EIR 2000.5 Jurisdictional conflicts among courts in different Member States are decided on the 4 basis of priority, pursuant to Article 3(3) EIR:6 If the courts of a Member State open main insolvency proceedings, courts of all other Member States are barred from opening concurrent main insolvency proceedings. Any insolvency proceedings opened subsequently in another Member State are by definition (Article 3(3) EIR) secondary proceedings. The EIR does not address the problem of “negative” conflicts, i. e. situations in which 5 no court accepts jurisdiction. It would, however, violate legitimate expectations if a court remanded a case to a jurisdiction that had already denied its jurisdiction. Under German law, negative conflicts of jurisdiction are resolved by Article 102 c § 2(2)

1

CJEU, 12 February 2009, Case C-339/07, Deko Marty, ECLI:EU:C:2009:83. Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3 mn. 3.03; Mankowski, in Mankowski/Müller/ J. Schmidt, EuInsVO 2015, Art. 3 mn. 1. 3 cf. Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3 mn. 3.70. 4 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3 mn. 25. 5 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 3 EIR 2000, mn. 21. 6 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 39; differently Ringe, in Bork/van Zwieten, Art. 3, mn. 3.211 who believes that conflicts of jurisdiction must be resolved by referring to general principles. 2

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EGInsO. According to this provision, a German court must not deny its international jurisdiction after a court of another Member State has denied its jurisdiction on the ground that German courts had jurisdiction. For recognition and enforcement of the decision to open insolvency proceedings see Article 19 EIR.

C. International jurisdiction to open main insolvency proceedings, Article 3(1) EIR I. The centre of the debtor’s main interests (COMI) According to Article 3(1) EIR, courts of an EU Member State have jurisdiction to open insolvency proceedings if a debtor’s centre of main interests (COMI) is located in the territory of that Member State. The COMI of a debtor is the place where it administers its interests on a regular basis and which is ascertainable by third parties. Article 3(1.2-4) EIR, however, contains a number of rebuttable assumptions regarding the COMI with respect to certain kinds of debtors, see below mn. 21 et seq. 7 Article 3(1) EIR is exclusive in the sense that courts of no other Member State shall have jurisdiction for the opening of main insolvency proceedings.7 Party agreements regarding jurisdiction are inadmissible.8 6

1. Definition of COMI, Article 3(1) EIR a) Autonomous interpretation. Like all provisions and concepts in EU law, the concept of COMI is to be interpreted autonomously (see Brinkmann above Introduction mn. 34).9 A court may not use doctrines or concepts derived from (its own) national law while applying European Law. An autonomous interpretation is paramount for the uniform application of the Regulation in general and the Articles dealing with international jurisdiction in particular. 9 The definition of COMI set out in Article 3(1.1)(sentence 2) EIR 2015 is a product of the recast in the sense that it was not a part of Article 3 EIR 2000. This definition was, however, previously to be found in recital 13 EIR 2000. The relocation of the definition into the text of Article 3 EIR 2015 does not affect the understanding of the COMIconcept. Consequentially, the case law and jurisprudence on the COMI-concept under the EIR 2000 remain authoritative.10 8

10

b) Debtors’s interests. In Article 3(1.1)(sentence 2) EIR COMI is defined as the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties. The term “interests” refers to the financial interests only, not to the debtor’s personal interests.11 Hence, it is in principle irrelevant where the debtor’s family lives or where the assets are located. Of relevance is only the place where the debtor manages its financial interests. As a given debtor may have several such places, the Regulation allocates jurisdiction in the Member State from 7 Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 3 EIR 2000, mn. 1; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 9. 8 LG Gießen, 06.05.2009 – 5 O 35/09, BeckRS 2014,10148 (DEU); see also Mankowski, ZIP 2010, 1376, 1377; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 10. 9 CJEU, 20 October 2011, Case C-396/09 Interedil ECLI:EU:C:2011:671, para. 43; Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3 mn. 3.18. 10 Thole, in Münchener Kommentar zur InsO, Art. 3 EuInsVO, mn. 2. 11 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 13.

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which the main interests are administered. The main interests are those which regard the balance of the debtor’s property and debts.12 The addition of the phrase “on a regular basis” clarifies that being at a place merely by 11 chance or for a very short term does not suffice. An individual who buys shares during a vacation has his COMI not in the Member State of the vacation but in that of his habitual residence. Otherwise constant COMI shifts and arbitrary results would ensue. c) Ascertainability by third parties. The COMI must be ascertainable by third parties. In order to put prospective creditors in a position to inform themselves about the potentially applicable insolvency law, the place where the debtor administers its interests must be transparent to them. Hence, the COMI is not necessarily the place from which the debtor’s interests are actually administered, but the place from which the interests appear to be managed from the perspective of an outsider. Focusing on third party perceptibility may help to prevent forum shopping as transferring a business’s actual centre of administration in a manner that becomes obvious for the creditor is usually associated with great effort and high costs.13 The criterion of ascertainability may also improve foreseeability of the applicable insolvency law. One should have in mind, however, that the COMI may be shifted after a given creditor has obtained his claim.14 “Third parties” are in particular present and potential creditors, such as banks, suppliers, landlords, tax authorities and employees (see recital 28 EIR).15 The knowledge of creditors who belong to the same group of companies as the debtor should not be given the same weight as the knowledge of non-related third parties.16 It is irrelevant whether a given third party has actual knowledge. It suffices if creditors have the possibility to inform themselves on the basis of readily available information about the place from which the debtor administers its interests, such as postal address, country code of phone number, address to which financial statements refer, location of factories or warehouses, address of a CEO etc. These factors, however, are not exhaustive17 and their respective weight may differ from case to case. In practice, the location of the COMI can be difficult to assess as it requires an overview over a host of factors, the weight of which may differ accordingly. In any event, factors that are “visible” elements of the business activities18 should carry more weight under the ascertainability-test than the question of an internal business structure. Consequently, for example the relocation of the company’s head office will only trigger a COMI shift if creditors become aware of the relocation. Thus, it is advisable for a company to inform the creditors about a shift of the place from where it manages its interests (see recital 28 EIR), if the company wishes to shift its COMI. Under the ascertainability-test, the COMI is not the place where the strategic decisions of the company or legal person are made (mind of management theory), but where a third party would think where the centre of interest of the company or legal person is. 12

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 15. cf. Eidenmüller/Frobenius/Prusko, NZI 2010, 545. 14 See Oberhammer, KTS 2009, 27, 35. 15 Ringe, in Bork/van Zwieten, Art. 3, mn. 3.47; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 23. 16 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 24; cf. Rechtbank Amsterdam, 31.01.2007 – FT RK 07-93 u. FT RK 07-122. 17 In Re Hellas Telecommunications II SCA [2009] EWHC 3199 (Ch), 2009 WL 5386881 (GBR) the court emphasized the fact that all negotiations between the company and its creditors have taken place in London. 18 Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.49. 13

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d) Groups of companies. With respect to a company that is part of a group of companies, the criterion of ascertainability has the following effect: if the interests of the group members are effectively managed by the holding company, the COMI is at the registered office of the holding company only if it is transparent to third parties that the holding is effectively managing the subsidiary. In other words: only if creditors can be aware of the internal decision-making-process, the COMI of the subsidiary may be located at the seat of the holding company. When third parties lack information about the way the decision-making process within the group is structured, they will reasonably believe that the interests of the subsidiary are administered from the place where the subsidiary’s management board resides. Consequently, the CJEU has in Eurofood19 refused to locate the COMI of a subsidiary at the registered seat of the holding company. Emphasizing the criterion of ascertainability, the Court found that the mere fact that the management decisions of the subsidiary are or can be controlled by a parent company, which is domiciled in another Member State, is not enough to rebut the presumption set out in Article 3(1.2) EIR pursuant to which a company is deemed to have its COMI in the Member State where it is registered.

2. The relevant point in time The COMI is not fixed once and for all, but changes – and therewith the international jurisdiction – if the debtor effectively shifts its COMI, for example by relocating his habitual residence or its registered office.20 The shift must, again, be ascertainable by third parties. Simulated COMI shifts are irrelevant.21 Creditors may demonstrate that the debtor has only pretended to have shifted his COMI by exercising their rights under Article 5 EIR. 19 In order to determine the debtor’s COMI, the relevant point in time is in principle the time when the request to open insolvency proceedings is lodged.22 A subsequent COMI shift is irrelevant. Hence, a court retains jurisdiction even if the debtor shifts its COMI to another jurisdiction after the insolvency petition has been filed (principle of perpetuatio fori). On the relevant point of time with respect to companies that have ceased their business activity, see below mn. 31 et seq. 20 If the debtor shifts its COMI into the territory of a State where a request has previously been lodged, the court acquires jurisdiction. The initial lack of international jurisdiction is cured by the subsequent COMI shift.23 Requesting a new application would be pointless. One must bear in mind, however, that a mere shift of the registered office, of the principal place of business, or of the habitual residence does as such not influence the COMI, see below mn. 15, 28 et seq., 38. 18

3. Presumptions as to the location of the COMI 21

Article 3(1.2-4) EIR sets out three presumptions as to where the COMI of a debtor is located. These provisions serve as a starting point for the court and have an eviden19

CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:C:2006:281, para. 36. Opinion of Advocate General Kokott, CJEU, Case C-396/09, Interedil, ECLI:EU:C:2011:132, para. 47. 21 M.-P. Weller, IPRax 2011, 150; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 125. 22 CJEU, 17 January 2006, Case C-1/04, Susanne Staubitz-Schreiber, ECLI:EU:C:2006:3; CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671, para. 54; Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, para. 3.56 and 3.75; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 28. 23 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 32; Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.77. 20

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tiary function: in absence of proof to the contrary, a court may find that the COMI is located in the Member State indicated by the applicable presumption. For the role of the presumptions in light of the duty to examine ex officio whether the court has international jurisdiction, see Brinkmann below Art. 4 mn. 12 et seq. a) Article 3(1.2) EIR: The COMI of companies and legal persons. aa) The pre- 22 sumption and its rebuttal. Pursuant to Article 3(1.2) EIR companies and legal persons24 are presumed to have their COMI at the place of the registered office. Where a company has its registered office at the time when the request has been filed is a question of company law. The presumption set out in Article 3(1.2) EIR, however, is only applicable as long as the registered office has not been moved within a three-month period prior to the filing of the request to open insolvency proceedings. This criterion is a safeguard against forum shopping as it is meant to ensure that a relocation of the registered office shortly before the filing of the request does not affect international jurisdiction. If the registered office has been moved to another Member State within the specified period, the court must examine the place of the COMI applying the definition in Article 3(1.1) EIR without taking recourse to the presumption. The restricted applicability of the presumption is convincing. It is unlikely that a shift of the registered office shortly before the request has changed the view of third parties as to where the debtor administers its interests. However, the adopted solution is not a remedy against strategies such as those employed in Hellas Telecommunications,25 where not the registered office but the head office functions were moved shortly before filing the request.26 Even if the presumption is applicable, it is only a starting point.27 The court that is 23 seized with the request has to ensure the absence of factors that are strong enough to rebut the presumption. In Eurofood28 and Interedil29 the CJEU has developed criteria for a rebuttal of the presumption. The EIR 2015 reflects this case law by adopting its rationale in recital 30 EIR.30 According to recital 30 EIR, the presumption may be rebutted “where the company’s central administration is located in a Member State other than that of its registered office, and where a comprehensive assessment of all the relevant factors establishes, in a manner that is ascertainable by third parties, that the company’s actual centre of management and supervision and of the management of its interests is located in that other Member State.” Hence, at least with respect to letterbox companies, the presumption can be rebutted as they merely have a postal address in the State31 of the place of the registered offices, while they carry out their economic activity entirely in another State.32 Consequently, the COMI of a letterbox company is the Member State in which the company actually carries out its business, and not in the State in which it is registered. 24 These terms comprise all entities that carry out a business activity, as well as non-profit organizations. For more details see Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.31. 25 Re Hellas Telecommunications (Luxembourg) II SCA [2009] EWHC 3199 (Ch), 2009 WL 5386881 (GBR). 26 Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.88. 27 Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.38. 28 CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:C:2006:281. 29 CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671, para. 53. 30 Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.45. 31 It is irrelevant whether this State is a Member State, Re BRAC Rent-a-Car International Inc [2003] EWHC (Ch) 128 (the company had its registered office in Delaware, the Court held that the EIR was nevertheless applicable as the company had its COMI in a Member State); cf. also Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.27. 32 Cf. AG Ludwigshafen, Beschl. v. 04.07.2014, 3 f IN 260/14 Ft, ZIP 2014, 1746 (DEU); Ringe, in Bork/ van Zwieten, Commentary on EIR, Art. 3, mn. 3.43; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 54.

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In Interedil the CJEU held, that the location of assets (immovable property) in a Member State other than the Member State of the place of the registered office is only one of several factors that have to be considered and is in itself insufficient for a rebuttal.33 Likewise is an economic activity of a legal person in a Member State other than the Member State of the place of the registered office. Subject to Article 3(2) EIR it may, however, be possible to open secondary proceedings (Articles 34–52 EIR) in the Member State where the assets are located or where the activity is carried out.

bb) No central jurisdiction for corporate groups. The EIR does not provide for a uniform place of jurisdiction for all companies or legal persons belonging to the same corporate group, above mn. 17. The COMI for each company has to be examined separately.34 This causes difficulties as to the coordination of corporate group insolvencies. Articles 56–77 EIR are an attempt to mitigate the problems relating to the coordination of the insolvency proceedings. 26 According to the CJEU in Eurofood35, the place of jurisdiction for insolvency proceedings over a subsidiary is not necessarily the place of business of the parent company.36 Even if the parent company effectively manages the subsidiary company, the subsidiary’s COMI is at the registered office of the mother only if this is ascertainable by third parties.37 Due to the ascertainability-test, the internal decision-making process within a corporate group is irrelevant for the place of jurisdiction as long as creditors cannot ascertain the way this process is structured, above mn. 17.38 27 If a court should find that a subsidiary has its COMI not in the state of its registered office, but in the Member State where the mother is registered, it will, subject to Article 3(2) EIR, be possible to open secondary proceedings in the Member State where the subsidiary has its registered office.39 Vice versa, it is also possible that the mother has its COMI at the seat of the subsidiary if all factors that are ascertainable for the mother company’s creditors are pointing to the place where the subsidiary has its registered office.40 Amalgamation of assets of two or more companies does not as such justify a single place of jurisdiction.41 25

28

cc) COMI shifts prior to the filing of the request. The relocation of a company’s COMI before the petition to open insolvency proceedings has been filed affects the 33 CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671, para. 53; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 68 et seq. 34 CJEU, 15 December 2011, Case C-191/10, Rastelli Davide, ECLI:EU:C:2011:838; Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.108. 35 CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:C:2006:281. 36 Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.43. 37 There is a line of (older) English cases, in which the court took a different view: In re Daisytek-ISA Ltd 2003 WL 21353254 [2003] BCC 562, 564 (GBR); In the Matter of MG Rover Belux SA/NV High Court of Justice Birmingham, 18.04. 2005 – 2375 bis 2382/05, NZI 2005, 467 (GBR); see also Meyer-Löwy/ Poertzgen, ZInsO 2004, 195; AG München, Beschl. v. 04.05.2004, 1501 IE 1276/04, NZI 2004, 450 (DEU). 38 CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:C:2006:281; Vallender/Deyda, NZI 2009, 825, 831; Keggenhoff, Internationale Zuständigkeit, p. 123; Brünkmans, Koordinierung von Insolvenzverfahren, p. 342. 39 CJEU, 4 September 2014, Case C-327/13, Burgo Group SpA, ECLI:EU:C:2014:2158, para. 39; Tribunal de commerce de Nanterre, 15.02.2006, Re MPOTEC GmbH [2006] BCC 681 (FRA); UK Chancery Division In the matter of Northsea Base Investment Ltd & others [2015] EWHC 121 (Ch) (GBR); Huber, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 2 VO Nr. 1346/2000, mn. 10. 40 AG Mönchengladbach, Beschl. v. 11.08.2011, 45 IN 130/10, ZIP 2012, 383 = ZInsO 2011, 1752 (DEU); Mankowski, EWiR 2012, 21; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 69 a. 41 CJEU, 15 December 2011, Case C-191/10, Rastelli Davide, ECLI:EU:C:2011:838; Paulus, EWiR 2012, 87.

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international jurisdiction and consequently the applicable insolvency law.42 However, for an effective COMI shift it is not enough to move the place of the registered office and to wait for three months.43 Pursuant to Article 4 EIR, the courts have to carefully assess on their own motion whether the COMI is indeed at the new place of the registered office, particularly when the three month-period has just expired. Effectively moving the COMI can be very complicated and expensive particularly as 29 it requires the shift to be perceptible for third parties.44 For a manufacturing company this may mean to relocate not only the offices but also the production sites along with the inventory. For holding companies and companies in the services sector it might be easier to move their COMI. In practice, however, we have seen rather few successful forum shopping attempts. Instead of shifting the COMI, companies have used the English scheme of arrangement in order to restructure under a foreign law when their domestic law was felt to be unsatisfactory.45 There is currently no evidence for a need to address forum shopping strategies of companies by applying the abuse of rights doctrine.46 A thorough assessment of the debtor’s COMI will suffice to render a simulated COMI-shift futile.47 If a company successfully moves its COMI to another Member State prior to ceasing 30 its business activities, the courts of the new COMI-State have jurisdiction over the insolvency proceedings. They will apply their insolvency law according to Article 7(1) EIR. It is important, however, to underline that claims, which came into existence prior to the transfer of the COMI – such as claims for the delayed filing of the insolvency request –, survive the change of the applicable law and can be enforced by the insolvency practitioner notwithstanding that Article 7 EIR points to the law of the new COMI.48 Therefore, it is unnecessary to set aside the transfer of the COMI by an avoidance action.49 dd) COMI of companies with no business activity. After a company has ceased its 31 economic activities, its COMI remains in the Member State where it was located while the company was still in business.50 Accordingly, insolvency proceedings with regard to assets of foreign companies can be opened at their previous place of business, even if the 42 cf. Vallender, NZI 2007, 129, 131 discussing the proceedings of Deutsche Nickel AG; and Griffiths/ Hellmig, NZI 2008, 418, 419 discussing the proceedings of Schefenacker AG. See also M.-P. Weller, IPRax 2011, 150, 154. 43 AG Nürnberg, Beschl. v. 01.10.2006, 8034 IN 1326/06, NZI 2007, 186 (DEU); cf. also the comment on this case by Grund, NZI 2007, 137. 44 Eidenmüller/Frobenius/Prusko, NZI 2010, 545. 45 Pursuant to the future Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures (COM(2016) 723 final) a restructuring tool, which is similar to the scheme of arrangement under English law (Companies Act (UK) 2006, Part 26 (sects. 895–901), will be available in all Member States. 46 See Thole, ZZP 2009, 423, 433; Gruber, in Festschrift für Schilken, pp. 679 et seq. 47 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 12; M.-P. Weller, ZGR 2008, 835, 849. Dissenting Reinhart, in Münchener Kommentar zur InsO, 2nd Edition, Art. 3 EuInsVO, mn. 53 et seq.; Reuß, “Forum Shopping” in der Insolvenz – missbräuchliche Dimension der Wahrnehmung unionsrechtlicher Gestaltungsmöglichkeiten, p. 340 (arguing for a restrained use of the abuse of right doctrine); see also Eidenmüller, in de la Feria/Vogenauer, Prohibition of Abuse of Law, p. 137; Eidenmüller, ECFR 2009, 1, 24, Armour, in de la Feria/Vogenauer, Prohibition of Abuse of Law, p. 157; contra Eidenmüller cf. Reuß, “Forum Shopping” in der Insolvenz – missbräuchliche Dimension der Wahrnehmung unionsrechtlicher Gestaltungsmöglichkeiten, pp. 348 et seq.; Attinger, Der Mittelpunkt der hauptsächlichen Interessen nach der EuInsVO, pp. 291 et seq. 48 M.-P. Weller, in Festschrift für Ganter, p. 439. 49 Hess/Laukemann/Seagon, IPRax 2007, 89, 91; dissenting M.-P. Weller, ZGR 2008, 835, 850. 50 CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671, para. 54 et seq.; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 109.

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registered office was cancelled, as long as liquidated or annulled companies or legal persons may be the subject of insolvency proceedings under the law of that Member State. 32 This approach, which was developed by the CJEU in its Interedil decision, has the effect of “freezing” the COMI at the point of time when the debtor was still in business. It avoids a shift of jurisdiction whenever companies that are registered in a Member State other than their COMI-State cease their activities.51 Regardless of the fact that the company is being wound up, the insolvency proceedings can take place in the Member State where the company’s COMI was located at the time when it was still in business. This is an adequate result given the close and real connection between the Member State and the proceedings. 33 The approach taken in Interedil also provides a solution for the problems associated with the liquidation of a company abroad52 without applying the abuse of rights doctrine. In these situations, the principle place of business of a de facto insolvent company or legal person is moved to another Member State in order to liquidate the company abroad. This strategy is an attempt to circumvent formal insolvency proceedings, avoid prosecution, and to escape liability of the debtor and its management. Under the Interedil approach, it is irrelevant if the place of the registered office is moved after the company or legal person ceased its business activity. The COMI of the wound-up company remains where it was at the time prior to ceasing the business activity.53 In other words: there is no forum shopping for liquidated companies. b) Article 3(1.3) EIR: The COMI of individuals exercising an independent business or professional activity. According to Article 3(1.3) EIR the COMI of an individual exercising an independent business or professional activity is presumed to be in the Member State in which the individual has his or her principle place of business; i. e. the Member State in which the individual has office space, a retail shop or a factory. A person is exercising an independent business if he or her is not working under the direction of another person and bears the economic risk of his activity.54 The term “professional activity” relates mainly to so called “liberal professions”, such as doctors, pharmacists, lawyers, engineers, architects, or accountants. 35 Recital 30 EIR gives no examples for instances in which this presumption may be rebutted. It is indeed not easy to think of a situation in which the place of business is not the COMI of the owner of the business, especially since the presumption is inapplicable if the place of business has been relocated within a period of three months prior to the filing of the request to open insolvency proceedings (see for the consequences above mn. 22). One conceivable scenario for a rebuttal could be a person who lives with considerable assets and debts in Member State A, but runs a small shop located in Member State B. If the person has neither significant assets in Member State B nor any creditors with significant claims that result from the business activity, the mere fact that the debtor exercises an independent business activity will have little or no impact on the insolvency proceedings. Hence, the main interests of the debtor are located in Member State A, notwithstanding the economic activity in Member State B. 34

See BGH, Beschl. v. 01.12.2011 – IX ZB 232/10, ZIP 2012, 139, 141 para. 15 (DEU). cf. the facts of the case BGH, Beschl. v. 13.12.2007 – IX ZB 238/06, EWiR 2008, 181 (DEU). Cf. on the general problem of the effects of a COMI shift on the applicable law M.-P. Weller, in Festschrift für Ganter, p. 439; M.-P. Weller, ZIP 2009, 2029; on questions regarding criminal law: Büchler, in Clavora/ Garber, Grenzüberschreitende Insolvenzen im europäischen Binnenmarkt, pp. 191 et seq. 53 CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671, para. 52. 54 CJEU, 14 December 1989, Case C-3/87, R v Ministry of Agriculture, Fisheries and Food, ex parte Agegate Ltd, ECLI:EU:C:1989:650; CJEU, 20 November 2001, Case C-268/99, Jany v Staatssecretaris van Justitie, ECLI:EU:C:2001:616; CJEU, 15 December 2005, Cases C-151 and 152/04, Nadin and Durré, ECLI:EU:C:2005:775. 51 52

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If the individual has ceased all business activities prior to the time a request to open 36 insolvency proceedings has been lodged, the presumption contained in Article 3(1.3) EIR is not applicable as the relevant point of time is the filing of the request. In light of the rationale of the Interedil decision55 it would, however, be wrong to apply Article 3 (1.4) EIR in order to presume that the COMI is in the Member State of the debtor’s habitual residence.56 When a debtor has been exercising an independent business or professional activity, that debtor’s COMI is where the former principle place of business was located – as long as the insolvency proceedings affect predominantly creditors who have acquired their claims while the debtor was still in business. c) Article 3(1.4) EIR: The COMI of individuals not exercising an independent business or professional. Pursuant to Article 3(1) EIR, the COMI of an individual, who is not exercising an independent business or professional activity, is presumed to be at the place of that individual’s habitual residence. The debtor’s citizenship is irrelevant for the COMI-test. The Regulation applies even to non-EU citizens, as long as they have their habitual residence in an EU Member State. The concept of “habitual residence” must be distinguished from the concept of “domicile” as used in the Brussels Ia Regulation.57 Pursuant to Article 62 of the Brussels Ia Regulation, the domicile of a person has to be determined by applying the law of the forum, whereas the concept of “habitual residence” has to be interpreted autonomously. It refers to the actual centre of the debtor’s vital interests, meaning the individual’s focal point of private life.58 The attribute “habitual” clarifies the insignificance of brief or non-permanent changes of the debtor’s residency.59 Consequently, a stay at a summer home does not affect the debtor’s COMI and, more importantly, the COMI does not shift if the debtor moves to another Member State with a clear view to return to his home State after having received a discharge in insolvency proceedings opened in the other Member State. This interpretation works as a safeguard against “bankruptcy tourism”, i. e. attempts of overindebted individuals to benefit from a more lenient discharge regime (compared to the one of their home State) by shifting – or pretending to shift – the COMI. The habitual residence of cross-border commuters, i. e. individuals that have their private home in one Member State but are employed in another Member State, is in the Member State in which the individual lives, not in the one in which the individual is employed.60 Hence, the law of the State in which the individual lives determines to which extent the debtor’s income is part of the estate, i. e. to which extent the income is exempted from the distribution among the creditors. The presumption of the debtor’s COMI being at the debtor’s habitual residence, does not apply if the debtor has moved to another Member State within the last six months “prior to the request for the opening of insolvency proceedings”, Article 3 (1.4) EIR. If the presumption set out in Article 3(1.4) EIR is not applicable due to a relocation of the debtor’s habitual residence within the last six months, a court will 55

CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 117. 57 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 119. 58 See Junker, in Münchener Kommentar, BGB, Art. 23 Rom II-VO, mn. 16; Martiny, in Münchener Kommentar, BGB, Art. 19 Rom I-VO, mn. 12. 59 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 129. 60 BGH, Beschl. v. 02.03.2017 – IX ZB 70/16, ZIP 2017, 688, 689 para. 11 (DEU); cf. the facts of the case LG Traunstein, 03.02.2009, 4 T 263/09, NZI 2009, 818 (DEU); cf. Gottwald/Kolman, in Gottwald, Insolvenzrechtshandbuch, § 130, para. 14; Reinhard, in Münchener Kommentar zur InsO, 2nd Edition, Art. 3, mn. 43; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 3, mn. 123. 56

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usually find the debtor’s COMI to be at the place of the former habitual residence. This is reasonable since it will usually be the place the insolvency proceedings are most closely connected to and which is ascertainable by third parties. After all, this is where the debtor has entered into the balance of the debts that are to be satisfied in the proceedings. 41 It is doubtful whether the introduction of such a suspect period will be an effective safeguard against bankruptcy tourism. Even before the recast of the Regulation it was common practice for debtors, who wanted to benefit from a lenient discharge regime, to wait up to twelve months after having moved into the desired jurisdiction. Giving debtors legal certainty, in the sense that they could be sure that a court will accept jurisdiction as long as the debtor resides in the Member State for at least six months, would be an unintended effect of the introduction of the six-month period. 42 These detrimental effects can be avoided by understanding the presumption as an evidentiary rule: only if the examinations undertaken by the court pursuant to Article 4 EIR do not yield any results, the court may locate the COMI at the debtor’s habitual residence. 43 Pursuant to recital 30 EIR, the presumption can be rebutted in cases “where the major part of the debtor’s assets is located outside the Member State of the debtor’s habitual residence, or where it can be established that the principal reason for moving was to file for insolvency proceedings in the new jurisdiction and where such filing would materially impair the interests of creditors whose dealings with the debtor took place prior to the relocation.” While it will be difficult for a court or creditors to establish the filing of insolvency proceedings as the debtor’s principal reason to move, creditors will often be able to show that the main assets of the debtor are located in another jurisdiction. The presumption may also be rebutted if it is apparent that the debtor plans to return to his prior place of habitual residence.61 44

d) COMI shifts of natural persons – bankruptcy tourism. If the debtor successfully transfers his or her COMI prior to the filing of the request to open insolvency proceedings, the courts in the new COMI Member State have jurisdiction. Denying jurisdiction would not only violate Article 3(1) EIR, but would also infringe the freedom of movement. However, particularly in the early years of the EIR 2000, natural persons have frequently and successfully tried to benefit from liberal rules on discharge in a given jurisdiction by asserting a move to that jurisdiction. This phenomenon has been labelled insolvency or bankruptcy tourism. The success rate of such strategies has significantly declined as courts nowadays rigidly examine the grounds for (international) jurisdiction.62 Articles 4 and 5 EIR underline the importance of scrutiny with respect to the assessment of the COMI. Consequently, the problems associated with bankruptcy tourism can and should be dealt with on the basis of an assessment of the facts (whether the debtor really shifted the COMI or is merely pretending to have done so) rather than by applying the abuse of rights doctrine. Recital 30 EIR supports the claim that the appropriate measure against bankruptcy tourism is not the abuse of rights doctrine,63 but a thorough analysis of the debtor’s COMI.64 BGH, Beschl. v. 02.03.2017 – IX ZB 70/16, ZIP 2017, 688, 690 para. 12 (DEU). Cf. Official Receiver v Mitterfellner [2009] BPIR 1075 (HC) (GBR); AG Köln, Beschl. v. 06.11.2008, 71 IN 487/07, NZI 2009, 133 (DEU); also the facts of the case before the BGH, Beschl. v. 15.11.2010 – NotZ 6/10, ZIP 2011, 284 (DEU); see also Hölzle, ZVI 2007, 1; Mankowski, NZI 2011, 958; Beck, ZVI 2011, 355. 63 Eidenmüller, ECFR 2009, 1, 1 et seq. 64 This approach was followed by the Cour d’Appel Colmar, 06.02.2013, 1 A 12/04553, ZInsO 2014, 562. 61 62

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II. Scope of application of Article 3(1) EIR Article 3 EIR only deals with decisions regarding the opening of insolvency proceed- 45 ings. The competence to open insolvency proceedings, however, necessarily encompasses the competence to terminate the proceedings. Consequently, Article 3 EIR applies – directly – to decisions to terminate or to annul proceedings. It also grants jurisdiction for decisions regarding a discharge and any procedural actions of the court with relation to the insolvency proceedings.

D. The blocking effect of the opening of main insolvency proceedings, Article 3(3) EIR The opening of main insolvency proceedings in one Member State has a blocking 46 effect in the sense that the courts of another Member State may not open parallel main insolvency proceedings. This blocking effect, however, is restricted to main insolvency proceedings as only these proceedings have a universal scope, Article 20 EIR. Territorial, i. e. secondary, proceedings have a fundamentally different scope and effect. In particular, they lack the blocking effect that comes with the opening of main proceedings. This means a court must specify whether the proceedings opened are main or territorial proceedings, Article 4(1) EIR. Main proceedings that have been opened in violation of Article 3(3) EIR must be terminated immediately.65 This blocking effect can lead to a race to the courtroom as parties may try to initiate 47 insolvency proceedings as soon as possible in order to secure a favourable forum. Such strategies are futile if courts thoroughly examine the debtor’s COMI and are careful in accepting jurisdiction. The rule set out in Article 19 EIR, pursuant to which the decision to open (main) insolvency proceedings shall be recognized in all other Member States, presupposes that the court opening main proceedings has examined its international jurisdiction with uttermost scrutiny. The automatic recognition pursuant to Article 19 EIR is only subject to the public policy clause in Article 33 EIR.66 To invoke the public policy clause is, however, not a suitable remedy for sloppy opening decisions,67 rather than a measure of last resort. It must be applied restrictively and only in extreme circumstances. It is inapplicable in a case where a court merely thinks that a foreign court erred in its decision as to where the debtor’s COMI is.68 The greater the care a court exercises in examining its jurisdiction, the higher the other Member States’ courts respect for the decision will be. This will in turn reduce the temptation to set aside the opening decision by invoking the public policy clause.69 The use of the public policy clause should, with respect to questions of interna- 48 tional jurisdictions, be restricted to situations in which the applicant has fraudulently deceived the foreign court as to the facts on which the opening decision rests and in which there are no remedies against the opening decision available under For Germany, this principle is set out in Art. 102 § 2(1)(sentence 2) EGInsO (DEU). CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:C:2006:281); OGH, NZI 2005, 465 (AUT); AG Nürnberg, Beschl. v. 15.08.2006 – 8004 IN 1326 bis 1331/06, NZI 2007, 185 (DEU). 67 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 202; Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.219. 68 BGH, Urt. v. 10.09.2015 – IX ZR 304/13, NZI 2016, 93 (DEU). 69 A very unfortunate example for a court that could not resist this temptation is the decision by the BFH, Beschl. v. 27.01.2016 – VII B 119/15, NZI 2016, 929 = ZIP 2016, 2027 (DEU). 65 66

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European law (Article 5 EIR) or under the law of the Member State in which proceedings have been opened.

E. Territorial insolvency proceedings, Article 3(2) EIR I. Effect and purpose of territorial insolvency proceedings In contrast to main insolvency proceedings, the effects of territorial proceedings are limited to assets located in the territory of the Member State where the proceedings have been opened, Article 3(2)(sentence 2) EIR. If main proceedings exist next to territorial proceedings, the latter are secondary insolvency proceedings to which Articles 34–52 EIR apply. Such secondary proceedings limit the universal effects of main proceedings, or, in other words: secondary insolvency proceedings exempt the assets located in that Member State from the effects of the main proceedings. The location of an asset has to be determined according to the rules set out in Article 2 no. 9 EIR. 50 Territorial proceedings are an instrument to protect the interests of local creditors and to support and facilitate the main proceedings, recitals 23, 40 EIR.70 They may, however, also be (ab)used to hamper the efficiency of the main proceedings. An insolvency practitioner may avoid the negative effects secondary proceedings may have on the main proceedings by giving an undertaking pursuant to Article 36 EIR.71 49

II. International jurisdiction for the opening of territorial insolvency proceedings, Article 3(2) EIR A court may only rely on Article 3(2) EIR in its decision to open territorial insolvency proceedings if the COMI of the debtor is in another Member State: if the debtor’s COMI is in a non-Member State, territorial proceedings may be opened according to the Member State’s domestic international insolvency law.72 52 A court may also open secondary proceedings if it is of the opinion that the COMI of the debtor is in the territory of its Member State but the court of another Member State has erroneously opened main insolvency proceedings pursuant to Article 3(1) EIR.73 This may require a request to open secondary, i. e. non-main, proceedings.74 53 If the main insolvency proceedings are subsequently annulled, the secondary proceedings may be transformed into main proceedings. According to Article 4 EIR, this transformation cannot take place automatically but requires a separate decision. 54 The courts of a Member State have jurisdiction to open territorial proceedings under Articles 3(2) and 34 EIR only if the debtor has an establishment within the territory of that State at the time of the application.75 Establishment is defined in Article 2 no. 10 EIR, see Madaus above Art. 2 mn. 35 et seq. The rule that territorial proceedings cannot 51

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Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.150. Prager/Keller, WM 2015, 805, 807; Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.152 with futher references. 72 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 82. 73 Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.166. 74 In its decision from 23.01.2018 (36 n IE 6433/17) the AG Charlottenburg, Berlin (DEU), however, held that a petition to open main insolvency proceedings encompassed the subsidiary petition for the opening of secondary proceedings. The court was blocked from opening main insolvency proceedings by the prior opening of main proceedings in Austria. The main proceedings in Austria had been opened after the petition to open main proceedings in Germany had been filed. 75 BGH, Beschl. v. 08.03.2012 – IX ZB 178/11, NZI 2012, 377 (DEU). 71

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be initiated in a Member State in which the debtor has no establishment applies even if the insolvency practitioner of the main proceedings is inactive or refuses to take the assets in the other Member State under his administration.76

III. Secondary insolvency proceedings, Article 3(3) EIR Territorial insolvency proceedings in a Member State, which are initiated after main 55 insolvency proceedings have been opened, are, according to Article 3(3) EIR, automatically secondary insolvency proceedings. Likewise, independent territorial proceedings, see below mn. 57 et seq., become secondary proceedings once main insolvency proceedings have been opened. Secondary proceedings are governed by Articles 34–52 EIR. Prior to the recast of the EIR, Article 3(3) EIR 2000 limited the scope of secondary 56 insolvency proceedings to liquidation proceedings. This exclusion of reorganisation proceedings created problems when the main proceedings were directed at the restructuring of the debtor.77 Under the EIR 2015, secondary proceedings can be winding-up proceedings or may be directed at the restructuring of the debtor. It was felt that secondary winding-up proceedings may thwart any restructuring efforts in the main proceedings. However, while addressing this problem of the EIR 2000, the recast creates another: it is futile or even counterproductive to undertake a restructuring in secondary proceedings if the main insolvency proceedings are winding-up proceedings. Hence, it is still indispensable to coordinate the goals of the main and any secondary proceedings. Articles 36–52 EIR aim to provide a framework for such a coordination.

IV. Independent territorial insolvency proceedings, Article 3(4) EIR Territorial insolvency proceedings can be opened prior to the opening of main 57 insolvency proceedings in order to protect the interests of domestic creditors and/or the public interest of the Member State where the establishment is located. Such independent territorial insolvency proceedings are governed by the lex fori concursus, i. e. the law of the Member State in which the territorial proceedings have been opened. In the absence of a special provision, which governs the applicable law in independent territorial proceedings – Article 35 EIR only applies to secondary proceedings –, Articles 7–18 EIR are applicable. The subsequent opening of main insolvency proceedings in the debtor’s COMI State converts independent territorial insolvency proceedings into secondary insolvency proceedings (Article 3(4)(sentence 2) EIR), to which Articles 34–52 EIR apply.78

1. Conditions for the opening of independent territorial proceedings, Article 3(4)(a) and (b) EIR In order to open independent territorial proceedings, the requirements of the law of 58 the Member State where the proceedings shall be opened, must be met (such as grounds of insolvency, sufficiency of assets). If over-indebtedness is a ground for the opening of insolvency proceedings under national law, all assets of the debtor as well as all claims against the debtor have to be considered.79 In addition to the requirements for BGH, Beschl. v. 21.12.2010 – IX ZB 227/09, NZI 2011, 120 (DEU). CJEU, 22 November 2012, Case C-116/11, Bank Handlowy, ECLI:EU:C:2012:739 para. 63, discussed by Brinkmann, LMK 2013, 342774; Jopen, EWiR 2013, 173; Schulz, EUZW 2013, 147. 78 Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.193. 79 Reinhart, in Münchener Kommentar zur InsO, 2nd Edition, Art. 3, EuInsVO mn. 78. 76 77

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the opening of insolvency proceedings set out in national law, one of the requirements in Article 3(4) EIR must be met. These requirements have been recast. 59

a) Main insolvency proceedings cannot be opened, Article 3(4)(a) EIR. Pursuant to Article 3(4)(a) EIR, independent territorial insolvency proceedings may only be opened if main insolvency proceedings in the debtor’s COMI Member State cannot be opened due to certain restrictions in the law of the COMI Member State. This is relevant, for example, if under the law of the COMI Member State insolvency proceedings over a debtor of this kind are inadmissible. The impossibility to open main insolvency proceedings, which is addressed in Article 3(4)(a) EIR, must be distinguished from the inadmissibility of a particular insolvency application, which could derive, for example, from the ineligibility of the applicant to file requests in order to open proceedings. The condition provided for in Article 3(4)(a) EIR is only met if the opening of the main proceedings over the debtor’s assets is impossible for abstract reasons, not for reasons connected with a specific request.80 Without Article 3(4)(a) EIR, requirements of the law of the COMI Member State could bar the opening of insolvency proceedings in all Member States. Article 3(4) (a) EIR ensures the possibility of opening at least territorial proceedings in Member States, in which the debtor has an establishment, as long as the conditions for the opening of insolvency proceedings, which are set out in the law of that Member State, are met. These territorial proceedings ensure equal treatment of the creditors at least with respect to the assets that are located within that Member State.

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b) Connection of petition to Member State, Article 3(4)(b) EIR. Under the EIR 2000, requests for the opening of territorial proceedings were admissible if the requesting creditor had his domicile, habitual residence or registered office in the Member State within the territory of which the establishment was situated, or his claim arose from the operation of that establishment (Article 3(4)(b) EIR 2000). Article 3(4)(b) EIR 2015 does not retain option one (requesting creditor has his domicile in Member State), reformulates option two, see below mn. 61, and adopts a new option by giving public authorities a special right to request the opening of territorial proceedings, see below mn. 63.

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aa) Claim of requesting creditor has connection to establishment, Article 3(4)(b) (i) EIR. Pursuant to Article 3(4)(b)(i) EIR, independent territorial proceedings may be opened if the claim of the creditor requesting the opening is connected to the Member State. The required “connection” exists if the claim arose in connection with the operation of an establishment of the debtor, which is situated within the territory of the Member State. The wording of Article 3(4)(b)(i) EIR is almost identical to the definition of “local creditor” in Article 2 no. 11 EIR. Whether there is a connection between the claim and the establishment, can be determined by referring to the case law on Article 7(5) of the Brussels Ia Regulation: it suffices if the contract was entered into by a representative of the establishment or the communications leading to the conclusion of the contract took place between the creditor and a representative of the establishment.81 Furthermore, a sufficient connection between the claim, be it contractual or non-contractual, and the establishment exists if either the claim results from an activity in connection with running the establishment, or the place of performance is in the Member State where the establishment is located.82 80

CJEU, 17 November 2011, Case C-112/10, Zaza Retail BV, ECLI:EU:C:2011:743. Reinhart, in Münchener Kommentar zur InsO, 2nd Edition, Art. 3 EuInsVO, mn. 77. 82 Gottwald, in Münchener Kommentar zur Zivilprozessordnung, Art. 7 Brüssel Ia-VO, mn. 83. 81

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Typical “local creditors” are employees working at or for the establishment, suppliers 62 of the establishment, or persons that have placed an order via the establishment. Article 3(4)(b)(i) EIR privileges these creditors by granting a right to request the opening of independent territorial proceedings. bb) Public authority has right to request the opening of proceedings, Article 3(4) 63 (b)(ii) EIR. Article 3(4)(b)(ii) EIR extends the right to request the opening of independent territorial proceedings to national public authorities which, under the law of the Member State within the territory of which the establishment is situated, have the right to request the opening of insolvency proceedings. These public authorities are outside the scope of Article 3(4)(b)(i) EIR as they do not have a claim and thus are no “creditors”. Hence, such national authorities could not request the opening of territorial proceedings under the EIR 2000, as confirmed by the CJEU in Zaza Retail.83 Article 3(4) (b)(ii) EIR 2015 gives the right to request the opening of territorial proceedings to those authorities having the power to request the opening of insolvency proceedings under their national law notwithstanding the fact that they are not “creditors” in the strict sense. An example for such a public authority is a Procureur général. The Procureur général guards the public interest and intervenes in place of institutional and individual creditors that failed to act. Article 3(4)(b)(ii) EIR protects these powers endowed to the public authority by national law and ensures that it can fulfil its functions even if the debtor has an establishment in the State of the authority but his COMI in another Member State. Under Article 3(4)(b)(ii) EIR, the request of the Belgian Procureurgeneraal in the Zaza Retail case would have been admissible regardless of the fact that the Belgian prosecutor requested the opening of territorial proceedings in Belgium, while the debtor’s COMI was in the Netherlands.84

F. Territorial jurisdiction for insolvency proceedings Article 3 EIR determines international jurisdiction only. According to Article 7 EIR, 64 territorial jurisdiction, i. e. the question which court within a Member State has jurisdiction, is determined by the lex fori concursus, see also recital 26 EIR.85 If German courts have international jurisdiction, § 3 InsO determines territorial jurisdiction. If the debtor has no general venue within Germany and § 3 InsO is therefore inapplicable, the court where the debtor has its COMI has jurisdiction, Article 102 c § 1(1) EGInsO (DEU). 83

CJEU, 17 November 2011, Case C-112/10, Zaza Retail BV, ECLI:EU:C:2011:743. Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.208 expresses the opinion that the outcome in Zaza Retail would not have been differently under the recast. Ringe apparently is of the opinion that the Belgian Procureur-generaal requested the opening of proceedings in the Netherlands. 85 Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 3, mn. 3.14. 84

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Article 4 Examination as to jurisdiction 1. A court seized of a request to open insolvency proceedings shall of its own motion examine whether it has jurisdiction pursuant to Article 3. The judgment opening insolvency proceedings shall specify the grounds on which the jurisdiction of the court is based, and, in particular, whether jurisdiction is based on Article 3 (1) or (2). 2. Notwithstanding paragraph 1, where insolvency proceedings are opened in accordance with national law without a decision by a court, Member States may entrust the insolvency practitioner appointed in such proceedings to examine whether the Member State in which a request for the opening of proceedings is pending has jurisdiction pursuant to Article 3. Where this is the case, the insolvency practitioner shall specify in the decision opening the proceedings the grounds on which jurisdiction is based and, in particular, whether jurisdiction is based on Article 3(1) or (2). Recitals: 27, 32. Specific bibliography: see Article 3. Outline A. Purpose ............................................................................................................................... B. Historical background..................................................................................................... C. Scope ................................................................................................................................... D. Duties with respect to the decision to open insolvency proceedings, Article 4 (1) EIR ................................................................................................................................ I. Decision to open insolvency proceedings ......................................................... II. Obligation of court to examine its international jurisdiction on its own motion, Article 4(1)(sentence 1) EIR ................................................................. 1. Scope and content of the obligation .............................................................. 2. Applicability of national law as to the means of ex officio examination 3. Duty to examine ex officio and presumptions in Article 3(1) EIR ........ III. Obligation of court to give reasons for its decision to accept jurisdiction, Article 4(1)(sentence 2) EIR ................................................................................. IV. Obligation of court to specify what kind of proceedings are opened......... E. Opening of insolvency proceedings without the decision of a judicial body, Article 4(2) EIR................................................................................................................. I. The term “court” in Article 4(2) EIR ................................................................. II. Option for Member States to transfer duties set out in Article 4(1) EIR ..

1 3 4 5 7 8 8 10 12 15 17 18 19 20

A. Purpose 1

The decision to open main insolvency proceedings has fundamental consequences in all other Member States. In particular, it is the law of the Member State where the proceedings have been opened which governs the proceedings (Article 7 EIR) and, inter alia, the question whether a debtor is discharged of its residual debts. The decision to open main insolvency proceedings and the effects of these proceedings are recognized in all other Member States (Article 19 EIR). Moreover, pursuant to Article 3(3) EIR, the opening of main insolvency proceedings bars other Member States from opening main insolvency proceedings, see Brinkmann above Art. 3 mn. 46. Courts in other Member States can only be expected to accept this limitation of their scope of action, a discharge ordered by a court, or any other effect the proceedings may have, if the court opening 64

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the main proceedings has carefully examined its international jurisdiction, see Brinkmann above Art. 3 mn. 47. In order to protect the system of universal effects and to prevent courts in other 2 Member States to avoid recognition by applying the public policy exception (Article 33 EIR), Article 4(1) EIR requires courts to examine whether the Member State they are acting for has international jurisdiction to open insolvency proceedings and to give reasons for the decision to accept jurisdiction. In Member States whose laws do not require the decision of a court to open insolvency proceedings, the duty to examine and to give reasons may be transferred to the appointed insolvency practitioner, Article 4(2) EIR, see below mn. 18 et seq.

B. Historical background Article 4 EIR 2015 is a product of the recast and has no predecessor in the EIR 2000. 3 The duties set out in the provision are a reaction to the tendency of courts in some Member States to accept jurisdiction merely on the basis of information provided by the debtor. Particularly English courts in the early years of the EIR have rather generously accepted requests to open insolvency proceedings without verifying whether the information provided by the debtor was correct and whether the debtor’s COMI was indeed in England.1 The lax approach of English courts has been exploited by individuals seeking debt relief under the relatively soft English discharge provisions. In order to fight these forum shopping attempts, courts in other Member States have (ab-)used the public policy exception to refuse the recognition of the discharges following from the decisions of the English courts.2 As forum shopping as well as recourse to the public policy clause run against core principals of the EIR, see Brinkmann above Introduction mn. 10 et seq., the recast stipulates certain duties of care with respect to the opening decision. These duties are meant to combine forum shopping safeguards and respect for the opening decision. Hence, courts in other Member States may feel less inclined to apply Article 33 EIR.

C. Scope Article 4 EIR applies only to the decision to open insolvency proceedings as defined 4 by Article 2 no. 7 EIR. The proceedings can be main or territorial proceedings. Article 4 EIR is inapplicable to other decisions in the course of the proceedings, such as interim orders or discharge decisions.

D. Duties with respect to the decision to open insolvency proceedings, Article 4(1) EIR Article 4(1) EIR is a substantive provision which overrides the general conflict rule of 5 Article 7 EIR. Article 4(1) EIR imposes certain duties on the court which relate to the decision to open insolvency proceedings: 1

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 4, para. 1. A particularly bad example of this tendency is a decision by the BFH, Beschl. v. 27.01.2016 - VII B 119/15, NZI 2016, 929 = ZIP 2016, 2027 (DEU). The court denied recognition and relied on the public policy exception of Article 33 EIR. It held that the debtor’s COMI shift was merely feigned and that the English court erred in locating the COMI in England. 2

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Chapter I. General Provisions

– “Courts”, in the sense of judicial bodies as well as administrative authorities, must examine their international jurisdiction on their own motion. – They must give reasons as to why they think they have jurisdiction. – They must specify whether the opened proceedings are main or territorial. 6 The EIR does not provide for any consequences if one of the duties is disregarded by a court. It can be understood as a provision informing the court about best practice regarding the decision to open insolvency proceedings.

I. Decision to open insolvency proceedings 7

Under the EIR, the opening of insolvency proceedings requires a decision by a court, Article 3(1) EIR. The term “court”, however, is ambiguous. For the purposes of Article 4(1) EIR, it is defined in Article 2 no. 6 (ii) EIR as “the judicial body or any other competent body of a Member State empowered to open insolvency proceedings, to confirm such opening or to take decisions in the course of such proceedings”. Hence, the decision to open insolvency proceedings must not necessarily involve a judicial body, but may be taken by an administrative authority. Article 4(1) EIR is applicable either way.

II. Obligation of court to examine its international jurisdiction on its own motion, Article 4(1)(sentence 1) EIR 1. Scope and content of the obligation Pursuant to Article 4(1)(sentence 1) EIR, a court must examine its international jurisdiction before opening insolvency proceedings. This obligation to examine is to be distinguished from a duty to investigate ex officio,3 which is incorporated in many Continental jurisdictions4. The obligation to examine, as set out by Article 4(1) EIR, does not require or permit the court to search for evidence on its own motion. All it may do under Article 4(1) EIR is requiring the debtor to submit additional evidence to support its assertions. Article 4 EIR does not ask a national court to do anything beyond its competence according to domestic law. This restrictive approach is underlined by recital 32 EIR, according to which a court may “only give the debtor’s creditors the opportunity to present their views on the question of jurisdiction, the court should require the debtor to submit additional evidence to support its assertions and, where the law applicable to the insolvency proceedings so allows”. Article 4(1) EIR merely requires a court not to base its opening decision on the applicant’s bare assertion that the debtor has his COMI (or an establishment for that matter) in the Member State in which the application has been filed. The court must examine whether the factual statements made in the request are plausible and whether these statements are conclusive in the sense that the court would have international jurisdictions if the statements were true. 9 The obligation set out by Article 4(1) EIR pertains, however, only to questions relating to international jurisdiction. It does not extend to other conditions of the decision to open insolvency proceedings.5 With respect to these matters, the law of the forum State remains applicable, Article 7(1) EIR. Moreover, the examination of international jurisdiction is only compulsory if the court is about to open insolvency 8

3 Garcimartin, ZEuP 2015, 695, 709; Lienau, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 256; Vallender, in Festschrift für Beck, p. 537, 538. 4 Cf. for example in Germany § 5(1) InsO and in Austria § 254 (5) IO. 5 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 4, mn. 7.

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proceedings. If a court is certain that the request fails to meet another condition for the opening of proceedings, it may reject it without looking into international jurisdiction issues.6

2. Applicability of national law as to the means of ex officio examination Article 4(1) EIR does not specify the means by which a court may examine whether 10 it has international jurisdiction. This begs the question whether domestic or European law is applicable. Recital 32 EIR is ambiguous in that regard: on the one hand, the recital allows a court to require the debtor to submit additional evidence as an option which seems to exist independent of domestic law; on the other hand, according to recital 32 EIR, the court may give the creditors the opportunity to present their views if the law of the forum so allows. The latter approach – priority of national law – is in accordance with the dominant view in EU civil procedure law. In the absence of explicit rules in European law, the law of the Member State where the request has been filed, i. e. the law of the forum, should determine the means a court may use in order to examine its jurisdiction.7 These are all means available to the court in situations acting ex officio under the lex fori in civil matters. Whether a court can summon witnesses or require the production of documents from a third person is thus a question of national law.8 Under German law, a court may, for example, order an expert to investigate the facts which are relevant for establishing the debtor’s habitual residence.9 If, however, investigations ex officio are completely foreign to the lex fori, a court 11 may at least order the applicant (i. e. the debtor or creditor who submits the request) to provide additional information. Such a residual power derives from Article 4(1) EIR in the light of recital 32 EIR. If national law completely eliminated any power of a court to adduce additional evidence, the effectiveness of European law would be subject to the law of the Member State. This would violate the principle of effet utile.

3. Duty to examine ex officio and presumptions in Article 3(1) EIR Presumptions allocate the burden of proof in non-liquet situations, i. e. in a situation 12 when the court – after it has examined the evidence available – is not able to establish the relevant facts.10 In this sense, presumptions tell the court what to do in case the evidence does not suffice to convince the court either of the correctness or falsehood of the allegations. With respect to the presumptions set out in Article 3(1.2-4) EIR and the duty to 13 examine ex officio pursuant to Article 4(1) EIR, this means the presumptions set out in Article 3(1) EIR are relevant only if a court cannot decide with the necessary degree of certainty (standard of proof) where the debtor has its COMI within the territory of the Member State. If the court is satisfied – after the examination ex officio required by Article 4(1) EIR – that it has or does not have international jurisdiction, the presumptions set out in Article 3(1) EIR are irrelevant.11 It should be pointed out that the applicable standard of proof is that of the lex fori. 14 The standard of proof is not affected by Article 4 EIR. 6

Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 4, mn. 4.12. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 4, mn. 9. 8 Brinkmann, in Festschrift für Prütting, 2018, p. 627, 634. 9 BGH, Beschl. v. 19.07.2012 - IX ZB 6/12, NZI 2012, 823 (DEU). 10 Brinkmann, in Festschrift für Prütting, 2018, p. 627, 632. 11 cf. Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 4, mn. 4.17; Pannen, Europäische Insolvenzverordnung, Art. 3 EIR 2000, mn. 33; Fehrenbach, Haupt- und Sekundärinsolvenzverfahren, p. 87. For a detailed discussion see Brinkmann, in Festschrift für Prütting, 2018, 627, 633. 7

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III. Obligation of court to give reasons for its decision to accept jurisdiction, Article 4(1)(sentence 2) EIR Pursuant to Article 4(1)(sentence 2) EIR, a court must give a concise explanation as to why it claims international jurisdiction. This may comprise explanations as to the factual findings as well as to the legal reasoning of the court. The duty to give reasons relates – as Article 4(1)(sentence 1) EIR – to international jurisdiction only. Article 4 (1)(sentence 2) EIR has too broad a wording in the sense that it refers to “jurisdiction” in general. The exclusive application to the question of international jurisdiction follows from the context of the provision as well as its purpose. 16 The purpose of the duty to give reasons for the decision to accept jurisdiction is twofold: On the one hand, it is a tool for encouraging a court to take the obligation to examine the facts ex officio seriously. Requiring a court to give reasons for a decision, compels it to think carefully about the underlying reasoning. On the other hand, the duty to give reasons must be seen in light of Article 5 EIR, which gives foreign creditors the right to challenge the judgement on grounds of international jurisdiction. Pre-condition for exercising this right in an effective fashion is the awareness of the grounds on which the decision is based.12 In this sense, Article 4(1)(sentence 2) EIR is an outflow of the right to be heard vested in Article 6 of the European Convention on Human Rights. 15

IV. Obligation of court to specify what kind of proceedings are opened 17

A court has to specify whether the proceedings opened are main proceedings (jurisdiction based on Article 3(1) EIR) or territorial proceedings (jurisdiction based on Article 3(2) EIR). Since the effects of main proceedings differ fundamentally from those of territorial proceedings, see Brinkmann above Art. 3 mn. 49, it is paramount for a court to explicitly state the kind of proceedings being opened. This information is registered in the insolvency register, see Szirányi below Art. 24 mn. 13 et seq., in order to allow debtors, creditors, and also courts in other Member States to inform themselves via the register about the type of proceedings opened.

E. Opening of insolvency proceedings without the decision of a judicial body, Article 4(2) EIR 18

Pursuant to Article 4(2) EIR, those Member States whose national law provides for out-of-court insolvency proceedings may correspondingly confer the obligations under Article 4(1) EIR on the insolvency practitioner by adopting a provision to that effect in their national law.

I. The term “court” in Article 4(2) EIR 19

According to Article 2 no. 6 (i) EIR, “court” in Article 4(2) EIR is the judicial body of a Member State and not a public authority. Hence, Article 4(2) EIR applies to proceedings which do not require the opening decision of a judicial body. 12

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II. Option for Member States to transfer duties set out in Article 4(1) EIR Hitherto, none of the Member States has made use of the option provided for by 20 Article 4(2) EIR. This is hardly surprising. First, it is hard to see why a Member State, which has adopted out-of-court insolvency proceedings, should have a lack of trust in the proficiency of the non-judicial body responsible for the opening of such proceedings under national law as to the question of examining international jurisdiction. Consequently, such a Member State will probably not feel the necessity to entrust the insolvency practitioner with the examination of this question. Article 4(2) EIR offers a solution to a problem which the addressees fail to see. Secondly, the insolvency practitioner has a vested interest in the opening of proceedings as he will directly benefit from the opening because of the remuneration he will receive. This questions the practitioner’s objectivity. Thirdly, the provision is incomplete in the sense that it lacks any specification of the consequences in case the practitioner denies international jurisdiction.13 Hence, it is for the Member State to decide upon the consequences of such a result. This is no easy task: on the one hand, it would be far from convincing had the finding of the practitioner no consequences at all; on the other hand, it would be odd if such a result triggered more or less automatically the termination or annulment of proceedings that have already commenced. Such a mechanism would give the practitioner a tool to end proceedings ad libitum. For these reasons, the acceptance of the option provided for in Article 4(2) EIR by 21 any Member State in the future is unlikely.14 13

Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 4, mn. 4.29. The provision is the result of an unfortunate compromise. For the background cf. Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 4, mn. 4.24. 14

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Article 5 Judicial review of the decision to open main insolvency proceedings 1. The debtor or any creditor may challenge before a court the decision opening main insolvency proceedings on grounds of international jurisdiction. 2. The decision opening main insolvency proceedings may be challenged by parties other than those referred to in paragraph 1 or on grounds other than a lack of international jurisdiction where national law so provides. Recital: 34. Specific bibliography: see Article 3. Outline A. Overview ............................................................................................................................ B. Historical background..................................................................................................... C. Right to challenge on grounds of lack of international jurisdiction, Article 5(1) EIR....................................................................................................................................... I. Scope .......................................................................................................................... II. Filling of gaps........................................................................................................... 1. Time limitations ................................................................................................. 2. No guarantee of a right to appeal .................................................................. 3. Effects of a challenge – suspensory effect? ................................................... 4. Effects of a successful remedy ......................................................................... a) Effects on the insolvency proceedings ..................................................... b) Effects on discharge decisions ................................................................... c) Effects on acts by the insolvency practitioner ....................................... D. Remedies under national law are unaffected, Article 5(2) EIR .............................

1 2 3 3 8 10 13 14 16 17 18 19 20

A. Overview 1

Article 5(1) EIR gives the debtor and all creditors a remedy against the judgement opening main insolvency proceedings. Pursuant to Article 2 no. 6 (i) EIR, it is for a court in the sense of a judicial authority to decide upon the remedy.1 Under Article 5 EIR, however, the opening decision may only be challenged on the grounds of lack of international jurisdiction. This restricted scope aids the purpose of the provision to fight forum shopping and insolvency tourism. Whether the debtor, creditors, or other interested parties have the right to challenge the opening decision on other grounds than lack of international jurisdiction, is a question of national law, Article 5(2) EIR.

B. Historical background 2

Article 5 EIR 2015 has no predecessor in the EIR 2000. The proposal made by the Commission2 in 2012 contained a similar provision in its Article 3 b (3). The proposal, however, provided a remedy only to foreign creditors or interested parties, i. e. for persons with a habitual residence, domicile, or registered office in a Member State other 1 2

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than the State of the opening of proceedings. Article 5 EIR 2015 is also broader in the sense that it applies not only to all creditors but also to the debtor.

C. Right to challenge on grounds of lack of international jurisdiction, Article 5(1) EIR I. Scope The remedy provided for by Article 5 EIR only applies to the opening of main insolvency proceedings.3 With respect to the opening of territorial insolvency proceedings, the insolvency practitioner of the main proceedings may ask for review pursuant to Article 39 EIR. Whether other parties have a right to review the opening of territorial proceedings, is a question of national law. The remedy may be exercised by the debtor as well as creditors, no matter where they reside.4 The term “creditor”, however, is ambiguous: one might argue that it encompasses persons which have a right in rem in assets belonging to the estate. Under some national laws, (some of) these persons are unaffected by the insolvency of the debtor; other national laws may provide for a stay of the enforcement of such rights or for a carve-out. For the purposes of Article 5 EIR, the term “creditor” should be understood as referring to those parties that have a possibly affected right against the debtor or the estate only.5 Hence, creditors who could enforce their right under the lex fori concursus notwithstanding the opening of proceedings (for example in Austrian and German law “aussonderungsberechtigte Gläubiger”), cannot rely upon Article 5 EIR. As their rights are not impaired by the opening of the proceedings, there is no need for the protection offered by the provision. The suggested reading of the term “creditor” protects the efficacy of the proceedings as it renders complaints inadmissible, which merely have an obstructive effect. It is, however, not necessary that the applicant has filed a request to open insolvency proceedings in another Member State. An insolvency practitioner appointed in territorial proceedings may not challenge the opening decision.6 Even if independent territorial proceedings have been opened in another Member State, the insolvency practitioner appointed in these proceedings may not challenge the decision to open main proceedings elsewhere. Since the practitioner’s powers are limited to the territory of the State of the territorial proceedings and the opening of main proceedings does not affect these powers, an application filed by the practitioner is inadmissible.

3

4

5

6 7

II. Filling of gaps Article 5 EIR not only guarantees the option of judicial review but provides a remedy 8 in itself. The details of this “European remedy”, however, are not set out in European law. Recital 34 merely requires the remedy to be “effective”. 3 Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 5, mn. 5.08; Mankowski, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 5, mn. 4; Lienau, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 263. 4 Ringe, in Bork/van Zwieten, Commentary on EIR, Art. 5, mn. 5.11. 5 Differently Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 5, mn. 13, who argues for a broader application of Article 5 EIR. 6 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 5, mn. 8.

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Chapter I. General Provisions

The (considerable) gaps, which Article 5 EIR leaves, have to be filled by national law, which is applicable pursuant to Article 7 EIR.7 Thus, Member States have to adopt provisions in their national laws putting some flesh on the rather skeleton-like structure of Article 5 EIR. By doing so, Member States will have to make sure that these provisions do not unduly compromise the effectiveness of the remedy created by Article 5 EIR. Due to the primacy of application of European law, any national law violating Article 5 EIR by rendering the remedy ineffective, is void. Consequently, the remedy can be exercised by the petitioner as if limitations set out by national law did not exist.

1. Time limitations The first question is whether Article 5 EIR, along with the “effectiveness” requirement derived from recital 34 EIR, prohibits any time limits set by national law. Article 5 EIR is silent on this matter. Although a remedy without time limitations may be unusual, such an unlimited option to recourse would not be unheard of from a comparative perspective. English law, for example, provides for an “annulment” of the opening decision, pursuant to Section 282 UKInsolvency Act (1986). Pursuant to Section 282(1) UKInsolvency Act (1986), the court has the power to annul the opening decision “at any time”. The law does not provide for any time limitations.8 Pursuant to Section 282(3) UKInsolvency Act (1986), an annulment may even be ordered after the bankrupt has been discharged from the bankruptcy. But inferring from Section 282 UKInsolvency Act (1986) and the silence of Article 5 EIR on time limitations the illegality even of generous time restrictions, would mean to put too much weight on the situation under English law. Hence, Member States may protect legal certainty and the efficiency of the proceedings by subjecting the remedy created by Article 5 EIR to time limitations. 11 These limitations must not, however, unduly restrict access to the remedy. In order to develop a yardstick as to what is an efficient remedy in the sense of the EIR, one may draw inspiration from Article 37(2) EIR. The right to ask for the opening of secondary proceedings after an undertaking has become binding amounts to a remedy against that undertaking, see below Laukemann, Article 37 mn. 22. This remedy is subject to a 30-day time limitation beginning after the requesting party has received notice of the approval of the undertaking. In light of this provision, it seems unlikely that the CJEU will dismiss national provisions providing for time limitations of at least 30 days. 12 The German solution, which provides for a time limitation of two weeks after the opening decision has been made public via the registry system,9 appears to be too restrictive. It violates the effectiveness-principle and is void. 10

2. No guarantee of a right to appeal 13

Article 5 EIR only guarantees access to justice, i. e. the right to have the opening decision reviewed by a court. It does not guarantee the possibility to challenge the judicial decision on the remedy. However, Member States may go beyond the minimum guaranteed by Article 5 EIR and subject the decision of the court to an appeal.10 7

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 5, mn. 10. Sealy/Milman, Annotated Guide to Insolvency Legislation, 19th ed (2016), Section 282(1) & (3). 9 Art. 102 c § 4 EGInsO in connection with § 569 (1) ZPO and § 9 InsO (all DEU). 10 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 5 mn. 11. 8

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3. Effects of a challenge – suspensory effect? Pursuant to recital 34 EIR, the consequences of any challenge to the decision to open 14 insolvency proceedings are governed by national law. Hence, Member States may endow the remedy under Article 5 EIR with a suspensory effect. If, however, a Member State decides not to provide for a suspensory effect, it must ensure the effectiveness of the remedy not being compromised by any decision or act made in the proceedings while the application is pending. Therefore, at least any measure that would de facto have a final effect and be deferrable should be suspended. Although Article 5 EIR does not prescribe a specific period of time within which the 15 court must render its decision, a timely decision upon the application is important, particularly if the application does not stay the proceedings.

4. Effects of a successful remedy Article 5 EIR does not spell out the consequences of a successful challenge of the 16 decision.11 It is clear, however, that the proceedings must be terminated and that any decisions taken in the course of the proceedings have as little effect as possible. a) Effects on the insolvency proceedings. A successful challenge leads to the 17 termination of the main proceedings. Member States may provide for an automatic annulment of the opening decision once it has been successfully challenged, or they may make the termination of the proceedings subject to a special order, for example of the insolvency court. It would, however, violate Article 5 EIR if a successful challenge had no effect whatsoever on the insolvency proceedings. One way or another, a successful challenge must lead to the termination of the proceedings or to their transformation into territorial proceedings. b) Effects on discharge decisions. If the application succeeds, the debtor cannot get 18 a discharge under the law of the Member State in which the proceedings have been initially opened. Any discharge order, that has been issued before the motion under Article 5 EIR has been granted, must be annulled or repealed. c) Effects on acts by the insolvency practitioner. It is also for national law to decide 19 on the extent to which any acts, such as sales or payments, made by or made under the authority of the insolvency practitioner, remain valid after the application has been granted. Legal certainty is protected under many national laws by provisions which ensure for the validity of such acts (see for example United Kingdom: Section 282(4)(a) UK Insolvency Act (1986), Germany: § 34(3) InsO).

D. Remedies under national law are unaffected, Article 5(2) EIR The remedy provided for by Article 5(1) EIR is only the minimum protection 20 guaranteed and provided for by European law. Pursuant to Article 5(2) EIR, national laws may go beyond this minimum. Thus, Member States may give other parties (such as trade unions, public authorities) a right to challenge the opening decision. Member States may furthermore allow for challenges on other grounds than lack of international jurisdiction (such as lack of insolvency, lack of local jurisdiction, lack of sufficient funds to cover the costs of the proceedings). 11

Lienau, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 266.

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Article 6 Jurisdiction for actions deriving directly from insolvency proceedings and closely linked with them 1. The courts of the Member State within the territory of which insolvency proceedings have been opened in accordance with Article 3 shall have jurisdiction for any action which derives directly from the insolvency proceedings and is closely linked with them, such as avoidance actions. 2. Where an action referred to in paragraph 1 is related to an action in civil and commercial matters against the same defendant, the insolvency practitioner may bring both actions before the courts of the Member State within the territory of which the defendant is domiciled, or, where the action is brought against several defendants, before the courts of the Member State within the territory of which any of them is domiciled, provided that those courts have jurisdiction pursuant to Regulation (EU) No 1215/2012. The first subparagraph shall apply to the debtor in possession, provided that national law allows the debtor in possession to bring actions on behalf of the insolvency estate. 3. For the purpose of paragraph 2, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings. Recitals: 6, 35. Case law: EU: CJEU, 12 February 2009, Case C-339/07, Seagon v Deko Marty, ECLI:EU:C:2009:83; CJEU, 16 January 2014, Case C-328/12, Schmid, ECLI:EU:C:2014:6; CJEU, 4 December 2014, Case C-295/13, H v H. K., ECLI:EU:C:2014:2410.

Outline A. Introduction ...................................................................................................................... B. Vis attractiva concursus (paragraph 1) ....................................................................... I. Historical background............................................................................................ II. Exclusive jurisdiction ............................................................................................. III. International vs territorial jurisdiction............................................................... IV. Third-country defendant....................................................................................... V. The definition of insolvency-related actions .................................................... 1. The Gourdain formula ...................................................................................... 2. CJEU case law ..................................................................................................... 3. Relevant factors................................................................................................... a) Action derives directly from insolvency proceedings .......................... b) Action closely linked with insolvency proceedings .............................. C. Optional jurisdiction for joint actions (paragraphs 2 and 3) ................................ I. Jurisdiction pursuant to the recast Brussels I Regulation.............................. II. Close connection under paragraph 3 .................................................................

1 3 4 8 9 11 13 14 15 19 20 21 22 25 27

A. Introduction 1

Article 6 is a new provision concerning jurisdiction for related actions, i. e. actions deriving directly from the insolvency proceedings that are closely linked with them. This is the criterion originally used by the CJEU to identify actions falling outside 74

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“civil and commercial matters” under Article 1 of the Brussels Convention.1 In recital 6 EIR 2015, the same definition is used to delimit the scope of the Regulation.2 The new provision applies both to main and secondary proceedings.3 It provides for jurisdiction regardless of whether the insolvency practitioner (or debtor in possession) acts as a plaintiff or as a defendant. Article 6 EIR shows a specific structure. Paragraph 1 provides exclusive jurisdiction 2 for any action deriving from or closely linked to insolvency proceedings to the courts of these proceedings. If such a related action is also closely connected (under paragraph 3) to another action in civil and commercial matters against the same defendant, paragraph 2 provides the right to choose between jurisdiction under paragraph 1 and the court hearing the case in civil and commercial matters.

B. Vis attractiva concursus (paragraph 1) Article 6(1) EIR effectively enlarges the scope of the Regulation by allowing a 3 concentration of litigation before one court: the forum concursus. It confers accessory jurisdiction over related actions to the courts of the Member State in whose territory insolvency proceedings are opened, without the need to examine the jurisdictional prerequisites set out in Article 3 EIR.4 Such jurisdiction is generally referred to as vis attractiva concursus, and corresponds to the doctrine already applied in some Member States, such as Italy, Belgium and France.5

I. Historical background The EIR 2000 was silent on this issue and did not provide any indication as to the 4 jurisdiction for actions brought by the practitioners appointed in the insolvency proceedings. Indeed, Article 3 EIR 2000 only concerned the opening of main and secondary proceedings, with a surprising lack of coherence between jurisdiction and recognition of insolvency proceedings.6 In the absence of specific guidance, three different solutions were developed at the national level.7 The first approach referred to the common rules of international civil procedure (lex fori and the application of general national provisions on jurisdiction) without taking into account any relevant 1 CJEU, 22 February 1979, Case C-133/78, Henri Gourdain v Franz Nadler, ECLI:EU:C:1979:49, para. 4. 2 Garcimartín, ZEuP 2015, 712; Pretelli, Yb. Priv. Int. L. 2011, 603; Kindler, KTS 2014, 35. 3 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 6, mn. 31; Mangano, in Bork/ Mangano, European Cross-Border Insolvency Law, mn. 3.81; Thole, in Münchener Kommentar zur InsO, Art. 3 VO 1346/2000, mn. 117; Leandro, Dir. Un. eur. 2016, 228; Laukemann, in Hess/Oberhammer/ Pfeiffer, European Insolvency Law. Heidelberg/Luxembourg/Vienna Report, mn. 569, 580. In this sense, see also CJEU, 11 June 2015, Case C-649/13, Nortel Networks, ECLI:EU:C:2015:384, para. 32. 4 Mangano, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 3.67. 5 See Art. R 662-3 of the French C. com., Art. 574(2) of the Belgium C. jud., Art. 24 of the Italian Bankruptcy Law. 6 Thole, in Münchener Kommentar zur InsO, Art. 3 VO 1346/2000, mn. 97; Kindler, in Münchener Kommentar zum BGB, Art. 3 EuInsVO, mn. 83–84; Bork, in Festschrift für Beck, p. 50. This is surprising considering the EEC Draft Conventions of 1970 and 1980, where a specific rule for related actions was contemplated; see Virgós/Garcimartín, The European Insolvency Regulation, p. 57 et seq. 7 For an in-depth analysis of these approaches, see Pannen, in Pannen, Europäische Insolvenzverordnung, Art. 3 EIR 2000, mn. 99 et seq. More briefly Mangano, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 3.69; Thole, in Münchener Kommentar zur InsO, Art. 3 VO 1346/2000, mn. 101 et seq.; Bariatti, RabelsZ 2009, p. 654 et seq.

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provisions of the lex fori concursus.8 The second approach argued in favor of applying the Brussels I Regulation by stressing that its scope would exclude only collective insolvency proceedings, but include all insolvency-related (bilateral) actions.9 The third approach preferred the analogous application of the Insolvency Regulation, arguing that its Article 3 also determines jurisdiction for insolvency-related actions.10 5 The first solution was dropped because of the great diversity existing between national legislations, which could generate the risk of conflicts of jurisdiction.11 The second solution is also disputable because all related actions would be detached from insolvency proceedings. Thus, it was the third approach that was adopted by the CJEU in the landmark case Deko Marty.12 6 The CJEU justified the extension of jurisdiction over related actions on the grounds that concentrating all the insolvency-related actions before the court which opened the proceedings appears consistent with the objective of improving the effectiveness and efficiency of cross-border insolvency proceedings.13 The Court also argued that the solution of having a single court to exercise jurisdiction reduces forum shopping practices incompatible with the functioning of the internal market because such a solution would keep parties from transferring assets or proceedings from one Member State to another in order to obtain a more favorable legal position.14 In addition, a single forum would avoid/ prevent frictions and diverging judgments, in particular where this might lead to the application of the same substantive law pursuant to Article 7 EIR.15 The Court’s reasoning also hinges upon former Article 25(1.2) EIR, which imposes an obligation to recognize judgments deriving directly from the insolvency proceedings and which are closely linked with them. This provision was construed to allow courts of a Member State where insolvency proceedings have been opened to also hear and determine a related action.16 7 Article 6(1) EIR follows this approach. The provision fills the previously existing gap and codifies the CJEU’s case law.

II. Exclusive jurisdiction 8

The jurisdiction provided under Article 6(1) EIR is exclusive, not optional. The issue was already addressed by Advocate General Ruiz-Jarabo Colomer in Deko Marty, where 8 Oberhammer, ZInsO 2004, 765; and RabelsZ 2008, 823. See for instance BGH, Beschl. v. 27.5.2003, IX ZR 203/02, commented by Mankowski, NZI 2003, 546. This solution seems to be suggested by Virgós/ Schmit, Report on the Convention on Insolvency Proceedings, mn. 78. 9 Dutta, IPRax 2007, 196; Klöhn/Berner, ZIP 2007, 1419; Thole, ZIP 2006, 1383. 10 Paulus, RabelsZ 2006, 469; Stürner, IPRax 2006, 580; Weller, ZHR 2005, 577; Haubold, EuZW 2003, 704; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 25 EIR 2000, mn. 36 et seq. 11 Carballo Piñeiro, InDret 2010, 7. 12 CJEU, 12 February 2009, Case C-339/07, Deko Marty Belgium NV, ECLI:EU:C:2009:83. Later confirmed in CJEU, 15 December 2011, Case C-191/10, Rastelli Davide, ECLI:EU:C:2011:838, mn. 20; CJEU, 19 April 2012, Case C-213/10, F-Tex, ECLI:EU:C:2012:215, mn. 25; CJEU, 16 January 2014, Case C-328/12, Schmid, ECLI:EU:C:2014:6, mn. 28; CJEU, 4 December 2014, Case C-295/13, H. v H. K., ECLI: EU:C:2014:2410, mn. 17; CJEU, 10 December 2015, Case C-594/14, Kornhaas, ECLI:EU:C:2015:806, mn. 15; CJEU, 11 June 2015, Case C-649/13, Nortel Networks, ECLI:EU:C:2015:384, mn. 31. 13 CJEU, 12 February 2009, Case C-339/07, Deko Marty Belgium NV, ECLI:EU:C:2009:83, mn. 22. For a critical appraisal concerning efficiency, see Thole, ZEuP 2010, 912–915. See also Reinhart, Yb. Priv. Int. L. 2015/2016, 299–300. 14 CJEU, 12 February 2009, Case C-339/07, Deko Marty Belgium NV, ECLI:EU:C:2009:83, mn. 23–24. 15 Ringe, in Bork/van Zwieten, Commentary on EIR, mn. 6.10 (clarifying, however, at mn. 6.42, that for some connected actions the applicable law is not determined by the Regulation, but by the general conflict of law rules of the forum). 16 CJEU, 12 February 2009, Case C-339/07, Deko Marty Belgium NV, ECLI:EU:C:2009:83, mn. 25–26.

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he affirmed that “the particular features of actions in the context of an insolvency to set a transaction aside mean that jurisdiction for deciding such actions is not always exclusive. (…) jurisdiction for such actions is relatively exclusive, which is to be construed as meaning that it comes within the powers of the liquidator”17. The principle of relative exclusiveness was not mentioned later by the CJEU in the final judgment,18 and has even been criticized in the literature for being too inflexible.19 The wording of Article 6 (1) EIR now indicates an even more exclusive nature by using the word “shall” (paragraph 1) instead of “may” (paragraph 2).20 The only way to avoid the jurisdiction under paragraph 1 is using the option under paragraph 2 if available. In particular, parties are precluded from agreeing on a different jurisdiction.21

III. International vs territorial jurisdiction Article 6 EIR regulates international jurisdiction only.22 Territorial jurisdiction is 9 regulated by national laws, e. g. by Article 102 c § 6 EGInsO in Germany. This entails that the related actions must be brought before the courts of the Member State having jurisdiction under the Regulation, but not necessarily before the same court which opened the insolvency proceedings. Article 32 EIR reinforces this conclusion by using the words “even if they were handed down by another court” for recognition purposes. The distinction between international and territorial jurisdiction may raise prob- 10 lems whenever national procedural laws do not contain a provision on territorial jurisdiction for insolvency related action which refers such claims to the insolvency court. Indeed, the benefits of concentration in terms of efficiency and effectiveness of insolvency proceedings would be diminished if vis attractiva concursus was not implemented at the national level. Still, Article 6(1) EIR allows national legislators to respect local legal traditions and to self-regulate territorial jurisdiction. In Member States without a vis attractiva concursus in their insolvency framework, for instance Germany, insolvency-related actions may, thus, only be brought before a court in the place where insolvency proceedings are commenced, but not before the same (insolvency) court.23 17 See his opinion in CJEU, 12 February 2009, Case C-339-07, Deko Marty Belgium NV, ECLI:EU: C:2008:575, mn. 65. 18 Even more, the CJEU’s reasons may leave the impression of attributing exclusive jurisdiction to the courts competent under Article 3 of EIR; see Wessels, Insolvency Law, 2012, mn. 10606 d (mentioning in this sense also a decision from the Hof Amsterdam, 3 November 2009, LJN BL8405 (NLD)); Mankowski/ Willemer, RIW 2009, 674 et seq. In this sense also the BGH in its decision closing the Deko Marty case: BGH Beschl. v. 19.5.2009, IX ZR 39/06, NJW 2009, 2215 mn. 16 (DEU). Contra Kindler, in Münchener Kommentar zum BGB, Art. 3 EuInsVO, mn. 90, and KTS 2014, 36; Baumert, NZI 2014, 106; Thole, ZEuP 2010, 916 et seq.; Mörsdorf-Schulte, ZIP 2009, 1461 et seq. 19 Indeed, the insolvency practitioner would still be bound to lodge the related claim before courts in the Member State of the commenced proceedings if it would be faster and more effective to bring the action before the courts of a different Member State. Cf. Linna, J. Priv. Int. L. 2014, 81; Carballo Piñeiro, InDret 2010, 12 et seq.; Leandro, Yb. Priv. Int. L. 2009, 475 et seq.; Bariatti, RabelsZ 2009, 657. 20 Reinhart, Yb. Priv. Int. L. 2015/2016, 300; Bork, in Festschrift für Beck, p. 61; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 6, mn. 27 et seq.; Thole, in Münchener Kommentar zur InsO, Art. 6 VO 2015/848, mn. 3; Mangano, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 3.75. In contrast, this interpretation is rejected by Ringe, in Bork/van Zwieten, Commentary on EIR, mn. 6.37 et seq. 21 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 6, mn. 29. 22 Ringe, in Bork/van Zwieten, European Cross-Border Insolvency Law, mn. 6.32; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 6, mn. 30; Thole, in Münchener Kommentar zur InsO, Art. 6 VO 2015/848, mn. 2. 23 See also BGH, Beschl. v. 19.05.2009, IX ZR 39/06, NJW 2009, 2215 mn. 21–23 (DEU).

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IV. Third-country defendant Jurisdiction provided under Article 6(1) EIR is not limited to cases where both the defendant and the claimant are residents of a Member State. It also applies in cases where an insolvency-related action is brought against a third-country defendant.24. As the Regulation aims to improve the efficiency and effectiveness of insolvency proceedings having cross- border effects,25 vis attractiva concursus should include an action to set aside a transaction that is brought against a person whose place of residence is in a third country as long as the debtor’s COMI is in a Member State. 12 The application of Article 6(1) EIR does, however, only provide for jurisdiction. Any resulting judgment would still require recognition which is particularly difficult in cases where the decision must be enforced in a non-EU country because the defendant’s place of residence is located there. Neither Article 6(1) EIR nor any other provision in the Regulation can oblige a third-country court to recognise and to enforce a judgment delivered by a EU court having jurisdiction under the Regulation.26 The insolvency practitioner’s decision to sue a third-country defendant under Article 6(1) EIR in the Member State of commenced insolvency proceedings may, therefore, only be efficient if a resulting judgment gives access to local assets of the defendant, e. g. to a local bank account or establishment, or if recognition and enforcement in the third country is warranted, e. g. under bilateral agreements. In other circumstances it may be preferable to sue the defendant in the third country where he is domiciled. Article 6(1) EIR does not interfere with international jurisdiction based on the (international private) law of a non-Member State.27 11

V. The definition of insolvency-related actions 13

Article 6(1) EIR defines related actions as “any action which derives directly from the insolvency proceedings and is closely linked with them, such as avoidance actions.” According to recital 35, such actions should include avoidance actions against defendants in other Member States and actions concerning obligations that arise in the course of the insolvency proceedings, such as advance payment for the costs of the proceedings. In contrast, actions for the performance of the obligations under a contract concluded by the debtor prior to the opening of proceedings do not derive directly from the proceedings.

1. The Gourdain formula 14

The double requirement for an insolvency-related action in Article 6(1) EIR – the action must (i) derive directly from the insolvency proceedings; and (ii) be closely connected with them – codifies the CJEU’s case law following Gourdain v Nadler, a case concerning a liability action against the de facto administrator of an insolvent society who may have delayed the opening of the insolvency proceedings (the French action en comblement du passif).28 This case has been highly influential in the CJEU’s case law and significantly affected all the subsequent decisions dealing with this issue. Still, the 24

CJEU, 16 January 2014, Case C-328/12, Schmid, ECLI:EU:C:2014:6, mn. 32 et seq. See recital 8 EIR. 26 CJEU, 16 January 2014, Case C-328/12, Schmid, ECLI:EU:C:2014:6, mn. 36–38. 27 Brinkmann, IILR 2013, 375. 28 Bork, in Festschrift für Beck, p. 52. 25

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Gourdain formula, which Article 6(1) EIR adopted, is still drafted in a very general way. It does not provide for a specific set of tests, which is why it was not yet able to establish a clear line of demarcation between the Insolvency Regulation (regulating insolvency and insolvency-related proceedings) and the recast Brussels I Regulation (regulating proceedings in other civil and commercial matters).29

2. CJEU case law A closer look at the case law even shows that the CJEU has failed in providing a 15 coherent set of rules so far.30 Originally, the CJEU interpreted the Gourdain formula narrowly. A mere relation of an action with the insolvency proceedings would not suffice. Instead, the opening of insolvency proceedings must be a necessary element of the claim.31 This is the case if the action cannot be brought outside the context of insolvency proceedings. In more recent decisions, the CJEU put, however, more weight on the legal basis of 16 the action rather than the procedural context in which the action is brought.32 According to this new approach, it must then be determined whether the right or the obligation which forms the basis of the action has its source in the ordinary rules of civil and commercial law or in derogating rules specific to insolvency proceedings.33 In a subsequent decision, the Court clarified that such derogation from the common rules of civil and commercial law is also relevant for actions based on a provision whose application requires the actual insolvency of the debtor without insolvency proceedings being formally opened, such as the German claim against the management of a limited liability company for reimbursement of payments made after insolvency pursuant to § 64 GmbHG.34 In addition, the Court held in F-Tex that assignment by the liquidator of an 17 avoidance claim to a third party makes the Regulation inapplicable with respect to the assignee’s action against the beneficiary of the voidable transfer. In other words, purely because of the assignment, the claim becomes subject to rules other than those applicable in insolvency proceedings, so that it falls within the scope of application of the Brussels I Regulation.35

29

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 6, mn. 3; Mucciarelli, ECFR 2016,

23. 30 See Fehrenbach, GPR 2016, 292; McCormack, EBOR 2014, 320; Reinhart, NZI 2012, 307; Sujecki, EuZW 2012, 430. This also resulted, outside the context of avoidance claims, in major delimitation problems in situations at the interface of insolvency law, civil law and company law in the national case law: Laukemann, in Hess/Oberhammer/Pfeiffer, European Insolvency Law, mn. 506. 31 CJEU, 2 July 2009, Case C-111/08, SCT Industri, ECLI:EU:C:2009:419, mn. 27 (action for declaratory judgment confirming the alleged invalidity of a transfer of shares in proximity of insolvency); CJEU, 10 September 2009, Case C-292/08, German Graphics, ECLI:EU:C:2009:544, mn. 39 (action based on retention of title against an insolvency purchaser); CJEU, 19 April 2012, Case C-213/10, F-Tex, ECLI:EU: C:2012:215, mn. 56 (avoidance action against a third party). 32 CJEU, 11 June 2015, Case C-649/13, Nortel Networks, ECLI:EU:C:2015:384, mn. 28. What matters is the action’s basis, and not the connection with insolvency proceedings: Leandro, Dir. Un. eur. 2016, 228. 33 CJEU, 4 September 2014, Case C‐157/13, Nickel & Goeldner Spedition, ECLI:EU:C:2014:2145, mn. 27. 34 CJEU, 4 December 2014, Case C-295/13, H. v H. K., ECLI:EU:C:2014:2410, mn. 22; CJEU, 10 December 2015, Case C-594/14, Kornhaas, ECLI:EU:C:2015:806, mn. 16. For the inclusion of such actions within Article 6, see Ringe, in Bork/van Zwieten, Commentary on EIR, mn. 6.23 et seq. 35 On the Court’s reasoning see the criticism expressed by Brinkmann, IILR 2013, 372 et seq., holding that the outcome of the decision was highly influenced by the specific peculiarities of the dispute.

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– – – – –

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Actions generally included within the scope of the Regulation are:36 actions to segregate assets from the insolvent debtor’s estate, actions for the determination of a lodged claim or of assets forming part of the insolvency estate, actions brought by the insolvency practitioner for the recovery of equity-replacing loans, actions based on liability claims against the insolvency practitioner, in particular challenging the exercise of its power or discretion, actions based on insolvency law liability claims against the company officers.

3. Relevant factors 19

In the light of the above case law, the Gourdain formula adopted in Article 6(1) EIR should be applied in a two-step test:

20

a) Action derives directly from insolvency proceedings. The action in question must directly depend upon the commenced insolvency proceedings. Such a dependence can result from the fact that the underlying claim only exists in insolvency proceedings (e. g. because of its legal basis in insolvency law or because only the insolvency practitioner – or debtor in possession – may file such a claim). If a claim exists regardless of insolvency proceedings, e. g. under company law, a sufficient dependence could be established by the fact that the claim is premised on the insolvency of the debtor and aims at protecting the collective interest of all creditors. Both requirements would not be met by an action for the performance of a pre-insolvency contractual obligation of the debtor.

21

b) Action closely linked with insolvency proceedings. A close link usually follows from the dependence mentioned above. Still, such a link may disappear if a claim that originated in insolvency proceedings loses its insolvency-specific function (often a benefit for the estate, e. g. avoidance actions or actions for damages). The assignment of an insolvency-related claim may result in the disappearance of this connection and result in the non-applicability of Article 6(1) EIR.

C. Optional jurisdiction for joint actions (paragraphs 2 and 3) 22

The exclusivity of international jurisdiction granted to insolvency-related actions under Article 6(1) EIR may not prompt the most efficient results in all cases. Following the proposals in the literature37, Article 6(2) EIR provides for an exception in cases where an insolvency-related action is also connected to an action in civil and commercial matters against the same defendant. In such cases, two courts are already involved (the insolvency court and the civil or commercial court). While Article 6(1) EIR would open the forum concursus, it could be more efficient to bring the insolvencyrelated action to the forum of the other (soon) pending case. In this way, the difficulties 36 See Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 6, mn. 9 et seq.; Thole, in Münchener Kommentar zur InsO, Art. 3 VO 1346/2000, mn. 119 et seq.; Kindler, in Münchener Kommentar zum BGB, Art. 3 EuInsVO, mn. 86 et seq.; Bork, in Festschrift für Beck, p. 54 et seq.; McCormack, EBOR 2014, 321 et seq.; Laukemann, in Hess/Oberhammer/Pfeiffer, European Insolvency Law, mn. 525 et seq.; Virgós/Garcimartín, The European Insolvency Regulation, p. 59 et seq. 37 See, for instance, Laukemann, in Hess/Oberhammer/Pfeiffer, European Insolvency Law, p. 143 et seq.; McCormack, EBOR 2014, 334.

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relating to the delimitation between insolvency and civil/company claims are somehow alleviated.38 An example of Article 6(2) EIR is provided in recital 35 by referring to a case where the insolvency practitioner wishes to combine an action for director’s liability on the basis of insolvency law with an action based on company law or general tort law.39 The option to join an insolvency-related action with a connected action against the 23 same defendant is provided to the insolvency practitioner in sentence 1 of Article 6(2) EIR. The second sentence expands this privilege to the debtor in possession, provided that national law allows the debtor in possession to bring actions on behalf of the insolvency estate. As far as the debtor in possession is not allowed to bring actions, the privilege remains with the insolvency practitioner supervising the debtor.40 Article 6(2) EIR addresses international, not territorial jurisdiction, as the latter is 24 determined under national law.41

I. Jurisdiction pursuant to the Brussels Ia Regulation Article 6(2) EIR provides for the option to bring an insolvency-related action to the 25 court who hears a connected action against the same defendant only if this is consistent with general international law of civil procedure. Thus, the respective court must have international jurisdiction under the Brussels Ia Regulation. At the same time, however, Article 6(2) EIR limits the application of this Regulation by stating that an insolvencyrelated claim may only be brought before the courts “of the Member State within the territory of which the defendant is domiciled”. Altogether, the role of the Brussels Ia Regulation is to confirm that the courts of the Member State of the defendant’s domicile42 have jurisdiction, commonly under Article 4(1) of the Brussels Ia Regulation.43 The limited role of the Brussels Ia Regulation does not change when actions are 26 brought against several defendants. Article 6(2) EIR adopts the rule in Article 8(1) of the Brussels Ia Regulation by providing that the courts of the Member State within the territory of which any of the defendants is domiciled are competent. Again, the role of the Brussels Ia Regulation is reduced to confirming international jurisdiction for courts of the defendant’s domicile.

II. Close connection under paragraph 3 Article 6(2) EIR allows for a deviation from the exclusive international jurisdiction 27 provided by Article 6(1) EIR only if such a deviation is a more efficient way for handling insolvency-related actions. Thus, Article 6(3) EIR provides a functional definition of the connection between the insolvency-related action and the other action in civil and commercial matters against the same defendant. Both actions must be “so closely connected that it is expedient to hear and determine them together to avoid the 38

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 6, mn. 34. See also Kindler, KTS 2014, 35. 40 See e. g. § 280 InsO (DEU). 41 Ringe, in Bork/van Zwieten, Commentary on EIR, mn. 6.51; Thole, in Münchener Kommentar zur InsO, Art. 6 VO 2015/848, mn. 9. 42 The notion of domicile has to be interpreted under Articles 62 and 62 of Regulation (EU) 1215/2012. 43 Garcimartín, ZEuP 2015, 715; see also Thole, in Münchener Kommentar zur InsO, Art. 6 VO 2015/ 848, mn. 8, stating that it does not matter whether the competence is derived from Art. 4 (defendant’s domicile) or, for example, from Art. 7 (special jurisdiction). 39

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risk of irreconcilable judgments resulting from separate proceedings.” This standard is literally adopted from Article 8(1) of the Brussels Ia Regulation and should be construed equally. A sufficiently close connection would, therefore, require the risk of irreconcilable judgments regarding the same facts and legal questions. It does not require the application of the identical legal basis.44 44 See CJEU, 11 October 2007, Case C-98/06, Freeport, ECLI:EU:C:2007:595, mn. 38; CJEU, 7 March 2013, Case C-145/10, Painer, ECLI:EU:C:2011:239, mn. 77. For a better understanding of the evolution of the CJEU’s case law on the concept of connectedness, among many, see Lund, Der Gerichtsstand der Streitgenossenschaft im europäischen Zivilprozessrecht, p. 45 et seq.; Torremans, in Mélanges en l’honneur du professeur André Lucas, p. 751; Tang, Eur. L. Rev. 2009, 80; Althammer, IPRax 2008, 228.

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Article 7 Applicable law 1. Save as otherwise provided in this Regulation, the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened (the “State of the opening of proceedings”). 2. The law of the State of the opening of proceedings shall determine the conditions for the opening of those proceedings, their conduct and their closure. In particular, it shall determine the following: (a) the debtors against which insolvency proceedings may be brought on account of their capacity; (b) the assets which form part of the insolvency estate and the treatment of assets acquired by or devolving on the debtor after the opening of the insolvency proceedings; (c) the respective powers of the debtor and the insolvency practitioner; (d) the conditions under which set-offs may be invoked; (e) the effects of insolvency proceedings on current contracts to which the debtor is party; (f) the effects of the insolvency proceedings on proceedings brought by individual creditors, with the exception of pending lawsuits; (g) the claims which are to be lodged against the debtor’s insolvency estate and the treatment of claims arising after the opening of insolvency proceedings; (h) the rules governing the lodging, verification and admission of claims; (i) the rules governing the distribution of proceeds from the realisation of assets, the ranking of claims and the rights of creditors who have obtained partial satisfaction after the opening of insolvency proceedings by virtue of a right in rem or through a set-off; (j) the conditions for, and the effects of closure of, insolvency proceedings, in particular by composition; (k) creditors’ rights after the closure of insolvency proceedings; (l) who is to bear the costs and expenses incurred in the insolvency proceedings; (m) the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to the general body of creditors. Recitals: 66–73. Specific bibliography: Aebi/Frey, Impact of Bankruptcy on International Arbitration Proceedings – A Special Case Does not Make a General Rule, ASA Bulletin 2010, 113; Albrecht, Problemstellungen bei der Insolvenz ausländischer Unternehmensformen in Deutschland, ZInsO 2013, 1623; Altmeppen, Anwendung deutschen Gläubigerschutzrechts auf die EU-Scheinauslandsgesellschaft, IWRZ 2017, 107; Ankum, De geschiedenis der “actio Pauliana”, 1962; Anthimos, Zur Anwendung von Art. 14 EuInsVO in Griechenland, IPRax 2014, 450; Bayer, Die EuGH-Entscheidung “Inspire Art” und die deutsche GmbH im Wettbewerb der europäischen Rechtsordnungen, BB 2003, 2357; Bork, Die Aufrechnung im internationalen Insolvenzverfahrensrecht, ZIP 2002, 690; id., Annexzuständigkeit nach Art. 6 EuInsVO, in Festschrift für Beck zum 70. Geburtstag, 2016, p. 50; Borges, Gläubigerschutz bei ausländischen Gesellschaften mit inländischem Sitz, ZIP 2004, 733; Brinkmann, Avoidance Claims in the Context of the EIR, IIRL 2013, 371; id., Das lex-fori-Prinzip und Alternativen, ZZP 129 (2016), 461; Corno, EIR and Italian Rules Governing the Lodging, Verification and Admission of Claims – Theory and Italian Practice, IILR 2012, 197; Dammann/Lehmkuhl, Unwirksamkeit insolvenzbedingter Lösungsklauseln ‐ Vorrang der lex fori concursus nach Art. 4 II 2 lit. e EuInsVO?, NJW 2012, 3069; Eidenmüller, Free Choice in International Company Insolvency Law in Europe, 6 EBOR 423 (2005); id., Geschäftsleiter- und Gesellschafterhaftung bei europäischen Auslandsgesellschaften mit tatsächlichem Inlandssitz, NJW 2005, 1618; Eisner, Kapitalersatz- und Insolvenzverschleppungshaftung im Fall der Scheinauslandsgesellschaft,

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ZInsO 2005, 20; Fletcher, The European Union Convention on Insolvency Proceedings: Choice-of-Law Provisions, 33 Texas Int’l. L. J. 119 (1998); Fletcher, A culling of sacred cows – the impact of the EC Insolvency Regulation on English Conflict of Laws, in Essays in honour of Sir Peter North, 2002, p. 167; Griedl/Mack, ZInsO 2008, 558; Gruschinske, Das europäische Kollisionsrecht der Aufrechnung unter besonderer Beachtung des Insolvenzfalles, 2008; Gruschinske, Die Aufrechnung in grenzüberschreitenden Insolvenzverfahren, EuZW 2011, 171; Haas, Der Normzweck des Eigenkapitalersatzes, NZI 2001, 1; von Hase, Insolvenzantragspflicht für directors einer Limited in Deutschland?, BB 2006, 2141; Hergenröder, Entschuldung durch Restschuldbefreiungstourismus? ‐ Voraussetzungen, Grenzen und Verfahrensfragen der Anerkennung einer ausländischen Restschuldbefreiung im Inland nach der EuInsVO, DZWIR 2009, 309; Hirte, Insolvenzantragsrecht und -pflicht bei “Schein-Auslandsgesellschaften” – vom untauglichen Versuch einer Abwehr “böser Eindringlinge”, in Festschrift für Lüer zum 70. Geburtstag, 2008, p. 387; Hörndler/Hoisl, Auswirkungen des MoMiG auf das Mietrecht – Wegfall der eigenkapitalersetzenden Nutzungsüberlassung, NZM 2009, 377; Hoffmann, Executory Contracts, Ipso Facto Clauses and Licensing Agreements in Cross-Border Insolvencies, IIR 2018, 300; Huber, Internationales Insolvenzrecht in Europa, ZZP 114 (2001), 133; Jeremias, Internationale Insolvenzaufrechnung, 2005; Kannengießer, Die Aufrechnung im internationalen Privat- und Verfahrensrecht, 1998; Kodek, Das anwendbare Recht in grenzüberschreitenden Insolvenzen – Grundzüge und ausgewählte Probleme, in Kodek/Konecny, Insolvenzrechtsforum 2007, 2008, 207; Kolmann, Working report on international insolvency law questions in the BenQ case, Insolv. Int. 2010, 23(8), 113; Kronke, Das Lex-fori-“Prinzip” im internationalen Zivilprozessrecht, ZZPInt 20 (2015), 399; Kuntz, Die Insolvenz der Limited mit deutschem Verwaltungssitz – EUKapitalgesellschaften in Deutschland nach “Inspire Art”, NZI 2005, 424; L. Lennarts, EU Corporate Insolvency Law in the Wake of the ECJ’s Deko Marty Judgment, ECL 2010, 106; Limbach, Nichtberechtigung des Dritten zum Empfang einer der Insolvenzmasse zustehenden Leistung: Zuständigkeit, Qualifikation und Berücksichtigung relevanter Vorfragen, IPRax 2012, 320; Löffler, Insolvenzabhängige Lösungsklauseln ade? – Auswirkungen der BGH-Rechtsprechung auf Energielieferungs-Rahmenverträge, BB 2013, 1283; Lorenz, Annexverfahren bei Internationalen Insolvenzen, 2005; Mankowski, Entwicklungen im Internationalen Privat- und Prozessrecht 2003/2004 (Teil 1), RIW 2004, 481; id., Bestimmung der Insolvenzmasse und Pfändungsschutz unter der EuInsVO, NZI 2009, 785; id., EuInsVO und Schiedsverfahren, ZIP 2010, 2478; id., Neues zur grenzüberschreitenden Forderungsanmeldung unter der EuInsVO, NZI 2011, 887; id., Anmerkung zu: EuGH, Urteil vom 08.06.2017 – C-54/16, NZI 2017, 637; id., Anmerkung zu: EuGH, Urteil vom 06.02.2019 – C-535/17, NZI 2019, 304; Mansel, Zum Kollisionsrecht der insolvenzrechtlichen Rangrücktrittsabrede, in Festschrift für Lüer zum 70. Geburtstag, 2008, p. 407; Meilicke, Errichtung einer Zweigniederlassung einer ausländischen GmbH in einem anderen EUMitgliedsstaat, GmbHR 2003, 1271; Meyer-Löwy/Plank, Entbehrlichkeit des Sekundärinsolvenzverfahrens bei flexibler Verteilung der Insolvenzmasse im Hauptinsolvenzverfahren?, NZI 2006, 622; Mock, Vergütung des Insolvenzverwalters in grenzüberschreitenden Insolvenzverfahren, ZInsO 2013, 2245; id., Vergütung des Insolvenzverwalters in grenzüberschreitenden Insolvenzverfahren, in Insolvenz und Sanierung – auf der Dauerbaustelle geht es weiter, in Festschrift für Haarmeyer zum 65. Geburtstag, 2013, p. 157; Mock/Schildt, Insolvenz ausländischer Kapitalgesellschaften mit Sitz in Deutschland, ZInsO 2003, 396; Müller, Insolvenz ausländischer Kapitalgesellschaften mit inländischem Verwaltungssitz, NZG 2003, 414; Oberer, Der deutsche Insolvenzschuldner im Ausland, ZVI 2009, 49; Pannen/Riedemann, Anmerkung zu AG Bad Segeberg, Urteil vom 24.03.2005 – 17 C 289/04, NZI 2005, 413; Pfeiffer, Die Unwirksamkeit insolvenzbedingter Lösungsklauseln im Internationalen Privat- und Verfahrensrecht, in Ars aequi et boni in mundo – Festschrift für Schütze zum 80. Geburtstag, 2014, p. 421; Piekenbrock, Anmerkungen zu den Entscheidungen des EuGH vom 10.09.2009, C-292/08 und vom 21.01.2010, C-444/ 07, KTS 2010, 208; id., Insolvenzrechtliche Annexverfahren im Europäischen Justizraum, KTS 2015, 379; id., Zur praktischen Anwendung von Art. 13 EuInsVO, IPRax 2016, 219; id., Steuerforderungen in grenzüberschreitenden Insolvenzverfahren, EWS 2016, 181; id., Anmerkung zu: EuGH, Urt. v. 08.06.2017 – C-54/16, LMK 2017, 393458; Redeker, Die Haftung für wrongful trading im englischen Recht, 2007; Renner, Insolvenzverschleppungshaftung in internationalen Fällen, 2007; Schall, Deutscher Gläubigerschutz und Europarecht – Lehren aus dem PIN-Fall des BGH, NJW 2011, 3745; Schanze/ Jüttner, Die Entscheidung für Pluralität – Kollisionsrecht und Gesellschaftsrecht nach der EuGHEntscheidung “Inspire Art”, AG 2003, 661; Schilpp, Gesellschafterfremdfinanzierte Auslandsgesellschaften – Kollisionsrechtliche Behandlung des Gesellschafterdarlehensrechts, 2017; Servatius, Insolvenznahe Geschäftsleiterhaftung bei EU-Auslandsgesellschaften – Zugleich eine Besprechung von BGH, Vorlagebeschluss vom 02.12.2014 – II ZR 119/14, DB 2015, 1087; Sonnentag, Der Renvoi im Internationalen Privatrecht, 2001; Stöber, Die Insolvenzverschleppungshaftung in Europa, ZHR 176 (2012), 326; id., Die Haftung für existenzvernichtende Eingriffe, ZIP 2013, 2295; Thole, Die Anwendung des Art. 13 EuInsVO bei Zahlungen auf fremde Schuld, NZI 2013, 113; Ulmer, Insolvenzrechtlicher Gläubigerschutz gegenüber Scheinauslandsgesellschaften ohne hinreichende Kapitalausstattung?, KTS 2004, 291; id., Gläubigerschutz bei Scheinauslandsgesellschaften, NJW 2004, 1201; Vallender, Aufgaben und Befugnisse des deutschen Insolvenzrichters in Verfahren nach der EuInsVO, KTS 2005, 283; Weber, Gesellschaftsrecht und

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Applicable law

Gläubigerschutz im Internationalen Zivilverfahrensrecht, 2007; Wedemann, Die Regelungen des deutschen Eigenkapitalersatzrechts: Insolvenz- oder Gesellschaftsrecht?, IPRax 2012, 226; M.-P. Weller, Einschränkung der Gründungstheorie bei missbräuchlicher Auslandsgründung?, IPRax 2003, 520; id., Die Neuausrichtung der Existenzvernichtungshaftung durch den BGH und ihre Implikationen durch die Praxis – Zugleich Besprechung BGH v. 16.07.2007 – II ZR 3/04, ZIP 2007, 1552 (“Trihotel”), ZIP 2007, 1681; id., Die intertemporale Behandlung der Insolvenzverschleppungshaftung beim Insolvenzstatutenwechsel, in Festschrift für Ganter zum 65. Geburtstag, 2010, p. 439; Wienberg/Sommer, Anwendbarkeit von deutschem Eigenkapitalersatzrecht auf EU-Kapitalgesellschaften am Beispiel eines Partikularinsolvenzverfahrens im engeren Sinne nach Art. 3 II, IV EuInsVO, NZI 2005, 353; von Wilmowsky, Aufrechnung in internationalen Insolvenzfällen, KTS 1998, 343; Zimmer, Nach “Inspire Art”: Grenzenlose Gestaltungsfreiheit für deutsche Unternehmen?, NJW 2003, 3585. Outline A. General comments ........................................................................................................... I. Introductory remarks ............................................................................................. II. Reasons for the lex concursus-approach ............................................................ 1. Procedural law..................................................................................................... 2. Substantive law.................................................................................................... a) The danger of forum shopping ................................................................. b) Promoting equal treatment of creditors.................................................. c) Predominance of collective interests........................................................ d) Safeguard of individual interests............................................................... III. Universal application and exclusion of renvoi ................................................. 1. General approach of the EIR ........................................................................... 2. Consequences from the restriction to references to Member States ...... B. The scope of the lex concursus-approach ................................................................... I. The list of topics listed in Article 7(2) EIR....................................................... 1. Determination of debtors qualifying for insolvency proceedings – point (a)................................................................................................................ a) General comments ....................................................................................... b) Public entities ................................................................................................ c) The influence of EU law on the lex concursus....................................... d) The reference to the lex societatis ............................................................. 2. The determination of the insolvency estate – point (b)............................ a) General comments ....................................................................................... b) Law applicable to the exclusion of certain assets from the insolvency estate ........................................................................................... c) Universality vs. territoriality ...................................................................... 3. The respective powers of the debtor and the insolvency practitioner – point (c)................................................................................................................ a) Scope of the choice of law rule ................................................................. b) Reach of the insolvency practitioner’s powers....................................... c) Duties and liabilities .................................................................................... 4. Set-off – point (d) .............................................................................................. a) Scope of the provision in comment ......................................................... b) Scope of the reference to the lex concursus ............................................ c) Relation to other EU law ............................................................................ 5. Effects on current contracts – point (e)........................................................ a) General comments ....................................................................................... b) Procedural agreements ................................................................................ c) The possible effects on current contracts ............................................... d) Termination and ipso facto clauses.......................................................... e) Exceptions to Article 7(2)(e) EIR.............................................................. 6. Proceedings brought by individual creditors and pending lawsuits – point (f) ................................................................................................................ a) General comments ....................................................................................... b) The exception regarding pending lawsuits ............................................. 7. The treatment of different claims – point (g) ............................................. 8. The lodging, verification and admission of claims – point (h) ............... 9. Distribution of proceeds, ranking of claims and rights of partially satisfied secured creditors – point (i) ............................................................

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Chapter I. General Provisions 10. Closure of insolvency proceedings and composition in particular – point (j)................................................................................................................. 11. Creditors’ rights after the closure of insolvency proceedings – point (k) 12. Costs and expenses – point (l)........................................................................ 13. Avoidance – point (m)...................................................................................... a) General comment on the lex concursus-approach................................ b) General scope of Article 7(2)(m) EIR...................................................... c) Qualification .................................................................................................. d) Relation to other EU law ............................................................................ II. Issues not explicitly addressed in the enumeration in Article 7(2) EIR..... 1. Procedural issues ................................................................................................ 2. Substantive issues ............................................................................................... a) Duty to file for the opening of insolvency proceedings ...................... b) Liability for the breach of duty to file for the opening of insolvency proceedings .................................................................................................... c) Annihilating interference ............................................................................ d) Reimbursement of prohibited repayments to shareholders................

77 80 87 89 89 91 93 98 99 99 100 101 102 106 107

A. General comments I. Introductory remarks Article 7 EIR lays down the basic choice of law rule in international insolvency law within the European Union: the applicability of the law of the (Member) State of the opening of proceedings, also known as the lex concursus (recital 66), albeit limited by the exceptions provided for in Articles 8 to 18 EIR. This choice of law rule is explicitly applicable in main and in secondary insolvency proceedings (Article 35 EIR) (see below mn. 10), but also in “stand alone” territorial insolvency proceedings within the meaning of Article 3(4) EIR.1 As far as the EIR is not applicable to insurance undertakings (Article 1(2)(a) EIR) and credit institutions (Article 1(2)(b) EIR), the choice of law rule is reproduced largely verbatim by Article 274 of the Directive 2009/138/EC2 and Article 10 of the Directive 2001/24/EC3 respectively. The fact that both Articles provide for the application of the law of the “home Member State” makes no difference with regard to Article 7 EIR, because the home Member State is the only Member State to have jurisdiction to open reorganisation and liquidation proceedings.4 Thus the “home Member State” has to be the State of the opening of proceedings. Finally, the two directives also reproduce the exceptions from the applicability of the lex concursus.5 2 Article 7 EIR is designed like a cascade, passing from the general principle via a description of the process of the proceedings (opening, conduct and closure) to specific topics illustrating the general principle. Unfortunately, the general principle itself is not clear because of slight linguistic differences between the versions of Article 7(1) EIR. The English and some other language versions refer to the law applicable to insolvency proceedings and their effects being “that” of the State of the 1

1 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 89; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 4. 2 Solvency II Directive 2009/138/EC. Furthermore, Article 269(3) provides for the application of the law of the home Member State regarding reorganisation measures. 3 Directive 2001/24/EC of the European Parliament and of the Council of 4.4.2001 on the reorganisation and winding up of credit institutions, [2001] OJ L 335/1. Furthermore, Article 3(2) provides for the application of the law of the home Member State regarding reorganisation measures. 4 See Articles 269(1), 273(1) of the Directive 2009/138/EC and Articles 3(1), 9 of the Directive 2001/24/EC. 5 See Articles 285 to 292 of the Directive 2009/138/EC and Articles 20 to 27 and 30 to 32 of the Directive 2001/24/EC.

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opening of proceedings.6 Other wordings say that the insolvency proceedings and their effects are governed by “the law” of the State of the opening of proceedings.7 Yet, the German version says that the insolvency proceedings and their effects are governed by the “insolvency law” (Insolvenzrecht) of the State of the opening of proceedings.8 Wessels has argued that this unique German wording is narrower than the text in the other language versions giving rise to certain problems of qualification.9 Yet, when “insolvency law” is understood as the “law applicable to insolvency proceedings and their effects” the difference is only of linguistic and not of substantial meaning. At least it is clear from the recital 66 EIR that Article 7 EIR refers to the insolvency 3 law of the State of the opening of proceedings, “both procedural and substantive”. By this means, reference is made to the whole body of rules providing for specific effects of insolvency proceedings in order to achieve the tasks and the goals of such proceedings as defined by the lex concursus,10 evading the problem of qualifying a rule as procedural or substantive.11 Yet, qualification is still necessary to distinguish between rules relating to insolvency proceedings and general civil law,12 which is applied according to the common choice of law rules.13 This task has to be accomplished autonomously according to EU law.14

II. Reasons for the lex concursus-approach The lex concursus-approach adopted in Article 7 EIR differs significantly from most 4 other European choice of law rules provided for in the Rome I and II Regulations and other legislative instruments. In these cases, questions of jurisdiction and applicable law are generally dealt with separately. As far as the Regulation (EU) 650/2012 in matters of succession is concerned, the European legislator has brought in line both the jurisdiction and the applicable law in order to further and ensure the proper administration of justice.15 Yet, instead of a lex concursus-approach, the rule on “General jurisdiction” (Article 4 of Regulation (EU) 650/2012) and the “General rule” as to the 6 In French: … la loi applicable à la procédure d’insolvabilité et à ses effets est “celle” de l’État d’ouverture; in Greek: … δίκαιο εφαρμοστέο στη διαδικασία αφερεγγυότητας και στα αποτελέσματά της είναι “το δίκαιο” του κράτους έναρξης; in Portuguese: … a lei aplicável ao processo de insolvência e aos seus efeitos é “a lei” do Estado de abertura do processo; in Spanish: … la ley aplicable al procedimiento de insolvencia y a sus efectos será “la” del Estado de apertura del procedimiento. 7 In Dutch: … worden de insolventieprocedure en de gevolgen daarvan beheerst door “het recht” van de lidstaat waar de procedure wordt geopend; in Italian: … si applica alla procedura di insolvenza e ai suoi effetti “la legge” dello Stato di apertura; in Polish: … dla postępowania upadłościowego i jego skutków właściwe jest “prawo” państwa wszczęcia postępowania; in Swedish: … ska “lagen” i inledandestaten vara tillämplig på insolvensförfarandet och dess verkningar. 8 In German: … gilt für das Insolvenzverfahren und seine Wirkungen das “Insolvenzrecht” des Staates der Verfahrenseröffnung. 9 Wessels, International Insolvency Law, 3rd Edition, mn. 10625, p. 556. 10 OGH, 11.08.2015, 4 Ob 235/14 h, ÖBA 2016/2227, p. 524, 525. 11 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7 mn. 8; Snowden, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, mn. 7.17; Moss/Fletcher/Isaacs, Insolvency Regulation, 2nd Edition, mn. 8.163; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 9; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 1; Duursma-Kepplinger, in Duursma-Kepplinger/ Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 5. 12 cf. Kindler, in Münchener Kommentar zum BGB, 6th Edition, Art. 4 EuInsVO, mn. 4. 13 OGH, 11.8.2015, 4 Ob 235/14 h, ÖBA 2016/2227, p. 524, 525. 14 Kodek, Insolvenzrechtsforum 2007, 207, 208 et seq.; Mankowski, RIW 2004, 481, 486; Paulus, EuInsVO, 4th Edition Art. 4, mn. 4. 15 cf. recital 23 to the Regulation (EU) No 650/2012.

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Chapter I. General Provisions

applicable law (Article 21(1) of Regulation (EU) 650/2012) both refer to the same connecting factor, which is the habitual residence of the deceased at the time of death. This example shows clearly that reasons of simplicity and efficiency16 cannot justify the lex concursus-approach. It rather needs further consideration. Unfortunately, recital 66 does not give any reasons for this approach.

1. Procedural law As far as the application of the procedural insolvency law is concerned, the lex concursus-approach corresponds with the universally accepted choice of law rule that courts apply their own procedural law as part of the lex fori.17 In particular, it is generally agreed on that enforcement proceedings are governed by the lex fori executionis.18 What is true for individual enforcement must also apply to insolvency proceedings as a collective means of private enforcement. Therefore, the lex concursus not only determines the opening, the conduct and the closure of insolvency proceedings (Article 7(2) EIR), but also the rules governing the distribution of proceeds (Article 7(2)(i)). Many other topics listed in Article 7(2) EIR can be qualified as procedural rules, such as the capacity of a person to qualify as a debtor in insolvency proceedings (a), the respective powers of the debtor and the insolvency practitioner (c), the rules governing the lodging, verification and admission of claims (h), the conditions for, and the effects of closure of, insolvency proceedings, in particular by composition (j), the creditors’ rights after the closure of insolvency proceedings (k) and the bearing of the costs and expenses incurred in the insolvency proceedings (l). 6 The same is true for topics not addressed in the second part of Article 7(2) EIR, such as the competence of the judicial or administrative body (cf. Article 2 no. 6 (ii) EIR),19 the necessity of a request and the requirements as to who may file the request and its content, the reasons to open insolvency proceedings and the way the imminent facts are established, the refusal to open insolvency proceedings for insufficiency of assets as well as the competence of the court, the creditors’ assembly and the creditors’ committee during the proceedings. 5

2. Substantive law 7

Yet, insolvency law also provides for substantive law, which is applicable quite often in annex proceedings such as avoidance cases (Article 6(1) EIR). As far as these rules are concerned, the lex concursus-approach is far less obvious. On the contrary, the applicable substantive law is rather determined according to specific choice of law rules referring to external connecting factors. While these choice of law rules are determined by the lex fori, the applicable substantive law may be that of any other State. To declare the substantive lex fori applicable is rather unusual in choice of law matters.

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a) The danger of forum shopping. Against this background, the substantive law applied by the court can vary from one jurisdiction to another, insofar as the choice of law rules may differ. A German court may apply substantive German law according to 16 See Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 3; Brinkmann, IILR 2013, 373, 377 (“welcome side effect” of the lex concursus-approach). 17 For deeper research on the lex fori-approach cf. Brinkmann, ZZP 2016, 461 et seq.; Kronke, ZZPInt 2015, 399 et seq. 18 cf. e. g. Article 23(1) Regulation (EU) No 644/2014 establishing a European Account Preservation Order. 19 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 8; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 18; Vallender, KTS 2005, 283, 290.

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German choice of law rules, whereas a French court would rather apply French law. Thus, to initiate lawsuits in France can be more favourable to the claimant than in Germany if the applicable substantive French law is more favourable for him in the dispute in question than German law. Following the definition given in recital 5, such seeking to obtain a more favourable legal position by means of transfer of judicial proceedings is commonly referred to as “forum shopping”. Yet, “forum shopping” can only work as long as the choice of law rules are left to 9 the national legislator and differ from one jurisdiction to another. Therefore, “forum shopping” fails within the EU insofar as the Union disposes of uniform choice of law rules providing for the same connecting factor such as the habitual residence of the seller (Article 4(1)(a) of the Rome I Regulation) or the place in which damages occur (Article 4(1) of the Rome II Regulation). Hence, within unified choice of law rules, the applicability of the lex fori does not make sense as it does not lead to the application of the same substantive law. In particular in European Insolvency law, the international jurisdiction to open main insolvency proceedings determined according to Article 3 EIR is decisive not only for the applicability of the procedural law of the insolvency court, but also the substantive rules of law such as set-offs (Article 7(2)(d) EIR), the fate of current contracts entered into by the debtor (Article 7(2)(e) EIR) and avoidance (Article 7(2)(m) EIR). Therefore, the lex concursus-approach laid down in Article 7 EIR favours “forum shopping” as to the opening of insolvency proceedings.20 It therefore is up to the rules on jurisdiction to prevent or at least complicate “forum shopping”, such as the qualifying periods in cases of COMI shift introduced in Article 3(1) EIR. Only in annex procedures brought after the opening of insolvency proceedings, “forum shopping” fails due to the EU-wide unified conflict rule in Article 7 EIR. Furthermore, with regard to Article 35 EIR providing for the lex concursus-approach 10 in secondary insolvency proceedings, the opening of such secondary proceedings can lead to the applicability of a substantive law more favourable than the lex concursus principalis.21 This phenomenon became obvious in the famous BenQ case where only the German liquidator in secondary proceedings could invoke German creditor protection law (§ 135 InsO (DEU)), whereas the payments in question were not avoidable under the Dutch law of the main proceedings applicable pursuant to Article 7(2)(m) EIR.22 Such “secondary forum shopping” is stimulated by the lex concursus-approach (see below mn. 98). b) Promoting equal treatment of creditors. It is argued that the lex concursus- 11 approach promotes and strengthens the fundamental principle of equal treatment of all creditors,23 known since ancient times as par condicio omnium creditorum.24 Yet, traditionally choice of law rules are not supposed to provide for the appropriate answer to a legal question, but for the appropriate substantive law to be applied to the question regardless of the outcome. For example, the question of whether or not Article 7(2)(i) EIR promotes the equal treatment of creditors depends on the rules on the ranking of claims applicable pursuant to the insolvency law of the State of the opening of proceedings. Under German and Austrian law, employees, social security bodies and 20 cf. Eidenmüller, EBOR 2005, 423, 430. Instead, Duursma-Kepplinger, in Duursma-Kepplinger/ Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 1 argues that the lex foriapproach prevents forum shopping. 21 cf. Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 6, 8. 22 See, e. g., Kolmann, Insolv. Int. 2010, 23(8), 113 et seq. 23 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 5. 24 cf. D. 42.8.6.7 (Ulpian).

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Chapter I. General Provisions

tax authorities are treated as ordinary creditors,25 whereas they enjoy privileges on account of the other creditors in many other Member States (see below mn. 74). Thus, the only way the lex concursus-approach can possibly promote the equal treatment of all creditors is in the sense that creditors in all Member States are treated alike, because the courts in all Member States – within the limits of their jurisdiction – apply the same conflict rule.26 Yet, the promotion of “cross-border equal treatment” is foiled by Articles 35 and 36 EIR. 12

c) Predominance of collective interests. In the Virgós/Schmit-report relating to Article 4 of the failed European Insolvency Convention, the authors justify the lex concursus-approach by pointing out that certain substantive effects referred to the competence of the law of the State of the opening of proceedings are typical effects of insolvency law and are necessary for the insolvency proceedings to fulfil its aims.27 Pfeiffer has compared the lex concursus-approach with mandatory rules in the sense of Article 9 of the Rome I Regulation, insolvency law intruding “into the legal relationship between debtor and creditors in order to bring about certain mandatory adjustments of their substantive rights and duties.”28 Furthermore, Pfeiffer has deemed the lex concursus-approach “the logical legal answer to the substantive questions raised in international insolvency proceedings”.29 Yet, such reasoning seems unilateral, because it reflects only the collective interests of the majority of creditors and the debtor himself, and disregards individual interests of creditors and contracting partners.

13

d) Safeguard of individual interests. Therefore, the lex concursus-approach cannot claim universal validity, but is eroded by the many exceptions from the general rule provided for in Articles 8 to 18 EIR. In many cases, these diverging rules, which safeguard the other parties’ substantive rights, seem to be the natural choice: leaseholds are governed by the lex rei sitae (Article 11(1) EIR) and employment contracts by the lex causae (Article 13 EIR). Therefore, as far as substantive insolvency law is concerned, the lex concursus-approach is not a matter of logic, but of opportunism. Handling insolvency proceedings and annex proceedings is easier if the courts of the State of the opening of proceedings apply their own law. If the efficiency of the handling of insolvency and annex proceedings leads to the reduction of costs, it is also favourable to the general body of creditors.30 To safeguard its substantive rights, the other party has to invoke and prove the diverging applicable law, which is the proper and the more suitable law to the case.31

III. Universal application and exclusion of renvoi 1. General approach of the EIR 14

Due to the lex concursus-approach, the EIR neither provides for its universal application nor for the exclusion of renvoi, such as Articles 2, 20 of the Rome I See for Germany § 38 InsO; see for Austria § 51 IO. cf. Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 3. 27 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 90. 28 Pfeiffer, in Hess/Oberhammer/Pfeiffer, European Insolvency Law, mn. 626. See also von Wilmowsky, KTS 1998, 343, 345 as to set-off. 29 Pfeiffer, in Hess/Oberhammer/Pfeiffer, European Insolvency Law, mn. 626. 30 cf. Snowden, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, mn. 7.03. 31 As to the burden of proof cf. CJEU Case C-310/14 Nike European Operations Netherlands BV v Sportland Oy ECLI:EU:C:2015:690, mn. 44. 25 26

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Regulation and Articles 3, 24 of the Rome II Regulation. As long as the lex concursus applies, reference is generally made to the procedural and the substantive law of the State of the opening of proceedings, which thus excludes the choice of law rules.32 The references to the law of another Member State made in Articles 11, 12, 13, 14, 16 EIR necessarily lead to the application of the respective substantive law because the choice of law rules in the State of reference are identical. The same was true for Articles 8, 10 EIR if they were to be interpreted as choice of law rules.33 In such cases there is no need to discuss the question of renvoi, whereas the universal application of the choice of law rule is explicitly excluded.

2. Consequences from the restriction to references to Member States Yet, the restriction to the application of the law of another Member State raises the 15 question of whether the court of a Member State has to apply the (substantive) lex concursus when EIR choice of law rules would lead to the application of the law of a Non-member State or whether it may apply its national choice of law rules to determine the applicable substantive law. If, for example, a German labour court has to decide on the effects of German insolvency proceedings on a current labour contract governed, pursuant to Article 8 of the Rome I Regulation, under Swiss law, it can either apply German law (§§ 108, 113 InsO) in accordance with Article 7(2)(e) EIR34 or Swiss law according to § 337 InsO (DEU).35 This question should be discussed deeply in the commentary to the respective Articles. 16 Yet, the theoretical dimension of the question should be addressed in the general comment on the conflict of laws. The application of § 337 InsO (DEU) as a choice of law rule provided for by the State of the opening of proceedings could mean that Article 7 (2)(e) EIR itself was not applicable in Non-member State cases. In this sense, it is argued that the application of the EIR choice of law rules requires a relationship of the case to the internal market if the exception only refers to the law of another Member State.36 Another way to reach the same result would be to argue that Article 7 EIR does apply in Non-member State cases, yet leaving room for renvoi in those cases addressed in Articles 8, 10, 11, 12, 13, 14, 16 EIR relating to Non-member States.37 Although renvoi should be excluded as far as possible, its application seems the adequate consequence as to the restrictions in Articles 11, 12, 13, 14, 16 EIR to the application of the law of another Member State. Otherwise the application of the lex concursus in the cases addressed in 32 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 2; Snowden, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, mn. 7.02; Thole, in Leible/Terhechte, Europäisches Rechtsschutz- und Verfahrensrecht, § 24, mn. 85; Kindler, in Kindler/Nachmann, Handbuch Insolvenzrecht in Europa, § 4, mn. 6; Haubold, in Gebauer/Wiedmann, Zivilrecht unter europäischem Einfluss, Chap. 32: EuInsVO, Art. 4, mn. 89; Moss/Fletcher/Isaacs, Insolvency Regulation, mn. 8.164; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 5; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/200, mn. 2; Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 2; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 1; Huber, EuZW 2002, 490, 492. 33 cf. CJEU Case C-310/14 Nike European Operations Netherlands BV v Sportland Oy ECLI:EU: C:2015:690, mn. 44. 34 cf. in this sense Moss/Fletcher/Isaacs, Insolvency Regulation, mn. 4.33. 35 cf. in this sense Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 10 EIR 2000, mn. 6; Haubold, in Gebauer/Wiedmann, Zivilrecht unter europäischem Einfluss, Chap. 32: EuInsVO, Art. 4, mn. 108. 36 Thus Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 20; regarding Articles 7(2)(m), 16 EIR cf. Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 41. 37 See Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 13 mn. 15; Bogdan, R.A. E. – L.E.A 2001, 452, 456.

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Chapter I. General Provisions

Articles 11 and 14 EIR for example would contradict the widely accepted lex rei sitae-rule. Therefore, it seems incorrect to say that renvoi is generally excluded in the EIR.38 17 This result is in line with the provision on pending lawsuits in Articles 4(2)(f), 18 EIR. If the lawsuit is pending in a non-Member State such as Switzerland, Article 18 EIR does not apply. Yet, Article 4(2)(f) EIR does not apply either, because pending lawsuits are explicitly excluded from the scope of the application of the lex concursus. Thus, the only solution in this case would be the application of the Swiss lex fori if the law suit was pending there. 18 The question of renvoi also arises regarding Articles 9, 17 EIR, which provide for universal choice of law rules. As the reason for this exception from the general restrictive approach with references only to the law of other Member States is unclear, it is controversial if Article 9 should be interpreted as only referring to the law of a Member State.39 In the same way, it is argued that Article 17 EIR only refers to the law of other Member States and the assets situated there.40 If Articles 9 and 17 EIR are interpreted restrictively, the question of renvoi arises in non-Member State cases in order to know whether or not the lex concursus may refer onward to the lex causae of the main claim, the lex rei sitae or the lex libri siti respectively.41 Yet, if Articles 9 and 17 EIR are interpreted literally, the question of renvoi arises in non-Member State cases in order to know whether the lex causae, the lex rei sitae or the lex libri siti may refer to the law of another State. As the lex rei sitae-rule is commonly recognised, renvoi should be excluded under these circumstances.42 The same is true for the lex causae-rule, which is also provided in Article 17 of the Rome I Regulation.

B. The scope of the lex concursus-approach 19

The first part of Article 7(2) EIR describes the scope of the application of the lex concursus in a rather general way by referring to the conditions for the opening, the conduct and the closure of insolvency proceedings. The second part “contains a nonexhaustive list of the various matters in the proceedings which are governed by the law of State of the opening of proceedings”,43 which shall be dealt with in the following comments. Finally, some issues not addressed in the above-mentioned list shall be discussed. 38 cf. in the opposite sense Snowden, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, mn. 7.02; Moss/Fletcher/Isaacs, Insolvency Regulation, mn. 4.04; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 5; Leible/Staudinger, KTS 2000, 533, 549; Kodek, Insolvenzrechtsforum 2007, 207, 208; Wessels, International Insolvency Law, mn. 10624; Paulus, EuInsVO, Art. 4, mn. 2 in footnote 5; Thole, in Leible/Terhechte, Europäisches Rechtsschutz- und Verfahrensrecht, § 24, mn. 85; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivilund Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 2. 39 cf. Leible/Staudinger, KTS 2000, 533, 554; Bork, ZIP 2002, 690, 694; Kindler, in Münchener Kommentar zum BGB, 6th Edition, Art. 6 EuInsVO, mn. 4; Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 19. 40 cf. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 17, mn. 27; Fletcher, in Insolvency in private international law, mn. 7.116; Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, mn. 17.10; Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 19; Piekenbrock, in Hess/Oberhammer/Pfeiffer, European Insolvency Law, mn. 850. 41 In favour of this solution Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, mn. 17.10. 42 In favour of this solution Anthimos, IPRax 2014, 450, 451 followed by Mankowski, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 17, mn. 28. 43 CJEU Case C-444/07 MG Probud Gdynia sp. z o.o. ECLI:EU:C:2010:24, mn. 25; Moss/Fletcher/Isaacs, Insolvency Regulation, mn. 8.169.

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I. The list of topics listed in Article 7(2) EIR 1. Determination of debtors qualifying for insolvency proceedings – point (a) a) General comments. Article 7(2)(a) EIR refers to the fundamental question of 20 which persons or legal entities qualify to be a debtor in insolvency proceedings. As it is well known, the answer to this question differs widely among the Member States. For example, insolvency proceedings as listed in the Annex A EIR can apply to all persons44 or exclusively to natural persons,45 to companies,46 to entrepreneurs regardless of their legal form47 or to consumers48 and small enterprises.49 According to Article 7(2)(a) EIR, the capacity to be a debtor in insolvency proceedings is and can only be exclusively governed by the lex concursus as it is part of the procedural insolvency law. Thus, German insolvency proceedings regarding a decedent’s estate50 fall within the scope of application of the EIR,51 whereas the heir may be the debtor in other proceedings regarding his personal assets. If the debtor is not subject to any insolvency proceedings listed in Annex A EIR in the Member State having jurisdiction to open main insolvency proceedings (Article 3(1) EIR), other Member States are free to open territorial insolvency proceedings (Article 3(4)(a) EIR).52 Furthermore, a Member State has to recognise the opening of main insolvency proceedings even if the debtor could not be subject to any insolvency proceedings listed in Annex A EIR in this State.53 b) Public entities. Wessels has argued that Article 7(2)(a) EIR is also applicable to 21 the question of whether or not “public organisations such as municipalities may also be subject to insolvency proceedings.”54 This opinion is indubitably correct as far as public enterprises such as the German public savings banks are concerned.55 Yet, having regard to the scope of Article 81 TFEU that is limited to civil matters, it seems doubtful that the EIR would apply to the insolvency of a public health insurance56 or even a municipality.57 c) The influence of EU law on the lex concursus. Article 7(2)(a) EIR does not mean 22 that the Member States are totally free to determine which persons or entities qualify as a debtor to national insolvency proceedings. On the contrary, they can only provide for 44 This is true e. g. for the German “Insolvenzverfahren” (§ 11(1) InsO), the Spanish “concurso” (Article 1(1) Ley concursal) and the Finnish “konkurs” (Kap. 1 § 3(1) Konkurslag). 45 This is true e. g. for the Austrian “Schuldenregulierungsverfahren” (§ 181 IO) and the Swedish “Skuldsanering” (§ 4 Skuldsaneringslag). 46 This is true e. g. for the Irish “Compulsory winding-up by the court” (s. 561(a) Companies Act 2014). 47 This is true e. g. for the French “Sauvegarde” (Article L 620-2 C.com.) and the Bulgarian “производството по несъстоятелност” (Art. 1, 607, 607 a Търгoвски Закoн). 48 This is true e. g. for the Belgian “règlement collectif de dettes” (Article 1675/2 C.jud.). 49 This is true e. g. for the Italian “fallimento” (Article 1(2) l. fall.). 50 See §§ 11(2) No 2, 315 et seq. InsO. 51 AG Düsseldorf, 19.06.2012 – 503 IN 6/12, ZInsO 2012, 1278 (DEU), erroneously referring to Article 4(2)(b) EIR 2000. 52 cf. Liersch, in Vallender, EuInsVO, Art. 7, mn. 11. 53 cf. Snowden, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, mn. 7.19. 54 Wessels, International Insolvency Law, mn. 10627. 55 cf. in Germany (Baden-Württemberg) §§ 12(2) InsO, 45 AGGVG. 56 cf. § 171b(1) SGB V (DEU). 57 Insolvency proceedings are explicitly excluded for municipalities in the Czech Republic (§ 6(1)(b) insolvenční zákon), in Finland (Kap. 1 § 3(2) Konkurslag), in Germany (cf. e. g. for Baden-Württemberg §§ 12(2) InsO, 45 AGGVG) and in Poland (Article 6(2) Prawo upadłościowe).

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general features such as natural or legal persons, entrepreneurs, traders, small businesses, consumers and the like. In particular the prerequisites for a person or entity qualifying as a debtor have to be in line with EU law. 23 Hence, with regard to the principle of non-discrimination (Article 18 TFEU), § 11 (2) No. 1 InsO (DEU) cannot only refer to companies listed there and organised under German company law, but has to apply to similar companies organised under the company law of another Member State.58 Furthermore, the CJEU has ruled that Article 45 TFEU precludes national legislation, “which makes the grant of debt relief subject to a condition of residence in the Member State concerned”.59 Yet, this decision regarding the Swedish debt relief proceedings known as skuldsanering is outdated, since these proceedings have been listed in the Annex A EIR. Therefore, according to Article 3(1.4) EIR, the residence of the debtor establishes a presumption as to where his COMI is located and, hence, is decisive for the international jurisdiction to open skuldsanering-proceedings. 24 Whereas the Swedish case was about an outgoing employee who had moved away from the State in which he filed for the opening of proceedings, Irish law raises a similar question as far as incoming persons are concerned. According to Irish law, a debtor shall not be eligible for the issue of a Debt Relief Notice unless he or she is either domiciled in Ireland or, within one year before the application date, has ordinarily resided there.60 Thus, it may happen that an incoming debtor is presumed to have his COMI in Ireland even after six months (Article 3(1.4) EIR), but is not eligible for proceedings listed in Annex A EIR due to further prerequisites under the applicable law (Article 7(2)(a) EIR). It is doubtful whether or not the national law can provide for such further prerequisites to the access to national insolvency proceedings, because the debtor might have no access to such proceedings, neither in the COMI State nor in his Member State of origin. 25 In contrast, it is certain that the lex concursus may not be in open conflict with Article 3 EIR. Therefore, the national legislation cannot provide for a company which has its COMI in another Member State to qualify as a (second) debtor in pending insolvency proceedings over another company only because the property of both companies has been intermixed.61 26

d) The reference to the lex societatis. Article 7(2)(a) EIR does not mean that the capacity of a certain person or entity to qualify as a debtor in insolvency proceedings can be determined only by the application of the lex concursus. If, for example, legal persons qualify as debtors (cf. § 11(1) InsO (DEU)), the law under which the entity is organized, the lex societatis, applies to the preliminary question of whether or not the potential debtor is a legal person. All French trading companies for example have legal personality once they are registered.62 Furthermore, the legal personality has to be recognised as such in all other Member States,63 which leads to the application of § 11 58 cf. Snowden, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, mn. 7.19; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 20; Maderbacher, in Konecny/ Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 78. 59 CJEU Case C-461/11 Ulf Kazimierz Radziejewski v Kronofogdemyndigheten i Stockholm ECLI:EU: C:2012:704, EuZW 2013, 72 mn. 54. 60 cf. s. 26(2)(d)(i) Personal Insolvency Act 2012 (IRL). 61 CJEU Case C-191/10 Rastelli Davide e C. snc. v Jean-Charles Hidoux ECLI:EU:C:2011:838, NZI 2012, 147 mn. 39, regarding Article L 621-2 para. 2 C.com. 62 cf. Article L 210-6 C.com. 63 CJEU Case C-208/00 Überseering BV v Nordic Construction Company Baumanagement GmbH (NCC) ECLI:EU:C:2002:632, mn. 59 et seq.

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(1) InsO (DEU), if the German courts have jurisdiction to open insolvency proceedings.64 Accordingly, when an Austrian citizen has his COMI in Germany and leaves a will opting for the application of Austrian law,65 his estate has to be treated as a legal person (§ 546 ABGB (AUT)). As long as the UK is a Member State of the European Union or Union law is 27 applicable during the transition period,66 a specific problem arises when an English private company files a request to open insolvency proceedings after its name has been struck off the registrar67 and its property and rights are deemed to be bona vacantia.68 If its legal personality had ended, the company could not be a debtor in German insolvency proceedings.69 Yet, with regard to the lex rei sitae rule, the attribution of property and rights to the Crown70 can only affect property and rights in England or at the most in the rest of the UK.71 Therefore, as long as there are assets situated outside the UK, the dissolved company could qualify as a partial liquidation company pursuant to § 11(3) InsO (DEU).72

2. The determination of the insolvency estate – point (b) a) General comments. Pursuant to Article 7(2)(b) EIR, the determination of the 28 insolvency estate is governed by the lex concursus. The question of which assets are part of the insolvency estate has been answered differently in the past as far as assets acquired by or devolving on the debtor after the opening of the insolvency proceedings are concerned. In particular, when the failed European Insolvency Convention was drafted, German bankruptcy law still restrained the bankruptcy estate to the assets at the time of the opening of bankruptcy proceedings.73 Today, however, there seems to be a wide consensus that either the insolvency estate consists of the assets acquired prior to the opening and during the conduct of insolvency proceedings,74 or that the insolvency practitioner can at least claim those assets.75 The choice of law rule provided for in Article 7(2)(b) EIR only applies to the 29 question of which of the assets belonging to the debtor are part of the insolvency estate. However, it does not address the question which assets belong to the debtor. Hence, when an insolvency practitioner files a claim against a person, the applicable lex cause has to be determined by applying the general choice of law rules such as the Rome I or the Rome II Regulation respectively.76 In the case of a so-called “extended 64 AG Hamburg, 14.05.2003 – 67 g IN 358/02, NJW 2003, 2835, 2836 (DEU); AG Saarbrücken, 25.02.2005 – 106 IN 3/05, ZIP 2005, 2027, 2028 (DEU). 65 cf. Article 22 of the Regulation (EU) No 650/2012. 66 With regard to a “No Deal Scenario” cf. Umfreville/Omar/Lücke/Fannon/Veder/Carballo Piñeiro, IIL 2018, 422 et seq. 67 cf. s. 1000(4) Companies Act 2006 (GBR). 68 cf. s. 1012(1) Companies Act 2006 (GBR). 69 cf. in this sense AG Duisburg, 14.10.2003 – 63 IN 48/02, NZI 2003, 658, 659 (DEU); LG Duisburg, 20.02.2007 – 7 T 269/06, NZI 2007, 475, 476 (DEU). 70 cf. s. 1012(1)(a) Companies Act 2006 (GBR). 71 cf. Schulz, NZG 2005, 415. 72 cf. LG Duisburg, 20.02.2007 – 7 T 269/06, NZI 2007, 475, 476 (DEU). 73 cf. § 1(1) KO. 74 See in Germany § 35(1) InsO; see in Austria § 2(2) IO; see in Italy Article 42 l. fall; see in Belgium Article 16 Loi sur les faillites; see in the Netherlands Article 20 Fw; see in Finland Kap. 5 § 1 Konkurslag; see in Sweden Kap. 3 § 3 Konkurslag; see in Poland Article 62 Prawo upadłościowe. 75 In Ireland, cf. s. 44(5) Bankruptcy Act, 1988. 76 OLG Hamm, 15.09.2011 – 18 U 226/10, IPrax 2012, 351, mn. 66 (DEU); Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 21.

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reservation of title” (verlängerter Eigentumsvorbehalt), the law governing the assigned claim should determine the validity of the pre-assignment to the seller (Article 14(2) of the Rome I Regulation).77 When goods delivered under reservation of title are processed by the debtor, the lex rei sitae determines the ownership of the newly created goods. 30 The determination of the composition of the insolvency estate may be influenced by substantial EU law such as Article 15 EIR. Yet, the CJEU has correctly held that Article 8 of the Directive 2008/94/EC78 does not require that, in the event of employer insolvency, money shall be excluded from the scope of insolvency proceedings that was withheld from a former employee’s salary converted into pension contributions, which that employer should have paid into a pension fund on behalf of that employee.79 Furthermore, Articles 8 and 10 EIR do not directly affect the portfolio of the estate, but rather provide for the safeguard of rights in rem in assets belonging to the insolvency estate. Yet, a Dutch District Court has only applied Article 7 EIR to the effects of the opening of insolvency proceedings on a right of retention on assets situated in another Member State, holding that under Dutch law a right of retention was no right in rem.80 b) Law applicable to the exclusion of certain assets from the insolvency estate. As far as natural persons are concerned, every jurisdiction provides for certain assets which are not part of the insolvency estate in particular for social reasons. As insolvency proceedings can be described as collective enforcement proceedings, there are good reasons that insolvency law refers to individual enforcement law in order to establish the exemptions from attachment.81 32 If assets are situated in another State, the question arises which exemption rules apply. As far as the debtor’s regular income is concerned, some German courts – despite Article 4(2)(b) EIR – tend to apply the law of the State in which the income is earned, as long as the debtor is a resident of that State.82 Yet, when the debtor is still a resident of the State of the opening of proceedings and only crosses the border to earn his living in another (Member) State, German law (§§ 36 InsO, 850 c ZPO) is applied.83 33 Such an approach seems incorrect. It is argued in favour of the application of the lex fori executionis that insolvency proceedings are collective enforcement proceedings and that the lex fori executionis applies to individual and collective enforcement procedures alike.84 Yet, the fundamental principle laid down in Article 20(1) EIR is that opening insolvency proceedings in one Member State shall produce the same effects in any other Member State as under the law of the State of the opening of proceedings (Wirkungserstreckung). Therefore, the debtor’s personal income and other personal assets in another Member State have to be treated just like income or 31

77 cf. Martiny, in Münchener Kommentar, IPR I, 6th Edition, Art. 14 Rom I-VO mn. 43 et seq., also considering the applicability of the law of the buyer’s residence. For a typical German-Dutch case see Gerechtshof Leeuwarden, 03.03.2009, ECLI:NL:GHLEE:2009:BH5277, RI 2009, 38 (NLD). 78 Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection of employees in the event of the insolvency of their employer, OJ 2008 L 283, p. 36. 79 CJEU Case C-454/15 Jürgen Webb-Sämann v Christopher Seagon als Insolvenzverwalter ECLI:EU: C:2016:891, NZI 2017, 45, mn. 38. 80 Rechtbank Zeeland-West-Brabant, 02.04.2014 (NLD). 81 See in Germany § 36 InsO; see in Austria § 2(2) IO. 82 AG Passau, 15.01.2009, NZI 2009, 820 (DEU); AG München, 23.06.2010 – 1504 IK 600/10, NZI 2010, 664 (DEU); LG München I, 13.09.2010 – 14 T 12630/10, IPRspr 2010, 853 (DEU). 83 LG Traunstein, 03.02.2009 – 4 T 263/09, NZI 2009, 818 (DEU). 84 Griedl/Mack, ZInsO 2008, 558, 559.

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other assets in the State of the opening of proceedings.85 Applying the lex fori executionis would mean that the opening of insolvency proceedings in another Member State would be treated like the opening of proceedings in the State where the opening shall become effective (Gleichstellung). Furthermore, Article 21(3) EIR only refers to procedures for the realisation of assets 34 which are governed by the law of the Member State within the territory of which the assets are located.86 Article 13 EIR does not hinder the application of the lex concursus either, because the question of whether or not personal income forms part of the insolvency estate is independent from the lex causae governing the employment contract.87 Therefore, the lex concursus has to determine to which extent the personal income of the debtor is exempt from enforcement and, hence, does not belong to the insolvency estate.88 The same is true as far as pensions granted by an institution in another Member State are concerned.89 Accordingly, the courts of the State of the opening of proceedings have power to 35 order income payments pursuant to their lex concursus, requiring an employer in another Member State to pay part of the wages to the trustee instead of the debtor.90 Finally, the lex concursus determines to what extent the debtor’s property rights in his personal belongings form part of the insolvency estate even if the belongings are situated in another Member State.91 c) Universality vs. territoriality. In doctrine it is controversial whether Article 7(2) 36 (b) EIR prescribes that all the Member States have to adopt the principle of universality as far as the insolvency estate is concerned. On the one hand, it seems clear that Article 7(2)(b) EIR itself only contains a classical conflict rule, which does not determine the content of the applicable law.92 On the other hand, e. g. Article 20 EIR takes for granted that the lex concursus claims to be applied to assets situated in the other Member States. Furthermore, a Member State opting for territoriality could prevent regular insolvency proceedings over many of the debtor’s assets if the debtor had his COMI in that Member State (Article 3(1) EIR) and no establishment elsewhere (Article 3(2) EIR). Finally, according to Article 15 EIR, European patents with unitary effect, Community trademarks, or other similar rights established by Union law may be included only in main proceedings. It seems unlikely that the lex concursus could exclude these assets from the estate for reasons of territoriality. All these arguments 85 cf. Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 25; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 25; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 21; Thole, in Leible/ Terhechte, Europäisches Rechtsschutz- und Verfahrensrecht, § 24, mn. 105, yet referring to Article 7(2)(i) EIR. 86 cf. Mankowski, NZI 2009, 785, 786; Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 17. 87 cf. LG Passau, 16.01.2014 – 1 O 721/13, NZI 2014, 1019 (DEU); Mankowski, NZI 2009, 785, 787 et seq. 88 cf. AG Deggendorf, 14.02.2007 – 1 IK 255/03, BeckRS 2007, 09595 (DEU); LG Passau, 16.01.2014 – 1 O 721/13, NZI 2014, 1019 et seq. (DEU); VG München, 14.09.2011 – M 12 E 11.3544, BeckRS 2011, 31442 (DEU), regarding pensions; Mankowski, NZI 2009, 785; Oberer, ZVI 2009, 49, 53; Hergenröder, DZWIR 2009, 309, 317; Schellmann/Slonina, in Hess/Oberhammer/Pfeiffer, European Insolvency Law, p. 469; Kohlmann/Keller, in Gottwald, Insolvenzrechts-Handbuch, § 132, mn. 46; Müller, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 17; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 21; Wessels, International Insolvency Law, mn. 10627 et seq.; Paulus, EuInsVO, Art. 4, mn. 19; Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 31 et seq. 89 Thus recently BGH, 20.07.2017 – IX ZB 63/16, WM 2017, 1564, mn. 15 et seq. (DEU). 90 cf. e. g. in England and Wales s. 310 Insolvency Act 1986. 91 Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 44. 92 cf. Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 19.

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make clear that a Member State could not restrict the insolvency estate to the assets located in its own territory.93

3. The respective powers of the debtor and the insolvency practitioner – point (c) a) Scope of the choice of law rule. The conflict rule in question first of all addresses the apportionment of powers to manage and to dispose of assets belonging to the insolvency estate between the debtor and the insolvency practitioner. Given the new wide definition of insolvency proceedings in Article 1(1) EIR that does not require the debtor’s total or at least partial divestment of his assets and the appointment of an insolvency practitioner anymore, the lex concursus can provide for the powers of the debtor to remain untouched (“debtor in possession”). Thus, according to Article 7(2)(c) EIR, the lex concursus has to decide whether or not property rights remain with the debtor, are vested in the insolvency practitioner, or become part of the insolvency estate established as a legal person.94 Furthermore, the lex concursus may provide for powers vested in the insolvency practitioner going beyond the management of the estate. An example can be found in §§ 92, 93 InsO (DEU) (see below mn. 104 et seq.). 38 Article 7(2)(c) EIR directly applies to all insolvency practitioners listed in the Annex B EIR, even if they do not manage the insolvency estate or dispose of its assets but may only supervise the debtor in possession (Article 2 no. 5 (v) EIR). This is true for the German insolvency monitor (Sachwalter) (§ 274(2) InsO (DEU)) and even for the Austrian insolvency court (Insolvenzgericht) (§ 187(1) IO (AUT)). This reference to a court as an insolvency practitioner seems in line with the case defined in Article 1(1)(b) EIR that the assets and affairs of the debtor are subject to control or supervision by a court. Finally, the French court-appointed receiver (mandataire judiciaire) representing the creditors (Article L 812-1 C.com. (FRA)) is an insolvency practitioner within the meaning of Article 2 no. 5 (ii) EIR and listed in the Annex B EIR. 39 Yet, even with this wide definition of insolvency practitioners, there are still a number of cases that are not directly addressed by Article 7(2)(c) EIR. First of all, most Member States have not listed the courts in the Annex B EIR. Yet, their powers to supervise the debtor or the insolvency practitioner are necessarily governed by the lex concursus. The same is true for the power of other bodies representing the creditors such as the German creditors’ committee (Gläubigerausschuss) (§ 67 InsO (DEU)). 37

40

b) Reach of the insolvency practitioner’s powers. Generally, the powers vested in the insolvency practitioner in main proceedings by the lex concursus are determinant for the respective power in the other Member States. Insofar, Article 21(1) EIR provides for a uniform substantive law rule. Furthermore, it is self-evident that the insolvency practitioner can only make use of his powers according to the law applicable to the transaction (Article 21(3)(sentence 1) EIR). Thus, the lex rei sitae-rule applies to real property transactions, whereas Article 14 of the Rome I Regulation is applicable to assignments. It also goes without saying that the insolvency practitioner may not 93 Thus Herchen, Das Übereinkommen über Insolvenzverfahren, p. 49; Wessels, International Insolvency Law, mn. 10625, even argues “that the main insolvency proceedings claim to have universal effect, even beyond the borders of the 26 Members States bound by the Regulation”. 94 cf. BGH, 03.02.2011 – V ZB 54/10, NJW 2011, 1818 mn. 16 (DEU); OGH, 15.11.2016 – 10 Ob 28/16 i (AUT).

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execute any sovereign acts in other Member States even if such powers are vested in him in the State of the opening of proceedings (Article 21(3) part 2 EIR). Notwithstanding Article 18 EIR as far as pending lawsuits and arbitral proceedings 41 are concerned, Article 7(2)(c) EIR also applies to procedural powers such as the enforcement of a claim belonging to the estate.95 In particular, it is the lex concursus rather than the lex fori that establishes whether or not the insolvency practitioner becomes a party to lawsuits pending in another Member State.96 Correspondingly, the question of whether or not the debtor can still be a party to pending arbitration proceedings is exclusively governed by the lex concursus pursuant to Article 7(2)(c) EIR.97 Furthermore, if the property rights remain with the debtor, the lex concursus determines whether or not the debtor is entitled to manage and transfer the estate and, hence, whether he is entitled to be or remain a party to court or arbitration proceedings. The lex fori can only decide whether or not court or arbitration proceedings are suspended and provide for the procedural consequences of the transfer of powers from the debtor to the insolvency practitioner.98 c) Duties and liabilities. Article 7(2)(c) EIR does not explicitly address the duties 42 and liabilities of the debtor, the insolvency practitioner and other bodies such as the insolvency court and the members of a creditors’ committee. Yet, it goes without saying that they are generally governed by the lex concursus too,99 in particular because the rights of one stakeholder correspond with the duties of another. Therefore, the CJEU has correctly held that an action for tort liability brought against the members of a creditors’ committee because of their voting on a restructuring plan in insolvency proceedings is an insolvency case within the meaning of Article 1(2)(b) of the Brussels Ia Regulation.100 The same must be true regarding the liabilities of the coordinator, which are not addressed in Article 72 EIR. Yet, as far as torts are committed by the insolvency practitioner, Article 4 of the Rome II Regulation applies.101 The lex concursus can impose duties such as providing information also on third persons like (former) directors or employees of a company (cf. § 101 InsO (DEU)). To extend such duties to residents of another Member State is in line with the CJEU-ruling in the Rastelli Davide case,102 because there is no conflict with Article 3 (1) EIR. The enforcement can be effected pursuant to Article 32(1) EIR and the Brussels Ia Regulation, in particular since the reservation in Article 25(3) EIR 2000 95

cf. Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 23. OGH, 25.10.2011 – 9 Ob 42/11 h, SZ 2011, 336 A(UT); cf. in the opposite sense OLG München, 25.02.2010 – 29 U 1513/07, NZI 2010, 826, 828 (DEU). 97 As far as Swiss law is concerned, cf. BG, 31.03.2009 – 4A_428/2008, ZIP 2010, 2530, 2532 (CHE); Aebi/Frey, ASA Bulletin 2010, 113, 117 (CHE); Mankowski, ZIP 2010, 2478, 2484. In the Vivendi case the BG accepted the conclusion that Article 142 of the former Polish Bankruptcy and Reorganisation Act (footnote 145) deprived the debtor of the capacity to be a party in arbitration proceedings. 98 cf. OGH, 24.01.2006 – 10 Ob 80/05 w, ecolex 2006, 386 (AUT). 99 Thus Paulus, EuInsVO, Art. 4, mn. 21 yet referring to Art. 7(2) part 1 EIR; Lorenz, Annexverfahren bei Internationalen Insolvenzen, p. 69; also Haubold, in Gebauer/Wiedmann, Zivilrecht unter europäischem Einfluss, Chap. 32: EuInsVO, Art. 4, mn. 90 but referring to Art. 4(1) EIR 2000. 100 Thus CJEU Case C-649/16 Valach and others v Waldviertler Sparkasse and others ECLI:EU: C:2017:986, NJW 2018, 843 mn. 28 et seq., regarding the Members of a Slovak creditors’ committee (veritel’ský výbor) pursuant to §§ 127 et seq. Zákon o konkurze a reštrukturalizácii. Under German law § 71 InsO would have been applicable. 101 Thus Wessels, International Insolvency Law, mn. 10627, holds that “the liquidator”s liability could be determined by the place in which the effect of the damage occurs’, when “the liquidator of main proceedings in Italy commits a tort in Spain”. 102 CJEU Case C-191/10 Rastelli Davide e C. snc. v Jean-Charles Hidoux ECLI:EU:C:2011:838, NZI 2012, 147 mn. 39, regarding Article L 621-2 para. 2 C.com. 96

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regarding the enforcement of judgements providing for the limitation of personal freedom has not been reproduced in the EIR 2015.

4. Set-off – point (d) 43

a) Scope of the provision in comment. Article 7(2)(d) EIR provides for the lex concursus-approach regarding set-offs, notwithstanding the exception provided for in Article 9(1) EIR. To determine the scope of this provision, one has to keep in mind that the different language versions use terms of legal institutes of the respective national law. E. g. the German text refers to “Aufrechnung”,103 the French to “compensation”,104 the Italian to “compensazione”,105 the Dutch to “verrekening”106 and the Polish to “potrącenie”.107 These institutes differ significantly.108 In France and Italy for example, set-offs work automatically and have only to be pleaded,109 whereas in Germany, Poland and the Netherlands the right to set off has to be exercised by declaration to the other party.110 In England, legal set-off is only a procedural institute,111 whereas in France and Italy, “compensation judiciaire” and “compensazione giudiziaria” are only particular cases of set-off with less strict prerequisites.112 Finally, set-off can be the consequence of a party agreement such as contractual set-off in England or “compensazione volontaria” in Italy.113 Yet, as a EU conflict rule, Article 7(2)(d) EIR, just like Article 17 of the Rome I Regulation, has to be interpreted autonomously disregarding the characteristics of the national law. Under these circumstances, set-off refers to all legal institutes providing for the extinction of two claims between two parties without real performance.114

44

b) Scope of the reference to the lex concursus. The lex concursus is not applicable to the preliminary question of whether or not the debtor and the creditor have claims against each other, which is governed exclusively by the lex causae. Yet, the UK Supreme Court has questioned this principle in a case regarding a subsidiary of an insolvent Icelandic bank in administration in Scotland. Although the EIR was not applicable to the case due to Article 1(2) EIR, it is interesting for Article 7(2)(d) EIR because the case was governed in both jurisdictions by the identical provision in Article 10(2)(d) of the Directive 2001/24/EC.115 In that case, the Scottish subsidiary had lodged a claim against the Icelandic mother company in the Icelandic proceedings, which was called into question, and had afterwards withdrawn the claim. Yet, in cf. § 387 BGB. cf. Article 1347 C.c. 105 cf. Article 1241 c.c. 106 cf. Article 6:127 BW. 107 cf. Article 498 K.c. 108 For a comparative perspective cf. Zimmermann, Comparative Foundations of a European Law of Set-Off and Prescription, p. 18 et seq.; Jeremias, Internationale Insolvenzaufrechnung, p. 144 et seq.; Gruschinske, Das europäische Kollisionsrecht der Aufrechnung unter besonderer Beachtung des Insolvenzfalles, p. 6 et seq.; for a worldwide overview cf. the contributions in Johnston/Werlen, Set-off law and practice. 109 cf. in France Article 1347(2) C.c. (“compensation légale”); cf. in Italy Article 1242(1) c.c. (“compensazione legale”). 110 See in Germany § 388 BGB; see in Poland Article 499 K.c.; see in the Netherlands Article 6:127(1) BW. 111 cf. Stein v. Blake, [1996] 1 A.C. 243, 251 (HL(E), 18.05.1995 per Lord Hoffmann); Annetts, in Johnston/Werlen, Set-off law and practice, mn. 11.09, referring to C.P.R. Rule 16.6. 112 See in France Article 1348 C.c.; see in Italy Article 1243(2) c.c. 113 See Article 1252 c.c. 114 cf. Spellenberg, in Münchener Kommentar, IPR I, 6th Edition, Art. 17 Rom I-VO, mn 7. 115 See in the UK reg. 22(3)(d) of the Credit Institutions (Reorganisation and Winding up) Regulations 2004, S.I. 1045/2004. 103 104

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the Scottish proceedings the administrators invoked a set-off regarding the same claim. Under Icelandic bankruptcy law the claim was cancelled with respect to the estate.116 Yet, the Supreme Court referred to the conflict rule on set-offs arguing that Scottish law governed the question whether or not the debtor could invoke a set-off, setting aside the preclusive effect of Icelandic insolvency law.117 This decision seems correct for two reasons: First, the Icelandic law is likely to provide only for the preclusion of the claim from the Icelandic proceedings (see below mn. 72). Secondly, the lex concursus, which could even provide for automatic set-off, can also provide for the continuity of an established right to set off notwithstanding the subsequent cancellation of the claim due to foreign insolvency proceedings. The main problem with Article 7(2)(d) EIR is to determine if reference is made only 45 to the insolvency law of the lex concursus or to all “conditions under which set-offs may be invoked”. Whereas the English wording suggests the second interpretation, the French language version refers to the “conditions of opposability” (conditions d’opposabilité d’une compensation), which suggests that the conflict rule does not refer to the prerequisites to set-offs, but only to the question of whether or not it can be invoked notwithstanding the opening of insolvency proceedings. Therefore, the answer to the question has to be found by other means of interpretation. In particular, Article 7(2)(d) EIR can only be constructed correctly by also taking into account the exception provided for in Article 9(1) EIR, which shall shortly be discussed beforehand. Due to the identical wording of the opening part (“The opening of insolvency 46 proceedings shall not affect”), Article 9(1) EIR is often interpreted as similar to Article 8 EIR.118 At first glance, this interpretation seems reasonable. Yet, there is a great difference between Articles 8 and 9 EIR, because Article 9(1) EIR also refers to the insolvency law of the “law applicable to the insolvent debtor”s claim’,119 whereas the insolvency law, being part of the lex rei sitae, does not affect the rights in rem. If Article 7(2)(d) EIR only applies to the effects insolvency proceedings may have on 47 the right to set off, the right to set off itself has to be established according to the common choice of law rule.120 Such a rule can be found in particular in Article 17 of the Rome I Regulation,121 which, lacking a parties’ agreement on a set-off, refers to the lex causae of the claim against which the right to set off is asserted. This connecting factor is in line with Article 9(1) EIR that refers to the law applicable to the insolvent debtor’s claim. Following this interpretation, the track of thoughts has to follow three steps: (1) Firstly, it has to be examined whether or not the right to set off is well established according to the lex causae that is governing the insolvent debtor’s claim.122 (2) If this is 116

See Article 118 Lög um gjaldþrotaskipti. cf. Joint Administrators of Heritable Bank plc v. Winding up Board of Landsbanki Islands hf, [2013] UKSC 13 = [2013] 1 WLR 725 mn. 48 (UKSC, 27.02.2013, per Lord Hope of Craighead DPSC) (GBR). 118 cf. Herchen, Das Übereinkommen über Insolvenzverfahren, p. 121; von Wilmowsky, KTS 1998, 343, 359. 119 Bork, ZIP 2002, 690, 694. 120 cf. von Wilmowsky, KTS 1998, 343, 359 et seq.; Bork, ZIP 2002, 690, 694; Gruschinske, EuZW 2011, 171, 174; Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 26; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 25; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 52; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 32; Gruschinske, Das europäische Kollisionsrecht der Aufrechnung unter besonderer Beachtung des Insolvenzfalles, p. 149 et seq. 121 Article 17 of the Rome I Regulation reflects the predominant doctrine in countries like Germany where the right to set off has to be exercised. Cf. BGH, 11.07.1985 – IX ZR 178/84, BGHZ 95, 256, 273; Kannengießer, Die Aufrechnung im internationalen Privat- und Verfahrensrecht, p. 100 et seq. 122 Thus BGH, 08.02.2018 – IX ZR 103/17, ZIP 2018, 1299, mn. 24 (DEU) regarding § 338 InsO (DEU), which reproduces the rule provided for in Article 9(1) EIR for cases with non-Member States. 117

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the case, it secondly has to be examined whether the opening of insolvency proceedings has restricted the right to set off according to the lex concursus. (3) If the answer to this second question is positive, the creditor may thirdly invoke that the right to set off existing at the time of the opening of proceedings was not effected due to Article 9(1) EIR. Given that the existence of the right to set off according to the lex causae governing the insolvent debtor’s claim has already been established in the first step, one would mainly have to take into account the insolvency law of the lex causae. The decisive question would be whether or not the creditor could have invoked set-off if insolvency proceedings were opened in the country whose law governs the insolvent debtor’s claim. 48 The train of thought described above is based on the presupposition that the opening of insolvency proceedings has negative, restrictive effects on the right to set off. Yet, in reality, the effects, if any, can be both negative and positive. The negative effects can be divided into two categories. On the one hand, the right to set off cannot be invoked if established after the opening of proceedings neither by becoming an obligor to the estate nor by acquiring a cross-claim from a third person.123 On the other hand, insolvency law may restrict set-off due to its detrimental effect to the general body of creditors.124 As far as the second category is concerned, the question is governed by the lex concursus anyway pursuant to Article 7(2)(m) EIR and the reservation in Article 9(2) EIR, notwithstanding the exception provided for in Article 16 EIR.125 Therefore, the safeguard established in Article 9(1) EIR is of no great help. The same is true as far as the first category is concerned, because Article 9(1) EIR applies only to pre-insolvency rights to set off. 49 As far as positive effects are concerned, a number of jurisdictions provide that set-off is allowed in insolvency even though the claim against the debtor was not due at the time of the opening of proceedings.126 A positive effect of the opening of insolvency proceedings is provided for under German law as far as foreign currency claims are concerned. Under civil law, the debtor of a main claim in Pounds Sterling, payable in London, has no right to set-off with a cross-claim in Euros (§ 387 BGB).127 Yet, insolvency law does not exclude set-off of claims in different currencies freely exchangeable at the place of payment of the claim against which the right to set-off is asserted (§ 95(2) InsO). In this case, following the train of thought explained above would lead to absurd results. If there was a legal system identical with the German one, set-offs would fail at the first step in insolvency proceedings in both States if the insolvent debtor’s claim was governed by the law of the other State. 50 To avoid such absurd results, it is argued that the insolvency law of the lex causae governing the insolvent debtor’s claim should also apply in order to ease the substantive prerequisites to set-off.128 Following this argument, the obligor to the insolvent debtor’s claim could not invoke set-off in German insolvency proceedings when that claim was governed for example by Austrian law,129 whereas he could do so if the claim was 123 See in Germany §§ 94, 96(1) nos 1, 2 InsO; see in Austria §§ 19, 20(1) part 1 IO; see in Italy Article 56(1) l. fall. 124 See in Germany § 96(1) no 3 InsO; see in Austria § 20(1) part 2 IO; see in England & Wales s. 323 (3) Insolvency Act 1986 regarding personal bankruptcy and Rule 4.90(2) Insolvency Rules 1986 as substituted by Rule 23 of the Insolvency (Amendment) Rules 2005, S.I. No 527 regarding companies; see in the Czech Republic § 140(3)(c) insolvenční zákon. 125 cf. BGH, 16.09.2015 – VIII ZR 17/15, NZI 2015, 1033, mn. 30 (DEU). 126 cf. in Germany § 95(1) InsO; cf. in Austria § 19(2) part 1 IO; cf. in Italy Article 56(2) l. fall. Cf. in England Secretary of State for Trade and Industry v. Frid, [2004] HL 24 = [2004] 2 A.C. 506, 511 (HL(E), 13.5.2004, per Lord Hoffmann). 127 cf. Schlüter, in Münchener Kommentar, BGB, 7th Edition, § 387, mn. 32; OLG Hamm, 09.10.1998 – 33 U 7/98, NJW-RR 1999, 1736. 128 Thus von Wilmowsky, KTS 1998, 343, 352. 129 §§ 19, 20 IO (AUT) do not contain a provision similar to § 95(2) InsO (DEU).

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governed by French law.130 Yet, this solution is not in line with Article 7(2)(d) EIR, which would provide for German insolvency law to apply in both cases. Therefore, the train of thought explained above must be considered to be wrong. Instead, the reconstruction of Article 7(2)(d) EIR should follow Balz, the founding 51 father of the Insolvency Convention, who has argued that the prerequisites to the right to set off are not to be taken into account if the lex concursus allows set-off.131 The answer to the question mentioned above is therefore that Article 7(2)(d) EIR refers to all “conditions under which set-offs may be invoked”.132 If set-off cannot be invoked pursuant to the lex concursus, Article 9(1) EIR has to be invoked, thus taking into account the “proper” law with the closest connection to the set-off, which is the law governing the insolvent debtor’s claim.133 First of all, this two-step train of thought always leads to satisfactory results, because it protects the other party’s rights and avoids the prejudices of a change of the law applicable to the set-off during the second step. If a creditor is entitled to a set-off who could not invoke such right under the lex causae of the insolvent debtor’s claim, it is true that the opening of insolvency proceedings in another Member State may seem to be an undeserved lucky chance.134 Yet, the priority of the lex concursus over the lex causae is in line with the general lex concursus-approach135 and, in particular, with Article 7(2)(i) EIR. Furthermore, the two-step approach is easier to handle for insolvency practitioners, because they only have to apply the lex concursus that is familiar to them, whereas the other party has to invoke the more favourable lex causae. Finally, problems of adaptation arising from the simultaneous application of the lex causae providing for setoff exercised by declaration to the other party and a lex concursus based on the principle of automatic set-off136 can be avoided. c) Relation to other EU law. Article 7(2)(d) EIR does not apply as far as set-off 52 between parties to a payment or settlement system or to a financial market is concerned. Pursuant to Article 11(1) EIR, which prevails over Article 7(2)(d) EIR as lex specialis, these legal relationships shall be governed solely by the law of the Member State applicable to that system or market. Furthermore, the lex concursus has to be in line with Article 3(1) of the so-called Settlement Finality Directive 98/26/EC and Article 7(1)(a) of the Financial Collateral Directive 2002/47/EC.

5. Effects on current contracts – point (e) a) General comments. Pursuant to Article 7(2)(e) EIR, the lex concursus also governs 53 a classical subject of substantive insolvency law relating to the effects of insolvency 130

According to Article 1347-1(2) C.c. claims in different convertible currencies are treated as fungible. Balz, ZIP 1996, 948, 950. 132 Thole, in Leible/Terhechte, Europäisches Rechtsschutz- und Verfahrensrecht, § 24, mn. 101; Kindler, in Kindler/Nachmann, Handbuch Insolvenzrecht in Europa, § 4, mn. 98; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 16; Huber, ZZP 2001, 133, 161; Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 35; Jeremias, Internationale Insolvenzaufrechnung, p. 240 et seq. 133 cf. Kannengießer, Die Aufrechnung im internationalen Privat- und Verfahrensrecht, p. 101. 134 cf. Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 26; Haß/Herweg, in Geimer/ Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 32; Gruschinske, Das europäische Kollisionsrecht der Aufrechnung unter besonderer Beachtung des Insolvenzfalles, p. 166 et seq. 135 If, e. g., a German creditor had to fear an avoidance claim under German law (§ 130 InsO) as the lex causae, Article 7(2)(m) EIR can lead to similar results if the proceedings are opened in the Netherlands providing for a far stricter avoidance claim regime (Article 47 Fw). 136 cf. in relation to France Gruschinske, EuZW 2011, 171, 174. For a German-Belgian case see BGH, 11.07.1985 – IX ZR 178/84, BGHZ 95, 256, 273 (DEU). 131

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proceedings on current contracts to which the debtor is party. In order to determine the exact scope of point (e) one has to know what is meant by “contracts” in general and under which circumstances a contract is a “current” contract. Following the CJEU’s ruling on Article 7(1) of the Brussels Ia Regulation a contract creates an “obligation freely assumed by one party towards another”.137 This definition seems also suitable for Article 7(2)(e) EIR. In particular, there is no need to limit the scope of the conflict rule in question to synallagmatic contracts.138 Finally, a current contract can be described as a contract whose purpose has not yet been fully achieved.139 Therefore, § 135(3) InsO (DEU), which provides for the further use of assets delivered to the debtor company by a shareholder for temporary use, does not fall within the scope of Article 7(2)(e) EIR if the contract had expired prior to the opening of insolvency proceedings. Nevertheless, the predominant part of legal writers argues for the application of the lex concursus140 although the lex societatis-approach is more convincing for all questions regarding the relationship between a company and its shareholders (see below mn. 76).141 54

b) Procedural agreements. The application of Article 7(2)(e) EIR is not restricted to contracts on substantive law but rather covers procedural agreements such as agreements on the prorogation of jurisdiction142 or arbitration agreements143. Yet, English courts have decided that Article 7(2)(e) EIR does not apply to arbitration agreements after arbitration proceedings have been initiated, because Article 18 EIR prevailed, as it is lex specialis with respect to the effects of insolvency proceedings on pending arbitral proceedings.144 Therefore, arbitration proceedings in England were allowed to proceed even after the opening of insolvency proceedings regarding the assets of the defendant, whereas Polish law, at that time, provided for the discontinuance of pending arbitration proceedings.145 This decision seems correct, in particular since arbitration proceedings have been explicitly named in Article 18 EIR 2015 whereas Article 15 EIR 2000 only referred to pending lawsuits. On the other hand, Article 7(2)(e) EIR does apply to arbitration agreements when the insolvency proceedings are opened prior to the initiation of arbitration proceedings146 because the purpose of that agreement has not yet been fully achieved. 137 cf. for the first time CJEU Case C-26/91 Jacob Handte & Co. GmbH v Traitements Mécanochimiques des Surfaces SA ECLI:EU:C:1992:268, mn. 15. 138 Thus Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 36. 139 cf. Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 28; Müller, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 31; Snowden, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, mn. 7.29. 140 Thus Hörndler/Hoisl, NZM 2009, 377, 378 et seq., yet erroneously referring to Article 3(1) EIR; Schall, NJW 2011, 3745, 3747; Wedemann, IPRax 2012, 226, 234. 141 Thus Schilpp, Gesellschafterfremdfinanzierte Auslandsgesellschaften – Kollisionsrechtliche Behandlung des Gesellschafterdarlehensrechts, p. 275 et seq. 142 Piekenbrock, KTS 2010, 208, 213; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 28; Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 30. 143 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 16. 144 Syska v. Vivendi Universal SA, [2008] EWHC 2155 (Comm) = [2009] 1 All E.R. (Comm) 244 = SchiedsVZ 2008, 316, 320 (2.10.2008) (GBR); Syska v. Vivendi Universal SA, [2009] EWCA Civ 677 = [2009] 2 All ER (Comm) 891 = IILR 2010, 39 = ZIP 2010, 2528 (9.7.2009) (GBR). 145 See Article 142 of the former Polish Bankruptcy and Reorganisation Act (Prawo upadłościowe i naprawcze) of 28.02.2003, Dz. U. No 60, Pos. 535, repealed by virtue of Article 428(80) of the Act 15.05.2015; Dz. U. Pos. 978. 146 cf. Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 30; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 16. The distinction between pending and new arbitration proceedings can be found in Portugal in Article 87 Código da Insolvência e da Recuperação de Empresas, providing for the suspension of arbitration agreements and the continuance of pending procedures. Yet, under German law the liquidator is bound by arbitration agreements entered into by the debtor. Cf. BGH, 29.01.2009 – III ZB 88/07, BGHZ 179, 304 = NJW 2009, 1747 mn. 11 (DEU).

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c) The possible effects on current contracts. The lex concursus can provide for the 55 continuance of the contract, if necessary supplemented by the right to termination, for the automatic expiration, or for the choice of the insolvency practitioner. As far as the termination of a contract is concerned, the lex concursus can either provide for a specific termination notice period or can refer to periods established by the lex causae governing the contract.147 As Article 7(2)(e) EIR is only a choice of law rule, the question of jurisdiction can only be addressed by Article 6(1) EIR. Yet, the CJEU has already decided correctly that the claim brought by the insolvency practitioner based on a current contract does not derive directly from the insolvency proceedings and is neither closely linked with them.148 If goods have been delivered to the debtor under reservation of title, a Belgian 56 Commercial court has held that the insolvency practitioner can invoke the right provided for by the lex concursus to refuse the restitution of the goods and pay the price to the seller, as long as the goods are located within the Member State of the opening of proceedings.149 d) Termination and ipso facto clauses. A difficult question arises when the parties 57 have agreed on a right to terminate a contract or an ipso facto clause in the case of the filing for, or the opening of, insolvency proceedings, whereas the lex concursus declares such stipulations void.150 A German higher regional court has erroneously qualified the lex concursus as overriding mandatory provisions within the meaning of Article 9 of the Rome I Regulation, which did not apply to a building contract governed by German law and to be performed in Germany.151 Yet, this approach is incorrect because the rationale of the invalidity of termination agreements is obviously to be found in principles of insolvency law.152 Therefore, de lege lata the lex concursus has to be applied, since there is no exemption from Article 7(2)(e) EIR provided for in Articles 11 to 13 EIR.153 Yet, it seems doubtful if it is adequate to refer exclusively to the lex concursus as far 58 as building contracts are concerned, whereas contracts conferring the right to acquire or make use of immoveable property shall be governed solely by the lex rei sitae (Article 11 EIR).154 The German Federal Court of Justice has underlined the great importance of the right to terminate a building contract in the case of the contractor’s An example of the first choice can be found in §§ 108, 113 InsO (DEU). CJEU Case C-157/13 Nickel & Goeldner Spedition GmbH/“Kintra” UAB ECLI:EU:C:2014:2145, NZI 2014, 919 mn. 27 et seq.; Case C-26/91 Jacob Handte & Co. GmbH/Traitements Mécano-chimiques des Surfaces SA [1992] ECR I-3967, mn. 15. 149 Rechtbank van Koophandel te Hasselt, 26.12.2006, RW 2007-08, 207 (NLD); see also Wessels, International Insolvency Law, mn. 10625 regarding Article 7:40 BW (NLD). 150 cf. e. g. in France Article L 622-13 (I.) C.com. (sauvegarde) and Article L 641-11-1 C.com. (liquidation judiciaire); in Germany cf. § 119 InsO as construed by BGH, 15.11.2012 – IX ZR 169/11, BGHZ 195, 348 = NJW 2013, 1159 mn. 13 et seq. (DEU); in Austria cf. § 25b(2) IO; in Spain cf. Article 61 (3) Ley concursal; in Portugal cf. Article 119 (2) Código da Insolvência e da Recuperação de Empresas; in cf. Italy Article 72(6) l. fall.; in Belgium cf. Article 35 § 1 Loi relative à la continuité des entreprises; in Poland cf. Article 247, 273, 297 Prawo restrukturyzacyjne. For an overview cf. Piekenbrock ZIP 2018, 1, 5 et seq. 151 OLG Karlsruhe, 15.02.2012 – 13 U 150/10, NJW 2012, 3106, 3107 (DEU). 152 cf. Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 27; Dammann/Lehmkuhl, NJW 2012, 3069 et seq.; Löffler, BB 2013, 1283, 1288; Pfeiffer, in Festschrift für Schütze, 2014, 421, 423. As far as the rationale of § 119 InsO is concerned, cf. BGH, 15.11.2012 – IX ZR 169/11, BGHZ 195, 348 = NJW 2013, 1159 mn. 13 (DEU). 153 Liersch, in Vallender, EuInsVO, Art. 7, mn. 22. In favour of an application of Article 16 EIR mutatis mutandis Hoffmann, IIR 2018, 300, 317. 154 See for critical comments on that choice of law rule by Bogdan, R.A. E. – L.E.A 2001, 452, 456, who generally holds the lex concursus-approach instead of the application of the lex causae inadequate. 147 148

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insolvency, invoking the constitutional property protection clause (Article 14(1) GG (DEU)).155 If contracting authorities are obliged to open calls for tender within the EU and beyond,156 it seems inadequate that the crucial right to terminate a non-performing building contract shall be governed by a yet unknown lex concursus depending on the tenderers’ future COMI.157 In order to give the contracting authority the necessary legal certainty, either the lex aedificii erigendi siti or the lex causae agreed on by the parties (Article 3 of the Rome I Regulation) should apply. As long as there are no further exemptions from Article 7(2)(e) EIR, it has to be considered whether the recognition of the voidness of termination clauses would be “manifestly contrary” to public policy (Article 33 EIR) due to the constitutional rights in question. In this case, the abovementioned ruling by a higher regional court would have been correct at least in its conclusions. 59

e) Exceptions to Article 7(2)(e) EIR. The most important exemption from the general rule laid down in Article 7(2)(e) EIR is provided for in Article 13 EIR. This specific conflict rule completely excludes the application of the lex concursus in favour of the lex cause.158 Furthermore, Article 7(2)(e) EIR is also excluded by the uniform substantive rule in Article 10(2) EIR, resuming § 107(1)(sentence 1) InsO (DEU).159 This exception also applies to leasing agreements, when the parties have agreed in advance on the transfer of title after the agreement has expired.160

6. Proceedings brought by individual creditors and pending lawsuits – point (f) 60

a) General comments. Given that insolvency proceedings are defined as “collective proceedings”, it is correct that the lex concursus has to establish whether an individual creditor can still initiate proceedings either to establish his right against the debtor or to enforce it. Therefore, if the opening of main insolvency proceedings in one Member State leads to the stay of individual enforcement, creditors in other Member States are also barred from enforcing their claims into assets forming part of the insolvency estate.161 As far as the opening of insolvency proceedings affects rights acquired prior to that moment,162 the question is addressed in Article 7(2)(m) EIR giving way to the reservation provided for in Article 16 EIR.163 Finally, the CJEU has referred to Article 7 (2)(f) EIR in order to establish that new lawsuits or arbitration proceedings cannot be brought before the Court itself after insolvency proceedings have been opened over the respondent’s estate.164

155 cf. BGH, 07.04.2016 – VII ZR 56/15, BGHZ 210, 1 = NJW 2016, 1945 mn. 28 et seq. (DEU), regarding the validity of the same termination clause as stipulated in the OLG Karlsruhe case (footnote 151). 156 This is not the right place to go into further details on the WTO-Agreement and the Directive 2014/ 24/EU, [2014] OJ L 94/65 on government procurement. 157 As to the relevance of the COMI at the time the prerequisites to the right to terminate the contract are met, cf. Pfeiffer, in Festschrift für Schütze, 421, 426. 158 BAG, 20.09.2012 – 6 AZR 253/11, BAGE 143, 129 = NZI 2012, 1011 mn. 29 (DEU). 159 Thus OGH, 11.08.2015 – 4 Ob 235/14 h, ÖBA 2016/2227, p. 524, 525 (AUT); Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 18. 160 cf. OGH, 11.08.2015 – 4 Ob 235/14 h, ÖBA 2016/2227, p. 524, 525 et seq (AUT). 161 CJEU Case C-444/07 MG Probud Gdynia sp. z o.o. ECLI:EU:C:2010:24, NZI 2010, 156 mn. 25. 162 See in Germany § 88 InsO. 163 Piekenbrock, IPRax 2016, 219, 221 et seq.; Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 44; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 30. 164 CJEU Case C-294/02 Commission v AMI Semiconductors Belgium BVBA et al. ECLI:EU:C:2005:172, mn. 69.

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b) The exception regarding pending lawsuits. The main issue regarding Article 7 (2)(f) EIR is the exception on pending lawsuits, which differs from Article 18 EIR in three ways. First, it does not refer to the place of the pending lawsuit being another Member State. Second, Article 18 EIR only applies to pending lawsuits or pending arbitral proceedings concerning “an asset or a right which forms part of a debtor’s insolvency estate”, whereas Article 7(2)(f) EIR refers to “proceedings brought by individual creditors”. Third, Article 7(2)(f) EIR does not mention arbitration proceedings. The first difference is indeed substantial because it indicates a gap in the EU conflict rules in non-Member State cases. Yet, this gap does not have to be filled by EU law because the courts of a non-Member State will follow the lex fori-principle to establish the effects of foreign main insolvency proceedings on pending law suits. The second and the third difference are of linguistic nature without substantive significance. As far as the missing reference to the debtor’s insolvency estate is concerned, it goes without saying that proceedings unrelated to the insolvency estate such as family or matrimonial proceedings are not affected by insolvency at all. Furthermore, Article 7(2)(f) EIR and Article 18 EIR both apply to all proceedings regarding the insolvency estate. It is true that the reference made in Article 18 EIR to “a right” forming part of the estate might lead to an interpretation according to which the reference to the lex fori is limited to lawsuits initiated by the debtor as a claimant, whereas lawsuits brought against the debtor were outside the scope of Article 18 EIR. Yet, such a limited interpretation would be misleading.165 Thus, the scopes of Articles 7 (2)(f) and 18 EIR are corresponding in regard to the reference to the insolvency estate. Yet, the question of whether or not the claim in dispute is part of the insolvency estate has to be decided by the lex concursus (Article 7(2)(b) EIR).166 Finally, the EIR 2015 has added the arbitration proceedings in Article 18 EIR but has left the exception from the lex concursus-approach in Article 7(2)(f) EIR unchanged. The exception only applies to lawsuits, which have to be distinguished from enforcement procedures. This distinction can be difficult as far as provisional measures such as injunctions are concerned.167 As long as the procedure is leading to the release of a court order, it can be described as a lawsuit within the meaning of Article 18 EIR, whereas Article 7(2)(f) EIR does apply to the enforcement of the injunction.168 Finally, the exception only applies to lawsuits pending at the time of the opening of insolvency proceedings. Generally speaking, lawsuits should be treated as pending once the claimant has filed the document instituting the proceedings to the court, not taking into account the service on the defendant. Yet, the question of whether or not a lawsuit had already been pending at the relevant time must be answered by the lex fori. As far as the exact time of the opening of insolvency proceedings is concerned, we can nowadays refer to Article 2 no. 7 and no. 8 EIR. Therefore, the exception does not apply to lawsuits that are brought after provisional measures entailing the divestment of the debtor and the appointment of a provisional 165 cf. CJEU Case C-250/17 Tarragó da Silveira v Massa Insolvente da Espírito Santo Financial Group SA ECLI:EU:C:2018:398, ZIP 2018, 1254 mn. 33; Thole, in Vallender, EuInsVO, Art. 18, mn. 4; Veder, JOR 2010, 50. Yet, Hoge Raad, 11.12.2009, ECLI:NL:HR:2009:BK0867, NJ 2010, 33 (NLD) has left the question undecided and referred to the Dutch choice of law rules to come to the same conclusion. 166 OGH, 17.03.2005 – 8 Ob 131/04 d, RdW 2005, 490 (AUT). 167 Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 19; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivilund Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 36. 168 cf. Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 40.

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liquidator have been ordered by the insolvency court.169 Yet, if such provisional measures have been taken after the ignition of lawsuits, the lex fori decides on the procedural consequences.170

7. The treatment of different claims – point (g) Article 7(2)(g) EIR addresses the question of which claims can be taken into account in insolvency proceedings. Generally speaking, there are three categories of claims in insolvency proceedings: Within the first category are the provable insolvency claims, which grant the right to vote and to participate in the proceeds to the respective creditors. These claims may have priority over, or be subordinated to others claims. That question is addressed in Article 7(2)(i) EIR. The claims incumbent on the insolvency estate known as Masseverbindlichkeiten,171 dettes de la masse,172 boedelschulden,173 debiti di massa174 or pohledávky za majetkovou podstatou175 belong to the second category. Thus, the lex concursus has to determine how claims as to the remuneration of employees in the case of default in acceptance (§ 615 BGB (DEU)) after the opening of proceedings are treated.176 The respective creditors of claims incumbent on the insolvency estate are entitled to full satisfaction before any of the ordinary creditors can participate in the proceeds. In the case of insufficiency of the insolvency estate, the lex concursus has to provide for the partial satisfaction of these claims.177 Finally, certain claims such as those established by the debtor after the opening of the proceedings cannot be asserted at all in insolvency proceedings. Pursuant to Article 7(2)(g) EIR only the lex concursus applies to classify the claims as belonging to one of the three categories. 67 Yet, the lex concursus is not totally free when classifying the claims. In particular, claims by creditors from other Member States have to be treated like those of creditors from the State of the opening of proceedings (Article 53 EIR). Article 2 no. 12 EIR explicitly mentions that the right to lodge claims includes “the tax authorities and social security authorities of Member States”, because the so-called revenue rule178 regarding the provability of public law claims cannot be taken for granted from a worldwide perspective.179 68 Besides the attachment to the different categories of claims, Article 7(2)(g) EIR also refers to the treatment of claims arising after the opening of insolvency proceedings. 66

169 cf. OGH, 23.02.2016 – 4 Ob 160/15 f, ecolex 2016/225, 491 A(UT), regarding the imposing of a general prohibition on making dispositions on the debtor and the appointment of a provisional liquidator pursuant to §§ 21 (2), 22(1) InsO (DEU). As to provisional measures to be considered as the opening of proceedings cf. CJEU Case C-341/04 Eurofood IFSC Ltd ECLI:EU:C:2006:281, NZI 2006, 360 mn. 54. The topic is now addressed in Article 2 no. 7 (ii) EIR. 170 cf. OGH, 23.02.2005 – 9 Ob 135/04 z, SZ 2005/23, p. 145 et seq. (AUT), which has held that court proceedings in Austria are interrupted once a German provisional liquidator has been authorised to assert the claim. 171 See in Germany § 55 InsO. 172 See in Belgium Article 79(1) Loi sur les faillites (French language version). 173 See in Belgium Article 79(1) Fw (Dutch language version). 174 See in Italy Cass. civ., 07.09.2005, No 17839, Rep. Foro it. 2005 Fallimento: Accertamento del passivo No 531. 175 See in the Czech Republic § 168 insolvenční zákon. 176 LAG Baden-Württemberg, 28.03.2012 – 20 Sa 47/11, LAGE § 102 BetrVG 2001 No 16 = BeckRS 2012, 69167 (DEU). The reasons for which the judgement has been reversed by BAG, 13.12.2012 – 6 AZR 303/12, NJW 2013, 1620 (DEU) only regard the preliminary question of whether or not the termination of the employment contract was void. 177 cf. Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 46. 178 cf. Corno, IILR 2012, 197, 203; Piekenbrock, EWS 2016, 181, 183 et seq. 179 cf. Piekenbrock, EWS 2016, 181, 190 referring to Article 13 of the UNCITRAL Model Law.

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As far as the satisfaction of these claims is concerned, Article 7(2)(g) EIR overlaps with the rule on the ranking of claims provided for in Article 7(2)(i) EIR.

8. The lodging, verification and admission of claims – point (h) Article 7(2)(g) EIR is closely linked to Article 7(2)(h) EIR which establishes the 69 conflict rule regarding the lodging, verification and admission of claims. This includes the question of who is entitled to raise an objection against a claim,180 who bears the burden to file the lawsuit for the determination of contested claims and who bears the burden of proof.181 As these are typical procedural issues, the lex concursus-approach is self-evident. Article 7(2)(h) EIR does not only apply to claims by insolvency creditors entitled to voting and participating in the proceeds. The lex concursus can rather also provide for the lodging and verification of claims regarded as claims incumbent on the insolvency estate.182 Article 7(2)(h) EIR is only a choice of law rule and does not address the question of 70 jurisdiction,183 which has to be answered in accordance with Article 6 EIR.184 Furthermore, Article 7(2)(h) EIR does not address the existence of a certain claim, which is governed by the lex causae which is established according to the general conflict rules of the lex fori.185 The same is true for the question of who is the creditor of a claim.186 As far as the lodging of claims by residents of other Member States is concerned, 71 the reference made to the lex concursus is not exclusive with regard to the prevailing rules contained in Articles 53, 54 and 55 EIR for the safeguard of the rights of creditors in other Member States.187 According to the French Court of Cassation, the lex concursus also governs the representation of a creditor company organised under the law of another Member State.188 These rulings need further consideration because the representation by legal representatives such as the directors is solely governed by the lex societatis.189 Yet, when the creditor is represented by an employee or by a 180

Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 47. Moss/Fletcher/Isaacs, Insolvency Regulation, mn. 8.176; Moss/Fletcher/Isaacs, Insolvency Regulation, mn. 4.07. 182 See in Italy Cass. civ., 07.09.2005, No 17839, Rep. Foro it. 2005 Fallimento: Accertamento del passivo No 531. 183 cf. OLG Wien, 30.10.2006 – 10 Ra 47/06 i (AUT); Rechtbank Utrecht, 30.06.2010, ECLI:NL: RBUTR:2010:BN2487 (NLD); Cour d’Appel Paris, 06.04.2013, No 12/05852 (FRA). In contrast, Bork, in Festschrift für Beck, 50, 60 refers to Article 7(2)(h) EIR in order to establish the applicability of Article 6 EIR to the verification of claims. See in the same direction BGH, 11.01.2011 – II ZR 157/09, NJW 2011, 844, mn. 12 (DEU). 184 In favour of the application of Article 6 EIR cf. e. g. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 6, mn. 12; Piekenbrock, KTS 2015, 379, 410 et seq. Cf. in the opposite sense in labour law cases e. g. OLG Wien, 30.10.2006 – 10 Ra 47/06 i (AUT); Cour d’Appel Colmar, 26.03.2013, No 11/ 04392 (FRA). 185 Rechtbank Arnhem, 15.03.2001, NIPR 2001, 119 (NLD); Cour d’Appel Dijon, 21.09.2010, No 09/ 02080 (FRA); Haubold, in Gebauer/Wiedmann, Zivilrecht unter europäischem Einfluss, Chap. 32: EuInsVO, Art. 4, mn. 102; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000 mn. 40; Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 48; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 59. 186 Cass. com., 13.09.2011, No 10-25.533 et al., Bull. civ. 2011, IV, No 131 (FRA). 187 cf. Corno, IILR 2012, 197, 201; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 21. 188 Cass. com., 15.12.2009, No 08-14.949; 22.06.2010, No 09-65.481; 04.03.2014, No 12-29.580 (FRA). 189 cf. Mankowski, NZI 2011, 887; Moss/Fletcher/Isaacs, Insolvency Regulation, mn. 8.177, referring to an unreported case of Cour d’Appel Aix-en-Provence, 13.09.2007, Dawson International Trading Ltd v. SARL Regimentals (FRA). 181

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proxy, the jurisprudence of the Court of Cassation is in line with the general principle according to which the lex fori is applicable to the power of attorney for proceedings.190 Thus, French law as lex concursus may require the grant of a specific power in writing.191 Yet, pursuant to Article 53 EIR, the lex concursus may not require the representation of the creditor by a lawyer or another legal professional for the sole purpose of lodging a claim. Furthermore, if the employee has for example the general commercial power of representation known as Prokura, which confers authority to enter into all kinds of judicial transactions and legal acts involved in the operation of a commercial business,192 his power should be verified by a certified extract from the register. 72 The lex concursus also provides for the delays to lodge a claim and the consequences of missing the delay including the exclusion of the claim from the proceedings.193 Such cut-off periods can be found in Member States like the Czech Republic194 and France,195 whereas belatedly lodged claims are treated as subordinated in Spain.196 As far as French law is concerned, the Court of Cassation has correctly held that the delays for petitions to the supervisory judge to set aside the debarment of claims197 apply to creditors resident in France and other Member States alike.198 Although the question was not decisive, the Court of Cassation seems willing to apply the aforementioned delay even if the creditor has not been duly informed of the delays to be respected pursuant to Article 54 EIR.199 In fact, the Court of Cassation has applied the delay to claims intended to recover State aid incompatible with the internal market (Article 107 TFEU).200 This second decision obviously contradicts EU case law as to the recovering of state aid in the case of insolvency201 and the inapplicability of national rules time-barring the recovering.202 If the time limitation was applied to creditors in other Member States not duly informed of, and alerted to the time limitation, such application of the lex concursus would contradict the general principle of effectiveness as established by the CJEU.203 Therefore, it is correct that the 190 cf. Spellenberg, in Münchener Kommentar, IPR I, 6th Edition, Vor Art. 11 EGBGB, mn. 74; Kegel/ Schurig, Internationales Privatrecht, p. 622. 191 Cass. ass. plén., 26.01.2001, No 99-15.153, Bull. civ. No 1 (FRA). 192 See in Germany § 49(1) HGB; see in Austria § 49(1) UGB. 193 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 32; Maderbacher, in Konecny/ Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 49. 194 According to §§ 136(2)(d), 173(1) part 2 insolvenční zákon the creditors have to lodge their claims within two months after the release of the opening decision. 195 According to Article L 622-24 C.com. and Article R 622-24 C.com. the delay for the lodging of claims with the court-appointed receiver (mandataire judiciaire) is two months from the publication of the opening decision. The consequences of the French cut-off period regarding the opening of secondary proceedings have become obvious in CJEU Case C-327/13 Burgo Group SpA v Illochroma SA et al. ECLI:EU:C:2014:2158, ZIP 2014, 2513. 196 See Article 92(1) Ley concursal. 197 According to Article L 622-26 C.com. the delay for the petition to the supervisory judge is generally six months. 198 Cass. com., 16.11.2010, No 09-16.572 (FRA). 199 cf. Cass. com., 17.12.2013, No 12-26.411; 18.11.2014, No 12-28.040 (FRA), holding that the only remedy for creditors in other Member States not duly informed would be the petition to set aside the debarment of their claims. 200 cf. Cass. com., 23.04.2013, No 12-19.184 (FRA), holding that the only remedy for creditors in other Member States not duly informed would be the petition to set aside the debarment of their claims. 201 cf. e. g. CJEU Case C-52/84 Commission v Belgium ECLI:EU:C:1986:3, mn. 14; Case C-5/86 Commission v Belgium ECLI:EU:C:1987:198, [1987] ECR 1773 mn. 6 et seq. 202 cf. e. g. CJEU Case C-24/97 Land Rheinland-Pfalz v Alcan Deutschland GmbH ECLI:EU:C:1998:184, [1997] ECR I-1607, mn. 37; C-461/11, Ulf Kazimierz Radziejewski v Kronofogdemyndigheten i Stockholm, ECLI:EU:C:2012:704, EuZW 2013, 72, mn. 54. 203 cf. e. g. CJEU Case C-32/12, Soledad Duarte Hueros v Autociba SA and Automóviles Citroën España SA, ECLI:EU:C:2013:637, EuZW 2013, 918, mn. 34 et seq.

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Czech Supreme Court has waived the national time limitations for creditors in other Member States who have not been duly informed.204 The CJEU has ruled that the lex concursus also applies to a national provision that 73 excludes the belatedly lodged claim in the case of composition, yet allows the lodging in insolvency proceedings opened on request by another creditor.205 With regard to the wording of the CJEU’s conclusion referring to all provisions on the forfeiture of the right of creditors who have not taken part in the insolvency proceedings to pursue their claims,206 the lex concursus can also provide for the extinction of the claim,207 generally governed by the lex causae (Article 12(1)(d) of the Rome I Regulation).208 Generally, such an extinction effect has to be recognised pursuant to Articles 20, 32 EIR.209 Yet, recognition seems unlikely pursuant to Article 33 EIR if creditors did not know about the opening of proceedings in another Member State or could not know about their claims arising for example from defective products.

9. Distribution of proceeds, ranking of claims and rights of partially satisfied secured creditors – point (i) Article 7(2)(i) EIR lists three different topics closely linked with each other. The 74 distribution of the proceeds from the realisation of the insolvent debtor’s assets in particular depends on the question of whether or not certain claims have priority over or are subordinated to others. Insofar, it is well known that many EU jurisdictions still provide for general privileges, for example as far as claims by employees are concerned.210 Furthermore, claims by public bodies on taxes and by social security systems often enjoy general privileges, which in the case of the liquidation of an insurance undertaking (Article 1(2)a) EIR) may rank higher than the insurance claims.211 These privileges often enhance the opening of secondary proceedings212 or can at least lead to an undertaking within the meaning of Article 36 EIR. On the other hand, the lex concursus has to decide whether or not certain claims are 75 to be treated as subordinated. The subordination can be based on statute like in the case of a claim based on the promise of prizes,213 which the Austrian Supreme Court has treated as a subordinated claim without consideration (§ 39(1) No. 4 InsO 204 Nejvyšší soud, 22.10.2009, 29 NSCR 27/2009, ECLI:CZ:NS:2009:29.NSCR.27.2009.1 (CZE); cf. Richter, in Hess/Oberhammer/Pfeiffer, European Insolvency Law, p. 472; Vrchní soud v Praze, 11.08.2011, 2 VSPH 701/2010-P93-13 (CZE), reported by Sedláček, IILR2012, 74 et seq. 205 CJEU Case C-212/15, ENEFI Energiahatékonysági Nyrt v Direcţia Generală Regională a Finanţelor Publice Braşov (DGRFP), ECLI:EU:C:2016:841, NJW 2017, 144, mn. 17 et seq., regarding § 20(3) of the Hungarian Bankruptcy Code. 206 CJEU Case C-212/15, ENEFI Energiahatékonysági Nyrt v Direcţia Generală Regională a Finanţelor Publice Braşov (DGRFP), ECLI:EU:C:2016:841, NJW 2017, 144, mn. 28 et seq. 207 See e. g. in France Art. 621-46 C.com. 2000; in the Czech Republic § 359 insolvenční zákon; in Slovakia § 155(2) Zákon o konkurze a reštrukturalizácii. 208 cf. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 5 EIR 2000, mn. 41. 209 Thus Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 49. 210 See in England & Wales mn. 9 – 12 Schedule 6 to the Insolvency Act 1986; see in Ireland s. 621(2) (b) Companies Act 2014 and s. 81(1)(b) Bankruptcy Act, 1988; see in Italy Article 2751-bis(1) codice civile (with regard to movable assets); see in the Czech Republic § 169(1)(a) insolvenční zákon; see in Sweden § 12 Förmånsrättslag; see in Greece Article 975(3) Kώδικας πολιτικής δικονομίας. 211 See Article 275(1)(b) of the Directive 2009/138/EC of the European Parliament and of the Council of 25.11.2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (recast), [2009] OJ L 110/28. 212 Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 30. 213 cf. in Germany § 661 a BGB; cf. in Austria § 5 j KSchG.

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(DEU)).214 If the subordination is agreed on by the parties, the consequences of such an agreement are not governed by the lex causae but exclusively by the lex concursus.215 Furthermore, the lex concursus governs the question of whether, and if so, under which conditions the insolvency practitioner is entitled to agree on the distribution of the proceeds divergently from the applicable statutory rules.216 Finally, the lex concursus has to decide whether a creditor who is entitled to separate satisfaction by virtue of a right in rem may participate in the proceedings with the whole of his claim or only insofar as the separate satisfaction has failed. For example, German and Austrian law have opted explicitly for the second solution as far as rights in rem are concerned,217 whereas the application of the same rule to set-off is controversial.218 76 Yet, the lex concursus providing for the ranking of claims has to be in line with other EU law. Article 18 TFEU in particular would not allow privileges for nationals or residents of the state of the opening of proceedings only. Yet, the Member States are not obliged to grant other Member States’ tax claims the same preferences as to internal claims, but only equal treatment of the other Member States.219 Pursuant to Article 7(2)(i) EIR, the German Federal Court of Justice has applied the subordination rules provided for in § 32 a GmbHG 1980 (DEU)220 and § 39(1) No. 5 InsO (DEU) to a public limited liability company founded under the laws of Luxembourg (see below mn. 107).221 In particular with regard to the CJEU-ruling in the Kornhaas case,222 the application of German subordination rules to a company founded in another Member State is in line with the CJEU-ruling in the Inspire Art case.223 Following this argument, Austrian courts could also apply the subordination rule provided for in § 57 a IO (AUT) to foreign companies, when insolvency proceedings have been opened in Austria.224 Yet, there are good reasons that the treatment of loans by equity holders should be governed by the lex societatis.225

10. Closure of insolvency proceedings and composition in particular – point (j) 77

Lit. (j) does not give a definition of what is meant by the “closure of insolvency proceedings”. Instead, the term “closure of insolvency proceedings” must be construed 214 OGH, 25.10.2011 – 9 Ob 42/11 h, SZ 2011/129, 336 et seq. (AUT), thus referring to BGH, 13.03.2008 – IX ZR 117/07, NZI 2008, 369, mn. 7 et seq. (DEU). 215 cf. Mansel, in Festschrift für Lüer, p. 407, 412 et seq. 216 cf. Re Collins & Aikman Europe SA, [2006] EWHC 1343 (Ch) = [2006] B.C.C. 861, 871 = NZI 2006, 654 (High Court, 9.06.2006, per Lindsay, J.) (GBR); Meyer-Löwy/Plank, NZI 2006, 622, 623; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 33. 217 See in Germany §§ 52 part 2, 190 InsO; see in Austria §§ 48(3), 132(2)(3) IO. 218 See in Germany BGH, 29.3.2012 – IX ZR 116/11, BGHZ 193, 44, mn. 14; Ganter, in Münchener Kommentar zur InsO, 3rd Edition, § 52, mn. 4 a. 219 cf. Article 13(1.3) Council Directive 2010/24/EU of 16.03.2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures, [2010] OJ L 84/1. See for details on the national provisions Piekenbrock, EWS 2016, 181, 188 et seq. 220 GmbH-Gesetz as amended by virtue of Article 1 of the Act of 04.07.1980, BGBl. 1980 I, 836. 221 BGH, 21.7.2011 – IX ZR 185/10, BGHZ 190, 364 = NJW 2011, 3784, mn. 18 (DEU). 222 CJEU Case C-594/14 Kornhaas v Dithmar acting as liquidator of the assets of Kornhaas Montage und Dienstleistung Ltd, ECLI:EU:C:2015:806, NJW 2016, 223, mn. 20; cf. BGH, 15.03.2016 – II ZR 119/14, NJW 2016, 2660 (DEU); KG, 24.09.2009 – 8 U 250/08, NZI 2010, 542, 543 (DEU); OLG Jena, 17.70.2013 – 2 U 815/12, NZI 2013, 807, 808 (DEU). 223 CJEU Case C-167/01 Kamer van Koophandel en Fabrieken voor Amsterdam v Inspire Art Ltd., ECLI: EU:C:2003:512, NJW 2003, 3331, mn 95 et seq. 224 Still undecided on that question Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 85. 225 Thus Schilpp, Gesellschafterfremdfinanzierte Auslandsgesellschaften – Kollisionsrechtliche Behandlung des Gesellschafterdarlehensrechts, p. 221 et seq.

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under the applicable lex concursus.226 Article 7(2)(j) EIR is redundant as far as it refers to the conditions for the closure of insolvency proceedings, because it does not add any new aspect to the first part of Article 7(2) part 1 EIR.227 Therefore, the only established substantive rule is that the lex concursus provides for the effects of the closure of insolvency proceedings as well as to the point of time in which these effects take place.228 Yet, some of the major effects relating to the creditors’ rights are particularly dealt within Article 7(2) (k) EIR and can therefore be set aside here. The remaining effects to point out are the restoration of the debtor’s right to manage the estate and to dispose of his assets. As far as Article 7(2)(j) EIR mentions the closure of insolvency proceedings by composi- 78 tion, it is obvious that the recast of the EIR has been outdated from the very day it became effective. Compositions as already referred to in the English version of Article 1(2) no. 2 of the Brussels Convention of 1968229 were a classical tool of continental insolvency law in the 20th century.230 Nowadays, they are widely replaced by reorganisation plans known as Insolvenzplan,231 Sanierungsplan,232 plan de sauvegarde,233 reorganisatieplan,234 reorganizační plán,235 plano de recuperação236 and plan restrukturyzacyjny.237 Yet, the old fashioned wording of Article 7(2)(j) EIR is not decisive as far as the scope of the provision is concerned. It is rather up to the imagination and the branding of the national legislators how the instruments are named and, more importantly, to the lex concursus to provide for the prerequisites for the imposition of the plan by the court and the effects thereof, including, as the case may be, the supervision of the fulfilment of the plan. Article 7(2)(j) EIR applies in main insolvency proceedings and, pursuant to 79 Article 35 EIR, in secondary proceedings, which may also be reorganisation proceedings since the restriction to liquidation provided for in Article 27(sentence 2) EIR 2000 has ceased to exist. Unfortunately, the applicable law may provide for different prerequisites for the imposition of a reorganisation plan, which makes cross border restructuring more difficult.238

11. Creditors’ rights after the closure of insolvency proceedings – point (k) Article 7(2)(k) EIR addresses the main issue regarding the effects of the closure of 80 insolvency proceedings. From a theoretical as well as from a historical perspective, the “natural” effect of the end of collective enforcement proceedings has been the restoration of the right to individual enforcement.239 Yet, nowadays as far as natural persons 226 CJEU Case C-116/11 Bank Handlowy w Warszawie SA et al. v Christianapol sp. z o.o., ECLI:EU: C:2012:739, NZI 2013, 106, mn. 50. 227 Paulus, EuInsVO, Art. 4, mn. 33; Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 57. 228 CJEU Case C-116/11 Bank Handlowy w Warszawie SA et al. v Christianapol sp. z o.o., ECLI:EU: C:2012:739, NZI 2013, 106, mn. 52. 229 [1978] OJ L 304/36. 230 cf. Piekenbrock, IILR 2014, 424, 427 et seq. 231 See in Germany § 217 InsO. 232 See in Austria § 140 IO. 233 See in France Article L 626-1 C.com. 234 See in Belgium Article 48 Wet betreffende de continuïteit van de ondernemingen (Dutch language version). 235 See in the Czech Republic § 338 insolvenční zákon. 236 See in Portugal Article 17-C(1) Código da Insolvência e da Recuperação de Empresas. 237 See in Poland Article 9 Prawo restrukturyzacyjne. 238 cf. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 25; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 42. 239 See in Germany § 201 InsO; see in Austria §§ 60, 61 IO; see in France for the last time Article 91(2) of the Act No 67-563 of 13.7.1967, J.O. of 14.07.1967, p. 7059.

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are concerned, discharge is a widespread phenomenon, which is likely to become compulsory within the EU at least regarding entrepreneurs.240 From the conflict of law perspective, it is undoubted that discharge is governed by the lex concursus,241 thus Article 7(2)(k) EIR sets aside Article 12(1)(d) of the Rome I Regulation.242 Courts confronted with a discharge order issued in insolvency proceedings in another Member State have to establish the applicable lex concursus according to their national procedural law,243 which yet has to meet with the principles of equivalence and effectiveness.244 If only main proceedings have been opened, the discharge is effective all over the internal market (except Denmark).245 Yet, the termination of main insolvency proceedings with the grant of a discharge order does not hinder the lodging of claims in secondary proceedings opened in another Member State (cf. Article 48(1) EIR).246 A conflict between the applicable laws arises if secondary proceedings are opened and discharge is granted only in the main or only in the secondary proceedings. As far as the second case is concerned, Articles 20(2) and 47(2) EIR apply to discharge orders and compositions respectively.247 In the first case it is argued that creditors may enforce their claims within the territory of the State of the opening of secondary proceedings after these proceedings have been closed.248 Yet, with regard to the ancillary character of secondary proceedings,249 the effects of the main proceedings on the creditors’ rights after their closure should prevail over the secondary proceedings.250 With regard to the CJEU’s ruling on forfeiture,251 Article 7(2)(k) EIR also has to apply to special limitation periods such as the German § 259 b InsO. By this means, the application of the applicable lex causae-rules on limitation (Article 12(1)(d) of the Rome I Regulation) are set aside as far as they lead to a longer limitation period (§ 259b(3) InsO (DEU)). Article 7(2)(k) EIR is not restricted to the rights of the creditors of proven insolvency claims, but also applies to creditors of claims incumbent on the insolvency estate. Therefore, the lex concursus has to decide whether or not these claims can be enforced against the debtor as far as they remain unsatisfied due to the insufficiency of the insolvency estate. 240 cf. Articles 19 – 23 of the Proposal for a Directive of the European Parliament and the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU, COM(2016) 723 final. 241 cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 91; Balz, it Am. Bankr. L.J. 1996, 485, 508; Hergenröder, DZWIR 2009, 309, 316; Paulus, EuInsVO, Art. 4, mn. 34; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 65. 242 Towards non-Member States Global Distressed Alpha Fund 1 Limited Partnership v. PT Bakrie Investindo, [2011] EWHC 256 (Comm) has referred to Article 12(1)(d) of the Rome I Regulation, following the traditional English lex causae-approach to foreign discharge. Cf. Fletcher, Essays in honour of Sir Peter North, 167, 184 et seq. 243 cf. BGH, 14.01.2014 – II ZR 192/13, NJW 2014, 1244, mn. 13 ff. (DEU) regarding § 293 ZPO (DEU) as to the interpretation of s. 281(3) Insolvency Act 1986 (GBR). 244 cf. e. g. CJEU Case C-32/12 Soledad Duarte Hueros v Autociba SA and Automóviles Citroën España SA ECLI:EU:C:2013:637, EuZW 2013, 918 mn. 31. 245 Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 26. 246 BGH, 18.09.2014 – VII ZR 58/13, NZI 2014, 969, mn. 12 Insolvency Act 1986. 247 cf. Virgós/Garcimartín, The European Insolvency Regulation: Law and Practice, mn. 334. For details cf. Fehrenbach, Haupt- und Sekundärinsolvenzverfahren, p. 427 et seq. 248 Thus Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 26. 249 cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 221. 250 Thus Virgós/Garcimartín, The European Insolvency Regulation: Law and Practice, mn. 338(b); Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 55. 251 cf. above fn. 206.

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A difficult question arises after the approval of an insolvency plan and the closure of 85 insolvency proceedings in one Member State if new proceedings are opened in another. If the debtor has only partly met his obligations established in the plan, it is uncertain whether the law applicable to the first or to the second proceedings determines how far the creditors that had participated in the first proceedings can lodge their claims in the second. For example, if a creditor was to receive 10 % of his claim worth 1,000 € in according with a German insolvency plan and has already received 50 € before the opening of the second insolvency proceedings in Austria, he could lodge a claim of 950 € under German law (§ 255(1) InsO), whereas under Austrian law his claim would only be 500 € (§ 163(2) IO).252 If the question fell within the scope of Article 7(2)(k) EIR, German law would apply. Yet, the application of Article 7(2)(g), (i) EIR would lead to Austrian law as lex concursus of the second proceedings. The answer to this question depends on the rationale of the rule in question. If a 86 creditor’s claim has been partly waived by an insolvency plan, the fulfilment of the remaining part can be considered as clausula rebus sic stantibus of the waiver. Therefore, the waiver is no longer binding for a creditor on whose claim the debtor defaults in performance of the plan (cf. § 255 (1) InsO). The question under which conditions the waiver is void must be answered by the law applicable to the insolvency plan. Accordingly, the consistent answer to the question raised above must be that the law applicable to the insolvency plan also determines the fate of the claim in new insolvency proceedings.253

12. Costs and expenses – point (l) The lex concursus governs the question of who is to bear the costs and expenses incurred 87 in the insolvency proceedings (Article 7(2)(l) EIR), including legal aid and deferment issues. Unfortunately, the question of which costs and expenses have to be borne is not explicitly addressed in Article 7(2)(l) EIR. Yet, the English version of the Virgós/Schmitreport relating to Article 4 of the failed European Insolvency Convention generally refers to “the costs and expenses of the proceedings”.254 In the same sense, Balz, the founding father of the Insolvency Convention, has generally referred to “costs”.255 Furthermore, it is natural that court fees are established by the lex concursus. The same must be true as far as the remuneration of the insolvency practitioner and the refund of his expenses are fixed by the court, in particular according to statutory instruments.256 Yet, for example in the case of creditors’ voluntary winding up in the UK and Ireland, the liquidator is neither appointed by the court257 nor is his remuneration a court issue. Nonetheless, as these proceedings are listed in the Annex A EIR and therefore qualify as insolvency proceedings in terms of European law (Article 2 no. 4 EIR), the lex concursus should apply.258 cf. Piekenbrock, in Jaeger, Insolvenzordnung, Volume 7, 2019 § 255, mn. 30 et seq. cf. Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 54. 254 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 91. The German language version (“welche Kosten und Auslagen durch das Verfahren entstehen”) is even clearer on that point. 255 Balz, Am. Bankr. L.J. 1996, 485, 508. 256 Mock, ZInsO 2013, 2245, 2249 et seq., yet referring to Article 7(2) part 1 EIR; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 36. 257 See in England, Wales and Scotland s. 100 Insolvency Act 1986; see in Ireland s. 588 Companies Act 2014. 258 In Re MG Rover Deutschland GmbH (in administration), EWHC, 14.08.2006 (unreported, abstract given by Vorpeil, RIW 2007, 443, 452); Mock, in Festschrift für Haarmeyer, p. 157, 165 et seq., referring to the general rule in Article 7(2) part 1 EIR; Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 65. 252 253

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As far as rights in rem are concerned, Article 8(1) EIR prevails over special provisions regarding contributions to the costs of the liquidation of assets such as §§ 170, 171 InsO in Germany.259 Furthermore, the costs for legal acts of the insolvency practitioner such as notary’s or registration fees are governed by the law of the State in which the insolvency practitioner’s office is situated.260

13. Avoidance – point (m) a) General comment on the lex concursus-approach. One of the main issues in Article 7(2) EIR is the conflict rule on avoidance, which is not at all self-evident due to the possibility of COMI shift and forum shopping. German law, for example, provides for the application of the law governing the effects of the respective legal act as far as the individual avoidance claim known as actio Pauliana is concerned (§ 19 AnfG). The Polish Supreme Court has established the same rule under Polish law in a case regarding the avoidance of the transfer of immovable property located in Poland.261 This connecting factor is deliberately in line with the safeguard rule in Article 16(a) EIR.262 In England, the questions of jurisdiction and applicable law are traditionally answered together.263 As the question of jurisdiction depends on a discretionary assessment of a sufficient connection with England,264 the same is true for the application of English law, even if the action is brought by an English insolvency practitioner after the opening of English proceedings. 90 Given that in many cases the insolvency practitioner invokes general avoidance claims which have been established prior to, and independent of the opening of insolvency proceedings (see below mn. 95), the general lex concursus-approach may lead to a change of the applicable avoidance law. It may thus displace “the law normally applicable to the act in question,”265 which is always determined in advance either by the parties’ choice of law (Article 3 of the Rome I Regulation)266 or by statute (Article 4 of the Rome I Regulation). Therefore, the safeguard rule provided for in Article 16 EIR, which also “applies to limitation periods or other time-bars relating to actions to set aside transactions under the lex causae,”267 is essential for the fair balance 89

259 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 37; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 67; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 45. 260 Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 56; Paulus, EuInsVO, Art. 4, mn. 35. 261 Sąd Najwyższy, 29.11.2012, II CSK 96/12 (POL), following § 19 AnfG (DEU) and the lex rei sitae rule in Article 24 Prawo prywatne międzynarodowe of 12.10.1965, Dz. U. No 46 Pos. 290 (POL), corresponding with today’s Article 41 Prawo prywatne międzynarodowe of 2011, thus applying Article 59 K.c. (POL). 262 cf. Bundestag-Drucksache 12/3803, p. 59. 263 Fletcher, Insolvency in private international law, mn. 2.82 et seq. 264 cf. in re Paramount Airways Ltd. (in Administration), [1993] Ch. 223, 239 (C.A., 27.02.1992 per Nicholls V-C) (GBR). 265 Thus Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 91. 266 CJEU Case C-54/16 Vinyls Italia SpA in liquidation v Mediterranea di Navigazione SpA ECLI:EU: C:2017:433, NZI 2017, 633 mn. 40 et seq. has decided that, notwithstanding Article 3(3) of the Rome I Regulation, Article 16 EIR does apply to the parties to a contract with head offices in a single Member State on whose territory all the other elements relevant to the situation in question are located, having designated the law of another Member State as the law applicable to that contract, provided that those parties did not choose that law for abusive or fraudulent ends. See for critical comments Mankowski, NZI 2017, 637; more favourable Piekenbrock, LMK 2017, 393458. 267 CJEU Case C-557/13 Hermann Lutz v Elke Bäuerle als Insolvenzverwalterin ECLI:EU:C:2015:227, NZI 2015, 478 mn. 49; cf. BGH, 15.10.2015 – IX ZR 265/12, NZI 2015, 1038 (DEU).

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of the conflict rule on avoidance as a whole.268 The two-step mechanism adopted in Articles 7(2)(m) and 16 EIR is similar to the conflict rule on set-off (see above mn. 51). However, as to regarding avoidance it works the other way around, because the insolvency practitioner invokes avoidance whereas the other party invokes the defence provided for in Article 16 EIR. Subject to this safeguard rule, the lex concursus-approach seems reasonable and is adopted by the autonomous rules in the Netherlands, Germany, Austria and France.269 b) General scope of Article 7(2)(m) EIR. Article 7(2)(m) EIR applies to all kinds of 91 legal acts including the transfer of immovable property detrimental to the other creditors’ interest because Article 11 EIR only provides for an exemption from Article 7(2)(e) EIR.270 Accordingly, the insolvency practitioner may avoid payments to employees because Article 13 EIR only provides for an exemption from Article 7(2)(e) EIR, too. Therefore, a Dutch appellate Court has correctly held that the avoidance of a contract is solely governed by the lex concursus notwithstanding the lex causae.271 In all of these cases, the avoidance invoked under the lex concursus can only be waived if the conditions provided for in Article 16 EIR are fulfilled. Furthermore, the German Federal Court of Justice has held that Article 7(2)(m) EIR does not apply to avoidance claims against third persons after the insolvency proceedings against the debtor in another Member State have ended with a discharge order.272 As far as the relevant time of the legal act is concerned, the CJEU has ruled that 92 Article 16 EIR is applicable to a situation in which a payment seized before the opening of the insolvency proceedings was made only after the opening of those proceedings.273 Therefore, Article 7(2)(m) EIR also applies to claims to recover assets which have been alienated after the opening of proceedings.274 Under these circumstances, Article 23(1) EIR provides for unified substantive law to the recovery of assets or proceeds.275 Yet, the Dutch High Counsel has correctly held in a non-Member State case that the lex concursus also applies to a claim against an unsecured creditor who, after the declaration of bankruptcy, has obtained total or partial satisfaction of his claim out of the debtor’s assets situated in a non-Member State, if he had no right of preference on the assets before the opening of proceedings,276 and to the question of preference itself.277 268 cf. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 28. 269 See for the Netherlands Hoge Raad, 24.10.1997, NJ 1999, 1728 (NLD), following Articles 4(2)(m), 13 of the failed European Insolvency Convention; see for Germany § 339 InsO; see for Austria §§ 221(2) No 13, 229 IO; see for France Cass. com., 02.10.2012, No 11-14.406, Bull. civ. 2012, IV, No 176 in the famous Phoenix-case, the insolvency of a fraudulent financial institution, which was outside the scope of the EIR 2000 due to Article 1(2) EIR 2000, after a French court had granted exequatur for the opening decision. 270 OLG Koblenz, 10.12.2010 – 8 U 1112/09, NZI 2011, 448, 449 (DEU); Gerechtshof ‘s-Hertogenbosch, 29.03.2016, ECLI:NL:GHSHE:2016:1181, JOR 2016/176 (NLD). Therefore, Gerechtshof ‘s-Hertogenbosch, 18.08.2015, ECLI:NL:GHSHE:2015:3242 (NLD) has erroneously invoked Article 8(4) EIR 2000 in a case in which the real property was encumbered with a mortgage. Cf. also Paulus, EuInsVO, Art. 4, mn. 38. 271 Thus Gerechtshof ‘s-Hertogenbosch, 01.09.2009, JOR 2010/27 (NLD). 272 BGH, 12.11.2015 – IX ZR 301/14, BGHZ 208, 1 = NJW 2016, 246 mn. 23 et seq. (DEU). 273 cf. CJEU Case C-557/13 Hermann Lutz v Elke Bäuerle als Insolvenzverwalterin ECLI:EU:C:2015:227, NZI 2015, 478 mn. 43. 274 cf. Limbach, IPRax 2012, 320, 322; Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 70. 275 cf. Piekenbrock, IPRax 2016, 219, 221. 276 See in the Netherlands Art. 203 Fw; see in Germany § 342(1) InsO; BGH, 13.07.1983 – VIII ZR 246/ 82, BGHZ 88, 147, 153 et seq. = NJW 1983, 2147 (DEU). 277 Hoge Raad, 11.07.2014, ECLI:NL:HR:2014:1630, NJ 2014, 4687 et seq. (NLD), regarding a so-called “Rule B Attachment” under New York Law.

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c) Qualification. The major topic to be discussed here is the qualification issue. Since the provisions within the Member States are heterogeneous, the wording of Article 7(2) (m) EIR is wide, referring to “voidness, voidability or unenforceability” of legal acts. This provision has to be interpreted autonomously278 and has to be construed in the same way as the reference to avoidance actions in Article 6(1) EIR and the exception from the scope regarding insolvency cases in Article 1(2)(b) of the Brussels Ia Regulation. Yet, as the question of what kind of acts can be void or avoidable is governed by the lex concursus,279 the conflict rule has to be understood in the widest way possible. Furthermore, it is of no importance whether the action must be taken to obtain the invalidation of the legal act or whether the decision to open proceedings automatically entails invalidation.280 94 The basic problem regarding qualification is that many claw back claims are provided for outside the classical insolvency acts, in particular in company law. Yet, the EU choice of law rule may not take the denomination of the act providing for the claim into consideration. In the Gourdain case regarding the enforcement of a French decision in Germany under the Brussels Convention, the CJEU relied on the fact that only the insolvency practitioner was entitled to this claim “on behalf of and in the interest of the general body of creditors with a view to the partial reimbursement of the creditors by respecting the principle that they rank equally and by taking account of any preferential rights lawfully acquired.”281 Unfortunately, applying this argument to the delimitation of the conflict rule in Article 7(2)(m) EIR would lead to unsatisfactory results. 95 On the one hand, for example under German, Austrian, Dutch and Belgian law the insolvency practitioner is exclusively entitled to what is known as “Insolvenzanfechtung”282 or “Faillissementspauliana”283 respectively. Some of the preconditions for avoidance claims are provided for in civil or enforcement law statutes entitling individual creditors and are almost literally reproduced in the respective insolvency act, yet in this case entitling the insolvency practitioner.284 On the other hand, the insolvency practitioner in France may invoke the “action paulienne” provided for in the Civil Code.285 Finally, the English provision on transactions defrauding creditors in insolvency legislation does apply both inside and outside insolvency proceedings.286 Applying the CJEU’s criterion in the Gourdain case under these circumstances might lead to the result that Article 7(2)(m) EIR would apply to avoidance invoked by the insolvency practitioner in Germany, Austria, the Netherlands and England, whereas in France it would not. 93

278

Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 68. cf. Herchen, Das Übereinkommen über Insolvenzverfahren, p. 70. 280 Thus Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 91. 281 CJEU Case 133/78 Henri Gourdain en qualité de liquidateur v Franz Nadler ECLI:EU:C:1979:49, para. 5 qualifying Article 99 of the Act No 67-563 of 13.07.1967, J.O. of 14.07.1967, p. 7059 (FRA) as insolvency law within the meaning of Article 1(2) No 2 of the Brussels Convention. 282 See in Germany §§ 129 to 147 InsO; see in Austria §§ 27 to 43 IO. 283 See in the Netherlands Articles 42 to 51 Fw; see in Belgium Articles 17 to 20 Lois sur les faillites. 284 See in Germany §§ 3,4 AnfG and §§ 133, 134 InsO; see in Austria §§ 2, 3 AnfO and §§ 28, 29 IO; see in the Netherlands Article 3:45 BW (“BW pauliana”) and Article 42 Fw (“Faillissementspauliana”); see in Belgium Article 11167 C.c. and Article 20 Lois sur les faillites. 285 See nowadays Article 1341-2 C.c. Whereas Article 447 C.com. 1808 still contained a similar provision, yet providing for the voidness of the acts, Articles 446 to 449 C.com. 1838 have not reproduced the general action paulienne in the case of bankruptcy. Therefore, the syndic had to invoke the civil action paulienne. Cf. Cass. civ., 07.11.1848, D. 1848, I, 236, 238; 27.06.1905, Gaz. Pal. 1905, II, 127 (FRA); Ankum, De geschiedenis der “actio Pauliana”, p. 377 et seq. Cf. nowadays Cass. com., 13.11.2001, Bull. civ. 2001, IV, No. 178 p. 170 = JCP G 2002, II, 10151 (FRA). 286 See ss. 423, 424(1) Insolvency Act 1986 (GBR). 279

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The CJEU has avoided such a result by distinguishing between claims brought by the 96 insolvency practitioner or a third person. In the F-Tex case the Court has qualified an avoidance claim assigned to a third person by the insolvency practitioner as an ordinary civil matter case, thus setting aside the exclusion of insolvency matters from the Brussels I Regulation (Article (1)(2)(b)).287 Furthermore, it has applied Article 3 EIR 2000 to a claim of a German insolvency practitioner brought against a director that was based on § 64 (sentence 1) GmbHG288 arguing that the “provision clearly derogates from the common rules of civil and commercial law, specifically because of the insolvency of the debtor company.”289 Yet, if the claim was brought outside the context of insolvency proceedings, it might fall within the scope of the Lugano II Convention or the Brussels I Regulation.290 This decision underlines the decisive criteria regarding the qualification issue: The claim must be closely related to the substantive insolvency of the debtor and must be brought by the liquidator. Consequently, the CJEU has applied Article 7(2) EIR to a claim of a German insolvency practitioner brought against a director based on § 64(sentence 1) GmbHG, arguing that it was “at least similar to a rule laying down the “unenforceability of legal acts detrimental to all the creditors”” and has thus approved the application of the aforementioned claim to an English private company limited by shares.291 Following this jurisprudence, claims for insufficiency of the estate,292 fraudulent and 97 wrongful trading293, and alike are also governed by the lex concursus.294 Yet, the German Federal Court of Justice did not decide the question of whether or not the liability of the directors under Polish company law295 qualifies as an insolvency case within the meaning of Article 1(2)(b) of the Brussels Ia Regulation.296 Furthermore, avoidance claims based on § 135 InsO are nowadays widely seen as part of the avoidance law within the meaning of Article 7(2)(m) EIR,297 although there are good reasons to argue that they have to be treated like precedent claims to reimburse unlawful repayments on loans replacing equity, which would be governed by the lex societatis (see below mn. 107).298 d) Relation to other EU law. Articles 8(4), 9(2), 10(3) and 12(2) EIR leave the rules of 98 the lex concursus regarding voidness, voidability or unenforceability of legal acts (Article 7 287 CJEU Case C-213/10 F-Tex SIA v Lietuvos-Anglijos UAB “Jadecloud-Vilma” ECLI:EU:C:2012:215, NZI 2012, 469, mn. 40 et seq. 288 In Austria see accordingly § 25(3) No 2 GmbHG (AUT). 289 CJEU Case C-295/13 H als Insolvenzverwalter v H.K. ECLI:EU:C:2014:2410, NZI 2015, 88, mn. 23; in the opposite sense cf. OLG Karlsruhe, 22.12.2009 – 13 U 102/09, NJW-RR 2010, 714, 715 (DEU) considering the application of Article 5(3) of the Brussels I Regulation. 290 CJEU Case C-295/13, H als Insolvenzverwalter v H.K. ECLI:EU:C:2014:2410, NZI 2015, 88 mn. 25. 291 CJEU Case C-594/14, Kornhaas v Dithmar als Insolvenzverwalter ECLI:EU:C:2015:806, NJW 2016, 223, mn. 20; cf. BGH, 15.03.2016 – II ZR 119/14, NJW 2016, 2660 (DEU); KG, 24.09.2009 – 8 U 250/08, NZI 2010, 542, 543 (DEU); OLG Jena, 17.07.2013 – 2 U 815/12, NZI 2013, 807, 808 (DEU). 292 See in France today Article L 651-2 C.com. 293 See in England, Wales and Scotland ss. 213, 214, 246 ZA, 246ZB Insolvency Act 1986. 294 cf. Rechtbank Dordrecht, 3.02.2010, ECLI:NL:RBDOR:2010:BL2214, JOR 2010/90 (NLD); Rechtbank ‘s-Hertogenbosch, 8.06.2011, ECLI:NL:RBSHE:2011:BQ7552 (NLD), regarding Article 2:248 (2) B.W.; Wessels, International Insolvency Law, mn. 10625, p. 557; L. Lennarts, ECL 2010, 106, 110; dissenting Redeker, Die Haftung für wrongful trading im englischen Recht, p. 245. 295 See Article 299 Kodeks Spółek Handlowych. 296 BGH, 08.11.2012 – IX ZB 120/11, WM 2013, 45, mn. 3 (DEU); OLG Stuttgart, 30.12.2010 – 5 W 71/ 09, BeckRS 2012, 24206 (DEU) has argued in favour of an ordinary civil case. 297 Thus Thole, Gläubigerschutz durch Insolvenzrecht, p. 819 et seq.; id., in Leible/Terhechte, Europäisches Rechtsschutz- und Verfahrensrecht, § 24, mn. 91; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 9, 39; Paulus, EuInsVO, Art. 4, mn. 6, 36; Albrecht, ZInsO 2013, 1623, 1629. 298 cf. Schilpp, Gesellschafterfremdfinanzierte Auslandsgesellschaften – Kollisionsrechtliche Behandlung des Gesellschafterdarlehensrechts, p. 221 et seq.; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 15.

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Chapter I. General Provisions

(2)(m) EIR) unaffected. Therefore, notwithstanding Article 16 EIR, the lex concursus has to decide whether or not a lien qualifying as a right in rem and acquired by a creditor by means of attachment, seizure and alike before the opening of the insolvency proceedings is void or voidable.299 As far as the substantive avoidance law is concerned, the lex concursus has to be in line with Article 3(2) of the so-called Settlement Finality Directive 98/26/EC excluding avoidance to a certain extent. Finally, if secondary proceedings have been opened, the question of which law governs avoidance depends on the estate affected by the legal act in question. If the estate of the secondary proceedings has been affected, the insolvency practitioner in these proceedings may invoke avoidance under the lex concursus secundarii (Article 35 EIR). Otherwise, the insolvency practitioner in the main proceedings can file avoidance claims governed by the lex concursus principalis.300

II. Issues not explicitly addressed in the enumeration in Article 7(2) EIR 1. Procedural issues 99

If an issue is not explicitly addressed in the catalogue of Article 7(2) EIR, the question whether this issue is also governed by the lex concursus arises. The answer is simple as far as procedural issues relating to the “conditions for the opening of those proceedings, their conduct and their closure” are concerned. All these questions are governed by the lex concursus. This is true in particular for the necessity of a request and the requirements as to who may file the request and its content, the reasons to open insolvency proceedings301 and the way the imminent facts are established, provisional measures,302 the appointment of the insolvency practitioner(s),303 the refusal to open insolvency proceedings for insufficiency of assets as well as the competence of the court, the creditors’ assembly and the creditors’ committee during the proceedings.

2. Substantive issues 100

As far as substantive issues are concerned, it is difficult to give a general definition of what has to be seen as effects of insolvency proceedings within the meaning of Article 7 (1) EIR (see above mn. 2). Some authors argue that the application of Article 7 EIR is restricted to cases in which the debtor’s insolvency is not just a prerequisite of a certain claim, but in which the claim is granted to achieve goals that are typical of insolvency proceedings such as the equal treatment of creditors.304 This argument is in line with the CJEU’s ruling that the claim has to be brought by the insolvency practitioner in order to qualify as an effect of insolvency proceedings (see above mn. 96).

101

a) Duty to file for the opening of insolvency proceedings. Article 7(2) EIR does not address the question of whether or not debtors or representatives of companies are obliged to file an insolvency request. It has been mentioned above that the lex concursus has to 299 cf. CJEU Case C-557/13 Hermann Lutz v Elke Bäuerle als Insolvenzverwalterin ECLI:EU:C:2015:227, NZI 2015, 478, mn. 27 et seq. Notwithstanding the Hof van Beroep te Antwerpen, 4.03.2009, RW 200910, 882, 883 et seq. (NLD) has not applied § 88 InsO (DEU) to an arrest of a seagoing ship as defined in the respective International Convention of 10.05.1952, BGBl. 1972 II, 655. 300 cf. Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 71; Kindler, in Kindler/Nachmann, Handbuch Insolvenzrecht in Europa, § 4, mn. 112. 301 Paulus, EuInsVO, Art. 4, mn. 9; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 4. 302 Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 24. 303 Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 37. 304 cf. Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 11; Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 2.

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provide for the reasons to open insolvency proceedings, such as current or imminent insolvency, over-indebtedness, economic distress and alike, and for the person who may file a request to open insolvency proceedings (see above mn. 99). Yet, a duty to file such a request305 is not just a procedural matter, because its breach can lead to damage claims (see below mn. 102) or may even be considered a criminal offense.306 Therefore, this question cannot be answered directly by the lex concursus,307 because the connecting factor, which is the opening of insolvency proceedings, does not even exist at the time the duty occurs. If it is correct that duties to file for the opening of insolvency proceedings are to be qualified as part of insolvency law308 and not of company law,309 the issue in question must be governed by the hypothetical lex concursus, which is the law of the State having jurisdiction to open main insolvency proceedings (Article 3(1) EIR) at a certain time.310 b) Liability for the breach of duty to file for the opening of insolvency proceed- 102 ings. As far as German law is concerned, the question remains of whether the lex concursus governs the recovery of damages pursuant to §§ 823(2) BGB, 15 a InsO if the director has failed to file for the opening of insolvency proceedings in time.311 Under Austrian law, a similar question arises regarding §§ 1311 part 2 ABGB, 69(2) IO.312 Given that the damage generally occurs at the company’s COMI, the question on the choice of law rule can be left undecided in most cases because the application of Article 4(1) of the Rome II Regulation would also lead to the application of the lex concursus. Yet, in COMI shift cases, Article 4(1)(2) of the Rome II Regulation might lead to the application of another law than the lex concursus. In such a case it is obvious that the lex concursus cannot be applied as far as the duty to file an insolvency request prior to the COMI shift is concerned. Furthermore, if the COMI shift leads to the application of a lex concursus that does not provide for claims similar to §§ 823(2) BGB, 15 a InsO (DEU), the creditors could lose their claims acquired before.313 See for Germany § 15 a InsO; see in Austria § 69(2) IO. See in Germany § 15a(4) InsO. In Ireland, according to s. 722 Companies Act 2014, any person knowingly carrying on of the business of a company with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, shall be guilty of an offence. 307 Thus Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 62. 308 Thus Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 92; Snowden, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, mn. 7.08; Paulus, EuInsVO, Art. 4, mn. 6, 10; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 11; Haubold, in Gebauer/Wiedmann, Zivilrecht unter europäischem Einfluss, Chap. 32: EuInsVO, Art. 4, mn. 92; Maderbacher, in Konecny/ Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 62; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 83; Servatius, DB 2015, 1087, 1091; Albrecht, ZInsO 2013, 1623, 1627; Eidenmüller, NJW 2005, 1619, 1621; Eidenmüller, in Eidenmüller, Ausländische Kapitalgesellschaften im deutschen Recht, § 9, mn. 25 et seq.; Borges, ZIP 2004, 733, 739 et seq.; Kuntz, NZI 2005, 424, 426 et seq.; Müller, NZG 2003, 414, 416; Zimmer, NJW 2003, 3585, 3589 et seq.; Trunk, Internationales Insolvenzrecht, p. 103 et. seq.; Renner, Insolvenzverschleppungshaftung in internationalen Fällen, p. 150. 309 Thus Mock/Schildt, ZInsO 2003, 396, 399; von Hase, BB 2006, 2141, 2145 et seq.; Redeker, Die Haftung für wrongful trading im englischen Recht, p. 243 et seq.; Hirte, in Festschrift für Lüer, p. 387, 388 et seq. 310 cf. Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 92; Weller, in Festschrift für Ganter, p. 439, 448. 311 Thus LG Kiel, 20.04.2006 – 10 S 44/05, NZI 2006, 482, 483 (DEU); Weber, Gesellschaftsrecht und Gläubigerschutz im Internationalen Zivilverfahrensrecht, p. 144; Thole, in Leible/Terhechte, Europäisches Rechtsschutz- und Verfahrensrecht, § 24, mn. 91; Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 62; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 12, Art. 3, mn. 18. 312 cf. OGH, 02.07.1985 – 5 Ob 603/84, EvBl 1986/129 (AUT). 313 Therefore, Weller, in Festschrift für Ganter, p. 439, 447 and Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 12 argue for the application of the hypothetical lex concursus (see above mn. 100). 305 306

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This argument is decisive because in the other cases mentioned above, the claim was always part of the insolvency estate, whereas §§ 823(2) BGB, 15 a InsO (DEU) and §§ 1311 part 2 ABGB (AUT), 69(2) IO provide for individual damage claims. In Austria, the creditors may even not invoke the directors’ liability prior to the closure of insolvency proceedings (§ 69(5) IO (AUT)). If an individual creditor seeks to hold the directors of a limited company liable for the debts of that company “because they allowed that company to continue to carry on business even though it was undercapitalised and was forced to go into liquidation”, the CJEU has ruled in favour of the application of Article 5(3) of the Brussels I Regulation in the ÖFAB case.314 The Court has thus qualified such claims by individual creditors as ordinary tort claims, to which neither Article 6(1) EIR nor Article 7 EIR applies. Regarding the qualification of the liability for the breach of duty to file for the opening of insolvency proceedings, it is very interesting to learn that the Swedish provision in question in the ÖFAB case holds the members of the board of directors liable if the board has failed “to apply to the District Court for an order that the company be put in liquidation”.315 104 Therefore, the claim of an individual creditor based on §§ 823(2) BGB, 15 a InsO (DEU) would not be governed by the lex concursus even if insolvency proceedings were pending. Such a case is conceivable if the creditor entered into a contract or granted credit to the debtor after the duty to file for the opening of insolvency proceedings had occurred.316 The only way to argue for the application of Article 7 EIR would be that under German insolvency law, only the insolvency administrator may invoke §§ 823(2) BGB, 15 a InsO (DEU) insofar as the creditors holding their claim at the date of the occurrence of the duty to file for the opening of insolvency proceedings have suffered a so-called collective damage (Gesamtschaden) within the meaning of § 92 InsO (DEU) (see above mn. 37).317 105 Yet, this argument is misleading for two reasons. First, if one would follow it, this would lead to the puzzling result that two different choice of law rules would apply simultaneously to the same act, which is the breach of the duty to file for the opening of insolvency proceedings.318 Second, the claim of an individual creditor would be governed by Article 4 of the Rome I Regulation, whereas Article 7 EIR would apply to the claim brought by the insolvency administrator. In this particular case, the insolvency administrator does not act in the “interest of the general body of creditors”, but only in a semi-collective way as a trustee for the creditors affected by § 92 InsO. Therefore, the claims in question should be treated as ordinary tort claims,319 whereas the duty to file an insolvency request is governed by the hypothetical lex concursus (see above mn. 101). 103

314 CJEU Case C-147/12 ÖFAB, Östergötlands Fastigheter AB v Frank Koot and Evergreen Investments BV ECLI:EU:C:2013:490, EuZW 2013, 703, mn. 42. 315 Thus Kap. 25 § 18(1) No 3 Aktiebolagslag (SWE) as translated by CJEU Case C-147/12 ÖFAB, Östergötlands Fastigheter AB v Frank Koot and Evergreen Investments BV ECLI:EU:C:2013:490, EuZW 2013, 703, mn. 8. The full sentence in the original Swedish text version reads as follows: “Om styrelsen har underlåtit att … 3. i enlighet med 17 § ansöka hos tingsrätten om att bolaget skall gå i likvidation, svarar styrelsens ledamöter solidariskt för de förpliktelser som uppkommer för bolaget under den tid som underlåtenheten består.” 316 cf. BGH, 06.06.1994 – II ZR 292/91, BGHZ 126, 181, 192 (DEU); 25.07.2005 – II ZR 390/03, BGHZ 164, 50, 60; 05.02.2007 – II ZR 234/05, NJW-RR 2007, 759 mn. 13 (DEU). 317 Thus Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 94. 318 Indeed, in this sense Servatius, DB 2015, 1087, 1092. 319 Thus Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 87; Schanze/Jüttner, AG 2003, 661, 670; Piekenbrock, KTS 2015, 379, 402 et seq. In favor of lex societatis: Stöber, ZHR 176 (2012), 325, 329 et seq.; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 15; Ulmer, KTS 2004, 291, 301; id. NJW 2004, 1201, 1207. In favour of lex concursus: Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000,

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c) Peeters/Gatzen-claims and alike. Recently, the CJEU had to answer the question 106 whether a tort claim granted to the administrator against a person having assisted the debtor in disadvantaging his creditors, known as a Peeters/Gatzen-claims (Peeters/ Gatzen-vordering) under Dutch law,320 falls within the scope of Article 1(2)b Brussels Ia-Regulation. The Court has answered the question in the negative thus leaving the preliminary question of the applicable law undecided.321 Yet, the matter of jurisdiction (Article 6 EIR) generally goes hand in hand with the matter of the applicable law (Article 7 EIR),322 which leads to the application of the Rome II-Regulation. From a German perspective, the decision is very interesting because the German Federal Court has solved a similar case by applying avoidance law. According to the Court, a trustee being aware of the debtor’s insolvency and nevertheless transferring the debtor’s money on his demand to a third party can be subject of the avoidance claim for intentional prejudice provided for in § 133(1) InsO (DEU).323 If, instead, the Court had hold the trustee liable of assistance to the criminal offence known as extending unlawful benefits to creditors (§§ 27, 283 c StGB) (DEU), an ordinary tort claim would apply (§ 823(2) BGB) (DEU). This comparison shows that similar situations can either be solved by the avoidance law of the lex fori concursus (Article 7(2)(m) EIR) as in Germany or by general tort law as in the Netherlands. d) Annihilating interference. The German Federal Court has developed the concept 107 of a tort claim of a company to intentional damage contrary to public policy (§ 826 BGB) against shareholders depriving a limited company of its essential assets (Existenzvernichtungshaftung).324 Given that only the insolvent company itself can be entitled to this claim, it seems likely that the CJEU would qualify it as an insolvency law case if such a claim was brought by the insolvency practitioner.325 Yet, there are good reasons to argue that the claim mentioned above is an ordinary tort claim326 because its aim is not to recover assets disposed of after the company had become distressed but rather to recover damages for causing said distress. Some authors even argue in favour of the application of the lex societatis.327 mn. 12; Kindler, in Kindler/Nachmann, Handbuch Insolvenzrecht in Europa, § 4, mn. 1; Haubold, in Gebauer/Wiedmann, Zivilrecht unter europäischem Einfluss, Chap. 32: EuInsVO, Art. 4, mn. 92; Albrecht, ZInsO 2013, 1623, 1628; Eidenmüller, NJW 2005, 1618, 1621; Kuntz, NZI 2005, 424, 428. 320 Named after the parties in the leading case Hoge Raad, 14.1.1983, NJ 1983, 597 (NLD). In the original Dutch wording, the Hoge Raad has considered, “dat … onder omstandigheden ook plaats kan zijn voor het geldend maken door de curator van een vordering tot schadevergoeding uit hoofde van art. 1401 BW [today: Article 6:162 BW] tegen een derde die bij de benadeling van schuldeisers betrokken is, ook al kwam een dergelijke vordering uiteraard niet aan de gefailleerde zelf toe” (sub 3.3, page 1877). 321 CJEU Case C-535/17, NK, liquidator in the bankruptcies of PI Gerechtsdeurwaarderskantoor BV and of PI v BNP Paribas Fortis NV ECLI:EU:C:2019:96, NZI 2019, 302, mn. 31 et seq., 39. 322 Thus Mankowski, NZI 2019, 304, 305. 323 Cf. BGH, 26.04.2012 ‐ IX ZR 74/11, BGHZ 193, 129 = NJW 2012, 1959 mn. 13 et seq (DEU). 324 cf. BGH, 16.07.2007 – II ZR 3/04, BGHZ 173, 246 = NJW 2007, 2689 mn. 18 et seq. “TRIHOTEL” (DEU); 09.02.2009 – II ZR 292/07, BGHZ 179, 344 = NJW 2009, 2127 mn. 15 et seq. “Sanitary” (DEU). 325 Thus Kindler, in Münchener Kommentar zum BGB, 6th Edition, Art. 4 EuInsVO, mn. 101; id., in Kindler/Nachmann, Handbuch Insolvenzrecht in Europa, § 4, mn. 1; Paulus, EuInsVO, Art. 4, mn. 6; Haas, ZIP 2006, 1373; Pannen/Riedemann, NZI 2005, 413, 414; Kuntz, NZI 2005, 424, 430 et seq. 326 Thus Weller, ZIP 2007, 1681, 1688; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 10; Thole, in Leible/Terhechte, Europäisches Rechtsschutz- und Verfahrensrecht, § 24, mn. 91; Bayer, BB 2003, 2357, 2364 et seq. 327 Thus Eidenmüller, NJW 2005, 1619, 1621; Stöber, ZIP 2013, 2295, 2302 et seq.; Maderbacher, in Konecny/Schubert, Insolvenzgesetze, Art. 4 EIR 2000, mn. 88; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 99; Haß/Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 15; Servatius, DB 2015, 1087, 1093; Ulmer, KTS 2004, 291, 302 et seq.

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Art. 7 108 108

Chapter I. General Provisions

e) Reimbursement of prohibited repayments to shareholders. Finally, claims to reimburse prohibited repayments to shareholders of limited companies are at least similar to avoidance claims. This is true in particular when regarding the fact that the German Federal Court of Justice used to justify the analogous claim to reimburse unlawful repayments on loans replacing equity (eigenkapitalersetzende Darlehen) by an application mutatis mutandis of § 31 GmbHG (DEU),328 governed by the lex societatis,329 whereas since November 2008, the similar claim based on § 135 InsO (DEU) is nowadays widely seen as part of the avoidance law within the meaning of Article 7(2) (m) EIR (see above mn. 97). Yet, if and under which circumstances equity may be repaid to a shareholder is a question of genuine company law nature.330 Therefore, the German Federal Court of Justice has correctly applied Austrian law to repayments to shareholders of an Austrian limited company.331 328 cf. e. g. BGH, 14.12.1959 – II ZR 187/57, BGHZ 31, 258, 270 et seq. (DEU); 26.03.1984 – II ZR 14/ 84, BGHZ 90, 370, 375 et seq. (DEU). 329 cf. BGH, 11.01.2011 – II ZR 157/09, NJW 2011, 844, mn. 20 (DEU); Trunk, Internationales Insolvenzrecht, p. 192 et seq.; Meilicke, GmbHR 2003, 1271, 1272; yet arguing in favour of the lex concursus Haas, NZI 2001, 1, 5 et seq.; Weller, IPrax 2003, 520, 524; Eisner, ZInsO 2005, 20, 23; Wienberg/Sommer, NZI 2005, 353, 357. With regard to §§ 30, 31 GmbHG cf. Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EIR 2000, mn. 8. For a recent overview see Schilpp, Gesellschafterfremdfinanzierte Auslandsgesellschaften – Kollisionsrechtliche Behandlung des Gesellschafterdarlehensrechts, p. 204 et seq. 330 Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 4 EIR 2000, mn. 79; Haß/ Herweg, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 4 VO Nr. 1346/2000, mn. 15. 331 BGH, 11.01.2011 – II ZR 157/09, NJW 2011, 844, mn. 16 (DEU).

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Article 8 Third parties’ rights in rem 1. The opening of insolvency proceedings shall not affect the rights in rem of creditors or third parties in respect of tangible or intangible, moveable or immoveable assets, both specific assets and collections of indefinite assets as a whole which change from time to time, which are situated within the territory of another Member State at the time of the opening of proceedings. 2. The rights referred to in paragraph 1 shall, in particular, mean (a) the right to dispose of assets or have them disposed of and to obtain satisfaction from the proceeds of or income from these assets, in particular by virtue of a lien or a mortgage; (b) the exclusive right to have a claim met, in particular a right guaranteed by a lien in respect of the claim or by assignment of the claim by way of a guarantee; (c) the right to demand possession from, and/or to require restitution by, anyone having possession or use of them contrary to the wishes of the party so entitled; (d) a right in rem to the beneficial use of assets. 3. The right, recorded in a public register and enforceable against third parties, based on which a right in rem within the meaning of paragraph 1 may be obtained shall be considered to be a right in rem. 4. Paragraph 1 shall not preclude actions for voidness, voidability or unenforceability as referred to in point (m) of Article 7 (2). Recitals: 66–68. Specific bibliography: Flessner, Dingliche Sicherungsrechte nach dem Europäischen Insolvenzübereinkommen, in Festschrift für Drobnig, Tübingen 1998, pp. 277 et seq.; Mankowski, Öffentliche Lasten als dingliche Rechte im Sinne von Art. 5 EuInsVO 2000 bzw. Art. 8 EuInsVO 2015. Concurrently review of CJEU, RIW 2016, 839 – SCI Senior Home, RIW 2017, 93 et seq. Case law: EU: CJEU, 26 October 2016, Case C-195/15, Senior Home v Gemeinde Wedemark, ECLI:EU:C:2016:804; CJEU, 16 April 2015, Case C-557/13, Lutz v Bäuerle, ECLI:EU:C:2015:227; Opinion of Advocate General Szpunar, 27 November 2014, Case C-557/13, Lutz v Bäuerle, ECLI:EU: C:2014:2404; CJEU, 5 July 2012, Case C-527/10, ERSTE Bank Hungary v Állam et al., ECLI:EU:C:2012:417. Germany: BGH, Beschl. v. 20.07.2017 – IX ZB 69/16, ECLI:DE:BGH:2017:200717BIXZB69.16.0, NZI 2017, 770 et seq.; BGH, Beschl. v. 08.12.2016 – V ZB 41/14, ECLI:DE:BGH:2016:081216BVZB41.14.0, NZI 2017, 457 et seq. with case note by Mankowski; BGH, Beschl. v. 03.02.2011 – V ZB 54/10, NZI 2011, 420. Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Interpretation .................................................................................................................... I. Rights in rem and equivalent rights ................................................................... II. Assets situated in another Member State .......................................................... III. Determinative point in time: Opening of insolvency proceedings.............. IV. No opening of secondary insolvency proceedings .......................................... V. No abuse ................................................................................................................... VI. No legal acts prejudicing creditors...................................................................... D. Legal consequences .......................................................................................................... I. Legal consequences with respect to the right in rem...................................... II. Legal consequences with respect to the subject of the in rem right ...........

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Art. 8 1–7

Chapter I. General Provisions

A. Purpose 1

2

3

4 5

Article 8 EIR expresses the “weakened universality” model on which the entire EIR is based; on the one hand, the main insolvency proceedings and its effects are governed by the law of the Member State in which proceedings are opened, whereas on the other hand, the EIR contains numerous exemptions from this rule.1 According to paragraph 1, rights in rem (in collateral) are “not affect[ed]” by the opening of insolvency proceedings. This provision provides for an exception from the general rule contained in Article 7 EIR and the application of the lex fori concursus. The background to this rule is the need to protect the legitimate expectations of the party taking a security interest to the extent that the security granted to that party is governed by the law under which it was originally created, even in the case of insolvency proceedings that are opened in an EIR Member State over the assets of the party granting the security.2 Paragraph 2 contains a list of rights in terms of paragraph 1 that facilitates the application of the law (and the list is not exhaustive). Article 10 EIR contains a special provision on the reservation of title, which would likewise be characterised as an in rem right in terms of paragraph 1. Pursuant to paragraph 3, expectant rights that are published in registers are to be treated as rights in rem in terms of paragraph 1. Paragraph 4 contains a reverse exemption for the tests of invalidity set out in point (m) of Article 7(2) EIR, since the security interest in rem is undeserving of protection where it was granted by way of an action prejudicing creditors.

B. Historic development 6

Article 8 EIR almost exactly matches the wording of the rule contained in Article 5 EIR 2000. It is only in paragraph 4 that the reference to the provision contained in point (m) of Article 7 EIR has been adjusted (formerly point (m) of Article 4(2) EIR 2000). The suggestions for amendments3 proposed in the context of the reform were not adopted in Article 8 EIR.4 Ultimately, only editing changes were made, which is why the interpretation of Article 8 EIR can draw fully upon the conclusions that were made in respect of Article 5 EIR 2000.

C. Interpretation I. Rights in rem and equivalent rights 7

The Regulation does not define the term what a right in rem for the purposes of Article 8 EIR is,5 which is why the scope of application must be determined through interpretation. 1 The authors wish to thank Christopher J. Wright, J.D., LL.M. and Mag. iur. Sebastian Michels for their valuable support in preparing the manuscript. See CJEU, Case C-195/15 Senior Home v Gemeinde Wedemark ECLI:EU:C:2016:804, mn. 17. 2 Recital 68 EIR; BGH, Beschl. v. 03.02.2011 – V ZB 54/10, NZI 2011, 420, mn. 21 (DEU). 3 cf. e. g. Deutscher Bundesrat Drucksache 777/12(B), mn. 12, available at http://dipbt.bundestag.de/dip21/ brd/2012/0777-12B.pdf (last visited 16 Juli 2018); Garcimartín, IILR 2011, 321, 333 et seq.; Kolmann, IILR 2011, 272, 279 et seq., 283; Tollenaar, IILR 2011, 252, 260 et seq.; Veder, IILR 2011 285, 292. 4 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 8, mn. 2. 5 See Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 100.

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Third parties’ rights in rem

8–13

Art. 8

With respect to this, one must note that in accordance with the court decisions of the CJEU,6 a two-stage test must be applied. Otherwise, the danger is posed that legal positions that are not treated as rights in rem under the law of the State in which the assets are situated will be regarded as such and in turn, legal positions that are treated as rights in rem under the law of the State in which the assets are situated will not be covered.7 The two-stage test is applied as follows: In a first stage, it must be reviewed whether the respective right is regarded as a right in rem under national law. The question whether and to which extent such a right exists must be considered as preliminary question and thus be determined independently from Art. 8 EIR in accordance with the conflict of laws provisions of the lex fori.8 In case of physical assets, the law of the place where these assets are situated is therefore usually determinative for the characterisation as an in rem right (lex rei sitae).9 Where it is established that the right is recognised as being a right in rem by the applicable legal regime, it is examined in a second stage whether this right fulfils the requirements contained in Article 8 EIR. To this extent, the framework provided for by Article 8(2), (3) EIR has determinative significance: In those paragraphs, the term “right in rem” is not given an autonomous European Union definition. At the same time, however, a series of examples sets out the extent and thereby the scope of protection that this provision grants to the prior rights, guarantees or other rights of the creditor of an insolvent debtor provided for under the national laws of Member States.10 The rights referred to in (2) and (3) are therefore regarded as rights in rem in terms of Article 8 EIR in all cases.11 The list contained in paragraph 2 permits a distillation of the essential criteria for the characterisation of a right as a right in rem: The right must (i) show an immediate and direct connection to the asset or the claim and (ii) must be able to be asserted against all third parties (erga omnes).12 Further clarifications follow from paragraph 1. The provision expressly sets out that it is not decisive whether the right in rem is asserted by a creditor of the insolvent debtor or by a third party. In particular, third-party security interests granted by the insolvent debtor are also covered by Article 8 EIR. It is likewise irrelevant whether the right exists in tangible or intangible, moveable or immoveable assets of the debtor. The principle of speciality is also not applicable, since under paragraph 1, both rights in specific assets and rights in a majority of indefinite assets which change from time to time are considered. This is why a floating charge, which is recognised under English property law, is also in particular covered by Article 8 EIR.13 In the CJEU decision dated 26 October 2016,14 the European Court noted that Article 8 EIR must be narrowly interpreted as an exemption provision, but at the same 6

CJEU, Case C-195/15 Senior Home v Gemeinde Wedemark ECLI:EU:C:2016:804, mn. 16 et seq. cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 100. 8 Reinhart, in Münchener Kommentar zur InsO, Art. 5 VO (EG) 1346/2000, mn. 7 et seq.; cf. BGH, Beschl. v. 20.07.2017 ‐ IX ZB 69/16, ECLI:DE:BGH:2017:200717BIXZB69.16.0, NZI 2017, 770 et seq., mn. 18 (DEU). 9 Opinion of Advocate General Szpunar, 27 November 2014 Case C-557/13 Lutz v Bäuerle ECLI:EU: C:2014:2404, mn. 34; BGH, Beschl. v. 08.12.2016 – V ZB 41/14, ECLI:DE:BGH:2016:081216BVZB41.14.0, NZI 2017, 457 (DEU) with case note by Mankowski, mn. 8; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 100. 10 CJEU, Case C-195/15 Senior Home v Gemeinde Wedemark ECLI:EU:C:2016:804, mn. 21. 11 Opinion of Advocate General Szpunar, CJEU Case C-557/13 Lutz v Bäuerle ECLI:EU:C:2014:2404, mn. 35, 38. 12 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 103. 13 Snowden, in Bork/van Zwieten, Commentary on EIR, mn. 8.21 et seq. 14 CJEU, Case C-195/15 Senior Home v Gemeinde Wedemark ECLI:EU:C:2016:804, mn. 24 et seq. 7

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8

9

10

11

12

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Art. 8 14–18

Chapter I. General Provisions

time, cannot be that restrictively applied so as to remove the practical effectiveness of the provision. The grounds for this determination were founded in the question of whether Article 5 EIR 2000 only covers in rem rights that were granted in the course of a commercial transaction. The CJEU answered this question in the negative with persuasive reasoning that is governed by the interpretation of the EIR in light of its wording and purpose: 14 With respect to the wording of these provisions, it is established that Article 8 EIR contains no indications that the scope of application of this Article can be limited by the origin of the relevant in rem right or the – public or private law – nature of the claim that is secured by this right in rem. 15 With respect to the aims and the purpose of this provision, recital 67 EIR 2015 (recital 24 EIR 2000) shows that the exemptions from the general rule anchored in Article 7 EIR 2015 (Article 4 EIR 2000) on the determining of applicable law aim “to protect legitimate expectations and the certainty of transactions in Member States other than that in which proceedings are opened”. To this extent, it does not matter whether the relevant rights or claims are commercial law in nature. A limitation of the scope of application of Article 8 EIR 2015 to in rem rights that originate in a commercial contract would conflict with the goal expressly stated in recital 67 of EIR 2015 (recital 24 EIR 2000) of protecting legitimate expectations and the certainty of legal transactions. 16 Considering the criteria set out above, public easements in particular can therefore be qualified as in rem rights in terms of Article 8 EIR as well.15

II. Assets situated in another Member State 17

The asset to which the security interest relates must be situated in another Member State than the one in which proceedings were opened. The State in which assets are situated is determined in accordance with Article 2 no. 9 EIR. In comparison to the predecessor provision Article 2 EIR 2000, the definition of the State in which assets are situated contained in Article 8 EIR is specified such that individual provisions were included on registered shares, securities, cash held in accounts, rights entered in public registers and European patents, as well as copyrights and related rights. Where the asset is situated in a third country, the Article 8 EIR does not apply, meaning that then the general rule contained in Article 7 EIR (lex fori concursus) applies.16 The result is that the national law of the State in which proceedings are opened applies, including its international private law.17

III. Determinative point in time: Opening of insolvency proceedings 18

According to the wording of Article 8(1) EIR, the determinative point in time both for the existence of the right in rem as well as for the question of where the asset is situated is that of the opening of (main) insolvency proceedings.18 The special protection available under Article 8 EIR is granted only where the right in rem arises prior to the opening of proceedings. 15 CJEU Case C-195/15 Senior Home v Gemeinde Wedemark ECLI:EU:C:2016:804, mn. 14, 32; for more details in this regard see Mankowski, RIW 2017, 93; Court decision following the CJEU ibid. Germany: BGH, Beschl. v. 08.12.2016 – V ZB 41/14, ECLI:DE:BGH:2016:081216BVZB41.14.0, NZI 2017, 457 (DEU) case note by Mankowski. 16 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 8, mn. 27. 17 Wessels, International Insolvency Law, mn. 10647. 18 CJEU Case C-527/10 ERSTE Bank Hungary v Állam et al. ECLI:EU:C:2012:417; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 96.

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Third parties’ rights in rem

19–24

Art. 8

The question of whether rights in rem can also arise in the assets belonging to the 19 insolvency estate after proceedings have been opened, and if so, with what effects, is governed by the lex fori concursus in accordance with Article 7 EIR.19 In its decision dated 5 July 2012,20 the CJEU decided on the question which 20 provision should apply where the asset belonging to the insolvent debtor with the respective right in rem is situated in a country that is not yet a Member State of the European Union at the time proceedings are opened. That decision was based on the following facts: On 5 December 2003, insolvency proceedings were opened in Austria. On that date, the assets belonging to the insolvency estate with the right in rem in dispute were situated in Hungary, which joined the European Union on 1 May 2004. In accordance with the decision of the CJEU, Article 8 EIR also applies to insolvency proceedings that were opened prior to a Member State joining the European Union, provided that the assets belonged to the debtor and that the encumbered assets were situated in the respective State at the time that State joined the EU.

IV. No opening of secondary insolvency proceedings Article 8 EIR is not applicable where secondary insolvency proceedings are opened in 21 the State in which the encumbered assets are situated. This is because the limitation of the extra-territorial effects of the main insolvency proceedings that is intended by Article 8 EIR then already follows from the opening of secondary insolvency proceedings (Article 34 EIR et seq.). Accordingly, the right in rem must be asserted under the law of the lex fori concursus secundarii.21

V. No abuse Article 8 EIR does not apply where the State in which the assets are situated has been 22 selected in an abusive manner.22 This would be the case, for example, where the asset is transported to another State (only) for the purpose of withdrawing access to it from the other creditors. The assumption of such behaviour is in particular founded where the State in which the assets are situated has been changed very shortly before the opening of insolvency proceedings.

VI. No legal acts prejudicing creditors According to Article 8(4) EIR, the provisions contained in Article 8(1) EIR shall not 23 preclude actions for voidness, voidability or unenforceability or the relative ineffectiveness of a legal act under point (m) of Article 7(2)(sentence 2) EIR. Article 8(4) EIR permits a reverse exemption from Article 8(1) EIR for cases in which the security right was obtained by way of an act that prejudiced creditors. Where this reverse exemption applies, the general provisions apply (in particular point (m) of Article 7(2)(sentence 2) EIR); as a result, the lex fori concursus applies, however subject to Article 16 EIR. To this extent, and just like in the parallel provisions contained in Article 9(2) EIR 24 and Article 10(3) EIR, it is irrelevant whether the voidness, voidability or unenforceability of a legal act under the lex fori concursus arises only as the result of its assertion (by way of a legal action) or whether it already arises ipso iure (see, for example, in 19

Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 96. CJEU Case C-527/10 ERSTE Bank Hungary v Állam et al. ECLI:EU:C:2012:417., mn. 31 et seq., 46. 21 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 5 EIR 2000, mn. 14. 22 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 105. 20

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Art. 8 25–27

Chapter I. General Provisions

German insolvency law, § 88 of the German Insolvency Act – InsO).23 The provision contained in Article 8(2) EIR must be read together with point (m) of Article 7(2) EIR, which relates generally to which “law […] shall determine […] which legal acts are void, voidable or unenforceable” and which does not simply refer to legal “actions” with respect to the voidness, voidability or unenforceability of a legal act.

D. Legal consequences I. Legal consequences with respect to the right in rem The legal nature of Article 8(1) EIR and the legal consequences resulting from it are the subjects of a controversial discussion.24 Essentially, a distinction can be drawn between two trends: According to the conflict of laws norm theory,25 in contrast to the principle of Article 7 EIR, the treatment of the right in rem in the proceedings is governed by the insolvency law of the place where the asset is located (lex rei sitae) or the law of the claim (lex causae). Ultimately, this view results in the application of those rules that apply in the respective legal regime for the realisation of security interests, in particular insolvency law limitations. According to the substantive norm theory,26 the opening of main insolvency proceedings has no effects upon the right in rem, whereby this right is governed neither by the limitations of the lex fori concursus nor the limitations of the lex rei sitae. Ultimately, this means that security rights in assets in other Member States can be asserted and enforced in spite of the opening of insolvency proceedings as if no such proceedings existed. 26 The substantive norm theory must be affirmed. It corresponds to the wording of Article 8(1) EIR as well as to the intent of the legislator of the EIR to use Article 8 EIR to protect the reliance of the security interest holder. This is done by ensuring that the foundation, validity and scope of in rem rights are governed by the law of the State in which the assets are situated and are “not affected” by the opening of insolvency proceedings.27 Where insolvency proceedings are opened in a State that is not identical to the State in which the assets are situated, the right in rem is not subject to any insolvency law limitations. If one were to take a different view, the opening of insolvency proceedings would have (at least indirect) effects upon the in rem right: The opening of insolvency proceedings would have effects upon a right situated in another State even if no (secondary) insolvency proceedings have been opened in that State. This would contradict the wording of Article 8 (1) EIR. 27 However, the effects of the substantive norm theory can be mitigated by the opening of secondary insolvency proceedings (Article 34 et seq.). Where secondary insolvency 25

23 CJEU Case C-557/13 Lutz v Bäuerle ECLI:EU:C:2015:227, mn. 30; opinion of Advocate General Szpunar, CJEU Case C-557/13 Lutz v Bäuerle ECLI:EU:C:2014:2404, mn. 45 et seq. 24 Reinhart, in Münchener Kommentar zur InsO, Art. 5 VO (EG) 1346/2000, mn. 17 et seq. with further references; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 5 EIR 2000, mn. 12 et seq. with further references. 25 Flessner, Dingliche Sicherungsrechte, p. 277, 282 et seq.; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 5 EIR 2000, mn. 2, 17 with further references. 26 cf. Snowden, in Bork/van Zwieten, Commentary on EIR, mn. 8.05 et seq.; Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.41; acc. to Art. 5 EIR 2000: Opinion of Advocate General Szpunar, CJEU Case C-557/13, Lutz v Bäuerle, ECLI:EU:C:2014:2404, mn. 31; Wessels, International Insolvency Law, mn. 10635 (iii) with further references to case-law; Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.186 et seq.; Virgós/Garcimartín, European Insolvency Regulation, mn. 163 et seq. 27 cf. recital 68 EIR.

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Art. 8

proceedings are opened, Article 8 EIR is no longer applicable and the assets become part of the insolvency estate of the secondary insolvency proceedings pursuant to Article 3 (2)(sentence 2) EIR, and Article 34(sentence 3) EIR. These assets are, pursuant to Article 35 EIR, governed by the lex fori concursus secundarii.28 Where the conditions for opening secondary insolvency proceedings are not met, the legal consequences of those proceedings may not be (even partially) brought about by an expansive interpretation of Article 8 EIR. Any adjustments must be made by the legislator. This did not take place in the context of the reform of the EIR. This decision by the legislator must be accepted, it is only for him to second guess it.

II. Legal consequences with respect to the subject of the in rem right Article 8 EIR relates to the right in an asset, but not the asset itself. The asset 28 attributed to the assets of the insolvency debtor therefore becomes part of the insolvency estate and is governed by the lex fori concursus.29 The differentiation between a right in rem and the asset especially poses an issue where the value of the asset is greater than the value of the claim of the creditor that is secured by the in rem right. Where the creditor obtains proceeds from the realisation of the asset belonging to the insolvency estate and such proceeds exceed the secured claim, the excess must be remitted to the main insolvency administrator.30 In addition, the main insolvency administrator has the opportunity to redeem the secured claim and, by doing so, to prevent a loss in value that might occur when a separate realisation of certain assets takes place.31 28

Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 98; Veder, IILR 2011, 285,

291. 29 cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 99; Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 5 EG-InsVO 2000, mn. 25; Moss/ Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.192; Wessels, International Insolvency Law, mn. 10649. 30 Recital 68 EIR; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 99; Moss/ Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.192; Wessels, International Insolvency Law, mn. 10649; even considering a right to realise the securities for the administrator Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 5 EG-InsVO 2000, mn. 25; Paulus, EuInsVO, Art. 8 mn. 23 et seq. 31 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 99; Wessels, in Moss/ Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.193; Wessels, International Insolvency Law, mn. 10656; Paulus, EuInsVO, Art. 8 mn. 21.

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Article 9 Set-off 1. The opening of insolvency proceedings shall not affect the right of creditors to demand the set-off of their claims against the claims of a debtor, where such a set-off is permitted by the law applicable to the insolvent debtor’s claim. 2. Paragraph 1 shall not preclude actions for voidness, voidability or unenforceability as referred to in point (m) of Article 7 (2). Recital: 70. Case law: Germany: BGH, Urt. v. 08.02.2018 – IX ZR 103/17, BeckRS 2018, 13546; BFH, Beschl. v. 08.03.2017 – VII R 13/15, ECLI:DE:BFH:2017:B.080317.VIIR13.15.0; BGH, Urt. v. 16.09.2015 – VIII ZR 17/15, NZI 2015, 1033 et seq.; FG München, Beschl. v. 29.04.2015 – 1K 1080/13, BeckRS 2015, 95144. Outline A. Purpose ............................................................................................................................... 1 B. Historic development ...................................................................................................... 3 C. Scope ................................................................................................................................... D. Interpretation .................................................................................................................... 4 I. Impermissibility of the set-off under the lex fori concursus.......................... 4 II. Permissibility of the set-off under lex causae................................................... 5 III. Reasoning for the permission to set off claims established prior to opening insolvency proceedings .......................................................................... 7 IV. No legal acts prejudicing creditors...................................................................... 9 E. Legal consequences .......................................................................................................... 12

A. Purpose Paragraph 1 of Article 9 EIR is intended to protect the legitimate expectation of the creditor with respect to his ability to set off his claims acquired prior to the opening of insolvency proceedings.1 2 Paragraph 2 of Article 9 EIR contains a reverse exemption where the invalidity tests set out in Article 7(2)(sentence 2)(m) EIR are met, since those cases in which the ability to set off claims was brought about by a measure that prejudices creditors do not deserve protection.2 1

B. Historic development 3

Article 9 EIR almost exactly matches the wording of the rule contained in Article 6 EIR 2000. Only the reference in Article 9(2) EIR to the provision contained Article 7 (2)(m) EIR has been adjusted (formerly Article 4(2)(m) EIR 2000). The proposal to include a provision on so-called netting agreements in Article 6 EIR 2000 was not 1 2

Recital 70 EIR; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 109. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 9, mn. 4.

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adopted.3 Ultimately, only editing changes were made, which is why the interpretation of Article 9 EIR can draw fully upon the conclusions that were made in respect to Article 6 EIR 2000.

C. Scope The scope of Article 9 EIR has to be clearly distinguished from the scope of Article 16 EIR. Conflicts in this regard may arise in cases of set-offs with challengeable counterclaims within the meaning of Article 16 EIR. In those cases, Article 16 EIR prevails as the more specific provision.4

D. Interpretation I. Impermissibility of the set-off under the lex fori concursus The provisions contained in Article 9 EIR apply only where the set-off is generally 4 impermissible under the lex fori concursus, which is determined based on Article 7(2) (sentence 2)(d) EIR.5 Where such a set-off is already permitted by the lex fori concursus, Article 9 EIR does not apply.6

II. Permissibility of the set-off under lex causae Where a set-off is impermissible under the lex fori concursus, Article 9 EIR creates an 5 exemption from the general application of the legal provisions that apply to this extent. This is because the provision permits the set-off in accordance with those provisions that apply to set-offs in insolvency proceedings under the law applying to the claim of the insolvent debtor (“principal claim”).7 Accordingly, the law governing the claim determines the law that governs any set-off. The law applicable to the principal claim is determined independently under the general rules of international private law.8 For claims based on contracts, the Rome I Regulation usually applies. The freedom to choose a governing law, of course, affords the parties the opportunity to manipulate the applicable regime.9 3 For more details in this regard see Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Council Regulation (EC) no 1346/2000 on insolvency proceedings, COM (2012) 744 final, available at: http://ec.europa.eu/transparency/regdoc/rep/1/2012/EN/ 1-2012-744-EN-F1-1.Pdf (last visited 9 November 2018), reproduced in IILR 2013, 179 et seq.; cf. also European Parliament legislative resolution of 5 February 2014 on the proposal for a regulation of the European Parliament and of the Council amending Council Regulation (EC) no 1346/2000 on insolvency proceedings (COM(2012)0744 – C7-0413/2012 – 2012/0360(COD)), available at: http://www.europarl. europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+P7-TA-2014-0093+0+DOC+PDF+V0//EN (last visited 9 November 2018). 4 See BGH, Urt. v. 16.09.2015 – VIII ZR 17/15, NZI 2015, 1033 et seq., mn. 18 (DEU); cf. also within the context of identical German provisions BGH, Urt. v. 08.02.2018 – IX ZR 103/17, BeckRS 2018, 13546, mn. 32 et seq. (DEU). 5 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 109; Wessels, International Insolvency Law, mn. 10664. 6 cf. BFH, Beschl. v. 08.03.2017 – VII R 13/15, ECLI:DE:BFH:2017:B.080317.VIIR13.15.0 (DEU). 7 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 109. 8 Snowden, in Bork/van Zwieten, Commentary on the EIR, Art. 9, mn. 9.07. 9 Critical e. g. Dahl, in Andres/Leithaus, Insolvenzordnung, § 338 mn. 2 with further references; cf. also Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.202.

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In cases where the law applying to the claim is the law of a third country (non-Member State), it is questionable whether the exemption in Article 9 EIR also applies. The provision itself is silent on this. In the reform, the legislator neither limited the provision in Article 9 EIR to Member States, nor was it expanded to cover non-Member States. The indeterminate wording of the provision could be used to justify both interpretations. In accordance with the clarification that has already been demanded for Article 6 EIR 2000, however, it must be assumed that the law of the principal claim need not necessarily be the law of a Member State.10 This view is consistent with the legislative purpose of the provision contained in Article 9(1) EIR, namely protecting the legitimate expectation of the creditor in its ability to set off claims acquired prior to insolvency.11 In particular, having regard to the indeterminate wording of the provision, it is unclear why such reliance should only deserve protection where the law governing the principal claim is that of a Member State. Cases of abuse can be dealt with in the context of Article 9(2) EIR.

III. Reasoning for the permission to set off claims established prior to opening insolvency proceedings Since the provision contained in Article 9(1) EIR seeks to protect the reliance of creditors in the set-off of their claims where these have been acquired prior to the opening of insolvency proceedings, both the principal claim of the debtor and the counterclaim of the creditor must have already arisen prior to the opening of insolvency proceedings.12 Only in this case is it possible for such protective reliance to be posed, namely that the entitlement of the creditor to set off its claim against a claim of the debtor will not be affected by the opening of insolvency proceedings. Consequently, the ability to set off claims after proceedings have been opened is still governed by the general provision in Article 7(2)(sentence 2)(d) EIR (applicability of the lex fori concursus). 8 Under the legal definition contained Article 2 no. 8 EIR, the point in time of the opening of proceedings is the date on which the decision to open proceedings becomes effective, irrespective of whether the decision is final or not. The date on which the claim arises is governed by the law of the respective claim.13 7

IV. No legal acts prejudicing creditors 9

In accordance with Article 9(2) EIR, Article 9(1) EIR does not oppose the voidness, voidability or unenforceability of a legal act under point (m) of Article 7(2)(sentence 2) EIR. The reason for this reverse exemption – just like the parallel provisions in Article 8 (4) EIR and Article 10(3) EIR – is that actions that prejudice creditors (in this case founding a set-off position) are not worthy of protection. In such cases, the general 10 cf. Heidelberg-Luxembourg-Vienna Report, mn. 6.3.4; McCormack, J. Priv. Int. L. 10 (2014), 41, 61; Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 6 EGInsVO 2000, mn. 6; Wessels, International Insolvency Law, mn. 10665; whereas diss. op. e. g. Wessels, in Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.202. 11 For more details in this regard see Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 109. 12 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 110; Virgós/Garcimartín, European Insolvency Regulation, mn. 188; Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.205; Wessels, International Insolvency Law, mn. 10662; Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 6 EG-InsVO 2000, mn. 5; Germany: FG München, Beschl. v. 29.04.2015 – 1K 1080/13, BeckRS 2015, 95144. 13 Huber, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 6 VO Nr. 1346/2000, mn. 11.

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provisions (in particular point (m) of Article 7(2)(sentence 2) EIR) apply, which results in the application of the lex fori concursus. To this extent, and just like for the parallel provisions in Article 8(4) EIR and 10 Article 10(3) EIR, it is irrelevant whether the voidness, voidability or unenforceability of a legal act under the lex fori concursus arises only as a result of being asserted (by bringing an action) or already arises ipso iure, for more details in this regard see Dahl/ Kortleben above Art. 8, mn. 24. The reverse exemption contained in Article 9(2) EIR can be avoided under Article 16 11 EIR by the creditor seeking a set-off where the creditor proves that the law of another Member State is determinative for the act that is contested and that this law is invulnerable to challenge.14

E. Legal consequences In accordance with Article 9(1) EIR, the opening of insolvency proceedings “shall not 12 affect” the right of a creditor to set-off counterclaims against claims of the debtor if the creditor is entitled to do so by the law applicable to the insolvent debtor’s claim. Seen from another perspective, this means if and to the extent that the law governing the principal claim (lex causae) permits a set-off, the creditor is protected against a limitation on set-offs under the provisions of the lex fori concursus (point (d) of Article 7(2)(sentence 2) EIR). In the end, the law that is more conducive to a set-off therefore takes priority.15 Just like the parallel norm contained in Article 8(1) EIR, Article 9 EIR is also not a conflicts of laws rule, but instead, serves as a provision of substantive law,16 for more details in this regard see Dahl/Kortleben above Art. 8 mn. 25 et. seqq. 14

cf. Snowden, in Bork/van Zwieten, Commentary on the EIR, Art. 9, mn. 9.20. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 6 EIR 2000, mn. 15. 16 Contradictory in this regard with respect to the identical German provision (§ 338 InsO) BGH, Urt. v. 08.02.2018 – IX ZR 103/17, BeckRS 2018, 13546 (DEU). 15

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Article 10 Reservation of title 1. The opening of insolvency proceedings against the purchaser of an asset shall not affect sellers’ rights that are based on a reservation of title where at the time of the opening of proceedings the asset is situated within the territory of a Member State other than the State of the opening of proceedings. 2. The opening of insolvency proceedings against the seller of an asset, after delivery of the asset, shall not constitute grounds for rescinding or terminating the sale and shall not prevent the purchaser from acquiring title where at the time of the opening of proceedings the asset sold is situated within the territory of a Member State other than the State of the opening of proceedings. 3. Paragraphs 1 and 2 shall not preclude actions for voidness, voidability or unenforceability as referred to in point (m) of Article 7(2). Recitals: 66–68. Specific bibliography: Mankowski, Insolvenznahe Verfahren und Sicherung eines Eigentumsvorbehalts im Grenzbereich zwischen EuInsVO und EuGVVO, NZI 2008, 604. Case law: EU: CJEU, 16 April 2015, Case C-557/13, Lutz v Bäuerle, ECLI:EU:C:2015:227; Opinion of Advocate General Szpunar, 27 November 2014, Case C-557/13, Lutz v Bäuerle, ECLI:EU: C:2014:2404; CJEU, 10 September 2009, Case C-292/08, German Graphics Graphische Maschinen GmbH v Alice van der Schee, ECLI:EU:C:2009:544. Austria: OGH, 30 August 1961 – 5Ob248/61, SZ 34/113, ECLI:AT:OGH0002:1963:0040OB00012.63.0604.000. Germany: BGH, Beschl. v. 27.03.2008 – IX ZR 220/05, NJW 2008, 1803, 1806. Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Interpretation .................................................................................................................... I. Reservation of title.................................................................................................. II. Reservation of title is founded prior to the opening of main insolvency proceedings............................................................................................................... III. Purchased assets are situated in another Member State than that in which proceedings were opened.......................................................................... IV. No opening of secondary proceedings............................................................... V. No abuse ................................................................................................................... VI. No legal act prejudicing creditors ....................................................................... D. Legal consequences .......................................................................................................... I. Purchaser’s insolvency (paragraph 1)................................................................. 1. Legal consequences with respect to the rights under the reservation of title 2. Legal consequences with respect to the subject of the reservation of title II. Seller insolvency (paragraph 2) ...........................................................................

1 3 4 4 6 7 8 9 10 12 12 12 13 17

A. Purpose 1

According to paragraph 1, the opening of insolvency proceedings against a purchaser of an asset does not affect the seller’s rights that are based on a reservation of title. Pursuant to paragraph 2, the opening of insolvency proceedings against the seller of an asset after that asset’s delivery does not justify rescinding or terminating the purchase agreement and does 136

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not oppose the purchaser’s acquisition of title. The special rules set out in paragraph 1 and paragraph 2 are intended to protect the legitimate expectations of the purchaser and the seller that each such party can still assert the rights arising under a reservation of title in the event of the insolvency of the other contracting party.1 With this intent, the provisions contained in paragraph 1 and paragraph 2 are closely connected to Article 8 EIR, which is why the comments on Article 8 EIR may be correspondingly drawn upon here.2 The reason that these provisions are contained in separate Articles is that the legislator did not regard reservations of title as rights in rem, but instead as a form of “ancillary provision” to a purchase agreement.3 Ultimately, just like Article 8 EIR, Article 10 EIR creates an exception from the general rule contained in Article 7 EIR and the application of the lex fori concursus. Paragraph 3 contains a reverse exemption for the invalidity tests covered by Article 7 2 (2)(sentence 2)(m) EIR, since the protection under Article (1) and (2) is not justified when the purchaser or seller has obtained its legal position through an action that prejudices creditors.4

B. Historic development Article 10 EIR 2015 almost exactly matches the wording of the regulation contained 3 in Article 7 EIR 2000. Only the reference made in paragraph 3 Article 7(2) (m) EIR 2015 (formerly Article 4(2)(m) EIR 2000) has been amended. The interpretation of Article 10 EIR 2015 can therefore draw fully upon the conclusions that were made in respect of Article 7 EIR 2000.

C. Interpretation I. Reservation of title Whether a reservation of title is effectively agreed on under substantive law is a 4 question of the lex causae. Article 10 EIR covers only simple reservations of title and not expanded and extended 5 forms.5 The rights in rem granted in the context of expanded or extended reservations of title may, however, fall within the scope of application of Article 8 EIR.6

II. Reservation of title is founded prior to the opening of main insolvency proceedings The reservation of title must be founded prior to the opening of the (main) insolvency 6 proceedings. Only in this case can the creditor point towards the legitimate expectation that is protected by Article 10 EIR, namely that the creditor can still assert its rights 1 CJEU Case C-292/08 German Graphics Graphische Maschinen GmbH v Alice van der Schee ECLI:EU: C:2009:544, mn. 35. 2 cf. Snowden in, Bork/van Zwieten, Commentary on the EIR, Art. 10, mn. 10.01; Bork, in Bork/ Mangano, European Cross-Border Insolvency Law, mn. 4.77; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 112. 3 Wessels, International Insolvency Law, mn. 10671; Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 7 EG-InsVO 2000, mn. 4. 4 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 115. 5 Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 7 EGInsVO 2000, mn. 3. 6 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 10, mn. 8 with further references.

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Art. 10 7–10

Chapter I. General Provisions

resulting from the agreement on a reservation of title in the insolvency of the contractual counterparty.7 Under the legal definition contained in Article 2 no. 8 EIR, the time of the opening of proceedings means the time at which the decision on the opening of proceedings becomes effective, irrespective of whether this decision is final or not.

III. Purchased assets are situated in another Member State than that in which proceedings were opened 7

The asset to which the reservation of title relates must be located in another Member State than the state where proceedings were opened. The location is determined by Article 2 no. 9 EIR. When the asset is located in a third State, i. e. a non-EU-Member State, Article 10 EIR does not apply, which means that the general rule contained in Article 7 EIR (lex fori concursus) applies. The same result is obtained where the respective asset is located in the Member State in which proceedings are opened at the time of the opening.8 If the location of the asset is changed after proceedings have been opened, Article 10 EIR nevertheless applies. This means that Article 10 EIR applies even where the purchased asset is taken to another State after proceedings have been opened.9

IV. No opening of secondary proceedings 8

Article 10 EIR does not apply where secondary proceedings are opened in the Member State in which the goods subject to a reservation of title are located, since the limitation of the extraterritorial extension of effect of the lex fori concursus of the main proceedings provided for by this provision already follows from the opening of the secondary proceedings (Article 34 EIR et seq.). The rights under the reservation of title clause must therefore be asserted in accordance with the provisions of the lex fori concursus secundarii.10

V. No abuse 9

Just like the provision in Article 8 EIR, the provision contained in Article 10 EIR does not apply when the state where the asset is located is selected in an abusive manner.11 This is the case, for instance, when the asset is brought into another Member State (only) for the purpose of withdrawing it from access by the other creditors. The assumption of such behaviour is especially indicated where the State is changed shortly before proceedings are opened.

VI. No legal act prejudicing creditors 10

According to paragraph 3, paragraphs 1 and 2 do not preclude actions for voidness, voidability or unenforceability as referred to Article 7(2)(m) EIR. Paragraph 3 provides 7 cf. Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 7 EGInsVO 2000, mn. 4. 8 See CJEU Case C-292/08 German Graphics Graphische Maschinen GmbH v Alice van der Schee ECLI: EU:C:2009:544, mn. 36. 9 Wessels, International Insolvency Law, mn. 10673; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 113. 10 cf. Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 7 EGInsVO 2000, mn. 6. 11 cf. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 7 EIR 2000, mn. 56 et seq.; cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 105.

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Art. 10

for a reverse exemption from the exemption provision contained in paragraphs 1 and 2 for cases in which the reservation of title was founded by an act that prejudices creditors. Where this reverse exemption applies, the general provisions (in particular Article 7(2)(m) EIR) apply, to the effect that – subject to the provision contained in Article 16 EIR – the lex fori concursus applies. To this extent, and just like the parallel provisions contained in Article 8(4) EIR and 11 Article 9(2) EIR, it is irrelevant whether the voidness, voidability or unenforceability of a legal act under the lex fori concursus arises only as the result of an assertion thereof (by way of an action) or already arises ipso iure (see for example the provision contained in § 88 German Insolvency Act – InsO).12

D. Legal consequences I. Purchaser’s insolvency (paragraph 1) 1. Legal consequences with respect to the rights under the reservation of title In accordance with paragraph 1, the opening of insolvency proceedings against the 12 purchaser of assets “shall not affect” the rights of the seller under a reservation of title clause. Just like the parallel norm contained in Article 8(1) EIR, Article 10 EIR is also not a conflict of laws norm,13 but instead, serves as a provision of substantive law, for more details in this regard see Dahl/Kortleben above Art. 8 mn. 25 et seqq. Article 10(1) EIR is a provision of substantive law that seeks to protect the seller with respect to the assets that are not located in the Member State in which proceedings are opened.14 This means that the opening of main insolvency proceedings has no effect upon the rights under the reservation of title. From the standpoint of general conflict of laws rules, the rights to which the holder of the reservation of title is entitled are governed by the law applicable in the state in which (main insolvency) proceedings are opened; this will usually be the law in the state in which the assets are situated (lex rei sitae).15

2. Legal consequences with respect to the subject of the reservation of title Just like Article 8 EIR, Article 10(1) EIR only relates to the rights under the reservation 13 of title clause, but not the asset covered by the reservation of title. Initially, this asset becomes part of the actual insolvency estate and is governed by the lex fori concursus.16 Having regard to this background, the position is sometimes taken that the seller with 14 a reservation of title is required to remit the proceeds resulting from the realisation of the asset to the main insolvency administrator to the extent by which such proceeds exceed the purchase price claim that was secured (i. e. by the reservation of title).17 This view should be rejected, however, because it relies on the incorrect assumption that the 12 CJEU Case C-557/13 Lutz v Bäuerle ECLI:EU:C:2015:227, mn. 30; opinion of Advocate General Szpunar, 27 November 2014 Case C-557/13 Lutz v Bäuerle ECLI:EU:C:2014:2404, mn. 45 et seq. 13 In this sense however Wessels, International Insolvency Law, mn. 10671. 14 cf. CJEU Case C-292/08 German Graphics Graphische Maschinen GmbH v Alice van der Schee ECLI: EU:C:2009:544, mn. 35 et seq. 15 Huber, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 7 VO Nr. 1346/2000, mn. 12. 16 cf. Braun, in Commentary on the German Insolvency Code, mn. 369. 17 In this sense e. g. with reference to recital 68 cl. 5; J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 10, mn. 14; dissenting e. g. Huber, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 7 VO Nr. 1346/2000, mn. 14; Duursma-Kepplinger, in DuursmaKepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 7 EIR 2000, mn. 20.

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simple reservation of title – and only this is covered by Article 10 EIR, see above mn. 5 – secures the purchase price claim of the seller with a reservation of title. This view cannot be adopted, since – in contrast to, for example, the expanded reservation of title – the simple reservation of title does not secure the purchase price claim, but instead secures only the entitlement to the goods that were sold.18 The claim of the seller with a reservation of title is not only aimed at the preferential satisfaction (right to separate satisfaction) from the realization proceeds, but instead is aimed at the delivery (right to separation) of the asset that was sold. Where the seller with a reservation of title enforces its delivery claim by separating sold assets from the insolvency estate, this asset is no longer part of the insolvency estate. Any expectant right to the asset held by the insolvency estate is extinguished. Title to the asset sold is once again held in full by the seller with a reservation of title and this party may freely dispose of the asset. If that party does so by selling the asset, it may keep the full amount of the proceeds. 15 The main insolvency administrator may preclude a realisation by the seller with a reservation of title by making timely payment of the outstanding remaining purchase price to the seller with a reservation of title and by doing so, bringing about the transfer of title to the debtor.19 Where the administrator fails to make use of this opportunity, the administrator may claim neither the asset itself nor the proceeds from its realisation for the insolvency estate. 16 Legal consequences with respect to the (purchase price) claim of the seller Article 10 EIR does not set out whether the purchase price (claim) of the seller belongs to the category of claims in insolvency.20 In accordance with Article 7(2)(sentence 2)(g) EIR, this question is governed by the lex fori concursus.

II. Seller’s insolvency (paragraph 2) 17

Pursuant to paragraph 2, the opening of insolvency proceedings against the seller of assets after these assets have been delivered does not justify the rescission or termination of the purchase agreement and does not bar the purchaser from acquiring title. Just like paragraph 1 and Article 8(1) EIR, paragraph 2 is also a provision of substantive law.21 The opening of main insolvency proceedings has no effect upon the legal position (“expectant right”) of the purchaser, whereby this position is neither subject to the limitations of the lex fori concursus nor to the limitations of the lex rei sitae.22 Where the purchaser makes payment of the sums owed pursuant to the contract, the purchaser acquires title to the asset sold upon making the last payment.23 18 For more details in this regard cf. Germany: BGH, Beschl. v. 27.03.2008 – IX ZR 220/05, NJW 2008, 1803, 1806 (DEU); Austria: OGH, 30 August 1961 – 5Ob248/61, Kopf SZ 34/113, ECLI:AT: OGH0002:1963:0040OB00012.63.0604.000 (AUT). 19 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 10, mn. 14; Huber, in Geimer/ Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 7 VO Nr. 1346/2000, mn. 14. 20 Mankowski, NZI 2008, 604, 605; Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 7 EG-InsVO 2000, mn. 5; cf. CJEU Case C-292/08 German Graphics Graphische Maschinen GmbH v Alice van der Schee ECLI:EU:C:2009:544. 21 Virgós/Schmit Report on the Convention on Insolvency Proceedings, mn. 112; Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 7 EG-InsVO 2000, mn. 8; only acc. to Art. 7 (2) EIR 2000: Wessels, International Insolvency Law, mn. 10671. 22 Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 7 EGInsVO 2000, mn. 8; cf. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 7 EIR 2000, mn. 24 et seq. with further references. 23 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 114.

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Article 11 Contracts relating to immoveable property 1. The effects of insolvency proceedings on a contract conferring the right to acquire or make use of immoveable property shall be governed solely by the law of the Member State within the territory of which the immoveable property is situated. 2. The court which opened main insolvency proceedings shall have jurisdiction to approve the termination or modification of the contracts referred to in this Article where: (a) the law of the Member State applicable to those contracts requires that such a contract may only be terminated or modified with the approval of the court opening insolvency proceedings; and (b) no insolvency proceedings have been opened in that Member State. Recitals: 22, 67. Case law: EU: CJEU, 26 October 2016, Case C-195/15, Senior Home v Gemeinde Wedemark, ECLI:EU:C:2016:804; CJEU, 22 November 2012, Case C-116/11, Bank Handlowy v Christianapol, ECLI:EU:C:2012:739; CJEU, 20 October 2011, Case C-396/09, Interedil, ECLI:EU:C:2011:671, mn. 42; CJEU, 29 October 2009, Case C-174/08, Construction Danmark v Skatteministeriet, ECLI:EU:C:2009:669. Germany: BGH, Beschl. v. 20.07.2017 – IX ZB 69/16, ECLI:DE:BGH:2017:200717BIXZB69.16.0, NZI 2017, 770 et seq.; BGH, Urt. v. 18.09.2014 – VII ZR 58/13, NZI 2014, 969 et seq.; OLG Hamm, Urt. v. 15.09.2011 – 18 U 226/10, IPRax 2012, 351 et seq.; OLG Koblenz, Urt. v. 10.12.2010 – 8 U 1112/09, ECLI:DE:OLGKOBL:2010:1210.8U1112.09.0A, NZI 2011, 448 et seq.; LG Göttingen, Urt. v. 13.04.2011 – 5 O 102/07, ECLI:DE:LGGOETT:2011:0413.5O102.07.0A, IPRspr 2011, no. 320, 863 et seq.

Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Interpretation .................................................................................................................... I. Conditions set out in paragraph 1 ...................................................................... 1. Immovable property .......................................................................................... 2. Property is situated in another Member State............................................. 3. Contract conferring the right to acquire or make use............................... II. Conditions set out in paragraph 2 ...................................................................... D. Legal consequences ..........................................................................................................

1 3 4 4 4 5 6 8 9

A. Purpose According to paragraph 1, the effects of insolvency proceedings upon a contract 1 conferring the right to acquire or make use of immovable property are determined exclusively by the law of the Member State in whose sovereign territory the property is situated. This provision permits an exception from Article 7(2)(sentence 2)(e) EIR, according to which the issue of whether and to what extent insolvency law affects existing contracts is generally governed by the lex fori concursus.1 Paragraph 1 amounts 1 For delimining scopes also regarding Article 7(2)(sentence 2)(m) EIR see OLG Koblenz, Urt. v. 10.12.2010 – 8 U 1112/09, ECLI:DE:OLGKOBL:2010:1210.8U1112.09.0A, NZI 2011, 448 et seq.,

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to a special reference providing that the law of the State where the immovable property is situated (lex rei sitae) applies instead of the law of the Member State in which insolvency proceedings were opened.2 This exemption provision takes into account the fact that by its nature, real property has a strong connection to the state in which it is situated and the respective individually-designed regulation systems in such States.3 The special reference prevents an encroachment into these differently-structured national regulation systems and in this manner, ensures that national standards are maintained, such as tenant protection.4 This special reference also serves to promote legitimate expectations and legal certainty in the state where the immovable property is situated.5 2 Pursuant to paragraph 2, the court that has opened the main insolvency proceedings has jurisdiction to consent to a termination or modification of contracts in terms of Article 11 EIR. This amounts to a uniform regulation of international, territorial and substantive law jurisdiction to the benefit of the court of the Member State in which main insolvency proceedings were opened.6

B. Historic development 3

In the course of the reform, Article 11(1) EIR was amended in its wording only twice (“territory”, “situated”). Paragraph 2, on the other hand, is entirely new.

C. Interpretation I. Conditions set out in paragraph 1 1. Immovable property 4

Article 11 EIR relates to contracts for the acquisition or use of immovable property. The EIR does not contain a definition for the term “immovable property” to which the right of acquisition or use must relate. Following the court decisions of the CJEU that European Union law provisions must be interpreted autonomously,7 it can be assumed in particular with regard to the provision contained in Article 14 EIR – “rights of a debtor in immoveable property, a ship or an aircraft” – that this term must be interpreted narrowly and, in particular, that the property specially referred to in Article 14 EIR (ships and aircraft) cannot be regarded as immovable property.8 A narrow interpretation is also supported by the fact that Article 11 EIR is an exemption from Article 7 EIR, and exemptions are generally interpreted narrowly.9 A basis for this differentiation can be found in the fact that the physical movability of the mn. 18 et seq. (DEU); LG Göttingen, Urt. v. 13.04.2011 – 5 O 102/07, ECLI:DE:LGGOETT:2011:0413.5O102.07.0A, IPRspr 2011, no. 320, 863 et seq., mn. 21 et seq. (DEU). 2 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.211. 3 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 118. 4 Virgós/Garcimartín, European Insolvency Regulation, mn. 204; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 118. 5 cf. recitals 22, 67 EIR. 6 Garcimartín, ZEuP 2015, 694, 718. 7 CJEU Case C-116/11 Bank Handlowy v Christianapol ECLI:EU:C:2012:739, paras. 49 et seq.; CJEU Case C-396/09 Interedil ECLI:EU:C:2011:671, mn. 42; CJEU Case C-174/08 Construction Danmark v Skatteministeriet ECLI:EU:C:2009:669, mn. 24. 8 Consenting Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.87; cf. Reinhart, in Münchener Kommentar zur InsO, Art. 8 VO (EG) 1346/2000, mn. 4 et seq. 9 cf. CJEU Case C-195/15 Senior Home v Gemeinde Wedemark ECLI:EU:C:2016:804, mn. 24 et seq.

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property is used as a distinction here; accordingly, real property and buildings are covered by Article 11 EIR.10

2. Property is situated in another Member State Article 11 EIR contains the additional condition that the immoveable property is 5 located within the territory of a Member State. Article 11 EIR therefore expressly sets out that the provision does not apply where immovable property is situated in a third country. The provision likewise does not apply where the immoveable property is situated in the Member State where proceedings were opened, since in this case, the law of that Member State already applies in accordance with Article 7(2)(e) EIR. Article 11 EIR is therefore applicable if immoveable property is situated in a Member State and the insolvency proceedings were opened in another Member State.

3. Contract conferring the right to acquire or make use Article 11(1) EIR relates to contracts that confer the right to acquire or make use of 6 immoveable property.11 The provision covers not only contracts for the use of property (rental, leasing etc.), but also contracts that govern a change in material ownership by way of a transfer of legal title.12 There is no limitation to only reciprocal contracts, in particular purchase agreements. For this reason, deeds of gift are also covered by this.13 At least from the perspective of those legal systems that differentiate between transac- 7 tions that create obligations and those that transfer title (“separation and abstraction principle”), the question arises whether only contracts under the law of obligations or also contracts in rem are covered. The EIR itself contains no restrictions to this extent. A contract that confers the right to acquire or make use of immoveable property should therefore not be excluded from the scope of application of paragraph 1 merely because the contract is a contract in rem.14 A categorical exclusion of contracts in rem would conflict with the purposes of paragraph 1 of maintaining differently-designed national regulation systems and promoting legitimate expectations and legal certainty in the State in which the immovable property is situated (see above with additional citations mn. 1).

II. Conditions set out in paragraph 2 The new provision contained in paragraph 2 that was created in the context of the 8 reform applies where two conditions are cumulatively met: First, a contract in terms of paragraph 1 exists and the law of the Member State in which the immovable property is situated provides for court consent to the termination or modification of that contract. The consent requirement is limited to court consent: In contrast to Article 13(2) (sentence 2) EIR, Article 11(2) EIR does not provide for an expansion of its scope of application to other consent requirements, such as consent by authorities.15 Second, no 10

Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.87. For more details in this regard see Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 11, mn. 22 et seq. with further references; in contrast to other claims within context of property purchase agreements cf. OLG Hamm, Urt. v. 15.09.2011 – 18 U 226/10, IPRax 2012, 351 et seq., mn. 62 (DEU). 12 Virgós/Garcimartín, European Insolvency Regulation, mn. 203; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 119. 13 Wessels, International Insolvency Law, mn. 10686; Duursma-Kepplinger, in Duursma-Kepplinger/ Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 8 EIR 2000, mn. 1. 14 cf. Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.212. 15 Bornemann, in Wimmer/Bornemann/Lienau, Neufassung EuInsVO, mn. 305; Josko de Marx, in Braun, Insolvenzordnung, Art. 11, mn. 22. 11

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Art. 11 9–10

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insolvency proceedings may have been opened in the respective Member State. Where secondary insolvency proceedings have been opened, paragraph 2 does not apply, since the provisions of Article 34 EIR et seq. apply to this extent. In accordance with Article 34(sentence 3) EIR and Article 35 EIR, the court of the State where secondary proceedings were opened would be responsible for the (potentially required) consent to a termination or modification of the contract.

D. Legal consequences The legal consequence of paragraph 1 is that the law of the Member State in whose territory immoveable property is located is exclusively determinative for the effects of the insolvency proceedings on a contract conferring the right to acquire or use that property.16 “Exclusively” means that only the law of the State where the property is situated (including that State’s insolvency law) is applicable, but not the lex fori concursus in accordance with Article 7 EIR.17 10 Where the conditions contained in paragraph 2 are met, the approval requirements in the State in which the property is located will be recognised, but the competence to provide such approval will be allocated to the court that has opened the main insolvency proceedings.18 Consequently, the court that has opened the insolvency proceedings must apply foreign law, i. e. the law of the Member State in which the property is situated) when approving or modifying such contracts. 9

16 BGH, Beschl. v. 20.07.2017 – IX ZB 69/16, ECLI:DE:BGH:2017:200717BIXZB69.16.0, NZI 2017, 770 et seq. mn. 19 (DEU); BGH, Urt. v. 18.09.2014 – VII ZR 58/13, NZI 2014, 969 et seq. mn. 11 (DEU). 17 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 118. 18 Garcimartín, ZEuP 2015, 694, 718.

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Article 12 Payment systems and financial markets 1. Without prejudice to Article 8, the effects of insolvency proceedings on the rights and obligations of the parties to a payment or settlement system or to a financial market shall be governed solely by the law of the Member State applicable to that system or market. 2. Paragraph 1 shall not preclude any action for voidness, voidability or unenforceability which may be taken to set aside payments or transactions under the law applicable to the relevant payment system or financial market. Recital: 71. Specific bibliography: Ebenroth/Benzler, Close-out Netting nach der neuen Insolvenzordnung, ZVglRWiss 95 (1996), 335; Ehricke, Zum anwendbaren Recht auf ein in einem Clearing-System vereinbartes Glattstellungsverfahren im Fall der Insolvenz ausländischer Clearing-Teilnehmer, WM 2006, 2109; Keller, Die EG-Richtlinie 98/26 vom 19.5.1998 über die Wirksamkeit von Abrechnungen in Zahlungs- sowie Wertpapierliefer- und -abrechnungssystemen und ihre Umsetzung in Deutschland, WM 2000, 1269; Kieper, Abwicklungssysteme in der Insolvenz, München 2004; Kilgus, Keine Zahlungspflicht unter internationalen Derivaten bei Insolvenz des Vertragspartners? ZIP 2010, 613; Ruzik, Finanzmarktintegration durch Insolvenzrechtsharmonisierung, 2010; Schneider, Netting und Internationales Insolvenzrecht, in Kohler/Obermüller/Wittig, Kapitalmarkt – Recht und Praxis, Recklinghausen 2006, S. 197. Outline A. Purpose and background................................................................................................ B. Reform ................................................................................................................................ C. Scope ................................................................................................................................... D. Conditions of application............................................................................................... I. Affected systems and markets.............................................................................. 1. Payment systems ................................................................................................ 2. Securities settlement systems ........................................................................... 3. Financial markets ............................................................................................... 4. Wide scope of application ................................................................................ II. Opening of proceedings......................................................................................... E. Consequences of application ......................................................................................... I. Applicable Law ........................................................................................................ II. Concerning the rights and obligations of the parties ..................................... III. Exception for rights in rem................................................................................... IV. No exception for voidness, voidability or unenforceability ..........................

1 5 7 8 8 9 10 11 12 15 17 18 21 22 23

A. Purpose and background Article 12 EIR has its background in the increasing importance of interconnected 1 financial cross-border transactions. Monetary transactions and share transactions are carried out more and more via clearing systems in which not every single claim is asserted and settled but instead a continuous overall settlement takes place, known as “netting” or “set off”.1 These highly integrated networks are considered to be the indispensable backbone of the financial sector.2 Such systems, however, also bear 1 Kindler, in Münchener Kommentar zum BGB, Art. 12 EuInsVO, mn. 2; Ruzik, Finanzmarktintegration durch Insolvenzrechtsharmonisierung, p. 156 et seq. 2 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 1; Ruzik, Finanzmarktintegration durch Insolvenzrechtsharmonisierung, p. 45 et seq.

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significant risks, in particular those arising from potential chain reactions: Due to the tight integration within the system, a participant’s insolvency could have a knock-on effect and lead directly to other members being unable to meet their obligations, even if they were not in direct contact with the insolvent party.3 2 In order to enhance liberalisation of capital movements, European law seeks to reduce this systemic risk and to generally “minimise the disruption to a system caused by insolvency proceedings against a participant in that system”4. The main legal approach for this, apart from Article 12 EIR, has been the Settlement Finality Directive 98/26/EC (SFD) of the European Parliament and of the Council on settlement finality in payment and securities settlement systems. 3 While the SFD “should take precedence”5 over the general rules laid down in the EIR, the Regulation and the Directive are rather complementary.6 While, for example, the knock-on effect described above can be reduced mainly by the SFD’s (partial) harmonisation of material insolvency law,7 the conflict-of-law rule laid down in Article 12(1) EIR primarily ensures legal certainty, predictability, and calculability.8 4 In order to achieve this goal, Article 12(1) EIR provides an exception to the general rule of lex fori concursus. If the applicable law would follow from Article 7 EIR as it does in general, the effects of insolvency proceedings on payment or settlement systems or on financial markets would be determined on a case-by-case basis.9 This would mean that depending on where the debtor’s COMI is, a different law would apply, notwithstanding the law otherwise applicable to the system or market.10 Article 12 EIR ensures that the law of the system or market applies both before and after the opening of insolvency proceedings and is not “being altered in the case of insolvency of a business partner”11. This avoids uncertainties and high costs for hedging risks12 and establishes confidence in the systems and markets.13

B. Reform 5

Article 12 EIR 2015 is identical with its predecessor (Article 9 EIR 2000), only the reference to Article 8 EIR has been updated. Thus, the literature and the commen3 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 1; cf. Ruzik, Finanzmarktintegration durch Insolvenzrechtsharmonisierung, p. 180 et seq., 202 et seq.; Duursma, in DuursmaKepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 6. 4 Recital 4 of Commission Directive 98/26/EC; cf. also Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 23.2.(c). 5 Recital 71 EIR. 6 Pannen, in Pannen, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 7 et seq.; Bork, in Kübler/ Prütting/Bork, Insolvenzordnung, Art. 12, mn. 6. 7 Contrary to a widespread opinion (cf. e. g. Undritz, Hamburger Kommentar zum Insolvenzrecht, 6th Edition, Art. 9, mn. 1; Duursma, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 6; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 9 EIR 2000, mn. 1), Article 12 EIR has only a limited impact in this respect. On the important role of the SFD Kindler, in Münchener Kommentar zum BGB, Vorbemerkung EuInsVO, mn. 26. 8 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 121; Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 4.32. 9 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 12, mn. 12.02. 10 Liersch, in Vallender, EuInsVO, Art. 12, mn. 2; Jahn/Fried, in Münchener Kommentar zur InsO, Art. 9 EuInsVO 2000, mn. 1. 11 Recital 71 EIR. 12 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 2. 13 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.88; Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 120(1).

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taries regarding Article 9 EIR 2000 can be referred to for the understanding of Article 12 EIR 2015 as well. In the course of the reform of the EIR, a rule with a purpose similar to that of 6 Article 12 EIR was initially proposed. Under the planned Article 6 a EIR, netting agreements in general would have been exempted from the principle of the applicability of the lex fori concursus. Such agreements would have been “governed solely by the law of the contract governing such agreements”14. Similar to the provisions of Article 12 EIR, the applicable law would have remained the same and consistent before and after the opening of insolvency proceedings. However, this proposal has been given up without further explanation and has not been included in the text of the EIR 2015.15

C. Scope Although Article 12 EIR may at first appear to have a very wide range of application 7 – covering all payment systems, settlement systems and financial markets – the practical scope is marginal. The parties to such systems and markets are typically credit institutions or investment firms, so that the EIR itself will often not be applicable and Article 12 EIR will therefore not come into effect either.16

D. Conditions of application I. Affected systems and markets The term “system”, the key element of Article 12 EIR, is not described or defined by 8 the EIR itself. Due to the close relationship to the SFD and the necessity of a uniform interpretation of European law, Article 2(a) SFD should be used for interpretation.17 Under this Article, a “system” is in essence a formal arrangement between at least three participants with common rules and standardised arrangements for the clearing or execution of transfer orders between the participants. According to the prevailing opinion, the scope of Article 12 EIR is somewhat broader than that of the SFD: It is not necessary for the system in question to have been designated as such by the member states and notified to the European Securities and Markets Authority (ESMA) in order to be covered by Article 12 EIR (see below mn. 12 et seq.).18

1. Payment systems Payment systems are based on agreements on the processing of payment transac- 9 tions especially between financial services companies.19 These agreements include e. g. technical and formal issues of transmission, conditions and costs of order execution, 14

Proposal of the European Commission, COM(2012) 744 final, 2012/0360 (COD), Article 1(25). cf. Jahn/Fried, in Münchener Kommentar zur InsO, Art. 12 EuInsVO 2015, mn. 3 et seq. 16 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.88; Liersch, in Vallender, EuInsVO, Art. 12, mn. 3. 17 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.244; Bork, in Kübler/Prütting/ Bork, Insolvenzordnung, Art. 12, mn. 6, 9. 18 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 12, mn. 12.08. 19 Pannen, in Pannen, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 15. 15

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operating times, processing time etc.20 This both covers gross and net settlement systems: In gross systems, each individual payment transaction is booked individually, i. e. by debiting the account of the paying member and simultaneously crediting the account of the receiving member. In the case of net systems, not every payment order is executed individually but all incoming and outgoing orders for a participant are first netted and only debited or credited to the participant’s account afterwards.21 Such payment systems, which often involve large-scale transactions,22 are of infrastructural importance for the accelerated and standardised processing of payment transactions between professional players in this sector.23

2. Securities settlement systems 10

A securities settlement system is an agreement in the above-mentioned sense which concerns the transfer and delivery of specific holdings of securities.24 In these systems, securities orders issued and received by a member are generally offset against each other during the clearing phase of a business day and settled in the settlement phase. The transactions are no longer carried out and fulfilled through physical acquisition and movement but through simple account bookings.25 Carriers of such systems are for instance Clearstream, Euroclear, Iberclear, Interbolsa, NBBSSS and OeKB CSD.

3. Financial markets 11

The term “financial market” is neither defined by the EIR nor by the SFD. By referring to the Virgós-Schmit Report on the Convention of Insolvency Proceedings, a “financial market” is understood to be a market “where financial instruments, other financial assets or commodity futures and options are traded. It is characterized by regular trading and conditions of operation and access and it is subject to the law of the relevant Contracting State, including appropriate supervision, if any, by the regulatory authorities of that Contracting State.”26 Thus, the definition is parallel to the understanding of the “regulated market” and the “trading facility” in Article 4(1) no. 21–22 MiFID II.27

4. Wide scope of application The use of the term “financial market” in the EIR may in particular resolve the previously mentioned dispute over the need for a formal notification of a system (see above mn. 8). 13 It could be argued that Article 12(1) EIR must be interpreted exactly as Article 2(a) SFD dictates: In order to be covered by the (uniformly understood) European law, the 12

20 Pannen, in Pannen, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 15; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 11. 21 Schmieder, in Schimansky/Bunte/Lwowski, Bankrechts-Handbuch, § 46, mn. 9 et seq., Ruzik, Finanzmarkt-integration durch Insolvenzrechtsharmonisierung, p. 158 et seq. 22 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 120(3). 23 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 11; Liersch, in Vallender, EuInsVO, Art. 12, mn. 6. 24 Pannen, in Pannen, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 17; Duursma, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 5. 25 Ruzik, Finanzmarktintegration durch Insolvenzrechtsharmonisierung, p. 191 et seq. 26 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 120(4). 27 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 12, mn. 12.09; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 18; Pannen, in Pannen, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 19.

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system would have to be designated and reported as such to the ESMA. Article 12 EIR could not go beyond the scope of the SFD because the latter is lex specialis to the EIR.28 However, the inclusion and interpretation of the term “financial market” clearly 14 indicates that the scope of application of the EIR is wider in this regard. With the use of this broad term, the EIR responds to criticism expressed against the earlier SFD: It was accused of being too restricted as its scope was limited to “formal” systems.29 As a result of this critique, “financial market” works as a catch-all term that also covers other systems that are subject to the same systemic risks as payment and settlement systems are.30 Article 12(1) EIR uses the combination of terms to ensure a wide scope of application and is intended in principle to cover all similar financial systems that require uniform treatment under only one law.31 As the EIR does not contain any limitation to systems designated and notified as such, it goes beyond the SFD.32 Therefore, Article 12 (1) EIR also covers non-formal settlement systems such as inter-company netting agreements, forward transactions via clearing systems, or commodity futures exchanges.33

II. Opening of proceedings Article 12 EIR applies when insolvency proceedings are opened34 which somehow 15 effect the rights and obligations within the aforementioned system or market. This will typically, but not solely, be the case when a member of the system or market becomes insolvent. Even if the debtor is not a party in the formal sense, Article 12 EIR is applicable when the insolvency proceedings would affect transactions within the system or market.35 Only systems or markets are protected that were already agreed on and which were in 16 existence prior to the opening of the proceedings. Only in these cases exists a need for protection that justifies the exceptional regime of Article 12 EIR.36

E. Consequences of application By deviating from Article 7 EIR, the effects of insolvency proceedings on the rights 17 and obligations of the parties to a payment or settlement system or to a financial market 28

Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 9 EIR 2000, mn. 5. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 17. 30 Jahn/Fried, in Münchener Kommentar zur InsO, Art. 9 EuInsVO 2000, mn. 3; Pannen, in Pannen, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 19; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 17. 31 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 19. 32 Niggemann/Blenske, NZI 2003, 471, 477; Ruzik, Finanzmarktintegration durch Insolvenzrechtsharmonisierung, p. 918 et seq.; Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 12, mn. 12.08; Pannen, in Pannen, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 11. 33 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 9 EIR 2000, mn. 3; Paulus, EuInsVO, Art. 12, mn. 2. 34 On the term “opening”, which was revised by the reform of the EIR, see Brinkmann above Art. 2, mn. 12 et seq. 35 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 120(2); Bork, in Kübler/ Prütting/Bork, Insolvenzordnung, Art. 12, mn. 12; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 34. 36 Bach, in Ahrens/Gehrlein/Ringstmeier, Insolvenzrecht Kommentar, Art. 9, mn. 6; Pannen, in Pannen, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 22. 29

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will not be governed by the rule of the lex fori concursus but by the law of the Member State applicable to that system or market, the lex systema.37 “Thus, the complex problems of potential conflicts of the two laws are avoided and the certainty of transactions is preserved.”38

I. Applicable Law Article 12(1) EIR treats the market and system participants as if the insolvency proceedings had been opened in the State whose law governs the system or market.39 Both before and after the opening, the same national law will apply.40 However, this reference is limited to the legal systems of the Member States. If the market or system is subject to the law of a third country, autonomous conflict-of-law rules apply.41 19 The determination of the system’s law is primarily based on the choice of law made by the parties of the system, i. e. by the underlying agreement. There is controversy as to whether Article 12(1) EIR only refers to the chosen law if at least one participant of the system has its head office in the Member State whose law should be applied.42 The argument against such a restriction is not only that it does not arise from the wording of the EIR43 but also that the applicable law would change if the member concerned were to leave the system. The central objective of Article 12 EIR – to make the applicable law predictable and calculable – would not be served by this restriction. 20 If the system or market law was not specified in advance by choice, it has to be determined on the basis of objective circumstances. Typically, this will be the law of the country in which the system operator or the clearing house is located.44 18

II. Concerning the rights and obligations of the parties 21

Article 12 EIR (only) determines the effects of insolvency proceedings “on the rights and obligations of the parties” of the system or market in question.45 The parallel provision of Article 8 SFD is more precise in this respect: Rights and obligations “arising from, or in connection with, the participation of that participant” are subject to this special regulation. This covers transactions like transfer orders, set-off, netting, position closing, or porting orders.46

37

Jahn/Fried, in Münchener Kommentar zur InsO, Art. 9 EuInsVO 2000, mn. 7. Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 121. 39 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on EIR, Art. 12, mn. 12.03. 40 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 20, Balz, ZIP 1996, 948, 950 et seq. 41 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 9 EIR 2000, mn. 4. Mankowski considers the analogous application of Article 12 EIR to national law, Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 30. 42 This (prevailing) view is based on Article 2(a)II SFD, cf. Garcimartín/Virgós, in Bork/van Zwieten, Commentary on EIR, Art. 12, mn. 12.10; Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.89; Pannen, in Pannen, Europäische Insolvenzverordnung, Art. 9 EIR 2000, mn. 27; Ehricke, WM 2006, 2109, 2113. 43 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 24. 44 On this problem in detail Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 12, mn. 25 et seq. 45 cf. Paulus, EuInsVO, Art. 12, mn. 3; Liersch, in Vallender, EuInsVO, Art. 12, mn. 12. 46 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on EIR, Art. 12, mn. 39. 38

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III. Exception for rights in rem As Article 12(1) EIR expressly states, the rules outlined above apply “without 22 prejudice to Article 8”, so that rights in rem are not affected. These rights are always protected in the same and uniform way under the EIR: by reference to the lex rei sitae.47

IV. No exception for voidness, voidability or unenforceability Article 12 EIR does, in contrast to Articles 8(4), 9(2), 10(3) EIR, not provide an 23 exception for voidness, voidability or unenforceability. Even in such cases, the lex fori concursus is not invoked and Article 12(1) EIR applies. Paragraph 2 upholds the wide scope of Article 12 EIR: The system or market law applies also to the vulnerability of the legal basis for claims against members of payment or settlement systems and financial markets.48 In this clause, the core purpose of Article 12 EIR – increasing legal certainty and calculability for the system – is particularly evident. 47 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 124; Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 4.32. 48 Bork, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 12, mn. 15; Liersch, in Vallender, EuInsVO, Art. 12, mn. 15.

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Article 13 Contracts of employment 1. The effects of insolvency proceedings on employment contracts and relationships shall be governed solely by the law of the Member State applicable to the contract of employment. 2. The courts of the Member State in which secondary insolvency proceedings may be opened shall retain jurisdiction to approve the termination or modification of the contracts referred to in this Article even if no insolvency proceedings have been opened in that Member State. The first subparagraph shall also apply to an authority competent under national law to approve the termination or modification of the contracts referred to in this Article. Recitals: 72, 22. Specific bibliography: Göpfert/Müller, Englisches Administrationsverfahren und deutsches Insolvenzarbeitsrecht, NZA 2009, 1057. Case law: EU: CJEU, 19 March 1964, Case C-75/63, Mrs M.K.H. Hoekstra (née Unger) v Bestuur der Bedrijfsvereniging voor Detailhandel en Ambachten, ECLI:EU:C:1964:19, ECR German edition pp. 381; CJEU, 3 July 1986, Case C-66/85, Lawrie-Blum v Land Baden-Württemberg, ECLI:EU:C:1986:284; CJEU, 23 March 2004, Case C-138/02, Collins v Secretary of State for Work and Pensions, ECLI:EU: C:2004:172; CJEU, 17 July 2008, Case C‐94/07, Raccanelli v Max-Planck-Gesellschaft, ECLI:EU:C:2008:425; CJEU, 10 January 2009, Case C-328/12, Ralph Schmid v Lilly Hertel, ECLI:EU:C:2014:6; CJEU, 29 October 2009, Case C-174/08, Construction Danmark v Skatteministeriet, ECLI:EU:C:2009:669; CJEU, 11 November 2010, Case C-232/09, Danosa v LKB Līzings SIA, ECLI:EU:C:2010:674; CJEU, 20 October 2011, Case C-396/09, Interedil ECLI:EU:C:2011:671; CJEU, 22 November 2012, Case C-116/11, Bank Handlowy v Christianapol, ECLI:EU:C:2012:739. Germany: BAG, Beschl. v. 20.09.2012 – 6 AZR 253/11, BAGE 143, 129–149. Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Interpretation .................................................................................................................... I. Conditions set out in paragraph 1 ...................................................................... 1. Employment contract or relationship............................................................ 2. Law of a Member State as the law of the contract..................................... II. Conditions set out in paragraph 2 ...................................................................... D. Legal consequences ..........................................................................................................

1 3 4 4 4 6 7 9

A. Purpose 1

In accordance with paragraph 1, the effects of insolvency proceedings on an employment contract and relationships are determined exclusively by the law of the Member State that applies to the employment contract. This provision does not itself determine what the applicable law is, but instead affirms that the law of the Member State applies that would be applicable under international private law;1 the lex causae applies in the 1

Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 13, mn. 13.02.

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place of the lex fori concursus (Article 7(2)(sentence 2)(e) EIR).2 The purpose of this provision is the protection of employees and employment relationships against the application of legal regulations that are foreign to the respective legal system.3 For this reason, paragraph 1 emphasises that the lex causae applies.4 The new paragraph 2 serves to regulate a question that had not yet been resolved and 2 that arises where judicial approval is required for the termination or modification of contracts in terms of paragraph 1. In this case, it needs to be decided whether the question of competence for the grant of this consent likewise lies within the scope of application of Article 13 EIR or whether this question is governed by the lex fori concursus.5 Since Article 13 EIR now expressly answers this question, legal certainty is created to this extent: The competence to consent to a termination or modification of contracts in accordance with Article 13 EIR remains with the courts of the Member State in which secondary insolvency proceedings can be opened, even where no insolvency proceedings have been opened in that Member State.6

B. Historic development Article 13(1) EIR exactly matches the wording of the provision contained in 3 Article 10 EIR 2000. The interpretation of Article 13(1) EIR can therefore draw fully upon the conclusions that were made in respect of Article 10 EIR 2000. The provision contained in Article 13(2) EIR, however, is entirely new.

C. Interpretation I. Conditions set out in paragraph 1 1. Employment contract or relationship The essential condition for the application of Article 13 EIR is first that an 4 employment contract or relationship exists. The EIR does not define these terms. The terms “employment contract” and “employment relationship” must be interpreted autonomously according to the court decisions of the CJEU,7 which interpret European law provisions autonomously.8 In terms of this, the provision contained in 2

Virgós/Garcimartín, European Insolvency Regulation, mn. 207. Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 13, mn. 13.03; Virgós/ Schmit, Report on the Convention on Insolvency Proceedings, mn. 125; Virgós/Garcimartín, European Insolvency Regulation, mn. 207. 4 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 13, mn. 13.03. 5 cf. Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.218. 6 For more details in this regard see Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 13, mn. 13.12 et seq.; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 13, mn. 34 et seq. 7 CJEU Case C-75/63 Mrs M.K.H. Hoekstra (née Unger) v Bestuur der Bedrijfsvereniging voor Detailhandel en Ambachten ECLI:EU:C:1964:19, ECR German edition pp. 381, 396 et. seq.; CJEU Case C-66/85 Lawrie-Blum v Land Baden-Württemberg ECLI:EU:C:1986:284, mn. 16; CJEU Case C116/11 Bank Handlowy v Christianapol ECLI:EU:C:2012:739, mn. 49 et seq.; CJEU Case C-396/09 Interedil ECLI:EU:C:2011:671, mn. 42; CJEU Case C-174/08 Construction Danmark v Skatteministeriet ECLI:EU:C:2009:669, mn. 24. 8 Consenting Garcimartín/Virgós, in Bork/van Zwieten, Commentary on EIR, Art. 13, mn. 13.06; Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.92; Göpfert/Müller, NZA 2009, 1057, 1059 with further references; diss. op. Paulus, EuInsVO, Art. 13, mn. 4, but cf. also now mn. 3. 3

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Article 13 EIR includes agreements that oblige one party to undertake dependent activities that are subject to instructions and that are remunerated.9 5 In respect of time, Article 13 EIR covers only those employment contracts and relationships that have already been founded by the time insolvency proceedings are opened, since the opening of proceedings cannot have any effects on non-existent relationships.10

2. Law of a Member State as the law of the contract 6

It is an additional condition that the law applying to the employment contract or relationship must be the law of a Member State.11 To this extent, having regard to Article 8 of the Rome I Regulation, it must be noted that the parties may freely elect the law applicable to an employment contract,12 in order to consider the consequences cf. below mn. 7. Ultimately, they can thereby also decide on the applicability of Article 13 EIR. Where the parties’ choice of law results in the applicability of the law of a third country, Article 13 EIR does not apply.13 It is questionable whether the inapplicability of Article 13 EIR results in the conclusion that Article 7 EIR (lex fori concursus) applies instead.14 A systemic interpretation supports the applicability of Article 7 EIR: Article 13 EIR amounts to an exemption from Article 7 EIR. Where Article 13 EIR does not apply, the path is clear for the general provision contained in Article 7 EIR.15 In accordance with the view that is frequently taken, the question of the applicable employment insolvency law in this case is governed by the conflicts of laws rules of the lex fori processus (in Germany § 337 German Insolvency Act), since a “qualified connection to the common market” is lacking.16 To this extent, however, the court decisions of the CJEU must be noted. In its decision dated 16 January 2014,17 the court was posed with the question whether the applicability of the EIR presupposes in all cases that cross-border elements exist in the sense that the EIR applies only to matters having connections to two or more Member States. The CJEU found here that such a general and absolute precondition cannot be derived from the text of the EIR.18

II. Conditions set out in paragraph 2 7

The allocation of jurisdiction provided for in paragraph 2 applies where under the applicable law – the lex causae – approval is required to the termination or modification 9 cf. e. g. CJEU Case C-138/02 Collins v Secretary of State for Work and Pensions ECLI:EU:C:2004:172, mn. 26; CJEU Case C‐94/07 Raccanelli v Max-Planck-Gesellschaft ECLI:EU:C:2008:425, mn. 33; CJEU Case C-232/09 Danosa v LKB Līzings SIA ECLI:EU:C:2010:674, mn. 39; CJEU Case C-66/85 Lawrie-Blum v Land Baden-Württemberg ECLI:EU:C:1986:284, mn. 16; cf. also Dahl, in Andres/Leithaus/Dahl, Insolvenzordnung, § 337 mn. 3. 10 cf. Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 13, mn. 13.06. 11 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 13, mn. 13.06; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 13, mn. 10. 12 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 10 EIR 2000, mn. 4. 13 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 10 EIR 2000, mn. 6; Reinhart, in Münchener Kommentar zur InsO, Art. 10 VO (EG) 1346/2000, mn. 20 et seq. 14 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 93. 15 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 13, mn. 14. 16 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 13, mn. 13.05; Dammann, in Pannen, Europäische Insolvenzverordnung, Art. 10 EIR 2000, mn. 12 with further references; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 10 EIR 2000, mn. 6; distinguishing Reinhart, in Münchener Kommentar zur InsO, Art. 10 VO (EG) 1346/2000, mn. 20 et seq.; dissagreeing Moss/Fletcher/Isaacs, EU Regulation on Insolvency, mn. 4.33. 17 CJEU Case C-328/12 Ralph Schmid v Lilly Hertel ECLI:EU:C:2014:6, mn. 20. 18 See CJEU Case C-328/12 Ralph Schmid v Lilly Hertel ECLI:EU:C:2014:6, mn. 20.

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of contracts in terms of Article 13 EIR.19 Provisions that contain such approval requirements are found for example in the German Insolvency Act (§ 22( 1)(sentence 2) no. 2) and in the Spanish Bankruptcy Code (Article 64.1 LC).20 A further condition for the application of paragraph 2 is that the law providing for 8 the approval requirement is the law of a Member State where secondary insolvency proceedings can be opened or where insolvency proceedings have been opened. This condition applies to Member States where the debtor has an establishment; see Article 3 (2) EIR.21

D. Legal consequences Where the provision contained in paragraph 1 applies, “solely” the lex causae applies 9 instead of the lex fori concursus (Article 7(2)(sentence 2)(e) EIR).22 The exclusive application of the lex causae serves to protect the employee and the employment relationship against the application of legal provisions that are foreign to that legal system.23 At the same time, however, the term “solely” clarifies that no comparison of benefits between insolvency and contractual law takes place: The applicable law in accordance with paragraph 1 also applies where the termination protection regulations of the State in which proceedings are opened are more beneficial for the employee.24 Where the conditions set out in paragraph 2 are provided for, sub-paragraph 1 10 provides that for a termination or modification of contracts in terms of Article 13 EIR, that court of a Member State has jurisdiction in which secondary insolvency proceedings have been opened or could have been opened.25 In accordance with sub-paragraph 2, this allocation of jurisdiction also applies to an authority which has jurisdiction under national law to terminate or modify contracts in terms of Article 13 EIR. 19

Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.96. Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 13, mn. 13.13. 21 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.96; Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 13, mn. 13.15; Mankowski, in Mankowski/Müller/ J. Schmidt, EuInsVO 2015, Art. 13, mn. 35. 22 Virgós/Garcimartín, European Insolvency Regulation, mn. 207. 23 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 13, mn. 13.03; Virgós/ Schmit, Report on the Convention of Insolvency Proceedings, mn. 125; Virgós/Garcimartín, European Insolvency Regulation, mn. 207. 24 Germany: BAG, Beschl. v. 20.09.2012 – 6 AZR 253/11, BAGE 143, 129‐149, mn. 33; Virgós/ Garcimartín, European Insolvency Regulation, mn. 209; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 10 EIR 2000, mn. 1. 25 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 13, mn. 36. 20

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Article 14 Effects on rights subject to registration The effects of insolvency proceedings on the rights of a debtor in immoveable property, a ship or an aircraft subject to registration in a public register shall be determined by the law of the Member State under the authority of which the register is kept. Recital: 22. Case law: EU: CJEU, 26 October 2016, Case C-195/15, Senior Home v Gemeinde Wedemark, ECLI:EU:C:2016:804. Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Interpretation .................................................................................................................... I. Registrable right of the debtor ............................................................................. II. Registration in a public register........................................................................... D. Legal consequences ..........................................................................................................

1 2 3 3 5 7

A. Purpose 1

Article 14 EIR ensures the functionality and reliability of national registers by addressing the relationship of tension between the lex fori concursus (which generally applies under Article 7 EIR) and the law of the State of registration (lex libri siti).1 Ultimately, Article 14 EIR seeks to limit the effects of insolvency proceedings by establishing an exemption. The provision is an expression of the “weakened universality” model which underpins the entire EIR.2 As Article 14 EIR is an exception the general rule set out in Article 7 EIR, that the lex fori concursus is applicable, Art. 14 must be understood as a very limited exemption provision that exhaustively lists the rights covered by it.3

B. Historic development 2

The provision originally contained in Article 11 EIR 2000 was not amended in the reform process. Hence, the interpretation of Article 14 EIR 2015 can draw fully upon the conclusions that were made in respect of Article 11 EIR 2000.

C. Interpretation I. Registrable right of the debtor 3

In accordance with the heading of Article 14 EIR, this provision governs the effects on rights subject to registration. To this extent, the normative text of Article 14 EIR 1 For more details in this regard see Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 14, mn. 14.02; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 14, mn. 1; Virgós/ Schmit, Report on the Convention on Insolvency Proceedings, mn. 129, 130. 2 cf. CJEU Case C-195/15 Senior Home v Gemeinde Wedemark ECLI:EU:C:2016:804, mn. 17. 3 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 130.

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Art. 14

essentially contains three specifications from which the conditions for application of this norm are derived at the same time: The right of the debtor in immoveable property, a ship or an aircraft must be 4 involved. In rem rights of creditors or third parties are not covered.4 Just like in the context of Article 11 EIR, the term “immoveable property” must be interpreted narrowly, for more details in this regard see Dahl/Kortleben above Article 11 EIR, mn. 4. Such a narrow interpretation is supported by the fact that Article 14 EIR is an exemption from Article 7 EIR and exemptions must generally be interpreted narrowly.5 Having regard to the property referred to in Article 14 EIR along with immoveable property (“ships and aircraft”), it can be assumed that these assets that are mentioned specifically are not regarded as immoveable property.6

II. Registration in a public register The right of the debtor must be subject to registration in a public register. With 5 respect to the question of when a register can be regarded as “public”, it is irrelevant whether the register is maintained by a public authority; instead, it is determinative whether the register is “public” in a functional respect.7 This can regularly be assumed to be the case where the register is available for public inspection and the registrations therein have effects upon third parties.8 The condition of registration relates to the right to the property stated, but not to the property itself.9 The registration of the right must be compulsory. The provision applies to optional registrations only where registration has actually taken place.10 The public register must be maintained under the supervision of a Member State. It 6 is not determinative whether the register is located in a Member State, but instead, whether a Member State supervises the maintenance of the register.11 Here a functional approach, and not a factual one, is required as well.

D. Legal consequences While the wording of Article 11 EIR, Article 12 EIR and Article 13 EIR provides for 7 an exclusive special connection (“shall be governed solely”; “governed solely”), the reference in Article 14 EIR is, according to its wording, not designed to be an exclusive reference to the right of the register State (lex libri siti). In light of this background, the 4

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 14, mn. 13. cf. CJEU Case C-195/15 Senior Home v Gemeinde Wedemark ECLI:EU:C:2016:804, mn. 24 et seq. 6 cf. Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.87; consenting Reinhart, in Münchener Kommentar zur InsO, Art. 8 VO (EG) 1346/2000, mn. 4 et seq.; also in this sence Josko de Marx, in Braun, Insolvenzordnung, EuInsVO 2017, Art. 14, mn. 8 et seq. 7 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.97; Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 14, mn. 14.06. 8 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.97; Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 14, mn. 14.06; Wessels, International Insolvency Law, mn. 10705; Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 11 EIR 2000, mn. 2. 9 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 131. 10 cf. Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 14, mn. 14.05; see Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 11 EIR 2000, mn. 2; cf. Virgós/Garcimartín, European Insolvency Regulation, mn. 225. 11 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 14, mn. 14.03. 5

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Chapter I. General Provisions

entirely prevailing opinion here properly holds that the lex fori concursus and the lex libri siti should be applied cumulatively.12 This means that the effects of the insolvency proceedings provided for by the lex fori concursus extend to the rights covered by Article 14 EIR only to the extent that these effects are (also) provided for and permissible under the lex libri siti. For example, a “general lien” provided for by the lex fori concursus, which is unknown to or not permitted by the lex libri siti, can have no effects upon the rights covered by Article 14 EIR.13 12 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 14, mn. 14.07; in a doubting manner Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 14, mn. 18; tending towards a diss. op Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.97; Virgós/Schmit Report on the Convention on Insolvency Proceedings, mn. 130; Wessels, International Insolvency Law, mn. 10705; Leible/Staudinger, KTS 2000, 533, 557; Kindler, in Münchener Kommentar zum BGB, Art. 14 EuInsVO, mn. 9; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 11 EIR 2000, mn. 1, 7; Dammann, in Pannen, Europäische Insolvenzverordnung, Art. 11 EIR 2000, mn. 9; critical Paulus, EuInsVO, Art. 11, mn. 6; differently Reinhart, in Münchener Kommentar zur InsO, Art. 11, mn. 11 et seq.; Bork, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 11, mn. 17. 13 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 14, mn. 14.08.

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Article 15 European patents with unitary effect and Community trade marks For the purposes of this Regulation, a European patent with unitary effect, a Community trade mark or any other similar right established by Union law may be included only in the proceedings referred to in Article 3(1). Recital: 39. Specific bibliography: Sosnitza, Erwerb und Erhalt von Gemeinschaftsmarken, GRUR 2013, 105. Outline A. Purpose ............................................................................................................................... 1 B. Historic development ...................................................................................................... 2 C. Interpretation .................................................................................................................... 3 I. European patent with unitary effect ................................................................... 3 II. Community trade mark......................................................................................... 4 III. Similar rights............................................................................................................ 5 1. General.................................................................................................................. 5 2. Community design patent (European design)............................................. 6 3. Community plant variety protection ............................................................. 7 IV. Rights that are not covered................................................................................... 8 1. European patent ................................................................................................. 8 2. Supplementary protection certificates ........................................................... 9 D. Legal consequences .......................................................................................................... 10

A. Purpose The norm specifies Article 3(2)(sentence 2) EIR read with Article 2 no. 9 (iv) 1 EIR1 and in doing so, provides for a special rule for certain immaterial property rights that have a basis on European Union law. These should be taken into account exclusively in main insolvency proceedings under Article 3(1) EIR – but, as a consequence, not in secondary insolvency proceedings. The provision is lex specialis vis-à-vis Article 8 of the Rome II Regulation. The connection to the protective country principle set out therein is, however, not practicable in the European Union. This is because the protective country-principle draws upon the territorial principle to provide for the application of that law of a Member State upon which the imposter relies. In contrast, immaterial property rights that are founded under European law and which apply throughout the European Union have no particular Member State as their protective country. Accordingly, the inclusion of these in secondary insolvency proceedings would result in unresolvable jurisdictional conflicts. For this reason, the EIR properly allocates European immaterial property rights to the main insolvency proceedings.

1

Virgós/Garcimartín, European Insolvency Regulation, mn. 228.

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Chapter I. General Provisions

B. Historic development 2

Article 15 EIR 2015 corresponds to Article 12 EIR 2000. The wording has been adjusted so that the originally-envisaged “community patent”2 has been replaced by the so-called European patent with unitary effect. In addition, the terminology has been amended to match that of the Treaty of Lisbon.3

C. Interpretation I. European patent with unitary effect 3

The provision relates especially to the new “European patent with unitary effect”, which was introduced by Parliament and Council Regulation (EU) 1257/2012 and Council Regulation (EU) 1260/2012; see here in particular Articles 2(d), 3 of (EU) Regulation 1257/2012. The European patent with unitary effect must be distinguished from the “European patent” (see below mn. 8). Because not all of the required Member States have ratified the Unified Patent Court Agreement,4 (see 18(2.1) of Parliament and Council Regulation (EU) 1257/2012),5 to date, no patents exist on the basis of the Regulations. This feature therefore has no practical relevance to date.

II. Community trade mark 4

The primary cases of application to date have involved Community trade marks under Council Regulation (EC) 207/2009.

III. Similar rights 1. General 5

The catalogue is not exhaustive.6 Other immaterial property rights are covered by the provision, provided that these are founded by European Union law.7 This means that the substantive existence of the right must have been created by European Union law. In contrast, it is not sufficient where national rights are merely guaranteed under procedural law by “European” institutions, which is for example the case with the so-called European patent (see below mn. 8). 2 cf. the never ratified Convention for the European Patent for the Common Market (Community Patent Convention), (76/76/EEC) of 5 October 1973, OJ 1976 no L 17/1, and the Agreement relating to Community Patents done at Luxembourg on 15 December 1989 (89/695/EEC), OJ 1989 no L 401/1. 3 cf. Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.603. 4 Council Agreement on a Unified Patent Court, OJ 2013 C 175/1 = OJ EPO 5/2013, 287. 5 See history of ratification described by Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, mn. 7; cf. Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.604 et seq.; Bork, in Bork/ Mangano, European Cross-Border Insolvency Law, mn. 4.100. 6 Duursma in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 12 EIR 2000, mn. 7. 7 There have been calls that the provision should apply de lege ferenda to all kinds of intellectual property rights wether based on Union law or not, cf. Heidelberg-Luxembourg-Vienna Report, mn. 6.9.1.

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European patents and Community trade marks

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Art. 15

2. Community design patent (European design) An intellectual property right that is covered and governed by uniform European 6 Union law is the Community design patent under Council Regulation (EC) 6/2002. 3. Community plant variety protection. Community rights in plant varieties 7 under Council Regulation (EC) 2100/94 are covered by the provision.8

IV. Rights that are not covered 1. European patent The “European patent” on the basis of the European Patent Convention of 19739 8 is not covered by the provision. Firstly, the EPA does not substantively create a uniform patent, but instead, merely centralises the registration of a bundle of national patents.10 Secondly, the patent is based on a public international agreement that is independent of European Union law.11

2. Supplementary protection certificates Supplementary protection certificates for pharmaceutical products under Council 9 Regulation (EEC) 1768/92 and plant protection products under Parliament and Council Regulation (EC) 1610/96 do not provide grounds for an independent European law basis and are accordingly not covered by Article 15 EIR.12

D. Legal consequences Autonomous European Union immaterial property rights are taken account of 10 exclusively in main insolvency proceedings under Article 3(1) EIR. The realisation of these in secondary insolvency proceedings is excluded under Article 3(2) EIR. It must be noted that the scope of application of Article 15 EIR may conflict with other provisions of secondary law in which the insolvency case is governed by an Annex (for example in Article 25 of Regulation (EC) 2100/94)13. These are set aside to this extent by Article 15 EIR.14 8

See e. g. Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 15, mn. 15.03. Convention for the European Patent for the Common Market (Community Patent Convention), (76/ 76/EEC) of 5 October 1973, OJ 1976 no L 17/1. 10 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 15, mn. 15.03; cf. Duursma, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 12 EIR 2000, mn. 2. 11 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, mn. 12. Participants of this convention include also non-EU states e. g. Morokko and Turkey. 12 Reinhart, in Münchener Kommentar zur InsO, Art. 12 VO (EG) 1346/2000, mn. 7 with further references. 13 The outdated example of Art. 21 Regulation (EC) No 40/94 does not apply anymore because of the COMI reference in recast Regulation (EC) No 207/2009; in order to consider the previous legal situation cf. Duursma, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 12 EIR 2000, mn. 11. 14 Note explanations and examples by Duursma, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 12 EIR 2000, mn. 11 et seq. 9

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Article 16 Detrimental acts Point (m) of Article 7(2) shall not apply where the person who benefited from an act detrimental to all the creditors provides proof that: (a) the act is subject to the law of a Member State other than that of the State of the opening of proceedings; and (b) the law of that Member State does not allow any means of challenging that act in the relevant case. Recitals: 6(sentence 1), 16(sentence 1), 35(sentence 2), 67(sentence 2). Specific bibliography: Blank, Sanierung eines mittelständischen Unternehmens durch Insolvenzplan in Verbindung mit Eigenverwaltung und französischem Sekundärinsolvenzverfahren, ZInsO 2008, pp. 412–414; Bloching, Pluralität und Partikularinsolvenzverfahren, 2000; Brinkmann, Avoidance Claims in the Context of the EIR, IILR 2013, pp. 371–383, Brinkmann, Gesellschafterdarlehen und Art. 13 EuInsVO – Ein offenes Scheunentor des Gläubigerschutzes? Beilage zu ZIP 22/2016, pp. 14–18; Fumagalli, Avoidance Proceedings before the Italian Courts-Avoiding Art. 13 EIR, IILR 2011, pp. 460–467; Geroldinger, Verfahrenskoordination im Europäischen Insolvenzrecht, 2010, Grönda/Brünning/Liersch, Hase und Igel, oder: Die nachträgliche Eröffnung von Sekundärinsolvenzverfahren im Anwendungsbereich der Europäische Insolvenzverordnung (EuInsVO), in Festschrift für Braun, 2007, pp. 403–421; Herchen, Das Übereinkommen über Insolvenzverfahren der Mitgliedstaaten der Europäischen Union vom 23.11.1995, 2000; P. Huber, Der deutsch-englische Justizkonflikt – Kompetenzkonflikte im Internationalen Insolvenzrecht, in Festschrift für Heldrich, 2005, pp. 679–693; U. Huber, Das für die anfechtbare Handlung maßgebliche Recht, in Festschrift für Heldrich, 2005, pp. 695–718; Jahr, in Kegel/Thieme, Vorschläge und Gutachten zum Entwurf eines EG-Konkursübereinkommens, 1988, pp. 305–316; Keay, The Harmonization of the Avoidance Rules in European Union Insolvencies, International and Comparative Law Quarterly, 66(1), pp. 79–105; Koller, Zielkonflikt im Europäischen Insolvenzrecht: Präventive Sanierung versus territoriale Liquidation, IPRax 2014, pp. 490–498; Mock, Steine statt Brot? – Verfahrenskonzentration bei grenzüberschreitenden Insolvenzanfechtungsklagen und fehlende örtiche Zuständigkeiten, ZInsO 2009, pp. 470–474; Piekenbrock, Insolvenzrechtliche Annexverfahren im Europäischen Justizraum, KTS 2015, pp. 379–420; Pinterich, Das grenzüberschreitende europäische Insolvenzverfahren nach der EuInsVO, ZfRV 2008, pp. 221–238; Prager/Keller, Die Einrede des Art. 13 EuInsVO, NZI 2011, pp. 697–701; Schall, Shareholder loans and Art. 13 EIR – an analysis based on German insolvency law, IILR 2011, pp. 479–490; Stangl, Die kollisionsrechtliche Umsetzung des Art. 13 EuInsVO, 2015; Strobel, Die Abgrenzung zwischen EUGVVO und EuInsVO im Bereich insolvenzbezogener Einzelentscheidungen, Frankfurt am Main 2006; Stürner/Fix, Das maßgebliche Recht im Sinne des Art. 13 EuInsVO – Bestimmung und Geltungsumfang, in Festschrift für Wellensiek, 2011, pp. 833–843; Thole, Die Anwendung des Art. 13 bei Zahlungen auf fremde Schuld, NZI 2013, pp. 113–118; Zeeck, Das Internationale Anfechtungsrecht in der Insolvenz, 2003; Zeeck, Die Anknüpfung der Insolvenzanfechtung, ZInsO 2005, pp. 281–287. Case Law: EU: CJEU, 16 January 2014, Case C-328/12, Ralph Schmid v Lilly Hertel, ECLI:EU:C:2014:6; CJEU, 16 April 2015, Case C-557/13, Lutz v. Bäuerle, ECLI:EU:C:2015:227; CJEU, 15 October 2015, Case C-310/14, Nike European Operation Netherlands BV v (nur den Punkt) Sportland Oy, ECLI:EU:C:2015:690; CJEU, 8 June 2017, Case C-54/16, Vinyls Italia SpA v. Mediterranea di Navigazione SpA, ECLI:EU: C:2017:433; CJEU, 14 November 2018, Case C-296/17, Wiemer & Trachte GmbH v Zahn Oved Tadzher, ECLI:EU: C:2018:15. EFTA: EFTA Court, 17 October 2014, Court Case E-28/13, LBI hf. v Merrill Lynch International Ltd.

Outline A. Objective............................................................................................................................. B. Historic Development ..................................................................................................... C. Scope ................................................................................................................................... I. Persons ......................................................................................................................

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Detrimental acts

1–2

1. In respect of the applicant................................................................................ 2. In respect of the defendant .............................................................................. II. Relevant acts............................................................................................................. 1. Voidable transaction.......................................................................................... 2. Before insolvency proceedings have been opened ...................................... 3. To the detriment of the creditors ................................................................... D. Interpretation of terms and elements.......................................................................... I. General interpretation rules.................................................................................. II. The exception rule .................................................................................................. 1. Act subject to other Member State law......................................................... a) Applicable conflict of laws statutes .......................................................... b) Further determination of applicable law by examination of the relationship between the debtor and the defendant............................. aa) Shareholder loans.................................................................................. bb) Liens and other security in respect of rights in rem .................... cc) Third party payments .......................................................................... c) Application to acts pursuant to the law of other States ...................... 2. No means of challenging .................................................................................. 3. In the specific case ............................................................................................. 4. Procedural implications of the “exception” rule ......................................... III. Jurisdictional issues ................................................................................................ E. Future developments ....................................................................................................... I. Further harmonisation of avoidance rules ........................................................ II. Possible “Brexit”-effects .........................................................................................

Art. 16

6 8 12 12 15 20 21 21 22 22 23 26 32 40 43 45 49 54 56 61 66 66 67

A. Objective Article 16 EIR provides a further example of the EIR balancing the principles of 1 universality and territoriality. Generally, certain acts may be challenged under the law governing the insolvency proceedings themselves (lex fori concursus, see Article 7(2)(m) EIR), thereby emphasising the guiding principle of universality. On the other hand, Article 16 EIR is designed to ensure that the parties to a transaction or other relevant act prior to the opening of insolvency proceedings may operate under the assumption that the Member State’s law governing such transaction (“lex causae”) shall remain in force to the extent that the parties’ legitimate expectations1 will not be impaired. Although Article 16 EIR is titled “Detrimental Acts”, it provides neither a general rule 2 for applicable law regarding detrimental acts in the context of the EIR nor a definition of such detrimental acts. In fact, Article 16 EIR merely refers to Article 7(2)(m) EIR in respect of these elements. It is Article 7(2)(m) EIR that asserts the principle of universality in respect of such acts, i. e. the application of the lex fori concursus as the law governing the debtor’s or insolvency practitioner’s ability to challenge these acts or transactions. Article 7(2)(m) EIR also provides further guidance in respect of what generally constitutes a “detrimental act”, subject to the further specifications of the lex fori concursus. Thus, the right to challenge and set aside certain transactions as well as all substantive and procedural aspects are first and foremost subject to the law of the Member State in which the proceedings have been commenced. However, Article 16 EIR provides for a partially integrated (cumulative) approach to challenging detrimental acts by stipulating that both the lex fori concursus and the lex causae must be considered in determining whether an act is detrimental and may be set aside. The aforementioned balance is struck between the two by shifting the burden of proof for the conditions of the exception to the “person who benefitted from [the] act”, i. e. the defendant in any action brought by the debtor or an insolvency practitioner to set aside the act. 1

Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 138.

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Art. 16 3–4 3

Chapter I. General Provisions

The specific objective of Article 16 EIR can therefore be seen as providing the defendant with a “veto” based on the defence that the lex causae does not consider a valid challenge to the act by any legal means.2 This right to defend the transaction is premised on the transacting parties’ trust in the fact that the validity of the act under the legal relationship in question will continue to be subject to the legal regime governing such relationship and not be (arbitrarily) subject to a divergent lex fori concursus.3 Some argue that the purpose of Article 16 EIR remains unclear and also contend that the parties to any given transaction could assess the voidability of acts under the legal relationship when concluding the transaction.4 However, oftentimes the legal relationship will be based on a contractual relationship among the parties. At the time of conclusion and initial execution of the agreement, the parties will not (necessarily) have taken the possibility into account that certain acts governed by the contractual relationship, for example payments, might not be governed by the substantive law which the parties have the right to choose under the relevant Rome I Regulation, but will instead be subject to the lex fori concursus. Thus, it would seem that the parties to an act should reasonably expect to assume that further acts under such agreement would continue to be subject to the substantive law explicitly chosen by the parties or otherwise stipulated by more general conflict of laws regimes, for example the Rome I Regulation.5 In this regard, Article 16 EIR strengthens the basis of legitimate expectations where a choice of governing law has been made by the parties to a contract in accordance with the Rome I Regulation, thereby strengthening the principle of party autonomy. In summary, this “exception” approach has been overwhelmingly regarded as striking a fair balance between the principle of universality and the legitimate interests of the parties in respect of the law applicable to their specific transaction in the Member States, and the provision is therefore generally considered to serve a legitimate purpose.6

B. Historic Development 4

Before the introduction of EIR 2000 some national conflict of laws stipulations for cross-border insolvency proceedings deferred to the expectations of the parties in respect of the lex causae by adopting a truly integrated, cumulative approach in their substantive and conflict of laws regulations for detrimental acts.7 These regulations 2 Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 13 EIR 2000, mn. 15, likely referencing the Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 136, which also refers to Article 16 EIR (previously Article 13 EIR 2000) as providing a “veto”. 3 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 16, mn. 2. 4 Brinkmann, IILR 2013, 371, 378 with further references in footnotes 26 and 27. 5 Opposing view: INSOL Europe, Revision of the European Insolvency Regulation, Art. 13, citing US bankruptcy law suggests that the principle of universality should apply (i. e. only lex fori concursus applies), unless the COMI has been moved subsequent to the creation of the legal relationship between the parties with the effect that the defendant could not foresee which substantive law avoidance actions would be subject to. 6 Pfeiffer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 837 with reference to several national reports in footnote 200. Unsurprisingly, and as reported by Pfeiffer, the issue is more controversial in German scholarly writings, as reflected in the German report to Question 24 of the survey, which refers to Article 13 EIR 2000 (now Article 16 EIR) as the “most controversial provision of the EIR concerning applicable law”. As a result of the traditional German insolvency law model and the role of the insolvency administrator, many consider the compromise to present a glaring loophole to avoid strict avoidance principles in some jurisdictions, such as Germany, and also propose limiting the scope of the applicable lex causae for certain transactions, see below mn. 26 et seq. See also: Zeeck, ZInsO 2005, 281, 286–287. 7 For example, Article 102 EGInsO as was in force until 1/12/2001.

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stipulated that the liquidator challenging the act must not only prove that it constituted a detrimental act pursuant to the lex fori concursus, but also that it could be successfully challenged under the lex causae. This wholly integrated approach made it extremely difficult to challenge detrimental acts in a cross-border context, as the entire burden of proof lay with the plaintiff. By contrast, EIR 2000 adopted the aforementioned “exception” approach in order to 5 balance the principle of universality and the territorial expectations in respect of substantive law issues. The wording and general scope of Article 16 EIR have been in place since EIR 2000 came into force. The Vienna Report considered the complexity of the provision and whether a strictly universal approach should be adopted as a recommendation or policy option in reforming the EIR, i. e. whether Article 16 EIR should be abandoned completely and only the lex fori concursus should apply to the debtor’s and/or an insolvency practitioner’s ability to set aside detrimental acts.8 Although it would indeed be easier for an insolvency practitioner to pursue claims in respect of detrimental acts if the lex fori concursus were the sole basis for determining the validity of such claims, it would be incorrect to state that the statute in current form represents an insurmountable complexity. Indeed, the Vienna Report points out that consideration of other legal regimes in cross-border cases is the rule and not the exception; insolvency practitioners must be expected to consider consequences under a second national legal regime and collaborate with experts in other jurisdictions as the case demands.9 As a result, the changes implemented by EIR 2015 were primarily editorial corrections and clarifications vis-à-vis the previous version. The interpretation of Article 16 EIR should therefore remain consistent with its previous wording.10 In addition to updating the reference to Article 7 EIR (instead of Article 4 EIR 2000), the second bullet point was amended to read as follows: “that law of that Member State [emphasis added] does not allow any means of challenging that act in the relevant case.” This amendment can only have been for the sake of absolute clarity, as another interpretation of the second bullet point and its reference to the law of the Member State governing the legal relationship between the parties does not seem to have been called into question under EIR 2000. Finally, the recitals were not amended in any meaningful way in respect of Article 16 EIR.

C. Scope I. Persons 1. In respect of the applicant Typically, the insolvency practitioner as defined in Article 2 no. 5 EIR will be the 6 party addressed by Article 16 EIR, as even in the case of a debtor in possession within the scope of Article 2 no. 3 EIR the ability and authority to claw back payments and set aside certain transactions will still be vested with an insolvency practitioner to the extent such is appointed by the national court. However, it remains at least theoretically possible for the law of a Member State to stipulate that the debtor in possession is 8

Pfeiffer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 840. Pfeiffer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 840; see also: Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 13, mn. 11. 10 Mankowksi, EWiR 2015, 773, 774, who cites further international references, in particular Mastrullo, Rev. proc. coll. juillet-août 2015 comm. 87 pp. 31, 33; Act. proc. coll. Octobre 2015 n° 236, pp. 1–2. 9

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responsible for and authorized to assert claims within the scope of Article 7(2)(m) EIR. Thus, the debtor in possession as well as the insolvency practitioner are the relevant parties in respect of the debtor. As is the case with Articles 7(2)(m) and 16 EIR, Article 6 EIR also makes no direct reference to any limitation as to the plaintiff, but instead only references specific actions and states in paragraph 2 that “the first subparagraph [also referring to avoidance actions pursuant to Article 6(1) EIR] shall apply to the debtor in possession, provided that national law allows the debtor in possession to bring actions on behalf of the insolvency estate.” As a result, it only stands to reason that to the extent national law in the Member States confers the right to challenge certain transactions on a debtor in possession, the debtor itself may be plaintiff in cases subject to Articles 7(2)(m) and 16 EIR.11 This view would also seem to be supported by a recent referral to the CJEU, in which the applicant was listed only as “Sportland Oy, in liquidation” without specific reference to an insolvency practitioner.12 For the sake of convenience, however, the person seeking to set aside detrimental transactions on behalf of the debtor shall hereinafter be simply referred to as the “insolvency practitioner”. 7 In addition, it must also be considered whether Article 16 EIR can be applied to the insolvency practitioner in both main and secondary/territorial insolvency proceedings. The generally accepted view supports the application of Article 16 EIR to an insolvency practitioner in both main and secondary/territorial insolvency proceedings;13 however, the insolvency practitioner in the secondary/territorial proceedings must provide evidence for the fact that the act in question specifically reduced or harmed the insolvency estate in the secondary/territorial proceedings to the detriment of those creditors.14 This power and its requirements are specifically set out in Article 21(2) (sentence 2) EIR: “The [secondary/territorial] insolvency practitioner may also bring any action to set aside which is in the interests of the creditors.”

2. In respect of the defendant 8

Generally, any “person who benefitted from an act detrimental to all the creditors” can be a defendant to the claim brought by the insolvency practitioner. Although such action might counteract the coordination measures that the EIR seeks to implement and enforce regarding the main and antecedent proceedings, a literal reading of Article 21(2) EIR would suggest that the insolvency practitioner in main insolvency proceedings could also be the defendant in an action brought by the secondary/ territorial insolvency practitioner. Although some assert that such possibility would counteract the desired effect of Article 21(1) EIR and therefore reject it out-of-hand,15 this view does not appear to give proper consideration to the balance that the EIR strives to achieve between the coordination of the proceedings for the benefit of all creditors and the leeway that secondary proceedings are afforded in respect of the 11 See also in respect of Article 6 EIR: Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 6, mn. 42. 12 CJEU Case C-310/14 Nike BV v Sportland Oy ECLI:EU:C:2015:690. 13 Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 13 EIR 2000, mn. 6; Gruber, in Geimer/ Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 13 VO Nr. 1346/2000, mn. 3, both with reference to the Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 139. 14 Dammann, in Pannen, European Insolvency Regulation, Art. 13 EIR 2000, mn. 6. 15 Geroldinger, Verfahrenskoordination im Europäischen Insolvenzrecht, p. 179; see also: Koller, IPrax 2014, 490, 493, whose citation of Geroldinger only appears to include a reference to Article 21(2) (sentence 1) and not the 2nd sentence. The reference is also only used by Koller to prove a point on an entirely different matter – the recognition of restructuring plans in main insolvency proceedings that have a protective purpose (such as sauvegarde proceedings in France).

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justified interests of the creditors in these proceedings, i. e. the protection of local interests. Article 21(1) EIR does not contain language that would preclude an insolvency practitioner in secondary insolvency proceedings from seeking to set aside an act by the insolvency administrator in main insolvency proceedings. Indeed, as Grönda et al. demonstrate, Article 16 EIR serves as the primary protection for the insolvency practitioner in main insolvency proceedings.16 Should the insolvency practitioner in secondary insolvency proceedings bring an action to set aside a transaction that is to the detriment of creditors in the secondary insolvency proceedings, for example gratuitous removal of property from the subsidiary in secondary proceedings, such act would also need to be judged on the basis of Article 16 EIR. As a result, the insolvency practitioner could defend himself against the claim by asserting that the act is not contestable under the lex fori concursus of the main insolvency proceedings. Conversely, it does not stand to reason that an insolvency practitioner in main proceedings can effectively or convincingly argue that the transfer of assets to the separate entity for insolvency purposes, i. e. the separate insolvency estate in main proceedings created by virtue of the opening of secondary insolvency proceedings, be challengeable under his lex fori concursus whilst maintaining that these assets be used to (primarily) satisfy the creditors in main insolvency proceedings. Such logic applies in spite of the fact that the EIR generally recognises deferral to preferences in accordance with national law of the Member States. Recital 46 EIR states: “In order to ensure effective protection of local interests, the insolvency practitioner in the main insolvency proceedings should not be able to realise or relocate, in an abusive manner, [emphasis added] assets situated in the Member State where an establishment is located, in particular, with the purpose of frustrating the possibility that such interest can be effectively satisfied if secondary insolvency proceedings are opened subsequently.” A gratuitous removal of any assets or a transaction impairing the estate in secondary insolvency proceedings would – prima vista – seem to entail “realization or re-location in an abusive manner”. Furthermore, one of the purposes of any secondary insolvency proceedings is to 9 defend the legitimate interests and expectations of the creditors in the individual Member States in accordance with the national insolvency regimes; this must also apply in respect of individual rules of disbursements to (preferred) creditors. For example, recital 72(sentence 3) EIR states: “Any other questions relating to the law of insolvency, such as whether the employees’ claims are protected by preferential rights and the status such preferential rights may have, should be determined by the law of the Member State in which the insolvency proceedings (main or secondary) have been opened, except in cases where an undertaking to avoid secondary insolvency proceedings has been given in accordance with this Regulation.” This stated goal of protecting creditors’ legitimate interests and expectations is also supported by the fact that Article 23(2) EIR does not make an exception for priority rules in creditor dividends.17 In addition, the insolvency practitioner in main insolvency proceedings has further 10 leverage and protective rights in the coordination of the proceedings through the rights afforded to him in Articles 45 and 46 EIR. If the insolvency practitioner in the main 16

Grönda/Brünning/Liersch, in Festschrift für Braun, 2007, pp. 412–413. See Moss/Fletcher/Issacs, EU Regulation on Insolvency Proceedings, mn. 8.329; Blank, ZInsO 2008, 412, 414. See also: Grönda/Brünning/Liersch, in Festschrift für Braun, 2007, 403, 414, although the authors there also reach the highly questionable conclusion that proper interpretation of German avoidance law would preclude the insolvency practitioner in German secondary proceedings from asserting such rights, as the estate as a whole was not altered by such act. 17

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insolvency proceedings is able to attain a stay of the process of realisation of assets pursuant to Article 46(1)(sentence 1), such stay must also apply to clawback actions and can thereby provide the insolvency practitioner with the requisite time to propose and implement a restructuring plan (see Maesch/Knof below Article 47 mn. 5 et seq.). 11 Finally, questions can arise in respect of whether avoidance actions taken against defendants outside of the Member States fall within the scope of Articles 7(2)(m) and 16 EIR (see recital 35 EIR). However, the more pertinent issue is whether the legal relationship governing the act in question is actually subject to the law of another Member State (see below mn. 22 et seq.).

II. Relevant acts 1. Voidable transaction Article 16 EIR does not provide a definition of which transactions are subject to avoidance actions or may be set aside by the insolvency practitioner. To the contrary, Article 16 EIR simply assumes that an action may be taken to set aside a transaction pursuant to the lex fori concursus. Therefore, national law in the Member States generally governs which acts or transactions may be subject to clawback when proceedings are opened in one of the Member State jurisdictions. However, Article 7(2)(m) EIR not only provides guidance as to the types of “acts” subject to its conflict of laws, but it is now generally recognised that the term “detrimental act” is to be interpreted autonomously and independent of the laws of the Member State in a manner that is consistent throughout the EU.18 Furthermore, it is generally agreed that the term “legal act” should be interpreted very broadly and may also include legally relevant declarations or statements, all manner of business transactions, as well as simple actions (such as removing objects from the insolvency estate).19 13 Whether a specific act is seen as an action that is “void, voidable, [or] unenforceable” remains a matter for the lex fori concursus. Such definition of the acts subject to the conflict of laws rules cannot be the effective determining factor, as it merely sets out the legal consequences of the insolvency practitioner’s challenge to the act. This can lead to some disagreement as to whether certain types of transactions, for example creditor liability for granting certain loans in spite of a company’s impending insolvency, constitute detrimental acts.20 Such transactions may generally be viewed as “acts” within the ambit of Articles 7(2)(m) and 16 EIR; however, it must be left to the lex fori concursus to determine (i) whether an act is a “voidable” transaction pursuant to national insolvency rules and (ii) which consequences the voidability carries with it to “neutralise” the negative consequences of the act for the creditors.21 14 Finally, acts pertaining to insolvency proceedings that fall under the scope of Article 1(2) EIR, for example proceedings concerning insurance undertakings, credit institutions, firms and undertakings covered by Directive 2001/24/EC (investment firms), or collective investment undertakings, do not fall within the ambit of Articles 7 (2)(m) and 16 EIR (see Brinkmann above Article 1 mn. 23 et seq.22 12

18 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 68; opposing view Herchen, Das Übereinkommen, p. 70; Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 13 EIR 2000, mn. 5. 19 Reinhart, in Münchener Kommentar zur InsO, Art. 13 EuInsVO 2000, mn. 5. 20 Dammann, in Pannen, European Insolvency Regulation, Art. 13 EIR 2000, mn. 7. 21 Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 13 EIR 2000, mn. 5; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 4 EuInsVO 2000, mn. 38. 22 See also Brinkmann, IILR 2013, 371, 375–376.

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2. Before insolvency proceedings have been opened A literal interpretation of Article 7(2)(m) EIR would seem to indicate that only such transactions which have been fully executed before insolvency proceedings are opened in the relevant jurisdiction may be subject to the conflict of laws determination in Article 7(2)(m) EIR and with it the substantive legal issues incorporated in Article 16 EIR. Although the relevant law in some Member States may provide for actions to set aside transactions that have been made after insolvency proceedings were opened, these should generally not fall within the ambit of Articles 7(2)(m) and 16 EIR. Article 16 EIR in particular is premised on the assumption that creditors should be able to rely on the fact that the validity of any act will continue to be subject to the legal regime governing the legal relationship between the parties and not be (arbitrarily) subject to a divergent lex fori concursus.23 This premise can only hold true for actions preceding the opening of insolvency proceedings; creditors may ignore neither the consequences of the opening of insolvency proceedings nor the relevant lex fori concursus. They therefore have no reasonable expectation that any other law applies to further dealings with the debtor other than the lex fori concursus. In other words, there is no need to counterbalance the principle of universality for acts and transactions neither completed nor perfected before such proceedings have been opened and made public. Such assumption is further evidenced by the fact that Article 23 EIR also contains a substantive law measure stipulating that anything received by a creditor after insolvency proceedings have been opened must be returned to the insolvency practitioner. Article 23 EIR was meant to fill any substantive law gaps in individual Member States and ensure that the insolvency practitioner in cross-border insolvency cases may in any case be able to assert rights to certain assets transferred or otherwise removed from the estate to the benefit of a creditor after the insolvency proceedings have been opened.24 An extensive interpretation beyond the literal meaning of Article 7(2)(m) EIR not only appears unnecessary,25 it is also misguided. Even if a creditor were able to assert that such legal act were (generally) subject to the laws of another Member State and not challengeable (Article 16 EIR), this assertion would and – in accordance with the intention of Article 23 EIR – should be set aside and negated. In the recent case Lutz v Bäuerle the CJEU was specifically asked whether Article 13 EIR 2000 is applicable if an act (in the case in point a payment) challenged by the insolvency practitioner had been carried out after the insolvency proceedings had been opened. The CJEU explicitly held that Article 16 EIR (Article 13 EIR 2000) was not applicable to an act carried out after insolvency proceedings had been opened. In keeping with the arguments mentioned above, the CJEU firmly stated that the creditors can have no expectation that any law other than the lex fori concursus will apply to transactions after insolvency proceedings have been opened.26 Thus, even if one should extend the applicability of Article 7(2)(m) EIR to include transactions after insolvency proceedings have been opened, creditors will not have the option of defending themselves with the exception rule under Article 16 EIR. One further issue needs to be addressed in this regard. Annex A EIR also refers to several different types of “interim” proceedings (see also recital 15 EIR). As a result, one could question whether acts that take place in interim proceedings also fall within the 23

See above fn. 3. Thole, in Münchener Kommentar zur InsO, Art. 20 EuInsVO 2000, mn. 1–2. 25 Opposing view: Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 13 EuInsVO 2000, mn. 9. 26 CJEU Case C-557/13 Lutz v Bäuerle ECLI:EU:C:2015:227. 24

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Art. 16 19

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ambit of Article 7(2)(m) and subsequently Article 16 EIR. The CJEU held in one of its seminal cases that insolvency proceedings can be deemed opened if an (interim) insolvency practitioner is appointed.27 This case did not, however, involve the application of Articles 7 (2)(m) and 16 EIR. At issue was whether such judgment opening (interim) insolvency proceedings had to be automatically recognized in all other Member States pursuant to Article 19 EIR (Article 16 EIR 2000). Although this decision might suggest that it should also apply to the question at hand in the interest of a uniform application of the terms of the Regulation, it must first be noted that the judgment itself makes no reference to such question. It must therefore be concluded that the CJEU has made no specific ruling on this issue.28 Thus, it cannot merely be presumed that the Eurofood holding will also apply to the question of whether an act in interim proceedings can fall under the scope of Article 7(2) (m) EIR. Citing a lack of necessity and also a lack of legitimate interests necessitating protection once an interim insolvency practitioner is appointed, some assert that such acts do not fall under the scope of Articles 7(2)(m) and 16 EIR.29 19 However, the aforementioned arguments do not present an imperative. In addition, they disregard crucial factors in the application of national law in challenging detrimental acts as an ancillary proceeding to insolvency proceedings. In this situation, deference to national law would appear to be the only logical and defensible solution, as the comprehensive list of proceedings in Annex A EIR is a deference to national Member State law and its individual interpretation of insolvency proceedings. Therefore, the questions that need to be answered for each jurisdiction are: At which stage in the “interim”/final insolvency proceedings can acts actually be set aside or clawed back? Is this point in time used as the key frame of reference for determining whether an act took place “before insolvency proceedings were opened”? By answering these questions using German insolvency law as an example, the results are both satisfactory from a practical point of view and strictly logical. German law does not permit an action to set aside acts during the course of preliminary insolvency proceedings, but rather only after (final) insolvency proceedings are opened. Therefore, the opening of the interim proceedings – although highly relevant within the context of Articles 3 and 19 EIR – cannot form the relevant frame of reference in respect of Article 7(2)(m) EIR and, as a complementary aspect (exception to the rule), in respect of Article 16 EIR. Bloching uses a similar approach in attempting to resolve conflict of laws issues between civil law pursuant to Brussels Ia Regulation and insolvency issues, basing his delination on “whether the claim has its origin in the opening of insolvency proceedings” (Orginal German: “durch die Insolvenzeröffnung begründet”).30 Such reasoning can be seen 27

CJEU Case C-341/04 Eurofood IFSC Ltd. ECLI:EU:C:2006:281. Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 13 EuInsVO, mn. 3. 29 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 16, mn. 11. 30 See Bloching, Pluralität und Partikluarinsolvenz, pp. 302–303. See also Strobel, Die Abgrenzung, pp. 182–184 and Jahr, in Kegel/Thieme, Vorschläge und Gutachten, p. 316, who both suggest resolving the aforementioned jurisdictional issues on the basis of whether the procedure “requires insolvency proceedings” (Original German: “ein Insolvenzverfahren voraussetzt”). Piekenbrock’s out-of-hand rejection of Bloching’s approach on the basis that it does not allow for subsumption on an individual case basis (see Piekenbrock, KTS 2015, 379, 384–385) lacks substantive grounds for the assertions and appears unfounded. The German insolvency practitioner’s claims are entirely contingent upon insolvency proceedings being opened. On the other hand, Piekenbrock’s criticism of Stobel’s contention that insolvency proceedings remain active in order to fall under the scope of the Regulation is on point, as insolvency-based avoidance claims can survive insolvency proceedings in order to benefit the general body of the creditors, see § 259(3) InsO. It must also be noted that Piekenbrock uses these arguments to make a much broader and valid point in respect of annex jurisdiction between the Regulation, Brussels Ia Regulation and the Convention of 16 September 1988 on jurisdiction and the enforcement of judgments in commercial matters (Lugano Accord). 28

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throughout court decisions in respect of establishing jurisdiction for ancillary proceedings, harkening back to the Gourdain judgment, in which the court ruled that one of the main points of reference was that the “action en commlement de passif social” could only be asserted by the liquidator in the French insolvency proceedings.31 The logical extension of this reasoning in respect of the question at hand is that acts occur before “opening of insolvency proceedings” within the meaning of Article 7(2)(m) EIR if and to the extent that they occur before such phase of the insolvency proceedings in which the insolvency practitioner can bring an action to negate the effects of such act under the relevant national law. Thus, transactions during interim insolvency proceedings in Germany would also generally fall under the scope of Article 7(2)(m) EIR.32

3. To the detriment of the creditors Possibly the most important defining characteristic for acts that fall within the scope 20 of Articles 7(2)(m) and 16 EIR is the requirement that these acts are detrimental to the creditors. Once again, there appear to be differences of opinion as to whether the term “detrimental to the creditors” needs to be interpreted in an autonomous, consistent manner for all of the Member States or should primarily be left to interpretation under the lex fori concursus.33 An argument can be made for an autonomous interpretation, as Article 7(2)(m) EIR now uses the terminology “detrimental to the general body of creditors” instead of the previous “to all the creditors”.34 This would at least imply that this stipulation was changed in order to facilitate a broad interpretation that needs to be applied in a (uniformly) broad manner across all of the Member States and should not tolerate a more narrow view, which a literal interpretation of the previous wording, i. e. that the act need be detrimental to all creditors, could imply. However, these nuances appear largely irrelevant in the actual role that this criterion plays in a determination of whether acts fall under the scope of Articles 7(2)(m) and 16 EIR. As Müller effectively points out, acts that only affect certain specific or a very limited number of creditors, such as a single creditor’s ability to challenge acts under German law (Einzelanfechtung), and other general grounds for declaring a transaction null and void are neither “detrimental to the general body of creditors” nor “detrimental to all the creditors” and do not fall within the ambit of Article 7(2)(m) and with it Article 16 EIR.35

D. Interpretation of terms and elements I. General interpretation rules The CJEU has continually held that Article 16 EIR is an exception to the general 21 principle in Article 7(2)(m) EIR and therefore must be interpreted restrictively.36 The strict interpretation extends to all terms and elements of the “exception rule” contained in Article 16 EIR. Such interpretation has influenced the Court’s holdings in respect of numerous issues in applying Article 16 EIR in actions brought by insolvency practi31

CJEU Case C-133/78 Gourdain v Nadler ECLI:EU:C:1979:49. cf. Prager/Keller, NZI 2011, 697, 698. 33 Reinhart, in Münchener Kommentar zur InsO, Art. 13 EuInsVO 2000, mn. 3 a. 34 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 72. 35 Ibid. 36 Most recently: CJEU Case C-310/14 Nike BV v Sportland Oy ECLI:EU:C:2015:690, para. 18, referencing CJEU Case C-557/13 Lutz v Bäuerle ECLI:EU:C:2015:227, para. 34. 32

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tioners. These interpretations of individual terms and elements of Article 16 EIR are considered at length under the relevant term below mn. 22 et seq.

II. The exception rule 1. Act subject to other Member State law 22

After determining that an “act” falls within the scope of Article 7(2)(m) EIR, the application of the “exception rule” in Article 16 EIR requires that the act be subject to the law of another Member State. Whilst this requirement is, in and of itself, straightforward, the Regulation does not contain explicit language in respect of which conflict of laws statutes are applicable in determining which substantive law governs the specific act. In addition, the correct method of determining the law applicable to a specific act is the subject of much debate in scholarly writings. Finally, it must be considered whether Article 16 EIR can also apply to acts subject to other foreign substantive law that is not that of one of the Member States.

a) Applicable conflict of laws statutes. At first blush, the application of the conflict of laws statutes in the Member State in which the insolvency proceedings were opened would appear to be the most logical solution to the problem of determining the correct conflict of laws statutes, especially when viewed against the background of Article 3 EIR. Generally speaking, the lex fori concursus should claim universality in the approach to interpreting the further parts of the Regulation, including the applicable law pursuant to Article 16 EIR. This approach has not, however, been universally held or applied in the past. Many scholars do assert that the conflict of laws statutes of the Member State in which insolvency proceedings were opened are applicable.37 Others, citing a decision by the OLG Naumburg,38 opine that the conflict of laws statutes of the court having jurisdiction (lex fori processus) should be applied.39 The differing views were already nearly rendered moot by the CJEU’s Deko Marty decision. In its ruling, the Court held that Article 3(1) EIR 2000 granted the courts in the Member State in which the proceedings are opened jurisdiction for actions which derive directly from insolvency proceedings and are closely linked with them.40 As a result, lex fori processus for ancillary proceedings in respect of challenging detrimental acts and lex fori concursus essentially became synonymous.41 Indeed, some authorities already held such jurisdiction to be mandatory under the CJEU’s interpretation of the Regulation,42 necessitating a uniformity of forum. This principle has now been codified in Article 6(1) EIR and should render such discussion effectively academic. 24 One exception would be in cases where the insolvency practitioner brings an action in civil or commercial matters against a defendant in the territory in which the 23

37 Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 13 EIR 2000, mn. 16; Dammann, in Pannen, European Insolvency Regulation, Art. 13 EIR 2000, mn. 5; Pinterich, ZfRV 2008, 221, 235. 38 OLG Naumburg, Urt. v. 06.10.2010 – 5 U 73/10, BeckRS 2010, 29926 (DEU). 39 Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 13, mn. 3; Gruber, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 13 VO Nr. 1346/2000, mn. 4; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 13 EuInsVO 2000, mn. 3; Reinhart, in Münchener Kommentar zur InsO, Art. 13 EuInsVO 2000, mn. 7. 40 CJEU Case C-339/07 Seagon v Deko Marty ECLI:EU:C:2009:83. 41 Stürner/Fix, in Festschrift für Wellensiek, pp. 835–836. 42 BGH, Beschl. v. 19.05.2009 – IX ZR 39/06, NZI 2009, 532, 533 (DEU); opposing view: Mock, ZInsO 2009, 470, 472.

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defendant is domiciled and also asserts claims pursuant to detrimental acts that are related to the civil or commercial claims in that venue (Article 6(2) EIR). Although a court in another Member State may have jurisdiction for an avoidance case pursuant to Article 6(2) EIR, this will also result in a uniform conflict of laws application in most cases. Article 6(2) EIR stipulates such jurisdiction of a Member State. As a result, any contractual, civil or commercial (not corporate) claim must ultimately fall within the ambit of the Rome I Regulation, which provides uniform conflict of laws rules for the Member States.43 From a practical point of view, it would also appear counterproductive to first 25 stipulate that courts in the Member State in which the proceedings are opened have jurisdiction to hear avoidance cases but to then maintain that a question of law for their (exclusive) consideration, i. e. whether Article 16 EIR applies as result of a different lex causae, is a question to be determined pursuant to conflict of laws statutes in another jurisdiction. Although such conflicts and reverse-references are not unknown in conflict of laws statutes, the universality of the lex fori concursus for the insolvency proceedings and its ancillary proceedings would appear favourable. b) Further determination of applicable law by examination of the relationship 26 between the debtor and the defendant. Once the applicable conflict of laws rules have been established, the substantive law governing the transaction in question (lex causae) must be determined by the court having jurisdiction and venue. The methodology applied in determining the applicable substantive law can be critical and swing the pendulum in favor of the insolvency practitioner’s petition to have an act set aside by reinforcing the lex fori concursus as governing the act or – to the detriment of his claim – allow for a choice of law clause in the contractual relationship between the debtor and the defendant – inter alia – to supersede the lex fori concursus and render the action moot. Scholarly writings, especially in Germany, have examined this issue at length and reached various conclusions without achieving a broad consensus on the issue.44 Until its recent decision in re Vinyls v Mediterranea,45 the CJEU neither directly addressed nor was it forced to consider this question in any of its decisions on Article 16 EIR.46 Many national courts do not address this issue, as they also seem to simply overlook the necessity of a determination of the lex causae and/or the application of Article 16 EIR.47 The matter was – until recently – therefore largely left to academic discourse and, as will be discussed in the following, decisions by lower courts in individual Member States 43

See Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 16, mn. 17. Moss/Fletcher/Issacs, EU Regulation on Insolvency Proceedings, mn. 8.267; Brinkmann, Beilage zu ZIP 22/2016, 16; Paulus, EuInsVO, Art. 13, mn. 6; U. Huber, in Festschrift für Heldrich, pp. 695, 716–718; Schall, IILR 2011, 484–490; Stürner/Fix, in Festschrift für Wellensiek, pp. 838–841; Mankowski, EWiR 2015, 776, additionally citing J. Schmidt, EWiR 2014, 659, 660; Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 13 EIR 2000, mn. 6; Gruber, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 13 VO Nr. 1346/2000, mn. 3; Nerlich, in Nerlich/Römermann, Insolvenzordnung, Art. 13 EuInsVO 2000, mn. 5. 45 CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43. 46 The questions posed in the most recent decisions seem to suggest that the national courts have either already considered this question to their satisfaction or the issue has not raised itself at all. See pars pro toto: CJEU Case C-310/14 Nike BV v Sportland Oy ECLI:EU:C:2015:690; CJEU Case C-557/13; Lutz v Bäuerle ECLI:EU:C:2015:227. 47 The Gerechtshof’s-Hertogenbosch’s decision of 1 September 2009 in re Börlind Duitsland v Börlind Benelux (Case no 103.005.344, JOR 2010/27 (NLD)) did not comment on the lex causae and made no ruling on the application of Article 16 EIR, although German law could have arguably applied to the act in question. See also Fumagalli, IILR 2011, 465–467, who laments that courts in Italy also have not thoroughly examined the issue of the lex causae when confronted with actions for avoidance with crossborder implications. 44

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(primarily Germany). For this reason, the discourse in scholarly writings and national jurisprudence will be examined in depth here before the CJEU’s ruling in re Vinyls v Mediterranea is presented within the context of the “functional qualification” model discussed in the following. 27 Against this background, some authors have sought a solution by separating the transaction in question from any underlying contractual relationship and determining the lex causae based on the type of transaction being challenged, for example a transfer of property rights or the act of remitting payment in fulfilling an obligation under a contract.48 However, such approach relies upon two civil law methodologies that are unique to very few jurisdictions within the Member States: the so-called “separate acts principle” (Trennungsprinzip) and the “principle of abstraction” (Abstaktionsprinzip). The so-called “separate acts principle” (Trennungsprinzip) and the “principle of abstraction” (Abstraktionsprinzip) stipulate that transactions will generally involve two separate but equally important “contracts”. One contract, the obliging contract (Verpflichtungsgeschäft) governs the parties’ rights to demand certain performance and remedies while the disposal contract (Verfügungsgeschäft) applies to the actual act of transferring rights, especially in the case of property rights or other rights in rem. These two contracts and their legal effects are always distinct from one another, i. e. the disposal contract can remain in force even if the obliging contract is declared void or rescinded. This strict methodology applies only in Germany and – to some extent – in Greece and Austria, although the latter two apply a less stringent form corresponding more with the principle of separate acts (Trennungsprinzip).49 As others have already correctly pointed out, most substantive law in the Member States relies on a unified view to contractual relationships, for example rights in rem will also be transferred with the conclusion of a purchase contract in respect of the object in question.50 It would therefore be inappropriate to base an autonomous interpretation of Article 16 EIR and the meaning of “the law of another Member State” on assumptions and methodologies that only apply in a very limited number of jurisdictions in the Member States.51 The reasoning in a recent decision by the CJEU would also support this view. In the Lutz v Bäuerle case, the Court reasoned that interpretations of specific Articles of the Regulation that would lead to arbitrary discrimination within the Member States (solely) on the basis of legaltheory models prescribed to by individual Member States prevent a uniform application of the Regulation and can therefore not provide correct guidance or interpretation.52 28 Other scholars have therefore asserted that such autonomous interpretation of the applicable law of another Member State may be most appropriately applied on the basis of a “functional qualification”53 of the act being challenged.54 Brinkmann suggests that such functional qualification not be derived from the goal being pursued in setting aside the transaction, for example reversing its effects by avoidance within the context of the 48 Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 13 EIR 2000, mn. 6; Nerlich, in Nerlich/ Römermann, Insolvenzordnung, Art. 13 EuInsVO 2000, mn. 5. 49 See Gaier, in Münchener Kommentar zum BGB, Einl. Sachenrecht, mn. 15–17; Papadimopoulos/ Linz, in Ring, BGB, Sachenrecht, Griechenland, mn. 1; Stadler, Gestaltungsfreiheit und Verkehrsschutz durch Abstraktion, pp. 24 et seq. 50 Stürner/Fix, in Festschrift für Wellensiek, pp. 836–837. 51 Brinkmann, Beilage zu ZIP 22/2016, 16, who also refers to Stürner/Fix, in Festschrift für Wellensiek, and U. Huber, in Festschrift für Heldrich, p. 695. 52 CJEU Case C-557/13 Lutz v Bäuerle ECLI:EU:C:2015:227, para. 55. 53 Wendehorst, in Münchener Kommentar zum BGB, EGBGB Art. 43, mn. 38, and von Hein, in Münchener Kommentar zum BGB, Einl. IPR, mn. 137, both detail the need for a functional qualification of transactions or acts in determining the applicable substantive law. 54 Brinkmann, Beilage zu ZIP 22/2016, 16.

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national rules on detrimental acts,55 but rather from which effect the act being challenged either has or had that now needs to be reversed in the interest of the general body of creditors; in other words, which function of the act must necessarily be set aside.56 The applicable law is then determined based on this functional qualification. This method would indeed appear to provide a suitable base framework for the determination of the relevant or applicable law for the purposes of avoidance of detrimental acts. In addition to providing a basis for an autonomous interpretation that does not discriminate to the advantage of any particular substantive law in the Member States,57 it also allows for judicial flexibility in determining the lex causae on a case-by-case basis. However, the common denominator to be found within European legislation in 29 respect of determining the substantive law that governs a specific act (lex causae) can be found in the Rome I Regulation.58 It therefore stands to reason that the court in a Member State (excepting Denmark) that has jurisdiction in determining which law of another Member State might also apply to the act being challenged as lex causae should first determine whether the act is part of a larger legal (contractual) relationship among the parties. If the court establishes that such contractual relationship exists, it should then determine which substantive law governs the contractual relationship pursuant to the Rome I Regulation. To the extent that the act in question is related to such contractual relationship, this inter partes relationship must be taken into consideration in a pan-European method of determining the lex causae pursuant to Article 16 EIR.59 The freedom to choose the substantive contract law governing a contractual relationship is explicitly conferred upon the contracting parties in the Member States by Article 3 of the Rome I Regulation. It also represents an expression of those parties’ legitimate and codified right to such choice of law, and – in accordance with the fundamental freedoms afforded by the Lisbon Treaty (2009) – must therefore be duly considered when evaluating any part of such transaction under the EIR, including, but not limited to, fulfilment of contractual obligations.60 In other words, a contractual choice of law must necessarily be the first option considered for each act being scrutinised by the national court.61 Some scholars assert that by identifying the applicable law for the contractual relationship between the parties this substantive law can then be applied as lex causae to any act taken within the scope or context – however ancillary – of such contract.62 Such overly broad and untampered interpretation may not, however, conform to the CJEU’s restrictive use of Article 16 EIR’s exception rule and is therefore correctly criticised in scholarly writings as being too narrow in scope.63 In its only decision on this particular issue, the CJEU plainly states that the question of whether a 55

Such method is suggested by Stürner/Fix, in Festschrift für Wellensiek, p. 840. Brinkmann, Beilage zu ZIP 22/2016, 16. 57 See the reasoning of the CJEU above fn. 52. 58 See fn. 43. 59 This would also appear to be the base assumption, with limitations, in CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43, para. 46–50. 60 Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 13, mn. 4. 61 The LG Potsdam also arrives at this conclusion in a more recent decision holding that a contract between a Dutch entity and a German entity was subject to Dutch law, thereby concluding that the payment under such contract was also subject to such in applying Art. 13 EIR 2000 (now Art. 16 EIR), see LG Potsdam, Urt. v. 06.10.2017 – 6 O 346/16, ZIP 2017, 2444–2446 (DEU). 62 Moss/Fletcher/Issacs, EU Regulation on Insolvency Proceedings, mn. 8.267; Paulus, EuInsVO, Art. 13, mn. 6; U. Huber, in Festschrift für Heldrich, pp. 695, 716–718; Stürner/Fix, in Festschrift für Wellensiek, pp. 838–841; Mankowski, EWiR 2015, 776, additionally citing J. Schmidt, EWiR 2014, 659, 660. 63 Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 13 EIR 2000, mn. 6; Gruber, in Geimer/ Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 13 VO Nr. 1346/2000, mn. 3. 56

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choice of law clause governs the application of Article 16 EIR “must be examined having regard only to the provisions of EIR [2000] and in particular the objectives pursued by that regulation.”64 In its further holdings the Court effectively rules that the parties to a contract may rely on a choice of law clause to also be applicable within the context of Article 16 EIR, if and to the extent that the choice of law is valid and not being used for abusive or fraudulent purposes.65 In doing so, it also states that Article 3(3) of the Rome I Regulation does not limit the choice of law for the purposes of its application under Article 16 EIR.66 30 Against this background, it would appear warranted to refine the “functional qualification” methodology by not only examining the effect that the act being challenged has or had, but also referencing the contractual relationship for interpretation and determination of context and function. A basis for such interpretation can also be found in Article 12(1)(e) of the Rome I Regulation, as it clearly states that the law of the contract shall apply to the consequences of its nullity. Taken at face value, the act of avoidance of detrimental acts also effectively represents the “nullity” of a certain specific aspect of the contract. Brinkmann addresses this issue in respect of acts made in (strict) performance of contractual obligations and, based on Article 12(1)(b) of the Rome I Regulation, reaches the conclusion that these should also be governed by the substantive law of the contract within the context of Article 16 EIR.67 Indeed, it appears necessary and prudent to extend this methodology to all acts directly or indirectly relating to contractual relationships, as was also held in a recent decision by a regional court in Germany, which established that Dutch law governed a contractual relationship with a German debtor and therefore also applied within the context of a (successful) defence pursuant to Article 16 EIR.68 31 The national court should therefore determine whether such act, taken in the context of the insolvency proceedings, retains a sufficient connection to the contractual relationship to warrant the “exceptional” protection that Article 16 EIR affords by specifically questioning what effect the act being challenged has or should have had (i. e. its “function”) within the context of any contractual relationship among the parties involved. If the act serves a specific function of the contractual relationship and the choice of law is valid, the act should be deemed as sufficiently connected to the (specific) contractual relationship to merit the protection afforded by Article 16 EIR. Only after the court has determined that the act does not have a sufficient connection to the contractual legal relationship – or there is no contractual relationship between the parties to begin with – should a thoroughly autonomous approach to determining the “applicable” lex causae based on the function of the act be applied, for example lex rei sitae for real estate mortgaged as security, the statute of incorporation for companies, etc. By way of example, the application of these principles suggested here to the special cases of (i) shareholder loans, (ii) liens and other security in respect of rights in rem, and (iii) third-party payments is detailed in the following: 32

aa) Shareholder loans. Under German insolvency law, repayment of shareholder loans within the one-year period preceding a petition to open insolvency proceedings 64 CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43, para. 49. 65 CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43, para. 49 et seq. 66 CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43, para. 49. 67 Brinkmann, Beilage zu ZIP 22/2016, 16. 68 LG Potsdam, Urt. v. 06.10.2017 – 6 O 346/16, ZIP 2017, 2444, 2445 (DEU).

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may be challenged and clawed back by the insolvency practitioner; security granted for such loans within a ten-year period before the insolvency petition may also be set aside, § 135 InsO (DEU). The problem with determining the correct law to apply to shareholder loans – as with most discussions and problems under Article 16 EIR69 – can therefore generally be considered a German problem. The CJEU has not had occasion to decide which lex causae applies to the repayment of shareholder loans. Various opinions have been offered by scholars and German courts on this issue, most with a view towards affirming German law as lex causae for any shareholder loans based on a variety of reasons, most of which could be interpreted as being goal-oriented. A decision by the OLG Naumburg provides one good example of “the tail wagging 33 the dog”. In its application of the conflict of laws rules of the lex fori processus,70 the court first considered the fact that under “normal circumstances” the law governing the contract in the case at bar would be Austrian law because the (Austrian) lender is the contract party responsible for the “characteristic performance under the contract”, i. e. granting the loan and providing the agreed sum to the debtor (Article 4(2) of the Rome I Regulation). However, the court then holds that loans “granted within the context of a company or group of companies (Gesellschaftsverbundes)” are either subject to corporate or insolvency law, dependent upon the national law of the Member State involved. It therefore concludes that its first reasoning in respect of the relevant contract law is irrelevant and simply assumes that German law (not Austrian) is applicable.71 Even though the court itself felt compelled to explicitly state that this is not circular logic, it most certainly is. Without an independent interpretation of Article 16 EIR as to whether a loan to the company by a shareholder or another company in the group is actually subject to corporate or insolvency law, the court presupposes that this is the case, as it would be in Austria and Germany (but not in other Member States). In doing so, however, it has thoroughly neglected its first (correct) reasoning in respect of the relevant contract law as derived from the conflict of laws statutes for the Member States. As previously detailed, only after the court has determined that the act which the insolvency practitioner seeks to set aside does not have a sufficient connection to the contractual legal relationship should other approaches for determining the applicable law based on the function of the act apply. In its initial line of reasoning, the OLG Naumburg correctly states that a loan 34 agreement is a contractual agreement that is subject to the conflict of laws rules under the Rome I Regulation. Using an autonomous, pan-European interpretation of these rules, neither an implicit nor explicit differentiation between shareholder and “third party” loans can be asserted as a pan-European tenet. The court merely deems such interpretation necessary in its further reasoning. Pursuant to Article 1(2)(f) of the Rome I Regulation, its material scope excludes “questions governed by the law of companies and other bodies, corporate or unincorporated, such as […] winding-up […]”. The repayment of a loan under a contractual loan agreement would not, however, seem to fulfil such requirement on its own. The interpretation offered by the OLG Naumburg is therefore based strictly on a national qualification of a repayment made in the context of a loan agreement under a specific set of circumstances. The repayment of or grant of security for a loan is not, however, generally a “question governed by the law of companies” or in connection with their liquidation or insolvency, but rather a question of fulfilling a contractual obligation. Barring further circumstances, viable arguments for deviating from the general rules contained in the Rome I Regulation are 69

See fn. 6. See also fn. 38 and fn. 39. 71 OLG Naumburg, Beschl. v. 06.10.2010 – 5 U 73/10, BeckRS 2010, 29926 (DEU). 70

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not apparent. The “function” of the repayment of a shareholder or other loan is to fulfil a contractual obligation. Whether or not such contractual obligation can be challenged is, in accordance with the Rome I Regulation and to the extent that such choice is valid, a matter for the substantive law that the parties have chosen to govern the agreement. In other words, the (valid) choice of law in such cases is also generally the lex causae within the meaning of Article 16 EIR.72 35 Both the OLG Naumburg as well as supporters of its decision point to the fact that the loans are used as a means of financing the company. This argument claims to focus on the (underlying) “function” of the loan and its repayment, which its proponents claim is nothing less than provision of equity (capital) to the company to the extent that the loans are provided by the shareholder. As the capitalisation of a company is a strictly corporate measure, it must be judged by the corporate (or insolvency) law governing such transaction.73 This is the point at which some scholars impose a German interpretation upon the issue that they are trying to clarify under European law (i. e. Article 16 EIR and the relevant articles of the Rome I Regulation). Although this is not a universal assumption within the Member States, supporters of this functionality qualification state that a shareholder who provides equity (capital) to the company should not expect to have it returned to him preinsolvency. However, in making such argument these scholars and courts presuppose that a loan – even one made with interest and at arm’s-length – should be equated with a contribution to share capital simply by virtue of the fact that it was granted by the shareholder. This is the interpretation that German law applies, but whether German law applies is exactly the question at hand. As others have pointed out,74 shareholder loans are not per se a question of corporate law; therefore, Art. 1(2)(b) of the Rome I Regulation does not apply. However, there is currently no firm ground for legal practitioners as only a hard and fast holding by the CJEU can provide the comfort that practitioners require to provide firm legal advice. Until the CJEU has its final say on this issue, legal counsel will have to continue to anticipate the national predispositions as outlined above. 36 As a result, the “function” of repaying a loan – even to a shareholder – remains the fulfilling of an obligation of the underlying loan agreement. The lex causae should therefore generally be the law applicable to such agreement75 if and to the extent it is not apparent that the essential aim of the transaction was to obtain an undue advantage.76 This approach therefore neither eliminates the further necessity to “wrestle with the intricate questions [Article 16 EIR] raises”77 nor does it result in more “absurd results”, for example different lex causae for loans by different shareholders based on country of residence78. The problems inherent to the “exception” approach embodied by Art. 16 EIR remain even in light of the CJEU’s apparent concession to choice of law clauses in Vinyls v Mediterranea.79 37 Proponents of applying corporate or insolvency law to all shareholder loans to companies incorporated under German law and their repayment point to the “absurd” 72 See also CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU: C:2017:43, para. 50; LG Potsdam, Urt. V. 06.10.2017 – 6 O 346/16, ZIP 2017, 2444, 2445 (DEU). 73 Brinkmann, Beilage zu ZIP 22/2016, 17. 74 Ibid, p. 18. 75 See also: U. Huber, in Festschrift für Heldrich, p. 695, 711; Schall, IILR 2011, 486: “The peculiarities of shareholder loans justify the denial of free choice of law under Art. 3 III Rome I.” Also critical of the OLG Naumburg decision: Prager/Keller, NZI 2011, 697, 700. 76 CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43, para. 52 with further references to CJEU case law regarding “prohibition of abuse”. 77 Brinkmann, IILR 2013, 371, 378. 78 Brinkmann, Beilage zu ZIP 22/2016, 17. 79 CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43.

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results that are reached when different shareholders are subject to different clawback regimes based on their place of residence and/or ability to effectively “opt out” of German law pursuant to Article 3 of the Rome I Regulation. However, application of this functionality approach also leads to “absurd results” in certain situations. This becomes apparent when shareholder loans are considered within the context of one of the seminal cases in respect of the relationship between national courts regarding the recognition of main insolvency proceedings – Daisytek/ISA GmbH. In this case, the High Court of Justice Leeds80 held that a German limited liability company’s (GmbH) centre of main interest was located in England and opened main proceedings there. After much infighting between the district and regional courts in Düsseldorf, as well as open dissent between the German and English courts, main insolvency proceedings in England were finally universally recognised and secondary proceedings were opened in Germany at the request of both the company’s management and the insolvency practitioner in England.81 Application of the aforementioned “functionality” solution, i. e. German law is applicable to the act of repayment of the shareholder loans to German companies,82 to this hypothetical case leads to complex results: – In the main insolvency proceedings, English law would – “Brexit” notwithstanding (see below mn. 67) – prevail in respect of a clawback of repayments on shareholder loans by straightforward application of Article 7(2)(m) EIR. Even if German law generally governed a repayment of shareholder loans, such repayment alone would not – without further extenuating circumstances83 – constitute an act that could be set aside by the English insolvency practitioner. – The insolvency practitioner in the secondary proceedings in Germany, however, could claw back repayments on the shareholder loan to the extent that they were to the detriment of the estate in secondary insolvency proceedings.84 This necessarily provokes the question as to whether repayment of the loan was made from an account that would generally be subject to the territorial proceedings, i. e. whether or not payment was made from one of the company’s accounts located in England, as they would not be to the detriment of the estate in secondary proceedings. – Based on these assumptions, repayments of shareholder loans in (German) secondary proceedings could be clawed back, but only to the extent that they were repaid using funds from a German account. If the shareholder received repayment from an account with an English financial institution, these repayments could likely not be clawed back, as they would not have been to the detriment of the estate in the secondary proceedings.85 If a shareholder received several repayments of his loan during the hardening period from both German and English accounts, the same shareholder who had granted the loan under a single agreement would 80

ZIP 2003, 1362. P. Huber, in Festschrift für Heldrich, pp. 682–684 provides a colourful narrative in respect of the “German-English Court Conflict”. 82 See above fn. 71. 83 See Sections 339 et seq. Insolvency Act 1986; Schall, IILR 2011, 479 and further citations there in fn. 6. 84 Article 7(2)(m) also applies to secondary proceedings, see above mn. 7 et seq. Such result has not been called into question and seems to generally be viewed as a necessary and appropriate result of the balance between strict universality and the Regulation’s endeavor to preserve and protect national legitimate interests, see Pfeiffer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 672. However, such a situation was commented on by barristers in respect of the survey conducted to reach the conclusions in the Vienna Report and – as reported by Bewick/Perkins – deemed relatively absurd that the transaction would then be challengeable under the governing law but not under the law of the main proceedings, Vienna Report, Annex: Systematic Summary of National Reports, p. 582. 85 U. Huber, in Festschrift für Heldrich, p. 702. 81

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have to reimburse the insolvency estate in German secondary proceedings for the repayments made from the German account but not for those he received from an English account. 38 This single hypothetical readily demonstrates that the compromise embodied by Article 16 EIR is the source of “absurd” results, not the individual approach to or methodology used in determining the lex causae. The approach taken by the OLG Naumburg and others does not mitigate this problem. 39 However, the contractual functionality approach suggested here provides further flexibility to effectively “wrestle with the intricate questions” of Article 16 EIR and determine the lex causae on a case-by-case basis, as required by Article 16 EIR. For example, the lex causae applicable to shareholder loans can shift in specific cases if further circumstances demonstrate a different function of the loan and/or its repayment within an agreement or set of agreements. To wit, a shareholder loan predicated on a requirement in a formal act between the shareholders (for example shareholder agreement or as a stipulation in the articles of association) would necessarily shift the focus to the law of jurisdiction of incorporation, as it would indeed imply that the loan was to be treated as an equity equivalent for the purposes of funding the company. These types of agreements or obvious fraudulent or detrimental intent, as specified in Vinyls v Mediterranea,86 could provide a tangible “peculiarity”87 that would justify denial of a choice of law pursuant to the Rome I Regulation. The function of the loan and the act being challenged would, in such case, sufficiently shift from any agreement between the lender and the borrower to actual financing (formally) based on the corporate relationship. In addition, some jurisdictions may also require more formal, contractual “deep subordination” of loans in order to move the outstanding debt off the balance sheet in respect of over-indebtedness or liquidity (bankruptcy) tests. In such cases, repayment of shareholder loans can be in violation of the contractual provisions prohibiting repayment and therefore be subject to reimbursement to the insolvency practitioner.88 bb) Liens and other security in respect of rights in rem. Liens and other security granted on rights in rem are generally related to the creditor’s claim for which such rights in rem provide security. When taking this into account, it would generally seem reasonable to assume that the lex causae of the contract for the creditor’s claims will also apply to the security rights in rem granted for such claims.89 However, a point can also be made that the lex rei sitae should apply because such jurisdiction creates the preferential treatment of the creditor that the insolvency practitioner is trying to set aside.90 41 As detailed above, the first approach should be to examine the law applicable to the contractual relationship between the parties. If, for example, a bank grants a company a loan to purchase delivery trucks that are used throughout the Member States and receives rights in rem pursuant to the contract, setting aside these rights should be subject to the law of the contract as the lex causae, regardless of what the lex rei sitae in respect of the individual delivery trucks might be at the time insolvency proceedings were commenced. The claim and the security rights granted are all sufficiently related to the single law creating both and retain their function within the contractual framework even in light of insolvency proceedings. 40

86 CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43, para. 52–54. 87 See also Schall, IILR 2011, 486. 88 In Germany: BGH, Urt. v. 05.03.2015 – IX ZR 133/14, mn. 27 et seq. (DEU). 89 Knof, EWiR 2011, 709, 710; U. Huber, in Festschrift für Heldrich, pp. 712–713; Stürner/Fix, in Festschrift für Wellensiek, pp. 835–836. 90 Brinkmann, IILR 2013, 371, 380.

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A different result would, however, appear justified when dealing with rights in rem 42 created in respect of real estate, such as mortgages. In such case, the parties are generally required to create the right in rem in accordance with the laws and regulations of the jurisdiction where the real estate is located. If this differs from the lex contractus, the parties would have left the chosen law in order to create an “extraordinary” security for the claims under the terms of the contract. Taking security on real property in foreign jurisdictions no longer has a sufficient connection to the underlying contract creating the claim. Thus, the expectation that any actions taken in respect of the real property only be subject to the law under which the obligation to create the security right was created is unjustified. The parties left such jurisdiction in order to create the security, so it would therefore also appear correct to apply the lex rei sitae in respect of any rights to the property as lex causae within the meaning of Article 16 EIR.91 cc) Third party payments. Finally, cases of so-called “third party payments” require 43 special attention because they are unique inasmuch as they do not actually entail a contractual relationship between the party rendering performance and the party receiving payment. A typical case involves a company effecting a payment on a creditor’s claim against another company in its group of companies. Insolvency proceedings are later opened in respect of both companies, and the insolvency practitioner for the entity that made the payment attempts to claw back the payment from the creditor, asserting, for example, that it was a gratuitous transfer. In this situation, the law governing the claim could first be considered as lex causae for the transaction, as the debtor effected payment92 in performance of a (third party) contractual obligation.93 However, the act being challenged in the case at hand does not have any effect within the context of a contractual relationship between the parties involved in the payment because there is simply no contractual basis for the payment between the two parties. Some scholars therefore take the view that the lex causae should be based on the law applicable to the payment per se, which they would determine based on the account from which the debtor effected payment.94 This does not, however, take into account that the payment itself always constitutes a “neutral” act in respect of actual transfer of funds.95 For proper definition of the lex causae, the payment needs to be put into context of being a detrimental act that needs to be set aside. As previously stated, a prevailing view simply classifies such payments as perfor- 44 mance under a contract, which could – in accordance with Vinyls v Mediterranea96 – lead to the application of the law governing the contract within the context of a defence under Article 16 EIR. The contract between the creditor and the third party (not the company that effected payment) gives the payment its “context”, providing the grounds for “legitimate expectations” under Article 16 EIR and thereby prescribing that the law of the contract is also the lex causae.97 However, this deduction is based on a faulty assessment of the context of the payment. Although the conditio sine qua non for the payment may be found in the contractual relationship between the creditor and the contracting party, the payment by the debtor in the context of its insolvency proceed91

Brinkmann, IILR 2013, 371, 380. Germany: LG Krefeld, Urt. v. 03.09.2014 – 7 O 67/12, ZIP 2014, 1940–1943 (DEU) – the court reasoned that the law of the contract was the lex causae because the effect of the payment was the satisfaction of the contractual claim. 93 U. Huber, in Festschrift für Heldrich, p. 704; J. Schmidt, EWiR 2014, 659, 660. 94 Thole, NZI 2013, 113, 115. 95 U. Huber, in Festschrift für Heldrich, p. 710; J. Schmidt, EWiR 2014, 659, 660. 96 CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43. 97 See fn. 93. 92

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ings and its detrimental effects on its other creditors is not primarily based in this contractual relationship. The context of the payment from the perspective of the payment recipient is not to discharge a debt owed by the party making the payment. The payee is – when viewed in the context of its insolvency proceedings – acting in a manner relevant only to it and its group company. The creditor cannot reasonably have any expectations in respect of such payment. The payment was made with assets that are not within the context of the contractual relationship and do not even constitute assets to which the creditor would have any rights par conditio creditorum in insolvency proceedings. Its claim cannot be lodged in insolvency proceedings in respect of the company that remitted payment. The relevant context of the payment in this constellation is therefore the simple impairment of the debtor’s estate. As such, it would seem fair and prudent to view the lex fori concursus (also in respect of secondary proceedings) as the relevant lex causae in such cases. c) Application to acts pursuant to the law of other States. The EIR stipulates that the law “of another Member State” may be applied to the challenge of a detrimental act. If the laws of a country other than a Member State (excepting Denmark) apply to the act as lex causae, Article 16 EIR is not applicable.98 This view is further supported by the CJEU’s reasoning in re Schmid v Hertel: In this decision, the Court explicitly mentions the fact that some of the EIR’s provisions “require the presence of connecting factors with the territory or the legal system of at least two Member States” and refers to Article 8(1) EIR, which also uses the wording “of another Member State” to demonstrate that individual provisions do not apply to certain cases even though the EIR may generally be applicable to a cross-border insolvency that only involves one Member State as the relevant jurisdiction for opening insolvency proceedings.99 46 The further relevant finding in re Schmid v Hertel reads as follows: “So far as concerns, in this context, the provisions of the Regulation which do not expressly prescribe a cross-border element involving at least two Member States, it must be stated that the objectives pursued by the Regulation, as resulting in particular from the recitals and its preamble, likewise do not support a narrow interpretation of the Regulation’s scope, requiring the presence of such an element.”100 As a result, the court held that the EIR applied in respect of the action brought by the insolvency practitioner to set aside a payment made to the defendant, who had her permanent residence outside the EU (Switzerland). In the words of the CJEU with reference to the preceding Seagon v Deko Marty101 decision: “Article 3(1) of the Regulation must be interpreted as meaning that the courts of the Member State within the territory of which insolvency proceedings have been opened have jurisdiction to hear and determine an action to set a transaction aside by virtue of insolvency that is brought against a person whose place of residence is not within the territory of a Member State.”102 In other words, the EIR – inter alia Article 7(2)(m) EIR – is also applicable to cross-border insolvencies when the proceedings are opened in a Member State, excluding, however, those provisions that require a connection to another Member State, i. e. Article 8(1) or Article 16 EIR. 47 The Virgós/Schmit Report, however, states that Article 16 EIR is only meant to provide a balance between the interests of parties in the Member States.103 Each 45

98 Generally held view, cf. Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 16, mn. 18 with exhaustive references in fn. 60. 99 CJEU Case C-328/12 Ralph Schmid v Lilly Hertel ECLI:EU:C:2014:6, para. 22. 100 CJEU Case C-328/12 Ralph Schmid v Lilly Hertel ECLI:EU:C:2014:6, para. 24. 101 See fn. 40. 102 CJEU Case C-339/07 Seagon v Deko Marty ECLI:EU:C:2009:83, para. 39. 103 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 93.

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Member State may enact laws and regulations applicable to the relationship with parties in territories outside the Member States.104 As a result, many authors conclude that national laws also affording a defence similar to Article 16 EIR may be invoked, even though Article 7(2)(m) EIR and other provisions of the Regulation are applicable.105 Müller correctly points out, however, that Article 7(2)(m) EIR explicitly states that the lex fori concursus will apply (exclusively) “[s]ave as otherwise provided in this Regulation.”106 Furthermore, it is generally accepted that when the EIR applies it also has universal application to the exclusion of national law and regulations on conflict of laws issues as they apply to insolvency proceedings.107 Thus, it would seem contradictory to apply both the EIR and national law in cases where the EIR generally applies. Excluding an application of national law in such cases would therefore appear to be a logical conclusion. When viewed in light of the purpose of Article 16 EIR and any national law 48 offering a defence against the avoidance action on the basis of a different lex causae, however, such logical conclusion does not appear viable. If both national law and Article 16 EIR offer the defendant a “veto” or similar defence, the defendant arguably has a legitimate expectation that such transaction cannot be set aside or at least that he will have an arguable defence against such action should the insolvency practitioner seek to challenge the transaction. The EIR generally does not serve the purpose of limiting parties’ rights in respect of cross-border insolvency issues vis-à-vis national law but rather clarifies conflict of laws issues in such cases. If Member States have enacted statutes under their national law conferring rights that correspond to or expand upon the substantive or procedural rights granted by the EIR to parties in non-Member States, use of the Regulation to negate such rights in respect of nonMember States would run counter to its purpose. Although the issue remains to be decided by the CJEU, a limitation of defences under national law where Article 7(2) (m) EIR applies without the requisite lex causae of another Member State in respect of the transaction in question seems impermissible. As a result, acts subject to the lex causae of a non-Member State, as determined by the conflict of laws statutes of the lex fori concursus, may be subject to any national law in the Member States that offers a defence against the insolvency practitioner’s claim based on the legal impossibility of challenging it pursuant to the lex causae in spite of the application of Article 7(2)(m) EIR.

2. No means of challenging As Article 16 EIR represents an exception to the rule in Article 7(2)(m) EIR and 49 should be construed strictly, the application of the element “no means of challenging” is widely held to be construed in a broad manner, i. e. allowing consideration of myriad grounds for challenging the act pursuant to the lex causae in order to limit the defence under Article 16 EIR to exceptional cases.108 By way of reference to Article 7(2)(m) EIR and its application to avoidance actions, it is generally accepted that insolvency-specific avoidance or clawback rules must be considered under this element. In addition, most scholars agree that all other substantive civil law aspects in respect of the act in question must be reviewed in order to determine that there is “no means of challenging” 104

Ibid. See the exhaustive references in Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 16, fn. 62. 106 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 16, mn. 18. 107 Ibid. 108 Dammann, in Pannen, European Insolvency Regulation, Art. 13 EIR 2000, mn. 11. 105

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such act pursuant to the lex causae.109 This generally held view was recently expressly adopted by the CJEU in the Nike BV v Sportland Oy case, in which the Court ruled that Article 16 EIR “applies, in addition to the insolvency rules of the lex causae, to the general provisions and principles of that law, taken as a whole.”110 Thus, other possible grounds providing a means for challenging the act may include lack (vice) of consent, acts considered contra bonos mores, and acts in violation of law.111 50 The primary point of contention in respect of this element was the question as to whether procedural and formal aspects of the lex causae relating to challenging a detrimental act, including time bars, must also be applied when determining whether there is no means of challenging a specific transaction. In academic circles, the views on whether such procedural and formal aspects apply varied widely. Some scholars were especially hesitant to apply the formal statutes of limitations and other time bars pursuant to the lex causae to a defence, arguing that only the lex fori concursus should apply in these cases.112 Others, however, pointed out that the regulations on time bars and other statutes of limitations were parts of (formal) substantive law and not merely procedural in nature and must therefore apply.113 Although some continue to maintain that such aspects of the lex causae must be applied in a strict manner, which would lead to an autonomous interpretation excluding statutes of limitations and time bars from the scope of a review under the lex causae,114 a recent decision by the CJEU in re Lutz v Bäuerle provides other authoritative guidance on this point.115 51 The Court was asked to consider whether the defence under Article 13 EIR 2000 (Article 16 EIR 2015) also applies to limitation periods or other time bars relating to actions to set aside transactions under the lex causae and whether the relevant procedural requirements for asserting a claim are to be determined according to the lex causae or the lex fori concursus.116 First, the Court states that Article 12(1)(d) of the Rome I Regulation does not apply directly to Articles 7(2)(m) and 16 EIR, as these must be interpreted “in the light of the objectives pursued by the Regulation”.117 It then states that Article 16 EIR draws no distinction between substantive and procedural provisions; it also contains no provisions identifying time bar or other limitation periods as (strictly) procedural in nature. It therefore concludes that it should be left to the lex causae to determine whether a time bar or other limitation period is substantive or procedural in nature. However, the CJEU also notes that such distinction would lead to arbitrary discrimination within the Member States should only such time bars or other limitation periods be suitable defences insomuch as they are substantive law issues under the lex causae. As a result, the Court holds that all time bars or other limitation periods are suitable defences pursuant to Article 16 EIR.118 109 Gruber, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 13 VO Nr. 1346/2000, mn. 3. 110 CJEU Case C-310/14 Nike BV v Sportland Oy ECLI:EU:C:2015:690, para. 32–36. 111 Dammann, in Pannen, European Insolvency Regulation, Art. 13 EIR 2000, mn. 11; Gruber, in Geimer/ Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 13 VO Nr. 1346/2000, mn. 3. 112 Dammann, in Pannen, European Insolvency Regulation, Art. 13 EIR 2000, mn. 11, citing the prevailing view with further citations. 113 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 13 EuInsVO 2000, mn. 13–14. The BGH also seemed to take this view in its referral of the Lutz v Bäuerle case to the CJEU, dated 10 October 2013, citing Art. 12(1)(d) of the Rome I Regulation. 114 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 16, mn. 24. 115 Dahl/Linnenbrink, EWiR 2016, 151, 152. 116 Questions 2 and 3 in the request by the referring BGH for preliminary ruling by the CJEU (Case no. IX ZR 265/12), decision dated 15 October 2015. 117 CJEU Case C-557/13 Lutz v Bäuerle ECLI:EU:C:2015:227, para. 45–49. 118 Ibid.

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The Court then applies the exact same reasoning to the third question posed in the 52 case and states that the relevant procedural requirements for exercising avoidance actions are to be determined according to the lex causae when the law of such Member State is provided as a defence pursuant to Article 16 EIR.119 The Court’s argument hinges again on its assertion that interpretations of specific Articles of the EIR that would lead to arbitrary discrimination within the Member States (solely) on the basis of legal-theory models prescribed to by individual Member States prevent a uniform application of the Regulation and can therefore not provide correct guidance or interpretation of the EIR.120 As a result, the Court effectively confirms Article 16 EIR’s function of protecting the legitimate expectations of the parties to the transaction in question by extending its interpretation to include all aspects of the lex causae, irrespective of individual legal-theory models in the Member States.121 In other words, parties to a transaction have a substantive right to expect that all aspects of such lex causae will also apply to insolvency-related actions to set it aside.122 In a decision regarding the application of Article 30 of the Credit Institutions Directive,123 the EFTA Court states this more clearly, first asserting that the purpose of Article 30 of the Credit Institutions Directive is to disallow the expansion of challenges through application of the lex fori concursus. It then reasons that such purpose would be better served if acts were also unchallengeable to the extent that they could no longer be challenged under the lex causae, “for example, because the period within which to bring an action has expired.”124 From a practical point of view, these rulings complicate the assertion of avoidance 53 rights by the insolvency practitioner, as he will need to ascertain whether certain procedural aspects in respect of the challenge must be met, for example formal court proceedings or providing the defendant with certain (written) information in asserting the claim. In addition, it also potentially subjects the insolvency practitioner to additional liability vis-à-vis the creditors in the proceedings, as he will possibly not only be required to identify and assert claims within any relevant limitation periods pursuant to the lex fori concursus, but also in accordance with the lex causae of the transaction. Although these tasks can present additional difficulties for insolvency practitioners, insolvency practitioners in such cases are generally expected to consider consequences under a second national legal regime and collaborate with experts in other jurisdictions.125

3. In the specific case Article 16 EIR also stipulates that the exception only applies to acts which may not be 54 set aside in the case at hand. Any interpretation must therefore be based on the facts of 119

Ibid., para. 50–56. Ibid., para. 55. 121 This nearly exactly mirrors the reasoning offered by Wendehorst and von Hein in respect of a functional qualification approach to determining the law governing a specific transaction, see fn. 53. 122 See also: Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 13, mn. 5. 123 Directive 2001/24/EC. Article 30 of the Credit Institutions Directive mirrors Article 16 EIR: “Article 10 [which provides that a credit institution shall be wound up in accordance with the laws of its home Member State] shall not apply as regards the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to the creditors as a whole where the beneficiary of those acts provides proof that the act detrimental to the creditors as a whole is subject to the law of a Member State other than the home Member State, and that law does not allow any means of challenging that act in the case in point.” 124 EFTA Court Case E-28/13 LBI hf. v Merrill Lynch International Ltd, para. 77. 125 See fn. 8. 120

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the case; an argument that such acts are generally allowed or can generally not be set aside cannot be heard.126 The Court’s reasoning in re Lutz v Bäuerle (in addition to the reasoning of the EFTA Court in LBI h.f. v Merrill Lynch International Ltd) also demonstrates and emphasises this element by effectively stating that the procedural rules in the case at bar can preclude an avoidance measure pursuant to the lex causae, although such transactions as the one in question can generally be set aside under the laws of the lex causae.127 However, it must also be noted that the Court, whilst stating that a defendant in an avoidance case may not avoid application of the lex fori concursus “by relying solely, in a purely abstract manner, on the unchallengeable character of the act at issue [pursuant to the lex causae]”, then subsequently argues that “its [Article 16 EIR’s] application is subject to the condition that, after taking account of all the circumstances of the case, the act at issue cannot be challenged on the basis of the law governing the act (“lex causae”).”128 One could conclude on the basis of the Court’s reasoning and the decision’s wording, i. e. strict interpretation and denial of the exception (only) in the case at hand, that the Court might rule otherwise should an “abstract” argument lead to the conclusion that the act in question is “generally voidable” under the lex causae.129 55 However, the Court’s reasoning in the Lutz v Bäuerle case demonstrates that this is not its intention. Indeed, by explicitly referencing the time bar and limitation period in case brought before it, the Court definitively held that such circumstances must also be taken into consideration if and to the extent that they provide the defendant with a defence under Article 16 EIR.130 As Müller concedes,131 such interpretation is in line with both Article 16 EIR’s wording and its purpose of protecting the legitimate expectations of the parties involved – a circumstance also explicitly referenced by the Court in its decision. From a methodological point of view, this is also a correct conclusion. Even if a systematic argument could be made for the “strict” interpretation to the detriment of the defendant, such interpretation must necessarily be subject to further interpretation in light of the purpose of the EIR in general and the Article in particular. Ultimately, the purpose of the Article within the context of the EIR must provide – as the Court also held in the Lutz v Bäuerle case – the authoritative guidance in interpretation as a methodological matter of course.

4. Procedural implications of the “exception” rule 56

Article 16 EIR provides the defendant in the case with a “veto” to the extent that the applicant has brought an action to set aside the act pursuant to the lex fori concursus. The applicant does not have a primary obligation to show that (i) another lex causae is applicable or (ii) that the act can also be challenged under the given circumstances pursuant to the lex causae. Furthermore, the court having jurisdiction and venue also has no obligation to probe whether such extenuating circumstances or law exist or are applicable of their own accord – such circumstances and arguments will 126 Most recently restated by the CJEU in CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43, para. 37–39. 127 CJEU Case C-557/13 Lutz v Bäuerle ECLI:EU:C:2015:227, para. 45–49. 128 CJEU Case C-310/14 Nike BV v Sportland Oy ECLI:EU:C:2015:690, para. 21–22. 129 See also opposing view: Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 16, mn. 26, who argues that from a systematic point of view a strict interpretation of Art. 16 EIR as an exception to the rule is necessary and implies that such aspect allows for an abstract interpretation of the lex causae to the extent that this would lead to the conclusion that the act in question could “generally” be set aside pursuant to the lex causae, thereby negating a defence. 130 See fn. 127. 131 See fn. 129.

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only be examined if and to the extent they are adduced by the defendant.132 The wording in Article 16 EIR itself makes it clear that the defendant must “provide proof” that the elements detailed above are met. From a procedural standpoint, Article 16 EIR is a defense that must be raised by the defendant, and, as such, the defendant also bears the burden of proof.133 In two recent decisions, the CJEU and the EFTA Court have further defined the 57 extent to which the burden of proof must be borne by the defendant. The CJEU again begins its reasoning by stating that Article 16 EIR provides an exception and must therefore be interpreted strictly. Working on this assumption, the Court concludes that the defendant bears “the burden of proof relating to the absence of any provision or principle of the lex causae enabling an act to be challenged.”134 This principle therefore applies both to the application of a lex causae that is different from the lex fori concursus, as well as pleading and proving that there is “no means of challenging” the act pursuant to the lex causae. In respect of the onus placed upon the defendant, the Court firmly states that “the mere difficulty of proving that circumstances exist in which the lex causae prevents the act at issue from being challenged […] does not in and of itself impinge upon the principle of effectiveness but rather reflects the need to interpret the article strictly”.135 As had already been asserted by some scholars,136 the Court also held that the 58 national court in the Member State must apply its own rules in determining (i) the manner in which evidence may be submitted, (ii) what evidence is admissible, and (iii) the principles governing the national court’s assessment of the evidence submitted in reaching its decision.137 However, the Court also provides temperance of this rule by holding that such rules of evidence must be interpreted and applied in such manner that the general burden of proof does not shift from the defendant to the applicant.138 The EFTA Court echoes these findings in a decision on a defence pursuant to Article 30 of the Credit Institutions Directive, in which it also states that “[i]t must be assessed according to the rules of the [lex fori concursus] whether or not the beneficiary has proved that the law applicable to the act does not allow any means of challenge.”139 In its most recent decision on this subject the CJEU again expressly states that the “form and time-limit in which a party must rely on [Article 16 EIR] in court proceedings” are determined by the procedural law of the national court hearing the case.140 Both courts’ findings require further examination in determining when the burden of 59 proof is met by the defendant and when the insolvency practitioner may be obligated to make further pleadings in respect of the evidence produced by the defendant. The fact that the CJEU firmly places the burden of proof on the defendant at the very least implies that the defendant is responsible for representations of fact and providing proof for such. In addition, it also follows from the Court’s reasoning that the defendant is responsible for providing proof of substantive law – as it were, the absence of such – that would enable 132

Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 13 EIR 2000, mn. 11. Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 13, mn. 8. 134 CJEU Case C-310/14 Nike BV v Sportland Oy ECLI:EU:C:2015:690, para. 40; upheld in CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43, para. 24. 135 Ibid., para. 30. 136 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 13 EuInsVO 2000, mn. 23 with reference to Gruber, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 13 VO Nr. 1346/2000, mn. 12. 137 CJEU Case C-310/14 Nike BV v Sportland Oy ECLI:EU:C:2015:690, para. 27–28 and 43. 138 Ibid., para. 29 and 43. 139 EFTA Court Case E-28/13 LBI hf. v Merrill Lynch International Ltd, para. 81. 140 CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43, para. 30–33. 133

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the act in question to be challenged. Even before the Nike BV v Sportland Oy decision, some scholars had concluded that any defendant would be well-advised to provide an expansive insolvency-law “alibi”,141 which could consist of a lengthy legal opinion authored by experts, examining all substantive law issues surrounding a transaction.142 Whether this is actually necessary can, however, be questioned under the national law of the Member States. The EFTA Court clearly and correctly recognises in LBI hf. v Merrill Lynch International Ltd that although some jurisdictions treat the content of foreign law as a matter of fact – which would favour the view that lengthy legal opinions are necessary – other jurisdictions treat this as a matter of law.143 On the basis of this argument, the EFTA Court reasons that the measure of the burden of proof is therefore a matter for the rules of the national courts.144 On the other hand, the EFTA Court offers no “temperance” of the application of these rules in its decision, as the CJEU has shown in the Nike BV v Sportland Oy case.145 60 This is an extremely difficult point to reconcile, and some scholars have already bemoaned the fact that the Court’s decision in re Nike BV v Sportland Oy lacks the requisite clarity on this issue. Before these decisions by the CJEU and the EFTA Court, several scholars took the view that the defendant was only obligated to prove facts, not (foreign) law.146 Unfortunately, the CJEU only seems to reiterate its previous ruling in the Vinyls v Mediterranea decision by once again stating that the defendant “must show that, where the lex causae makes it possible to challenge an act regarded as being detrimental, the conditions to be met in order for the challenge to be upheld […] have not actually been fulfilled.”147 However, the Court’s reasoning in re Lutz v Bäuerle may provide some further, albeit tentative, guidance in respect of the extent to which the defendant must prove his defence. In reaching a decision on the application of limitation periods, the Court concludes that although it should be left to the lex causae to determine whether a limitation period is substantive or procedural in nature, such distinction would lead to arbitrary discrimination within the Member States should only substantive law be allowed; the Court therefore held that all limitation periods are suitable defences pursuant to Article 16 EIR.148 If applied to the issue at hand, this line of reasoning would necessitate an interpretation of the EIR in a manner that precludes arbitrary discrimination within the Member States. If the temperance language149 in the Nike BV v Sportland Oy decision is read in light of the purpose of avoiding arbitrary discrimination in respect of the general burden of proof based on individual legal-theory models in the Member States, it should follow that the entire burden of proof – i. e. both facts and law – must be borne by the defendant.150 As a result, the defendant would also be responsible for providing proof for substantive law. Although it remains to be seen whether the CJEU will also take this view, defendants would be well-advised to provide an expansive “alibi” in a timely manner in high-stakes cases. 141

Mincke, in Nerlich/Römermann, Insolvenzordnung, Art. 13 EuInsVO 2000, mn. 5–6. Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 13 EuInsVO 2000, mn. 9. 143 EFTA Court Case E-28/13 LBI hf. v Merrill Lynch International Ltd, para. 78. 144 Ibid. 145 CJEU Case C-310/14 Nike BV v Sportland Oy ECLI:EU:C:2015:690, para. 27–28 and 43. 146 Gruber, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 13 VO Nr. 1346/2000, mn. 12; implicitly: Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 13 EuInsVO 2000, mn. 23. 147 CJEU Case C-54/16 Vinyls Italia SpA v Mediterranea di Navigazione SpA ECLI:EU:C:2017:43, para. 39. 148 See fn. 117. 149 See fn. 137 and fn. 138. 150 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 16, mn. 29 also reaches this conclusion based on his reading of the Nike BV v Sportland Oy decision. 142

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Detrimental acts

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Art. 16

III. Jurisdictional issues Under EIR 2000 the issue of jurisdiction for avoidance actions was a topic for much 61 discussion. Scholars disagreed and were quite divided on whether applying Article 3 EIR 2000 mutatis mutandis had the effect of vesting the courts of the Member State within the territory of which insolvency proceedings have been opened with jurisdiction for such actions.151 Some national courts152 opined that the courts in the Member State in which the defendant was domiciled had international jurisdiction based on Article 2 of the Brussels I Regulation.153 However, a majority of the scholarly writings on the issue took the view that proper application of Article 3(1) EIR 2000 led to the international jurisdiction of the Member State within the territory of which insolvency proceedings have been opened, as it was the obvious intent of EIR 2000 to incorporate such actions into the scope of the courts of the fori concursus.154 In its decision in re Seagon v Deko Marty, the CJEU clarified that Article 3(1) EIR 62 2000 “must be interpreted as meaning that the courts of the Member State within the territory of which insolvency proceedings have been opened have jurisdiction to decide an action to set a transaction aside by virtue of insolvency that is brought against a person whose registered office is in another Member State.”155 This holding by the Court, as well as the extension of the ruling in the decision in re Schmid v Hertel in respect of non-Member State defendants,156 were effectively translated into Article 6 EIR. Accordingly, Member States’ courts in the territory in which insolvency proceedings are opened “shall have jurisdiction” for insolvency-related matters. Article 6 EIR now explicitly mentions actions to set aside detrimental acts (“avoidance actions”) as an example of the types of actions that fall under its scope. This principle is also reiterated in recital 35 EIR in respect of avoidance actions. Consequently, the question of international jurisdiction for avoidance actions is now a matter of black-letter law. In addition, such regulation will likely be interpreted as conferring exclusive jurisdiction to the courts of the Member State in which insolvency proceedings are opened.157 Some questions remain, however, in specific cases. One example is the CJEU ruling in 63 re F - Tex SIA v. Lietuvos-Anglijos UAB “Jadecloud-Vilma”. In this case, the Court held that an action to set aside an act and recover funds under insolvency law rules, which would clearly constitute an “avoidance action” within the meaning of the Seagon v Deko Marty decision,158 was no longer subject to the jurisdictional rules of EIR 2000 once such claim had been assigned to a third party, but instead fell within the scope of the Brussels I Regulation.159 It remains to be seen how the Court will address such issues in the future, as Article 6 EIR only appears to have codified the Court’s previous jurisprudence (see Madaus above Article 6 mn. 6 et seq. and 15 et seq.). 151 Willemer, Vis attractiva concursus und die Europäische Insolvenzverordnung, pp. 180–212 provides a detailed analysis of the issue and the differing views. 152 Germany: OLG Frankfurt a. M., Urt. v. 26.01.2006 – 15 U 200/05, NZI 2006, 648–652. 153 Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ L 12/1-23. 154 Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 13, mn. 10 extensively cites those authors taking the majority view on EIR 2000. 155 CJEU Case C-339/07 Seagon v Deko Marty ECLI:EU:C:2009:83, para. 28. 156 CJEU Case C-328/12 Ralph Schmid v Lilly Hertel ECLI:EU:C:2014:6, para. 17–39. 157 CJEU Case C-296/17 Wiemer & Trachte GmbH v Zahn Oved Tadzher ECLI:EU:C:2018:15, Opinion of the Advocate General, para. 52–68, especially para. 67. 158 CJEU Case C-213/10 F - Tex SIA v. Lietuvos-Anglijos UAB “Jadecloud-Vilma” ECLI:EU:C:2012:15, para. 40. 159 Ibid., para. 49.

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In addition, the Court will also need to clarify whether actions to set aside certain acts and clawback payments also fall under the remit of Article 6 EIR to the extent that they are also – or even primarily – premised on other civil or corporate law statutes and principles. This question had been previously raised and referred to the CJEU by the LG Essen but was not answered by the CJEU because the German court retracted its referral.160 The wording in Article 6(2) EIR would at least imply, however, that connection of these cases would draw the avoidance action away from the lex fori concursus. (see Madaus above Article 6 mn. 22) 65 Territorial jurisdiction and venue issues are a matter for the national laws of the Member States; Article 6(1) EIR does not stipulate which courts have venue within the Member States.161 This has been left to the Member States to implement162 (see Madaus above Article 6 mn. 24). 64

E. Future developments I. Further harmonisation of avoidance rules 66

Apparently, almost all Member States’ insolvency regimes have avoidance law institutions, generally based on the Roman actio pauliana, in order to facilitate the par conditio creditorum. However, the adaptation of these common principles into national law has led to substantive law and procedural rules that vary widely among the Member States. Against this background, the European Commission adopted an action plan, dated 30 September 2015,163 setting out a list of key measures to achieve a true single market for capital in Europe, including convergence of insolvency and restructuring proceedings in order to facilitate greater legal certainty for cross-border investors and encourage the timely restructuring of viable companies in financial distress. The areas of convergence of insolvency and restructuring proceedings comprise, inter alia, avoidance actions164 and preventive restructuring frameworks.165 There are various options available to the Member States to sort out any problems relating to disparities in national laws, including, but not limited to, the possibility of a full harmonisation of national laws. However, a full harmonisation of avoidance rules appears to still be a long way off.

II. Possible “Brexit”-effects 67

Although the effects of a “Brexit” on avoidance actions involving entities based in Great Britain will depend on the outcome of the “exit negotiations”, it should be assumed that EIR 2015 will not apply to insolvency proceedings opened in respect of entities having COMI in Great Britain. As a result, Articles 7(2)(m) and 16 EIR will not apply to avoidance actions brought by the insolvency practitioner in such insolvency proceedings. Whether future conflict of laws rules in Great Britain could reflect the substantive and conflict of laws rules in the EIR remains to be seen. 160

CJEU Case C-494/10 Dr Biner Bähr v HIDD Hamburg-Bramfeld B.V.I. ECLI:EU:C:2012:275. See also recital 26 EIR. 162 Germany: Article 102 c § 6(1) EGInsO will grant territorial jurisdiction to the court having venue in the jurisdiction of the insolvency court that has opened proceedings. 163 COM(2015) 468 final. 164 A. Keay, International and Comparative Law Quarterly, 66(1), 79–105. 165 See Directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU, adopted by the European Parliament on 28 March 2019. 161

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Article 17 Protection of third-party purchasers Where, by an act concluded after the opening of insolvency proceedings, a debtor disposes, for consideration, of: (a) an immoveable asset; (b) a ship or an aircraft subject to registration in a public register; or (c) securities the existence of which requires registration in a register laid down by law; the validity of that act shall be governed by the law of the State within the territory of which the immoveable asset is situated or under the authority of which the register is kept. Specific bibliography: Anthimos, Zur Anwendung des Art. 14 EuInsVO in Griechenland (zu OLG Thessaloniki, 26.4.2014 – Nr. 884/2013), IPRax 2014, 450. Case law: EU: CJEU, 10 January 2009, Case C-328/12, Ralph Schmid v Lilly Hertel, ECLI:EU:C:2014:6; CJEU, 2 May 2006, Case C-341/04, Eurofood ECLI:EU:C:2006:281. Germany: BGH, Beschl. v. 20.07.2017 – IX ZB 69/16, ECLI:DE:BGH:2017:200717BIXZB69.16.0, NZI 2017, 770.

Outline A. Purpose ............................................................................................................................... 1 B. Historic development ...................................................................................................... 3 C. Interpretation .................................................................................................................... 4 I. Disposal by the debtor for consideration .......................................................... 4 II. Disposal after proceedings are opened .............................................................. 5 III. Assets disposed of ................................................................................................... 6 D. Legal consequences .......................................................................................................... 11

A. Purpose The provision has its roots in the need expressed by Germany to protect the reliance 1 of third-party purchasers where the insolvency debtor has disposed of an asset belonging to the insolvency estate after insolvency proceedings were opened but before the registration of the opening of proceedings in a corresponding register.1 In this case, the reliance upon the (lack of a) registration should be protected. Just like the predecessor provision in Article 14 EIR 2000, Article 17 EIR 2015 extends beyond the originally conceived purpose of the norm and also covers immoveable property that is not subject to registration.2 Accordingly, the purpose of Article 17 EIR is the protection of a third-party 2 purchaser acting in good faith whereby the protection of the reliance upon the functionality and declarative role of the relevant register is also covered.3 However, the provision is premised on the existence of good faith.4 Article 17 EIR does not establish 1 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 140; Balz, ZIP 1996, 948, 950. 2 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 140. 3 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 17, mn. 17.01. 4 cf. with reference to Greek law Anthimos, IPRax 2014, 450, 451.

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Art. 17 3–5

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any protection of good faith under conflicts of laws, but instead, protects good faith reliance at the level of conflicts of laws where it exists in the substantive law.5 The protection of good faith is implemented at the conflicts of laws level through placement of the reliance on the law of the State in which the asset is situated (lex rei sitae) or the law of the State of the register (lex libri siti) as an exception to Article 7(1) EIR (lex fori concursus). Ultimately, it is ensured that in the case of the opening of insolvency proceedings in a foreign country, the third-party purchaser is not placed at a disadvantage in comparison to proceedings that are opened domestically.6

B. Historic development 3

Article 17 EIR 2015 corresponds in its wording almost completely with Article 14 EIR 2000. No amendments to the content were made in the reform, so that the interpretation of Article 17 EIR 2015 can draw fully upon the conclusions that were made in respect of Article 14 EIR 2000.

C. Interpretation I. Disposal by the debtor for consideration 4

Article 17 EIR applies to disposals of the debtor for consideration. In order to not unduly restrict the scope of application of the provision, the term “disposal” must be understood in a broad sense. Along with the transfer of title to property, the grant of in rem security interests (e. g. a mortgage) is therefore also covered.7 Likewise, the term “for consideration” must also be interpreted broadly. A disposal for consideration must be assumed where the purchaser provides consideration for the purchase. Where this is (clearly) below the value of the property sold by the debtor, it cannot be assumed with certainty that a disposal took place that was not made for consideration.8 The scope of application of Article 17 EIR is precluded only where the acquiring party provides no consideration. In that case, the disposal is governed by the lex fori concursus with respect to the protection of good faith reliance.9

II. Disposal after proceedings are opened 5

The legal act of the debtor must have taken place after the opening of the insolvency proceedings. The time of the opening of the proceedings is determined foremost by the lex fori concursus. In this context, it must also be clarified how the term “opening of insolvency proceedings” is to be interpreted. Initially there was a controversial discussion whether the term ought to be interpreted narrowly or broadly.10 In accordance with the court decisions of the CJEU,11 the “opening of insolvency proceed5

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 17, mn. 2. Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 17, mn. 17.03. 7 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 17, mn. 17.06; Virgós/ Schmit, Report on the Convention on Insolvency Proceedings, mn. 141. 8 For more details in this regard see Paulus, EuInsVO, Art. 17, mn. 6. 9 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 17, mn. 17.07; DuursmaKepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 14 EIR 2000, mn. 8. 10 cf. Brinkmann, IPrax 2007, 235, 236 with further references. 11 CJEU Case C-341/04 Eurofood ECLI:EU:C:2006:281, mn. 45 et seq. 6

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Protection of third-party purchasers

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ings” in terms of the EIR did not just include a decision by the issuing court that is formally described as an opening decision under the law of the Member State that applies to that court decision. Rather, it also included a decision that is issued as a result of an application supported by the debtor for the opening of one of the proceedings set out in Annex A EIR, provided that this decision resulted in the seizure of assets against the debtor and the decision appointed an administrator set out in Annex C EIR. The term “opening of insolvency proceedings” was accordingly interpreted broadly under the court decisions of the CJEU. Considering the given controversy, the European Legislator defined on occasion of the recast of the EIR an even more broad interpretation set out in Article 2 no. 7 EIR. Hereafter also the mere appointment of an administrator according to Article 2 no. 5 EIR in conjunction with Annex B EIR is sufficient to be considered the opening of insolvency proceedings, regardless of his specific competence in governing the proceedings; cf. also the above comments on Article 2 no. 7 EIR.12

III. Assets disposed of Article 17 EIR protects the third-party purchaser in respect of disposals of immoveable assets, a ship or aircraft that must be registered or certain securities where their registration in a register prescribed by statute is a precondition for their existence. To this extent, it is an implied test for the application of Article 17 EIR to determine whether assets are involved that are subject to seizure in insolvency and which the debtor may not dispose of.13 This limitation follows from the purpose of Article 17 EIR: The provision serves to protect the good faith of third parties who have no knowledge of the fact that the debtor’s ability to dispose of the assets belonging to the insolvency estate has been withdrawn.14 Where the disposal of the debtor relates to assets that are not subject to insolvency law restrictions, there is no need for insolvency law protection for the benefit of the (good faith) third-party purchaser. Having regard to the assets referred to in Article 17 EIR alongside immovable property (“ship” and “aircraft”), it can be assumed that these specially-mentioned assets should not be regarded as immoveable property, see Dahl/Kortleben above Art. 14 mn. 4. A definition of the term “immoveable property” that extends beyond this distinction, however, cannot be derived from the Regulation. An autonomous interpretation must be undertaken in accordance with the court decisions of the CJEU, for more details see Dahl/ Kortleben above Art. 8 mn. 7 et seq. The reference point for the required distinction between immovable and moveable property can be seen in the physical movability of the property, whereby real property and buildings are covered as immorable property.15 This regularly relates to property that is oftentimes subject to registration in a register. Registration, however, is not a precondition for the application of Article 17 EIR. Pursuant to (b), ships and aircrafts are likewise covered, provided that these are subject to registration in a public register. The registration must be mandatory. If registration is optional, the provision is only applicable where the registration has actually taken place.16 The scope of application is significantly narrower for securities, 12

Sutchet, in Vallender, EuInsVO, Art. 2, mn. 20 et seq. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 17, mn. 9; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung Art. 14 EIR 2000, mn. 10. 14 Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 14 EIR 2000, mn. 10. 15 cf. Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 14 EIR 2000, mn. 3. 16 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 17, mn. 17. 13

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7

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since only those securities are covered where the registration in a public register is a condition for their existence. The registration must be constitutive in nature. Securities that are registered only on a declaratory or voluntary basis are not covered.17 10 The application of Article 17 EIR does not depend on whether the asset that is disposed of is located in another Member State or a third country, since the Regulation contains no such limitation.18

D. Legal consequences Article 17 EIR resolves a conflict of laws. The good faith reliance that exists in the substantive law is implemented at the level of the conflict of laws by leading to the application of the law of the State where the assets are located (lex rei sitae) or the law of the State of registration (lex libri siti), instead of the lex fori concursus. According to this, the applicable national law governs the conditions whether the good faith reliance is granted.19 12 It is questionable what the effects are when good faith is not protected under the applicable national law, but such protection exists under the lex fori concursus. Having regard to the wording of Article 17 EIR, the assumption could be made that a comparison of beneficial effects should be undertaken,20 since the wording of Article 11, Article 12 and Article 13 provides for an exclusive special reference (“shall be governed solely”; “governed solely”). The wording of Article 17 EIR, however, is not designed to relate exclusively to the law of the State in which the asset is situated (lex rei sitae) or the State of the register (lex libri siti). 13 In accordance with the purpose of Article 17 EIR, a corresponding comparison of beneficial effects is not absolutely mandatory. The provision seeks (only) to ensure that, in the event insolvency proceedings are opened in a foreign State, the third-party purchaser is not disadvantaged in comparison to a domestic opening of proceedings.21 This does not mean that the purchaser should be put in a better position where insolvency proceedings are opened in a foreign State compared to his position in domestic proceedings. In addition, the following must be noted: It would run against the purpose of Article 17 EIR, to regard a disposal as being effective, despite of the fact that such a disposal would be invalid under the law of the State in which the asset is situated (lex rei sitae) or the State of the register (lex libri siti). This result would create frictions as it would have to be implemented against the law of the State.22 11

17

Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 14 EIR 2000, mn. 3. CJEU Case C-328/12 Ralph Schmid v Lilly Hertel ECLI:EU:C:2014:6, mn. 23. 19 BGH, Beschl. v. 20.07.2017 – IX ZB 69/16, ECLI:DE:BGH:2017:200717BIXZB69.16.0, NZI 2017, 770 et seq., mn. 14 (DEU). 20 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 17 mn. 31 et seq. 21 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 17, mn. 17.03. 22 On this issue cf. Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 17, mn. 17.01; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 141; Paulus, EuInsVO, Art. 14 mn. 1, 10. 18

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Article 18 Effects of insolvency proceedings on pending lawsuits or arbitral proceedings The effects of insolvency proceedings on a pending lawsuit or pending arbitral proceedings concerning an asset or a right which forms part of a debtor’s insolvency estate shall be governed solely by the law of the Member State in which that lawsuit is pending or in which the arbitral tribunal has its seat. Recital: 73. Case law: EU: CJEU, 6 June 2018, Case C-250/17, Virgílio Tarragó da Silveira v Massa Insolvente da Espírito Santo Financial GroupSA, ECLI:EU:C:2018:398; CJEU, 9 November 2016, Case C-212/15, ENEFI Energiahatekonysagi Nyrt v Direcţia Generală Regională a Finanţelor Publice Braşov (DGRFP), ECLI:EU:C:2016:841; CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:C:2006:281; Opinion of Advocate General Jacobs, 27 September 2005, Case C-341/04, Eurofood, ECLI:EU:C:2005:579. Austria: VGH, 23 February 2005 – 9 Ob 135/04 z, IPRax 2007, 225 case note by Brinkmann, 235. Germany: BGH, Urt. v. 07.12.2017 – VII ZR 101/14, ECLI:DE:BGH:2017:071217UVIIZR101.14.0, ZIP 2018, 130; BGH, Urt. v. 13.10.2009 – X ZR 79/06, NZI 2009, 859. UK: Syska et al. v Vivendi Universal SA et al. [2008] EWHC 2155 (Comm); Elektrim S. A. v Vivendi Universal S. A. [2009] EWCA Civ 677.

Outline A. Purpose of the norm ....................................................................................................... 1 B. Historic development ...................................................................................................... 2 C. Interpretation .................................................................................................................... 3 I. Insolvency proceedings.......................................................................................... 3 II. Lawsuits..................................................................................................................... 6 III. Pending at the time that insolvency proceedings are opened ...................... 7 IV. The asset or right forming part of the insolvency estate............................... 9 D. Legal consequences .......................................................................................................... 10

A. Purpose of the norm The provision addresses the situation of the conflict between insolvency proceedings 1 and any lawsuits to which the debtor is a party in preparation for individual enforcement. The reference to the lex fori processus is an exception to the general reference to the lex fori concursus in accordance with Article 7(2)(sentence 2)(f) EIR, the second half-sentence of which explicitly exempts the effects of “pending lawsuits”. At the core, this usually relates to questions of the stay of pending proceedings.1

B. Historic development The provision corresponds to Article 15 EIR 2000. The scope of application has been 2 expanded to include arbitral proceedings. The wording has been marginally amended, having regard to whether rights which are disputed belong to the insolvency estate. 1

cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 142.

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Art. 18 3–6

Chapter I. General Provisions

C. Interpretation I. Insolvency proceedings The provision applies to insolvency proceedings in terms of Article 1 EIR, in particular main and secondary insolvency proceedings. However, a peculiarity of secondary proceedings is that only those lawsuits in a Member State that relate to assets that are located in another Member State in which secondary proceedings have been commenced are affected by the opening of those proceedings.2 Accordingly, lawsuits involving assets that are not located in the same Member State in which secondary proceedings are opened are not covered.3 4 The provision applies, for example, to all “insolvency proceedings” in the sense of Article 2 no. 4 EIR, regardless of whether the individual case amounts to a winding-up insolvency proceeding, a settlement (arrangement) proceeding or a reorganisation proceeding.4 The scope of application also includes (German) preliminary insolvency proceedings; cf. Article 2 no. 7.5 5 The provision additionally relates only to insolvency proceedings and lawsuits within the European Union.6 It does not apply to insolvency proceedings or lawsuits in countries outside the European Union.7 This already follows from the wording (“law of the Member State in which that lawsuit is pending”). 3

II. Lawsuits 6

Article 18 EIR applies to lawsuits and arbitral proceedings. Under EU law, the term “lawsuit” must be interpreted autonomously.8 It includes civil litigation proceedings (debtor can be plaintiff or defendant) which are conducted as disputes between at least two parties. It is contested whether proceedings under voluntary jurisdiction are included.9 In contrast, enforcement measures are not included (argumentum e contrario from first half-sentence of Article 7(2)(sentence 2)(f) EIR: “proceedings brought”, as well as the second half-sentence: “lawsuits”).10 It is unclear whether an appeal against enforcement measures can be qualified as 2 cf. Bork, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 18, mn. 3; Duursma-Kepplinger, in DuursmaKepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 28 EIR 2000, mn. 17. 3 Bork, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 18, mn. 3. 4 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 92 (no. 2). 5 Thole, in Vallender, EuInsVO, Art. 18, mn. 2 with further references; therefore outdated Austria: VGH, 23 February 2005 – 9 Ob 135/04 z, IPrax 2007, 225 with critical case note by Brinkmann, 235. 6 Prevailing view; cf. e. g. Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/ EuIPR), Art. 15 EG InsVO 2000, mn. 8. 7 cf. BGH, Urt. v. 13.10.2009 – X ZR 79/06, NZI 2009, 859 (DEU). 8 Damman, in Pannen, Europäische Insolvenzverordnung, Art. 15 EIR 2000, mn. 8. 9 cf. e. g. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 15 EIR 2000, mn. 25; consenting Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 15 EIR 2000, mn. 3; Reinhart, in Münchener Kommentar zur InsO, Art. 15 VO (EG) 1346/2000, mn. 5; dissenting Damman in Pannen, Europäische Insolvenzverordnung, Art. 15 EIR 2000, mn. 8; Kindler, in Münchener Kommentar zum BGB, Art. 15 EIR 2000, mn. 5. 10 CJEU 9 November 2016 Case C-212/15 ENEFI Energiahatekonysagi Nyrt v Direcţia Generală Regională a Finanţelor Publice Braşov (DGRFP) ECLI:EU:C:2016:841, mn. 32; CJEU 6 June 2018 Case C-250/17 Virgílio Tarragó da Silveira v Massa Insolvente da Espírito Santo Financial GroupSA ECLI:EU:C:2018:398, mn. 30; cf. e. g. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 15 EIR 2000, mn. 27; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 142.

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Insolvency proceedings and pending lawsuits

7–9

Art. 18

“lawsuit”.11 It is likewise unclear whether administrative proceedings are covered to the extent that they relate to assets of the insolvency estate.12 Arbitral proceedings are now13 explicitly included as a result of the reform.14

III. Pending at the time that insolvency proceedings are opened The lawsuit must be “pending”. That term is not defined in the EIR. A distinction 7 between the condition of the receipt of documents initiating proceedings by the court and their delivery to the defendant is either not made throughout the European Union or is not made uniformly. Due to the uniformity of European Union law, the definition contained in Article 32(1) of the Parliament and Council Regulation (EU) 1215/2012 must be drawn upon, according to which the lodging of the document instituting the proceedings with the court is generally determinative.15 The time at which insolvency proceedings are opened (Art. 2 no. 8 EIR) is 8 determined by the lex fori concursus.16

IV. The asset or right forming part of the insolvency estate The designation “asset or a right” presupposes a broad interpretation of this feature, i. e. 9 not only physical assets are covered. This includes also personal claims on a contractual basis or on the basis of tort law against the insolvency estate by seeking share of it.17 The inclusion in the insolvency estate achieves a limitation: The right that is subject to the dispute must form part of the insolvency estate. This is determined as a preliminary test by the lex fori concursus pursuant to Article 7(2)(sentence 2)(b) EIR.18 If one were to see this differently, this could result in a legal action being stayed although the asset in dispute does not form part of the insolvency estate at all under the lex fori concursus and thus would lead to the inefficient result of neither a court proceedings nor an insolvency proceedings governing its fate.19 Legal actions that relate to assets that are “free from the insolvency” are therefore not covered by Article 18 EIR.20 11

In favour e. g. Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 15 EIR 2000, mn. 3. cf. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 15 EIR 2000, mn. 28 et seq.; consenting Smid, in Leonhardt/Smid/Zeuner, Internationales Insolvenzrecht, Art. 15, mn. 16; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 15 EIR 2000, mn. 3. 13 Prior to the reform often rejected, cf. Garcimartín, IILR 2011, 321, 334; whereas in favour United Kingdom: Syska et al v Vivendi Universal SA et al, [2008] EWHC 2155 (Comm), SchiedsVZ 2008, 316 et seq.; Elektrim S. A. v Vivendi Universal S. A., IILR 2010, 39 et seq. 14 For more details in this regard see Garcimartín, ZEuP, 694, 720 et seq. 15 cf. e. g. Paulus, EuInsVO, Art. 18, mn. 9. 16 cf. Damman, in Pannen, Europäische Insolvenzverordnung, Art. 15 EIR 2000, mn. 10 with further references; left open by CJEU Case C-341/04 Eurofood ECLI:EU:C:2006:281, mn. 45 et seq.; already in this sense opinion of Advocate General Jacobs 27 September 2005 Case C-341/04 Eurofood ECLI:EU: C:2005:579. 17 Garcimartín/Virgós, in Bork/van Zwieten, Commentary on the EIR, Art. 18, mn. 18.06; cf. examining the interpretation of the former different language versions of Article 15 EIR 2000 from an anglo-saxon point of view Moss/Fletcher/Isaacs, 2nd ed. 2009, mn. 8.250, acc. to Art. 18 recast version: 3rd ed. 2016, mn. 8.611 et seq.: “insolvency estate” in contrast to “divestment”. 18 cf. e. g. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 15 EIR 2000, mn. 9. 19 Controversial; cf. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 15 EIR 2000, mn. 11 with further references. 20 cf. Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 15 EIR 2000, mn. 11. 12

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Art. 18 10–11

Chapter I. General Provisions

D. Legal consequences The effects of the opening of insolvency proceedings on the lawsuit are determined by reference to provisions of substantive law (wording: “governed solely”) under the lex fori processus or the lex loci arbitri.21 They usually include the question of whether the legal action is continued or stayed, the effect of a stay and its duration and generally the procedure to recommence the legal action.22 11 Follow-up questions that are not covered by the reference and that arise under the law referred to itself must be taken into account. Under the EIR, these are brought in independently. It is therefore disputed whether the entitlement to recommence the action is covered (along with the effects of the suspension and the possibilities to recommence the action), or whether this is determined by the general rule of the lex fori concursus.23 One should differentiate as follows: The question of how – and generally by whom – the lawsuit can be recommenced is decided, just like the question of stay, by procedural law under the lex fori processus that is applicable under Article 18 EIR. Under German law, this would, for example, be § 85 et seq. German Insolvency Act. In contrast, the question of who is entitled to recommence the lawsuit is decided by the lex fori concursus.24 Thus – following the given example of German law – especially the further conditions of the entitlement of creditors to recommence a lawsuit rely on their assignment to a certain creditor group on the basis of their rights to certain special estate assets, which is considered a follow-up question and therefore determined by the lex fori concursus.25 10

21 Prevailing view; cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 87; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 15 EIR 2000, mn. 6. 22 cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 142; Paulus, EuInsVO, Art. 10, mn. 11 et seq. 23 For more details in this regard see Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 18, mn. 18. 24 BGH, Urt. v. 07.12.2017 – VII ZR 101/14, ECLI:DE:BGH:2017:071217UVIIZR101.14.0, ZIP 2018, 130 et seq., mn. 12 et seq., 26 (DEU); for more details in this regard see Reinhart, in Münchener Kommentar zur InsO, Art. 15 VO (EG) 1346/2000, mn. 15. 25 cf. examples by Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 15 EIR 2000, mn. 10.

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CHAPTER II RECOGNITION OF INSOLVENCY PROCEEDINGS Article 19 Principle 1. Any judgment opening insolvency proceedings handed down by a court of a Member State which has jurisdiction pursuant to Article 3 shall be recognised in all other Member States from the moment that it becomes effective in the State of the opening of proceedings. The rule laid down in the first subparagraph shall also apply where, on account of a debtor’s capacity, insolvency proceedings cannot be brought against that debtor in other Member States. 2. Recognition of the proceedings referred to in Article 3(1) shall not preclude the opening of the proceedings referred to in Article 3(2) by a court in another Member State. The latter proceedings shall be secondary insolvency proceedings within the meaning of Chapter III. Recital: 65. Specific bibliography: Piekenbrock, Das ESUG – fit für Europa?, NZI 2012, 905; Thole, Die Anerkennung von (außerinsolvenzlichen) Sanierungs- und Restrukturierungsverfahren im Europäischen Verfahrensrecht, in Festschrift für Simotta, 2012, p. 613; Würdinger, Die Anerkennung ausländischer Entscheidungen im europäischen Insolvenzrecht, IPRax 2011, 562. Case law: EU: CJEU, 4 February 1988, Case C-145/86, Hoffmann, ECLI:EU:C:1988:61; CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:C:2006:281; CJEU, 21 January 2010, Case C-444/07, MG Probud Gdynia, ECLI:EU:C:2010:24; CJEU, 15 November 2012, Case C-456/11 Gothaer Allgemeine Versicherung v Samskip ECLI:EU:C:2012:719.

Outline A. Purpose ............................................................................................................................... B. Interpretation of Article 19 EIR.................................................................................... I. What does recognition mean? ............................................................................. II. Requirements of Article 19 EIR........................................................................... 1. Judgment opening insolvency proceedings .................................................. 2. Effectiveness of the opening judgment.......................................................... 3. “Court which has jurisdiction pursuant to Article 3” EIR........................ 4. “where, on account of a debtor’s capacity, insolvency proceedings cannot be brought against that debtor in other Member States” ........... 5. Recognition of a dismissal of the filing......................................................... III. Effects of recognition ............................................................................................. IV. Secondary proceedings (Article 19(2))...............................................................

Thole

1 6 6 8 8 18 20 24 26 27 31

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Art. 19 1–5

Chapter II. Recognition of Insolvency Proceedings

A. Purpose 1

2

3

4

5

Article 19 EIR is the general rule on the recognition of the opening judgment in other Member States. This provision forms part of Chapter II of the EIR. It is founded on the basic principle of automatic recognition1. This entails that whether the opening judgment and, put more generally, the proceedings in the other Member State are recognised, is to be decided in the recognising State outside of a formal exequatur proceeding. There is neither a need nor is there space for a separate contradictory proceeding on the question of recognition. Rather, the question of recognition must be answered in the context in which the question of whether foreign insolvency proceedings have been opened becomes relevant. Article 19 EIR is aligned to Articles 20 and 32 EIR. The gist of these provisions is that both the opening judgment and judgments which concern the course and closure of insolvency proceedings, as well as compositions approved by the court, shall be recognised with no further formalities. This principle is extended to judgments on annex matters within the meaning of Article 32 (1.2) EIR. These provisions have not been amended in the recast and trace back to Articles 16, 17 and 25 EIR 2000. However, it is important to note that the scope of application of the EIR has been extended to “hybrid proceedings” thus implicitly extending the scope of recognition as well.2 The basic principle adhered to is that the judgments are generally recognised in all other Member States without further scrutiny of the jurisdiction with the sole possible exception of being contrary to that State’s public policy (Article 33 EIR). Generally speaking, the recognising State must not examine the judgment with respect to the proper application of substantive law and its actual lawfulness. This rather lean system of recognition is based on the principle of mutual trust and on the assumption of equivalence of jurisprudence in all Member States;3 an assumption that is obviously rather illusionary in practice, but is nevertheless a legal principle the entire EIR and other European Regulations in the field of judicial cooperation are based on. The provisions of the EIR on recognition and enforcement stipulate a priority principle as will be further explained, see below mn. 6. As a matter of law, there is only one main proceedings. The general approach of the EIR is the principle of (modified) universality meaning that generally there is onlyone single proceedings in one Member State that encompasses all the assets of the debtor. This principle is constrained by the possibility of secondary proceedings. The universality principle would be useless if it was not accompanied by a duty to recognise the proceedings opened in another Member State. However, the provisions on recognition and enforcement do not deal with the recognition of proceedings opened and conducted in non-Member States. Naturally, the recognition of EU proceedings in non-Member States is likewise not subject of the EIR. It is important to stress that the rules in Articles 19 and 20 EIR stipulate a duty under European law for all EU Member States (exception: Denmark) to recognise if the requirements of the EIR are met. The recognising State is not permitted to establish further requirements for recognition. There is no need for a separate exequatur proceeding (“no further formalities”, Article 20(1) EIR). 1 Veder, in Bork/van Zwieten, Commentary on EIR, mn. 19.09; Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.289; Israel, European Cross-Border Insolvency Regulation, mn. 3.2.1, p. 263. 2 See Thole, in Festschrift für Simotta, p. 613. 3 CJEU Case C-341/04 Eurofood ECLI:EU:C:2006:281 para. 39.

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Principle

6–8

Art. 19

B. Interpretation of Article 19 EIR I. What does recognition mean? The actual meaning of recognition has been the subject of some debate and has even 6 received some attention by the CJEU.4 For this question see Thole below Art. 20 mn. 4. It states that the judgment shall “produce the same effects” in any Member State as under the law of the State opening the proceedings. Recognition thus relates to the effects the law of the opening States assigns to the judgment. Consequently, the original effects of the judgment in the opening State are “exported” to other Member States (extension model). The method of recognition therefore does not entail a transformation of these effects into similar effects known under the law of the recognising State.5 Instead it honours the origin of the decision and transfers the effects into the other Member States, notwithstanding possibly arising questions of adaptation (Anpassung) within the meaning of private international law.6 Furthermore, the effects of the judgment under the law of the opening State may well go beyond the effects of a similar judgment under the law of the recognising State.7 A different issue is the scope of the “effect” of the judgment. For this issue see Thole below Art. 20 mn. 4. Article 19 stipulates requirements for the procedural recognition of the court judg- 7 ment. This must be distinguished from a substantive “recognition” under the regime of private international law. The question of applicable law is dealt with by Article 7 EIR. Procedural recognition is limited to the effects of the judgment within the meaning discussed below, see Thole below Art. 20 mn. 5. Other possible effects and consequences of the opening of insolvency proceedings are not subject to recognition pursuant to Articles 19 and 20 EIR.8 They may however, with mostly the same effect, be governed by the law of the State in which proceedings have been opened (lex fori concursus) pursuant to Article 7 EIR if the exceptions laid out in Articles 8 to 18 EIR do not apply.

II. Requirements of Article 19 EIR 1. Judgment opening insolvency proceedings The term “judgment opening insolvency proceedings” is defined in Article 2 no. 7 8 EIR as including “the decision of any court to open insolvency proceedings or to confirm the opening of such proceedings; and the decision of a court to appoint an insolvency practitioner”. This rather broad definition relates to the definition of insolvency proceedings itself, which is linked to Annex A EIR. The definition for judgment in Article 2 no. 7 EIR is drafted broadly in order to accommodate the extension of the scope of the EIR to hybrid proceedings and preliminary proceedings. Thus, both the actual opening judgment as well as any court sanctioning in cases where a restructuring procedure has been entered into – even if it has not been formally opened – are covered by Article 19 EIR. In such cases, the court judgment follows the factual initiation of the proceedings. 4 CJEU Case C-145/86 Hoffmann ECLI:EU:C:1988:61 para. 11 (concerning the Brussels I Regulation); Veder, in Bork/van Zwieten, Commentary on EIR, mn. 20.04; Thole, in Münchener Kommentar zur InsO, Art. 17, mn. 3 et seq. 5 For this assimilation model see BGH, NJW 1983, 1976, 1977. 6 Thole, in Münchener Kommentar zur InsO, Art. 17, mn. 1. 7 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.299. 8 Thole, in Münchener Kommentar zur InsO, Art. 17, mn. 6.

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Art. 19 9–14 9

10

11

12

13

14

Chapter II. Recognition of Insolvency Proceedings

Furthermore, Article 19 EIR covers the appointment of an insolvency practitioner. This is particularly relevant for preventive restructuring proceedings without formal opening, but where a practitioner within the meaning of Article 2 no. 5 EIR, e. g. a person whose function is to supervise the administration, has been appointed. For reasons of clarity, the appointment of an insolvency practitioner should be classified as an opening judgment only where there is no formal opening judgment; in other cases the appointment is rather a judgment that concerns the course of the proceedings within the meaning of Article 32(1) EIR. However, the effect is the same. In both cases, the judgments are, as a matter of principle, to be recognised. The definition in Article 2 no. 7 EIR of the opening judgment relies on the definition developed by the CJEU in Eurofood9. In this case, the CJEU held under the EIR 2000 that the appointment of a provisional liquidator can be perceived as the opening judgment if it is “a decision handed down by a court of a Member State to which application for such a decision has been made, based on the debtor’s insolvency and seeking the opening of proceedings referred to in Annex A to the Regulation, where that decision involves the divestment of the debtor and the appointment of a liquidator referred to in Annex C to the Regulation. Such divestment implies that the debtor loses the powers of management that he has over his assets.”10 The CJEU did not consider the appointment of the provisional liquidator as a provisional measure under Article 25 (1.3) EIR 2000 (Article 32(1.3) EIR 2015), but as the actual opening judgment. In the recast, the findings in Eurofood have been extended even further. Whereas under the EIR 2000 it remained unclear if it is sufficient to appoint a provisional liquidator whose function was of supervisory nature only, it now seems settled that the appointment of any provisional liquidator or administrator prior to proceedings within the meaning of Annex A EIR is sufficient.11 Article 2 no. 5 (v) EIR does not stipulate any further requirements with respect to the powers of the provisional liquidator or supervisor. The extension the scope of application has received in the recast leads to an applicability of the recognition regime at an earlier stage. This has some major consequences. Whereas, e. g. under the EIR 2000 the German Schutzschirmverfahren (protective shield proceedings) pursuant to § 270 b InsO (DEU), a new feature introduced in 2012, was not as such covered by the term “opening judgment”12, it is now beyond doubt that it falls under Article 19 EIR, see also recital 15. However, it would still not be in accordance with Article 19 EIR to rely on a relation back principle laid out in the law of the opening State with the effect that the opening relates back to the time of filing.13 The opening judgment relates to the actual judgment and not to any presumptions or further consequences associated to it. Thus, although the national law of a Member State might apply the relation back principle, it may well be that proceedings in another Member State that was opened after filing in the first State but prior to the handing down of the opening judgment in that State is to be regarded as the main proceedings. In Eurofood, the Advocate General had assumed that the EIR honours the relation back principle.14 This point was not picked up by the court. If it was true, national laws could steer the definition of opening judgment, which, however, is an autonomous 9

CJEU Case C-341/04 Eurofood ECLI:EU:C:2006:281 para. 54. CJEU Case C-341/04 Eurofood ECLI:EU:C:2006:281 para. 45 et seq., 54. 11 Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 19, mn. 8. 12 Piekenbrock, NZI 2012, 905, 909; Thole, in Münchener Kommentar zur InsO, Art. 16 EuInsVO 2000, mn. 14. 13 Paulus, EuInsVO, Art. 16, mn. 6. 14 Opinion of Advocate General Case C-341/04 Eurofood ECLI:EU:C:2005:579 para. 95; see Moss, Insolv. Int. 2006, 97, 99 f. 10

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Principle

15–21

Art. 19

definition. Thus, the definition of Article 2 no. 7 EIR refers to the delivery of the judgment in a factual sense, regardless of a relation back the lex fori concursus may assign to the opening judgment. Article 19 EIR does not deal with the recognition of effects of other restructuring 15 proceedings not mentioned in Annex A EIR. That applies to the British scheme of arrangement or proceedings exempt from the application of the EIR pursuant to Article 1(2) EIR. As Article 19(2) EIR shows, the provision generally does not distinguish between 16 main and secondary or territorial proceedings. However, as the effects of secondary proceedings and isolated territorial proceedings (Article 1(4) EIR) are restricted to the assets of the debtor situated in the territory of the State of the establishment, recognition consequently does not go beyond this. Recognition in this context can be relevant particularly where assets have been transferred from the State of the secondary proceedings to another Member State. The recognition of the effects of insolvency proceedings leading to an “insolvency plan” 17 or any other kind of restructuring plan or scheme is dealt with below (see below Art. 20 mn. 14).

2. Effectiveness of the opening judgment It follows naturally from the method of recognition, i. e. the extension of effects the 18 judgment produces, that there can be no recognition as long as the judgment has not yet become effective or if it has already been repealed or annulled. Whether the judgment has become effective, is a question governed by the lex fori concursus. Article 2 no. 8 EIR defines the time of the opening by stressing that the opening is unaffected by whether the judgment is final. Thus, a pending appeal against the judgment does not hinder the recognition and must not be a reason for the denial of recognition. A res iudicata effect is not required. The judgment must still be effective at the time the question of recognition is 19 examined. Thus, if the judgment has been annulled and the repeal judgment itself has become effective, the opening judgment must not be recognised. However, neither substantive nor procedural errors of the opening proceedings hinder recognition as long as the judgment is not void. If, as a matter of national law, the judgment requires publication in official journals or elsewhere in order to become effective, this requirement needs to be met. Yet, public notice is usually not required by national law and it is not required as a further requirement for recognition under the EIR either.

3. “Court which has jurisdiction pursuant to Article 3” EIR The definition of “handed down by a court” refers to Article 2 no. 6 (ii) EIR. It 20 includes the judicial body or any other competent body of a Member State empowered to open insolvency proceedings, to confirm such opening or to take decisions in the course of such proceedings. This broad definition is designed to encompass public authorities and administrative 21 bodies of Member States that are, strictly speaking, not a court in its original and common understanding as an independent body. The definition is further linked to the broad scope of application of the new EIR with respect to hybrid proceedings and proceedings aiming at preventing insolvency. Thus, a court within the meaning of Article 19 EIR might, according to some scholars, even include members of the company bodies of the debtor itself, e. g. when directors of an English company may open administration proceedings themselves.15 15

See Paulus, EuInsVO, Art. 2, mn. 13.

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Art. 19 22–26

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The passage “which has jurisdiction” may give rise to the misunderstanding that it is up to the recognising State to re-examine the jurisdiction of the opening court. In Eurofood, the CJEU explicitly rejected the possibility for such a re-examination of the merits.16 It argued on the grounds of the principle of mutual trust. The same applies to the recognition under Article 32 EIR with respect to so-called “annex judgments”. 23 However, the question remains if the recognising State may at least determine whether the first court has, rightly or wrongly, based its jurisdiction on the EIR (and not on autonomous national law). Consequently, recognition would have to be or at least could be denied in situations, where the judgment was handed down without the court contemplating the COMI requirement, or where it was not even aware of the international dimension. However, the predominant view seems to be that it does not matter whether the court based its jurisdiction on Article 3 EIR, on the grounds of national law or did not even consider the jurisdiction matter at all.17 It might well be that this is the only practical way to go, given that the opening judgment follows national customs; in some Member States it is not commonly accepted to explain the jurisdiction the court assumes in detail. However, in essence, the principle of mutual trust and automatic recognition does not seem to be justified when the court handing down the judgment does not even take the EIR into account.18 22

4. “where, on account of a debtor’s capacity, insolvency proceedings cannot be brought against that debtor in other Member States” The duty to recognise arises regardless of whether the debtor is eligible for insolvency proceedings in all Member States. Even though there might be restrictions and different criteria for the debtor’s eligibility in different Member States, the opening of such proceedings must still be recognised. E. g., in France, ordinary insolvency proceedings can traditionally only be brought against businessmen and entrepreneurs, whereas the German Insolvency Code, as a matter of principle, does not limit insolvency proceedings to entrepreneurs, but offers them for consumers as well. Still, the opening of such consumer insolvency proceedings would have to be recognised in France. The same principle applies to insolvency proceedings relating to legal estates and inheritances. 25 The rule in subparagraph 2 is not to be mingled with the limitation of the opening of secondary proceedings in the State of the establishment. The law of the State of the (prospective) secondary proceedings applies to the debtor’s eligibility. Thus, the rule in subparagraph 2 does not allow for the opening of secondary proceedings in that particular State if the criteria of the national law of that State are not met. This is regardless of whether the law of the main proceedings would consider the debtor eligible for insolvency proceedings in the State of the main proceedings (cf. Article 7 (2)(a) EIR). Within the State of the establishment, this question is entirely governed by the law of that State. 24

5. Recognition of a dismissal of the filing 26

The judgment opening the proceedings is subject to recognition. Whether a judgment denying the opening must be recognised, remains unclear. However, with respect to the Brussels Ia Regulation, the CJEU held that a judgment declining jurisdiction is to be 16

CJEU Case C-341/04 Eurofood ECLI:EU:C:2006:281 para. 38 et seq. Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 16 EIR 2000, mn. 21; Veder, in Bork/van Zwieten, Commentary on EIR, mn. 19.16; for further details Thole, in Münchener Kommentar zur InsO, Art. 16, mn. 18. 18 Critical Thole, in Münchener Kommentar zur InsO, Art. 16 EuInsVO 2000, mn. 18. 17

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Principle

27–30

Art. 19

recognised by other Member States.19 This judgment was largely based on the principle of mutual trust. As this principle underlies the EIR as well, it is likely the CJEU would require the denial of an opening to be recognised pursuant to Article 19 EIR.20 The effect would be that the other Member States could not assume the COMI to be in this particular State. Whether recognition would also be binding in the recognising State in situations where the court dismissed the filing on the grounds that jurisdiction lies with the now recognising State, is unclear. The question is to be negated, as such an effect would impede the duty to examine the jurisdiction issue ex officio (Article 4 EIR). At least, it is not an actual effect of the dismissal as such.21

III. Effects of recognition If the opening judgment is recognisable, all other Member States are obliged to recognise it, i. e. to accept the decision and to honour its effects. Consequently, the principle of priority prevails. The State in which first judgment opening (main) proceedings is handed down, is, if the judgment is being recognised, indeed the State of the main proceedings, regardless of whether the court rightly assumed the debtor’s COMI to be in this State. Article 19 EIR does not deal with the enforcement of the opening judgment. Usually, the opening judgment does not require an actual enforcement. However, where that is necessary, e. g. with respect to the debtor’s duty to hand over the assets to the insolvency practitioner, the judgment is enforceable pursuant to Article 32(1) EIR in accordance with Articles 39 to 44 and 47 to 57 of the Brussels Ia Regulation. Recognition means to establish the effects the judgment has under the law of the State of its origin. Thus, it is not permitted to order a confiscation or sequestration of assets or to approve measures of individual enforcement that are contrary to the effects the opening judgment produces under the lex fori concursus. In MG Produd Gdynia, the CJEU held that such orders cannot validly be made.22 This however should not be interpreted in a strict way. It should rather be interpreted to mean that the actual consequence of such a violation of the recognition regime is determined by the lex fori concursus.23 That is to say that it is a matter of the opening State’s national law whether these orders that are in contradiction to the opening judgment are void or merely voidable. If the lex fori concursus permits enforcement measures in other Member States, it is not feasible to declare these measures void. A seizure or sequestration of assets situated outside the opening State may, pursuant to the general approach of the EIR, be achieved only by opening secondary proceedings or in any other way allowed for by the law of the main proceedings. Conversely, a ban on individual enforcement mandated by the lex fori concursus applies to assets situated outside the COMI-State as well. This, however, is not a result of Article 19 EIR, but follows the rules of private international law and thus of Article 7(1) and (2)(f) EIR. Naturally, a court opening proceedings cannot be an arbitral tribunal as these tribunals do not enjoy jurisdiction for insolvency proceedings. Nevertheless, arbitral tribunals seated in a Member State are bound by the EIR when deciding, e. g., on the question of whether arbitral proceedings are stayed as a result of an opening judgment 19

CJEU, Case C-456/11 Gothaer Allgemeine Versicherung v Samskip ECLI:EU:C:2012:719 para. 41. Müller, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 19, mn. 25; see also Oberhammer, KTS 2009, 27, 54. 21 Differently Müller, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 19 EuInsVO 2000, mn. 25. 22 CJEU Case C-444/07 MG Probud Gdynia ECLI:EU:C:2010:24 para. 44. 23 Würdinger, IPRax 2011, 562, 565. 20

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Art. 19 31–32

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handed down by a state court. Thus, they must recognise opening judgments to the same extent as other state courts.24

IV. Secondary proceedings (Article 19(2)) The rule in Article 19(2) EIR that the recognition of (main) proceedings does not preclude the opening of proceedings referred to in Article 3(2) EIR by a court in another Member State is more or less declaratory. The provisions on jurisdiction and the interplay between Article 3(1) EIR and Article 3(2) EIR show that secondary proceedings remain possible according to the principle of modified universality. The EIR does not allow for two competing main proceedings in different Member States. It is (with the exception of Article 3(4) EIR) not required that the court first opening the proceedings declares these proceedings to be the main proceedings, it simply is a matter of law. This does not hinder the opening of secondary proceedings, which are restricted to the assets situated in the State of the establishment (Article 3(2)(sentence 2) EIR). With this restriction, the main proceedings must be fully recognised in the State of the secondary proceedings. 32 Article 19 EIR does not preclude the possibility of competing main proceedings in a Member State and a non-Member State. This is because the EIR does not tackle the problems of coordination with non-EU States. The question of whether opening judgments in non-Member States are to be recognised is a matter left to autonomous national law. However, if, for example. A Member State does not recognise the opening in the non-Member State and thus carries on with its proceedings as main proceedings, other Member States must not deny recognition of the latter main proceedings on the grounds that, pursuant to their national law, the non-EU proceedings would have to be recognised. 31

24 Mankowski, ZIP 2010, 2478, 2481; Robertson, 12 Int. Arb. L. Rev. 125, 126; see also CJEU, Case C294/02 AMI Semiconductor Belgium ECLI:EU:C:2005:172 para. 69.

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Article 20 Effects of recognition 1. The judgment opening insolvency proceedings as referred to in Article 3(1) shall, with no further formalities, produce the same effects in any other Member State as under the law of the State of the opening of proceedings, unless this Regulation provides otherwise and as long as no proceedings referred to in Article 3(2) are opened in that other Member State. 2. The effects of the proceedings referred to in Article 3(2) may not be challenged in other Member States. Any restriction of creditors’ rights, in particular a stay or discharge, shall produce effects vis-à-vis assets situated within the territory of another Member State only in the case of those creditors who have given their consent. Specific bibliography: see Article 19 EIR. Case law: see Article 19 EIR.

Outline A. Purpose ............................................................................................................................... 1 B. Interpretation .................................................................................................................... 2 I. Recognition without formalities .......................................................................... 2 II. Effects of recognition ............................................................................................. 4 III. Boundaries of the export of effects ..................................................................... 8 IV. Extraterritorial effects of the secondary or territorial proceedings, Article 20(2) EIR ..................................................................................................... 10 V. Restriction of creditors’ rights, Article 20(2)(sentence 2) EIR. .................... 14

A. Purpose Article 19 EIR 2015 is identical to the former Article 17 EIR 2000. Whereas Article 19 1 EIR outlines the general rule on recognition and its requirements, Article 20 EIR stipulates the effects of recognition in more detail. The provision distinguishes between main proceedings (paragraph 1) and secondary proceedings (paragraph 2). With respect to the latter, the territoriality principle is described once again; Article 20(2) sentence 2 EIR, however, is an exception to it, see below mn. 10. Article 20 EIR generally adheres to the mechanism of automatic recognition meaning that recognition is granted without the necessity to undergo formal and separate proceedings and without formalities. The general consequence of recognition is that the effects the judgment produces in the State of origin are “exported” to the recognising State. The original effects are subject to recognition, not similar effects a judgment in the recognising State would have.

B. Interpretation I. Recognition without formalities The term “without further formalities” shows that the European lawmaker opted 2 against an exequatur proceeding. Furthermore, it is not mandatory as a matter of European law to give public notice to the opening judgment for it to be eligible for Thole

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Art. 20 3–6

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recognition. Public notice is a matter of convenience and might prove useful in order to prevent an acquisition of property in good faith, but it is not a requirement for recognition unless the law of the State of origin and thus of the Opening State requires it for the judgment to become effective. 3 Recognition thus happens rather incidentally, for example when it becomes relevant within a court proceeding or an administrative proceeding whether insolvency proceedings have been opened and the debtor has been divested of his assets. Consequentially, the judgment or decision on recognition in itself is usually not subject of a separate judgment but forms parts of ordinary judgments handed down in other contexts. Recognition thus does not necessarily enjoy a res iudicata effect in the recognising State and may therefore be denied at a later point in time, or might be treated otherwise in different legal proceedings.

II. Effects of recognition As described, see above Article 19 mn. 6, recognition as a method could be determined in different ways. The effects of the judgment as produced according to the law of the State of origin can either be exported to the recognising State or the judgment can be imported into the recognising State by adapting it to comparable judgments under the law of the recognising State. Some scholars propose a compromise by stipulating that generally the original effects must be recognised but limited by the effects a similar judgment in the recognising State would have pursuant to the law of that State.1 The EIR opts for the first possibility by clinging to an unrestricted export of effects. These effects may well go beyond those produced by an opening judgment in the recognising State. 5 It remains unclear what exactly is meant by “the effects that the judgment produces”. Usually, this is understood to include both procedural and substantive effects of the opening of insolvency proceedings and is thus interpreted in the broadest way possible2. However, this is hardly ever looked at more closely. A reference is made to the Virgós/ Schmit report3, which, though, does not in any way assume that the recognition of substantive effects is a recognition pursuant to (now) Article 19 EIR. Obviously, both procedural and substantive effects must be recognised, but this is not only a result of Articles 19 to 33 EIR. If that were true, Article 7 EIR and the exceptions in Articles 8 to 18 EIR would be useless. Consequently, one must distinguish between procedural recognition within the meaning of Articles 19 to 33 EIR and “recognition” in terms of private international law pursuant to Articles 7 to 18 EIR.4 The difference is that recognition in Article 19 EIR is independent of the law applicable to the effects produced by the judgment; the recognising State does not examine whether the court of origin applied the correct governing law. The recognising State simply takes the effects the judgment produces as a given. “Recognition” in terms of private international law means that the recognising State applies its rules on conflict of law and thus determines the governing law itself. This usually does not make a difference as Article 7 EIR mandates the applicability of the lex fori concursus. However, it might play a role in the situations described in Articles 8 to 18 EIR. 6 Against this background, a distinction might be useful.5 As a matter of principle, recognition in Articles 19 and 20 EIR covers both procedural and substantive effects 4

1

Schack, Internationales Zivilverfahrensrecht, mn. 886. Gruber, in Geimer/Schütze, Europäisches Zivilverfahrensrecht, Art. 16 EuInsVO 2000, mn. 5. 3 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 153. 4 Thole, in Münchener Kommentar zur InsO, Art. 17 EuInsVO 2000, mn. 5. 5 Thole, in Münchener Kommentar zur InsO, Art. 17 EuInsVO 2000, mn. 6. 2

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Effects of recognition

7–12

Art. 20

the judgment produces. This includes the opening of proceedings and the effect that the assets of the debtor are administered and form the estate, a ban on individual enforcement and the insolvency practitioner’s power to dispose of the assets and to administer the estate. However, recognition is confined to these immediate effects of the opening judg- 7 ment. Other possible consequences of the opening such as effects on pending lawsuits or the coming into existence of avoidance claims is a matter of Articles 7 to 18 EIR and thus of private international law. That leaves room for the deviations from the lex fori concursus in Articles 8 to 18 EIR.

III. Boundaries of the export of effects There is a caveat in Article 20 EIR stating that the duty to recognise (main) 8 proceedings applies “unless the Regulation provides otherwise”. This refers to Article 21 EIR. Said provision in Article 21 EIR deals with the powers of the insolvency practitioner. If the appointment of the insolvency practitioner is considered as an effect of the opening judgment (instead of a separate judgment in terms of Article 32(1) EIR, thus making Article 19 EIR applicable, the restrictions to the powers of the insolvency practitioner restrict the recognition as well. The second major restriction is the opening of a secondary proceedings. However, the 9 opening of secondary proceedings does not question the recognition of the main proceedings as full and universal proceedings with worldwide effects. The relevant effect lies in the restriction to the estate and the divestment of the assets situated in the State of the secondary proceedings. The insolvency practitioner of the secondary proceedings can make use of the remedies available in the State of the secondary proceedings in order to claim that these assets belong to the secondary proceedings and not the main proceedings. This becomes particularly relevant where the opening judgment of the main proceedings is enforced in the State of the now secondary proceedings.

IV. Extraterritorial effects of the secondary or territorial proceedings, Article 20(2) EIR Article 20(2) EIR deals with the effects of the secondary or territorial (Article 3(4) 10 EIR) proceedings in other Member States. Such territorial proceedings require recognition in other Member States because they are not entirely territorial. The restriction of its effects is determined with respect to the assets that may be transferred to another Member State, thus requiring the secondary insolvency practitioner to recover them from there. Furthermore, if the territorial proceedings were not subject to recognition, the (main) insolvency practitioner and the State of the main proceedings would not be bound by the secondary proceedings, which, obviously, would be contrary to the whole concept of the EIR. The definition of the Member State in which the assets are situated is laid out in 11 Article 2 no. 9 EIR. The restricting effect of the territorial proceedings on the main proceedings is limited to the duration of the territorial proceedings. The fact that assets belong to the secondary proceedings does not rule out the 12 possibility that assets are being transferred to another Member State after the opening of secondary proceedings. This, however, does not affect the legal treatment of these assets as part of the estate of the secondary proceedings. Thus, the insolvency practitioner of the secondary proceedings can recover these assets pursuant to the powers

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Art. 20 13–16

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conferred on him in Article 21(2) EIR. As the secondary proceedings is to be recognised, a creditor must not be hindered by the State of the main proceedings or any other Member State to lodge his claim with the secondary proceedings (Article 45(1) EIR). The insolvency practitioner of the secondary proceedings is entitled to the revenues of a sale of assets belonging to the estate of the secondary proceedings (in order to distribute the revenue under the law of the secondary proceedings). However, this does not extend to assets sold before the opening of the secondary proceedings. 13 Other possible consequences of the opening of the secondary proceedings for the main proceedings are a matter of the lex fori concursus generalis.

V. Restriction of creditors’ rights, Article 20(2)(sentence 2) EIR. The rule in Article 20(2)(sentence 2) EIR has a parallel provision in Article 47(2) EIR. It is also relevant not only for secondary proceedings (as dealt with in Article 47(2) EIR), but also for isolated territorial proceedings. The underlying problem is that the scope of the secondary proceedings is determined on the basis of the assets, whereas a restriction to creditors’ rights such as a stay or discharge by nature work regardless of assets. Stay and discharge are mentioned as examples only. Article 20(2)(sentence 2) EIR stipulates that these and other restrictions shall produce effects vis-à-vis assets situated within the territory of another Member State only in case those creditors have given their consent. This means that access to assets situated in other Member States is not restricted for creditors (although they might be bound by a stay in the state of the secondary proceedings) unless they have expressly given their consent with respect to these assets as well. The restriction stays within the territory of the territorial proceedings, so to speak, in order not to impair the main proceedings. This applies even if the binding effect with respect to the restriction, for example the discharge, eventuates because the creditor is crammed down by a majority vote. Required is an individual consent; the minority vote in restructuring plan proceedings does not suffice6. Passivity does not suffice either. The fact that within the territorial proceedings and pursuant to the law of those proceedings the court may substitute missing consent is not sufficient, as can be derived from the genesis of the provision. The German national lawmaker added – even beyond the actual content of Article 20 EIR – to Article 20(2)(sentence 2) EIR the rule in Article 102 § 9 EGInsO stating that in German territorial proceedings an insolvency plan must not be confirmed by the court unless all creditors have given their consent. 15 In substance, the creditor in secondary or territorial proceedings may give his consent to a stay or discharge, but that does not limit his ability to grab other assets outside of the territory of those proceedings unless he has waived his right to do so; but, in light of Article 20(2)(sentence 2) EIR, giving the consent to the stay must not be interpreted as an implicit waiver of this right. Thus, consent to the course of action as such is not required, but to the effects on the enforcement of the creditor’s claim outside the secondary proceedings. 16 This is clearly to be distinguished from the ordinary course of the secondary proceedings. A majority vote may bind the minority creditor if the law of the secondary proceedings provides so, with respect to the assets belonging to the secondary proceedings and the distribution in those proceedings. Article 20(2)(sentence 2) EIR solely deals with the effects on assets that are not part of the estate of the territorial proceedings. 14

6 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 250; Veder, in Bork/van Zwieten, Commentary on EIR, mn. 20.26; differently Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.307.

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Article 21 Powers of the insolvency practitioner 1. The insolvency practitioner appointed by a court which has jurisdiction pursuant to Article 3(1) may exercise all the powers conferred on it, by the law of the State of the opening of proceedings, in another Member State, as long as no other insolvency proceedings have been opened there and no preservation measure to the contrary has been taken there further to a request for the opening of insolvency proceedings in that State. Subject to Articles 8 and 10, the insolvency practitioner may, in particular, remove the debtor’s assets from the territory of the Member State in which they are situated. 2. The insolvency practitioner appointed by a court which has jurisdiction pursuant to Article 3(2) may in any other Member State claim through the courts or out of court that moveable property was removed from the territory of the State of the opening of proceedings to the territory of that other Member State after the opening of the insolvency proceedings. The insolvency practitioner may also bring any action to set aside which is in the interests of the creditors. 3. In exercising its powers, the insolvency practitioner shall comply with the law of the Member State within the territory of which it intends to take action, in particular with regard to procedures for the realisation of assets. Those powers may not include coercive measures, unless ordered by a court of that Member State, or the right to rule on legal proceedings or disputes. Specific bibliography: Oberhammer, Zur internationalen Anfechtungsbefugnis des Sekundärverwalters nach Europäischem Insolvenzrecht, KTS 2008, 271. Outline A. Purpose ............................................................................................................................... 1 B. Interpretation .................................................................................................................... 4 I. Requirements of Article 21(1) EIR...................................................................... 4 1. Insolvency practitioner appointed by a court.............................................. 4 2. Which has jurisdiction pursuant to Article 3(1) EIR................................. 5 3. May exercise all the powers conferred on it by the State of the opening of the proceedings .............................................................................................. 6 II. Removal of assets, Article 21(1)(sentence 2) EIR............................................ 9 III. Territorial proceedings........................................................................................... 12 IV. Setting aside, Article 21(2)(sentence 2) EIR ..................................................... 21 V. Compliance with local law, Article 21(3) EIR.................................................. 27

A. Purpose In conjunction with Articles 22 and 23 EIR as well as Articles 28 and 29 EIR, 1 Article 21 EIR outlines the powers of the insolvency practitioner. It does not as such address the recognition of his appointment, which is governed by either Article 19 EIR (if perceived as integral part of the opening judgment) or Article 32 EIR (if perceived as an independent judgment). Furthermore, Article 21 EIR is declaratory to a certain extent as it reiterates the statement in Article 7(2)(c) EIR. Pursuant to this rule, the lex fori concursus governs the powers of the insolvency practitioner. This is picked up by Article 21 EIR and with respect to special issues is further specified fragmentarily in Article 21 EIR. Article 21(1) EIR deals with main proceedings, whereas Article 21(2) Thole

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Art. 21 2–6

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EIR addresses secondary proceedings. Article 21(1) EIR is not a rule of conflicts of laws, but a rule of substantive law. According to this provision, the insolvency practitioner may exercise the powers conferred on him in all Member States, subject to some exceptions, see below mn. 6. Article 21(1)(sentence 2) EIR confers on the insolvency practitioner the right to remove assets subject to his estate from the territory of the Member State in which they are situated. 2 Article 21(2) EIR mentions a number of powers of the secondary insolvency practitioner. This provision further distinguishes the powers of the main insolvency practitioner or other (secondary) practitioners from the powers of the secondary insolvency practitioner by giving the secondary insolvency practitioner the right to claim that movable property belonging to the estate of the secondary proceedings has been removed to another Member State. It also entails the power to bring an action to set aside which is in the interest of the creditor in those proceedings. 3 Article 21(3) EIR stipulates a restriction to the actual exercise of the powers. It is a rule of private international law that provides that the insolvency practitioner shall comply with the law of the State in which he is exercising his powers. This is aimed at preserving the prevalence of local law which the foreign insolvency practitioner has to obey like any other person.

B. Interpretation I. Requirements of Article 21(1) EIR 1. Insolvency practitioner appointed by a court 4

Article 21(1) EIR requires the appointment of an insolvency practitioner. The definition of an insolvency practitioner can be found in Article 2 no. 5 EIR and the relevant persons are listed in Annex B EIR. For detailed explanations see Brinkmann above Art. 2 mn. 9. The appointment is required to be recognisable. This is the case if it is part of the opening judgment pursuant to Articles 19 and 20 EIR or, to the same effect, as an independent judgment under Article 32 EIR. Its recognition thus requires the opening judgment to be recognised as well.

2. Which has jurisdiction pursuant to Article 3(1) EIR 5

The reference to jurisdiction should not give rise to the misunderstanding that the other Member State may re-examine the jurisdiction of the opening court. It simply refers to the fact that the appointment has been made in the main proceedings, which is thus not restricted to the territory of this State. The proceedings must have been opened and be recognisable.

3. May exercise all the powers conferred on it by the State of the opening of the proceedings 6

Article 21(1)(sentence1) EIR provides that the insolvency practitioner may exercise his powers conferred on him by the lex fori concursus and by the appointment judgment in all other Member States. This is largely a declaratory restatement of either the recognition of the appointment as such or at least of the rules on conflicts of laws in Article 7(2)(c) EIR. In particular, if the insolvency practitioner is empowered to bring actions on behalf of the estate, he has standing in lawsuits or other proceedings in other 212

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Art. 21

Member States as well. The same principle that applies to recognition in Article 19 EIR, i. e. the recognition without further formalities or the need for an exequatur, applies to the rule in Article 21 EIR. However, the insolvency practitioner must prove his appointment pursuant to Article 22 EIR. The word “powers” is misleading, too. It includes duties and obligations of the 7 insolvency practitioner under the lex fori concursus.1 Thus, pursuant to Article 21 EIR the insolvency practitioner can exercise both his rights and his duties as an office holder in other Member States. The duties include, inter alia, the protection of assets and the duty to take possession of them. As Article 21(1) EIR does not address issues of conflicts of laws, the exceptions to 8 Article 7 EIR in Articles 8–18 EIR remain unaffected.

II. Removal of assets, Article 21(1)(sentence 2) EIR Pursuant to Article 21(1)(sentence 2) EIR and subject to Articles 8 and 10 EIR, the 9 insolvency practitioner may, in particular, remove assets situated in other Member States. This clause refers to sentence 1 and is an example of the exercise of rights; usually, it is part of the general duty of the insolvency practitioner to retrieve assets belonging to the estate. However, Article 21(1)(sentence 2) EIR deals not only with the retrieval of assets removed by others but also honours the power of the insolvency practitioner to shift assets himself and to relocate them in one or the other Member State. This applies as long as the assets are part of the estate and are thus not part of the estate of secondary proceedings. This power to relocate assets is subject to Articles 8 and 10 EIR. That means that the removal of assets must not affect the security rights under Articles 8 and 10 EIR. However, to be precise, subject to Articles 8 and 10 EIR are the creditor’s rights, not the assets themselves.2 Thus, the assets may be transferred or relocated as long as the security rights and any adjourning rights remain unaffected. The powers in Article 21(1)(sentences 1 and 2) EIR are limited by the opening of 10 secondary proceedings and any provisional measures taken. This is merely a declaratory restatement. It does not hinder the insolvency practitioner of the main proceedings from removing assets belonging to the main proceedings from the State of the establishment. In other aspects, the main insolvency practitioner may be confined to the instruments provided for the cooperation between main and secondary proceedings in Articles 41, 46, 47 EIR. With respect to the provisional measures, this aims at provisional measures ordered 11 in the State of the prospective secondary proceedings. Provisional measures are measures aiming at securing the prospective secondary estate before the actual opening. Like other creditors, the main insolvency practitioner must not interfere with this order. However, the practical relevance is small as usually provisional measures constitute an opening already.

III. Territorial proceedings Article 21(2) EIR describes the powers of an insolvency practitioner in a secondary 12 proceedings. It provides that the insolvency practitioner in secondary proceedings (appointed by a court with jurisdiction pursuant to Article 3(2) EIR) may claim in any 1 Pannen/Riedemann, in Pannen, Europäische Insolvenzverordnung, Art. 18 EIR 2000, mn. 17; Thole, in Münchener Kommentar zur InsO, Art. 18 EuInsVO 2000, mn. 6. 2 cf. Snowden, in Bork/van Zwieten, Commentary on Insolvency Proceedings, mn. 8.19.

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Art. 21 13–19

13

14

15

16

17

18

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other Member State through the courts or out of court that moveable property was removed from the territory of the State of the opening of proceedings to the territory of that other Member State after the opening of insolvency proceedings. This provision confers on the secondary insolvency practitioner standing to pursue assets that belong to his estate. Furthermore, it is also a cause of action for the secondary insolvency practitioner.3 It adds to the causes of action the secondary insolvency practitioner might have under the lex fori concursus secondarii. However, it only refers to a removal of assets occurring after the opening of the secondary proceedings. The gist of this is that only assets situated in the State of the establishment at the time of the opening belong to the estate of these proceedings. A transfer or relocation of assets occurring prior to the opening of the insolvency proceedings is generally permitted as these assets do not belong to the estate of secondary proceedings opened at a later time. The time of the opening depends on the definition in Article 2 no. 8 EIR. Similar to the situation described with respect to the main proceedings, the transfer of assets usually does not affect security rights creditors might have with respect to some assets; these rights must be honoured by the secondary insolvency practitioner as well. The exception in Articles 8 and 10 EIR applies to secondary proceedings as well (via Article 35 EIR). However, Article 21(2)(sentence 2) EIR assumes that the insolvency practitioner of the secondary proceedings may also bring an action to set aside which is in the interests of the creditors. This refers to avoidable transfers of assets that occurred prior to the opening of the secondary proceedings, see below mn. 21. Article 21(2) EIR and the mentioned power to reclaim property that has been moved are only examples of the powers the insolvency practitioner may exercise in other Member States. Any other powers the secondary insolvency practitioner enjoys under the law of the State of the secondary proceedings are not barred. The power to bring an action includes both the enforcement of the claim within court proceedings and outside, for example in mediation or other out-of-court negotiations. There might be a need to distinguish with respect to situations in which assets have been moved from the State of the secondary proceedings to the State of another secondary proceedings. This is quite problematic as, pursuant to the law of the secondary proceedings, assets obtained in the course of the proceedings and after the opening might well be part of the estate, too. However, in case of two competing secondary proceedings the crucial criterion is the situation at the time of the opening (see Article 2 no. 8 and Article 3(2) EIR). Thus, in this hypothetical case the assets would still be part of the estate of the secondary proceedings where the assets have been earlier. A more complicated situation arises if the assets have been removed after the opening of the secondary proceedings but to another Member State where secondary proceedings are opened, only later. In this case, the second (secondary) insolvency practitioner could well claim that the assets were situated in his State at the time of the opening of “his” proceedings. However, Article 21(2)(sentence 1) shows that in this case the first secondary proceedings and the State where the assets come from is dominating. Unlike in Article 21(1) EIR, there is no express caveat in favour of (second) secondary proceedings. If the assets have been liquidated or sold, there is no surrogate with respect to the revenue as a matter of the EIR, however, the lex fori concursus secondarii might grant 3

Thole, in Münchener Kommentar zur InsO, Art. 18, mn. 2.

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Powers of the insolvency practitioner

20–25

Art. 21

the insolvency practitioner the right to claim for damages or unjust enrichment or on other grounds as a matter of national law4. This claim may be brought by the insolvency practitioner pursuant to Article 21(2) (sentence 2) EIR. Article 21(2) EIR relates to the new features of the EIR, i. e. the undertaking and the so- 20 called synthetic proceedings. The questions in this context are (partially) dealt with in Article 36(6) EIR. A removal of assets is possible for the insolvency practitioner prior to the undertaking and often useful; in general, such a transfer might devaluate the perspective of an undertaking, but it is not in itself abusive (absent other circumstances)5.

IV. Setting aside, Article 21(2)(sentence 2) EIR The purpose of the provision in Article 21(2)(sentence 2) EIR remains slightly blurry.6 The rule confers the procedural standing to set aside and thus to bring an action for transaction avoidance on the secondary insolvency practitioner. It does not deal with the substantive requirements still being mandated by the law of the State of the secondary proceedings (with respect to the assets of these proceedings). First of all, the provision is to be interpreted as to enable the insolvency practitioner to bring the action in any other Member State than in the State of the secondary proceedings, otherwise it would not make much sense as the latter power is to be presumed. Thus, Article 21(2)(sentence 2) EIR relates to Article 21(2)(sentence 1) EIR, which also deals with the extraterritorial powers of the insolvency practitioner. The clause is unclear because it is uncertain under what requirements the claim for setting aside the transaction that led to a transfer of the asset to another Member State is part of the secondary estate at all.7 As a matter of principle, the avoidance claims need to be part of the estate of the secondary proceedings, otherwise Article 21(2)(sentence 2) EIR would not apply as the powers of the secondary insolvency practitioner could not be affected. However, determining whether this avoidance claim belongs to the secondary estate cannot be determined on the basis of Article 2 no. 9 (viii) EIR. If it was decisive that the defendant has its COMI in the State of the secondary proceedings, there would be no cross-border situation (from the perspective of the secondary proceedings). Thus, it shall rather be determined by the recovery of which assets are being claimed and which assets are subject of the avoidance claim. For example, if the relevant asset is a tangible property, it depends on whether it was situated in the State of the establishment in accordance with Article 2 no. 9 (vii) EIR. If a claim has been assigned and thus avoidably transferred, Article 2 no. 9 (viii) EIR applies. This determination must be made with respect to the time of the transaction. If, as a result, the asset belonged to the State of the now secondary proceedings, the avoidance claim is part of the estate and thus the secondary insolvency practitioner may bring the action with respect to the recovery of that asset in any other Member State. It follows that Article 21(2)(sentence 2) EIR is a real exception to the general principle that assets that are not situated in the State of the establishment at the time of the opening of the secondary proceedings are not part of the latter. The avoidance claim can be brought nevertheless. Apart from this, Article 21(2) EIR is only a general restatement of the principle that the secondary insolvency practitioner has the powers conferred on him pursuant to the law of the secondary proceedings and he may exercise these rights in any other Member State. 4

Thole, in Münchener Kommentar zur InsO, Art. 18 EuInsVO 2000, mn. 13. See recital 46 EIR, cf. Garcimartin, ZEuP 2015, 694, 727. 6 Oberhammer, KTS 2008, 271. 7 Thole, in Münchener Kommentar zur InsO, Art. 18 EuInsVO 2000, mn. 15. 5

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Art. 21 26–30 26

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A classical conflict arises, when the (main) insolvency practitioner pursues a lawsuit with respect to an asset that is encompassed by the opening of secondary proceedings that are opened while the lawsuit is still pending. The asset is then part of the estate of the secondary proceedings. The lawsuit does not necessarily need to be terminated if the secondary insolvency practitioner wants to recover the assets.8 The question of which effects the loss of standing has for the main insolvency practitioner is a question of the lex fori; it might enable the secondary insolvency practitioner to step into the shoes of the main insolvency practitioner.

V. Compliance with local law, Article 21(3) EIR Pursuant to Article 21(3) EIR, in exercising his powers, the insolvency practitioner shall comply with the law of the Member State within the territory in which he intends to take action. This is a rule of conflicts of laws as it determines that the governing law for the exercise of the powers (unlike its content and the existence of these powers) is the law of the State where the action is taken. This might well be the same, but does not need to be. In particular, Article 21(3) EIR covers both main and secondary proceedings and thus situations dealt with in both Article 21(1) and (2) EIR. The provision in Article 21(3) EIR particularly aims at procedures for the realisation of assets. It may be, for example, that with respect to immovable property realisation needs to observe a sequestration or enforcement procedure as stipulated by the law of the State where the property is situated. However, it is important to stress that the provisions aim at noninsolvency rules in particular. This can include provisions of administrative law, bans on exports, employment and any labour law. This, however, brings about some questions of distinction because the general question of powers and duties with respect to the estate are governed by the lex fori concursus (Article 7(2)(sentence 2)(c) EIR). The lex fori concursus governs, for example, whether property may be liquidated on the open market instead of in a formal enforcement procedure. 28 Consequently, Article 21(3) EIR is applicable with respect to the “how”. It can thus be a problem to decide what is governed by the lex fori concursus and what is governed by the local law. In particular, the attachability of property is not entirely a question of local law but determines the scope of the estate as well. It must be distinguished: Concerning assets that the insolvency practitioner wants to attach in an enforcement procedure in order to bring them back to the estate, the question of attachability should be left to the lex fori concursus. If the insolvency practitioner wants to enforce an ordinary claim against a third party and, in doing so, initiates ordinary enforcement procedures and thus attaches objects that belong to the defendant, the ordinary rules of the lex fori executionis apply. 29 Concerning remedies and appeals against the exercise of powers by the insolvency practitioner in the State where he intends to act, ordinary rules apply. Still, this concerns the modalities of the exercise of powers only, not the general scope of the powers conferred on the insolvency practitioner. The latter are subject to the law of the State of the opening where the insolvency practitioner had been appointed. 30 In Article 21(3) EIR the powers may not include coercive measures, unless ordered by a court of that Member State, or the right to rule on legal proceedings or disputes. This aims at preventing the insolvency practitioner from exercising genuine state powers in a foreign Member State. 27

8

Differently Paulus, EuInsVO, Art. 18 EuInsVO 2000, mn. 17 a.

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Article 22 Proof of the insolvency practitioner’s appointment The insolvency practitioner’s appointment shall be evidenced by a certified copy of the original decision appointing it or by any other certificate issued by the court which has jurisdiction. A translation into the official language or one of the official languages of the Member State within the territory of which it intends to act may be required. No legalisation or other similar formality shall be required. Case law: UK: Re MG Rover II [2006] EWHC 3426 (Ch).

Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Interpretation .................................................................................................................... I. Requirements ........................................................................................................... 1. Appointment as insolvency practitioner....................................................... 2. Certified copy or certificate.............................................................................. II. Translation, Article 22(2) EIR.............................................................................. III. Consequences...........................................................................................................

1 2 3 3 3 4 8 9

A. Purpose Article 22 EIR is an additional provision to the general rule in Article 21 EIR 1 dealing with the powers of the insolvency practitioner. It is a consequence of the fact that the powers of the insolvency practitioner are governed by the lex fori concursus and that the appointment of the insolvency practitioner is to be recognised in all other Member States. Article 22 EIR does not stipulate any restrictions to recognition, but it does react to the practical necessity for proof of the insolvency practitioner’s appointment and powers in different situations. For example, the insolvency practitioner will often make use of the possibility to achieve a public notice according to Article 28 EIR or to apply for an entry into the register according to Article 29 EIR. Furthermore, the insolvency practitioner may want to apply for secondary proceedings. On the one hand, it could be a drawback to the principle of automatic recognition of the insolvency practitioner’s appointment if the respective Member State could require the insolvency practitioner to prove his appointment in an overly formalistic way in this situation. On the other hand, the Member States have a reasonable interest in making sure that the insolvency practitioner is indeed the office holder. Article 22 EIR reacts to this by providing a clear rule on what is required to prove the appointment. The gist of it is that the insolvency practitioner can prove his appointment by presenting a certified copy of the court’s appointment decision or any other courtissued certificate. Thus, as all Member States are bound by this rule, they and all bodies in these States must not demand higher standards such as a formal legalization. Article 22 EIR deals with the appointment only, not the scope of powers or duties of the insolvency practitioner.

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Art. 22 2–8

Chapter II. Recognition of Insolvency Proceedings

B. Historic development 2

Article 22 EIR 2015 is identical to the Article 19 EIR 2000. Contrary to Article 2 of the Istanbul Convention, the lawmaker of the EIR expressly refrained from introducing a standard form for the certified copy or certificate, in order to take into account the different methods of appointing the insolvency practitioner in the Member States.

C. Interpretation I. Requirements 1. Appointment as insolvency practitioner 3

Article 22 EIR refers to any kind of insolvency practitioner as defined in Article 2 no. 5 EIR. The practical relevance of Article 22 EIR lies with practitioners in main proceedings simply because in main proceedings relations to Member States other than the opening State are more extensive. Article 21 EIR is confined to the appointment judgment as such. It does not relate to other decisions by which some powers may be conferred on the insolvency practitioner. Such a decision would be a judgment under Article 32(1.1) EIR.

2. Certified copy or certificate As evidence of the appointment it is sufficient to present a certified copy of the judgment. A legalization or any other further formality is not required and must not be mandated by the recognising State, as Article 22(2)(sentence 2) EIR expressly declares. The same applies to further certification by a second body or authority. Furthermore, a certificate issued by the court which has jurisdiction is sufficient, too. 5 The certification is usually conducted by the court appointing the insolvency practitioner. The jurisdiction seems to relate to the jurisdiction for the appointment, i. e. the court within the meaning of Article 3 EIR. However, Article 22 EIR still applies if pursuant to the lex fori concursus another court is the competent body, as Article 3 EIR relates to the international jurisdiction only. In that case, it would have to be ascertained that the issuing body enjoys the competence. 6 According to the wording, a “certified copy” is only sufficient regarding the original appointment decision, not the second alternative, a certificate issued by the court which has jurisdiction. However, it should be sufficient to present a certified copy of the certificate. Anyway, the certification is governed by the law of the State appointing the insolvency practitioner and has to be carried out by a competent person in this State. The recognising State must not refuse to recognise the certification on the grounds that, according to its law, a certification requires more than in the State of certification. 7 Whether the costs of certification are covered as costs of the proceedings or are borne by the insolvency practitioner, is a matter of the lex fori concursus. 4

II. Translation, Article 22(2) EIR 8

Notwithstanding the duty to accept a certified copy as evidence, the recognising State can require a translation into one of its official languages. This resembles the former 218

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Proof of the insolvency practitioner’s appointment

9

Art. 22

Article 55(2) of the Brussels I Regulation. A certification of the translation is not required; however, it seems feasible that to require so would be permitted according to Article 55 of the Brussels I Regulation by way of analogy1. This is supported by a remark in the Virgós/Schmit report2 and has been implemented in German law, § 347(1) InsO.

III. Consequences If the insolvency practitioner meets these requirements, the appointment must not be 9 questioned by the recognising State. However, this does not include the powers conferred on the insolvency practitioner as they are not addressed by Article 22 EIR. The extent of the scope of powers is more or less an ordinary question of private international law. The recognising State, i. e. the State in which the insolvency practitioner acts or intends to act, applies the law of the State opening the proceedings and has to determine the scope of powers conferred on the insolvency practitioner by the appointment. To what degree this determination of the powers has to be achieved and how close the scrutiny in the actual situation needs to be, depends on the situation. In any case, it is governed by the law of the lex fori (in case of court proceedings) or, put more generally, the law of the State in which the insolvency practitioner acts. However, sometimes the court may hand down a separate judgment by which the powers are conferred on the insolvency practitioner. This was apparently done in the MG Rover case.3 In this case, it is a judgment under Article 32 EIR that must be recognised according to the rules of Article 32 EIR anyway. 1

Kindler, in Münchener Kommentar zum BGB, Art. 19 EuInsVO, mn. 9. Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 170. 3 Re MG Rover II [2006] EWHC 3426 (Ch) (GBR). 2

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Article 23 Return and imputation 1. A creditor which, after the opening of the proceedings referred to in Article 3 (1), obtains by any means, in particular through enforcement, total or partial satisfaction of its claim on the assets belonging to a debtor situated within the territory of another Member State, shall return what it has obtained to the insolvency practitioner, subject to Articles 8 and 10. 2. In order to ensure the equal treatment of creditors, a creditor which has, in the course of insolvency proceedings, obtained a dividend on its claim shall share in distributions made in other proceedings only where creditors of the same ranking or category have, in those other proceedings, obtained an equivalent dividend. Outline A. Purpose ............................................................................................................................... B. Interpretation .................................................................................................................... I. Requirements of Article 23(1) EIR...................................................................... 1. Scope: Main proceedings .................................................................................. 2. Satisfaction of a creditor ................................................................................... 3. Asset belonging to the debtor.......................................................................... 4. Situated within the territory of another Member State............................. 5. Relevant point in time....................................................................................... 6. Satisfaction after opening ................................................................................. 7. Exceptions ............................................................................................................ 8. What was obtained ............................................................................................ II. Imputation, Article 23(2) EIR .............................................................................. 1. Applicability to non-EU proceedings ............................................................ 2. Basic rules ............................................................................................................ 3. No cause of action.............................................................................................. 4. Undertaking.........................................................................................................

1 5 5 5 6 10 11 12 14 15 16 19 21 22 32 34

A. Purpose The provision in its entirety aims at preserving the pari passu principle. Article 23 EIR is not a rule of private international law but of substantive law. In particular, Article 23(1) EIR contains a genuine European cause of action by which a creditor who has unjustly received satisfaction of his claim on assets situated in a Member State other than the opening State and after the opening of the main proceedings may be obliged to repay or otherwise return what he has obtained to the insolvency practitioner. This is particularly relevant because despite the universality principle it usually takes some time before the opening of proceedings in one Member State has become fully known in other Member States. This ensures that the asset or its value is available for distribution to the general body of creditors in the main proceedings. 2 Article 23(2) EIR contains a provision on how to deal with multiple distributions a creditor receives in both main and secondary proceedings. Because separate proceedings are permitted, disparities need to be avoided, which is what the provision aims to achieve. This may happen because the EIR allows for a lodging of claims in both main and secondary proceedings. The method Article 23(2) EIR provides in dealing with the problem that no creditor should gain an unjust advantage from lodging in several proceedings is a method of consolidating the dividends the creditors receive. The 1

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Return and imputation

3–6

Art. 23

general rule is that a creditor who has received a dividend in one of the proceedings is eligible to receive a dividend in another only after the creditors equally ranked have received the same pro-rata dividend for their claims. In England that is known as the hotchpot principle, set out in detail in Cleaver v. Delta American Reinsurance1. The provision is identical to the Article 20 EIR 2000 and has not been adjusted. It 3 does not address the new feature of synthetic proceedings, see below mn. 5. It also fails to take into account that the EIR now encompasses proceedings that do not affect the claims of all groups of creditors.2 Article 23(1) EIR is a cause of action aiming at a return of “what was obtained”. It has 4 particular practical relevance where the lex fori concursus does not give an express cause of action or where other deficiencies prevail, for example in the law of unjust enrichment. The gist is that by making use of Article 23(1) EIR the insolvency practitioner can rely on a clear cause of action applicable in all Member States in order to retrieve assets or their value from a creditor who has received satisfaction of his claim but, as a nonpreferential creditor, should not have, except for his dividend in the final distribution, which is later conducted by the insolvency practitioner himself.

B. Interpretation I. Requirements of Article 23(1) EIR 1. Scope: Main proceedings Article 23(1) EIR covers the main proceedings only. This is most natural because 5 Article 23(1) EIR requires the asset on which the creditor obtains satisfaction to be situated in another Member State. In this case, however, this asset does not belong to the estate of the secondary proceedings, at least, if the asset was situated there at the time of the opening of the secondary proceedings. However, the requirement in Article 23(1) EIR refers not to the location at the time of the opening but at a later time, see below mn. 12. Therefore, a rule like Article 23(1) EIR could have been useful in special circumstances in secondary proceedings too, at least if one was to assume that the power in Article 22(2)(sentence 2) EIR does not allow the insolvency practitioner to claim for the value of the realized asset. However, the lawmaker expressly confined the provision to cases of Article 3(1) EIR and thus to the main proceedings.

2. Satisfaction of a creditor The provision refers to a total or partial satisfaction on the assets. This is meant to 6 address an independent, unauthorized realization of the asset by the creditor, obviously not a payment received from the insolvency practitioner or the debtor-in-possession. Article 23(1) EIR deals with unsecured, non-preferential creditors, as can be deducted from the caveat in favour of Article 8 EIR. The exception shows that a secured creditor within the meaning of Article 8 EIR can realize his security. Article 8 EIR is applicable if the asset is situated in another Member State than the opening State at the time of the 1

[2002] 2 AC 328, PC. See Veder, in Bork/van Zwieten, Commentary on EIR, mn. 23.10 et seq. referring to Eidenmüller/van Zwieten, Restructuring the European Business Enterprise: The EU Commission Recommendation on a New Approach to Business Failure and Insolvency, ECGI – Law Working Paper No. 301/2015, http://ssrn.com/ abstract=2662213 (last visited 16 April 2019). 2

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Art. 23 7–12

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opening. However, Article 23(1) EIR is still applicable to the extent that the creditor received more than he is entitled to on the grounds of his security right. 7 It does not matter how satisfaction is being achieved. Article 23(1) EIR names enforcement as an example only. Any means of individual enforcement of the claim is covered including “voluntary” payments by the debtor prior to the actual enforcement by public officials. This includes a set-off if not subject to Article 9 EIR.3 8 Furthermore, the claim pursuant to Article 23(1) EIR is justified regardless of whether the creditor is entitled to a pro-rata dividend in the course of the proceedings. Article 23(1) EIR wants to protect this (final) distribution and the creditor shall not receive payment in advance. Thus, he has to return the whole amount of what he has obtained and must not deduct the expected dividend. 9 There is also no good faith exception. Thus, even if the creditor was unaware of the opening of insolvency proceedings, he must return what he has obtained. However, the question is whether he may deduct his expenses. This is not a question of good faith4, but rather a question of “what was obtained”. It seems feasible that only the net revenue from the realization of the asset is obtained.5 However, this does not apply to other expenses that were incurred but not directly linked to the actual enforcement.

3. Asset belonging to the debtor 10

The term “asset belonging to the debtor” means that the satisfaction has to come from the realization of the asset. “Belonging to the debtor” means that the asset is part of the estate, which is to be determined pursuant to the lex fori concursus, Article 7(2) (sentence 2)(b) EIR, not by the lex rei sitae. Thus, assets that are not or no longer part of the estate are not addressed in Article 23 EIR. “What the creditor obtained” and the original asset, naturally, do not need to be strictly identical. For example, if the debtor transfers money from his bank account, the creditor receives a claim against the recipient bank to pay out the money, which the debtor never had (he had a claim against his own bank).

4. Situated within the territory of another Member State 11

The situation of the asset follows the definition in Article 2 no. 9 EIR. The location in a non-Member State is not expressly referred to. Some scholars want to apply Article 23 EIR nonetheless6, but this is not convincing as the EIR does not address relations to non-member States and access to assets in these States cannot be ensured by the EIR anyhow. In some cases, autonomous law offers causes of actions for these kinds of situations, see for example § 342 InsO (DEU).

5. Relevant point in time 12

In Article 23(2) EIR it is not expressly determined which point in time is relevant for the situation of the asset within the territory of the other Member State. It has to be distinguished. If at the time of opening of the proceedings the asset is situated in the Member State of the opening, the interests of the general body of creditors can be prejudiced if the asset is removed to the other Member State after the opening. The 3 Thole, in Münchener Kommentar zur InsO, Art. 20, mn. 10; but see contra Kindler, in Münchener Kommentar zum BGB, Art. 20 EuInsVO, mn. 111. 4 Differently: Virgós/Garcimartin, The European Insolvency Regulation: Law and Practice, mn. 462. 5 In contrast to Veder, in Bork/van Zwieten, Commentary on EIR, mn. 23.17. 6 See Pannen/Riedemann, in Pannen, Europäische Insolvenzverordnung, Art. 20 EIR 2000, mn. 28; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 20 EIR 2000, mn. 9.

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Return and imputation

13–19

Art. 23

insolvency practitioner may reclaim the assets pursuant to Article 21(1)(sentence 2) EIR, but it is unclear whether the insolvency practitioner may also claim the revenue received from a realization of the asset with the power in Article 21(1)(sentence 2) EIR. Therefore, it is not necessary for the asset to be situated in the other Member State at the time of the opening already for Article 23(1) EIR to be applicable. Another question in this context is then whether the place of the actual act of 13 performance or payment or the place where the satisfaction is received is relevant, for example if the debtor makes a payment in advance of the imminent enforcement and this payment is made from the Member State of the opening to another Member State. In light of the purpose of Article 23(1) EIR, this should be interpreted broadly and it should be sufficient that the asset was located in the other Member State either at the time of performance or when actual satisfaction is obtained7.

6. Satisfaction after opening The definition of the opening refers to Article 2 no. 7 EIR. The satisfaction prior to 14 the opening may be avoidable under Articles 7(2)(m) Article 16 EIR, but is not addressed by Article 23(1) EIR.

7. Exceptions Article 23(1) EIR contains an exception with respect to proprietary rights safeguarded 15 by Articles 8 and 10 EIR.

8. What was obtained As said before, the term “what was obtained” requires an autonomous interpreta- 16 tion. There is no deduction if the advantage has been partly lost in the meantime. The full value must be reimbursed. Whether interest incurred on the money received must be returned is not resolved; Article 23 EIR does not seem to address this. The defendant must not reject the return by relying on his claim for the pro rata 17 dividend in distribution. It is quite unclear how Article 23(1) EIR reacts to causes of action that stem from 18 national law of the lex fori concursus. First of all, the rules of the lex fori concursus are applicable exclusively where the satisfaction was obtained on assets situated in the opening State, Article 7(2)(f) EIR. In the situations addressed by Article 23(1) EIR it seems feasible that national law and concurrent causes of action are not superseded by Article 23(1) EIR regardless of their respective requirements. They can be relied on in addition to Article 23(1) EIR.

II. Imputation, Article 23(2) EIR The rule in Article 23(2) EIR is a rule of distribution. The first requirement is that 19 the creditor must have received a dividend in insolvency proceedings (either main or secondary proceedings). It is not required that at that time the other proceedings in which this dividend is to be imputed had already been opened.8 The dividend refers to a dividend received in a formal distribution. It does not matter whether they are restructuring or liquidation proceedings. Secured creditors are not covered, at least if the requirements in Articles 8 and 10 EIR are met; and, generally speaking, in their 7 8

Thole, in Münchener Kommentar zur InsO, Art. 20 EuInsVO 2000, mn. 13. Virgós/Garcimartin, The European Insolvency Regulation: Law and Practice, mn. 465.

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capacity as secured creditors they do not receive a dividend in the usual way. However, the lex fori concursus may allow secured creditors, in particular those who are not fully secured to lodge their claim as non-preferential creditor as well, and in this capacity, they fall under Article 23(2) EIR. Furthermore, it seems feasible that secured creditors should be encompassed in any case in order to ensure that no double satisfaction in their capacity as secured creditors is obtained. In consequence, Article 23(2) EIR needs to be applied as follows: Imputation is applicable in relation to the secured part of the claim and with respect to the realization of the security. Further, it is applicable in relation to any unsecured claim the secured creditor may be allowed to lodge (independent from the security) and with respect to dividends obtained in this capacity. 20 Other privileged creditors are covered, but here the relevant question is who actually is an equal-ranked creditor.

1. Applicability to non-EU proceedings 21

It makes sense to apply 23(2) EIR to dividends received in proceedings in nonMember-States as well. Of course, Article 23(2) EIR influences the distribution in Member States proceedings only, however, dividends originating from proceedings outside the EU are to be imputed in order to protect the pari passu principle. The wording of Article 23(2) EIR allows for this. This seems justified to avoid an inverse discrimination and an unjust advantage to creditors in non-EU-proceedings9.

2. Basic rules 22

23 24

25

26

In the Virgós/Schmit report, basic rules are developed for determining the imputation of the first dividend in the following proceedings.10 They have been implemented in Article 23 EIR. The most general rule is that no creditor must receive more than full satisfaction of his nominal claim. The second rule is that the claims are to be lodged with their full nominal value in the proceedings where the imputation takes place. The dividend received in the first proceedings is not to be deducted. If the lex fori concursus so provides, annex claims for interest or reimbursements aligned to the principal claim may be lodged as a separate claim and may have a different rank than the principal claim; to this extent Article 23(2) EIR applies separately. The third and most important rule according to the report is that the creditor who has obtained a dividend in the first proceedings does not participate in the distribution of further proceedings until the creditors of the same ranking or category have obtained an equal percentage of satisfaction.11 The fourth rule of the Virgós/Schmit report is that rule three applies only if the creditors are ranked equally. This is a matter of the lex fori concursus of the second proceedings in which imputation is to be considered, see Article 7(2)(i) EIR. Thus, even if the obtainment of the dividend in the first proceedings was due to the creditor being treated as a privileged creditor whose claim is, however, treated as non-preferential in the second proceedings, the dividend is to imputed with respect to the distribution to the non-preferential creditors in those second proceedings. 9

See also Virgós/Garcimartin, The European Insolvency Regulation: Law and Practice, mn. 469. Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 175. 11 See also Virgós/Garcimartin, The European Insolvency Regulation: Law and Practice, mn. 468; Veder, in Bork/van Zwieten, Commentary on EIR, mn. 23.24 et seq. 10

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The wording “shall share in distribution” does not deprive the creditor of his procedural rights as a participant to the proceedings; it simply puts off distribution to him. Example: If a creditor with a claim of 5.000 € receives a dividend of 250 € in proceedings No. 1 and thus a percentage of 5 %, he shares in the distribution in proceedings No. 2 only if creditors equally ranked in those proceedings receive 5 % as well. This seems simple but it is not, because the share for all creditors is linked to the extent of liabilities to be taken in. Thus, a two-step analysis in the proceedings No. 2 should be followed. In a first step, the overall amount available for distribution must be ascertained. Given it is 10.000 €, but 40.000 € in debt without the particular creditor, all creditors except for the particular creditor are to receive 5 %, i. e. 2000 € in sum. In the second step, the remaining amount of 8.000 € is to be distributed. Now the creditor may share in the distribution again. Thus, liabilities of 45.000 € are to be taken into account. Every creditor receives a further dividend of 17,77 %. The specific creditor receives a further 888,50 € in proceedings No. 2.

27 28

29

30

31

3. No cause of action Article 23(2) EIR is not a cause of action for the recovery of unjustly obtained 32 dividends. If the insolvency practitioner in the second proceedings does make use of the imputation for whatever reasons, Article 23(1) EIR does not apply. Nor does the EIR contain a special cause of action. However, unjust distribution may well be recovered under the national rules of the lex fori concursus. A particular problem may arise where the insolvency practitioner in the second 33 proceedings does not know whether the creditor has obtained a dividend elsewhere. There is no general duty under the EIR for the creditor to inform the insolvency practitioner. However, such a duty may follow under the lex fori concursus in the second proceedings. Furthermore, the insolvency practitioners in the proceedings are obliged to communicate and cooperate with each other in order to avoid a situation in which it remains unknown who has already obtained a dividend.

4. Undertaking Article 23 EIR does not deal with the undertaking and so-called synthetic secondary 34 proceedings. This seems to be a legislative mistake. It has to be avoided that the (main) insolvency practitioner offers the creditors a distribution in their capacity as creditors with respect to assets in the territory of the establishment and that these creditors receive more than equally ranked creditors in the (main) proceedings. Often this is not a problem because all creditors, not only the local ones, participate in the distribution pursuant to the undertaking. However, it seems that problems can still arise as the question of equal ranking is a matter of the lex fori concursus of the main proceedings. If a creditor is a preferential creditor under the undertaking, but a non-preferential creditor under the law of the opening State or vice versa, he should be bound by Article 23(2) EIR and the creditor shall share in the distribution with respect to the difference between the obtained dividend and the dividend for distribution in the main proceedings. However, calculation is easier insofar as the main insolvency practitioner knows who receives payment pursuant to the undertaking, and that includes all creditors. For Article 23(2) EIR and the distribution in the main proceedings, the ranking in the synthetic proceedings does not matter. Only what the creditors obtained matters.

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Article 24 Establishment of insolvency registers 1. Member States shall establish and maintain in their territory one or several registers in which information concerning insolvency proceedings is published (“insolvency registers”). That information shall be published as soon as possible after the opening of such proceedings. 2. The information referred to in paragraph 1 shall be made publicly available, subject to the conditions laid down in Article 27, and shall include the following (“mandatory information”): (a) the date of the opening of insolvency proceedings; (b) the court opening insolvency proceedings and the case reference number, if any; (c) the type of insolvency proceedings referred to in Annex A that were opened and, where applicable, any relevant subtype of such proceedings opened in accordance with national law; (d) whether jurisdiction for opening proceedings is based on Article 3(1), 3(2) or 3(4); (e) if the debtor is a company or a legal person, the debtor’s name, registration number, registered office or, if different, postal address; (f) if the debtor is an individual whether or not exercising an independent business or professional activity, the debtor’s name, registration number, if any, and postal address or, where the address is protected, the debtor’s place and date of birth; (g) the name, postal address or e-mail address of the insolvency practitioner, if any, appointed in the proceedings; (h) the time limit for lodging claims, if any, or a reference to the criteria for calculating that time limit; (i) the date of closing main insolvency proceedings, if any; (j) the court before which and, where applicable, the time limit within which a challenge of the decision opening insolvency proceedings is to be lodged in accordance with Article 5, or a reference to the criteria for calculating that time limit. 3. Paragraph 2 shall not preclude Member States from including documents or additional information in their national insolvency registers, such as directors’ disqualifications related to insolvency. 4. Member States shall not be obliged to include in the insolvency registers the information referred to in paragraph 1 of this Article in relation to individuals not exercising an independent business or professional activity, or to make such information publicly available through the system of interconnection of those registers, provided that known foreign creditors are informed, pursuant to Article 54, of the elements referred to under point (j) of paragraph 2 of this Article. Where a Member State makes use of the possibility referred to in the first subparagraph, the insolvency proceedings shall not affect the claims of foreign creditors who have not received the information referred to in the first subparagraph. 5. The publication of information in the registers under this Regulation shall not have any legal effects other than those set out in national law and in Article 55(6). Recitals: 76–78, 80. Specific bibliography: Szirányi, EU-wide interconnection of insolvency registers, (2015) 16 ERA Forum 219; McCormack/Keay/Brown/Dahlgreen, Study on a new approach to business failure and insolvency, Comparative legal analysis of the Member States’ relevant provisions and practices, January 2016, Tender No. JUST/2014/JCOO/PR/CIVI/0075.

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Case law: EU: CJEU, 2 May 2006, Case C-341/04, Eurofood IFSC Ltd, ECLI:EU:C:2006:281; CJEU, 22 November 2012, Case C-116/11, Bank Handlowy v. Christianopol, ECLI:EU:C:2012:739.

Outline A. Provisions establishing an EU-wide interconnection of insolvency registers .... 1 I. Objective ................................................................................................................... 1 II. Historic development ............................................................................................. 3 III. State of play at national level ............................................................................... 7 B. Article 24 EIR – The national part of the system of interconnection ................. 8 I. Insolvency registers in the Member States........................................................ 8 II. Scope of insolvency proceedings concerned by the interconnection.......... 9 III. Scope of the information to be published......................................................... 13 IV. Comments on pieces belonging to the “mandatory information” .............. 16 V. Legal effects of publication in the system of interconnection ...................... 24

A. Provisions establishing an EU-wide interconnection of insolvency registers1 I. Objective Articles 24 to 27 EIR contain the most progressive element of the reform of the 1 EIR: the EU-wide interconnection of national electronic insolvency registers. They oblige Member States to set up electronic insolvency registers according to unified technical standards, and the Commission to create and maintain a web-service through which these national registers are interconnected and accessible to the public via the European e-Justice Portal. The EU-wide system of interconnection, composed of the national registers and the European e-Justice Portal, will ensure that relevant information concerning insolvency proceedings opened in any of the Member States is found easily in all official languages of the EU. The system will be created in three phases.2 First, the Member States are obliged to establish their registers at national level by 26 June 2018. Then, by 26 June 2019, the Commission has to adopt the implementing act(s) which define the technical specifications of the EU-wide system.3 Finally, the platform in the European e-Justice Portal should be deployed by the go-live date, which will most probably be determined in these implementing act(s). Article 24 EIR imposes on Member States the duty to establish and maintain 2 insolvency registers at national level, and defines the scope of that duty by specifying the group of insolvency proceedings and the set of information relating to those proceedings, which Member States have to publish and provide for the purposes of the system of interconnection. Article 25 EIR specifies the duties of the European Commission with regard to the establishment of the interconnection. Article 26 EIR clarifies how the costs relating to the establishment and maintenance of the interconnection are shared between the Member States and the European Union. Finally, Article 27 EIR contains the rules of access to information in the system. It announces the unconditional public access as a general principle, and defines some exceptions to that principle. 1 The information and views set out in Artt. 24 to 30 are those of the author and do not necessarly reflect the official opinion of the European Commission. 2 See Article 92 EIR. 3 The EIR does not specify the necessary IT standards for the system of interconnection, but empowers the Commission to adopt implementing acts for that purpose (Article 25 EIR). The deadline for adoption of these acts is 26 June 2019 (Article 25(2) EIR).

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II. Historic development4 National insolvency laws deal in very different ways with the issue of publicity of insolvency proceedings5, which are familiar for and accessible to their own residents, but pose a serious challenge to interested persons from other States. This was known to the creators of the first EU Insolvency Regulation6, who found it necessary to reinforce the universal treatment of cross-border insolvency proceedings in the Regulation by certain uniform rules on publicity and registration in Member States outside the Member State opening the proceedings. The relatively modest approach of these rules received criticism in the relevant literature7, and the system indeed proved to be problematic in practice when it came to the evaluation of the Regulation after a decade of its application. The Report of the Commission on the application of the Regulation named, on the one hand, the inability of creditors to inform themselves about the opening of insolvency proceedings, on the other hand the risk of concurrent proceedings in different Member States relating to the same debtor as the main difficulty resulting from the failure of publishing the opening of proceedings in a public register.8 The Impact Assessment of the Commission added that potential customers, employers or banks of an insolvent company or a person may be negatively affected if they are not informed about the fact that their future commercial partner is subject to an insolvency proceeding or debt-discharge scheme.9 This diagnosis of the assessment was confirmed by the results of the public consultation carried out by the Commission in 2012: three quarters of respondents (75 %) agreed that the absence of mandatory publication of the decision opening insolvency is a problem.10 Consequently, the provisions of the old Regulation on publicity constituted an issue for consideration when the Commission undertook the preparation of its revision proposal. It remained, nevertheless, to be decided how to improve these rules. 4 A guidance of political nature and an incentive for action was issued by the European Parliament in 2011. Based on a report of Klaus-Heiner Lehne, former chair of the Committee on Legal Affairs, the European Parliament adopted a resolution on insolvency proceedings with concrete recommendations to the Commission, among others on the issue of publicity.11 In this resolution, the European Parliament proposed the creation of “an EU insolvency register in the context of the European e-Justice Portal, which should contain, for every cross-border insolvency opened, at least: the relevant court orders and judgments, the appointment of the liquidator and that person’s contact details, the deadlines for filing claims. Transmission of these data to the EU registry by the courts should be compulsory”. 3

4

These thoughts of the author were previously published in Szirányi, ERA Forum 2015, 219. See Annex VI of the Impact Assessment Accompanying the document Revision of Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, SWD(2012) 416 final. 6 Council Regulation (EC) No 1346/2000, p. 1–18. 7 e. g. Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.332. 8 Report from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the application of Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings Strasbourg, 12 December 2012 COM(2012) 743 final, p. 16. 9 Impact Assessment SWD(2012) 416 final, p. 25. 10 See Annex II of the Impact Assessment SWD(2012) 416 final, p. 53. 11 European Parliament resolution of 15 November 2011 with recommendations to the Commission on insolvency proceedings in the context of EU company law (2011/2006(INI)), document no. P7_TA(2011) 0484. The relevant recommendations can be found in Part 4 of the Annex to the resolution. 5

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Another incentive pointing to this direction was given by the external evaluation 5 study ordered by the European Commission12. Although the relevant conclusion maintained the idea of a single electronic platform for on-line accessibility of information, the technique preferred was less intrusive in terms of national approaches: instead of creating a uniform EU register with obligations for courts to feed in data directly, the study suggested the interconnection of the national electronic registers: “the creditors’ access to information could be improved by using public registers as information tools. Such approach could build upon the infrastructure that does already exist in most Member States, i. e. the national insolvency registers (or equivalent registers) which are available online. Providing a platform that interconnects existing databases would not only avoid a duplication of the process, i. e. a consequence the adoption of a new database would entail, but also provide a quick and efficient way to spread information”.13 The suggested approach was confirmed by the conclusions of the Impact Assessment, 6 which demonstrated that maintaining the existing solution, even with the system of interconnection of national company registers (which was soon to be implemented at that time), would not bring a satisfactory solution to the problems raised. Although the system set up by the relevant EU directive14 requires the publication of information on the opening and termination of any winding-up or insolvency proceedings of the companies registered, this would improve the situation only partially, since (i) in most Member States only limited liability companies are registered, (ii) natural persons, sole traders or self-employed persons are not covered by the Directive and (iii) the circle of information to be published in relation to insolvency is limited.15 The option preferred by the Impact Assessment, therefore, suggested that Member States publish all relevant decisions of insolvency proceedings in a national electronic register and define common categories for interconnection of national registers through the e-Justice Portal. According to the evaluation of the Commission, such a solution could adequately satisfy the demand for information throughout the entire life-cycle of insolvency proceedings, which is highly supportable even if the implementation and maintenance of the system of interconnection would generate extra costs for Member States.16 It was, therefore, not a surprise that the solution aiming at improving publicity of insolvency proceedings within the European Union put forward by the Commission in its legislative proposal amending the existing Regulation17 envisaged the Europe-wide interconnection of national electronic insolvency registers.

III. State of play at national level The preceding years showed visible progress in the digitalisation of insolvency 7 registries in the Member States. The Impact Assessment accompanying the proposal of the European Commission for the revision of the EIR 2000 reported in 2012 about 12 Hess/Oberhammer/Pfeiffer, Vienna Report. The version of the report prepared for the European Commission in 2012 together with its annexes are available at the website of the European Commission under the following URL link: https://publications.europa.eu/en/publication-detail/-/publication/ 4d756fa7-b860-4e36-b1f8-c6640dced486/language-en (last visited 30 November 2018). 13 Koller/Slonina, in Hess/Oberhammer/Pfeiffer, Vienna Report, p. 263. 14 Directive 2012/17/EU of the European Parliament and of the Council of 13 June 2012 amending Council Directive 89/666/EC and Directives 2005/56/EC and 2009/101/EC of the European Parliament and of the Council as regards the interconnection of central, commercial and companies registers, OJ L 156, 16.6.2012, p. 1–9. 15 Impact Assessment SWD(2012) 416 final, p. 37. 16 See estimation with regard to costs in the Impact Assessment SWD(2012) 416 final, p. 41. 17 Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, COM(2012) 744 final.

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fourteen Member States having publicly accessible, on-line insolvency registers and about nine other Member States providing information on insolvency in an electronic register or database, for example in a company register or in an electronic version of the official bulletin.18 By mid of 2018, the landscape has changed significantly. First, as of 8 June 2017, the Business Registers Interconnection System (BRIS) of the European Union is operational.19 This system enables the EU-wide search for certain insolvencyrelated information on companies and businesses included in the national commercial and companies registers of the Member States.20 Secondly, the EIR obliges Member States to establish their insolvency registers at national level by 26 June 2018. As a consequence, by now, there is public electronic access to information on insolvency proceedings in all Member States. It must be admitted, though, that differences in the approaches of how to record and give access to data on insolvency proceedings remain.21 Currently, there are sixteen Member States22 which maintain electronic 18 Impact Assessment SWD(2012) 416 final, p. 29. The findings of the Impact Assessment were based on the supporting external report, see in Annex I of Hess/Oberhammer/Pfeiffer, Vienna Report, pp. 380–392. 19 Available at: https://e-justice.europa.eu/content_find_a_company-489-en.do?clang=en (last visited 30 November 2018). 20 Member States were already obliged to include information in their electronic business registers on the winding up of the companies registered therein by Articles 2 and 3 of Directive 2009/101/EC on coordination of safeguards for the protection of the interests of members and third parties, OJ L 258, 1.10.2009, p. 11–19. Furthermore, the Directive 2012/17/EU on the interconnection of central, commercial and companies’ registers requires that the information on the opening and termination of any winding-up or insolvency proceedings of the companies are made available, without delay, also through the system of interconnection of business registers (Articles 1 and 3). 21 Information on insolvency registers in the Member States is available on the European e-Justice Portal, which – depending on the updates provided by the Member States – in most of the cases reflects the current state of play: https://e-justice.europa.eu/content_insolvency_registers-110-en.do (last visited 30 November 2018). 22 In Austria, the insolvency register is accessible via the “Ediktsdatei” (http://www.edikte.justiz.gv.at/). In Bulgaria, information on insolvency proceedings can be obtained through the dedicated platform maintained by the Ministry of Justice: http://ispn.mjs.bg/MJ/ispn.nsf/indexPublic.xsp?page=search. In the Czech Republic the insolvency registry is to be found at: https://isir.justice.cz/isir/common/index.do. Finland has two public insolvency registers. The Register on Bankruptcies and Reorganisation (“Konkurssi- ja yrityssaneerausrekisteri”) and the Register on Restructuring Private Debts (“Velkajärjestelyrekisteri”) are both public, but only indirectly accessible, registers. Everyone can order extracts from these registries subject to a charge. Requests for extracts can be sent also via e-mail. In Germany, the insolvency register is available at https://www.insolvenzbekanntmachungen.de/index.html. In Latvia, the insolvency register is available at: https://maksatnespeja.ur.gov.lv/insolvency/search/en. In Lithuania, it is accessible at http://www.bankrotodep.lt/en/Home/. In Malta, the Insolvency Register containing information on company insolvencies and personal bankruptcy is available at https://ecourts.gov.mt/onlineservices/ insolvency. In the Netherlands, there is a central insolvency register at http://insolventies.rechtspraak. nl/. In Poland, the website of the Polish Bankruptcy Register (“rejestr podmiotów w upadłości”) is considered part of the National Court Register (“Krajowy Rejestr Sądowy”). It contains information on all types of entities entered in the National Court Register (in addition to companies or other legal persons, such as foundations or associations, this includes also entrepreneurs). This register is accessible at http:// ms.gov.pl/en/national-registers/national-court-register/electronic-access-to-the-national-court-register/. In Portugal, information can be traced through the Courts Portal at http://www.citius.mj.pt/Portal/ consultas/ConsultasCire.aspx. In Romania, the information is held in the Insolvency Proceedings Bulletin at http://www.buletinulinsolventei.ro/. In Slovenia, the register is kept at https://www.ajpes.si/eInsolv/ Default.asp. In the Slovak Republic, there is an insolvency register (Register úpadcov Slovenskej republiky) which is still under development and contains, therefore, no unrestricted search functionality to the public. It can be found at https://www.justice.gov.sk/Formulare/Stranky/Konkurz-a-restrukturalizacia.aspx. In Spain, the public insolvency register is available at https://www.publicidadconcursal.es/ concursal-web/. Insolvency information for the entire UK, including both personal and company insolvency information, can be obtained free via the Gazette at: https://www.thegazette.co.uk/. In addition, there are number of other online sources for insolvency information. The Individual Insolvency register at https://www.insolvencydirect.bis.gov.uk/eiir/ contains details of bankruptcy cases and indivi-

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registers dedicated to insolvency proceedings. In addition, there are eleven Member States23 which publish data on insolvency proceedings in their national business registers or other public registers.

B. Article 24 EIR – The national part of the system of interconnection I. Insolvency registers in the Member States Article 24(1) EIR requires Member States to deploy the infrastructure at national 8 level which contains all required information with regard to insolvency proceedings and which is interoperable with the central European web-service. The provision allows that Member States establish in their territory “one or several” registers for that purpose. dual voluntary arrangements for England and Wales. Similar registers exist for Scotland: https://roi.aib. gov.uk/roi/Security/Home/Landing and Northern Ireland: https://www.courtsni.gov.uk/en-GB/Services/ Online_Services/Pages/default.aspx. Company insolvency data can be obtained from the Company Registrar’s online database at: https://beta.companieshouse.gov.uk/. 23 In Belgium, since 1 April 2017, a new digital platform enables creditors, authorised agents and interested parties to access or follow up pending insolvency files administered by the commercial courts. Access to this database, the “Registre Central de la Solvabilité”, requires the creation of an on-line account and, as a rule, the payment of a low rate fee. Creditors may not just consult insolvency cases, but also lodge their claims through the system. The database is available at https://www.regsol.be/. Furthermore, as regards businesses, the Belgian company database (BCE) is a register that shows all identifying data concerning businesses, as well as their legal situation (notably bankruptcy). Bankruptcy and courtapproved composition judgments are published in the Belgian Official Gazette, which is accessible online at http://www.ejustice.just.fgov.be/tsv_pub/index_f.htm. There is another central databank concerning the second chance proceedings for “consumer” debtors (“règlements collectifs de dettes”). This register is, however, not accessible for the public, but only for authorities or authorized officers. In Croatia, the Court Registry can be used to obtain information if insolvency proceedings are opened with regard to a company or other legal person (https://sudreg.pravosudje.hr/registar/f?p=150:1). In addition to that, some information on entrepreneur debtors can be found in the craft register: http://or.portor.hr/pretraga.htm. The dedicated insolvency register is currently still under development. In Cyprus, information on companies and other registered organizations may be obtained through the search platform of the Department of Registrar of Companies and Official Receiver (“Τμήμα Εφόρου Εταιρειών και Επίσημου Παραλήπτη”) at https://efiling.drcor.mcit.gov.cy/DrcorPublic/SearchForm.aspx?sc=1. In Estonia, in addition to the Commercial Register (http://www.rik.ee/en/e-business-register), information on insolvency proceedings is available on the website of the official electronic publications (Ametlikud Teadaanded) at https://www.ametlikudteadaanded.ee/. In France, information relating to insolvency of businesses can be found in the Trade and Companies Register (“Registre du commerce et des sociétés”) at https://www. infogreffe.fr/. In Greece, information on certain facts relating to insolvency proceedings is retrievable from the General Trade Register (“Γενικό Εμπορικό Μητρώο – ΓΕΜH”). In Hungary, detailed information is available on insolvency proceedings concerning companies and legal persons through the Company Information Service (Cégnyilvántartás) at http://www.e-cegjegyzek.hu/. In Ireland, information on company insolvency is available in records of the Company Registration Office at https://search.cro.ie/ company/CompanySearch.aspx. In addition, information is available on-line relating to certain types of insolvency proceedings relating to natural persons (Debt Relief Notice, Debt Settlement Arrangement and Personal Insolvency Arrangement) at http://www.isi.gov.ie/en/ISI/Pages/home. In Italy, information on insolvency proceedings is published online as part of the national Business Register at https://www. registroimprese.it/. These data are also retrievable through the existing European pilot project on interconnection of insolvency registers (see Szirányi below Art. 25 mn. 5). In Luxembourg, in addition to the information in the Business Registers (https://www.lbr.lu/mjrcs-lbr/jsp/IndexActionNotSecured. action?time=1531922182525), it is possible to perform a search via the Luxembourg Bar Internet site, in the “Bankruptcies” section (“Faillites” – http://www.barreau.lu/faillites), using the company name, the date of the bankruptcy judgment, or the name of the receiver (curateur). In Sweden, there are several registers for different types of debtors. The one for legal person debtors is kept by the Companies Registration Office: http://bolagsverket.se/. Some information is available on-line from the register of trusts at http://web05.lansstyrelsen.se/stift/StiftWeb/SSearch.aspx).

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This wording derives from the Commission proposal24 and reflects the state of play in Member States which had already put in place several registers by the time the Regulation was adopted25. It also gives flexibility to Member States: instead of developing dedicated insolvency registers, they may choose to upgrade their existing registers (such as their business or trade registers) from which they may extract the required information and forward it to the single interface at the European e-Justice Portal. With regard to the timing of the publication of the required information on the internet, the Commission proposal suggested that the information shall be published “immediately”26 after main or secondary insolvency proceedings are opened. This wording appeared to allow an interpretation that all information should be made available right after the opening of the proceedings. Complying with this requirement is impossible in situations where certain pieces of information, such as the date of closure of the proceedings or, as in several laws, the relevant time limits (for example for lodging claims), are unavailable at the time of the opening. The wording was improved in Article 24(1) EIR as it was made clear that the obligation to publish information commences with regard to each piece of information “as soon as” it is generated.

II. Scope of insolvency proceedings concerned by the interconnection 9

The obligation for Member States to publish information in their national registers encompasses all insolvency proceedings opened in their territory, be they main, secondary or territorial proceedings.27 “Insolvency proceedings” in the context of this provision means the autonomous concept of the EIR as defined by Article 1 and Article 2 no. 4 EIR, referring to those proceedings which are listed in Annex A EIR. Member States do not have to publish information with regard to their national insolvency proceedings which are not included in this Annex. This may occur for various reasons: (a) the proceedings do not comply with the conditions of the Regulation (for example because they are carried out in a confidential way); the proceedings comply with the conditions of the Regulation, but are (b) not notified by the Member States concerned28, (c) or yet to be taken up in the Annex by a legislative amendment of the Regulation29. Furthermore, as 24 See Article 20a of the Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, COM(2012) 744 final. 25 e. g. the United Kingdom. 26 See Article 20d of the Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, COM(2012) 744 final. 27 This follows from Article 24 (2)(d) EIR, which requires Member States to disclose information with regard to the specific ground of jurisdiction in the Regulation. 28 To make this visible on the example of a Member State: France did not notify proceedings such as “mandat ad hoc” and “conciliation”, because these are confidential procedures and, consequently, are not covered by the definition of the EIR. Furthermore, national debt-adjustment proceedings concerning physical persons, such as the “rétablissement professionnel” or “procédure de rétablissement personnel sans ou avec liquidation”, were not notified by France, despite the fact that these national proceedings meet the conditions in the definition of EIR. As a consequence, the provisions of the Regulation requiring publicity do not apply to them. 29 e.g. new restructuring proceedings of the Polish insolvency law being in force since 1 January 2016, such as the approval of arrangements proceedings (“postępowanie o zatwierdzenie układu”), the accelerated arrangement proceedings (“przyspieszone postępowanie układowe”), the arrangement proceedings (“postępowanie układowe”), and the reorganisation proceedings (“postępowanie sanacyjne”) were just taken up in the Annex of the EIR by a legislative act replacing the Annexes adopted on 15 February 2017. See Regulation (EU) 2017/353 of the European Parliament and of the Council of 15 February 2017 replacing Annexes A and B to Regulation (EU) 2015/848 on insolvency proceedings, p. 19.

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the only exception to the general rule, Member States may choose not to publish information in their national registers on proceedings concerning “consumer” debtors, even if these proceedings are included in Annex A EIR, albeit those Member States who wish to use this option have to fulfil a series of conditions. According to Article 24(4) EIR, this exception applies only if three cumulative 10 conditions are met: (a) the information is generated in relation to individuals not exercising an independent business or professional activity (“consumers”); (b) there is a decision with general effect by the Member State on the non-disclosure of such type of information (publication may not depend on the particular circumstances of the individual proceedings, for example on the consent of the debtor or on the decision of the insolvency court); and (c) this Member State ensures in its law that known foreign creditors are individually informed in the course of such proceedings. As an additional safeguard for the creditors deprived of the publicity of such proceedings, the provision states that the claims of those foreign creditors, who were not informed of the proceedings, should remain unaffected. It is difficult to imagine that national insolvency laws can meet this high standard: the general understanding of this wording is that claims of those foreign creditors who have not received the information cannot be reduced. If these creditors who had not been kown at the opening of the proceedings filed their claims after the closure of debt-adjustment or discharge proceedings, they should be paid in full and not according to the terms of the settlement or agreement reached in the proceedings. Consequently, Article 24(4) EIR ensures a better position to such creditors compared to the treatment they would have received if their debt had been known in the proceedings. It is to be noted that, according to Article 24(4) EIR, instead of not publishing the 11 information in the national registers, Member States can also choose to include the information in the register without forwarding it to the system of interconnection. The possibility to make use of this option is subject to the same conditions as the nonpublication. The question arises if Member States also have to publish in their registers for the 12 purposes of the interconnection information relating to insolvency proceedings which do not dispose of any foreign elements; or if purely domestic cases may be left out from the system of interconnection. The question appears legitimate given the legal basis of the instrument (Article 81 TFEU), which attributes legislative power to the EU in civil matters having cross-border implications. It also appears to be confirmed by recital 76 EIR, which expressly refers to “cross-border insolvency cases” in connection with the information to be published in the electronic registers. Despite of this, it must be stressed that the cross-border characteristic of a case is not necessarily connected to foreign elements which are present throughout the entire life-cycle of the proceedings. This qualifier may appear at a later stage, even after the closure of an insolvency case (e. g. if a creditor moves into another Member State after the proceedings are launched, but before filing the claim; or if a tangible and moveable asset belonging to the insolvency estate is moved to another State before the distribution, causing a change in the circumstances which would then require a cross-border recognition and enforcement of a decision of the insolvency court). The variable nature of these connecting factors (the locus rei or the actual residence of a creditor) makes it impossible to anticipate at the time of the opening of insolvency proceedings whether or not the case will have any foreign element at the time the potential obligation to publish may arise. Once a cross-border implication exists, a Member State does not have any choice but to publish and interconnect the data relating to the proceedings. Consequently, Member States may only prevent any risk of infringing their obligations concerning publicity Szirányi

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deriving from the EIR, if they publish information in their electronic registers on all insolvency proceedings opened in their territory, regardless of the question whether or not these proceedings dispose of any cross-border element at the time of their opening.

III. Scope of the information to be published Article 24(2), (3) EIR define the scope of the information and documents covered by the interconnection of insolvency registers. As opposed to the Commission proposal which suggested the single treatment of all information and documents listed in its relevant provision and envisaged that they are mandatorily “made available to the public on the internet free of charge”30, the final text of the EIR draws a distinction between two groups of information and documents. On the one hand, there is the set of information that Member States must publish with regard to proceedings opened in their territory; on the other hand, there are those pieces of information and documents which they may disclose in their registries, but are not obliged to. 14 The first group is called “mandatory information” and should be considered as a minimum standard determined at EU level. The final list of mandatory information maintained, with some necessary clarifications and adjustments31, all elements suggested by the proposal of the Commission and added a few new ones, such as the information relating to the ground of jurisdiction for opening proceedings32, or the information with regard to the exercise of the right granted by the Regulation to challenge the opening decision33. One adjustment compared to the Commission proposal was that the adopted Regulation dispensed with the idea of obligatory publication of (court) decisions, such as those of opening insolvency proceedings or appointing the liquidator. It was held satisfactory that the legally relevant information contained in such decisions are published. This solution is more user-friendly, since it does not require requestors to read through long legal texts to receive the relevant information. Furthermore, it works with structured data which are amenable to digitalised processing (such as automated translation). At the same time, it requires investment from those Member States which have only published copies of decisions in an unstructured format so far, since they have to transform their electronic system. 15 The second group is defined by the provision in an indefinite way, giving full discretion to the Member States as to whether and which types of documents or additional information relating to the insolvency proceedings they wish to include in 13

30 See Article 20a of the Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, COM(2012) 744 final. 31 e. g. the adopted Regulation dispensed with the idea of obligatory publication of (court) decisions, such as those of opening insolvency proceedings or of appointing the liquidator, since it was held satisfactory that the legally relevant information contained in such decisions are published. Another adjustment concerned the time limits for lodging claims and challenging decisions, which was necessary because some Member States considered it technically demanding to calculate this information on a caseby-case basis, due to the specific circumstances such calculations may be influenced by. As a compromise, it was agreed that this information may be provided in a general way, by adding hyperlinks to the European e-Justice Portal, which contain self-explanatory information on the criteria for calculating those time limits. 32 In order to inform the public whether the opened insolvency proceeding are main, secondary or territorial proceedings. 33 See Article 5 EIR. In the original proposal of the Commission, this piece of information should have been provided to the (known) creditors through individual notices by the court of opening. But finally this idea was rejected, since the EU legislator considered it more effective to include it in the publicly available system of interconnection.

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their national registers. From the perspective of legislative technique, it is weird that the provision expressly names “directors’ disqualifications related to insolvency” as the one and only example for the types of information Member States may additionally publish in the registers. This wording reflects a political compromise reached during the negotiations on the recast Regulation. At the beginning of the discussions in the Council, the Netherlands proposed to use the future interconnection of insolvency registers for enhancing transparency about court judgments disqualifying directors of companies.34 By this, as they argued, recently experienced abusive practices could be effectively fought. Under the legal environment, a director who was disqualified by a court order for fraud in one Member State could continue his fraudulent practices by simply founding a legal person in another Member State, without the authorities of that Member State even being able to know that a prior director’s disqualification was imposed. The Netherlands reported on similar abusive practices on the part of members belonging to various liberal professions (such as doctors). They suggested, therefore, that information on court judgments imposing disqualifications is mandatorily inserted in the insolvency registers. This idea was rejected by the majority of the Member States, mainly because of the diverging policy approaches the legal systems maintain in banning fraudulent persons from exercising certain activities. Finally, the Netherlands agreed to a solution which highlighted the possibility of inserting such information as a non-mandatory element, and which invited the Commission in the review clause of the EIR to deliver a report on this issue by 1 January 2016.35

IV. Comments on pieces belonging to the “mandatory information” In Article 24(2)(a) EIR, the date of opening insolvency proceedings refers to the 16 opening within the meaning of the EIR which sometimes does not correspond with the interpretation of the national insolvency laws36. The autonomous European meaning derives from the CJEU’s interpretation of the concept of “judgment opening insolvency proceedings”. In its Eurofood decision the Court concluded that this concept must include “not only a decision which is formally described as an opening decision by the legislation of the Member State of the court that handed it down, but also a decision handed down following an application, based on the debtor’s insolvency [...] where that decision involves the divestment of the debtor and the appointment of a liquidator”.37 In Article 24(2)(b) EIR, the “court” is understood in the broader sense of the 17 Regulation, as defined in Article 2 no. 6 (ii) EIR. This covers also non-judicial bodies of a Member State which under the applicable law are empowered to open insolvency proceedings, under certain circumstances even private entities such as the committee of

34

See Council document No 9080/13 ADD 4, p. 3. See Council documents No 17601/13 and 10706/14. The European Commission complied with this invitation of the EIR by the Study on a new approach to business failure and insolvency, which was prepared by the University of Leeds and delivered in January 2016. This study is available at https://publications. europa.eu/en/publication-detail/-/publication/3eb2f832-47f3-11e6-9c64-01aa75ed71a1/language-en (last visited 30 November 2018). 36 If we take the example of German insolvency law, in most cases the opening of insolvency proceedings within the meaning of the Regulation will not correspond with an order to open insolvency proceedings within the meaning of the InsO, but with an order of provisional measures to protect the insolvency estate. This order of provisional measures will be challengeable in accordance with Article 5 EIR. However, at that point in time, the insolvency register will not contain a publication of the opening as understood by German law, but only of the order of provisional measure. 37 CJEU Case C-341/04 Eurofood IFSC Ltd ECLI:EU:C:2006:281, para. 54, 58. 35

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Art. 24 18–20

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creditors38. That explains why the provision does not require the indication of the reference number in all cases. As opposed to this provision, the term “court” in Article 24(2)(j) EIR refers to the relevant judicial body of the Member States39, since the Regulation preserves the assessment of challenges against the opening of insolvency proceedings filed in accordance with Article 5 EIR as a judicial task. 18 Article 24(2)(c) EIR requires Member States to publish information relating to the relevant subtype of the insolvency proceedings in Annex A EIR. This clarification became necessary because some Member States indicated generic terms covering various forms of insolvency proceedings in their insolvency laws in the course of the drafting of the Annexes.40 These would not provide satisfactory information to creditors on the situation of their debtors without further specification of the nature of the proceedings. 19 “Jurisdiction” in Article 24(2)(d) EIR refers to international jurisdiction. Member States are required to specify on which of the grounds included in Article 3 EIR their courts opened proceedings. This piece of information has crucial relevance, since it clarifies to the public whether the proceedings opened are meant to be main, secondary or territorial proceedings (depending on whether the court seised with the request to open insolvency proceedings establishes that the debtor has its centre of main interest or an establishment in the territory of that Member State). 20 Article 24(2)(e), (f) EIR determine the information which is to be published on the identity of the debtor. Compared to the proposal suggested by the Commission in 2012, these provisions require much more details.41 Apparently, the EU legislator considered the accuracy of the identification of the debtor to be more important than the protection of certain personal data relating to the debtor. Member States shall disclose different sets of information when the debtor is a body or organisation, or a physical person. The wording defining the first group (“a company or a legal person”) may appear circular at first sight, but it was necessary to take into account the situation in certain Member States where the law does not grant legal personality to all forms of companies.42 The “registration number” in both paragraphs refers to the individual identity number under national law which is connected to the economic activity of the entity or person. This interpretation is confirmed by recital 77 EIR. If the debtor is a company or a legal person, the registration number is the one given in the appropriate national (business or association) register. If the debtor is a natural person exercising an independent business or professional activity (entrepreneurs), this is the identification 38 See Brinkmann above Art. 2 mn. 11. This is the case in several proceedings in the UK: the “Company voluntary arrangement” (CVA) is opened on the date of the creditors meeting approving the arrangement; in the “Creditors voluntary liquidation” (CVL) the winding up of the company commences when a valid resolution for winding up has been passed by the shareholders. 39 See Article 2 no. 6 (i) EIR. 40 e. g. Sweden notified debt restructuring (“skuldsanering”) which as of 1 November 2016 covers two types of proceedings: “skuldsanering” according to the Debt Restructuring Act (Skuldsaneringslag (2006:548)) and “F-skuldsanering” according to the Act on Debt Restructuring for Entrepreneurs (Lag (2016:676) om skuldsanering för företagareand). 41 Article 20a (d) of the Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, COM(2012) 744 final, requested that only “the name and address of the debtor” are published. 42 Under German company law partnerships (“Personengesellschaften”) such as general partnerships (“offene Handelsgesellschaft”) or limited partnerships (“Kommanditgesellschaft”) are not considered as legal persons, although they are vested with legal capacity. This was the case also in Hungary until recently, where before the entry into force of the new Civil Code (Act V of 2013) general partnerships (“közkereseti társaság”) or private limited partnerships (“betéti társaság”) were not regarded as legal persons.

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number under which he pursues the business or professional activity. The indication of a registration number in terms of natural persons is mandatory only if such a number exists in the concrete situation. With regard to the information specifying the insolvency practitioner appointed in 21 the proceedings, Article 24(2)(g) EIR requires the e-mail address. This element was added to the text of the Commission proposal during the negotiations in the Council and in the European Parliament, mainly for practical reasons in order to facilitate the communication between the creditors and the insolvency practitioner. With regard to the indication of time limits for lodging claims and challenging 22 decisions in Article 24(2)(h), (f) EIR, the provisions allow that, instead of indicating a concrete date closing the relevant period, Member States just refer to the criteria for calculating those time limits. The reason for this was that some Member States considered it technically demanding to calculate this information on a case-by-case basis, due to the specific circumstances such calculations may be influenced by. As a compromise, it was agreed that this information may be provided in a general way, by adding hyperlinks to the European e-Justice Portal containing self-explanatory information on the criteria for calculating those time limits.43 With regard to the date of closing main insolvency proceedings in Article 24(2)(i) 23 EIR, the judgment of the CJEU in the Bank Handlowy44 case should be born in mind. According to this, the concept of “closure of the insolvency proceedings” should be interpreted as meaning that it is for the national law of the Member State in which insolvency proceedings have been opened to determine the moment at which the closure of those proceedings occurs. The Court based its conclusion on the argument that the EIR 2000 uses this concept in the context of the conflict-of-laws rules, which make an express reference to the law of the Member States for the purpose of determining its meaning and scope. In such situations the justification for the concept of autonomous and uniform interpretation at EU level may not hold through.45 Although the Court delivered its judgment on the EIR 2000, its interpretation is valid in the context of the EIR 2015, since the provisions the decision referred to remain unchanged. The publication of the date of closure from the Member States is required only if under national law such a date can be determined. The amendment making the provision of this piece of information optional was inserted during the legislative procedure; the original proposal of the Commission had a mandatory character. The change was necessary, because some Member States argued that in certain national insolvency proceedings under certain conditions there would be no formal decision on the closure of the proceedings which would make it difficult to indicate a date on that.

V. Legal effects of publication in the system of interconnection Article 24(5) EIR emphasises that the publication of the information in the registers 24 under the EIR, with one exception, does not have any legal effects. This clarification reflects the wish of most Member States, who did not want that the establishment of the EU-wide system of interconnected registers affects their internal rules on publication attaching legal value to various stages and actions in the process of disclosure. This means that those Member States, where the legal effect connected to the opening of insolvency proceedings is triggered by the publication of the court order in the official gazette, may further on rely on that act and date of publication. It appears, nonetheless, 43

See recital 78 EIR. CJEU Case C-116/11 Bank Handlowy v. Christianopol ECLI:EU:C:2012:739. 45 Ibid. para. 49 et seq. 44

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that the provision leaving the determination of legal effects to domestic laws will not harm the accuracy and quality of the information published through the system of interconnection, since in insolvency proceedings the majority of the Member States combine the legal effect of a decision with its publication in the national registers.46 These data will immediately be displayed through the single EU interface at the e-Justice Portal as being legally effective. 25 The only uniform and autonomous legal effect defined by the EIR connected to the publication of the information through the system of interconnection concerns the time period for the lodgement of foreign creditors’ claims. Setting the minimum standard for national insolvency laws of the Member States, Article 55(6) EIR grants a minimum 30day-period to foreign creditors. This time-period should begin with the publication of the opening of insolvency proceedings in the insolvency register of the State concerned.47 46 47

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This is the case among others in the Czech Republic, Italy, Germany or in the United Kingdom. See Dahl/Kortleben below Art. 56 mn. 21.

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Article 25 Interconnection of insolvency registers 1. The Commission shall establish a decentralised system for the interconnection of insolvency registers by means of implementing acts. That system shall be composed of the insolvency registers and the European e-Justice Portal, which shall serve as a central public electronic access point to information in the system. The system shall provide a search service in all the official languages of the institutions of the Union in order to make available the mandatory information and any other documents or information included in the insolvency registers which the Member States choose to make available through the European e-Justice Portal. 2. By means of implementing acts in accordance with the procedure referred to in Article 87, the Commission shall adopt the following by 26 June 2019: (a) the technical specification defining the methods of communication and information exchange by electronic means on the basis of the established interface specification for the system of interconnection of insolvency registers; (b) the technical measures ensuring the minimum information technology security standards for communication and distribution of information within the system of interconnection of insolvency registers; (c) minimum criteria for the search service provided by the European e-Justice Portal based on the information set out in Article 24; (d) minimum criteria for the presentation of the results of such searches based on the information set out in Article 24; (e) the means and the technical conditions of availability of services provided by the system of interconnection; and (f) a glossary containing a basic explanation of the national insolvency proceedings listed in Annex A. Recital: 76. Specific bibliography: Szirányi, EU-wide interconnection of insolvency registers, (2015) 16 ERA Forum 219. Outline A. The IT aspects of the system of interconnection of insolvency registers ........... B. Search criteria.................................................................................................................... C. The pilot project on interconnection of insolvency registers ................................

1 4 5

A. The IT aspects of the system of interconnection of insolvency registers While Article 24 EIR determines the conditions for the national electronic insolvency 1 registers, Article 25 EIR focuses on the European component of the system of interconnection. Article 25(1) EIR describes the technical structure of the interconnection: it shall be composed of the national electronic insolvency registers and the European e-Justice Portal. Information in the national registers can be accessed through the Portal. For this purpose, the Portal has to operate a web-service, which is available in all official languages of the EU, and which contains a search interface and displays

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result pages in a harmonised user experience. The paragraph declares the decentralised function of the system, which means that data will be retrieved from the national registers through the Portal interface serving as the central public electronic access point of the system. This clarifies that the Regulation does not establish a single European insolvency register, but only creates a single gateway to the national databases for purposes of interactions with the end-users. The decentralised nature of the system is reaffirmed by the specific data protection provision of Article 82 EIR, which stipulates that no personal data will be stored in the European e-Justice Portal, but only in the national databases operated in the Member States. 2 The European system of interconnection will be operational only after 26 June 2019. This is the date by which the European Commission has to adopt the implementing act or implementing acts1 determining the technical specifications of the interconnection. In order to ensure a prompt deployment of the European component of the system, Member States had to install their national electronic registers already a year earlier.2 In practice, the reflection on the technical requirements of the single component of the system and the development of the national registers run in parallel, since – in order to carry out the system-development at national level in a compliant manner – Member States had to be aware of the common specifications even before the formal adoption of the relevant implementing act(s). 3 This timing conflict was resolved through “comitology”3. According to the EIR, the Commission shall adopt the relevant implementing measures under the control of the Member States. They assist the Commission in the exercise of its implementing power in a committee and have to deliver their opinion on the draft of the act or acts in accordance with the so-called examination procedure referred to in Article 5 Council Regulation (EU) No 182/2011.4 Available documents in the Comitology Register of the European Commission show that this committee of the Member States has discussed technical details of the EU-wide IT system well before the deadline set for the establishment of the national registers.5

B. Search criteria 4

Article 25(2) EIR lists the necessary elements to be regulated by the implementing act(s) on the interconnection. Article 25(2)(c)) requires the implementing act(s) to define the minimum search criteria which should be based on the information set out in Article 24 EIR. The minimum search criteria bear a great importance for the effectiveness of the system of interconnection and the degree of transparency it provides, since they guarantee that users get access to the particular information they are actually searching for. The future implementing act(s) will have the option to determine any of the mandatory information in Article 24(2) EIR as minimum search criterion; it (they) may define several or even all of them. Regardless of how many of the pieces of the mandatory information will be chosen by the implementing act(s), Member States are obliged to carry out searches in their national databases by each of them separately. In other words, in case the implementing act(s) will determine several types of information from the list in 1

See Szirányi below Art. 87 mn. 3. See Article 92 (b), (c) EIR. 3 Comitology in the context of EU legislation refers to a set of procedures through which EU countries control how the European Commission implements EU law. 4 See Article 87 and 89(3) EIR. 5 See Szirányi below Art. 89 mn. 1. 2

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Interconnection of insolvency registers

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Article 24(2) EIR as minimum search criteria, they must work independently from each other and Member States must not subject search results to cumulative entries by the requestors. The only possibility to require the indication of several search criteria cumulatively from requestors is restricted to information relating to “consumer” debtors in accordance with Article 27(3) EIR. In this case, Member States are empowered to subject the access to information in their national registers to supplementary search criteria relating to the debtor beyond the minimum criteria.6 The concrete types of such supplementary criteria should also be defined by the implementing act, taking into account the examples referred to in recital 79 EIR. Generally, the final decision relating to the search criteria in the implementing act(s) should be in compliance with the objective of the Regulation relating to the creation of a transparent tool of publicity. Therefore, it should not render the search for information burdensome or ineffective.

C. The pilot project on interconnection of insolvency registers7 Although the EU-wide system of interconnection of insolvency registers is not yet 5 operational, we may already experience the future system’s prototype in reality. This is due to an e-Justice pilot-project developed and delivered under the umbrella of the European Union.8 The project was implemented on the basis of and executed further according to the two subsequent Multi-annual Council e-Justice Action Plans.9 The objective of the pilot project was to establish a single access point to interconnected national insolvency registers and to provide – to the greatest extent possible – a multilingual user experience. The project was based on a voluntary interconnection of insolvency registers (or data) originating from Member State registers. The integration currently includes nine Member States: Austria, Czechia Germany, the Netherlands, Estonia, Italy, Latria Romania and Slovenia.10 The technical implementation was concluded in 2012, and the project went live in July 2014.11 The system enables a realtime search in the national registers of the Member States involved. The search functionality currently allows for two types of searches: the “simple” search runs a parallel search on a debtor’s name (legal or natural person) in all participating registers; the “advanced” search function works with different user interfaces depending on the own designs of the involved Member States. Although the interconnection established by the pilot-project has a greater sensitivity to differences of national laws than the future system developed under the EIR, it already provides an impressive demonstration of the potential benefits of such an interconnection. 6

See Szirányi below Art. 27 mn. 7. These thoughts of the author were previously published in Szirányi, ERA Forum 2015, 219. 8 I would like to thank Alexander Ivantchev for the valuable information given about the details of the e-justice pilot project. 9 Multiannual European e-Justice Action Plan 2009–2013, OJ C 75, 31.3.2009, p. 1–12; Multiannual European e-Justice Action Plan 2014–2018, OJ C 182, 14.6.2014, p. 2–13. 10 Situation as to 01 March 2019. 11 See https://e-justice.europa.eu/content_interconnected_insolvency_registers_search-246-en.do (last visited 30 November 2018). 7

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Article 26 Costs of establishing and interconnecting insolvency registers 1. The establishment, maintenance and future development of the system of interconnection of insolvency registers shall be financed from the general budget of the Union. 2. Each Member State shall bear the costs of establishing and adjusting its national insolvency registers to make them interoperable with the European eJustice Portal, as well as the costs of administering, operating and maintaining those registers. This shall be without prejudice to the possibility to apply for grants to support such activities under the Union’s financial programmes. Recital: 76.

Outline A. Types of costs.................................................................................................................... B. Allocation of responsibilities .........................................................................................

1 3

A. Types of costs Article 26 EIR clarifies the responsibilities with regard to the financing of the system of interconnected insolvency registers. These costs are shared between the European Union and the Member States participating in the interconnection.1 Part of the costs are of one-off nature (such as the establishment of the system and any future development of it), part of them have regular or recurring character (such as the costs relating to the system maintenance or translations). 2 The impact assessment report prepared by the Commission to its legislative proposal amending the EIR 2000 included a rough estimation of these costs.2 One the one hand, the development of the central interconnection, which is to be financed from the EU budget, will consume approximately between EUR 500,000 and EUR 1,000,000 and the annual maintenance of the central interface and web-service will fall between EUR 100,000 and EUR 300,000. On the other hand, the development and maintenance of the national electronic registers will cost Member States about EUR 50,000 per year. This latter flat rate fails to properly reflect the differences between the initial state of play in the various Member States. Those Member States which have to create their own electronic registers from scratch have to invest more than those which only have to adjust their existing system to the interconnection specifications.3 The national costs of making the system interoperable with the central interface will be low if the future implementing act(s) defining the specifications take into account recent technical developments carried out by the Member States in course of other EU projects. Consequently, it would seem highly practical to accept that those Member States who participated in the pilot project relating to interconnection of insolvency registers4 may 1

1

See recital 88 EIR. Impact Assessment Accompanying the document Revision of Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, SWD(2012) 416 final to Article 24, pp. 41–42. 3 Ibid. 4 See Szirányi above Art. 25 mn. 5. 2

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further on rely on the interface solution developed under the pilot project. Furthermore, it would be sensible to investigate the extent to which the interface protocol implemented for the interconnection of business registers5 could be reused in the context of the insolvency interconnection.

B. Allocation of responsibilities Article 26 EIR determines that costs relating to the establishment, maintenance and 3 any future development of the central component of the system of interconnection shall be financed from the EU budget. This includes the creation of the multi-lingual webservice in the European e-Justice Portal which will serve as the single public access point to the national databases. The EU shall also ensure that the web-service is permanently accessible to the public after deployment. However, Member States are responsible for financing the national component of the interconnection, which means the establishment of the national electronic registers, the assurance of their technical compliance with the central interface, as well as the permanent availability of these national databases for the purposes of the single web-service. The wording of Article 26 EIR is the same as it was proposed by the Commission in 4 2012; the only difference is the last sentence of Article 26(2) EIR, which was inserted as a result of the negotiations in the Council. This sentence clarifies that the obligation put on the Member States to finance the national part of the interconnection does not prevent them from applying for grants to support such activities under the Union’s financial programmes. Since such grants are part of the EU budget, in the absence of the last sentence Article 26(2) EIR could have been interpreted as excluding from EU grants national projects ensuring the interoperability of national registers with the central interface. These are currently eligible for grants under various EU financial programmes. 5 The Business Registers Interconnection System (BRIS) is based on legal obligations set out by Directive 2012/17/EU on the interconnection of business registers and the Implementing Regulation (EU) 2015/884 of 8 June 2015. The Directive requires the establishment of an information system that interconnects the central, commercial and companies registers (also referred to as business registers) of all Member States, whereas the Regulation details the technical specifications for the system. The BRIS infrastructure facilitates the access to information on EU companies for the public and ensures that all EU business registers can communicate to each other electronically in a safe and secure way in relation to cross-border mergers and foreign branches. The system consists of: a) a core services platform, named “European Central Platform” (ECP), b) the Member States business registers, and c) the e-Justice portal which will provide an interface serving as European electronic access point to information on companies. The BRIS went life on 8 June 2017 (see Szirányi above Art. 24 mn. 7).

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Article 27 Conditions of access to information via the system of interconnection 1. Member States shall ensure that the mandatory information referred to in points (a) to (j) of Article 24(2) is available free of charge via the system of interconnection of insolvency registers. 2. This Regulation shall not preclude Member States from charging a reasonable fee for access to the documents or additional information referred to in Article 24(3) via the system of interconnection of insolvency registers. 3. Member States may make access to mandatory information concerning individuals who are not exercising an independent business or professional activity, and concerning individuals exercising an independent business or professional activity when the insolvency proceedings are not related to that activity, subject to supplementary search criteria relating to the debtor in addition to the minimum criteria referred to in point (c) of Article 25(2). 4. Member States may require that access to the information referred to in paragraph 3 be made conditional upon a request to the competent authority. Member States may make access conditional upon the verification of the existence of a legitimate interest for accessing such information. The requesting person shall be able to submit the request for information electronically by means of a standard form via the European e-Justice Portal. Where a legitimate interest is required, it shall be permissible for the requesting person to justify his request by electronic copies of relevant documents. The requesting person shall be provided with an answer by the competent authority within 3 working days. The requesting person shall not be obliged to provide translations of the documents justifying his request, or to bear any costs of translation which the competent authority may incur. Recitals: 76, 77, 79. Specific bibliography: Szirányi, EU-wide interconnection of insolvency registers, (2015) 16 ERA Forum 219. Outline A. Transparency vs. protection of personal data ........................................................... B. Conditions of access to information in Article 27 EIR ........................................... C. Access to information upon indication of a supplementary search criterion (Article 27(3) EIR) ........................................................................................................... D. Access to information upon individual request to the national authority (Article 27(4) EIR) ...........................................................................................................

1 3 7 8

A. Transparency vs. protection of personal data1 1

The European system of interconnection of insolvency registers should necessarily respect EU data protection law. Already the Commission proposal paid attention to the possible impacts of the on-line accessible interconnection on the protection of personal data. The Impact Assessment underlined the importance of the obligation of Member States to comply with the currently applicable EU standards in this context, which led to 1

These thoughts of the author were previously published in Szirányi, ERA Forum 2015, 219.

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an express reference in the Commission proposal to the two legislative instruments of EU law on data protection in force at that time.2 The awareness of the principles of data protection was one of the reasons why the original legislative proposal of the Commission did not extend the scope of the interconnection to proceedings which concerned “consumer” debtors, meaning natural persons not exercising an independent business or professional activity.3 As it appeared, this approach was not satisfactory to all Member States. Those states with a more liberal national registration putting information concerning natural person debtors on the internet without any restriction did not accept the idea of a system of interconnection not providing full transparency with regard to “consumer” debtors. The other group of Member States, however, wished to exclude all proceedings relating to natural persons from the scope of interconnection, even those concerning self-employed and independent professionals4. They argued that the exclusion of non-consumer individuals from the obligation of the interconnection serves the interest of protecting their clientele. The data protection aspect of the proposal gained on importance in the legislative 2 procedure due to the fact that the European Data Protection Supervisor issued an opinion on the Commission’s proposal.5 In this opinion, the supervisor addressed the proposed system of interconnection. On the one hand, he acknowledged the aims pursued by the Commission as legitimate, and understood transparency regarding the opening and closing of insolvency proceedings, the need for creditors and courts involved to be well informed and the avoidance of the parallel opening of proceedings as important objectives.6 On the other hand, he asked for a clearer justification in terms of necessity and proportionality of the suggested measure and recommended some additional safeguards in this context.7 These recommendations had an impact on several Articles of the Regulation, among others on the regime of conditionality in access to information concerning “consumer” debtors and non-consumer natural person debtors subject to proceedings which are not related to their economic activity, as regulated in Article 27(3),(4) EIR.

B. Conditions of access to information in Article 27 EIR Article 27(1) EIR guarantees access to all “mandatory information”8 with regard 3 to insolvency proceedings free of charge. This means that Member States are not entitled to charge any fee for the provision of this information through the e-Justice Portal. This approach corresponds with the one proposed by the Commission. Still, it 2 See Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, COM(2012) 744 final, Article 46 a. 3 See Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, COM(2012) 744 final, Article 20 d, as well as point 3.1.4. of its explanatory memorandum. 4 Member States which have registers containing data on personal insolvencies, but these are not accessible directly on the internet, include e. g. Finland or Belgium. 5 Opinion of 27 March 2013 on the Commission proposal for a Regulation amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, available at: https://secure.edps.europa.eu/ EDPSWEB/webdav/site/mySite/shared/Documents/Consultation/Opinions/2013/13-03-27_Insolvency_Proceedings_EN.pdf (last visited 30 November 2018). 6 See ibid. para. 21. 7 Ibid. paras. 24, 56. 8 See Szirányi above Art. 24 mn. 14.

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should be appreciated as a great success, given the attempts during the negotiations to go towards the opposite direction. 4 Article 27(2) EIR enables Member States to charge a reasonable fee for accessing the documents or additional information which they decide to share through the system voluntarily and in line with Article 24(3) EIR. 5 Member States have otherwise very limited opportunities to restrict access to information included in the national registers. The Regulation clearly defines the acceptable ways of restricting accessibility: the Member States may either require the indication of supplementary search criteria relating to the debtor from the users of the service of interconnection (Article 27(3) EIR), or they may make the access of information conditional upon an individual request to the national authority managing the database (Article 27(4) EIR). In order to avoid any impairment of the effectiveness of the provision, the legislator did not want to expose its conditions to the practical implementation of the Member States. Instead, there are detailed criteria and procedures a State has to comply with once it decides to use the restrictions to the data referred. 6 The Regulation allows restrictions on the access to information under Article 27(3), (4) EIR only with regard to a limited group of debtors, namely to individuals who are either “consumers” or economically active persons in their capacity as consumers9. It is to be noted that the personal group of the debtors covered is slightly broader than the group of persons concerned by the exemption of Article 24(4) EIR. The latter provision grants Member States the discretion not to include information on “consumer” debtors in their registers. The provision only refers to “individuals not exercising an independent business or professional activity”, which means that Member States are always obliged to include information on economically active natural persons (for example entrepreneurs, sole traders, persons pursuing a liberal profession) in their registers. Consequently, the EIR makes a distinction between three different categories of natural person debtors, depending on the scope of discretion granted to Member States with regard to the treatment of information on insolvency proceedings concerning such persons: a) With regard to “consumer” debtors, i. e. individuals not exercising an independent business or professional activity, Member States may restrict the access to information relating to insolvency proceedings in two ways: on the one hand, they can decide not to include that information in their national registers or not to forward the information to the interconnected system; on the other hand, they can decide to interconnect this information and subject the access to it to one of the conditions regulated in Article 27(3),(4) EIR. b) Concerning individuals exercising an independent business or professional activity who are subject to insolvency proceedings related to their private debts, Member States can apply the conditions restricting access to information outlined in Article 27(3),(4) EIR. c) Finally, concerning economically active individuals who are subject to insolvency proceedings related to their economic activity, Member States are not allowed to restrict the access to information in any way. In this latter context, the principle of transparency prevails over the right to privacy: such proceedings are treated equally to the ones relating to companies or other legal persons. The decisive factor for the policy choice of the EIR in this respect was the role and function of this group of 9 See the language used in Art 27(3) and 27(4) EIR: “individuals exercising an independent business or professional activity when the insolvency proceedings are not related to that activity”.

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individuals in the single market as similar to the one of the small- and medium enterprises: in the times of crisis, it is especially important that creditors are informed in a full-scale manner on the financial situation of their business partners.

C. Access to information upon indication of a supplementary search criterion (Article 27(3) EIR) This paragraph describes the only situation under which Member States may require 7 from users to indicate more than one search criterion at the same time in order to receive access to information in the registers10. In this case, users have to enter one element from the minimum search criteria and one from the supplementary search criteria11. The minimum search criteria will be determined from the types of mandatory information listed in Article 24(2) EIR by the relevant implementing act containing the technical specifications for the system of interconnection, according to Article 25 (2)(c) EIR. The supplementary search criteria shall relate to the person of the debtor, and shall include the elements listed in recital 79 EIR, namely the debtor’s personal identification number, address, date of birth or the district of the competent court. The four examples in the recital do not constitute a conclusive list; this is made clear by the wording’s use of the expression “such as”, which means that Member States may define other types of information as supplementary search criteria as long as these are related to the debtor. Nevertheless, Member States shall respect the principle of effectiveness of EU law also in this context, and may not qualify a type of information as supplementary criterion from which it cannot be reasonably expected that creditors are aware of and which therefore would make access to information difficult in practice. It should be born in mind that the main reason for requesting additional search criteria in this context is to prevent fishing expeditions, not to bar access to information in general. The same principle suggests that the Member States concerned shall require only one additional element from users for the access to the requested information, and shall not expect the indication of several specific debtor-related data at the same time.

D. Access to information upon individual request to the national authority (Article 27(4) EIR) Article 27(4) EIR allows Member States to subject access to information to the rule 8 that an individual request from the requestor is to be sent electronically to a competent national authority. The provision determines two types of such requests. a. The first type is the “simple request”, where the electronic request for getting the information is to be sent to the designated authority. The advantage for the Member States in this case is that the access to the information will be provided in an individualised interaction between the requestor and the competent authority, which enables that authority to verify the existence of the requestor and the validity of his contact details. 10 Irrespectively from that, users may define their searches voluntarily by indicating several search criteria at the same time, for which purpose the system will operate an “advanced search” functionality in the web-service of the European e-Justice Portal. 11 For the meaning of “minimum” and “supplementary” search criteria see Szirányi above Art. 25 mn. 4.

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b. The second type makes the access to information conditional on the verification of a legitimate interest which the requestor has towards the information searched for. As opposed to the condition in Article 27(3) EIR, the additional information to be indicated by the requestor should relate to his own person (justifying the interest for the data) and not to the person of the debtor. 9 With regard to both types of requests, the Regulation clarifies the main parameters of the procedure to be followed. The legislator did not wish to grant flexibility to Member States in this respect; the transparency of the system of interconnection is to be ensured even if the restrictions apply. According to these rules, Member States shall provide that the requests are submitted to their competent authorities electronically by means of a standard form via the European e-Justice Portal. The decision on the request for access to the information or the requested information shall be delivered by the competent authority within three working days upon arrival of the request. If a legitimate interest is required, Member States must accept electronic copies of relevant documents which the requestor submits for the purpose of justifying his case (and may not oblige the requestor to submit paper-originals). Furthermore, Member States are prohibited to require translation of the documents justifying the request from the requestor, or charge any costs of translation which their competent authority may incur (for example to translate a written justification entered in the mother tongue of the requestor into the relevant entry field of the Portal).

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Article 28 Publication in another Member State 1. The insolvency practitioner or the debtor in possession shall request that notice of the judgment opening insolvency proceedings and, where appropriate, the decision appointing the insolvency practitioner be published in any other Member State where an establishment of the debtor is located in accordance with the publication procedures provided for in that Member State. Such publication shall specify, where appropriate, the insolvency practitioner appointed and whether the jurisdiction rule applied is that pursuant to Article 3(1) or (2). 2. The insolvency practitioner or the debtor in possession may request that the information referred to in paragraph 1 be published in any other Member State where the insolvency practitioner or the debtor in possession deems it necessary in accordance with the publication procedures provided for in that Member State. Recital: 75.

Outline A. Historic development: the “old rules” of EU law on publicity of insolvency proceedings ........................................................................................................................ B. Publication of insolvency proceedings in another Member State......................... I. Mandatory and discretionary cases of publication ......................................... II. Scope of information to be published, and the procedure to be followed

1 3 3 5

A. Historic development: the “old rules” of EU law on publicity of insolvency proceedings Already the EIR 2000 was aware of the economic importance of the publicity of 1 insolvency proceedings having cross-border implications. The Virgos/Schmit Report declared that publication and registration contribute to the security of trade in the State where the debtor has assets or where he conducts business.1 For this reason, the EIR 2000 contained rules which allowed (and, under certain circumstances, required) the publication of the notice of opening insolvency proceedings and of the appointment of the insolvency practitioner in another Member States or the registration of this information in public registers. These rules, with minor amendments, survived the revision of the Regulation and are reflected today in Articles 28 and 29 EIR 2015. The rules on publication and registration in another Member State of the opening of 2 insolvency proceedings have a greater significance until the system of EU-wide interconnection of national electronic insolvency registers is established.2 The interconnection of the registers will ensure general transparency relating to insolvency proceedings by granting easy access to information through the e-Justice Portal. This may raise the question why the EU legislator found it necessary to maintain in force the publicity rules of the “old” Regulation even after the deployment of the interconnection of insolvency registers. In fact, the proposal of the Commission on the review of the Regulation suggested that insolvency practitioners shall be obliged to publish and to 1 2

Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 177, 182. Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.637.

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register proceedings in a foreign Member State “until such time as the system of interconnection of insolvency registers […] is established”.3 In course of the negotiations, however, Member States rejected the idea of keeping the obligations only for a transitory period. This appeared sensible, since the final version of the EIR connected no legal effect, except the one set out in Article 55(6) EIR,4 to the act of publishing information in the EU-wide system of interconnection. Thus, Member States wanted to compensate this by ensuring the compliance with those procedures which trigger legal effects with regard to the publication and registration in public registers of the opening of foreign insolvency proceedings under the law of the Member States where these acts are performed.

B. Publication of insolvency proceedings in another Member State I. Mandatory and discretionary cases of publication Article 28 EIR differentiates between situations where publication of the opening of insolvency proceedings in another Member State is mandatory for the insolvency practitioner or the debtor in possession, and where it is just an option.5 The insolvency practitioner or the debtor in possession is obliged to request publication in every Member State where the debtor has an establishment, and may do so in every other Member State where such publication is deemed necessary. In the EIR 2000, the obligation to publish in the State of the place of the establishment was subject to the law of that State6. In the EIR 2015, this condition is replaced by a uniform rule of EU law, according to which the insolvency practitioner shall always request the publication if there is an establishment of the debtor in another Member State. The cases of mandatory publication have further increased due to the fact that the EIR 2015 requires publication both in relation to main and secondary insolvency proceedings, while the EIR 2000 expected it only with regard to main proceedings.7 Requiring the foreign publication relating to secondary proceedings which have only local effects and which are necessarily opened in a State where the debtor has an establishment, may appear odd, especially when taking into account that the EIR 2015 does not oblige the insolvency practitioner of the secondary proceeding to request publication in the State of the COMI of the debtor (where such information may have some relevance). 4 It is to be noted that the failure of an insolvency practitioner to request publication in another Member State in mandatory cases does not affect the recognition of the insolvency proceedings in that Member State. The publication is not a prerequisite of the recognition under the EIR of foreign insolvency proceedings. The breach of this requirement may only lead to the liability on the part of the insolvency practitioner.8 3

3 See Articles 21 and 22 of the Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, COM(2012) 744 final. 4 See Szirányi above Art. 24 mn. 25. 5 See Veder, in Bork/van Zwieten, Commentary on EIR, Article 28 mn 28.03 et seq. 6 Article 21(2) EIR 2000. 7 Article 28(1) EIR 2015 requires that the information published also specifies which ground of jurisdiction was applied by the court. In contrast, Article 21(2) EIR 2000 obliges only the liquidator in the Member State where the main proceedings are opened. 8 Virgos/Garcimartin, The European Insolvency Regulation, mn. 268.; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 180.

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Art. 28

II. Scope of information to be published, and the procedure to be followed The list of information to be published in Article 28(1) EIR is to be regarded as a 5 minimum: the request of the insolvency practitioner must necessarily contain these pieces of information, but may be complemented by any other information the insolvency practitioner may find relevant.9 This comprises (a) the notice of the judgment opening insolvency proceedings, (b) the information specifying the insolvency practitioner and the decision appointing him where appropriate, and (c) whether the jurisdiction rule applied is that pursuant to Article 3(1) EIR or Article 3(2) EIR. In terms of the procedure to be followed, the provision specifies that the publication 6 shall be requested by the insolvency practitioner appointed in the proceedings or by the debtor in possession. Otherwise the conditions and the procedure of the publication are subject to the law of the Member State in which it is to be carried out.10 Useful guidance on the various requirements and procedures relating to publication of notices of insolvency proceedings in the Member States is to be found on the website of INSOL Europe at https://www.insol-europe.org/technical-content/european-insolvency-regulation-articles-21-22.11 9 Virgos/Garcimartin, The European Insolvency Regulation, mn. 267; Veder, in Bork/van Zwieten, Commentary on EIR, Article 28, mn. 28.08. 10 Ibid. 11 Veder, in Bork/van Zwieten, Commentary on EIR, Article 28, mn. 28.05; Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.339.

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Article 29 Registration in public registers of another Member State 1. Where the law of a Member State in which an establishment of the debtor is located and this establishment has been entered into a public register of that Member State, or the law of a Member State in which immovable property belonging to the debtor is located, requires information on the opening of insolvency proceedings referred to in Article 28 to be published in the land register, company register or any other public register, the insolvency practitioner or the debtor in possession shall take all the necessary measures to ensure such a registration. 2. The insolvency practitioner or the debtor in possession may request such registration in any other Member State, provided that the law of the Member State where the register is kept allows such registration. Outline A. Historic development: situation before the recast of the Insolvency Regulation B. Mandatory and discretionary cases of registration ................................................... C. Scope and procedure .......................................................................................................

1 3 5

A. Historic development: situation before the recast of the Insolvency Regulation Laws often require or allow that the opening of insolvency proceedings is recorded as a relevant fact relating to the debtor or to the assets belonging to the insolvency estate in business registers1 or in other public registers keeping information on those assets. Such rules enhance the transparency concerning the financial status of persons and generally contribute to trade security2. 2 Already the EIR 2000 contained rules which ensured the transparency given by public registers in cross-border insolvencies. Article 22 EIR 2000 granted insolvency practitioners the right to request the registration of the opening of main insolvency proceedings in public registers kept in any other Member State. Registration in a foreign public register was mandatory under the EIR 2000 if the law of the Member State where the register was kept required such recording with regard to domestic insolvency proceedings. The EIR 2015 novates this rule with minor amendments and clarifications. 1

B. Mandatory and discretionary cases of registration 3

Article 29 EIR distinguishes between those situations where the registration in a foreign public register is mandatory, and those where it is only a possibility for the insolvency practitioner or for the debtor in possession. Article 29(1) EIR defines the cases of mandatory registration, subjecting the issue to the national laws of the Member States where the debtor has an establishment or an immovable property. If 1 e. g. Directive 2012/17/EU on the interconnection of central, commercial and companies’ registers requires that national business registers make available, without delay, the information on the opening and termination of any winding-up or insolvency proceedings of the companies covered by their scope. 2 See Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 182.

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Registration in public registers of another Member State

4–7

Art. 29

these laws require the opening insolvency proceedings to be recorded in a public register (beyond those registers which will be connected to the EU wide interconnection of insolvency registers anyway), the insolvency practitioner or the debtor in possession in the other Member State is obliged to take the necessary steps for the registration in the State where the register is kept. Article 29(2) EIR determines the cases in which the registration is subject to the 4 discretion of the insolvency practitioner or the debtor in possession. According to this provision, they may request such registration in any other Member State, “provided that the law of the Member State where the register is kept allows such registration”. This addition clarifies any puzzlement created by the wording of the relevant provision of the EIR 2000, making it clear that the general attribution of the right to the insolvency practitioner of triggering registration abroad does not overwrite national rules on the contents of public registers. This means that registration may only be requested in those Member States where the law allows for such type of information concerning domestic insolvency proceedings to be recorded in the public register(s).

C. Scope and procedure The procedure of registration is subject to the law of the State where the register is 5 kept.3 The scope of the information to be registered is the same as the one subject to foreign 6 publication under Article 28 EIR.4 This implies that, contrary to the scope of the relevant Article in the “old” Regulation, the EIR 2015 requires or allows to publish information both relating to main and to secondary or territorial proceedings.5 Similar to the provision on the foreign publication, the Commission proposal6 aimed 7 to “phase out” the obligation on the registration of insolvency proceedings in foreign public registers, once the interconnection of insolvency registers is deployed. Article 22 of the Commission proposal included that such publication shall be mandatory “until such time as the system of interconnection of insolvency registers […] is established”. Nevertheless, this proposal was rejected by the Council and the European Parliament, and the adopted version of the Article maintains the obligation for insolvency practitioners or for debtors in possession without any limitation in time.7 3

cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 182. See Szirányi above Art. 28 mn. 5. 5 Article 22 EIR 2000 speaks only on proceedings referred to in Article 3(1) EIR 2000, i. e. on main proceedings. 6 See Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12 December 2012, COM(2012) 744 final. 7 See Szirányi above Art. 28 mn. 2. 4

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Article 30 Costs The costs of the publication and registration provided for in Articles 28 and 29 shall be regarded as costs and expenses incurred in the proceedings. Recital: 75.

This Article was taken over from the EIR 2000, and has its origins in the 1995 EC Convention on insolvency proceedings1, which served as a direct predecessor of the EIR 2000. At the time of the adoption of the Convention, this provision was necessary to clarify that the costs arising from the publication and registration of the opening of insolvency proceedings in another Member State will increase the costs of the proceedings in relation to which that action became necessary, in all cases. Apparently, there was a proposal from some delegations containing a twofold demand. First, the delegations argued that the scope of this Article is to be limited to the cases in which the publication or the registration abroad was triggered by the decision of the liquidator. Secondly, they required the expenditures generated by the obligation of the Convention imposed on the liquidator to publish or register the opening of the insolvency proceedings in a mandatory manner not to be charged on the insolvency estate.2 2 Since the Article qualifies these expenditures as part of the costs of the insolvency proceedings, their treatment (i. e. who has to advance them or who has to bear them in the end of the proceedings) is subject to the lex fori concursus.3 The matter and time the costs are to be paid is prescribed by the law in the “foreign” Member State where the publication or registration takes place.4 1

1

See Article 23 EC Convention on Insolvency Proceedings, OJ No L6500/96. See Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 186, see further Veder, in Bork/van Zwieten, Commentary on EIR, Art. 30, mn. 30.01. 3 See Article 7(2)(l) EIR. 4 This comes from the rule that subjects the form and content of the registration and publication to the law of the State in which the action takes place. See Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 181 et seq. 2

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Article 31 Honouring of an obligation to a debtor 1. Where an obligation has been honoured in a Member State for the benefit of a debtor who is subject to insolvency proceedings opened in another Member State, when it should have been honoured for the benefit of the insolvency practitioner in those proceedings, the person honouring the obligation shall be deemed to have discharged it if he was unaware of the opening of the proceedings. 2. Where such an obligation is honoured before the publication provided for in Article 28 has been effected, the person honouring the obligation shall be presumed, in the absence of proof to the contrary, to have been unaware of the opening of insolvency proceedings. Where the obligation is honoured after such publication has been effected, the person honouring the obligation shall be presumed, in the absence of proof to the contrary, to have been aware of the opening of proceedings. Recital: 81. Case law: EU: CJEU, 19 September 2013, Case C-251/12, van Buggenhout v BIL, ECLI:EU:C:2013:566.

Outline A. Purpose ............................................................................................................................... B. Interpretation .................................................................................................................... I. Requirements ........................................................................................................... 1. Honouring of an obligation to the debtor.................................................... 2. Should have been honoured for the benefit of the insolvency practitioner........................................................................................................... 3. After the opening ............................................................................................... 4. In a Member State.............................................................................................. 5. Good faith ............................................................................................................ 6. Burden of proof and presumption ................................................................. II. Consequences...........................................................................................................

1 2 2 2 4 9 10 12 13 16

A. Purpose Article 31 EIR is not a rule of private international law, but of substantive law. 1 Article 31 EIR aims at protecting the market as well as the good faith and “confidence” of debtors of the debtor who are unaware of the debtor’s divestment of his assets.1 Under the prerequisites of Article 31 EIR, a person who was obliged to the debtor can rely on payments made after the opening of insolvency proceedings although made to the wrong person, i. e. the debtor himself instead of to the insolvency practitioner. The provision determines who is to bear the risk – the insolvency practitioner and the estate who needs to reclaim the payment from the debtor himself (where it might not be retrievable) or the obliged debtor of the debtor who would be obliged to pay again to the insolvency practitioner. Article 31 EIR 2015 is identical to Article 24 EIR 2000. 1

Recital 81 EIR; cf. CJEU Case C-251/12 van Buggenhout v BIL ECLI:EU:C:2013:566, para. 35.

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Art. 31 2–9

Chapter II. Recognition of Insolvency Proceedings

B. Interpretation I. Requirements 1. Honouring of an obligation to the debtor The honouring of an obligation to the debtor means any kind of payment or other method by which the obligation is honoured. The honouring must occur to the benefit of the debtor. This has led to the question whether the performance to the benefit of third parties is addressed by Article 31 EIR. The CJEU held in van Buggenhout2 that third parties as recipients are not addressed by Article 24 EIR (2000), but the applicable national law decides only on whether the discharge of the obligation effectuates. The court had the worry that otherwise the debtor could easily make use of Article 31 EIR by asking his debtors to pay to a third party. The CJEU’s ruling must nonetheless be criticised as from the perspective of the party obligated to the debtor it is not uncommon in business and trading that performance is made to third parties directly as authorised by the creditor of the claim (i. e. the insolvent debtor). 3 The honouring must be performed in the way the applicable law to the obligation (pursuant to the rules of private international law, for example the Rome I Regulation) mandates, except for the fact that the discharge of the obligation would not effectuate simply because the debtor is divested in favour of the insolvency practitioner. 2

2. Should have been honoured for the benefit of the insolvency practitioner 4 5

6 7

8

This prerequisite shows that the claim must be part of the estate. This is a question of the lex fori concursus, Article 7(2)(sentence 2)(b) EIR. In self-administration and debtor-in-possession proceedings Article 31 EIR can only be applicable partially, namely to the extent that pursuant to the lex fori concursus payments need to be made to the insolvency practitioner instead of to the debtor. If the insolvency practitioner authorizes the payment or performance to the benefit of the debtor, Article 31 EIR is not applicable. It has hardly been debated whether the obligation must be fulfilled by the party under obligation itself or whether payments by third parties (instead of to third parties, see above mn. 2) are covered by Article 31 EIR as well.3 If the debtor of the obligation has authorized the third party to pay, this should be covered by Article 31 EIR because it is, in substance, an ordinary payment by the debtor of the obligation himself. If in this situation only the third party is aware of the opening, this, however, should be attributed to the debtor of the obligation. If the third party performs without being authorized by the debtor of the obligation, it is, however, not sufficient for the third party to be in good faith. Good faith of the debtor of the obligation is required as well.

3. After the opening 9

The honouring of the obligations needs to occur after the time of the opening. This relates to the definition in Article 2 no. 8 EIR. Whether a court’s decision constitutes an “opening” is to be determined by application of Article 2 no. 7 EIR. 2 3

CJEU C-251/12 van Buggenhout v BIL ECLI:EU:C:2013:566, para. 35. Thole, in Münchener Kommentar zur InsO, Art. 24 mn. 7 et seq.

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Honouring of an obligation to a debtor

10–16

Art. 31

4. In a Member State The honouring of the obligations needs to take place in a Member State. It is generally 10 accepted that the place of the performance action is decisive4, not where the payment or performance was actually received by the debtor, for example if the obligation was to deliver goods, it is the place where the transport started, not where the goods were received. However, it is unclear whether the place of performance is understood as being the 11 actual place of performance or the place that according to the contract or the lex causae is considered the place of performance as a matter of law. This might make a difference where the debtor was obligated to send goods from one place, but indeed sent goods without further notice from another. It seems feasible that the protection of the debtor of the obligation granted by Article 31 EIR is justified only if he complied with the contractual obligation.5 This also prevents manipulative shifting of the place of performance in the wake of the opening and prior to public notice, Article 31(2) EIR.

5. Good faith The debtor of the obligation needs to be unaware of the proceedings. Gross 12 negligence does not hinder the discharge. The presumption in Article 31(2) EIR needs to be observed, see below mn 11. The relevant time is generally considered to be the time of performance.6 By autonomous interpretation there can be an attribution of knowledge of representatives, employees, and others to the debtor of the obligation.

6. Burden of proof and presumption Article 31(2) EIR provides that where the obligation is honoured before the publica- 13 tion provided for in Article 28 EIR has been effected, the person honouring the obligation shall be presumed to have been unaware of the opening. This presumption is rebuttable by proof to the contrary. The degree of the proof is a matter of the lex fori and not addressed by Article 31 EIR. On the other hand, if the honouring happens after the publication, it is to be 14 presumed to the contrary that the debtor of the obligation was aware of the opening. This presumption is rebuttable as well, but the rebuttal will often fail. It should be sufficient that publication takes place either in the State of the place of 15 performance or in the State where the debtor of the obligation has its seat.7 Required is a publication in accordance with Article 28 EIR. Any other method of publication is not a publication within the meaning of Article 31(2) EIR, however, it may well lead to a proof of bad faith, as the case may be.

II. Consequences If the requirements of Article 31(1) EIR are met, the person under obligation is 16 discharged from his obligation to the debtor. He is not obligated to pay again to the insolvency practitioner. General rules apply, however, if payment was delayed or the performance was defective; the insolvency practitioner may make a warranty claim. 4

Veder, in Bork/van Zwieten, Commentary on EIR, mn. 31.08. Differently Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 188; Veder, in Bork/van Zwieten, Commentary on EIR, mn. 31.08. 6 See Kindler, in Münchener Kommentar zum BGB, Art. 24 EuInsVO, mn. 10. 7 See Virgós/Schmit, Report on the Commentary on Insolvency Proceedings, mn. 187; Veder, in Bork/ van Zwieten, Commentary on EIR, mn. 31.14; Thole, in Münchener Kommentar zur InsO, Art. 24, mn. 12. 5

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Article 32 Recognition and enforceability of other judgments 1. Judgments handed down by a court whose judgment concerning the opening of proceedings is recognised in accordance with Article 19 and which concern the course and closure of insolvency proceedings, and compositions approved by that court, shall also be recognised with no further formalities. Such judgments shall be enforced in accordance with Articles 39 to 44 and 47 to 57 of Regulation (EU) No 1215/2012. The first subparagraph shall also apply to judgments deriving directly from the insolvency proceedings and which are closely linked with them, even if they were handed down by another court. The first subparagraph shall also apply to judgments relating to preservation measures taken after the request for the opening of insolvency proceedings or in connection with it. 2. The recognition and enforcement of judgments other than those referred to in paragraph 1 of this Article shall be governed by Regulation (EU) No 1215/2012 provided that that Regulation is applicable. Recital: 65. Case law: EU: CJEU, 22 February 1979, Case C-133/78, Gourdain v Nadler, ECLI:EU:C:1979:49; CJEU, 27 March 1979, Case C-143/78, De Cavel v De Cavel, ECLI:EU:1979:83; CJEU, 12 February 2009, Case C-339/07, Christopher Seagon v Deko Marty, ECLI:EU:C:2009:83; CJEU, 2 July 2009, Case C-111/08, SCT v Alpenblume, ECLI:EU:C:2009:419; CJEU, 10 September 2009, Case C-292/08, German Graphics v Alice van der Schee, ECLI:EU:C:2009:544. CJEU, 21 January 2010, Case C-444/07, MG Probud Gdynia, ECLI:EU:C:2010:24; CJEU, 19 April 2012, C-213/10, F-Tex v Lietuvos‐Anglijos, ECLI:EU:C:2012:215; CJEU, 18 July 2013, Case C-147/12, ÖFAB v Frank Koot, ECLI:EU:C:2013:490; CJEU, 4 December 2014, H., ECLI:EU:C:2014:2410.

Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Interpretation .................................................................................................................... I. Requirements of Article 32(1.1)(sentence 1)EIR ............................................. 1. Judgments concerning the course and closure of insolvency proceedings .......................................................................................................... 2. Compositions approved by a court ................................................................ 3. Consequences ...................................................................................................... 4. Enforcement ........................................................................................................ II. Annex judgments, Article 32(1.2) EIR............................................................... 1. Court decisions by the CJEU........................................................................... 2. Consequences ...................................................................................................... III. Preservation measures, Article 32(1.3) EIR....................................................... IV. Other non-insolvency related annex matters ...................................................

1 3 4 4 4 8 11 12 13 14 21 23 24

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2–6

Art. 32

proceedings and compositions approved by the court. Even more important is the second subparagraph providing for recognition of (independent) judgments closely linked to the insolvency proceedings (often so-called annex judgments) under the EIR. The most crucial aspect is when a judgment is deriving directly from the insolvency proceedings and is closely linked to it. This definition stems from the Gourdain/Nadlerjudgment of the CJEU in 19791 and was introduced in the EIR 2000. It is to be noted that Article 32 EIR is also aligned with the newly introduced rules on jurisdiction in Article 6 EIR that now contain the relevant rule on jurisdiction for such annex judgments. Before the recast, the EIR 2000 did not contain an express provision on jurisdiction for annex judgments which is why in Deko Marty the CJEU developed an analogous application of Article 3 EIR2. Furthermore, as Article 32(2) EIR shows, the European lawmakers tried to distin- 2 guish between such annex judgments and other annex judgments not as closely linked to insolvency proceedings. The latter fall under the Brussels Ia Regulation. Thus, this aims not to leave a gap between the scope of the EIR and the Brussels Ia Regulation in order to have a fully harmonized law.

B. Historic development Article 32 EIR 2015 is mostly identical to Article 25 EIR 2000. The reform of the 3 Brussels I Regulation in 2012 has been accounted for in the reference in Article 32(1.1) (sentence 2) EIR. The rule in Article 25(3) EIR 2000 allowing for a refusal of recognition of judgments has been abolished. It stipulated that the Member States shall not be obligated to recognise or enforce a judgment that might result in a limitation of personal freedom or postal secrecy. This is now dealt with exclusively under the public policy exception.

C. Interpretation I. Requirements of Article 32(1.1)(sentence 1) EIR 1. Judgments concerning the course and closure of insolvency proceedings In Article 32(1.1)(sentence 1) EIR it is laid out that judgments concerning the course 4 and closure of insolvency proceedings shall be recognised with no further formalities. The definition of a judgment is addressed in Article 2 no. 7 EIR for opening 5 judgments only. The definition thus has to be developed autonomously and should be interpreted broadly in order to encompass all relevant decisions. The definition of “court” follows the definition in Article 2 no. 6 (ii) EIR. To be sure, 6 the court handing down the judgment must not necessarily be the particular court that had opened the insolvency proceedings, although the wording of Article 32(1) EIR seems to require this. If for whatever reason the lex fori concursus provides that another body or court within that Member State is competent for judgments concerning the course or closure of the proceedings, there is no valid reason not to recognise this judgment. Article 31(1) EIR refers to the recognition of the judgment opening the proceedings only. Thus, the gist is that there is no sense in recognising judgments 1 2

CJEU Case 133/78 Gourdain v Nadler ECLI:EU:C:1979:49. CJEU Case C-339/07 Christopher Seagon v Deko Marty ECLI:EU:C:2009:83.

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Art. 32 7–12

Chapter II. Recognition of Insolvency Proceedings

concerning the course and closure of the proceedings if the opening judgment is not recognisable; but this does not depend on the particular body being the body that hands down the opening judgment. 7 “Concerning the course and closure” is likewise to be construed rather broadly. This can include an appointment of an insolvency practitioner if it is not an integral part of the opening judgment. Procedural orders fall under Article 31 EIR as well as a discharge of the debtor. “Closure” can also be a non-final temporary suspension of the proceedings. The international jurisdiction for these judgments follows from Article 3 EIR although it specifically addresses opening judgments only. However, it seems that these judgments are implicitly covered by Article 3 EIR as well. While it is quite remarkable that a long debate on annex judgments with respect to Article 32(2) EIR has been fought, see Madaus above Art. 6 mn. 13, the jurisdiction issue for the even closer linked judgments addressed in Article 32(1.1)(sentence 1) EIR has not been tackled by the recast. However, as Article 6 EIR grants the opening State jurisdiction for annex judgments, it must all the more provide that the opening State enjoys jurisdiction for the judgments with respect to the course and closure of the proceedings as well.

2. Compositions approved by a court Compositions are arrangements by which the legal relations between the debtor and his creditors are being modified, such as a restructuring plan. The inclusion of these compositions means that the direct effects the approval of the court has are recognised automatically, regardless of the applicable law. For example, the modification of the obligations of the debtor becomes effective without further reference to principles of private international law and the law applicable to the obligation. 9 However, the English scheme of arrangement is not encompassed as such because this proceeding is not listed in Annex A EIR. 10 A composition that becomes effective without court approval is not covered by Article 32(1.1)(sentence 1) EIR. Its consequences are to be determined as a matter of private international law and thus not on the grounds of procedural recognition, but rather “substantive recognition” pursuant to the law governing the claim or contract. 8

3. Consequences 11

Judgments mentioned in Article 32(1) EIR are to be recognised without formalities. The method is the same as in Articles 19 and 20. The direct effects of the judgment must not be questioned in the recognising State.

4. Enforcement 12

With respect to the enforcement (if the judgment, according to its content, requires enforcement), the EIR refers to the rules of the Brussels Ia Regulation which is obviously not applicable itself. This refers to the rules on enforcement, Articles 39 to 44 and 47 to 57 of the Brussels Ia Regulation, not the rules of the Brussels Ia Regulation on recognition. As Articles 45 and 46 of the Brussels Ia Regulation are excluded, the refusal of recognition and enforcement may be based on the public policy exception in Article 33 EIR only, not on the other grounds laid out in Article 32 EIR. There is no need for an exequatur proceeding under the Brussels Ia Regulation. Enforcement can be brought if the State of origin certifies the enforceability of the judgment pursuant to Article 53 of the Brussels Ia Regulation. However, the certification in Article 53 of the Brussels Ia Regulation needs to be adjusted to the needs of the insolvency proceedings.

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Art. 32

II. Annex judgments, Article 32(1.2) EIR Annex judgments relate to judgments in independent proceedings and lawsuits 13 usually handed down by a court different from the insolvency court. The most crucial difficulty is the determination of the criteria for establishing the close link to the insolvency proceedings. For this issue, see Madaus above Art. 6 mn. 21. The definition in Article 32(1.2) EIR is somewhat vague. It originates from the Gourdain/Nadler judgment of the CJEU in 19793. If the annex judgment is not an insolvency-related judgment, it can fall under Article 32(2) EIR and is thus fully covered by the Brussels Ia Regulation.

1. Court decisions by the CJEU The CJEU has been addressed a few times on the scope of the annex judgments. For further details see Madaus above Art. 6 mn. 15. The terms “deriving directly from” and “closely linked” are to be interpreted in the same manner as in Article 6 EIR. Most important are the judgments in Deko Marty4 and F-Tex5, according to which avoidance actions generally fall under Article 32 (1.2) EIR, unless the claim has been assigned to a third party. The judgment “H.”6 shows that the liability of directors under the German § 64 GmbHG can be considered an annex matter. For a special case on directors’ and shareholders’ liability see also the ÖFAB case7. With respect to Article 32 EIR 2015 (Article 25 EIR 2000), some of the following judgments of the CJEU are of further importance: In Alpenblume8, the CJEU held with respect to the exception in Article 1(1)(b) EIR that a judgment was an insolvency related judgment. This judgment was a judgment “of a court of Member State A regarding registration of ownership of shares in a company having its registered office in Member State A, according to which the transfer of those shares was to be regarded as invalid on the ground that the court of Member State A did not recognise the powers of a liquidator from a Member State B in the context of insolvency proceedings conducted and closed in Member State B”9. The CJEU particularly pointed out that the applicable law to the transfer of shares derogated from general rules. However, the decision is hardly convincing as it is not sufficient for the necessary link that the insolvency practitioner acts instead of the debtor himself absent special powers conferred on him. In German Graphics10, the CJEU held that Article 25(2) EIR 2000 must be interpreted as meaning that the words “provided that that Convention is applicable” imply that, before it can be concluded that the recognition and enforcement provisions of the Brussels I Regulation are applicable to judgments other than those referred to in Article 25(1) EIR 2000, it is necessary to determine whether such judgments fall outside the material scope of the Brussels I Regulation. With respect to the distinction between insolvency- and non-insolvency related annex proceedings, the CJEU held that the provision on the scope of the Regulation 3

CJEU Case 133/78 Gourdain v Nadler ECLI:EU:C:1979:49. CJEU Case C-339/07 Christopher Seagon v Deko Marty ECLI:EU:C:2009:83. 5 CJEU Case C-213/10 F-Tex v Lietuvos‐Anglijos ECLI:EU:C:2012:215. 6 CJEU Case C-295/13 H. ECLI:EU:C:2014:2410. 7 CJEU Case C-147/12 ÖFAB v Frank Koot ECLI:EU:C:2013:490. 8 CJEU Case C-111/08 SCT v Alpenblume ECLI:EU:C:2009:419. 9 CJEU Case C-111/08 SCT v Alpenblume ECLI:EU:C:2009:419, para. 34. 10 CJEU Case C-292/08 German Graphics v Alice van der Schee ECLI:EU:C:2009:544. 4

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14

15

16

17

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in Article 1(2)(b) EIR must be interpreted as meaning that it does not apply to an action brought by a seller based on a reservation of title against an insolvent purchaser, where the asset covered by the reservation of title is situated in the Member State of the opening of those proceedings at the time of opening of those proceedings against that purchaser11. 20 In MG Produd Gdynia12 the CJEU held that, subject to the opening of secondary proceedings, a Member State other than the State of the opening of proceedings is not permitted to order measures of enforcement against assets located in this Member State if the law of the lex fori concursus does not allow for these measures, see Thole above Art. 19 mn. 29.

2. Consequences If an annex judgment within the meaning of Article 6 EIR is handed down, it is automatically recognised under the same principles that apply to decisions concerning the course and closure of insolvency proceedings. The recognising State must not reexamine the jurisdiction of the first court. 22 If the body in the recognising State confronted with the judgment maintains the opinion that the annex matter is an annex matter within the meaning of Article 32(1.2) EIR and is not closely linked to the insolvency proceedings, it would still have to recognise pursuant to the rules of the Brussels Ia Regulation (Articles 36 et seq. of the Brussels Ia Regulation). The same principles apply to the enforcement matters as to the judgments under Article 32(1.1) EIR. 21

III. Preservation measures, Article 32(1.3) EIR 23

In Article 32(1.3) EIR judgments on preservation measures are treated like the judgments under subparagraphs 1 and 2. According to the De Cavel judgment of the CJEU, these preservation measures are not addressed by the Brussels Ia Regulation because the nature of the judgment follows the nature of the subject the preservation measure intends to serve.13 Preservation measures are inter alia the divestment of the debtor, orders with respect to a supervision by the insolvency practitioner or the court or a ban on enforcement. Most of these judgments can be perceived as judgments concerning the course of the proceedings anyway. The provision does not encompass measures taken by the provisional or the final insolvency practitioner on the grounds of the powers conferred on him. The appointment of such an insolvency practitioner may be a preservation measure if it is not part of the opening judgment (then Article 19 EIR) or a judgment in the course of the proceedings (then Article 32(1.1) EIR).

IV. Other non-insolvency related annex matters 24

For situations in which the requirements of Article 32(1) EIR are not met, in particular if the judgment is not derived directly from insolvency proceedings or not closely linked to them, Article 32(2) EIR refers to the Brussels Ia Regulation. This shows that the lawmaker clearly intended to have judgments showing any kind of relation to insolvency proceedings brought under either the recognition rules of the EIR or under those of the Brussels Ia Regulation and to leave no gap for autonomous national law. 11

CJEU Case C-292/08 German Graphics v Alice van der Schee ECLI:EU:C:2009:544, para. 39. CJEU Case C-444/07 MG Probud Gdynia ECLI:EU:C:2010:24. 13 CJEU Case 143/78 De Cavel v De Cavel ECLI:EU:1979:83, para. 8. 12

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However, this requires the Brussels Ia Regulation to which reference is made, to be applicable. This addresses the question of scope and thus of Article 1 of the Brussels Ia Regulation. It has to be a civil or commercial matter and the exceptions in Article 1(2) of the Brussels Ia Regulation must not apply. For both the recognition and the enforcement of these judgments the general rules of the Brussels Ia Regulation apply.

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Article 33 Public policy Any Member State may refuse to recognise insolvency proceedings opened in another Member State or to enforce a judgment handed down in the context of such proceedings where the effects of such recognition or enforcement would be manifestly contrary to that State’s public policy, in particular its fundamental principles or the constitutional rights and liberties of the individual. Case law: EU: CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:2006:281; CJEU, 28 April 2009, Case C-420/07, Apostolides v Orams, ECLI:EU:C:2009:271.

Outline A. Purpose ............................................................................................................................... 1 B. Interpretation .................................................................................................................... 2 I. Requirements ........................................................................................................... 2 1. Judgments............................................................................................................. 2 2. Public policy ........................................................................................................ 3 3. Further examples ................................................................................................ 9 4. Examination by the court................................................................................. 13 II. Partial or complete refusal of recognition......................................................... 14

A. Purpose 1

Article 33 EIR is basically the only possible tool for the recognising State to refuse recognition of either the opening judgment (Article 19 EIR) or other judgments handed down in the context of such proceedings (Article 32(1) EIR). The recognition is not under a duty to refuse, but Member States “may” (instead of “shall”) do so1. The general understanding is that the public policy exception may be invoked as an ultima ratio only, as can be derived from the generally accepted requirement of a “manifest” contradiction to public policy. Furthermore, it is well recognised that the recognising State must not review the merits of the judgment and the jurisdiction of the court that handed down the judgment.2 The latter would contravene the provisions in Articles 19 and 32 EIR that do not allow for the recognising State to re-examine the jurisdiction of the first court, see Thole above Art. 19 mn. 7; and Art. 32 mn. 20. Article 33 EIR 2015 is identical to Article 26 EIR 2000.

B. Interpretation I. Requirements 1. Judgments 2

The public policy exception can be invoked against the judgment opening the main or territorial proceedings as well as against judgments handed down in the context of 1 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.327; Oberhammer, in Bork/van Zwieten, Commentary on EIR, Art. 33, mn. 33.06. 2 Virgos/Schmit, Report on the Commentary on Insolvency Proceedings, mn. 202, 204.

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Public policy

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such proceedings. The latter refers to the judgments that are covered by Article 32(1) EIR. However, it does not refer to non-insolvency related judgments within the meaning of Article 32(2) EIR, for which the grounds for refusal of recognition under the Brussels Ia Regulation, Article 45 of the Brussels Ia Regulation, or the respective alternative legal framework apply.

2. Public policy It must be determined that the effects of the judgment are manifestly contrary to public policy. Thus, neither the reasoning nor the contents but the effects, the actual outcome of the judgment, must be looked at. If from the perspective of the recognising State the procedure was completely outrageous, but the judgment at which the court arrived is nevertheless compatible with the public policy, the exception shall not be relied upon. Generally speaking, a distinction is usually made between procedural public policy and substantive public policy.3 This is meant to describe that contravention can occur with respect to the procedure that has been observed (or rather not been observed) and with respect to the merits of the judgment and the substantive effects. As mere examples, Article 33 EIR mentions violations of fundamental principles or the constitutional rights and liberties of the individual as possible contraventions of public policy. The CJEU has made some utterances on the public policy exception in the Eurofood4 case by stating that the exception may be invoked only under narrow circumstances. It held further that the right to a fair legal process and to be heard is a principle of European law the infringement of which may trigger the public policy exception. According to the CJEU, in the context of insolvency proceedings, the right of creditors or their representatives to participate in accordance with the equality of arms principle is of particular importance.5 Though the specific detailed rules concerning the right to be heard may vary depending on the urgency for a ruling, any restriction on the exercise of that right must be duly justified and surrounded by procedural guarantees ensuring that persons concerned by such proceedings actually have the opportunity to challenge the measures adopted in urgency6. Thus, a Member State may refuse to recognise insolvency proceedings opened in another Member State where the decision to open the proceedings was taken in flagrant breach of the fundamental right to be heard, which a person concerned by such proceedings enjoys.7 Quite important is the remark in paragraph 68 of said judgment: “In that respect, it should be observed that the referring court cannot confine itself to transposing its own conception of the requirement for an oral hearing and of how fundamental that requirement is in its legal order, but must assess, having regard to the whole of the circumstances, whether or not the provisional liquidator appointed by the High Court was given sufficient opportunity to be heard.”8 It follows that basic procedural standards and rights must be observed. However, the right to be heard does not need to be granted in the first instance but can be given in an appeal as well.9 3

Virgos/Schmit, Report on the Commentary on Insolvency Proceedings, mn. 205. CJEU Case C-341/04 Eurofood ECLI:EU:2006:281, para. 63. 5 CJEU Case C-341/04 Eurofood ECLI:EU:2006:281, para. 66. 6 CJEU Case C-341/04 Eurofood ECLI:EU:2006:281, paras. 61 et seq. 7 CJEU Case C-341/04 Eurofood ECLI:EU:2006:281. 8 CJEU Case C-341/04 Eurofood ECLI:EU:2006:281, para. 68. 9 See BGH, Urt. v. 4.6.1992 – IX ZR 149/91, ZIP 1992, 1256, 1264 (DEU); Thole, in Münchener Kommentar zur InsO, Art. 26 EuInsVO 2000, mn. 11; see also CJEU Case C-420/07 Apostolides v Orams ECLI:EU:C:2009:271. 4

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Thus, although public policy refers to the principles of national law and the relevant Member State, the public policy exception must not be used to circumvent the harmonization the EIR tries to achieve and, in particular, it must be avoided that by using the public policy exception, the ban on a re-examination of the merits of the judgment and the jurisdiction of the court is circumvented.

3. Further examples Obtaining a discharge or, generally speaking, making use of the jurisdiction of another Member State by shifting the COMI to another Member State and making use of rather generous debtor-friendly insolvency law is not a violation of public policy per se. In particular, the relevant question then often is whether the COMI has indeed been shifted (instead of pretending to have been shifted). The public policy exception may be invoked where an element of abuse can be shown and where the first court apparently has not at all fulfilled its duty to examine the COMI ex officio. 10 The non-hearing of employee representatives is not manifestly contrary to public policy even if required by law.10 11 Differences between the insolvency laws including diverging rankings and privileges do not in itself justify the public policy exception.11 12 In the APCOA case an English court sanctioned a scheme of arrangement where the clause on the governing law was changed in favour of English law with a majority voting.12 This was not a case of the EIR as the Regulation does not apply to schemes of arrangement. However, if the EIR had been applicable, the judgment in that particular case would possibly have been contrary to the public policy exception, in particular, it is most likely that the clause on governing law in the financial documents is not subject to a majority voting in a lenders’ agreement even if not expressly subjected to unanimous voting. 9

4. Examination by the court 13

The public policy exception must be examined ex officio. There is no need for the party to object and to expressly rebuke the judgment on the grounds of public policy. However, there might be general procedural duties to further explain or state facts within the proceedings in which the recognition of the judgment matters.

II. Partial or complete refusal of recognition 14

As can be seen in the wording of for example the German version of the EIR (“soweit”), the refusal of the recognition may be refused to the extent the public policy mandates. If it is possible to distinguish between parts of the judgment that can stand alone and make sense without the “infected” part, the refusal may be confined to that specific part. 10 See Cass. com., Dalloz 2006 AJ 1816; Pannen/Riedemann, in Pannen, European Insolvency Regulation, Art. 26 EIR 2000, mn. 21. 11 Thole, in Münchener Kommentar zur InsO, Art. 26 EuInsVO 2000, mn. 17. 12 See [2014] EWHC 3849 Ch. Comp. Ct. (GBR).

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CHAPTER III SECONDARY INSOLVENCY PROCEEDINGS Article 34 Opening of proceedings Where main insolvency proceedings have been opened by a court of a Member State and recognised in another Member State, a court of that other Member State which has jurisdiction pursuant to Article 3(2) may open secondary insolvency proceedings in accordance with the provisions set out in this Chapter. Where the main insolvency proceedings required that the debtor be insolvent, the debtor’s insolvency shall not be re-examined in the Member State in which secondary insolvency proceedings may be opened. The effects of secondary insolvency proceedings shall be restricted to the assets of the debtor situated within the territory of the Member State in which those proceedings have been opened. Recitals: 23–24, 39–40. Specific bibliography: Pottow, A New Role for Secondary Proceedings in International Bankruptcies, Texas Int. L. J. 2011, 581. Case law: EU: CJEU, 20 October 2011, C-396/09, Interedil, ECLI:EU:C:2011:671; CJEU, 22 November 2012, Case C-116/11, Bank Handlowy, ECLI:EU:C:2012:739; CJEU, 4 September 2014, C-327/13, Burgo Group, ECLI:EU:C:2014:2158; CJEU, 11 June 2015, C-649-13, Nortel, ECLI:EU:C:2015:384.

Outline A. Introduction ...................................................................................................................... B. Genesis................................................................................................................................ C. The functions of secondary proceedings .................................................................... I. The protective function regarding local interests ............................................ II. The auxiliary function in support of main proceedings ................................ D. The possible drawbacks of secondary proceedings .................................................. I. Costs and delays...................................................................................................... II. Three tools to reduce the negative effects of secondary proceedings ......... E. The conditions for opening secondary proceedings ................................................ I. Timing: the previous opening of the main insolvency proceedings ........... II. Jurisdiction ............................................................................................................... 1. Main proceedings in a Member State............................................................ 2. Local establishment............................................................................................ III. The insolvency of the debtor................................................................................ IV. Other requirements to open secondary proceedings...................................... F. The territorial scope of secondary proceedings ........................................................ I. The creation of separate insolvency estates ...................................................... II. The localization of assets....................................................................................... 1. The relevant date................................................................................................ 2. Localization rules................................................................................................

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Art. 34 1–4

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A. Introduction Article 34 EIR sets out the conditions for the opening of secondary insolvency proceedings pursuant to Article 3(2) EIR in the Member State where the debtor possesses an establishment in addition to the proceeding opened by the court of the Member States of the debtor’s COMI. The result is a mitigation of the universality of main proceedings by allowing for the formation of a separate insolvency estate governed by local insolvency law and administered by a local insolvency practitioner.1 2 As is known, the basic model of the Regulation is universality, so that the proceedings opened at the debtor’s COMI (main proceedings) affects all assets in all Member States in the interest of all creditors involved. However, despite the strong economic arguments in favor of pure universalism, the approach followed by the EIR allows for the opening of territorial proceedings with local effects, i. e. effects limited to the assets situated in the territory of the Member State where the proceedings have been opened (secondary proceedings). In other words, Article 34 EIR implements the insolvency model of “modified universality”2, which has prevailed in the most important pieces of current legislation concerning international insolvency (e. g. UNCITRAL Model Law) and can be traced back to previous attempts to have uniform rules,3 in particular, the European Convention on Certain Aspects of Bankruptcy signed in Istanbul in 1990.4 The opening of secondary proceedings ensures that the universal effects of main insolvency proceedings do not apply to assets covered by secondary proceedings in another Member State. The effects of secondary proceedings are also automatically recognized in any other Member State. 3 Finally, it should be noted that the sequence of opening secondary proceedings only after the commencement of main proceedings can be reversed according to Article 3(4) EIR, which – under certain circumstances – allows for the opening of territorial insolvency proceedings prior to the opening of main insolvency proceedings (“independent territorial proceedings”).5 Once main insolvency proceedings are subsequently opened, all territorial proceedings will necessarily be secondary, even where one or more territorial proceedings were opened before the judgment relating to the opening of the main proceedings was delivered. 1

B. Genesis 4

The general structure of Chapter III has remained substantially unaltered in the 2015 recast. However, partially reflecting the recent CJEU’s case law, some material changes have been introduced: the wording of Article 34 EIR 2015 has improved compared to the old Article 27 EIR 2000 and its scope has been enlarged by abolishing 1 Bork, in Bork/Mangano, mn. 7.04–7.05; Mankowski, in Mankowski/Müller/Schmidt, EuInsVO, Vor Art. 34–51, mn. 16–17; Reinhart, in Münchener Kommentar zur InsO, Art. 27 VO 1346/2000, mn. 1; Schmidt, KTS 2015, 19, 26 et seq.; Mucciarelli, EBOR 2013, 186. 2 For a thorough analysis of the advantages of modified universalism, see Adam/Fincke, Columbia J. Eur. L. 2009, 43; Pae, Hastings Int. Comp. L. Rev. 2004, 555. 3 Wimmer, ZIP 1998, 982. 4 Wessels, International Insolvency Law, mn. 10823. See in particular, Balz, Am. Bankr. L. J. 1996, 520: “[t]he introduction of secondary proceedings is the most far-reaching innovation of the Convention when compared with the former drafts by the EEC Commission.” 5 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 80.

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the limitation to winding-up proceedings and including rescue proceedings as well; the definition of establishment has been modified; the possibility for insolvency practitioners in the main proceedings to provide an undertaking to avoid secondary proceedings being opened; the decision to open secondary proceedings has been regulated; a new article has been introduced on the right to obtain a judicial review of the decision to open secondary proceedings.

C. The functions of secondary proceedings According to the traditional view, secondary proceedings are necessary to respect the 5 sovereignty of local courts that have direct jurisdictional power over locally situated assets, and to accord local creditors their rights under domestic bankruptcy law.6 In particular, it is widely held that local proceedings have basically two functions: one defensive and one auxiliary.7

I. The protective function regarding local interests The first function relates to the protection of local interests8 as the opening of local 6 proceedings implies the application of the local lex fori concursus.9 Indeed, the opening of a main insolvency proceeding with universal effects may potentially jeopardize the expectations of local creditors as to which law will apply to the proceedings in which they have to lodge their claims, in particular when main proceedings have been opened in a different Member State than the one where the establishment, with which they had direct relationships, is located.10 The possible avoidance of local insolvency law is particularly relevant for preferential creditors, whose claims would be subject to different distribution rules depending on whether the proceedings are opened.11

6

Pottow, Texas Int. L. J. 2011, 581. Mangano, in Bork/van Zwieten, mn. 34.06–34.08; Bork, in Bork/Mangano, mn. 7.06–7.09; Reinhart, in Münchener Kommentar zur InsO, Art. 27 VO 1346/2000, mn. 4–5; Cranshaw, DZWIR 2014, 481; Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 4 et seq.; Virgós/Garcimartín, p. 156–157; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 27 EIR 2000, mn. 7 et seq. 8 Case C-327/13, Burgo Group SpA, EU:C:2014:2158, mn. 36; CJEU Case C-649/13, Nortel Networks SA, EU:C:2015:384, mn. 36. See also Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 13 and 32. In the literature, local interests are generally considered as referring to local creditors: Bork, in Bork/Mangano, mn. 7.08 (fn. 14). Recital 11 EIR 2015 provides for a definition of local creditors by referring to “a creditor whose claims against a debtor arose from or in connection with the operation of an establishment situated in a Member State other than the Member State in which the center of the debtor’s main interests is located”. In this regard, see also Pottow, Mich. L. Rev. 2006, 1899. 9 De Boer/Wessels, in Omar, International Insolvency Law. Themes and Perspectives, p. 186. See for benefits from the application of social security rules which are generally tailor-made for the domestic insolvency cases: Oberhammer, in Hess/Oberhammer/Pfeiffer, European Insolvency Law. Heidelberg/ Luxembourg/Vienna Report, mn. 892. See also Westbrook, Am. Bankr. L. J. 2002, 11, who stresses that the effect of an ancillary proceeding, if any, is to privilege local law, but not necessarily to benefit local creditors. 10 Mankowski, in Mankowski/Müller/Schmidt, EuInsVO, Vor Art. 34–51, mn. 6–7; Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 5. 11 Mucciarelli, ECFR 2016, 24–25; Balz, Am. Bankr. L. J. 1996, 494. For a comparative perspective of the significant differences existing at the national level as to the ranking of claims, see Faber/Vermunt/ Kilborn/Richter, Tirado, Ranking and Priority of Creditors. 7

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Art. 34 7–10

Chapter III. Secondary Insolvency Proceedings

In this regard, recital 22 EIR 2015 acknowledges that “as a result of widely differing substantive laws it is not practical to introduce insolvency proceedings with universal scope throughout the Union.”12 Such wide differences also result in a general reluctance of national courts to apply foreign insolvency laws. Instead they in turn apply the insolvency law of the forum which opened the main insolvency proceedings unrestrictedly. Accordingly, the possibility to open secondary proceedings entails that foreign debtors who operate through a local establishment can be subject to the same insolvency rules as domestic debtors. 8 Moreover, the opening of secondary proceedings may be used as a tool to reduce the negative effects of prior forum shopping and to correct the excessively broadened interpretation of the COMI criterion adopted by some foreign courts.13 Particularly in the context of groups of companies, any procedural consolidation of proceedings relating to different members of the same group before the forum of the parent company can be mitigated by opening secondary proceedings.14 7

II. The auxiliary function in support of main proceedings The second function alludes to the idea that insolvency proceedings should reflect the organization of business activities. If the debtor has decentralized his business activity through the opening of one or more foreign establishments, parallel proceedings can be useful to facilitate the administration of the insolvency estate and the realization of the debtor’s assets. This support for the main proceedings may be effective in many situations, for example to preserve and to realise rights in rem in the State of the establishment more efficiently,15 or to benefit from more favourable provisions concerning avoidance of fraudulent transfers. In such cases, it is evident that the opening of secondary proceedings would benefit not only local creditors but also the estate as a whole.16 10 This function is stressed by recital 40 EIR, which lays down that “[s]econdary insolvency proceedings can serve different purposes, besides the protection of local interests. Cases may arise in which the insolvency estate of the debtor is too complex to administer as a unit, or the differences in the legal systems concerned are so great that difficulties may arise from the extension of effects deriving from the law of the State of the opening of proceedings to the other Member States where the assets are located.” In other words, it is held that where cases are too complex to be administered in one set of proceedings, secondary proceedings may have a supportive function to the main proceedings.17 9

12

See also Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 33. See Wimmer, in Wimmer/Bornemann/Lienau, mn. 395; Cranshaw, DZWIR 2014, 482; Brinkmann, KTS 2014, 393–394; Ringe, EBOR 2004, 606–607. 14 Fabriès-Lecea, Le règlement “insolvabilité”. Apport à la construction de l’ordre juridique de l’Union européenne, p. 275. This objective is at the heart of the decision of the Corte d’Appello di Torino, 10 March 2009, Illochroma Italia, in Fall., 2009, 1293, commented by Montella, then confirmed by the Corte Suprema di Cassazione, 29 October 2015, n. 22093, in Fall., 2016, 829. 15 Wimmer, in Wimmer/Bornemann/Lienau, mn. 394; Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 14. Additional advantages are listed by Mankowski, in Mankowski/ Müller/Schmidt, EuInsVO, Vor Art. 34–51, mn. 10 et seq. 16 Declercq, Int’l Fin. L. Rev. 2006, 32: “As long as the liquidator in the main proceedings controls the opening of secondary proceedings, those proceedings could be viewed as a tool.” 17 See Cranshaw, DZWIR 2014, 477. 13

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D. The possible drawbacks of secondary proceedings I. Costs and delays The benefits of secondary proceedings have to be balanced with the alleged short- 11 comings evidenced by the practical application of the Regulation.18 Indeed, secondary proceedings are generally accused of jeopardizing both the efficient administration of the insolvency estate and the benefits resulting from the principles of universality and unity.19 On some occasions, they have also been used as a weapon for interfering with the work of the practitioner appointed in the main proceedings.20 The duplication of proceedings and the multiplication of practitioners appointed are 12 in fact capable of disrupting the smooth process of restructuring or a global sale of the business, in particular causing the main insolvency practitioner to lose centralized control over the foreign assets and activities, and giving rise to the coordination problems that a single set of proceedings would avoid.21 The opening of parallel proceedings generally results in higher costs and waste of time and resources, even in cases in which the insolvency representatives are cooperative. Moreover, one also has to consider that secondary proceedings may pursue different objectives and strategies than the main proceedings.22

II. Three tools to reduce the negative effects of secondary proceedings The drawbacks illustrated above make it evident why it is important to provide for 13 alternative solutions which allow reducing the negative effects of secondary proceedings or, as an extrema ratio, avoiding the opening of local proceedings itself.23 In this regard, the EIR 2015 provides for three different options. First, the EIR Recast “europeanised”24 synthetic proceedings, a remedy developed by 14 English courts25 to create de facto secondary proceedings without undermining the effective administration of the estate.26 Based on this idea, the new Article 36 EIR provides the insolvency practitioner in main insolvency proceedings with the right of giving an undertaking to local creditors, to be approved by a qualified majority of them, so that they will be treated as if secondary insolvency proceedings had been opened.27 Second, where a temporary stay of individual enforcement proceedings has been 15 granted in order to allow for negotiations between the debtor and its creditors, the 18

Report COM(2012) 743 final, 13. Reinhart, Yearb. Priv. Int. L. 2015/2016, 302; Brinkmann, KTS 2014, 389 ff. This issue is critical in the context of groups of companies; see Bariatti, RabelsZ 2009, 648; Eidenmüller, ZHR 2005, 561; Moss, Brooklyn J. Int. L. 2007, 1017–1018; Siemon/Frind, Int. Insolv. Rev. 2013, 62–63. 20 Taylor, IILR 2011, 243. 21 In this sense, among many, Latella, ECFR 2014, 482–483. 22 Ringe, in Bork/van Zwieten, mn. 3.152. 23 Oberhammer, in Hess/Oberhammer/Pfeiffer, mn. 897 ff.; Wessels, mn. 10702. 24 McCormack, J. Priv. Int. L. 2014, 53. 25 Nortel Networks [2009] EWHC 206 (Ch); Collins & Aikman Europe SA [2006] EWHC (Ch) 1343; Re MG Rover Beluxl SA/NV (In Administration) [2006] EWHC 1296 (Ch). 26 In particular, local creditors are promised that they will not fare worse than if a secondary proceeding had been opened. With the words of Moss, Brooklyn J. Int. L. 2007, 1018, this represents “an obvious model for the way to harmonize the need for centralization and simplicity, on the one hand, and the respecting of local priorities, on the other.” For a definition, see Janger, Columbia J. Trans. L. 2010, 436–438; Pottow, Texas Int. L. J. 2011, 584–586.; see also Madaus, in Festschrift für Pannen, p. 223. 27 See Laukemann below Art. 36 mn. 2. 19

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Art. 34 16–19

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opening of secondary insolvency proceedings may be stayed pursuant to Article 38 EIR for a period not exceeding three months, provided that suitable measures are in place to protect the interests of local creditors.28 16 Third, coordination and communication duties among practitioners, among courts, and among practitioners and courts have been significantly improved and strengthened, with the acknowledgement of the important role played by protocols and the reference in recital 48 to the principles and guidelines adopted by European and international organisations active in the area of insolvency law (e. g. UNCITRAL).29

E. The conditions for opening secondary proceedings 17

As provided by Article 35 EIR, secondary proceedings are governed by the national law of the Member State in which the opening has been requested (so-called lex fori concursus secondarii). This entails that the conditions for opening secondary proceedings are, in principle, determined by the national law of the opening Member State.30 However, some national requirements are complemented (e. g. jurisdictional criterion of establishment) or replaced (e. g. insolvency of the debtor) by the Regulation itself. Only in the absence of specific indication by the Regulation, further requirements for the opening of secondary proceedings are determined according to the national law of the opening Member State,31 in so far as they comply with the objectives of the Regulation, such as improving the effectiveness and efficiency of cross-border insolvency proceedings.32

I. Timing: the previous opening of the main insolvency proceedings Art. 34 EIR is only applicable to secondary proceedings, which have to be distinguished from independent territorial proceedings under Art. 3(4) EIR. Secondary proceedings are opened after the commencement (and recognition) of main proceedings while independent territorial proceedings are opened before and are only converted into secondary proceedings in case the main proceedings are is opened afterwards. Accordingly, a necessary requirement for the opening of secondary proceedings is the previous opening of main insolvency proceedings.33 19 Any court seised with a motion to open insolvency proceedings (listed in Annex A EIR) needs to verify whether such proceedings have already been opened with regard to 18

28

See Madaus below Art. 38 mn. 14. See Art. 41–43. 30 Case C-327/13, Burgo Group SpA ECLI:EU:C:2014:2158, mn. 45. 31 Reinhart, in Münchener Kommentar zur InsO, Art. 27 VO 1346/2000, mn. 19. 32 For instance, the Cour d’appel de Versailles (15 December 2005, in Recueil Dalloz, 2006, 379) held that single (main) proceedings permit continuation of activity and, hence, sale of vehicles over a longer period, and allow coordination of the sales operations throughout the territory of Europe. On the ground that secondary insolvency proceedings would multiply costs and formalities to no purpose, the Court declined to open secondary proceedings in France because it was unnecessary for the protection of local interests and the realization of assets. See also Fletcher, in Moss/Fletcher/Isaacs, mn. 3.174 and 3.179. According to Leandro, Riv. dir. int. priv. proc. 2014, 326, “secondary proceedings could be refused when proving to be useless to the efficient insolvency administration.” 33 See, e. g. Mankowski, in Mankowski/Müller/Schmidt, EuInsVO, Art. 34, mn. 6–12; Reinhart, in Münchener Kommentar zur InsO, Art. 27 VO 1346/2000, mn. 8; Paulus, Art. 27, mn. 4; DuursmaKepplinger, in Duursma-Kepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 3 EIR 2000, mn. 78. 29

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the debtor in another Member State. It must be stressed that the decision to open main proceedings must not necessarily be a final decision34 and may consist of the opening of provisional (main) proceedings.35 If such a decision exists, the subsequent decision to open secondary proceedings is governed by Articles 34, 3(2) EIR. CJEU case law has clarified that the court making that decision may only perform a prima facie control as to the validity and the effectiveness of the prior (foreign) decision to open main insolvency proceedings.36 Any valid decision must be recognized regardless of a dissenting opinion regarding the appraisal of the first court as to the localization of COMI.37 The only ground for non-recognition is a manifest violation of public policy under Article 33 EIR which has been interpreted restrictively and applied only in very exceptional circumstances.38

II. Jurisdiction 1. Main proceedings in a Member State Opening secondary proceedings under Article 34 EIR requires the applicability of the 20 Regulation. Any court seised with a motion to open such proceedings must establish that there are main proceedings (actually) opened in a Member State which means that the respective court has held that the debtor’s COMI is within the territory of that Member State.39 Recital 25 clarifies that the Regulation “applies only to proceedings in respect of a debtor whose centre of main interests is located in the Union.” If the debtor’s COMI is located outside the territorial scope of the EIR, main 21 proceedings cannot be opened under the EIR. This also means that secondary proceedings may not be commenced, irrespective of whether the debtor has an establishment or other assets in an EU Member State. In this case, national insolvency laws apply directly.40 The result could be a rather complicated dual regime of insolvency laws that may increase the risk of forum shopping and unpredictability for European stakeholders.41 34

Article 2 no. 8 EIR. Article 2 no. 7 (ii) EIR 2015 expressly provides that the “judgment opening insolvency proceedings includes (…) the decision of a court to appoint an insolvency practitioner.” This can be done in provisional or interim proceedings. In this sense Bork, in Bork/Mangano, mn. 7.16. 36 Mangano, in Bork/van Zwieten, mn. 34.12; Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 19; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 215–216. 37 C-341/04, Eurofood ECLI:EU:C:2006:281, mn. 42; C-116/11, Bank Handlowy ECLI:EU:C:2012:739, mn. 41; C-444/07, MG Probud Gdynia sp. z o.o., EU:C:2010:24, mn. 27 and 29. See Bariatti, RabelsZ 2009, 641–642. 38 As reminded by the CJEU in Eurofood, mn. 63, recognition may be refused only when it “would be at variance to an unacceptable degree with the legal order of the State in which enforcement is sought inasmuch as it infringes a fundamental principle” and such “infringement would have to constitute a manifest breach of a rule of law regarded as essential in the legal order of the State in which enforcement is sought or of a right recognised as being fundamental.” On the application of Art. 26 of the old EIR by national courts see Hess/Pfeiffer, Interpretation of the Public Policy Exception as referred to in EU Instruments of Private International and Procedural Law, p. 39–40, 119–34 and 162–4. 39 Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 3 EIR 2000, mn. 69 and Art. 27, mn. 18. 40 Among many, see Bureau, Rev. crit. dr. int. priv. 2001, 621; Benedettelli, Riv. dir. int. priv. proc. 2004, 500–501; Paulus, 156–157. 41 Watté/Marquette, Rev. dr. comm. belge 2001, 568–569. It may, thus, seem necessary to provide a jurisdictional ground at the EU level to open secondary proceedings with regard to debtors with an establishment in the territory of a Member State, irrespective of where their COMI is located, see Nisi, J. Priv. Int. L. 2017, 324, 337. In this sense, see Articles 8 and 19 of Directive 2001/24/EC on the reorganization and winding up of credit institutions [2001] OJ L125/15, and Article 30 of Directive 2001/17/EC on the reorganisation and winding-up of insurance undertakings [OJ] L 110/28. 35

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2. Local establishment Article 3(2) EIR requires that the debtor possesses an “establishment” in the territory of the Member States where the secondary proceedings are to be opened. The definition of “establishment” is provided by Article 2 no. 10 EIR and refers to “any place of operations where a debtor carries out or has carried out in the 3-month period prior to the request to open main insolvency proceedings a non-transitory economic activity with human means and assets”. This is an autonomous definition of the Regulation that does not correspond to similar concepts adopted at the national level or elsewhere in other EU instruments, in particular in Article 7(5) of the Brussels Ia Regulation.42 23 Moreover, as clarified by recital 24, the definition of an “establishment” has to be interpreted in accordance with the case law of the CJEU43. It is immediately evident that this definition is different from the one contained in the old Regulation where Article 2(h) EIR 2000 laid down that “establishment” shall mean any place of operations where the debtor carries out a non-transitory economic activity with human means and goods.’ Not only has the term “goods” been replaced with “assets”44, but also a temporary reference has been introduced in order to constrain possible opportunistic behaviour by the debtor, such as closing an establishment to prevent the opening of secondary proceedings45. In this way, the recast Regulation also gives relevance to establishments that had been active in the period immediately preceding the request to open main insolvency proceedings.46 22

III. The insolvency of the debtor 24

The second sentence of Article 34 EIR lays down that where opening main insolvency proceedings requires a test of the debtor’s insolvency, this fact shall not be re-examined in the Member State in which secondary insolvency proceedings may be opened. The provision extends the recognition effect of the opening decision in main proceedings to the insolvency test applied under the lex fori concursus. Thus, the court seised with the motion to open secondary proceedings is bound to recognize this aspect of the opening decision of the foreign court and may not apply the (different) insolvency test under the lex fori concursus secondarii.47 The provision intends to avoid conflicting evaluations of the insolvency of the debtor in different Member States and thus responds to the diversity amongst national legislation as to the reasons for opening insolvency proceedings.48 42 Wessels, mn. 10537; Riedemann, in Pannen, European Insolvency Regulation, Art. 2 EIR 2000, mn. 47; Virgós/Garcimartín, p. 158–162. 43 C-396/09, Interedil ECLI:EU:C:2011:671, mn. 60 et seq.; Case C-327/13, Burgo Group SpA ECLI:EU: C:2014:2158, mn. 20 et seq. 44 Trustees of the Olympic Airlines SA Pension and Life Assurance Scheme v Olympic Airlines SA [2015] UKSC 27, mn. 3. 45 Garcimartín, ZEuP 2015, 724–725. The temporal qualification was proposed by the Lehne Report (European Parliament, Committee on Legal Affairs, A7-0481/2013). In the application of the old definition, the Supreme Court in Trustees of the Olympic Airlines Pension Scheme v Olympic Airlines SA [2015] UKSC 27, held that the relevant date for determining the existence of an establishment is the date of the application to open the secondary proceedings. See Madaus above Art. 2 mn. 36. 46 Moss/Fletcher/Isaacs, mn. 8.549–8.553. 47 Mangano, in Bork/van Zwieten, mn. 34.23; Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 31. It is not a rule of evidence establishing an irrefutable presumption: Wessels, mn. 10827; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 27 EIR 2000, mn. 33. 48 Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 30.

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The new provision represents an evident improvement of the Article 27 EIR 2000, 25 whose wording was not clear and raised doubts as to its interpretation. In C-116/11, Bank Handlowy, the Court held that Article 27 EIR 2000 must be interpreted to mean that the court that has been asked to open secondary proceedings cannot examine the insolvency of a debtor against whom main proceedings have been opened in another Member State, even when the latter proceedings have a protective purpose49. According to the CJEU’s interpretation, the insolvency of the debtor could not be verified as a requirement for the opening of secondary proceedings, even in those cases in which insolvency was not verified in the main insolvency proceedings.50 Bearing the CJEU’s interpretation in mind, Article 34 EIR 2015 clarifies that the court 26 of secondary proceedings is only bound by the insolvency test of a foreign jurisdiction if main proceedings were actually opened on the ground that the debtor was insolvent.51. If, however, the decision to open main proceedings (listed in Annex A EIR) was issued without an insolvency test being required under the lex fori concursus, the subsequent court is free to apply the respective test under the lex fori concursus secondarii. With the extension of the scope of the Regulation to pre-insolvency proceedings52 and the recognition of provisional decisions as opening decisions, there can be quite a number of “opening decisions” for proceedings listed in Annex A EIR that do not require a formal insolvency test.53

IV. Other requirements to open secondary proceedings The binding force of Article 34 (sentence 2) EIR only applies to the debtor’s 27 insolvency. Other legal requirements to open secondary proceedings under the lex fori concursus secondarii (e. g. the capacity of the debtor to be subject to such proceedings) are not affected and must therefore be examined by the court.54 According to Articles 3(3) and 27 EIR 2000, secondary proceedings had to corre- 28 spond with one of the types listed in Annex B EIR, i. e. winding-up proceedings aimed at the liquidation of the debtor. The main reason for such limitation was to restrict possibilities for opening secondary proceedings.55 The difficulty to open reorganisation secondary proceedings had been harshly criticized56 and was one of the shortcomings identified by the Commission in its proposal for amending the EIR 2000, in particular when the rescue and the restructuring of the debtor as a whole were at stake.57 In the EIR 2015, the former limitation on the purpose of secondary proceedings has 29 been erased. Secondary proceedings may be any kind of proceedings falling within the scope of the Regulation; they may be opened whenever the conditions required by 49

C-116/11, Bank Handlowy ECLI:EU:C:2012:739, mn. 64 ff. Paulus, Art. 27, mn. 5; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 27 EIR 2000, mn. 34; Bureau, Rev. crit. dr. int. priv. 2001, 667. 51 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.651; Reinhart, in Münchener Kommentar zur InsO, Art. 34 VO 2015/848, mn. 4 (stressing possible problems in cases where it is not possible to ascertain whether the court in the main proceeding has examined whether the debtor was insolvent, mn. 5). 52 See Article 1(1)(sentence 2) EIR. 53 Bork, in Bork/Mangano, mn. 7.34. 54 Bork, in Bork/Mangano, mn. 7.32; Mankowski, in Mankowski/Müller/Schmidt, EuInsVO, Art. 34, mn. 18. 55 Garcimartín, ZEuP 2015, 725. Other reasons are illustrated by Thole, in Münchener Kommentar zur InsO, Art. 3 VO 1346/2000, mn. 86 (an establishment can hardly be separated and individually rescued; a rescue secondary proceedings increases the need for coordination with the main proceedings). 56 See, e. g. Oberhammer, in Hess/Oberhammer/Pfeiffer, mn. 932 et seq. 57 COM(2012) 744 final, 3 and 8. 50

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Art. 34 30–33

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national law are fulfilled.58 The decision to open winding-up or rescue proceedings is not influenced by the Regulation, but premised on the application of the lex fori concursus secondarii and the discretion of the applicant or the opening court.59 However, a minimum form of coordination with the main insolvency proceedings is generally required, which is why it is advisable that parallel proceedings opened against the same debtor should pursue similar objectives.60

F. The territorial scope of secondary proceedings 30

Article 34(sentence 3) EIR clarifies that all effects of secondary insolvency proceedings are restricted to the assets of the debtor situated within the territory of the Member State in which those proceedings have been opened.61 However, it is worth noting that the territoriality of secondary proceedings does not exclude universality with respect to creditors: in fact, under Article 45 EIR, all creditors without any geographical limitation (worldwide) may lodge their claims within such proceedings.62

I. The creation of separate insolvency estates The result of this limitation is a division of the insolvency estate, originally belonging to the main proceedings, with the creation of a new territorially limited estate. The assets of the debtor located in the Member States of the secondary proceedings form part of the secondary estate, while all other assets remain part of the main estate. Moreover, all assets for any reason excluded from the insolvency estate of secondary proceedings still form part of the main estate, so that the effect of seizure/attachment ensuing from the main insolvency proceedings continues despite the opening of secondary proceedings.63 32 The division is also relevant for the costs incurred in the secondary proceedings and the liabilities determined by the local practitioner after the opening of secondary proceedings.64 However, the attribution of costs and liabilities incurred by the practitioner of the main proceedings before the date of opening of secondary proceedings can also be justified.65 33 It is worth stressing that the creation of separate estates is not just a division exercise. It may actually be advantageous for the general body of creditors and result in a higher 31

58

Reinhart, Yearb. Priv. Int. L. 2015/2016, 303. See also Article 38(4) EIR as to the possibility for the practitioner in the main proceedings to request the opening of another type of secondary proceedings than that initially requested. 60 Bork, in Bork/Mangano, mn. 7.50; Leandro, Dir. Un. eur. 2016, 232. In this regard, see the commentary on Article 38(4) EIR. 61 Not only the assets of the establishment: Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/ Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 27 EIR 2000, mn. 67. Some exceptions to this rule are indicated by Wessels, mn. 10613. 62 Ringe, in Bork/van Zwieten, mn. 3.186; Mankowski, in Mankowski/Müller/Schmidt, EuInsVO , Vor Art. 34–51, mn. 31; Garcimartín, ZEuP 2015, 724; Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 78; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 27 EIR 2000, mn. 2 and 44. 63 Wessels, mn. 10823a; Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 49. 64 Reinhart, in Münchener Kommentar zur InsO, Art. 27 VO 1346/2000, mn. 28; Mankowski, in Mankowski/Müller/Schmidt, EuInsVO, Vor Art. 34–51, mn. 34; Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 50. According to Wessels, mn. 10834 a, a general rule exists so that the “debts of the estates have to be borne by the estate the liquidator of which has caused these debts.” 65 Bork, in Bork/Mangano, mn. 7.62; Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 53–55. 59

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value than the original single estate because using the lex fori concursus secundarii may be the only way to attach encumbered assets that are otherwise partially or totally excluded in the main insolvency proceedings, in particular as a result of Article 8 EIR.66

II. The localization of assets The attribution of assets to the estate governed by secondary insolvency proceedings 34 only depends on the localization of assets.

1. The relevant date The relevant date to be considered for the localization of assets is the opening of the 35 insolvency proceedings, more exactly the date the opening decision becomes effective. Any subsequent shifting of assets to other Member States is irrelevant.67

2. Localization rules The rules governing the test where the assets are actually located are provided by 36 Article 2 no. 9 EIR.68 They include rules for registered shares, financial instruments, cash held in accounts with a credit institution, property rights, European patents, copyrights and related rights, tangible rights and claims against third parties. Whenever an asset is located outside the Member State of secondary proceedings under these rules, that asset will form part of the main estate.69 For all assets that are not covered by these uniform rules, the localization must be done under applicable (national) conflict of laws rules.70 If there is a dispute between main and secondary proceedings as to where assets are 37 located, the CJEU in Nortel held that the court of the secondary proceedings and the court of the main proceedings have concurrent jurisdiction.71 Whenever both courts are seised with a motion to decide about the localization of assets, the CJEU requires them to coordinate their decisions and to recognize any decision that is issued first.72 66 Mangano, in Bork/van Zwieten, mn. 34.28; Herchen, in Pannen, European Insolvency Regulation, Art. 27 EIR 2000, mn. 47; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 27 EIR 2000, mn. 54. 67 C-649/13 Nortel ECLI:EU:C:2015:384, mn 53. See also Thole, in Münchener Kommentar zur InsO, Art. 3 VO 1346/2000, mn. 84; Virgós/Garcimartín, mn. 350. In this sense, Article 21(2) EIR allows the insolvency practitioner appointed in the secondary proceedings to claim through the courts or out of court in any other Member State that moveable property was removed from the territory of the opening State to the territory of that other Member State after the opening of the proceedings. 68 See Dahl/Kortleben above Art. 2 mn. 20–34. 69 Bork, in Bork/Mangano, mn. 7.56. 70 C-649/13 Nortel ECLI:EU:C:2015:384, mn. 49–50. 71 C-649/13 Nortel ECLI:EU:C:2015:384, mn. 46. See Duursma-Kepplinger, in Duursma-Kepplinger/ Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 27 EIR 2000, mn. 71. 72 C-649/13 Nortel ECLI:EU:C:2015:384, mn. 45. See Madaus, ecolex 2015, 775.

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Article 35 Applicable law Save as otherwise provided for in this Regulation, the law applicable to secondary insolvency proceedings shall be that of the Member State within the territory of which the secondary insolvency proceedings are opened. Recital: 66.

Outline A. Introduction ...................................................................................................................... B. The referral to the national law of the opening State.............................................. I. The scope of the referral to national law .......................................................... II. The qualification of national law rules .............................................................. C. Exceptions to the application of the lex fori concursus secundarii .......................

1 4 4 6 9

A. Introduction Pursuant to Article 35 EIR, secondary proceedings are governed by the law of the Member State in whose territory the proceedings have been opened (lex fori concursus secondarii).1 This is a uniform conflict of laws rule that replaces, within its scope of application, national rules of private international law.2 2 The general rule according to which the law of the Member State of the opening of proceedings should be applicable is valid both for main insolvency proceedings and for local proceedings. Indeed, it is widely held that this provision is superfluous as it merely reiterates the general rule of Article 7 EIR, which is not restricted to main insolvency proceedings but also applies to secondary and territorial proceedings3. This inclusion also follows from the fact that Article 7 EIR is placed in Chapter I “General Provisions” of the Regulation. Moreover, the application of Articles 7 and 35 EIR results in the scope of the lex fori concursus universalis being at least subordinated to (if not replaced by) the applicability of the lex fori concursus secundarii within the Member State of secondary proceedings and for the duration of those proceedings.4 3 Article 35 EIR also confirms the close connection between jurisdiction and applicable law in insolvency matters. This connection was also stressed by the CJEU in Rastelli, where the Court held that with regard “to the applicable law, Article 4(1) of the [original] Regulation provides that this is dependent on the determination of the court with international jurisdiction. In relation to both the main insolvency proceed1

1 For the advantages resulting from the application of the lex fori, see Kindler, in Münchener Kommentar zum BGB, Art. 4 EuInsVO, mn. 4, stressing the objectives of neutrality, practicability, the avoidance of contradictions in the application of the law, legal certainty, the procedural economy, the equal treatment of the parties, cost-saving, familiarity with the applicable law by judges. 2 Recital 66 EIR. 3 Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 35, mn. 35.01; Mankowski, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 35, mn. 1; Reinhart, in Münchener Kommentar zur InsO, Art. 28 VO 1346/2000, mn. 1; Kindler, in Münchener Kommentar zum BGB, Art. 28 EuInsVO, mn. 2; Herchen, in Pannen, Europäische Insolvenzverordnung, Art. 28 EIR 2000, mn. 2; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 89, 225. 4 See Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 35, mn. 2.

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ings and to the “secondary” or “territorial” proceedings, the law of the Member State in which the proceedings are opened is applicable to those insolvency proceedings and to their effects”.5

B. The referral to the national law of the opening State I. The scope of the referral to national law The wording of Articles 7 and 35 EIR is not perfectly coinciding but differs slightly. 4 These differences were already present in the EIR 2000 and appear more accentuated in some language versions of the text than in others.6 It led some authors to conclude that these deviations comprise a difference in the scope of the referral to national law for main and secondary proceedings: while Article 28 EIR 2000/Article 35 EIR 2015, would refer to the law of the States in which the secondary proceedings were opened in their entirety, that is to say not limited to the insolvency law of that State, the referral in Article 4 EIR 2000/Article 7 EIR 2015, would only cover national insolvency law.7 Such an interpretation would, however, create an unjustified difference in the treatment of main and secondary insolvency proceedings.8 Instead, both references to national law should be generally interpreted as not encompassing national rules of private international law, but only insolvency law.9 In addition, it is worth stressing that the referral of Article 35 EIR encompasses both 5 substantive and procedural national insolvency law.10 This is not peculiar to secondary proceedings, but as a general rule also applicable to Article 7 EIR.11 Such an interpretation avoids further uncertainties as to the question of the qualification of national rules as either substantive or procedural.12

II. The qualification of national law rules It is not always easy to determine what exactly the lex fori concursus secundarii 6 encompasses. A national rule of the opening State could be considered as being a part of insolvency law or of another field such as company law, property law, labor law, 5 Para. 16. Similarly, in CJEU Case C-444/07, MG Probud Gdynia sp. z o.o., ECLI:EU:C:2010:24, para. 25. 6 See, for instance, the German text: “das Insolvenzrecht des Mitgliedstaats” (Art. 7 EIR 2015) vis-à-vis “die Rechtsvorschriften des Mitgliedstaats” (Art. 35). Unfortunately, this discrepancy has not been corrected and is still present also in the recast Regulation. 7 In this sense, for instance, Paulus, EuInsVO, Art. 28, mn. 3. 8 Herchen, in Pannen, Europäische Insolvenzverordnung, Art. 28 EIR 2000, mn. 4 et seq. 9 Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 35, mn. 35.05; Fletcher, in Moss/Fletcher/ Isaacs, EU Regulation on Insolvency Proceedings, mn. 4.04; Moss/Smith, in Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.191; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 35, mn. 4; Thole, in Münchener Kommentar zur InsO, Art. 4 VO 1346/2000, mn. 1; Wessels, International Insolvency Law, Part II, mn. 10836; Duursma-Kepplinger, in Duursma-Kepplinger/ Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 28 EIR 2000, mn. 4. Virgós/ Schmit, Report on the Convention on Insolvency Proceedings, mn. 87. 10 Moss/Smith, in Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.190. See also Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 90. 11 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.04; Riedemann, in Pannen, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 9; Duursma-Kepplinger, in Duursma-Kepplinger/ Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 9. See also Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 90. 12 Mangano, in Bork/van Zwieten, Commentary on EIR, mn. 35.06.

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etc.13 If a norm is classified as insolvency law, then its application follows from Article 34 EIR; if it is classified as company law or another area, then alternative conflict of laws rules in relation to other areas of law (e. g. incorporation) apply.14 In other words, the qualification determines whether uniform European or national conflict of laws rules apply which may indirectly also influence the ability of the parties to choose the applicable law. 7 For the purpose of qualification, the non-exhaustive list of Article 7 EIR plays an important role, as it provides a catalog of examples of matters that are considered insolvency law matters, e. g. the opening, conduct and closure of the proceedings as well as their effects15. Matters not listed can still be considered as insolvency law matters. The qualification problem under Article 35 EIR is insofar identical to the one under Article 7 EIR, which is why the same approach should be followed, see Piekenbrock above Art. 7 mn. 99–107. This means that the analysis is in no case contingent upon the classification used at the national level, such as how the rule is described or where it has been placed within the law. Considering the wide differences existing among the Member States in this regard, it is of no relevance whether the provision is laid down in a company law or in an insolvency law statute, but an autonomous interpretation is required.16 Therefore, the relevant matter must have a strong connection with insolvency proceedings. In order to demonstrate such a connection, it may prove useful to refer to CJEU case law for jurisdiction in annex proceedings17 and determine whether the national provision at stake fulfills an insolvency policy-founded goals and enables the insolvency proceedings to fulfill their specific purpose.18 8 The issue of qualification is particularly relevant in the case of pseudo-foreign companies, which have no connection at all with the Member State where they are incorporated, because all their business activities are carried out in a different Member States. This practice developed significantly after the CJEU’s decision in Centros and generally causes an intermixing of the application of (foreign) company law and (local) insolvency law provisions. An example is the liability of the managing directors, which concerns creditor protection principles both under company and insolvency law.19

13 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 35, mn. 21; Thole, in Münchener Kommentar zur InsO, Art. 4 VO 1346/2000, mn. 3 et seq.; Kindler, in Münchener Kommentar zum BGB, Art. 4 EuInsVO, mn. 6 et seq. For a general overview, in particular concerning company law, see Pfeiffer, in Hess/Oberhammer/Pfeiffer, European Insolvency Law, mn. 629 et seq. 14 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 4.08 in general and 4.15 concerning company law. 15 Paulus, EuInsVO, Art. 4, mn. 6. See also Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 91. 16 Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 35, mn. 35.09; Kindler, in Münchener Kommentar zum BGB, Art. 4 EuInsVO, mn. 4; Paulus, EuInsVO, Art. 4, mn. 4; Riedemann, in Pannen, Europäische Insolvenzverordnung, Art. 4 EIR 2000, mn. 11. 17 First mentioned in CJEU Case C-133/78, Henri Gourdain v Franz Nadler, ECLI:EU:C:1979:49, before being further established in CJEU Case C-339/07, Seagon v Deco Marty, ECLI:EU:C:2009:83. See also the more recent decisions in CJEU Case C-295/13, H v H K, ECLI:EU:C:2014:2410; CJEU Case C-157/13, Nickel & Goeldner Spedition, ECLI:EU:C:2014:2145. 18 In this sense, Riedemann, in Pannen, Europäische Insolvenzverordnung Art. 4 EIR 2000, mn. 14; see also Müller, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 7, mn. 81. 19 See, for instance, in CJEU Case C-594/14, Kornhaas, ECLI:EU:C:2015:806, where the Court held that an action brought before a German court by the liquidator of a company incorporated in England, but subject to insolvency proceedings in Germany, against the managing director of that company on the basis of a national provision (§ 64(2) GmbHG) requiring the reimbursement of payments made by that managing director after the company became insolvent falls within the scope of Article 4 of the original Regulation.

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Art. 35

C. Exceptions to the application of the lex fori concursus secundarii As illustrated with regard to Article 7 EIR, the rule according to which the law 9 applicable to insolvency proceedings is that of the opening State is not absolute and has quite significant exceptions, which are generally aimed at protecting the legitimate expectations and the certainty of transactions in States other than that in which proceedings are opened.20 These exceptions are listed in Articles 8 to 18 EIR and concern third parties’ rights in rem (Article 8), set-off (Article 9), reservation of title (Article 10), contracts relating to immovable property (Article 11), payments systems and financial markets (Article 12), contracts of employment (Article 13), effects on rights subject to registration (Article 14), European patents with unitary effect and Community trade marks (Article 15), detrimental acts (Article 16), protection of thirdparty purchasers (Article 17), effects of insolvency proceedings on pending lawsuits or arbitral proceedings (Article 18).21 Article 35 EIR itself provides that the lex fori concursus secundarii applies “[s]ave as 10 otherwise provided in this Regulation”. This is a clear indication that although Article 35 EIR lacks an express referral in this sense, the exceptions mentioned above also apply with regard to secondary proceedings.22 The Virgos-Schmit Report mentions secondary proceedings only with regard to Article 13 EIR 2000 concerning detrimental acts.23 However, each provision must be analysed individually in order to verify whether it applies to secondary proceedings as well. In this regard, bearing in mind the legislative intent of the Regulation and the rationale underlying Article 16 EIR, it seems possible to conclude that also Articles 9, 11, 12, 13, 14, 17, 18 EIR apply with regard to secondary proceedings. In contrast, Articles 8, 10 and 15 EIR are not included and only apply to main insolvency proceedings: Articles 8 and 10 EIR, in fact, presuppose the existence of a right or of an asset which is part of the estate, but which is located in another Member. Such a situation cannot occur in secondary proceedings, which are territorially restricted to the assets situated within the territory of the opening State. Article 15 expressly limits its scope of application to main proceedings.24 The same kind of analysis of other substantive provisions of the EIR reveals that 11 some of them are also not applicable in case of secondary proceedings, such as Articles 23(2), 34, 37(1) point a; 45 or 53–55 EIR.25

20

Recital 67 EIR; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 92. See the commentaries of the respective provisions. 22 Mangano, in Bork/van Zwieten, Commentar on EIR, mn. 35.10; Reinhart, in Münchener Kommentar zur InsO, Art. 28 VO 1346/2000, mn. 6; Kindler, in Münchener Kommentar zum BGB, Art. 28 EuInsVO, mn. 11; Paulus, EuInsVO, Art. 28, mn. 2; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 28 EIR 2000, mn. 15; Balz, ZIP, 1996, 950. 23 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 139. 24 In this sense, also Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 35, mn. 10 et seq.; Reinhart, in Münchener Kommentar zur InsO, Art. 28 VO 1346/2000, mn. 8 et seq.; Kindler, in Münchener Kommentar zum BGB, Art. 28 EuInsVO, mn. 12; Herchen, in Pannen, Europäische Insolvenzverordnung, Art. 28 EIR 2000, mn. 26 et seq.; Duursma-Kepplinger, in Duursma-Kepplinger/ Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 28 EIR 2000, mn. 19. However, Mankowski, Kindler and Duursma-Kepplinger distinguish Art. 7(1) and (2), with the latter also applying to secondary proceedings. 25 Reinhart, in Münchener Kommentar zur InsO, Art. 28 VO 1346/2000, mn. 10 et seq.; Kindler, in Münchener Kommentar zum BGB, Art. 28 EuInsVO, mn. 4 et seq.; Herchen, in Pannen, Europäische Insolvenzverordnung, Art. 28 EIR 2000, mn. 31 et seq. 21

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Article 36 Right to give an undertaking in order to avoid secondary insolvency proceedings 1. In order to avoid the opening of secondary insolvency proceedings, the insolvency practitioner in the main insolvency proceedings may give a unilateral undertaking (the “undertaking”) in respect of the assets located in the Member State in which secondary insolvency proceedings could be opened, that when distributing those assets or the proceeds received as a result of their realisation, it will comply with the distribution and priority rights under national law that creditors would have if secondary insolvency proceedings were opened in that Member State. The undertaking shall specify the factual assumptions on which it is based, in particular in respect of the value of the assets located in the Member State concerned and the options available to realise such assets. 2. Where an undertaking has been given in accordance with this Article, the law applicable to the distribution of proceeds from the realisation of assets referred to in paragraph 1, to the ranking of creditors’ claims, and to the rights of creditors in relation to the assets referred to in paragraph 1 shall be the law of the Member State in which secondary insolvency proceedings could have been opened. The relevant point in time for determining the assets referred to in paragraph 1 shall be the moment at which the undertaking is given. 3. The undertaking shall be made in the official language or one of the official languages of the Member State where secondary insolvency proceedings could have been opened, or, where there are several official languages in that Member State, the official language or one of the official languages of the place in which secondary insolvency proceedings could have been opened. 4. The undertaking shall be made in writing. It shall be subject to any other requirements relating to form and approval requirements as to distributions, if any, of the State of the opening of the main insolvency proceedings. 5. The undertaking shall be approved by the known local creditors. The rules on qualified majority and voting that apply to the adoption of restructuring plans under the law of the Member State where secondary insolvency proceedings could have been opened shall also apply to the approval of the undertaking. Creditors shall be able to participate in the vote by distance means of communication, where national law so permits. The insolvency practitioner shall inform the known local creditors of the undertaking, of the rules and procedures for its approval, and of the approval or rejection of the undertaking. 6. An undertaking given and approved in accordance with this Article shall be binding on the estate. If secondary insolvency proceedings are opened in accordance with Articles 37 and 38, the insolvency practitioner in the main insolvency proceedings shall transfer any assets which it removed from the territory of that Member State after the undertaking was given or, where those assets have already been realised, their proceeds, to the insolvency practitioner in the secondary insolvency proceedings. 7. Where the insolvency practitioner has given an undertaking, it shall inform local creditors about the intended distributions prior to distributing the assets and proceeds referred to in paragraph 1. If that information does not comply with the terms of the undertaking or the applicable law, any local creditor may challenge such

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distribution before the courts of the Member State in which main insolvency proceedings have been opened in order to obtain a distribution in accordance with the terms of the undertaking and the applicable law. In such cases, no distribution shall take place until the court has taken a decision on the challenge. 8. Local creditors may apply to the courts of the Member State in which main insolvency proceedings have been opened, in order to require the insolvency practitioner in the main insolvency proceedings to take any suitable measures necessary to ensure compliance with the terms of the undertaking available under the law of the State of the opening of main insolvency proceedings. 9. Local creditors may also apply to the courts of the Member State in which secondary insolvency proceedings could have been opened in order to require the court to take provisional or protective measures to ensure compliance by the insolvency practitioner with the terms of the undertaking. 10. The insolvency practitioner shall be liable for any damage caused to local creditors as a result of its non-compliance with the obligations and requirements set out in this Article. 11. For the purpose of this Article, an authority which is established in the Member State where secondary insolvency proceedings could have been opened and which is obliged under Directive 2008/94/EC of the European Parliament and of the Council1 to guarantee the payment of employees’ outstanding claims resulting from contracts of employment or employment relationships shall be considered to be a local creditor, where the national law so provides. Recitals: 42–44, 72. Specific bibliography: Arts, Main and Secondary Proceedings in the recast of the European Insolvency Regulation – The only good secondary proceeding is a synthetic secondary proceeding, Norton Journal of Bankruptcy Law and Practice, 24 (2015), 436; Brinkmann, Grenzüberschreitende Sanierung und europäisches Insolvenzrecht, KTS 2014, 381; Dammann, Sinn und Zweck von Sekundärverfahren nach der Reform der EuInsVO, in Festschrift für Beck, p. 73; Hanisch, “Universality” versus Secondary Bankruptcy: A European Debate, Int. Insolv. Rev. 1993, 151; Janger, Virtual Territoriality, 48 Columbia Journal of Transnational Law (2010), 401; Keller, Die fehlerhafte Zusicherung nach Art. 36 EuInsVO, ZInsO 2018, 1999; Laukemann, Instruments to avoid or postpone secondary proceedings (Articles 36 ff. EIR), MPI Luxembourg/University of Vienna/University of Milano, The Implementation of the New Insolvency Regulation, Recommendations and Guidelines (JUST/2013/JCIV/AG/4679), p. 56 et seq., published in Hess/Oberhammer/Bariatti/Koller/Laukemann/Requejo Isidor/Villata, The Implementation of the New Insolvency Regulation: Improving Cooperation and Mutual Trust (2017), p. 106–138; Mankowski, Zusicherungen zur Vermeidung von Sekundärinsolvenzen unter Art. 36 EuInsVO – Synthetische Sekundärverfahren, NZI 2015, 961; Mendiola, “Synthetic” insolvency proceedings, November 2015, available at: https://www.gap.com/wp-content/uploads/2018/07/synthetic-insolvency-proceedings.pdf.; Mohr, Die Zusicherung zur Vermeidung von Sekundärverfahren und die Begleitregelungen in Österreich, ZInsO 2018, 1285; Omar, Diversity in unitary proceedings: use of the stay jurisdiction in the European Insolvency Regulation, International Company and Commercial Law Review (ICCLR), 23(9) 2012, 283; Piekenbrock, Das Europäische Insolvenzrecht im Umbruch, Kölner Schrift zum Wirtschaftsrecht (KSzW) 2015, 191; Pluta/Keller, Das virtuelle Sekundärinsolvenzverfahren nach der reformierten Europäischen Insolvenzverordnung, in Festschrift für Vallender zum 65. Geburtstag (2015), p. 437; Pottow, A New Role for Secondary Proceedings in International Bankruptcies, 46 Texas Internatinal Law Review 2011, 579; Schmidt, Die Zusicherung nach Artikel 36 der reformierten Europäischen Insolvenzverordnung (Diss., to be published in 2019); Schuster, Die Abgabe der Zusicherung nach Art. 36 I 2 EuInsVO durch den Hauptinsolvenzverwalter, NZI 2017, 873; Skauradszun, Die “tatsächlichen Annahmen” der Zusicherung nach Art. 36 Abs. 1 Satz 2 EuInsVO n. F., ZIP 2016, 1563; Skauradszun, Einstweilige Maßnahmen und Sicherungsmaßnahmen nach Art. 36 Abs. 9 EuInsVO n. F., KTS 2016, 419; Undritz, Sekundärinsolvenzverfahren nach der Europäischen Insolvenzverordnung, in Festschrift für Vallender zum 65. Geburtstag (2015), p. 745; Wautelet, Insolvabilité européenne et procédures secondaires (June 8, 2015), available at SSRN: http://dx.doi.org/10.2139/ssrn.2687625; 1 Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection of employees in the event of the insolvency of their employer (OJ L 283, 28.10.2008, p. 36).

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Wessels, Contracting Out of Secondary Insolvency Proceedings: The Main Liquidator’s Undertaking in the meaning of Article 18 in the Proposal to Amend the EU Insolvency Regulation, 9 Brooklyn Journal of Corporate Financial and Commercial Law 2014, 63; Wimmer, Die Regelungen zu den synthetischen Sekundärinsolvenzverfahren in der Neufassung der EuInsVO, in Festschrift für Beck, p. 587; Wimmer/ Bornemann/Lienau, Die Neufassung der EuInsVO (2016), p. 142. Outline A. Foundations....................................................................................................................... I. Genesis of Article 36 EIR ...................................................................................... II. Concept and architecture of Article 36 EIR...................................................... 1. Procedural function and effects of an undertaking .................................... 2. Conflict of laws mechanism............................................................................. 3. Contractual-related conclusion ....................................................................... III. Relevance and attractiveness of synthetic proceedings .................................. 1. (Preliminary) Evaluation .................................................................................. 2. Mandatory character of Article 36 EIR? ....................................................... 3. Deferred and concerted secondary proceedings as an alternative option .................................................................................................................... 4. Criteria for assessing the adequacy and efficacy of synthetic proceedings .......................................................................................................... 5. First practical experiences: The Küpper insolvency ................................... B. Scope of application......................................................................................................... I. Member State(s) where secondary proceedings could be opened ............... II. Local assets and liabilities (scope ratione materiae) ....................................... III. Personal scope ......................................................................................................... IV. Third State relations ............................................................................................... C. Law referred to by an undertaking .............................................................................. I. Distribution and priority rights, Article 36(1), (2) EIR ................................. 1. Principles .............................................................................................................. 2. Debts incumbent on the estate........................................................................ a) Characteristics ............................................................................................... b) Liability of local assets for privileged creditors. .................................... c) Classification of debts incumbent on the estate as “priority rights” 3. Set-off .................................................................................................................... 4. Remaining scope of the lex fori concursus universalis.............................. 5. Determination of foreign law .......................................................................... II. Undertaking and third parties’ rights in rem ................................................... D. Legal prerequisites and duties of the insolvency practitioner................................ I. Proposal and formal requirements of an undertaking ................................... 1. Proposal ................................................................................................................ 2. Specification of the factual assumptions, Article 36(1)(sentence 2) EIR 3. Language, Article 36(3) EIR............................................................................. 4. Other requirements relating to form, Article 36(4) EIR ........................... II. Approval of an undertaking ................................................................................. 1. Approval by the known local creditors, Article 36(5) EIR ....................... a) Rationale and personal scope .................................................................... b) Known local creditors, Article 36(5)(sentence 1) EIR ......................... c) Voting mechanism and scope of the lex fori concursus secundarii, Article 36(5)(sentence 2) EIR .................................................................... d) Voidability and replacement of an approved undertaking ................. 2. Approval by the creditors of the main proceedings, Article 36(4) (sentence 2) EIR?................................................................................................ III. Duties to inform (known local) creditors ......................................................... 1. Identification and information of (known local) creditors, Article 36 (5)(sentence 4) EIR ............................................................................................ 2. Duty to inform local creditors about the intended distributions, Article 36(7) EIR................................................................................................. E. Effects and consequences of an approved undertaking .......................................... I. Direct effects of an undertaking as to the estate and the applicable law... II. Effects on the opening of secondary proceedings ........................................... 1. General mechanism ...........................................................................................

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1–2

2. Approval of an undertaking after the opening of secondary proceedings .......................................................................................................... III. Removal of local assets, Article 36(6)(sentence 2) EIR .................................. F. Procedural safeguards ..................................................................................................... I. Challenge of distribution, Article 36(7)(sentence 2) EIR............................... II. Remedies according to Article 36(8) and (9) EIR ........................................... 1. Common grounds .............................................................................................. 2. Local remedy under paragraph 9.................................................................... 3. Remedy according to paragraph 8 ................................................................. III. Liability of an insolvency practitioner under Article 36(10) EIR ................

Art. 36

62 63 64 66 70 70 76 78 79

A. Foundations I. Genesis of Article 36 EIR Contrary to the previous case law of the CJEU, the recast of the Insolvency 1 Regulation aims to reduce the opening of secondary proceedings which may hamper the efficient administration of the insolvency estate.2 The main legislative motivation for this reduction is the detrimental effect secondary proceedings may have on carrying out the administration effectively: While organisational and procedural difficulties as well as potential disputes between the involved insolvency practitioners are both playing their part, the opening of parallel proceedings raises costs caused by the appointment of one or more additional insolvency practitioners and the involvement of another insolvency court, and may lead to delays.3 In particular, the simultaneous application of different insolvency statutes is prone to increase complexity and aggravate the coordination of proceedings and realisation of assets, especially for a global reorganisation or group-wide sale of a company.4 According to data provided by the World Bank, the costs of insolvency proceedings may substantially burden a debtor’s estate.5 Unilateral acts and uncoordinated splits of the estate might turn out to be detrimental to the creditors as a whole. Experience has demonstrated that these structural conflicts arising between universal and local proceedings are exacerbated in corporate group insolvencies,6 though it cannot be ruled out that the opening of secondary proceedings might, in specific situations, prove beneficial to carry on the debtor’s business.7 In this light, the new regime empowers a Member State’s court at the request of a 2 main insolvency practitioner to postpone8 or – through the instrument of an under2

Recital 41 EIR. cf. Dammann/Menjucq/Roussel Galle, Rév. proc. coll. 2015, para. 25 (“parasites”), 28; Mendiola, “Synthetic” insolvency proceedings 2015, 1. 4 cf. Collins & Aikman Europe SA, 9 June 2006, [2006] EWHC 1343 (Ch), para. 8; Nortel Group, 27 August 2015, [2009] EWHC 2506 (Ch), para. 31. 5 In 2010, the cost of insolvency proceedings was about 6 percent of the estate in the United Kingdom, 8 percent of the estate in Germany, 9 percent in France and Sweden and as much as 15 percent in Spain and 22 percent in Italy, see The World Bank, Doing Business (2000), p. 77 et seq. 6 See CJEU Case C-116/11 Bank Handlowy ECLI:EU:C:2012:739, paras. 53–63, with note Koller, IPRax 2014, 490; Laukemann, ecolex 2013, 337. 7 See below mn. 13; Undritz, in Festschrift für Vallender, p. 745, 771; Dammann/Rapp, Recueil Dalloz 2015, 45. 8 According to Article 38(3) EIR, the court seized to initiate secondary proceedings will, at the request of the main insolvency practitioner or the debtor in possession, be empowered to stay their opening for a period not exceeding three months. This instrument, however, may only apply if, firstly, a temporary stay of individual enforcement proceedings has been granted to allow negotiations between the debtor and his creditors, and, secondly, if suitable measures are adopted to protect the interests of local creditors. See below mn. 62. 3

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taking – even refuse the opening of secondary proceedings in specific situations. Following practical experience gained from the English proceedings in MG Rover,9 Collins & Aikmann,10 or Nortel Networks,11 the European legislator has crafted the so far “improvised nature” of so-called synthetic proceedings12 – initiated under the flexible and practically oriented provisions of the English administration procedure – into a detailed and intricate procedural framework (Articles 36, 38(2), recitals 42–44 EIR). Article 36 EIR thus overrides any provision of national law or practice that negates the instrument of an undertaking.13

II. Concept and architecture of Article 36 EIR 3

An undertaking is a complex legal instrument.14 Three different levels need to be distinguished: (1) the procedural function and effects produced by an undertaking; (2) its conflict of laws mechanism; and (3) the contractual-related way an undertaking is concluded.

1. Procedural function and effects of an undertaking 4

Pursuant to Article 36(1) EIR, an insolvency practitioner in the main proceedings will be entitled to give an undertaking to local creditors which treats them with respect to distribution and priority rights as if secondary proceedings had been opened.15 To this extent, the provision disaggregates the law applicable to the whole of the main proceedings beyond those issues that are already governed by specific rules on conflict of laws (Articles 8–18 EIR).16 The ratio legis of an undertaking is to avoid the opening of secondary proceedings and its potentially adverse effects in order to expedite the proceedings and increase flexibility, efficiency and the overall return for all creditors (recital 41 EIR).17 In tangible terms, the instrument helps to implement a concerted insolvency plan destined for selling the debtor company.18 By applying the lex fori 9 MG Rover Belux SA/NV, 30 March 2006, [2007] BCC 446 (J Norris) (GBR): The Court permitted under para. 65(3) Sch.B1 Insolvency Act 1986 a distribution to the unsecured creditors of a Belgian company in accordance with Belgian law. On the same basis, the administrators paid the Belux employees and the preferential claim of the Belgian VAT authorities. Compared to the initial estimates, the return to unsecured creditors rose from 19 to 32 per cent, see below mn. 4. Similarly, cf. MG Rover España SA, 11 May 2005, [2006] BCC 599 (J Norris) (GBR). 10 Collins & Aikman Europe SA, 9 June 2006, [2006] EWHC 1343 (Ch). The entitlement of the joint administrators to implement the assurances given to local creditors as well as the Court’s jurisdiction to give directions was primarily based on para. 66 Sch.B1 Insolvency Act 1986, see below mn. 30 et seq., 41. 11 Nortel Group, 27 August 2015, [2009] EWHC 2506 (Ch), paras. 29 et seq. (GBR) on the basis of a company voluntary arrangement (CVA) under the Companies Act 2006. As to CJEU Case C-649/13 Comité d’entreprise de Nortel Networks and Others ECLI:EU:C:2015:384, see Laukemann, J.Priv.Int.L. 2016, 379 et seq. 12 As to this terminology, cf. Pottow, 46 Texas International Law Journal 2011, 579, 584. 13 Fletcher, Insolv. Int. 2015, 97, 100. 14 As to preliminary concepts see Janger, 48 Columbia Journal of Transnational Law 2010, 401 et seq.; Wessels, Brook. J. Corp. Fin. & Com. L. 2014, 63, 80 et seq.; Pottow, 46 Texas International Law Journal 2011, 579. As to the European Instrument see also: Arts, Norton Journal of Bankruptcy Law and Practice, 24 (2015), 436 et seq.; Moss, Brook J Int’l L 2006/7, 1005, 1017 et seq.; McCormack, The Modern Law Review 2016, 121, 133 et seq.; Omar, International Company and Commercial Law Review 2012, 283, 288 et seq. 15 See also recital 42 EIR. 16 Likewise, the rules for approval of an undertaking are determined by the lex fori concursus secundarii, Article 36(5) EIR. Cf. also the remedy under Article 36(9) EIR. 17 cf. also Bewick, Int. Insolv. Rev. 2015, 172, 182; Alter/Lévy Morelle, Forum Financier/Droit bancaire et financier 2015, 346, 348. 18 See Dammann, in Festschrift für Beck, p. 73, 81.

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concursus secundarii to distribution and priority rights (alone), Article 36 EIR partially substitutes the legal effects of territorial proceedings. Additional legal safeguards of the lex fori concursus secundarii that local creditors could profit from may only be accorded by the opening of secondary proceedings (Article 35 EIR). Therefore, losing this added procedural value needs to be approved by the (known) local creditors in accordance with Article 36(5) EIR. It can be inferred from this that the function of an undertaking is neither to treat local creditors in any manner as if secondary proceedings had been opened by guaranteeing the same results,19 nor even to put them in a better legal position. Rather, Article 36 EIR reflects a compromise between the opening of single universal proceedings with only limited consideration of foreign local interests,20 on the one hand, and a wider protection of those interests through territorial proceedings, on the other, which might potentially be considered as inappropriate to achieve an outcome in the best interest of the creditors as a whole. Thus, the new instrument occasionally paraphrased by the concept of “virtual territoriality”21 fits in well with the Regulation’s general concept of “limited” or “mitigated” universalism.22 The decisive criterion for assessing the appropriateness and efficiency of synthetic 5 proceedings is whether the giving of an undertaking is likely to assist the interests of the creditors as a whole.23 As follows from the ratio and compromise nature of Article 36 EIR, the relevant reference for this prerequisite is not the appropriateness of synthetic proceedings compared to single, i. e. unlimited main proceedings, but rather that a practitioner in the main proceedings conceives the new instrument as advantageous vis-à-vis parallel territorial proceedings.24 The former reference may only come into play if the conditions for the opening of secondary proceedings cannot be met in the State of a debtor’s establishment, for example due to a lack of sufficient local assets to cover the procedural costs. In that case, an undertaking may neither fulfil its regulatory purpose nor prove typically conducive to achieving the objective(s) of the main proceedings in the best interest of all creditors.25 The procedural function of an undertaking which is to avoid the opening of 6 secondary proceedings is implemented by Article 38(2) EIR.

2. Conflict of laws mechanism The procedural function and effects of an undertaking are complemented by a 7 conflict of laws mechanism.26 Article 36(2) EIR provides that, as a result of an approved

19 As a consequence, the specific objective of secondary proceedings as determined by the lex fori concursus secundarii will, under Article 36 EIR, not supersede the one which is relevant for the main proceedings. To further consequences see below mn. 22. 20 cf. Articles 8 et seq. EIR. 21 Janger, 48 Columbia Journal of Transnational Law 2010, 401 et seq. 22 cf. Hanisch, Int. Insolv. Rev. 1993, 151, 160 et seq.; Virgós/Garcimartín, The European Insolvency Regulation: Law and Practice 2004, mn. 17 et seq. 23 With a similar view regarding assurances under the English Insolvency Act 1986 see MG Rover Belux SA/NV, 30 March 2006, [2007] BCC 446 (J Norris), paras. 7, 9; Collins & Aikman Europe SA, 9 June 2006, [2006] EWHC 1343 (Ch), para. 49. 24 Viewed from the perspective of main proceedings and their objective, the giving of an undertaking may, as a matter of principle, only constitute a second-best solution compared to the opening of single main proceedings. 25 Only in that latter scenario, the giving of an undertaking may confront the main insolvency practitioner with liability consequences vis-à-vis creditors of the main proceedings. 26 Also: Brinkmann, KTS 2014, 381, 396.

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undertaking,27 the law applicable to distribution and priority rights shall be the potential lex fori concursus secundarii.28 Paragraph 2 thus constitutes a conflict of laws rule (Sachnormverweisung) rather than a substantive provision.29 This is because an approved undertaking ipso iure modifies the basic conflict of laws rule (Article 7 EIR) – and partly restricts Article 21(1) EIR – by making reference to the substantive provisions of the lex fori concursus secundarii with respect to distribution and priority rights. In other words, the respective rules applicable to main proceedings are superseded, i. e. partially limited as to their territorial scope.30 As a consequence of directly applying the potential lex fori concursus secundarii,31 an insolvency practitioner, by now authorised to deviate from Article 7 EIR, must comply with these local rules.32 Therefore, Article 36 (1) EIR does not simply mean to treat (local) creditors from a practical result as if the lex fori concursus secundarii applied, but rather to apply its respective provisions as if secondary proceedings were opened (Article 35 EIR).33

3. Contractual-related conclusion 8

The “conclusion” of a binding undertaking by virtue of a practitioner’s unilateral assurance, on the one hand, and the approval by the known local creditors, on the other, approximates – although not equates to – a contractual-related mechanism. However, describing Article 36 EIR as a (purely) contractual instrument granting comprehensive procedural autonomy is not fully adequate.34 Instead, by its wording and mechanism, Article 36 EIR sustainably restricts contractual freedom, be it as to the content of an undertaking (provisions of the lex fori concursus secundarii on distribution and priority rights alone, thus overlooking the financial commitments a practitioner typically submits as an additional incentive for approval), as to its territorial scope (local assets only), or as to its legal effects as determined in Articles 36(6), 38(2) EIR.35 27 The wording of Article 36(2)(sentence 1) EIR is ambiguous as to the moment when local law shall partly apply. When phrasing “Where an undertaking has been given in accordance with this Article”, paragraph 2 does not refer to the early point of time when an undertaking is proposed by the insolvency practitioner but rather when it is approved by the local creditors. Only from that time on, an undertaking has binding effects on the estate as particularly determined by the distribution and priority rights under local law, Article 36(6) EIR. 28 German version: “so gilt für die Verteilung (…) das Recht des Mitgliedstaats”; French version: “la loi applicable à la répartition…est la loi de l’État membre”; Spanish version: “la ley aplicable a la distribución (…) será la del Estado miembro”; Italian version: “la legge applicabile alla ripartizione (…) è la legge dello Stato membro”. 29 According to Kegel/Schurig, Internationales Privatrecht, 9th ed. 2004, § 1 VIII, p. 53, substantive rules make a decision based on a direct and complete assessment of conflicting substantive interests. This definition solely applies to the provisions of the lex fori concursus secundarii on distribution and priority rights, but not to Article 36(2) EIR itself. Contra Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 18. 30 This conclusion is in line with Article 36(6)(sentence 1) EIR, according to which an approved undertaking is binding on the estate. Together with paragraph 2, it follows that the local assets are directly governed by the provisions of the lex fori concursus secundarii on distribution and priority rights as a consequence of the approved undertaking. Accordingly, Article 36(7)(sentence 2) EIR does not only refer to the terms of the undertaking but also – and primarily relevant – to the applicable law. The missing reference to the latter in Article 36(8) and (9) EIR is not justified and appears to be an editing error. 31 Also Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 36, mn. 36.11. 32 Article 36(1)(sentence 1) EIR. 33 This increases the controllability of an insolvency practitioner when performing the undertaking. 34 However, advocating a contractual nature of an undertaking: Mankowski, NZI 2015, 961, 962; Mankowski, Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 4; Henry, Recueil Dalloz 2015, 979, 983, mn. 19 (“de type contractuel”). 35 In view of the preclusive effect of an approved undertaking pursuant to Article 38(2) EIR, an insolvency practitioner may not assure less than the substantial scope as specified in Article 36(1), (2)

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Indeed, this does not per se exclude additional assurances given on the basis of an 9 undertaking. However, widening its scope should only be possible to a limited extent: first, in order to avoid excessive risks of liability that might hinder a practitioner in making use of the instrument;36 and second, given the preclusive effects under Article 38(2) EIR, in order to limit the risk of outvoting (a large number of) unknown local creditors by generously extending the scope of majority voting for the benefit of a small(er) number of institutional local creditors. Considering also that an undertaking is not designed to (partly) substitute a (group-wide) restructuring plan adopted in accordance with the rules of the lex fori concursus universalis, the limited amount of autonomy Article 36 EIR provides for primarily aims at putting known local creditors in the position to opt for a reduced and (mainly) mandatory procedural alternative – in return for an equivalent but as to its scope limited legal standard.37 Whether the CJEU will in future develop an undertaking as a contractual or settlement-related instrument remains to be seen. For similar reasons, there is no adequate basis for limiting the scope of an under- 10 taking to particular groups of (local) creditors, for example employees.38 Having (local) creditors remain unconsidered could leave them worse off than in the event of secondary proceedings and, at the same time, run the risk of them being outvoted in the context of Article 36(5) EIR. Accordingly, local courts would have well-founded reasons for assessing such an undertaking as not adequately protecting the general interests of local creditors (Article 38(2) EIR). This, in turn, would ultimately also weaken the legal position of those (groups of) creditors that have exclusively been addressed by the undertaking.39

III. Relevance and attractiveness of synthetic proceedings 1. (Preliminary) Evaluation The objective of the recast to repel those secondary proceedings which might hamper 11 an efficient administration of the insolvency estate is to be welcomed. For some aspects, however, the implementation of undertakings as a new procedural instrument seems inconsistent (for example, as to the conceptual coherence of Article 36 EIR40) and insufficient (for instance, regarding the interrelation between synthetic and secondary proceedings41). Moreover, Article 36 EIR is prone to increase complexity and indirect costs, particularly in applying and determining the content of the foreign local law,42 EIR by limiting the undertaking, for instance, to only specific preferential rights or claims under the lex fori concursus secundarii. 36 See below mn. 83. 37 Differently Kindler, in Münchener Kommentar zum BGB, Art. 36 EuInsVO, mn. 5, understanding Article 36(1) EIR as establishing minimum requirements within the limits of the lex fori concursus universalis (Article 7(2)(i) EIR). 38 Nor can the scope of an undertaking be limited to particular (groups of) local assets, see below mn. 18. 39 With the same result: Schuster, NZI 2017, 873, 877, by referring to the principle of equal treatment of creditors. 40 Special mention must be made of the inadequate coordination set up by Article 36 EIR between the personal scope and procedural safeguards, on the one hand, and the underlying concept of undertakings, on the other, see below mn. 67, 70, 81. 41 This aspect particularly concerns the start of time limit to request the opening of secondary proceedings under Article 37(2) EIR, see Laukemann below Art. 37 mn. 21. 42 As to these indirect costs potentially incurred by an undertaking, cf. Mendiola, “Synthetic” insolvency proceedings 2015, 2.

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and, therefore, may raise concern about the effective, sufficient and reliable protection of local creditors and the predictability of procedural outcomes. First practical experiences will demonstrate the conditions under which local creditors may be inclined to abstain from the opening of secondary proceedings, especially in terms of procedural costs, the volume and (unclear) allocation of local assets, the number of (secured) local creditors and value of their claims, and, not least, their reliance on local law and domestic procedural bodies. So far, the new regulatory scheme is, to a large extent, perceived as formalistic, cumbersome and over-regulated, thus lacking sufficient flexibility.43 Whether or not the concept of “synthetic proceedings” will prove to be a useful and attractive instrument in cross-border insolvencies to balance out (universal) efficiency with local protection remains to be seen – particularly in the context of corporate group insolvencies where the debtor’s COMI is deemed to be different from its registered office,44 and with a view to the EIR’s new approach to permit the opening of secondary proceedings with an objective different from liquidation.45

2. Mandatory character of Article 36 EIR? 12

Regrettably, the recast does not provide a clear picture on the (non-)mandatory character of Article 36 EIR. This question is particularly relevant – and only partly relativised by the alleged consequences of Brexit – for ensuring whether the insolvency practitioner remains entitled to give an undertaking on the basis of national law. In that regard, the European legislator does not explicitly forbid the giving of an undertaking if the lex fori concursus universalis so permits.46 Simultaneously, the recast Regulation has implemented an instrument that has been practised on a purely national level so far and enlarged its application to procedural structures comprising, inter alia, information duties, remedies and a liability regime. In order to prevent a circumvention of these legal guarantees and ensure their application to be ascertainable, especially for local creditors, the insolvency practitioner should clearly indicate whether an undertaking is given on the basis of Article 36 EIR or rather under a specific provision of national law. However, once the insolvency practitioner opts for the European instrument, Article 36 EIR fully applies, thus becoming binding as to its prerequisites and legal (especially preclusive) effects and taking precedence over conflicting national insolvency law. By generally increasing the bargaining position of local creditors, this latter aspect may, in the individual case, tip the scales in favour of 43 cf. Garcimartín, ZEuP 2015, 694, 727; Thole/Swierczok, ZIP 2013, 550, 555; Thole, IPRax 2017, 213, 218 et seq. (“Prozedere aufwendig”); Wessels, European Company Law 2016, 129, 133; Fehrenbach, GPR 2017, 38, 41 (“missraten”, “kaum praktikabel”); Eidenmüller even suspects negative economic effects, thereby criticising the general approach of “modified universalism” in favour of a “straightforward universalism”, see Maastricht Journal of European and Comparative Law 2013, 133, 147, 150. Less critical, however: Bewick, Int. Insolv. Rev. 2015, 172, 182; Piekenbrock, KSzW 2015, 191, 196; Mc Cormack, The Modern Law Review 2016, 121, 134 (“welcome in principle”); Epeoglou, UCL J.L. and J. 2017, 31, 47 (“most value-maximizing tool of the RR”); Wimmer, in Festschrift für Beck, p. 587, 590. Giving a differentiated estimation: Madaus, in Festschrift für Pannen, p. 223, 240, 241, describing virtual secondary proceedings according to Art 36 EIR, on the one hand, as “remaining (…) an important instrument with respect to the insolvency of groups of companies”, while, on the other, as “not being capable of competing with the English insolvency venue”). 44 Under the scenario of a “group COMI”, recital 24 EIR explicitly mentions the possibility of instituting secondary proceedings in the Member State(s) of a debtor’s registered office(s). 45 cf. Article 47(1) EIR. See also Article 38(4) EIR allowing to align the restructuring objectives in main and secondary proceedings. 46 Also Madaus, in Festschrift für Pannen, p. 223, 236 et seq. However, pleading for a mandatory nature of Article 36 EIR excluding the giving of an undertaking under national law: Mankowski, in Mankowski/ Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 8.

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the European mechanism.47 In providing a clear perspective for all participants as to the (limited) conditions under which territorial proceedings can still be launched subsequent to an approved undertaking, this instrument might conceivably preserve its practical relevance also under the European regime. Legal uncertainty as to whether an undertaking under national law may be subject to recognition underpins the previous conclusion.48

3. Deferred and concerted secondary proceedings as an alternative option For group structures, secondary proceedings which are opened in a coordinated 13 way after a concerted realisation of group-wide assets might, in individual cases, turn out to be an alternative to giving an undertaking under Article 36 EIR.49 As demonstrated in Emtec,50 this approach proves particularly appropriate (albeit more expensive) for a complex structure or unclear allocation of the group assets, which require territorial proceedings to be administered and supervised by independent procedural bodies (court, insolvency practitioner) presumably instilling more confidence in local creditors than could be expected of a foreign practitioner appointed in the main proceedings.51

4. Criteria for assessing the adequacy and efficacy of synthetic proceedings It goes without saying that the decision of an insolvency practitioner to give an 14 undertaking according to Article 36 EIR can only be reached by considering the individual circumstances of each case.52 And, of course, the relevant aspects can be identified in a more conducive and fine-grained manner when this novel mechanism will be applied under the new regime. Nonetheless, the following – non-exhaustive – list of aspects may play a role in the decision-making process of an insolvency practitioner:53

47 If an undertaking under national law disregards the pari passu principle, discriminated creditors may seek relief under the lex fori concursus universalis or request for the opening of secondary proceedings. 48 As a matter of principle, it is not an undertaking itself but only a court decision confirming an undertaking that has been given approval under national law which may be subject to recognition under Article 32(1) subpara. 2 EIR per se. However, recognizing a national undertaking under the Regulation appears debatable, less as to the legal requirements of Article 32 EIR than to the consequence of impeding the right under Article 37 EIR to request the opening of secondary proceedings, especially with regard to unknown local creditors that have not taken part in the approval of an undertaking. If at all admissible, national law needs, firstly, to provide the same minimum procedural standards as laid down in Article 36 EIR. And secondly, the legal consequences arising from a recognised undertaking given and approved under national law may not reach further than those of an autonomous undertaking as set out in Article 38(2) EIR. 49 In this respect, the recast definition of “establishment” comes into play, Article 2 no. 10 EIR. 50 cf. Tribunal de commerce de Nanterre (3e ch.), 15 February 2006, SPA Emtec Consumer Media Italia, Recueil Dalloz 2006, 793 (FRA); approving: Menjucq, ECFR 2008, 135, 145; Wautelet, Insolvabilité européenne et procédures secondaires (June 8, 2015), available at SSRN: http://dx.doi.org/10.2139/ ssrn.2687625 (under sec. 2 F, fn. 51). 51 This insight is owed to Dr. Reinhart Dammann given in the context of the Study conducted by the MPI Luxembourg/University of Vienna/University of Milano on the Implementation of the New Insolvency Regulation, Recommendations and Guidelines, JUST/2013/JCIV/AG/4679, Part 2, A.2.1.2, p. 63; see also Dammann, in Festschrift für Beck, p. 73, 77 et seq. 52 cf. MG Rover Belux SA/NV, 30 March 2006, [2007] BCC 446, 449 (J Norris), para. 7 (GBR); also Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 36, mn. 36.02, pointing out the willingness and ability of the insolvency practitioner to give and implement an undertaking. 53 See Laukemann, in Hess/Oberhammer/Bariatti/Koller/Laukemann/Requejo Isidor/Villata, The Implementation of the New Insolvency Regulation, p. 135.

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– a certain likelihood that secondary proceedings legally can and factually will be opened;54 – possible adverse effects to be expected from the opening of secondary proceedings for an efficient administration of the main proceedings that could be avoided or mitigated by giving an undertaking; – reasons for local creditors to disapprove an undertaking and, instead, to request the opening of secondary proceedings, especially due to a large number of local creditors;55 the complexity of determining or applying different insolvency laws as to distribution and priority rights; beneficial rules on actions to set aside detrimental acts and on the realisation of assets under local insolvency law; a complex structure or (unclear) allocation of the debtor’s (local) assets; greater confidence in independent local procedural bodies (court/insolvency practitioner) to pay due regard to their local interests (for example as to local assets or the lodging of claims); particularities of a corporate group structure; – and finally, the role of national judges when requested to open secondary proceedings who might be inclined to conclude that an undertaking will not adequately protect the general interests of local creditors in the sense of Article 38(2) EIR.

5. First practical experiences: The Küpper insolvency56 15

In 2017, the local court of Wuppertal opened insolvency proceedings with respect to all companies forming part of Küpper, a group of automotive suppliers,57 including four German companies as well as a manufacturing subsidiary with a registered office in Hungary (Küpper Hungária Kft.).58 Nonetheless, the COMI of the latter company was deemed to be situated in Germany.59 In order to avoid secondary proceedings being initiated in Hungary that aimed at a liquidation of the valuable Hungarian subsidiary, and to enhance attractiveness vis-à-vis potential investors at the same time, the provisional German insolvency practitioner gave, in October 2017, an undertaking by virtue of Article 36 EIR. By the end of the year, the undertaking was approved unanimously by the local creditors60 and recorded in a notarial protocol before being submitted for information to the German and Hungarian courts.61 A Hungarian law firm was involved in the process of drafting the undertaking,62 organising and implementing its approval, as well as providing legal advice, particularly with respect to distribution and priority rights under Hungarian law. A major reason for accepting and making use of this instrument, presumably for the first time under the recast Regulation, was related to the fact that a Thai investor agreed to take over the Hungarian 54

cf. Nortel Group, 27 August 2015, [2009] EWHC 2506 (Ch), para. 31 (GBR). cf. MG Rover Belux SA/NV, 30 March 2006, [2007] BCC 446, 450 (J Norris), para. 8 (GBR). 56 My particular gratitude is owed to Advocate Thorsten Braner, who was involved in the Küpper insolvency as a legal adviser, for providing valuable background information. 57 The Küpper group is, in turn, part of the Indian Amtek group. 58 AG Wuppertal, 26 September 2017, 145 IE 2/17, Küpper Hungária Fémfeldolgozó és Öntödei Korlátolt Felelösségü Társaság, Tiszaújvaros (DEU): appointment of a provisional insolvency practitioner according to § 21(2), no. 2 InsO; the decision opening proceedings dates from 1 December 2017. 59 While debtor in possession proceedings have been initiated with regard to the German companies pursuant to §§ 270 et seq. InsO, an insolvency practitioner acting at the same time as a monitor (Sachwalter) in those latter proceedings has been appointed in respect to the Hungarian subsidiary. 60 German automobile manufacturers maintaining contractual relationships with the Hungarian supplier have been part of the group of local creditors as defined in Article 2 no. 11 EIR. 61 The protocol was submitted to the AG Wuppertal in a German translation as well. 62 This included the intricate task of determining the categories of the (main) debtor’s assets and indicating options to realise them according to Article 36(2)(sentence 2) EIR. 55

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business operation (and its workforce together with the three German sites) on the basis of an asset deal, thus guaranteeing a high dividend of over 80 %.63 As a matter of course, this new instrument of an undertaking has been unfamiliar or 16 even unknown to large parts of the domestic legal practitioners. In light of this, practical problems have particularly arisen with respect to the publication of the foreign German proceedings, which lack (terminological) equivalence under Hungarian law, in the local insolvency and land registers. However, the Hungarian legislator’s delay with implementing the Regulation contributed to these inadequacies to a not insignificant degree.64 Despite these practical inconveniences and unlike the so far sceptical assessment in legal scholarship, the Küpper insolvency demonstrates that Article 36 EIR may, in individual cases, become relevant.

B. Scope of application I. Member State(s) where secondary proceedings could be opened An undertaking may only be given if secondary proceedings can be initiated on the 17 basis of Articles 3(2), 34 EIR. According to the CJEU’s ruling in Burgo Group, these conditions are equally met in a Member State in which a debtor’s registered office is situated and in which the company possesses legal personality, whereas main proceedings have been opened in another Member State.65 In that regard, neither the wording nor the ratio legis of Article 36 EIR preclude an undertaking being given in such circumstances.66 Arguing differently would also mean to undermine the practical relevance of an undertaking as an instrument to restructure groups of companies.67

II. Local assets and liabilities (scope ratione materiae) It is the objective of an undertaking to avoid and partly substitute for the opening of 18 territorially-limited parallel proceedings. To this end, their scope will be confined to those assets of a debtor which are situated in the Member State(s) where secondary proceedings could be initiated, Article 36(1) EIR, – in conformity with the Regulation’s rules on the allocation of assets and rights, Article 2 no. 9 EIR. By contrast, a limitation to particular (groups of) local assets cannot be based on Article 36(1) EIR.68 An insolvency practitioner is also entitled to give more than one undertaking, each 19 with respect to a Member State where a debtor’s establishment is located.69 Whether or not an individual local asset forms part of the sub-category of a debtor’s estate is

63 Apart from that, there were no debtor’s assets located in Hungary encumbered with a right to separate satisfaction. For more on this aspect facilitating the giving of an undertaking see below mn. 37. 64 For further details, see below mn. 47 (fn. 145), 22 (fn. 73). 65 CJEU Case C-327/13 Burgo Group SpA ECLI:EU:C:2014:2158, paras. 20–27, 32–39. 66 Contra: Kunda, in Cotiga-Raccah/Sautonie-Laguionie, Le nouveau droit européen des faillites internationales (2018), p. 83, yet overlooking the relevance of the CJEU’s case law. Cf. also the undertaking given in the German main proceedings with regard to the Hungarian subsidiary Küpper Hungária (AG Wuppertal, 26 September 2017, 145 IE 2/17), see above mn. 15. 67 It is no coincidence that the undertaking under national law has been invented in cases like Nortel where the COMI of the French subsidiary has been located in a Member State (UK) different from that of its statutory seat. 68 Also: Schuster, NZI 2017, 873, 874, 877 et seq. 69 Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 25.

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exclusively governed by the lex fori concursus universalis, and thus not by local law (argumentum e Article 36(2) EIR).70 20 The relevant point in time for determining a debtor’s local assets shall be the moment at which an undertaking is given, Article 36(2)(sentence 2) EIR. This date coincides with the moment deemed to be authoritative for a practitioner’s obligation to retransfer removed assets in case secondary proceedings have subsequently been opened, Article 36(6)(sentence 2) EIR, see below mn. 62. As a result, Article 36(2) (sentence 2) EIR enhances the flexibility of a main insolvency practitioner, while also introducing incentives for deferring the giving of an undertaking. However, recital 46 EIR prohibiting the abusive relocation of assets situated in the State of a debtor’s establishment aims to counteract a depletion of the local estate also in the context of an undertaking, for details see below mn. 62. 21 Article 36(2)(sentence 2) EIR is confined to determine the relevant moment for establishing a local sub-category of the insolvency estate, without considering its substantive scope. Therefore, the EIR is not opposed to the application of national rules involving assets which are acquired by a debtor through the operation of his establishment during the proceedings.71 This internal debtor-creditor conflict is excluded from the scope of an undertaking, but instead governed by the lex fori concursus universalis.72 22 At the same time, only local creditors, i. e. creditors whose claims against a debtor arose from or in connection with the operation of a foreign establishment,73 will explicitly be addressed by an undertaking.74 Still, this does not mean that local assets will be dedicated to local creditors only. Instead, those assets situated in a Member State in which secondary proceedings could be opened (including the proceeds received from their realisation) shall form a sub-category of the insolvency estate (cf. recital 43 EIR). In view of a debtor’s universal liability and the universal participation of his creditors as general principles underlying the Regulation,75 those local assets shall be held liable for both local and non-local creditors, who would otherwise be entitled to lodge their claims in secondary proceedings according to Article 45 EIR. Avoiding a privileged treatment of local creditors as compared to their legal status under secondary proceedings, will be possible in this way only. Consequently, a main insolvency practitioner has 70 The scope of a debtor’s estate is determined by national rules (Article 7(2)(b) EIR), namely by exempting all non-seizable assets from the debtor’s liability. However, the objective of an undertaking does not comprehend this internal debtor-creditor conflict on the liability of specific assets. When pointing to the location of assets in a Member State in which secondary insolvency proceedings could be opened, Article 36(1) EIR only refers to the autonomous rule on the allocation of a debtor’s assets to partial insolvency estates (Article 2 no. 9 EIR). Therefore, this latter provision only creates the possibility of allocating assets to one of the partial estates under the further conditions of national insolvency law, see Laukemann, J.Priv.Int.L. 2016, 379, 388 et seq. 71 cf. under German Law: § 35(1) InsO (“Neuerwerb”). Similarly, Article 36(1), (2) and recital 43 EIR include the proceeds resulting from the realisation of local assets as a form of subrogation. 72 Correspondingly, see above fn. 54; contra: Kindler, in Münchener Kommentar zum BGB, Art. 36 EuInsVO, mn. 21. However, an undertaking may only substitute for the opening of secondary proceedings to the extent that local law shall apply according to Article 36(2) EIR. Therefore, its function is not to treat local creditors in any manner as if secondary proceedings had been opened by guaranteeing the same results, see above mn 4. 73 Article 2 no. 11 EIR. In this respect, the term “local claims” proves more accurate. However, limiting – contrary to the autonomous definition in Article 2 no. 11 EIR – the scope of “local creditors” to those creditors having their centre of main interests in the Member State of a debtor’s establishment, as recently happened in Hungarian’s implementing regulation (§ 3(r) of the Hungarian Insolvency Act, introduced by § 1(3) of the Law No. CXXVI from 2017 with effect from 28 October 2017) constitutes a flagrant breach of secondary Union law as well as indirect discrimination on grounds of nationality (see CJEU Case C-327/13 Burgo Group ECLI:EU:C:2014:2158, para. 49). 74 Explicitly: recital 42 EIR (as well as Article 36(5), (10) EIR) against Article 36(1) EIR. 75 Articles 32, 39 EIR; cf. more detailed Laukemann, J.Priv.Int.L. 2016, 379, 397.

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to take into account the interests of both local and all other creditors when realising a debtor’s assets subject to a (subsequent) undertaking.

III. Personal scope However, Article 36 EIR raises doubts as to the addressees of an undertaking, namely 23 that of whether or not the distribution and priority rights under the law of a Member State where secondary proceedings could be initiated should apply to all creditors.76 Applying different regimes, i. e. both universal and territorial insolvency law to the same set of local assets would necessarily entail a conflict of laws, treating local and non-local creditors differently. If, under this scenario, the distributional and priority rules referred to in an undertaking deviate from the rules that would apply to all other creditors according to the lex fori concursus universalis, the former would necessarily have to prevail over the latter.77 Under this scenario, the distributional and priority rules referred to in an undertaking would necessarily prevail over the contradictory rules that would apply to all other creditors according to the lex fori concursus universalis. This drawback, which is unknown to secondary proceedings, could be bypassed if the scope of an undertaking is considered to also embrace non-local creditors – along with the mechanism set out in Article 45 EIR.78

IV. Third State relations Article 36 EIR may not cover undertakings with third State relations.79 This principle 24 applies both with respect to main proceedings in which an undertaking is given,80 and to the State it refers to, which is necessarily deemed to be a Member State of possible secondary proceedings.81 As a matter of course, Member States are at liberty to implement respective rules addressing cross-border insolvencies pertaining to third countries.

C. Law referred to by an undertaking I. Distribution and priority rights, Article 36(1), (2) EIR By virtue of Article 36(2) EIR, the potential lex fori concursus secundarii applies to the 25 distribution of proceeds from a realisation of local assets, to the ranking of creditors’ claims, and to the rights of creditors in relation to those assets.82 76 In contrast, those assets which do not constitute a sub-category of the insolvency estate are governed by the lex concursus uniformly applicable to all creditors. By the same token, although the definition of “local creditors” as laid down in Article 2 no. 11 EIR requires a creditor’s claim to be connected with the foreign establishment, all the debtor’s assets – wherever located – are liable for those “local” claims. 77 Laukemann, in Hess/Oberhammer/Bariatti/Koller/Laukemann/Requejo Isidor/Villata, The Implementation of the New Insolvency Regulation, p. 112. 78 Pointing in this direction the wording of Article 36(1) EIR (“comply with the (…) rights under national law that creditors would have (…)”). Furthermore, non-local creditors are likewise bound by a court’s decision not to initiate secondary proceedings according to Articles 37(2), 38(2) EIR. 79 Contra: Pluta/Keller, in Festschrift für Vallender, p. 437, 451 et seq. 80 According to Article 3(1) EIR, main proceedings may only be initiated in a Member State. 81 Article 36(1) EIR. By the same token, the preclusive effect under Article 38(2) EIR could not apply to third States. 82 cf. the similar scope of Article 7(2)(i) EIR.

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1. Principles Therefore, the exemption from Article 7 EIR and, consequently, the substituting procedural effect of an undertaking shall be confined to distribution and priority rights, while respecting the unity and singularity of the main proceedings as well as the competence of its procedural bodies. Accordingly, the realisation of assets will be – wherever located – governed uniformly by the lex fori concursus universalis.83 Whether and under what conditions a debtor’s local assets will be realised is determined by the objective of the main proceedings, commonly in accordance with the terms of a (groupwide) restructuring plan.84 Finally, even though the lodging of claims and distribution of assets are subject to different insolvency laws, they are both placed under uniform judicial supervision.85 27 However, the term “priority rights” should be understood in the broad sense of typically comprising provisions that determine the legal position of – unsecured or preferential86 – creditors, thereby necessarily influencing or interacting with that of other (classes) of creditors. 26

2. Debts incumbent on the estate 28

a) Characteristics. Debts incumbent on the estate, incurred after the opening of insolvency proceedings and mostly subject to an enforceable limit,87 have a privileged status by taking precedence over the claims of insolvency creditors.88 They include the costs of the proceedings,89 mutual claims arising out of the continuity of specific contracts by virtue of law,90 and transactions entered into and actions taken by the liquidator, i. e. through the option of performing contracts in the interest of the general body of creditors.91

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b) Liability of local assets for privileged creditors. It should be noted first that if debts incumbent on the estate have been established on the basis of the lex fori concursus universalis before the approval of an undertaking, the local assets (in the sense of recital 43 EIR) are held liable for these debts, irrespective of whether they have arisen in connection with the debtor’s establishment. Conversely, this principle shall not apply when such a debt has arisen after that date and, at the same time, lacks connection with that establishment.92 Otherwise, the practitioner in the main proceedings would be capable of depleting the local estate to the detriment of the local insolvency creditors without these creditors necessarily obtaining adequate legal protection under Articles 38(2) and 36 (7)-(9) EIR.

83

Though subject to Article 8 EIR. With the same result: Skauradszun, ZIP 2016, 1563, 1571. When distributing the proceeds on the basis of local law, the amount to be allocated shall correspond (only) to the value of the local assets, cf. also Wimmer, in Festschrift für Beck, p. 587, 592 et seq. 85 Assuming a sub-category of the insolvency estate (recital 43 EIR) will not lead to an additional procedure for the lodging of claims. 86 As to secured creditors in the sense of Articles 8, 10 EIR, see below mn. 37. 87 cf. in German Law: § 90 InsO. 88 As regards German law: Hefermehl, in Münchener Kommentar zur InsO, § 53, mn. 5 et seq. 89 cf. in German Law: § 54 InsO. 90 cf. in German Law: § 55(1) No. 2, 2nd option InsO. 91 cf. in German Law: § 55(1) No. 1 and 2, 1st option InsO. 92 There is an analogous reasoning with respect to debts incumbent on the estate that are established by a main practitioner after secondary proceedings have been opened, see Duursma-Kepplinger, ZIP 2007, 752, 759. 84

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c) Classification of debts incumbent on the estate as “priority rights”. As a matter of principle, debts incumbent on the estate classify as “priority rights” as laid down in Article 36 EIR, yet only as long as they arise in connection with a debtor’s establishment.93 There is no sufficient reason for (partly) excluding transactions from the scope of Article 36 EIR simply because a creditor may freely decide on whether he will enter into a contractual agreement with a main practitioner.94 This is because the privileged status of those creditors (over non-preferential local and non-local insolvency creditors) is inseparably associated with the beneficial effect such an agreement is expected to have for the local insolvency estate. Therefore, the relevance of the lex fori concursus secundarii for determining a debt as being incumbent on the local estate is evident in the more frequent case95 where that debt has been established subsequently to the approval of an undertaking and in connection with the debtor’s establishment.96 Where, by way of exception, the event (opening of main proceedings) or action (taken by an insolvency practitioner) that underlies such a debt – according to the lex fori concursus secundarii – has occurred prior to the approval of an undertaking, a distinction has to be drawn: (i) If the lex fori concursus universalis classifies a debt as incumbent on the estate where the local law does not, this classification applies to all the debtor’s assets, whether non-local or local. Due to the absence of a respective priority right under local law, Article 36(2) EIR does not, with respect to this class of creditors, come into play.97 (ii) When, in the reverse case and unlike the lex fori concursus universalis, the law applying to potential secondary proceedings acknowledges a debt as being incumbent on the estate that local law shall apply on the basis of Article 36(2) EIR from the moment the undertaking has been approved, i. e. without retroactive effect.98 Differentiating instead upon whether a debt incumbent on the estate has been established (shortly) before or after the approval of an undertaking (a factor which cannot be influenced by the insolvency practitioner in all respects) would create arbitrary results. Moreover, an ex nunc classificatory relevance of the lex fori consursus secundarii corresponds to the legal situation when secondary proceedings are opened (Article 7(2)(g) EIR).

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31

32

33

3. Set-off A creditor’s right to demand the set-off of his claim against a debtor’s claim equally 34 constitutes a priority rule by virtue of Article 36(1) EIR.99 However, the potential lex fori concursus secundarii allowing such a set-off may only operate under Article 36 EIR if 93 Whether or not such debts classify as “property rights” by virtue of Article 36(2) EIR becomes relevant only if the lex fori concursus univeralis and the law applicable to potential secondary proceedings diverge in their legal assessment on whether a debt is incumbent on the estate. 94 In that sense with regard to § 55(1) no. 1 InsO as opposed to § 55(1) no. 2, 1st option InsO (DEU): Reinhart, in Münchener Kommentar zur InsO, Art. 36 EIR 2015, mn. 10 versus mn. 14. 95 Typically, an undertaking will be given at an early stage of the proceedings, thus in many cases by a provisional insolvency practitioner. 96 As to the relevant point of time, see above mn. 7. 97 Similar in result, the classification of a respective debt as incumbent on the estate is, according to the prevailing opining in legal doctrine, subject to “recognition” in subsequent secondary proceedings. Such an approach circumvents a conflict of laws solution under Article 7(2)(g) EIR, see Geroldinger, Verfahrenskoordination im Europäischen Insolvenzrecht, p. 204 et seq. with further references. As a consequence, the beneficiary creditors are not put in a better position than they were when secondary proceedings had been opened. 98 Before the approval of an undertaking, a local estate has not yet been constituted. 99 Also Reinhart, in Münchener Kommentar zur InsO, Art. 36 EIR 2015, mn. 13; Kindler, in Münchener Kommentar zum BGB, Art. 36 EuInsVO, mn. 15.

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neither the lex fori concursus universalis nor the law applicable to the debtor’s claim under Article 9 EIR so permits.100

4. Remaining scope of the lex fori concursus universalis 35

By contrast, provisions and instruments aiming to determine the scope of liable assets,101 or to protect the insolvency estate, or the interests of creditors as a whole (such as avoidance actions),102 may not be covered by an undertaking, falling within the ambit of Article 7 EIR instead.103

5. Determination of foreign law 36

When giving an undertaking, the insolvency practitioner is called upon to apply and determine the content of the foreign law. This typically raises practical difficulties in terms of additional costs and time but also with regard to a reliable application of law. As a matter of principle, an insolvency practitioner has discretion to decide which source of information he makes use of – ideally already before giving an undertaking. By way of example, he may consult a foreign law firm which is familiar to the applicable law (Article 36(2) EIR), or rather seek information from the foreign court which has jurisdiction to open secondary proceedings (cf. Articles 38(2), 42 EIR).104 However, in order to guarantee sufficient protection of the local creditors and enhance predictability of procedural outcomes, an insolvency practitioner shall refer to the source of information that ensures foreign law to be applied in a reliable and accurate manner.

II. Undertaking and third parties’ rights in rem 37

The special rules on conflict of laws (Articles 8 et seq. EIR) should prevail over the instrument of an undertaking.105 In that regard, Article 36 EIR has to be differentiated from the scope of Article 8 EIR, especially when considering Article 8 EIR as a substantive rule rather than a rule on conflict of laws.106 Note that under the latter assumption (substantive rule) assets encumbered with a right in rem may not be covered by local insolvency law (Article 35 EIR) when an undertaking is given to avoid the opening of secondary proceedings. As a consequence, individual enforcement measures are not prohibited. This interpretation, however, does confer a strong incentive for the opening of secondary proceedings to the detriment of an under-

100

Too far: Bewick, Int. Insolv. Rev. 2015, 172, 182. See above mn. 19, 21. 102 Differently: Reinhart, in Münchener Kommentar zur InsO, Art. 36 EIR 2015, mn. 15. However, should, according to national law, a local creditor’s claim be re-established following an avoidance action (cf. § 144(1) InsO (DEU)), this claim can be considered under the priority rules of the potential lex fori concursus secundarii. 103 At the same time, the power of a main insolvency practitioner to exercise – in the absence of secondary proceedings and preservation measures – all the powers conferred on him by the lex fori concursus in another Member State (Articles 7, 21(1) EIR), may not hamper the realisation of the undertaking. In that regard, those latter provisions have to be interpreted in the light of Article 36 EIR. To this extent, Article 36(1) EIR does not encroach upon Article 21 EIR. 104 To that end, the local court shall provide that information in due time. The rationale of Article 42 EIR, i. e. the cooperation and communication between courts with the aim to facilitate the coordination of universal and local interests, should equally apply to the situation of an undertaking that is meant to (partly) substitute the opening of secondary proceedings. 105 Also Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.38. 106 cf. CJEU Case C-557/13 Lutz ECLI:EU:C:2015:227, paras. 39 et seq. 101

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taking,107 unless, for instance, the insolvency practitioner succeeds in obtaining consent from creditors with a right to separate satisfaction to realise the respective good freehand.108 By contrast, Article 36 EIR may directly apply to a creditor with a right to separate satisfaction as long as his status as an insolvency creditor is concerned.109

D. Legal prerequisites and duties of the insolvency practitioner I. Proposal and formal requirements of an undertaking 1. Proposal If the legal conditions for the opening of secondary proceedings are met,110 the giving 38 of an undertaking is at the discretion of a main practitioner. Therefore, it cannot be legally enforced by the local creditors, albeit promoted through bargaining power. Once local creditors have received notice that an insolvency practitioner has given an undertaking, this unilateral declaration is binding,111 i. e. cannot be withdrawn by the practitioner alone.112 However, the undertaking may not produce legal effects by virtue of Article 36(6) EIR until it has been approved.113 As can be deduced from Article 2 no. 5 EIR, a provisional insolvency practitioner is 39 equally entitled to give an undertaking.114 Giving an undertaking at an early stage might increase the chances of a debtor’s recovery. A debtor in possession, however, is not explicitly mentioned by Article 36 EIR. This may give cause for criticism;115 the clear wording, however, should be respected (argumentum e Article 76 EIR).116

2. Specification of the factual assumptions, Article 36(1)(sentence 2) EIR When giving an undertaking, an insolvency practitioner has the duty to specify the 40 factual assumptions underlying his proposal, in particular in respect of the value of local 107

cf. Dammann, in Festschrift für Beck, p. 73, 76 et seq., alluding to the Arkor case. In the latter respect: Kindler, in Münchener Kommentar zum BGB, Art. 36 EuInsVO, mn. 10. 109 This might be relevant when a secured creditor waives his right to separate satisfaction, or such separate satisfaction has (partly) failed, cf. § 52 InsO (DEU). Also Wimmer, in Festschrift für Beck, p. 587, 591 et seq. 110 Article 3(2) EIR. 111 Assuming a proposal to be provisionally ineffective (schwebend unwirksam) is not persuasive since there is no sufficient reason to protect the insolvency practitioner (or the insolvency estate) before an undertaking is subject to (dis)approval. Differently: Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 15. 112 As to the replacement of an approved undertaking see below mn. 49–50. 113 This is why the giving of an undertaking cannot be classified as a unilateral legal transaction producing direct legal effects, as provided for by German civil law (einseitiges Rechtsgeschäft, cf. §§ 111, 180 BGB (DEU)); in that regard, however, Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 15. 114 Also Wimmer, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 423, however, confining the scope to § 22(1) InsO (DEU), starker vorläufiger Insolvenzverwalter; equally Schuster, NZI 2017, 873, 874. In this regard, it does not matter whether a provisional insolvency practitioner who has given an undertaking will subsequently be appointed as an insolvency practitioner, contra: Reinhart, in Münchener Kommentar zur InsO, Art. 36 EIR 2015, mn. 19. 115 This is because the EIR 2015 extends its scope, as a general objective, to “debtors in possession” as defined in Article 2 no. 3 EIR, inter alia in Articles 6, 28, 29, 38, 55 and 56 et seq. in conjunction with Article 76 EIR. 116 Similar Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 36, mn. 36.10; Reinhart, in Münchener Kommentar zur InsO, Art. 36 EIR 2015, mn. 18; contra: Kindler, in Münchener Kommentar zum BGB, Art. 36 EuInsVO, mn. 24. 108

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assets and the options available to realise them, Article 36(1)(sentence 2) EIR. Accordingly, an insolvency practitioner has to examine in advance all assets and rights which are deemed to be located in the Member State of a debtor’s establishment according to Article 2 no. 9 EIR, irrespective of whether they are related to the operation of that establishment.117 An office holder thus faces the dilemma to give, on the one hand, an undertaking at an early stage in order to avoid the opening of undesired secondary proceedings, while, on the other, owing swift and accurate (thus time-consuming) information on the factual assumptions of his assurance. In this light, the obligation to specify shall not exceed a reasonable and proportionate limit. Therefore, the interpretation of Article 36(1)(sentence 2) EIR should be oriented towards its predominant function of enabling local creditors to make an informed choice in order to comprehend the alleged appropriateness of an undertaking compared to the – in theory – more comprehensive safeguards of secondary proceedings. Generally speaking, all aspects that may play a role in the decision-making process of an insolvency practitioner may be subject to specification,118 such as measures envisaged to enlarge the (local) insolvency estate (for example avoidance actions); local assets removed by the insolvency practitioner after and before the undertaking has been given;119 or local assets encumbered with a right in rem.120 Predominantly, local creditors shall be informed of the (groupwide) strategy – be it liquidation, reorganisation, or transfer as a going concern – which is being followed by the insolvency practitioner on the basis of the (group-wide) main proceedings. In contrast, an office holder should refrain from providing information on issues which are still uncertain (such as the prospective insolvency dividend121) or not available within a reasonable time. In order to avoid risks of liability, it is equally advisable to indicate the source and reliability of information as well as the basis of assessment.122 41 As regards the basis for examining the value of local assets, an insolvency practitioner may, in a first step, consult the trading books of the head office and (if available) the establishment.123 In case the book value of a specific asset deviates from its market value, the latter should, as a matter of principle, prevail. However, if the market value needs to be determined by a certified appraisal which cannot be drawn up in due time, a practitioner’s assumptions may rely on the book value, while involving possible write-ups and write-downs.124 Whether the local assets should be valued on the basis of liquidation (Liquidationswert) or rather on a going concern assumption (Fortführungswert) depends on the purpose of the main proceedings as concretised, for instance, by an insolvency plan including the realisation of local assets. Given that a realisation of assets is uniformly governed by the lex fori concursus universalis, it seems inappropriate to assess the value of local assets on the basis of 117

cf., in this latter respect, the unequivocal wording of Article 36(1)(sentence 2) as well as recital 43

EIR. 118 See above mn. 14; cf. also Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 19. 119 Also: Skauradszun, ZIP 2016, 1563, 1572. 120 See above mn. 37. 121 Differently Pluta/Keller, in Festschrift für Vallender, p. 437, 443. 122 If an insolvency practitioner fails to do so, liability according to Article 36(10) EIR can nonetheless be considered only if the false or omitted factual assumptions vis-à-vis an undertaking cause damage to (local) creditors, by putting them in a financial disadvantage in comparison with the opening of secondary proceedings. This, however, is unlikely to occur given that the legal effect of an approved undertaking is to apply the potential lex fori concursus secundarii with regard to distribution and priority rights, thus guaranteeing legal equality. 123 Detailed: Skauradszun, ZIP 2016, 1563, 1568. 124 Skauradszun, ZIP 2016, 1563, 1570.

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whether or not a debtor’s establishment may become subject to restructuring measures in potential secondary proceedings.125

3. Language, Article 36(3) EIR An undertaking shall be made in the official language or one of the official languages 42 of the Member State where secondary insolvency proceedings could have been opened, or, where there are several official languages in that Member State, the official language or one of the official languages of the place in which secondary insolvency proceedings could have been opened, Article 36(3) EIR. As a consequence, the court seized under Article 36(7), (8) EIR has commonly to determine the content of an undertaking on the basis of a foreign language.

4. Other requirements relating to form, Article 36(4) EIR According to Article 36(4)(sentence 1) EIR, an undertaking shall be made in writing. 43 This term has to be interpreted autonomously, for instance by reference to Article 25(1) (sentence 3)(a) of the Brussels Ia Regulation,126 thus may not be fallen short of.127 Moreover, a proposal shall be subject to any other form requirements as to distributions, if the lex fori concursus universalis so requires.128

II. Approval of an undertaking 1. Approval by the known local creditors, Article 36(5) EIR a) Rationale and personal scope. As a bilateral instrument, an undertaking shall be 44 subject to approval by the known local creditors, Article 36(5) EIR. According to the definition in Article 2 no. 11 EIR, “local creditors” are meant to be creditors whose claims against a debtor arose from or in connection with the operation of a debtor’s foreign establishment, thus irrespective of a creditor’s domicile or habitual residence. Authorities obliged under Directive 2008/94/EC to guarantee the payment of employees’ outstanding claims are equally included, Article 36(11) EIR.129 The approval of an undertaking is justified by its preclusive effect under Article 38(2) EIR curtailing a comprehensive application of the lex fori concursus secundarii by local procedural bodies. Given that secondary proceedings primarily aim to protect local creditors,130 the voting right under Article 36(5) EIR is limited to them, hence excluding non-local creditors.131 b) Known local creditors, Article 36(5)(sentence 1) EIR. The limitation to known 45 local creditors is because undertakings are typically given at an early stage of the proceedings in which a (preliminary) insolvency practitioner will usually not be aware 125 Similar Wimmer, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 428; contra Skauradszun, ZIP 2016, 1563, 1571. 126 Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 33. 127 Contra Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 34. 128 According to German literature, an undertaking shall be subject to recording by the insolvency court provided for by the implementing regulation, Prager/Keller, WM 2015, 805, 808; Pluta/Keller, in Festschrift für Vallender, p. 437, 444. 129 As to Germany, the provision applies to the Bundesagentur für Arbeit (§§ 165(1)(sentence 3), 169 SGB III), see Article 102 c § 18(2) EGInsO. 130 cf. recital 40 EIR; more detailed: Laukemann, J.Priv.Int.L. 2016, 379, 396. 131 As to whether an undertaking may be subject to approval by the creditors of the main proceedings, see below mn. 51.

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of all local creditors. Nonetheless, as a matter of principle, all local creditors shall be deemed to be “known” insofar as they are able to prove their status as a local creditor at the moment of the vote.132 To that end, the Member States should introduce national rules obliging creditors in the voting process to prove their status as a local creditor, including the justification and amount of their claim.133 In order to achieve a broadbased vote, an insolvency practitioner needs to identify the local creditors to the extent possible and reasonable, for instance, by inspecting a debtor’s trading books and business documents, or on the grounds of a notification (for example by the debtor).134 Complementarily, the intention of an insolvency practitioner to give an undertaking as well as its underlying factual assumptions should – apart from individualised information – be notified through national insolvency registers, both in the Member State of the main proceedings and in the Member State subject to the respective undertaking.135 c) Voting mechanism and scope of the lex fori concursus secundarii, Article 36(5) (sentence 2) EIR. According to Article 36(5) EIR, the rules on qualified majorities and voting procedures governing the adoption of restructuring plans under the lex fori concursus secundarii shall apply – as appropriate136 – to the approval of an undertaking. The voting mechanism which typically includes rules on the designation and voting of groups of creditors and claims may vary from State to State.137 If national law provides for different procedures (as Italian138 or Spanish law does), Member States should designate the specific procedure which should be relevant in this context.139 Creditors are to be able to participate in the vote by distance means of communication, where national law so permits, Article 36(5)(sentence 3) EIR. 47 However, the Regulation remains silent on which voting rules designed under national law for the approval of restructuring plans may be regarded as appropriate in terms of recital 44 EIR to be applied to the different instrument of an undertaking.140 If those rules were comprehensively relevant, this would also activate a number of provisions which would or could be inconsistent with the function of an undertaking as set out in Article 36 EIR, thus undermining the principle of effectiveness.141 Evi46

132 Regarding the relevant time, also Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 38. 133 cf. Article 102 c § 18(1) RegE EGInsO (Government draft on the German Introductory Act to the Insolvency Act), Bundestagsdrucksache 18/10823. 134 At this stage of the proceedings, creditors will typically not yet have lodged their claims in the main proceedings (if at all). 135 See below mn. 54 et seq. 136 Explicitly recital 44(sentence 1) EIR, whereas missing in the operative text of the Regulation. This is exposed to criticism. 137 Accordingly, are applicable under the German Insolvency Act: §§ 222, 243 (groups of creditors), § 244 (required majorities), § 246 InsO (consent of creditors with subordinated claims). As to §§ 237, 245 InsO see below mn. 47. Regarding the UK, reference is made to the voting rules set out for company voluntary arrangements: Tett/Crinson, Corporate Rescue and Insolvency 2015, 64, 67. 138 Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 36, mn. 36.20. 139 Recital 44(sentence 3) EIR. 140 Moreover, it is still unclear which voting mechanism shall apply if the rules on qualified majority referred to in Article 36(5) EIR do not exist under national law. According to Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 36, mn. 36.18 the undertaking should be approved unanimously according to the local law of contract if there is no procedure. 141 This, for instance, would rather be the case with § 251 InsO (DEU) dealing with the request of individual creditors that pretend to be placed at a disadvantage by the plan compared with their situation without a plan. This standard, however, proves inappropriate for an undertaking: Being an advantageous instrument compared with the opening of secondary proceedings is not only difficult to predict, but – due to the compromise nature of Article 36 EIR – not a formal legal (albeit an often practical) prerequisite for giving an undertaking. Meanwhile also Article 102 c § 17(1)(sentence 1) EGInsO (DEU), see Beschluss-

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dently, this does not preclude the application of national (implementing) law providing for voting rules on the basis of body representation, for example by a (preliminary) creditors’ committee.142 In contrast, it would run counter to the very purpose and wording of Article 36(1) and (5)(sentence 1) EIR if an undertaking were subject to a debtor‘s consent143 or to a mandatory approval of a local court (argumentum e Article 38(2) EIR).144 As a matter of principle, the voting process is conducted by the insolvency practitioner appointed in the main proceedings but not by the insolvency court.145 In order to keep the instrument flexible and unfettered by (additional) formalism and legal uncertainty, the involvement of local courts should only be envisaged on an exceptional or, at least, reduced basis to supervise, for instance, a voting procedure under paragraph 5, to decide on the obstructive voting of individual creditor groups (“class cram-down”),146 or on the voting rights of creditors with disputed claims.147 Article 36(5) EIR prompts national implementing regulation. As a general principle, 48 national norms implementing EU regulations may not contravene the wording and objectives of a European legal act and its provisions. Consequently, the implementing legislator should, in the context of Article 36 EIR, generally respect the purpose of an undertaking and avoid rules promoting formalism, legal uncertainty and increased complexity which makes the instrument less flexible or, at worst, practically irrelevant.148 Given the partly substituting effect of undertakings vis-à-vis the opening of secondary proceedings, national implementing rules should not contradict this structural element by introducing provisions that might hamper, or even inhibit the approval and performance of an undertaking.149 d) Voidability and replacement of an approved undertaking. Article 36 EIR re- 49 mains silent on whether an approved undertaking may be subject to review, voidability or adjustment if, for instance, the underlying assumptions of the insolvency practitioner prove inaccurate. At first, this question should not be governed by the lex fori concursus secundarii,150 but rather be answered in conformity with the purpose and concept of an undertaking designed as an autonomous instrument. In addition, giving an undertaking at an early stage of the proceedings is exposed to a factual basis which empfehlung und Bericht des Ausschusses für Recht und Verbraucherschutz (6. Ausschuss) zu dem Gesetzentwurf der Bundesregierung zur Durchführung der Verordnung (EU) 2015/848 über Insolvenzverfahren, BT-Drs. 18/12154, p. 32. Still differently the Government draft from 11 January 2017 on the German Introductory Act to the Insolvency Act (Article 102 c §§ 17(1), 19 RegE EGInsO, BT-Drs. 18/ 10823). 142 See MG Rover Belux SA/NV [2007] BCC 446, 451, para. 9 (GBR) (approval by the Belgian creditors’ committee); Collins & Aikman Europe SA [2006] EWHC 1343 (Ch), para. 46 (GBR); cf. also Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 46 with reference to French law. 143 cf. § 247 InsO (DEU); likewise: Pluta/Keller, in Festschrift für Vallender, p. 437, 445. 144 cf. § 248 InsO (DEU); in the same sense: Fritz, DB 2015, 1882, 1888 against Wimmer, jurisPR-InsR 7/2015 annotation. 1, II 7 b. 145 cf. Article 102 c § 17(1)(sentence 1) EGInsO (DEU); Wimmer, jurisPR-InsR 11/2017 annotation. 1. Therefore, a national rule such as § 6/I of the Hungarian Insolvency Act (introduced by § 5 of the Law No. CXXVI from 2017 with effect from 28 October 2017) which makes an undertaking given in Hungarian main proceedings conditional upon a prior consent of the domestic court contravenes Article 36 EIR. 146 cf. § 245 InsO (DEU), also Article 102 c § 17(1) EGInsO (DEU); differently Madaus, NZI 2017, 203, 205; ibid., in Festschrift für Pannen, p. 223, 236. 147 cf. § 237(1) in conjunction with § 77 InsO (DEU): Article 102 c § 18 EGInsO (DEU). 148 Pointing in the same direction: Fritz, DB 2015, 1882, 1887. 149 As to domestic rules implementing a creditor’s approval in the main proceedings see below mn. 51. 150 In this regard, however, Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 20.

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typically proves uncertain, incomplete and prone to change. As a general rule, creditors should trust in the validity and legal effects of procedural agreements such as an undertaking which are entered into in order to modify the course of the proceedings as well as the applicable law.151 In this light, the principle of legal certainty calls for appropriate caution in challenging a procedural agreement, excluding, at least, a unilateral right of the practitioner to avoid or terminate an approved undertaking.152 50 However, two remaining options might be considered: (i) local creditors will review the approved undertaking under Article 38(2) EIR within the 30-day time limit pursuant to Article 37(2) EIR; (ii) after that deadline and based on adjusted assumptions, an insolvency practitioner will give a revised undertaking subject to renewed voting, thus replacing the first one through (dis-)approval153 by the local creditors.154 Nonetheless, both approaches may only be envisaged and successfully taken if, firstly, the factional assumptions underlying the initial undertaking prove incorrect to a significant extent and, secondly, the revised assumptions have the potential to change the local creditors’ view on the appropriateness of an undertaking compared to the opening of secondary proceedings, by taking into account the (advanced) stage of proceedings.155 Such adjustments may, for instance, be related to the range and value of local assets,156 but also to local assets encumbered with a right in rem. Under these circumstances, the insolvency practitioner shall even be obliged to give notice of his revised assumptions, thereby enabling local creditors to rectify their initial decision.

2. Approval by the creditors of the main proceedings, Article 36(4) (sentence 2) EIR? 51

According to Article 36(4) EIR, an undertaking shall be subject to any other approval requirements as to distributions, if the lex fori concursus universalis so requires. However, establishing a dual approval of an undertaking both by the known local creditors and, commonly, the (both local and non-local) creditors of the main proceedings raises doubts: In particular, conferring on the latter a right to approve an undertaking, conceived as a partial substitution for secondary proceedings, might not only cause delay, obstruction and legal uncertainty,157 but would also contradict the general principle 151 This is particularly relevant for the preclusive effect of an approved undertaking. By the same token, payments might have already been effected on the basis of the undertaking. 152 Similarly, as to procedural acts under German procedural law: Rosenberg/Schwab/Gottwald, Zivilprozessrecht, 17th ed. 2010, § 65, mn. 46; denying any right to challenge an undertaking: Schuster, NZI 2017, 873, 875. 153 In the event of approval, the 30-day time-limit under Article 37(2) EIR starts to run again. 154 Whether the clausula rebus sic stantibus is the appropriate mechanism in this respect (cf. Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 20), seems at least questionable given that the legal consequence of Article 36(2) EIR, which is to apply the lex fori concursus secundarii with respect to distribution and priority rights, equally applies to an initial and a revised undertaking and their underlying assumptions. 155 For instance, if an insolvency practitioner should have overvalued real estate property of a debtor located in the Member State of his establishment, this aspect alone will usually not provide incentives for the opening of secondary proceedings in which the realisation of those assets were to be based upon the same real value. 156 If the number or value of local assets proves significantly higher than initially assumed, this might, in an individual case, provide incentives for the opening of secondary proceedings. The converse situation, however, will typically confirm the appropriateness of an undertaking. 157 According to Article 102 c § 11(1) EGInsO (DEU), an undertaking given in German main insolvency proceedings shall be subject to approval by a (provisional) creditors’ committee (if appointed), thereby following the ratio legis of § 187(3)(sentence 2) InsO (DEU), see Beschlussempfehlung und Bericht des Ausschusses für Recht und Verbraucherschutz (6. Ausschuss) zu dem Gesetzentwurf der Bundesregierung zur Durchführung der Verordnung (EU) 2015/848 über Insolvenzverfahren, BT-Drs.

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according to which (non-local) creditors cannot avoid the opening of subsequent territorial proceedings through disapproval. Otherwise, local creditors participating in the main proceedings might be able to vote on both sides of an undertaking. Even more importantly, the creditors of the main proceedings would have the power to overrule the approval of the known local creditors whose interests an undertaking aims to protect. By the same token, the giving of an undertaking shall not be subject to approval by 52 the court in the main proceedings.158

III. Duties to inform (known local) creditors The identification and information of (local) creditors is of vital importance when 53 giving an undertaking. To this end, the recast Regulation establishes information duties, before and after the approval of an undertaking:

1. Identification and information of (known local) creditors, Article 36(5) (sentence 4) EIR Firstly, Article 36(5)(sentence 4) EIR obliges an insolvency practitioner to compre- 54 hensively inform the known local creditors of: (i) his intention to give an undertaking and the factual assumptions underlying his proposal, Article 36(1)sentence 2) EIR; (ii) the undertaking being subject to approval (or disapproval), including the respective legal consequences therefrom, in particular regarding the initiation of the time limit for requesting secondary proceedings, Article 37(2) EIR; (iii) the time of reception of the notice that an undertaking has been approved (Article 37(2) EIR); and (iv) legal remedies set forth in Article 36 EIR.159 The Regulation, however, fails to designate the relevant means of information.160 55 Therefore, the question arises how (local) creditors can or should be informed reliably: (i) either through non-individual notification, such as national insolvency registers or nationwide daily newspapers in the Member State where secondary proceedings could be opened; or through a website specifically created by the insolvency practitioner; (ii) or rather through decentralised individual notification. In this respect, national insolvency registers appear to be best suited to guarantee reliable information to all creditors, combined with an individual notification of an undertaking’s (dis-)approval vis-à-vis the known local creditors.161 It is of utmost importance, however, to ensure a 18/12154, p. 31; Madaus, NZI 2017, 203, 206. The provision predicates a distribution on the consent of a creditors’ committee. In doing so, the rule aims to leave to the discretion of that committee whether or not to defer a distribution of proceeds in the interest of all creditors, see Füchsl/Weishäupl/Kebekus/ Schwarzer, in Münchener Kommentar zur InsO, § 187, mn. 12. This rationale, however, objects to the function and concept of Article 36 EIR. By the same token, applying § 160 InsO will give rise to legal uncertainty, especially if a creditor’s vote is subject to the condition that the local assets are of minor importance; in that sense, though, Wimmer, in Wimmer/Bornemann/ Lienau, Die Neufassung der EuInsVO, mn. 435. 158 Differently Schuster, NZI 2017, 873, 875. However, one cannot deduce from § 196(2) InsO (DEU) according to which the insolvency court shall consent to the final distribution of proceeds that the giving of an undertaking with respect to foreign local assets shall be subject to approval by the court of the main proceedings. 159 As concerns the publication of the decision opening insolvency proceedings, see Article 28 EIR. 160 To this aspect, see Laukemann, in Hess/Oberhammer/Bariatti/Koller/Laukemann/Requejo Isidor/ Villata, The Implementation of the New Insolvency Regulation, p. 133 (under 2.2.2). 161 The individual notification shall be given in the language(s) referred to in paragraph 3. Cf. also Article 102 c § 19 in conjunction with § 12(sentence 2) EGInsO (DEU) providing for a notification to the known local creditors through individual service. The same mechanism applies to the giving of an undertaking according to § 12(sentence 2) EGInsO (DEU).

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uniform and ascertainable of the time limit under Article 37(2) EIR. To that end, the insolvency register in the Member State in relation to which an undertaking has been given should be considered as the exclusively relevant medium for determining the start of that time limit.162 Considering that the Regulation requires only a minimum amount of information to be published in the insolvency registers, Member States should not be precluded from including additional information (and indeed be encouraged to do so), cf. recital 77, Article 24(3) EIR.163 56 As regards the addressee of information, the wording of Article 36(5)(sentence 4) EIR is confined to local creditors. In the context of the provision’s aim to guarantee an informed consent under Article 36(5) EIR by way of the duty to notify, this limitation in scope is not exposed to criticism. However, as far as the approval/disapproval of an undertaking is concerned, all – including non-local – creditors should be informed on this aspect, considering the right of all creditors to request the opening of secondary proceedings. In this respect, the CJEU may, for the sake of coherency, overcome the limited wording of Article 36(5)(sentence 4) EIR by interpreting the provision in conformity with the purpose of Article 37(1)(b) EIR.

2. Duty to inform local creditors about the intended distributions, Article 36(7) EIR In the aftermath of the approval process, an insolvency practitioner is obliged to inform local creditors about the intended distributions prior to distributing the assets and proceeds, Article 36(7)(sentence 1) EIR.164 This duty shall be fulfilled in as detailed, timely and accurate a manner as is practicable to allow verification of whether an practitioner has complied with the terms of the undertaking and the applicable law, and, if he has failed to do so, ensure the possibility of an informed challenge of such a distribution according to Article 36(7)(sentence 2) EIR.165 58 Insofar as the language, the means of information as well as its addressees are concerned, the same principles as described with respect to Article 36(5)(sentence 4) EIR should apply. 57

E. Effects and consequences of an approved undertaking I. Direct effects of an undertaking as to the estate and the applicable law 59

Undertakings given and approved in accordance with Article 36 EIR shall be binding on the estate, Article 36(6)(sentence. 2) EIR. Accordingly, the distribution of proceeds from the realisation of local assets, the ranking of creditors’ claims, and the rights of creditors in relation to the local assets will not be governed by the lex fori concursus universalis, but rather by the law of the Member State in which secondary insolvency 162

See Laukemann below Art. 37 mn. 21. Information on certain aspects of insolvency proceedings is essential for creditors, such as time limits for lodging claims or challenging decisions, recital 78 EIR. 164 cf. Pluta/Keller, in Festschrift für Vallender, p. 437, 448. Under German law, a so-called distribution record drawn up by the insolvency practitioner (Verteilungsverzeichnis) contains the claims to be considered for distribution, § 188 InsO [optional:] (DEU). 165 See below mn. 66–69. Given the clear wording of Article 36(7)(sentence 1) EIR (“shall inform (…) about the intended distributions”), an insolvency practitioner shall not be obliged to give notice of the intended realisation of local assets; contra Wimmer, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 449, referring to § 168 InsO (DEU) which, however, addresses creditors with a right to separate satisfaction. 163

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proceedings could have been opened (“local law”), for details see above mn. 7, 25–37. In addition, (local) creditors may principally sue the practitioner for complying with these assurances, see below mn. 64 et seq. As described above, a debtor’s local assets are also held liable for non-local creditors;166 the local distribution and priority rights apply to all creditors, including local and non-local ones, see above mn. 22, 23. By contrast, an undertaking may not produce binding effects if it has been rejected by 60 the local creditors, or if the legal requirements set out in Article 36 EIR have not been met. For the sake of legal certainty, however, this principle should not apply to the factual assumptions on which an undertaking is based, but those proving false or incomplete.167 Compared to the invalidity of an approved undertaking, the liability regime under Article 36(10) EIR appears to be the sounder basis for sanctioning possible damages. Apart from this, an approved undertaking may be subject to replacement (thus becoming ineffective), either by a revised undertaking, see above mn. 50, or by court order opening secondary proceedings on the grounds of Article 38 (2) EIR.

II. Effects on the opening of secondary proceedings 1. General mechanism As can be deduced from Articles 37(2) and 38(2) EIR, local creditors do not legally 61 waive their right to apply for the opening of secondary proceedings by approving an undertaking.168 It is important to stress that, in the context of an undertaking, a request for initiating secondary proceedings may, subject to national law, be rejected only if (i) that request has been lodged later than 30 days after receiving notice of the approved undertaking, Article 37(2) EIR, or (ii) if it has been lodged within that time limit but the court seized is satisfied that the approved undertaking adequately protects the general interests of local creditors, Article 38(2) EIR.169 If neither of these conditions are met, the court will not be hindered under the new regime to open secondary proceedings, provided the legal conditions set forth by national law are met.

166 Contra Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 42; Prager/Keller, WM 2015, 805, 808. 167 However, more severe: Skauradszun, ZIP 2016, 1563, 1564. 168 However, it might be argued that creditors explicitly approving an undertaking may lose their legitimate interest in subsequently requesting the opening of secondary proceedings, unless the insolvency practitioner has neglected his duty to inform the creditors correctly and comprehensively. 169 As to the latter prerequisite, a court shall, when assessing the interests of local creditors, take into account that the undertaking has been approved by a qualified majority of local creditors (recital 42 (sentence 4) EIR). In this view, the court should treat an approved undertaking as an assumption that the interests of local creditors are being protected. This assumption should furthermore include those local creditors, who did not participate in the approval procedure, if they are bound to the outcome according to the domestic voting rules, and as long as they are given a realistic chance to become aware of the undertaking (e. g. via the publication in a register). It would thus fall to the local creditors to reverse this presumption by providing evidence that their interests are being endangered. In this regard, the mere fact that local creditors will suffer additional effort and costs by participating and lodging their claims in (foreign) main proceedings governed by foreign insolvency law may, by itself, not suffice to deny an adequate protection of local creditors’ general interests. Equally, the fact that the secondary proceedings might provide other rules, which exceed the general scope of an undertaking, should not be considered a sufficient limitation of the local creditors’ general interests, see Laukemann, in Hess/Oberhammer/ Bariatti/Koller/Laukemann/Requejo Isidor/Villata, The Implementation of the New Insolvency Regulation, p. 131 (under 2.1.4.2).

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2. Approval of an undertaking after the opening of secondary proceedings 62

Apart from Article 36 EIR, the recast Regulation empowers a court at the request of the insolvency practitioner in the main proceedings to postpone the opening of secondary proceedings, Article 38(3) EIR. Principally, both mechanisms – i. e. synthetic proceedings and a stay of proceedings according to Article 38(3) EIR – may not come into play once secondary proceedings are opened.170 This shortcoming considerably undermines the general policy approach of the recast: Before an undertaking becomes binding through approval, a court is permitted to initiate secondary proceedings even if the process of approving an undertaking is underway, without examining whether local interests are adequately protected. This bears the risk that local creditors might be tempted to pressure the insolvency practitioner to grant privileges that exceed those gained by “regular” secondary proceedings, or even outright subvert an undertaking by previously requesting the opening of secondary proceedings. This is exacerbated by the fact that a main practitioner will lack power to request the closing of secondary proceedings following an intermediate approval of the undertaking.171 The wording of Article 38(3) EIR does not address that issue either.172 Nonetheless, so as to be more in line with the recast’s key objective to avoid detrimental secondary proceedings, the scope of Article 38(3) EIR should, where appropriate, be extended by way of analogy173 to situations where the insolvency practitioner in the main proceedings has given or envisages giving an undertaking in the sense of Article 36 EIR, which, however, has not been approved yet.174 This instrument should include the judicial power to close secondary proceedings at the request of the main practitioner once an undertaking, meeting the conditions under Article 38(2) EIR, has been approved by the creditors.

III. Removal of local assets, Article 36(6)(sentence 2) EIR 63

When obliging a main practitioner – once secondary proceedings are opened – to transfer assets which were removed from the territory of a Member State after an undertaking had been given but before secondary proceedings were initiated, Article 36 (6)(sentence 2) EIR aims to mitigate a depletion of assets subject to the secondary proceedings. This provision has to be read in conjunction with Article 21(1) EIR. Accordingly, the obligation to remove local assets already applies before preservation measures have been taken further to a request for the opening of secondary proceedings in order to prevent the transfer of those assets. At the same time, such an obligation may arise only if secondary proceedings are opened and the previous transfer of assets has taken place after the undertaking was given, Article 36(6)(sentence 2) EIR. From a practitioner’s perspective, this mechanism enhances flexibility when implementing a (group-wide) restructuring strategy along with the purpose of the main proceedings, but 170

Detailed to this problem: Brinkmann, KTS 2014, 381, 397. Although challengeable under Article 39 EIR as well as under national law, a court decision which opens secondary proceedings contrary to Articles 37(2), 38(2) EIR, would nonetheless be subject to recognition. 172 It remains unclear under Article 38(3), subpara. 3 EIR whether and under what conditions the court shall be entitled to refuse the opening of secondary proceedings if an agreement in the sense of subparagraph 1 has been concluded in the meantime. 173 An application by analogy primarily concerns subparagraphs 1 and 2. 174 Laukemann, in Hess/Oberhammer/Bariatti/Koller/Laukemann/Requejo Isidor/Villata, The Implementation of the New Insolvency Regulation, p. 137 (under 3.6); also Fritz, DB 2015, 1882, 1887; Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 38, mn. 6, 34. However, one should not overlook the fact that the instrument of Article 38(3) EIR is limited to a period of three months. 171

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also potential for abuse.175 According to recital 46 EIR, however, a main insolvency practitioner is not allowed to relocate assets situated in the Member State of a debtor’s establishment in an abusive manner, even prior to giving an undertaking. Recital 46 EIR thus mirrors the purpose of the Regulation to ensure an effective protection of local interests also in the context of an undertaking. Should local creditors consider the removal of local assets to be abusive or at least detrimental, they may refuse their consent under Article 36(5) EIR, bring an action to establish the practitioner’s liability according to paragraph 10,176 and/or envisage a request for the opening of secondary proceedings.177 And finally, when applying Article 38(3) EIR equally to flank the giving of an undertaking (see above mn. 62), the local court may order protective measures aiming to prevent a removal of local assets during a stay.178

F. Procedural safeguards Contrary to the proposals of the EU Commission179 and the EU Parliament,180 an 64 undertaking given and approved in accordance with Article 36 EIR is not enforceable by law. As a consequence, the EIR provides for specific remedies to ensure compliance by an insolvency practitioner with the terms of an undertaking and the applicable law.181 In case serious doubts are submitted as to whether an undertaking has been given and approved in accordance with Article 36 EIR, a court seized on the grounds of paragraphs 7 to 9 should be allowed to incidentally verify the (formal) validity of an undertaking. However, this does not include the power to decide upon its appropriateness in terms of Article 38(2) EIR. Following the scheme of the Regulation, a court requested to open secondary proceedings within the time limit of Article 37(2) EIR is exclusively entitled to overrule an approved undertaking on the grounds that it does not adequately protect the general interests of local creditors, Article 38(2) EIR. If an insolvency practitioner fails to perform an undertaking lawfully, the (local) creditors can, instead of filing a complaint under Article 36(7) to (9) EIR, bring an action establishing the practitioner’s liability under Article 36(10) EIR.182 This, however, may not affect the validity of the undertaking. Complementarily, the insolvency practitioner is subject to supervision according to 65 the lex fori concursus universalis allowing the insolvency court to require him to also fulfil his autonomous obligations under Article 36 EIR.

175 cf. also Wimmer, jurisPR–InsR 7/2015 annotation 1 sub II 7 b, p. 5 et seq.; Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 23. 176 However, remedies under Article 36(8) and (9) EIR are not yet applicable ratione temporis. 177 In this respect, an abusive removal of local assets should also be taken into account by a local court when assessing the capacity of an approved undertaking to adequately protect the general interests of local creditors, Article 38(2) EIR. 178 Article 38(3), subpara. 2 EIR. However, these protective measures do not exclusively cover local assets removed in an abusive manner, whereas at the same time excluding those relocated in the ordinary course of business. 179 COM (2012) 744 final, 12 December 2012, p. 23 (“and shall be enforceable and binding on the estate”). 180 Position of the European Parliament, 5 February 2014, P7 TA(2014)0093, mn. 28(a). 181 Article 36(7)(sentence 2), (8), (9) EIR. 182 To ensure effective protection of local interests, this action shall be brought also before the local courts as provided for in paragraph 9.

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I. Challenge of distribution, Article 36(7)(sentence 2) EIR According to Article 36(7)(sentence 2) EIR, local creditors are entitled to challenge a distribution of assets provided that the information given by an insolvency practitioner about the intended distributions does not comply with the terms of an undertaking or the applicable law.183 The remedy is designed as an action for an injunction,184 vested with suspensive effect (Article 36(7)(sentence 3) EIR).185 Its objective is to control the conformity (and revise any discrepancy) between the intended distributions of local assets and proceeds, on the one hand,186 and a practitioner’s obligation to distribute and perform an undertaking on the basis of the applicable law, on the other. In view of this purpose, the scope of the action needs to be extended to the situation where only the information on the intended distributions, but not the actual distributions, coincide with the terms of an undertaking and the applicable law. Considering the objective of Article 36(7)(sentence 2) EIR, creditors should equally be entitled to bring a claim under this provision if an insolvency practitioner fails to inform local creditors (in due time) about the intended distributions in accordance with sentence 1.187 67 Granting an individual right of action, Article 36(7) EIR entitles every single creditor to file a complaint.188 Given that the undertaking addresses both local and non-local creditors (see above mn. 22 et seq.), legal standing should equally be acknowledged to the latter group. In this respect, further clarification by the CJEU is needed to overcome the restrictive wording of Article 36(7) EIR. 68 Exclusive jurisdiction is vested in the courts of the Member State in which the main insolvency proceedings have been opened.189 As a result of this judicial concentration, the competent courts need to interpret and apply foreign law; local creditors are required to assert their claim before foreign courts.190 69 Article 36(7) EIR does not prevent a national legislator from implementing rules specifying local jurisdiction,191 potential time limits, and whether or not the court decision is subject to appeal.192 66

II. Remedies according to Article 36(8) and (9) EIR 1. Common grounds 70

As expressed in (nearly) parallel terms by paragraphs 8 and 9, local creditors may bring an action to ensure an insolvency practitioner complies with the terms of an undertaking and – one should add – with the law applicable according to Article 36(2) 183

cf. Weiss, Int. Insolv. Rev. 2015, 192, 205 et seq. Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 60. 185 According to Article 36(7)(sentence 3) EIR, no distributions shall take place until the court has taken a decision on the challenge. 186 Under German law, a so-called distribution record drawn up by the insolvency practitioner (Verteilungsverzeichnis) contains the claims to be considered for distribution, § 188 InsO [optional:] (DEU). 187 Less persuasive: Pluta/Keller, in Festschrift für Vallender, p. 437, 449. 188 Also Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 58. 189 Pluta/Keller, in Festschrift für Vallender, p. 437, 448. 190 By its nature, the remedy is to be classified as annex action pursuant to Articles 6, 32(1.2) EIR, although providing by itself for jurisdiction. 191 cf. Article 102 c § 21(1) EGInsO (DEU), allocating local jurisdiction to the insolvency court before which the main proceedings are pending. 192 cf. Article 102 c § 21(1), (3) EGInsO (DEU). It is to be welcomed that the court shall decide by way of an order from which no appeal shall lie. 184

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EIR.193 Both claims are admissible regardless of whether the practitioner in the main proceedings inaccurately performs, or even refuses to perform the terms of an undertaking.194 In conformity with Article 36(7)(sentence 2) EIR, local as well as non-local creditors should have legal standing to file a complaint under paragraphs 8 and 9, for details see above mn. 22–23. As a matter of principle, Article 36 EIR provides for a concurrent jurisdiction195 of both the courts in the Member State of the main proceedings (paragraph 8) and the courts of the Member State in which secondary proceedings could have been opened (paragraph 9).196 However, exclusive jurisdiction is vested in the courts seized under paragraph 8 when granting final judicial protection.197 As can be deduced from Article 2 no. 6 (i) EIR, the term “court” referred to in both paragraphs must be interpreted as encompassing any judicial body of a Member State, thus not necessarily insolvency courts. In this respect, national legislators have the task of specifying rules on local and operational jurisdiction.198 The legitimate interest of (local) creditors in obtaining satisfaction of their claims may typically be jeopardised under the following circumstances: (i) non-compliance by a practitioner with the local distribution and priority rights; (ii) non-compliance with further assurances forming part of an undertaking; (iii) depletion of local assets and proceeds subject to distribution under local law: (i) As to the first group of cases, paragraphs 8 and 9 aim to ensure local law is applied, which is expected by (the known local) creditors to be beneficial for the satisfaction of their claims as compared to the respective rules of the lex fori concursus universalis. Therefore, failing to comply with these rules constitutes a sufficient reason for granting provisional measures under Article 36(8) and (9) EIR if there is a serious risk of a (local) creditor’s financial situation deteriorating when awaiting the decision on the substance of his claim.199 (ii) As regards the second group of cases, it should be recalled that an undertaking is principally designed to apply foreign local rules on distribution and priority rights within the main insolvency proceedings.200 As a consequence, a practitioner is not obliged to give additional assurances on the basis of an undertaking. If he nevertheless decides to do so, for instance as to the (non-)realisation of specific local assets,201 creditors may, as a general rule and subject to reservations, sue the practitioner for complying with these assurances. However, deviating from assurances that exceed the legal content of an undertaking as delimited by Article 36(2) EIR cannot give reasonable ground for granting (provisional or protective) measures under paragraphs 8 and 9 – nor provide a basis for liability under paragraph 10 – as long as the objective of the main proceedings and (group-wide) restructuring strategy so requires without deteriorating a (local) creditor’s 193 Therefore, the objective of both remedies is not to ensure direct performance of an undertaking’s terms towards the respective creditor, also Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 65. 194 Unlike Article 36(7)(sentence 2) EIR, the remedies under paragraphs 8 and 9 are neither vested with suspensive effect nor subject to time limits. 195 Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 66. 196 In specific cases, measures under paragraphs 8 and 9 may also be taken in parallel as long as they do not coincide as to their cause and subject-matter. 197 Also Pluta/Keller, in Festschrift für Vallender, p. 437, 450. 198 cf. Article 102 c § 21(1), (2) EGInsO (DEU). 199 Thus describing, under German law, a sufficient ground for authorising a seizure order (under § 917 ZPO) or interim injunctions according to § 935 ZPO [optional:] (DEU). To both aspects, see Skauradszun, KTS 2016, 419, 434 et seq. 200 cf. Article 36(1) and (2) EIR. 201 cf. Skauradszun, KTS 2016, 419, 431.

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financial situation as compared to a full respect of these assurances. Otherwise, the flexibility of the new instrument as well as a main practitioner’s willingness to make use of it in the interest of the creditors as a whole would severely be restricted. 75 (iii) In view of a practitioner’s powers under Article 21(1) EIR and considering that realising local assets is (subject to Article 8 EIR) governed by the lex fori concursus universalis also in the context of an undertaking (see above mn. 26), the remedies under paragraphs 8 and 9 cannot be intended to deny a main practitioner access to local assets as such, especially when following a group-wide strategy in conformity with the objective of the main proceedings.202 In this respect, claims under paragraphs 8 and 9 should be brought only to prevent any abusive removal of local assets and proceeds in terms of recital 46 EIR, or other forms of abusive depletion subsequent to the giving of an undertaking, see above mn. 63. This may in particular be the case when the question of whether or not specific (groups of) assets are to be allocated to the local part of a debtor’s estate is subject to legal uncertainty.

2. Local remedy under paragraph 9 According to paragraph 9, the courts in the Member State of a debtor’s establishment are competent to take provisional or protective measures in order to ensure compliance by the insolvency practitioner with an undertaking’s terms. Both provisional measures as set out, for instance, by general procedural law,203 and protective measures204 are covered by this remedy. Given that these courts can be seized irrespective of any request to initiate secondary proceedings and provide judicial protection on the basis of domestic law (yet territorially related),205 the remedy under paragraph 9 proves attractive for local creditors.206 77 However, these measures are meant to be provisional or protective by their nature, thus conferring final judicial protection to the courts of a Member State where the main proceedings have been opened. If, for instance, the practitioner in the main proceedings transfers, in an abusive manner, proceeds from a sale of local assets to bank accounts of the opening State, (local) creditors may still request provisional measures authorising a seizure order – likewise under Article 36(8) EIR and (9) EIR. Indeed, except for ex parte proceedings,207 both orders will reciprocally be subject to recognition if they meet the criteria of annex actions in terms of Article 32(1.2) EIR.208 Nonetheless, Article 36(9) EIR appears to exclude the competence of local courts to also 76

202 Similar to what occurred in Emtec, proceeds from the sale of local assets may be held on fiduciary accounts also in the State of the main proceedings, provided that they will be subject to distribution according to the local rules on distribution and priority rights as set out in Article 36(2) EIR. 203 cf. under German law: §§ 916, 935 ZPO. 204 According to Skauradszun, KTS 2016, 419, 426 et seq., § 21 InsO (DEU), i. e. a provision of the German Insolvency Act enabling an insolvency court to take interim protective measures, proves inadequate for the protective purpose of Article 36(9) EIR. It should be observed, however, that § 21(2) InsO does not contain an exhaustive list of measures. Therefore, it cannot be excluded that the provision may, in a specific case, become relevant for protecting the local assets. 205 Measures taken under Article 36(9) EIR are meant to protect creditors’ interests relating to the local part of a debtor’s estate which is governed by an undertaking according to Article 36(2) EIR. This territorial relatedness, however, does not exclude a respective court decision to be recognised under Article 32 EIR. 206 The lacking reference to the law of the respective Member State appears to be an editing error, cf. however recital 36(sentence 4) EIR. 207 cf. Article 2(a) of the Brussels Ia Regulation. 208 As a matter of principle, this will be the case with court decisions under Article 36(8) and (9) EIR since they typically derive directly from the insolvency proceedings and are closely linked with them, even if they were handed down by another court. This latter aspect has not been considered by Skauradszun, KTS 2016, 419, 442.

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adjudicate in the merits upon the recovery of proceeds. In this respect, (local) creditors are put in a worse position than they would be under secondary proceedings.

3. Remedy according to paragraph 8 By virtue of Article 36(8) EIR, local creditors may apply to the courts of the Member 78 State where main proceedings have been opened, in order to make the insolvency practitioner comply with the terms of the undertaking. In doing so, paragraph 8 provides for both a jurisdictional rule and a substantive procedural rule.209 When pointing to any suitable measures necessary to ensure compliance with the terms of an undertaking, paragraph 8 does not only make reference to instruments, such as supervisory measures, that insolvency courts may make use of under domestic insolvency law.210 Instead, all measures provided for by the lex fori concursus universalis, including those ordered by interim relief on the basis of general procedural law,211 fall within the ambit of paragraph 8.212

III. Liability of an insolvency practitioner under Article 36(10) EIR According to paragraph 10, an insolvency practitioner shall be liable for any damage 79 caused to local creditors when failing to comply with his obligations and requirements under Article 36 EIR. This autonomous rule which equally applies prior to the giving of an undertaking, see above mn. 63, does not supersede liability rules under the lex fori concursus universalis.213 To be classified as annex actions in terms of Article 6(1) EIR,214 claims under 80 Article 36(10) EIR need to be brought before the courts of a Member State where main proceedings have been opened. Indeed, exempting local courts from jurisdiction under paragraph 10 may weaken effective judicial protection of local creditors. This approach, however, is well in line with paragraph 9 limiting the competence of local courts to issue provisional and protective measures only. The wording of Article 36(10) EIR proves ambiguous as to whom this claim is 81 attributed to, and whether it shall cover the individual loss of single local creditors or rather the total loss sustained by the sub-category of the insolvency.215 In this respect, both categories should be governed by paragraph 10, given that either situation may occur as a result of a practitioner’s failure to comply with his obligations under Article 36 EIR.216 As a matter of principle, a claim under paragraph 10 is attributed to every single (local) creditor. In the event of total losses, however, Member States may provide for specific mechanisms.217 In view of the extended personal scope of an undertaking, see above 209

Kindler, in Münchener Kommentar zum BGB, Art. 36 EuInsVO, mn. 41. cf. under German law: § 58 InsO (duty to inform; imposition of a fine), § 59 InsO (dismissal of the insolvency practitioner). 211 cf. under German law: §§ 916, 935 ZPO [optional:] (DEU), also Reinhart, in Münchener Kommentar zur InsO, Art. 36 EIR 2015, mn. 37. 212 Equally advocating a broad scope of possible reliefs: Kindler, in Münchener Kommentar zum BGB, Art. 36 EuInsVO, mn. 44. 213 Similar: Reinhart, in Münchener Kommentar zur InsO, Art. 36 EIR 2015, mn. 44. 214 Equally Pluta/Keller, in Festschrift für Vallender, p. 437, 450. 215 English version: “liable for any damage caused to local creditors”; French version: “responsable de tout dommage causé aux créanciers locaux”; German version: “haftet gegenüber den lokalen Gläubigern’. 216 Contra Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 71, excluding total losses. 217 See, for instance, Article 102 c § 14 EGInsO (DEU) referring to § 92 InsO (DEU): Protecting the creditors’ interests as a whole, the claim for compensation of total losses (Gesamtschaden) can be filed only by a special insolvency practitioner (Sonderinsolvenzverwalter). 210

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mn. 22 et seq., non-local creditors should be addressed by paragraph 10 as well.218 In this regard, further clarification by the CJEU is needed to overcome its restrictive wording. 82 (Local) creditors are entitled to claim for any damage, i. e. compensation.219 This implies a causal link between the suffered loss and a practitioner’s failure to comply with his obligations under Article 36 EIR as, for instance, to provide accurate and complete information on the intended distributions, Article 36(7)(sentence 1) EIR. By the wording of paragraph 10, liability may be established without fault.220 83 As a provision of Union law, paragraph 10 has principally to be interpreted autonomously, that is to say in conformity with the concept of undertakings as set out in Article 36 EIR.221 To this end, courts have to balance out the interest of (local) creditors in their claims being effectively protected, on the one hand, with a legitimate concern, on the other, to avoid disproportionate liability risks of practitioners that would impede any reasonable use of the new instrument on behalf of the creditors as a whole. Accordingly, an insolvency practitioner should not be held responsible for omitting to give an undertaking.222 By the same token, claiming compensation for false or omitted assumptions vis-à-vis an undertaking, Article 36(1)(sentence 2) EIR, should be considered under exceptional circumstances only, for details, see above mn. 40. 218

Pointing in the same direction: Fehrenbach, GPR 2017, 38, 42. Not (fully) corresponding to a contractual instrument, an approved undertaking should not be subject to termination under Article 36(10) EIR, see also above mn. 49, 50. Differently: Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 69. 220 Also Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 68; Madaus, NZI 2017, 203, 206; contra: Schuster, NZI 2017, 873, 879. 221 Mangano, however, advocates the application of the lex fori concursus secundarii, in Bork/van Zwieten, Commentary on EIR, Art. 36, mn. 36.25. 222 Whether or not an undertaking is given, falls under a practitioner’s discretion, see above mn. 38. Moreover, (local) creditors are capable of putting pressure on a practitioner by the mere threat of requesting the opening of secondary proceedings. Differently however, Mankowski, in Mankowski/ Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 21, though referring to the lex fori concursus universalis. 219

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Article 37 Right to request the opening of secondary insolvency proceedings 1. The opening of secondary insolvency proceedings may be requested by: (a) the insolvency practitioner in the main insolvency proceedings; (b) any other person or authority empowered to request the opening of insolvency proceedings under the law of the Member State within the territory of which the opening of secondary insolvency proceedings is requested. 2. Where an undertaking has become binding in accordance with Article 36, the request for opening secondary insolvency proceedings shall be lodged within 30 days of having received notice of the approval of the undertaking. Recitals: 38, 40. Specific bibliography: Barlowski, Practical problems in Applying the Regulation 1346/2000, International Corporate Rescue 2011, 172; Brinkmann, Grenzüberschreitende Sanierung und europäisches Insolvenzrecht, KTS 2014, 381; Dammann, L’affaire Rover: la Cour d’appel de Versailles precise les conditions d’ouverture d’une procedure secondaire dans le cadre du règlement CE n° 1346/2000, Recueil Dalloz 2006, 381; Dammann/Müller, Eröffnung eines Sekundärinsolvenzverfahrens in Frankreich gem. Art. 29 lit. a EuInsVO auf Antrag eines “schwachen” deutschen Insolvenzverwalters, NZI 2011, 752; Fehrenbach, Haupt- und Sekundärinsolvenzverfahren (2014), p. 358–367; Geroldinger, Verfahrenskoordination im Europäischen Insolvenzrecht (2010), p. 76 et seq.; Henry, Ouverture d’une procédure secondaire en France par le syndic provisoire de la procédure principale allemande, Recueil Dalloz 2012, 596; Laukemann, Instruments to avoid or postpone secondary proceedings (Articles 36 ff. EIR), in MPI Luxembourg/ University of Vienna/University of Milano, The Implementation of the New Insolvency Regulation, Recommendations and Guidelines (JUST/2013/JCIV/AG/4679), p. 56 et seq., published in Hess/Oberhammer/Bariatti/Koller/Laukemann/Requejo Isidor/Villata, The Implementation of the New Insolvency Regulation: Improving Cooperation and Mutual Trust (2017), p. 106–138; Laukemann, Präventive Schutzverfahren im Spannungsfeld von Universalität und Territorialität, ecolex 2013, 337; Oberhammer, Coordination of Proceedings, in Hess/Oberhammer/Pfeiffer, European Insolvency Law (HeidelbergLuxembourg-Vienna Report) 2014, p. 219; Thole, Lehren aus dem Fall NIKI, ZIP 2018, 401. Outline A. Introduction ...................................................................................................................... B. General rule for determining the right to request (paragraph 1) ......................... I. The main practitioner’s right to request (point a).......................................... 1. Regulatory purpose and right to request ...................................................... 2. Main insolvency practitioner ........................................................................... II. Right to request under the lex fori concursus secundarii (point b) ............. 1. Ratio legis and mechanism .............................................................................. 2. Debtor’s right to request................................................................................... 3. Creditors’ right to request ................................................................................ 4. Additional requirements for application....................................................... C. Request to open secondary proceedings in the context of an undertaking: the start of the time limit (paragraph 2) ...........................................................................

1 3 4 4 8 11 11 14 18 20 22

A. Introduction Article 37 EIR addresses the right to request the opening of secondary proceedings. 1 As a substantive provision that reproduces with minor deviations, the wording of Article 29 EIR 2000, point (a) of the first paragraph empowers the main insolvency practitioner to apply for the initiation of secondary proceedings. By contrast, point (b)

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constitutes a conflict of laws rule by making reference to the lex fori concursus secundarii for determining the respective right to request.1 2 The second paragraph, which has been introduced by the EIR 2015, aims to synchronise Article 37 EIR with the instrument of an undertaking (Article 36 EIR) by providing a 30-day time limit to seek the opening of secondary proceedings in a situation where an undertaking has become binding through the approval by local creditors.

B. General rule for determining the right to request (paragraph 1) 3

Paragraph 1 exclusively deals with the right to request the opening of secondary proceedings, thus excluding any rights of participation in the foreign proceedings from its scope.2 Article 37(1) EIR is not subject to time limits. However, exercising this right is admissible only as long as main insolvency proceedings are ongoing.3

I. The main practitioner’s right to request (point a) 1. Regulatory purpose and right to request Under Article 37(1)(a) EIR, which directly applies and complements corresponding entitlements of national law, a main practitioner is vested with an individual procedural right. The provision supplements both Articles 21 and 52 EIR and reflects the auxiliary function of secondary proceedings in relation to main proceedings.4 Therefore, point (a) serves as a procedural link moderating the underlying antagonism of universality and territoriality. The practitioner’s right to request thus helps to enhance administrative options for effectively administering and realising the debtor’s assets located in a Member State of his establishment (recital 40 EIR). This can, for instance, be achieved by anticipating a local creditor’s request (thus putting an end to a current legal limbo),5 or by allowing access to local assets encumbered with a right in rem (thus overcoming the blocking effect of Article 8 EIR6).7 5 As a matter of principle, the main insolvency practitioner is not obliged to request the opening of secondary proceedings.8 Rather, it is at his discretion whether or not he 4

1 As to the conflict of law character of point (b) (Sachnormverweisung): Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 37, mn. 37.01. 2 Also Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 37, mn. 1. 3 National time limits may only be provided under point (b), whereas not as to the autonomous right of the main practitioner under point (a). Different as to the latter aspect: Mankowski, in Mankowski/Müller/ Schmidt, EuInsVO 2015, Art. 37, mn. 39. 4 cf. Geroldinger, Verfahrenskoordination im Europäischen Insolvenzrecht, p. 46 et seq.; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 27 EIR 2000, mn. 4 et seq.; Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 34, mn. 34.07 et seq. 5 Fehrenbach, Haupt- und Sekundärinsolvenzverfahren, p. 366 et seq. 6 CJEU Case C-557/13 Lutz ECLI:EU:C:2015:227, paras. 39 et seq. 7 See, for instance: LG Innsbruck, 11 Mai 2004, 9 S 15/04 m, Hettlage, ZIP 2004, 1721 (AUT); LG Klagenfurt, 2 July 2004, 41 S 75/04 h, NZI 2004, 677 (AUT); cf. also Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 33; Dammann, in Festschrift für Beck, p. 73, 76 et seq.; Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 29 EIR 2000, mn. 1; Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 29, mn. 4. 8 Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 29 EIR 2000, mn. 3; cf. Reisch/Winkler, ZIK 2004/96, 80, 82, assuming, in particular situations, an obligation to request under the (Austrian) lex concursus universalis; also Herchen, in Pannen, Europäische Insolvenzverordnung, Art. 29 EIR 2000, mn. 13.

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makes use of his right under Article 37(1) EIR. This decision is to be based upon the interests of the creditors as a whole and in conformity with the objective of the main proceedings. Given that the lex fori concursus secundarii is not yet applicable, an obligation under this law to request the opening of insolvency proceedings principally cannot bind a main practitioner. Moreover, the objective of such an obligation is not to guarantee the application of domestic law. To achieve this, creditors may seek the opening of secondary proceedings on the basis of Article 37(1)(b) EIR.9 Based on the CJEU’s reasoning in ENEFI, the right to request the opening of 6 secondary proceedings is not infringed upon by national legislation (Article 7 EIR) that – on the basis of the forfeiture of claims lodged outside of the time limit prescribed – excludes all requests brought by a creditor holding such a claim and seeking the opening of secondary proceedings. According to the Court, it would undermine the dominant role of the main insolvency proceedings if the opening of territorial proceedings requested by a respective creditor who did not participate in the main proceedings were capable of circumventing the forfeiture provided for by the lex fori concursus universalis and of frustrating a composition or any of the debtor’s comparable restructuring measures adopted in the context of the main proceedings.10 A fortiori, the EIR also allows a rule of the lex fori concursus that merely suspends enforcement proceedings relating to those claims.11 Article 22 EIR governs the proof of a main practitioner’s appointment. 7

2. Main insolvency practitioner The term “insolvency practitioner” has to be interpreted in accordance with the 8 scheme of the EIR 2015 as set out in Article 2 no. 5 EIR in connection with Annex B EIR. Due to the auxiliary function of secondary proceedings, the right to request their opening under Article 37(1)(a) EIR cannot be extended to insolvency practitioners appointed in further secondary proceedings. This, however, does not exclude a respective right to be conferred under point (b).12 Under the EIR 2000, it has been debated whether the right to petition for the opening 9 of secondary proceedings may equally be enjoyed by a preliminary practitioner.13 By referring to Article 38 EIR 2000 as well as to the function of an interim practitioner, which typically is to secure a debtor’s assets, the previous question was answered in the affirmative by a considerable number of legal scholars.14 By contrast, the Tribunal de commerce de Nanterre, in a decision from 2011, approved the right of a German provisional liquidator to request the opening of French secondary proceedings in order to encourage a swift protection of local labour rights.15 In Eurofood, the CJEU stressed 9

Contra: Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 37, mn. 9. CJEU Case C-212/15 ENEFI ECLI:EU:C:2016:841, paras. 16 et seq., 27; also Paulus, EuInsVO, Art. 37, mn. 12. 11 CJEU Case C-212/15 ENEFI ECLI:EU:C:2016:841, para. 29. 12 See Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 29 EIR 2000, mn. 10; Heiderhoff, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivilund Handelssachen, Art. 29 VO Nr. 1346/2000, mn. 3. 13 cf. sec. 264(1)(b)(ba) of the Insolvency Act 1986 (England/Wales) conferring the right to present a bankruptcy petition to a temporary administrator within the meaning of Article 38 EIR 2000. 14 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 226; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 29 EIR 2000, mn. 4; Lüer, in Uhlenbruck, Insolvenzordnung, Art. 29 EIR 2000, mn. 2; Kindler, in Münchener Kommentar zum BGB, Art. 29 EuInsVO, mn. 4. 15 Tribunal de commerce de Nanterre, 30 November 2011, n° 2011 L 02302, GB Europe Ltd/Alkor Venilia GmbH, Recueil Dalloz 2012, 596 with consenting note Henry (paras. 9 et seq.); also Dammann/ Müller, NZI 2011, 752, 756; Reinhart, in Münchener Kommentar zur InsO, Art. 29 EIR 2000, mn. 4 (provided that a court equally orders that the debtor be divested). 10

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by way of obiter dictum that (only) a provisional liquidator has the power to initiate secondary proceedings once he is referred to in the former Annex C EIR 2000.16 10 Regarding the EIR 2015, it follows from the definition in Article 2 no. 5 EIR in line with the Eurofood case law that a provisional liquidator shall be deemed competent to initiate secondary proceedings as long as he is listed in Annex B EIR.17 This is usually the case given that Article 2 no. 5 EIR explicitly encompasses practitioners appointed on an interim basis.18

II. Right to request under the lex fori concursus secundarii (point b) 1. Ratio legis and mechanism By referring to the lex fori concursus secundarii, point (b) reiterates what already has been implemented by the general rules of Articles 35, 7(2) EIR. As a consequence of this regulatory mechanism, the persons19 and authorities20 concerned vary among Member States. In this light, the objective of point (b) is to dovetail the autonomous instrument of secondary proceedings with the prerequisites for launching insolvency proceedings as set out by the Member States’ jurisdictions.21 12 A very small number of Member State language versions refer to an entitlement under national law to initiate secondary insolvency proceedings.22 However, Article 37 (1)(b) EIR is not supposed to address a Member State’s autonomous rules on crossborder insolvencies with respect to third countries nor any other rules which grant a right to appeal specifically for the opening of secondary proceedings.23 Instead, as can 11

16 By contrast, a non-listed provisional liquidator may nonetheless request that preservation measures be taken over local assets on the basis of Article 52 EIR (Article 38 EIR 2000), at least as long as the appointing court of the main proceedings refraines from ordering that the debtor be divested, see CJEU Case C-341/04 Eurofood IFSC Ltd ECLI:EU:C:2006:281, para. 57. 17 Also Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.29; Mangano, in Bork/ van Zwieten, Commentary EIR, Art. 37, mn. 37.03; Delzant, in Braun, Insolvenzordnung, Art. 37, mn. 3. 18 As to Germany, Annex B EIR addresses in this respect a preliminary insolvency practitioner, in whatever form; reference is also made to an office holder supervising a debtor in possession, also when appointed on an interim basis (Sachwalter), § 270 c InsO (DEU). 19 cf. as to French law, Article L. 640-4 Code de commerce (as to the debtor); Article L. 640-5(2) Code de commerce (as to creditors), cf. Monsèrié-Bon, Juris-Classeur, Sauvegarde, redressement et liquidations judiciaires (11/2016), Fasc. 3125 mn. 51. As to German law: §§ 13, 14, 15 InsO. 20 cf. as to French law, Article L. 640-5(1) Code de commerce in conjunction with Articles 212, 173 Décret n° 2005-1677 from 28 December 2005 granting – next to the court (ex officio) – the ministère public a right to request. This procedure was applied (under the equivalent provisions previously applicable) in the SAS Rover France case before the Tribunal de commerce de Nanterre, 19 Mai 2005, n° 2005 P 00666. As to Italian law, cf. Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 37, mn. 37.05, referring to Articles 7, 195 of the Italian Insolvency Act. 21 Evidently, this reference to national law cannot apply to proceedings which are, by virtue of Article 1 (2), excluded from the scope of the Regulation. For details, see Herchen, in Pannen, Europäische Insolvenzverordnung, Art. 29 EIR 2000, mn. 15 et seq. 22 cf., for instance, the German version: “die nach dem Recht des Mitgliedstaats, in dessen Hoheitsgebiet die Eröffnung des Sekundärinsolvenzverfahrens beantragt wird, dazu befugt ist.” (emphasis by the author). This, however, may rather be attributable to reasons of linguistic simplification. Cf. Balowski, International Corporate Rescue 2011, 172, 173, pointing also to the Polish and Lithuanian language version; left open by Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.392. 23 Invoked by the Sad Apelacyjny w Rzeszowie in the case Polmos Lancut SA, the Sad Najwyzszy (20 January 2010, C III CZP 115/09, Uchwała SN z dnia (POL)) held that Article 407 of the Polish Insolvency Act, dealing in cross-border cases with a right to apply for the opening of secondary proceedings (limited to creditors domiciled in Poland), is deemed to be the relevant and specific rule for implementing Article 29(b) EIR 2000, instead of Article 20 of the Insolvency Act dealing with the general right of any creditor to request the opening of insolvency proceedings. Such a reasoning, however, clearly

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be deduced from the majority of language versions24 as well as from the rationale of Article 37(1)(b) EIR, reference is made only to application rules under national law dealing with internal proceedings without cross-border relevance.25 Under the conditions set forth by the lex fori concursus secundarii, an application to 13 open main insolvency proceedings may be reinterpreted as a request for the opening of secondary proceedings.26 According to Article 38(1) EIR, the main practitioner needs to be heard on a request under point (b).27

2. Debtor’s right to request With regard to a debtor’s right to apply for the opening of insolvency proceedings 14 under national law, three different situations have to be distinguished: First, may a debtor still be perceived as being entitled to present a bankruptcy 15 petition as provided for by local law when, under the lex concursus universalis, his right to administer and dispose of his assets has been transferred to an insolvency practitioner? As a matter of principle, a debtor who has been divested of his assets loses his respective right for the benefit of the main practitioner – whether or not his petition included debtor in possession proceedings.28 This is because the opening of secondary proceedings is tantamount to a disposal of local assets that will no longer form part of the universal estate but instead will be subject to a local estate governed by the lex fori concursus secundarii.29 Even if the bodies of a debtor company retain specific procedural rights under the lex concursus universalis,30 it has to be examined – not from a company law perspective but on the grounds of insolvency law31 – whether these provisions serve the autonomous objectives of secondary proceedings. Usually, this will not be the case since it is not necessarily up to a debtor divested of control over his assets and affairs to protect local creditors’ interests, nor to support the administration of main proceedings once they have been initiated. contravenes Article 10 TFEU, as established in CJEU Case C-327/13 Burgo Group ECLI:EU:C:2014:2158, paras. 49, 51, see below mn. 19. 24 cf. only the Dutch, English, French, Italian, Portuguese and Spanish language version. 25 cf. also Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 227 (“Article 29(b) confers the right to have proceedings opened on any person, without distinction”). 26 AG München, 5 February 2007, NZI 2007, 358, 359 (DEU) with note Mankowski. The reverse situation, however, is inadmissible, see Wenner/Schuster, in Wimmer, Frankfurter Kommentar zur InsO, Art. 29 EIR 2000, mn. 12, against AG Mönchengladbach, 27 April 2004, NZI 2004, 383 (DEU) with note Lautenbach; cf. also: OGH, 30 November 2006, ÖJZ 2007, 325 (AUT), dismissing a request to open territorial proceedings in terms of Article 3(2), (4) EIR 2000, instead assuming the debtor’s COMI in Austria. 27 As a consequence, the instrument of a caveat (Schutzschrift) submitted by a main practitioner to potential courts that are competent to open secondary proceedings becomes redundant. Cf. under the old regime Mock, ZInsO 2009, 895, 898. 28 Wessels, International Insolvency Law, mn. 10839 b; Eidenmüller, NJW 2004, 3455, 3458; DuursmaKepplinger, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 29 EIR 2000, mn. 8; Kindler, in Münchener Kommentar zum BGB, Art. 37 EuInsVO, mn. 12; Maesch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 29 EG-InsVO 2000, mn. 5; Herchen, in Pannen, Europäische Insolvenzverordnung, Art. 29 EIR 2000, mn. 22 et seq.; unclear: Schultz, in Kayser/Thole, Insolvenzordnung, Art. 29, mn. 5; contra: AG Köln, 23 January 2004, Automold, NZI 2004, 151, 153 (obiter dictum) (DEU); Thole, ZIP 2018, 401, 409. Also differently, as to the right of a receiver appointed in the Swedish main proceedings to represent a debtor in a hearing before Estonian courts on the petition to open secondary proceedings, yet misinterpreting Article 21(1), (3) EIR (Art. 18 EIR 2000): Riigikohus, 6 March 2006, n. 3-2-1-7-06, BeckRS 2010, 21623 (EST), under para. 16. 29 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 29 EIR 2000, mn. 6; AG Düsseldorf, 12 March 2004, Daisytek, NZI 2004, 269, 271 (obiter dictum). 30 cf., as to German law: AG Köln, 23 January 2004, Automold, NZI 2004, 151, 153 (DEU). 31 Contra: Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 37, mn. 26 et seq.

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Second, should one consider a main practitioner to be competent to petition for the opening of secondary proceedings on the basis of a debtor in possession status? Introduced in the Automold case in 2004, this procedural model promotes a concerted administration by a single main practitioner.32 In territorial proceedings, vested with the powers of a debtor in possession by replacing the actual debtor, the main practitioner remains entitled to administer and dispose of the liable assets, albeit under a limited supervision by another office holder.33 Regardless of this functional change, constituting a dual status of the practitioner, it is point (a) that applies to this situation since the right concerned is that of a main practitioner when filing a request under Article 37 EIR. This alone, however, may not guarantee the function a main practitioner seeks to perform in the requested proceedings.34 Acting as a debtor in possession is admissible only under the premises of the lex fori concursus secundarii. Nonetheless, this does not exclude the principle that local rules have to be interpreted in conformity with the objectives of the EIR. This is particularly the case when such a “Trojan horse strategy” is not expected to be detrimental to the interests of local creditors,35 if only because possible conflicts of interests that in principle may call into question the main practitioner’s independence will presumably not arise in the particular case.36 17 Finally, a debtor acts, in respect of the main proceedings, as a debtor in possession in terms of Article 2 no. 3 EIR, thus remaining in control of his assets and affairs and, where applicable, supervised by an office holder. As follows from the wording of Article 37(1)(a) EIR, a right to request under this provision may not be accorded to a debtor in possession (argumentum e Article 76 EIR, Annex B EIR) but rather to the supervising office holder.37 This, however, does not preclude a corresponding right to apply if the lex fori concursus secundarii so provides.38 16

3. Creditors’ right to request Under the Member States’ laws, creditors are generally entitled to request the opening of insolvency proceedings.39 The restrictive conditions set out by Article 3(4) EIR regarding a petition for initiating “isolated” territorial proceedings do not apply to a request under Article 37 EIR made subsequently to the opening of main proceedings. 19 The lex fori concursus secundarii has not only been stipulated to decide whether a respective right is granted. As can be deduced from Articles 35, 7(2) EIR, reference to local law is also made to principally set out the conditions under which an application is deemed to be admissible, for instance by requiring a creditor’s claim to be identified as 18

32 AG Köln, 23 January 2004, Automold, NZI 2004, 151, 154 (DEU); endorsing: Haubold, in Gebauer/ Wiedmann, Zivilrecht unter europäischem Einfluss, Ch. 32, mn. 218; sceptical: Geroldinger, Verfahrenskoordination im Europäischen Insolvenzrecht, p. 234 et seq.; Wimmer, ZInsO 2005, 119, 124 et seq.; Kübler, in Festschrift für Gerhardt, p. 527, 539 et seq. 33 As to German law, see § 270 c InsO (Sachwalter under the German Insolvency Act). This office holder is considered to owe cooperation and coordination under Article 41 EIR. 34 cf. Smid, DZWIR 2004, 397 (under IV.2.). 35 cf. under German law: cf. §§ 270(2), no 2, 274 InsO. 36 For details, see: Laukemann, Die Unabhängigkeit des Insolvenzverwalters, p. 408 et seq. 37 cf. Annex B EIR (as to Germany): (vorläufiger) Sachwalter. 38 In this regard, two scenarios might be considered: First, a debtor in possession applying for the opening of secondary proceedings, by appointing an (independent) local insolvency practitioner; second, for secondary proceedings by extending the status as a debtor in possession under local law. Cf. Cranshaw, DZWIR 2014, 473, 483, denying a legitimate interest of a debtor in acting so. 39 cf. Cass.com, 2 December 2014, n° 13-20.203 (FRA); OLG Graz, 20 October 2005, 3 R 149/05, NZI 2006, 660 (AUT); Rechtbank Utrecht, 27 April 2005, Roto BV/MG Rover Nederland BV, Nederlands Internationaal Privaatrecht (NIPR) 2005, 369 (n. 274) (NLD); Riigikohus, 6 March 2006, n. 3-2-1-7-06, BeckRS 2010, 21623, under para. 6 (EST).

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being certain, of a fixed amount, and due.40 However, this margin of manoeuvre left to the Member States should be limited to legal values and considerations which do not imply or find justification in a cross-border context. This, for instance, is the case with a debtor’s right to be heard on a creditor’s petition,41 as well as rules protecting a debtor against abusive requests. Whether an application for initiating secondary proceedings is well-founded in the sense that there is sufficient reason (i. e. a debtor’s insolvency) shall not be re-examined pursuant to Article 34(sentence 2) EIR as long as the opening of main proceedings requires the debtor to be insolvent.42

4. Additional requirements for application A right under point (b) is accorded under domestic law. However, additional 20 requirements – whether autonomous or national by nature – may not contradict EU law insofar as they are of cross-border relevance and capable of impeding the exercise of that right, such as a main practitioner’s power to reserve approval.43 According to previous CJEU case law, Member States shall, when establishing conditions for initiating secondary proceedings (e. g. by requiring a specific interest), comply with Union law and, in particular, with its general principles as well as the objectives and scheme of the EIR.44 Therefore, national rules that confine the right to present a bankruptcy petition to local creditors by excluding non-residents or applicants whose claims do not arise from the operation of a debtor’s establishment constitute indirect discrimination on grounds of nationality and thus contravene Article 10 TFEU.45 It may also happen that in order to launch secondary proceedings, national (case) law 21 requires an additional benefit to be achieved, for instance as to the legal status of local creditors (e. g. employees) or the realisation of assets.46 As a matter of principle, rules of this kind are compatible with the objectives and scheme of the EIR only as long as they do not undermine the protective or auxiliary purpose of secondary proceedings. It is important to note that in view of their protective function, secondary proceedings may even produce adverse economic effects on the administration of main proceedings, for 40 cf. under French law: Cass.com, 2 December 2014, n° 13-20.203 (FRA), denying a creditor’s right under Article L. 640-5(2) Code de commerce and, as a consequence, under Article 29 litera (b) EIR 2000 to request for the opening of secondary proceedings in France (“faute de pouvoir justifier d’une créance certaine, liquide et exigible”); also Roussel Galle, Revue des sociétés 2015, 200. Under German law: § 14(1) InsO requires for a creditor’s request: (i) legal interest in the opening of proceedings; (ii) the claim and reason for the opening (i. e. a debtor’s insolvency) need to be established to the satisfaction of the court (Glaubhaftmachung). 41 According to § 14(2) InsO (DEU), the court shall hear the debtor. 42 As to the consequences under the old regime (Article 27 EIR 2000), see Laukemann, ecolex 2013, 337 et seq. with respect to CJEU Case C-116/11 Bank Handlowy und Adamiak ECLI:EU:C:2012:739, paras. 64 et seq. 43 Advocating de lege ferenda the right to petition for secondary proceedings be limited to a main practitioner: Kübler, in Festschrift für Wellensiek, p. 795, 809, making reference to a similar suggestion of Taylor, Main, Secondary Proceedings and Groups, p. 43 (available at: http://www.eir-reform.eu/uploads/ papers/Paper%203-31.pdf); cf. also Paulus, EBLR 2000, 435, 436. 44 CJEU Case C-327/13 Burgo Group ECLI:EU:C:2014:2158, para. 64. 45 CJEU Case C-327/13 Burgo Group ECLI:EU:C:2014:2158, paras. 49, 51. This also follows from an a contrario reading of Article 3(4)(b)(i) EIR. 46 In that sense: Cour d’appel de Versailles, 15 December 2005, n° 05/04273 SAS Rover France, Recueil Dalloz 2006, 379 (FRA) (“L‘ouverture d’une procédure d’insolvabilité secondaire n’est souhaitable que si elle présente une utilité que le demandeur doit démontrer. Il n’apparaît pas démontré que l’ouverture (…) présenterait des avantages, notamment en améliorant la protection des intérêts locaux ou la réalisation des actifs.”). Sceptical: Wessels, International Insolvency Law, mn. 10838 a; in the same direction: Virgós/ Schmit, Report on the Convention on Insolvency Proceedings, mn. 227; Hanisch, in Stoll, Vorschläge und Gutachten zur Umsetzung des EU-Übereinkommens über Insolvenzverfahren im deutschen Recht, p. 202, 237; Kolmann, Kooperationsmodelle im internationalen Insolvenzrecht, p. 336.

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example by running counter to a beneficial realisation of assets.47 Therefore, denying a right to request under Article 37 EIR on the grounds that single main proceedings are expected to generate higher proceeds for distribution as compared to a combined opening of main and territorial proceedings would disregard the protective function of secondary proceedings which allows, inter alia, for a better evaluation of local creditors’ positions.48 However, local courts should, in the individual case, be allowed to refuse the opening of secondary proceedings if they are satisfied that – similar to the ratio legis of Article 38(2) EIR – local creditors’ interests will be adequately protected within the foreign main proceedings, both by respecting their local (priority and distribution) rights and with sufficient prospect of higher economic returns for the benefit of the creditors as a whole.49 Under these strict conditions only, secondary proceedings may be relativised as to their dual function.50 The SAS Rover France case has demonstrated the need to preserve some limited and predictable (judicial) flexibility in the interest of the creditors as a whole.51

C. Request to open secondary proceedings in the context of an undertaking: the start of the time limit (paragraph 2) 22

One of the most relevant practical issues is the start of the time limit to request the opening of secondary proceedings. According to Article 37(2) EIR, this request shall be lodged within 30 days of having received notice of the approval of the undertaking. A specific practical problem arises from the unclear wording regarding the addressee receiving notice of the approved undertaking. The provision excludes neither a uniform nor an individual start of the time limit. For reasons of legal certainty, this time limit should be determined collectively/uniformly rather than individually by referring to the respective date of an individual creditor’s reception of that notice. Evidently, the insolvency practitioner may fulfil his obligation under Article 36(5)(sentence) EIR to inform the known local creditors about the approval or rejection of the undertaking individually.52 However, the insolvency practitioner should additionally ensure a collective and reliable reception of notification under Article 37(2) EIR, also vis-à-vis unknown local creditors and even non-local creditors whose (unimpeded) right to 47

cf. OLG Graz, 20 October 2005, 3 R 149/05, NZI 2006, 660, 661 (AUT). Furthermore, the application of local insolvency law allows for taking (more) adequate preventive measures against the risk of insolvency – although without ensuring a (more) favourable outcome of proceedings. In addition, local creditors are released from mandatory participation in the main proceedings, see Laukemann, J.Priv.Int.L. 2016, 379, 396; Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.06 et seq. 49 To this extent, local courts may enjoy discretionary power under Article 34 EIR. According to CJEUCase C-327/13 Burgo Group ECLI:EU:C:2014:2158, para. 63, the question shall be governed by the lex fori concursus secundarii. Cf. also Camacho/Nunez-Lagos Burguera, IILR 2013, 140, 146 et seq. (de lege ferenda); Oberhammer, in Hess/Oberhammer/Pfeiffer, European Insolvency Law, mn. 913. 50 Pointing in a similar direction: Cour d’appel de Versailles 15 December 2015, n° 05/04273 SAS Rover France, Recueil Dalloz 2006, 379 (FRA). When dismissing the petition of the Ministère public to (alternatively) open secondary proceedings in France as unfounded (but not inadmissible), the court of appeal also relied upon the undertakings given by the English administrators and approved by the English court (whereas apparently not by the local creditors), in order to guarantee application of French labor law, see Dammann, Recueil Dalloz 2006, 381, 383 et seq. 51 Generally supportive of flexible legislation in cross-border insolvency law: Fletcher/Wessels, Harmonisation of Insolvency Law in Europe, mn. 210. 52 In that regard, Article 102 c § 19 in conjunction with § 12, 2nd s. EGInsO (DEU) provides for a notification of the known local creditors through individual service. The same mechanism applies to the giving of an undertaking according to § 12, 2nd s. EGInsO (DEU). 48

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request the opening of secondary proceedings requires that they are given information regarding the deadline which is relevant for all creditors.53 To that end, creditors should be informed through national insolvency registers both in the Member State of the main proceedings and in the Member State subject to the respective undertaking.54 In order to achieve a uniform start of that time limit, the register entry should indicate this specific date as well as possible rules under the lex fori concurus secundarii that determine the time of publication and, thus, the start of the time limit under Article 37(2) EIR.55 53 Differently Reinhart, in Münchener Kommentar zur InsO, Art. 37 EIR 2015, mn. 4, advocating that Article 37(2) EIR is not binding upon non-local creditors. This, however, would mean conferring on those creditors – within the limits of Article 38(2) EIR – the power to deprive a binding undertaking from its effects at any time after the expiry of the time limit, thus causing legal uncertainty. Equally in favour of an individual start of time limit: Legrand, Petites affiches 2015, n° 16, 8, 11. 54 Laukemann, in Hess/Oberhammer/Bariatti/Koller/Laukemann/Requejo Isidor/Villata, The Implementation of the New Insolvency Regulation, p. 129 et seq. (under 2.1.4.1). 55 One could image, for instance, a national implementation-rule similar to § 9(1), s. 2 InsO (DEU) according to which publication shall be deemed to have been effected when two additional days following the day of publication have expired.

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Article 38 Decision to open secondary insolvency proceedings 1. A court seised of a request to open secondary insolvency proceedings shall immediately give notice to the insolvency practitioner or the debtor in possession in the main insolvency proceedings and give it an opportunity to be heard on the request. 2. Where the insolvency practitioner in the main insolvency proceedings has given an undertaking in accordance with Article 36, the court referred to in paragraph 1 of this Article shall, at the request of the insolvency practitioner, not open secondary insolvency proceedings if it is satisfied that the undertaking adequately protects the general interests of local creditors. 3. Where a temporary stay of individual enforcement proceedings has been granted in order to allow for negotiations between the debtor and its creditors, the court, at the request of the insolvency practitioner or the debtor in possession, may stay the opening of secondary insolvency proceedings for a period not exceeding 3 months, provided that suitable measures are in place to protect the interests of local creditors. The court referred to in paragraph 1 may order protective measures to protect the interests of local creditors by requiring the insolvency practitioner or the debtor in possession not to remove or dispose of any assets which are located in the Member State where its establishment is located unless this is done in the ordinary course of business. The court may also order other measures to protect the interest of local creditors during a stay, unless this is incompatible with the national rules on civil procedure. The stay of the opening of secondary insolvency proceedings shall be lifted by the court of its own motion or at the request of any creditor if, during the stay, an agreement in the negotiations referred to in the first subparagraph has been concluded. The stay may be lifted by the court of its own motion or at the request of any creditor if the continuation of the stay is detrimental to the creditor’s rights, in particular if the negotiations have been disrupted or it has become evident that they are unlikely to be concluded, or if the insolvency practitioner or the debtor in possession has infringed the prohibition on disposal of its assets or on removal of them from the territory of the Member State where the establishment is located. 4. At the request of the insolvency practitioner in the main insolvency proceedings, the court referred to in paragraph 1 may open a type of insolvency proceedings as listed in Annex A other than the type initially requested, provided that the conditions for opening that type of proceedings under national law are fulfilled and that that type of proceedings is the most appropriate as regards the interests of the local creditors and coherence between the main and secondary insolvency proceedings. The second sentence of Article 34 shall apply. Recitals: 41, 45–46. Specific bibliography: see Article 36 EIR. Outline A. Introduction ...................................................................................................................... B. The right to receive notice and to be heard .............................................................. I. Notice......................................................................................................................... II. Right to be heard .................................................................................................... C. The opening of secondary proceedings despite an undertaking ...........................

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I. A binding undertaking, Article 36(4) and (5) EIR.......................................... II. Request of the insolvency practitioner............................................................... III. Sufficient protection ............................................................................................... D. The temporary stay of the opening of secondary proceedings ............................. I. Objectives of the temporary stay......................................................................... II. The conditions for the stay................................................................................... III. The effects of the stay ............................................................................................ IV. The revocation of the stay .................................................................................... E. The conversion of secondary proceedings .................................................................

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10 12 13 17 17 18 22 25 28

A. Introduction Article 38 EIR is a new provision and contains several substantive provisions 1 concerning the decision to open secondary proceedings. The first paragraph deals with the duty of the court seised to inform the insolvency practitioner in the main proceedings or the debtor in possession, and to give them the possibility to be heard. The second paragraph reflects the option to prevent the opening of secondary proceedings through an undertaking given by the practitioner in the main proceedings according to Article 36 EIR. The third paragraph provides the possibility to request a stay of the opening of secondary proceedings when a moratorium has been ordered in the main proceedings. The fourth paragraph deals with the appropriateness of the type of secondary proceedings requested and provides the option to open a different, more appropriate type of proceedings.

B. The right to receive notice and to be heard The first paragraph of Article 38 EIR establishes two duties for the court seised with 2 the request of opening secondary proceedings: (i) the duty to give immediate notice to the insolvency practitioner in the main proceedings or the debtors in possession and (ii) the duty to give them the opportunity to be heard.

I. Notice Secondary proceedings limit the rights of the insolvency practitioner (or debtor in 3 possession) in the main proceedings to access the assets covered by the secondary proceedings (see Article 34 sentence 3 EIR). The administrator of the estate in the main proceedings (insolvency practitioner or DIP) must therefore be informed about possible secondary proceedings limiting his rights at an early stage in order to be able to respond to that development in the case. Consequently, Article 38(1) EIR states the duty of the court to inform the administrator of the estate in the main proceedings as soon as a request is filed – unless, of course, the request was filed by themselves under Article 37(1)(a) EIR. Early notice ensures that the insolvency practitioner may exercise the rights granted 4 to him by the Regulation, such as the possibility to request a stay of the opening of secondary proceedings because a stay has been ordered in the main proceedings (Article 38(3) EIR), or the right to object the motion to open secondary proceedings based onan undertaking given under Article 36 (Article 38(2) EIR).1

1

Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 38, mn. 38.03.

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Notice must be given to the insolvency practitioner or debtor in possession in the main proceedings. This notice must be given to the provisional administrator if main proceedings have not yet been formally opened under national law, but interim proceedings are pending.2 6 Notice must be given “immediately”. The text does not indicate a specific time period. There is also no specific sanction for late notice. Regarding the procedural purpose of the notice, the court should inform the insolvency practitioner or debtor in possession in the main proceedings as soon as possible under the specific circumstances of the case.3 As the text of the Regulation does not specify the means of communication, any appropriate way to give notice under local law (lex fori) is available. 5

II. Right to be heard The right to be heard is a fundamental procedural right for any person directly affected by a requested court decision. Regarding the effects of opening secondary proceedings on the administration of the debtor’s estate in main proceedings, the person administrating must have the right to be heard before the opening decision is taken. Its relevance was also highlighted by the CJEU in Eurofood, stating that the right to be heard would “occupy an eminent position in the organization and conduct of a fair legal process” also within the context of insolvency proceedings.4 More specifically, the involvement of the main insolvency practitioner is necessary to ensure the efficient use of secondary proceedings as well as an efficient coordination between main and secondary proceedings from day one in order to foster the quality and the cross-border acceptance of the secondary proceedings.5 8 The right to be heard can be utilized by the insolvency practitioner in the main proceedings to exercise his prerogatives under Article 38(2) and (3) EIR.6 Despite the incorrect use of the pronoun “it”, the right to be heard is granted both to the insolvency practitioner in the main proceedings and to the debtor in possession. 7

C. The opening of secondary proceedings despite an undertaking 9

The second paragraph of Article 38 EIR deals with the possibility that the opening of secondary proceedings may also be requested in cases where an undertaking has already been given by the practitioner in the main proceedings under Article 36 EIR. Based on such an undertaking, the court may refuse to open secondary proceedings if the following conditions are met.

I. A binding undertaking, Article 36(4) and (5) EIR 10

First, the main insolvency practitioner must demonstrate that a “unilateral undertaking” according to Article 36(1) EIR was given in accordance with the relevant provisions of the lex fori concursus (see Article 36(4) EIR). In addition – and beyond

2

Reinhart, in Münchener Kommentar zur InsO, Art. 38 VO 2015/848, mn. 3. In this regard, see Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 38, mn. 3. 4 CJEU Case C-341/04 Eurofood ECLI:EU:C:2006:281, para. 66. 5 Herchen, in Pannen, Europäische Insolvenzverordnung, Art. 27 EIR 2000, mn. 86; 6 Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 38, mn. 38.06. 3

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all established English practice of “virtual” or “synthetic” secondary proceedings7 – the undertaking must have been approved by “known local creditors” according to Art. 36 (5) EIR under the lex fori concursus secondarii of the court seised with the request to open secondary proceedings, see Laukemann above Art. 36 mn. 31 et seq. An approval of the undertaking by a court is not required under Article 36(5) EIR. The involvement of the local court is secured by Article 38(2) EIR.8 If the main insolvency practitioner (or debtor in possession) has not yet concluded 11 that process, a request to open secondary proceedings cannot be rejected based on Art. 38(2) EIR. The court may, however, allow the “undertaking” process to conclude by issuing a temporary stay of the opening according to Article 38(3) EIR if those conditions are met. If not, the court may have the power to suspend a decision to open secondary proceedings under the lex fori concursus secondarii.

II. Request of the insolvency practitioner Second, Article 38(2) EIR requires a request not to open secondary proceedings.9 The 12 request must be filed by the insolvency practitioner who has given the undertaking or is bound by it (in case of a substitution).

III. Sufficient protection Third, the court may only decide not to open secondary insolvency proceedings with 13 regard to a binding undertaking “if it is satisfied that the undertaking adequately protects the general interests of local creditors.” This means that the court must first identify the general interests of local cred- 14 itors10. As the right to request the opening of secondary proceedings is not limited to local creditors under Article 37 EIR, the interest of the person requesting secondary proceedings must not necessarily be identical or representative for the general interests of local creditors.11 The EIR does not offer any guidance and, given the novelty of this solution, especially for civil law jurisdictions, most national insolvency legislations may also not provide useful criteria to make this kind of evaluation.12 A reasonable solution could encompass trying to verify whether local creditors would receive at least as much based on the undertaking in main proceedings as they would if secondary proceedings were opened. Such an approach would reflect the purpose of an undertaking in traditional English practice and focus on the application of local distribution and priority rules.13 Of course, the reference to the “general interests” seems to go beyond 7 See Laukemann above Art. 36 mn. 2 for references to English case law. See also Madaus, in Festschrift für Pannen, p. 223 for the vast differences between an undertaking and English “virtual” secondary proceedings which is why the provision in Art. 36–38 should not block their continuous availability – regardless of any type of Brexit. 8 Reinhart, in Münchener Kommentar zur InsO, Art. 36 VO 2015/848, mn. 26, and Art. 38 VO 2015/ 848, mn. 10; Fritz, DB 2015, 1882, 1888; Wimmer, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 445, 448; disagreeing: Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 36, mn. 48; Pluta/Keller, in Festschrift für Vallender, p. 437, 445 et seq., also Laukemann above Art. 36 mn. 34. 9 Reinhart, in Münchener Kommentar zur InsO, Art. 38 VO 2015/848, mn. 7. 10 For a definition of local creditors, see Madaus above Art. 2 mn. 41–43. 11 This problem is evidenced by Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 38, mn. 9 et seq. 12 Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 38, mn. 38.11. 13 Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 38, mn. 38.12.

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mere questions of distribution and priority.14 If the court finds such specific general interests of local creditors, e. g. in the continuation of an establishment, they must be recognised. Often, the undertaking itself should address specific needs of local creditors and can, thus, serve as a basis for identifying their general interest in a specific case. 15 Once the general interest of local creditors is defined, the court is asked to test whether the undertaking sufficiently protects these interests. This test includes reviewing the legality of the undertaking according to Article 36 EIR – including the specific requirements in Article 36(4) and (5) EIR. It also allows the court to consider a change of facts since the time of the approval of the undertaking based on the initial factual assumptions. Article 38(2) EIR requires the court to be convinced – without the need of full evidence – that the undertaking adequately protects the general interest of local creditors.15 16 If the court is sufficiently convinced, it has no discretion and must (“shall”) deny the opening of the secondary proceedings.16

D. The temporary stay of the opening of secondary proceedings I. Objectives of the temporary stay 17

The third paragraph of Article 38 EIR offers protection for a restructuring attempt protected by a temporary stay of individual enforcement actions against the possible backlash following the commencement of secondary proceedings. Such a court-ordered temporary stay or moratorium is available in (pre-) insolvency proceedings in many jurisdictions in order to facilitate negotiations between the debtor and the creditors and to prepare a restructuring plan.17 If such a moratorium has been ordered in proceedings that qualify as main proceedings under Annex A EIR, Article 38(3) EIR protects the continuation of negotiations between the creditors and the debtor through a temporary stay of the opening of secondary proceedings.18

II. The conditions for the stay The stay under Article 38(3) EIR is not automatically in force. It must be requested by the insolvency practitioner in the main proceedings or the debtor in possession. Creditors have no right to request a stay.19 19 The basis of the stay under Article 38(3) EIR is a previous “temporary stay of individual enforcement proceedings” granted by a court in other proceedings involving the debtor “in order to allow for negotiations between the debtor and its creditors”. Any literal interpretation of the text would limit the availability of a stay under Article 38(3) EIR significantly as it would exclude any previous stay that was neither specifically granted nor temporary but automatic (as it is the case in most collective insolvency proceedings). The scope of the stay could be even more reduced if the underlying 18

14

Reinhart, in Münchener Kommentar zur InsO, Art. 38 VO 2015/848, mn. 14 et seq. for examples. For a definition of local creditors, see Madaus above Art. 2 mn. 41–43. 16 Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 38, mn. 7. 17 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.44; Garcimartín, ZEuP 2015, 727. 18 Recital 45 EIR speaks more generally about preserving the efficiency of the stay granted in the main insolvency proceedings. 19 Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 38, mn. 21; Reinhart, in Münchener Kommentar zur InsO, Art. 38 VO 2015/848, mn. 23. 15

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moratorium had to specifically support a restructuring negotiation between the debtor and its creditors. To avoid such narrow construction of the stay and to respect the more general purpose of the stay under Article 38(3) EIR which is to preserve “the efficiency of the [underlying] stay granted in the main insolvency proceedings” (Recital 45 sentence 1), any previous stay of individual enforcement actions in preceding restructuring or insolvency proceedings should suffice to allow for a supportive stay under Article 38(3) EIR.20 The stay can only be granted upon the condition that suitable measures are in place 20 to protect the interests of affected “local creditors” defined in Article 2 no. 11 EIR. The protection must be necessary and adequate, considering the temporary denial of secondary insolvency proceedings. Recital 46 demonstrates that the protection could take the form of a guarantee given by the court or insolvency practitioner of the main proceedings, not “to realise or re-locate, in an abusive manner, assets situated in the Member State where an establishment is located, in particular, with the purpose of frustrating the possibility that such interests can be effectively satisfied if secondary insolvency proceedings are opened subsequently.” Such a prohibition can also be ordered by the local court under Article 38 (3.2) EIR (“protective measure”). This subparagraph also clarifies that any realisation or relocation of assets “done in the ordinary course of business” is not abusive. If all conditions are fulfilled, the seised court still has some discretionary power (“the 21 court…may stay”) when deciding whether it will order the requested stay or not.21 However, this does not allow for any arbitrary decision. Instead, the court is required to consider all interests involved and strike a balance between the interests of the applicant and those of local creditors when ordering the stay22, which is particularly relevant for determining the duration of the stay or the order of protective measures.

III. The effects of the stay The effect of the stay is the suspension of the decision whether to open secondary 22 proceedings. This does not imply that proceedings before the local court are stayed as a whole. Indeed, the court may take further procedural orders during the suspension, in particular protective measures under Article 38(3.2) EIR.23 Article 38(3) EIR does not deal expressly with procedural issues concerning the stay. 23 Therefore, the lex fori concursus secundarii applies.24 Recital 45 provides that where a stay is protecting restructuring negotiations, all creditors that could be affected by the outcome of the negotiations for a restructuring plan should be informed of the negotiations and be allowed to participate in them. Thus, a stay under Art. 38(3) EIR would make such negotiations public and collective. If parties to the negotiations wish to avoid this effect, they should not request a stay. The duration of a stay cannot exceed three months, regardless of any different period 24 of time provided by national legislations for the underlying moratorium. It follows that upon the expiry of the stay the court has to continue the secondary proceedings and decide on their opening. It also follows that any protective measure adopted to support 20

Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 38, mn. 16 et seq. Mangano, in Bork/van Zwieten, Commentary on EIR, mn. 38.17; Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.46 (but affirming that courts should be required to order a stay when the interests of local creditors are adequately protected). 22 Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 38, mn. 38.18. 23 Reinhart, in Münchener Kommentar zur InsO, Art. 38 VO 2015/848, mn. 21. 24 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.46. 21

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the suspension according to Article 38(3.2) EIR becomes invalid, unless it can be based on the lex fori concursus secundarii.25

IV. The revocation of the stay The court may lift the stay under the conditions set in Articles 38(3.3) and 38(3.4) EIR. The court may act on its own motion or at the request of any (not necessarily a local) creditor. In substance, two different grounds of revocation are available. 26 According to Article 38(3.3) EIR, a stay shall be lifted as soon as the negotiations between the creditors and the debtor protected by the stay have led to the conclusion of an agreement. Here, the moratorium succeeded and the stay of the opening of secondary proceedings has become redundant. Depending on the content of the agreement, the opening of secondary proceedings may now either be redundant as well (e. g. where a workout was agreed to) or necessary (e. g. in order to implement a restructuring measure provided for by the agreement and available only under the lex fori concursus secondarii). 27 According to Article 38(3.4) EIR, a stay may also be lifted “if the continuation of the stay is detrimental to the creditor’s rights”. Here, the stay has lost its purpose because either negotiations have failed or the protective measures safeguarding the interests of local creditors were violated by the main insolvency practitioner or the debtor in possession. The violation of the interest can consist of an infringement of the prohibition on the disposal of local assets or on removal of the local assets from the territory of the Member State where the establishment is located. If the court concludes that a ground for revocation is given, a stay “may” be lifted, which means that some discretionary power remains with the court in order to check whether a temporary continuation of the stay may be useful for the administration of the situation and the case.26 25

E. The conversion of secondary proceedings Article 38(4) EIR is a new provision which enables the local court to open a type of insolvency proceedings other than the type initially requested, provided that the conditions for such opening under national law are fulfilled. Thus, instead of the requested liquidation proceedings, the court may decide to open secondary restructuring proceedings (or vice versa). This power to decide about the type of secondary proceedings is completed by the power of the court under Article 51 EIR to convert secondary proceedings that have already been opened (if requested). The choice between different types of secondary proceedings was introduced in the EIR 2015 where the restriction of secondary proceedings to winding-up and liquidation procedures was eliminated. 29 The court may only deviate from the initial request for a specific type of insolvency proceedings at the explicit request of the main insolvency practitioner. In case of a debtor in possession, the request of the debtor should also suffice, although the text of Article 38(4) EIR does not mention the DIP. In addition, it is possible that other parties might also be allowed to request a deviation under the lex fori concursus secondarii.27 28

25

Reinhart, in Münchener Kommentar zur InsO, Art. 38 VO 2015/848, mn. 25. See also Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 38, mn. 38.25, justifying the court’s power to maintain the stay of the opening of secondary proceedings with the opportunity for a better evaluation of the case. 27 Reinhart, in Münchener Kommentar zur InsO, Art. 38 VO 2015/848, mn. 31. 26

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The court must conclude that the requested type of proceedings is listed in Annex A 30 EIR and that all conditions to open this type of procedure under the lex fori concursus secondarii are met. The court may, however, not re-evaluate the insolvency of the debtor if this was done in the process of opening main proceedings. Article 38(4) EIR refers to the second sentence of Article 34 EIR in this respect. Finally, the court must be convinced that newly requested type of proceedings is 31 “most appropriate” regarding “the interests of the local creditors and coherence between the main and secondary insolvency proceedings.” This would usually require a comparative assessment of the proceedings in question.28 In order to ensure the best possible coherence between main and secondary proceedings, the court should strive for parallel proceedings opened against the same debtor which pursue similar objectives, especially in a restructuring scenario.29 28

Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 38, mn. 38.30. Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.51. The parallelism of objective is stressed by Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 38, mn. 38; Wimmer, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 406. The point was also raised in CJEU Case C-116/11 Bank Handlowy ECLI:EU:C:2012:739, para. 52 et seq., but the legal framework of the Regulation was significantly different at the time, because secondary proceedings could only be winding-up proceedings. 29

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Article 39 Judicial review of the decision to open secondary insolvency proceeding The insolvency practitioner in the main insolvency proceedings may challenge the decision to open secondary insolvency proceedings before the courts of the Member State in which secondary insolvency proceedings have been opened on the ground that the court did not comply with the conditions and requirements of Article 38. Outline A. Introduction ...................................................................................................................... B. Procedural aspects of the appeal .................................................................................. C. The grounds for judicial review....................................................................................

1 3 5

A. Introduction Article 39 EIR is a new provision, which provides that the insolvency practitioner appointed in the main proceeding may challenge the decision to open secondary proceedings on the ground that Article 38 EIR has not been complied with. Thus, the remedy granted has a very limited scope. Outside its scope, the availability of judicial review is governed by the lex fori concursus secondarii. 2 Article 39 EIR is a substantive law provision, which, in line with the general objective of the EIR of avoiding the opening of useless and ineffective secondary proceedings, harmonizes law by granting additional rights to the practitioner in main insolvency proceedings, thus confirming the dominant role played by the main proceeding within the system of the EIR.1 1

B. Procedural aspects of the appeal Article 39 EIR only provides for the power to lodge the appeal and determines international jurisdiction (“the courts in the Member State in which secondary proceedings have been opened”), while all the other procedural conditions, such as admissibility or territorial jurisdiction2, regrettably remain within the scope of national law.3 4 The text of the provision limits the right to appeal to the “insolvency practitioner in the main proceedings”, thus excluding a possible debtor in possession. Such a limitation 3

1

Reinhart, in Münchener Kommentar zur InsO, Art. 39 VO 2015/848, mn. 1. Wimmer, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 466. Differently, Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 39, mn. 3, suggests the application of the vis attractiva concursus under Article 6 of the New Regulation, but he is likely influenced by the fact the German version uses the singular (“dem Gericht”) instead of the plural like in the other language versions (the courts, les juridictions, i giudici). 3 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.52; Reinhart, in Münchener Kommentar zur InsO, Art. 39 VO 2015/848, mn. 2. 2

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is not justified by the purpose of the remedy, which is why the debtor in possession in the main proceedings should have the same right.4

C. The grounds for judicial review The power of the appeal granted by Article 39 EIR is limited. It may only initiate a 5 judicial review concerning the conditions and the requirements of “Article 38”. For instance, the decision to open secondary proceedings can be challenged arguing that the court did not give notice immediately or did not give the opportunity to be heard under Article 38(1) EIR.5 Objections on grounds outside of Article 38 EIR (e. g. the existence and the location of an establishment) may not be considered. The clear wording of Article 39 EIR does not leave space for interpretation, which is why the right of appeal based on other grounds can only derive from the lex fori concursus secundarii.6 Considering this, the “conditions and requirements of Article 38” should, at least, be interpreted broadly. Any dispute between the main insolvency practitioner and the court of secondary proceedings regarding an aspect of the opening decision governed by Article 38 EIR should allow for an appeal under Article 39 EIR. This would include any decision of the court under Article 38(2) EIR that involves a test of requirements set in Art. 36 EIR, for example. the approval of an undertaking.7 4 According to Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 39, mn. 5, Art. 39 should be extended to the debtor in possession insofar as his rights under Article 38 have been impaired. Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 39, mn. 39.06, argues in favour of an analogical application of Article 39. 5 Moss/Smith, in Moss/Fletcher/Isaacs, EU Regulatoin on Insolvency Proceedings, mn. 8.667. 6 Reinhart, in Münchener Kommentar zur InsO, Art. 39 VO 2015/848, mn. 3; Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 39, mn. 12. 7 See Mangano, in Bork/van Zwieten, Commentary on EIR, Art. 39, mn 39.04.

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Article 40 Advance payment of costs and expenses Where the law of the Member State in which the opening of secondary insolvency proceedings is requested requires that the debtor’s assets be sufficient to cover in whole or in part the costs and expenses of the proceedings, the court may, when it receives such a request, require the applicant to make an advance payment of costs or to provide appropriate security. Outline A. Introduction ...................................................................................................................... B. The relevance of the lex fori concursus secundarii .................................................. C. The insufficiency of assets and the amount of the advance payment or security

1 4 6

A. Introduction Article 40 EIR clarifies the general rule under Article 35 EIR that the lex fori concursus secondarii governs the conditions for opening secondary proceedings. In Member States, e. g. Germany, where insolvency proceedings cannot be opened without sufficient assets available in the course of proceedings to cover specific procedural costs, the fact that assets do not suffice may lead to the rejection of the request to open such proceedings. Here, Article 40 EIR enables the court seised to open proceedings if the applicant makes an advance payment of costs or provides appropriate security (collateral).1 2 The provision is not new and reproduces the wording of Article 30 EIR 2000. As explained also in the Virgos-Schmit Report, Article 40 EIR takes into account those legislations that require sufficient available assets; it does not mean that such a requirement can or even must be introduced only for secondary proceedings where national law does not require sufficient assets in order to open insolvency proceedings as a general rule.2 While the latter understanding cannot be inferred directly from the wording of Article 40 EIR, it seems reasonable regarding the system of the EIR3. Still, Article 40 EIR expressly allows the Member States to introduce this requirement as a general rule within their national legislation.4 3 This provision applies also with regard to independent territorial proceedings.5 1

B. The relevance of the lex fori concursus secundarii 4

Article 30 EIR is not a substantive law provision, which is why courts may only require advance payments if this is contemplated by the respective national

1 Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 40, mn. 1; Wessels, International Insolvency Law, mn. 10843; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 30 EIR 2000, mn. 2. 2 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 228. 3 Herchen, in Pannen, European Insolvency Regulation, Art. 30 EIR 2000, mn. 4. 4 Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.36. 5 See Wessels, International Insolvency Law, mn. 10843 for further references.

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law.6 This means that, in the case of silence of national rules, this option cannot be made available by virtue of the Regulation.7 This conclusion led some authors to hold that this provision is largely superfluous and has only a clarifying nature, as it is already contained in the referral by Articles 7 and 35 EIR to the substantive law of the opening State for applicable law issues.8 Indeed, all specific issues, e. g. the time at which the measure is given, which assets can be taken into account, or the assessment of the costs and expenses, must be determined solely on the basis of the applicable law of the secondary proceedings. Still, Article 40 EIR may have a direct effect in cases where only creditors are considered to be requesting parties under national law by extending the right of advance payments to the practitioner of the main proceedings.9 It is also worth stressing that under this common interpretation, Article 40 EIR does 5 not confer any power on the court. The phrase “may require” indicates no discretionary evaluation by the court10 outside of the powers granted by the respective national law.11

C. The insufficiency of assets and the amount of the advance payment or security The issue of whether the assets are sufficient to cover the costs and the expenses of 6 the proceedings has to be determined under lex fori concursus secondarii. Considering the peculiarities of secondary proceedings, the required calculation may only consider assets located within the territory of the Member State where the establishment is located and where the opening of secondary proceedings has been requested.12 There are two options for the calculation of the appropriate amount of the security 7 or of the advance payment: (1) the anticipated costs and expenses of the proceedings in total, or (2) the amount by which the insolvency estate is short of these costs.13 The EIR does not give any indication which calculation should be preferred under national law. It must be considered, however, that the resulting amount must be proportionate in order to avoid excessive costs which could make the opening of secondary insolvency proceedings less attractive and too restrictive.14 6 Mangano, in Bork/van Zwieten, Commentary on EIR, mn. 4; Bork, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 7.36; Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 40, mn. 3. 7 Reinhart, in Münchener Kommentar zur InsO, Art. 30 VO 1346/2000, mn. 6. 8 Reinhart, in Münchener Kommentar zur InsO, Art. 30 VO 1346/2000, mn. 1; Kindler, in Münchener Kommentar zum BGB, Art. 30 EuInsVO, mn. 1 et seq.; Herchen, in Pannen, European Insolvency Regulation, Art. 30 EIR 2000, mn. 1; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 30 EIR 2000, mn. 2. 9 Reinhart, in Münchener Kommentar zur InsO, Art. 30 VO 1346/2000, mn. 2; Mankowski, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 40, mn. 7; Paulus, EuInsVO, Art. 30, mn. 1; Herchen, in Pannen, European Insolvency Regulation, Art. 30 EIR 2000, mn. 5; Duursma-Kepplinger, in DuursmaKepplinger/Duursma/Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 30 EIR 2000, mn. 3. 10 Kindler, in Münchener Kommentar zum BGB, Art. 30 EuInsVO, mn. 3; Mankowski, in Mankowski/ Müller/Schmidt, EuInsVO 2015, Art. 40, mn. 5; Duursma-Kepplinger, in Duursma-Kepplinger/Duursma/ Chalupsky-Kepplinger, Europäische Insolvenzverordnung, Art. 30 EIR 2000, mn. 2. 11 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 228; Paulus, EuInsVO, Art. 30, mn. 1: whether or not the lex fori concursus universalis contains such a requirement or not. 12 Mangano, in Bork/van Zwieten, Commentary on EIR, mn. 40.03. 13 Herchen, in Pannen, European Insolvency Regulation, Art. 30 EIR 2000, mn. 8. 14 Kindler, in Münchener Kommentar zum BGB, Art. 30 EuInsVO, mn. 5.

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Article 41 Cooperation and communication between insolvency practitioners 1. The insolvency practitioner in the main insolvency proceedings and the insolvency practitioner or practitioners in secondary insolvency proceedings concerning the same debtor shall cooperate with each other to the extent such cooperation is not incompatible with the rules applicable to the respective proceedings. Such cooperation may take any form, including the conclusion of agreements or protocols. 2. In implementing the cooperation set out in paragraph 1, the insolvency practitioners shall: (a) as soon as possible communicate to each other any information which may be relevant to the other proceedings, in particular any progress made in lodging and verifying claims and all measures aimed at rescuing or restructuring the debtor, or at terminating the proceedings, provided appropriate arrangements are made to protect confidential information; (b) explore the possibility of restructuring the debtor and, where such a possibility exists, coordinate the elaboration and implementation of a restructuring plan; (c) coordinate the administration of the realisation or use of the debtor’s assets and affairs; the insolvency practitioner in the secondary insolvency proceedings shall give the insolvency practitioner in the main insolvency proceedings an early opportunity to submit proposals on the realisation or use of the assets in the secondary insolvency proceedings. 3. Paragraphs 1 and 2 shall apply mutatis mutandis to situations where, in the main or in the secondary insolvency proceedings or in any territorial insolvency proceedings concerning the same debtor and open at the same time, the debtor remains in possession of its assets. Recitals: 48–50. Specific bibliography: Braun/Tashiro, Cross-Border Protocol Agreements in Civil Law Jurisdictions – A German Perspective, Norton Annual Review of International Insolvency 2010 Edition, 330; Busch/ Remmert/Rüntz/Vallender, Kommunikation zwischen Gerichten in grenzüberschreitenden Insolvenzen – Was geht und was nicht geht, NZI 2010, 417; Ehricke, Zur Kooperation von Insolvenzgerichten bei grenzüberschreitenden Insolvenzverfahren im Anwendungsbereich der EuInsVO, ZIP 2007, 2395; Ehricke, The Role of Courts in Cross-border Insolvency Cases, INSOL Europe Technical Series No 13 2009, 83; Farley/Leonar/Birch, Cooperation and Communication in Cross-Border Insolvency Cases, International Insolvency Institute 2006; Fletcher/Wessels, Documentation—Transnational Insolvency: Global Principles for Cooperation in International Insolvency Cases; Global Guidelines for Court-to-Court Communications in International Insolvency Cases, Int. Insolv. Rev. 2014, 221; Mangano, From “Prisoner”s Dilemma’ to Reluctance to Use Judicial Discretion: The Enemies of Cooperation in European Cross-Border Cases, Int. Insolv. Rev. 2017, 314; Wessels, Cooperation and sharing of information between courts and insolvency practitioners in cross-border insolvency cases, in Festschrift für Vallender, 776; Wessels, A Glimpse into the Future: Cross-border Judicial Cooperation in Insolvency Cases in the European Union, Int. Insolv. Rev. 2015, 96; Wessels/Markel/Kilborn, International Cooperation In Bankruptcy and Insolvency Matters: A Joint Research Project of American College of Bankruptcy and International Insolvency Institute, 2009. Outline A. Ratio legis of Articles 41 to 44 EIR.............................................................................. 1 B. Terminology ...................................................................................................................... 4 C. Right and obligation to cooperate and communicate ............................................. 7 I. Content of the obligation and liability............................................................... 8 II. Limits to cooperation ............................................................................................. 11

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III. Language ................................................................................................................... D. Implementation of cooperation (Article 41(2) EIR) ................................................ I. Communication of information (Article 41(2)(a) EIR) ................................. II. Exploration and coordination of restructuring (Article 41(2)(b) EIR) ...... III. Coordination of the administration or use of assets (Article 41(2)(c) EIR) E. Debtor in possession ....................................................................................................... F. Costs....................................................................................................................................

Art. 41

16 17 18 21 22 24 25

A. Ratio legis of Articles 41 to 44 EIR Articles 41 to 44 EIR govern the cooperation and communication between insolvency 1 practitioners (regarding a debtor in possession, see below mn. 5), between courts and, finally, between insolvency practitioners and courts in cases where a single debtor is subject to multiple insolvency proceedings.1 The Articles establish both legal rights and obligations. Only Article 41 EIR has a predecessor in the EIR 2000, which is Article 31 EIR 2000. The cooperation and communication in group insolvencies is governed by Articles 56 to 59 EIR. The significant difference between Articles 41 to 44 and 56 to 59 EIR is that Articles 41 to 44 EIR are designed for the same debtor, while Articles 56 to 59 EIR apply to various debtors related to a group of companies.2 This key difference was the reason why the regulator in Articles 56 to 59 EIR could not simply refer to Articles 41 to 44 EIR.3 Hence, in terms of Articles 41 to 44 EIR, the hierarchy between the main insolvency proceedings and the secondary insolvency proceedings must always be taken into account. Of particular importance for the design of the cooperation are so-called “best 2 practices”.4 Thus, recital 48(sentence 5) EIR states: “When cooperating, insolvency practitioners and courts should take into account best practices for cooperation in crossborder insolvency cases, as set out in principles and guidelines on communication and cooperation adopted by European and international organisations active in the area of insolvency law, and in particular the relevant guidelines prepared by the United Nations Commission on International Trade law (Uncitral).” Notwithstanding the recital’s strict wording, principles developed in academic literature or by national associations can also be taken into account.5 The “best practices” referred to in recital 48(sentence 5) EIR are, for example, the Communication and Cooperation Guidelines for Cross-Border Insolvency (CoCo Guidelines) from 2007, the EU Cross-Border Insolvency Court-to-Court Cooperation Principles from 2015 (JudgeCo Principles), the EU Cross-Border Insolvency Court-to-Court Communications Guidelines from 2015 (JudgeCo Guidelines) and the UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation from 2009.6 Recitals 48 to 50 EIR contain the considerations underpinning Articles 41 to 44. 3 According to recital 48(sentence 1) EIR, these Articles are meant to foster an efficient 1 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.01; Delzant, in Braun, Insolvenzordnung, Art. 41 EuInsVO, mn. 1. 2 Paulus, EuInsVO, Art. 41, mn. 2. 3 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 523. 4 See for an overview of the Parmalat case as an example of bitter clashes between courts and insolvency practitioners Mangano, Int. Insolv. Rev. 2017, 314, 318 et seq. (the wholly owned subsidiary of Parmalat SpA Eurofood IFSC Ltd gave the name to the well-known Eurofood-case of the CJEU C-341/04). 5 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.12; Mankowski, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 28. 6 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 27, 29; Delzant, in Braun, Insolvenzordnung, Art. 41 EuInsVO, mn. 9. For a detailed analysis of these “best practices” cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.13 et seq.

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administration of the debtor’s insolvency estate or an effective realisation of the total assets.7 The legislator has generally assumed that overall better results for the creditors can be achieved if all relevant insolvency practitioners and courts duly communicate and cooperate. This assumption is correct.8 However, this leads to one of the major questions in connection with due cooperation: Is the obligation to cooperate for the court and the insolvency practitioner of a specific insolvency estate subject to receiving a compensation for such estate for any disadvantages it may suffer as a result of their cooperation or, going one step further, subject to receiving a fair share of the overall surplus resulting from the cooperation for such insolvency estate? In order to avoid any misunderstanding: This question is not settled by Articles 44 or 59 EIR, which only cover the non-cost-coverage-principle but do not mention the compensation of disadvantages caused by cooperation or even a fair-share-approach. Articles 41 to 43 EIR provide for obligations to cooperate and communicate only to the extent such cooperation is not incompatible with the rules applicable to the respective proceedings. Therefore, the answer to this question depends on these rules and on the decisions taken in the respective proceedings by the competent persons, authorities and bodies (see below mn. 15). The desired cooperation between the several actors does have further goals: One, which can be derived from Article 45(1) EIR, is the effective participation of the creditors in all proceedings.9 Another one, which can be derived from Article 41(2)(b) EIR, is to support a (potential) restructuring of the debtor. Considering the importance of cooperation and communication expressed in recital 48 EIR, it is desirable that actors not mentioned in Article 41 to 43 EIR also communicate and cooperate wherever this is permitted and reasonable.10 For instance, this applies to the independent person or body referred to in Article 42(1) EIR11 and bodies representing the creditors such as creditors’ committees and preliminary creditors’ committees. That cannot be based on the wording of Article 41 to 43 EIR, however, the rationale of the EIR 2015 is clear. Hence, Members States may expand the right and obligation to cooperate and communicate to actors that are not mentioned in Article 41 to 43 EIR. The obligations to cooperate and communicate between the insolvency practitioners of secondary proceedings are directly covered by Article 41 EIR.12

B. Terminology 4

While the heading of Article 41 EIR lists both “cooperation and communication”, Article 41(1) EIR only refers to “cooperation”, whereas “communication” appears as a sub-form of implementation in Article 41(2)(a) EIR.13 Nevertheless, the heading’s reference to communication is utterly appropriate because there cannot be any cooperation, “exploration” (Article 41(2)(b) EIR) or “coordination” (Article 41(2)(c) EIR) without communication.14 This understanding is supported by recital 48(sentence 2) EIR, 7 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 1; Paulus, EuInsVO, Art. 41, mn. 1. 8 Mangano, Int. Insolv. Rev. 2017, 314, 319. 9 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.08. 10 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.07. 11 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.07. 12 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 4. 13 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.51; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 10. 14 Mangano, Int. Insolv. Rev. 2017, 314, 315; cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.51; Paulus, EuInsVO, Art. 41, mn. 3.

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which states that a close cooperation can be achieved in particular by exchanging a sufficient amount of information. Efforts to search for precise definitions and delimitations regarding terms such as “cooperation”, “communication”, “explore” and “coordinate” would likely be in vain. In fact, it appears that these terms are not very precise at all and cover a number of overlapping concepts.15 The “insolvency practitioner” is defined in Article 2 no. 5 EIR in conjunction with 5 Annex B EIR. The right and the obligation to cooperate and communicate therefore affects even those persons or bodies whose function is only to supervise the administration of the debtor’s affairs (Article 2 no. 5 (v) EIR). Furthermore, the EIR contains a clear concept of what “main insolvency proceedings” and “secondary insolvency proceedings” are (see especially Articles 3 and 34 EIR et seq.).16 Pursuant to Article 41(3) EIR, the term “insolvency practitioner” is to be replaced by debtor if the debtor remains in possession of its assets. Furthermore, the Articles 42 and 43 EIR apply mutatis mutandis to the debtor in possession (see Skauradszun/Spahlinger below Art. 43 mn. 5). The prominent mention of “agreements and protocols” in Article 41(1) EIR can be 6 explained by the successful use of protocols in the past, mainly in the United States and Canada, but also in many other jurisdictions.17According to Wessels, “A protocol can be described as a means of agreeing the alignment between different insolvency proceedings, or of establishing how pre-reorganisations measures will be taken across a number of jurisdictions. Such an agreement is designed to overcome certain legal or factual obstacles that could otherwise be an impediment to achieving a reorganisation or efficient and equitable liquidation.”18 The conceivable form and content of protocols are described in recital 49 EIR. At any rate, the legislator had a very broad understanding of what could be covered by these agreements and protocols.19 Firstly, this is true in terms of the form requirement since such agreements and protocols may be written or oral. Secondly, regarding the scope, agreements and protocols may range from generic to specific. Simple generic agreements may only emphasise the need for close cooperation between the parties (“mutually desirable goals”20) without addressing specific issues, while more detailed, specific agreements may establish a framework of principles to govern multiple insolvency proceedings and may be approved by the courts involved where the national law so requires. They may reflect an agreement between the parties to take, or to refrain from taking, certain steps or actions (recital 49(sentences 2, 3) EIR). A case in point for a protocol containing relatively little detail is the Maxwell protocol, in which seven provisions vaguely call for good faith cooperation and coordination between the U.S. examiner and the UK joint administrators.21 This protocol established a duty to report to the other insolvency practitioners on a weekly basis. According to national law, agreements and protocols may have to be approved by the courts involved22 or other bodies such as a creditors’ committee. Under German law, for example, agreements 15 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.52: “This is consistent with international best practice in which such terms are used broadly and as a result sometimes overlap.” 16 cf. CJEU, Case C-444/07, MG Probud Gdynia sp. z o.o., ECLI:EU:C:2010:24, para. 22. 17 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.21 lists the United States, Canada, the United Kingdom, Australia, Bahamas, Bermuda, British Virgin Islands, France, Hong Kong, Israel and Switzerland. In addition, Mankowski underlines the international successful use of agreements and protocols Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 50, 62. 18 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.21. 19 cf. Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 10. 20 Wessels/Markell/Kilborn, International Cooperation In Bankruptcy and Insolvency Matters, p. 182. 21 See for a report about the Maxwell case Wessels/Markell/Kilborn, International Cooperation In Bankruptcy and Insolvency Matters, p. 179. 22 See for a summary of the Nakash protocol which was ultimately confirmed by the U.S. and Israeli courts, Wessels/Markell/Kilborn, International Cooperation In Bankruptcy and Insolvency Matters, p. 181.

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between insolvency practitioners are permitted.23 However, depending on its scope, the agreement may require the consent of the creditors’ committee (§ 160(1) InsO).

C. Right and obligation to cooperate and communicate 7

It is questionable whether the rights and obligations pursuant to Article 41 EIR only apply if both insolvency proceedings have been opened. The EIR 2015 does not stipulate the beginning of the rights and obligations to cooperate and communicate. In our view, Article 41 EIR applies even if the judgment opening insolvency proceedings within the meaning of Article 2 no. 7 EIR is interim and not final and binding.24 This is because the main insolvency proceedings or secondary insolvency proceedings must already be recognised when the respective proceedings are still preliminary (Article 19 EIR).25 Hence, the insolvency practitioners are already subject to the right and obligation to cooperate and to communicate with one another. This also makes sense because the cooperation is particularly important and decisive, especially at the beginning of the process.26 Finally, at least recital 15 EIR mentions that the EIR should also apply to proceedings that, under the law of some Member States, are opened and conducted for a certain period of time on an interim or provisional basis.

I. Content of the obligation and liability 8

Article 41 EIR contains a legal obligation and therefore much more than a plain recommendation.27 The same applies to Article 56 EIR, which also contains a legal obligation.28 The provision constitutes a mutual duty, i. e. both the insolvency practitioner in the main proceedings and the insolvency practitioners in secondary proceedings are obliged to cooperate and communicate.29 This mutual duty is further specified in Article 41(2) EIR. According to recital 48 EIR, the insolvency practitioners should cooperate “closely”. Thus, in case of doubt about the proper scope of their duties arising from Article 41 EIR, they should opt for a more intense cooperation.30 This interpretation seems to be in line with the recast, which has extended the obligations of cooperation and communication between different actors and in different scenarios. With respect to the duty to cooperate and communicate, it does not make a difference whether the proceedings in question are aimed at restructuring or at liquidation.31

23

Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 570. Mangano, Int. Insolv. Rev. 2017, 314, 315; Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 577; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 6; Hermann, in Vallender, EuInsVO, Art. 41, mn. 7; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 7, 21. 25 Skauradszun, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 19 EIR 2015, mn. 6; Veder, in Bork/ van Zwieten, Commentary on EIR, Art. 19, mn. 19.11. 26 Hermann, in Vallender, EuInsVO, Art. 41, mn. 7. 27 cf. Mangano, Int. Insolv. Rev. 2017, 314; Hermann, in Vallender, EuInsVO, Art. 41, mn. 12, 38; Paulus, EuInsVO, Art. 41, mn. 6; Reinhart, in Münchener Kommentar zur InsO, Art. 41 EuInsVO 2015, mn. 4. 28 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 564. 29 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.54; Delzant, in Braun, Insolvenzordnung, Art. 41 EuInsVO, mn. 5; Commandeur/Hübler, in Nerlich/Römermann, Insolvenzordnung, Art. 41 EuInsVO, mn. 2. 30 cf. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 36, 37. 31 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.53. 24

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Art. 41

Since Article 41 EIR establishes a legal obligation, the question arises as to whether 9 insolvency practitioners will be liable for damages if they (culpably) violate this obligation. The EIR 2015 does not settle this question. The answer depends on the substantive law of the Member State in which the insolvency practitioner was appointed (lex fori concursus).32 In principle, the obligation according to Article 41 EIR is an obligation under insolvency law. Obligations arising from the EIR are immediately applicable law in the Member States.33 Therefore, according to the national insolvency law, liability under the substantive insolvency law seems to be possible. Under German law, § 60 InsO would be the relevant basis for a claim.34 Thus, the responsibility of the insolvency practitioner must be examined as well. Furthermore, it will often be difficult to prove the causality between the breach of duty and the damage.35 The creditors have to prove that the denied information or non-cooperation caused the (quantifiable) damage. In principle, the same applies to the debtor in possession variation according to 10 Article 41(3) EIR. Hence, the debtor may also be liable for the breach of duty to cooperate and communicate. Usually, the liability is only relevant if the executive body of the debtor’s entity can be held liable. The national substantive insolvency law determines whether there is a liability provision in the event of a debtor in possession/ self-administration. Under German law, there has been an intense discussion whether the liability provisions in the German Insolvency Code, which literally apply to insolvency practitioners only, shall apply mutatis mutandis to the representatives of the debtor who are in charge of the insolvency proceedings.36 According to a recent decision of the German Federal Court of Justice, these provisions do apply mutatis mutandis and therefore the representatives of the debtor do generally have the same liability as an insolvency practitioner.37 Of course, tort law may also give rise to claims of creditors against the respective representatives of the debtor.

II. Limits to cooperation The cooperation must not be “incompatible with the rules applicable to the respective 11 proceedings” (Article 41(1) EIR). Regarding the exchange of information, such rules are, for example, data protection legislation,38 rules on professional secrecy, or rules on company secrets.39 In principle, one has to bear in mind that, in the scenario governed by Article 41 EIR, there is only one debtor whose data are actually not passed on to

32 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 565 (regarding Article 56); Hermann, in Vallender, EuInsVO, Art. 41, mn. 37, 41; Mankowski, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 39, 93; Delzant, in Braun, Insolvenzordnung, Art. 41 EuInsVO, mn. 26; similar regarding Article 56 Madaus, Int. Insol. Rev. 2015, 235, 240. 33 Hermann, in Vallender, EuInsVO, Art. 41, mn. 42; Ehricke, INSOL Europe Technical Series No 13, 2009, p. 83. 34 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 565 (regarding Article 56); Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 26; in terms of the EIR 2000 Ehricke, INSOL Europe Technical Series No 13, 2009, p. 83. 35 Similar according to Article 56 Madaus, Int. Insol. Rev. 2015, 235, 240. 36 cf. Skauradszun/Spahlinger, DB 2015, 2559. 37 BGH, Urteil vom 26.04.2018 – IX ZR 238/17, NJW 2018, 2125. 38 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 568; Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.55; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 9; Paulus, EuInsVO, Art. 41, mn. 10; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 18. 39 Hermann, in Vallender, EuInsVO, Art. 41, mn. 22.

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12

13

14

15

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third parties but instead only exchanged between the insolvency practitioners appointed in the different proceedings regarding this one debtor’s estate.40 As far as can be seen, the relationship between the General Data Protection Regulation (EU) 2016/679 on the one hand and the EIR on the other has not been investigated in depth. This is unfortunate, since the EIR 2015 contains, for the first time, provisions on data protection in Articles 78 to 83 EIR. These provisions constantly refer to the Data Protection Directive 95/46/EC, which has now been repealed by the General Data Protection Regulation. Pursuant to Article 94(1) General Data Protection Regulation, the Data Protection Directive 95/46/EC was effectively repealed on 25 May 2018. Hence, references to the repealed Directive shall be construed as references to the General Data Protection Regulation (Article 94(2) (sentence 1) General Data Protection Regulation). Apart from that, the General Data Protection Regulation does apply as of 25 May 2018, and it applies automatically and simultaneously in all Member States. Thus, the General Data Protection Regulation affects communication duties between insolvency practitioners. The same applies to the courts (Article 42 EIR). Of course, the subject of the General Data Protection Regulation is the protection of natural persons (Article 1(1) General Data Protection Regulation) and the automatic processing of personal data (Articles 2(1), 4(1) General Data Protection Regulation). This is at least a realistic scenario for natural persons in their capacity as a creditor. It is already possible to identify conflicting goals between the two regulations. On the one hand, Article 41(2)(a) EIR obligates the insolvency practitioners to provide information which “may” be relevant. On the other hand, Article 5(1)(c) General Data Protection Regulation obligates the insolvency practitioners to minimise data. According to Article 6(1) General Data Protection Regulation, the processing shall be lawful only if at least one of the listed conditions is met. In terms of insolvency practitioners, Article 6(1)(c) General Data Protection Regulation seems to be applicable. Pursuant to this condition, the data processing is lawful if the processing is necessary for compliance with a legal obligation to which the controller is subject. The basis for the processing referred to in Article 6(1)(c) General Data Protection Regulation shall be laid down by EU law or Member State law (6(3) General Data Protection Regulation). Thus, in most cases the insolvency practitioner is entitled to process personal data of both the debtor as well as the creditors. Additionally, the processing is lawful if it is necessary for the performance of a task carried out in the public interest or in the exercise of official authority vested in the controller (Article 6(1)(e) General Data Protection Regulation). The task of managing and transferring the insolvency estate and therefore of processing personal data of both the debtor and the creditors seems to be a task carried out in the public interest. In many cases, the appointment of an insolvency practitioner includes these tasks and fulfils “the exercise of official authority vested in the controller”. Apart from the above, the insolvency practitioners shall only “cooperate with each other to the extent such cooperation is not incompatible with the rules applicable to the respective proceedings” (Article 41(1)(sentence 1) EIR). The purpose of the limitation of cooperation obligations is to shield the insolvency practitioners from a conflict of their duties.41 This is why a conflict of interest limits the cooperation, although a conflict of interest is only mentioned explicitly in Article 43 EIR. In principle, the 40

Hermann, in Vallender, EuInsVO, Art. 41, mn. 22. cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.58; Hermann, in Vallender, EuInsVO, Art. 41, mn. 24; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 45; Reinhart, in Münchener Kommentar zur InsO, Art. 41 EuInsVO 2015, mn. 6. 41

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wording “rules applicable to the respective proceedings” should be construed narrowly.42 An extensive interpretation would run contrary to the European legislator’s concept of fostering cooperation and communication and clash with the concept of effet utile (cf. recital 61 EIR).43 On the one hand, it is clear from the rationale of Articles 44 and 59 EIR that the charging of costs caused by the cooperation and the desire of cost coverage will not allow an insolvency practitioner to reject or condition cooperation (see Skauradszun/Spahlinger below Art. 59 mn. 1). Beyond the wording, Article 44 EIR conveys the message that each insolvency practitioner generally has to bear his own costs (see Skauradszun/Spahlinger below Art. 44 mn. 2). On the other hand, cooperation in the sense of coordinating measures or taking joint measures, for example joint legal actions against other parties in order to avoid a race between the insolvency practitioners, a joint realisation of assets, or measures to support or enable a better realisation of the assets of one of the insolvency estates may cause disadvantages for the other insolvency estate. The compensation for disadvantages, if any, is not mentioned and regulated in Articles 44 or 59 EIR and is therefore not excluded. The wording and rationale of Article 41 EIR undoubtedly cover much more than a minimum-level of cooperation, such as the delivery of information. A much more intensive cooperation, however, may result in disadvantages for one of the insolvency estates. If this turns out to be the case, the cooperation will probably be “incompatible with the rules applicable to the respective proceedings” unless at least the compensation of such disadvantages has been agreed. Going one step further, an insolvency practitioner may also be permitted to make the joint or coordinated measure – technically a cooperation according to Article 41 EIR – dependent on a fair share of the overall surplus resulting from such cooperation. This is especially true if “the rules applicable to the respective proceeding” call or allow for this, but it is likely also generally true if the applicable national law does not contain any regulation and the joint administration and realisation of the debtor’s insolvency estates is more beneficial for the creditors as a whole (arg. recital 48(sentence 1) EIR).

III. Language Article 41 EIR does not state in which language the insolvency practitioners should 16 communicate. Pursuant to Article 73 EIR, the coordinator shall communicate in the language agreed with the insolvency practitioners or, in the absence of an agreement, in the official language or one of the official languages of the institutions of the EU, and of the court which opened the proceedings in respect of that entity. However, Article 73 EIR does not apply since this provision is lex specialis in terms of a group of companies. Hence, one of the first steps to be taken by insolvency practitioners who are obliged to cooperate is to agree on the language they intend to use in future communication. In most of the cases, this language will be English.44 If the insolvency practitioners cannot reach an agreement regarding the language, each practitioner is compliant with his cooperation duty if he communicates in the language that applies in his procedure.45 42 cf. Hermann, in Vallender, EuInsVO, Art. 41, mn. 24; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 11; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 44; Reinhart, in Münchener Kommentar zur InsO, Art. 41 EuInsVO 2015, mn. 5; Commandeur/Hübler, in Nerlich/ Römermann, Insolvenzordnung, Art. 41, mn. 3. For a wide interpretation see Alitalia Linee Aeree Italiane S.p.A. [2011] EWHC 15 (Ch). For a sceptical analysis of this decision see Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.56 et seq. 43 Similar Schmidt, KTS 2018, 1, 5. 44 cf. Paulus, EuInsVO, Art. 41, mn. 4. 45 Hermann, in Vallender, EuInsVO, Art. 41, mn. 19; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 27.

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This often means that the other insolvency practitioner will have to arrange for the required translation at his own cost, otherwise he will not understand the content. It is clear from the intent and purpose of Article 44 EIR that each practitioner has to bear his own costs and therefore also has to bear the costs for any required translations.

D. Implementation of cooperation (Article 41(2) EIR) 17

Article 41(2) EIR specifies the obligation to cooperate and communicate and lists three forms in which cooperation shall be implemented. The forms of cooperation mentioned in Article 41(2) EIR are not to be understood as alternatives but as complements to each other. Moreover, Article 41(2) EIR does not form an exhaustive list.46 Pursuant to Article 41(1) EIR, “cooperation may take any form” and the circumstances in the individual case determine what forms of cooperation and communication are necessary to achieve an efficient administration or an effective realisation.47

I. Communication of information (Article 41(2)(a) EIR) Article 41(2)(a) EIR obliges the insolvency practitioners to forward any information which may be relevant to the other proceedings to the other practitioner as soon as possible.48 Article 41(2)(a) EIR lists examples (“in particular”) of such relevant information.49 In general, insolvency practitioners have to provide all information50 to the other insolvency practitioners which the latter need to exercise their duties and rights deriving from, inter alia, Articles 23(1), 41(2)(b), 41(2)(c), 45(2), 45(3), 46(1), 46(2), 47(1), 49 and 51(1) EIR.51 This may also comprise information about the insolvency law system in the other states.52 However, this does not mean that one insolvency practitioner is a legal adviser to the other. Some guidance regarding the topics on which information should be shared is provided by no. 230 of the VirgósSchmidt Report.53 The Report mentions, inter alia, information about the assets, the actions planned or under way in order to recover assets, possibilities for liquidating assets, disputes concerning claims etc. 19 The meaning of the phrase “as soon as possible” depends entirely on the circumstances of the individual situation, for example on the question of whether documents need to be translated (if legally required or contractually agreed upon, see above mn. 16).54 A 18

46 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 571; Paulus, EuInsVO, Art. 41, mn. 11; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 11; Hermann, in Vallender, EuInsVO, Art. 41, mn. 10. 47 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.59. 48 Paulus, EuInsVO, Art. 41, mn. 13; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 14, 17; Commandeur/Hübler, in Nerlich/Römermann, Insolvenzordnung, Art. 41, mn. 4; Mankowski, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 17. 49 See for more examples Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 14; Paulus, EuInsVO, Art. 41, mn. 16. 50 cf. Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 13; Commandeur/Hübler, in Nerlich/Römermann, Insolvenzordnung, Art. 41, mn. 4. 51 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.53, mn 41.10. 52 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.54, footnote 41. 53 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.61. 54 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.60. Cf. also Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 25; Hermann, in Vallender, EuInsVO, Art. 41, mn. 15.

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fixed time frame cannot be demanded.55 An interpretation according to national provisions such as § 121 BGB is not permitted.56 Article 41(2)(a) EIR provides the requesting insolvency practitioner with an enforce- 20 able claim.57 Although the wording is not formulated as a basis of a claim, Article 41(2) (a) EIR establishes a mutual duty of the insolvency practitioners. Therefore, the provision shall be understood as the basis of a claim if one insolvency practitioner requests information from the other. This is also true for the insolvency practitioner of the secondary insolvency proceedings.58 On a more practical note, it could be quite challenging to enforce the claim successfully.59 Currently, it is unsettled whether the courts would have international jurisdiction according to Article 6(1) EIR and whether a potential judgment would be enforceable pursuant to Article 32(1.1) EIR. If an insolvency practitioner refuses to fulfil the claim, a notification to the supervising insolvency court is more realistic.60 It is obvious that this would not foster or boost a trusting relationship. Finally, the national courts are obliged to appoint only insolvency practitioners who have already proven to be strong in cooperation and communication or this personal characteristic can be expected under other circumstances.61

II. Exploration and coordination of restructuring (Article 41(2)(b) EIR) Article 41(2)(b) EIR obliges the insolvency practitioners to explore the possibility of 21 restructuring the debtor and, where such a possibility exists, coordinate the elaboration and implementation of a restructuring plan.62 Article 41(2)(b) EIR is closely connected with Article 47 EIR.63 The importance of coordination vis-à-vis restructuring plans stems from the fact that the restructuring plan in main insolvency proceedings does not comprise the assets situated in a state where secondary insolvency proceedings have been opened (Article 34 EIR).64

III. Coordination of the administration or use of assets (Article 41(2)(c) EIR) According to Article 41(2)(c) EIR, the insolvency practitioners shall coordinate the 22 administration of the realisation or use of the debtor’s assets and affairs. The wording of 55 cf. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 42; Paulus, EuInsVO, Art. 41, mn. 13. 56 cf. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 43; Paulus, EuInsVO, Art. 41, mn. 18. 57 Hermann, in Vallender, EuInsVO, Art. 41, mn. 38. 58 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 3; Hermann, in Vallender, EuInsVO, Art. 41, mn. 5. 59 Hermann, in Vallender, EuInsVO, Art. 41, mn. 38; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 39. Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 25 is optimistic that every claim could possibly be enforced via a suit of performance. 60 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 88 also mentions to proceed via the respective supervising insolvency court. 61 Similar Hermann, in Vallender, EuInsVO, Art. 41, mn. 61. 62 Paulus, EuInsVO, Art. 41, mn. 19; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 19; Reinhart, in Münchener Kommentar zur InsO, Art. 41 EuInsVO 2015, mn. 7; Commandeur/Hübler, in Nerlich/ Römermann, Insolvenzordnung, Art. 41, mn. 4. 63 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.62. 64 Dammann, in Bork/van Zwieten, Commentary on EIR, Art. 47, mn. 47.13; Paulus, EuInsVO, Art. 41, mn. 20.

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Article 41(2)(c) EIR demonstrates that the EIR distinguishes between liquidation (“realisation”) and continuation of operations (“use”).65 23 In addition, Article 41(2)(c) EIR obliges the insolvency practitioner in the secondary insolvency proceedings to give the insolvency practitioner in the main insolvency proceedings an opportunity early on to submit proposals on the realisation or use of the assets in the secondary insolvency proceedings. This provision has a predecessor in Article 31(3) EIR 2000 and reflects the hierarchy between the proceedings and the priority of the main insolvency proceedings.66 Thus, there is no similar provision in the Articles 56 to 59 EIR 2015 that unilaterally prefers one of the insolvency practitioners.67 The insolvency practitioners in the secondary insolvency proceedings must be proactive and inform the insolvency practitioner in the main insolvency proceedings about the intended “realisation” or “use” of assets.68 Based on this information, the insolvency practitioner in the main insolvency proceedings may submit respective proposals.69 The practitioner in the secondary insolvency proceedings must not create a fait accompli and thus has to inform the insolvency practitioner in the main insolvency proceedings as early as possible.70 If the insolvency practitioner in the secondary insolvency proceedings is not open-minded towards a submitted proposal, the insolvency practitioner in the main insolvency proceedings may request a stay pursuant to Article 46(1) EIR.71 However, Article 41(2)(c) EIR should not be construed in a way that would paralyse the work of the insolvency practitioner in the secondary proceedings.72 Hence, the provision only pertains to important assets and decisions.73 The proposals are not binding for the insolvency practitioner in the secondary proceedings.74 However, the non-observance of economically reasonable suggestions may lead to a liability vis-à-vis the creditors in the secondary insolvency proceedings.75 This is a question to be settled by the substantive insolvency law of the Member State that has opened the secondary insolvency proceedings.76 65 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.63; Paulus, EuInsVO, Art. 41, mn. 22. 66 cf. Hermann, in Vallender, EuInsVO, Art. 41, mn. 3, 53; Mankowski, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 67; Paulus, EuInsVO, Art. 41, mn. 21; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 3, 22; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 233. 67 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 523, 562. 68 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.64; Hermann, in Vallender, EuInsVO, Art. 41, mn. 55 et seq; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41 mn. 69; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 22; Commandeur/Hübler, in Nerlich/Römermann, Insolvenzordnung, Art. 41, mn. 4. 69 cf. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 68 et seq.; Commandeur/Hübler, in Nerlich/Römermann, Insolvenzordnung, Art. 41, mn. 4. 70 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.64; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 75; Paulus, EuInsVO, Art. 41, mn. 23; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 3. 71 cf. Hermann, in Vallender, EuInsVO, Art. 41, mn. 56; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 3, 22. 72 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.65. 73 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.65: “(…) such as the continuation or cessation of the activities of the debtor’s establishment in the secondary proceedings”; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 70. 74 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.65; Hermann, in Vallender, EuInsVO, Art. 41, mn. 57; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 77; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 24. 75 Hermann, in Vallender, EuInsVO, Art. 41, mn. 57; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 83; Reinhart, in Münchener Kommentar zur InsO, Art. 41 EuInsVO 2015, mn. 9. 76 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 83.

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E. Debtor in possession According to Article 41(3) EIR, paragraphs 1 and 2 apply mutatis mutandis to 24 situations where the debtor remains in possession of his assets (debtor-in-possession or self-administration). This applies to both the main and secondary insolvency proceedings.77

F. Costs There is no provision regarding the costs of cooperation and communication between 25 insolvency practitioners. According to its clear wording, Article 44 EIR only applies to courts. This lacuna is astounding, given the fact that especially the collection, preparation and provision of information almost inevitably trigger expenses. An insolvency practitioner who fulfils his obligations according to Article 41 EIR triggers expenses for his own insolvency estate.78 There is no statutory claw-back claim vis-à-vis the other insolvency practitioner. However, the insolvency practitioners can agree that one of them bears the costs for certain cooperation measures taken by the other insolvency practitioners, in particular if these measures are taken at the request and for the benefit of the insolvency practitioner assuming these costs. 77 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 99; Reinhart, in Münchener Kommentar zur InsO, Art. 41 EuInsVO 2015, mn. 8; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 8; Commandeur/Hübler, in Nerlich/Römermann, Insolvenzordnung, Art. 41, mn. 5. 78 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 41, mn. 20; Delzant, in Braun, Insolvenzordnung, Art. 41, mn. 27.

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Article 42 Cooperation and communication between courts 1. In order to facilitate the coordination of main, territorial and secondary insolvency proceedings concerning the same debtor, a court before which a request to open insolvency proceedings is pending, or which has opened such proceedings, shall cooperate with any other court before which a request to open insolvency proceedings is pending, or which has opened such proceedings, to the extent that such cooperation is not incompatible with the rules applicable to each of the proceedings. For that purpose, the courts may, where appropriate, appoint an independent person or body acting on its instructions, provided that it is not incompatible with the rules applicable to them. 2. In implementing the cooperation set out in paragraph 1, the courts, or any appointed person or body acting on their behalf, as referred to in paragraph 1, may communicate directly with, or request information or assistance directly from, each other provided that such communication respects the procedural rights of the parties to the proceedings and the confidentiality of information. 3. The cooperation referred to in paragraph 1 may be implemented by any means that the court considers appropriate. It may, in particular, concern: (a) coordination in the appointment of the insolvency practitioners; (b) communication of information by any means considered appropriate by the court; (c) coordination of the administration and supervision of the debtor’s assets and affairs; (d) coordination of the conduct of hearings; (e) coordination in the approval of protocols, where necessary. Recitals: 48–50. Specific bibliography: see also Article 41; additionally Madaus, Insolvency proceedings for corporate groups under the new Insolvency Regulation, IILR 2015, 235; Nathan/Gross, Impact of Cross-Border Court-to-Court Communications on U.S. Creditors’ Rights, Business Credit 2017, 22. Outline A. Background and purpose of cooperation and communication between courts B. Right and obligation to cooperate and communicate ............................................. I. Cooperation and communication ....................................................................... II. The authorised and obliged “courts”.................................................................. III. Legal rights and obligation and consequences of non-compliance............. IV. Limits to cooperation and communication ...................................................... C. Appointment of an independent person or body..................................................... I. Independent person or body ................................................................................ II. Appropriateness of the appointment.................................................................. III. Compatibility with the applicable rules ............................................................. IV. Instructions of the court........................................................................................ V. Compensation.......................................................................................................... D. Language of communication ......................................................................................... E. Implementation of the cooperation and communication....................................... I. Direct communication and request of information or assistance (Article 42(2) EIR) .................................................................................................. II. Enumeration in Article 42(3 EIR)....................................................................... 1. Coordination of the appointment of the insolvency practitioners (a)... 2. Communication of information (b)............................................................... 3. Coordination of administration and supervision (c) ................................. 4. Coordination of the conduct of hearings (d)............................................... 5. Approval of protocols (e) .................................................................................

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A. Background and purpose of cooperation and communication between courts Even though Article 42 EIR 2015 has no predecessor in the EIR 2000, some courts 1 and legal scholars had assumed a duty of the courts to cooperate before the EIR 2015’s entry into force.1 Other courts had taken the view that cooperation between the courts was not allowed. Now, Article 42 EIR explicitly authorises and obliges the courts to cooperate and communicate in cases where there are several insolvency proceedings concerning the same debtor.2 The provision acts on the assumption that the proceedings are requested or opened in different Member States (cross-border situation).3 As Article 42(1) EIR states, this is supposed to facilitate the coordination of main, territorial and secondary insolvency proceedings. Recital 48 of the EIR states the goal: “proper cooperation between the actors involved” shall contribute to an “efficient administration of the debtor’s insolvency estate or to the effective realisation of the total assets”.4 The provision is consistent with the fact that the EIR is primarily based on Article 81 TFEU regarding judicial cooperation in civil matters with cross-border implications.5 Article 42 EIR also reflects the principle of sincere cooperation laid down in Article 4(3) TEU.6 In the words of the CJEU, this principle “requires 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, 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”.7 Besides the rights and duties to cooperate and communicate, other tools ensuring coordination of the main, territorial and secondary proceedings are the powers bestowed upon the insolvency practitioner in the main insolvency proceedings to influence the secondary proceedings (cf. Articles 45 to 47 EIR).8 Cooperation with foreign courts will be an entirely new experience for many judges.9 2 On the one hand, court-to-court communication may enhance a completely new international collegiality.10 On the other hand, many judges in practice have no idea what they 1 cf. Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.402; Re Nortel Networks SA [2009] EWHC 206 (Ch), [2009] BCC 343, para. 10 (GBR); Re Collins & Aikman (Oberlandesgericht Graz, 20 October 2005) 3 R 149/05, NZI 2006, 660 (AUT); Re Stojevic (Oberlandesgericht Vienna, 9 November 2004), 28 R 225/04 w (AUT); Ehricke, ZIP 2007, 2395, 2396, INSOL Europe Technical Series No 13, p. 83. Differently Busch/Remmert/Rüntz/Vallender, NZI 2010, 417: No duty, but cooperation between courts is essential to fulfill the best possible satisfaction of creditors (§ 1 InsO). 2 Zipperer, in Vallender, EuInsVO, Art. 42, mn. 5; Wessels, in Festschrift für Vallender, p. 775. 3 Zipperer, in Vallender, EuInsVO, Art. 42, mn. 6. 4 Wessels, in Festschrift für Vallender, p. 777. 5 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.01. 6 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.03; CJEU Case C-116/11 Bank Handlowy w Warszawie SA, PPHU “ADAX”/Ryszard Adamiak, v Christianapol sp. z o.o. ECLI:EU: C:2012:739, para. 62. 7 CJEU Case C-116/11 Bank Handlowy w Warszawie SA, PPHU “ADAX”/Ryszard Adamiak, v Christianapol sp. z o.o. ECLI:EU:C:2012:739, para. 62. 8 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.03; CJEU Case C-116/11 Bank Handlowy w Warszawie SA, PPHU “ADAX”/Ryszard Adamiak, v Christianapol sp. z o.o. ECLI:EU: C:2012:739, para. 61. 9 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.04; Wessels, in Festschrift für Vallender, p. 779. Other judges have already gained experience. This is particularly likely for jurisdictions, which already stipulate court-to-court cooperation like the UK Cross-Border Insolvency Regulations 2006. Here, Articles 25–27 govern the cooperation with foreign courts (and foreign representatives). 10 Wessels, Int. Insolv. Rev. 2015, 96, 107.

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have to do with their colleagues abroad.11 It is questionable whether the competent ministries in the Member States have already appointed judges with the required skills and coached the judges dealing with cross-border insolvencies, for instance in terms of language skills and technical implementation. A first step – from the German perspective, a genuine breakthrough – would be to publish the judges’ email addresses on the courts’ webpages.12 Furthermore, some guidance is provided by the best practices referred to in recital 48(sentence 5) EIR. Such best practices are laid down in, for example, the EU CrossBorder Insolvency Court-to-Court Cooperation Principles (EU JudgeCO Principles) and the EU Cross-Border Insolvency Court-to-Court Communications Guidelines (EU JudgeCo Guidelines).13 The aforementioned principles or guidelines provide some orientation, inter alia on communication (EU JudgeCo Principle 16 and EU JudgeCo Guideline 6), language (EU JudgeCo Principle 14) and the authentication of documents (EU JudgeCo Principle 15).14 Also, the Guidelines Applicable to Court-to-Court Communication in Cross-Border-Cases developed by the American Law Institution and the International Insolvency Institution can be a helpful resource.15 These guidelines have proven themselves to be working in America, yet transposing them directly to European civil procedure law is problematic, as they are designed for American case law.16

B. Right and obligation to cooperate and communicate I. Cooperation and communication 3

As discussed above (see Skauradszun/Spahlinger above Art. 41 mn. 4), “cooperation and communication” are not to be understood as two different concepts but rather as mutual complements. Cooperation without communication is inconceivable and does not make sense.

II. The authorised and obliged “courts” 4

According to Article 2 no. 6 (ii) EIR, in the context of Article 42 EIR, “court” means “the judicial body or any other competent body of a Member State empowered to open insolvency proceedings, to confirm such opening or to take decisions in the course of such proceedings”. From a German perspective, this definition comprises judges as well as officers of justice (“Rechtspfleger”).17 The term “court” covers both the lower and any higher court in the event of a remedy.18 Hence, it is undoubtedly possible that a court of first instance will communicate and cooperate with a court of appeal. It may seem to be a problematic scenario when high-ranking courts of one Member State have to work 11 Cf. Mangano, Int. Insolv. Rev. 2017, 314, 322: “If courts and insolvency practitioners belong to a jurisdiction that has a restricted culture of judicial discretion, they tend to minimise efforts in cooperation”. 12 Remmert/Rüntz/Vallender, NZI 2010, 417, 420: see for a best practice example the address database of North Rhine-Westphalia’s courts (https://www.justiz.nrw/Gerichte_Behoerden/index.php (last visited 23 April 2018)). 13 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 3. Available at http:// www.tri-leiden.eu/project/categories/eu-judgeco/(last visited 23 April 2018). 14 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.04 et seq. 15 Busch/Remmert/Rüntz/Vallender, NZI 2010, 417, 419. 16 Busch/Remmert/Rüntz/Vallender, NZI 2010, 417, 419. This is especially true regarding procedural law, for example German procedural law. 17 Paulus, EuInsVO, Art. 42, mn. 12. Already assumed by Ehricke, ZIP 2007, 2395, 2396. 18 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 5; Zipperer, in Vallender, EuInsVO, Art. 42, mn. 6.

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with low-ranking courts of another Member State, for example the High Court of Justice of England and Wales with a local court of a Member State where a request to open a secondary insolvency proceeding is pending. The two courts do not operate at the same level, nevertheless the principle of mutual trust according to recital 65 EIR shall hold true.19 Based on the principal of mutual trust, even such a cooperation can and should work and should encourage a European rescue culture with more mutual and cooperation-friendly understanding.20 The definition in Article 2 no. 6 (ii) EIR leads to the conclusion that Article 42 EIR 5 only applies to the cooperation and communication between the courts of the Member States (except Denmark).21 The cooperation and communication with non-Member States and Danish courts is governed by the states’ national law.22 Article 42 EIR explicitly addresses courts which have already opened insolvency 6 proceedings as well as courts before which a request to open such proceedings is pending.23 The mentioning of the interim proceedings in Article 42 EIR provides a strong indication that Article 41 EIR regarding the insolvency practitioners’ cooperation and communication duties is also applicable during the phase in which the seised court scrutinises the request to open proceedings. The major difficulty will be the identification of courts that have not yet opened proceedings.24 Apart from that, a court is entitled to communicate and cooperate even if the request ultimately turns out to be inadmissible.25

III. Legal rights and obligation and consequences of non-compliance Article 42 EIR contains a legal obligation for the courts to cooperate and commu- 7 nicate;26 it is not in the discretion of the courts to decide whether they cooperate and communicate or not. The EIR 2015 therefore establishes a clear legal situation, a prerequisite for successful cooperation27 and broadens the courts’ legal rights and obligations. This is true insofar as the cooperation is compatible with the obligated court’s applicable national law. In the case of incompatibility (e. g. with respect to a court’s request to another court and the national law applicable for such other court) Article 42(1)(sentence 1) EIR provides that the applicable national law prevails.28 Without Article 42 EIR, the courts would not be obliged to cooperate and communicate if their national law did not oblige them.29 Moreover, without Article 42 EIR, the courts would not even have a right to cooperate and communicate if their national law did not 19

Mangano, Int. Insolv. Rev. 2017, 314, 319; Ehricke, ZIP 2007, 2395, 2398. Madaus, IILR 2015, 247. 21 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.01. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 7. 22 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 7. For Germany see § 348 (2) InsO. Cf. for a report about Section 1525 of the U.S. Bankruptcy Code for communication and cooperation among the courts involved in cross-border proceedings Nathan/Gross, Business Credit, p. 22. 23 Mangano, Int. Insolv. Rev. 2017, 314, 315; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 4; Paulus, EuInsVO, Art. 42, mn. 13. 24 Paulus, EuInsVO, Art. 42, mn. 13. 25 Zipperer, in Vallender, EuInsVO, Art. 42, mn. 6. 26 Mangano, Int. Insolv. Rev. 2017, 314; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 1; Paulus, EuInsVO, Art. 42, mn. 11; Zipperer, in Vallender, EuInsVO, Art. 42, mn. 2; Delzant, in Braun, Insolvenzordnung, Art. 42, mn. 1; Reinhart, in Münchener Kommentar zur InsO, Art. 42 EuInsVO 2015, mn. 2. 27 Ehricke, ZIP 2007, 2395, 2396. 28 Dissenting Reinhart, in Münchener Kommentar zur InsO, Art. 42 EuInsVO 2015, mn. 1. 29 Ehricke, ZIP 2007, 2395, 2396. 20

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allow them. A prompt rejection or non-response to a request of another court for cooperation, perhaps with the reasoning that cooperation may not be necessary, is now a breach of duty.30 The same applies to the former assumption of several judges that the other judges will certainly not cooperate and therefore the adoption of their strategy not to cooperate too.31 Non-compliance may lead to personal liability of the addressees if provided by the national law.32 This is in line with Article 41 EIR: the substantive law of the Member State, which is applicable in terms of liabilities, is to be applied (see Skauradszun/Spahlinger above Art. 41 mn. 9). Regarding the implementation, however, the courts have a certain discretion (cf. Article 42(3) EIR).

IV. Limits to cooperation and communication The courts are only permitted and obliged to cooperate to the extent that such cooperation is not incompatible with the rules applicable to each of the proceedings (Article 42(1)(sentence 1) EIR; lex fori concursus33 restriction). A certain and nonexhaustive description of these limits can be found in Article 42(2) EIR, which states that the communication between courts or appointed persons or bodies must respect the procedural rights of the parties to the proceedings and the confidentiality of information. Although the wording only refers to communication, the limitation applies to any form of cooperation and communication as the two concepts cannot be regarded separately (see Skauradszun/Spahlinger above Art. 41 mn. 4). 9 Some legal scholars are of the opinion that it would be incompatible with European procedural rights and principles if the courts communicated without allowing the parties and their legal advisors to be present, either in person or by a medium of communication.34 We do not agree with this opinion. Article 42 EIR stipulates duties between courts, and therefore the cooperation between at least two representatives of the courts. The focus is on the coordination (arg. Article 42(3) EIR). This situation cannot be compared to a hearing or the court’s examination of the evidence. Hence, if two judges for example coordinate the appointment of the same insolvency practitioner according to Article 42(3)(a) EIR, they are neither obliged to inform the parties about their assessment nor to invite them to the (telephone) conference. However, every court must examine which information and other measure of cooperation gives rise to the duty to hear the respective persons involved (fair hearing).35 10 Whether the obligation to cooperate complies with the concept of judicial independence depends on the design of this concept in the respective jurisdiction.36 Generally, direct communication will not jeopardise judicial independence.37 In addition, it is clear that the duty to cooperate does not bind the competent judge legally with respect to the 8

30

cf. Zipperer, in Vallender, EuInsVO, Art. 42, mn. 4. Similar Mangano, Int. Insolv. Rev. 2017, 314, 320 and with an impressive matrix to simulate the courts’ behaviours. 32 Zipperer, in Vallender, EuInsVO, Art. 42, mn. 24: in Germany § 839 BGB applies. 33 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 12; Delzant, in Braun, Insolvenzordnung, Art. 42, mn. 4. 34 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.695. 35 Similar Reinhart, in Münchener Kommentar zur InsO, Art. 42 EuInsVO 2015, mn. 3. 36 cf. for Canada Re Nortel Networks Corporation, 2013 ONCA 427, para. 5: “Cooperation and communication between the two courts in accordance with the relevant protocols is not inconsistent with judicial independence, but rather is a sensible and effective response to a significant interjurisdictional commercial case”. Zipperer, in Vallender, EuInsVO, Art. 42, mn. 2: no conflict. 37 Similar Zipperer, in Vallender, EuInsVO, Art. 42, mn. 2: communication as such is not prejudging the outcome. 31

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decisions to be taken by him in his proceeding.38 Cooperation that is understood in such a way that the competent judge does not decide as he sees fit could be problematic. Example: A judge from France, a judge from Austria and a judge from Italy each examine requests for the opening of secondary insolvency proceedings. The judge from France proposes that A be appointed as insolvency practitioner in all three proceedings. The judge from Italy considers A suitable. The judge from Austria actually considers B suitable, but not A. Nevertheless, the Austrian judge wants to cooperate pursuant to Article 42(3)(a) EIR and appoints A. In the case at hand, the judge from Austria did not decide independently. Of course, the other judges did not dictate his decision, but due to the obligation to cooperate, he was pushed in a direction that he did not think it was the best solution. If one interprets the term “cooperation” too broadly, constitutional problems may 11 arise. If the term is construed too narrowly, there is a risk that the judges will in practice send a single letter or make a single phone call and then refer to their constitutional independence. In our view, the judges are and remain independent, although cooperation may entail reasonable compromises. In addition, see for the limits of cooperation and communication between insolvency 12 practitioners as discussed by Skauradszun/Spahlinger above Art. 41 mn. 11.39

C. Appointment of an independent person or body According to Article 42(1)(sentence 2) EIR, the courts may appoint an “independent 13 person or body” acting on its instructions. They may only do so where this is appropriate and not incompatible with the rules applicable to the courts. The purpose referred to in Article 42(1)(sentence 2) EIR is the facilitation of the coordination of main, territorial and secondary insolvency proceedings. The “independent person or body” is a new player in the field of cross-border insolvency.40 Some guidance on the concept of an “independent person or body” is provided by Principle 17 of the EU JudgeCo Principles and the commentary accompanying these principles.41

I. Independent person or body The court may appoint one or several natural person(s) as well as a legal person 14 under private or public law.42 It is obvious that the appointee should have the appropriate knowledge, experience and qualification to practice or assist in an international insolvency proceeding.43 It is questionable whether Article 42(1)(sentence 2) EIR is to be understood in such a way that a court may appoint the appointed insolvency practitioner as the independent person. In our view, the appointed insolvency practitioner is not an “independent person” in the sense of sentence 2.44 The independent 38 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 21; similar Zipperer, in Vallender, EuInsVO, Art. 42, mn. 2: only the behavior will be managed. 39 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.06. 40 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.07. 41 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.08. 42 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 9. 43 Principle 17(2)(i) of the EU JudgeCo Principles. 44 Also Zipperer, in Vallender, EuInsVO, Article 42 mn. 10. Dissenting Reinhart, in Münchener Kommentar zur InsO, Article 42 EuInsVO 2015 mn. 2; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42 mn. 9.

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person according to Article 42(1)(sentence 2) EIR is to be understood more as an extended arm of the judge. The required independence must be given vis-à-vis the debtor and the appointed insolvency practitioners.45 In any case, the appointed person or body must not have any conflicts of interests.46 The person or body to be appointed needs to have the qualification and experience required for the specific mandate. It can be a person or body having the qualification to be appointed (in other matters) as insolvency practitioner, but it can also be another person or body, for example, an advisor experienced in cross-border insolvency cases.

II. Appropriateness of the appointment 15

Appropriate reasons for the appointment of an “independent person or body” may inter alia be limits of time and resources or the complexity of international cases regarding language and different time zones.47

III. Compatibility with the applicable rules 16

Although an insolvency court may not delegate its competence for the legal supervision under the applicable laws of the Member States, the laws of the Member States will probably allow to appoint an “independent person or body” as long as the court is still able to give instructions and reserve powers to control and approve. This is for example true for Germany.48 Apart from that, it is sufficient that an appointment of an independent person is possible under the law of the court appointing the person or body. There is no need to comply additionally with the national law of other Member States involved.49

IV. Instructions of the court 17

The “independent person or body” acts on the court’s instructions. Article 42(1) (sentence 2) EIR (acting on its instructions) may be understood as requiring the court to instruct each step, but also that the court only needs to instruct the main guidelines. In our view, the court must be in control of the independent person or body at all times and must be able to instruct the next step at any time. However, it is also possible that the court determines the objective but gives the independent person or body a certain discretion in the implementation.

V. Compensation 18

The “independent person or body” is to be compensated from the insolvency estate of the insolvency proceedings for which the appointing court has jurisdiction.50

45

Paulus, EuInsVO, Art. 42 mn. 15. Principle 17(2)(ii) of the EU Cross-border Insovlency Court-to-Court Cooperation Principles. 47 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.08; Zipperer, in Vallender, EuInsVO, Art. 42, mn. 10. 48 Zipperer, in Vallender, EuInsVO, Art. 42, mn. 10; differently Brünkmans, ZInsO 2013, 797, 802. 49 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 10. 50 Principle 17(2)(iv) of the EU Cross-border Insovlency Court-to-Court Cooperation Principles. 46

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D. Language of communication As the EU currently has 24 official languages, the essential question arises in which of 19 these languages the courts or any appointed person or body acting on their behalf are to communicate.51 Right now, it cannot be taken for granted that the respective judges are able to speak and write in a common language (e. g. in English) in a professional manner (see above mn. 1). Therefore, initial communication without an interpreter could be troublesome.52 Some guidance on this matter is provided by EU JudgeCo Principle 14 (“Language”). Professional English proficiency is far more common among insolvency practitioners and legal advisors experienced in cross border insolvency cases, so that the court may initially contact another court via the (provisionally) appointed insolvency practitioner if he complies53 or an independent person appointed in accordance with Article 42(1)(sentence 2) EIR.

E. Implementation of the cooperation and communication Article 42(2) and (3) EIR specify how the cooperation may be implemented. The 20 principle is stated in Article 42(3)(sentence 1) EIR: The cooperation may be implemented by any means that the court considers appropriate. A common practice in certain countries is the use of protocols.54 Ideally, the courts will come to an explicit agreement regarding the topics they intend to coordinate.55 In any case, the appropriate form of cooperation and communication depends on the circumstances of the individual case and the time available.56 For the limits of cooperation and communication, see above mn. 8. Appointed 21 persons or bodies can support the courts in the ways listed in Article 42(2) EIR.

I. Direct communication and request of information or assistance (Article 42(2) EIR) According to Article 42(2) EIR, the courts or any appointed person or body acting on 22 their behalf may communicate directly with, or request information directly from, each other.

51

cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.05. Busch/Remmert/Rüntz/Vallender, NZI 2010, 417, 421. 53 cf. Busch/Remmert/Rüntz/Vallender, NZI 2010, 417, 421. 54 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 41.22. See Busch/Remmert/ Rüntz/Vallender, NZI 2010, 417, 421 for a model protocol based on American customs and guidelines. Compare Nathan/Gross, Business Credit, p. 22 for a report about U.S. courts. Finally, see the Livent protocol for detailed guidelines on court-to-court communication, reported by Wessels/Markell/Kilborn, International Cooperation In Bankruptcy and Insolvency Matters, p. 186. 55 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.09; Busch/Remmert/Rüntz/ Vallender, NZI 2010, 417, 421, 428. 56 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.09. 52

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II. Enumeration in Article 42(3 EIR) 23

The enumeration contained in Article 42(3) EIR is not exhaustive.57 The EU JudgeCo Principles and the EU JudgeCo Guidelines provide some guidance on the forms of cooperation listed in Article 42(3) EIR.58

1. Coordination of the appointment of the insolvency practitioners (a) The courts may coordinate the appointment of the insolvency practitioners.59 For instance, according to recital 50 EIR, the courts may appoint a single insolvency practitioner for several insolvency proceedings concerning the same debtor,60 provided that this is compatible with the rules applicable to each of the proceedings. Hence, it is possible to appoint a foreign insolvency practitioner.61 Another approach can be the appointment of partners of the same law firm or accountancy firm.62 Both approaches must not lead to irresolvable conflicts.63 However, the coordinated appointment of special insolvency practitioners in several proceedings can be justified by the candidate’s language skills and the market coverage of his law firm in the involved Member States, as well as his willingness to extensively communicate and cooperate with other insolvency practitioners.64 25 Apart from that, the courts may also cooperate and communicate in the event of a revocation of the appointment.65 Even though the revocation is not covered by the wording of Article 42(3)(a) EIR, this is clear from the purpose of Article 42(3)(a) EIR. For example, it is legally possible under Article 42(3)(a) EIR for a judge, before revoking the appointment of an insolvency practitioner for a breach of duty, to speak to the other judges who have also appointed the insolvency practitioner about whether the insolvency practitioner has committed a similar breach of duty in these proceedings. 26 The applicable national law may entitle bodies like the creditors’ committee or creditors’ assembly to propose an insolvency practitioner and bind the court to this proposal. For instance, this is true in Germany for unanimous resolutions made by the preliminary creditors’ committee (§ 56a(2) InsO (DEU)). The coordination obligations in terms of the insolvency administrator’s appointment according to Article 42(3)(a) EIR do not overrule binding proposals under national law66 or any other applicable mandatory provision under national law. 24

57 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.10; Zipperer, in Vallender, EuInsVO, Art. 42, mn. 15; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 17. 58 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 42, mn. 42.10. Before the EIR recast, mutual supervision over an insolvency practitioner, clarification of special circumstances of a debtor, sharing testimonies or expert opinions have already been suggest by Ehricke, ZIP 2007, 2395, 2397. 59 Already proposed by Fletcher/Wessels, Int. Insolv. Rev. 2014, 221, 229 (Principle 23.4). 60 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 19; Delzant, in Braun, Insolvenzordnung, Art. 42, mn. 6. 61 Zipperer, in Vallender, EuInsVO, Art. 42, mn. 16. This is also true under German law (cf. Article 102 EGInsO). 62 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.697. 63 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.697; Zipperer, in Vallender, EuInsVO, Art. 42, mn. 17. 64 Zipperer, in Vallender, EuInsVO, Art. 42, mn. 23; Delzant, in Braun, Insolvenzordnung, Art. 42, mn. 6. 65 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 18. 66 Also Zipperer, in Vallender, EuInsVO, Art. 42, mn. 18.

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2. Communication of information (b) Article 42(3)(b) EIR refers to the communication of information by any means 27 considered appropriate by the court.67 Such means of communication may be, for example, meetings, letters, telephone calls, e-mails, chat rooms68 or video conferences (see above mn. 2 regarding the judges’ email addresses).69 The exchange of information may lead to a better usage of information.70 The transmission of original court files and other related original documents of the proceedings (e. g. items of evidence) is a more difficult matter (risk of loss or damage caused by transport) and often restricted by national procedural rules.71

3. Coordination of administration and supervision (c) The courts may also coordinate the administration and supervision of the debtor’s 28 assets and affairs. The courts may in particular agree to take, or to refrain from taking, certain steps or actions.72 It may also save costs and reduce complexity if, to the extent legally possible under the applicable national law, the assets in the main and the secondary proceedings are de facto treated as a unity.73 Additionally, the coordination of the administration covers debtor-in-possession proceedings.74

4. Coordination of the conduct of hearings (d) According to Article 42(3)(d) EIR, the courts may coordinate the conduct of hear- 29 ings. Scheduling virtual creditors’ assemblies might be an option under national insolvency law.75 This encompasses inter alia the resolution of misunderstandings and the avoidance of undermining or conflicting decisions.76 However, it is questionable whether the provision permits joint hearings.77 In our view, the Article’s wording is broad enough to cover joint hearings.

5. Approval of protocols (e) Where necessary, the courts coordinate the approval of protocols. Protocols have 30 already been discussed by Skauradszun/Spahlinger above Art. 41 mn. 6. 67 See Busch/Remmert/Rüntz/Vallender, NZI 2010, 417, 421 for a good and bad example prior to the EIR recast regarding the communication between European insolvency courts in insolvency proceedings. 68 cf. Ehricke, INSOL Europe Technical Series No 13. 69 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.698; Paulus, EuInsVO, Art. 42, mn. 19; Busch/Remmert/Rüntz/Vallender, NZI 2010, 417, 420. Already assumed in Ehricke, ZIP 2007, 2395, 2397 and proposed by Already proposed by Fletcher/Wessels, Int. Insolv. Rev. 2014, 221, 229 (Guideline 8). See Nathan/Gross, Business Credit, p. 22, p. 24 for an example of conference calls between U.S. and Korean courts (and attended creditors). 70 Ehricke, ZIP 2007, 2395, 2397. 71 Busch/Remmert/Rüntz/Vallender, NZI 2010, 417, 429. 72 cf. Recital 49 Sentence 4 EIR. 73 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.699. 74 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 42, mn. 28. 75 Accepted under German law by Zipperer, in Vallender, EuInsVO, Art. 42, mn. 22; also, already suggested by Busch/Remmert/Rüntz/Vallender, NZI 2010, 417, 421. 76 Such coordination could have prevented the unfortunate situation in the insolvency proceedings concerning “NIKI”, where two courts have opened main proceedings. 77 Permitting joint hearings: Zipperer, in Vallender, EuInsVO, Art. 42, mn. 22; against joint hearings Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.700.

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Article 43 Cooperation and communication between insolvency practitioners and courts 1. In order to facilitate the coordination of main, territorial and secondary insolvency proceedings opened in respect of the same debtor: (a) an insolvency practitioner in main insolvency proceedings shall cooperate and communicate with any court before which a request to open secondary insolvency proceedings is pending or which has opened such proceedings; (b) an insolvency practitioner in territorial or secondary insolvency proceedings shall cooperate and communicate with the court before which a request to open main insolvency proceedings is pending or which has opened such proceedings; and (c) an insolvency practitioner in territorial or secondary insolvency proceedings shall cooperate and communicate with the court before which a request to open other territorial or secondary insolvency proceedings is pending or which has opened such proceedings; to the extent that such cooperation and communication are not incompatible with the rules applicable to each of the proceedings and do not entail any conflict of interest. 2. The cooperation referred to in paragraph 1 may be implemented by any appropriate means, such as those set out in Article 42(3). Recitals: 48–50. Specific bibliography: see Article 41; additionally Skauradszun, Virtual secondary insolvency proceedings under the Recast EIR, eurofenix 3/2017, 20; Skauradszun, Die “tatsächlichen Annahmen” der Zusicherung nach Art. 36 Abs. 1 Satz 2 EuInsVO n. F., ZIP 2016, 1563. Outline A. Background and purpose of cooperation and communication between insolvency practitioners and courts ............................................................................. B. Right and obligation to cooperate and communicate ............................................. I. Cooperation with the insolvency practitioner of main insolvency proceedings (Article 43(1)(a) EIR)...................................................................... II. Cooperation with the insolvency practitioner of territorial and secondary insolvency proceedings (Article 43(1)(b) and (c) EIR) .................................. C. Limitations on cooperation and communication ..................................................... I. The rules applicable to each of the proceedings.............................................. II. Conflict of interests ................................................................................................ D. Appropriate means for cooperation and communication (Article 43(2) EIR) .. E. Costs....................................................................................................................................

1 3 7 9 10 11 12 15 16

A. Background and purpose of cooperation and communication between insolvency practitioners and courts 1

As Article 41 EIR regulates the cooperation and communication between insolvency practitioners and Article 42 EIR regulates the cooperation and communication between courts, it makes sense to have a provision that governs the cooperation and communication between insolvency practitioners and courts. Article 43 EIR, in fact, contains 358

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such a provision. One can denote the cooperation between courts and insolvency practitioners as a “cross-over-cooperation”1 or “diagonal cooperation”2. With Article 43 EIR, European law permits direct contact between courts and insolvency practitioners appointed in other insolvency proceedings.3 Article 43(1) EIR aims to facilitate the coordination of main, territorial and secondary insolvency proceedings opened in respect of the same debtor. Articles 41 and 42 EIR share this objective.4 Facilitation means the removal of obstacles impeding the progress of the proceedings.5 The fact that there is only one debtor (cf. Article 43(1) EIR: “same debtor”) is the key difference between Articles 41 et seq. EIR and the provisions on cooperation and communication in insolvency proceedings of members of a group of companies (Articles 56 et seq. EIR). Article 43 EIR 2015 has no predecessor in the EIR 2000. The provision could be of particular importance in cases where a court wishes to 2 communicate with another court pursuant to Article 42 EIR but the other court does not respond, or significant technical, language- or interpretation-related difficulties arise. Communicating with the insolvency practitioner based on Article 43 EIR might be an alternative, especially if the court is pressed for time to make a decision.

B. Right and obligation to cooperate and communicate Like Articles 41 and 42 EIR, Article 43 EIR constitutes a right and a legally binding 3 obligation to cooperate and communicate among the parties mentioned in paragraph 1.6 According to the provision’s wording, Article 43 EIR only obliges the insolvency practitioners and not the courts.7 Nevertheless, it is appropriate to interpret the provision in such a way that courts are not only authorised but also obliged to cooperate and communicate actively with the insolvency practitioners.8 Therefore, the courts must participate in the communication with the insolvency practitioners. Otherwise, no communication can occur. This understanding is underpinned by recital 48 EIR (“Proper cooperation implies the various insolvency practitioners and courts involved cooperating closely, in particular by exchanging a sufficient amount of information.”) and the intention of Article 43 EIR.9 Despite the obligation for the courts to cooperate and communicate, it is questionable how an enforceable claim against the courts might be constructed in detail.10 In practical terms, the court ushers, court officers or secretaries that are contacted by the insolvency practitioners respond and put them straight through to the competent judges. This shows that the Ministries of Justice of the Member States shall train the insolvency judges as well as other staff in the 1

This term was coined by Brinkmann, cf. Zipperer, in Vallender, EuInsVO, Art. 43, mn. 1. Graf-Schlicker, in Festschrift für Kübler, p. 195, 199; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 1; Zipperer, in Vallender, EuInsVO, Art. 43, mn. 1. 3 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 1. 4 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 44, mn. 44.01. 5 Zipperer, in Vallender, EuInsVO, Art. 43, mn. 5. 6 cf. Zipperer, in Vallender, EuInsVO, Art. 43, mn. 5. 7 Paulus, EuInsVO, Art. 43, mn. 2; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 2. 8 cf. Paulus, EuInsVO, Art. 43, mn. 2. See also Busch/Remmert/Rüntz/Vallender, NZI 2010, 417, 420, who refer to the Automold-proceedings, where the court in the secondary proceedings (AG Köln) successfully contacted the insolvency practitioners in the English main insolvency proceedings who were willing to hold the creditors’ meeting of the main insolvency proceedings before the AG Köln. 9 Delzant, in Braun, Insolvenzordnung, Art. 43, mn. 5; Paulus, EuInsVO, Art. 43, mn. 2. 10 cf. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 2; Zipperer, in Vallender, EuInsVO, Art. 43, mn. 5. 2

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insolvency court departments in this regard. On the other hand, both sides – judges and insolvency practitioners – must show understanding for each other. Even today, not every court is able to receive larger file attachments, save them on central servers and secure the data properly. The courts often do not have the required technical equipment that facilitates the proper management of cross-border cases and that insolvency practitioners and law firms representing debtors and major creditors are able to utilise. 4 The legal obligation of an insolvency practitioner to cooperate and communicate does not commence only after a court has first requested information.11 Instead, there may be situations in which the insolvency practitioners have to communicate with the courts proactively. The duty to cooperate and communicate commences with the filing for insolvency.12 If the filing for insolvency is inadmissible, the duty nevertheless persists until the competent body ascertains the inadmissibility in a final and binding decision.13 The insolvency practitioners’ obligations to cooperate and communicate do not mean that courts have a right to instruct insolvency practitioners appointed in other insolvency proceedings.14 Cooperation takes place on equal terms.15 The insolvency practitioners’ obligations to cooperate and communicate cannot compel the insolvency practitioner to switch from liquidation to reorganisation or vice versa if the court is of the opinion that another approach would be better.16 5 Article 43 EIR does not explicitly address the debtor-in-possession like Article 41(3) EIR does. This seems to be an editorial mistake, as there is no reason why the debtor-inpossession should not be obliged to cooperate and communicate with the courts in other proceedings. The provision therefore applies mutatis mutandis in scenarios where a debtor remains in possession (e. g. self-administration under German insolvency law).17 In such scenarios, the debtor and its respective representatives as well as – if applicable – any appointed supervisor are obliged to cooperate and communicate.18 6 Article 43(1) EIR lists three scenarios in which insolvency practitioners and courts are obliged to cooperate and communicate. As discussed above, cooperation and communication cannot be regarded as two separate concepts; instead, they are two sides of the same coin (see Skauradszun/Spahlinger above Art. 41 mn. 4). A best practice on “Court to Insolvency Practitioner Communication” can be found in EU JudgeCo Guideline 4.19 In cases where several proceedings are pending simultaneously, coordinated communication may help the courts and insolvency practitioners involved. For example, insolvency practitioners in the main insolvency proceedings may send an email to all the courts that have opened secondary insolvency proceedings and inform them synchronously. In principle, all courts and insolvency practitioners should cooperate in ways that facilitate the overall cooperation, which will in many cases necessitate concerted cooperation.20

11 For a differing opinion see Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 2. 12 Zipperer, in Vallender, EuInsVO, Art. 43, mn. 5. 13 cf. Zipperer, in Vallender, EuInsVO, Art. 43, mn. 5. 14 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 3. 15 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 3. 16 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 10. See for a slightly different view Zipperer, in Vallender, EuInsVO, Art. 43, mn. 5. 17 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 4. 18 cf. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 4; Zipperer, in Vallender, EuInsVO, Art. 43, mn. 4. 19 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 43, mn. 43.02. 20 Paulus, EuInsVO, Art. 43, mn. 9.

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I. Cooperation with the insolvency practitioner of main insolvency proceedings (Article 43(1)(a) EIR) Subparagraph 1(a) addresses the cooperation and communication between the 7 insolvency practitioner in the main insolvency proceedings and any court before which a request to open secondary insolvency proceedings is pending or which has opened such proceedings. This de facto strengthens the position of the insolvency practitioner in the main insolvency proceedings.21 The provision does not address the court in the main insolvency proceedings with respect to its relation to the insolvency practitioner in the main insolvency proceedings, because this relationship is governed by the lex fori concursus.22 The insolvency practitioner is obliged to inform the court exhaustively about the status of his or her proceedings.23 The importance of cooperation and communication in cases where there is a pending request is underlined by Article 38 (1) EIR.24 Pursuant to Article 38(1) EIR, the court seised with a request to open secondary insolvency proceedings shall immediately give notice to the insolvency practitioner in the main insolvency proceedings and give him an opportunity to be heard on the request. Cooperation and mutual information is particularly important in this phase. The insolvency practitioner may request the stay of the opening of secondary insolvency proceedings for a period not exceeding three months (Article 38(3) EIR). Taken literally, this provision is only applicable in the event of a temporary stay of individual enforcement proceedings that has been granted in order to allow for negotiations between the debtor and its creditors. However, Article 38(3) EIR applies mutatis mutandis if the insolvency practitioner gives an undertaking according to Article 36 EIR (virtual or synthetic secondary proceedings) in order to avoid the opening of regular secondary proceedings.25 Article 38(3) EIR is the provision most closely related to the problem in question. As both situations are comparable (ongoing negotiation on the one hand, undertaking as a compromise on the other), they shall be treated equally. Without a temporary stay of secondary insolvency proceedings, the new instrument (the undertaking) could not be used effectively, which would undermine the effet utile principle. Therefore, it is advisable to request a stay pursuant to Article 38(3) EIR mutatis mutandis in order to prepare the “factual assumptions”.26 Pursuant to Article 43(1)(a) EIR, the insolvency practitioner and court shall work closely together during the preparation of the “factual assumptions” in order to give an undertaking. Therefore, according to Article 43(1)(a) EIR, the insolvency practitioner has to report intermediate results relating to the proposed undertaking to the court seised. Conversely, the court will likely ask the insolvency practitioner and assess whether the creditors are sufficiently protected if it stays the opening of the secondary insolvency proceedings for a period of three months.27 Finally, cooperation and communication may be important in cases where national 8 law obliges the court before which a request to open secondary insolvency proceedings 21

cf. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 5. cf. Wessels, in Festschrift für Vallender, p. 775, 786; Zipperer, in Vallender, EuInsVO, Art. 43, mn. 6; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 5. 23 Zipperer, in Vallender, EuInsVO, Art. 43, mn. 6: communication of court orders, decisions of creditors’ committees and creditors’ meetings, reports and the insolvency practitioner’s strategy. 24 cf. Paulus, EuInsVO, Art. 43, mn. 4. 25 Skauradszun, eurofenix, 3/2017, p. 20; Skauradszun, ZIP 2016, 1563, 1565; in favour of this suggestion Keller, in Vallender, EuInsVO, Art. 36, mn. 7. 26 Skauradszun, eurofenix, 3/2017, p. 20. 27 Skauradszun, ZIP 2016, 1563, 1565. 22

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is pending to assess whether the opening of such proceedings is beneficial for the creditors or other stakeholders.28

II. Cooperation with the insolvency practitioner of territorial and secondary insolvency proceedings (Article 43(1)(b) and (c) EIR) 9

Subparagraphs 1(b) and 1(c) address the insolvency practitioners in territorial and secondary insolvency proceedings. They are authorised and obliged to cooperate and communicate with the court before which a request to open main insolvency proceedings is pending or which has opened such proceedings (b). The same applies to insolvency practitioners who want to or have to cooperate and communicate with courts before which a request to open other territorial or secondary insolvency proceedings are pending or which have opened such proceedings (c). The subparagraphs do not make a distinction between cases in which there is only a pending request to open these proceedings and cases in which these proceedings have already been opened. The need for communication exists in particular if a court has already opened territorial insolvency proceedings. In this case, a court will have confirmed a reason for opening insolvency proceedings over the assets of the debtor, such as the illiquidity of the debtor. In addition, the insolvency practitioner may already know more clearly when the relevant reason for opening insolvency proceedings occurred and what assets belong to the insolvency estate. All this information may help the court seised, which now has to decide on the opening of main insolvency proceedings, secondary insolvency proceedings, or other territorial insolvency proceedings.29

C. Limitations on cooperation and communication 10

Article 43(1) EIR mentions two limitations for the cooperation and communication between insolvency practitioners and courts: the rules applicable to each of the proceedings and conflicts of interests.

I. The rules applicable to each of the proceedings 11

For the interpretation of these limitations see Skauradszun/Spahlinger above Art. 41 mn. 11 et seq. Official duties of insolvency practitioners may inter alia arise from national provisions (for example § 160 InsO regarding the insolvency practitioner’s duty to ask for the consent of the creditors’ committee), resolutions of a creditors’ committee, or an insolvency plan.30

II. Conflict of interests 12

Under Article 43 EIR, there is no duty to cooperate and communicate if that would entail any conflict of interest.31 In addition to Article 41 EIR, Articles 56(1), 57(1), 58, and 71(2) EIR contain similar limitations.32 However, the EIR does not define what a 28

cf. Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.704. cf. Busch/Remmert/Rüntz/Vallender, NZI 2010, 417, 420. 30 cf. Zipperer, in Vallender, EuInsVO, Art. 43, mn. 11. 31 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 43, mn. 43.04. 32 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 43, mn. 43.04. 29

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“conflict of interest” is.33 Recital 21 EIR mentions “conflicts of interest” but refers to the appointment of insolvency practitioners and not to cooperation and communication.34 A conflict of interest possibly arises where there is an inevitable contradiction between compliance with the duty to cooperate and communicate and the insolvency practitioner’s official duties or the due interests of his insolvency estate and his creditors in accordance with the applicable national law.35 The concrete semblance of a conflict may be sufficient.36 In the case of a conflict of interests, the insolvency practitioner has to prioritise the due interests of his insolvency estate and the creditors in his proceedings in accordance with the lex fori concursus applicable to his proceedings.37 The EIR does not contain provisions on sanctions if the cooperation and commu- 13 nication between insolvency practitioners and courts leads to a conflict of interest. Thus, the national law of the Member States must answer this question.38 Article 7 EIR, which leads any court or insolvency practitioner to the lex fori concursus, determines the applicable law. The lex fori concursus will also have to answer the question of whether there is any liability of the court or the insolvency practitioner vis-à-vis the stakeholders in other proceedings opened in respect of the same debtor or the respective insolvency estates.39 Finally, it is not a hypothetical scenario that a dispute over the question of whether 14 there is a conflict of interest or not may arise. For example, an insolvency practitioner may not be able to detect a conflict of interest; a judge in other proceedings however assesses the conflict of interest differently. It is questionable whether the contrasting views on the “conflict of interest” can be resolved in the end. In any case, the term “conflict of interest” in Article 43(1) EIR is to be interpreted autonomously, which is the European Court of Justice’s responsibility.

D. Appropriate means for cooperation and communication (Article 43(2) EIR) According to Article 43(2) EIR, the cooperation referred to in Article 43(1) EIR 15 may be implemented by any means, such as those set out in Article 42(3)(sentence 1) EIR.40 Regarding those means see Skauradszun/Spahlinger above Art. 42 mn. 23 et seq. The catalogue of Article 42(3)(sentence 2) EIR also applies.41 However, sentence 2 is to be understood from the perspective of Article 43 EIR. For example, the coordination in the appointment of the insolvency practitioners (Article 42(3)(a) EIR) cannot be the subject of coordination and communication between an appointed insolvency practitioner and a court. Article 42(3)(a) EIR as a legal obligation is relevant for the court-to-court communication only. However, a court that has to 33

Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 43, mn. 43.05. cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 43, mn. 43.05: “It is not clear if the conflicts of interest alluded to in recital 21 EIR are necessarily those the Regulator has in mind in Article 44”. 35 Zipperer, in Vallender, EuInsVO, Art. 43, mn. 11. 36 Zipperer, in Vallender, EuInsVO, Art. 43, mn. 11. Zipperer refers to undue prior involvements. 37 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 10; Zipperer, in Vallender, EuInsVO, Art. 43, mn. 11. 38 Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 43, mn. 43.05. 39 Ehricke, INSOL Europe Technical Series No 13, 2009, p. 83. 40 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 43, mn. 11. 41 Zipperer, in Vallender, EuInsVO, Art. 43, mn. 12. Other opinion: Mankowski, in Mankowski/Müller/ J. Schmidt, EuInsVO 2015, Art. 43, mn. 12. 34

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appoint an insolvency practitioner may communicate on a voluntary basis with an insolvency practitioner appointed in other proceedings.

E. Costs 16

Pursuant to Article 44 EIR, the requirements laid down in Article 43 EIR shall not result in courts charging cost to each other for cooperation and communication. Cf. further Skauradszun/Spahlinger above Art. 41 mn. 25.

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Article 44 Costs of cooperation and communication The requirements laid down in Articles 42 and 43 shall not result in courts charging costs to each other for cooperation and communication. Recitals: 48–50. Specific bibliography: see Article 41 EIR; additionally Nathan/Gross, Impact of Cross-Border Court-toCourt Communications on U.S. Creditors’ Rights, Business Credit 2017, 22; Wessels, A Glimpse into the Future: Cross-border Judicial Cooperation in Insolvency Cases in the European Union, Int. Insolv. Rev. 2015, 96. Outline I. Charging of costs between courts................................................................................. II. Charging of costs in other scenarios ........................................................................... III.Cost-efficient cooperation and communication........................................................

1 2 3

I. Charging of costs between courts Article 44 EIR addresses the courts’ costs that arise from compliance with their duty 1 to cooperate and communicate. Such costs may be for example caused by translations, documentation, or the use of means of distance communication.1 According to Article 44 EIR, the courts are not entitled to charge each other any fees for cooperation and communication.2 This also means that the courts are not permitted to make the cost coverage a condition for the cooperation, for example through the deposit of security or similar methods.3 Article 44 EIR supersedes conflicting national provisions regarding costs.4 The provision’s purpose is to encourage cooperation between courts and to counter non-supportive behaviour caused by fears that costs may be charged.5 The term “costs” means all types of expenses and charges, in particular court fees.6 The term “court” is defined in Article 2 no. 6 (ii) EIR.

II. Charging of costs in other scenarios Article 44 EIR does not explicitly address the charging of costs (1) between insol- 2 vency practitioners and (2) between courts and insolvency practitioners. This legal loophole is unfortunate and may lead to the question of whether the provision contains a general legal statement on parties not charging costs to each other in other scenarios. In our view, beyond its wording, Article 44 EIR conveys the message that generally each insolvency practitioner has to bear his own costs (see Skauradszun/Spahlinger above Art. 41 mn. 16) and that no court may charge an insolvency practitioner for its 1 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 44, mn. 44.01; Zipperer, in Vallender, EuInsVO, Art. 44, mn. 2. 2 cf. Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.709; Zipperer, in Vallender, EuInsVO, Art. 44, mn. 1. 3 cf. Zipperer, in Vallender, EuInsVO, Art. 44, mn. 2; Wimmer, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 483. 4 Zipperer, in Vallender, EuInsVO, Art. 44, mn. 1. 5 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 44, mn. 1; Zipperer, in Vallender, EuInsVO, Art. 44, mn. 1; Wimmer, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 483. 6 Wimmer, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 483; Reinhart, in Münchener Kommentar zur InsO, Article 44 EuInsVO 2015, mn. 6.

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costs for cooperation and communication, or vice versa. The risk that a party may refrain from cooperation because it does not want to trigger any costs persists in all scenarios.7 Moreover, the reference made to Article 43 EIR would make no sense if Article 44 EIR only covered the court-to-court scenario.8 On a voluntary basis, however, insolvency practitioners may agree on the assumption or distribution of costs (for the use of a protocol see Skauradszun/Spahlinger below Art. 59 mn. 5).

III. Cost-efficient cooperation and communication 3

It generally needs to be emphasised that the objectives of an efficient administration and effective realisation set out in recital 48 EIR urge the courts and the insolvency practitioners to act in a cost-efficient manner, also with regard to cooperation and communication. The requirement of a cost-efficient conduct is also stressed in the CoCo Guidelines and the JudgeCo Principles.9 7

cf. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 44, mn. 3. cf. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 44, mn. 3. 9 cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 44, mn. 44.01 et seq. with reference to European Communication and Cooperation Guidelines for Cross-border Insolvency 2.2, 10, and 14 and EU Cross-border Insolvency Court-to-Court Cooperation Principles 3.2, 4.2(iii) and (iv), 4.3, and 7.4(vi). 8

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Article 45 Exercise of creditors’ rights 1. Any creditor may lodge its claim in the main insolvency proceedings and in any secondary insolvency proceedings. 2. The insolvency practitioners in the main and any secondary insolvency proceedings shall lodge in other proceedings claims which have already been lodged in the proceedings for which they were appointed, provided that the interests of creditors in the latter proceedings are served by doing so, subject to the right of creditors to oppose such lodgment or to withdraw the lodgment of their claims where the law applicable so provides. 3. The insolvency practitioner in the main or secondary insolvency proceedings shall be entitled to participate in other proceedings on the same basis as a creditor, in particular by attending creditors’ meetings. Specific bibliography: Dawe, Der Sonderkonkurs des deutschen Internationalen Insolvenzrechts, Hamburg 2006; Geroldinger, Verfahrenskoordination im Europäischen Insolvenzrecht, Wien 2010. Outline A. Objective............................................................................................................................. B. Historic development ...................................................................................................... C. Scope and interpretation ................................................................................................ I. Creditors’ right to lodge claims (Article 45(1) EIR) ....................................... 1. General.................................................................................................................. 2. Scope of application to “foreign creditors” .................................................. 3. Creditors’ autonomy to lodge claims............................................................. II. Insolvency practitioner’s right to lodge claims (Article 45(2) EIR) ............ 1. Relevant claims ................................................................................................... 2. Scope for insolvency practitioners.................................................................. 3. Serves the interests of creditors....................................................................... 4. Creditors’ rights to oppose or withdraw....................................................... III. Insolvency practitioner participation rights (Article 45(3) EIR).................. 1. Scope of the participation guarantee ............................................................. 2. Independent right to vote in creditors meetings?....................................... IV. Practical problems in respect of multiple claim filings..................................

1 3 5 5 5 8 9 12 12 15 16 19 21 21 23 25

A. Objective Insolvency proceedings are collective proceedings to help realise creditors’ rights 1 against a debtor with the goal of achieving some recovery on their claims. Thus, each creditor’s paramount right in insolvency proceedings is the right to lodge its claim in order to facilitate participation in any distributions and to formalise its status as creditor in order to exercise any further participation rights under the lex fori concursus (Article 7(2)(g) and (h) EIR).1 Article 45 EIR provides a substantive law rule in respect of the creditors’ right to lodge claims in all main and secondary and/or territorial proceedings. Creditors are not limited to lodging their claims in one proceeding. To the contrary, they are entitled to submit their claims in all insolvency proceedings that are opened under the EIR in respect of the debtor.2 The main underlying purpose is to 1 2

Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 2. Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 1.

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ensure fundamental rights to equal treatment under the TFEU and the Lisbon Treaty in respect of creditors’ rights in insolvency proceedings.3 Article 45 EIR also prohibits restrictions under Member States’ national law to limit claim filings.4 2 The stipulations in Article 45 EIR serve the purpose of promoting better functionality between two or more parallel insolvency proceedings as main and secondary proceedings by, firstly, granting creditors the explicit right to lodge their claims and participate in each of these proceedings (Article 45(1) EIR).5 Secondly, rights to (i) lodge claims for the creditors (Article 45(2) EIR) and (ii) participate in the foreign main/ secondary proceedings by virtue of their office (Article 45(3) EIR) are granted to the insolvency practitioners in main and secondary proceedings in order to promote greater creditor participation in cross-border proceedings6 and to facilitate cooperation among the insolvency practitioners in multiple insolvency proceedings.7

B. Historic development Although one of the primary purposes of the reform efforts in recasting the EIR 2000 into the current EIR was to promote and advance the cooperation between main and secondary insolvency proceedings,8 Article 45 EIR (previously Article 32 EIR 2000) was not subjected to any substantive changes. Indeed, the only change to the wording was to reflect new terminology, i. e. “insolvency practitioner” in place of “liquidator”. This would appear unfortunate, as this potentially useful Article continues to raise many questions that had already been identified while the EIR 2000 was still in force. The Vienna Report noted that the lodging of claims generally led to a myriad of practical difficulties, including relevant time bars or limitation periods for filing, language difficulties and translation costs.9 These problems also apply to any proof of claim by the insolvency practitioner and are especially relevant in determining whether filing creditors’ claims in foreign insolvency proceedings “serves the interests of the creditors” (see below mn. 16). These problems were only diffused to a certain extent within the context of changes to Articles 54 and 55, but practical difficulties persist (see Dahl/Kortleben below Article 54 mn. 1). 4 One specific challenge in respect of Article 45 EIR that the Vienna Report addressed was the potential difficulty of “multiple cross-filing”,10 i. e. how to deal with both the creditor (Article 45(1) EIR) and the insolvency practitioner (Article 45(2) EIR) filing claims in the “foreign” proceedings. Such potential difficulties were, however, dismissed as not having practical relevance.11 Finally, the materials on the reform do not address the fact that the participation rights granted to the insolvency practitioner in Article 45(3) EIR are cast in a particularly vague manner and have led to much scholarly debate as to what rights (if any) the insolvency practitioner enjoys above and beyond the explicit right to attend the creditors’ meeting, see below mn. 21 et seq.12 In summary, neither the INSOL Report nor the Vienna Report identify a need to recast Article 45 EIR and neither 3

3

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 1, citing further references. Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 8. 5 Paulus, EuInsVO, Art. 45, mn. 3. 6 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 240. 7 Moss/Smith, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 5.179. 8 See recitals 40 and 50 EIR 2015. 9 Koller/Slonina, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 944 et seq. 10 Wessels, International Insolvency Law, mn. 10860. 11 Koller/Slonina, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 950 et seq. 12 Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 3. 4

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makes any recommendations to do so;13 however, discussions on legal doctrine could also suggest that a failure to confirm the practical relevance of these discussions14 may be attributable to the impracticability of the rules in Article 45 EIR and their subsequent lack of relevance in practice.15

C. Scope and interpretation I. Creditors’ right to lodge claims (Article 45(1) EIR) 1. General Article 45(1) EIR stipulates each creditor’s right to lodge a claim himself in any and 5 all proceedings opened within the scope of the EIR in respect of his debtor and removes all barriers for a creditor to file a claim in such proceedings. According to a widely held, although not unanimous, view, this includes territorial proceedings even if main proceedings have not been opened.16 In our opinion, this view should prevail on the basis of the EIR’s objective in this respect. Article 45(1) EIR is intended to afford creditors the right to seek payment on their claims from all of the debtor’s assets in the Member States as a matter of equal treatment. If national law were able to preclude filings and also contain time bars on filing claims, Article 45(1) EIR would disenfranchise creditors if main insolvency proceedings were postponed for reasons beyond their control. The stipulations in Article 45(1) EIR must be understood within the context of 6 Articles 53–55 EIR (see Dahl/Kortleben below Articles 53–55). Article 53 EIR was already a key rule within the context of the EIR 2000 (Article 39 EIR 2000), guaranteeing creditors in the Member States the right to lodge claims in insolvency proceedings opened in other Member States. In the process of recasting the EIR, creditors’ rights were also strengthened by introducing certain minimum standards in respect of the information they are entitled to receive about insolvency proceedings and the procedure for lodging claims. Although national law in each of the Member States may stipulate the formalities for filing a claim within the framework provided by Articles 54 and 55 EIR, such national law rules cannot preclude a creditor’s ability to file the claim in secondary or territorial insolvency proceedings to the extent that formalities of the relevant national law are observed. Thus, the lex fori concursus (secundarii) may not, by way of example, restrict the lodging claims on the basis of the nationality or nature of the creditor (for example: a foreign tax authority17), the lex causae governing the claim, or other specific features or traits regarding the claim.18 As autonomous substantive law, Article 45(1) EIR applies directly in all of the 7 Member States (except Denmark). 13 Koller/Slonina, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 950 et seq.; INSOL Europe, Revision of the European Insolvency Regulation, Art. 32, makes no comment on Article 32 EIR. 14 Koller/Slonina, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 951. 15 See responses to Question 35 of the survey conducted for the Vienna Report, in Hess/Oberhammer/ Pfeiffer, Vienna Report, Annex: Systematic Summary of National Reports. 16 Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 2 and Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 14, both citing further sources. 17 CJEU Case C-212/15 ENEFI v DGRFP ECLI:EU:C:2016:841, para. 38 et seq. obiter dictum. 18 Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 8; more generally: Duursma-Kepplinger/Chalupsky, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 32 EIR 2000, mn. 4 with further discussion, references and citations in respect of a closely held minority view that the Regulation does not supersede the lex fori concursus.

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2. Scope of application to “foreign creditors” 8

There is some discussion in legal discourse as to whether Article 45(1) EIR applies to all foreign (i. e. including non-Member State) creditors or only to “foreign creditors” within the meaning of Article 2 no. 12 EIR. Some more recent views in scholarly treatises tend toward application of Article 45(1) EIR to creditors worldwide.19 This view is premised (i) on the fact that although Article 53 EIR explicitly limits the scope of its application to “foreign creditors” (Article 2 no. 12 EIR), Article 45 EIR contemplates no such explicit limitation and (ii) the hotchpot rule in Article 23(2) EIR also applies to proceeds the creditor receives in insolvency proceedings outside of the scope of the EIR.20 These arguments are not persuasive. Article 45(1) EIR can only be understood and interpreted within the context of Article 53 EIR;21 its rules only expand and further define foreign creditors’ rights vis-á-vis the rights afforded by national laws in the Member States. In addition, there is no definitive case law on the application of Article 23(2) EIR to non-Member States. To claim that its application worldwide is “generally accepted”, is – at best – a stretch, as similar legal discourse on this topic persists (see Thole above Article 23 mn. 21).22 Finally, it would present a paradox for Member States to be allowed to limit non-Member State creditors’ rights to lodge a claim (argumentum e contrario, Article 53 EIR) but to not have such limitation apply if main and secondary proceedings have been opened, as non-Member State creditors must then be afforded the right to lodge their claims in both (or all) proceedings (Article 45(1) EIR). Practitioners in particular should presume that Article 45(1) EIR in its current form only applies to “foreign creditors” within the ambit of Article 53 EIR.23 Member States may, however, expand creditors’ rights to lodge claims in main and secondary proceedings to include creditors with their domicile, habitual residence or registered office in a non-Member State.

3. Creditors’ autonomy to lodge claims Creditors also have the right to choose in which proceedings (if any) they lodge their claims. A claim lodged in main insolvency proceedings is not automatically lodged in secondary proceedings and vice-versa.24 However, Article 45(1) EIR explicitly stipulates that creditors may lodge their claims in multiple proceedings. Creditors are entitled to lodge the full amount of their claims in each of the proceedings; the insolvency practitioners are responsible for ensuring – to the furthest extent possible – equal distribution of dividends to the creditors pursuant to the hotchpot rule in Article 23(2) EIR.25 10 Article 45(1) EIR does not guarantee creditors any further rights as a matter of substantive law. Article 35 EIR, as a general rule regarding Chapter III EIR, reiterates and emphasises the principle of universality found in Article 7 EIR and also references 9

19 Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 9; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 3, citing Bureau Rev. crit. dr. int. pr. 91 (2002), 613, 675. 20 Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 9. 21 Geroldinger, Verfahrenskoordination, p. 312 et seq. 22 Opposing view: Reinhart, in Münchener Kommentar zur InsO, Art. 20 EuInsVO 2000, mn. 20. 23 Taken at face value on the strict basis of its wording, the AG Köln also seems to reach this conclusion obiter dictum: AG Köln, 71 IN 416/05, NZI 2005, 564, 565 (DEU); however, this lower court decision does not provide any real authority on the issue, as the matter discussed here was neither a critical issue in the decision nor was it examined at length by the court. 24 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 2. 25 Paulus, EuInsVO, Art. 45, mn. 5.

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the further conflict of laws stipulations in Articles 8 et seq. EIR. Thus, the lex fori concursus remains the authoritative law for individual creditors’ rights in respect of further participation and voting rights, as well as procedural rules for recognition of their claims26 in the individual proceedings. However, Article 45(1) EIR should generally be construed to temper any restrictions national law may impose on foreign creditors in asserting further rights directly associated with their claims.27 This especially applies to a creditor’s right to attend and participate in creditors’ meetings and to vote in such meetings, at least to the extent that other creditors in the same class are afforded such rights under the relevant national law. Whether the insolvency practitioner must recognise the claim is also generally a 11 question for the lex fori concursus in the main or secondary proceedings. Although substantive law in some jurisdictions may include rules about when and whether a certain class of claims, for example subordinated claims, may be filed, insolvency practitioners would be well-advised to allow a premature filing and not recognise the claim. For example, a challenge to the claims could be based on the fact that it belongs in a different class28 and may generally only be filed and recognised once other classes have received full compensation for their claims.

II. Insolvency practitioner’s right to lodge claims (Article 45(2) EIR) 1. Relevant claims As further autonomous substantive law that applies directly in all of the Member 12 States (except Denmark), Article 45(2) EIR allows the insolvency practitioners in main and secondary insolvency proceedings to lodge claims from their respective proceedings in any other relevant proceedings. The explicit wording of Article 45(2) EIR only permits the respective insolvency practitioners to file claims “which have already been lodged in the proceedings for which they were appointed”. The insolvency practitioner may therefore not lodge claims which may have been made known to him by the debtor but have not yet been filed in the insolvency proceedings in which he was appointed.29 The insolvency practitioner may also not lodge the claim of a creditor who has opposed such filing (see below mn. 19). Some authors have questioned whether the respective insolvency practitioner should 13 only lodge claims that he has already recognised in the insolvency proceedings in which he was appointed.30 While a case may be made for the fact that lodging claims 26 It appears debatable whether recognition of a claim by the insolvency practitioner and the court in main insolvency proceedings is binding for the insolvency practitioner in secondary proceedings. Ultimately, this is a question of whether these decisions must be recognised as “judgments deriving directly from insolvency proceedings” within the meaning of Article 32(1.2) EIR, see Thole above Art. 32 mn. 13 et seq. 27 Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 8; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 8; opposing view: Dawe, Der Sonderkonkurs, p. 162 et seq. 28 As Herchen explains, this does not represent a restriction on filing a claim, but rather a legal qualification of the class of claim under substantive insolvency law of the lex fori concursus, see Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 10. Such interpretation of national rules supports the practical recommendation to accept the filing and reject recognition. See also Dawe, Der Sonderkonkurs, p. 163, who distinguishes between a “right to lodge” claims and the claim being “lodgeable” or “unlodgeable” in certain circumstances under national law, e. g. subordinated claims. 29 Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 32 EIR 2000, mn. 4. 30 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 37–39; Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 27.

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Art. 45 14–15

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that the insolvency practitioner does not believe are extant or justified does not appear prudent, two further points should be taken into consideration. The insolvency practitioner is charged with lodging the claims to the extent that it serves the interests of the creditors. The primary purpose of Article 45(2) EIR is to promote better functionality between two or more parallel insolvency proceedings as main and secondary proceedings. Although decisions by the court in main proceedings may be prejudicial for secondary proceedings (see Thole above Article 32 mn. 6), Article 45(2) EIR does not grant the insolvency practitioner a right to choose which of the claims are lodged in the other proceedings, but rather to determine whether lodging such claims serves the interests of the creditors and, if so, lodge them in the other proceedings. This would seem to be the only logical conclusion when viewed in light of the fact that the insolvency practitioner may also not lodge claims in other proceedings that he believes are justified but have not yet been lodged in the proceedings for which he was appointed. In addition, practicality also dictates that the insolvency practitioner should neither be obligated31 nor have the right to32 review and preclude claims should he conclude that lodging claims in other proceedings is in the creditors’ interests. From a practical point of view, this is also in the interest of the insolvency practitioner, as an extensive review and determination that a claim filing has no merit could also lead to difficulties should the claim filing, for example through new information becoming available, later be determined to be valid and a time bar in other proceedings prohibits a later filing. 14 Although the insolvency practitioner must collectively submit all claims that have been lodged in the proceedings for which he was appointed in the other insolvency proceedings, such lodging must make each individual claim recognisable for the insolvency practitioner in the other proceedings.33 As the claims in each proceeding are subject to the hotchpot rule in Article 23(2) EIR, and they may also be subject to certain preferences or subordination, the insolvency practitioner in the other proceedings must be able to identify each creditor and his respective claim. The respective national law in each of the Member States, as lex fori concursus, stipulates the formalities for filing a claim within the further framework provided by Articles 54 and 55 EIR.34

2. Scope for insolvency practitioners 15

Article 45(2) EIR grants the insolvency practitioners in main and secondary insolvency proceedings a right to lodge claims from their respective proceedings in any or all other proceedings. In light of the purpose of the statute, the lodging of claims is commonly viewed as a service35 that the insolvency practitioner can and “shall” provide to the creditors in order to promote equal distribution of the proceeds from the debtor’s entire estate to its creditors.36 It is generally accepted in legal discourse that the insolvency practitioner lodges the claims in the name of the individual creditor. The EIR does not, however, provide an explicit autonomous substantive law basis for an 31 Herchen reaches this conclusion, as such review would “stretch the necessity of determining expediency too far”, see above fn. 30. 32 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 45, mn. 38. 33 Generally accepted view, see Paulus, EuInsVO, Art. 45, mn. 11 et seq.; opposing view, collective (composite) filing: Taylor, in Peter et al., The Challenges of Insolvency Law Reform in the 21st Century, p. 347 et seq. 34 Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 14. 35 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 51. 36 Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 32 EIR 2000, mn. 4.

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insolvency practitioner’s right to represent, for example as statutory mandated powerof-attorney, the creditors whose claims he lodges in the other proceedings.37 As a result, the insolvency practitioners are not authorised to take any further actions on behalf of the creditors. Unless they have received an explicit power-of-attorney from the individual creditors,38 it should be assumed that they may not exercise voting rights in these proceedings, effect further court measures to have a claim recognised in the other proceedings or receive payment of dividends on behalf of the creditor(s) from the foreign insolvency practitioner.39 National law in the Member States may, however, confer such authority to insolvency administrators in these cases.40

3. Serves the interests of creditors The pivotal determination for insolvency practitioners is whether lodging the creditors’ 16 claims in other proceedings serves the interests of the creditors. The insolvency practitioner’s duty (“shall lodge”)41 is only triggered to the extent that lodging the claims serves the interest of the creditors.42 In this respect, the insolvency practitioner is required to review whether the creditors or a class or group of creditors as a whole stand to benefit from having their claims lodged in the other insolvency proceedings. According to the nearly unanimous consensus among authors in scholarly discourse,43 the insolvency practitioner must make a decision based on a cost-benefit analysis as to whether lodging the claims is in the creditors’ economic interest.44 The litmus test for the insolvency practitioner is whether the chances for recovery on the creditors’ claims will likely be improved by registering such claims in insolvency proceedings in another Member State when taking the cost of the filings into account.45 Thus, the insolvency practitioner will likely only have a clear-cut decision not to lodge claims to the extent that there will definitely be no distribution on those claims in the insolvency proceedings in another 37 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 65, who points out that such rights could not be agreed upon in casting the EIR 2000 and were also not recast in the EIR 2015. Opposing view apparently: Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 18 et seq. and Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 45, who both take the view that the right to file the claim must also encompass the right to vote in the creditors’ meetings. However, neither cite a positive reason for this correlation; Herchen only notes that the EIR 2000’s silence on the issue does not prohibit such interpretation. 38 Undritz, in Hamburger Kommentar zur Insolvenzordnung, Art. 32 EuInsVO, mn. 8 recommends that practitioners request individual powers-of-attorney from the creditors should they intend to exercise creditors’ voting rights in insolvency proceedings. 39 Lüer, in Uhlenbruck, Insolvenzordnung, Art. 32 EuInsVO, mn. 8. 40 For example, § 341(1) InsO (DEU) affords insolvency practitioners in insolvency proceedings opened in Germany a right to represent the creditors of the claims they have lodged unless the creditor stipulates otherwise, see Heiderhoff, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 32 VO Nr. 1346/2000, mn. 3. 41 Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 20, states the nearly unanimous view in legal discourse that the insolvency practitioner has a duty to lodge the claims. See also Geroldinger, Verfahrenskoordination, p. 317. 42 Undritz, in Hamburger Kommentar zur Insolvenzordnung, Art. 32 EuInsVO, mn. 3. 43 Opposing view: Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 11, who, in spite of Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 239, which states the opposite, argues that creditors will generally have an interest in having their claims lodged in other Member States. However, this argument is untenable, as at least in the case of a costly lodging of claims without or with only a limited dividend one cannot assume that creditors will “generally” be interested in having their claims lodged. 44 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, mn. 40; Kemper, in Kübler/Prütting/ Bork, Insolvenzordnung, Art. 32 EIR 2000, mn. 5. 45 Duursma-Kepplinger/Chalupsky, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 32 EIR 2000, mn. 11.

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Member State or the filing will definitely be rejected because it is time-barred by the lex fori concursus.46 In all other cases, the insolvency practitioner will need to weigh the costs of lodging the claims against possible benefits for the creditors while also taking into account that some claims may be privileged47, for example employee wages, or possibly subordinated48, for example shareholder loans, in some Member States. 17 The insolvency practitioner and/or the court in the proceedings in which the claims are being lodged does not have the right to review whether the decision to lodge was in the creditors’ best interests and reject the filing on that basis.49 The determination on whether lodging the claims is in the interests of the creditors is left to the judgment of the insolvency practitioner lodging the claims.50 Although the EIR states that the insolvency practitioner “shall” lodge the claims, this imperative is modified by the judgment as to whether this would be in the interests of the creditors; the EIR contemplates no substantive law recourse for cases in which the insolvency practitioner breaches a duty of care in his decision-making. Whether the insolvency practitioner has exercised such judgment within the duty of care ascribed to his office is therefore a matter for national law of the Member States and the legal duties between the insolvency practitioner and the creditors in these national insolvency proceedings.51 18 It must be noted, however, that the very nature of insolvency proceedings makes it extremely difficult for the insolvency practitioner to forecast with any real degree of certainty what the future return on creditors’ claims might be in insolvency proceedings in his home state, let alone in (secondary) insolvency proceedings in another Member State. In addition, the added cross-border element increases the pressure on the timeline and the costs52 associated with lodging the claims in a timely manner. The insolvency practitioner must account for the requisite formalities for lodging claims in another Member State, including time limits on lodging the claims in some jurisdictions. Furthermore, the insolvency practitioner, debtor in possession or the court, as the case may be, may require translations into the official language of the State of the opening of proceedings, see Dahl/Kortleben below Article 54 mn. 10, resulting in high costs that must ultimately be borne by the creditor.53 In summary, the seemingly innocuous “duty” to lodge claims after ascertaining that this is in the interest of the creditors 46 Duursma-Kepplinger/Chalupsky, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 32 EIR 2000, mn. 12. 47 Paulus, EuInsVO, Art. 45, mn. 6; Heiderhoff, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 32 VO Nr. 1346/2000, mn. 2. 48 Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 32 EuInsVO, mn. 4. 49 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 39. 50 Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 26; Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 12. 51 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 32 EuInsVO 2000, mn. 7; Paulus, EuInsVO, Art. 45, mn. 16. 52 There is some discussion in scholarly writings and in praxi as to how the requisite costs for lodging claims pursuant to Article 45(2) EIR should be properly allocated. While many authors assume that, since the claim is lodged in the individual creditor’s name, the costs for the individual claim filing must be borne by the creditor directly (e. g. Duursma-Kepplinger/Chalupsky, in Duursma-Kepplinger/Duursma/ Chalupsky, Europäische Insolvenzverordnung, Art. 32 EIR 2000, mn. 15 with reference to the Virgós/ Schmit, Report on the Convention on Insolvency Proceedings, mn. 239) or at least reimbursed to the insolvency estate by the creditor (e. g. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 45, mn. 50 et seq.), others take the view that the costs are simply borne by the insolvency estate in the proceedings from which the claims are filed (Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 16). In any case, the creditors ultimately bear the cost of lodging the claims. 53 The high costs associated with foreign filings, especially in respect of translations, was verified by the responses to Question 37 of the survey conducted for the Vienna Report, in Hess/Oberhammer/Pfeiffer, Vienna Report, Annex: Systematic Summary of National Reports.

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places a rather heavy burden on the insolvency practitioner in praxi54 and suggests that the impracticability of the rules in Article 45 EIR has led to a lack of relevance in practice.55 In any case, the practical problems that lodging claims pursuant to Article 45 (2) present should afford the insolvency practitioner great latitude in judgment and limit cases in which he is held liable for a breach of his duties in respect of lodging the claims in insolvency proceedings in another Member State.

4. Creditors’ rights to oppose or withdraw According to the wording of Article 45(2) EIR, each individual creditor may oppose 19 lodging of the claim by the insolvency practitioner. Although there is some discussion in scholarly treatises on this subject, its practical relevance must be called into question, as the difficulties facing the insolvency practitioner in filing the claims in a timely manner demonstrate, see above mn. 18. Insolvency practitioners may address this issue in their reports to the court and the creditors, but most creditors will likely not realise that their claims have been lodged in other proceedings until they are notified by the insolvency practitioner in the proceedings opened in another Member State.56 Creditors wishing to oppose the insolvency practitioner lodging their claims will, therefore, generally need to proactively seek information on whether the insolvency practitioner intends to provide this “service” in respect of their claim. In addition, Article 45(2) EIR explicitly states that individual creditors may withdraw 20 their claims to the extent that the national law of the Member State in which the insolvency practitioner has lodged them allows such withdrawal. Creditors will therefore be required to obtain information on the substantive law and the formalities of withdrawing a claim in the foreign jurisdiction once they receive notification that their claim has been filed by the insolvency administrator in insolvency proceedings in another Member State.

III. Insolvency practitioner participation rights (Article 45(3) EIR) 1. Scope of the participation guarantee Article 45(3) EIR guarantees the insolvency practitioners in the main and secondary 21 proceedings the right to “participate”57 in other proceedings “on the same basis as a creditor”. These rights are independent from any rights the insolvency practitioner may have to represent the creditors on the basis of lodging their claim pursuant to Article 45(2) EIR, whether legitimised by national law or an explicit power-of-attorney issued by individual creditors, see above mn. 15. It is therefore clear that both the 54

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 34. See above fn. 14 and 15. 56 Articles 41 and 54 EIR may help increase coordination and communication of relevant information, such as creditor lists, which would in turn lead to a duty of the respective insolvency practitioner to inform the creditors about the opening of the foreign proceedings; however, such notification is not required to contain information about a filing by the other insolvency practitioner pursuant to Article 45 (2) EIR. 57 Moss/Smith, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.406, fn. 511 comments that the German text uses the word “mitzuwirken” and translates this as “cooperate”, which could then possibly lead to the assumption that the insolvency practitioner is only allowed to “participate” to the extent he lodges claims pursuant to Article 32(2) EIR. The very literal translation of “mitwirken” is “act” (wirken) “with” (mit) and must be taken in context. While the word can mean “cooperate”, another very standard usage is “to participate”. Thus, it cannot be assumed that the German version implies any other meaning than the English, French, and Dutch versions. 55

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insolvency practitioner in main insolvency proceedings and the practitioners in any and all secondary proceedings are afforded these participation rights in the other proceedings as a matter of substantive law pursuant to the EIR, which complements and, if necessary, supersedes any national law in the Member States. However, the participation rights granted to the insolvency practitioner(s) are cast in an especially vague manner, and it remains unclear what rights (if any) the insolvency practitioner actually has58 above and beyond the explicit right to attend the creditors’ meeting.59 22 On the basis of the Virgós/Schmit Report,60 it can be assumed that the insolvency practitioners’ autonomous rights also include the right to be heard in the creditors’ meeting and to receive any information that other creditors would normally receive under the relevant national law.61 Generally, further rights can only be conferred to the extent that other creditors are also permitted to exercise such rights in the insolvency proceedings pursuant to the lex fori concursus (secondarii). The insolvency practitioner should seek information on national law in the relevant jurisdiction in respect of creditors’ ability to submit proposals and petitions in the creditors’ meeting or with the court62 as well as challenge creditors’ claims,63 even if the insolvency practitioner himself has lodged the claim pursuant to Article 45(2) EIR.64 This final aspect is especially relevant in light of the generally held view that the insolvency practitioner – to the extent that he establishes that the claim filing in other proceedings is generally in the best interests of the creditors – must submit all claims that have been lodged in the proceedings for which he was appointed in the other proceedings in order to attempt to prevent inconsistencies in the creditor structure among the proceedings. The insolvency practitioner or the court in the other proceedings might mistakenly recognise a claim that had been disputed in home proceedings. In order to protect the rights of the other creditors, the insolvency practitioner may be obligated to challenge these claims in the other proceedings.

2. Independent right to vote in creditors meetings? 23

The insolvency practitioner is not authorised to vote or take actions on behalf of the creditors whose claims he has lodged pursuant to Article 45(2) EIR unless he has requested and received an explicit power-of-attorney from the individual creditor(s) or national law in the Member States confers such authority to him, see above mn. 15. The generally accepted view in scholarly discourse also rejects independent voting rights for insolvency practitioners in other insolvency proceedings pursuant to Article 45(3) EIR and primarily points out the practical problem of conferring the insolvency practitioner voting rights to the extent that these are based on the value of the creditors’ claims.65 58 Heiderhoff, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 32 VO Nr. 1346/2000, mn. 3. 59 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 32 EuInsVO 2000, mn. 8. 60 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 240. 61 Reinhart, in Münchener Kommentar zur InsO, Art. 32 EuInsVO 2000, mn. 22; Moss/Smith, in Moss/ Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.410. 62 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 58; see also Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 45. 63 Herchen, in Pannen, European Insolvency Regulation, Art. 32 EIR 2000, mn. 44. 64 Paulus, EuInsVO, Art. 45, mn. 17. 65 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 60 et seq; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 32 EuInsVO 2000, mn. 8; Moss/Smith, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.408; Paulus, EuInsVO, Art. 45, mn. 18; opposing view without presenting arguments: Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 32 EIR 2000, mn. 12.

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Reinhart, however, makes the valid point that it appears contradictory to grant 24 insolvency practitioners participation rights, including the right to attend and speak at the creditors’ meetings in other proceedings, but not to afford them an actual voice in decisions by granting them a vote.66 This argument also appears valid in respect of the independent rights, i. e. rights not dependent on representation of claims, granted to the insolvency practitioner under Article 45(3) EIR. When viewed in light of the purposes of Article 45 EIR and the recasting of the EIR in general in order to (i) promote better functionality between two or more parallel insolvency proceedings as main an secondary proceedings and (ii) increase creditor participation (through the insolvency practitioners), it would only seem logical to also vest the insolvency practitioner with an independent vote in the creditors’ meeting. The insolvency practitioner cannot, however, receive voting rights based on the aggregate amount of the claims he has filed, as he is not representing these claims directly. It would, however, appear sound from a methodological standpoint to grant the insolvency practitioner a single headcount vote in jurisdictions that require double majorities for specific measures, i. e. a majority of value of the claims represented and voting as well as a headcount majority of the creditors voting.67 Granting a limited voting right in this respect would also further the purpose of compelling cooperation amongst insolvency practitioners in multiple proceedings, especially on issues which require a unanimous vote in the creditors’ meeting.

IV. Practical problems in respect of multiple claim filings The Vienna Report mentions the potential difficulty of “multiple cross-filing”,68 i. e. 25 how to deal with both the creditor (Article 45(1) EIR) and the insolvency practitioner (Article 45(2) EIR) or possibly multiple insolvency practitioners69 filing claims in the foreign proceeding(s). However, no effort was made to address these (potential) problems, see above mn. 3. As far as can be discerned, no coherent universal solution to multiple filings of the same claim in multiple insolvency proceedings has been offered in scholarly writings.70 The claim can only be effectively lodged once in each proceeding, and the general consensus appears to grant a creditor’s direct lodging of his claim in secondary proceedings priority vis-à-vis the lodging of the same claim by the insolvency practitioner pursuant to Article 45(2) EIR; however, this matter will ultimately be determined by national law in the Member State in which the claims are filed.71 As the EIR does not specifically preclude the possibility of both the individual creditor and one or more insolvency practitioner(s) lodging claims in several proceedings, insolvency practitioners will be required to be especially vigilant and strictly adhere to their duties and obligations pursuant to Article 41(2)(a) EIR in respect of lodging and verifying claims.72 66 Reinhart and others premise such voting rights upon the insolvency practitioner lodging the creditors’ claims and conclude that these rights are conferred upon him by Article 45(2) EIR, see above fn. 37. 67 In Germany, for example, votes on replacing the insolvency practitioner require such majority, § 57 InsO. 68 See above fn. 11. 69 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 32 EuInsVO 2000, mn. 8. 70 Geroldinger, Verfahrenskoordination, p. 322 et seq. 71 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 45, mn. 55; Moss/Smith, in Moss/ Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.409 states that a specific provision of the Insolvency Rules 1986 addresses such case. In German insolvency practice, it would generally be assumed that the direct filing by the creditor will prevail. 72 Paulus, EuInsVO, Art. 45, mn. 10.

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Article 46 Stay of the process of realisation of assets 1. The court which opened the secondary insolvency proceeding shall stay the process of realization of assets in whole or in part on receipt of a request from the insolvency practitioner in the main insolvency proceedings. In such a case, it may require the insolvency practitioner in the main insolvency proceedings to take any suitable measure to guarantee the interests of the creditors in the secondary insolvency proceedings and of individual classes of creditors. Such a request from the insolvency practitioner may be rejected only if it is manifestly of no interest to the creditors in the main insolvency proceedings. Such a stay of the process of realization of asset may be ordered for up to three months. It may be continued or renewed for similar periods. 2. The court referred to in paragraph 1 shall terminate the stay of the process of realization of asset: (a) at the request of the insolvency practitioner in the main insolvency proceedings; (b) of its own motion, at the request of a creditor or at the request of the insolvency practitioner in the secondary insolvency proceedings if that measure no longer appears justified, in particular, by the interests of creditors in the main insolvency proceedings or in the secondary insolvency proceedings. Recitals: 41, 48. Specific bibliography: Fehrenbach, Haupt- und Sekundärinsolvenzverfahren, Tübingen 2014. Case law: Austria: OLG Graz, Beschl. v. 20.10.2005, NZI 2006, 660.

Outline A. Objective............................................................................................................................. 1 B. Historic development ...................................................................................................... 3 C. Scope ................................................................................................................................... 5 D. Interpretation .................................................................................................................... 7 I. Request for a stay of the process of realisation of assets............................... 7 II. Court ruling on the request.................................................................................. 9 III. Stay of the process of realisation of assets ........................................................ 14 IV. Lifting of the stay pursuant to Article 46(2) EIR ............................................ 17

A. Objective 1

It can be difficult to administer the insolvency estate when its assets are subject to different insolvency proceedings. Secondary insolvency proceedings that are focused on liquidation may be seen as a hindrance to the efficient administration of the estate as a whole to the extent that the insolvency practitioner in main insolvency proceedings endeavours to sell or restructure the debtor’s business as a going concern.1 Generally speaking, liquidation of the assets will normally achieve a lesser return than the value created by restructuring or selling a company as a whole. The sale of a business on a

1

See recital 41 EIR.

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going concern basis can generally generate a higher purchase price, which will collectively benefit the insolvency creditors as a whole.2 To some extent, Article 46 EIR establishes the primacy of the main insolvency 2 proceedings.3 The insolvency practitioner in main insolvency proceedings may request a stay of the process of realisation of assets of the secondary insolvency proceedings. This allows the main insolvency practitioner to preserve the chances of realising the debtor’s business as a whole (i. e. as a going concern) without parts of the debtor’s estate being disposed of by the insolvency practitioner in the secondary insolvency proceedings.4 However, Article 46 EIR also strikes a balance between the interests of the creditors of the main and the secondary insolvency proceedings.5 To this end, the individual court-ordered stay of the process of realisation of assets in the secondary insolvency proceedings is limited to a period of three months. In addition, the insolvency practitioner or a creditor in the secondary proceedings is entitled to seek protective measures in favour of the creditors of the secondary insolvency proceedings.6

B. Historic development Both the EIR 2000 as well as the additional rules in respect of cooperation and 3 communication between insolvency practitioners and courts (Articles 41 et seq. EIR 2015) constitute “soft law” and offer no “hard and fast” solutions to disputes between insolvency practitioners in main and ancillary proceedings.7 The wording and general scope of Article 46 EIR, however, offer a dispute resolution process between the insolvency practitioners in respect of the realisation of the assets in secondary insolvency proceedings which have been in place since the EIR 2000 came into force. The changes implemented by the EIR 2015 were primarily editorial corrections in respect of new terminology and clarifications vis-à-vis the previous version. The latter especially applies to a change in the current wording of Article 46(1) EIR. It now states that the insolvency practitioner in main insolvency proceedings may apply to “stay the realisation of assets in whole or in part”, whereas the previous version had stipulated that such application could be made to “stay the process of liquidation [emphasis added] in whole or in part”. This change should provide clarity to a point of contention that was also the subject of litigation in insolvency proceedings subject to the EIR 2000.8 The Commission did not opt to incorporate some of the submissions for broader 4 change suggested in the Vienna Report, including the suggestion that the insolvency practitioner be able to have the court which opened secondary insolvency proceedings order specific measures be taken or refrained from or that the secondary proceedings be stayed as a whole.9 In addition, recital 48 EIR 2015 was not amended vis-à-vis recital 20 EIR 2000 in respect of Article 46 EIR 2015. The interpretation of Article 46 EIR should therefore generally remain consistent with its previous wording. 2 Dammann, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 46, mn. 46.01; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 1. 3 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 241; Fehrenbach, Haupt- und Sekundärinsolvenzverfahren, p. 387. 4 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 243. 5 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 5; Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 241. 6 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 5. 7 Oberhammer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 923. 8 INSOL Europe, Revision of the European Insolvency Regulation, Art. 33; also see below mn. 14. 9 Oberhammer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 925 et seq.

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C. Scope Should the insolvency practitioner in the main insolvency proceedings decide that secondary proceedings could hamper the efficient administration of the debtor’s assets Article 36 EIR affords him the opportunity to grant an undertaking in order to avoid secondary insolvency proceedings. However, if secondary proceedings have already been opened, for example if the known local creditors did not approve the undertaking, the insolvency practitioner may still request a stay of the process of realisation of assets under Article 46(1) EIR. The statue therefore applies to any actions being taken in secondary proceedings that have been opened in accordance with the laws of the Member State for the secondary proceedings. By the same token, the wording in Article 46 EIR would seem to preclude its application to strictly territorial proceedings, as these – by necessity – do not have any correlating main insolvency proceedings or an insolvency practitioner in main insolvency proceedings to petition the court.10 6 However, it must still be considered whether Article 46 EIR may be applied during the course of preliminary secondary insolvency proceedings. At its core, Article 46 EIR provides the insolvency practitioner in main insolvency proceedings with a tool to prevent the (final) realisation of assets in secondary insolvency proceedings after they have been opened. In addition, a final disposal of the debtor’s assets in preliminary insolvency proceedings represents the exception rather than the rule in most, if not all, Member State jurisdictions. It should therefore generally not be necessary to apply the stay of the process of realisation of assets to the opening process of secondary insolvency proceedings.11 Whereas Articles 36 and 38(3) EIR afford the main insolvency practitioner the ability to avoid or delay the opening of secondary insolvency proceedings altogether, Article 46 EIR does not confer such a right.12 Allowing the insolvency practitioner to halt any realisation before it has begun could also effectively halt a decision over the course of the secondary proceedings, including whether or not they should be opened. As Article 46 EIR does not confer this right upon the insolvency practitioner in the main insolvency proceedings, a broad interpretation that would extend its scope to preliminary secondary proceedings is neither warranted by the stipulations in the EIR 2015 and its recitals nor can it be inferred from the materials on the reform. As a result, the scope of the Article is limited to secondary insolvency proceedings that have been opened by a court in a Member State.13 5

10

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 74. Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 4; Hübler, in Vallender, EuInsVO, Art. 46, mn 8; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 73. 12 Dammann, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 46, mn. 46.02. 13 Opposing view in respect of Article 33 EIR: Herchen, in Pannen, European Insolvency Regulation, Art. 33 EIR 2000, mn. 18 et. seq.; deviating from this view and arguing the case for an extensive scope of Article 46 EIR including realisation of assets in preliminary secondary proceedings: Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 33 EIR 2000, mn. 6; Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 10 and Paulus, EuInsVO, Art. 46, mn. 3. 11

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D. Interpretation I. Request for a stay of the process of realisation of assets The insolvency practitioner in the main insolvency proceedings is entitled to request 7 a stay of the process of realisation of assets in the secondary insolvency proceedings. The same applies in respect of a preliminary insolvency practitioner.14 The insolvency practitioner must submit the request to the court that opened the secondary insolvency proceedings.15 To allow the court to decide on the request, the insolvency practitioner has to explain the purpose of the request, although he is not required to present a detailed restructuring plan when submitting the (first) request.16 The insolvency practitioner in main insolvency proceedings is not required to wait 8 for the actual realisation of assets to begin (i. e. the insolvency practitioner in secondary proceedings initiating an auction of items or concluding a contract for the sale of the business as a whole) before submitting his request for a stay.17 It would be inefficient and impractical as well as make no economic sense to require the insolvency practitioner in main proceedings to wait for certain actions by his counterpart in secondary proceedings to then immediately request a stay on such actions.18

II. Court ruling on the request The court in secondary insolvency proceedings may deny a request for a stay “if it is 9 manifestly of no interest to the creditors in the main insolvency proceedings”. The main insolvency practitioner’s request for stay is a manifestation of the primacy of the main insolvency proceedings. Although secondary insolvency proceedings are no longer limited to liquidation proceedings under the Regulation (see Brinkmann above Article 3 mn. 56) and the cooperation between insolvency practitioners and the courts between the proceedings in various jurisdictions in the Member States was a primary focus of the reform, the insolvency practitioner in the main proceedings still only has limited legal tools at his disposal to force a coordinated effort in realising the debtor’s cross-border assets as a going concern (see above mn. 3 et seq.). The EIR works under the assumption that any petition by the insolvency practitioner in main proceedings to stay asset realisation by his counterpart is necessary to preserve the chances to coordinate the insolvency proceedings and consequently improve the financial recovery of the creditors.19 Thus, the court that opens the secondary insolvency proceedings will – when the issue is reduced to its essence – need to consider two issues in its decision whether to grant the request: 14

Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 4. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 7; Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 5. 16 Dammann in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 46, mn. 46.11; according to Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 33 EIR 2000, mn. 3, no more than a plausible statement of the interests of the creditors in the main proceedings shall be required from the insolvency practitioner; see Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 7, who supports a similar standard. 17 Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 8; OLG Graz, Beschl. v. 20.10.2005, NZI 2006, 660, 662 (AUT). 18 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 7. 19 Dammann, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 46, mn. 46.22; Staak, NZI 2004, 480, 485. 15

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1. What are the interests of the creditors in the main insolvency proceedings? 2. Would a stay of realisation serve no tenable purpose in respect of such interests? 10 As to the first question, the interest of the creditors in the main proceedings is manifestly, to the extent other evidence is not readily available, to receive the maximum recovery on their claims.20 The wording of Article 46 EIR also plainly states that the court having jurisdiction and venue is to base its decision on the stay of the realisation of assets solely on their interests.21 Although this may, at first blush, seem unfair to the creditors in secondary proceedings, the interests of creditors of the main and the secondary insolvency proceedings are typically aligned in practice. Creditors are entitled to lodge their claims in both main and secondary insolvency proceedings; and the claims will, in practice, have already been lodged by the respective insolvency practitioner (see Maesch/Knof above Article 45 mn. 18). Their aligned interest will typically be represented by the best possible recovery on their claims in each of the proceedings, which are further aligned by the use of the hotchpot rule in Article 23(2) EIR (see Maesch/Knof above Article 45 mn. 14). Typically, divergent interests are only apparent when certain creditors, such as employees, benefit from creditor preferences pursuant to the lex fori concursus of one of the Member States, in which the respective proceedings were opened.22 11 However, the court that opened secondary insolvency proceedings cannot entirely ignore the fact that Article 46(2) EIR requires23 it to terminate the stay of the process of realisation of assets if this measure is no longer justified by the interests of creditors in the main or secondary insolvency proceedings. One can therefore argue that the court must necessarily also consider the interests of the creditors in the secondary proceedings when deciding on a stay. Following this line of argument, an immediate termination of the stay can only be avoided to the extent that the court considers the interest of both groups of creditors from the outset, i. e. in reaching its initial and subsequent decisions on the stay as requested by the insolvency practitioner in main proceedings.24 In doing so, however, the court must also consider that the EIR’s primary focus is to afford the main insolvency practitioner an effective right to suspend the realisation of assets in the secondary insolvency proceedings. Therefore, the court will most likely comply with the request for a stay of the realisation of assets. In practice, such a request is only “manifestly of no interest” and will therefore only be rejected when the stay is requested with an abusive intent.25 The EIR 2015 did not adopt the suggestion to place an explicit burden of proof on any party opposing the request.26 However, the court still needs to provide clear reasoning in its decision; and in most cases it would appear very tenuous to assert that a stay can have no tenable interest for the creditors in the main 20 The creditors’ interests are, of course, not limited to maximising their recovery, and the court might consider other interests as well, see Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 33 EIR 2000, mn. 4; Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 6; Fehrenbach, Hauptund Sekundärinsolvenzverfahren, p. 399 et. seq. 21 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 242. 22 Wenner/Schuster, in Frankfurter Kommentar zur InsO, Art. 46 EuInsVO, mn. 5; Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 6. 23 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 59 makes reference to the clear wording in Art. 46(2) EIR and also points out (mn. 69) that such wording especially presents a difficulty for the court in determining whether and when it is required ex officio to rescind the order pursuant to Art. 46(1) EIR. 24 Wenner/Schuster, in Frankfurter Kommentar zur InsO, Art. 46 EuInsVO, mn. 5, Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 244. 25 Dammann, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 46, mn. 46.22; Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 7. 26 Oberhammer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 923.

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proceedings. This would particularly apply when the insolvency practitioner asserts that the debtor’s assets should be realised as a going concern. This method of realisation as a going concern may also include a liquidation of the debtor’s assets at the level of the main proceedings. For example, German law generally contemplates different means of disposing of the debtor’s assets in order to achieve a maximum return on the creditors’ claims, and transferring its valuable assets to a newly established company or an acquiring entity on a going-concern basis (so-called “übertragende Sanierung”) is one of the most common means. Therefore, a “liquidation” at the level of the main insolvency proceedings may not necessarily be used as an argument against the requested stay of the realisation of assets in the secondary insolvency proceedings.27 In addition, the court must consider whether and which “suitable measures” the 12 insolvency practitioner in main proceedings must take to guarantee the interests of the creditors in secondary insolvency proceedings. Indeed, this may represent the most important aspect of any decision on the stay. The court in secondary insolvency proceedings has full discretionary power28 to decide whether and which specific measures it orders pursuant to the lex fori concursus secundarii; however, the measures are limited to those available under the national law of the secondary proceedings.29 Obvious measures to secure the interests of the creditors in secondary proceedings include an obligation to pay interest to secured creditors precluded from realising assets given as security,30 as well as an obligation to compensate for loss of value and/or the provision of security for such from the insolvency estate in main proceedings, by providing, for example, a bank surety or collateral from the insolvency estate. When viewed in light of the discretionary nature of this power attributed to the court, 13 the emphasis in dealing with such matters in practice clearly shifts back to the “soft law” cooperation between the insolvency practitioners and the courts. Although the insolvency practitioner in main insolvency proceedings may request a stay pursuant to Article 46(1) EIR, such a request will only be successful if the court is convinced that the interests of the creditors in the secondary insolvency proceedings receive adequate protection through its ordering “suitable measures”. Thus, the insolvency practitioner will require suitable advice and guidance in respect of the national law in the Member State in which he is requesting a stay, particularly regarding the measures available to the court to protect “its” creditors. From a practitioner’s point of view, it also appears highly unlikely that a court will side with a foreign practitioner against the views of the local practitioner, whom the court will have in all likelihood appointed to the secondary insolvency proceedings. Although this seems possible from a strict legal vantage, it would appear to strengthen the need for main insolvency practitioners to first rely on the measures contemplated in Articles 41–43 EIR. From a strictly practical viewpoint, it would seem prudent for the insolvency practitioner in main proceedings to only seek 27 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 33 EIR 2000, mn. 5; Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 8. 28 Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 15; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 11. 29 It is generally accepted that the court can only order measures contemplated by the substantive law of the lex fori concursus secundarii, see Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 33 EIR 2000, mn. 12; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 14; Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 15; opposing view: Herchen, in Pannen, European Insolvency Regulation, Art. 33 EIR 2000, mn. 37. 30 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 14; Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 15. Under German law, Article 102 c § 16 EGInsO is applicable and provides secured creditors precluded from realising secured assets with a claim for interest during the period in which the insolvency practitioner or the debtor-in-possession continues to use the asset.

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a “hard law” decision (i) jointly with the insolvency practitioner already appointed in secondary insolvency proceedings or, if such arrangement is not possible, alternatively (ii) with the assistance and guidance of an experienced insolvency specialist known to the court and with tangible measures to “guarantee the interests” of the creditors in that jurisdiction.

III. Stay of the process of realisation of assets As previously stated, the question as to whether the process of realisation of assets or the secondary proceedings as a whole can be suspended that was raised by the wording “stay of liquidation” in Article 33 EIR 2000 is no longer relevant. Article 46 EIR 2015 now plainly states that the stay only affects the process of liquidating the debtors’ assets.31 The main intention of an order to stay the realisation of assets pursuant to Article 46(1) EIR 2015 is to allow the insolvency practitioners to explore the possibilities and – if possible – reach a consensus on a coordinated realisation and use of the debtor’s assets as a whole. It literally prevents the insolvency practitioner in secondary insolvency proceedings from disposing of the assets in a manner inconsistent with the day-to-day activities of any economic business division operating in the Member State of the secondary proceedings32. However, the stay does not entitle the insolvency practitioner in main proceedings to administer the assets subject to the territorial scope of the secondary proceedings. Such an order would violate the principle of the autonomy of secondary insolvency proceedings. The insolvency practitioners therefore continue to be obligated to cooperate with one another and coordinate the administration of the realisation and use of the debtor’s assets pursuant to by Article 41(2)(c) EIR, even if a stay has been ordered. This reinforces the fact that in spite of the “hard law” available pursuant to Article 46(1) EIR, the scope of the stay will also be a mitigating factor in any decision by the insolvency practitioner in main proceedings in the requisite endeavour to stay within the boundaries of the “soft law” contained in Articles 41–43 EIR. 15 Finally, the court can also order the insolvency practitioner in secondary insolvency proceedings to stay the termination of activities of an independent economic business division that is subject (solely) to the territorial scope of the secondary insolvency proceedings, for example one of the debtor’s satellite offices or production sites.33 Such a closure can affect the debtor’s assets in the same manner as an outright sale.34 However, only the realisation of assets that would occur within the secondary insolvency proceedings can be stayed; a stay will not affect the creditors’ protection under Articles 8 and 10 EIR.35 16 The (first) stay of the process of realisation of assets can be ordered for a maximum period of three months. The court can decide to continue or renew the stay for a further 14

31 Dammann, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 46, mn. 46.05; before the EIR recast, the OLG Graz (Beschl. v. 20.10.2005, NZI 2006, 660 (AUT)) held that Article 33 EIR 2000 only stays the process of disposing of the debtor’s assets and cannot stay the secondary proceedings as a whole. See also fn. 8. 32 Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 13. 33 Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 12; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 33 EIR 2000, mn. 9. 34 Dammann, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 46, mn. 46.07; Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 10; Wenner/ Schuster, in Frankfurter Kommentar zur InsO, Art. 46 EuInsVO, mn. 2. 35 Dammann, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 46, mn. 46.08; Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 16.

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period of up to three months. Whereas the length of a stay is always limited to a threemonth period, the number of successive or new stays is – in theory – unlimited.36

IV. Lifting of the stay pursuant to Article 46(2) EIR According to Article 46(2) EIR, the court that opened the secondary insolvency 17 proceedings shall terminate the stay of the process of realisation of assets (a) at the request of the main insolvency practitioner; or (b) of its own motion, at the request of a creditor or at the request of the insolvency practitioner in the secondary insolvency proceedings if that measure no longer appears justified. In particular, the interests of creditors in the main insolvency proceedings and in the secondary insolvency proceedings determine whether a stay continues to (appear to) be justified. The court has no discretion (“shall terminate”) if one of the two aforementioned 18 requirements pursuant to point (a) or point (b) is fulfilled.37 Thus, in practice, the court will only terminate the stay of the process of realisation of assets without any further assessment or deliberation upon a request of the main insolvency practitioner, i. e. pursuant to point (a). By contrast, termination pursuant to point (b) is more complicated because the court 19 must consider the interests of the creditors of the main insolvency proceedings as well as those of the secondary insolvency proceedings.38 The “interests” of creditors specifically include, but are not limited to, the financial interests of the creditors.39 For example, the court may decide to terminate the stay of the process of realisation of assets of its own motion (ex officio) if the insolvency practitioner in the main insolvency proceedings does not comply with the court order pursuant to Article 46(1) EIR, i. e. fails to provide “suitable measures” to protect the interests of the creditors in the secondary proceedings. In such case, the interests of the creditors in those proceedings are no longer guaranteed.40 Furthermore, the court that opened the secondary insolvency proceedings may terminate a stay pursuant to Article 46(1) EIR if it becomes obvious and/or is demonstrated by the petitioner that a reorganisation of the debtor as a going concern is no longer a tenable option. 36

Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 245. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 46, mn. 59. 38 Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 16; Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 247. 39 Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 33 EIR 2000, mn. 21; see also Fehrenbach, Haupt- und Sekundärinsolvenzverfahren, p. 400 with further references. 40 Reinhart, in Münchener Kommentar zur InsO, Art. 33 EuInsVO 2000, mn. 18. 37

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Article 47 Power of the insolvency practitioner to propose restructuring plans 1. Where the law of the Member State where secondary insolvency proceedings have been opened allows for such proceedings to be closed without liquidation by a restructuring plan, a composition or a comparable measure, the insolvency practitioner in the main insolvency proceedings shall be empowered to propose such a measure in accordance with the procedure of that Member State. 2. Any restriction of creditors’ rights arising from a measure referred to in paragraph 1 which is proposed in secondary insolvency proceedings, such as a stay of payment or discharge of debt, shall have no effect in respect of assets of a debtor that are not covered by those proceedings, without the consent of all the creditors having an interest. Recital: 48. Specific bibliography: Fehrenbach, Haupt- und Sekundärinsolvenzverfahren, Tübingen 2014. Outline A. Objective............................................................................................................................. 1 B. Historic development ...................................................................................................... 2 C. Scope ................................................................................................................................... 4 D. Interpretation .................................................................................................................... 5 I. Insolvency practitioner’s right pursuant to Article 47(1) EIR...................... 5 II. Measures within the scope of Article 47 EIR ................................................... 7 III. Ramifications of Article 47(2) EIR for creditors’ rights................................. 10

A. Objective 1

Article 47 EIR regulates the closure of secondary insolvency proceedings if measures other than a liquidation of the debtor’s assets are utilised to achieve recovery on creditors’ claims and also possibly facilitate or effect a reorganisation of the debtor’s business as a going concern. Recital 48 EIR emphasises the fact that an effective realisation of the debtor’s assets, i. e. the assets subject to the main and the secondary insolvency proceedings, can in most cases best be achieved through coordination and cooperation among the insolvency practitioners and the courts in the concurrent proceedings. Against this background, Article 47 EIR grants a slight concession to the predominant role of the main insolvency proceedings. In addition to his right to request a stay on the realisation of the assets in secondary insolvency proceedings pursuant to Article 46 EIR, the insolvency practitioner in main insolvency proceedings also has the right to propose a restructuring plan, a composition, or a comparable measure in accordance with the law of the lex fori concursus secundarii in order to facilitate restructuring efforts.1 Thus, Article 47 EIR grants the insolvency practitioner in main insolvency proceedings locus standi to propose such measures. Its rules complement the “soft law” cooperation and coordination requirement in Article 41 EIR and the main insolvency practitioner’s right to convert secondary insolvency proceedings into composition or restructuring proceedings pursuant to Article 51 EIR, if necessary. As 1

See recital 48 EIR.

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with Article 51 EIR, the main insolvency practitioner’s rights are limited by the constraints of the lex fori concursus secundarii. In other words, Article 47 EIR does not confer the right to propose rescue plans or compositions per se, but only to propose such measures in the form and to the extent allowed by the law of the Member State where the secondary insolvency proceedings were opened.

B. Historic development Article 47 EIR 2015 was not transferred wholesale from the EIR 2000. The recast EIR 2 effectively eliminated the “veto” rights conferred upon the insolvency practitioner in main insolvency proceedings under Articles 34(1)(2) and 34(3) EIR 2000. According to these previous rules, the insolvency practitioner in main insolvency proceedings had to consent to the closure of secondary insolvency proceedings by a measure pursuant to Article 47(1) EIR. Without his consent, the closure could only become final if the measure did not affect the financial interests of the creditors in the main proceedings. In addition, Article 34(3) EIR 2000 precluded parties other than the insolvency practitioner in main insolvency proceedings, or the debtor with the insolvency practitioner’s consent, to submit measures pursuant to Article 47(1) EIR. These rights have now been replaced in the EIR 2015 by the main insolvency practitioner’s right to provide an undertaking in order to avoid secondary insolvency proceedings pursuant to Article 36 EIR or to request a stay of the opening of secondary insolvency proceedings pursuant to Article 38(3) EIR. In addition, the insolvency practitioner in main insolvency proceedings retained his right to stay the process of realisation of assets in the secondary insolvency proceedings (Article 46 EIR). It remains to be seen whether these measures prove effective in facilitating coordinated efforts in connection with Articles 41 et. seq EIR. Against this background, Article 47 EIR has been the subject of some criticism for its 3 lack of “hard law” coordination. One can argue that an effective realisation of all of the debtor’s assets necessitates (mandatory) top-down coordination and synchronisation of the restructuring or rescue plans between the main and the secondary insolvency proceedings. While Article 41 EIR does provide a rather general “soft law” provision to facilitate coordination, neither it nor Article 47 EIR grants the insolvency practitioner in main insolvency proceedings a “hard and fast” right to dictate coordination of rescue plans.2 At first blush, such a view does appear appealing from a practical perspective and is also recognised to some extent in recital 41 EIR; however, the recast EIR reiterates the fact that secondary insolvency proceedings (also) serve the purpose of protecting local interests.3 Granting the insolvency practitioner in the main proceedings a right to compel a rescue plan does not align with the stated goals and was therefore likely omitted from the current fragile cooperation and coordination conflict resolution construct.

C. Scope Article 47 EIR applies to the insolvency practitioner in main insolvency proceed- 4 ings and grants him a right to propose certain measures in secondary insolvency proceedings. Accordingly, the insolvency practitioner in main insolvency proceedings 2 Dammann, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 47, mn. 47.04, 47.15, 47.16. 3 See recitals 37 and 40 EIR.

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may propose an alternative measure to liquidation to close the secondary insolvency proceedings. In practice, the insolvency practitioner in main insolvency proceedings effectively receives locus standi to introduce rescue plans or compositions in the secondary insolvency proceedings.

D. Interpretation I. Insolvency practitioner’s right pursuant to Article 47(1) EIR According to Article 47(1) EIR, the insolvency practitioner in main insolvency proceedings has the right to propose a restructuring plan, a composition or a comparable measure in accordance with the procedural law of the Member State that opened secondary insolvency proceedings. As this constitutes a substantive law right granted by the EIR itself, it is of no consequence whether the lex fori concursus secundarii affords it to the insolvency practitioner on its own.4 This additional right granted by the EIR does not, however, affect others’ rights to propose measures pursuant to the laws of the respective Member State.5 Thus, the insolvency practitioner in secondary insolvency proceedings or creditors of the secondary proceedings could still propose similar measures to the extent allowed pursuant to the lex fori concursus secundarii. 6 The only way for the insolvency practitioner in main insolvency proceedings to effectively incorporate assets that fall under the scope of secondary insolvency proceedings in a cross-border restructuring plan is to propose an appropriate measure in accordance with the law of the Member State where the secondary insolvency proceedings have been opened. The proposal must then be voted upon by the relevant decision-making bodies (for example: creditors’ committee, creditors’ assembly) and receive court approval, to the extent such voting and approval are required by national law.6 In light of the difficulties involved in agreeing on and executing a comprehensive and coordinated restructuring plan with different measures in different jurisdictions, a coordination process needs to be carefully considered and reviewed well in advance of the opening of secondary insolvency proceedings.7 5

II. Measures within the scope of Article 47 EIR The insolvency practitioner may propose a “restructuring plan, a composition or a comparable measure”. A restructuring plan facilitates the reorganisation of a debtor and must not consist of a “straight” liquidation or a total realisation of the debtor’s assets by sale or other similar measures. However, a partial liquidation of assets may form part of a restructuring plan that falls within the scope of Article 47 EIR.8 8 A composition entails the mutual agreement among one or more creditors – even a single class of creditors may suffice in certain jurisdictions and under certain circumstances – and the debtor to not pursue agreed-upon debts. The term should be 7

4 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 47, mn. 9; Reinhart, in Münchener Kommentar zur InsO, Art. 34 EuInsVO 2000, mn. 8. 5 Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 248. 6 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 47, mn. 11. 7 Dammann, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 46, mn. 47.15 et seq. 8 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 47, mn. 4.

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interpreted broadly9 to also include measures that do not require either court participation or court validation of the composition.10 Furthermore, the insolvency practitioner may propose “comparable measures”, i. e. 9 measures that have the same general effect as a “restructuring plan” or a “composition” from a functional perspective. It is essential that such measures facilitate a restructuring of the debtor on a going-concern basis. Therefore, transferring all the debtor’s valuable assets to a newly established company or an acquiring entity on a goingconcern basis, for example a so-called “übertragende Sanierung” under German law, is not a “comparable measure”, as it ultimately results in a liquidation of the debtor.11

III. Ramifications of Article 47(2) EIR for creditors’ rights As a result of the territorial limitation of secondary insolvency proceedings (see 10 Articles 3(2) and 34 EIR), restrictions on creditors’ rights effected by measures pursuant to Article 47(1) EIR, such as a stay of payment or discharge of debt, directly affect the creditors in the secondary insolvency proceedings and their claims.12 However, these measures only have an effect on assets falling under the scope of other insolvency proceedings if all creditors in such insolvency proceedings with a vested (financial) interest13 unanimously consent to the measure, for example the rescue plan.14 If these creditors do not approve it, the measure (i. e. rescue plan) can still be implemented; however, its provisions will not affect any assets outside of the secondary insolvency proceedings.15 Thus, such a plan will also not affect the creditors’ claims in other proceedings without the (unanimous16) consent of these creditors. For example, if a restructuring plan in secondary insolvency proceedings includes a discharge of debt that has been imposed on a certain class of creditors despite their objections (“cram down”), such a restructuring plan might become effective pursuant to the law of the Member State having jurisdiction pursuant to Article 3(2) EIR. However, the creditors are not precluded from filing their claims against the debtor in the main insolvency proceedings or any other secondary insolvency proceedings unless they have unanimously consented to the restructuring plan, including the discharge of debt, in those proceedings as well. This provision protects and cements the participation and recovery rights afforded to the creditors with respect to all main and ancillary insolvency proceedings pursuant to Article 45 EIR. It therefore ensures that (i) their claims are not diminished in a substantive manner in other proceedings without their consent and (ii) dividends in “other” proceedings will be paid with respect to the full nominal value of the claim.17 9 See also the broad interpretation inferred by INSOL Europe, Revision of the European Insolvency Regulation, Art. 34, mn. 34.7. 10 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 47, mn. 6. 11 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 47, mn. 7; Hübler, in Vallender, EuInsVO, Art. 47, mn. 4. 12 For a comprehensive analysis of Article 47(2) EIR see Fehrenbach, Haupt- und Sekundärinsolvenzverfahren, p. 425 et. seq. 13 The financial interest of the creditors will usually entail their interest in receiving a return on their claims, see Lüer, in Uhlenbruck, Insolvenzordnung, Art. 34 EuInsVO, mn. 9. 14 Delzant, in Braun, Insolvenzordnung, Art. 47 EuInsVO, mn. 6; Virgós/Schmit, Report on the Convention of Insolvency Proceedings, mn. 250. 15 Kindler, in Münchener Kommentar zum BGB, Art. 47 EuInsVO, mn. 12. 16 National law of the Member States will determine when a creditor has “consented” to restructuring measures in other insolvency proceedings. For example, a creditor can be deemed by operation of law to have “consented” to a restructuring plan by means of a “cram down” provision, e. g. § 245 InsO (DEU), see Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 34 EIR 2000, mn. 10. 17 For a more in-depth analysis of the rationale behind this provision, see Herchen, in Pannen, European Insolvency Regulation, Art. 34 EIR 2000, mn. 47 et. seq.

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Article 48 Impact of closure of insolvency proceedings 1. Without prejudice to Article 49, the closure of insolvency proceedings shall not prevent the continuation of other insolvency proceedings concerning the same debtor which are still open at that point in time. 2. Where insolvency proceedings concerning a legal person or a company in the Member State of that person’s or company’s registered office would entail the dissolution of the legal person or of the company, that legal person or company shall not cease to exist until any other insolvency proceedings concerning the same debtor have been closed, or the insolvency practitioner or practitioners in such proceedings have given consent to the dissolution. Outline A. Objective and historic development ............................................................................ B. Scope and interpretation ................................................................................................ I. Closure without prejudice (Article 48(1) EIR)................................................. II. No dissolution (Article 48(2) EIR)......................................................................

1 3 3 4

A. Objective and historic development Article 48 EIR is a new addition to the recast EIR vis-à-vis EIR 2000. Its two paragraphs regulate insolvency and corporate law issues regarding the closure of insolvency proceedings and its effect on any parallel proceedings. Article 48(1) EIR first clarifies that the closure of main or secondary insolvency proceedings shall not automatically lead to the closure of the other proceedings. Article 48(2) EIR then codifies a corporate law rule that is especially relevant in the case of secondary insolvency proceedings: Even if the closure of the insolvency proceedings would normally lead to dissolution of the debtor as a legal entity pursuant to the insolvency and corporate law in that Member State ipso iure, the legal entity shall continue to exist until all of the parallel proceedings have been closed or the insolvency practitioners have consented to such dissolution. 2 Some scholars have labelled this – at least in respect of Article 48(1) EIR1 – a classic case of overregulation, as the new substantive law merely reiterates a conclusion that is at the very least implicated by the further regulations on the relationship between main and secondary proceedings and the fact that such proceedings exist independent of one another.2 The conclusions and questionnaires in the Vienna Report neither suggest that the addition of this article was necessary nor do they make such recommendation;3 however, some jurisprudence in a very specific case may have provided the impetus for the provision.4 It can only be assumed that Article 48 EIR is 1

1

Moss/Smith, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.716. Fehrenbach, Haupt- und Sekundärinsolvenzverfahren, p. 410; Reinhart, in Münchener Kommentar zur InsO, Art. 48 EuInsVO 2015, mn. 1. 3 Oberhammer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 857 et seq. and Annex: Systematic Summary of National Reports. 4 The High Court of Justice in Re Eurodis Electron Plc [2012] BCC 57 (GBR) ruled on a case in a somewhat different context; however, Article 48(2) EIR would have led the court to a different conclusion. Insolvency proceedings had been opened in both Belgium and England in respect of one of the 2

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intended to clarify5 this issue for jurisdictions in which national law might erroneously seek to close insolvency proceedings on the basis of the strictly formal argument that insolvency proceedings cannot be continued for an entity that no longer exists after such entity has been dissolved in another Member State pursuant to the relevant lex societas.

B. Scope and interpretation I. Closure without prejudice (Article 48(1) EIR) Although secondary insolvency proceedings are by their very nature dependent on 3 main proceedings, they exist independently of the main proceedings once they have been opened by the authority of the relevant court. The secondary proceedings also encompass only a territorially bound part of the debtor’s estate, which exists separately from the rest of the debtor’s estate in main and other secondary proceedings. The entire purpose of secondary proceedings under the EIR is to subject this local part of the estate to a separate set of rules in respect of its utilisation in providing dividends to the local creditors in order to “protect the diversity of interests”6 in the Member States. As a result, Article 48(1) EIR merely provides a clarification7 of the fact that secondary proceedings shall continue (as territorial proceedings8) even if main proceedings or other secondary proceedings have been closed. Obviously, the closure of secondary proceedings cannot have any effect on the continuation of main proceedings, as the secondary proceedings are subordinate and only exist to protect local interests or to better manage complex cross-border proceedings.9

II. No dissolution (Article 48(2) EIR) As substantive law, Article 48(2) EIR prevents courts in Member States from 4 closing insolvency proceedings on the basis of the strictly formal argument that insolvency proceedings cannot be continued for an entity that no longer exists. Article 48(2) EIR supersedes any national law regarding the requisite formalities for opening and continuation of insolvency proceedings in respect of the formal existence of any entity. National law could contemplate a formal dissolution of the debtor as an entity when insolvency proceedings are closed, for example by striking the entity from a company or commercial register; however, in such case, however, Article 48(2) EIR prohibits the relevant authority under the substantive law of the lex societas from formally dissolving the entity, for example by striking it from the relevant records, without the consent of the relevant insolvency practitioners in the other group entities. Apparently, the Belgian practitioner and the court refused to recognise English insolvency proceedings and no clarification was made as to whether main or secondary proceedings had been opened in Belgium. The Belgian proceedings were closed based on insufficient funds and the company was dissolved. The English administrators apparently were unaware of the developments, and any applications for relief were time barred. The High Court of Justice ruled that the English administration could not continue to have effect, as the company was dissolved and an administration could therefore not apply, see para. 25 et seq. 5 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 48, mn. 1. 6 See recitals 23 and 40 EIR. 7 Reinhart, in Münchener Kommentar zur InsO, Art. 48 EuInsVO 2015, mn. 2. 8 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 48, mn. 3. 9 See above fn. 6.

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proceedings.10 In addition, Article 48(2) EIR should be interpreted as prohibiting the authorities having jurisdiction for the other insolvency proceedings, i. e. for the insolvency proceedings in Member States other than where the debtor has its registered office, from closing such insolvency proceedings on the formal grounds that the relevant authority has failed to observe Article 48(2) EIR and has formally dissolved the entity pursuant to the lex societas.11 Whether the insolvency practitioner or practitioners in the other proceedings are afforded the right to apply for a correction with the relevant company or commercial register in such a case is a matter for the national law of the Member State where the debtor has its registered office. 10 Reinhart, in Münchener Kommentar zur InsO, Art. 48 EuInsVO 2015, mn. 3; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 48, mn. 4. 11 In re Eurodis Electron Plc [2012] BCC 57, para. 26 (GBR), Justice Mann – without the benefit of Article 48(2) EIR – reaches a different conclusion, holding that the Regulation merely affords the insolvency practitioner “procedures which make sure that that does not happen […] If, as has happened in this case, something slips through the net, then it has slipped through the net, but that is not a reason for creating the artificiality [of the administration continuing to have effect in spite of dissolution].”

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Article 49 Assets remaining in the secondary insolvency proceedings If, by the liquidation of assets in the secondary insolvency proceedings, it is possible to meet all claims allowed under those proceedings, the insolvency practitioner appointed in those proceedings shall immediately transfer any assets remaining to the insolvency practitioner in the main insolvency proceedings. Outline A. Objective and historic development ............................................................................ B. Scope and interpretation ................................................................................................

1 3

A. Objective and historic development The principle of universality dictates that all of the debtor’s assets constitute the estate 1 in the main insolvency proceedings. Secondary insolvency proceedings are the exception to this rule and allow for a territorial assignment of particular assets to protect local interests or to deal with complexity or differences in legal systems between two or more Member States.1 In spite of the secondary insolvency proceedings, the assets still belong to the debtor. The substantive law created by Article 49 EIR takes this fact into account by clarifying that the remainder of these assets belong to the debtor’s estate and also by affording the insolvency practitioner in main proceedings a right to demand transfer of the remaining assets from the insolvency practitioner in the secondary proceedings. In addition, Article 49 EIR supersedes any national law in the Member States and ensures that such assets are under the continual jurisdiction and scope of insolvency proceedings by stipulating that they immediately belong to the main insolvency proceedings.2 These assets are therefore perpetually subject to automatic stays, injunctions and other limitations on creditors’ execution rights until the main insolvency proceedings have been closed. Neither the INSOL Report nor the Vienna Report identifies a need to recast 2 Article 49 EIR 2015 and makes no recommendation to do so.3 The recast of the EIR did not subject Article 49 EIR (previously Article 35 EIR 2000) to any substantive changes. The only change to the English-language wording was to reflect new terminology, i. e. “insolvency practitioner” in place of “liquidator”. Although the clarification and substantive law in Article 49 EIR appears necessary to ensure a transfer of assets in such cases, the duty of the insolvency practitioner in main proceedings to lodge claims pursuant to Article 45(2) EIR – in addition to the rarity of meeting all claims in insolvency proceedings in practice – should severely limit any practical application.4 If the realisation of the assets from secondary proceedings holds the promise of paying in full all of the claims lodged, the insolvency practitioner in main insolvency proceedings would generally be obligated to lodge the creditors’ claims, as this would serve those 1

See recital 40 EIR. Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 49, mn. 3. 3 Oberhammer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 857 et seq.; INSOL Europe, Revision of the European Insolvency Regulation, Art. 35, makes no comment on Article 35 EIR. 4 Herchen, in Pannen, European Insolvency Regulation, Art. 35 EIR 2000, mn. 1 citing Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 252; Moss/Smith, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.428. 2

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creditors interests. The cost-benefit analysis should generally indicate that lodging claims in the secondary insolvency proceedings will increase those creditors’ returns. Therefore, the insolvency practitioner in other proceedings will generally be obligated to lodge the claims in those secondary proceedings in order to maximise the creditors’ dividends across proceedings that cannot be accounted for by the hotchpot rule (see Maesch/Knof above Article 45 mn. 14 and Thole Article 23, mn. 19 et seq.). It is extremely unlikely that all claims will be met in full in secondary insolvency proceedings after all claims in main insolvency proceedings have been lodged and accounted for (with a possible exception in atypical cases, see Maesch/Knof below Article 50 mn. 11).

B. Scope and interpretation Only secondary insolvency proceedings fall within the scope of Article 49 EIR. Thus, only the insolvency practitioners in any and all secondary proceedings are obligated to relinquish the remaining assets to the insolvency practitioner in main insolvency proceedings. The insolvency practitioner in main insolvency proceedings has a direct claim against the secondary insolvency administrator. Conversely, any assets remaining in main insolvency proceedings after all claims have been met are to be distributed in accordance with the lex fori concursus, as secondary insolvency proceedings are subordinate to main insolvency proceedings and only apply to a limited part of the debtor’s assets. Article 49 EIR also cannot apply to the insolvency practitioner in isolated territorial proceedings, as there are, by definition, no main insolvency proceedings in such cases.5 4 The secondary insolvency administrator is obligated to transfer the remaining assets after meeting all of the claims allowed under the secondary insolvency proceedings. Article 49 EIR assumes that the insolvency practitioner will have liquidated6 the assets in secondary insolvency proceedings. As a rule, the remaining assets will constitute the insolvency practitioner’s escrow account balance after all claims are met.7 The claims referenced in Article 49 EIR are generally perceived to include all insolvency claims in the secondary proceedings – as they have been established in accordance with the lex fori concursus secondarii – as well as preferential claims against the estate, including the costs of the secondary insolvency proceedings. Should individual non-pecuniary assets remain, these are also to be remitted to the insolvency practitioner in the main insolvency proceedings.8 5 The secondary insolvency practitioner is obligated to transfer the remaining assets “immediately”, i. e. without undue delay. However, the Regulation does not explicitly state which exact act or event the transfer must immediately follow. Article 49 EIR does specify that all of the claims must be met before the remaining assets may be transferred; however, national law may still place a limit on the insolvency practitioner’s ability to make payments with the exception of the costs of the insolvency proceedings and distributions to creditors until certain formal requirements have been met. It would appear equitable to require the insolvency practitioner to transfer the remaining assets 3

5

Paulus, EuInsVO, Art. 49, mn. 1. Moss/Smith, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.718 correctly point out that liquidation is not mandatory and the wording of Article 49 EIR could have better reflected this by using the term “realisation”. Nonetheless, a liquidation of assets to the benefit of the creditors seems more likely in cases in which payment of claims in full could occur. 7 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 49, mn. 6, see also above fn. 6. 8 Herchen, in Pannen, European Insolvency Regulation, Art. 35 EIR 2000, mn. 5. 6

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to the insolvency practitioner in main insolvency proceedings without undue delay once the secondary insolvency proceedings meet the formal requirements for a distribution of remaining assets either to the debtor or to its shareholders, as the case may be, under the lex fori concursus secondarii.9 9 Dissenting Herchen, in Pannen, European Insolvency Regulation, Art. 35 EIR 2000, mn. 6, who appears to take the view that the transfer should not take place until after secondary insolvency proceedings have been closed.

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Article 50 Subsequent opening of the main insolvency proceedings Where the proceedings referred to in Article 3(1) are opened following the opening of the proceedings referred to in Article 3(2) in another Member State, Articles 41, 45, 46, 47 and 49 shall apply to those opened first, in so far as the progress of those proceedings so permits. Outline A. Objective and historic development ............................................................................ B. Scope and interpretation ................................................................................................ I. Requisite elements .................................................................................................. II. Effects.........................................................................................................................

1 4 4 6

A. Objective and historic development Independent territorial insolvency proceedings (also referred to simply as “independent proceedings”) are the exception to the rules in Articles 3(1) and 3(2) EIR. The EIR generally contemplates the opening of main insolvency proceedings being followed by opening of secondary proceedings, to the extent these have been duly petitioned. However, the EIR also recognises the necessity of extending insolvency-related protection to certain local interests in cases in which main insolvency proceedings cannot be opened at the point in time in which territorial proceedings become necessary. As a result, Article 3(4) EIR 2015 reiterates, refines and codifies the statements that were made in recital 17 EIR 2000 in respect of the application for and the opening of territorial proceedings. One of the requirements for opening territorial proceedings pursuant to Article 3(2) and 3(4) EIR is that main insolvency proceedings cannot be opened yet (see Brinkmann above Article 3 mn. 57); however, the requisite conditions for opening main proceedings may be realised after territorial proceedings have been opened. In such cases, main proceedings will subsequently be applied for and opened. 2 Against this background, Article 50 EIR provides a “pragmatic solution”1 in dealing with the possible atypical and, in some cases, exceptional circumstances that the insolvency practitioners in both main and secondary2 proceedings are confronted with in respect of the debtor, its assets and the advanced status of the territorial proceedings. With the opening of main proceedings, territorial proceedings become secondary proceedings ipso iure pursuant to Article 3(4) EIR and are thereby generally subject to the unrestricted application of the provisions in Chapter III EIR.3 Article 50 EIR provides the exception to this rule by tempering and limiting the application of 1

1

Fletcher, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.431. EIR 2000 did not provide for a formal transformation of territorial proceedings into secondary proceedings, only mentioning such in its recital 17, see Fletcher, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.431. Such transformation has now been codified in Article 3 (4) EIR 2015. 3 Herchen, in Pannen, European Insolvency Regulation, Art. 36 EIR 2000, mn. 4 would seem to reach the same conclusion regarding Articles 31–38 EIR 2000; opposing view: Mankowski, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 50, mn. 9, who suggests applying Articles 42–44 EIR mutatis mutandis in such cases. 2

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particular Articles to account for the advanced stage (if any) of the territorial (i. e. secondary) proceedings.4 Neither the INSOL Report nor the Vienna Report identifies a need to recast 3 Article 50 EIR and makes no recommendation to do so.5 The recast EIR does not subject Article 50 EIR (previously Article 36 EIR 2000) to any substantive changes, but instead only changes the number references to the relevant Articles.

B. Scope and interpretation I. Requisite elements Application of the exception rule provided in Article 50 EIR first requires territorial 4 proceedings within the definition of Articles 3(2) and 3(4) EIR being opened in one of the Member States.6 These territorial proceedings are isolated until main proceedings are opened pursuant to Article 3(1) EIR. By virtue of the opening of main proceedings, the isolated proceedings are transformed into secondary insolvency proceedings pursuant to Article 3(4) EIR. Thus, the only real prerequisite for the application of the rule contemplated by Article 50 is that the territorial proceedings are opened before main proceedings. In this respect, the CJEU’s holding in the Eurofood case must also be kept in mind: 5 Any decision by a court in a Member State that is premised on a petition for opening proceedings based on a debtor’s insolvency and which also “involves divestment of the debtor and the appointment of a liquidator referred to in Annex C [now Annex B] to the Regulation” is to be considered a decision to open insolvency proceedings pursuant to Article 19.7 Many decisions to commence interim insolvency proceedings and appoint an interim insolvency practitioner under Annex B EIR will therefore also constitute a “judgment opening insolvency proceedings” and will therefore immediately trigger the effects under Article 3(4) EIR and, subsequently, Article 50 EIR.8

II. Effects The fundamental effect of the transformation of the isolated territorial proceedings 6 into secondary insolvency proceedings is that Chapter III of the EIR now governs these secondary proceedings. Accordingly, the insolvency practitioner has certain obligations vis-à-vis the insolvency practitioner and the creditors in both the main and other secondary insolvency proceedings. In addition, the insolvency practitioners in other proceedings, especially the insolvency practitioner in the main proceedings, have certain rights vis-à-vis the insolvency practitioner in secondary proceedings (Art 45(2) EIR, for example). Article 50 EIR tempers the effects of Articles 41, 45, 46, 47 and 49 EIR by stipulating that they only apply to the secondary proceedings to the extent that the progress of these proceedings permits. Ultimately, the insolvency practitioner in 4 Generally accepted view, see Reinhart, in Münchener Kommentar zur InsO, Art. 36 EuInsVO 2000, mn. 1, citing Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 255. 5 Oberhammer, in Hess et al., Vienna Report, mn. 857–935; INSOL Europe, Revision of the European Insolvency Regulation, Art. 36, makes no comment on Article 36 EIR. 6 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 50, mn. 3. 7 CJEU Case C-341/04 Eurofood IFSC Ltd. ECLI:EU:C:2006:281, para. 58. 8 Reinhart, in Münchener Kommentar zur InsO, Art. 36 EuInsVO 2000, mn. 3; Geroldinger, Verfahrenskoordination, p. 384 et seq.

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secondary insolvency proceedings is released from the obligations imposed by the aforementioned Articles, while the rights afforded to the insolvency practitioners in other proceedings can be diminished respectively.9 7 At face value, the wording of Article 50 EIR (“in so far as […] permits”) provides great latitude in interpreting the extent to which Articles 41 45, 46, 47 and 49 EIR must be observed in the secondary proceedings. However, scholarly discourse has generally taken the view that Article 50 EIR is to be interpreted restrictively, as it provides an exception to the rules meant to facilitate coordination among the proceedings.10 Others argue that the insolvency practitioner in secondary proceedings will generally be obligated to show that adhering to the rules in Articles 41, 45, 46, 47 and 49 EIR will severely compromise the goals and the further progress of the secondary proceedings.11 In practice, Article 50 EIR can provide the insolvency practitioner in secondary proceedings with some leverage in negotiations with the insolvency practitioner in main proceedings. The secondary insolvency practitioner can argue that certain measures in secondary proceedings are no longer be generally permissible from a formal standpoint; however, he may make concessions in reaching an agreement, e. g. pursuant to Article 41(1) EIR (see Skauradszun/Spahlinger above Article 41 mn. 6) that would further coordinate rescue or other measures in main proceedings to the extent that local interests in secondary proceedings are recognised and remunerated to some degree. This can also be viewed as a tactical advantage for local creditors that would encourage them to request the opening of independent territorial proceedings before main proceedings are opened in another Member State.12 Ultimately, the rights and obligations of the insolvency practitioners in multiple proceedings will need to be determined on a case-by-case basis. Unfortunately, case law on Article 50 EIR is not forthcoming. Therefore, general consideration of the conflicting interests and the stated objective of promoting cooperation among the insolvency practitioners must provide tentative guidance in respect of certain duties. 8 Article 41 EIR codifies insolvency practitioners’ obligations to communicate and cooperate in a general manner and on specific issues. Based on the atypical structure of the proceedings mandated by the requirements of Article 50 EIR, both practitioners’ obligation for immediate candid disclosure in order to determine the necessary and permissible cooperation going forward would appear heightened and not diminished vis-à-vis normal proceedings.13 The extent to which the practitioners must coordinate proceedings, including a possible restructuring of the debtor, realisation of the assets and other insolvency-related issues (e. g. challenging detrimental acts), will depend on the measures that have already been taken in secondary proceedings and whether particular goals, such as restructuring the debtor, can realistically be attained. The cooperation provisions will no longer apply once such goals can no longer be realistically achieved in an economically feasible manner that is beneficial to the creditors.14 9 The insolvency practitioner in secondary proceedings will be able to lodge claims in main proceedings pursuant to Article 45(2) EIR. The creditors in secondary proceedings will also have the right to lodge claims pursuant to Article 45(1) EIR. However, national 9

Reinhart, in Münchener Kommentar zur InsO, Art. 36 EuInsVO 2000, mn. 4. Herchen, in Pannen, European Insolvency Regulation, Art. 36 EIR 2000, mn. 4; Reinhart, in Münchener Kommentar zur InsO, Art. 36 EuInsVO 2000, mn. 4. 11 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 50, mn. 7. 12 Moss/Smith, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.433. 13 Herchen, in Pannen, European Insolvency Regulation, Art. 36 EIR 2000, mn. 9 and Reinhart, in Münchener Kommentar zur InsO, Art. 36 EuInsVO 2000, mn. 6; both assume that the obligation to communicate “should still be capable of application”. 14 Herchen, in Pannen, European Insolvency Regulation, Art. 36 EIR 2000, mn. 5. 10

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law in the Member State in which the secondary insolvency proceedings were opened will determine whether creditors and/or the insolvency practitioner in main proceedings can lodge claims in secondary proceedings. Limitation periods for lodging claims pursuant to the lex fori concursus, for example, could prevent such filings in the secondary proceedings.15 In addition, the insolvency practitioner in main proceedings will also need to take any additional costs of a delayed claim filing into account when determining whether lodging the claims in secondary proceedings serves the interests of the creditors (see Maesch/Knof above Article 45 mn. 16 et seq.). While these cases appear clear-cut, the rights afforded to the insolvency practitioners in Article 45(3) EIR could prove to be a point of contention, especially to the extent that the insolvency practitioners are also afforded an autonomous voting right under Article 45(3) EIR.16 As part of the general mandate for the insolvency practitioners to communicate and cooperate, only extenuating circumstances can justify curtailing or limiting these independent rights granted by substantive law in the EIR. The further application of both the right to stay the process of asset realisation 10 (Article 46 EIR) and the power to propose restructuring plans (Article 47 EIR) will hinge upon the actual possibility and feasibility of doing so at that particular stage of the secondary proceedings.17 The limitation of these powers is to be construed narrowly, and the insolvency practitioner should generally be afforded great latitude in applying for such measures, as well as having them recognised and so ordered by the court. This will increase the burden on the insolvency practitioner in secondary proceedings to show that such measures are no longer practically possible or legally admissible under the relevant national law. Finally, the application of Article 49 EIR (transfer of remaining assets) will depend 11 upon whether any assets actually remain or whether they have already been disposed of in another manner. To the extent that the creditors in main proceedings cannot lodge their claims in the secondary proceedings pursuant to a limitation period or time bar, this may represent one of the few practical applications of Article 49 EIR, as the negation of a cross-filing could decrease the creditor pool to such extent that all claims in the secondary proceedings are met (see Maesch/Knof above Article 49 mn. 2). 15 The inability to file claims in such cases is only compensated by the hotchpot rule in Article 23(2) EIR. Although this guarantees that the creditors in secondary insolvency proceedings will not be overcompensated, it does not prevent creditors in main proceedings from receiving a lower dividend on their claims than the creditors in secondary proceedings to the extent that the percentage dividend rate in main proceedings is less than that in secondary proceedings to the exclusion of the creditors in main proceedings, see also Thole above Article 23, mn. 19 et seq. 16 This is a very contentious issue in scholarly discourse. The authors suggest that the insolvency practitioners should receive a vote to the extent that issues in the creditors’ meeting require a headcount vote, see Maesch/Knof above Article 45, mn. 23. 17 Reinhart, in Münchener Kommentar zur InsO, Art. 36 EuInsVO 2000, mn. 8 et seq.

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Article 51 Conversion of secondary insolvency proceedings 1. At the request of the insolvency practitioner in the main insolvency proceedings, the court of the Member State in which secondary insolvency proceedings have been opened may order the conversion of the secondary insolvency proceedings into another type of insolvency proceedings listed in Annex A, provided that the conditions for opening that type of proceedings under national law are fulfilled and that that type of proceedings is the most appropriate as regards the interests of the local creditors and coherence between the main and secondary insolvency proceedings. 2. When considering the request referred to in paragraph 1, the court may seek information from the insolvency practitioners involved in both proceedings. Recital: 40. Specific bibliography: Wimmer, Die Besonderheiten von Sekundärinsolvenzverfahren unter besonderer Berücksichtigung des Europäischen Insolvenzübereinkommens, ZIP 1998, 982. Outline A. Objective............................................................................................................................. 1 B. Historic development ...................................................................................................... 3 C. Scope and interpretation ................................................................................................ 5 I. Request ...................................................................................................................... 6 II. Conditions for opening the envisaged type of proceedings under national law .............................................................................................................................. 8 III. Local creditors’ interests........................................................................................ 10 IV. Coherence of proceedings ..................................................................................... 11 V. Court ruling.............................................................................................................. 12

A. Objective 1

The opening of secondary insolvency proceedings can contribute to the effective realisation of the debtor’s assets or facilitate a cross-border restructuring of the debtor’s business. This is especially true if “the insolvency estate of the debtor is too complex to administer as a unit or the differences in the legal systems concerned are so great that difficulties may arise from the extension of effects deriving from the law of the State of the opening of proceedings to the other Member States where the assets are located”.1 In the latter case, any “local creditor” empowered under the national law of its Member State may request the opening of secondary insolvency proceedings in order to limit the aforementioned effects deriving from the laws of the Member State of the opening of the main insolvency and to protect its interests.2 In practice, conflicts between the objectives in main and secondary insolvency proceedings are sometimes inevitable. When conflicts of interest arise, the recast EIR generally continues to adhere to the principal of the primacy of the main proceedings. Article 51 EIR also represents a manifestation of this principle.3 In order to ensure the primary role of the main insolvency proceedings, the insolvency practitioner in main insolvency proceedings is entitled to intervene in 1

Explicitly recital 40 EIR. See recital 40 EIR. 3 Virgós/Garcimartín, The European Insolvency Regulation: Law and Practice, 2004, mn. 457. 2

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secondary insolvency proceedings. In particular, the insolvency practitioner is entitled to (i) apply for a stay of the realisation of the assets in the secondary insolvency proceedings (Article 46 EIR); (ii) propose a restructuring plan or composition (Article 47 EIR); or (iii) apply for a conversion of the secondary insolvency proceedings into another type of insolvency proceedings listed in Annex A EIR (Article 51 EIR). Article 51 EIR offers a further “hard law” alternative to resolve conflicts resulting 2 from different objectives in the main and secondary insolvency proceedings. The insolvency practitioner in main insolvency proceedings may request a binding court decision in respect of a conversion of the type of secondary insolvency proceeding in cases where the “soft law” provisions of the EIR, i. e. the rules on communication, cooperation and coordination between the insolvency practitioners,4 have not facilitated a compromise. For example, the insolvency practitioner in secondary insolvency proceedings might refuse to initiate such change without further concessions that the insolvency practitioner in main proceedings is not prepared to make, provoking an application for conversion.

B. Historic development Secondary proceedings within the meaning of Article 3(3) EIR 2000 were confined 3 to the winding-up proceedings listed in Annex A EIR 2000. Secondary restructuring proceedings were not allowed under EIR 2000. However, independent territorial proceedings within the definition of Articles 3(2) and 3(4) EIR 2000, i. e. territorial insolvency proceedings which have been opened prior to the opening of main insolvency proceedings within the meaning of Articles 3(1) EIR 2000, were allowed as both winding-up proceedings and restructuring proceedings. Accordingly, the subsequent opening of main proceedings within the meaning of Article 3(1) EIR 2015 could have triggered the (necessary) conversion of such independent territorial proceedings into winding-up proceedings upon request of the liquidator of the main proceedings pursuant to Article 37 EIR 2000. The recast of the EIR amended Article 37 EIR 2000. The decision to limit the purpose 4 of secondary proceedings to winding-up proceedings has been reconsidered and is, according to the recast EIR, no longer applicable. Thus, secondary insolvency proceedings can be winding-up proceedings as well as restructuring proceedings. Accordingly, the conversion of independent territorial restructuring proceedings into (mandatory) winding-up proceedings once the main proceedings have been opened, as previously contemplated by Article 37 EIR 2000, has become redundant. However, the recast of the EIR adheres to the primacy of the main proceedings. Therefore, Article 51 EIR grants the insolvency practitioner in the main proceedings the general option of requesting a conversion of any type of secondary proceedings into any other type of insolvency proceeding listed in Annex A EIR in order to ensure the dominant role of the main insolvency proceedings.

C. Scope and interpretation The conversion of the secondary insolvency proceedings into another type of 5 insolvency proceedings is effected by order of the court of the Member State in 4

Oberhammer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 923.

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which secondary insolvency proceedings have been opened. Four prerequisites must be met for the court to issue the order.

I. Request First, the court may only issue an order pursuant to Article 51(1) EIR upon the request of the insolvency practitioner in the main insolvency proceedings. Article 51(1) EIR does not provide the court of the Member State in which secondary insolvency proceedings have been opened with the power to convert the secondary insolvency proceedings into another type of insolvency proceedings ex officio. The insolvency practitioner in the main insolvency proceedings has the power to request the conversion of the secondary insolvency proceedings into another type of insolvency proceedings regardless of whether the national law in the Member State affords him that right. 7 One could also question whether Article 51(1) EIR grants the insolvency practitioner in the main insolvency proceedings an exclusive right to request to convert the proceedings. As with most matters in secondary insolvency proceedings, the general question as to which person or authority is entitled to seek the conversion of the secondary insolvency proceedings into another type of insolvency proceedings must be determined on the basis of the national law of the Member State in which secondary insolvency proceedings have been opened (see Article 35 EIR). Article 51(1) EIR does not reference an exclusion of other parties under national law.5 The wording is such that – bar other indicators – it can only be interpreted in the sense that the insolvency administrator in the main proceedings is granted an (additional) locus standi in respect of this issue. Thus, another person or authority may request the conversion according to the relevant national law. The difference between the main insolvency practitioner’s right to request a conversion and another party’s or authority’s right to request a conversion is that the insolvency practitioner in the main insolvency proceedings is entitled to request the conversion according to Article 51(1) EIR, i. e. European law, and does not rely on the national law, i. e. the lex fori concursus secundarii, to provide him with such authority. 6

II. Conditions for opening the envisaged type of proceedings under national law 8

The court of the Member State in which secondary insolvency proceedings have been opened may, as requested by the insolvency practitioner in the main insolvency proceedings, convert the secondary insolvency proceedings into the proposed type of insolvency proceedings, provided that the conditions for opening the proposed type of proceedings under national law are fulfilled. This proviso is in line with the general principle of the EIR which states that the relevant national law governs secondary proceedings once they are commenced (Article 35 EIR).6 For the avoidance of doubt, the national law in question is the law of the Member State in which the relevant secondary insolvency proceedings have been opened (lex fori concursus secundarii).7 If the conditions for opening the proposed type of proceedings under national law of the 5 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 51, mn. 15; Reinhart, in Münchener Kommentar zur InsO, Art. 51 EuInsVO, mn. 5; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 37 EIR 2000, mn. 4. 6 Moss/Smith, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.375. 7 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 51, mn. 10.

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Member State in which secondary insolvency proceedings have been opened are not fulfilled, the court will reject the request with regard to the conversion of the secondary insolvency proceedings into another type of insolvency proceedings. The same principle applies if the conditions for opening the proposed type of proceedings are fulfilled but the national law of the lex fori concursus secundarii does not contemplate the possibility of converting between the types of proceedings. This is in line with the general rule that the secondary insolvency proceedings are governed by the lex fori concursus secundarii pursuant to Article 35 EIR and the rule that the national law of the Member State in which secondary insolvency proceedings have been opened constitutes the relevant statute in determining whether or not conversion into the envisaged type of proceedings is possible. As a result, the right conferred by Article 51(1) EIR is practically ineffective in jurisdictions that do not provide for a conversion of different types of insolvency proceedings. Furthermore, the right conferred by Article 51(1) EIR is also virtually ineffective in 9 jurisdictions that do not provide for different types of insolvency proceedings, such as Germany. German law generally contemplates three means of disposing of the debtor’s assets in order to achieve maximum return on the creditors’ claims: (i) liquidation of the debtor’s assets; (ii) reorganisation of the debtor’s business via an insolvency plan (Insolvenzplan), or (iii) transferring the debtor’s valuable assets to a newly established company or an acquiring entity on a going-concern basis (so-called “übertragende Sanierung”). Creditors participating in the insolvency proceedings jointly decide which method of realisation should be pursued. They may also jointly decide whether the realisation shall proceed according to the ordinary statutory rules, i. e. appointment of an insolvency administrator, or in debtor-in-possession proceedings (Eigenverwaltung). In any case, all three means of disposing of the debtor’s assets are different variants of the universal insolvency proceedings pursuant to the InsO. A formal conversion within the meaning of Article 51(1) EIR is not possible.8

III. Local creditors’ interests Furthermore, the court must assess whether or not the proposed conversion of the 10 secondary insolvency proceedings into another type of insolvency proceedings “is the most appropriate as regards the interests of the local creditors”. The term “local creditor” is defined in Article 2 no. 11 EIR as being a creditor whose claims against a debtor arose from or in connection with the operation of an establishment situated in a Member State other than the Member State in which the centre of the debtor’s main interests is located. However, Article 51(1) EIR does not provide any guidelines as to which aspects the court must consider in its assessment of the local creditors’ interests. It seems appropriate that a court should consider whether the requested conversion will affect the recovery dividend that the local creditors in the secondary proceedings are likely to receive when determining the local creditors’ best interests.9 It would also seem consistent for the assessment of local creditors’ interests to address the “local creditors as a whole”. Therefore, the court does not have to find that the conversion is not detrimental to every single local creditor or a certain group of creditors, such as employees. It can determine that the conversion, overall, will benefit the creditors in spite of individual inconsistencies. Similarly, the court may also decide that the 8 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 51, mn. 13; Wimmer, ZIP 1998, 982, 989. 9 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 51, mn. 6; Hübler in Vallender, EuInsVO, Art. 51, mn. 13.

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conversion is so detrimental to a certain group or groups of local creditors that it would not be in the local creditors’ best interests.

IV. Coherence of proceedings 11

Finally, the court is required to assess whether or not the requested conversion of the secondary insolvency proceedings into another type of insolvency proceedings listed in Annex A EIR is the most appropriate measure regarding the coherence between the main and secondary insolvency proceedings. The insolvency practitioner in the main insolvency proceedings should, in practice, provide the court with sufficient information in his request as to (i) how he will coordinate the main insolvency proceedings and the converted secondary insolvency proceedings and (ii) how the conversion facilitates the envisaged reorganisation or liquidation of the assets of both the main and the secondary insolvency proceedings.

V. Court ruling If the prerequisites for a conversion pursuant to Article 51(1) EIR are met, the conversion is mandatory. Article 51(1) EIR does not grant the court discretion in the decision.10 However, the court has the right and the obligation to test whether the prerequisites for the conversion are in fact fulfilled. 13 In its consideration of whether the requested type of proceedings is the most appropriate regarding the interests of the local creditors and coherence between the main and secondary insolvency proceedings, the court has to make a predictive assessment that takes all possible types of proceedings available under the circumstances, i. e. where the conditions and prerequisites for such proceedings pursuant to the national law of the lex fori concursus secundarii are met, into account.11 The prognosticative element in this test affords the court leeway in its decision and effectively offers limited discretion for each individual request it is asked to rule upon. 14 Article 51 EIR does not presuppose the validity of the main insolvency administrator’s request to convert the type of proceedings. Against this background, the court may seek information from the insolvency practitioners involved in both proceedings pursuant to the national law of the lex fori concursus secundarii in order to facilitate the aforementioned assessment. In practice, it would appear imperative for the court to hear the insolvency practitioner in the secondary proceedings if the main insolvency practitioner petitions a conversion of the type of proceedings alone or without the consent of the secondary insolvency practitioner. 12

10 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 51, mn. 10; Reinhart, in Münchener Kommentar zur InsO, Art. 37 EuInsVO 2000, mn. 11; Hübler, in Vallender, EuInsVO, Art. 51, mn. 16; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 37 EIR 2000, mn. 4; see also Moss/Smith, in Moss/ Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.436 who have doubts with respect to the wording of the English version of Article 51(1) EIR (“the court […] may order”), see also their citing in fn. 529. 11 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 51, mn. 10; Hübler in Vallender, EuInsVO, Art. 51, mn. 17.

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Article 52 Preservation measures Where the court of a Member State which has jurisdiction pursuant to Article 3(1) appoints a temporary administrator in order to ensure the preservation of a debtor’s assets, that temporary administrator shall be empowered to request any measures to secure and preserve any of the debtor’s assets situated in another Member State, provided for under the law of that Member State, for the period between the request for the opening of insolvency proceedings and the judgment opening the proceedings. Specific bibliography: Dammann/Müller, Eröffnung eines Sekundärinsolvenzverfahren in Frankreich gem. Art. 29 lit. a. EuInsVO auf Antrag eines “schwachen” deutschen Insolvenzverwalters, NZI 2011, 752; Vallender, Aufgaben und Befugnisse des deutschen Insolvenzverwalters in Verfahren nach der EuInsVO, KTS 2005, 283. Outline A. Objective............................................................................................................................. 1 B. Historic development ...................................................................................................... 2 C. Scope and interpretation ................................................................................................ 3 I. Requisite elements .................................................................................................. 3 1. Main proceedings ............................................................................................... 3 2. Request by a “temporary administrator” ...................................................... 8 3. Assets in other Member State ......................................................................... 9 II. Preservation measures............................................................................................ 11 1. National law......................................................................................................... 11 2. Court decision on the request ......................................................................... 13

A. Objective The overall objective of Article 52 EIR is to provide a minimum threshold1 for 1 protective measures by enabling the temporary administrator in interim insolvency proceedings in the jurisdiction in which main proceedings are to be opened to effectively sequester foreign assets belonging to the debtor.2 The materials in respect of EIR 2000 provide further insight into the systemic purpose of this substantive law stipulation, stating that it is intended to ensure that a temporary administrator is able to secure assets in a foreign jurisdiction because a petition for opening secondary proceedings may not be submitted until the main proceedings have been opened.3 In other words, Article 52 EIR was originally intended to close a gap in the protection of the debtor’s assets that results from a temporary administrator not being able to petition the opening of secondary insolvency proceedings in another Member State. As substantive law, this article supersedes national law;4 however, it does not prohibit the individual Member States from affording foreign insolvency practitioners with additional rights to secure the debtor’s property.5

1

Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 52, mn. 11. Reinhart, in Münchener Kommentar zur InsO, Art. 38 EuInsVO 2000, mn. 3. 3 Virgós/Garcimartin, The European Insolvency Regulation, mn. 375, referencing Virgós/Schmit, Report on the Convention on Insolvency Proceedings. 4 Herchen, in Pannen, European Insolvency Regulation, Art. 38 EIR 2000, mn. 1. 5 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 52, mn. 3. 2

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B. Historic development 2

The recast of the EIR did not alter Article 52 EIR in any material aspect, and it is therefore generally meant to be interpreted and construed in the same manner as Article 38 EIR 2000. Neither the Vienna Report nor the INSOL Report references this article in their analysis of or suggestions for recasting the EIR.6 No changes were made to the English language7 version of the article vis-à-vis Article 38 EIR 2000. Although some authors find it regrettable that many questions in scholarly discourse were not addressed by the 2015 reform, it appears that the rights conferred upon the temporary administrator by Article 52 EIR 2015 were not used in practice under EIR 2000. Likewise, it is currently assumed that these rights will also not play an important role (if any) in future coordination of main and secondary proceedings.8

C. Scope and interpretation I. Requisite elements 1. Main proceedings The wording in Article 52 EIR is unequivocal and only confers rights to the temporary administrator in main insolvency proceedings who has been appointed by the relevant court as the result of a petition to open insolvency proceedings. Although the need for preservation rights could also arise in interim secondary proceedings, only the main insolvency proceedings hold a claim to the universality of their reach and thereby provide grounds for a temporary administrator to secure assets in other jurisdictions.9 4 In its Eurofood decision, the CJEU held that any decision by a court in a Member State that is premised on a petition for opening proceedings based on a debtor’s insolvency and which also “involves divestment of the debtor and the appointment of a liquidator referred to in Annex C [now Annex B] to the Regulation” is a decision on the opening of insolvency proceedings pursuant to Article 19 EIR.10 As a result, many decisions to commence interim insolvency proceedings must be recognised by the other Member States as a “judgment opening insolvency proceedings”, and the interim insolvency practitioner (temporary administrator) in these proceedings must be afforded the rights of an insolvency practitioner pursuant to Article 21 EIR and Article 37(1)(a) EIR by virtue of explicit reference. As a result, temporary administrators 3

6 Oberhammer, in Hess/Oberhammer/Pfeiffer, Vienna Report, mn. 888–935; INSOL Europe, Revision of the European Insolvency Regulation, Art. 38, makes no comment on Article 38 EIR. 7 Versions referencing the “winding-up” proceedings prescribed by Article 3(3) EIR 2000, such as the German language version, were amended accordingly, see Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 38 EIR 2000, mn. 1. Other versions enacted linguistic changes to the term “temporary administrator”. The French version of EIR 2000 references the “provisoire syndic”, “syndic” being the term denoting the “liquidator” in Article 2(b) EIR 2000. Article 52 EIR 2015 now refers to the “administrator provisoire”, whilst Article 2 no. 5 EIR uses the term “practicien de l’insolvabilité”. These changes in different language versions do not appear to have any effect on the interpretation or material aspects of the Article. 8 Reinhart, in Münchener Kommentar zur InsO, Art. 38 EuInsVO 2000, mn. 4. 9 Paulus, EuInsVO, Art. 52, mn. 4. 10 CJEU Case C-341/04 Eurofood IFSC Ltd. ECLI:EU:C:2006:281, para. 58.

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will be entitled to request the opening of secondary insolvency proceedings to the extent that the Eurofood criteria are met.11 When viewed in light of the express purpose of Article 52 EIR to close a gap in the 5 protection of a debtor’s assets that results from a temporary administrator not being able to petition the opening of secondary insolvency proceedings in another Member State, one could question whether the interim insolvency practitioner in cases that fulfil the Eurofood criteria should be afforded the rights under Article 52 EIR or whether his right to request the opening of secondary proceedings under Article 37(1)(a) EIR is to be considered lex specialis and therefore precludes the right to request preservation measures under Article 52 EIR. Two arguments support the latter interpretation. First, the express purpose of Article 52 EIR is to close a gap that does not exist if the interim insolvency practitioner has the right to request the opening of secondary proceedings. In addition, Article 36 EIR should also apply to the interim insolvency practitioner in these cases by virtue of explicit reference (see also Laukemann above Article 36, mn. 15). The temporary administrator in these cases therefore has the ability to decide whether local expertise is needed and secondary insolvency proceedings should be initiated or synthetic secondary proceedings should be pursued by issuing an undertaking pursuant to Article 36 EIR. It could therefore be argued that the temporary administrator in such cases does not require additional measures in order to secure the debtor’s assets and that he may therefore not avail himself of the measures pursuant to Article 52 EIR.12 Such interpretation, however, is not consistent with the intention of interim insol- 6 vency proceedings. Interim insolvency practitioners are regularly confronted with situations in which the ultimate goals of the insolvency proceedings (liquidation or rescue, going concern or enterprise sale) and the requisite measures to attain them are at best sketchy and require time to define more closely. In practice, such decisions are rarely possible during interim proceedings. This especially applies to large, complex cross-border cases. At the same time, the interim insolvency administrator – in spite of recognition of the proceedings pursuant to Article 19 EIR – may require additional measures to secure the debtor’s property in Member States where an enterprise exists. It would contradict the mission of interim proceedings were the EIR to force the interim insolvency practitioner to reach a (premature) decision on initiating secondary proceedings or committing to an undertaking pursuant to Article 36 EIR in a preliminary stage of the main insolvency proceedings. The purpose of the recast EIR, specifically Article 36 EIR, is to establish more flexibility for the main insolvency practitioner in order to – inter alia – facilitate cross-border restructurings by avoiding the costly and time-consuming measures that secondary insolvency proceedings often entail.13 In other words, the interim insolvency practitioner should not be forced into a (premature) decision on issues that are expressly intended to increase flexibility during the course of the main insolvency proceedings. As a result, the interim insolvency practitioner in cases where the Eurofood criteria 7 are met may (i) request measures pursuant to Article 52 EIR. In addition, he may (ii) also give an undertaking pursuant to Article 36 EIR to the extent permitted by national law in defining his function to supervise and manage the debtor’s affairs and administer

11 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 38 EIR 2000, mn. 1; Reinhart, in Münchener Kommentar zur InsO, Art. 38 EuInsVO 2000, mn. 11. 12 Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 38 EuInsVO, mn. 4 seems to reach this conclusion. 13 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 36, mn. 6.

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its assets.14 Alternatively, the interim insolvency practitioner may (iii) request that secondary insolvency proceedings be opened in the relevant Member State.

2. Request by a “temporary administrator” 8

The Regulation does not define the term “temporary administrator” (see Brinkmann above Article 2, mn. 9). The temporary administrator does not have to belong to the insolvency practitioners listed in Annex B EIR. It is generally assumed that any person or body appointed to temporarily secure the debtor’s assets while a decision is being reached on opening (final) main insolvency proceedings may be considered a temporary administrator within the ambit of Article 52 EIR.15 In the interest of affording the insolvency practitioner in main insolvency proceedings the right to effectively secure the debtor’s assets in the Member States, the term should be interpreted broadly. The EIR does not, however, provide a substantive law basis for courts in Member States to appoint a temporary administrator but instead defers to national law in this respect and is therefore only applicable if and to the extent that national law contemplates appointing a temporary administrator and has ordered such appointment in the relevant case.16 The temporary administrator must submit a formal request with the relevant court in the other Member State pursuant to the rules under the relevant national law in order to realise preservation measures, see below mn. 11.

3. Assets in other Member State The temporary administrator may only apply for preservation measures in respect of assets belonging to the debtor that are situated in another Member State. Whether an asset or right is situated in a Member State is defined in Article 2 no. 9 EIR (see Dahl/ Kortleben above Article 2 mn. 20 et seq.). Although the wording of Article 52 EIR does not place any explicit limitations on the Member States in which the assets must be situated in order for a request by the temporary administrator to be considered, the predominant consensus in jurisprudence and scholarly discourse indicates that requests can only be made in Member States in which the debtor has an enterprise, i. e. territories in which secondary insolvency proceedings could be commenced.17 The primary – and convincing – argument for such interpretation is the fact that Article 52 EIR can be found in Chapter III of the Regulation, which specifically relates to secondary insolvency proceedings and is not applicable to other proceedings. 10 Article 52 EIR is not applicable to the extent that territorial insolvency proceedings have been opened in another Member State, as the territorial insolvency proceedings provide sufficient protection of the debtor’s assets in that jurisdiction.18 9

14 Dammann/Müller, NZI 2011, 752–756, who make reference to a 2011 decision by the Tribunal de commerce de Nanterre in Re Alkor. 15 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 263. 16 Duursma-Kepplinger/Chalupsky, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 38 EIR 2000, mn. 6 et seq. 17 CJEU Case C-341/04 Eurofood IFSC Ltd. ECLI:EU:C:2006:281, para. 57; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 262; Vallender, KTS 2005, 283, 307–308; Paulus, EuInsVO, Art. 52, mn. 3; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 38 EIR 2000, mn. 5; Heiderhoff, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 38 VO Nr. 1346/2000, mn. 2; Reinhart, in Münchener Kommentar zur InsO, Art. 38 EuInsVO 2000, mn. 9 et seq; Lüer, in Uhlenbruck, Insolvenzordnung, Art. 38 EuInsVO, mn. 4; opposing view: Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 52, mn. 18 et seq.; Herchen, in Pannen, European Insolvency Regulation, Art. 38 EIR 2000, mn. 10 et seq.; Moss/Smith, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.441; Undritz, in Hamburger Kommentar zum Insolvenzrecht, Art. 38 EuInsVO, mn. 3. 18 Vallender, KTS 2005, 283, 308.

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II. Preservation measures 1. National law The primary instrument for the temporary administrator in main insolvency pro- 11 ceedings is his right to have the court in the Member State in which he was appointed as temporary administrator order preservation measures pursuant to its national law and have these decisions recognised and enforced in other Member States pursuant to Article 32 EIR.19 As it may prove more effective in certain cases,20 Article 52 EIR expands the temporary administrator’s rights by affording him locus standi in the other Member State,21 while simultaneously limiting his substantive law options to the measures that would be available to the temporary administrator in secondary interim proceedings.22 Based on the unequivocal wording of Article 52 EIR, the general consensus in scholarly writings is that the temporary administrator may only request such measures as the national law of the Member State contemplates in such cases and only in respect of the debtor’s assets located in the other Member State.23 Such preservation measures are generally intended to maintain the status quo of the 12 debtor’s assets until further decisions can be reached in respect of the debtor’s future as a going concern;24 however, one significant change to the EIR may require a paradigm shift in respect of the measures requested. Under the EIR 2000, secondary proceedings could only be commenced as winding-up proceedings.25 The recast EIR, however, allows for restructuring the debtor in the context of secondary insolvency proceedings (see Brinkmann above Article 3 mn. 56). Whereas preservation measures under EIR 2000 may therefore have contemplated more temporary measures strictly meant to secure the debtor’s assets (e. g. a moratorium on enforcement measures, a strict order preventing further disposals by the debtor or even seizing the debtor’s property and placing it in the custody of the court or the insolvency practitioner), insolvency practitioners and the national courts may now have cause to contemplate further measures which enable the temporary administrator in main insolvency proceedings to continue the business of the establishment as a going concern. Such measures could also include – to the extent allowed by national law in the Member State in which secondary proceedings would be opened26 – having a temporary administrator appointed for the establishment.27 The EIR does not limit the scope of orders pursuant to Article 52 EIR and the national law 19 Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 38 EIR 2000, mn. 8; Reinhart, in Münchener Kommentar zur InsO, Art. 38 EuInsVO 2000, mn. 1. 20 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 38 EIR 2000, mn. 1. 21 Moss/Smith, in Moss/Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.440. 22 Commandeur, in Nerlich/Römermann, Insolvenzordnung, Art. 38 VO (EG) 1346/2000, mn. 1. 23 Heiderhoff, in Geimer/Schütze, Internationaler Rechtsverkehr in Zivil- und Handelssachen, Art. 38 VO Nr. 1346/2000, mn. 3; Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 52, mn. 1, 15; Herchen, in Pannen, European Insolvency Regulation, Art. 38 EIR 2000, mn. 24 et seq.; Reinhart, in Münchener Kommentar zur InsO, Art. 38 EuInsVO 2000, mn. 15; Lüer, in Uhlenbruck, Insolvenzordnung, Art. 38 EuInsVO, mn. 6; Paulus, EuInsVO, Art. 32, mn. 6; Moss/Smith, in Moss/ Fletcher/Issacs, The EU Regulation on Insolvency Proceedings, mn. 8.440. 24 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 52, mn. 13. 25 See above fn. 7. 26 German insolvency law, for example, would seem to limit such right with respect to the (temporary) administrator in the main proceedings. The temporary administrator in the main proceedings would likely not be able to be appointed as temporary administrator in secondary proceedings pursuant to § 56 InsO due to lack of expertise regarding German insolvency law and proceedings. 27 Herchen, in Pannen, European Insolvency Regulation, Art. 38 EIR 2000, mn. 35 et seq.; Reinhart, in Münchener Kommentar zur InsO, Art. 38 EuInsVO 2000, mn. 17.

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of the Member States except to the extent that the national court may not order the opening of secondary proceedings as a result of an Article 52 EIR request by the temporary administrator in the main proceedings.

2. Court decision on the request 13

The request by the temporary administrator generally defines the limits within which the court will decide on the preservation measures; however, Article 52 EIR does not specify whether a ne petitia ultra rule must apply to the court’s decision or to what degree the court may exercise its own discretion in granting or denying the temporary administrator’s petition. As with the determination on which preservation measures may be requested (see above mn. 11), this issue should be governed by the national law of the Member State in which the request is submitted.28 As Herchen points out, however, national law in some Member States leaves it at the court’s discretion to decide which exact preservation measures are required once a temporary administrator (i) establishes that preservation measures in some form are necessary and (ii) recommends that the court act.29 As Article 52 EIR is intended to limit the temporary administrator’s substantive law options in the foreign jurisdiction to the measures that would be available in secondary interim proceedings,30 the court should also maintain its prerogative and discretion as they would apply to any request, petition or suggestion submitted by a temporary administrator or other party with the right to request such measures in local insolvency proceedings.31 28 Mankowski, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 52, mn. 14; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 38 EIR 2000, mn. 9; Reinhart, in Münchener Kommentar zur InsO, Art. 38 EuInsVO 2000, mn. 16 assumes that the court may decide “at its own discretion” without explicitly specifying that this is subject to its national law, but would seem to do so within the context of his deferral to national law otherwise. Opposing view: Vallender, KTS 2005, 283, 308–309, who effectively equates a right to request preservation measures pursuant to Article 52 EIR with a substantive right to “demand” such measures if the requirements of (i) Member State with an establishment and (ii) no territorial proceedings have been opened are met. 29 Herchen, in Pannen, European Insolvency Regulation, Art. 38 EIR 2000, mn. 16, 29 et seq. 30 See above fn. 22. 31 Duursma-Kepplinger/Chalupsky, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 32 EIR 2000, mn. 15 et seq.

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CHAPTER IV PROVISION OF INFORMATION FOR CREDITORS AND LODGEMENT OF THEIR CLAIMS Article 53 Right to lodge claims Any foreign creditor may lodge claims in insolvency proceedings by any means of communication, which are accepted by the law of the State of the opening of proceedings. Representation by a lawyer or another legal professional shall not be mandatory for the sole purpose of lodging of claims. Recitals: 12, 63, 64. Case law: EU: CJEU, 2 May 2006, Case C-341/04, Eurofood, ECLI:EU:C:2006:281.

Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Scope ................................................................................................................................... D. Interpretation .................................................................................................................... I. Entitled parties......................................................................................................... II. Formal requirements..............................................................................................

1 2 4 5 5 6

A. Purpose Article 53 EIR is an expression of the general decision of the European legislator to 1 guarantee that claims of foreign creditors are effectively taken into account.1 In sentence 1, the prevailing opinion taken on the predecessor provision is codified.2 The clarification aims to achieve legal certainty and to implement a level playing field.3 There is a teleological connection to Article 45(1).4 Sentence 2 seeks to reduce transaction costs and to rationalise the claim lodging procedure.5

B. Historic development The 2015 reform of the EIR essentially left the provisions in Chapter IV untouched. 2 The Articles were newly numbered and were amended to match the other regulations of 1

cf. recitals 12, 63, 64 EIR. cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 270; HeidelbergLuxembourg-Vienna Report, mn. 8.2, 8.3.2. 3 Heidelberg-Luxembourg-Vienna Report, mn. 8.1; cf. in this regard CJEU Case C-341/04 Eurofood ECLI:EU:C:2006:281, mn. 66. 4 Opinion of Advocate General Bot, 4 April 2019, Case C-47/18, Skarb Panstwa Rzeczypospolitej Polskiej v Riel, ECLI:EU:C:2019:292, mn. 57 et seq. 5 Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, COM (2012) 744 final, mn. 10. 2

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the EIR. Additional measures to protect foreign creditors were added.6 In the view of the Commission, this was necessary, since especially small and mid-sized businesses were wary of the costs and effort of participating in foreign insolvency proceedings.7 3 Article 53 EIR 2015 matches Article 39 EIR 2000. The newly-worded sentence 1 corresponds to the predecessor provision but occupies itself further with the form of the lodging of claims, which was regulated previously in only a rudimentary manner. The newly-included sentence 2 deals with the necessity of involving legal counsel.8

C. Scope 4

Together with Article 54 EIR and Article 55 EIR, Article 53 EIR deals with notice to creditors and the registration of their claims. Article 53 EIR to Article 55 EIR are provisions of substantive law which supersede the lex fori concursus. Minimum standards for rights and maximum requirements for procedures are set out by the European legislator, which may not be exceeded under national law.9 These lead – essentially – to duties of the courts and administrators, and only rarely accommodate them. The provisions apply to all insolvency proceedings under the legal definition contained in Article 1 EIR, meaning in particular main and ancillary insolvency proceedings. Only foreign creditors in terms Article 2 no. 12 EIR are covered. The treatment of other creditors, meaning domestic creditors or non-EU foreign parties, is governed by the lex fori concursus pursuant to Article 7(2)(sentence 2)(h) EIR.10

D. Interpretation I. Entitled parties 5

Each foreign creditor is an entitled party. According to Article 2 no. 12 EIR foreign creditors are creditors who have their habitual residence, domicile or seat in another Member State of the European Union than the Member State where proceedings were opened. This now expressly covers public creditors (tax authorities and social insurance funds).11

II. Formal requirements 6

According to sentence 1, foreign creditors are entitled to those means of communication which are accepted by the law of the State of the opening of proceedings. This already follows from Article 7(2)(sentence 2)(h) EIR. Sentence 1 does not create any additional entitlements. Foreign creditors are also thereby not completely free in the 6 Heidelberg-Luxembourg-Vienna Report, mn. 8.1 et seq.; cf. in this regard CJEU Case C-341/04 Eurofood ECLI:EU:C:2006:281, mn. 66. 7 cf. Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, COM (2012) 744 final, mn. 3.1.4. 8 cf. Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, COM (2012) 744 final, mn. 3.1.4. 9 Opinion of Advocate General Bot, 4 April 2019, Case C-47/18, Skarb Panstwa Rzeczypospolitej v Riel, ECLI:EU:C:2019:292, mn. 60, 72; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 270, 273; Virgós/Garcimartín, European Insolvency Regulation, mn. 282. 10 cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 264. 11 See recital 63 EIR.

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selection of communication means. Above and beyond this redundancy, the reference is also contradictory, since a registration of a claim is always effective as long as the standard form referred to in Article 55 EIR is used, even where the law of the State of proceedings referred to in Article 53(sentence 1) EIR provides for additional formal requirements or declarations for the registration.12 Sentence 2 sets out that the involvement of legal counsel of any kind is not by itself 7 required for the lodging of a claim. This means that foreign creditors are entitled to lodge their claims themselves and personally. Any requirements of national law to retain legal counsel for other procedural acts remain unaffected. “Lawyers” are only mentioned as an example. Due to the various legal traditions in 8 the Member States, this term should be interpreted broadly (and includes for example solicitor/barrister, avocat plaidant/avocat postulant etc.). Having regard to the purpose of the norm of ensuring a simple and non-discriminatory procedure, “another legal professional” should be interpreted as broadly as possible to include all other professions active in law and business (i. e. notaries who do not act as lawyers and related professions, accountants, tax and business consultants, debt collection businesses, consumer rights associations, etc.). In contrast, the norm does not prevent the voluntary involvement of legal counsel or 9 other representatives.13 Their admissibility and the conditions for these are governed by the lex fori concursus, Article 7( 2)(sentence 2)(h) EIR. This must be distinguished from the representation of debtors, see Dahl/Kortleben Article 55, mn. 14. 12 13

cf. Reinhart, in Münchener Kommentar zur InsO, VO (EG) 2015/848, Art. 53, mn. 4. See J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 53, mn. 12.

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Article 54 Duty to inform creditors 1. As soon as insolvency proceedings are opened in a Member State, the court of that State having jurisdiction or the insolvency practitioner appointed by that court shall immediately inform the known foreign creditors. 2. The information referred to in paragraph 1, provided by an individual notice, shall in particular include time limits, the penalties laid down with regard to those time limits, the body or authority empowered to accept the lodgement of claims and any other measures laid down. Such notice shall also indicate whether creditors whose claims are preferential or secured in rem need to lodge their claims. The notice shall also include a copy of the standard form for lodging of claims referred to in Article 55 or information on where that form is available. 3. The information referred to in paragraphs 1 and 2 of this Article shall be provided using the standard notice form to be established in accordance with Article 88. The form shall be published in the European e-Justice Portal and shall bear the heading “Notice of insolvency proceedings” in all the official languages of the institutions of the Union. It shall be transmitted in the official language of the State of the opening of proceedings or, if there are several official languages in that Member State, in the official language or one of the official languages of the place where insolvency proceedings have been opened, or in another language which that State has indicated it can accept, in accordance with Article 55(5), if it can be assumed that that language is easier to understand for the foreign creditors. 4. In insolvency proceedings relating to an individual not exercising a business or professional activity, the use of the standard form referred to in this Article shall not be obligatory if creditors are not required to lodge their claims in order to have their claims taken into account in the proceedings. Recitals: 12, 63, 64. Specific bibliography: Ahrens, Nicht benannte Gläubiger im Restschuldbefreiungsverfahren, NZI 2013, 721; Elliot/Lorenz, Forderungsanmeldung nach der neuen EuInsVO, InsBüro 2018, 215. Case law: EU: CJEU, 17 March 2005, Case C 294/02, Commission of the European Communities v AMI Semiconductor Belgium BVBA et al., ECLI:EU:C:2005:172. Czechia: Vrchní soud, 11 August 2017, KSUL 44 INS 234/2010, 2 VSPH 701/2010-P93-13 = IILR 2012, 74 et seq. case note by Sedláček. Germany: BFH, Beschl. v. 27.01.2016 – VII B 119/15, NZI 2016, 929 et seq.; BGH, Beschl. v. 06.11. 2008 – IX ZB 34/08, NZI 2009, 66. Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Scope ................................................................................................................................... D. Interpretation .................................................................................................................... I. Duty to inform foreign creditors, paragraph 1 ................................................ 1. Addressees of the information ........................................................................ 2. Addressees of the norm .................................................................................... 3. Timing...................................................................................................................

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II. Content of the notice, paragraph 2..................................................................... 9 III. Form of notice, paragraphs 3 to 4 ...................................................................... 10 E. Legal consequences .......................................................................................................... 12

A. Purpose The enforcement of claims by foreign creditors frequently fails due to the fact that 1 these creditors have no knowledge of the opening of insolvency proceedings. Accordingly, in these cases, no lodging of a claim takes place at all. In order to effectively ensure the right to lodge a claim, Article 54 EIR obliges the court that has opened the proceedings or the insolvency practitioner appointed by this court to inform all known foreign creditors of their right to lodge any claims as well as the legal details of the registration process. This is justified, since the information deficit of foreign creditors must be specifically taken into account as long as there is no information system available that matches creditor interests at a European Union level. The information deficit is primarily based on the geographic distances within the European common market, the language barriers and not least on the lack of knowledge about the various national insolvency laws. The time delay in overcoming these obstacles especially poses the threat that limitation periods for registration will lapse. In the view of the European legislator, the concentration of proceedings in the hand of insolvency practitioners as well as the national insolvency courts and their deep insight into the relationships of the debtor makes it logical to task them with informing foreign creditors.1 The standard form for notifying creditors should establish a Europe-wide minimum 2 standard of information and, due to the identical structure of the form in all the official languages of the institutions of the European Union (Article 54(3)(sentence 2) EIR), should increase its comprehension and reduce translation costs.

B. Historic development Paragraph 1 sets out the duty to provide information to foreign creditors. Paragraphs 2 3 to 4 relate to the form and content of such notices. The first two paragraphs of the provision correspond to Article 40 EIR 2000. Paragraph 1 was only amended to reflect the new legal definition of “foreign creditors” contained in Article 2 no. 12 EIR. The wording was expanded to include the new standard form procedure. In paragraph 2, a new sentence 3 was included that takes account of the standard form for lodging a claim in accordance with Article 55 EIR. Paragraph 3 is linked to the language used in Article 42 EIR paragraph 1 EIR 2000 and regulates the optional use of the new standard notice form. Paragraph 4 contains an exemption provision for the insolvency of natural persons.

C. Scope See the comments made at Article 53 EIR mn. 4 on the scope of application.

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1 Criticising the discrimination of domestic creditors, e. g. Lenzing, in Bork/van Zwieten, Commentary on EIR, Art. 54, mn. 54.03.

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D. Interpretation I. Duty to inform foreign creditors, paragraph 1 5

1. Addressees of the information. The addressees of the information notice are known foreign creditors. Creditors are “known” where they have become apparent to the obligor from the general due inspection of the records and documents of the debtor.2 Under the EIR at least, there is no special duty to undertake targeted research.3

2. Addressees of the norm. Under paragraph 1, the addressees of the norm who are obliged to provide information are the insolvency court or the insolvency practitioner. Member States are free to decide through national legislation which of these two institutions is called to comply with this duty.4 For example, German law provides (§ 8 (3)(sentence 1) German Insolvency Act – InsO) that it is generally the insolvency court that informs debtors; the court may, however, delegate this duty to the insolvency practitioner. 7 Where a Member State makes no legislative designation or where the designation is unclear (such as, potentially, in Germany – see above), generally the following applies: The wording of Article 54 EIR indeed uses “or”. However, having regard to the legal consequences of a failure to comply with this duty, this “or” might be misunderstood. Rather, “and” should be read in here. This interpretation fits into the systematic interpretation and the intent and purpose of the provision, since firstly European Regulations have direct legal effect in the Member States under Article 288(3) TFEU and not only after their implementation, like directives. Secondly, only this interpretation ensures that an obligor actually provides notice and does not just evade his duty by referring to the respective other party. In this case, the courts and practitioners have their own interest in consulting closely on their activities in order to prevent joint liability or unnecessary duplication of notices. 6

8

3. Timing. Notice must be provided immediately after proceedings have been opened. An autonomous interpretation of the term “immediately” must be applied. To date, no European legal definition or specification by CJEU decisions exists. However, there are indications for its meaning in European secondary law. In recital 64 of the EIR, reference is made to “swift” transmission. That expression is also used in the Consumer Rights Directive 2011/83/EU and is described therein in recital 52 as “as soon as possible”. “Immediately” therefore must mean that only those delays will be tolerated that also arise in proper and speedy proceedings. Where a creditor only becomes known in the course of proceedings and where a (potentially subsequent – see for example § 177 German Insolvency Act – InsO) registration of claim is still possible, the notice must be provided immediately.5

II. Content of the notice, paragraph 2 9

In paragraph 2, minimum requirements for the notice provided to creditors under paragraph 1 are set out: In accordance with sentence 1, the notice to be provided under 2 cf. Virgós/Garcimartín, European Insolvency Regulation, mn. 276; Lenzing, in Bork/van Zwieten, Commentary on EIR, Art. 54, mn. 54.06 with further references. 3 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 54, mn. 12 with further references; for further details in this regard, see Mankowski, NZI 2011, 887, 889. 4 cf. Brinkmann, in K. Schmidt, Insolvenzordnung, EGInsO, Vor Art. 102 §§ 1 ff., mn. 1. 5 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 54, mn. 14.

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paragraph 1 must be given by individually6 sending a notice. In particular, the provision sets out which limitation periods must be complied with, what the consequences for failing to comply with these are, which parties are responsible for receiving notices, and what further measures are prescribed. In accordance with sentence 2, note must be made of whether creditors with preferential claims (see Dahl/Kortleben below Art. 55 mn. 13) or creditors with in rem security interests are required to register their claims under the lex fori concursus. In accordance with sentence 3, a copy of the standard form pursuant to Article 55 EIR must be either included or a specific note must be provided stating where this form can be obtained.

III. Form of notice, paragraphs 3 to 4 The addressees of the norm have the duty to inform foreign creditors in the form 10 provided for in paragraphs 3 to 4. In accordance with paragraph 3 sentence 1, the use of a standard form is generally prescribed.7 This form is made available by the Commission at the European justice portal pursuant to sentence 2 in connection with Article 88 sentence 1 EIR. It contains a multilingual title header in which the claim registration title is set out in all of the official languages of the institutions of the European Union, for further details see Dahl/Kortleben below Art. 55 mn. 20. In accordance with paragraph 3 sentence 3, the notice takes place in one of the official languages of the State opening proceedings or, in reference to Article 55(5) EIR, another language that is permitted there (see Dahl/ Kortleben below Art. 55 mn. 20), where this language, in the eyes of the obligor, appears to be more comprehensible for the foreign creditor. Paragraph 4 contains a special rule for consumer insolvency proceedings. In 11 consumer insolvency proceedings, the use of the standard form can be waived if the lodging of a claim is not required in order for that claim to be taken account of under the lex fori concursus. This applies, for example, to insolvency proceedings in Spain.8 E contrario, paragraph 4 does not apply where the lodging of a claim is also required in consumer proceedings; this is for instance the case in Germany (§ 87 and § 174 et seq. German Insolvency Statute – InsO) as well as in England, where the registration of claims is always required irrespective of whether the debtor is a consumer.9

E. Legal consequences In the absence of a specific provision on the legal consequences of a breach of duty, 12 the consequences of such a breach are governed by the lex fori concursus; Article 7(1) EIR. For this reason, damages may be granted.10 The legal consequence of a general, 6 BFH, Beschl. v. 27.01.2016 – VII B 119/15, NZI 2016, 929 et seq., mn. 33 (DEU) (a press release does not comply with the provisions described in Article 54); an example of a correct information letter in English language is given by Elliot/Lorenz, InsBüro 2018, 215, 216 et seq. 7 For more details in this regard see Elliot/Lorenz, InsBüro 2018, 215 et seq. 8 Josko de Marx, in Braun, Insolvenzordnung, EuInsVO 2017, Art. 54, mn. 11–13. 9 cf. for the English law Moss/Smith, in Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.735. 10 cf. CJEU 17 March 2005 Case C 294/02 Commission of the European Communities v AMI Semiconductor Belgium BVBA et al. ECLI:EU:C:2005:172, mn. 71; Cass.com., 15 December 2009 – n °. 08-14.949 = IILR 2012, 71 case note by Mankowski; Mäsch, in Rauscher, Europäisches Zivilprozessund Kollisionsrecht (EuZPR/EuIPR), Art. 40 EG-InsVO 2000, mn. 13; Riedemann, in Pannen, Europäische Insolvenzverordnung, Art. 40 EIR 2000, mn. 17 et seq.; Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 40 EIR 2000, mn. 4, Art. 31 EIR 2000, mn. 25 et seq.; Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 40 EIR 2000, mn. 2.

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virtually “endless” limitation period for registration would conflict with the system of the EIR, since the enforcement of the duty to notify is not a goal in and of itself. To that extent the efforts for the effet utile11 to ensure the effective enforcement of the notice duty miss the mark. The community of insolvency creditors that is affected by the registration of an additional claim should not be liable for the violation of a duty that exists only between the party with the obligation to serve notice and a creditor.12 The interests of the affected creditor may be accounted for in the context of the general (civil law) laws.13 Depending on the national arrangement which party owes that duty, the general rules relating to state liability or practitioner liability for a breach of duty apply.14 11 In this sense arguably Vrchní soud, 11 August 2017, KSUL 44 INS 234/2010, 2 VSPH 701/2010-P9313 = IILR 2012, 74 case note by Sedláček; distinguishing Mankowski, IILR 2012, 72 et seq.; Mankowski, NZI 2011, 887, 889 et seq. 12 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 40 EIR 2000, mn. 2. 13 For more details in this regard cf. BGH, Beschl. V. 6 Novemeber 2008 – IX ZB 34/08, NZI 2009, 66; Ahrens, NZI 2013, 721, 725 et seq. 14 Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 40 EIR 2000, mn. 2; Riedemann, in Pannen, Europäische Insolvenzverordnung, Art. 40 EIR 2000, mn. 18.

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Article 55 Procedure for lodging claims 1. Any foreign creditor may lodge its claim using the standard claims form to be established in accordance with Article 88. The form shall bear the heading “Lodgement of claims” in all the official languages of the institutions of the Union. 2. The standard claims form referred to in paragraph 1 shall include the following information: (a) the name, postal address, e-mail address, if any, personal identification number, if any, and bank details of the foreign creditor referred to in paragraph 1; (b) the amount of the claim, specifying the principal and, where applicable, interest and the date on which it arose and the date on which it became due, if different; (c) if interest is claimed, the interest rate, whether the interest is of a legal or contractual nature, the period of time for which the interest is claimed and the capitalised amount of interest; (d) if costs incurred in asserting the claim prior to the opening of proceedings are claimed, the amount and the details of those costs; (e) the nature of the claim; (f) whether any preferential creditor status is claimed and the basis of such a claim; (g) whether security in rem or a reservation of title is alleged in respect of the claim and if so, what assets are covered by the security interest being invoked, the date on which the security was granted and, where the security has been registered, the registration number; and (h) whether any set-off is claimed and, if so, the amounts of the mutual claims existing on the date when insolvency proceedings were opened, the date on which they arose and the amount net of set-off claimed. The standard claims form shall be accompanied by copies of any supporting documents. 3. The standard claims form shall indicate that the provision of information concerning the bank details and the personal identification number of the creditor referred to in point (a) of paragraph 2 is not compulsory. 4. When a creditor lodges its claim by means other than the standard form referred to in paragraph 1, the claim shall contain the information referred to in paragraph 2. 5. Claims may be lodged in any official language of the institutions of the Union. The court, the insolvency practitioner or the debtor in possession may require the creditor to provide a translation in the official language of the State of the opening of proceedings or, if there are several official languages in that Member State, in the official language or one of the official languages of the place where insolvency proceedings have been opened, or in another language which that Member State has indicated it can accept. Each Member State shall indicate whether it accepts any official language of the institutions of the Union other than its own for the purpose of the lodging of claims. 6. Claims shall be lodged within the period stipulated by the law of the State of the opening of proceedings. In the case of a foreign creditor, that period shall not be less than 30 days following the publication of the opening of insolvency proceedings in the insolvency register of the State of the opening of proceedings. Where a Member

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State relies on Article 24(4), that period shall not be less than 30 days following a creditor having been informed pursuant to Article 54. 7. Where the court, the insolvency practitioner or the debtor in possession has doubts in relation to a claim lodged in accordance with this Article, it shall give the creditor the opportunity to provide additional evidence on the existence and the amount of the claim. Recital: 64. Specific bibliography: Elliot/Lorenz, Forderungsanmeldung nach der neuen EuInsVO, InsBüro 2018, 215. Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Scope ................................................................................................................................... D. Representation in lodging a claim................................................................................ E. Interpretation .................................................................................................................... I. Optional use of the standard form, paragraph 1............................................. II. Title of the standard form, paragraph 1............................................................ III. Content of the claim registration, paragraph 2................................................ IV. Privileged information, paragraph 3................................................................... V. Registration in another form, paragraph 4 ....................................................... VI. Language of the registration document, paragraph 5..................................... VII. Registration period, paragraph 6......................................................................... VIII. Legal hearing: Opportunity to submit additional evidence, paragraph 7 ..

1 2 3 4 5 5 6 7 17 18 20 21 22

A. Purpose 1

Paragraphs 1 to 3 seek to ensure a simplified procedural process by standardising the registration form,1 whereby it is intended that for small and medium-sized businesses in particular the process should be facilitated. By making template forms available in all the official languages of the institutions of the European Union, the transaction costs for the involvement of translators should be reduced for creditors using various languages.2 To this extent, this provision supplements Article 53(sentence 2) EIR. The comprehensive information required by paragraph 2 should make the identification of foreign claims possible and should rationalise their inclusion.3 The use of the standardised form system is generally optional. If not statet otherwise - cf. paragraph 3 - providing the listed information is considered mandatory.4 Paragraph 4 permits deviations from this system and therefore serves the interests of practical flexibility. However, in this case the catalogue in paragraph 2 might be considered entirely mandatory – contrary to the case where the standard form is used, cf. paragraph 3 – because there is no explicit reference to any exception of the duty to submit the information referred to in paragraph 3. This prevents the dilution of the standardised registration process. The provision prescribes the maximum of information that Member States may insist upon from foreign creditors.5 In 1

cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 273. cf. Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, COM (2012) 744 final, mn. 3.1.4. 3 cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 273. 4 Opinion of Advocate General Bot, 4 April 2019, Case C-47/18, Skarb Panstwa Rzeczypospolitej Polskiej v Riel, ECLI:EU:C:2019:292, mn. 70. 5 Reinhart, in Münchener Kommentar zur InsO, VO (EG) 2015/848, Art. 55, mn. 1; cf. Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 273. 2

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accordance with the purpose of the norm, Member States are therefore free to impose lesser requirements.6 Paragraph 5 intendeds to secure equality of opportunity and should lower translation costs for creditors.7 Paragraph 6 takes account of the delayed flow of information to foreign creditors by setting a minimum time period with an adjusted expiry date. Paragraph 7 ensures the registration of claims by establishing a process to eliminate lack of proof that can easily be remedied. The additional grant of a legal hearing also serves to prevent legal actions.8

B. Historic development The scope of Article 55 EIR 2015 matches that of Article 41 EIR 2000. The new 2 version expands the (in part rudimentary) predecessor provision. The core is the introduction of the new standard form proceeding in paragraphs 1 to 3. These provisions contain detailed rules on the necessary content of the standardised claim registration. Paragraph 4, however, permits deviations from this within narrow boundaries. In paragraph 5, the language provision of Article 42(2) EIR 2000 is included and is ultimately opened up further. In paragraphs 6 to 7, certain provisions on a procedural process (to date unregulated) were included as an Annex.

C. Scope With respect to the scope of application, see Dahl/Kortleben above Art. 53 mn. 4.

3

D. Representation in lodging a claim With respect to the treatment of the representation of debtors, a distinction must be 4 drawn among the types of representation: The permissibility of representation by way of legally-issued powers of attorney (special power of attorney, signing authority etc.) is governed by the lex fori concursus due to Article 7(2)(sentence 2)(h) EIR. The admissibility of the procedural power of attorney is determined by the lex fori processus. The evaluation of corporate body representation of corporations is governed by the special corporate statute as a preliminary question of insolvency law.9 The purpose of Articles 53 and 55 EIR in particular supports its application, which generally supports the recognition of foreign corporations.10

6 Reinhart, in Münchener Kommentar zur InsO, VO (EG) 2015/848, Art. 55, mn. 1; cf. Opinion of Advocate General Bot, 4 April 2019, Case C-47/18, Skarb Panstwa Rzeczypospolitej Polskiej v Riel, ECLI: EU:C:2019:292, mn. 47, 66, 72; Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 273; in this sense probably also Paulus, EuInsVO, Art. 53, mn. 1. 7 Heidelberg-Luxembourg-Vienna Report, mn. 8.2. 8 cf. Reinhart, in Münchener Kommentar zur InsO, VO (EG) 2015/848, Art. 55, mn. 12. 9 Mankowski, NZI 2011, 887; in this sense also Mäsch, in Rauscher, Europäisches Zivilprozess- und Kollisionsrecht (EuZPR/EuIPR), Art. 4 EG-InsVO 2000, mn. 10. 10 cf. Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, COM (2012) 744 final, mn. 3.1.4.

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E. Interpretation I. Optional use of the standard form, paragraph 1 5

In accordance with paragraph 1, foreign creditors are entitled to lodge claims by way of a standard form. This is made available by the Commission under Article 88 (sentence 1) EIR and Article 55(1) EIR. The wording a creditor “may” means that participation in the standard form proceeding is generally optional. This basic position, however, is limited significantly by paragraph 4.

II. Title of the standard form, paragraph 1 6

Due to the requirements for the claim registration set out in paragraph 5, the courts and practitioners must be informed of the matter by way of a multilingual title header on the standard form which includes the title “lodgement of claim” in all of the official languages of the institutions of the European Union, see below mn. 20. This procedure serves simplification and comprehension purposes.11

III. Content of the claim registration, paragraph 2 7

8

9

10

11

12

The standard information for the registration of the claim is contained in paragraph 2. For creditors that do not participate in the standard form procedure, this information must be provided (argumentum e contrario from paragraphs 3 and 4, see below mn. 17 and 18). The list is exhaustive, for further details, see above mn. 1. (a): The information is understandable by itself. The “personal identification number” covers all identification numbers that a citizen receives from his State of origin, such as identity numbers, social insurance numbers, tax identification numbers, provided that the law of the State of origin issues these numbers. (b): The amount claimed must be set out in a manner that distinguishes between the amount of the principal claim and the ancillary claims, in particular interest. For the examination of the interest claim and for the review of whether the claim is an insolvency claim at all, the date on which the claim arose and potentially any differing date of maturity must be provided. (c): Where interest is claimed, the interest rate, the calculation period and the sum of capitalised interest must be provided. It must also be stated whether the interest rate is statutory or agreed upon by contract. (d): Where costs from the period prior to the opening of proceedings are asserted, the total sum must be “broken down”. This means that it must be specifically stated how the partial sums arose. (e): The information on the “nature” of the claim means that its specific legal ground must be stated. The treatment of the claim in the insolvency proceedings may be influenced by its nature. Accordingly, the legal ground for the claim is whether the 11

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cf. recital 64 EIR.

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claim is contractual or based on special corporate law, tort or public law, for example where it relates to a tax claim. (f): It must be stated whether “preferential creditor status” is asserted and on which basis this is claimed. “Preferential creditor status” under this norm means all claims that grant a creditor satisfaction prior to or separately from ordinary insolvency creditors. Due to the following special provision in point (g), this is to be distinguished from creditors with in rem rights or reservation of title.12 The question whether such preferential creditor status exists is governed, as a preliminary question, by the lex fori concursus. Such a status is often based on social considerations, such as the protection of employees or maintenance creditors. In Germany, for example, such privileges are abolished (§ 38 German Insolvency Act – InsO), whereas in Belgium there is a complex system of preferential rights. (g): In the event that an in rem security interest or a reservation of title is asserted, this must be stated subject to the specification of the assets that secure the claim. In doing so, it must be stated when the security interest was provided and – to the extent it is registered in a register – its registration number. The “grant” of a security interest means the in rem creation of the security interest. The question whether an in rem security interest exists is governed by international secured transactions law of the State opening proceedings. (h): In light of Article 9 EIR, it must be stated whether a set-off is sought. When this is the case, further information must be provided, namely: the sums of the principal claim and the counterclaim, the date on which these arose and became due and the balance of the set-off.13 Sentence 2 The standard claims form shall be accompanied by copies of any supporting documents. The submission of originals cannot be required.14 The wording “of any” (in German “etwaige” and in French “le cas échéant”) means that this evidence must only be provided to the extent that the creditor actually is in possession of its. The legal consequences of a claim registration that is not sufficiently evidenced are governed by paragraph 7, according to which creditors must be provided with the opportunity to submit necessary proof at a later stage.

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14

15

16

IV. Privileged information, paragraph 3 In the event the registration takes place using the standard form pursuant to 17 paragraph 1, paragraph 3 sets out that providing the information on the personal identification number referenced in paragraph 2(a) and the bank account information of the creditor is optional and that express reference to this must be made on the form sheet pursuant to paragraph 1.

V. Registration in another form, paragraph 4 Paragraph 4 is connected systemically to the use of the standard form which is only 18 optional in accordance with paragraph 1. If foreign creditors elect not to use this, the 12

Paulus, EuInsVO, Art. 55, mn. 8. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 55, mn. 25. 14 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 55, mn. 26 with further references. 13

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information set out in paragraph 2 must be provided in full. No reference to paragraph 3 is made, and its wording does not permit its application here. This means that both the bank account information of the creditor and its personal identification number must generally be provided. 19 A strict distinction must be drawn with respect to the legal consequence of a claim registration which does not meet the requirements contained in paragraph 2. Where the registration does not fully meet the requirements set out in paragraph 2, the lex fori concursus applies.15 This is because Article 55 only sets out a special legal consequence for the duty to provide evidence according to paragraph 2 sentence 2 by the provision made in paragraph 7, see mn. 22. In order to avoid the preclusion under the lex fori concursus, where a freehand registration is undertaken, compliance with the requirements set out in paragraph 2 should be carefully reviewed. When in doubt, the standard form should be used.

VI. Language of the registration document, paragraph 5 20

In accordance with paragraph 5 sentence 1, foreign creditors may register their claims in any desired official language of the institutions of the European Union.16 However, this freedom has as a consequence, under sentence 2 that the court, practitioner or debtor in self-administration may demand a translation into an official language or an otherwise permitted language of the State opening proceedings.17 The foreign-language registration is sufficient to comply with limitation periods.18 In accordance with sentence 3, the Member States are free to permit other official languages of the institutions of the European Union to be used for the claim registration.19

VII. Registration period, paragraph 6 21

With respect to the deadline for the registration of claims, paragraph 6 sentence 1 repeats the reference to Article 7(2)(sentence 2)(h) EIR to the lex fori concursus in a declaratory fashion. Sentence 2 supersedes the lex fori concursus to the extent that the deadline for foreign creditors is increased to at least 30 days starting from the notice of the opening of proceedings in the insolvency register of the State opening proceedings (Article 24 EIR). If the exemption provision relating to consumer insolvencies contained in Article 24(4) EIR applies, the limitation period commences only where individual notice is given to the respective creditor (see also Article 54 EIR).

VIII. Legal hearing: Opportunity to submit additional evidence, paragraph 7 22

Where the authorities with competence under the lex fori concursus to review the claim in registration proceedings (court, insolvency practitioner, debtor in self-administration) have doubts regarding the claim registered, they are obliged by Article 55(7) 15

Recital 64 EIR. cf. amended Regulation No 1 determining the languages to be used by the European Economic Community, (OJ 17, 6.10.1958, p. 385). 17 An example of a letter of request in English language is given by Elliot/Lorenz, InsBüro 2018, 215, 218. 18 Duursma, in Duursma-Kepplinger/Duursma/Chalupsky, Europäische Insolvenzverordnung, Art. 42 EIR 2000, mn. 7. 19 In a more demanding manner before recast Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, COM (2012) 744 final, Art. 41 (3)(sentence 3): “at least one official language of the Union other than its own”. 16

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EIR to provide the creditor with the opportunity to provide additional evidence on the existence and the amount of the claim. From this, the duty follows to also accept and base a conclusive decision on any additional evidence that was furnished. However, in accordance with the wording of the provision, this applies only for claim registrations that satisfy the other requirements set out in paragraphs 1 to 6. The lex fori concursus applies to improperly-registered claims.20 See Dahl/Kortleben above Art. 54 mn. 12 on the potential legal consequences of a breach of this duty. Paragraph 7 does not set out a specific period in which such additional evidence 23 must be provided. In accordance with the intent and purpose of the provision, a reasonable period must be assumed that permits a conscientious and reasonable debtor to obtain and provide evidence. The legal consequences of a claim that is insufficiently substantiated after the expiry of this period are governed by the lex fori concursus.21 20 cf. recital 64 Cl. 4 EIR; see J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 55, mn. 30 et seq., 43. 21 cf. Brinkmann, in K. Schmidt, Insolvenzordnung, Art. 41 EIR 2000, mn. 2.

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CHAPTER V INSOLVENCY PROCEEDINGS OF MEMBERS OF A GROUP OF COMPANIES Section 1 Cooperation and communication Article 56 Cooperation and communication between insolvency practitioners 1. Where insolvency proceedings relate to two or more members of a group of companies, an insolvency practitioner appointed in proceedings concerning a member of the group shall cooperate with any insolvency practitioner appointed in proceedings concerning another member of the same group to the extent that such cooperation is appropriate to facilitate the effective administration of those proceedings, is not incompatible with the rules applicable to such proceedings and does not entail any conflict of interest. That cooperation may take any form, including the conclusion of agreements or protocols. 2. In implementing the cooperation set out in paragraph 1, insolvency practitioners shall: (a) as soon as possible communicate to each other any information which may be relevant to the other proceedings, provided appropriate arrangements are made to protect confidential information; (b) consider whether possibilities exist for coordinating the administration and supervision of the affairs of the group members which are subject to insolvency proceedings, and if so, coordinate such administration and supervision; (c) consider whether possibilities exist for restructuring group members which are subject to insolvency proceedings and, if so, coordinate with regard to the proposal and negotiation of a coordinated restructuring plan. For the purposes of points (b) and (c), all or some of the insolvency practitioners referred to in paragraph 1 may agree to grant additional powers to an insolvency practitioner appointed in one of the proceedings where such an agreement is permitted by the rules applicable to each of the proceedings. They may also agree on the allocation of certain tasks amongst them, where such allocation of tasks is permitted by the rules applicable to each of the proceedings. Recitals: 49–54, 61. Specific bibliography: Braun/Tashiro, Cross-Border Protocol Agreements in Civil Law Jurisdictions – A German Perspective, Norton Annual Review of International Insolvency 2010 Edition, 330; Busch/ Remmert/Rüntz/Vallender, Kommunikation zwischen Gerichten in grenzüberschreitenden Insolvenzen – Was geht und was nicht geht, NZI 2010, 417; Ehricke, Zur Kooperation von Insolvenzgerichten bei grenzüberschreitenden Insolvenzverfahren im Anwendungsbereich der EuInsVO, ZIP 2007, 2395; Ehricke, The Role of Courts in Cross-border Insolvency Cases, INSOL Europe Technical Series No 13 2009, 83; Esser, Reform of the EU Regulation – New Framework for Insolvent Company Groups, American Bankruptcy Institute Journal March 2015, 38; Farley/Leonard/Birch, Cooperation and Communication in Cross-Border Insolvency Cases, International Insolvency Institute, 2006; Madaus, Insolvency proceedings for corporate groups under the new Insolvency Regulation, Int. Insol. Rev. 2015, 235; Mangano, From “Prisoner’s

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Dilemma” to Reluctance to Use Judicial Discretion: The Enemies of Cooperation in European Cross-Border Cases, Int. Insolv. Rev. 2017, 314; Pluta, Insolvenzverwalter einer Unternehmensgruppe kooperiert! – Pflicht der lnsolvenzverwalter zur Zusammenarbeit gem. § 269 a InsO, NZI Beilage 1/2018, 18; Schmidt, Die Konzerninsolvenz im Rahmen der EuInsVO 2015, KTS 2018, 1; Wessels, Cooperation and sharing of information between courts and insolvency practitioners in cross-border insolvency cases, in Festschrift für Vallender (2015), 776; Wessels/Markell/Kilborn, International Cooperation In Bankruptcy and Insolvency Matters: A Joint Research Project of American College of Bankruptcy and International Insolvency Institute, 2009; Wilhelm, Konzerninsolvenzrecht, 2018. Outline A. Introduction to Articles 56 to 60 EIR ......................................................................... B. Scope of application of Articles 56 to 60 EIR............................................................ C. Terminology ...................................................................................................................... D. Right and obligation to cooperate and communicate based on Article 56 EIR I. Content of the obligation and liability............................................................... II. Limits to cooperation ............................................................................................. 1. Appropriateness of cooperation and communication ............................... 2. Incompatibility with the rules applicable to the proceedings .................. 3. No conflict of interest ....................................................................................... III. Language ................................................................................................................... E. Implementation of cooperation (Article 56(2) EIR) ................................................ I. Communication of information (Article 56(2)(a) EIR) ................................. II. Coordination of administration and supervision (Article 56(2)(b) EIR)... III. Restructuring (Article 56(2)(c) EIR)................................................................... IV. Grant of additional powers and allocation of tasks ........................................ F. Debtor in possession ....................................................................................................... G. Costs....................................................................................................................................

1 6 9 10 11 13 14 15 18 19 20 21 26 27 28 33 34

A. Introduction to Articles 56 to 60 EIR 1

In corporate insolvency practice, many debtors are members of a group of companies.1 It is in the nature of a group of companies that the members communicate and cooperate with each other. This flow can be quickly interrupted in the event of several insolvency proceedings over the assets of the group members.2 Articles 56 to 60 EIR 2015 are intended to help restore the flow of information. The EIR 2000 however deliberately did not contain specific provisions regarding a group of companies.3 In some cases, this lacuna led to conflicts between courts and insolvency practitioners.4 Mainly, there were attempts to concentrate proceedings within a single jurisdiction by interpreting Article 3 EIR and the COMI requirement broadly.5 Many scholars and practitioners considered the lack of provisions for group insolvencies an impediment to an effective administration in the respective cases.6 The EIR 2015 now contains specific provisions on insolvency proceedings of members of a group of companies in Chapter V (Articles 56 to 77 EIR). This new chapter is one of the major amendments to the EIR.7 It establishes a cooperation-friendly attitude on the level of the insolvency practitioners and judges 1

cf. Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.746. Similar Madaus, Int. Insol. Rev. 2015, 235, 237. 3 Wessels, European Insolvency Law, mn. 10926; J. Schmidt, KTS 2018, 1. 4 cf. J. Schmidt, KTS 2018, 1, 2 with reference to the “ISA Daisytek”-saga. 5 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art 56, mn. 56.02 and Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.747 with reference to the cases Collins & Aikman and Nortel. 6 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.02; cf. Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.746. 7 cf. Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.746. 2

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involved.8 Articles 56 to 60 EIR form the first Section of Chapter 5 (Cooperation and Communication), whereas Articles 61 to 77 EIR form the second Section (Coordination). The latter establishes the new coordination procedure. It needs to be stressed that the EIR 2015 does not contain any provisions that establish a substantive consolidation of the insolvency estates of members of a group of companies.9 The EIR respects each group member’s separate legal personality (cf. recital 54(sentence 2) EIR).10 The EIR also does not establish a procedural consolidation, i. e. there is neither a single proceeding for multiple members of the group11, nor is there a provision that concentrates the jurisdiction for several proceedings within a single jurisdiction.12 Recital 53(sentence 1) EIR, however, states that “the introduction of rules on the insolvency proceedings of groups of companies should not limit the possibility for a court to open insolvency proceedings for several companies belonging to the same group in a single jurisdiction if the court finds that the centre of main interests of those companies is located in a single Member State”. The concept of “one person – one estate – one proceeding” remains applicable.13 Articles 56 to 58 EIR govern the cooperation and communication between insolvency 2 practitioners, between courts and, finally, between insolvency practitioners and courts in cases where insolvency proceedings relate to two or more members of a group of companies. Article 60 EIR establishes certain powers of the insolvency practitioner in proceedings concerning a member of a group of companies with regard to proceedings concerning another member of the same group. Article 59 EIR deals with the costs of the cooperation and communication provided for in Articles 56, 57, 58 and 60 EIR. Articles 56 to 60 EIR are supposed to ensure the efficient administration of 3 insolvency proceedings relating to different companies forming part of a group of companies.14 The emphasis is and remains on creditors’ interests. Recital 52(sentence 3) EIR therefore explains that “cooperation between the insolvency practitioners should not run counter to the interests of the creditors in each of the proceedings, and such cooperation should be aimed at finding a solution that would leverage synergies across the group”. This guideline also applies when courts cooperate. According to recital 52(sentence 1) EIR, where insolvency proceedings have been 4 opened for several companies of the same group, there should be proper cooperation between the actors involved in those proceedings. Recital 52(sentence 2) EIR states that the various insolvency practitioners and the courts involved should be under a similar obligation to cooperate and communicate with each other as those involved in main and secondary insolvency proceedings relating to the same debtor. Against this background, it is not surprising that the wordings of Articles 56 to 59 EIR and those of Articles 41 to 44 EIR resemble each other.15 Furthermore, the European legislator acts on the assumption that insolvency practitioners and courts are prepared, educated and willing to cooperate with their colleagues.16 However, the European legislator cannot simply refer to the Articles 41 to 44 EIR because there is a decisive difference between scenarios in which 8

Madaus, Int. Insol. Rev. 2015, 235, 246. Madaus, Int. Insol. Rev. 2015, 235, 236; Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.03; J. Schmidt, KTS 2018, 1, 6; Cf. Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.749. 10 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.01; Wessels, European Insolvency Law, mn. 10926 a. 11 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.04. 12 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.02. 13 Wessels, European Insolvency Law, mn. 10926 b. 14 cf. recital 51 and recital 52 (sentence 1) EIR. 15 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.09. 16 Similar Madaus, Int. Insol. Rev. 2015, 235, 238; see Skauradszun/Spahlinger above Article 42 mn. 2. This willingness is to be assessed by the courts, Esser, American Bankruptcy Institute Journal March 2015, 38, 39. 9

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there is only one debtor and scenarios in which there are various debtors (see Skauradszun/Spahlinger above Art. 41 mn. 1). Unlike in the scenarios governed by Articles 41 to 44, there is no hierarchy between the proceedings relating to different members of a group of companies (see also Skauradszun/Spahlinger above Art. 41, mn. 1). 5 Recital 48 EIR, which highlights the importance of best practices for cooperation in cross-border insolvency cases, only pertains to multiple proceedings relating to the same debtor.17 Nevertheless, it seems appropriate to also consider “best practices” when structuring cooperation and communication in group insolvencies. For examples of “best practices”, see Skauradszun/Spahlinger above Art. 41 mn. 2.

B. Scope of application of Articles 56 to 60 EIR Articles 56 to 60 EIR only apply where insolvency proceedings relate to two or more members of a group of companies. The term “group of companies” is defined by Article 2 no. 13 EIR read in conjunction with Article 2 no. 14 EIR.18 Recital 62 EIR explicitly states that “the rules on cooperation, communication and coordination in the framework of the insolvency of members of a group of companies (…) should only apply to the extent that proceedings relating to different members of the same group of companies have been opened in more than one Member State.” This means that Articles 56 to 60 EIR do not apply if proceedings relating to two or more members of a group of companies have only been opened in one Member State.19 In such cases, national rules on cooperation, communication and cooperation may apply (cf. recital 61 EIR).20 However, if there are proceedings relating to members of the same group in different Member States, Articles 56 to 60 EIR also apply to the cooperation and communication between the actors in different proceedings in the same Member State.21 In such cases, Articles 56 to 60 EIR supersede corresponding national provisions (primacy of application).22 For Germany, Article 102c § 22(1) EGInsO contains declaratory statements about the relationship between German and European provisions on cooperation and communication in group insolvencies. 7 If proceedings relating to different members of the same group of companies have been opened in more than one Member State and in third states, the question arises as to whether Articles 56 to 58 authorise and oblige the respective actors to cooperate and communicate with each other. It basically goes without saying that the actors in different Member States have to cooperate with each other in such a case. The European legislator, however, cannot impose duties on insolvency practitioners and courts in third states.23 The opposing opinion is not justifiable.24 Nevertheless, there could at least be an obligation and the right for the Member States’ courts and insolvency practitioners to endeavour to 6

17

cf. Wessels, in Bork/van Zwieten, Commentary on EIR, Art. 41, mn. 41.03. See Skauradszun/Spahlinger above Art. 2 mn. 51 for the dispute whether companies being on the same level (horizontally coordinated group) are covered by the EIR. 19 cf. Thole, in Kübler/Prütting/Bork, Insolvenzordnung, § 269 a InsO, mn. 7; Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.752; J. Schmidt, KTS 2018, 1, 16; Pluta, NZI Beilage 1/ 2018, 18; Vallender, in Wilhelm, part 2, A mn. 46. 20 cf. Thole, in Kübler/Prütting/Bork, Insolvenzordnung, § 269 a InsO, mn. 6 et seq. 21 cf. Thole, in Kübler/Prütting/Bork, Insolvenzordnung, § 269 a InsO, mn. 9; Pluta, NZI Beilage 1/2018, 19. 22 cf. Thole, in Kübler/Prütting/Bork, Insolvenzordnung, § 269 a InsO, mn. 10; Pluta, NZI Beilage 1/2018, 19. 23 Vallender, in Wilhelm, part 2, A mn. 45. Thus, Article 60 EIR does not grant any power vis-à-vis proceedings in third states. 24 However, J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.10 with reference to CJEU Case C-328/12 Schmid v Hertel ECLI:EU:C:2014:6 and CJEU Case C-295/13 H. v H. K. ECLI:EU: 18

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cooperate and communicate with actors from third states. However, it is questionable to what extent and under which circumstances non-mutual duties to cooperate are reasonable.25 In our view, European actors can only scrutinise on a case-by-case basis whether they will offer and agree to cooperate with actors from a third state on a voluntary basis. Generally, the Member State’s courts and insolvency practitioners are authorised to offer and agree on such a cooperation in accordance with the principles set forth in Articles 56 to 59 EIR. Articles 56 to 60 EIR do not pertain to solvent members of a group of companies.26 8 Nevertheless, solvent and insolvent group members may cooperate and communicate on a voluntary basis insofar as the applicable law does not interdict such cooperation.27 Such cooperation makes sense because the group members are, from an economic point of view, one enterprise.28 The question of whether pending proceedings are sufficient for the application of the Articles 56 et seq. EIR will be assessed in the context of the respective provision.

C. Terminology Our remarks on the terms “cooperation”, “communication”, “insolvency practitioner” 9 and “agreements or protocols” in the context of Article 41 EIR apply mutatis mutandis, therefore see Skauradszun/Spahlinger above Art. 41 mn. 4 et seq. The term “group of companies” is defined by Article 2 no. 13 EIR read in conjunction with Article 2 no. 14 EIR.

D. Right and obligation to cooperate and communicate based on Article 56 EIR Article 56 EIR applies even if the judgment opening insolvency proceedings within 10 the meaning of Article 2 no. 7 EIR is interim and not final and binding. The arguments raised in the context of Article 41 EIR apply mutatis mutandis, see Skauradszun/ Spahlinger above Art. 41 mn. 7.

I. Content of the obligation and liability Article 56 EIR regulates the cooperation and communication between insolvency 11 practitioners appointed in proceedings concerning different members of the same group of companies. The provision contains a legal obligation and not just a recommendation (see Skauradszun/Spahlinger above Art. 41 mn. 8).29 It constitutes a mutual duty for the insolvency practitioners appointed in proceedings concerning different members of the same group of companies. This duty not only arises when an insolvency practitioner is asked by another practitioner to cooperate, it also obliges the C:2014:241 and also in KTS 2018, 1, 4 is of the opinion that the duties established by Article 56–60 also apply to third states. Explicitly against this opinion Vallender, in Wilhelm, part 2, A mn. 45. 25 cf. Thole, in Kübler/Prütting/Bork, Insolvenzordnung, § 269 a InsO, mn. 8. 26 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.07. 27 cf. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 56 mn. 10. 28 “one organism” Madaus, Int. Insol. Rev. 2015, 235. 29 Madaus, Int. Insol. Rev. 2015, 235, 238; cf. Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.754: “It is important to note that the obligation to cooperate is mandatory (“shall”)”.

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practitioners to be proactive.30 The insolvency practitioners’ mutual duty is further set out in Article 56(2) EIR. According to recital 52(sentence 2) EIR, all insolvency practitioners involved should be under a similar obligation to cooperate and communicate with each other as those involved in main and secondary insolvency proceedings relating to the same debtor. Thus, they should also cooperate “closely” (cf. recital 48(sentence 2) EIR). This implies that in case of doubt about the proper scope of their duties arising from Article 56 EIR, the insolvency practitioners should opt for a more intense cooperation (see Skauradszun/Spahlinger above Art. 41 mn. 8). With respect to the duty to cooperate and communicate, it does not make a difference whether the proceedings in question are aimed at restructuring or at liquidation (see Skauradszun/Spahlinger above Art. 41 mn. 8). 12 Our comments on the potential liability of an insolvency practitioner or a debtor in possession resulting from a breach of the obligation established by Article 41 EIR apply mutatis mutandis (see Skauradszun/Spahlinger above Art. 41 mn. 9).

II. Limits to cooperation 13

Article 56(1) EIR establishes three limits to cooperation and communication:31 First, the insolvency practitioners shall only cooperate to the extent that such cooperation is appropriate to facilitate the effective administration of the proceedings. Second, the cooperation must not be incompatible with the rules applicable to the proceedings. Third, the cooperation must not entail any conflict of interest.

1. Appropriateness of cooperation and communication 14

The insolvency practitioners have to cooperate and communicate insofar as this is appropriate, but not further. To what extent cooperation and communication between insolvency practitioners are appropriate to facilitate the effective administration of those proceedings depends on the circumstances of the individual case.32

2. Incompatibility with the rules applicable to the proceedings 15

Cooperation and communication under Article 56 EIR must not be incompatible with the rules applicable to the proceedings. The purpose of this limitation of cooperation duties is to shield the insolvency practitioners from a conflict of their duties (see Skauradszun/Spahlinger above Art. 41 mn. 15). At first, each insolvency practitioner must comply with the pertinent lex fori concursus in his proceeding.33 As mentioned in Skauradszun/Spahlinger above Art. 41 mn. 11, relevant rules comprise, inter alia, data protection legislation, rules on professional secrecy, and rules on company secrets.34 Unlike in scenarios governed by Article 41 EIR (see Skauradszun/ Spahlinger above Art. 41 mn. 11), in cases governed by Article 56 EIR, an exchange of data takes place between two separate legal entities. Relevant rules also comprise 30

cf. Wessels, European Insolvency Law, mn. 10926 d. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art 56, mn. 56.18. 32 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.19; Wessels, European Insolvency Law, mn. 10926 f. 33 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.20 with the accurate suggestion that the lex fori concursus comprises any relevant case law. 34 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.21; Vallender, in Wilhelm, part 2, A mn. 47. 31

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requirements of prior approval, e. g. by courts, public authorities or special bodies such as creditors’ meetings.35 Regarding the interaction between the EIR’s rules on cooperation and communica- 16 tion and the General Data Protection Regulation (EU) 2016/679, see our remarks on Article 41 EIR (Skauradszun/Spahlinger above Art. 41 mn. 12 et seq.). In general, the term “rules applicable to such proceedings” should be construed 17 narrowly (see Skauradszun/Spahlinger above Art. 41 mn. 15). An extensive interpretation would run contrary to the European legislator’s concept of fostering cooperation and communication, and clash with the concept of effet utile (cf. recital 61 EIR).36 Thus, the view that the term “rules” also refers to “any rules or guidelines set by professional organisations to which the insolvency practitioners are subject”37 is questionable. It seems acceptable with respect to general standards regarding insolvency practitioners’ professional conduct but it would hardly be compatible with the effet utile if national professional organisations could create rules defining the permissible scope of cooperation under Article 56 EIR. In view of recital 61 EIR, concerns also arise with respect to national provisions that create special information obligations and requirements of prior approval specifically for the communication under Articles 41 and 56 EIR.38 Wherever a national provision leaves room for an interpretation that impedes cooperation as well as for an interpretation that allows the insolvency practitioners to cooperate, the latter interpretation should be chosen.

3. No conflict of interest The cooperation must not entail any conflict of interest (see first Spahlinger above 18 Art. 43 mn. 12). Recital 52 sentence 3 EIR states that “cooperation between the insolvency practitioners should not run counter to the interests of the creditors in each of the proceedings”. This generally means that an insolvency practitioner may not impair the insolvency estate of his proceedings in favour of another group member’s insolvency estate.39 A conflict of interests would, for example, arise if the insolvency practitioner divested or transferred assets to another group member below market value without compensation.40 Another example might be that two group members have claims against each other41 and the exchange of information would decrease the likelihood that one or both practitioners can successfully pursue the claims. A temporary impairment of the insolvency estate could be justified if a coordinated restructuring plan according to Article 56(2)(c) EIR compensated in such a manner that the affected creditors would not be treated worse. See also above mn. 17 regarding a fair-shareapproach.

III. Language Article 56 EIR does not state in which language the insolvency practitioners should 19 communicate. Article 73 EIR does not apply, since this provision only pertains to the 35

J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.21. Similar Schmidt, KTS 2018, 1, 5. 37 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.20; Wessels, European Insolvency Law, mn. 10926 f. 38 For an example of such legislation, see Article L. 695-2 Code de commerce. 39 cf. Hermann, in Vallender, EuInsVO, Article 56 mn. 31. Also similar Vallender, in Wilhelm, part 2, A mn. 47. 40 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.22. 41 Esser, American Bankruptcy Institute Journal March 2015, 38, 39 uses this example as well but links it to the appropriateness of cooperation and communication. 36

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communication with the coordinator. Hence, one of the first steps to be taken by insolvency practitioners who are obliged to cooperate is to determine the language they intend to use in future communication.42 In most cases, this will be English. If the insolvency practitioners cannot reach an agreement regarding the language they intend to use, each practitioner is compliant with his cooperation duty if he communicates in the official language of his proceedings. This often means that the other insolvency practitioner will have to pay for the translation; otherwise, he will not understand the content. Pursuant to Article 59 EIR, each practitioner has to bear his own costs for translations. For a more detailed discussion about the language of communication, see Skauradszun/Spahlinger above Art. 41 mn. 16)

E. Implementation of cooperation (Article 56(2) EIR) 20

Article 56(2) EIR specifies the obligation to cooperate and communicate, and lists forms in which cooperation shall be implemented. The forms of cooperation mentioned in Article 56(2) EIR are not to be understood as alternatives, but as complements to each other. Moreover, Article 56(2) EIR does not form an exhaustive list43 because Article 56(1)(sentence 2) EIR states that “cooperation may take any form”. The circumstances in the individual case determine what forms of cooperation and communication are necessary to facilitate the effective administration of the proceedings and leverage synergies across the group. Article 56(1)(sentence 2) EIR highlights “the conclusion of agreements or protocols” as forms of cooperation.44 Our remarks on these forms of cooperation in the context of Article 41 EIR apply mutatis mutandis, see Skauradszun/Spahlinger above Art. 41 mn. 6.45 All forms of cooperation and communication are subject to the limits established by Article 56(1) EIR.46

I. Communication of information (Article 56(2)(a) EIR) 21

Article 56(2)(a) EIR authorises and obliges the insolvency practitioners to communicate with each other as soon as possible regarding any information that may be relevant to the other proceedings. The wording of Article 56(2)(a) EIR corresponds with the wording of Article 41(2)(a) EIR, except that Article 56(2)(a) EIR does not list examples of information that has to be shared.47 However, the examples given in Article 41(2)(a) EIR apply mutatis mutandis.48 In general, insolvency practitioners have to provide all information to the other insolvency practitioners that the latter need in order to exercise their duties and rights deriving from, inter alia, Articles 23(1), 56(2)(b), 56(2)(c) and 60 EIR.49 This may also include information about the insolvency law system in the other states. However, this does not mean that one insolvency practitioner is a legal advisor to the other. We already stressed this point, see 42

cf. Vallender, in Wilhelm, part 2, A mn. 47. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.23. 44 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.16. 45 cf. Vallender, in Wilhelm, part 2, A mn. 47. 46 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.23. 47 Wessels, European Insolvency Law, mn. 10926 h. 48 Wessels, European Insolvency Law, mn. 10926 h. 49 For an extensive interpretation see Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.755: “The intention appears to be that, in practice, there should be a free flow of information between the different insolvency proceedings”. 43

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Skauradszun/Spahlinger above Art. 41 mn. 18. Some guidance regarding the topics on which information should be shared is provided by no. 230 of the Virgós-Schmidt Report.50 Regarding the meaning of the term “as soon as possible”, see Skauradszun/Spahlinger above Art. 41 mn. 19. Article 56(2)(a) EIR explicitly states that information may only be communicated if appropriate arrangements are made to protect confidential information. Against this background, it is advisable or may even be required that the insolvency practitioners conclude confidentiality agreements before they exchange (potentially) confidential information.51 These agreements may also include clauses on dispute resolution and enforcement52, contractual penalties, choice-of-law clauses and prorogation of jurisdiction. Provided that the insolvency practitioners respect the general limits of cooperation and communication (see above mn. 13 to 18) and make appropriate arrangements to protect confidential information (see above mn. 23), they may choose any means of communication which they consider appropriate.53 Such means of communication may be, for example, meetings, letters, faxes, telephone calls, e-mails, chat rooms54 or video conferences (see Skauradszun/Spahlinger above Art. 42 mn. 27).55 Article 56(2)(a) EIR provides the requesting insolvency practitioner with an enforceable claim. For details see Skauradszun/Spahlinger above Art. 41 mn. 20, that pertain mutatis mutandis.56

22 23

24

25

II. Coordination of administration and supervision (Article 56(2)(b) EIR) Article 56(2)(b) EIR obliges the insolvency practitioners to consider whether possibi- 26 lities for coordinating the administration and supervision of the affairs of the group members which are subject to insolvency proceedings exist and, if so, coordinate such administration and supervision. Against this background, the insolvency practitioners should consider the implementation of group coordination proceedings (Articles 61 EIR et seq.).57 They should also consider other forms of coordination, for example the conclusion of agreements and protocols (Article 56(1)(sentence 2) EIR). Regarding agreements and protocols, see Skauradszun/Spahlinger above Art. 41 mn. 6.58 Article 56 (2)(b) EIR applies in cases where the group continues to trade as well as in cases where the group is being wound down.59

III. Restructuring (Article 56(2)(c) EIR) Article 56(2)(c) EIR obliges the insolvency practitioners to consider whether possi- 27 bilities for restructuring group members which are subject to insolvency proceedings exist and, if so, coordinate with regard to the proposal and negotiation of a 50

J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.24. cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.26 with reference to UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation, III, mn. 178–181. 52 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.26 with reference to UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation, III, mn. 178–181. 53 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.25. 54 cf. Ehricke, INSOL Europe Technical Series No 13. 55 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.25. 56 Different opinion Madaus, Int. Insol. Rev. 2015, 235, 240. 57 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.27. 58 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.27. 59 cf. Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.756. 51

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coordinated restructuring plan. The provision is complemented by Article 60(1)(b) EIR.60 The restructuring plan according to Article 56(2)(c) EIR is not to be confused with the group coordination plan pursuant to Article 72(1)(b) EIR. The latter will be proposed by the coordinator according to Article 71 EIR.

IV. Grant of additional powers and allocation of tasks 28

29

30

31

32

According to Article 56(2.2)(sentence 1) EIR, the insolvency practitioners may agree to grant additional powers to an insolvency practitioner appointed in one of the proceedings for the purposes of Articles 56(2)(b) and 56(2)(c) EIR. Article 56(2.2) (sentence 2) EIR states that the insolvency practitioners may also agree on the allocation of certain tasks amongst them for the same purposes.61 Agreements on the grant of additional powers and the allocation of tasks must be permitted by the rules applicable to each of the proceedings. The insolvency practitioners may, for example, endow one of them with the power to negotiate with certain stakeholders,62 to draft a restructuring plan or to organise the coordination. According to its wording, Article 56(2.2) EIR does not constitute a duty for the insolvency practitioners. Assuming that only some of the insolvency practitioners agree to grant one of them additional powers, the remaining insolvency practitioners are not bound by it. Article 56(2.2) (sentence 1) EIR permits an “agreement” rather than a “majority resolution” as the relevant legal method. Therefore, it is not possible to outvote the non-participating administrators or the disapproving administrators. In cases where national law neither explicitly permits nor prohibits the granting of additional powers, it is questionable whether an agreement under Article 56(2.2)EIR is possible. Article 56(2.2) EIR is not to be understood to mean that agreements are only possible if they are expressly permitted by national law. Most likely, some of the Member States do not (or at least not yet) provide explicit provisions for these kinds of agreements with insolvency practitioners from other Member States. For Article 56 (2.2) EIR, it is sufficient that national law either explicitly or implicitly allows such agreements. Article 56(2.2) EIR does not state the options that an empowered insolvency practitioner has to furnish proof of the additional powers. Article 22 EIR, which concerns the proof of the insolvency practitioner’s appointment, does not cover the additional powers according to Article 56(2.2) EIR.63 Since Article 56 EIR is to be interpreted broadly, the other insolvency practitioners granting the additional powers are obliged to confirm the powers. Usually, this would be a written or even a certified power of attorney. In some cases, however, courts or authorities could demand an official certification – either due to national law or simply to remove doubts. The EIR does not cover this practical issue. On the one hand, the demanding courts are obliged to communicate actively with the insolvency practitioners involved and scrutinise the additional powers asserted. This belongs to the cross-over cooperation and communication obligation according to Article 58 EIR. On the other hand, a court must cooperate wherever it may facilitate the acceptance of the additional powers granted. 60 cf. Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.757; J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.28. 61 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.29. 62 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.28 with further examples. 63 See for the similar problem in Article 22 EIR Skauradszun, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 22 EIR 2015, mn. 13.

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This may include a court’s confirmation of the granted powers if such confirmation is possible under the applicable national law.

F. Debtor in possession Pursuant to Article 76 EIR, Article 56 EIR also applies mutatis mutandis to any 33 debtor in possession64 and therefore any representative of the debtor in charge of the insolvency proceeding in accordance with the applicable national law. Furthermore, as a result of the definition of “insolvency practitioner” in Article 2 no. 5 (v) EIR, any appointed supervisor – if applicable – would also be authorised and obliged to cooperate pursuant to Article 56 EIR.

G. Costs The allocation of the costs of the cooperation and communication provided for in 34 Article 56 EIR is regulated in Article 59 EIR. The greater the importance of a group member is, the more information will be requested by other group members and their insolvency practitioners. Most likely, the insolvency estates of the important group members have to bear more costs than the estate of the less important group members. To exaggerate the point, the key members of the group might be overloaded and overwhelmed with requests from other group members (or courts) to provide information. The wording of Article 59 EIR nevertheless does not leave room for interpretation: in the case described, the insolvency practitioner is not entitled to demand a reimbursement of the cost.65 However, the agreement on a fair and appropriate distribution of the costs among the group members by using a protocol is not prohibited by Article 59 EIR.66 Finally, see also Skauradszun/Spahlinger above Art. 41 mn. 15. 64

J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 56, mn. 56.13 and Art. 76 mn. 76.06. Similar Madaus, Int. Insol. Rev. 2015, 235, 240. 66 Madaus, Int. Insol. Rev. 2015, 235, 240. 65

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Article 57 Cooperation and communication between courts 1. Where insolvency proceedings relate to two or more members of a group of companies, a court which has opened such proceedings shall cooperate with any other court before which a request to open proceedings concerning another member of the same group is pending or which has opened such proceedings to the extent that such cooperation is appropriate to facilitate the effective administration of the proceedings, is not incompatible with the rules applicable to them and does not entail any conflict of interest. For that purpose, the courts may, where appropriate, appoint an independent person or body to act on its instructions, provided that this is not incompatible with the rules applicable to them. 2. In implementing the cooperation set out in paragraph 1, courts, or any appointed person or body acting on their behalf, as referred to in paragraph 1, may communicate directly with each other, or request information or assistance directly from each other, provided that such communication respects the procedural rights of the parties to the proceedings and the confidentiality of information. 3. The cooperation referred to in paragraph 1 may be implemented by any means that the court considers appropriate. It may, in particular, concern: (a) coordination in the appointment of insolvency practitioners; (b) communication of information by any means considered appropriate by the court; (c) coordination of the administration and supervision of the assets and affairs of the members of the group; (d) coordination of the conduct of hearings; (e) coordination in the approval of protocols where necessary. Recitals: 49–54, 61. Specific bibliography: see Article 56 and Article 42; additionally Blankenburg, Leitfaden für die Insolvenzgerichte durch das Konzerninsolvenzrecht, ZInsO 2018, 897; Wessels, A Glimpse into the Future: Cross-border Judicial Cooperation in Insolvency Cases in the European Union, Int. Insolv. Rev. 2015, Vol. 24, 96; Esser, Reform of the European Regulation: New Framework for Insolvent Company Groups: Part 1, American Bankruptcy Institute Journal 2015, 38; Wessels/Markell/Kilborn, International Cooperation In Bankruptcy and Insolvency Matters: A Joint Research Project of American College of Bankruptcy and International Insolvency Institute, 2009. Outline A. Background and purpose of cooperation and communication between courts B. Right and obligation to cooperate and communicate ............................................. I. Cooperation and communication ....................................................................... II. The authorised and obliged “courts”.................................................................. III. Legal obligation and consequences of non-compliance................................. IV. Limits to cooperation and communication ...................................................... 1. Appropriateness of cooperation and communication ............................... 2. Incompatibility with the rules applicable to the proceedings .................. 3. No conflict of interest ....................................................................................... C. Appointment of an independent person or body..................................................... D. Language of communication ......................................................................................... E. Implementation of the cooperation and communication....................................... I. Direct communication and request of information or assistance (Article 57(2) EIR) .................................................................................................. II. Enumeration in Article 57(3) EIR.......................................................................

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A. Background and purpose of cooperation and communication between courts Article 57 EIR explicitly obliges the courts to cooperate and communicate in cases 1 where insolvency proceedings relate to two or more members of a group of companies. For the scope of application of Articles 56 to 60 EIR, see Skauradszun/Spahlinger above Art. 56 mn. 6–8. In particular, at least two Member States have to be involved in the opening of insolvency proceedings with respect to two or more members of one group of companies.1 Regarding the provision’s rationale, Article 57 EIR explicitly mentions the facilitation of the effective administration of the proceedings. For further goals, see our remarks at Skauradszun/Spahlinger above Art. 56 mn. 3 – 4. The provision is in line with the fact that the EIR is primarily based on Article 81 TFEU regarding judicial cooperation in civil matters with cross-border implications (see Skauradszun/Spahlinger above Art. 42 mn. 1). Article 57 EIR also reflects the principle of sincere cooperation laid down in Article 4(3) TEU (see also Skauradszun/Spahlinger above Art. 42 mn. 1). Despite the conformity between the wording of Article 57 and Article 42 EIR, one should always bear in mind the decisive difference between scenarios with one debtor (then, Article 42 EIR applies) and scenarios with various debtors (then, Article 57 is relevant, see Skauradszun/Spahlinger above Art. 41 mn. 1). Nevertheless, Articles 41 EIR et seq. and Articles 56 EIR et seq. both aim at an efficient administration.2 Thus, the concepts of cooperation and communication should be interpreted in a consistent manner.3 Considering this, reference to our remarks on Article 42 EIR can be made at several points. Our remarks on cooperation as a new experience for many judges and on the 2 importance of best practices in the context of Article 42 EIR apply mutatis mutandis.4 Apart from this experience issue, it is uncertain how judges may deal with proceedings regarding a large group of companies. In most Member States, a single judge decides on insolvency matters on his own. In this case, a judge is neither permitted to call another judge for help nor is his colleague entitled to decide anything in the case at hand (however, see below mn. 13). This is especially true if the Member State’s constitution does not allow the removal of a party from the lawful judge’s jurisdiction.5 A judgment by another judge, therefore, automatically constitutes a breach of law. In addition, the fact that it takes a long time to increase the number of court staff due to the jurisdiction of the Ministries of Justice of many Member States over the filling of positions like court ushers, assistants, secretaries, and officers of justice worsens the situation in the face of a potential bottleneck. Against this background, if a judge has to manage dozens of requests for cooperation and communication, perhaps even dozens of requests daily in proceedings concerning a larger group of companies, even judges willing to cooperate as best as possible will be overwhelmed and overburdened. In the 1

Vallender, in Vallender, EuInsVO, Art. 57, mn. 3. Oberhammer/Koller/Auernig/Planitzer, in Hess/Oberhammer et al., The Implementation of the New Insolvency Regulation, p. 208 with reference to recitals 48, 51 and 52 (sentence 1) EIR. 3 Oberhammer/Koller/Auernig/Planitzer, in Hess/Oberhammer et al., The Implementation of the New Insolvency Regulation, p. 208. 4 See Skauradszun/Spahlinger above Art. 42 mn. 2 and Art. 56, mn. 5. Cf. Vallender, in Vallender, EuInsVO, Art. 57, mn. 10 and Blankenburg, ZInsO 2018, 897, 904: In some cases, the judges cannot even make an international call without applying for the access. Video calls via the internet, for instance, are in many cases no more than a theoretical scenario. 5 See for an example the German constitution in Article 101(1)(sentence 2) GG. 2

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latter case, even leading courts are pushed to their limits if insolvency proceedings of members of a group of companies are combined with secondary insolvency proceedings. The combination of Article 42 EIR and Article 57 EIR increases the complexity dramatically. This complexity occurs if one or more group members have establishments throughout Europe, and courts according to Article 3(2) EIR have opened secondary insolvency proceedings. As far as we can see, no in-depth examination has been published on whether there is a hierarchical relationship between the cooperation and communication duties pursuant to Article 42 EIR and Article 57 EIR. If the inclusion of further judges is not a legal option and the participation of further staff unlikely due to practical reasons, the only solution we see is to appoint a body that acts extensively on behalf of the competent judge (Article 57(1)(sentence 2) EIR). To put it plainly: in some cases, this is an unavoidable outsourcing of judicial tasks. In terms of potential bodies like international law firms6, see below mn. 13. Since the judiciary’s resources will be limited – at least in the bigger cases – and the courts need further assistance, provisions for the fees (hourly rates) of the appointed persons or bodies according to Article 57(1)(sentence 2) EIR should be interpreted broadly. Otherwise, the courts may not find suitable experts due to unreasonably low fees.7 Finally, potential breaches of duty by the appointed person or body are attributable to the appointing court. Direct claims against the appointed person or body should be restricted to extreme cases (tort law), since the appointed person or body “acts on its [the court’s] instruction” (Article 57(1) (sentence 2) EIR) and therefore on behalf and under the supervision of the court.

B. Right and obligation to cooperate and communicate I. Cooperation and communication 3

“Cooperation and communication” are not to be understood as two different concepts but rather as mutual complements. Cooperation without communication is inconceivable and does not make sense, see Skauradszun/Spahlinger above Art. 41 mn. 4.

II. The authorised and obliged “courts” The term “court” is defined by Article 2 no. 6 (ii) EIR. From a German perspective, this definition includes judges as well as officers of justice (“Rechtspfleger”, see Skauradszun/Spahlinger above Art. 42 mn. 4). Regarding the cooperation between lower and higher courts, see Skauradszun/Spahlinger above Art. 42 mn. 4. 5 Article 57 EIR does not establish an obligation for the courts of Member States to cooperate with courts of non-Member States and Danish courts, see Skauradszun/ Spahlinger above Art. 56 mn. 7 and Art. 42 mn. 5. The cooperation and communication with non-Member States and Danish courts is governed by the states’ national law (see Skauradszun/Spahlinger above Art. 42 mn. 5). Cooperation on a voluntary basis is possible if national law permits it, see Skauradszun/Spahlinger above Art. 56 mn. 7. 6 Article 57 EIR addresses courts which have already opened insolvency proceedings and obliges them to cooperate with courts before which a request to open such 4

6

Vallender, in Vallender, EuInsVO, Art. 57, mn. 30. Similar Vallender, in Vallender, EuInsVO, Art. 57, mn. 31 and with reference to § 13 Justizvergütungs- und -entschädigungsgesetz (JVEG) under German law. 7

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proceedings is pending or which have opened such proceedings. If one takes this provision literally (cf. the tense of “has opened”), there would be no right and duty to cooperate in scenarios where there are pending requests to open insolvency proceedings before more than one court but no court has opened proceedings yet.8 However, there is no reason why there should be no right and duty for the courts to cooperate in such scenarios.9 The judgment opening insolvency proceedings handed down by a court of a Member State is to be recognised (Article 19(1) EIR). This principle already applies to preliminary proceedings, since recital 15 EIR states that the EIR also covers proceedings on an interim and provisional basis.10 Hence, Article 1(1) EIR explicitly covers “interim proceedings”. In order to facilitate the courts’ judgments in interim and provisional proceedings, the cooperation and communication rights and duties already apply. Moreover, such rights and duties would help to avoid conflicts of jurisdictions11, and the coordination in the appointment of insolvency practitioners mentioned in Article 57(3)(a) EIR can be achieved most effectively before the proceedings have been opened.12 Thus, in our view, Article 57 EIR equally addresses courts before which a request to open insolvency proceedings is pending and courts which have already opened such proceedings.13 The major difficulty will be the identification of courts that have not opened proceedings yet (see Skauradszun/ Spahlinger above Art. 42 mn. 6). The establishment of insolvency registers according to Article 24 EIR will not solve the problem, since the review of a request to open insolvency proceedings is not mandatory information pursuant to Article 24(2) EIR. Apart from that, a court is entitled to communicate and cooperate even if the request ultimately turns out to be inadmissible (see Skauradszun/Spahlinger above Art. 42 mn. 6).

III. Legal obligation and consequences of non-compliance Article 57 EIR contains a legal obligation for the courts to cooperate and commu- 7 nicate.14 For details and the consequences of non-compliance with this duty (see Skauradszun/Spahlinger above Art. 42 mn. 7).15

IV. Limits to cooperation and communication Article 57(1) EIR establishes the same three limits to cooperation and communication 8 as Article 56(1) EIR:16 First, the courts shall only cooperate to the extent that such cooperation is appropriate to facilitate the effective administration of the proceedings. 8

Vallender, in Vallender, EuInsVO, Art. 57, mn. 6. Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 577. According to Vallender, in Vallender, EuInsVO, Art. 57, the courts are not obliged, but allowed to cooperate in such scenarios. 10 Skauradszun, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 19 EIR 2015, mn. 6. 11 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 577; Vallender, in Vallender, EuInsVO, Art. 57, mn. 6. 12 Vallender, in Vallender, EuInsVO, Art. 57 mn. 6. 13 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 577; Thole, in Kayser/Thole, Insolvenzordnung, Art. 57 EuInsVO, mn. 2. 14 Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.759; Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.01. 15 Regarding the German counterpart see Webel, NZI Sonderbeilage 1/2018, 24, 26 (no sanctions, no legal consequences – this is questionable, see Skauradszun/Spahlinger above Art. 42 mn. 7). 16 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.06. 9

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Second, the cooperation must not be incompatible with the rules applicable to the proceedings. Third, the cooperation must not entail any conflict of interest.

1. Appropriateness of cooperation and communication 9

The courts shall cooperate and communicate as far as this is appropriate. The extent to which cooperation and communication between courts are appropriate to facilitate the effective administration of the proceedings depends on the circumstances of the individual case.17

2. Incompatibility with the rules applicable to the proceedings Cooperation and communication under Article 57 EIR must not be incompatible with the rules applicable in the proceedings (lex fori concursus restriction, see Skauradszun/Spahlinger above Art. 42 mn. 8). A more precise description of this requirement can be found in Article 57(2) EIR, which states that the communication between courts or appointed persons or bodies must respect the procedural rights of the parties to the proceedings and the confidentiality of information. This requirement applies to any form of cooperation and communication, see Skauradszun/Spahlinger above Art. 42 mn. 8. Thus, the courts may be required to ensure that all parties involved have access to the same information.18 To ensure the confidentiality of information, courts may or may even be required to conclude confidentiality agreements.19 Where particularly sensitive information is at issue, they may be required to refrain from communication.20 11 Regarding the presence of the parties and the implications of a fair hearing and judicial independence, see Skauradszun/Spahlinger above Art. 42 mn. 9 to 11). In addition, see Skauradszun/Spahlinger above Art. 56 mn. 15 for the requirements of cooperation and communication between insolvency practitioners. In general, the “rules applicable to such proceedings” should be construed narrowly: Wherever a national provision leaves room for an interpretation impeding cooperation as well as for an interpretation allowing the courts to cooperate, the latter interpretation should be chosen.21 National law may prohibit cooperation and communication duties under the EIR only where cooperation and communication substantially violates main objectives of the national proceedings.22 10

3. No conflict of interest 12

The cooperation must not entail any conflict of interest. For details, see Skauradszun/ Spahlinger above Art. 56 mn. 18. 17

J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.06 and mn. 56.19. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.13. 19 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.14. 20 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.14. 21 See Skauradszun/Spahlinger above Art. 56 mn. 17. See also Hess/Koutsoukou, in Kronke/Melis/ Kuhn, Handbuch Internationales Wirtschaftsrecht, mn. 102 and Oberhammer/Koller/Auernig/Planitzer, in Hess/Oberhammer et al., The Implementation of the New Insolvency Regulation, p. 209: “These limits must be respected, but should in no way serve as an excuse for courts and insolvency practitioners which are reluctant to cooperate; therefore, these limits should be interpreted in a restrictive fashion. In particular, the requirement of compatibility with the applicable rules does not change the fact that, in principle, national insolvency law may not be construed as incompatible with the duties of cooperation and communication laid down in the EIR.”. 22 Oberhammer/Koller/Auernig/Planitzer, in Hess/Oberhammer et al., The Implementation of the New Insolvency Regulation, p. 212. 18

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C. Appointment of an independent person or body According to Article 57(1)(sentence 2) EIR, the courts may appoint an “independent 13 person or body” acting on its instructions. One may refer to this person or body as an “intermediary”.23 The appointment of an intermediary is only permitted where this is appropriate and not incompatible with the rules applicable to the respective courts. The purpose referred to in Article 57(1)(sentence 2) EIR is the facilitation of the effective administration of the insolvency proceedings relating to two or more members of a group of companies. The provision seems to have been inspired by Article 27(a) of the UNCITRAL Model Law on Cross-Border Insolvency and Principles 23.4, 23.5 of the ALI/III Global Principles for Cooperation in International Insolvency Cases.24 Regarding the possible functions of the “independent person or body”, some guidance may be found in Chapter II, paragraph 2 of the UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation:25 “The person may have a variety of possible functions, including acting as a go-between for the courts involved, especially where issues of language are present; developing an insolvency agreement; and promoting consensual resolution of issues between the parties.” Regarding the requirement of “independence”, Article 71(2) EIR may be applied mutatis mutandis.26 The provision at least helps to interpret the independence requirement. Hence, the intermediary shall not be one of the insolvency practitioners appointed to act in respect of any of the group members and shall have no conflict of interest in respect of the group members, their creditors and the insolvency practitioners appointed in respect of any of the group members. The intermediary could be, for example, a lawyer or a law firm, a professional organisation offering audit or advisory services or an insolvency practitioner who has not been appointed in the cases at hand.27 At first glance, the question seems strange but it is worth discussing whether another judge may also be an intermediary. Normally, a judge is not permitted to call another judge for help, nor is his fellow judge entitled to decide anything in the case at hand. However, if the competent judge appoints another judge as an intermediary based on Article 57(1)(sentence 2) EIR, this judge acts on behalf of the competent judge. The appointed judge would not decide as an independent judge but in his capacity as an intermediary. We see a couple of advantages to having a judge act as the intermediary. Firstly, the stakeholders may accept a judge more willingly than a private person since the office of a judge is highly regarded in all Member States. For instance, the appointed judge may sign as follows: “Judge A in his capacity as the intermediary of Judge B”. Such a declaration will clearly show that the intermediary is acting on the instructions of the competent judge. Secondly, the collaboration between one judge and another may be easier than the collaboration between a judge and a lawyer or an insolvency practitioner. Thirdly, the authorities responsible for the number of judges at a court may easily send an additional judge to the insolvency court, and the additional judge can easily be appointed as an intermediary since this appointment is completely different from the normal judicial tasks of the judges. Finally, judges from other courts who are familiar with European insolvency proceedings can help inexperienced collea23 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.07; Vallender, in Wilhelm, part 2, A, mn. 48. 24 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.07. 25 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.08. 26 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.09. 27 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.10; Thole, in Kayser/Thole, Insolvenzordnung, Art. 57 EuInsVO, mn. 4; Vallender, in Wilhelm, part 2, A, mn. 48.

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gues and improve the knowledge about European insolvency proceedings in the judiciary. For instance, judge A at court A has never dealt with cross-border insolvencies but knows judge B at court B who is experienced with a couple of cross-border insolvencies, fluent in English and familiar with the literature in European insolvency law. A appoints B to act on his instructions as an intermediary. In any event, the appointment of another judge would only be possible if allowed by the national law(s) of the respective court and judge to be appointed. 14 For further details on the appointment of an independent person or body, see Skauradszun/Spahlinger above Art. 42 mn. 13 to 18.

D. Language of communication 15

Concerning the language of communication, see Skauradszun/Spahlinger above Art. 42 mn. 19.

E. Implementation of the cooperation and communication Article 57(2) and (3) EIR specify the implementation of the cooperation. Article 42(3) (sentence 1) EIR states the principle: The cooperation may be implemented by any means that the court considers appropriate. The courts may, for example, make use of protocols. Ideally, the courts will come to an explicit agreement regarding the topics they intend to coordinate. In any case, the appropriate form of cooperation and communication depends on the circumstances of the individual case and the time available. For further remarks on the implementation of the cooperation and communication, see Skauradszun/Spahlinger above Art. 42 mn. 20. 17 For the requirements as to cooperation and communication, see Skauradszun/ Spahlinger above Art. 57 mn. 8 to 12. Appointed persons or bodies support the courts in the ways listed in Article 57(2) EIR. 16

I. Direct communication and request of information or assistance (Article 57(2) EIR) 18

According to Article 57(2) EIR, the courts or any appointed person or body acting on their behalf may communicate directly with each other or request information and/or assistance directly from each other. The permission to communicate “directly” obviates the use of formalistic procedures such as letters rogatory.28 Regarding the requirements set out in Article 57(2) EIR, see Skauradszun/Spahlinger above Art. 57, mn. 10 to 11.

II. Enumeration in Article 57(3) EIR 19

The enumeration contained in Article 57(3) EIR is not exhaustive (cf. the wording “in particular”).29 The EU JudgeCo Principles and the EU JudgeCo Guidelines provide some guidance on the forms of cooperation listed in Article 57(3) EIR, see Skauradszun/ Spahlinger above Art. 42 mn. 23. 28

J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.11. Vallender, in Vallender, EuInsVO, Art. 57, mn. 33; J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 57, mn. 57.05. 29

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Regarding Article 57(3)(sentence 2)(a), (b), (d) and (e) EIR, our remarks, see 20 Skauradszun/Spahlinger above Art. 42 mn. 24 to 30, apply mutatis mutandis. According to Article 57(3)(c) EIR, the cooperation may concern the coordination of 21 the administration and supervision of the assets and affairs of the members of the group. The difference between Article 57(3)(c) EIR and Article 42(3)(c) EIR, which refers to the debtor’s assets and affairs, is that the insolvency estates of the group members are to be clearly separated since each debtor has its own insolvency estate. Nevertheless, the courts may agree in both cases in particular on certain steps or actions (see Skauradszun/Spahlinger above Art. 42 mn. 28). For example, they may “allocate responsibility for supervising use and disposal of assets between the courts, whether to the court of the State in which the assets are located or which has jurisdiction over the assets; to the court of the State in which the debtor is located; or jointly to the courts competent for the different insolvency proceedings.”30 30

UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation, para. 122.

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Article 58 Cooperation and communication between insolvency practitioners and courts An insolvency practitioner appointed in insolvency proceedings concerning a member of a group of companies: (a) shall cooperate and communicate with any court before which a request for the opening of proceedings in respect of another member of the same group of companies is pending or which has opened such proceedings; and (b) may request information from that court concerning the proceedings regarding the other member of the group or request assistance concerning the proceedings in which he has been appointed; to the extent that such cooperation and communication are appropriate to facilitate the effective administration of the proceedings, do not entail any conflict of interest and are not incompatible with the rules applicable to them. Recitals: 49–54, 61. Specific bibliography: see Article 56. Outline A. Background and purpose of cooperation and communication between insolvency practitioners and courts ............................................................................. 1 B. Right and obligation to cooperate and communicate ............................................. 2 C. Obligation to cooperate and communicate (Article 58(a) EIR) ............................ 4 D. Right to request information and assistance (Article 58(b) EIR) ......................... 9 E. Limits on cooperation and communication .............................................................. 11 F. Costs.................................................................................................................................... 12

A. Background and purpose of cooperation and communication between insolvency practitioners and courts 1

As Article 56 EIR regulates the cooperation and communication between insolvency practitioners and Article 57 EIR regulates the cooperation and communication between courts, having a provision governing the cooperation and communication between insolvency practitioners and courts is a logical consequence. Article 58 EIR, in fact, contains such a provision. One can describe the cooperation between courts and insolvency practitioners as a “cross-over cooperation” or “diagonal cooperation” (see Skauradszun/Spahlinger above Art. 43 mn. 1). With Article 58 EIR, European law permits direct contact between courts and insolvency practitioners appointed in insolvency proceedings regarding different members of a group of companies (see Skauradszun/Spahlinger above Art. 43 mn. 1). Article 58 EIR aims at proper cooperation between insolvency practitioners and courts in order to ensure the efficient administration of insolvency proceedings relating to different companies forming part of a group of companies (see recitals 51 and 52(sentence 1) EIR). The fact that there are multiple debtors is the important difference between Article 58 EIR and Article 43 EIR (see Skauradszun/Spahlinger above Art. 43 mn. 1).

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B. Right and obligation to cooperate and communicate Article 58 EIR constitutes a right and a legally binding obligation to cooperate and 2 communicate among insolvency practitioners and courts.1 Article 58(a) EIR authorises and obliges the insolvency practitioners to cooperate and communicate with the courts and, conversely, Article 58(b) EIR grants the insolvency practitioners the right to request information and assistance from the courts. The provision also pertains to debtors in possession (Article 76 EIR).2 Regarding some practical aspects of the communication between insolvency practitioners and courts, see Skauradszun/Spahlinger above Art. 43 mn. 3. Best practices on cooperation and communication between insolvency practitioners 3 and courts can be found in Guideline 4 of the EU JudgeCo Guidelines and in Principle 9 of the ALI/III Global Principles for Cooperation in International Insolvency Cases (on the appropriateness of considering “best practices” when designing cooperation and communication in group insolvencies, see Skauradszun/Spahlinger above Art. 56 mn. 5).

C. Obligation to cooperate and communicate (Article 58(a) EIR) Article 58(a) EIR obliges the insolvency practitioner (as defined in Article 2 no. 5 4 EIR) appointed in insolvency proceedings concerning a member of a group of companies (as defined in Article 2 no. 13, 14 EIR) to cooperate and communicate with any court (as defined in Article 2 no. 6 (ii) EIR) (from a German perspective, this definition includes judges as well as officers of justice (“Rechtspfleger”), see Skauradszun/Spahlinger above Art. 42 mn. 4) before which a request for the opening of proceedings in respect of another member of the same group of companies is pending or which has opened such proceedings. As discussed above (see Skauradszun/Spahlinger above Art. 41 mn. 4), cooperation and communication cannot be regarded as two separate concepts but are two sides of the same coin. If the debtor remains in possession, the debtor and – if applicable – any appointed supervisor are authorised and obliged to cooperate and communicate (see Skauradszun/Spahlinger above Art. 43 mn. 5). The legal obligation of an insolvency practitioner to cooperate and communicate does 5 not commence only after a court has first requested information. Rather, there may be situations in which the insolvency practitioners have to communicate with the courts proactively (see Skauradszun/Spahlinger above Art. 43 mn. 4). The insolvency practitioners’ obligations to cooperate and communicate do not 6 mean that courts have a right to instruct insolvency practitioners appointed in other insolvency proceedings. Cooperation takes place on equal terms (cf. Skauradszun/ Spahlinger above Art. 43 mn. 4). For example, the insolvency practitioners’ obligations to cooperate and communicate do not include a shift from liquidation to reorganisation or vice versa even if the court is of the opinion that another approach would be better (see Skauradszun/Spahlinger above Art. 43, mn. 4). 1 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 58, mn. 1; Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.763. 2 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 58, mn. 3.

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Cooperation and communication in terms of Article 58(a) EIR may be particularly suitable with regard to the approval of protocols.3 Such protocols may vary in form and in scope and may be approved by the courts involved where the national law so requires (recital 49 EIR). The cooperation includes a review of these protocols by the courts and – if there are no objections – their approval. It may also be relevant in the context of applications under Article 60(1)(b) EIR4 regarding the request of a stay of any measure related to the realisation of the assets in the proceedings opened with respect to any other member of the same group. Therefore, cooperation should always be considered as a means to facilitate the administration of the assets and affairs of a debtor.5 8 Provided that the general limits of cooperation and communication (see below mn. 11) are respected, courts and insolvency practitioners may choose any means of communication which they consider appropriate.6 Such means of communication may be, for example, meetings, letters, faxes, telephone calls, e-mails, chat rooms7 or video conferences.8 7

D. Right to request information and assistance (Article 58(b) EIR) Pursuant to Article 58(b) EIR, an insolvency practitioner appointed in insolvency proceedings concerning a member of a group of companies may request information from a court within the meaning of Article 58(a) EIR9 that concerns the proceedings regarding the other member of the group. In addition, he may request assistance concerning the proceedings in which he has been appointed. Thus, an insolvency practitioner may address a foreign court directly. There is no duty to go via the court competent for the insolvency practitioner’s own proceedings or to ask for letters rogatory.10 Insolvency practitioners should request information and assistance and have direct access to the respective other courts whenever this is in the interest of the parties involved in their proceedings. 10 Corresponding to the insolvency practitioners’ rights set out in Article 58(b) EIR, the courts are obliged to provide information and assistance.11 They are not entitled to reject a request for assistance or refuse to respond to a request. 9

E. Limits on cooperation and communication 11

The limits on cooperation and communication set out in Article 58 EIR correspond with those in Article 56 and 57 EIR.12 Therefore, reference can be made to our 3 Vallender, in Vallender, EuInsVO, Art. 58, para. 5; Wessels, European Insolvency Law, mn. 10926 m; J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 58, mn. 5. 4 Vallender, in Vallender, EuInsVO, Art. 58, mn. 5. 5 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 58, mn. 5; Wessels, European Insolvency Law, mn. 10926 m. 6 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 58, mn. 5. 7 cf. Ehricke, INSOL Europe Technical Series No 13. 8 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 58, mn. 5. 9 “That court” refers to any court within the meaning of Article 58(a), see Wessels, European Insolvency Law, mn. 10926 m. 10 Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.764. 11 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 58, mn. 7; Thole, in Kayser/Thole, Insolvenzordnung, Art. 58 EuInsVO, mn. 2. 12 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 58, mn. 8.

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comments on these Articles, see Skauradszun/Spahlinger above Art. 56 mn. 13 et seq. and Skauradszun/Spahlinger above Art. 57 mn. 8 et seq. For conflicts of interests, see also Skauradszun/Spahlinger Art. 43 mn. 12.

F. Costs The allocation of the costs of the cooperation and communication pursuant to 12 Article 58 EIR is regulated in Article 59 EIR.

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Article 59 Costs of cooperation and communication in proceedings concerning members of a group of companies The costs of the cooperation and communication provided for in Articles 56 to 60 incurred by an insolvency practitioner or a court shall be regarded as costs and expenses incurred in the respective proceedings. Recitals: 49–54, 61. Specific bibliography: see Article 44 and Article 45. Outline A. Purpose and objective ..................................................................................................... B. Terminology ...................................................................................................................... C. Potential costs of cooperation and communication................................................. I. Insolvency practitioner .......................................................................................... II. Courts ........................................................................................................................

1 4 5 5 6

A. Purpose and objective 1

This article addresses the costs that may arise for insolvency practitioners and courts in insolvency proceedings concerning members of a group of companies (Articles 56 to 58 and 60 EIR). Speaking broadly, these costs of cooperation and communication may arise from, for example, travelling, fees for the use of distance communication, documentation, and translation.1 The provision aims to ensure a fair allocation of costs.2 Insolvency practitioners as well as courts have to bear the costs incurred in their respective proceeding.3 This means that they are not entitled to charge each other any costs for cooperation or communication,4 nor can they make the cost coverage or the granting of a security a condition of the cooperation5. This is obviously not only the regulator’s opinion stipulated in Article 44 EIR (“shall not […] charg[e] cost to each other”) but also holds true for Article 59 EIR.6 In this regard, Article 59 EIR supersedes conflicting national provisions. Cooperation and communication would be unimaginable if courts or insolvency practitioner feared that they would be charged for complying with the law (see Skauradszun/Spahlinger above Art. 44 mn. 1 et seq.). For a more detailed analysis of cost charging, see our comments, Skauradszun/Spahlinger above Art. 44 mn. 2, which apply mutatis mutandis. Also, to achieve the objective of an efficient administration (cf. recital 51 EIR), courts and insolvency practitioners are obliged to act in a cost-effective way (for courts, see Skauradszun/Spahlinger above Art 44 mn. 3). 1 cf. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 59, mn. 4 and Skauradszun/ Spahlinger above Art. 44 mn 1. 2 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 59, mn. 1; J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 59, mn. 59.02; Hermann, in Vallender, EuInsVO, Art. 59, mn. 1. 3 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 59, mn. 5. In case of an insolvency practitioner, see Skauradszun/Spahlinger above Art. 44 mn. 25 and Art. 56, mn. 19; in case of a court see Skauradszun/Spahlinger above Art. 44 mn. 1. 4 cf. Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 582; Thole, in Kayser/Thole, Insolvenzordnung, Art. 59 EuInsVO, mn. 2. 5 cf. Thole, in Kayser/Thole, Insolvenzordnung, Art. 59 EuInsVO, mn. 2. 6 Hermann, in Vallender, EuInsVO, Article 59, mn. 6.

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Although Articles 56 to 58 EIR are similar to their equivalents in Articles 41 to 43 2 EIR in Chapter 4 regarding secondary insolvency proceedings (see Skauradszun/Spahlinger above Art. 56 mn. 4), Article 59 EIR features a distinctive difference compared to Article 44 EIR. While Article 44 EIR only addresses the costs of courts in secondary insolvency proceedings without answering the legal question of how an insolvency practitioner may deal with costs caused by the cooperation and communication, Article 59 EIR, in the case of insolvency proceedings of members of a group of companies, takes both courts and insolvency practitioners into account. This legal loophole for secondary insolvency proceedings is to be criticised (see Skauradszun/ Spahlinger above Art. 41 mn. 25). Regarding cooperation and communication in proceedings concerning members of a group of companies, the broader scope in Article 59 EIR is better than the narrow scope in Article 44 EIR. Whether costs and expenses incurred in the respective proceedings are to be covered 3 in full by the insolvency estate (as expenses of the insolvency proceedings or debts incumbent on the estate, e. g. pursuant to § 53 InsO) is not resolved by Article 59 EIR and is a question of the substantive law. The answer depends on the lex fori concursus (Article 7(2)(i) EIR). Further, only the lex fori concursus stipulates the amount of the costs and expenses.7

B. Terminology Our remarks on the terms “costs”, “cooperation”, “communication” and “insolvency 4 practitioner” apply mutatis mutandis (see Skauradszun/Spahlinger above Art. 44 mn. 1 and 4). The term “court” is defined in Article 2 no. 6 (ii) EIR.

C. Potential costs of cooperation and communication I. Insolvency practitioner In the scenario of insolvency proceedings of several members of a group of 5 companies, there are various situations which may cause extensive costs. For insolvency practitioners, extensive costs may occur if they have been appointed for a more important member of a group of companies and are getting overwhelmed by the requests of other group members or courts (see Skauradszun/Spahlinger above Art. 56 mn. 32), if they have been granted additional powers (cf. Article 56(2)(sentence 2) EIR, see Skauradszun/Spahlinger above Art. 56 mn. 28), if they are using their powers as described in Article 60 EIR, and especially if they apply for the opening of the group coordination proceedings (cf. Article 60 (1)(c) EIR). As mentioned before, insolvency practitioners (and courts) are not entitled to demand reimbursement since the principle of causation does not apply.8 Keeping in mind the rationale of Article 59 EIR (“fair allocation”), only the use of a protocol, which may include an agreement on the fair distribution of the costs among group members or any other agreement, can provide for a fair and reasonable cost allocation.9 A fair and reasonable cost allocation can also be the subject of a restructuring plan.10 7

Hermann, in Vallender, EuInsVO, Art. 59, mn. 2. Hermann, in Vallender, EuInsVO, Art. 59, mn. 3. 9 See Skauradszun/Spahlinger above Art. 56 mn. 32; Hermann, in Vallender, EuInsVO, Art. 59, mn. 4. 10 Also Hermann, in Vallender, EuInsVO, Art. 59, mn. 3. 8

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II. Courts 6

For courts, special amounts of costs could arise in particular if they appoint a person or body to act on their behalf to implement the cooperation set out in Article 57(1) (sentence 2) EIR (see Skauradszun/Spahlinger above Art. 57 mn. 2), if they supervise a particular important member of the group, or if the insolvency practitioner of their insolvency proceeding applies for the opening of the group coordination proceeding. In the latter two cases, a respective additional amount of expenses caused by the insolvency practitioner also affects the court’s expenses. Therefore, when negotiating a protocol in which rules of allocation of costs are recorded, provisions regarding a court’s expenses need to be considered. A failure to take these costs into account can lead to an unfair allocation of costs.

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Article 60 Powers of the insolvency practitioner in proceedings concerning members of a group of companies 1. An insolvency practitioner appointed in insolvency proceedings opened in respect of a member of a group of companies may, to the extent appropriate to facilitate the effective administration of the proceedings: (a) be heard in any of the proceedings opened in respect of any other member of the same group; (b) request a stay of any measure related to the realisation of the assets in the proceedings opened with respect to any other member of the same group, provided that: (i) a restructuring plan for all or some members of the group for which insolvency proceedings have been opened has been proposed under point (c) of Article 56(2) and presents a reasonable chance of success; (ii) such a stay is necessary in order to ensure the proper implementation of the restructuring plan; (iii) the restructuring plan would be to the benefit of the creditors in the proceedings for which the stay is requested; and (iv) neither the insolvency proceedings in which the insolvency practitioner referred to in paragraph 1 of this Article has been appointed nor the proceedings in respect of which the stay is requested are subject to coordination under Section 2 of this Chapter; (c) apply for the opening of group coordination proceedings in accordance with Article 61. 2. The court having opened proceedings referred to in point (b) of paragraph 1 shall stay any measure related to the realisation of the assets in the proceedings in whole or in part if it is satisfied that the conditions referred to in point (b) of paragraph 1 are fulfilled. Before ordering the stay, the court shall hear the insolvency practitioner appointed in the proceedings for which the stay is requested. Such a stay may be ordered for any period, not exceeding 3 months, which the court considers appropriate and which is compatible with the rules applicable to the proceedings. The court ordering the stay may require the insolvency practitioner referred to in paragraph 1 to take any suitable measure available under national law to guarantee the interests of the creditors in the proceedings. The court may extend the duration of the stay by such further period or periods as it considers appropriate and which are compatible with the rules applicable to the proceedings, provided that the conditions referred to in points (b)(ii) to (iv) of paragraph 1 continue to be fulfilled and that the total duration of the stay (the initial period together with any such extensions) does not exceed 6 months. Recitals: 51–55, 60, 61,69. Specific bibliography: see Article 56. Outline A. Introduction ...................................................................................................................... B. Scope ................................................................................................................................... C. Interpretation ....................................................................................................................

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1. Powers of and applications by the insolvency practitioners according to Article 60(1) EIR ..................................................................................................... a) Right to be heard................................................................................................ b) Right to request a stay....................................................................................... aa) Restructuring plan with a reasonable chance of success ..................... bb) Necessity of stay............................................................................................ cc) Restructuring plan is beneficial for all creditors ................................... dd) Priority to group coordination proceedings........................................... c) Right to apply for the opening of group coordination proceedings....... 2. Stay of realisation measures: examination by the court according to Article 60(2) EIR ..................................................................................................... a) Examination of the fulfilment of the prerequisites .................................... aa) Restructuring plan with a reasonable chance of success ..................... bb) Necessity of stay............................................................................................ cc) Restructuring plan is beneficial for creditors ......................................... dd) Priority to group coordination proceedings........................................... b) Procedure and content of the stay order ...................................................... c) Period of the stay and extensions................................................................... d) Protective measures for creditors ...................................................................

6 7 8 12 13 14 15 16 17 17 18 21 22 23 24 28 30

A. Introduction Article 60 EIR is the final provision of Chapter V’s Section 1, which deals with the general communication and cooperation in insolvency proceedings of members of groups of companies and which is followed by Section 2 dealing with the new specific coordination by way of group coordination proceedings. It needs to be stressed that there is no hierarchy between insolvency proceedings opened in respect of members of a group of companies.1 Articles 56 to 58 EIR govern the communication and cooperation between insolvency practitioners, between courts, as well as between insolvency practitioners and courts, while Article 59 EIR sets forth the allocation of costs which may arise from the cooperation and communication mentioned in the preceding Articles. In addition to the rules of communication and cooperation, the regulator, through Article 60, added provisions on the powers of insolvency practitioners concerning other proceedings opened in respect of members of groups of companies. Article 60 EIR provides an alternative mechanism for achieving a coordinated restructuring of the group of companies which are not participating in group coordination proceedings (cf. recital 60(sentence 1) EIR). It also provides the insolvency practitioners with a tool to at least temporarily prevent the obstruction of potentially successful restructuring plans.2 The EIR contains comparable provisions in Article 46 EIR, Article 38(3) EIR and Article 72(2)(e) EIR. 2 On the one hand, Article 60(1) EIR grants the insolvency practitioners certain mutual rights3 of participation4 in the proceedings opened concerning members of a group of companies. Article 60 EIR, therefore, is a further provision aimed at ensuring an efficient administration of cross-border insolvency proceedings (cf. recital 51(sentence 1) EIR).5 1

1 Oberhammer/Koller/Auernig/Planitzer, in Hess/Oberhammer et al., The Implementation of the New Insolvency Regulation, p. 206. 2 Hermann, in Vallender, EuInsVO, Art. 60, mn. 1; Madaus, Int. Insol. Rev. 2015, 235, 243 et seq. 3 Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.01; Schmidt, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 60 mn. 1; Reinhart, in Münchener Kommentar zur InsO, Art. 60 EUInsVO 2015, mn. 1; Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 1; Nerlich/ Hübler, in Nerlich/Römermann, Insolvenzordnung, Art. 60 EuInsVO, mn. 1. 4 cf. Paulus, EuInsVO, Art. 60, mn. 1: “Beteiligungsrechte”. 5 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.01–60.02; Paulus, EuInsVO, Art. 60, mn. 1.

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These mutual rights of insolvency practitioners appointed in proceedings of members of a group of companies are: to be heard in the other proceedings (Article 60(1)(a) EIR), to request a stay of any measure related to the realisation of assets in the other proceedings opened if certain conditions are fulfilled (Article 60(1)(b) EIR), and to apply for the opening of a group coordination proceeding according to Articles 61 EIR et seq. (Article 60(1)(c) EIR).6 On the other hand, Article 60(2) EIR states that courts have to review whether the conditions arising from Article 60(1)(b)(i)-(iv) EIR are fulfilled and stay any realisation measures.7 Finally, Article 60 EIR supplements the right to propose and negotiate a coordinated restructuring plan set out in Article 56 (2)(c) EIR.8 Therefore, see our remarks on the restructuring plan, Skauradszun/ Spahlinger above Art. 56 mn. 27. The possibility to exercise these powers could be an incentive for the involved persons to cooperate voluntarily.9 Thus, one may refer to Article 60 EIR as a key provision for the coordination of insolvency proceedings relating to members of a group of companies.10 Article 60 EIR enhances the powers of the insolvency practitioner bestowed by the lex 3 fori concursus. Article 60 EIR, therefore, is linked with Article 7(1)(2)(b) EIR and Article 21 EIR. Having the Member States’ sovereignty in mind, a mere national provision could not permit the insolvency practitioners’ powers stated in Article 60 EIR. Since the powers of the insolvency practitioners bestowed by Article 60 EIR are embedded in a European Regulation, it is possible to grant the powers on the one hand and to oblige the other parties to observe these powers on the other hand.

B. Scope The provision applies to proceedings opened in respect of a member of a group of 4 companies. Hence, the rule is applicable to insolvency proceedings as defined in Article 2 no. 4 EIR and listed in Annex A EIR11. It is questionable whether interim insolvency proceedings of members of a group of a company are also covered by Article 60 EIR. In our view, Article 60 EIR applies even if the judgment opening insolvency proceedings within the meaning of Article 2 no. 7 EIR is interim or not yet final. The arguments raised in the context of Article 41 EIR apply mutatis mutandis, see Skauradszun/Spahlinger above Art. 41 mn. 7. According to Article 60 EIR, this means that an interim insolvency practitioner may be heard, may apply for group coordination proceedings, and may request a stay of any realisation measure in finally opened insolvency proceedings as well as in other interim insolvency proceedings.12 See below mn. 6 for the definition of the insolvency practitioner, especially for the opinion that an interim insolvency practitioner is also covered by Article 60 EIR. The wording of Article 60 EIR covers more powers of the insolvency practitioners 5 than the general Articles stipulate. For instance, pursuant to Article 8(1) EIR, the opening of insolvency proceedings shall not affect the rights in rem of creditors. Article 60(1)(b) EIR, however, covers a stay even if the realisation measure affects 6

J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.04–60.10 and 60.21. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.11–60.20. 8 Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.766. 9 Oberhammer/Koller/Auernig/Planitzer, in Hess/Oberhammer et al., The Implementation of the New Insolvency Regulation, p. 207. 10 cf. Oberhammer/Koller/Auernig/Planitzer, in Hess/Oberhammer et al., The Implementation of the New Insolvency Regulation, p. 210. 11 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.04. 12 Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 9. 7

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creditors’ rights in rem. It is clear from recital 69 EIR that the EIR 2015 permits “a court […] to order a stay of enforcement proceedings”; however, “any such stay should not affect the rights in rem of creditors or third parties” (recital 69(sentence 2) EIR). In order to balance the general provision of Article 8 EIR and the more specific provision of Article 60 EIR rightly, Article 60 EIR, as the more specific provision, prevails over the general provision (lex specialis derogate legi generali).13

C. Interpretation 1. Powers of and applications by the insolvency practitioners according to Article 60(1) EIR 6

Article 60 EIR establishes mutual rights14 of the insolvency practitioners to participate in the insolvency proceedings in respect of other members of the group, notwithstanding whether the respective proceedings are opened proceedings or interim proceedings (see above mn. 4 for our interpretation of “opened insolvency proceedings”). Therefore, the provision applies to insolvency practitioners as defined in Article 2 no. 5 EIR and listed in Annex B EIR15. Moreover, interim insolvency practitioners may also be heard, request a stay, and open the application for group coordination proceedings (see above mn. 4). According to Article 76 EIR, debtors in possession (acting in opened insolvency proceedings or in interim proceedings) are also included.16 The powers mentioned in Article 60 (1) EIR can be used “to the extent appropriate to facilitate the effective administration of the proceedings”. This prerequisite is specified in Article 60(1)(b) EIR regarding the request of a stay. In this case, the more specific requirements supersede the general prerequisite.17 In principle, the quoted text passage in Article 60(1) EIR is technically a prerequisite18 and therefore assessable by the competent court. Since the facilitation of an effective administration is sufficient, the prerequisite is not a significant obstacle and in terms of the right to be heard almost always easily fulfilled.19 In terms of the request of a stay, the prerequisite is superseded by the more specific requirements set forth in Article 60(1)(b) EIR20.

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a) Right to be heard. Article 60(1)(a) EIR provides that an insolvency practitioner generally has the right to be heard in any of the insolvency proceedings opened concerning another member of the group.21 Despite the misleading wording (“may be heard”), it is clear from the provision’s title (“powers”) and the rationale that Article 60 (1)(a) EIR grants a legal right. Some legal commentators are of the opinion that the right to be heard encompasses the right to participate.22 The regulator does not provide 13 Furthermore, Article 8(1) only prohibits that the “opening of insolvency proceedings” interferes the rights in rem. Secured creditors, however, are not protected against any affects caused by measures during the proceedings, Kindler, in Müchener Kommentar zum BGB, Art. 8 EuInsVO, mn. 24. 14 See fn. 3. 15 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.03. 16 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.03. 17 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 60 mn. 33. 18 Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 8. 19 Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 8. 20 Similar Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 8. 21 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.04; Wessels, European Insolvency Law, mn. 10926 q. 22 Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 11 (right to speak); Hermann, in Vallender, EuInsVO, Art. 57, mn. 7 also holds that Art. 60(a) does not grant voting rights and that the

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additional information, for example where and how many times the insolvency practitioner has to be heard. These questions and other procedural aspects must be addressed on a case-by-case basis since the questions are to be answered by both Article 60 EIR and the lex fori concursus (Article 7(1) EIR, recital 61 EIR).23 From a methodological point of view, the right to be heard according to Article 60(1)(a) EIR is to be interpreted autonomously. However, only the national law and therefore the lex fori concursus stipulates where and when a hearing is conducted.24 In principle, an insolvency practitioner has the right to be heard whenever the national law offers options for a hearing. At least in this scenario, the right to be heard encompasses the right to participate. The insolvency practitioner is permitted to be heard at least once per hearing. Under German law, the insolvency practitioner has the right to be heard in the creditors’ committee and the creditors’ assembly.25 Whether the right to be heard can be restricted if the insolvency practitioner uses his power extensively is not answered clearly by Article 60(1)(a) EIR. An extensive use may be inappropriate “to facilitate the effective administration of the proceedings” (Article 60(1) EIR). Going one step further, an abuse of power also violates the good faith principle. In this scenario, the court and the other parties involved may reject to the insolvency practitioner’s right to be heard, invoke the missing facilitation, and perhaps even invoke the good faith principle. b) Right to request a stay. Article 60(1)(b) EIR grants the insolvency practitioner the 8 right to request a stay of any measure related to the realisation of assets in proceedings concerning another member of the group.26 The right to request a stay is supposed to prevent a situation in which a restructuring plan fails because realisation measures created accomplished facts.27 It must be stressed that the insolvency practitioner requesting the stay does not have to be the same practitioner who proposed the restructuring plan.28 The insolvency practitioner requesting the stay has to specify the measures that should be stayed.29 The wording (“any measure related to the realisation”) covers both the realisation itself and measures related to the realisation. At the same time, Article 60(1)(b)(i)-(iv) EIR sets forth the prerequisites under which a stay must30 be granted. The court that has jurisdiction over the assets for which the stay is requested has to decide whether the prerequisites according to Article 60(1)(b)(i)-(iv) EIR are fulfilled.31 As every insolvency practitioner who was appointed in insolvency proceedings opened in respect of a member of a group may propose a restructuring

insolvency practitioner may not participate if confidential issues are discussed, e. g. clawback claims against the insolvency practitioner. 23 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.04; Wessels, European Insolvency Law, mn. 10926 q. 24 cf. Paulus, EuInsVO, Art. 60, mn. 8. 25 Wessels, European Insolvency Law, mn. 10926 q; Hermann, in Vallender, EuInsVO, Art. 57, mn. 7. For a deviating opinion regarding the right to participate in the creditors’ committee see Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 10. 26 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.05; Wessels, European Insolvency Law, mn. 10926 q; Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.767. 27 Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 1. Therefore, cf. Art. 6 of the Directive on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132. 28 Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 15. 29 Hermann, in Vallender, EuInsVO, Art. 57, mn. 29. 30 cf. Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.768: “However, where these conditions are satisfied, then the court is obliged to grant the stay that is it is not discretionary”. 31 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.11.

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plan, the court may find itself confronted with a multitude of requests for a stay.32 The court must give assurance that “it is satisfied that the conditions referred to in point (b) of paragraph 1 are fulfilled” (Article 60(2) EIR). 9 A stay is an external intervention and has significant consequences for the insolvency estate as well as for the creditors. Hence, the regulator’s demanding prerequisites are reasonable.33 However, a rigid interpretation of these requirements might render the provision practically inapplicable.34 The most important requirement for successfully requesting a stay is that the respective insolvency proceedings shall be implemented by way of a restructuring plan according to Article 56(2)(c) EIR.35 For a detailed specification of the prerequisites, see below mn. 12 et seq. Furthermore, for the analysis of the assessment of the prerequisites by the respective court, see below mn. 17 et seq. 10 The regulator does not specify the kind of assets that may be the subject of a stay of the realisation. An insolvency practitioner is able to request a stay for any kind of measure that is related to the realisation of assets.36 Therefore, the release of assets is also within the scope of a possible stay by the practitioner.37 This broad interpretation corresponds to the aim of the provision to ensure an efficient administration of the insolvency proceedings (recital 51 sentence1 EIR).38 11 Furthermore, it is questionable which court has jurisdiction to assess whether the prerequisites for a stay according to Article 60(1)(b)(i)-(iv) EIR are fulfilled. Article 60(2) EIR states that “the court having opened proceedings referred to in point (b) of paragraph 1” has jurisdiction. Hence, it seems that the insolvency court generally has jurisdiction to decide about the requested stay.39 However, the court that has opened the insolvency proceedings does not necessarily have jurisdiction for the realisation of the respective asset(s). This is often true for the realisation of immovable assets since the court mostly has exclusive competence in the jurisdiction where the object or property is situated. Alternatively, Article 60(2) EIR might be interpreted in such a way that the court that has jurisdiction over the assets’ realisation for which the stay is requested also has jurisdiction to decide whether the prerequisites of Article 60(1)(b)(i)-(iv) EIR are fulfilled and ultimately orders the stay.40 This is often the case for the court that has opened the insolvency proceedings; however, in the case of immovable assets (this can also be true for vessels, which are by definition immovable assets) the competent court is the court that has jurisdiction for the realisation. The second interpretation is especially in line with the internationally accepted principle that the localisation of immovable assets establishes the court’s jurisdiction. Furthermore, a court is normally not entitled to instruct another

32

Hermann, in Vallender, EuInsVO, Art. 57, mn. 11. Wessels, European Insolvency Law, mn. 10926 q; cf. Esser, American Bankruptcy Institute Journal 2015, 38, 77. 34 Oberhammer/Koller/Auernig/Planitzer, in Hess/Oberhammer et al., The Implementation of the New Insolvency Regulation, p. 210. 35 Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.767. 36 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.06. 37 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.06; Wessels, European Insolvency Law, mn. 10926 q. 38 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.02. 39 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 60 mn. 16; also probably Kindler, in Münchener Kommentar zum BGB, Art. 60 EuInsVO 2015 mn. 11 (“Insolvenzgericht”) and Reinhart, in Münchener Kommentar zur InsO, Art. 60 EuInsVO 2015 mn. 4 (“Insolvenzgericht”), both without a discussion of the legal question. 40 Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 14. 33

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court on the same level. Finally, some Member States like Germany also split the jurisdiction over the insolvency estate on the one hand and the jurisdiction over the realisation of immovable assets on the other hand (§ 15 ZVG (DEU)). In this scenario, only the latter court has jurisdiction to decide on the requested stay (§ 30 d ZVG (DEU)). The flip side of the coin is that in the scenario of multiple assets in realisation, multiple courts may have jurisdiction to decide on the stay requested. This is why we see slightly stronger arguments in favour of the first interpretation: The court that opened insolvency proceedings also has jurisdiction to decide about the requested stay. That may cause problems in national procedural law which would have to be solved by the national legislators. aa) Restructuring plan with a reasonable chance of success. First of all, in order to 12 successfully request a stay, a restructuring plan for all or some members of the group for which insolvency proceedings have been opened must be proposed according to Article 56(2)(c) EIR and must stand a reasonable chance of success (Article 60(1)(b)(i) EIR). The first prerequisite contains two sub-criteria. Whilst the proposal for a restructuring plan is an objective fact, the second criterion, “a reasonable chance of success”, is open to interpretation because the regulator does not specify any details. See below mn. 18 for our remarks on the assessment of the “reasonable chance of success” of the restructuring plan. bb) Necessity of stay. Secondly, in order to successfully request a stay, the stay must 13 be necessary for the implementation of the restructuring plan (Article 60(1)(b)(ii) EIR). This means if the realisation did not affect the restructuring plan’s implementation, the stay would not be necessary.41 See below mn. 21 for the assessment conducted by the court as to whether a stay is required. cc) Restructuring plan is beneficial for all creditors. Thirdly, in order to success- 14 fully request a stay, the restructuring plan must be beneficial for the creditors of the proceedings for which the stay is requested42 (Article 60(1)(b)(iii) EIR). Hence, the economic outcome for these creditors in their entirety must be better (e. g. through a higher insolvency dividend) with a restructuring plan compared to having no restructuring plan. See below mn. 22 for details about the assessment of a restructuring plan that is beneficial for creditors. dd) Priority to group coordination proceedings. Lastly, in order to successfully 15 request a stay, neither the proceedings for which the stay is requested nor the proceedings for which the insolvency practitioner requesting the stay has been appointed must be subject to group coordination proceedings according to Articles 61 EIR et seq. (Article 60(1)(b)(iv) EIR). Hence, Article 60(1)(b)(iv) EIR establishes a hierarchy by prioritising group coordination proceedings. An external intervention via a stay or a restructuring plan (Article 56(2)(c) EIR) would jeopardise the special legal framework for group coordination proceedings (Section 2, Chapter V).43 See Article 72(2)(e) EIR for a stay in the case of group coordination proceedings. c) Right to apply for the opening of group coordination proceedings. Article 60(1) 16 (c) EIR is the legal basis for the application to open group coordination proceedings in accordance with Article 61 EIR. The rule grants the insolvency practitioner the right to 41

J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.08. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.09. 43 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.10. 42

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apply for the opening of group coordination proceedings.44 Articles 61 EIR et seq. set forth the rules concerning the coordination.

2. Stay of realisation measures: examination by the court according to Article 60(2) EIR 17

a) Examination of the fulfilment of the prerequisites. If all prerequisites mentioned in Article 60(1)(b)(i)-(iv) EIR are sufficiently fulfilled, the court before which the stay is requested must grant the stay of the realisation of assets.45 In terms of the prerequisites, pursuant to Article 60(2)(sentence 1) EIR, the court has to assess “if it is satisfied that the conditions referred to in point (b) of paragraph 1 are fulfilled”. Whether the court’s decision is appealable or not depends on the lex fori.46 Unfortunately, based on recital 61 EIR, the German legislator expanded the regulation of Article 60(1)(b) through Article 102 c, § 24 EGInsO (DEU) but did not decide whether a German court of appeal may review the case. Therefore, under German law, the decision according to Article 60(2) EIR is not appealable (cf. § 6(1)(sentence 1) InsO (DEU)). This applies to both scenarios: the court’s decision to order a stay or the rejection of the request. De lege ferenda it may make sense to permit a remedy. In terms of the legal consequence, however, the court has no discretion to decide if the stay is appropriate.47 In the following Section, we discuss how the court may assess the four prerequisites.

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aa) Restructuring plan with a reasonable chance of success. The first prerequisite contains two sub-criteria. Firstly, a restructuring plan must be proposed to all or some members of the group according to Article 56(2)(c) EIR. Article 56(2)(c) EIR refers to “a coordinated restructuring plan”. The regulator seems to have in mind a “master plan” for coordinated and concerted restructuring plans in the individual proceedings opened in respect of the group’s members.48 “A restructuring plan” may technically and, indeed, will usually comprise a number of plans.49 Plans that only provide for the liquidation of the group’s companies are not restructuring plans within the meaning of Article 56(2) (c) EIR.50 A restructuring plan submitted to the insolvency court, a creditors’ committee, or any other authority or body as provided under the applicable national law qualifies as a proposed restructuring plan.51 However, draft plans will also qualify as proposed plans prior to such submission. In order to fulfil the criterion of the “proposal” of the plan, at least the basic structure of the plan has to be elaborated.52 It is not necessary that the proposed restructuring plan has been completely written down or even for the plan to already be in the implementation phase.53 The drafting of a 44 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.21; Wessels, European Insolvency Law, mn. 10926 q; Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.770. 45 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.11 and 60.13. 46 cf. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 60, mn. 21. 47 Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.768; Hermann, in Vallender, EuInsVO, Art. 57, mn. 10; Fehrenbach, GPR 2017, 38, 46. 48 cf. Hermann, in Vallender, EuInsVO, Art. 57, mn. 23; Fehrenbach, GPR 2017, 38, 46; Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 15. 49 Fehrenbach, GPR 2017, 38, 46. 50 Hermann, in Vallender, EuInsVO, Art. 57, mn. 23. 51 Tschentscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 16. 52 cf. Hermann, in Vallender, EuInsVO, Art. 57, mn. 23 who is of the opinion that the plan has to be forwarded to the creditors and to the relevant committees. In our view this is not necessary. 53 Hermann, in Vallender, EuInsVO, Art. 57, mn. 23; Kindler, KTS 2014, 25, 42; Brünkmans, ZInsO 2013, 797, 805.

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restructuring plan is often time-consuming and templates can rarely be used. If “proposal” was to be understood as the submission of a completely formulated plan, the right to request a stay would, in practice, not work in many cases, such as in proceedings of members of a group of companies. Such an understanding would be contrary to the effet utile principle. In addition, the restructuring plan must have a “reasonable chance of success” 19 (second sub-criterion). It is questionable how one assesses the “reasonable chance of success”.54 As a restructuring plan usually comprises a number of plans under national law, the assessment will be a difficult task for the court.55 The criterion may thus not be too strict. It is submitted that the starting point is the ex-ante perspective of an objective insolvency expert.56 From such a perspective, the restructuring plan must be coherent and comprehensible.57 It is not necessary that the likelihood be more than 50 % that the restructuring plan will get the required acceptance.58 It is questionable as to whether the court should also assess the chances that the creditors will vote in favour of the plan.59 In our view, the court should, in particular, be able to deny the requested stay only if it is evident that the creditors will not support the plan. In any case, the court has to assume that the creditors will act in an economically reasonable manner. Furthermore, it is unclear as to who, besides the court itself, is eligible to assess the 20 “reasonable chance of success”. Article 57(1)(sentence 2) EIR grants the option to appoint an independent person or body to act on the court’s instructions to assess the second sub-criterion. In addition, the court can also instruct an objective insolvency expert to provide an expert opinion regarding the “reasonable chance of success” of the restructuring plan.60 bb) Necessity of stay. The stay must be necessary for the implementation of the 21 restructuring plan (Article 60(1)(b)(ii) EIR). This means that if the stay is not to be granted, the implementation of the restructuring plan must be at risk.61 This prerequisite shows that one has to distinguish two kinds of realisations of assets: a) a realisation of assets that is not harmful for the implementation of the restructuring plan and b) a realisation of assets that is or may be harmful for the implementation. The realisation of operating assets of the business, such as the factory premises or factory machines, belongs at least in principle to category b). In conclusion, not all realisations of assets can be blocked by a stay.62 The court is obliged to assess and decide ex-ante if the realisation belongs to category a) or b) and, ultimately, if the realisation has or may have negative consequences for the whole restructuring plan. cc) Restructuring plan is beneficial for creditors. Another prerequisite arising from 22 Article 60(1)(b)(iii) EIR states that the restructuring plan must be beneficial for the creditors of the proceedings for which the stay is requested.63 This is the case if the creditors are better off if the restructuring plan is implemented than they would be without the plan.64 This question has to be answered from an economic point of 54

Wessels, European Insolvency Law, mn. 10926 r. Fehrenbach, GPR 2017, 38, 46. 56 cf. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.07. 57 Hermann, in Vallender, EuInsVO, Art. 57, mn. 24. 58 Contrary Hermann, in Vallender, EuInsVO, Art. 57, mn. 24. 59 Against such an assessment Hermann, in Vallender, EuInsVO, Art. 57, mn 24. 60 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.07. 61 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.08. 62 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.08. 63 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.09. 64 Fehrenbach, GPR 2017, 38, 46. 55

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view.65 As different creditors may have different ranks, the decisive question is whether the insolvency estate of the proceedings for which the stay is requested increases.66 Furthermore, if multiple restructuring plans from different insolvency practitioners have been proposed, it has to be taken into consideration which plan is the most advantageous for the creditors.67 The court or an independent person or body that acts on its instructions needs to assess and decide from the ex-ante perspective of an objective insolvency expert68 whether the restructuring plan is – more likely than not – beneficial for creditors of the proceedings for which the stay is requested. Alternatively, an insolvency expert can be instructed to provide an expert opinion regarding this prerequisite.69 23

dd) Priority to group coordination proceedings. Article 60(1)(b)(iv) EIR provides that neither the proceedings for which the stay is requested nor the proceedings in which the insolvency practitioner requesting the stay has been appointed can be subject to group coordination proceedings according to Article 61 EIR.70 In case one of these proceedings is subject to group coordination proceedings, the coordination proceedings shall prevail and the special legal framework for group coordination proceedings shall apply.

b) Procedure and content of the stay order. Pursuant to Article 60(2) EIR, the court must be satisfied that the conditions referred to in Article 60(1)(b) EIR are fulfilled. Some legal commentators are of the opinion that the standards that have to be met for such a “satisfaction” are provided by the lex fori of the deciding court.71 In our view, however, Article 60(2) EIR is to be interpreted autonomously, leading to an EU-wide understanding of the prerequisites of Article 60(1)(b)(i)-(iv) EIR.72 The first-mentioned opinion gives rise to the problem that the courts’ practice would vary from Member State to Member State (cf. for the admissibility of appeals above mn. 17). 25 Besides assessing whether the prerequisites are fulfilled or not, the court shall73 hear the insolvency practitioner appointed in the insolvency proceedings for which the stay is requested (Article 60(2.2) EIR). A creditor’s participation is not stipulated.74 However, it is submitted in literature that the court shall hear any other insolvency practitioner appointed in insolvency proceedings opened in respect of a member of a group of companies if the stay affects his interests.75 This would allow the respective insolvency practitioner to raise an objection.76 It is not clear whether Article 60(2.2) EIR is truly to be understood in such a manner. At least Article 58 EIR, however, establishes an obligation for “cross-over communication”, which 24

65

Paulus, EuInsVO, Art. 60, mn. 14. cf. Fehrenbach, GPR 2017, 38, 46; Hermann, in Vallender, EuInsVO, Art. 57, mn. 26. 67 cf. Madaus, Int. Insol. Rev. 2015, 235, 241. 68 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.09; Hermann, in Vallender, EuInsVO, Art. 57, mn. 26. 69 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.09. 70 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.10. 71 cf. Paulus, EuInsVO, Art. 60 mn. 16; Tschetscher, in Braun, Insolvenzordnung, Art. 60 EuInsVO, mn. 21. 72 Thole/Swierczok, ZIP 2013, 550, 557, Brünkmanns, ZInsO 2013, 797, 805. 73 Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.768; J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO, Art. 60, mn. 19. 74 Hermann, in Vallender, EuInsVO, Art. 57, mn. 18. 75 Hermann, in Vallender, EuInsVO, Art. 57, mn. 17. 76 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.12. 66

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applies in particular regarding the request of a stay (see Skauradszun/Spahlinger above Art. 58 mn. 1 and 7). The details regarding the procedure are not specified in Article 60 EIR; therefore, 26 details must be answered pursuant to the lex fori of the court seised.77 If a German court is seised, §§ 4 et seq. InsO apply. This means that, in principle, a German court is obliged to examine and assess the case ex officio (§ 5(1) InsO (DEU)).78 The question of whether the requesting insolvency practitioner is obliged to furnish evidence is also answered by the lex fori of the court seised.79. Article 60(2) EIR stipulates that the court shall stay any measure related to the 27 realisation of the assets in the proceedings in “whole or in part” insofar as the prerequisites are met. Firstly, a stay in part is generally only possible if the asset(s) are separable.80 Secondly, the regulator has granted the court the right to examine whether the assets are separable. However, there are no procedures in place that determine how the court is supposed to examine whether a stay “in whole or in part” is necessary. Therefore, the lex fori has to be considered, which leads to scenarios that can result in various individual outcomes. The court may grant a stay less extensive than requested.81 It also seems reasonable to grant the court a certain discretion regarding the content of the stay order.82 The court is therefore not bound by the insolvency practitioner’s request.83 It may also stay other measures than those requested.84 c) Period of the stay and extensions. If a stay is successfully requested due to the 28 fulfilment of the prerequisites of Article 60(1)(b)(i)-(iv) EIR, the court shall order the stay of the measures related to the realisation of the assets. Nevertheless, the court retains the right85 to determine the period of the stay. A stay may be ordered for any period which the court considers appropriate and which is compatible with the rules applicable to the proceedings (lex fori). However, a stay may initially not exceed three months. The legislative technique and the duration of the stay according to Article 60 (2) EIR and Article 38(2) EIR resemble each other. Article 60(2.4) EIR permits the court to extend the stay by up to three more 29 months, whereby the initial period plus extension may not exceed six months. This is possible insofar as the court considers the extension appropriate, the extension is compatible with the applicable rules (lex fori), and the prerequisites of Article 60(1)(b) (ii)-(iv) EIR continue to be fulfilled. Therefore, the court shall make sure that the prerequisites in fact continue to be satisfied.86 Surprisingly, the regulator excluded Article 60(1)(b)(i) EIR from the mandatory reassessment for the extension of the stay. The second sub-criterion of the first prerequisite asking whether a restructuring plan 77 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.12; Hermann, in Vallender, EuInsVO, Art. 57, mn. 14 et seq. 78 Hermann, in Vallender, EuInsVO, Art. 57, mn. 19. 79 The regulator refrained from stipulating a respective duty, see Hermann, in Vallender, EuInsVO, Art. 57, mn. 19. 80 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.14; Wessels, European Insolvency Law, mn. 10926 r. 81 Hermann, in Vallender, EuInsVO, Art. 57, mn. 16. 82 cf. Hermann, in Vallender, EuInsVO, Art. 57, mn. 31. 83 Hermann, in Vallender, EuInsVO, Art. 57, mn. 16. 84 Hermann, in Vallender, EuInsVO, Art. 57, mn. 31. 85 cf. Wessels, European Insolvency Law, mn. 10926r: “The courts” discretion lies in the choice of the duration of a stay…’. See also J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.15; Moss/Fletcher/Isaacs, The EU Regulation on Insolvency Proceedings, mn. 8.768. 86 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.19; Wessels, European Insolvency Law, mn. 10926 r.

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has a “reasonable chance of success” or not is especially significant in this scenario. However, if a restructuring plan has no “reasonable chance of success”, the plan will also not be to the benefit of the creditors anymore. Hence, condition (iii) would not be fulfilled if a restructuring plan lost its reasonable chance of success, meaning that in such a situation the court cannot prolong the stay.87 d) Protective measures for creditors. The regulator supplements the (iii) prerequisite with an additional subparagraph for creditor protection. Article 60(2.3) EIR obliges the court that has ordered the stay to instruct the insolvency practitioner who requested the stay to take any suitable measure available under national law to guarantee the interests of the creditors in the proceedings. The rule relates to the creditors in the proceedings for which the stay is requested, providing them with special protection because their insolvency estate and efforts for restructuring alone might be jeopardised by the stay.88 There are no further details on how or when a protective measure should be instructed by the court.89 For example, bank guarantees, suretyships, or payments of interest can be regarded as protective measures.90 The court has discretion regarding the suitable measures it requires.91 The required scope of the protective measures depends on the risks that the stay entails for the creditors in the proceedings for which the stay is requested.92 Required collateral must be provided by the insolvency estate for which the insolvency practitioner who requested the stay is appointed.93 31 If a stay of the realisation of assets in German insolvency proceedings is ordered and this stay comprises an object that is subject to a right to segregate an asset (“Absonderungsrecht”, secured creditor), the affected creditor shall be paid the current interest due to him from the insolvency estate (Article 102(c) § 24(1) in conjunction with Article 102(c) § 16(1)(b) EGInsO (DEU)). 30

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J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.19. J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.16. 89 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.16; Wessels, European Insolvency Law, mn. 10926 r. 90 J. Schmidt, in Bork/van Zwieten, Commentary on EIR, Art. 60, mn. 60.16. 91 Hermann, in Vallender, EuInsVO, Art. 57, mn. 35. 92 Hermann, in Vallender, EuInsVO, Art. 57, mn. 35. 93 Hermann, in Vallender, EuInsVO, Art. 57, mn. 36; Esser, American Bankruptcy Institute Journal 2015, 38, 77. 88

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Section 2 Coordination Subsection 1 Procedure Article 61 Request to open group coordination proceedings 1. Group coordination proceedings may be requested before any court having jurisdiction over the insolvency proceedings of a member of the group, by an insolvency practitioner appointed in insolvency proceedings opened in relation to a member of the group. 2. The request referred to in paragraph 1 shall be made in accordance with the conditions provided for by the law applicable to the proceedings in which the insolvency practitioner has been appointed. 3. The request referred to in paragraph 1 shall be accompanied by: (a) a proposal as to the person to be nominated as the group coordinator (“the coordinator”), details of his or her eligibility pursuant to Article 71, details of his or her qualifications and his or her written agreement to act as coordinator; (b) an outline of the proposed group coordination, and in particular the reasons why the conditions set out in Article 63(1) are fulfilled; (c) a list of the insolvency practitioners appointed in relation to the members of the group and, where relevant, the courts and competent authorities involved in the insolvency proceedings of the members of the group; (d) an outline of the estimated costs of the proposed group coordination and the estimation of the share of those costs to be paid by each member of the group. Recitals: 6, 55, 58, 61, 62.

Outline A. Overview ............................................................................................................................ B. Purpose ............................................................................................................................... C. Right to request group coordination proceedings .................................................... D. Formal requirements regarding an admissible request ........................................... E. Contents of the request...................................................................................................

1 12 15 19 23

A. Overview With respect to insolvency proceedings relating to members of a group of 1 companies, Chapter V (Articles 56 to 77 EIR) contains provisions regarding cooperation, communication, and coordination. Coordination of insolvency proceedings in non-formalised forms can be part of the 2 cooperation between insolvency practitioners of group companies. This is expressed in Article 56(2)(b) EIR according to which insolvency practitioners are, in connection with cooperation, obliged to consider whether possibilities for coordination exist and to use such possibilities. The fact that coordination can only be promising in practice if it is connected with a minimum level of centralisation of tasks and rights is taken into Lienau

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Art. 61 3–8

3

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5

6

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account in the second sentence of Article 56(2) EIR. Insolvency practitioners may accordingly agree to grant additional powers to one of them. The weakness of non-formalised coordination, in recital 60 EIR referred to as “alternative mechanism” to coordination proceedings, is clear. In the end, its success depends upon whether content and implementation of coordination measures can be negotiated in detail and bindingly agreed on. Above all, this may be challenging because in all aspects a consensus of the insolvency practitioners involved is required. Moreover, there is no court competent to rule on all issues of coordination. The Union legislator recognised these difficulties and considered the mere possibility of non-formalised coordination to be unsatisfactory. This is expressed in recital 54 EIR, according to which the Union legislator intended to ensure and further improve the efficiency of coordination, particularly in connection with the restructuring of a group of companies. Any form of consolidation of proceedings or insolvency estates has, however, been explicitly excluded. The Union legislator has stuck with the basic principle of insolvency law that also in a group context the insolvency proceedings of each legal entity remain separate. A substantive consolidation, i. e. the treatment of the assets and liabilities of two or more enterprise group members as if they were part of a single insolvency estate1, has been ruled out without exception. The Union legislator has subjected formal coordination to group coordination proceedings as an “in detail” formulated special procedure. The provisions regarding these proceedings aim at preserving added value based on the group structure2 and are intended to create a stable legal framework for identifying and implementing groupwide restructuring solutions under the guidance of a court-appointed coordinator. They are at the heart of the Union legislator’s concept of a coordinated restructuring in a group context. An essential characteristic of group coordination proceedings is, on the one hand, that their opening only takes place upon request and that involvement in the proceedings is voluntary. On the other hand, it is a formalised and “in detail” regulated procedure. In this respect, its rules differ from the procedural provisions relating to cooperation and communication. The latter are binding for insolvency practitioners of members of a corporate group but comprise few detailed requirements. In respect of group coordination proceedings it is vice versa: the legal provisions are detailed; recommendations by the coordinator have, however, no binding effect. Insolvency practitioners are, in the sense of the approach “comply or explain”, merely obliged to give reasons if they do not follow the coordinator’s recommendations. The importance the Union legislator attached to group coordination proceedings is indicated in recital 6 EIR. Rules concerning the coordination of insolvency proceedings relating to members of a group of companies are mentioned in connection with provisions on international jurisdiction, applicable law, as well as recognition and enforcement, i. e. in connection with core rules of the Regulation. Group coordination proceedings under Articles 61 to 77 EIR require, as stated in recital 62 EIR, insolvency proceedings relating to different members of the same group of companies (according to Article 2 no. 13 EIR), opened in more than one Member State. At least two group members must have their COMI in different Member States3. 1 On the term “substantive consolidation” and its conceptual delimitation to procedural coordination: UNCITRAL Legislative Guide on Insolvency Law – Part three: Treatment of enterprise groups in insolvency, mn. 4, 22. 2 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 593. 3 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 553; Esser, in Braun, Insolvenzordnung, Art. 61 EuInsVO, mn. 5.

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Request to open group coordination proceedings

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Articles 61 to 77 EIR do not apply to insolvency proceedings in third countries, i. e. 9 non-Member States. If companies belong to a corporate group extending to nonMember States, Articles 61 to 77 EIR are only applicable to group members whose COMI is located in a Member State.4 The rules on group coordination proceedings do not prevent Member States from 10 establishing national rules with respect to the coordination of insolvency proceedings relating to group companies. This is explicitly clarified in recital 61 EIR which, however, emphasises that such rules may not impair the efficiency of the rules laid down by the Regulation. Hence, coordination proceedings under national law may not be commenced if this is not compatible with the provisions of the Regulation on group coordination proceedings. This corresponds to the general principle that directly applicable EU law takes precedence over national law (Article 288 TFEU). It remains to be seen whether group coordination proceedings will gain practical 11 importance. The review clause in Article 90(2) EIR stipulates that the European Commission is to present a report on the application of the group coordination proceedings and a proposal for possible adaptations no later than June 2022, i. e. five years earlier than the report on the application of the Regulation in general (according to Article 90(1) EIR).

B. Purpose Article 61 EIR lays down the conditions under which the procedure aimed at the 12 opening of group coordination proceedings may be commenced. According to the provision, group coordination proceedings take place only upon 13 application. Even if it apparently were of advantage for all parties, a court is not entitled to open group coordination proceedings where no application has been submitted. The provision’s three paragraphs contain details as to who may file an application, 14 which court is competent to take a decision, which law is relevant for the procedure, and what substantial requirements an application has to meet in order to be admissible.

C. Right to request group coordination proceedings Pursuant to Article 61(1) EIR, only insolvency practitioners are entitled to apply for 15 the opening of group coordination proceedings. Due to the broad meaning of the term “insolvency practitioner”, persons and bodies exercising administrative duties on an interim basis may have the right to make an application5. Article 76 EIR provides that the provisions under Chapter V also apply, where appropriate, to the debtor in possession. Accordingly, in debtor-in-possession proceedings the managing debtor may have the right to submit a request6. Pursuant to Article 2 no. 5 EIR, the applicant has to be a person or body listed in Annex B EIR. This is a necessary but not sufficient condition. A requesting insolvency practitioner must, according to Article 7(2)(c) EIR, 4 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 554; J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Einführung zu Art. 61–77, mn. 10; J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 61, mn. 61.7. 5 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 598. 6 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 598.

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under national law have a legal status that authorises him – for example on the basis of the right to manage and transfer the debtor’s assets – to make such application. Otherwise, he lacks the right to request group coordination proceedings. 16 The applicant must be appointed as insolvency practitioner of a member of the group of companies (as defined in Article 2 no. 13 EIR) for which group coordination proceedings are applied for. Thus, only insolvency practitioners appointed for a debtor that can be covered by the group coordination proceedings are entitled to submit an application. Accordingly, solely insolvency practitioners that are appointed in a Member State may have this entitlement.7 In addition, a requesting insolvency practitioner must be appointed in main insolvency proceedings8 (“proceedings opened in relation to a member of the group”9). The right of application is not subject to restrictions based on the size of the group member or its relevance within the corporate group. The European Parliament initially opted for a different approach by proposing that “the members of the group having their centre of main interests in the Member State of the court seised to open the group coordination proceedings perform crucial functions within the group”10. The Union legislator, however, did not follow this proposal in the further course of the legislative procedure. 17 According to the clear wording of Article 61(1) EIR, the application may be submitted to any court having jurisdiction over the insolvency proceedings of a member of the group. An insolvency practitioner is thus not obliged to request group coordination proceedings before the court he has been appointed by. When an application is lodged with another court, this court must, on a proper interpretation of Article 61(1) EIR, have delivered a judgment opening insolvency proceedings within the meaning of Article 2 no. 7 EIR for another group member.11 According to its wording, Article 61(1) EIR could be interpreted in the sense that jurisdiction for possible insolvency proceedings is sufficient. However, such interpretation would contradict the regulatory approach. The Union legislator did not extend the scope of the provisions on coordination to group members for which insolvency proceedings have not been opened. Insofar as Articles 57 and 58 EIR provide duties in respect of cooperation and communication even with courts before which a request to open insolvency proceedings is pending, this is a clearly formulated exception fitting in the context. Assuming that under Article 61(1) EIR jurisdiction for the opening of insolvency proceedings was sufficient, group coordination proceedings could be pending before a court that is subsequently at no time seised of opened insolvency proceedings relating to a group member. 18 Furthermore, addressee of an admissible request to open group coordination proceedings can only be the judicial body of a Member State. With respect to coordination under Articles 61 to 77 EIR, the Union legislator has stipulated in Article 2 no. 6 (i) EIR that the term “court” in its narrow sense applies. 7

J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Einführung zu Art. 61–77, mn. 9. Reinhart, in Münchener Kommentar zur InsO, Art. 61 EuInsVO, mn. 4, 7; but see J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 61, mn. 25; J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 61, mn. 61.17 (admissibility of an application by an insolvency practitioner appointed in secondary insolvency proceedings or territorial insolvency proceedings). 9 The German version is, in this respect, more clear: “Insolvenzverfahren über das Vermögen eines Mitglieds der Gruppe”. 10 European Parliament legislative resolution of 5 February 2014 (first reading), P7_TA(2014)0093, Article 42da(1)(b). 11 Esser, in Braun, Insolvenzrecht, Art. 61 EuInsVO, mn. 10; see also Prager/Keller, WM 2015, 805, 810; but see Reinhart, in Münchener Kommentar zur InsO, Art. 61 EuInsVO, mn. 8. 8

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D. Formal requirements regarding an admissible request Pursuant to Article 61(2) EIR, the request to open group coordination proceedings has to be made in accordance with the national rules that are applicable to the insolvency proceedings in which the insolvency practitioner has been appointed. Thus, the Regulation does not provide any formal requirements independent of the contents of the application. It merely refers to the general procedural rules of the Member States. If, for instance, the national law relevant for the insolvency practitioner regulates that he needs an approval of the application to open group coordination proceedings, the insolvency practitioner has to obtain this approval prior to the request. According to its wording, Article 64(3) EIR only relates to approval requirements under national law in connection with the decision on participation (and non-participation, respectively) in group coordination proceedings. However, if in this respect an approval is required, it is all the more so in regard to a request to open group coordination proceedings. The provision unburdens the requesting insolvency practitioner from an examination of foreign law with regard to the request. The court seised of the procedure is equally not burdened with the examination of foreign law. Article 62(2) EIR relates, on a proper interpretation, to the proceedings in which the requesting insolvency practitioner has been appointed. Only evident procedural defects in the respective insolvency proceedings are of relevance for the admissibility of the request to open group coordination proceedings12 (with detailed reasoning). Article 61(2) EIR relates to the requirements of an admissible request, whereas the procedural law of the Member State to which the court belongs governs the procedure following such request.13 Since proceedings before the court seised are conducted in the official language of this court, the request must be submitted in this language14. Article 61(2) EIR may not be interpreted in the sense that a request in another language is admissible. Article 73 EIR provides that the coordinator has to communicate with a court in the official language applicable to that court. This rule reflects a basic principle that also applies to the applicant.

19

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21

22

E. Contents of the request The Regulation contains specific requirements as to the necessary contents of a 23 request. Its admissibility requires the requesting insolvency practitioner to declare himself vis-à-vis the court on a number of issues. Pursuant to recital 55 EIR, these specifications concern “the essential elements of the coordination”. The requesting insolvency practitioner has to propose a person for the office of 24 coordinator, to submit a written consent of this person to assume the office of coordinator, and to express himself regarding the person’s qualifications and eligibility under Article 71 EIR. Furthermore, the applicant must outline the proposed group coordination. The 25 provision prescribes in particular a presentation of the reasons why the conditions set out in Article 63(1) EIR are met. The applicant has to substantiate why the opening of 12 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 600 (with detailed reasoning). 13 Reinhart, in Münchener Kommentar zur InsO, Art. 61 EuInsVO, mn. 9 et seq. 14 Esser, in Braun, Insolvenzordnung, Art. 61 EuInsVO, mn. 2, 14; but see Madaus, IILR 2015, 235, 244.

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group coordination proceedings is appropriate to facilitate the effective administration of insolvency proceedings relating to group members. Furthermore, he has to substantiate that no creditor of any group member that is expected to participate in the group coordination proceedings is likely to be financially disadvantaged. It is, considering the special urgency of insolvency proceedings, in the nature of things that the demands regarding the outline must not be too high. The state of knowledge at the time of the request does probably not allow for going into details on the envisaged coordination.15 26 The request has, in addition, to be accompanied by a list of the courts and authorities involved in the insolvency proceedings of group members, and of the insolvency practitioners appointed in these proceedings. The list is intended to enable the court seised of the request to perform its notification duties under Article 63(1) EIR without delay and, where appropriate, to contact the cited courts and authorities. This requires that the applicant communicates the contact details to the court.16 27 Lastly, the request has to contain an outline of the estimated costs of the envisaged group coordination proceedings and an estimation of the share of those costs to be paid by each group member (as to the apportionment of costs, see Lienau below Art. 77 mn. 11). In this respect, the state of knowledge at the time of the request is decisive.17 The opening of group coordination proceedings is – as emphasised in recital 58 EIR – only sensible if the advantages outweigh the costs. Based on the respective state of knowledge, it must be ensured that the coordination costs and their apportionment among the involved group members are adequate, proportionate, and reasonable. The insolvency practitioners of the concerned estates should, at an early stage of the proceedings, be able to check these points. Moreover, they should be able to obtain, if necessary, an approval by the court or the creditors’ committee. 28 Since the costs and their apportionment depend, inter alia, on the number of insolvency proceedings involved in the group coordination proceedings, the applicant is, where appropriate, obliged to submit estimations for different scenarios. 15 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 603; Reinhart, in Münchener Kommentar zur InsO, Art. 61 EuInsVO, mn. 13. 16 Reinhart, in Münchener Kommentar zur InsO, Art. 61 EuInsVO, mn. 14; J. Schmidt, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 61, mn. 32, 47. 17 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 61, mn. 49.

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Article 62 Priority rule Without prejudice to Article 66, where the opening of group coordination proceedings is requested before courts of different Member States, any court other than the court first seised shall decline jurisdiction in favour of that court. Outline A. Purpose ............................................................................................................................... B. Interpretation ....................................................................................................................

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A. Purpose Pursuant to Article 61(1) EIR, each insolvency practitioner appointed for a member 1 of the corporate group is entitled to request the opening of group coordination proceedings. The request can be lodged with any court competent for the insolvency proceedings of a group member. It is a consequence of this approach that several insolvency practitioners may request the opening of group coordination proceedings before different courts. Since only one opening of group coordination proceedings is possible, several 2 requests raise questions as to which court has jurisdiction to open group coordination proceedings and how to proceed with respect to the different requests. In this context, the admissibility of the respective requests cannot be relevant1. Whether a request must eventually be rejected as inadmissible will in many cases hardly be predictable. Where the request is rejected or withdrawn, its priority over other requests lapses. If a court has declined jurisdiction under Article 62 EIR, the effects of such decision do not, however, cease retroactively2. According to the priority rule in Article 62 EIR, in the event of several applications 3 before courts in different Member States, any court other than the court first seised must decline jurisdiction in favour of that court. Courts do not have any discretion in this respect. This rule, however, does not apply if a qualified majority of all insolvency practitioners appointed for group members agree, under Article 66 EIR, on a competent court in another Member State.

B. Interpretation When a court declines jurisdiction under Article 62 EIR, the request to open group 4 coordination proceedings lodged with this court is, by lack of international jurisdiction, inadmissible. By governing that a court subsequently seised has to decline jurisdiction “in favour” 5 of the court first seised, the Union legislator did not intend to introduce a cross-border referral. That follows from Article 66(4) EIR, according to which, even in relation 1 Esser, in Braun, Insolvenzordnung, Art. 62 EuInsVO, mn. 4; but see Reinhart, in Münchener Kommentar zur InsO, Art. 62 mn. 2. 2 But Esser, in Braun, Insolvenzordnung, Art. 62 EuInsVO, mn. 6.

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between the court initially having jurisdiction and the court that subsequently becomes competent due to a choice of court, no referral takes place. The request has to be lodged once more with the agreed court. 6 Article 62 EIR does not regulate the procedural consequences of inadmissibility by lack of jurisdiction. They are governed by the respective national law. The national law also provides which of several courts seised in one Member State has jurisdiction.3 3 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 62, mn. 5; Esser, in Braun, Insolvenzordnung, Art. 62 EuInsVO, mn. 2.

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Article 63 Notice by the court seised 1. The court seised of a request to open group coordination proceedings shall give notice as soon as possible of the request for the opening of group coordination proceedings and of the proposed coordinator to the insolvency practitioners appointed in relation to the members of the group as indicated in the request referred to in point (c) of Article 61(3), if it is satisfied that: (a) the opening of such proceedings is appropriate to facilitate the effective administration of the insolvency proceedings relating to the different group members; (b) no creditor of any group member expected to participate in the proceedings is likely to be financially disadvantaged by the inclusion of that member in such proceedings; and (c) the proposed coordinator fulfils the requirements laid down in Article 71. 2. The notice referred to in paragraph 1 of this Article shall list the elements referred to in points (a) to (d) of Article 61(3). 3. The notice referred to in paragraph 1 shall be sent by registered letter, attested by an acknowledgment of receipt. 4. The court seised shall give the insolvency practitioners involved the opportunity to be heard. Specific bibliography: Wimmer, Konzerninsolvenzen im Rahmen der EuInsVO – Ausblick auf die Schaffung eines deutschen Konzerninsolvenzrechts, DB 2013, 1343. Outline A. Purpose ............................................................................................................................... 1 B. Notification obligations .................................................................................................. 2 C. Formalities as to the notification.................................................................................. 12 D. Right to comment on the request ................................................................................ 15

A. Purpose Article 63 EIR regulates how courts have to proceed following the receipt of a 1 request to open group coordination proceedings.

B. Notification obligations According to Article 63(1) EIR, the court must, under precisely defined conditions, 2 as soon as possible inform the insolvency practitioners of the group members that are listed in the request on the application and the proposed coordinator. This prescribed notification about the proposed coordinator, in addition to the 3 notification about the request, has no independent significance. The person proposed as coordinator follows, according to Article 61(3)(a) EIR, already from the request. Based on the guarantee of procedural fairness laid down in Article 47(2) of the 4 Charter of Fundamental Rights of the European Union, each insolvency practitioner Lienau

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has to be fully informed about the request. The court must take account of this right by notifying the insolvency practitioners about the request in its entirety.1 Only if this precondition is met, the insolvency practitioners have a sufficient basis for making a decision (which is, under Article 64(1)(a),(2) EIR, time-bound) as to whether objections to the inclusion in group coordination proceedings shall be made. The duty of the court seised to notify the insolvency practitioners only applies if the request has prospects of success. Article 63(1) EIR must be seen in connection with Article 68(1) EIR, according to which the court may open group coordination proceedings only where it is satisfied that certain substantial criteria are met. The Union legislator has provided these criteria in Article 63(1) EIR and referred to this provision in Article 68(1) EIR. The basic consideration was that a notification of the insolvency practitioners needs time and causes organisational and financial expenditures, and that such communication is not appropriate where the court considers, based on the request, that the conditions for the opening of group coordination proceedings are not met. In such a case, the opening of group coordination proceedings, and thus an impairment of the insolvency practitioners’ interests, cannot happen. A rejection of the request affects only the applicant and does not preclude other requests. One of the substantial criteria the court must be satisfied of is that, according to Article 63(1)(a) EIR, the opening of group coordination proceedings is “appropriate” to facilitate the effective administration of the insolvency proceedings of group members. Accordingly, it does not need to be certain that group coordination proceedings will, in fact, render such contribution. The requirement of prospective efficiency gains may also be fulfilled in the context of an envisaged coordinated liquidation2. Where a group member has explicitly declared in advance that it will under no circumstances participate in group coordination proceedings, considerations under Article 63(1)(a) EIR should exclude this group member3. Pursuant to Article 63(1)(b) EIR, the court must, furthermore, be convinced that financial disadvantages for creditors of group members that are expected to participate in the group coordination proceedings are not “likely”. It is thus sufficient that disadvantages for creditors are not apparent. In this context, it must be taken into consideration that the coordinator, under Article 72(5) EIR, has to perform his duties impartially, and that the insolvency practitioners participating in group coordination proceedings are, according to Article 70(2) EIR, not obliged to follow the coordinator’s recommendations or the group coordination plan. Lastly, Article 63(1)(c) EIR requires the court’s view that the proposed coordinator meets the requirements laid down in Article 71 EIR4. The Union legislator has not governed how to proceed if the court seised is not convinced that the conditions of Article 63(1) EIR are met, but a subsequent improvement of the request is feasible. Applying Article 7(2)(sentence 1) EIR mutatis mutandis, the court will have to proceed according to the respective national procedural rules. It may be obliged to give the applicant the opportunity to improve his request5. However, such procedure may not result in the inadmissibility of other requests under Article 62 EIR for an unduly long period. The court has to “give notice 1

Reinhart, in Münchener Kommentar zur InsO, Art. 63 EuInsVO, mn. 8. Wimmer, DB 2013, 1343, 1349; Esser, in Braun, Insolvenzordnung, Art. 63 EuInsVO, mn. 12. 3 Esser, in Braun, Insolvenzordnung, Art. 63 EuInsVO, mn. 10. 4 For details on the conditions of Art. 71 EIR, see Lienau below Art. 71. 5 Esser, in Braun, Insolvenzordnung, Art. 63 EuInsVO, mn. 7. 2

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as soon as possible of the request … to the insolvency practitioners”. This requires the court to come to a conclusion under Article 63 EIR as soon as possible6.

C. Formalities as to the notification According to Article 63(2) EIR, the court has to list the elements referred to in 12 Article 61(3) EIR. Since the insolvency practitioners have a comprehensive right to be heard and the court can duly take account of this right only by informing them about the request in its entirety, the regulatory content of the provision is limited to the court’s duty to make references to the elements specified in Article 61(3) EIR. By this means, it is documented that the court had got these elements of the request when it was sending off the notification, and that the elements were intended to be part of the notification. The notification to the insolvency practitioners must, as provided in Article 63(3) 13 EIR, be sent by registered letter, attested by an acknowledgment of receipt. Group coordination proceedings entail far-reaching rights and obligations of insolvency practitioners of group members. Thus, it must be ensured that each practitioner who has not filed the request has the opportunity to comment on it. Moreover, the time limit of 30 days under Article 64(2) EIR within which an insolvency practitioner has, according to Article 64(1) EIR, the possibility to object to the involvement in group coordination proceedings or to the proposed coordinator only starts after having received the court’s notification. Without a reliable verification of receipt the court was not able to accurately assess whether objections under Article 64 EIR remain possible. The Union legislator considered the registered letter with return receipt to be a 14 sending method that is sufficient to ensure a verifiable receipt of the notification by the insolvency practitioners. The underlying consideration may have been – as with Article 14 of the Service of legal documents’ Regulation7 – that, in general, problems regarding the receipt of judicial mailings in this way will not occur. In practice, an occasionally noted shortcoming of this sending method is that mail carriers now and then fail to fill in return receipts completely, correctly, and legibly. Where doubts occur as to whether or when a notification has reached the addressee, the court should ask the respective insolvency practitioner for confirmation of the receipt in a suitable manner (for example by means of fax).

D. Right to comment on the request In accordance with the principles of a fair hearing and the right to be heard, the court 15 seised of the request to open group coordination proceedings must, under Article 63(4) EIR, give the insolvency practitioners concerned the opportunity to comment on the request. The opportunity to submit comments in writing is sufficient. Insolvency practitioners, pursuant to Article 64(2) EIR, have to raise objections to 16 the inclusion in group coordination proceedings within 30 days. In practice, this requires an insolvency practitioner who is in principle interested in the inclusion to indicate doubts regarding particular aspects of the request at a sufficiently early stage in 6 This aspect is highlighted by Mangano, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 8.61. 7 Regulation (EC) No 1393/2007.

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order to enable the court and the applicant to react on it. Otherwise, he runs the risk of being forced to preserve his interests through an objection against the inclusion. Where appropriate, the court may take account of this situation through a procedural time limit. Considering the special urgency of insolvency proceedings, it may be regarded as appropriate and conducive if the court, in view of the insolvency practitioners’ opportunity to comment under Article 63(4) EIR, sets a deadline of two weeks for comments. This deadline may, where appropriate, be extended on a reasoned request.

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Article 64 Objections by insolvency practitioners 1. An insolvency practitioner appointed in respect of any group member may object to: (a) the inclusion within group coordination proceedings of the insolvency proceedings in respect of which it has been appointed; or (b) the person proposed as a coordinator. 2. Objections pursuant to paragraph 1 of this Article shall be lodged with the court referred to in Article 63 within 30 days of receipt of notice of the request for the opening of group coordination proceedings by the insolvency practitioner referred to in paragraph 1 of this Article. The objection may be made by means of the standard form established in accordance with Article 88. 3. Prior to taking the decision to participate or not to participate in the coordination in accordance with point (a) of paragraph 1, an insolvency practitioner shall obtain any approval which may be required under the law of the State of the opening of proceedings for which it has been appointed. Recital: 56.

Outline A. Voluntariness of participation....................................................................................... B. Formalities of objections ................................................................................................ C. Approval requirements under national law ...............................................................

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A. Voluntariness of participation Group coordination proceedings are expressly regulated in such a way that participa- 1 tion is voluntary. The application requirements laid down in Article 63(3) EIR are intended to enable the insolvency practitioners concerned to take an informed decision on participation (recital 56 EIR). According to Article 64(1) EIR, an insolvency practitioner of a group member may object to the inclusion of the insolvency proceedings in respect of which he has been appointed and to the proposed coordinator. The two kinds of objections are mutually exclusive. If an insolvency practitioner objects to the inclusion in group coordination proceedings, the proceedings take, in case of the opening, place without the insolvency proceedings in which he is appointed. In the absence of participation in the group coordination, the insolvency practitioner has no legitimate interest in having a say regarding the coordinator. The Union legislator has reflected the interests involved in Article 67 EIR. Only insolvency practitioners and, pursuant to Article 76 EIR, debtors in posses- 2 sion1 have the right of objection. Thus, other parties to insolvency proceedings (for example a creditors’ committee) cannot exercise this right2.

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Esser, in Braun, Insolvenzordnung, Art. 64 EuInsVO, mn. 2. Esser, in Braun, Insolvenzordnung, Art. 64 EuInsVO, mn. 2.

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Given the voluntariness of participation in the coordination, the applicant should strive for an agreement with the insolvency practitioners of the most important group members on key elements of the envisaged coordination already in advance.

B. Formalities of objections 4 5

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Pursuant to Article 64(2) EIR, objections must be raised before the court that has notified the insolvency practitioner under Article 63 EIR. Objections do not require any justification.3 The proposal by the Presidency for the general approach of 3 June 20144 contained the following footnote: “A recital should be added clarifying that an objection … does not require a justification. However, an insolvency practitioner objecting may give reasons to the court for doing. Such reasons may be helpful to the court when taking the decision …”. Such recital has not been inserted in the Regulation. The Union legislator, however, adopted the regulatory text proposed by the Presidency without modifications and thus accepted the underlying considerations. Objections can be lodged using a standard form established for this purpose. According to Article 88 EIR, the European Commission has to adopt implementing acts establishing and, where necessary, amending such a form. The possibility to use a form relieves the insolvency practitioners of considerations regarding formalities of an objection. In practice, the existence of an official form will probably promote objections. Since proceedings before the court seised are conducted in the official language of this court5, an objection has to be drawn up in this language6. Objections must be lodged within 30 days. The Regulation does not open up the possibility of opting out at a later stage.

C. Approval requirements under national law Whether or not an insolvency practitioner objects to the participation in the coordination is, pursuant to Article 65(1) EIR, decisive in respect of the inclusion of the insolvency proceedings in which he has been appointed. For the further course and results of the insolvency proceedings, the insolvency practitioner’s decision in favour or against inclusion in the group coordination may be of fundamental importance. It can significantly affect the interests of the parties involved in the respective insolvency proceedings. If, for example, the insolvency practitioner’s decision against the participation entails that a possible and economically advantageous restructuring in the group context cannot take place, the creditors of the respective group member may suffer (additional) losses. On the other hand, inclusion in group coordination proceedings entails costs that may impose a considerable burden on the insolvency estate involved. 10 Therefore, Article 64(3) EIR incorporates Article 7(2)(c) EIR and prescribes that an insolvency practitioner must, prior to his statement on the participation or nonparticipation, obtain any approval that the national law requires regarding this far9

3 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 64, mn. 14; J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 64, mn. 64.14; Esser, in Braun, Insolvenzordnung, Art. 64 EuInsVO, mn. 3. 4 Doc. ST 10284/2014 ADD 1, p. 51. 5 Lienau above Art. 61 mn. 22. 6 Esser, in Braun, Insolvenzordnung, Art. 64 EuInsVO, mn. 9.

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reaching decision. Obtaining such approval may, for instance, be necessary where the applicable national law regulates that an insolvency practitioner needs the consent of the creditors’ committee if he intends to engage in transactions of particular importance for the insolvency proceedings. It is also possible that national implementation rules govern approval requirements which are directly related to Article 64(1)(a) EIR.

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Article 65 Consequences of objection to the inclusion in group coordination 1. Where an insolvency practitioner has objected to the inclusion of the proceedings in respect of which it has been appointed in group coordination proceedings, those proceedings shall not be included in the group coordination proceedings. 2. The powers of the court referred to in Article 68 or of the coordinator arising from those proceedings shall have no effect as regards that member, and shall entail no costs for that member. Outline A. Purpose ............................................................................................................................... B. Consequences and practical effects of an objection.................................................

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A. Purpose Article 65 EIR regulates the legal effects of an objection raised by the insolvency practitioner of a group member to the inclusion in coordination under Article 64(1)(a) EIR. 2 According to Article 65(1) EIR, consequence of such an objection is that the insolvency proceedings in which the objecting insolvency practitioner has been appointed do not participate in the group coordination. 3 This legal effect arises by operation of law. A court decision stating this legal consequence is only of declaratory nature. 1

B. Consequences and practical effects of an objection The powers of the court with respect to the opening and conduct of group coordination proceedings as well as the powers of the appointed coordinator do, according to Article 65(2) EIR, not extend to insolvency proceedings in respect of which the insolvency practitioners have objected to the inclusion. Regarding these proceedings, the coordination entails neither legal effects nor procedural costs. 5 Nevertheless, group coordination proceedings may have factual implications on insolvency proceedings that are not included in the coordination. In case of conflicting interests of group members, the negotiating position of a non-participating insolvency practitioner vis-à-vis the insolvency practitioners of other group members may deteriorate if they act in a concerted way. That is in the nature of things and must be accepted by an insolvency practitioner who has objected to the inclusion in the coordination. 4

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Article 66 Choice of court for group coordination proceedings 1. Where at least two-thirds of all insolvency practitioners appointed in insolvency proceedings of the members of the group have agreed that a court of another Member State having jurisdiction is the most appropriate court for the opening of group coordination proceedings, that court shall have exclusive jurisdiction. 2. The choice of court shall be made by joint agreement in writing or evidenced in writing. It may be made until such time as group coordination proceedings have been opened in accordance with Article 68. 3. Any court other than the court seised under paragraph 1 shall decline jurisdiction in favour of that court. 4. The request for the opening of group coordination proceedings shall be submitted to the court agreed in accordance with Article 61. Outline A. Purpose ............................................................................................................................... 1 B. Conditions for a choice of court .................................................................................. 4 C. Consequences of a choice of court............................................................................... 13

A. Purpose Article 66 EIR regulates that, as an exception to the priority rule pursuant to 1 Article 62 EIR, the insolvency practitioners of group members may, acting by a qualified majority, establish the exclusive jurisdiction of another court for the opening of group coordination proceedings. The provision is part of the regulatory approach that places, besides the decision 2 concerning the participation, basic aspects of the organisation of the respective group coordination proceedings at the disposal of the insolvency practitioners. Until an agreement under Article 66(1), (2) EIR has been concluded, jurisdiction is 3 determined by Article 62 EIR. The right to agree on the jurisdiction ends upon the opening of group coordination proceedings (Article 66(2)(sentence 2) EIR).

B. Conditions for a choice of court Under Article 66(1) EIR, a two-thirds majority of all insolvency practitioners 4 appointed for group members may agree that another court than the court referred to in Article 62 EIR shall have jurisdiction for the opening of group coordination proceedings. In this way insolvency practitioners can bring about the exclusive jurisdiction of this court. Only agreements on the judicial body of a Member State are admissible. The Union 5 legislator has governed in Article 2 no. 6 (i) that, in respect of coordination under Articles 61 to 77 EIR, the term “court” in its narrow sense applies.

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Decisive is a qualified majority of the insolvency practitioners. The size of the insolvency estates administered by them is not relevant in this context.1 If an insolvency practitioner has been appointed for several group members, he has a corresponding number of votes2. The freedom of choice finds its limits, first, in the requirement that the chosen court must have jurisdiction. The provision has, secondly, to be properly interpreted in the sense that at least one of the proceedings that take part in the group coordination must be pending before the agreed court. Only if and when this is certain, the choice of court may be deemed legally valid. It would be nonsensical if a court became exclusively competent for the group coordination proceedings although the insolvency practitioner appointed by this court is not involved in the coordination and the group coordination proceedings do not have any effect on the insolvency proceedings pending before this court. The economic relevance of the group member for which the chosen court has jurisdiction is of no importance. Initially, in its first reading, the European Parliament took a different position. It was of the opinion that group members in the Member State to which the court belongs must perform “crucial functions within the group”.3 This position was abandoned in the further course of the legislative procedure4. In relation to the court competent under Article 62 EIR, the court chosen by the insolvency practitioners must be located in another Member State. Pursuant to the wording of Article 66(1) EIR, regarding the quorum the total number of insolvency practitioners is relevant. The formulation of the provision is unambiguous in this respect.5 The exclusive jurisdiction of a court can thus be established on the basis of a positioning of insolvency practitioners who subsequently object to the participation in group coordination proceedings. The wording of the provision leaves no room for another interpretation. Pursuant to Article 66(2)(sentence 1) EIR, the joint agreement among the insolvency practitioners on jurisdiction has to be made “in writing or evidenced in writing”. The phrase “in writing or evidenced in writing” is also used in Article 25(1)(a) of the Brussels Ia Regulation regarding choice of court agreements. It is based on Article 17 (1) of the former Brussels Convention6 according to which a valid choice of court required an “agreement in writing or … an oral agreement evidenced in writing”. The CJEU ruled in Case 221/847 that the requirement “evidenced in writing” is fulfilled if “it is established that jurisdiction was conferred by express oral agreement, that written confirmation of that agreement by one of the parties was received by the other and that the latter raised no objection”. This perception as well as other case law and literature on choice of court agreements in the context of civil and commercial matters must be regarded when interpreting Article 66(2)(sentence 1) EIR8. 1 Reinhart, in Münchener Kommentar zur InsO, Art. 66 EuInsVO, mn. 3; Esser, in Braun, Insolvenzordnung, Art. 66 EuInsVO, mn. 11. 2 Esser, in Braun, Insolvenzordnung, Art. 66 EuInsVO, mn. 11. 3 European Parliament legislative resolution of 5 February 2014 (first reading), P7_TA(2014)0093, Article 42 para. 1 lit. b. 4 This aspect is not taken into account by Mangano, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 8.56 et seq. 5 Reinhart, in Münchener Kommentar zur InsO, Art. 66 EuInsVO, mn. 3; J. Schmidt, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 66, mn. 4. 6 Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters. 7 CJEU Case C-221/84 Berghoefer v ASA ECLI:EU:C:1985:337. 8 Esser, in Braun, Insolvenzordnung, Art. 66 EuInsVO, mn. 15.

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Article 66(2)(sentence 2) EIR governs that the agreement can be concluded only 12 until the opening of group coordination proceedings.

C. Consequences of a choice of court Corresponding to the approach of exclusive jurisdiction by agreement under Article 66(1) EIR, Article 66(3) EIR governs that any court other than the court chosen by a qualified majority of the insolvency practitioners has to decline jurisdiction. By use of a formulation requiring it to happen “in favour” of the chosen court, the Union legislator did not intend to prescribe cross-border referrals. This follows from Article 66 (4) EIR, pursuant to which even in the relationship between the court initially competent under Article 62 EIR and the court that has subsequently become competent by agreement a referral does not happen. The request to open group coordination proceedings has, on the contrary, to be lodged anew with the court that has subsequently become competent. By using the expression “in favour”, the Union legislator merely provided that other courts seised of a request to open group coordination proceedings must, notwithstanding other reasons for a lack of competence, decline jurisdiction precisely because of the choice of court. Pursuant to Article 66(4) EIR, the request to open group coordination proceedings must be submitted to the agreed court in accordance with Article 61 EIR. In connection with the decision on the request to open group coordination proceedings, this court has to decide on whether the agreement under Article 66(1) EIR has been validly concluded.9 An insolvency practitioners’ agreement on jurisdiction is based on a specific request. It is hence appropriate to consider the requesting insolvency practitioner to be obliged to submit a version of the request without any substantive changes to the court which has become competent. Where the court is already in possession of such a version of the request, it would be an unnecessary formality to require a new submission of an unaltered request. In such cases it may be referred to the request that is already in the possession of the court.10 Article 66(4) EIR does not govern the further course of the procedure before the agreed court. Since a request has to be drawn up in the language of the addressed court, the applicant will usually be obliged to lodge it with the chosen court in another language than the one used to submit it to the court initially seised. Already for this reason it is necessary that the court now having jurisdiction gives, under the conditions specified in Article 63 EIR, anew notice of the entire request to the insolvency practitioners. Even in the case of a substantially unchanged request, it seems to be appropriate to grant, under Article 64(1)(a) EIR, the right to oppose to the inclusion in group coordination proceedings at least of the insolvency practitioners who did not participate in the agreement. The reason for not lodging such an objection with the court initially competent under Article 62 EIR may have been that the respective insolvency practitioner intended to participate in group coordination proceedings just before that court. 9 But see Reinhart, in Münchener Kommentar zur InsO, Art. 66 EuInsVO, mn. 10, who is of the view that Art. 62 EIR should apply mutatis mutandis. 10 Reinhart, in Münchener Kommentar zur InsO, Art. 66 EuInsVO, mn. 8.

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Article 67 Consequences of objections to the proposed coordinator Where objections to the person proposed as coordinator have been received from an insolvency practitioner which does not also object to the inclusion in the group coordination proceedings of the member in respect of which it has been appointed, the court may refrain from appointing that person and invite the objecting insolvency practitioner to submit a new request in accordance with Article 61(3). Outline A. Purpose ............................................................................................................................... B. Procedure ...........................................................................................................................

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A. Purpose According to Article 67 EIR, an insolvency practitioner appointed for a group member who has no objections against the inclusion in the group coordination proceedings has the possibility to object to the person proposed as coordinator. 2 Article 67 EIR regulates how the court has to proceed in such cases. The court may refrain from appointing the proposed person as coordinator and invite the objecting insolvency practitioner to file a new request that meets the requirements of Article 61(3) EIR. 1

B. Procedure According to the clear wording of the provision, the court has discretion as to whether or not to appoint the proposed coordinator. The court may refrain from appointing the person proposed in the request but is not obliged to do so1. In exercising this discretion, the court has to take account of Article 71 EIR and the purposes of group coordination proceedings pursued by the Union legislator. 4 Article 64(1) EIR does not require that an objection be substantiated. However, if the objecting party does not give any reasons for its objection, the court will usually have no cause to consider it to be justified. 5 If the court accedes to the objection by an insolvency practitioner and does not appoint the proposed person, it has to attach to its decision the invitation vis-à-vis the insolvency practitioner to submit a new request in accordance with Article 61(3) EIR. According to the wording of Article 67 EIR, the court is obliged to proceed in this way (“… may refrain … and … invite …”) if it considers the objection under Article 64(1) (b) EIR to be justified2. The objective pursued by the rule is to require an insolvency practitioner who objects to the proposed coordinator to constructively contribute to the further course of the proceedings. 6 The Regulation does not prescribe how the court has to proceed if an insolvency practitioner, after having raised the objection, definitely fails to comply with the 3

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Esser, in Braun, Insolvenzordnung, Art. 67 EuInsVO, mn. 7. Prager/Keller, WM 2015, 805, 810.

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Consequences of objections to the proposed coordinator

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invitation to submit a new request. Where the objection against the person proposed as coordinator is justified in accordance with Article 71 EIR, the court must not appoint this person. This follows from Article 68(1) EIR in conjunction with Article 63(1)(c) EIR. In such cases the insolvency practitioner who has requested the opening of group coordination proceedings must, on a proper interpretation of Article 67 EIR, be given the opportunity to name another person for the office of coordinator. Where the objection against the person proposed as coordinator proves not to be justified, it must be considered irrelevant. Otherwise, the insolvency practitioner of a group member could obstruct the opening of group coordination proceedings simply by objecting to the proposed coordinator without valid reason and non-cooperating in the further course of the procedure. There is no specific provision regarding the procedure following the submission of 7 a new request by the insolvency practitioner who raised the objection under Article 64 (1)(b) EIR. Because the insolvency practitioner merely objected to the proposed coordinator, his request will, regarding the contents pursuant to Article 61(3) EIR, usually deviate from the initial request only in respect of the coordinator and, possibly, the estimated costs of the proposed coordination. Therefore, it should be considered admissible if the requesting insolvency practitioner refers to the unaltered parts of the initial request. In the absence of a deviating rule, the subsequent procedure relating to the new request has to be conducted in accordance with the general provisions on requests to open group coordination proceedings. Pursuant to Article 63 EIR, the court must take account of each insolvency practitioner’s right to be heard, and the insolvency practitioners may, under Article 64 EIR, again raise objections.

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Article 68 Decision to open group coordination proceedings 1. After the period referred to in Article 64(2) has elapsed, the court may open group coordination proceedings where it is satisfied that the conditions of Article 63 (1) are met. In such a case, the court shall: (a) appoint a coordinator; (b) decide on the outline of the coordination; and (c) decide on the estimation of costs and the share to be paid by the group members. 2. The decision opening group coordination proceedings shall be brought to the notice of the participating insolvency practitioners and of the coordinator. Outline A. Purpose ............................................................................................................................... B. Conditions for the opening of group coordination proceedings ..........................

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A. Purpose 1

Article 68 EIR provides when and under which conditions the court may take a positive decision on the request to open group coordination proceedings. Furthermore, the provision governs the necessary content of the opening decision and its notification.

B. Conditions for the opening of group coordination proceedings Pursuant to Article 68(1)(sentence 1) EIR, the court may not open group coordination proceedings until the expiry of the 30-day deadline according to Article 64(2) EIR. As long as insolvency practitioners of group members still have the possibility to object to the proposed coordinator, it is possible that the court is obliged to proceed according to Article 67 EIR. Moreover, only after the deadline for objections against the inclusion in group coordination proceedings has expired for all insolvency practitioners of group members, the court is enabled to finally assess who will participate in the coordination and whether group coordination proceedings may contribute to better results in the involved insolvency proceedings. If all insolvency practitioners have validly waived their right, the expiry of the deadline does not need to be awaited1. 3 Furthermore, Article 68(1)(sentence 1) EIR provides that group coordination proceedings may only be opened where the court is satisfied that the conditions of Article 63(1) EIR are met. The court must, taking account of all discernible circumstances, be convinced that the opening of group coordination proceedings is appropriate to facilitate the effective administration of the included insolvency proceedings and will probably not entail financial disadvantages for creditors of a participating group member. In addition, the court must be satisfied that the coordinator meets the requirements stated in Article 71 EIR. The court has to take its decision on the basis of the latest version of the request. It is not entitled to modify the request by means of its decision.2 2

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Esser, in Braun, Insolvenzordnung, Art. 68 EuInsVO, mn. 7. Esser, in Braun, Insolvenzordnung, Art. 68 EuInsVO, mn. 12; J. Schmidt, in Mankowski/Müller/ J. Schmidt, EuInsVO 2015, Art. 68, mn. 17, 20. 2

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Decision to open group coordination proceedings

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According to the wording of Article 68(1)(sentence 1) EIR, the court has discretion as to the opening of group coordination proceedings even if all requirements for an opening decision are met (“may open”). However, if all conditions under Article 68(1) (sentence 1) EIR are fulfilled, the judicial discretion will, as a rule, be limited to taking a positive decision on the request. The court is not entitled to refuse the opening of group coordination proceedings on the grounds that it considers the opening by another court to be more appropriate3. At the time of the opening of group coordination proceedings, all insolvency practitioners of group members had the opportunity to opt against an inclusion. Thus, the coordination affects only insolvency practitioners who have endorsed a group coordination and their participation in it. Reasons to refuse the opening of group coordination proceedings contrary to the insolvency practitioners’ intention may therefore only come into consideration in exceptional circumstances. Under Article 68(1)(sentence 2) EIR, the court must, when opening group coordination proceedings, appoint a coordinator and decide on the outline of the coordination as well as on the cost estimation and the envisaged apportionment of costs among the involved group members. Considering that the procedure takes place only on request and that the insolvency practitioners’ decision to take part in the coordination is based on the specific contents of the request, the court is not entitled to deviate from it. In case of subsequent changes, the basis for the court decision has to be the content of the request in its final version. Pursuant to Article 68(2) EIR, the court has to notify the involved insolvency practitioners and the coordinator of the decision opening group coordination proceedings. The provision takes account of the principle that, based on the right to a fair hearing, a court decision must be brought to the notice of the affected parties. According to its wording, Article 68(2) EIR regulates the requirement to notify the parties only in the case of a “decision opening” group coordination proceedings; it does not stipulate such a requirement regarding other decisions ruling on the request to open group coordination proceedings. The provision thus merely prescribes the notification of a positive decision. Taking into consideration the guarantee of procedural fairness, the court is, however, also obliged to inform the insolvency practitioners who have not objected to the inclusion of a rejection decision and its reasons. The affected insolvency practitioners have a right to know that and for what reasons the requested group coordination proceedings have not been opened. By contrast, a notification to the insolvency practitioners who have, under Article 64(1)(a) EIR, objected to the inclusion in group coordination proceedings is not necessary4. The rejection decision does not legally affect them since, according to Article 65(2) EIR, the effects and costs of group coordination proceedings are limited to participating insolvency practitioners. According to Article 24(2) and (3) EIR, court rulings under Article 68 EIR may, but need not, be published in the insolvency registers5. As far as insolvency practitioners are affected by the court decision, the question arises whether and under what conditions they can appeal against the decision. The Regulation does not contain rules as to this issue. Applying Article 7(1) and (2) (sentence 1) EIR mutatis mutandis, the provisions of the national procedural law are relevant.6

3

Esser, in Braun, Insolvenzordnung, Art. 64 EuInsVO, mn. 7. But see Esser, in Braun, Insolvenzordnung, Art. 68 EuInsVO, mn. 16. 5 Esser, in Braun, Insolvenzordnung, Art. 68 EuInsVO, mn. 17. 6 Reinhart, in Münchener Kommentar zur InsO, Art. 68 EuInsVO, mn. 1; J. Schmidt, in Mankowski/ Müller/J. Schmidt, EuInsVO 2015, Art. 68, mn. 28. 4

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Article 69 Subsequent opt-in by insolvency practitioners 1. In accordance with its national law, any insolvency practitioner may request, after the court decision referred to in Article 68, the inclusion of the proceedings in respect of which it has been appointed, where: (a) there has been an objection to the inclusion of the insolvency proceedings within the group coordination proceedings; or (b) insolvency proceedings with respect to a member of the group have been opened after the court has opened group coordination proceedings. 2. Without prejudice to paragraph 4, the coordinator may accede to such a request, after consulting the insolvency practitioners involved, where (a) he or she is satisfied that, taking into account the stage that the group coordination proceedings has reached at the time of the request, the criteria set out in points (a) and (b) of Article 63(1) are met; or (b) all insolvency practitioners involved agree, subject to the conditions in their national law. 3. The coordinator shall inform the court and the participating insolvency practitioners of his or her decision pursuant to paragraph 2 and of the reasons on which it is based. 4. Any participating insolvency practitioner or any insolvency practitioner whose request for inclusion in the group coordination proceedings has been rejected may challenge the decision referred to in paragraph 2 in accordance with the procedure set out under the law of the Member State in which the group coordination proceedings have been opened. Outline A. Purpose ............................................................................................................................... B. Admissibility of a request............................................................................................... C. Decision on the request .................................................................................................. D. Right to challenge the decision .....................................................................................

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A. Purpose 1

According to Article 69 EIR, any insolvency practitioner not yet participating in the coordination may, virtually without preconditions, subsequently request the inclusion in the opened group coordination proceedings. The decision on the request, i. e. on the opt-in, has to be taken by the appointed coordinator. His decision is subject to judicial review.

B. Admissibility of a request 2

Pursuant to Article 69(1) EIR, any insolvency practitioner not involved in group coordination proceedings has the right to request the subsequent inclusion of the insolvency proceedings in which he has been appointed. The request has to be made “in

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Subsequent opt-in by insolvency practitioners

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accordance with its national law”. Thus, and in line with Article 61(2) EIR, the insolvency practitioner only has to observe the national insolvency law applicable to him.1 The request can be lodged only after the court decision referred to in Article 68 EIR 3 has been taken. A decision in favour of an opt-out can thus be changed only after the opening of group coordination proceedings2. An admissible application requires that the insolvency practitioner has not been 4 included in the coordination so far, either because he has objected to a participation, or because the insolvency proceedings in which he has been appointed have been opened only after the opening of the group coordination proceedings. There are thus two possible cases of a subsequent opt-in: either the requesting insolvency practitioner had no chance to participate in the proceedings at the time it was opened or he initially did not want to participate in it. The provision is hence designed to subject the admissibility of an application for subsequent inclusion of proceedings in an ongoing coordination only to few conditions. This is in line with the intention to encourage participation in group coordination proceedings3. Since the Union legislator has governed that even an insolvency practitioner’s altered determination suffices for a subsequent participation, an opt-in is, on a proper interpretation, always possible if objective obstacles made an initial participation impossible. That may, for example, be the case if insolvency proceedings had been opened just before the opening of the group coordination proceedings and their inclusion was virtually impossible.4

C. Decision on the request According to Article 69(2)(b) EIR, the coordinator may accede to the request if all 5 involved insolvency practitioners agree in accordance with the national law applicable to them. A Member State’s law may require an approval (for example by the creditors’ committee) for the insolvency practitioner’s consent to the request. When there is a consensus among all insolvency practitioners involved in the coordination that the proceedings shall, in accordance with the request, be extended to the other group member, the coordinator is bound by this agreement. The condition that the insolvency practitioners’ consent must be given “subject to the conditions in their national law” may not be interpreted in such a way that the coordinator is to investigate whether all declarations of consent are in accordance with the respective national law. Such a duty of investigation would scarcely be reconcilable with the very nature of group coordination proceedings and the coordinator’s position and powers. The provision must be properly interpreted in the sense that the coordinator has to take account of infringements of national law only if they are definite and have become known to him. If not all involved insolvency practitioners agree to the inclusion of the requesting 6 insolvency practitioner in the coordination, the coordinator may take a positive decision on the request only under the substantive conditions laid down in Article 69 (2)(a) EIR. In order to accede to the request, the coordinator must, first, be satisfied that, taking into account the stage of the group coordination proceedings, the participation of the requesting insolvency practitioner can facilitate the effective administration of the included insolvency proceedings. That may already be assumed if the 1

Reinhart, in Münchener Kommentar zur InsO, Art. 69 EuInsVO, mn. 3. Esser, in Braun, Insolvenzordnung, Art. 69 EuInsVO, mn. 10. 3 Mangano, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 8.67. 4 Esser, in Braun, Insolvenzordnung, Art. 69 EuInsVO, mn. 8. 2

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Art. 69 7–9

Chapter V. Insolvency Proceedings of Members of a Group

inclusion of the requesting insolvency practitioner entails benefits for the proceedings in which he has been appointed and does not imply any disadvantages for the other coordinated proceedings. Secondly, he must be convinced that no creditor of any group member participating in the coordination is likely to be financially disadvantaged by the inclusion of the applicant. The subsequent inclusion of a group member is thus, without exception, inadmissible if it entails disadvantages for one of the included group members that may affect its creditors. According to the wording of Article 69 EIR (“may”), the Regulation confers a discretion on the coordinator as to whether or not to accede to the request for inclusion. That does, however, not mean that the coordinator is authorised to decide arbitrarily on the request. The coordinator holds an office on the basis of a court decision. His exercise of discretion has consequently to be oriented towards the objectives of the Union legislator pursued by the provisions on group coordination proceedings5. 7 According to Article 69(3) EIR, the coordinator must inform the court and the insolvency practitioners hitherto participating in the coordination about how he decided on the request and on which reasons the decision is based. The court to be informed is the one that has opened group coordination proceedings under Article 68 (1) EIR. In Article 69(1) EIR this court is explicitly referred to. Considering the context and the exclusive competences with regard to group coordination proceedings, for example concerning a revocation of the coordinator’s appointment (see Lienau below Art. 75 mn. 2), this court is also meant in Article 69(3) EIR.

D. Right to challenge the decision Pursuant to Article 69(4) EIR, each insolvency practitioner involved in group coordination proceedings and each insolvency practitioner whose request for inclusion in the coordination has been rejected has the right to challenge the coordinator’s decision under Article 69(2) EIR. This applies both with regard to a positive and to a negative decision6. Regarding the procedure relating to the challenge, the law of the Member State in which the group coordination proceedings have been opened is relevant. Since Article 69(4) EIR explicitly governs the possibility of a challenge, Member States must provide for procedural rules governing such a challenge. 9 Article 69(4) EIR raises the question of whether the provision finally regulates the circle of persons having a right to challenge the decision or whether this right can be restricted “in accordance with the procedure set out under the law of the Member State in which the group coordination proceedings have been opened”. The latter must be answered in the negative. The essential consideration in this context is that the challenge does not relate to a court ruling but to a decision of the coordinator in the course of exercising his duties. The challenge is thus not a legal remedy within a court procedure. The challenging insolvency practitioner rather applies for legal protection regarding the coordinator’s exercise of competences. In view of the right of recourse to the courts enshrined in Article 47 of the Charter of Fundamental Rights of the European Union, Article 69(4) EIR must, regarding the circle of persons having a right to challenge the coordinator’s decision, be understood in a broad sense. 8

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Esser, in Braun, Insolvenzordnung, Art. 69 EuInsVO, mn. 22. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 69, mn. 33; J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 69, mn. 69.28. 6

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Subsequent opt-in by insolvency practitioners

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Hence, the question of whether the party challenging the coordinator’s decision is 10 affected does not relate to the admissibility of the challenge. It may, however, be considered relevant in the legal assessment of the substance of the challenge. Where the coordinator has acceded to a valid request by the complaining insolvency practitioner, the court will, as a rule, conclude that the decision does not give rise to any objection.

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Article 70 Recommendations and group coordination plan 1. When conducting their insolvency proceedings, insolvency practitioners shall consider the recommendations of the coordinator and the content of the group coordination plan referred to in Article 72(1). 2. An insolvency practitioner shall not be obliged to follow in whole or in part the coordinator’s recommendations or the group coordination plan. If it does not follow the coordinator’s recommendations or the group coordination plan, it shall give reasons for not doing so to the persons or bodies that it is to report to under its national law, and to the coordinator. Specific bibliography: Wimmer, Konzerninsolvenzen im Rahmen der EuInsVO – Ausblick auf die Schaffung eines deutschen Konzerninsolvenzrechts, DB 2013, 1343. Outline A. Purpose ............................................................................................................................... B. Legal effects of coordination measures .......................................................................

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A. Purpose 1

Article 70 EIR regulates, as a substantive rule, the legal effects of recommendations under Article 72(1)(a) EIR and of a group coordination plan under Article 72(1)(b) EIR for the insolvency practitioners participating in the coordination.

B. Legal effects of coordination measures 2

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Pursuant to Article 70(1) EIR, the insolvency practitioners have to “consider” the recommendations of the coordinator and the content of his group coordination plan. They are, as clarified in Article 70(2)(sentence 1) EIR, not obliged to follow in whole or in part his recommendations and the measures specified in the group coordination plan. This approach reflects the fact that each insolvency practitioner acts solely in the interest of the insolvency estate for which he has been appointed. When exercising their activities, the concerned insolvency practitioners must, however, always bear these recommendations and measures in mind and decide, in the sense of an ongoing process, whether or not to comply with them. The Regulation does not link this duty to any sanctions. A failure to comply with obligations in the context of a coordination may, however, entail that the insolvency practitioner is held liable under national law.1 In line with the “comply or explain” approach2, an insolvency practitioner is obliged to give reasons for not following the coordinator’s advice under Article 70(2)(sentence 2) 1 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 637; Esser, in Braun, Insolvenzordnung, Art. 70 EuInsVO, mn. 1, 5; J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 70, mn. 13; Wimmer, DB 2013, 1343, 1349. 2 See generally (in detail on this mechanism and the obligations deriving therefrom in other contexts) J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 70, mn. 2, 20 et seq.; J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 70, mn. 70.11, 70.18.

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Recommendations and group coordination plan

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EIR. He must inform the coordinator and the persons or bodies he is to report to under the relevant national law about these reasons. By this means the parties to the insolvency proceedings are enabled to form an opinion about the coordinator’s recommendations and the reasons for and against compliance with them. If provided for by national law, the parties can urge the insolvency practitioner to follow the recommendations3. 3

Esser, in Braun, Insolvenzordnung, Art. 70 EuInsVO, mn. 10.

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Subsection 2 General provisions Article 71 The coordinator 1. The coordinator shall be a person eligible under the law of a Member State to act as an insolvency practitioner. 2. The coordinator shall not be one of the insolvency practitioners appointed to act in respect of any of the group members, and shall have no conflict of interest in respect of the group members, their creditors and the insolvency practitioners appointed in respect of any of the group members. Specific bibliography: Ehle, Der Gruppenkoordinator in der reformierten EuInsVO – Bestellung, Abberufung und Haftung, ZIP 2016, 1619. Outline A. Purpose ............................................................................................................................... B. Criteria for eligibility as coordinator ...........................................................................

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A. Purpose 1

Article 71 EIR provides the requirements a person has to meet in order to be eligible for a nomination as coordinator. The provision does not regulate whether the court has a duty of examination or investigation in this respect ex officio. Considering that the procedure takes place only upon request and that Article 64 EIR provides for an insolvency practitioner’s right to object to the coordinator’s appointment, it seems appropriate to assume a court’s duty of examination, but not investigation, on its own motion.

B. Criteria for eligibility as coordinator According to Article 71(1) EIR, only a “person” is suitable for the office of coordinator. The tasks of a coordinator may thus not be exercised by a body. However, the provision does not prescribe that the coordinator must be a natural person. It may also be a legal person.1 3 The natural or legal person must be eligible under the law of “a Member State” to act as an insolvency practitioner. According to the provision’s wording, it does not matter whether the court that is competent for his or its appointment as coordinator could appoint the respective natural or legal person as insolvency practitioner pursuant to the relevant national procedural law. It is merely required that the person would be eligible to exercise the office of insolvency practitioner “under the law of a Member State”.2 2

1 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 71, mn. 5; J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 71, mn. 71.4 et seq. 2 Cülter, in Braun, Insolvenzordnung, Art. 71 EuInsVO, mn. 6; Ehle, ZIP 2016, 1619, 1620 and 1625.

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The coordinator

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Pursuant to Article 71(2) EIR, an insolvency practitioner appointed for a group 4 member may not be assigned the office of coordinator at the same time. The underlying consideration is that the coordinator shall exercise his tasks – in fact and in the perception of the persons concerned – impartially (Article 72(5) EIR) and in the interest of all parties included in the coordination. This is only ensured if the coordinator is independent vis-à-vis all concerned parties to insolvency proceedings of group members. Independence of the coordinator must thus be ensured not only visà-vis the addressees of his recommendations and his group coordination plan but also vis-à-vis the parties to the proceedings that are not included in the coordination. The necessary independence may be lacking, for example, if the intended coordinator consulted a group member3. Accordingly, the activities of the person intended to be nominated as coordinator may, 5 under Article 71(2) EIR, not entail conflicts of interests with respect to members of the corporate group, their creditors, or the insolvency practitioners appointed for them. Considering the wording and the underlying legislative concept, the provision refers to all members of the corporate group. Conflicts of interest may result from current or former personal or economic relationships or from professional connections.4 In general terms, a person may be considered eligible for the office of coordinator 6 only if, in all aspects, an independent exercise of tasks is ensured. Members of a corporate group may, however, have conflicting interests in their relation with each other. In case of disputes within the corporate group, the enforcement of positions of one group member can thus run counter to the interests of another group member. It is in the nature of things that the coordinator’s activities may entail advantages for proceedings participating in the coordination which are directly connected with disadvantages for non-participating group members. The coordinator may in such cases only take account of the interests of parties to the proceedings that are included in the coordination. 3

Cülter, in Braun, Insolvenzordnung, Art. 71 EuInsVO, mn. 8. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 71, mn. 13 et seq.; see generally J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 71, mn. 71.10 et seq. 4

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Article 72 Tasks and rights of the coordinator 1. The coordinator shall: (a) identify and outline recommendations for the coordinated conduct of the insolvency proceedings; (b) propose a group coordination plan that identifies, describes and recommends a comprehensive set of measures appropriate to an integrated approach to the resolution of the group members’ insolvencies. In particular, the plan may contain proposals for: (i) the measures to be taken in order to re-establish the economic performance and the financial soundness of the group or any part of it; (ii) the settlement of intra-group disputes as regards intra-group transactions and avoidance actions; (iii) agreements between the insolvency practitioners of the insolvent group members. 2. The coordinator may also: (a) be heard and participate, in particular by attending creditors’ meetings, in any of the proceedings opened in respect of any member of the group; (b) mediate any dispute arising between two or more insolvency practitioners of group members; (c) present and explain his or her group coordination plan to the persons or bodies that he or she is to report to under his or her national law; (d) request information from any insolvency practitioner in respect of any member of the group where that information is or might be of use when identifying and outlining strategies and measures in order to coordinate the proceedings; and (e) request a stay for a period of up to 6 months of the proceedings opened in respect of any member of the group, provided that such a stay is necessary in order to ensure the proper implementation of the plan and would be to the benefit of the creditors in the proceedings for which the stay is requested; or request the lifting of any existing stay. Such a request shall be made to the court that opened the proceedings for which a stay is requested. 3. The plan referred to in point (b) of paragraph 1 shall not include recommendations as to any consolidation of proceedings or insolvency estates. 4. The coordinator’s tasks and rights as defined under this Article shall not extend to any member of the group not participating in group coordination proceedings. 5. The coordinator shall perform his or her duties impartially and with due care. 6. Where the coordinator considers that the fulfilment of his or her tasks requires a significant increase in the costs compared to the cost estimate referred to in point (d) of Article 61(3), and in any case, where the costs exceed 10 % of the estimated costs, the coordinator shall: (a) inform without delay the participating insolvency practitioners; and (b) seek the prior approval of the court opening group coordination proceedings. Recital: 59. Specific bibliography: Ehle, Der Gruppenkoordinator in der reformierten EuInsVO – Bestellung, Abberufung und Haftung, ZIP 2016, 1619; Smaliukas, Insolvency of Group of Companies in the scope of the new EIR: Lithuanian perspective, IILR 2015, 379; Wimmer, Konzerninsolvenzen im Rahmen der EuInsVO – Ausblick auf die Schaffung eines deutschen Konzerninsolvenzrechts, DB 2013, 1343.

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Tasks and rights of the coordinator

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Art. 72

Outline A. Purpose ............................................................................................................................... B. Tasks of the coordinator ................................................................................................ C. Rights of the coordinator ............................................................................................... D. Limits of coordination .................................................................................................... E. Group members concerned ........................................................................................... F. Impartiality of the coordinator ..................................................................................... G. Duties in case of a cost increase ...................................................................................

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A. Purpose Article 72 EIR prescribes in detail the coordinator’s tasks, rights, and duties. The 1 provision is a core part of the approach on group coordination proceedings.

B. Tasks of the coordinator According to Article 72(1)(a) EIR, the coordinator has to identify, i. e. to finally define1, and to outline recommendations for the coordinated conduct of the insolvency proceedings. The recommendations may, as clarified in Article 72(4) EIR, extend only to proceedings that are included in the coordination. The coordinator’s duty to “outline” the recommendations must be understood in the sense of an obligation of formulation and comprehensible explanation. Recommendations may, in particular, come into question when the group coordination plan has not yet been elaborated2 or when it subsequently becomes apparent that the plan does not cover all questions that arise in the further course of the proceedings. Pursuant to Article 72(1)(b)(sentence 1) EIR, it is part of the coordinator’s tasks to propose a group coordination plan. This plan must contain a comprehensive set of measures in the sense of an integrated approach aiming at the resolution of the (participating) group members’ insolvencies. The measures recommended by the coordinator must be defined and, inter alia regarding their appropriateness, be described in the group coordination plan. The group coordination plan is, in substance, a master plan. It contains reference points in the form of objectives and measures. Whether or not these objectives and measures are implemented must be decided at the level of the individual insolvency proceedings3. The group coordination plan does not need to be directed towards a restructuring. It may equally be oriented towards gains through a coordinated liquidation4. Article 72(1)(b)(sentence 2) EIR lists contents that a group coordination plan may particularly contain. Even though the list only provides examples (“may contain”), the coordinator’s activities have generally to be guided by these examples (“in particular”). According to Article 72(1)(b)(sentence 2)(i) EIR, the group coordination plan may contain proposals for measures aiming at the re-establishment of the economic performance and financial soundness of some or all group members. As far as the provision refers to the financial soundness “of the group”, the wording is imprecise In the German version, the word “identify” is translated as “legt … fest”. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 72, mn. 8. 3 Wimmer, DB 2013, 1343, 1349. 4 Wimmer, DB 2013, 1343, 1349. 1 2

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since, as clarified in Article 72(3) EIR, a consolidation of insolvency estates is not allowed. Furthermore, the wording is inexact since, as following from Article 72(4) EIR, it is not about the solvency of all group members but of the group members that are participating in the coordination. 8 The group coordination plan may, as governed in Article 72(1)(b)(sentence 2)(ii) EIR, contain proposals for the settlement of disputes between group members. The provision refers, by way of example, to intra-group transactions and avoidance actions. It shows that the coordinator’s tasks are not limited to making it possible or easier for the insolvency practitioners involved in the coordination to act vis-à-vis third parties in a coordinated way. An essential part of the coordinator’s activities is, as a matter of course, the elaboration of solutions that aim at achieving benefits for the participating proceedings through preventing third parties from taking advantage of an uncoordinated course of action by the insolvency practitioners. A further key task is, however, to avert disputes among the involved insolvency practitioners the disadvantages of which outweigh the advantages. Since the coordinator has to perform his tasks in relation to the insolvency practitioners involved impartially (Article 71(2) EIR), his proposals must be guided solely by the interests of the parties in the dispute. He may not propose solutions that demand sacrifices from an insolvency practitioner on the sole ground that the benefits of such sacrifices for the entirety of the participating insolvency proceedings outweigh the detriments for the respective estate5. The proposals must be guided by the objective to point out win-win solutions to the conflicting parties. These solutions may, of course, not be to the detriment of the other proceedings participating in the coordination. They can, however, entail disadvantages for parties to proceedings that are not included in the coordination. 9 In line with his competence to promote agreements between insolvency practitioners for the settlement of intra-group disputes, the coordinator may, pursuant to Article 72(1)(b)(sentence 2)(iii) EIR, propose other agreements between insolvency practitioners of group members. He should exercise this competence whenever such agreement may, considering the perspective of the involved parties, contribute to a better mastery of the respective insolvencies. He may also strive for an agreement that is neutral for one participating proceeding but in its entirety, having regard to all proceedings included in the coordination, advantageous. He is only prohibited from proposing an agreement that requires a party to the agreement to make a sacrifice in favour of other proceedings. 10 A group coordination plan does not require an approval by the court that has opened group coordination proceedings6.

C. Rights of the coordinator Article 72(2) EIR provides a number of rights with respect to the insolvency proceedings included in the coordination, vis-à-vis the insolvency practitioners of these proceedings, and in relation to other parties to the proceedings. 12 According to Article 72(2)(a) EIR, the coordinator is entitled to be heard in any of the proceedings of group members and to participate in these proceedings, in particular by attending creditors’ meetings. Pursuant to Article 72(4) EIR, this right extends only to the insolvency proceedings that are included in the coordination. This is appropriate 11

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Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 567. Cülter, in Braun, Insolvenzordnung, Art. 72 EuInsVO, mn. 7.

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Tasks and rights of the coordinator

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because the interests of the participating and the non-participating insolvency practitioners may be conflicting. Article 72(2)(b) EIR gives the coordinator the right to mediate in disputes between insolvency practitioners of participating group members. This right complements the coordinator’s task under Article 72(1)(b) EIR to make proposals for the settlement of intra-group disputes. The coordinator is not only entitled to initiate the process of settling intra-group transactions but also to structure and actively accompany it. It is in the nature of things that, in the end, it is up to the parties to the dispute to decide whether and with what outcome the conflict shall be settled out of court. According to Article 70(2) EIR, an insolvency practitioner is not obliged to take part in a mediation by the coordinator7. Article 72(2)(c) EIR lays down the coordinator’s right to present and explain a group coordination plan to the persons or bodies that he is to report to under his national law. The provision contains the self-evident rule that the coordinator is entitled to abide by reporting obligations under the law of the Member State in which he has been appointed. The rule also indicates, however, the notion of the Union legislator that the national law may provide such reporting obligations. The right to present and explain the group coordination plan in the insolvency proceedings that are included in the coordination follows from Article 72(2)(a) EIR. Pursuant to Article 72(2)(d) EIR, the coordinator has the right to request information from any insolvency practitioner in respect of any group member. The underlying consideration is that the coordinator can properly perform his tasks only if he is in possession of all relevant information. The provision must be interpreted in a broad sense. This follows from the formulation of the information right according to which it suffices that the requested information “might” be useful in connection with identifying and outlining coordination strategies and measures. According to such interpretation, the obligation of an insolvency practitioner may comprise information that he possesses regarding another group member. The most far-reaching right of the coordinator is governed in Article 72(2)(e) (sentence 1) EIR. According to this provision, the coordinator is – solely (Article 60(1) (b)(iv) EIR) – entitled to request a stay for up to six months in respect of any group member participating in the coordination. This right can also be exercised in regard to secondary insolvency proceedings. A stay upon application of the coordinator requires, firstly, that it is necessary in order to ensure the proper implementation of the group coordination plan. A stay is thus only possible if a group coordination plan has already been presented. Hence, the existence of recommendations under Article 72(1)(a) EIR does not entitle the coordinator to request a stay. Even if a group coordination plan exists, it is not sufficient that a stay may contribute in some way to a better coordination and conduct of insolvency proceedings. The stay must rather be indispensable for ensuring the proper implementation of the plan. The stay must, secondly, be to the benefit of the creditors in the proceedings for which the stay is requested. For this reason, the stay of a proceeding is inadmissible if it is only beneficial for other proceedings and parties to them, respectively. This follows from the basic principle laid down in Article 72(3) EIR that any form of consolidation is impermissible. The parties to insolvency proceedings included in the coordination may not be worse off solely because, considering the proceedings included in the coordination as a whole, the benefits from the measure in its entirety outweigh its detriments. 7

Cülter, in Braun, Insolvenzordnung, Art. 72 EuInsVO, mn. 20.

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A stay will therefore only come into consideration to the extent that it is compatible with the purposes of the respective proceedings and the rules protecting the creditors’ interests. For this reason, usually only a stay of liquidation measures will be appropriate.8 However, a stay prompted by uncoordinated restructuring measures is conceivable as well9. In the context of ordering a stay, the court has to hear the insolvency practitioner of the group member for which the stay is applied for (Article 47(2) of the Charter of Fundamental Rights of the European Union). The court decision ordering the stay is, according to Article 7(2)(sentence 1) EIR, subject to the legal remedy under the respective national law10. 20 Furthermore, the coordinator has, according to Article 72(2)(e)(sentence 1) EIR, the right to request the lifting of any existing stay. The Regulation does not govern any requirements in this regard. Since a consolidation is not permitted, the lifting of a stay may not serve the purpose to place the parties to the proceedings to which the request relates in a less favourable position compared to the parties to other proceedings. 21 Pursuant to Article 72(2)(e)(sentence 2) EIR, the request has to be made to the court that has opened the proceedings for which the stay is requested. It is in the nature of things that the court having jurisdiction for the opening of insolvency proceedings and before which the proceedings are pending is competent to decide on a requested stay. The court’s jurisdiction includes, though not expressly governed, the lifting of a stay. 19

D. Limits of coordination The group coordination plan must, under Article 72(3) EIR, not contain recommendations as to any consolidation of proceedings or insolvency estates. 23 It is a basic principle of the Regulation that the provisions aiming at a better resolution of insolvencies of group members do not affect the legal independence of the insolvency proceedings and the administered insolvency estates. The provisions on corporate groups govern, firstly, the cooperation of the parties involved (for example Article 56(1) EIR, Article 57(1) EIR, and Article 58(a) EIR) and the communication between them (for example Article 56(2)(a) EIR, Article 57(2) EIR, and Article 58(b) EIR). Secondly, they aim at a coordinated approach among the parties to the insolvency proceedings of group members (Article 56(2)(b), (c) EIR and Article 57(3) EIR). The Union legislator deliberately decided not to go beyond mechanisms of cooperation, communication, and coordination and ruled out a consolidated mastering of insolvencies on the procedural level or regarding the insolvency estates. 24 As a consequence of this approach, a group coordination plan must not include recommendations that go beyond these mechanisms. This basic principle applies mutatis mutandis to recommendations under Article 72(1)(a) EIR as less far-reaching coordination measures. 22

E. Group members concerned 25

According to Article 72(4) EIR, the tasks and rights characteristic of the office of coordinator do not extend to group members not participating in the coordination. 8

Reinhart, in Münchener Kommentar zur InsO, Art. 72 EuInsVO, mn. 16. Cülter, in Braun, Insolvenzordnung, Art. 72 EuInsVO, mn. 24. 10 Cülter, in Braun, Insolvenzordnung, Art. 72 EuInsVO, mn. 28. 9

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Tasks and rights of the coordinator

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The provision is part of the regulatory concept of voluntary participation in group 26 coordination proceedings. An insolvency practitioner of a group member may, under Article 64(1)(a) EIR, object to the inclusion in the coordination. A valid objection entails, according to Article 65(1) EIR, that the coordination does not cover the insolvency proceedings in which he has been appointed. It would be inconsistent if the coordinator’s tasks and rights – for example the right under Article 72(2)(e) EIR to request a stay – extended to such proceedings. Article 72(4) EIR clarifies, firstly, that the coordinator’s recommendations and the 27 group coordination plan only apply to the insolvency practitioners participating in the coordination. The provision contains, secondly, the clarification that non-participating insolvency practitioners are not subject to the duties of cooperation and communication vis-à-vis the coordinator that are specific to group coordination proceedings.

F. Impartiality of the coordinator Article 72(5) EIR provides the coordinator’s duty to exercise his office impartially and with due care. The duty of an impartial exercise of the office of coordinator is an essential and indispensable part of the basic concept of group coordination proceedings11. In order to provide for impartiality, Article 71(2) EIR regulates that the coordinator must not have any conflict of interest in respect of the group members, their creditors, and the insolvency practitioners appointed in relation to group members. Only if the insolvency practitioners can be sure that the coordinator will, without exception, exercise his office in the interest of all coordinated proceedings, they will be willing to participate in the coordination. The duty of an impartial exercise of the office only applies vis-à-vis the insolvency proceedings included in the coordination. This follows already from Article 72(4) EIR according to which the coordinator’s tasks do not extend to group members not participating in the coordination. It also follows from the basic approach of the Union legislator. Members of a corporate group typically have opposing interests when mutual claims are raised. It would be to the detriment of the insolvency estates in the coordinated proceedings if the coordinator were to regard the interests of non-participating group members. The participating group members had to bear the costs of a coordination that was also for the benefit of other group members. It is a consequence of this approach that insolvency practitioners may be incentivised to participate in a coordination in order to act in a coordinated way vis-à-vis non-cooperating insolvency practitioners of other group members. Such incentive may in particular arise when the behaviour of individual insolvency practitioners is aimed at taking advantage of the dissolution of group structures for the benefit of the administered insolvency estate. In such cases, coordination may in particular strengthen the negotiating power of insolvency practitioners of weaker group members. The coordinator exercises powers conferred on him by a court of a Member State (Article 2 no. 6 (i) EIR) and is entitled to receive a remuneration (Article 77 EIR). It is in the nature of things that he has – as any person appointed through a court decision in order to act in the interests of others – to perform his duties with due care. 11 Smaliukas, IILR 2015, 379, 382 (“the group coordinator may create added value since he will be well respected by local courts as someone impartial …”).

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If the coordinator wrongfully violates his duties, the consequences are determined by the law of the Member State in which he has been appointed. In this respect, Article 7(1) EIR applies mutatis mutandis.12

G. Duties in case of a cost increase According to Article 61(3)(d) EIR, the request to open group coordination proceedings must, without exception, be accompanied by an outline of the estimated costs of the proposed coordination. For an insolvency practitioner’s decision on whether or not to object to the inclusion in group coordination proceedings under Article 64(1) (a) EIR, the cost issue will regularly be of considerable importance. This is reflected in Article 68(1)(sentence 2)(c) EIR, pursuant to which the court has to rule on the cost estimate at an early stage. 35 Accordingly, Article 72(6) EIR stipulates an obligation of the coordinator to act when it becomes apparent to him that the costs of the coordination will be significantly higher than estimated at the time of the request to open group coordination proceedings. 36 Article 72(6)(a) EIR provides that the coordinator has to inform without delay the participating insolvency practitioners when he considers that the performance of his tasks will cause a significant increase in the costs compared to the initial cost estimation. The provision determines that a cost increase of 10 % is in any case a significant increase within this meaning. If the conditions of Article 72(6)(a) EIR are met, the coordinator must, under Article 72(6)(b) EIR, at the same time seek the prior authorisation by the court that has opened the group coordination proceedings. Recital 59 EIR clarifies that the court shall give the insolvency practitioners the opportunity to comment on the cost issue before taking a decision regarding the approval. 34

12 Reinhart, in Münchener Kommentar zur InsO, Art. 72 EuInsVO, mn. 25; see also Prager/Keller, WM 2015, 805, 811; but see Ehle, ZIP 2016, 1619, 1625 (who is of the view that the Union legislator has, inter alia for lack of necessity, knowingly not provided for a liability of the coordinator).

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Article 73 Languages 1. The coordinator shall communicate with the insolvency practitioner of a participating group member in the language agreed with the insolvency practitioner or, in the absence of an agreement, in the official language or one of the official languages of the institutions of the Union, and of the court which opened the proceedings in respect of that group member. 2. The coordinator shall communicate with a court in the official language applicable to that court. Outline A. Purpose ............................................................................................................................... B. Communication with the insolvency practitioners .................................................. C. Communication with the courts...................................................................................

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A. Purpose Article 73 EIR regulates the practically relevant issue in what languages the coordi- 1 nator has to communicate with the insolvency practitioners of the participating proceedings and with the courts before which these insolvency proceedings are pending.

B. Communication with the insolvency practitioners Pursuant to Article 73(1) EIR, the coordinator has to communicate with an in- 2 solvency practitioner involved in the coordination in the language agreed with him. If the coordinator and the insolvency practitioner have not agreed on a language, the coordinator must communicate with him in the official language of the court before which the insolvency proceedings are pending. This means in practice that, if an agreement has not been concluded, the coordi- 3 nator is obliged to communicate continuously with each insolvency practitioner in the language of the court before which the respective insolvency proceedings are pending. It may be exceedingly challenging and associated with high costs if the coordinator must communicate in several, perhaps lesser-used, languages. Thus, there will regularly be strong reasons for the coordinator to strive for an 4 agreement with the insolvency practitioners of all participating proceedings on the language issue. In order to facilitate such an agreement, a court having to decide on the opening of insolvency proceedings regarding a group member should, within the limits of its discretion, take into account whether the person designated for the office of insolvency practitioner has sufficient knowledge of a common foreign language.

C. Communication with the courts Article 73(2) EIR regulates that the coordinator has to communicate with each court 5 in its official language. Lienau

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If the national law mandatorily prescribes the language of the court, which regularly is the case, agreements as governed by Article 73(1) EIR are not possible. The coordinator will thus in many cases need the assistance of interpreters and translators. The effort should, however, usually be manageable since in practice the extent of the coordinator’s communication with the involved courts will remain far below the communication with the involved insolvency practitioners.

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Article 74 Cooperation between insolvency practitioners and the coordinator 1. Insolvency practitioners appointed in relation to members of a group and the coordinator shall cooperate with each other to the extent that such cooperation is not incompatible with the rules applicable to the respective proceedings. 2. In particular, insolvency practitioners shall communicate any information that is relevant for the coordinator to perform his or her tasks. Outline A. Addressees of the provision........................................................................................... B. Scope ...................................................................................................................................

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A. Addressees of the provision Article 74 EIR contains specifications regarding the cooperation between the co- 1 ordinator and the insolvency practitioners of group members. As to the circle of addressees on the side of the insolvency practitioners the 2 provision’s wording is unclear. Since Article 72(4) EIR only refers to “tasks and rights as defined under this Article”, it is not directly applicable. Based on a literal interpretation all “insolvency practitioners in relation to members of a group” and the coordinator have to cooperate with each other. Such a literal interpretation would extend the duty of cooperation to any insolvency practitioner of a group member regardless of its participation in the group coordination proceedings. Correspondingly, any insolvency practitioner could demand cooperation from the coordinator. Such broad interpretation seems to be supported by Article 56 EIR, which provides cooperation duties between all insolvency practitioners of group members, and by Article 58 EIR, which prescribes cooperation duties between all courts seised of insolvency proceedings of group members and all insolvency practitioners appointed in these proceedings. Considering the basic concept of group coordination proceedings and the interests of the parties to the proceedings, it is, however, appropriate to regard only the insolvency practitioners that are involved in the coordination as addressees of Article 74 EIR.1 Pursuant to Article 65(1) EIR, the objection of an insolvency practitioner to the inclusion in group coordination proceedings entails that the proceedings in which he has been appointed do not participate in the coordination. Cooperation duties of such an insolvency practitioner vis-à-vis the coordinator would imply that he was nonetheless partially involved in the group coordination proceedings. Correspondingly, the demand for cooperation by a non-participating insolvency practitioner could entail costs incurred by the coordinator that must, under Article 65(2) EIR, be borne by the insolvency estates of the coordinated proceedings. Lastly, the participating insolvency practitioners’ interests may be contrary to the interests of the non-participating insolvency practitioners in case of intra-group disputes. In such cases the coordinator would merely have to regard the interests of the included proceedings. This interpretation of Article 74 EIR is supported by 1 Cülter, in Braun, Insolvenzordnung, Art. 74 EuInsVO, mn. 6; J. Schmidt, in Mankowski/Müller/ J. Schmidt, EuInsVO 2015, Art. 74, mn. 4; J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 74, mn. 74.4.

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Art. 74 3–7

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Article 72(2)(d), (4) EIR, according to which the coordinator may only request information from insolvency practitioners participating in the coordination2.

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Pursuant to Article 74(1) EIR, the insolvency practitioners of (participating) group members and the coordinator have to cooperate with each other. This obligation applies to the extent that such cooperation is compatible with the rules applicable to the respective proceedings. Cooperation duties of participating insolvency practitioners and vis-à-vis them find their limits in conflicts of interest and confidentiality of information3. Although the Union legislator has expressly regulated such limitations only regarding the various general cooperation duties in group insolvencies (Article 56(1), (2)(a) EIR, Article 57(1), (2) EIR, and Article 58 EIR), they apply mutatis mutandis within the scope of Article 74 EIR4. On the side of the coordinator, cooperation finds its limits, inter alia, in his duty of impartial exercise of tasks according to Article 72(5) EIR. An insolvency practitioner is only allowed to cooperate with the coordinator to the extent that such cooperation is reconcilable with his duty to effectively pursue the interests of the estate administered by him. Article 74(2) EIR governs a specific aspect (“in particular”) of the duty of cooperation. The (participating) insolvency practitioners have to communicate any information that is relevant for the coordinator in order to fulfil his tasks. The duty of information as a partial aspect of the duty of cooperation likewise applies only within the limits of Article 74(1) EIR. With a view to increasing the effectiveness of group coordination proceedings it is advisable that the parties involved agree on details of the cooperation5. 2

Cülter, in Braun, Insolvenzordnung, Art. 74 EuInsVO, mn. 6. Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 567. 4 Cülter, in Braun, Insolvenzordnung, Art. 74 EuInsVO, mn. 9, 11. 5 Cülter, in Braun, Insolvenzordnung, Art. 74 EuInsVO, mn. 4, 17. 3

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Article 75 Revocation of the appointment of the coordinator The court shall revoke the appointment of the coordinator of its own motion or at the request of the insolvency practitioner of a participating group member where: (a) the coordinator acts to the detriment of the creditors of a participating group member; or (b) the coordinator fails to comply with his or her obligations under this Chapter. Specific bibliography: Ehle, Der Gruppenkoordinator in der reformierten EuInsVO – Bestellung, Abberufung und Haftung, ZIP 2016, 1619. Outline A. Purpose ............................................................................................................................... B. Regulatory content...........................................................................................................

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A. Purpose The coordinator is appointed by the court in order to act for the benefit of the 1 insolvency estates of the proceedings that are included in the coordination. He receives a remuneration for the exercise of his office that has to be borne pro rata by these estates. As a consequence of this approach a mechanism is needed to terminate the 2 coordinator’s office if he causes harm to the parties involved (at the expense of their estates) or if he does not perform his duties properly. Since the coordinator’s appointment is realised by a court decision, for the sake of coherence also the termination of his office requires, in the sense of an actus contrarius, a court decision. Accordingly, Article 75 EIR provides a mechanism for the court to revoke the coordinator’s appointment and stipulates the conditions under which such a revocation may happen. The Regulation does not provide for less severe judicial measures than revocation in 3 cases of breach of duties by the coordinator. The coordinator is neither subject to a general legal or functional supervision nor to coercive measures1.

B. Regulatory content The coordinator must be revoked where he either (lit. a) acts to the detriment of the 4 creditors of a participating group member or (lit. b) fails to comply with his obligations. The case regulated by Article 75(a) EIR is merely a subset of the case governed by Article 75(b) EIR. According to Article 72(5) EIR, the coordinator has to perform his duties impartially and with due care. It follows from Article 72(3) EIR, i. e. the prohibition of recommendations as to any consolidation, that the coordinator must not impair the insolvency estate of a group member, and consequentially the creditors’ interests, by initiating sacrifices in favour of the insolvency estates of other group members. 1 Cülter, in Braun, Insolvenzordnung, Art. 75 EuInsVO, mn. 3; but see Madaus, IILR 2015, 235, 246, and Ehle, ZIP 2016, 1619, 1623 (who are of the view that the possibility of revocation entails supervisory duties).

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When assessing whether the coordinator failed to comply with his duties, it has to be taken into account that the coordinator must be conceded broad discretion comparable to the business judgment rule.2 Without such discretion the coordinator would not be able to carry out his tasks properly. 6 Against this background, and considering the significance of the measure for the coordinator and the parties to the proceedings, the court should revoke the appointment of the coordinator only under special circumstances3. Whether a revocation at the coordinator’s own request is possible depends on the rules of the respective national law (and their compatibility with the Regulation’s rules on group coordination proceedings)4. In any case the court must be convinced that the grounds for the revocation are given. On a proper interpretation, Article 7(1) EIR applies mutatis mutandis, i. e. the revocation procedure is determined by the respective national law5. 7 According to Article 75 EIR, the revocation of the coordinator’s appointment, i. e. his dismissal, is possible ex officio or at the request of the insolvency practitioner of a participating group member. Since the court is obliged to revoke the appointment of its own motion if the substantive requirements of a revocation are fulfilled, at least in clear cases there is, in principle, no need for a formal request; a suggestion of an affected party (for example the debtor, a creditor, or a creditors’ committee) in any manner may suffice. The right of application of the participating insolvency practitioners matters, however, if the court does not share the view of an insolvency practitioner and the relevant procedural law provides for a remedy in case of the rejection of an application. 8 The Regulation does not govern the further procedure after a revocation. It seems to be appropriate, applying Article 61(3)(a) EIR mutatis mutandis, that the insolvency practitioner who made the request to open group coordination proceedings must once again propose a person to be nominated as coordinator.6 5

2 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 75, mn. 14; J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 75, mn. 75.13. 3 Cülter, in Braun, Insolvenzordnung, Art. 75 EuInsVO, mn. 3. 4 Cülter, in Braun, Insolvenzordnung, Art. 75 EuInsVO, mn. 4. 5 Cülter, in Braun, Insolvenzordnung, Art. 75 EuInsVO, mn. 11, 13. 6 Reinhart, in Münchener Kommentar zur InsO, Art. 75 EuInsVO, mn. 5; but see J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 75, mn. 21, 23, and J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 75, mn. 75.20, 75.22 (competence of the court to choose and appoint the new coordinator without a new proposal); Cülter, in Braun, Insolvenzordnung, Art. 75 EuInsVO, mn. 14 considers a proposal by the insolvency practitioners involved as necessary.

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Article 76 Debtor in possession The provisions applicable, under this Chapter, to the insolvency practitioner shall also apply, where appropriate, to the debtor in possession. Outline A. Regulatory content........................................................................................................... B. Scope ...................................................................................................................................

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A. Regulatory content Pursuant to Article 76 EIR, the provisions of “this Chapter” applying to insolvency 1 practitioners are also applicable, “where appropriate”, to debtors in possession. If the debtor in possession is, under national law, subject to the supervision of a 2 court-appointed person (Article 2 no. 5 EIR), the rule relates to the debtor in possession himself.1 However, in the relationship between the supervising insolvency practitioner and the debtor in possession the provisions in Chapter V of the EIR only apply to the debtor in possession “where appropriate”2.

B. Scope The provision is part of Section 2 of Chapter V of the EIR, which refers to group 3 coordination proceedings. It could thus be deducible from the context that it only relates to the articles on group coordination proceedings. The wording, however, does not refer to the rules of “this Section” but to the provisions of “this Chapter”. The recitals are not helpful in this regard. Recital 10 EIR only emphasises in general terms that the Regulation’s scope “should, in particular, extend … to proceedings which leave the debtor fully or partially in control of its assets and affairs”. Considering the legislative objective of Article 76 EIR, the formulation should take precedence over the context. There is no discernible reason why the Union legislator could have intended to put the debtor in possession on a level with the insolvency practitioner only in regard to group coordination proceedings. On the contrary, it seems to be appropriate to equate the debtor in possession with the insolvency practitioner especially in respect of the duties of cooperation and communication under Articles 56 to 60 EIR.3 1 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 76, mn. 5; J. Schmidt, in Bork/van Zwieten, Commentary on the European Insolvency Regulation, Art. 76, mn. 76.5. 2 Cülter, in Braun, Insolvenzordnung, Art. 76 EuInsVO, mn. 6. 3 Reinhart, in Münchener Kommentar zur InsO, Art. 76 EuInsVO.

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Article 77 Costs and distribution 1. The remuneration for the coordinator shall be adequate, proportionate to the tasks fulfilled and reflect reasonable expenses. 2. On having completed his or her tasks, the coordinator shall establish the final statement of costs and the share to be paid by each member, and submit this statement to each participating insolvency practitioner and to the court opening coordination proceedings. 3. In the absence of objections by the insolvency practitioners within 30 days of receipt of the statement referred to in paragraph 2, the costs and the share to be paid by each member shall be deemed to be agreed. The statement shall be submitted to the court opening coordination proceedings for confirmation. 4. In the event of an objection, the court that opened the group coordination proceedings shall, upon the application of the coordinator or any participating insolvency practitioner, decide on the costs and the share to be paid by each member in accordance with the criteria set out in paragraph 1 of this Article, and taking into account the estimation of costs referred to in Article 68(1) and, where applicable, Article 72(6). 5. Any participating insolvency practitioner may challenge the decision referred to in paragraph 4 in accordance with the procedure set out under the law of the Member State where group coordination proceedings have been opened. Recitals: 58, 61.

Outline A. Purpose ............................................................................................................................... 1 B. Level of remuneration..................................................................................................... 4 C. Final statement of costs and apportionment ............................................................. 10 D. Procedure in case of consensus .................................................................................... 13 E. Procedure in case of an objection ................................................................................ 16

A. Purpose The coordinator exercises an office conferred on him by a court. Accordingly, he has to be appropriately remunerated. Regarding this, the interests of the coordinator and the interests of the insolvency practitioners in regard of their insolvency estates are, in principle, opposed. In addition, the interests of the insolvency practitioners diverge as to the apportionment of costs among the proceedings included in the coordination. 2 Article 77 EIR contains a set of rules that are intended to take account of the diverging interests as regards both substantive and procedural issues. 3 Court fees resulting from group coordination proceedings are part of the costs of proceedings though Article 77 EIR does not contain specific rules in this respect1. 1

1 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 640; but see Cülter, in Braun, Insolvenzordnung, Art. 77 EuInsVO, mn. 4.

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B. Level of remuneration The Union legislator took it for granted that the coordinator has a right to be remunerated and thus merely governed the level of remuneration. Pursuant to Article 77(1) EIR, the remuneration for the coordinator must “be adequate, proportionate to the tasks fulfilled and reflect reasonable expenses”. The Union legislator refrained from concretising the level of remuneration or the parameters of its calculation. Instead, it has contented itself with a general clause. Based on this, a remuneration must be determined for each individual case that reasonably takes account of all circumstances and particularities of the respective group coordination proceedings. Recital 58 EIR clarifies that the costs and their apportionment have to be determined in accordance with the national law of the Member State in which group coordination proceedings have been opened. At first glance, this seems to be unsatisfactory. Considering the general context, it is, however, consistent. The structuring of legal provisions requires to take account of conflicting objectives: on the one hand, a provision must ensure legal certainty in practice; on the other hand, it has to allow for adequate rulings in each individual case. A greater degree of legal certainty through a more detailed regulation entails, in principle, fewer options to find equitable solutions in individual cases. Contrariwise, general clauses allow for deciding each case on its individual merits at the cost of the predictability of court decisions. The Union legislator’s decision in favour of a general clause regarding the level of remuneration may be explained by the assurance of foreseeability of the coordinator’s remuneration, and thus legal certainty, by means of another mechanism in group coordination proceedings. According to Article 61(3)(d) EIR, the request to open group coordination proceedings must contain an outline of the estimated costs of the proposed coordination. When opening group coordination proceedings, the court has to decide on the cost estimation under Article 68(1) EIR. Pursuant to Article 72(6) EIR, the coordinator is obliged to inform the insolvency practitioners involved when it becomes apparent to him that the costs will significantly increase. A substantial increase in the costs requires a prior approval of the court. Thus, there was no need for the Union legislator to ensure the necessary legal certainty through a detailed provision on the remuneration. In addition, there is no experience regarding the level of remuneration the Union legislator could have drawn on so far. In determining the remuneration it seems to be appropriate to consider the effort entailed in the coordination and the size of the coordinated insolvency estates. Besides, the benefit of coordination for all proceedings included can be taken into consideration2. It might be recommendable for Member States to establish rules regarding the basic parameters for the calculation of the remuneration. It follows from recital 58 (sentence 2) EIR and recital 61 EIR that the Regulation allows for such national provisions.3 When calculating the coordinator’s remuneration, reasonable expenses (for example travel expenses and non-covered, but necessary, third-party services) have to be reflected. It depends on the respective national law whether a consolidation into a lump sum is possible4. The aforementioned considerations apply likewise. 2

Cülter, in Braun, Insolvenzordnung, Art. 77 EuInsVO, mn. 6. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 77, mn. 14, 21 et seq. 4 Cülter, in Braun, Insolvenzordnung, Art. 77 EuInsVO, mn. 6. 3

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Chapter V. Insolvency Proceedings of Members of a Group

C. Final statement of costs and apportionment Following the completion of his tasks, i. e. upon cessation of his activities (and thus of the formal coordination), the coordinator must, pursuant to Article 77(2) EIR, submit a final statement of costs. This account must be combined with a statement of the share to be paid by each group member. 11 Regarding the apportionment of costs among the participating proceedings, Article 77(2) EIR does not contain any requirements. Under Article 61(3)(d) EIR already the request to open group coordination proceedings must deal with the issue of the apportionment of costs. As a consequence, only a distribution formula whose parameters are known from the outset is possible. It should be referred to the balance sheet totals.5 Other possible reference points are the insolvency estates as well as the benefit and the effort of each participating group member in the course of the coordination6. 12 The coordinator has to pass on his statement to each participating insolvency practitioner and to the court which has opened the group coordination proceedings. In view of the objection period under Article 77(3) EIR it is advisable for the coordinator to choose a means of transmission that allows for the traceability and provability of the dates of receipt. 10

D. Procedure in case of consensus Article 77(3) EIR regulates the further procedure in the event that no objections against the level of remuneration and the share to be paid by each participating group member have been raised. 14 The provision contains a legal fiction of an agreement as to the level of remuneration and the apportionment of costs which is applicable if no participating insolvency practitioner has objected to the statement within 30 days of receipt. In such a case the statement has, under Article 77(3)(sentence 2) EIR, to be “submitted to the court … for confirmation”. The court is not entitled to deviate from the statement or to confine its decision to parts of the statement7. 15 The provision does not govern whether an insolvency practitioner’s objection has to be raised before the court or vis-à-vis the coordinator. Properly interpreted, the objection has to be made vis-à-vis the coordinator. This is, first, indicated by the fact that the insolvency practitioners receive the statement directly from the coordinator. Secondly, an uncontested statement has to be “submitted to the court … for confirmation”. Both would not be comprehensible if the Union legislator intended the court to be the addressee of objections. Otherwise, it would have been consequent to require the court to transmit the statement to the insolvency practitioners. Moreover, there would have been no need for the provision in Article 77(3)(sentence 2) EIR.8 13

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E. Procedure in case of an objection Article 77(4) EIR regulates the question of how to proceed in case of an insolvency 16 practitioner’s objection against the coordinator’s statement. The provision governs that the court before which the group coordination proceedings are pending has to decide on the amount and the apportionment of costs. The coordinator and any participating insolvency practitioner are entitled to apply for such decision. Substantially relevant for the court decision are the parameters specified in Article 77(1) EIR and the cost estimates according to Article 68(1) EIR and Article 72(6) EIR. Pursuant to Article 77(5) EIR, a decision under Article 77(4) EIR may be challenged 17 by any participating insolvency practitioner. Regarding the appeal procedure the law of the Member State in which the group coordination proceedings have been opened applies. According to the wording, the provision only entitles insolvency practitioners to 18 challenge the court decision. That raises the question of whether the Union legislator intended to exclude a challenge by the coordinator. Considering the Regulation’s reference to the procedural law of the Member State in which the group coordination proceedings have been opened, this seems unlikely. There are no indications that the Union legislator intended to rule out an admissible challenge by the coordinator under national law. Moreover, it would violate the right to a fair hearing as stipulated in Article 47 of the Charter of Fundamental Rights of the European Union if in a procedure in which the coordinator and the insolvency practitioners have opposing interests only the insolvency practitioners were entitled to challenge the court decision. Rules of national law should, if necessary, be interpreted in accordance with these considerations.

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CHAPTER VI DATA PROTECTION Article 78 Data protection 1. National rules implementing Directive 95/46/EC shall apply to the processing of personal data carried out in the Member States pursuant to this Regulation, provided that processing operations referred to in Article 3(2) of Directive 95/46/EC are not concerned. 2. Regulation (EC) No 45/2001 shall apply to the processing of personal data carried out by the commission pursuant to this Regulation. Recitals: 83, 84, 89. Specific bibliography: Bygrave, Data Privacy Law: An International Perspective (Oxford University Press 2014); European Data Protection Supervisor, Opinion of the European Data Protection Supervisor on the Commission proposal for a Regulation amending Council Regulation (EC) No 1346/2000 on insolvency proceedings of 27 March 2013, https://secure.edps.europa.eu/EDPSWEB/webdav/shared/Documents/ Consultation/Opinions/2013/13-03-27_Insolvency_Proceedings_EN.pdf (last visited 1 December 2016); FRA, Handbook on European Data Protection Law (European Union Agency for Fundamental Rights 2014). Outline A. Purpose ............................................................................................................................... B. Historic development ...................................................................................................... C. Scope ................................................................................................................................... D. Interpretation ....................................................................................................................

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A. Purpose Article 78 EIR protects personal data in insolvency proceedings and is rooted in 1 Article 8 of the Charter of Fundamental rights of the European Union for the protection of personal data (see recital 83 EIR).1 Article 78(1) EIR clarifies that the rules of a Member State, implementing the Data Protection Directive 95/46/EC, apply to the processing of personal data performed in a Member State regarding insolvency proceedings. However, national data protection rules on processing operations referred to in Article 3(2) of the Data Protection Directive 95/46/EC2 do not apply. Article 78(2) EIR reiterates that the European Parliament and Council Regulation (EC) No 45/2001 applies to the processing of personal data performed by the Commission regarding insolvency proceedings.

1 On the impact of Article 8 Charter of Fundamental Rights of the European Union for Data Protection Tajti, in Bork/van Zwieten, Commentary on EIR, Article 78, mn. 78.06 et seq. 2 See now Article 2 General Data Protection Regulation (EU) 2016/679.

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Art. 78 2–5

Chapter VI. Data Protection

B. Historic development Articles 78 to 83 EIR 2015 have no predecessor provisions in the EIR 2000. The establishment and interconnection of insolvency registers (see Szirányi above Art. 24 mn. 1, Art. 25 mn. 1); the cooperation and communication among insolvency practitioners (see Skauradszun/Spahlinger above Art. 41 mn. 8, Art. 56 mn. 11, Lienau above Art. 72 mn. 15), among courts (see Skauradszun/Spahlinger above Art. 42 mn. 1, 57 mn. 1), and between insolvency practitioners and courts (see Skauradszun/Spahlinger above Art. 43 mn. 1, 58 mn. 2); and the increasing awareness of data protection since the ratification of Council Regulation (EC) No 1346/2000 were reason enough for the European Parliament and Council to include provisions on data protection in the EIR 2015. An early proposal on the new insolvency regulation contained one provision on data protection; similar to the current Article 78 EIR 2015. After a consultation with the European Data Protection Supervisor (EDPS) (see also recital 89 EIR 2015) the early proposal was revised and significantly amended, due to the EDPS’s dissatisfaction.3 The EDPS requested specific provisions on the modalities of the decentralised “insolvency registers”-system and more detailed provisions on data protection responsibilities of the Member States and the Commission.4 Many of the requests and suggestions of the EDPS were incorporated by Articles 79 to 83 EIR. However, some safeguards are missing the level of detail proposed by the EDPS.5 3 The EDPS remains, in spite of all the amendments to the data protection chapter, sceptical about the lawfulness of the insolvency registers (see Szirányi above Art. 25 mn. 1 on the technical structure of the insolvency registers). According to the EDPS, the current structure may not be the least invasive option for parties involved in insolvency proceedings.6 4 The recently ratified General Data Protection Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data has superseded the Data Protection Directive 95/46/EC on 25 May 2018. The reference to the Data Protection Directive in Article 78(1) EIR is henceforth to be read as referring to the General Data Protection Regulation.7 2

C. Scope 5

Article 78 EIR, with its references to the national rules implementing the Data Protection Directive 95/46/EC – superseded by the General Data Protection Regulation – and Regulation (EC) No 45/2001, is declaratory.8 The ambit of Article 78 EIR is not limited to the national insolvency registers and the e-Justice Portal but includes all aspects of personal data processing in insolvency proceedings, including the novel provisions on communications between insolvency practitioners and courts.9

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D. Interpretation Article 78(1) and (2) EIR refer, regarding the protection of personal data, to the implemented national rules that emanated from the recently repealed Data Protection Directive or EU Regulation applying to the processing of personal data carried out by the Member States or the Commission. Both the superseded Directive and the Regulation contain definitions on “personal data” and “processing”. The Data Protection Directive 95/46/EC, whose rigorous provisions gave little leeway to the implementation by the Member States,10 and Regulation (EC) No 45/2001 define personal data as “any information relating to an identified or identifiable natural person (“data subject”)”11. Data subjects excluded by definition are legal persons and partnerships.12 As to the defintion of „personal data“ in the new General Data Protection Regulation no substantive changes exist.13 Thus, the Data Protection Directive, superseded by the General Data Protection Regulation, and the Regulation protect all natural persons against unlawful personal data processing in the course of insolvency proceedings,14 irrespective of whether mandatory or optional personal data is processed. Most information in insolvency proceedings are protected since they relate to identified natural persons. However, some provisions, such as Article 24(4) EIR, allow Member States to exclude all or certain identifiers for natural persons. Information relating to an unidentifiable natural person are not considered “personal data”. But if remaining identifiers allow determining a natural person, for example through location, occupation or specific group of creditors, the information relate to an identifiable natural person, which suffices for the definition. “Processing” is defined by Article 2(b) of the Data Protection Directive 95/46/EC15 and Regulation (EC) No 45/2001 as “any operation or set of operations which is performed upon personal data, whether or not by automatic means, such as collection, recording, organization, storage, adaptation or alteration, retrieval, consultation, use, disclosure by transmission, dissemination or otherwise making available, alignment or combination, blocking, erasure or destruction”.16 Article 78(1) EIR does not apply to national rules on processing operations referred to in Article 3(2) Directive 95/46/EC.17 The processing operations referred to are those that fall “outside the scope of community law” or where processing is done “by a natural person in the course of a purely personal or household activity”. The protection of personal data in processing operations outside of the scope of Directive 95/46/EC is, therefore, either ensured by national laws of the Member States or not at all. 10 Bygrave, Data Privacy Law, p. 59. For the national rules implementing the Data Protection Directive see http://eur-lex.europa.eu/legal-content/EN/NIM/?uri=CELEX:31995L0046 (last visited 1 December 2016). 11 Article 2(a) Data Protection Directive 95/46/EC, see now Article 4(1) General Data Protection Regulation (EU) 2016/679; Article 2(a) Regulation (EC) No 45/2001. For further information on “personal data” see FRA, Handbook on European Data Protection Law, p. 35 et seq. 12 Tajti, in Bork/van Zwieten, Commentary on EIR, Art. 78, mn. 78.14, mn. 78.18. However, Member State laws may contain rules on data protection for legal persons and partnerships. See also Zipperer, in Vallender, EuInsVO, Art. 78, mn. 4. 13 Article 4(1) General Data Protection Regulation will extend only the list of identifiers. 14 But see Tajti, in Bork/van Zwieten, Commentary on EIR, Art. 78, mn. 78.18. Cf. Schmidt, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 78, mn. 7. 15 See now Article 4(2) General Data Protection Regulation (EU) 2016/679. 16 For further information on “processing” see FRA, Handbook on European Data Protection Law, p. 46 et seq. 17 The restriction was suggested by the EDPS, Opinion, mn. 13. Instead of Article 3(2) Directive 95/46/ EC see now Article 2 General Data Protection Regulation (EU) 2016/679.

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Article 79 Responsibilities of Member States regarding the processing of personal data in national insolvency registers 1. Each Member State shall communicate to the Commission the name of the natural or legal person, public authority, agency or any other body designated by national law to exercise the functions of controller in accordance with point (d) of Article 2 of Directive 95/46/EC, with a view to its publication on the European eJustice Portal. 2. Member States shall ensure that the technical measures for ensuring the security of personal data processed in their national insolvency registers referred to in Article 24 are implemented. 3. Member States shall be responsible for verifying that the controller, designated by national law in accordance with point (d) of Article 2 of Directive 95/46/EC, ensures compliance with the principles of data quality, in particular the accuracy and the updating of data stored in national insolvency registers. 4. Member States shall be responsible, in accordance with Directive 95/46/EC, for the collection and storage of data in national databases and for decisions taken to make such data available in the interconnected register that can be consulted via the European e-Justice Portal. 5. As part of the information that should be provided to data subjects to enable them to exercise their rights, and in particular the right to the erasure of data, Member States shall inform data subjects of the accessibility period set for personal data stored in insolvency registers. Recitals: 83, 84, 89. Specific bibliography: Bygrave, Data Privacy Law: An International Perspective (Oxford University Press 2014); European Data Protection Supervisor, Opinion of the European Data Protection Supervisor on the Commission proposal for a Regulation amending Council Regulation (EC) No 1346/2000 on insolvency proceedings of 27 March 2013, https://secure.edps.europa.eu/EDPSWEB/webdav/shared/Documents/Consultation/Opinions/2013/13-03-27_Insolvency_Proceedings_EN.pdf (last visited 1 December 2016); FRA, Handbook on European Data Protection Law (European Union Agency for Fundamental Rights 2014). Case Law: Germany: AG Rockenhausen – 2 C 341/16, BeckRS 2016, 15849. UK: Smeaton v Equifax plc [2013] EWCA Civ 108.

Outline A. Purpose ............................................................................................................................... B. Scope ................................................................................................................................... I. Notification of the Commission regarding Controller, Article 79(1) EIR . II. Technical measures to ensure the security of personal data, Article 79(2) EIR.............................................................................................................................. III. Principles of data quality, Article 79(3) EIR..................................................... IV. Collection, storage and making available of data, Article 79(4) EIR .......... V. Information provided to data subjects to exercise rights, Article 79(5) EIR..............................................................................................................................

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Art. 79

A. Purpose Article 79 EIR outlines the responsibilities of Member States regarding the processing 1 of personal data (see Rüther above Art. 78 mn. 7 et seq.) in national insolvency registers (see Szirányi above Art. 24 mn. 8). Most responsibilities emanate from provisions in the Data Protection Directive 95/46/EC1 rendering Article 79 EIR essentially declaratory.2

B. Scope Article 79 EIR solely refers to the data protection responsibilities of Member States 2 for the national insolvency registers. The responsibilities of the Commission are dealt with in Article 80 EIR (see Rüther below Art. 80 mn. 1).

I. Notification of the Commission regarding Controller, Article 79(1) EIR Each Member State must have a data protection controller, who “determines the 3 purposes and means of the processing of personal data.”3 Member States can elect natural or legal persons as well as administrative entities to be controllers.4 The name of the controller is communicated to the Commission and published on the European eJustice Portal. Despite of the wording of Article 79(1) EIR, each Member State can have more than one controller due to the possibility of several national insolvency registers (see Szirányi above Art. 24 mn. 8).5 However, having multiple controllers must not defeat the purpose of knowing who is responsible at all times. The controller is liable for any non-compliance with data protection law.

II. Technical measures to ensure the security of personal data, Article 79(2) EIR Member States must ensure that technical measures are implemented to protect the 4 personal data in the national insolvency registers.6 Technical measures are any hardware or software safeguards that protect personal data against unlawful forms of processing.7 Article 79(2) EIR does not mention organisational measures to ensure data security.8 However, Article 32(1) General Data Protection Regulation (EU) 2016/679, which also applies to national insolvency registers, includes both organisational and technical measures. Due to the public accessibility of national insolvency registers, personal data must also be protected from the risks of being altered, manipulated or used out of 1

See now General Data Protection Regulation (EU) 2016/679. Mangano, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 6.94. Article 2(d) Directive 95/46/EC, see now Article 4(7) General Data Protection Regulation (EU) 2016/ 679. 4 On controllers and the difference between controllers and processors see FRA, Handbook on European Data Protection Law, p. 48 et seq. 5 cf. Tajti, in Bork/van Zwieten, Commentary on EIR, Art. 82, mn. 82.03. 6 A more elaborate provision on the security of processing applicable to national insolvency registers can be found in Article 17 Directive 95/46/EC. 7 Bygrave, Data Privacy Law, p. 164. 8 For the potential organisational measures see FRA, Handbook on European Data Protection Law, p. 91 et seq. 2 3

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context by third parties. The EDPS expressed concerns regarding search engines retrieving personal data from national insolvency registers and suggested to exclude data indexation by means of external search engines.9 In Germany, such data mining strategies (smartphone app “Achtung pleite”) have been held to violate German data protection law.10

III. Principles of data quality, Article 79(3) EIR 5

Member States are responsible to verify that the controller ensures compliance with the principles of data quality. The provision specifically emphasises data accuracy and updating.11 Article 5 General Data Protection Regulation (EU) 2016/679 enumerates further applicable data quality principles.12

IV. Collection, storage and making available of data, Article 79(4) EIR 6

Article 79(4) EIR clarifies that Member States are, in accordance with the provisions of Directive 95/46/EC13, responsible for the collection, storage (see Rüther below Art. 82 mn. 2) and making available (see Rüther below Art. 83 mn. 1) of personal data regarding insolvency registers.

V. Information provided to data subjects to exercise rights, Article 79(5) EIR 7

Member States must inform data subjects about the processing of personal data and the accessibility period for that information.14 See further Articles 13, 14 General Data Protection Regulation (EU) 2016/679 for the required information that Member States must furnish when personal data is collected. The data subject has to receive “sufficient information about the publication of their data before the publication is made”.15 Otherwise it would render certain data subjects’ rights moot.16 However, information regarding the accessibility period could be provided after the publication. The EDPS requested that the “information shall be provided in writing in an intelligible form, using clear and plain language, adapted to the data subject. Translations of this information should also be available in the language spoken by the data subject.”17 9

European Data Protection Supervisor, Opinion, mn. 40. AG Rockenhausen – 2 C 341/16, BeckRS 2016, 15849. 11 For problems that outdated personal data of national insolvency registers may cause, see Smeaton v Equifax plc [2013] EWCA Civ 108. 12 See also FRA, Handbook on European Data Protection Law, p. 70 et seq. 13 See now General Data Protection Regulation (EU) 2016/679. 14 See FRA, Handbook on European Data Protection Law, p. 96 et seq; Tajti, in Bork/van Zwieten, Commentary on EIR, Art. 79, mn. 79.07. 15 European Data Protection Supervisor, Opinion, mn. 38 et seq. 16 cf. for the specifically mentioned right to the erasure of data Rüther Art. 83 mn. 2. 17 European Data Protection Supervisor, Opinion, mn. 51. 10

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Article 80 Responsibilities of the Commission in connection with the processing of personal data 1. The Commission shall exercise the responsibilities of controller pursuant to Article 2(d) of Regulation (EC) No 45/2001 in accordance with its respective responsibilities defined in this Article. 2. The Commission shall define the necessary policies and apply the necessary technical solutions to fulfil its responsibilities within the scope of the function of controller. 3. The Commission shall implement the technical measures required to ensure the security of personal data while in transit, in particular the confidentiality and integrity of any transmission to and from the European e-Justice Portal. 4. The obligations of the Commission shall not affect the responsibilities of the Member States and other bodies for the content and operation of the interconnected national databases run by them. Recitals: 83, 84, 89. Specific bibliography: Bygrave, Data Privacy Law: An International Perspective (Oxford University Press 2014); FRA, Handbook on European Data Protection Law (European Union Agency for Fundamental Rights 2014). Outline A. Purpose ............................................................................................................................... B. Scope ................................................................................................................................... I. Commission exercising responsibilities of controller, Article 80(1) EIR ... II. Policies and technical solutions, Article 80(2) EIR ......................................... III. Technical measures to protect personal data in transit, Article 80(3) EIR IV. Distinguishing responsibilities between Commission and Member States, Article 80(4) EIR .....................................................................................................

1 2 3 4 5 6

A. Purpose Article 80 EIR outlines the responsibilities of the Commission as controller regarding 1 the processing of personal data (see Rüther above Art. 78 mn. 1) in insolvency proceedings. Most responsibilities emanate directly from provisions in the European Parliament and Council Regulation (EC) No 45/2001, rendering Article 80 EIR basically declaratory.1

B. Scope Article 80 EIR refers to the Commission’s data protection responsibilities. The 2 responsibilities of the Member States regarding national insolvency registers are dealt with in Article 79 EIR (see Rüther above Article 79 mn. 1).

1

Mangano, in Bork/Mangano, European Cross-Border Insolvency Law, mn. 6.94.

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I. Commission exercising responsibilities of controller, Article 80(1) EIR 3

The Commission is the appointed controller exercising the responsibilities set out in Article 80 EIR.2 The controller is liable for any non-compliance with data protection law. The Commission can appoint a data processor to process data on its behalf.3

II. Policies and technical solutions, Article 80(2) EIR 4

The Commission must fulfil its controlling responsibilities. As to these, Article 80(2) EIR refers to the responsibilities in Article 78(2) EIR and Regulation (EC) No 45/2001.

III. Technical measures to protect personal data in transit, Article 80(3) EIR 5

The Commission must ensure the implementation of technical measures in order to protect the personal data in transit to and from the European e-Justice Portal (see Art. 25(2)(b)), in particular the confidentiality and integrity of any transmission.4 Technical measures are any hardware or software safeguards protecting personal data against unlawful forms of processing.5 Article 80(3) EIR does not mention organisational measures to ensure data security.6 By contrast, Article 22(1) Regulation (EC) No 45/2001, which is likewise applicable, includes both organisational and technical measures.

IV. Distinguishing responsibilities between Commission and Member States, Article 80(4) EIR 6

The Commission is not liable for non-compliance of data protection laws occurring in the sphere of the Member States operating the interconnected national databases. 2 On controllers and the difference between controllers and processors see FRA, Handbook on European Data Protection Law, p. 48 et seq. 3 Article 23(1) Regulation (EC) 45/2001. See also Tajti, in Bork/van Zwieten, Commentary on EIR, Art. 80, mn. 80.04. 4 For a more elaborate provision on data security applicable to the Commission see Article 22 Regulation (EC) No 45/2001. 5 Bygrave, Data Privacy Law, p. 164. 6 For the potential organisational measures see FRA, Handbook on European Data Protection Law, p. 91 et seq.

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Article 81 Information obligations Without prejudice to the information to be given to data subjects in accordance with Articles 11 and 12 of Regulation (EC) No 45/2001, the Commission shall inform data subjects, by means of publication through the European e-Justice Portal, about its role in the processing of data and the purposes for which those data will be processed. Recitals: 83, 84, 89. Specific bibliography: European Data Protection Supervisor, Opinion of the European Data Protection Supervisor on the Commission proposal for a Regulation amending Council Regulation (EC) No 1346/2000 on insolvency proceedings of 27 March 2013, https://secure.edps.europa.eu/EDPSWEB/webdav/shared/ Documents/Consultation/Opinions/2013/13-03-27_Insolvency_Proceedings_EN.pdf (last visited 1 December 2018). Outline A. Purpose ............................................................................................................................... B. Scope ...................................................................................................................................

1 2

A. Purpose Article 81 EIR outlines the Commission’s obligations to inform data subjects on 1 the Commission’s processing of their personal data (see Rüther above Art. 78 mn. 7 et seq.).

B. Scope The European Data Protection Supervisor (EDPS) demanded provisions in the EIR 2 informing data subjects on the role and purpose of the processing of personal data.1 Article 81 EIR obliges the Commission to publish the aforementioned information through the European e-Justice Portal (see Szirányi above Art. 25 mn. 1 on the European e-Justice Portal).2 Irrespective of the publication of information on the European e-Justice Portal, the 3 Commission in its function as controller must abide by the information obligations in Article 12 European Parliament and Council Regulation (EC) No 45/2001.3 1

European Data Protection Supervisor, Opinion, mn. 56. For this universally accessible information see European Commission, e-Justice Portal Legal Notice, https://e-justice.europa.eu/content_legal_notice-365-en.do?init=true1 (last visited 5 December 2016). 3 Zipperer, in Vallender, EuInsVO, Art. 81, mn. 2 et seq. 2

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Article 82 Storage of personal data As regards information from interconnected national databases, no personal data relating to data subjects shall be stored in the European e-Justice Portal. All such data shall be stored in the national databases operated by the Member States or other bodies. Recitals: 83, 84, 89. Specific bibliography: European Data Protection Supervisor, Opinion of the European Data Protection Supervisor on the Commission proposal for a Regulation amending Council Regulation (EC) No 1346/2000 on insolvency proceedings of 27 March 2013, https://secure.edps.europa.eu/EDPSWEB/webdav/shared/ Documents/Consultation/Opinions/2013/13-03-27_Insolvency_Proceedings_EN.pdf (last visited 1 December 2018). Outline A. Purpose ............................................................................................................................... B. Scope ...................................................................................................................................

1 2

A. Purpose 1

Article 82 EIR specifies the location of stored personal data for insolvency registers (see Szirányi above Art. 24 mn. 1 on insolvency registers).1

B. Scope Article 82 EIR demands a territorial decentralised storage solution for personal data. Therefore, the European e-Justice Portal (see Szirányi above Art. 25 mn. 1) does not operate and must not be used as storage space for personal data relating to data subjects. Even caching and ephemeral copies must not exist on the European e-Justice Portal.2 3 Personal data shall be stored in national databases located in the Member States.3 The Member State, however, does not need to operate the database itself but may use a different entity. Appointing such other entities to operate national databases does not end the Member States’ responsibilities for personal data storage (see Rüther above Art. 79 mn. 3 on controllers). It may exist more than one database per Member State.4 2

1 The European Data Protection Supervisor requested in its opinion a provision clarifying the storage space of personal data. See European Data Protection Supervisor, Opinion, mn. 45 et seq. 2 Bornemann, in Wimmer/Bornemann/Lienau, Die Neufassung der EuInsVO, mn. 649; cf. Schmidt, in Mankowski/Müller/Schmidt, EuInsVO 2015, Art. 82, mn. 4 et seq. 3 Tajti, in Bork/van Zwieten, Commentary on EIR, Art. 82, mn. 82.03. 4 Tajti, in Bork/van Zwieten, Commentary on EIR, Art. 82, mn. 82.03.

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Article 83 Access to personal data via the European e-Justice Portal Personal data stored in the national insolvency registers referred to in Article 24 shall be accessible via the European e-Justice Portal for as long as they remain accessible under national law. Recitals: 83, 84, 89. Specific bibliography: European Data Protection Supervisor, Opinion of the European Data Protection Supervisor on the Commission proposal for a Regulation amending Council Regulation (EC) No 1346/2000 on insolvency proceedings of 27 March 2013, https://secure.edps.europa.eu/EDPSWEB/webdav/shared/ Documents/Consultation/Opinions/2013/13-03-27_Insolvency_Proceedings_EN.pdf (last visited 1 December 2018). Outline A. Purpose ............................................................................................................................... B. Scope ...................................................................................................................................

1 2

A. Purpose Article 83 EIR specifies the temporal aspects of access to personal data (see Rüther 1 above Art. 78 mn. 7 on personal data) stored in the national insolvency registers (see Szirányi above Art. 24 mn. 1).

B. Scope The European Data Protection Supervisor (EDPS) requested in his opinion to “define 2 and limit the personal retention period for the personal data to the minimum necessary for the performance of such purpose.”1 The legislator, however, refused to implement a provision in the EIR on the automatic deletion or take down of personal data after a reasonable period of time on the European e-Justice portal. Instead, the legislator opted to keep any personal data stored in the national insolvency registers accessible via the European e-Justice Portal until the erasure in the national insolvency registers. By allowing the national laws to determine the end of storage, Article 83 EIR follows a nonuniform approach for the erasure of personal data in those registers. Whether personal data in national insolvency registers must be deleted ex officio after 3 a specific time limit or on request has been left unanswered by the EIR, even though the EDPS demanded a systematic deletion of personal data after a reasonable period of time.2 Article 79(5) EIR, as the former Article 12(b) Data Protection Directive 95/46/EC did, merely mentions the right to the erasure of data, indicating that such a right exists.3 Still, according to Article 17(1)(a) General Data Protection Regulation4 – which 1

European Data Protection Supervisor, Opinion, mn. 37, see also mn. 52. European Data Protection Supervisor, Opinion, mn. 40. 3 cf. GC Case C-131/12 Google v. AEPD ECLI:EU:C:2014:317 para. 94 et seq. 4 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation). 2

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came into force on 25 May 2018 and is applicable to the processing of personal data by the Member States5 –, data subjects have the right to request the erasure of personal data, without undue delay, as soon as “the personal data are no longer necessary in relation to the purpose for which they were collected or otherwise processed”.6 The purpose behind personal data stored in the national insolvency registers and interconnected via the e-Justice Portal is, according to recital 76 EIR, “to improve the provision of information to relevant creditors and courts and to prevent the opening of parallel insolvency proceedings”. Personal data stored in the national insolvency registers must therefore be deleted, upon request, when the court closes the primary or secondary insolvency proceedings. 5 6

cf. Article 2(2)(b) General Data Protection Regulation. Article 17 (1)(a) General Data Protection Regulation.

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CHAPTER VII TRANSITIONAL AND FINAL PROVISIONS Article 84 Applicability in time 1. The provisions of this Regulation shall apply only to insolvency proceedings opened from* 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. 2. Notwithstanding Article 91 of this Regulation, 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. Specific bibliography: Bork, EWiR 2018, 247. Case law: Germany: LG München I, Beschl. v. 5.3.2018, ZIP 2018, 796.

Outline A. Purpose ............................................................................................................................... 1 B. Scope ................................................................................................................................... 2 C. Interpretation .................................................................................................................... 3 I. Relevant date for the temporal application of EIR 2000 and EIR 2015..... 3 II. Scope of “insolvency proceedings” as to EIR 2000 and EIR 2015 .............. 9 III. Acts committed by a debtor, Article 84 (1)(sentence 2) EIR ....................... 10

A. Purpose Article 84 EIR 2015 ensures the predictability and continuity for (future) debtors and 1 creditors regarding the applicability of the EIR 2000 or the EIR 2015.* Article 84(1) and (2) EIR 2015 determine the temporal applicability of the EIR 2015 and EIR 2000 regarding the procedural and conflicts of law provisions contained in the Regulations.1 Acts committed by the debtor and proceedings opened prior to 26 June 2017 continue to be governed by EIR 2000, whereas acts of the debtor and insolvency proceedings opened on or after 26 June 2017 fall within the temporal scope of the EIR 2015.

B. Scope Article 84 EIR codifies the applicability in time for provisions in the EIR 2015 2 regarding main, territorial or secondary insolvency proceedings and acts committed by * The Corrigendum to Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, OJ L 349/9 changed the wording from “after” into “from”. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 84, mn. 2. 1 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 84, mn. 1; Riewe, in Vallender, EuInsVO, Art. 84, mn. 1.

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the debtor.2 Administrative provisions addressing the Member States or EU Institutions, for example on the establishment of insolvency registers or data protection, are not governed by Article 84 EIR. Instead, Article 92 EIR determines the date of application for those provisions. See Rüther below Art. 92 mn. 1.

C. Interpretation I. Relevant date for the temporal application of EIR 2000 and EIR 2015 The publication of Article 84(1)(sentence 1) EIR 2015 in the Official Journal of the European Union reads “[t]he provisions of this Regulation shall apply only to insolvency proceedings opened after 26 June 2017.” Article 84(2) EIR 2015 states that the EIR 2000 shall continue to apply to insolvency proceedings opened before 26 June 2017. Evidently, the EU legislator accidentally excluded insolvency proceedings opened on 26 June 2017 from the application of either of the Regulations.3 The Corrigendum to Regulation (EU) 2015/8484 rectifies the mistake by substituting “from” for “after” in the EIR 2015.5 Therefore, any act committed by the debtor and insolvency proceedings opened on or after 26 June 2017 are governed by the EIR 2015. 4 In terms of insolvency proceedings, the relevant distinction between the application of the EIR 2000 and the EIR 2015 is made by reference to the time of the opening of the insolvency proceedings.6 According to Article 2 no. 8 EIR 2015, “‘the time of the opening of proceedings’ means the time at which the judgment opening insolvency proceedings becomes effective, regardless of whether the judgment is final or not”. See also Brinkmann above Art. 2 mn. 18 et seq. The time a debtor or creditor files a request to open insolvency proceedings is therefore irrelevant. 5 The initial affirmative opening decision sets the relevant date for the application in time.7 Therefore, if a debtor’s or creditor’s request to open insolvency proceedings is denied by the court of first instance before 26 June 2017, but during an appeal on or after 26 June 2017 reversed and remanded, the EIR 2015 will govern the insolvency proceedings. Hence, the appeal or the subsequent decision by the court of first instance – if the appellate court does not decide on the opening of insolvency proceedings – sets the relevant date of the application in time.8 6 Subsequent main and secondary insolvency proceedings are governed by the applicable Regulation according to the opening date of each insolvency proceeding, irrespective of whether other insolvency proceedings against the same debtor were opened before, on or after 26 June 2017.9 If main insolvency proceedings were opened before 26 June 2017 and secondary insolvency proceedings against the same debtor on or after 26 June 2017, the Regulations apply in respect to the date of the opening of 3

2

See J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 84, mn. 6. See van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 84, mn. 84.02; Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.808. 4 Corrigendum to Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, OJ L 349/9, 21.12.2016. 5 See also Riewe, in Vallender, EuInsVO, Art. 84, mn. 3. 6 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 84, mn. 5; Riewe, in Vallender, EuInsVO, Art. 84, mn. 2, 5. 7 cf. CJEU Case C-1/04 Susanne Staubitz-Schreiber ECLI:EU:C:2996:39. 8 Riewe, in Vallender, EuInsVO, Art. 84, mn. 5. 9 van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 84, mn. 84.03; J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 84, mn. 8. But see Dugué, in Braun, Insolvenzordnung, Art. 84 EuInsVO, mn. 8; Riewe, in Vallender, EuInsVO, Art. 84, mn. 6. 3

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the individual proceedings.10 A universal application of either the EIR 2000 or the EIR 2015 to all insolvency proceedings against the same debtor would be inapt, as it disregards the general understanding of separability between main and secondary insolvency proceedings.11 The Virgós-Schmit Report came to the opposite conclusion for the EIR 2000. It held 7 that “if insolvency proceedings are opened against a given debtor prior to the entry into force of the Convention in a Contracting State, any proceedings opened after the entry into force are not subject to the Convention, irrespective of whether such later proceedings are main or secondary proceedings within the meaning of the Convention.”12 However, the findings of the Virgós-Schmit Report must be read against the backdrop of the EIR 2000 having been the first attempt of the EU to harmonise cross-border insolvency procedure law. Before the EIR 2000, every Member State was operating under its own law. A combination of the Member States’ international insolvency procedure laws for proceedings prior to the entry into force of the EIR 2000 and the provisions of the EIR 2000 for all subsequent proceedings against the same debtor would not have been feasible back then. But the general similarity of the EIR 2000 and EIR 2015 enables a combination of both now. However, the LG Munich questioned this compatibility.13 The court emphasised the differences in Article 27 EIR 2000 and Article 34 EIR 2015 regarding the reexamination of the debtor’s insolvency. Since the result would differ depending on the Regulation applied, it was held that the EIR 2000 should universally apply to all secondary insolvency proceedings, given that the main insolvency proceedings were opened prior to 26 June 2017.14 Yet, not in all circumstances is it possible to apply only one or the other EIR to all cross-border insolvency proceedings, for example if territorial insolvency proceedings were opened prior to 26 June 2017 and the main insolvency proceedings on or after that date. A universal application of the EIR 2015 would then be an undesirable retroactive application to already opened territorial insolvency proceedings,15 forcing a court to begin the proceedings anew. Instead of treating territorial insolvency proceedings differently to secondary insolvency proceedings – as the LG Munich implicitly suggests –, having a “one solution fits all” by focusing on the individual proceedings is equally feasible and foreseeable, and, as mentioned, honours the separability between main and secondary insolvency proceedings. Group coordination proceedings are only possible in insolvency proceedings opened 8 on or after 26 June 2017. Main, territorial or secondary insolvency proceedings that were opened before 26 June 2017, therefore, cannot take part in the group coordination proceedings, not even by opting-in by way of analogy to Article 69 EIR.16

II. Scope of “insolvency proceedings” as to EIR 2000 and EIR 2015 “Insolvency proceedings” in Article 84(1)(sentence 1) EIR 2015 are defined by 9 Article 2 no. 4 EIR 2015 as proceedings listed in Annex A EIR 2015, whereas “insolvency proceedings” in Article 84(2) EIR 2015 are only those which fall within the 10 But see LG München I, Beschl. v. 5.3.2018, ZIP 2018, 796, 797 (DEU). For criticism on this decision see Fuchs, NZI 2018, 667, 667. 11 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 84, mn. 8. 12 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 304. 13 LG München I, Beschl. v. 5.3.2018, ZIP 2018, 796, 797 (DEU). See also Bork, EWiR 2018, 247, 247 et seq. 14 LG München I, Beschl. v. 5.3.2018, ZIP 2018, 796, 797 (DEU). 15 cf. J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 84, mn. 2. 16 But see J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 84, mn. 9; Riewe, in Vallender, EuInsVO, Art. 84, mn. 7.

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scope of Article 2(a) EIR 2000. The definitions in both Regulations are not identical. This may lead to situations in which national insolvency proceedings opened prior to 26 June 2017 have not been within the scope of the EIR 2000 but are now within the scope of the EIR 2015. Nevertheless, since the proceedings were opened before 26 June 2017, the EIR 2015 is not applicable, regardless of the inapplicability of the EIR 2000.17

III. Acts committed by a debtor, Article 84 (1)(sentence 2) EIR The applicable law for acts committed by a debtor before 27 June 2017 is determined by Article 84(1)(sentence 2) EIR. An act is committed at the moment the debtor has finished the necessary actions rather than the time the legal consequences become effective.18 11 Acts committed by a debtor before 27 June 2017 continue to be governed by the laws of the Member State referred to by the EIR 2000, in general the lex fori concursus. The EIR 2015 remains silent on the question as to which Regulation applies to proceedings under the EIR 2000 if a debtor commits acts on or after 27 June 2017. Since the provisions on the conflicts of law in both Regulations are, apart from some minor editorial makeovers, the same, the question has no practical consequences. But from a dogmatic standpoint, because of the wording in Article 84(1)(sentence 2) EIR 2015, one would have to refer for any acts committed on or after 26 June 2017 to the EIR 2015, irrespective of whether the insolvency proceedings themselves are governed by the EIR 2000 or the EIR 2015.19 10

17

See also Riewe, in Vallender, EuInsVO, Art. 84, mn. 10. But see Kemper, in Kübler/Prütting/Bork, Insolvenzordnung, Art. 43 EIR 2000, mn. 5. 19 cf. Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.809. 18

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Article 85 Relationship to Conventions 1. This Regulation replaces, in respect of the matters referred to therein, and as regards relations between Member States, the Conventions concluded between two or more Member States, in particular: (a) the Convention between Belgium and France on Jurisdiction and the Validity and Enforcement of Judgments, Arbitration Awards and Authentic Instruments, signed at Paris on 8 July 1899; (b) the Convention between Belgium and Austria on Bankruptcy, Winding-up, Arrangements, Compositions and Suspension of Payments (with Additional Protocol of 13 June 1973), signed at Brussels on 16 July 1969; (c) the Convention between Belgium and the Netherlands on Territorial Jurisdiction, Bankruptcy and the Validity and Enforcement of Judgments, Arbitration Awards and Authentic Instruments, signed at Brussels on 28 March 1925; (d) the Treaty between Germany and Austria on Bankruptcy, Winding-up, Arrangements and Compositions, signed at Vienna on 25 May 1979; (e) the Convention between France and Austria on Jurisdiction, Recognition and Enforcement of Judgments on Bankruptcy, signed at Vienna on 27 February 1979; (f) the Convention between France and Italy on the Enforcement of Judgments in Civil and Commercial Matters, signed at Rome on 3 June 1930; (g) the Convention between Italy and Austria on Bankruptcy, Winding-up, Arrangements and Compositions, signed at Rome on 12 July 1977; (h) the Convention between the Kingdom of the Netherlands and the Federal Republic of Germany on the Mutual Recognition and Enforcement of Judgments and other Enforceable Instruments in Civil and Commercial Matters, signed at The Hague on 30 August 1962; (i) the Convention between the United Kingdom and the Kingdom of Belgium providing for the Reciprocal Enforcement of Judgments in Civil and Commercial Matters, with Protocol, signed at Brussels on 2 May 1934; (j) the Convention between Denmark, Finland, Norway, Sweden and Iceland on Bankruptcy, signed at Copenhagen on 7 November 1933; (k) the European Convention on Certain International Aspects of Bankruptcy, signed at Istanbul on 5 June 1990; (l) the Convention between the Federative People’s Republic of Yugoslavia and the Kingdom of Greece on the Mutual Recognition and Enforcement of Judgments, signed at Athens on 18 June 1959; (m) the Agreement between the Federative People’s Republic of Yugoslavia and the Republic of Austria on the Mutual Recognition and Enforcement of Arbitral Awards and Arbitral Settlements in Commercial Matters, signed at Belgrade on 18 March 1960; (n) the Convention between the Federative People’s Republic of Yugoslavia and the Italian Republic on Mutual Judicial Cooperation in Civil and Administrative Matters, signed at Rome on 3 December 1960; (o) the Agreement between the Socialist Federative Republic of Yugoslavia and the Kingdom of Belgium on Judicial Cooperation in Civil and Commercial Matters, signed at Belgrade on 24 September 1971;

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Chapter VII. Transitional and Final Provisions

(p) the Convention between the Governments of Yugoslavia and France on the Recognition and Enforcement of Judgments in Civil and Commercial Matters, signed at Paris on 18 May 1971; (q) the Agreement between the Czechoslovak Socialist Republic and the Hellenic Republic on Legal Aid in Civil and Criminal Matters, signed at Athens on 22 October 1980, still in force between the Czech Republic and Greece; (r) the Agreement between the Czechoslovak Socialist Republic and the Republic of Cyprus on Legal Aid in Civil and Criminal Matters, signed at Nicosia on 23 April 1982, still in force between the Czech Republic and Cyprus; (s) the Treaty between the Government of the Czechoslovak Socialist Republic and the Government of the Republic of France on Legal Aid and the Recognition and Enforcement of Judgments in Civil, Family and Commercial Matters, signed at Paris on 10 May 1984, still in force between the Czech Republic and France; (t) the Treaty between the Czechoslovak Socialist Republic and the Italian Republic on Legal Aid in Civil and Criminal Matters, signed at Prague on 6 December 1985, still in force between the Czech Republic and Italy; (u) the Agreement between the Republic of Latvia, the Republic of Estonia and the Republic of Lithuania on Legal Assistance and Legal Relationships, signed at Tallinn on 11 November 1992; (v) the Agreement between Estonia and Poland on Granting Legal Aid and Legal Relations on Civil, Labour and Criminal Matters, signed at Tallinn on 27 November 1998; (w) the Agreement between the Republic of Lithuania and the Republic of Poland on Legal Assistance and Legal Relations in Civil, Family, Labour and Criminal Matters, signed at Warsaw on 26 January 1993; (x) the Convention between the Socialist Republic of Romania and the Hellenic Republic on legal assistance in civil and criminal matters and its Protocol, signed at Bucharest on 19 October 1972; (y) the Convention between the Socialist Republic of Romania and the French Republic on legal assistance in civil and commercial matters, signed at Paris on 5 November 1974; (z) the Agreement between the People’s Republic of Bulgaria and the Hellenic Republic on Legal Assistance in Civil and Criminal Matters, signed at Athens on 10 April 1976; (aa) the Agreement between the People’s Republic of Bulgaria and the Republic of Cyprus on Legal Assistance in Civil and Criminal Matters, signed at Nicosia on 29 April 1983; (ab) the Agreement between the Government of the People’s Republic of Bulgaria and the Government of the French Republic on Mutual Legal Assistance in Civil Matters, signed at Sofia on 18 January 1989; (ac) the Treaty between Romania and the Czech Republic on judicial assistance in civil matters, signed at Bucharest on 11 July 1994; (ad) the Treaty between Romania and the Republic of Poland on legal assistance and legal relations in civil cases, signed at Bucharest on 15 May 1999. 2. The Conventions referred to in paragraph 1 shall continue to have effect with regard to proceedings opened before the entry into force of Regulation (EC) No 1346/2000. 3. This Regulation shall not apply: (a) in any Member State, to the extent that it is irreconcilable with the obligations arising in relation to bankruptcy from a convention concluded by that Member 532

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Art. 85

State with one or more third countries before the entry into force of Regulation (EC) No 1346/2000; (b) in the United Kingdom of Great Britain and Northern Ireland, to the extent that is irreconcilable with the obligations arising in relation to bankruptcy and the winding-up of insolvent companies from any arrangements with the Commonwealth existing at the time Regulation (EC) No 1346/2000 entered into force. Outline A. Purpose and scope ........................................................................................................... B. Interpretation .................................................................................................................... I. Bi- or multilateral Conventions among Member States ................................ II. Bi- or multilateral Conventions between Member States and third countries.................................................................................................................... C. Future developments .......................................................................................................

1 2 2 5 8

A. Purpose and scope Article 85 EIR 2015, a slightly restated version of Article 44 EIR 2000,1 resolves 1 application conflicts between the EIR 2000 or EIR 2015 and bi- or multilateral Conventions. Article 85(1) and (2) EIR 2015 focus on Conventions among EU Member States, whereas Article 85(3) EIR regulates Conventions with third countries.

B. Interpretation I. Bi- or multilateral Conventions among Member States Bi- or multilateral Conventions with at least two Member States as signatories are 2 replaced by the provisions of the EIR, in respect of the matters dealt within the EIR and as regards relations between the Member States. Bi- and multilateral Conventions, therefore, remain effective with regard to all matters not dealt within the EIR. Article 85(1) EIR contains in (a) to (ad) a non-exclusive list of Conventions that are 3 replaced by the EIR. According to Article 85(2) EIR 2015, the Conventions among Member States remain 4 applicable to insolvency proceedings that were opened before 31 May 2002,2 the entry into force of the EIR 2000.

II. Bi- or multilateral Conventions between Member States and third countries Article 85(3) EIR establishes the priority of bi- or multilateral Conventions with 5 third countries and allows the Member States therewith to honour their international obligations. Bi- or multilateral Conventions, which a Member State has entered into before 6 31 May 2002, remain effective between the Member State and third countries, if the 1 van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 85, mn. 85.01; Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.811. 2 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 85, mn. 7.

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EIR is irreconcilable with the Convention’s obligations arising in relation to bankruptcy (Article 85(3)(a) EIR). “To determine if the application of [the EIR] is or is not irreconcilable with the obligations arising out of another existing Convention, it should be examined whether they entail legal consequences which are mutually exclusive.”3 7 Article 85(3)(b) EIR emphasises the situation between the United Kingdom of Great Britain and Northern Ireland and the other Commonwealth Nations. Arrangements with the Commonwealth in relation to bankruptcy and the winding-up of insolvent companies even apply if they are irreconcilable with the EIR.

C. Future developments If Member States, as the United Kingdom with Brexit, opt to leave the European Union and terminate the applicability of the EIR, the previous Conventions with the remaining Member States resurface again, because Article 85 EIR never repealed but merely “replaced” the Conventions.4 Therefore, the Convention between the United Kingdom and the Kingdom of Belgium providing for the Reciprocal Enforcement of Judgments in Civil and Commercial Matters (Article 85(1)(i) EIR) will be applicable again, unless the United Kingdom comes to specific agreements with the EU regarding cross-border insolvency proceedings. 9 Another casualty of Brexit will likely be Article 85(3)(b) EIR, which will probably become redundant as soon as the United Kingdom leaves the EU. 8

3 Virgós/Schmit, Report on the Convention on Insolvency Proceedings, mn. 310. See also J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 85, mn. 9. 4 Paulus, EuInsVO, Art. 85, mn. 4.

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Article 86 Information on national and Union insolvency law 1. The Member States shall provide, within the framework of the European Judicial Network in civil and commercial matters established by Council Decision 2001/470/EC1, and with a view to making the information available to the public, a short description of their national legislation and procedures relating to insolvency, in particular relating to the matters listed in Article 7(2). 2. The Member States shall update the information referred to in paragraph 1 regularly. 3. The Commission shall make information concerning this Regulation available to the public. Outline A. Purpose ............................................................................................................................... B. Interpretation ....................................................................................................................

1 2

A. Purpose Article 86 EIR aims to inform the public on the insolvency law of the Member States. 1 It prompts the Member States to provide information on their national legislation and procedures relating to insolvency, which the Commission is supposed to make publicly available.

B. Interpretation The Member States are asked to provide, within the European Judicial Network, a 2 short description of their “national legislation and procedures relating to insolvency”. The wording in Article 86(1) EIR is broad and not limited to the insolvency procedures mentioned in Annex A EIR.2 However, information on the insolvency procedures mentioned in that Annex are sufficient for the EIR’s purpose of informing the public. Of particular interest are information on the matters listed in Article 7(2) EIR. For further information on the specific matters see Piekenbrock above Art. 7 mn. 20 et seq. Member States shall regularly update the information on their national legislation 3 and procedures relating to insolvency (Article 86(2) EIR). According to Article 86(3) EIR, the Commission is supposed to make information 4 concerning the EIR 2015 available to the public. This publication request includes, but is not limited to,3 the information mentioned in Article 86(1) EIR. Various, yet not all, short descriptions on the national legislations and procedures relating to insolvency are 1 Council Decision 2001/470/EC of 28 May 2001 establishing a European Judicial Network in civil and commercial matters (OJ L 174, 27.6.2001, p. 25). 2 van Zwieten, in Bork/van Zwieten, Commentary on EIR, Art. 86, mn. 86.02. 3 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.812; Paulus, EuInsVO, Art. 86, mn. 4.

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accessible on the European e-Justice portal (https://e-justice.europe.eu) under the subheading “Tools for courts and practitioners” and the keyword “Insolvency”. 5 Article 86 EIR became, according to Article 92(a) EIR, applicable on 26 June 2016. See Rüther below Art. 92 mn. 3.

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Article 87 Establishment of the interconnection of registers The Commission shall adopt implementing acts establishing the interconnection of insolvency registers as referred to in Article 25. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 89(3). Recitals: 76, 82.

Outline A. Implementing and delegated acts................................................................................. B. Implementing act(s) on interconnection of insolvency registers..........................

1 3

A. Implementing and delegated acts1 The Council and the European Parliament may confer implementing powers on the 1 Commission to adopt measures for the implementation of the legal instruments of the European Union. The Commission may have implementing powers only if the implementation of a legally binding Union act requires uniform conditions and a legal basis in that act conferring such powers exists (Article 291(2) TFEU). The exercise of such powers can be subject to review by the Member States before an implementing act is adopted by the Commission. This ex ante control is carried out in form of so-called regulatory committees composed of the representatives of the Member States which assist the Commission in its task to deliver the required implementing measures. The procedures for and the general principles of the operation of such committees are laid down in Regulation (EU) No 182/ 2011.2 There are two different procedures, the examination procedure and the advisory procedure, which mainly differ from each other in terms of the influence Member States have when delivering an opinion. The EIR provides a legal basis for the Commission for adopting various implementing acts. These are to be found in Article 87 and 88 EIR, while Article 89 EIR subjects this implementing power to the control of a committee. For the sake of completeness, it is to be noted that the proposal of the Commission 2 empowered the Commission to adopt delegated acts in order to amend the Annexes of the Regulation.3 Delegated acts are, under the current Treaty framework, the second type of Commission instruments which shall find their legal basis in a legislative act and which aim at the appropriate implementation of that legislative act. They are defined as non-legislative acts of general application to supplement or amend certain non-essential elements of a legislative act (see Article 290 TFEU). The proposal of the Commission further contained detailed rules on the limits and conditions of the delegation of power by the EU legislator.4 Finally, this idea proposed by the Commission was not supported 1 The information and views set out in Artt. 87 to 89 are those of the author and do not necessarily reflect the official opinion of the European Commission. 2 07 L 55, 28.2.2011, p. 13–18. 3 Article 45 of the Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12. 12. 2012, COM(2012) 744 final. 4 Article 45 a of the Proposal of the Commission for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings, Strasbourg 12. 12. 2012, COM(2012) 744 final.

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by the EU legislator, as there was a certain degree of mistrust against this type of procedure due to the lack of efficient involvement of the co-legislators in the shaping of the content of the delegated act.5 The Council and the European Parliament preferred to carry out amendments of the Annexes of the EIR through the ordinary legislative procedure instead. This appears to be counterproductive for an Annex which should accurately and timely reflect the actual legal situation in the Member States.6

B. Implementing act(s) on interconnection of insolvency registers Article 87 EIR confers implementing powers to the Commission for the establishment of the EU-wide interconnection of insolvency registers. Such a broad crossborder project, which requires a single search service to be operated on the European eJustice Portal, could not be implemented by the Member States themselves, but by a uniform action at EU level. The implementing act(s) to be adopted by the Commission under this legal basis in the EIR shall contain all elements listed in Article 25(2) EIR relating to various aspects of technical specifications of the system (including the interface specification, security and data protection aspects, common and minimum search criteria, payment functionality, glossary etc.). While the wording speaks of several implementing acts to be adopted, the sole purpose of this use of plural is granting the Commission (and the Member States) flexibility if, for any practical reason, the documentation could not reasonably be included in one legal instrument. 4 The implementing act(s) shall be adopted in accordance with the examination procedure, which presupposes its approval by a qualified majority of the Member States for the adoption. The Regulation requires that the implementing act(s) concerning the interconnection of insolvency registers should be adopted by 26 June 2019.7 The practical deployment of the system will be carried out after this date, probably within a relatively short period, bearing in mind the obligation of Member States to set up their national electronic insolvency registers by 26 June 2018, and the beginning of the reflection on the technical standards of the European component of the system in 2016.8 3

5 It is to be noted that the EIR 2015 was adopted before the adoption of the Interinstitutional Agreement between the European Parliament, the Council of the European Union and the European Commission of 13 April 2016 on Better Law-Making, OJ L 123, 12 May 2016, p. 1. 6 See the example of the legislative procedure integrating in the Annexes the new restructuring proceedings under Polish insolvency law. The proposal of the Commission was presented to the colegislators on 30 May 2016, whereas the final legislative act was adopted on 15 February 2017. See information on the legislative procedure leading to the adoption of Regulation (EU) 2017/353 of the European Parliament and of the Council of 15 February 2017 replacing Annexes A and B EIR 2015, OJ L 57, 3.3.2017, p. 19, at http://eur-lex.europa.eu/legal-content/EN/HIS/?uri=CONSIL:ST_9710_2016_INIT&qid=1488150612318 (last visited 30 November 2018). The procedure for the adoption of the subsequent amendment was similarly tedious: the Commission presented its proposal for the amendment on 09 August 2017 (See COM(2017)422 final), whereas the Regulation was adopted on 4 July 2018. See information on this legislative procedure leading to the adoption of Regulation (EU) 2018/946 of the European Parliament and of the Council of 4 July 2018 replacing Annexes A and B EIR 2015, OJ L 171, 6.7.2018, p. 1–10, at https://eur-lex.europa.eu/legal-content/EN/HIS/?uri=celex:32018R0946 (last visited 30 November 2018). 7 See Article 25(2) EIR. 8 See Szirányi above Art. 25 mn. 2.

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Article 88 Establishment and subsequent amendment of standard forms The Commission shall adopt implementing acts establishing and, where necessary, amending the forms referred to in Article 27(4), Articles 54 and 55 and Article 64(2). Those implementing acts shall be adopted in accordance with the advisory procedure referred to in Article 89(2). Recital: 82.

Article 88 EIR confers implementing powers to the Commission for the establish- 1 ment and subsequent amendment of four standard forms. There shall be: a standard form for submitting individual requests for the access to information included in the interconnected insolvency registers (Article 27(4) EIR); one which informs foreign creditors on the opening of insolvency proceedings by the insolvency practitioner or the court (Article 54 EIR); one which enables those foreign creditors to lodge their claims in the insolvency proceedings (Article 55 EIR); and one for the objections of the insolvency practitioner of a member company of an enterprise group to be filed in the context of so-called group coordination proceedings1 (Article 64(2) EIR). The form on the request for access to information differs in nature from the other 2 three standard forms: this is the only one which is exclusively meant for electronic use on the internet. The Regulation requires that individual requests for accessing information in the system of interconnection may be sent by means of this form electronically via the European e-Justice Portal. Consequently, this standard form will be part of the web-service, the layout of which will be defined ultimately by the technical specifications of the interconnection. The implementing act on the standard forms will need to determine its substantive contents (content of the information note, and structure and text of the entry fields) only. As opposed to that, the standard forms on the notice of insolvency proceedings, on the lodgement of claims and on the opposition in the group insolvency proceedings are considered in the traditional way, mainly for the use in off-line (paper-based) communication.2 The implementing act(s) under this legal basis on the EIR shall be adopted in 3 accordance with the advisory procedure, which requires that the committee assisting the Commission delivers its opinion on the draft act by a simple majority of the component members.3 The implementing act(s) containing the first versions of these forms were to be adopted by 26 June 2017.4 In fact, the Commission could meet this deadline; the implementing Regulation was adopted on 12 June 2017.5 1

See Section 2 of Chapter V EIR. Despite of this, the published version of the relevant implementing act in the EUR-Lex website contains the editable text images of the various pages of these forms, which enables users to transform the forms into editable word documents. See at https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1532601731509&uri =CELEX:32017R1105 (last visited 30 November 2018). These standard forms are also available in the European e-Justice Portal, partly because of a direct obligation in the Regulation with regard to the form on notice of insolvency proceedings (see Article 54(3) EIR). Currently, only the non-editable .pdf versions of the standard forms can be found in the e-Justice Portal: https://e-justice.europa.eu/content_insolvency-447en.do?init=true (last visited 30 November 2018). The presentation of the standard forms in dynamic versions on the Portal is unavoidable, though, taking into account the scale of their use in everyday practice. 3 See Article 4 of Regulation (EU) No 182/2011, p. 13–18. 4 See Article 92 EIR. 5 Commission Implementing Regulation (EU) 2017/1105 of 12 June 2017 establishing the forms referred to in Regulation (EU) 2015/848 of the European Parliament and of the Council on insolvency proceedings, OJ L 160, 22.6.2017, p. 1. 2

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Article 89 Committee procedure 1. The Commission shall be assisted by a committee. That committee shall be a committee within the meaning of Regulation (EU) No 182/2011. 2. Where reference is made to this paragraph, Article 4 of Regulation (EU) No 182/2011 shall apply. 3. Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply Recital: 82.

The EU legislator decided to subject the implementing power conferred on the Commission in the Regulation to the control of the Member States, which shall be exercised through a committee to be established in line with Article 3 of Regulation (EU) No 182/2011. This comitology group1 held its first meeting on 16 March 2016, where it has adopted its own rules of procedures and decided to defer the discussions on the technical specifications relating to the interconnection of insolvency registers to a dedicated formation of the committee composed of the IT experts of the Member States2. The Committee had further meetings on 6 July 2016, 6 and 7 October 2016, 23 and 24 February 2017, and 10 July 2017.3 2 Article 89(2),(3) EIR clarify the committee procedures to be followed in course of adoption of the implementing acts. According to this, implementing acts relating to the standard forms shall be adopted in accordance with the so-called advisory procedure of the Regulation (EU) No 182/2011, whereas the implementing acts concerning the interconnection of insolvency registers should be adopted in accordance with the examination procedure of that Regulation. 1

1 The formation is called “Committee on insolvency proceedings” and bears the code C48500 in the comitology register of the Commission. See at: http://ec.europa.eu/transparency/regcomitology/index. cfm?do=List.list (last visited 30 November 2018). 2 See summary report of the first meeting available at: http://ec.europa.eu/transparency/regcomitology/index.cfm?do=search.documentdetail&Dos_ID=12453&DS_ID=47507&Version=1. (last visited 30 November 2018). 3 Until 1 July 2018. See dossiers in the comitology register of the Commission at http://ec.europa.eu/ transparency/regcomitology/index.cfm?do=Search.Search&NewSearch=1.

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Article 90 Review clause 1. No later than 27 June 2027, and every 5 years thereafter, the Commission shall present to the European Parliament, the Council and the European Economic and Social Committee a report on the application of this Regulation. The report shall be accompanied where necessary by a proposal for adaptation of this Regulation. 2. No later than 27 June 2022, the Commission shall present to the European Parliament, the Council and the European Economic and Social Committee a report on the application of the group coordination proceedings. The report shall be accompanied where necessary by a proposal for adaptation of this Regulation. 3. No later than 1 January 2016, the Commission shall submit to the European Parliament, the Council and the European Economic and Social Committee a study on the cross-border issues in the area of directors’ liability and disqualifications. 4. No later than 27 June 2020, the Commission shall submit to the European Parliament, the Council and the European Economic and Social Committee a study on the issue of abusive forum shopping. Outline A. Purpose ............................................................................................................................... B. Interpretation .................................................................................................................... I. Report on the application of the Regulation, Article 90(1) EIR .................. II. Report on the application of the group coordination proceedings, Article 90(2) EIR ..................................................................................................... III. Study on the cross-border issues in the area of directors’ liability and disqualifications, Article 90(3) EIR ..................................................................... IV. Study on the issue of abusive forum shopping, Article 90 (4) EIR.............

1 2 2 3 4 5

A. Purpose The purpose of this review clause is to examine the functioning and efficiency of the 1 provisions in the EIR and, if necessary, to propose changes.1 Article 90 EIR obliges the Commission to report (Article 90(1) and (2) EIR) or to study (Article 90(3) and (4) EIR) various aspects relating to the EIR and, if necessary, to propose adaptations of this Regulation. The findings shall be presented to the European Parliament, the Council and the European Economic and Social Committee.2

B. Interpretation I. Report on the application of the Regulation, Article 90(1) EIR The Commission shall present a report on the application of the Regulation no 2 later than 27 June 2027 – ten years after the Regulation’s entry into force – and every five years thereafter. The report may be accompanied by a proposal for adaptation. 1 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 90, mn. 2; Paulus, EuInsVO, Art. 90, mn. 1. 2 Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.820.

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II. Report on the application of the group coordination proceedings, Article 90(2) EIR 3

The newly introduced group coordination proceedings are up for a review no later than 27 June 2022. The novelty of these group coordination proceedings is likely the reason for this early review.3

III. Study on the cross-border issues in the area of directors’ liability and disqualifications, Article 90(3) EIR 4

The Commission was supposed to submit a study to the European Parliament, the Council and the European Economic and Social Committee by 1 January 2016 on the cross-border issues in the area of directors’ liability and disqualifications. The publication of this study is still pending.

IV. Study on the issue of abusive forum shopping, Article 90 (4) EIR 5

No later than 27 June 2020, the Commission shall submit a study on the issue of abusive forum shopping. 3 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 90, mn. 6. But see Paulus, EuInsVO, Art. 90, mn. 4 who is under the impression that the early review is due to the EU legislator’s scepticism as to the functioning of the group coordination proceedings.

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Article 91 Repeal Regulation (EC) No 1346/2000 is repealed. References to the repealed Regulation shall be construed as references to this Regulation and shall be read in accordance with the correlation table set out in Annex D to this Regulation. Outline A. Purpose ............................................................................................................................... B. Interpretation ....................................................................................................................

1 2

A. Purpose The implementation of the EIR 2015 supersedes the provisions in the EIR 2000 for all 1 new insolvency proceedings. Article 91 EIR 2015 clarifies the repeal of the EIR 2000 for this reason. References to the repealed Regulation shall be read in accordance with the correlation table set out in Annex D EIR 2015.

B. Interpretation Article 91 EIR 2015 repeals the EIR 2000 as of its entry into force, i. e. 27 June 2017. 2 From this day onwards, the EIR 2015 is applicable unless Article 84 EIR 2015 specifically declares otherwise. For further information on the applicability in time see Rüther above Art. 84 mn. 1 et seq. Instead of rectifying the references to the former EIR 2000 in all primary and 3 secondary EU law, Article 91 EIR 2015 requires references to the repealed EIR 2000 to be construed as references to the EIR 2015 in accordance with the correlation table set out in Annex D EIR 2015, which became necessary due to the significant changes between the two Regulations. Due to the EU’s lack of legislative competence, references to the former EIR 2000 in 4 national legislation and contracts cannot be construed as references to the equivalent provisions in the EIR 2015 by reference to Article 91 EIR 2015.1 However, references to the EIR 2000 in national legislation and contracts can be construed as references to the correlating provisions in the EIR 2015 if the legal context allows such an interpretation. 1

But see Moss/Fletcher/Isaacs, EU Regulation on Insolvency Proceedings, mn. 8.822.

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Article 92 Entry into force This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from 26 June 2017, with the exception of: (a) Article 86, which shall apply from 26 June 2016; (b) Article 24(1), which shall apply from 26 June 2018; and (c) Article 25, which shall apply from 26 June 2019. Outline A. Purpose ............................................................................................................................... B. Interpretation ....................................................................................................................

1 2

A. Purpose 1

Article 92 EIR declares the date on which the EIR 2015 entered into force and became applicable. It contains three exceptions to the general date of application.

B. Interpretation The EIR 2015 entered into force on the twentieth day following that of its publication on 5 June 2015 in the Official Journal of the European Union, hence on 26 June 2015. Despite of its entry into force, Article 92 EIR halted the application of the EIR 2015 two more years until 26 June 2017. Article 84 EIR contains the temporal conflict of laws-rule for the EIR 2015 and should be read together with Article 92 EIR. For further information on the application in time see Rüther above Art. 84 mn. 1 et seq. 3 Article 92 EIR contains three exceptions to the general application date of 26 June 2017. Article 86 EIR – which demands a short description of their national legislation and procedures relating to insolvency from the Member States and the publication of these from the Commission – became applicable on 26 June 2016. This early application was meant to allow for the general public to get information on the national insolvency legislation before the EIR became applicable.1 4 Article 24(1) EIR, on the establishment of insolvency registers, became applicable on 26 June 2018. This deferred application was supposed to give the Member States an additional year to establish the insolvency registers.2 5 According to the third exception in Article 92 EIR, the Commission will only become responsible for the interconnection of these insolvency registers (Article 25 EIR) on 26 June 2019. 2

1 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 92, mn. 4; Vallender, in Vallender, EuInsVO, Art. 92, mn. 4. 2 J. Schmidt, in Mankowski/Müller/J. Schmidt, EuInsVO 2015, Art. 92, mn. 4; Vallender, in Vallender, EuInsVO, Art. 92, mn. 5.

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ANNEX A as of Regulation (EU) 2018/946 of the European Parliament and of the Council of 4 July 20181 Insolvency proceedings referred to in point (4) of Article 2 BELGIQUE/BELGIË – Het faillissement/La faillite, – De gerechtelijke reorganisatie door een collectief akkoord/La réorganisation judiciaire par accord collectif, – De gerechtelijke reorganisatie door een minnelijk akkoord/La réorganisation judiciaire par accord amiable, – De gerechtelijke reorganisatie door overdracht onder gerechtelijk gezag/La réorganisation judiciaire par transfert sous autorité de justice, – De collectieve schuldenregeling/Le règlement collectif de dettes, – De vrijwillige vereffening/La liquidation volontaire, – De gerechtelijke vereffening/La liquidation judiciaire, – De voorlopige ontneming van het beheer, als bedoeld in artikel XX.32 van het Wetboek van economisch recht/Le dessaisissement provisoire de la gestion, visé à l’article XX.32 du Code de droit économique, БЪЛГАРИЯ – Производство по несъстоятелност, – Производство по стабилизация на търговеца, ČESKÁ REPUBLIKA – Konkurs, – Reorganizace, – Oddlužení, – – – –

DEUTSCHLAND Das Konkursverfahren, Das gerichtliche Vergleichsverfahren, Das Gesamtvollstreckungsverfahren, Das Insolvenzverfahren,

EESTI – Pankrotimenetlus, – Võlgade ümberkujundamise menetlus,

1 According to recital 5 of Regulation (EU) 2018/946 Ireland is initially not bound by that Regulation which amended Annexes A and B. With respect to the preceeding amendment contained in Regulation (EU) 2017/353 Ireland has subsequently agreed to be bound by that Regulation (Commission Decision (EU) 2017/1518 of 31 August 2017). Hence vis-à-vis Ireland the version of the Annexes in Regulation (EU) 2017/353 applies as long as Ireland does not notify the Commission that it wishes to be bound by Regulation (EU) 2018/946.

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Annex A

– – – –

ÉIRE/IRELAND Compulsory winding-up by the court, Bankruptcy, The administration in bankruptcy of the estate of persons dying insolvent, Winding-up in bankruptcy of partnerships, Creditors’ voluntary winding-up (with confirmation of a court), Arrangements under the control of the court which involve the vesting of all or part of the property of the debtor in the Official Assignee for realisation and distribution, Examinership, Debt Relief Notice, Debt Settlement Arrangement, Personal Insolvency Arrangement,

– – – – –

ΕΛΛΑΔΑ Η πτώχευση, Η ειδική εκκαθάριση εν λειτουργία, Σχέδιο αναδιοργάνωσης, Απλοποιημένη διαδικασία επί πτωχεύσεων μικρού αντικειμένου, Διαδικασία εξυγίανσης,

– – – – – –

– – – –

– – – – – – – – –

ESPAÑA Concurso, Procedimiento de homologación de acuerdos de refinanciación, Procedimiento de acuerdos extrajudiciales de pago, Procedimiento de negociación pública para la consecución de acuerdos de refinanciación colectivos, acuerdos de refinanciación homologados y propuestas anticipadas de convenio, FRANCE Sauvegarde, Sauvegarde accélérée, Sauvegarde financière accélérée, Redressement judiciaire, Liquidation judiciaire, HRVATSKA Stečajni postupak, Predstečajni postupak, Postupak stečaja potrošača, Postupak izvanredne uprave u trgovačkim društvima od sistemskog značaja za Republiku Hrvatsku,

ITALIA Fallimento, Concordato preventivo, Liquidazione coatta amministrativa, Amministrazione straordinaria, Accordi di ristrutturazione, Procedure di composizione della crisi da sovraindebitamento del consumatore (accordo o piano), – Liquidazione dei beni,

– – – – – –

ΚΥΠΡΟΣ – Υποχρεωτική εκκαθάριση από το Δικαστήριο, – Εκούσια εκκαθάριση από μέλη,

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Annex A – – – –

Εκούσια εκκαθάριση από πιστωτές, Εκκαθάριση με την εποπτεία του Δικαστηρίου, Διάταγμα παραλαβής και πτώχευσης κατόπιν Δικαστικού Διατάγματος, Διαχείριση της περιουσίας προσώπων που απεβίωσαν αφερέγγυα,

LATVIJA – Tiesiskās aizsardzības process, – Juridiskās personas maksātnespējas process, – Fiziskās personas maksātnespējas process, – – – –

LIETUVA Įmonės restruktūrizavimo byla, Įmonės bankroto byla, Įmonės bankroto procesas ne teismo tvarka, Fizinio asmens bankroto procesas,

– – – – –

LUXEMBOURG Faillite, Gestion contrôlée, Concordat préventif de faillite (par abandon d’actif), Régime spécial de liquidation du notariat, Procédure de règlement collectif des dettes dans le cadre du surendettement,

MAGYARORSZÁG – Csődeljárás, – Felszámolási eljárás, – – – – – –

MALTA Xoljiment, Amministrazzjoni, Stralċ volontarju mill-membri jew mill-kredituri, Stralċ mill-Qorti, Falliment f’każ ta’ kummerċjant, Proċedura biex kumpanija tirkupra,

NEDERLAND – Het faillissement, – De surséance van betaling, – De schuldsaneringsregeling natuurlijke personen, – – – – – –

ÖSTERREICH Das Konkursverfahren (Insolvenzverfahren), Das Sanierungsverfahren ohne Eigenverwaltung (Insolvenzverfahren), Das Sanierungsverfahren mit Eigenverwaltung (Insolvenzverfahren), Das Schuldenregulierungsverfahren, Das Abschöpfungsverfahren, Das Ausgleichsverfahren,

POLSKA – Upadłość, – Postępowanie o zatwierdzenie układu, – Przyspieszone postępowanie układowe,

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Annex A – Postępowanie układowe, – Postępowanie sanacyjne, PORTUGAL – Processo de insolvência, – Processo especial de revitalização, – Processo especial para acordo de pagamento, – – – – – – – –

ROMÂNIA Procedura insolvenţei, Reorganizarea judiciară, Procedura falimentului, Concordatul preventiv, SLOVENIJA Postopek preventivnega prestrukturiranja, Postopek prisilne poravnave, Postopek poenostavljene prisilne poravnave, Stečajni postopek: stečajni postopek nad pravno osebo, postopek osebnega stečaja in postopek stečaja zapuščine,

SLOVENSKO – Konkurzné konanie, – Reštrukturalizačné konanie, – Oddlženie, SUOMI/FINLAND – Konkurssi/konkurs, – Yrityssaneeraus/företagssanering, – Yksityishenkilön velkajärjestely/skuldsanering för privatpersoner, SVERIGE – Konkurs, – Företagsrekonstruktion, – Skuldsanering, – – – – –

UNITED KINGDOM Winding-up by or subject to the supervision of the court, Creditors’ voluntary winding-up (with confirmation by the court), Administration, including appointments made by filing prescribed documents with the court, Voluntary arrangements under insolvency legislation, Bankruptcy or sequestration.

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ANNEX B as of Regulation (EU) 2018/946 of the European Parliament and of the Council of 4 July 2018 Insolvency practitioners referred to in point (5) of Article 2

– – – – –

BELGIQUE/BELGIË De curator/Le curateur, De gerechtsmandataris/Le mandataire de justice, De schuldbemiddelaar/Le médiateur de dettes, De vereffenaar/Le liquidateur, De voorlopige bewindvoerder/L’administrateur provisoire,

– – – – –

БЪЛГАРИЯ Назначен предварително временен синдик, Временен синдик, (Постоянен) синдик, Служебен синдик, Доверено лице,

– – – – –

ČESKÁ REPUBLIKA Insolvenční správce, Předběžný insolvenční správce, Oddělený insolvenční správce, Zvláštní insolvenční správce, Zástupce insolvenčního správce,

– – – – – – – – –

DEUTSCHLAND Konkursverwalter, Vergleichsverwalter, Sachwalter (nach der Vergleichsordnung), Verwalter, Insolvenzverwalter, Sachwalter (nach der Insolvenzordnung), Treuhänder, Vorläufiger Insolvenzverwalter, Vorläufiger Sachwalter,

EESTI – Pankrotihaldur, – Ajutine pankrotihaldur, – Usaldusisik, – – – – –

ÉIRE/IRELAND Liquidator, Official Assignee, Trustee in bankruptcy, Provisional Liquidator, Examiner,_oo

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Annex B – Personal Insolvency Practitioner, – Insolvency Service, – – – –

ΕΛΛΑΔΑ Ο σύνδικος, Ο εισηγητής, H επιτροπή των πιστωτών, Ο ειδικός εκκαθαριστής,

ESPAÑA – Administrador concursal, – Mediador concursal, – – – –

FRANCE Mandataire judiciaire, Liquidateur, Administrateur judiciaire, Commissaire à l’exécution du plan,

– – – – –

HRVATSKA Stečajni upravitelj, Privremeni stečajni upravitelj, Stečajni povjerenik, Povjerenik, Izvanredni povjerenik,

ITALIA Curatore, Commissario giudiziale, Commissario straordinario, Commissario liquidatore, Liquidatore giudiziale, Professionista nominato dal Tribunale, Organismo di composizione della crisi nella procedura di composizione della crisi da sovraindebitamento del consumatore, – Liquidatore, – – – – – – –

ΚΥΠΡΟΣ – Εκκαθαριστής και Προσωρινός Εκκαθαριστής, – Επίσημος Παραλήπτης, – Διαχειριστής της Πτώχευσης, LATVIJA – Maksātnespējas procesa administrators, – Tiesiskās aizsardzības procesa uzraugošā persona, LIETUVA – Bankroto administratorius, – Restruktūrizavimo administratorius,

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Annex B – – – – –

LUXEMBOURG Le curateur, Le commissaire, Le liquidateur, Le conseil de gérance de la section d’assainissement du notariat, Le liquidateur dans le cadre du surendettement,

MAGYARORSZÁG – Vagyonfelügyelő, – Felszámoló, – – – – – –

MALTA Amministratur Proviżorju, Riċevitur Uffiċjali, Stralċjarju, Manager Speċjali, Kuraturi f’każ ta’ proċeduri ta’ falliment, Kontrolur Speċjali,

NEDERLAND – De curator in het faillissement, – De bewindvoerder in de surséance van betaling, – De bewindvoerder in de schuldsaneringsregeling natuurlijke personen, – – – – – – – – –

ÖSTERREICH Masseverwalter, Sanierungsverwalter, Ausgleichsverwalter, Besonderer Verwalter, Einstweiliger Verwalter, Sachwalter, Treuhänder, Insolvenzgericht, Konkursgericht,

– – – – – – –

POLSKA Syndyk, Nadzorca sądowy, Zarządca, Nadzorca układu, Tymczasowy nadzorca sądowy, Tymczasowy zarządca, Zarządca przymusowy,

PORTUGAL – Administrador da insolvência, – Administrador judicial provisório, – – – –

ROMÂNIA Practician în insolvenţă, Administrator concordatar, Administrator judiciar, Lichidator judiciar,

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Annex B SLOVENIJA – Upravitelj, SLOVENSKO – Predbežný správca, – Správca, SUOMI/FINLAND – Pesänhoitaja/boförvaltare, – Selvittäjä/utredare, SVERIGE – Förvaltare, – Rekonstruktör, – – – – – – – –

UNITED KINGDOM Liquidator, Supervisor of a voluntary arrangement, Administrator, Official Receiver, Trustee, Provisional Liquidator, Interim Receiver, Judicial factor.

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ANNEX C Repealed Regulation with list of the successive amendments thereto Council Regulation (EC) No 1346/2000 (OJ L 160, 30.6.2000, p. 1) Council Regulation (EC) No 603/2005 (OJ L 100, 20.4.2005, p. 1) Council Regulation (EC) No 694/2006 (OJ L 121, 6.5.2006, p. 1) Council Regulation (EC) No 1791/2006 (OJ L 363, 20.12.2006, p. 1) Council Regulation (EC) No 681/2007 (OJ L 159, 20.6.2007, p. 1) Council Regulation (EC) No 788/2008 (OJ L 213, 8.8.2008, p. 1) Implementing Regulation of the Council (EU) No 210/2010 (OJ L 65, 13.3.2010, p. 1) Council Implementing Regulation (EU) No 583/2011 (OJ L 160, 18.6.2011, p. 52) Council Regulation (EU) No 517/2013 (OJ L 158, 10.6.2013, p. 1) Council Implementing Regulation (EU) No 663/2014 (OJ L 179, 19.6.2014, p. 4) Act concerning the conditions of accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is founded (OJ L 236, 23.9.2003, p. 33)

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ANNEX D Correlation table Regulation (EC) No 1346/2000

This Regulation

Article 1 Article 2, introductory words Article 2, point (a) Article 2, point (b) Article 2, point (c) Article 2, point (d) Article 2, point (e) Article 2, point (f) Article 2, point (g), introductory words Article 2, point (g), first indent Article 2, point (g), second indent Article 2, point (g), third indent Article 2, point (h) – – Article 3 – – – Article 4 Article 5 Article 6 Article 7 Article 8 – Article 9 Article 10 – Article 11 Article 12 Article 13, first indent Article 13, second indent Article 14, first indent Article 14, second indent Article 14, third indent Article 15

Article 1 Article 2, introductory words Article 2, point (4) Article 2, point (5) – Article 2, point (6) Article 2, point (7) Article 2, point (8) Article 2, point (9), introductory words Article 2, point (9)(vii) Article 2, point (9)(iv) Article 2, point (9)(viii) Article 2, point 10 Article 2, points (1) to (3) and (11) to (13) Article 2, point (9)(i) to (iii), (v), (vi) Article 3 Article 4 Article 5 Article 6 Article 7 Article 8 Article 9 Article 10 Article 11(1) Article 11(2) Article 12 Article 13(1) Article 13(2) Article 14 Article 15 Article 16, point (a) Article 16, point (b) Article 17, point (a) Article 17, point (b) Article 17, point (c) Article 18

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Annex D Regulation (EC) No 1346/2000

This Regulation

Article 16 Article 17 Article 18 Article 19 Article 20 – – – – Article 21(1) Article 21(2) Article 22 Article 23 Article 24 Article 25 Article 26 Article 27 Article 28 – Article 29 – – – Article 30 Article 31 – – – Article 32 Article 33 Article 34(1) Article 34(2) Article 34(3) – Article 35 Article 36 Article 37 Article 38 Article 39 Article 40 Article 41 Article 42 –

Article 19 Article 20 Article 21 Article 22 Article 23 Article 24 Article 25 Article 26 Article 27 Article 28(2) Article 28(1) Article 29 Article 30 Article 31 Article 32 Article 33 Article 34 Article 35 Article 36 Article 37(1) Article 37(2) Article 38 Article 39 Article 40 Article 41 Article 42 Article 43 Article 44 Article 45 Article 46 Article 47(1) Article 47(2) – Article 48 Article 49 Article 50 Article 51 Article 52 Article 53 Article 54 Article 55 – Article 56

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Annex D Regulation (EC) No 1346/2000

This Regulation

– – – – – – – – – – – – – – – – – – – – – – – – – – – Article 43 – Article 44 – Article 45 – – – Article 46 – – Article 47 Annex A Annex B Annex C – –

Article 57 Article 58 Article 59 Article 60 Article 61 Article 62 Article 63 Article 64 Article 65 Article 66 Article 67 Article 68 Article 69 Article 70 Article 71 Article 72 Article 73 Article 74 Article 75 Article 76 Article 77 Article 78 Article 79 Article 80 Article 81 Article 82 Article 83 Article 84(1) Article 84(2) Article 85 Article 86 – Article 87 Article 88 Article 89 Article 90(1) Article 90(2) to (4) Article 91 Article 92 Annex A – Annex B Annex C Annex D

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