Legal Update | Recast EU Insolvency Regulation to Take Effect on 26 June 2017
Our insolvency experts have published a Legal Update on the Recast EU Insolvency Regulation, which will come into effect on 26 June 2017. You can find the Legal Update here: Recast EU Insolvency Regulation to Take Effect on 26 June 2017
The full text is also available below.
Recast EU Insolvency Regulation to Take Effect on 26 June 2017
The Recast EU Insolvency Regulation (Regulation No 2015/848 of 20 May 2015 on insolvency proceedings) will become applicable as from 26 June 2017, superseding the rules of the old Insolvency Regulation (Regulation No 1346/2000 of 29 May 2000 on insolvency proceedings). Although the main rules and principles of the old Regulation remain essentially the same, the Recast Regulation will introduce some considerable changes as outlined below.
The Regulation, including both its old and recast version, deals with private international law issues associated with cross-border insolvency. It governs both choice of law questions and procedural matters in situations where an entity that is active in several Member States becomes insolvent. The Regulation is heavily based on the concept of primary proceedings in the courts of the debtor's Centre of Main Interests ("COMI"), with optional secondary proceedings in other Member States where the debtor has an establishment.
Due to the central role of the COMI, the concept has been somewhat clarified in the Recast Regulation. Although the concept had already been specified by the case law of the Court of Justice of the European Union (the “CJEU”), this case law has been partly codified in the recital of the Recast Regulation. The old Regulation also included a presumption that the COMI is the company’s or legal person’s principal place of business in the absence of proof to the contrary. Under the Recast Regulation, this presumption only applies if the COMI has not been moved to another Member State within 3 months before the request for opening insolvency proceedings. This change was introduced to combat the so-called “forum shopping” prior to the opening of insolvency proceedings.
One of the key practical changes will be the establishment of a pan-EU online insolvency register. The registers are first to be established on a national level by June 2018 and then linked together to form the pan-EU register by June 2019. The register will be free of charge and accessible to anyone, which will allow businesses to easily check whether a particular entity in another Member State has been placed into insolvency proceedings (e.g. bankruptcy). Currently, in Finland the insolvency information of Finnish entities can be accessed online, but only through commercial portals and for a fee.
Perhaps the largest change in terms of the number of new rules is the introduction of rules for group insolvencies, i.e. cases in which multiple members of the same group of companies become insolvent. This is split into two main elements. Firstly, the Recast Regulation provides for certain obligations to co-operate with the insolvency practitioners and courts of different Member States. Secondly, it provides for the rules on "co-ordination proceedings". Such proceedings would not be separate insolvency proceedings, but instead, proceedings intended to co-operate the separate group company proceedings, for which purpose an impartial "co-ordinator" would be appointed. Our estimate is that the rules, which are quite detailed, will lead to some uncertainty in the first few years of their application before businesses and lawyers have more experience with their use. In practice, we are not expecting to see a considerable number of co-ordination proceedings with a connection to Finland.
The scope of both main and secondary proceedings has also been broadened. Main proceedings will now also include pre-insolvency rehabilitation proceedings, while secondary proceedings may be also rehabilitation proceedings and not just liquidation proceedings. Furthermore, the insolvency practitioner of the main proceedings may issue a unilateral undertaking to avoid secondary proceedings being opened in another Member State. However, our expectation is that neither one of these changes will have a significant effect in Finland.
Finally, the Finnish Ministry of Justice has proposed legislation intended to take effect at the same time with the Recast Regulation. The legislation will broaden the scope of the current bankruptcy and corporate restructuring register, meaning that information regarding the possibility to appeal and whether the proceedings are main or secondary proceedings will also become available. However, information in the debt restructuring register will be included in the online register only to the extent that it relates to debt incurred in the course of an individual’s business operations. Furthermore, bankruptcy announcements to debtors through the Official Gazette will no longer take place, but instead, the legal effects of a bankruptcy will be tied to the moment when the information is entered in the register. Debtors will be able to notify their receivables to the estate administrator not only in Finnish and Swedish, as was the case under the old legislation, but also in English.