Proposed reform of the EC Insolvency Regulation

13/02/14

Members will recall that in December 2012 the EU Commission published a proposal to amend the EC Insolvency Regulation (the "Insolvency Regulation"). With the exception of a number of drafting issues, these proposals were largely welcomed and supported by the ILA's technical committee. The proposed amendments, while fairly "light touch" in nature, addressed some of the shortcomings of the current Insolvency Regulation. The majority of the Commission's proposed changes were aimed at making a coordinated EU-wide rescue of a debtor easier as more "rescue" style pre-insolvency proceedings would benefit from automatic recognition and the opening of secondary proceedings would become less of a hurdle to a successful outcome to company rescues. Details of the Commission's proposals can be found in ILA technical bulletin 458.

Over the last year a debate has gone on at EU level between Member States and the EU legislative bodies as to the direction of the proposed amendments. This resulted in the EU Parliament proposing a number of changes to the Commission's proposal to amend the Insolvency Regulation. These proposals were made public at the end of December 2013. While many of the EU Parliament's suggestions provide sensible drafting and technical tweaks, at big picture level, the direction of the EU Parliament's proposals is, in the ILA technical committee's view, concerning. In particular, the EU Parliament's proposals would: (i) result in the complete removal of out-of-court proceedings from the scope of the EC Insolvency Regulation (a retrograde step from the version currently in force); (ii) provide a look back period of three months when assessing a company's CoMI - CoMI would be defined as "the place where the debtor conducts the administration of his interests on a regular basis at least three months prior to the opening of insolvency or provisional proceedings and which is ascertainable by third parties.."; (iii) reinstate, to a certain extent, the power that secondary proceedings could play; (iv) take away the discretion from Member States as to whether or not to list an insolvency proceeding in the annexes (if the proceeding falls within scope it would be required to be listed); and (v) introduce the concept of a group co-ordinator where insolvency proceedings are taking place in respect of more than one group company.

The EU Parliament voted to adopt the majority of its proposed revisions on 5 February 2014. The only aspect of the EU Parliament's proposals that were not adopted completely concerned the removal of out-of-court proceedings from the scope of the Insolvency Regulation. The amendment which would have resulted in the complete removal of these proceedings was rejected (although other more technical amendments in this regard were adopted). As there are now conflicting proposed amendments to the Insolvency Regulation, the proposal to amend the Insolvency Regulation will now head to "trilogue" where a compromise agreement between the various EU bodies will be sought. Negotiations will take place at EU level, but if a compromise cannot be found the proposal to amend the Insolvency Regulation may be put on the back burner. What is certain is that it will be some time before a revised Insolvency Regulation could be in force (2017 would seem the earliest on present estimates).

In the ILA's technical committee's view the EU Parliament's proposals highlighted above are not attractive and, if implemented, would be detrimental in promoting EU company rescue and result in legal uncertainty, increased costs and delay. The ILA, with the Law Society of England and Wales, has written to the Commission highlighting the downsides of the EU Parliament's suggestions, urging that elements of the EU Parliament's proposals are not accepted by the Commission. Members may also wish to make their views known directly at both UK and EU level.

The EU Parliament's proposals can be found here.