EN Official Journal of the European Union C 271/55

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee — A new European approach to business failure and insolvency’

COM(2012) 742 final

and 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) 744 final — 2012/0360 (COD)

2013/C 271/10

Rapporteur: Mr ALMEIDA FREIRE

On 12 December 2012, the European Commission decided to consult the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the EU, on the

Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee – A new European approach to business failure and insolvency

COM(2012) 742 final.

On 15 January and 5 February 2013 respectively, the European Parliament and the Council decided to consult the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the European Union, 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) 744 final – 2012/0360 (COD).

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 29 April 2013.

At its 490th plenary session, held on 22 and 23 May 2013 (meeting of 22 May 2013), the European Economic and Social Committee adopted the following opinion by 130 votes to 1 with 4 abstentions.

1. Conclusions and recommendations

1.1 General conclusions

1.1.1 Europe is currently experiencing a major economic and social crisis, which is affecting all parts of society.

1.1.2 Prioritising the survival of businesses is one of the measures that the European Union has identified as a means of getting back on track. Bankruptcies certainly have repercussions that go beyond damaging consequences for the companies concerned; they affect the entire economy of the Member States, especially the general public, in their capacity as taxpayers, employees and employers.

1.1.3 The EESC agrees with the goals set out in the Commission communication, while considering that the ‘second chance’ it refers to should benefit business operators who have learned from their previous failures and who can make a fresh start on the basis of a rethought business plan.

1.1.4 The Committee also supports the proposal for a regulation, but is disappointed that this is not more ambitious.

1.1.5 Indeed, much discussion and many practical measures are still needed in order to uphold creditors' rights, while seeking to ensure balance between the interests of entrepreneurs and employees, promote corporate restructuring, prevent forum shopping and improve the coordination of insolvency proceedings for groups of undertakings.

1.2 Recommendations on the communication

1.2.1 The EESC believes that the discussion of a substantial harmonisation of business insolvency law is interesting, but is disappointed that no effective response is provided to the economic and social crisis currently affecting European businesses and individuals.

1.2.2 The EESC prefers the notion of a ‘fresh start’ (a key concept in American insolvency law) to that of a ‘second chance’ advocated by the Commission. It also calls for discussion of the real contribution of this concept to European insolvency law.

1.2.3 The Committee also considers that employees should be better protected and should be treated as preferential creditors.

1.2.4 The issue of unfair assistance for failing companies should also be addressed. The EESC stresses in this respect that people other than banks can also be responsible for providing such assistance and therefore calls on the Commission to provide adequately for these parameters.

1.2.5 The EESC considers that making insolvency legislation part of criminal law is not desirable, as this would increase the judicialisation of insolvency proceedings and prolong investigation times.

1.2.6 The Committee does not believe that systematic recourse to a judge is the best solution and calls on the Commission to consider setting up new bodies, linked for example to the economic sector, with a multidisciplinary approach (economic, financial and legal) which makes them better equipped to understand and act quickly to help businesses to solve their financial problems.

1.2.7 Lastly, the EESC urges the Commission to consider the proposals on harmonising the status of liquidators, such as those put forward in the European Parliament resolution of 11 October 2011 (1).

1.3 Recommendations on the proposal for a regulation

1.3.1 The EESC supports the proposal for a regulation, even though it only addresses procedural rules and does not seek to harmonise national business insolvency legislation.

1.3.2 The Committee welcomes the obligation for Member States to improve publicity rules, making relevant decisions in cross-border insolvency cases publicly accessible in an electronic register, and the interconnection of national insolvency registers.

1.3.3 The Committee nevertheless calls on the Commission to ensure that the obligations, costs and deadlines of translations do not slow down insolvency proceedings, because speediness is a gauge of their success.

1.3.4 The EESC supports the integration of civil over-indebtedness procedures but this integration should not be unfavourable to individual debtors. A law drawn up for companies, intended to meet the requirements of commerce, is by its nature less protective than consumer law. The Committee would therefore urge the Commission to be particularly mindful of this.

1.3.5 Lastly, the Committee calls on the Commission to ensure that making use of the delegation procedure to amend the annexes to the regulation takes account of Article 290 TFEU and the case-law on the notion of ‘essential measures’.

2. Introduction

2.1 The aim of the Insolvency Package

2.1.1 The initiatives contained in this legislative package form part of the EU's response to the economic and social crisis currently affecting European businesses and individuals. The stated aim is to help businesses survive and to offer a second chance to entrepreneurs facing insolvency.

2.1.2 The European Commission's approach consists of amending Council Regulation (EC) No 1346/2000 (2) of 29 May 2000, known as the ‘Regulation on insolvency proceedings’, which essentially concerns the rules of private international law applicable to cross-border insolvency proceedings, and of holding a consultation on the basis of a communication entitled ‘A new European approach to business failure and insolvency’.

2.1.3 The EESC has decided to express its views on both documents in one opinion.

2.2 The proposal for a regulation (3)

2.2.1 Considering the Regulation on insolvency proceedings of 29 March 2000 to be obsolete and identifying its five major shortcomings (4), the Commission proposes to revise it.

2.3 The communication

2.3.1 The document rightly states that the proposal for a regulation of 12 December 2012 confines itself to updating the Insolvency Regulation of 29 May 2000 and therefore simply acknowledges and coordinates the procedural rules applicable to national insolvency proceedings, without harmonising national business insolvency legislation.

2.3.2 It attempts to remedy this shortcoming by proposing avenues for discussion with a view to securing a substantial harmonisation of business insolvency law, on the understanding that only cross-border insolvency cases are covered.

3. General comments on the communication

3.1 The philosophy underpinning the new approach

3.1.1 This new approach is based on the need to offer entrepreneurs a second chance and to safeguard jobs.

3.1.2 The EESC believes that company bankruptcies, like the creation of companies, form part of the cycle of economic life and the dynamic of the market. It would therefore be wrong to view them as an evil to be prevented at all costs.

3.1.3 In line with this thinking, the EESC believes that the ‘second chance’ mentioned by the Commission should be enjoyed by entrepreneurs who have learnt from their previous failure and are able to start again on the basis of a revised business approach.

3.1.4 The EESC would also point out that while company bankruptcies may have internal causes, such as bad management, they may also have external causes resulting from excessive or inappropriate rules. The State is therefore to a certain degree responsible for bankruptcies, in its capacity as legislator, but also as contracting authority in public procurement (5).

3.1.5 The EESC prefers the notion of a ‘fresh start’ (a key concept in American insolvency law (6)) to that of a ‘second chance’ advocated by the Commission. Under the fresh start approach, a largely cultural rather than legal concept, debtors are relieved of their personal responsibility for their debts on certain conditions. The judicial decision stage declaring the company bankrupt is thereby avoided and the debtor can begin a new project, without being identified as bankrupt.

3.1.6 The communication gives the impression, however, that the second chance means a continuation of activity. The EESC believes that it would be counter-productive to keep businesses within the economic fabric artificially by giving them a second chance if the model chosen had proven not to be viable.

3.1.7 It would have a negative impact on the confidence of creditors and suppliers, and ultimately it would harm healthy competition between economic operators.

3.2 The EESC supports the American approach in insolvency law, and believes that the fresh start should be assessed before the matter has been referred to the judge.

4. Specific comments on the communication

4.1 To ensure effective harmonisation

4.1.1 The differences in national insolvency legislation are a source of competitive disadvantage, especially for businesses operating across borders, which could hamper economic recovery.

4.1.2 These differences result in ‘forum shopping’ and consequently in a weaker internal market.

4.1.3 The EESC therefore agrees with the European Parliament (7), which expressed its hope for certain aspects of insolvency law to be harmonised.

4.1.4 Parliament also calls on the Commission to submit, on the basis of Article 50, Article 81(2) or Article 114 TFEU, one or more proposals for a genuine EU corporate insolvency framework, going beyond simply procedural rules under private international law.

4.1.5 The effects of insolvency cases go further than the negative consequences for the companies in question. They affect the economies of the Member States as a whole, particularly the citizens, as taxpayers, employees and employers.

4.2 Upholding creditors' rights

4.2.1 Originally designed solely to meet the requirements of creditors, collective proceedings have gradually come to be aimed at ensuring the continuation of the business, maintaining employment and the payment of debts. More recently, the legislative tendency in Europe has been to prevent companies' problems before the suspension of payments.

4.2.2 Creditors are fearful of opening collective proceedings against the debtor since they do not know whether the amounts due will be paid. The first frustration is that the opening of collective proceedings often prohibits the debtor from being pursued for any claim arising before the decision to open proceedings and suspends any ongoing claims. Each creditor must therefore declare their claim within the legal time period (8).

4.2.3 The second frustration for the creditor is in the event of a shortfall in assets. In practice, it is often proposed to creditors during collective proceedings that they choose between an immediate payment but abandoning a considerable proportion of the claim, or spreading the debt over a given period of time.

4.2.4 For the creditor, therefore, any situation of insolvency should ideally be prevented, for example by securing certain operations on conclusion of the contract, demanding security from a third party (9) or demanding collateral, pledges or mortgages on the company's assets (10).

4.3 Better treatment of employees during insolvency proceedings

4.3.1 Employees are the first victims in the event of their company's bankruptcy. Their salaries are not always paid before the liquidation and their personal financial situations are difficult during this period of uncertainty.

4.3.2 Opening collective proceedings often involves the election of an employees' representative, whose task is to check on information regarding salaries owed. As well as the usual bodies representing employees within a company, this involves relaying information between staff, the tribunal and the parties involved in the proceedings.

4.3.3 Sums owed to employees before the opening of the collective proceedings must be included in the company's liabilities. However, this general measure is in reality very unclear, because of the differences between national legislations and practices. The lack of harmonisation with regard to the ranking of creditors therefore makes the issue of collective proceedings very uncertain for employees.

4.3.4 The EESC believes that employees should be better protected and be treated as preferential creditors and that harmonisation of their protection would be useful.

4.4 Preventing unfair assistance for failing companies

4.4.1 The commercial practices of certain financial institutions can lead to assistance being provided to a company when its situation is irreversibly compromised. Such practices create the impression that the company is solvent, which harms healthy competition and tarnishes the image of the banking sector.

4.4.2 The EESC highlights the fact that people other than banks, including States, can be responsible for the unfair assistance. Furthermore, national judges sometimes consider that certain suppliers or clients of the company can also be held responsible when, through their attitude, they provide unfair support for the activity of a company which they know to be irreversibly compromised.

4.4.3 These parameters should also be adequately provided for with a view to harmonising the law on company insolvency.

4.5 The particular case of fraudulent bankruptcies

4.5.1 The majority of company bankruptcies happen for objective reasons, with no fraudulent behaviour on the part of directors.

4.5.2 However, the phenomenon of fraudulent bankruptcies should not be ignored. The Commission refers to it in its communication (11), and suggests that a distinction should be made between honest and dishonest bankruptcies. It states that wilful or irresponsible non-compliance with legal obligations by a debtor should be subject to civil penalties and, where appropriate, criminal liability. It also believes that ‘fast-track’ liquidation proceedings should be applied for honest bankruptcy.

4.5.3 The EESC is convinced that harmonising the discharge time and making it reasonably short would be appropriate, particularly in the interests of employees, but still has reservations regarding the differentiation between bankruptcy proceedings on the basis of the honesty of directors, since this would increase the judicialisation of insolvency proceedings, making them criminal in nature and prolonging investigation times.

4.5.4 This criminalisation of insolvency law is not desirable. The EESC takes the view that the fraudulent nature of the bankruptcy should be determined in proceedings other than insolvency proceedings.

5. General comments on the proposal for a regulation

5.1 The EESC welcomes the extension of the scope of the Regulation to include hybrid proceedings, pre-insolvency proceedings, debt discharge proceedings and other insolvency proceedings for natural persons.

5.2 It also welcomes the clarification of the circumstances in which the presumption that the centre of main interest is located at the place of its registered office can be rebutted.

5.3 Improving the procedures by stipulating jurisdiction for actions which derive directly from insolvency proceedings or are closely linked with them, such as avoidance actions, is also a positive step.

5.4 The fact that secondary procedures need not necessarily be winding-up proceedings and that their opening may be refused if it is not necessary to protect the interests of local creditors also helps to improve the regulation, as does the extension of the interaction between main and secondary proceedings.

5.5 The obligation for Member States to improve publicity rules, making relevant decisions in cross-border insolvency cases publicly accessible in an electronic register, and the interconnection of national insolvency registers, are also ideas to be welcomed.

5.6 However, the EESC has reservations regarding the burden, cost and timescales for translations, and points out that speed is a crucial measure of the success of the procedure.

5.7 Finally, the Committee welcomes the obligation for courts and liquidators to cooperate in insolvency proceedings concerning different members of the same group of companies, since this gives liquidators the means to act more efficiently.

6. Specific comments on the proposal for a regulation

6.1 The EESC questions the coordination with Regulation (EC) No 1215/2012 of 12 December 2012 (12), intended to replace Regulation (EC) No 44/2001 on the jurisdiction of national courts and the effects of judgements in the European Union, known as the Brussels I Regulation. The Committee questions whether Recital 6 in the proposed insolvency regulation sufficiently clarifies the criterion for the distribution of powers pursuant to the Gourdain case-law (13). This case-law appears to offer a rather restrictive interpretation, when certain actions covered by the Brussels I Regulation are decisive in terms of insolvency proceedings. For example, whether or not a retention of title clause is used is decisive in establishing the scale of the debtor's assets. This is important in terms of the stated objective of saving companies in difficulty, since re-establishing assets is key to the successful recovery of companies in difficulty.

6.2 With regard to cooperation between liquidators, the Commission could have proposed to amend the wording of Article 31 to further encourage the adoption of agreement protocols between liquidators. The differing status of liquidators amongst the Member States forms a barrier to their professional cooperation.

6.3 Exchanges between liquidators and courts should as a priority relate to the inventory, the debtor's estate, the declaration and verification of claims, and the coordinated collective settlement for creditors appearing in negotiated plans.

6.4 Finally, the EESC would stress that the Commission proposes making use of the delegation procedure to amend the annexes to the regulation, although these seem to involve essential measures, such as the notion of collective proceedings or the list of persons acting as liquidators.

7. Specific comments on substantive insolvency law

7.1 Insolvency criteria need to be harmonised. In some Member States, insolvency proceedings can only be considered when the debtor is proven to be insolvent, whereas in other States, insolvency that is ‘probable within the near future’ constitutes sufficient grounds.

7.2 This disparity encourages forum shopping, and should therefore be eliminated.

7.3 Since legal certainty is essential, the rules on the lodging of claims should also be harmonised.

8. Integrating civil procedures on over-indebtedness

8.1 The EESC supports the Commission's proposed new recital 9 (14).

8.2 Recitals 9 and 10 of the Insolvency Regulation of 29 May 2000 are appropriate (15).

8.3 This integration should not, however, be unfavourable to individual debtors. A law drawn up for companies, intended to meet the requirements of commerce, is by its nature less protective than consumer law. The Committee would therefore urge the Commission to be particularly mindful of this.

8.4 The EESC also calls on the Commission to consider harmonisation of the insolvency law for individuals, taking into account the interests of consumers.

9. Harmonising the status and powers of liquidators

9.1 The differences in national rules governing the status and powers of liquidators affect the smooth operation of the internal market by complicating cross-border insolvency proceedings (16).

9.2 The Committee considers that it would benefit businesses and economic recovery for harmonisation of the general aspects of the requirements for the qualification and work of liquidators to take place quickly. The EESC would therefore join with the European Parliament (17) in making the following recommendations: — the liquidator must be approved by a competent authority of a Member State or appointed by a court of competent jurisdiction of a Member State, must be of good repute and must have the educational background needed for the performance of his/her duties; — s/he must be competent and qualified to assess the situation of the debtor's entity and to take over management duties for the company; — s/he must be empowered to use appropriate priority procedures to recover monies owing to companies, in advance of settlement with creditors and as an alternative to transfers of claims; — s/he liquidator must be independent of the creditors and other stakeholders in the insolvency proceedings; — in the event of a conflict of interest, the liquidator must resign from his/her office.

9.3 The Commission should therefore go further than it proposes in Article 31 of the proposal for a regulation, which does no more than explain practices and address cooperation between the administrators of the main and secondary proceedings.

10. Developing out-of-court rules to support businesses and provide them with a useful framework

10.1 Promoting negotiated procedures would make it possible to increase the speed and effectiveness of company restructuring plans.

10.2 The average time for such procedures and the success rate seen in the European Union make a good case for adopting this approach.

10.3 Furthermore, the EESC does not consider that systematic recourse to the courts is necessarily the best solution. It therefore supports the idea of setting up new bodies, linked for example to the economic sector, with a multidisciplinary approach (economic, financial and legal) which makes them better equipped to act quickly to help businesses to solve their financial problems.

10.4 This system already exists in a number of countries and could be extended to other Member States.

10.5 Finally, it would be useful for the Commission to publish regular statistics on insolvency cases under the insolvency regulation so that the effectiveness of the system established can be assessed.

Brussels, 22 May 2013. The President of the European Economic and Social Committee Henri MALOSSE

(1) European Parliament resolution of 15.11.2011 – 2011/2006 (INI).

(2) OJ L 160, 30.6.2000, p. 1 and OJ C 75, 15.3.2000, p. 1.

(3) COM(2012) 744 final, 12.12.2012.

(4)

— its limited scope;

— the persistence of ‘forum shopping’ due to the inconsistent application of the concept of the ‘centre of a debtor's main interests’;

— the lack of coordination between main and secondary insolvency proceedings;

— inadequate publication of insolvency proceedings; and

— the legal vacuum regarding the insolvency of multinational groups,

— The Commission has made use of the 134 responses to a public consultation launched on 29 March 2012, the conclusions of a comparative law study carried out by the universities of Heidelberg and Vienna, and an impact assessment of the different scenarios for reform options to suggest remedying the five shortcomings referred to above, in a proposal for a Council Regulation on insolvency proceedings.

(5) For example, rules on safety, the environment or payment terms, though legitimate in spirit, can harm the operation of companies. Payment delays by public buyers in the public procurement process also add to problems faced by businesses.

(6) Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 Harv. L. Rev. 1393 (1985); Charles Jordan Tabb, The Scope of the Fresh Start in Bankruptcy: Collateral Conversions and the Dischargeability Debate, 59 Geo.Wash.L. Rev. 56 (1990).

(7) European Parliament resolution of 15.11.2011 – 2011/2006 (INI).

(8) The claims to be declared are not just those claims due or to become due that arise before the opening of the proceedings, but also certain claims arising subsequently when they correspond to services provided before the date of the decision to open proceedings or are judged to be unnecessary for the proceedings.

(9) A bank or the director.

(10) Moveable assets, business assets, marks etc.

(11) Point 3.1: Second chance for entrepreneurs in honest bankruptcies. COM(2012) 742 final.

(12) The application of the regulation has been delayed until 10 January 2015 to enable Member States to adapt their procedural rules in response to the abolition of exequatur.

(13) ECJ Gourdain c/Nadler, 22 February 1979.

(14) Recital 9: ‘This Regulation should apply to insolvency proceedings, […] whether the debtor is a natural person or a legal person, a trader or an individual.’

(15) Furthermore, the law of certain Member States already provides for it. In Belgium, the procedure for the collective settlement of debts also involves procedures applicable to consumers (Law of 5 July 1988). Germanydoes not draw a distinction between procedures applicable to traders and those applicable to individuals (Law of 5 October 1994).

(16) The liquidator may be a civil servant, or a private individual approved by the State, appointed by the judge, but paid by creditors.

(17) Report of 11 October 2011 with recommendations to the Commission on insolvency proceedings in the context of EU company law (2011/2006(INI)).