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# 52012DC0743

**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 /\* COM/2012/0743 final \*/**

  

TABLE OF CONTENTS

1........... Introduction.................................................................................................................... 3

1.1........ Background.................................................................................................................... 3

1.2........ General Assessment of the application of the Regulation................................................... 4

2........... Scope of the Regulation.................................................................................................. 4

2.1........ Proceedings covered by the Regulation........................................................................... 4

2.1.1..... Pre-insolvency and hybrid proceedings............................................................................ 4

2.1.2..... The insolvency of private individuals and self-employed persons....................................... 6

2.2........ Proceedings excluded from the scope, Article 1(2).......................................................... 7

2.3........ Recognition of insolvency proceedings opened outside the EU or
coordination between proceedings inside and outside the EU 8

3........... Jurisdiction for opening
insolvency proceedings................................................................ 8

3.1........ Definition and determination of
the debtor's centre of main interests (COMI).................... 8

3.2........ Procedural framework for examining jurisdiction.............................................................. 9

3.3........ Insolvency-derived actions............................................................................................ 10

4........... Applicable Law............................................................................................................ 10

4.1........ Scope of the general rule (Lex
fori concursus)............................................................... 10

4.2........ Exceptions to the lex fori
principle................................................................................. 11

5........... Recognition of judgments opening insolvency proceedings.............................................. 12

6........... Coordination of main and secondary proceedings.......................................................... 13

7........... Group of companies..................................................................................................... 14

8........... Publication of and information on insolvency proceedings............................................... 15

9........... Lodgment of claims....................................................................................................... 15

10......... Conclusions.................................................................................................................. 16

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

1.           Introduction

1.1.        Background

Council Regulation (EC) No 1346/2000 on insolvency
proceedings[1]
(the "Regulation" or "EIR") came into force in May 2002. The
Regulation established a European framework for cross-border insolvency
proceedings. It applies whenever the debtor has assets or creditors in more
than one Member State, irrespective of whether he is a natural or legal person.
The Regulation determines which court has jurisdiction to open insolvency
proceedings and ensures the recognition and enforcement of the ensuing decision
throughout the Union. It also establishes uniform rules on applicable law and
provides for the coordination of main and secondary proceedings.

The Regulation applies in all Member States
with the exception of Denmark which has a special regime for judicial
cooperation under the Treaty on the Functioning of the European Union.

This report has been prepared in accordance
with Article 46 of the Regulation. It aims to present to the European
Parliament, the Council and the European Economic and Social Committee an
assessment of the application of the Regulation. This report has taken into
account the following documents:

·
a comparative legal study on the evaluation of
the Regulation in 26 Member States which was carried out by the Universities of
Heidelberg and Vienna with the support of a network of national reporters[2];

·
a study for an impact assessment of an amendment
of the Regulation carried out by a consortium of GHK and Milieu[3];

·
The results of a web-based public consultation
which took place between March and June 2012[4].
The Commission received a total of 134 replies from all Member States except
Bulgaria and Malta with the UK (21%), Romania (20%) and Italy (12%)
representing more than 50% of all respondents. Replies were received from a
wide range of stakeholders with academics, legal practitioners and public
authorities providing the greatest number of replies.

The application of the Regulation was also
discussed with the European Judicial Network in civil and commercial matters.

1.2.        General Assessment of the application of the Regulation

Based on the evaluation, the Commission
concludes that the Regulation is generally regarded as a successful instrument
for the coordination of cross-border insolvency proceedings in the Union. Its fundamental choices and underlying policies are largely supported by
stakeholders. The case-law of the Court of Justice of the European Union (CJEU)
clarified the Regulation's interpretation on a number of issues, thereby contributing
to the uniform interpretation of the Regulation by national courts. This
assessment is supported by the results of the public consultation where a
majority of respondents considered that the Regulation operates efficiently,
with legal practitioners, public authorities and academics expressing the most
positive views.

However, a number of shortcomings of the Regulation
have been identified by the evaluation study and the public consultation. Therefore,
the Commission considers that there is a need to bring forward necessary adaptations
to meet the need for a modern and business-friendly environment. Essentially,
problems have been identified in relation to the scope of the Regulation, the
rules on jurisdiction, the relation between main and secondary proceedings, the
publicity of insolvency-related decisions and the lodging of claims. In
addition, the absence of specific rules for the insolvency of members of a
group of companies has been criticised. These issues are described in more
detail below.

2.           Scope
of the Regulation

2.1.        Proceedings covered by the Regulation

The primary objective of the Regulation is
to ensure that a decision to opening insolvency proceedings and its effects,
whether in relation to natural or legal persons, are recognised throughout the Union. Article 1 (1) that sets out the criteria which national proceedings have to
fulfil to come under the scope of the Regulation reflects the traditional
concept of insolvency proceedings, because it presupposes the debtor's
insolvency and requires the divestment of the debtor and the appointment of a
liquidator. However, due to new trends and approaches in the Member States, the
current scope of the Regulation no longer covers a wide range of national
proceedings aiming at resolving the indebtedness of companies and individuals.

2.1.1.     Pre-insolvency and hybrid proceedings

At present, many national insolvency laws
in Europe provide for pre-insolvency and hybrid proceedings. Pre-insolvency proceedings
can be characterised as quasi-collective proceedings under the supervision of a
court or an administrative authority which give a debtor in financial
difficulties the opportunity to restructure at a pre-insolvency stage and to avoid
the commencement of insolvency proceedings in the traditional sense. Hybrid
proceedings are proceedings in which the debtor retains some control over its
assets and affairs albeit subject to the control or supervision by a court or
an insolvency practitioner.

The evaluation study concludes that 15
Member States have pre-insolvency or hybrid proceedings which are currently not
listed in Annex A of the Regulation as set out in the table below.

Table: Pre-insolvency and hybrid proceedings
not included in Annex A of the Regulation

Austria || - proceedings under the Business Reorganization Act of 1997 (Reorganisationsverfahren)

Belgium || - Commercial investigation (Handelsonderzoek / enquête commercial; Article 8 et seq. LCE (Loi relative à la continuation des entreprises) - Appointment of a mediator (Aanstelling ondernemingsbemiddelaar / Désignation d’un médiateur d’entreprise; Art. 13 LCE) - Appointment of a mandataire de justice (Aanstelling gerechtsmandataris / Désignation d’un mandataire de justice; Art. 14 LCE) - Out-of-court agreement (Minnelijk akkoord / Accord amiable; Art. 15 LCE) - Judicial reorganisation by way of individual agreement (Gerechtelijke reorganisatie door een minnelijk akkoord / Réorganisation judiciaire par accord amiable; Art. 43 LCE) - Appointment of a provisional administrator (Aanstelling voorlopig bestuurder / Désignation d’un administrateur provisoire; Art. 28 LCE)

Estonia || - Reorganisation proceedings for legal entities (Estonian Reorganisation Act) - debt adjustment proceedings for natural persons (Debt Restructuring and Debt Protection Act)

France || - mandat ad hoc (L 611-3 Code de commerce) - conciliation proceedings (L 611-4 et seq. Code de commerce) - sauvegarde financière accélérée (SFA)

Germany || - protective shield proceedings (Schutzschirmverfahren, Section 270b InsO)[5]

Greece || - Procedure of reorganization (diadikasia eksigiansis, διαδικασία εξυγίανσης; Articles 99 et seq. of the Greek Bankruptcy Code, as amended by Article 234 of the recent law no. 4072/2012)

Italy || - accordo di ristrutturazione dei debiti (Art. 182 bis of the Italian Insolvency Act) - piano di risanamento attestato

Latvia || - out-of court legal protection proceedings (provided in the Insolvency Law of 26 July 2010)

Malta || - Statutory scheme of compromise or arrangement (Rikostruzzjonijiet ta’ Kumpaniji) - Company Recovery Procedure

Netherlands || - Schuldsaneringsregeling which applies to natural persons, Article 287a of the Dutch Bankruptcy Act

Poland || - rehabilitation proceeding (Postępowanie naprawcze; Art. 492-521 of the Bankruptcy and Rehabilitation Law)

Romania || - mandat ad-hoc (mandatul ad-hoc; Art. 7 et seq. Law No. 381/2009) - concordat préventif (concordatul preventiv; Art. 13 et seq. Law No. 381/2009)

Spain || - homologación de los acuerdos de refinanciación (4th Additional Provision of the Law No. 38/2011 amending the Spanish Insolvency Act)

Sweden || - Debt relief proceedings (skuldsanering; Section 4 of the Law on debt relief) applicable to private individuals

UK || - schemes of arrangement (Part 26 of the Companies Act 2006)

The main problem resulting from the fact that
a substantial number of pre-insolvency and hybrid proceedings are currently not
covered by the Regulation is that their effects are not recognised throughout the
EU. As a consequence, dissenting creditors may seek to enforce their claims
against assets of the debtor located in another Member State, which can thwart
the efforts to rescue the company (so-called "holding-out" problem).
Moreover, opportunities to rescue companies may be foregone because parties are
unwilling to engage in the relevant procedures if their cross-border
recognition is not ensured. It has therefore been recommended to address these
problems in the revision of the Regulation. This view is shared by a majority
of respondents to the public consultation (59%) which considered that the
Regulation should cover pre-insolvency and hybrid proceedings. Views were mixed,
however, on exactly which proceedings should be covered and in particularly where
court oversight should be required.

In addition, the evaluation study has
identified problems in relation to the discrepancies between the procedures
listed in the Annexes and the conditions laid down in Article 1 (1). These
problems are illustrated by two references for preliminary rulings which are currently
pending at the CJEU. The first case raises the question whether the Regulation
applies to a national insolvency procedure which is not listed in the Annexes,
but which corresponds to the definition of Article 1(1).[6] The second case concerns the
issue whether the Regulation applies to national procedures which are listed in
the Annex, but do not correspond to the definition of Article 1(1).[7] These cases show that there is
currently some legal uncertainty as to which procedures are actually covered by
the scope.

A third problem identified relates to
situations where national procedures which are listed in the Annexes are
changed by the Member States without any notification of the modifications to
the Commission. In these situations it is unclear whether the amended or new
procedures of the Member States correspond to the definition of Article 1(1).

2.1.2.     The insolvency of private individuals and self-employed persons

The Regulation applies to national
proceedings, regardless of whether they concern a natural or a legal person, a
trader or an individual[8].
The evaluation study revealed that while many Member States have notified their
personal insolvency procedures to be included in the Annexes[9], a considerable number of personal
insolvency procedures are currently not covered by the Regulation[10]. This situation is partly
because the proceedings do not match the Regulation's definition in Article
1(1), were only recently introduced or are not considered to fall within the
scope of the Regulation by the respective Member State[11]. The latter contrasts with the
results from the public consultation, in which a majority of respondents (59%) agreed
that the Regulation should apply to private individuals and self-employed.

The diversity of national laws adds to complexity:
Some Member States have no personal insolvency schemes at all. Other Member
States have personal insolvency schemes that apply both to self-employed or
sole traders and consumers. A third group has special schemes only for
consumers and include self-employed and sole traders in company insolvencies,
whereas a fourth group has separate schemes for consumers, self-employed and
sole traders.

The Commission finds that the status quo is
a problem because it can result in debtors remaining liable to foreign
creditors. In particular, an honest entrepreneur, who has been discharged from
its debts in one Member State, may be prevented from starting a new business or
trading with another Member State. The problem can also discourage debtors who
have benefitted from a debt discharge at home to live or seek employment in
another Member State.

2.2.        Proceedings excluded from the scope, Article 1(2)

The Regulation does not apply to insurance
undertakings, credit institutions, investment undertakings, which provide
services involving the holding of funds or securities for third parties, or to
collective investment undertakings. These debtors are excluded from the scope
because they are subject to special arrangements and, to some extent the
national supervisory authorities have extremely wide-ranging powers of
intervention[12].
Cross-border insolvency proceedings concerning insurance undertakings and
credit institutions are governed by other instruments of Union law[13]. Like the Regulation, these
instruments provide for rules on the international jurisdiction over the
adoption of reorganisation measures or the commencement of winding up
proceedings, the applicable law and the recognition of the proceedings.

It has been noted in academic writing that
the absence of Union instrument governing cross-border insolvencies for
collective investment undertakings and investment firms leaves an undesirable
gap in Union law. However, with respect to investment firms, that gap is likely
to be closed soon for the major part of these firms when the amendments of
Directive 2001/24/EC foreseen in the recent proposal for a Directive on bank recovery
and resolution[14]
are adopted. As to collective investment undertakings, stakeholders reported
that the current situation had not created problems in practice since insolvencies
of collective investment undertakings were quite rare.

2.3.        Recognition of insolvency proceedings opened outside the EU or
coordination between proceedings inside and outside the EU

The Regulation applies to insolvency
proceedings of debtors with their COMI (Centre Of Main Interest) in a Member State. Insolvency proceedings in which the COMI of the debtor lies outside the EU
are outside its scope. Even where the COMI is within the EU, limitations of the
scope exist with regard to assets, creditors or establishments located abroad.
In such situations, the Regulation applies only partially, to the actors and
assets located in a Member State. Issues outside the Regulation's scope are
covered by national law.

The impact assessment study notes that
several Member States have enacted laws to govern aspects of cross-border
insolvencies that involve states outside the EU since the Regulation was
enacted. Romania, Poland, the UK, Slovenia and Greece adopted laws based on the
1997 UNCITRAL Model Law. Belgium, Germany and Spain introduced laws on
international insolvency that do not follow the UNCITRAL approach but generally
cover similar topics. France and Italy have no specific laws in this area but
their courts apply general principles of private international law.

While the effects of the international
dimension of insolvency therefore vary depending on which Member States are
concerned, the Commission, on the basis of the evaluation study, concludes that
the lack of harmonised provisions for the recognition of non-EU insolvency
proceedings or the coordination between proceedings inside and outside the EU has
not caused any significant problems in practice. Views of the respondents to
the public consultation were divided on whether the lack of provisions for the
recognition or coordination of extra-EU insolvency proceedings had created
problems with 44% agreeing and 37% disagreeing. Some problems with the
recognition of EU judgments or the powers of an EU liquidator in non-Member
States such as Switzerland were reported. Such problems can, however, not be
solved by a Union instrument but only by an international treaty. In this
respect, it is worth noting that Switzerland has informally expressed an
interest in elaborating a bilateral agreement with the EU on insolvency.

3.           Jurisdiction
for opening insolvency proceedings

3.1.        Definition
and determination of the debtor's centre of main interests (COMI)

The concept of COMI is of paramount
importance for the application of the Regulation. The Commission notes that
there is general support of the concept of COMI as interpreted by the CJEU.
This is in line with the results of the public consultation where a significant
majority of respondents (77%) approved of the use of the COMI to locate the
main proceedings. However 51% considered that the interpretation of the term
COMI caused practical problems. Nevertheless, some felt clarifications given by
the CJEU have been very helpful to achieve a more uniform application of the
term.

The case-law of the CJEU clarified the
concept of COMI in its decision Eurofood[15]
and Interedil[16].
The determination of COMI requires a comprehensive assessment of the
circumstances of each individual case; according to the objective approach of
the ECJ the COMI must be identified by reference to criteria ascertainable by
third parties. In general, these criteria are fulfilled at the place where the
debtor performs his business activities or where his main administration is
located.

For companies and other legal persons, Article
3 (1) provides a rebuttable presumption in favour of the place of
registration. The case-law of the CJEU clarified the circumstances under which
this presumption may be rebutted in a manner that is overall considered to be
appropriate. However, it has been reported that in many Member States (AT, BE,
CZ, FR, DE, GR, IT, LU, NL, PL, RO, ES, SE, UK) the presumption was sometimes
rebutted without carrying out the comprehensive analysis required by the CJEU. It
is unclear whether this is due to a lack of awareness of the courts of the CJEU
case-law or to the difficulties of the factual approach it requires.

Although the Regulation covers the
insolvency of natural persons irrespective of whether they are a trader or a
consumer, the present wording of Article 3 (1) does not expressly address the
COMI of individuals. In this respect, the evaluation study revealed
inconsistencies in the practice of Member States. Some courts applied a
presumption in favour of the domicile of the debtor whereas other courts simply
applied national concepts to the COMI of individuals.

The determination of COMI is most difficult
in cases where the debtor relocated its domicile prior to the application for
insolvency. According to the CJEU case-law[17],
the decisive moment for determining the existence of the COMI is the filing of
the application for opening main proceedings. If the debtor moves his COMI to
another Member State afterwards, the requested court retains jurisdiction. This
case-law is largely respected by the courts. Problems can arise if the debtor transfers
his COMI to another Member State prior to the application. The evaluation study
revealed cases of evident abusive (temporary) relocation of COMI of individuals
for the sole purpose to obtain discharge of residual debts. The issue which is
sometimes terms as "bankruptcy tourism" is limited to a few regions
in the Union with eastern France, the UK and Latvia attracting debtors from
other countries. Especially German and Irish debtors tried to take advantage of
the discharge opportunities of English law which provides for a debt release
within only one year.

There have also been cases where companies
have relocated to another Member State than that of their registered office in
order to benefit from more sophisticated restructuring mechanisms there.
However, such relocations cannot per se be regarded as abusive or illegitimate.
First, COMI moves of companies have been accepted by the CJEU as a legitimate
exercise of the freedom of establishment. Thus, the Court clarified in its Centros
decision that doing business in a Member State through a company incorporated
in another Member State is covered by the freedom of establishment even if the
company's registered seat was chosen to avoid the minimum capital requirement
of the Member State of the company's real seat. Moreover, COMI relocation often
benefits creditors rather than disadvantaging them. Often, relocations are even
driven by the (senior) creditors in an attempt to rescue or restructure the
company. There are several cases where COMI relocation to the UK allowed the successful restructuring of a company because of the flexibility which
English insolvency law grants companies in this respect.

3.2.        Procedural framework for examining jurisdiction

The evaluation study highlights several
significant problems with regard to the procedural framework for examining the
jurisdiction of the court opening insolvency proceedings. At present, the
Regulation does not expressly address this issue which is dealt with by the
procedural laws of the Member States and general principles of efficiency and
non-discrimination. However, the approaches of national courts to determining jurisdiction
under Article 3 vary considerably throughout the Union. It does not seem to be
clear for all courts that they are under an obligation to examine their
jurisdiction ex officio and to expressly note the jurisdictional basis of their
decision to open the proceedings in the decision opening the proceedings. This
is problematic because the principle of mutual trust among the Member States
being a cornerstone of the Regulation requires that the courts of the Member
States carefully assess the COMI of the debtor since the decisions opening
insolvency proceedings are recognized in other Member States without any power
to scrutinise the court’s decision.

With respect to the procedural framework,
it has also been criticised that foreign creditors do not always have a right
to challenge the decision opening insolvency proceedings and that, even where
they are formally entitled to do so, they are not informed of the decision in
sufficient time to effectively exercise their right to challenge it.

3.3.        Insolvency-derived
actions

The delimitation between the Brussels I
Regulation[18]
and the Regulation is one of the most controversial issues relating to
cross-border insolvencies. The dispute concerns the international jurisdiction
(Article 3) and the recognition of foreign decisions (Article 25).

According to the case-law of the CJEU, judgments
on civil actions are to be qualified as insolvency-specific when they derive
directly from insolvency proceedings and are closely linked to them (vis
attractiva concursus). However, this principle is codified only with
respect to recognition (Article 25 EIR). The delimitation formula was
established by the CJEU in 1979[19]
in relation to the Brussels Convention[20]
and reiterated by the CJEU in DekoMarty[21]
with respect to jurisdiction under the Regulation. The CJEU held that the court
opening insolvency proceedings had jurisdiction for avoidance actions brought
by the liquidator against a third party such as an action seeking to invalidate
a transfer of shares effected in the context of insolvency proceedings[22] and that such actions were
excluded from the scope of The Brussels I Regulation.[23] By contrast, the Court held
that an action brought by a vendor on the basis of a reservation title against
an insolvent purchaser[24]
and actio Pauliana based on a claim against third parties assigned by
the liquidator to the sole creditor[25]
cannot be qualified as closely linked to the insolvency proceedings.

44% of respondents to the public
consultation reported no problems with the interaction between the Regulation
and the Brussels I Regulation which have not been satisfactorily solved by
case-law. Nevertheless, the Commission concludes that the absence of an express
rule on jurisdiction for insolvency-derived action gives rise to uncertainty
for legal practitioners not well versed in the CJEU's case law. In addition,
the fact that a liquidator cannot cumulate an insolvency-related action with an
action covered by the Brussels I Regulation has been criticised.

4.           Applicable
Law

4.1.        Scope
of the general rule (Lex fori concursus)

A majority of respondents to the public
consultation (55%) agreed to the Regulation’s provisions on applicable law are
satisfactory while 32% disagreed.

According to the evaluation study the
general choice of law provision (lex fori concursus) in Article 4(1)
of the Regulation is in line with general and well recognized principles of
private international law according to which insolvency proceedings are
governed by the law of the State of opening. The Commission concludes that
there is no need for any changes or amendments with regard to this provision.

The evaluation study refers to questions
arising with regard to qualification or characterization but considers that answering
such questions is part of the responsibilities of the national court systems
or, if necessary, the CJEU.

4.2.        Exceptions
to the lex fori principle

A majority of respondents to the public
consultation (56%) agreed that the exceptions to the general rule on applicable
law are justified to protect legitimate expectations and legal certainty.

Article 5
provides that third parties' rights in rem are not "affected" by the
opening of insolvency proceedings. Almost half of the respondents to the public
consultation (49%) stated that the provision on rights in rem operates
satisfactorily in practice while 26% felt that it does not. The evaluation
study states that the application of Articles 5 and 7 have led to very little
case law but identifies the following problems:

·
The main issue in this context is the basic
understanding of Article 5. In the overwhelming majority of Member States these
provisions are interpreted as “substantive restriction rules” which means that
the concerned rights in rem or reservation of title cannot be affected by the
insolvency provisions neither of the opening State nor of the State where the
assets are situated unless secondary proceedings are opened in the latter
Member State. This problem also exists with respect to Article 7
(reservation of title). With respect to Article 5, practical problems have
arisen where claims secured by rights in rem are adjusted in reorganisation
proceedings. It is questionable whether such an adjustment of the secured claim
“affects” the accessory security and is therefore prohibited in the context of
Article 5 EIR.

·
The localisation of intangible assets such as
intellectual property rights and bank accounts caused difficulties in practice.
Especially concerning bank accounts hold with a local branch of a foreign bank
it is questionable whether they are situated in the Member State of the bank’s branch or in the Member State where the bank has its central office
and his COMI (Article 2(g)).

·
The respective scopes of Article 5 and Article 4
(2) (i) are uncertain regarding the distribution of the proceeds in cases where
assets underlying rights in rem are alienated or where the liquidator has
negligently violated the rights of a secured creditor. In this context, also
the applicable law to an eventual claim for damages against the liquidator is
unclear.

Concerning Article 6 (set-off), it
is unclear whether this provision also applies if the “law applicable to the
insolvent debtor’s claim” is the law of a non-Member State. A majority of
National Reports in the context of the evaluation study confirmed the
applicability of Article 6 to such cases, but this issue is unclear in a
significant number of Member States. It has also been criticised that the
application of Article 6 to netting agreements is unclear and that the
protection of netting agreements under Union law currently differs depending on
whether the debtor's insolvency is governed by the Regulation or by the
Directives on the reorganisation and winding-up of credit-institutions and
insurance undertakings.

The evaluation study does not identify any
specific problems with regard to Article 9 (payment systems and
financial markets).

Concerning Article 10 (contracts of
employment), there have been a few complaints about the interplay between labour
law and insolvency law, in particular concerning approval requirements for
terminating or modifying employment contracts. In addition, the evaluation
study states that different labour law standards may hinder an insolvency
administrator to take the same actions with regard to employees located in several
Member States and that this situation may complicate the restructuring of a
company. However, this situation is inherent in the policy choice underlying
Article 10 which the evaluation study does not call into question. A
harmonization of certain aspects of labour law could mitigate this problem but
would be difficult to achieve since labour law is deeply rooted in national
traditions and, at any rate, go beyond the scope of the revision of the
Regulation. The study further addresses the question of the interplay between
insolvency law and guarantee institutions under Directive 2008/94/EC[26] and concludes that any
problems arising in this context would best be dealt with by changes to the
national laws governing these institutions or to national insolvency laws.

The evaluation study did not detect an urgent
need for any amendments to Article 12 (Community patents and
trade-marks) which seems to be either of limited practical use or to work
satisfactorily.

Concerning Article 13 (detrimental
acts), some administrators complained about the complexity to take into account
several legal systems in order to determine whether a claim can be set aside.
However, the evaluation study finds that this complexity is necessary in order
to achieve appropriate results with regards to the legitimate expectations of
the parties. Alternative solutions proposed in legal literature, such as a mere
protection against a change in COMI, would not address the issue in a
satisfactory manner. Views
regarding the provision on detrimental acts were rather closely divided. One
third of respondents stated they operate satisfactorily, while 37% said they do
not.

Article 15
(effects of insolvency proceedings on lawsuits pending) causes no serious
problems. It seems that most or all Member State laws have a rule or tendency
to provide for a priority of insolvency proceedings over individual litigation
or proceedings. However, some uncertainty exists concerning the applicability
of Article 15 to arbitration proceedings.

While the Commission takes note of the
findings of the evaluation study as regards the exceptions to the lex fori
principle, it considers that the main applicable law rules of the Regulation
apply satisfactorily and do not require changes at this stage.

5.           Recognition
of judgments opening insolvency proceedings

The evaluation study finds that in most
cases, courts of the Member States respected the prior opening of main
proceedings in another Member State. There are, however, a few examples where
courts did not comply with this obligation. It is not always clear when the
opening of the proceedings “became effective”; in particular, this is true with
respect to the appointment of a German “vorläufiger Insolvenzverwalter” which
most, but not all courts of the Member States accepted as an "opening"
of insolvency proceedings under the Regulation.

The application of the public policy
reservation under Article 26 of the Regulation did not cause major
problems; nevertheless, there are a few cases where courts of Member States
referred to public policy considering not recognizing foreign main proceedings.

Half of the respondents to the public
consultation (51%) agreed that the definition of the decision ‘opening
insolvency proceedings’ should be amended to take into account national legal
regimes where there is not an actual court opening the proceedings.

6.           Coordination
of main and secondary proceedings

According to the evaluation study, secondary
proceedings did not turn out to be the tool for the main liquidator described
in Recital 19 of the Regulation – i.e. in cases "where the estate
of the debtor is too complex to administer as a unit or where 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 opening". There
seems to be only a relatively small number of cases where it was the main
liquidator who actually applied for the opening of secondary proceedings.
Rather, they were used (and abused) for different reasons, in particular, as a
tool for the protection of local interests and as an instrument in jurisdictional
conflicts where the opening of secondary proceedings was regarded as the
second-best solution to the opening of main proceedings in a specific Member State. The evaluation study estimates that disadvantages of secondary proceedings
are more significant than their advantages. This is already true where the
secondary liquidator acts in a cooperative fashion, but is even more obvious
where this is not the case. Views of the respondents to the public consultation
on the benefits of secondary proceedings were divided with 36% feeling that the
division between main and secondary proceedings was helpful with 37%
disagreeing.

The following problems were noted in the
evaluation study:

The fact that secondary proceedings must be
winding-up proceedings is an impediment to flexible and effective restructuring
measures.

The absence of specific rules on the
procedure for the opening of secondary proceedings is problematic. There is no
provision allowing the competent court to refuse the opening of secondary proceedings
in circumstances where such opening would not be in the interests of local
creditors. There is also no express provision requiring the main liquidator to be
heard before opening the proceedings.

Moreover, it is unclear whether liquidators
in all Member States can enter into undertakings guaranteeing the creditors who
might apply for secondary proceedings that they will respect all preferential
rights such creditors would enjoy in secondary proceedings in order to prevent
them from actually applying for such secondary proceedings (or to prevent the
court for opening them). English courts and practitioners have developed such
an approach, but it is unclear whether liquidators in all other member states
have the power to make such offers under their respective national insolvency
law.

The duties to cooperate and communicate
information under Article 31 of the Regulation are rather vague. The Regulation
does not provide for cooperation duties between courts or liquidators and
courts. There are examples where courts or liquidators did not sufficiently act
in a cooperative manner. These findings are confirmed by the results of the
public consultation where 48% of the respondents were dissatisfied with the
coordination between main and secondary proceedings.

Article 33(1) which allows the main
liquidator to request a stay of liquidation in the secondary proceedings is not
sufficiently clear and broad with respect to the range of measures the main
liquidator’s application can refer to. The standard of Art 33(2) concerning the
termination of the stay is not consistent with the one under Art 33(1).

7.           Group
of companies

Although a large number of cross-border
insolvencies involve group of companies, the Regulation does not contain
specific rules dealing with the insolvency of a multi-national enterprise
group. The basic premise of the current Regulation is that insolvency
proceedings relate to a single legal entity and that, in principle, separate
proceedings must be opened for each individual member of the group. There is no
compulsory coordination of the independent proceedings opened for a parent
company and its subsidiaries with a view of facilitating the reorganization of
these companies or – where this is not possible – to coordinate their
liquidation. Neither the liquidators nor the courts involved in the different
proceedings concerning members of the same group of companies are under a duty
to cooperate and communicate. While liquidators may cooperate on a voluntary
basis, judges are, in many Member States, prevented from cooperating with each
other in the absence of a legal basis expressly authorizing them to do so.

Case-law tried
different ways to overcome the lack of specific provisions on group insolvency
in practice:

In the first years
after the entry into force of the Regulation, some national courts interpreted
the Regulation's rules on jurisdiction broadly so as to bring insolvency
proceedings for all members of the group, including those located in another Member State, before the court at the parent company's registered office. The courts
concerned generally justified such a consolidation of insolvency proceedings on
the grounds that the subsidiaries’ commercial decisions were controlled by the
parent company[27].

The 2006 CJEU's Eurofood
decision considerably reduced the scope of application of the possibility for
such procedural consolidation and reinforced the rule that each legal entity
should be treated separately[28].
According to the Court, control of corporate direction alone does not suffice
to locate the centre of economic interest of a subsidiary with its parent
company, rather than at its own registered address. After Eurofood – and
the subsequent decision in the case Interedil which
reflects a more flexible approach - it
is still possible to open insolvency proceedings over a subsidiary in the
Member State where the parent company has its registered office, but only if
the factors showing that the subsidiary's COMI is located at the seat of the
parent company are objective and ascertainable by third parties. This means in
practice that courts have to examine a complex bundle of factors, including
whether the financing of a subsidiary is taken care of by the parent company,
whether the parent company controlled the operational business (e.g. by
approving purchases above a certain threshold) and the hiring of staff, whether
certain functions (e.g. the management of the IT equipment or the
visual/business identity) were centralised[29].
Essentially, these conditions will only be fulfilled in the case of very
integrated companies.

Another approach taken in practice is the
appointment of the same insolvency practitioner in the proceedings of all
members of the group involved, or of insolvency practitioners who have
previously worked together successfully on group insolvencies[30]. However, this possibility
currently depends on the willingness of the respective insolvency practitioners
and judges to cooperate.

Overall, the Commission shares the finding
of the evaluation study that the lack of a specific framework for group
insolvency constitutes in certain cases an obstacle to the efficient
administration of the insolvency of members of a group of companies[31]. This assessment is supported
by the results of the public consultation: Almost half of the respondents to
the public consultation considered that the Regulation does not work
efficiently for the insolvency of a multinational group with more than two
thirds of judges and academics taking that view.

8.           Publication
of and information on insolvency proceedings

The Regulation contains provisions to help
ensure the publicity and awareness of insolvency proceedings. Articles 21
and 22 of the Regulation provide that the liquidator may request that the
decisions opening insolvency proceedings and appointing him be published in
another Member State and registered in that State's public registers. Member
States can make such publication and registration mandatory but they remain
essentially discretionary measures.

There is widespread support for the
conclusion that the failure to publish the opening of proceedings in a public
register reduces considerably the ability of creditors to know of insolvency
proceedings opened in another Member State. The lack of information on existing
proceedings has also resulted in unnecessary concurrent proceedings being
launched in different Member States. Three quarters of respondents to the public consultation (75%) consider that the
absence of mandatory publication and registration of the decision opening
insolvency is a problem.

The impact assessment study notes that a
range of problems exists even if publication and registration were made
mandatory. While insolvency proceedings of legal entities are registered in
every Member State, insolvencies of individuals are only registered in some of
them. Only 14 Member States publish decisions in an insolvency register
accessible online to the public[32].
In 9 other Member States, some information on insolvency is available in an
electronic database, e.g. a company register or an electronic version of the
official bulletin. Four Member States do not have information on insolvency
proceedings available in electronic form at all, which makes access to that
information from abroad particularly difficult. Even where electronic registers
exist, it is not feasible for foreign creditors and courts to check each Member
States' register on a regular basis. As one of the measures implementing the
E-Justice Action Plan of 2009, the Commission has set up a pilot project for
the interconnection of electronic insolvency registers. However, this pilot
project covers to date only seven Member States. A majority of the respondents
to the public consultation considered that Member States should be required to
register the opening judgment in an insolvency register and that national
insolvency registers should be interconnected.

9.           Lodgment
of claims

The evaluation study notes practical problems
relating to certain aspects of the lodging claims in cross-border situations,
in particular language barriers, costs, time-limits for lodging claims and a lack
of information on the opening decision, the liquidator and the formalities of
the lex fori concursus for the lodging of claims. Articles 39 to 42
of the Regulation only provide for minimum rules enabling foreign creditors the
lodging of their claims, but do not set a comprehensive procedural framework.

Pursuant to Article 42 (2) of the
Regulation, the creditor may be required to provide a translation into the
official language(s) of the State of the opening of proceedings. The evaluation
study revealed that in some Member States requiring the translation has become
the rule rather than the exception, thereby entailing additional costs and
delays.

This issue is related to the problem of procedural
costs. National reporters generally criticized high translation costs for
lodging a claim. Moreover, some Member States require the retaining of a local
lawyer for lodging the claim. The average cost of
lodging a claim for a foreign creditor has been estimated at about € 2000 in a
cross-border situation. Due to high costs, creditors
may choose to forgo a debt, especially when it involves a small amount of
money. This problem mainly affects small and medium-sized businesses as well as
private individuals.

The evaluation study further notes difficulties
resulting from the application of the law of the opening of proceedings, in
particular regarding deadlines, the proof of claims, the specific procedures of
lodging claims. Cases have been reported where foreign creditors were
time-barred from lodging a claim because deadlines under local law are
comparatively short and the liquidator had not informed the creditors prior to
the expiry of that deadline.

Almost half of the respondents to the public consultation (46%) expressed the view that there were
problems with the lodging of claims under the Regulation. This issue is of
particular concern for SMEs.

10.         Conclusions

On the basis of the results of the
evaluation referred to above, the Commission finds that, in general, the
Regulation functions in sound and satisfactory manner. It has well implemented
the principle of mutual recognition for the cross-border insolvency
proceedings, and has improved the coordination of such cases.

Nevertheless, there are certain issues that
will benefit from adaptations to the Regulation: The main amendments to be
proposed by the Commission concern, first, the scope of application. The
Commission suggests extending the scope of the Regulation by revising the
definition of insolvency proceedings in order to include hybrid and
pre-insolvency proceedings and insolvency proceedings for individuals, which
are currently excluded.

Regarding the jurisdiction, the Regulation
should maintain the concept of COMI as interpreted by the Court of Justice of
the European Union but the the Commission proposes a revision adding language
to clarify its meaning. It also clarifies the application of the COMI rule for
individuals. The proposed revision inserts a rule on jurisdiction for related
actions and the procedural framework for examining the jurisdiction should be
improved to limit the potential for wrongful forum shopping.

The Commission proposes improving the
publication of insolvency proceedings in two ways: by making publication of
decisions in another Member State mandatory; and by requiring that the
decisions opening and closing insolvency proceedings and certain other
decisions be published in an electronic register, publicly accessible on the
internet. The electronic insolvency registers should address cross-border
insolvency needs but will obviously also serve domestic users.

The proposal to bring in new standard forms
for the notice of proceedings and the lodging of claims will make it easier for
foreign creditors to make claims. In addition, the deadlines for lodging claims
must be long enough to allow them to lodge an effective claim.

Finally, the Commission addresses the issue
of group insolvency: the Commission proposes including specific rules in the Regulation
to make handling the insolvency of members of a multi-national group of
companies more efficient. Smoother cooperation between liquidators in different
Member States should aid the rescue of the companies and maximise the value of
their assets.

Further matters for which certain problems
were identified in the evaluation, such as the questions of extension of the
scope outside EU and of the applicable law, were also considered. However, the
Commission does not find it desirable to introduce in
the Regulation specific provisions concerning the recognition of and
coordination with insolvency proceedings opened outside the EU. As referred
above, the main reason is that such provisions would be binding only in the territory of Member States and not in non-EU countries. Therefore, a possible elaboration
of a draft international convention would better achieve these objectives, and
also ensure the Union's interests in reciprocal negotiations with the third
countries.

Moreover, the Commission does not propose
amendments to the provisions of the Regulation concerning applicable law. The
Commission finds that existing provisions apply sufficiently smoothly within
the EU and the respective fields of the lex fori and the lex situ
strike the right balance. Accordingly it is considered preferable to keep the
current conflict of law rules, until the effects of possible changes on domestic
insolvency law, company law and social law are further examined.

[1]               OJ L 160, 30.6.2000, p.1.

[2]               Hess/Oberhammer/Pfeiffer, Study for an evaluation of
Regulation (EC) No 1346/2000 on Insolvency Proceedings; published on the Europa
site of DG JUSTICE at http://ec.europa.eu/justice/civil/document/index\_en.htm

[3]               This study is published on the Europa site of DG
JUSTICE at http://ec.europa.eu/justice/civil/document/index\_en.htm.

[4]               A statistical overview of the replies received
through the IPM tool has been published at http://ec.europa.eu/yourvoice/ipm/forms/dispatch?userstate=DisplayPublishedResults&form=Insolvency.
An analysis of all replies received has been prepared by GHK/Milieu and forms
part of the impact assessment study referred to above.

[5]               The current situation is
unclear: As Annex A generally refers to proceedings of the Insolvency Act, the
protection shield proceedings seem to be included. However, there is still an
uncertainty whether these proceedings correspond to the definition of Article 1
(1) EIR.

[6]               CJEU, case C-461/11, Ulf Kaziemierz Radziejewski.

[7]               CJEU, case C-116/11, Bank Handlowy.

[8]               Recital 9 of the Regulation.

[9]               AT, BE, CZ, CY, DE, LV, ML, NL, PL and – partly – FR,
SI and UK. In eastern France (Bas-Rhin, Haut Rhin, Modeslle), the general
insolvency law also applies to over-indebted private individuals. In the UK, some of the procedures open to over-indebted natural persons are covered by the
Regulation (bankruptcy, individual voluntary arrangement, trust deeds,
sequestration), while others (debt relief orders, debt management plans) are
not.

[10]             EE, EL, FI, FR, LT, LU, SI, SE, UK.

[11]             FR, LU.

[12]             Cf. Recital 9.

[13]             Directive 2009/138/EC on the taking up and pursuit of
the business of insurance and re-insurance (Solvency II), OJ L 335, 17.12.2009,
p. 1; Directive 2001/24/EC on the reorganisation and winding- up of credit
institutions, OJ L 125, 5.5.2001, p. 15.

[14]             Proposal of 6 June 2012 for a Directive of the European
Parliament and of the Council establishing a framework for the recovery and
resolution of credit institutions and investment firms and amending Council
Directives 77/91/EEC and 82/891/EC, Directives 2001/24/EC, 2002/47/EC,
2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC and Regulation (EU) No
1093/2010, COM (2012) 280 final.

[15]             CJEU, case C-341/04, Eurofood.

[16]             CJEU, case C-396/09, Interedil.

[17]             CJEU, case C-1/04 , Staubitz-Schreiber.

[18]             Regulation (EC) No 44/2001 on jurisdiction and the
recognition and enforcement of judgements in civil and commercial matters, OJ L
12, 16.1.2001, p.1.

[19]             CJEU, case 133/78, Gourdain v. Nadler.

[20]             1968 Brussels Convention on jurisdiction and the
enforcement of judgements in civil and commercial matters (consolidated version
in OJ C 27, 26.1.1998, p.1).

[21]             Case C-339/07, Deko Marty.

[22]             Case C-111/08, SCT Industri .

[23]             Case C-111/08, SCT Industri.

[24]             Case C-292/08, German Graphics.

[25]             Case C-213/10, F-Tex.

[26]             Directive 2008/94/EC of the European Parliament and the
Council on the protection of employees in the event of the insolvency of their
employer, OJ 283, 28.10.2008, p. 36.

[27]             This approach began in England and was adopted by
courts in Member States such as France, Germany, Hungary and Italy.

[28]             Case C-341/04 Eurofood, at para 30.

[29]             See e.g. the decision of the High Court in Daisytek,
16.5.2003.

[30]             E.g. Nortel.

[31]             For details see the Impact
Assessment accompanying the proposal for a Regulation amending the Insolvency
Regulation.

[32]             AT, CZ, FI, DE, HU, LV, NL, PL, PT, RO, SI, SK, SE and
– partly – the UK.

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