This fourth edition of The Insolvency Review once again offers an in-depth review of market conditions and insolvency case developments in key countries around the world. As always, a debt of gratitude is owed to the outstanding professionals in geographically diverse locales who have contributed to this book. Their contributions reflect diverse viewpoints and approaches, which in turn reflect the diversity of their respective national commercial cultures and laws.
The preface to a previous edition of this book touched upon the challenges faced by large multinational enterprises attempting to restructure under these diverse and potentially conflicting insolvency regimes. These challenges have traditionally been particularly acute in large corporate insolvencies because neither UNCITRAL’s Model Law on Cross-Border Insolvency nor other enactments, such as the European Union’s Regulation on Insolvency,1 have provided the tools necessary for consolidated administration of insolvencies involving multiple legal entities in a corporate group, with operations, assets and stakeholders under different corporate umbrellas in different jurisdictions. Insolvent corporate groups have therefore often been obliged to cobble together consensual restructurings with local stakeholders in key jurisdictions or to initiate separate plenary insolvency proceedings for individual companies under multiple local insolvency regimes (as illustrated in the cases of Nortel and Lehman Brothers, among others), with added costs, disbursed control, legal conflicts and inconsistent judgments.
When we last addressed this issue in these pages, UNCITRAL’s Working Group V was continuing its work on cross-border insolvency of multinational enterprise groups,2 and the European Commission was likewise considering amending the European Union Regulation on Insolvency to better encompass enterprise groups.3 Publication of the 2016 edition of this book provides an occasion to mark the progress made in these efforts over the last two years.
On 20 May 2015, the European Parliament and Counsel published the Recast Regulation on Insolvency 2015/848, which will apply to insolvency proceedings initiated after 26 June 2017.4 The Recast Regulation acknowledges the fact that it would not be practical to introduce an insolvency regime with ‘universal scope’ throughout the European Union in light of the diversity of local insolvency laws.5 Chapter V of the Recast does, however, specifically address insolvency proceedings of members of a group of companies in different jurisdictions. Section 1 of Chapter V (Articles 56–60) addresses ‘cooperation and communication’ between such proceedings, while section 2 (Articles 61–77) creates a new concept of a ‘group coordination proceeding’ under the auspices of a ‘coordinator’.
Section 1 generally provides that insolvency practitioners (which are defined broadly in the Recast Regulation and include, e.g., liquidators, administrators and trustees) appointed in group members’ proceedings and courts presiding over such proceedings ‘shall’ cooperate with one another so long as cooperation is not incompatible with the rules applicable to such proceedings and does not entail any conflict of interest.6 In addition, Article 60 of the Recast Regulation grants an insolvency practitioner appointed in the insolvency proceeding of one member of a corporate group the power to be heard in the proceedings of any other member and the power to seek a stay with respect to the realisation on assets in such other proceeding in certain circumstances if such a stay, among other things, is necessary to implement a restructuring plan and is in the best interest of creditors in the proceedings in which the stay is requested.7
Section 2 sets forth a framework for voluntary, court-supervised ‘group coordination proceedings’.8 Group coordination proceedings may be requested before any court having jurisdiction over any group member,9 and the details of the coordination plan would be proposed by the insolvency practitioner appointed to act as ‘coordinator’.10 The coordinator has a number of rights, including the right to participate in proceedings opened in respect of any group member, the right to mediate disputes between members, the right to present the group coordination plan to parties in interest, the right to request information from insolvency practitioners appointed in any member’s proceedings, and the right to seek a stay of up to six months in the proceedings of any group member if necessary to implement a plan that benefits creditors in that proceeding.11 Participation in the group coordination proceedings is voluntary, though insolvency practitioners appointed to act in respect of each member ‘shall’ consider the coordinator’s recommendations.12
In addition to the provisions addressing corporate groups in Chapter V, the Recast Regulation also recognises that ‘[s]econdary insolvency proceedings may also hamper the efficient administration of the insolvency estate’.13 Accordingly, the Recast Regulation confers upon the insolvency practitioner in main insolvency proceedings the possibility of distributing to local creditors what they would have received had secondary local proceedings been initiated and empowers courts to refuse to initiate secondary proceedings if these so-called ‘synthetic’ or ‘virtual’ proceedings are proposed.14 These provisions may help facilitate synthetic group restructurings of the sort employed in the Collins & Aikman case.15
UNCITRAL Working Group V, meanwhile, has continued to develop an addendum to the Model Law to facilitate the effective treatment of cross-border insolvencies of multinational enterprise groups. The Working Group has identified eight key principles of a regime to address insolvency in the context of enterprise groups, which themselves are subject to two fundamental underpinning principles. Those foundational principles are, first, that the jurisdiction of the courts in the state in which the centre of main interest (COMI) of an enterprise group member is located will remain unaffected by a group insolvency solution, and, second, the eight identified principles do not replace or interfere with any process or procedure required by the jurisdiction in which the COMI of a group member is located in respect of that group member’s participation in a group insolvency solution.16 Against that backdrop, the eight key principles can be summarised as follows:17
- a There is no obligation to commence insolvency proceedings for individual members of an enterprise group.
- b When a group enterprise solution is proposed, that solution will require coordination between group members and may be developed through a coordinating proceeding.
- c Group members might designate one member’s proceeding to function as the coordinating proceeding, the role of which would be procedural. A proviso might be that such proceeding take place in a state that is the COMI of at least one group member that is a necessary and integral part of the enterprise group solution.
- d The court located in the COMI of a group member participating in a group insolvency solution can authorise the insolvency representative appointed in proceedings taking place in the COMI to seek (1) to participate in a planning proceeding taking place in another jurisdiction and (2) recognition by the court of the proceeding in the COMI jurisdiction.
- e Participation in the coordination process for group members whose COMI is located outside of the jurisdiction of the coordinating proceeding is voluntary. For members whose COMI is located in the same jurisdiction as the coordinating proceeding, the recommendations of part three of the Legislative Guide on Insolvency Law with respect to joint application and procedural coordination could apply.
- f Creditors and stakeholders of group members participating in a group solution would vote in their own jurisdictions on the treatment they are to receive according to applicable domestic law.
- g Following approval of a group reorganisation plan by creditors and stakeholders, each COMI court would have jurisdiction to implement the plan in accordance with domestic law.
- h The insolvency representative appointed in the coordinating proceeding should have a right of access to the proceedings in each COMI court to be heard on issues related to implementation of the group reorganisation plan.
These eight principles are largely consistent with the Recast Regulation’s approach to resolution of enterprise groups within the European Union. Like the Recast Regulation, the UNCITRAL proposal contemplates a voluntary coordination framework that allows for a group solution (including, by not requiring proceedings for all members, a ‘synthetic’ solution) and allows representatives of the group members’ proceedings to participate in the proceedings of other members to facilitate such a solution, but one that ultimately does not attempt to alter the substantive insolvency law in individual jurisdictions. Notably, in commentary to the second principle, the Working Group allows that another approach to coordination between member insolvencies is the approach taken in the Recast Regulation.18
The Recast Regulation will have just come into effect when the next edition of this book is published, and there has been no indication regarding when Working Group V will be in a position to put forward final proposals, whether along the lines described above or otherwise. It therefore remains to be seen how these measures will function in practice, and also whether the voluntary nature of the proposed regimes will limit their utility. It is also possible that there will be resistance in some jurisdictions to ceding sovereignty over local insolvency law even to the limited degree contemplated by the Recast Regulation and the Working Group V principles.
I, once again, want to thank each of the contributors to this book for their efforts to make The Insolvency Review a valuable resource. As each of our authors, both old and new, knows, this book is a significant undertaking because of the current coverage of developments we seek to provide. As in prior years, my hope is that this year’s volume will help all of us, authors and readers alike, reflect on the larger picture, keeping our eye on likely, as well as necessary developments, both on the near and distant horizons.
Donald S Bernstein
Davis Polk & Wardwell LLP
1 Council Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency proceedings, 2000 O.J. (L 160) 1, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2000:160:0001:0018:en:PDF.
2 See United Nations Commission on International Trade Law, Report of Working Group V (Insolvency Law) on the Work of its Forty-Fifth Session (New York, 21–25 April 2014), U.N. Doc. A/CN.9/803 (May 6, 2014), available at https://documents-dds-ny.un.org/doc/UNDOC/GEN/V14/028/64/PDF/V1402864.pdf?OpenElement.
3 See European Commission, Proposal for a Regulation of the European Parliament and of the Counsel Amending Council Regulation (EC) No 1346/2000 on Insolvency Proceedings (2012), available at www.europarl.europa.eu/meetdocs/2009_2014/documents/com/com_com%282012%290744_/com_com%282012%290744_en.pdf.
5 Id. at Rec. 22.
6 Id. at Articles 56-58.
7 Id. at Article 60.
8 Id. at Articles 61-72.
9 Id. at Article 61.
10 Id. at Article 72.
12 Id. at 70.
13 Id. at Recital 41.
14 Id. at Recital 42; Article 36.
15 In re Collins & Aikman Europe S.A.,  EW HC (CH) 1343. Indeed, the European Commission specifically referenced the Collins & Aikman case in its proposal for what became the Recast. See Proposal for a Regulation of the European Parliament and of the Counsel Amending Council Regulation (EC) No. 1346/2000 on Insolvency Proceedings (2012), supra note 3, at 7.
16 See United Nations Commission on International Trade Law, Report of Working Group V (Insolvency Law) on the Work of its Forty-Eighth Session (Vienna, 14–18 December 2015), U.N. Doc. A/CN.9/864 (8 January 2016), available at https://documents-dds-ny.un.org/doc/UNDOC/GEN/V16/000/83/PDF/V1600083.pdf?OpenElement.
17 United Nations Commission on International Trade Law, Facilitating the Cross-Border Insolvency of Multinational Enterprise Groups: Key Principles, U.N. Doc. A/CN.9/WG.V/WP.133 (28 September 2015), available at https://documents-dds-ny.un.org/doc/UNDOC/LTD/V15/068/39/PDF/V1506839.pdf?OpenElement.