The Recast Insolvency Regulation (Regulation (EU) No. 2015/848)
A good point of departure is that Insolvency Law Cyprus constitutes an integral part of a nation’s public Economic order. Although, the various state proceedings differ from nation to nation, the common denominator that the legal order of Insolvency as it appears in the various legal systems, is always consider being a nation specific function. It is for this reason that Insolvency consulations are not easily suitable for internationalization especially when a company, a corporate debtor, is established in several European States, and the opening of insolvency proceedings raise questions as to which court has jurisdiction, what is the applicable law, and what will be the recognition of the proceedings initiated in the various Member States involved. The subject matter of this assessment is the European Parliament and the Council of Europe of 20 May 2015 on the Cross Border Insolvency Proceedings. The current study will assess on those questions and will analyze the various reforms that the Recast Regulation introduced by a comparison to the European Insolvency Regulation 2000, and the Recast Regulation. [/vc_column_text]
To be more specific, this study will focus on the jurisdiction by which a person or a company is most closely associated for the purposes of cross-border insolvency proceedings, which of course will be the location of the Centre of main interest (COMI) of the debtor. It is the COMI concept that will subject the insolvency proceedings. As a general rule, the Courts of the territory of the Member State, within of which the debtor’s COMI is located; shall predict the jurisdiction of where the initiating main insolvency proceedings will take place. In other words, for a company, the place of the registered office is presumed to be its COMI, in the absence of proof of the contrary. According to the European Court of Justice case law, the COMI must be the company principal place of direction and administration. So the competent court must apply its national insolvency law. According to the principal of the immediate recognition the decision to open such insolvency proceedings is recognized without any further formality in the other Member States, which excludes any opening of concurrent proceedings.
Extension of Regulation 1346/2000
The European Insolvency Regulation Council Regulation 1346/2000 (Hereafter EIR), came into force on 31 May 2002, as the first attempt of coordination on Insolvency Law Cyprus between the various systems of different Member States. However, the EIR opted for unification of the principles of private international law and not for material harmonization. Therefore, from the enactment of EIR there was not a substantive harmonization of national insolvency laws, neither a single European Insolvency law unified applicable in each member states of the European Union. Ten years after the enactment of EIR, in order to promote the rescue of a debtor in severe financial distress, to provide help sound companies to survive, to give a second chance to entrepreneurs and provide them with more rescue-orientated solutions, the European Commission reviewed and published a proposal for the amendment of the regulation. The report issued by the Commission on 12 December 2012, concluded that the Regulation 2000 on Insolvency is functioning well in general, but that it is desirable to improve the application of certain of its provisions in order to enhance the effective administration of cross-border insolvency proceedings
So then, the Recast Regulation repealed the previous Council Regulation 1346/2000 on Insolvency Proceedings.The new regulation introduced significant innovations; it focuses on filling gaps and legal loopholes of the current standards of the Insolvency proceedings and especially the Centre of main interest system. Those are the following:
The 2015/848 Recast Regulation covers all the proceedings involving all or a significant part of creditors. Article 2 of the Regulation provides for various important definitions. It defines those Insolvencies proceedings as public collective proceedings and of course this is relevant as to the fact that some Insolvency law Cyprus may also regulate proceedings which do not comprise as “creditors”. The 2015/848 Recast Regulation excludes Insolvency proceedings regarding certain entities as proceedings concerning insurance undertakings, credit institutions, investment firms and other firms, institutions As a rule, such categories of entities are subject to special regulations, like separate EU Directives and national laws, are under the control of the national supervisory authorities which, it must be stated that, they usually have some intervention powers.
Secondly, The extension of the scope of the previous EIR Regulation should be underlined, as the Recast Regulation covers the procedures always faced on the insolvency of the debtor, not only the proceedings where debtor loses the management of his affairs. The Regulation also face various pre-insolvency proceedings, the so called hybrid proceedings, where a debtor while retaining the control of his affairs, thus he or she is not insolvent, he or she is under the supervision of the judicial authority. The Recast Regulation extended to various situations where a debtor receives somehow a second chance in cases where a debtor only encounters financial difficulties but do not create a threat of Insolvency. Recitals of the 2015/848 Recast Regulation carefully mention this extension of the scope by naming it as an intent to extend to proceedings which promote the rescue of economically viable but distressed businesses and which give a second chance to entrepreneurs.
The alters of the Regulation set ambitious and pragmatic goals to adjust to the new changing insolvency law Cyprus however only to public excluding any informal or confidential proceedings which gives the chances on successful settlement based on negotiations. On the other hand the 2015/848 Recast Regulation states the insolvency proceedings by the means that the proceedings listed in appendix A to the Regulation are the procedures in every Member State that are covered by the regulation
Centre of Main Interest
The Centre of main Interest concept is one of the most relevant concepts in the International insolvency scene. Under the terms of the 2015/848 Recast Regulation, the International jurisdiction of the Member State’s Courts to open insolvency proceedings , is now more specified and framed in a new Regulation where the Centre of main interest remained the keystone of the provided under the new Regulation , International Insolvency proceedings. Although, the definition of Centre of main interest‘s remained from the one hand as the place where the debtor company conducts the administration of its interest on a regular basis, and from the other hand to the place of the registered office is presumed to be, the Centre of main interest as a concept was totally devoted to the Recast Regulation itself.
A new condition in relation with the place of the registered office presumption, established for the purpose of 2015/848 Recast Regulation. This presumption applies if the registered office has not been moved to another member state within the last 3 months. Therefore the 3-months criterion is what now constitutes the new “waiting period”. The Recast Regulation has found a balance between the need to prevent abusive forum shopping and to preserve freedom of movement and a debtor’s flexibility to restructure in the place that best serves the creditors’ interest. In the case of individuals, the Centre of main interest of other individuals is presumed to be the principal place of residence. The Recast Regulation set the period of 6 months waiting period. It is clear that the 2015/848 Recast Regulation draws the importance on the waiting period issue, because what will happen if the waiting period condition is not met under the Regulation, is that the debtor will lie to the consequences of inability for the debtor to invoke the presumption location of the Centre of Main Interest. The obligation of the Courts to check ex officio their own jurisdiction is strengthened and in a way reinforced under the 2015/848 Recast Regulation. The Courts will now have to check the two part criterion of Registered Office/COMI and in a case of doubt the Court must require the debtor of additional evidence. If the court find that the Centre of main interest is not located in its territory it must refuse to open insolvency proceedings
Article 3 paragraph 1 states that: The Centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties. Therefore Centre of main interest must be ascertainable by third parties with special attention to the creditors and their perception of the place where the debtor manages his interests. It is clear that under the Recast Regulation this is the way to ensure safety for the third parties who deal with the debtor in Insolvency proceedings. Under the Regulation, third parties, in relation with the debtors, is an important issue which may appears in the context of the Centre of main interest, simply due to the fact that third parties are mainly foreign creditors, and are entitled to challenge the Centre of main interests. By putting this up, within its context someone can rely on that, this new regulation reduces the hazards and the legal uncertainty that used to exist on the issue.
Bankruptcy tourism is the synonym of abusive forum shopping. It is the case where individuals sought to change their Centre of main Interest to file for bankruptcy in a jurisdiction with a shorter discharge period than their home member state. One of the original stated aims of the Recast Regulation was to avoid Bankruptcy tourism. The forum shopping consists for the debtor company to seek the most favorable jurisdiction to the detriment of creditors. However the question arises here is related to whether or not the regulation really restricts “forum shopping”. The 2015/848 Recast Regulation’s goal is clear enough though. Recital 29 clearly, that the Regulation shall contain a number of safeguards aimed at preventing the fraudulent or abusive forum shopping. In the same meaning Recital 5 states that it is necessary for the proper functioning of the internal market to avoid incentives for parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position to the detriment of the general body of creditors (forum shopping). Because of the 1346/2000 Regulation’s failure to identify the term “Forum Shopping,” within its core text, the 2015/848 Recast Regulation identified this mischief of the forum shopping and contained an express provision as to the manner by which its avoidance is to be achieved, at any level
The 2015/848 Recast Regulation aimed to resolve the issues in relation with the uncertainty around the change of debtor’s Centre of main Interest to file for bankruptcy in a favorable jurisdiction with a shorter discharge period than their home member state because:
Under Article 1.1 of the 2015/848 Recast Regulation, the scope of the insolvency proceedings covered by the Regulation 1346/2000, narrowed and extended to cover pre-insolvency proceeding. Those proceedings defined as rescue, adjustment of debt, reorganization or liquidation processes. The essence of this was in order to allow the restructuring of a debtor in financial difficulties at a pre-insolvency stage and /or in general allowed the possibility for a less formal, hybrid restructuring procedures However, attention must always be given to the fact that only proceedings which are listed in Annex A to the New Regulation will be covered, which means that Member States will retain significant control over the category of proceedings to be encompassed by the New Regulation
Article 3 states that the Courts of the Member States within the territory of which the centre of a debtor’s main interests (COMI) is situated shall have jurisdiction to open insolvency proceedings. However in order to prevent problems , uncertainty the Regulation included cases of evident and abusive forum shopping, and uncertainty concerns surrounding the absence of a general definition of Centre of main interest in the Regulation or surrounfing the regards where a corporate debtor could file for the opening of main Insolvency proceedings. It even includes concerns of the absence of assessment of jurisdiction by national courts
The legal text itself in Article provides a statutory definition/a formal definition of the Centre of main interest which now predicts that the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties; will be the Centre of main interest
Under the 2015/848 Recast Regulation, A debtor’s Centre of main interest is now determined by the time that the Insolvency proceedings request to assign jurisdiction in cross border insolvency cases is made;
The 2015/848 Recast Regulation combines the certain presumptions as the presumption of the relocation of registered office or the principal place of business,
Recast Regulation seeks to establish safeguards against Bankruptcy Tourism. The intended changes towards the prevention of Bankruptcy tourism include: The requirement under Article 4 of the 2015/848 Recast Regulation which states that the courts where the request for opening insolvency proceedings is presented before them, have to examine whether the Member State in which a request for the opening of proceedings is pending if pursuant to Article 3 of the Regulation has jurisdiction over the matter , and prohibits the Court to take a decision granted per se; and right for debtors and creditors challenge before a court the decision opening main insolvency proceedings on grounds of international jurisdiction.