The European Insolvency Regulation (recast)

A brief summary of the most important provisions

4 table of contents

Table of contents

Frequently used terms 6

Introduction 7

Robert van Galen / Barbara Rumora-Scheltema

Chapter 1 - Scope 11

Barbara Rumora-Scheltema

Chapter 2 - COMI 15

Tom de Clerck

Chapter 3 - International Jurisdiction 19

Bart Wijnstekers

Chapter 4 - Applicable Law 23

Tom de Clerck table of contents 5

Chapter 5 - Secondary or Territorial Procedures 27

Marc Orval

Chapter 6 - Rights in rem 31

Willem Keukens & Saskia Heumakers

Chapter 7 - Contracts of Employment 37

Robert Woudenberg

Chapter 8 - Group Companies 41

Catrien Rozeman & Linda Tomassen

Chapter 9 - Communication and filing of claims 45

Jochem Hummelen

Restructuring and Insolvency Partners 48 6 Frequently used terms

Frequently used terms

COMI Centre of main interests. See Chapter 2.

The proceedings listed in Annex A of the R-EIR. Insolvency proceedings See Chapter 1.

European Insolvency Regulation. Council Regulation EIR (EC) 1346/2000 of 29 May 2000 on Insolvency Proceedings.

IP Insolvency Practitioner.

Lex contractus The law applicable to the relevant contract.

Lex fori concursus or The law of the State in which the insolvency lex concursus proceedings are commenced.

Insolvency proceedings opened by the courts of the Main insolvency proceedings Member State within the territory of which the COMI of the debtor is situated. See Chapter 2.

Recast European Insolvency Regulation. Regulation R-EIR (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on Insolvency Proceedings.

Insolvency proceedings opened by the court of the Territorial or secondary Member State other than where the COMI is located, insolvency proceedings where the debtor has an establishment. See Chapter 5.

The possibility to treat creditors in accordance Synthetic secondary with local laws without actually opening secondary proceedings insolvency proceedings. See Chapter 5. introduction 7

Introduction

Robert van Galen / Barbara Rumora-Scheltema

It was not until 2000 before the Member States of the European Union finally agreed on a European wide arrangement for the recognition of insolvency proceedings: the European Insolvency Regulation (“EIR”). The EIR became effective on 31 May 2002 and provided, in short, that insolvency proceedings opened in the Member State where the debtor has its centre of main interests (“COMI”) would be effective throughout the European Union.

The EIR was a much greater success than had been expected. Before its introduction, the general expectation had been that the EIR would not be very popular because of its lack of provisions concerning groups of companies. The idea was that cross-border aspects of insolvency proceedings would not occur very often, because enterprises would address international issues by setting up a foreign group entity. The EIR would therefore be mainly relevant for insolvency proceedings relating to private individuals with a vacation home abroad. However, there turned out to be many more cross-border cases, and several cases ended up with the European Court of Justice.

An interesting (and to some extent: unexpected) consequence of the EIR was the forum shopping that resulted. Under the EIR, the courts of the Member State where the debtor has its COMI are solely authorized to open insolvency proceedings. Furthermore, the laws of that Member State determine the effects of the insolvency proceedings (with a few exceptions). The EIR did not harmonize the insolvency laws of the Member States, and those laws are very different from one state to another. Member States use these laws to incorporate their different policy goals: some give a stronger protection to employees, others prioritize the interest of secured creditors or strengthen the position of national tax authorities. Consequently, debtors (often stimulated by their larger creditors) shifted their COMI to the Member State where the laws in their (or those creditors’) view advanced the interests they sought to enhance. Not everyone thought these COMI shifts were desirable: advancing the interests of one party might result in a deterioration of the position of others. Moreover, a COMI shift changes the rules of the game – and thereby the position of creditors vis-à-vis each other – just before the lights are turned off. 8 introduction

The EIR provided that ten years after its introduction, an evaluation would follow along with recommendations for changes where useful. And indeed, with some delay, after an evaluation a recast EIR (“R-EIR”) was adopted in 2015. The R-EIR applies to all insolvency proceedings opened on or after 26 June 2017.

The most important change in the R-EIR, compared to the EIR, is the introduction of a chapter relating to group insolvencies. Other changes are adaptations of existing provisions. To the disappointment of many, some of the more controversial provisions remained essentially the same. For example, the rules about COMI have only slightly changed. The same applies to the rules concerning rights in rem concerning assets of a debtor located in a different Member State than the one where the insolvency proceedings were opened.

On the occasion of the entry into effect of the R-EIR, NautaDutilh is proud to present an overview of the most important provisions of the R-EIR. In the following chapters, you will find a practical guide from the members of NautaDutilh’s Restructuring and Insolvency team aimed to help you identify the main rules that apply in European cross-border situations, along with, where applicable, an explanation of the changes in the R-EIR compared to the EIR. This guide is not intended as legal advice and specific rules may be different in specific circumstances. Our team is of course happy to assist you with any questions about these and other issues that you may have. introduction 9

NautaDutilh’s Core Restructuring & Insolvency Team

Amsterdam Brussels Tom de Clerck Stan Brijs Robert van Galen Charlotte De Muynck Saskia Heumakers Jean-Luc Hagon Jochem Hummelen Arie Van Hoe Willem Keukens Sophie Jacmain Catrien Rozeman Rubben Lindemans Barbara Rumora-Scheltema Teun Struycken London Linda Tomassen Marc Orval David Viëtor Bart Wijnstekers Luxembourg Robert Woudenberg Romain Sabatier

chapter 1 - scope 11

Chapter 1 Scope

Barbara Rumora-Scheltema 12 chapter 1 - scope

There are many different types of insolvency proceedings throughout the Member States. TAKEAWAYS Those proceedings differ in scope and in purpose: some are geared at a restructuring • R-EIR applies to insolvency of the debtor and/or its debt, others aim to proceedings based on insolvency liquidate the debtor’s assets, etcetera. The laws, including, among other things, EIR sought to provide a definition that would proceedings where the debtor include those proceedings with certain remains in possession of his assets general characteristics. It provided that the EIR would apply to collective insolvency proceedings, entailing the partial or total divestment of a debtor and the appointment of a liquidator. Insolvency proceedings concerning insurance companies, financial institutions and the like were excluded from the workings of the EIR. The same applies to Danish insolvency proceedings: Denmark chose to opt-out of the EIR, and has also opted out of the R-EIR.

The EIR contained an Annex A, listing all insolvency proceedings in the Member States to which the definition applied.A dditionally, Annex B listed all winding-up proceedings and Annex C contained a list of insolvency practitioners. Proceedings that were not included in Annex A did not fall within the scope of the EIR, whereas secondary or territorial proceedings could only be a winding-up proceeding listed in Annex B (see Chapter 5 for more information about secondary/ territorial proceedings). chapter 1 - scope 13

The R-EIR has broadened the scope of its application to include, among other things, proceedings where no liquidator is appointed, as well as other rescue and reorganization procedures based on laws relating to insolvency. These proceedings must be public collective proceedings, including interim proceedings, in which, for the purpose of rescue, adjustment of debt, reorganization or liquidation:

• a debtor is totally or partially divested of its assets and an insolvency practitioner (“IP”) is appointed; • the assets and affairs of a debtor are subject to control or supervision by a court; or • a temporary stay of individual enforcement proceedings is granted by a court or by operation of law, in order to allow for negotiations between the debtor and its creditors, provided the general body of creditors is protected during the stay and, where no agreement is reached, the stay is preliminary to one of the proceedings mentioned before.

Moreover, where such proceedings may be commenced in situations where there is only a likelihood of insolvency, they must aim to avoid the debtor’s insolvency or cessation of his business activities. Thus, unlike its predecessor, the R-EIR also applies to proceedings where the debtor remains in possession of his assets.

The R-EIR abandoned the idea of secondary/territorial proceedings being limited to winding- up proceedings only. As a result, the R-EIR only has two annexes: Annex A containing a list of insolvency proceedings that fall within the scope of the regulation, and Annex B with a list of IP’s, being any person or body whose function, including on an interim basis, is to verify and admit claims in insolvency proceedings, represent the collective interest of the creditors, administer the assets of which the debtor has been divested, liquidate those assets and supervise the administration of the debtor’s affairs.

Barbara Rumora-Scheltema T +31 20 71 71 449 M +31 6 53 77 58 28 E [email protected]

chapter 2 - comi 15

Chapter 2 COMI

Tom de Clerck 16 chapter 2 - comi

COMI stands for ‘centre of main interests’ and is defined in Article 3 TAKEAWAYS of the R-EIR as “the place where the debtor conducts the administration • COMI is the connecting factor to of its interests on a regular basis designate jurisdiction of a court of a and which is ascertainable by third Member State with respect to main parties”. The EIR did not provide for a insolvency proceedings definition of COMI, but Recital (13) to • COMI is the place where the debtor the EIR described COMI in an almost conducts the administration of its identical manner. Therefore, it is interests on a regular basis and suggested that the concept of COMI ascertainable by third parties did not substantially change under the • The place of the registered office of R-EIR. However, the R-EIR contains a a company or legal entity shall be number of provisions aimed to avoid presumed to be the COMI forum shopping through a COMI shift.

COMI is the connecting factor to designate the jurisdiction of a court of a Member State with respect to main insolvency proceedings (see Chapter 3 with respect to international jurisdiction).

The R-EIR provides for several presumptions of the COMI of debtors. The EIR only provided for presumptions of the COMI for companies and legal entities. The R-EIR also provides for presumptions of the COMI for individuals/natural personals. These presumptions – including a “timeframe” in the event of a COMI shift shortly before insolvency proceedings are opened (see hereafter) – provide for more clarity for creditors in the context of the commencement of insolvency proceedings:

• companies and legal entities: the place of the registered office is presumed to be the COMI, in the absence of proof to the contrary. That presumption shall only apply if the registered office has not been moved to another Member State within the 3-month period prior to the request for the opening of insolvency proceedings (see hereafter under COMI shift and forum shopping); chapter 2 - comi 17

• individuals or natural persons who are individually exercising an independent business or professional activity: the COMI is presumed to be that individual’s principal place of business in the absence of proof to the contrary. That presumption shall only apply if the individual’s principal place of business has not been moved to another Member State within the 3-month period prior to the request for the opening of insolvency proceedings; • other individuals or natural persons: the COMI is presumed to be the place of the individual’s habitual residence in the absence of proof to the contrary. This presumption shall only apply if the habitual residence has not been moved to another Member State within the 6-month period prior to the request for the opening of insolvency proceedings.

COMI shift and forum shopping One of the objectives of the R-EIR is to prevent fraudulent abuse of forum shopping. Forum shopping refers to the attempts by debtors to relocate the COMI either just before applying for insolvency proceedings, or between the filing of the application and the opening decision of the competent court, so as to change the law and jurisdiction applicable to such insolvency proceedings.

There have been extensive discussions about the question whether COMI shifts and forum shopping are desirable. One the one hand, forum shopping might be unavoidable for good reasons, for example in case of a merger with a foreign company, or it might even benefit the stakeholders with respect to the debtor, because a more efficient and value-enhancing insolvency regime becomes applicable. On the other hand, it might be problematic, for example because of the unpredictability for creditors of the legal consequences of the debtor’s insolvency. It can also be argued that the rationale behind the COMI as central criterion for applicable law and jurisdiction (as discussed in Chapter 3) is undermined, because the Member State where the new COMI is located is generally not the Member State which is mostly affected by the insolvency of the debtor, given the preceding COMI shift. 18 chapter 2 - comi

The R-EIR contains several new provisions which are designed to make fraudulent or abusive COMI shifting more difficult. First, the presumption that the COMI of a company is the place of its registered office is expressly not applicable if the company moved its registered office to another Member State less than three months prior to the request for opening of insolvency proceedings. This suspension period was not included in the EIR. This does not mean that a company cannot move its COMI within three months, only that the registered office presumption does not apply. Thus if a company moves its registered office to another jurisdiction within the presumption period, it is deprived of the presumption that the COMI coincides with the registered office and is thus obliged to prove that its COMI has actually and genuinely shifted with its registered office. Furthermore, the R-EIR strengthens the importance of third parties’ ascertainability of the COMI – i.e. their perception as to where the debtor’s COMI is – in cases of a COMI shift to protect creditors against abuse. In that respect, recital (28) compels the debtor to inform its creditors about the COMI shift. Lastly, recital (32) provides that national courts should require additional evidence from the debtor to support its assertions if circumstances give rise to doubts about the court’s jurisdiction.

Tom de Clerck T +31 20 71 71 496 M +31 6 51 86 97 04 E [email protected] chapter 3 - International jurisdiction 19

Chapter 3 International Jurisdiction

Bart Wijnstekers 20 chapter 3 - International jurisdiction

The international jurisdiction of a court of a Member State with respect to TAKEAWAYS insolvency proceedings depends on the debtor’s COMI. The COMI is the • The courts of a Member State in which connecting factor to designate the the COMI of a debtor is situated shall jurisdiction. The COMI is defined in Article – in the first place – be authorised to 3 of the R-EIR, as “the place where the open main insolvency proceedings debtor conducts the administration of its • The courts of the Member State interests on a regular basis and which is within the territory of which insolvency ascertainable by third parties”. proceedings have been opened shall also have jurisdiction for actions which In general, the COMI is considered a derive directly from the insolvency viable choice-of-law and jurisdiction proceedings and are closely linked criterion, which allows the country with them mostly affected by a debtor’s insolvency to govern the insolvency proceeding. This appears to support the view that both jurisdiction and applicable law should correspond to what most creditors either expect or are familiar with.

The court of a Member State in which the COMI of the debtor is situated, shall – in the first place – be authorised to open main insolvency proceedings as set out in Annex A to the R-EIR.

In addition to the main insolvency proceedings, it is possible to commence secondary insolvency proceedings (see Chapter 5). The court of another Member State shall be authorised to open these proceedings only if the debtor possesses an establishment within the territory of that other Member State.

If the debtor does not have its COMI within the EU, or if the COMI is in Denmark, the R-EIR has no application and the domestic rules of jurisdiction prevail.

The rules of jurisdiction set out in R-EIR establish only international jurisdiction. These rules designate in which Member State the courts may open insolvency proceedings. Territorial jurisdiction within that Member State should be established by the national law of the Member State in which insolvency proceedings are opened. chapter 3 - International jurisdiction 21

In the event the court of a Member State is requested to open insolvency proceedings, that court shall of its own motion examine whether it has jurisdiction pursuant the R-EIR. The court has to specify on which grounds it assumes jurisdiction and whether the proceedings which are opened are main insolvency proceedings or secondary insolvency proceedings. The R-EIR gives creditors the opportunity to challenge the jurisdiction of the court which has opened the proceedings, based on the rules of international jurisdiction.

Article 6 R-EIR One of the most important amendments in the R-EIR with respect to international jurisdiction concerns the rules set out in Article 6. This article is a codification of various judgments of the Court of Justice of the European Union with respect to jurisdiction of the court of a Member State involved in insolvency proceedings.

The courts of the Member State within the territory of which insolvency proceedings have been opened shall also have jurisdiction for actions which derive directly from the insolvency proceedings and are closely linked with them. It has to be considered on a case to case basis whether this is the case. Actions which are normally considered to derive directly from and are closely linked to insolvency proceedings are the actio Pauliana (fraudulent conveyance) and actions based upon director’s liability in the event the liability relates to the bankruptcy of the debtor. Such actions include avoidance actions against defendants in other Member States and actions concerning obligations that arise in the course of the insolvency proceedings, such as advance payment for costs of the proceedings. 22 chapter 3 - International jurisdiction

In contrast, actions for the performance of the obligations under a contract concluded by the debtor prior to the opening of insolvency proceedings, and which after opening of the insolvency proceedings can be enforced by the IP, do not derive directly from the proceedings. The international jurisdiction with respect to these proceedings has to be designated on the basis of the Brussels Ibis Regulation (no. 1215/2012). In the event an action which derives directly from insolvency proceedings is related to another action based on general civil and commercial law, the IP is allowed to bring both actions in the courts of the defendant’s domicile if he considers it more efficient to bring the action in that court. This could, for example, be the case where the IP wishes to combine an action for director’s liability on the basis of insolvency law with an action based on company law or general tort law. It is as yet unclear whether a defendant may successfully claim lack of jurisdiction in the alternative scenario (i.e. where an IP initiates an insolvency related action in combination with an action not deriving directly from the insolvency before the insolvency court).

Bart Wijnstekers T +31 20 71 71 878 M +31 6 20 21 06 41 E [email protected] chapter 4 - applicable law 23

Chapter 4 Applicable Law

Tom de Clerck 24 chapter 4 - applicable law

Article 7(1) of the R-EIR sets out the basic rule for the law applicable to insolvency TAKEAWAYS proceedings and their effects as the law of the Member State within the territory of • The law of the Member State of the which such proceedings are opened. This opening of insolvency proceedings basic rule was the same in the EIR. (lex concursus) determines all the effects of those proceedings, unless The internal law of the Member State of the R-EIR provides otherwise the opening of insolvency proceedings • The lex concursus replaces the (lex concursus) determines all the effects law normally applicable to the act of those proceedings, both procedural concerned, again, unless the R-EIR and substantive, on the persons and legal provides otherwise relations concerned, unless the R-EIR • The R-EIR provides for exceptions for provides otherwise. This law governs all instance in respect of rights in rem the conditions for the opening, conduct and employment contracts and closure of the insolvency proceedings.

The R-EIR contains a non-exhaustive list of matters that are governed by the lex concursus. These matters include: a) which assets form part of the insolvency estate; b) the powers of the debtor and of the IP; c) the conditions for set-offs; d) the effects of the insolvency proceedings on current contracts to which the debtor is party; e) the effects of the insolvency proceedings on proceedings brought by individual creditors, with the exception of pending lawsuits; f) the rules governing the lodging, verification and admission of claims; g) the rules governing the distribution of proceeds from the realisation of assets and the ranking of claims; h) the conditions for, and the effects of, closure of insolvency proceedings, in particular by composition; i) creditors’ rights after the closure of insolvency proceedings; j) who is to bear the costs and expenses incurred in the insolvency proceedings; and k) the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to the general body of creditors. chapter 4 - applicable law 25

Unless the R-EIR provides otherwise, the lex concursus replaces the law normally applicable to the act concerned. This happens, for instance, where under the R-EIR the lex concursus applies to invalidate a contract detrimental to all the creditors, even if that contract is governed by the law of a different Member State. However, the lex concursus does not replace the law normally applicable when the person who benefited from an act detrimental to all the creditors provides evidence that the act is subject to the law of another Member State, and that law does not allow for a challenge of the relevant act.

Exceptions to the basic rule To protect legitimate expectations and the certainty of transactions in Member States other than the one in which proceedings are opened, the R-EIR provides for a number of exceptions on the basic rule of applicability of the lex concursus. In particular, the opening of insolvency proceedings in a Member State shall among other things not affect: a) rights in rem concerning assets belonging to the debtor which are situated within the territory of another Member State at the time of the opening of the insolvency proceedings (see Chapter 6); b) the rights and obligations of the parties to a payment or settlement system or to a financial market. The effects of insolvency proceedings on those rights and obligations shall be governed solely by the law of the Member State applicable to that system or market; and c) employment contracts and relationships (see Chapter 7).

Tom de Clerck T +31 20 71 71 496 M +31 6 51 86 97 04 E [email protected]

chapter 5 - Secondary or Territorial Procedures 27

Chapter 5 Secondary or Territorial Procedures

Marc Orval 28 chapter 5 - Secondary or Territorial Procedures

The EIR made and the R-EIR still makes a distinction between main and TAKEAWAYS secondary insolvency procedures. • The courts of a Member State where The courts of the Member State where a debtor does not have its COMI can the COMI of a debtor is situated, open secondary or territorial insolvency has jurisdiction to open insolvency proceedings, provided that the debtor has proceedings. This procedure is the an “establishment” in that Member State main insolvency procedure. The • A ‘synthetic’ secondary proceeding insolvency laws of the Member State entails that the IP in the main proceedings where the debtor’s COMI is located will can undertake to local creditors that determine the legal effect of the main the IP will comply with local laws on insolvency procedure throughout the distribution and priority of rights as if entire European Union (see Chapter 3). those creditors would be subject to secondary insolvency proceedings in that The courts of Member States where relevant Member State a debtor does not have its COMI do have jurisdiction to open insolvency proceedings, however, provided that a debtor has an “establishment” within the territory of that Member State. An establishment in this context is a place of operations where the debtor carries out its activities on a permanent basis with personnel and assets. This procedure can under circumstances be a stand-alone procedure and is then referred to as ‘local’ or ‘territorial’ proceedings. More likely is the opening of such proceedings in combination with a main insolvency procedure. In that event these proceedings are referred to as ‘secondary’ proceedings. The law applicable to secondary insolvency proceedings is the law of the Member State in which those proceedings have been opened. However, the effects of secondary proceedings shall be restricted to the assets of the debtor situated in the territory of the relevant Member State.

Previously, under the EIR, secondary proceedings could only be aimed at liquidating the relevant local assets. In practice, this meant that any cross-border restructuring plan could be jeopardised by the opening of secondary proceedings that were solely aimed at liquidation. To facilitate cross-border restructurings, recoveries and work-outs a change was made in the R-EIR. Secondary proceedings are now no longer limited to a liquidation procedure, but can also serve other purposes, such as a restructuring. chapter 5 - Secondary or Territorial Procedures 29

Synthetic Secondary Procedure Practical issues may still exist, despite the abovementioned change, when dealing with insolvency proceedings in multiple jurisdictions.

The obvious issue with the opening of secondary proceedings is the increase in time and money that needs to be spent on the winding up or restructuring of a debtor by having a separate insolvency proceeding for one or more parts of the debtor’s estate with one or more separate court-appointed IPs. Other common issues concern works councils and former employees bringing an action before a court requesting or appealing against (secondary) insolvency proceedings in order to achieve maximum protection of their employment rights.

To circumvent these issues so called ‘synthetic’ secondary proceedings were used in practice in, for instance, the United Kingdom. Since this was not possible under the laws of certain Member States, a change in the R-EIR has been made to enable the IP in the main insolvency proceedings to undertake to local creditors (including employees) that, when distributing local assets or the proceeds received through the realisation thereof, the IP will comply with local laws on distribution and priority of rights as if those creditors would be subject to secondary insolvency proceedings in the relevant Member State. This means that local creditors will be treated in accordance with local laws, but without actually opening secondary insolvency proceedings in the relevant Member State. An undertaking by the IP becomes binding upon the estate if approved by the known local creditors (which includes any authority which is obliged to guarantee payment of employees’ outstanding claims resulting from employment contracts or relationships).

If an application for secondary proceedings is filed, a court could open these proceedings regardless of any synthetic secondary proceedings already applicable in the relevant Member State. However, the court should refrain from doing so at the request of the IP in the main proceedings if it believes that the undertaking made by the IP in favour of local creditors sufficiently protects them. Also, if the IP in the main proceedings has not yet made any undertakings for the benefit of local creditors, he will be notified of any application for the opening of secondary insolvency proceedings and given the opportunity to be heard. If necessary, the IP may prevent the opening of secondary proceedings by giving the necessary undertakings to the local creditors. 30 chapter 5 - Secondary or Territorial Procedures

The possibility of “opening” synthetic secondary procedures should prevent the issues mentioned above when winding up or restructuring a debtor’s assets in multiple jurisdictions. However, it also gives rise to other questions. For instance, synthetic secondary proceedings do not affect (security) rights in rem in respect of assets which are located in a Member State where synthetic secondary proceedings apply. This means that the holders of these rights still benefit from the protection offered by the R-EIR in article 8, i.e. an insolvency proceeding in a Member State does not affect (security) rights in rem which are located in another Member State (see Chapter 6). The result hereof is that e.g. a stay or moratorium applicable in the main insolvency proceedings does not extend to holders of (security) rights in rem. This stay or moratorium may however be crucial for a certain restructuring plan which could have applied and could be held against holders of (security) rights in rem if actual secondary proceedings would have been opened.

Marc Orval T +44 20 7786 9114 M +44 7960 778 790 E [email protected] chapter 6 - rights in rem 31

Chapter 6 Rights in rem

Willem Keukens & Saskia Heumakers 32 chapter 6 - rights in rem

Rights in rem, notably security rights, are of considerable importance for the granting TAKE AWAYS of credit. Therefore, the EIR contained a specific provision in respect of rightsin • Rights in rem of creditors in respect rem of creditors or third parties. Although of assets located in a Member State there has been some debate on the scope are not affected by the opening of and implications of this provision, it has insolvency proceedings in another remained unchanged in the R-EIR, and no Member State further guidance has been given on how • What constitutes a right in rem is this provision needs to be interpreted. primarily determined by the laws of the Member State in which the Under the EIR and the R-EIR, the opening asset over which the right in rem is of insolvency proceedings in a Member granted, is located State shall not affect the rights in rem of creditors and third parties in respect of assets which at the time of the opening of proceedings are situated in another Member State than the Member State where insolvency proceedings have been opened.

Let’s say that, for example, a debtor has his COMI in the Netherlands and owns real estate in Germany, which has been financed by a bank. To secure repayment of such financing, the debtor has granted German law security rights over the real estate in Germany for the benefit of the financier. If insolvency proceedings are opened in the Netherlands in respect of the debtor, under the R-EIR the German law security rights will not be affected by the opening of the Dutch insolvency proceedings.

The three primary questions that could become relevant in the context of the protection of rights in rem under the R-EIR are:

1. what constitutes a right in rem? 2. where is an asset that is subject to a right in rem located, in order to determine whether or not it is located in a Member State other than where insolvency proceedings have been opened? 3. what does it actually mean that a right in rem is not affected? chapter 6 - rights in rem 33

What constitutes a right in rem? What constitutes a right in rem under the R-EIR is primarily determined by the laws of the Member State in which the asset over which the right in rem is granted, is located, the lex situs. It is also the lex situs that determines the basis, the validity and the extent of rights in rem.

The R-EIR provides for a non-exhaustive list of rights which would qualify as a right in rem under the R-EIR. The most important of such rights are: • the right to dispose of assets and to obtain satisfaction from the proceeds, such as by way of a pledge or a mortgage; • the exclusive right to collect a receivable; • the right to demand assets from anyone having possession or use of them contrary to the wishes of the entitled party; or • the right of beneficial use of assets.

At the same time, this non-exhaustive list of rights also serves as a set of criteria to determine whether or not a right would qualify as a right in rem under the R-EIR, notwithstanding the qualification of such right pursuant to the applicablelex situs. In other words, the lex situs is usually determinative with regards to whether or not a right qualifies as a right in rem. However, if such right qualifies as a right in rem under the lex situs, but does not contain any of the characteristics of rights in rem mentioned in the R-EIR, then the protection of the R-EIR would likely not apply.

Finally, it should be noted that the R-EIR does not require that a right in rem has been vested on the basis of a commercial contractual arrangement. All rights in rem, also those arising by operation of law and irrespective of the nature of the secured obligations, fall under the protection of the R-EIR. 34 chapter 6 - rights in rem

Location of assets subject to a right in rem? The R-EIR also provides guidance on how to determine in which Member State an asset is located.

Tangible assets are located in the Member State where they physically are. Receivables are located in the Member State of the receivables debtors’ COMI, and cash in bank accounts is located in the Member State indicated in the bank account’s IBAN number. Similar guidance is provided for registered shares, financial instruments, property and rights that are entered into public registers and intellectual property rights.

Scope of the protection of rights in rem It should be noted that the R-EIR does not confer any rights to holders of a right in rem, but it protects a right in rem from the effects of insolvency laws of another Member State in which insolvency proceedings have been opened.

As a result of this protection, an IP appointed in the main insolvency proceedings cannot simply ignore a right in rem that is protected by the R-EIR by, for instance, disposing over assets that are subject to such right in rem. On the other hand, a holder of a right in rem that is protected under the R-EIR can enforce his rights while ignoring the primary insolvency proceedings.

Although the R-EIR protects a right in rem from the effects of the relevant insolvency laws applicable to the primary insolvency proceedings, there is some debate on the scope of this protection. It is not entirely clear whether this protection would preclude any limitation under the applicable insolvency laws, even if such limitation would also exist under the laws of the Member State where the asset is located.

The prevailing view currently is that the protection under the R-EIR is ‘hard and fast’; in other words, no limitation whatsoever under any applicable insolvency law would apply to the rights in rem that are protected under the R-EIR. chapter 6 - rights in rem 35

As a result, a stay or moratorium imposed during insolvency proceedings in one Member State does not affect the holders of a right in rem over an asset situated in another Member State. The same applies for other rights an IP might have pursuant to the applicable insolvency laws, such as the right to force a holder of a right in rem to enforce its right in rem within a reasonable period of time.

The protection provided by the R-EIR also means that the holders of a right in rem over assets remain unaffected by the insolvency laws of the Member State in which those assets are located, although here too there is some uncertainty. That may be different if secondary proceedings have been opened in that Member State. Please see Chapter 5 in respect of secondary proceedings.

Willem Keukens T +31 20 71 71 943 M +31 6 53 63 97 68 E [email protected]

Saskia Heumakers T +31 20 71 71 717 M +31 6 15 28 06 83 E [email protected]

chapter 7 - contracts of employment 37

Chapter 7 Contracts of Employment

Robert Woudenberg 38 chapter 7 - contracts of employment

The purpose of the R-EIR with respect to contracts of employment is to protect TAKEAWAYS employees and labour relations from the application of a foreign law, different from • The effects of insolvency the law that governs the contractual relations proceedings on the continuation between employer and employee. This is or termination of employment are reflected in Article 13 of the R-EIR: determined by the law applicable to the relevant employment contract 1. The effects of insolvency proceedings on • Other insolvency questions employment contracts and relationships remain subject to the law of the shall be governed solely by the law of the Member State where insolvency Member State applicable to the contract proceedings are opened of employment.

2. The courts of the Member State in which secondary insolvency proceedings may be opened shall retain jurisdiction to approve the termination or modification of the contracts referred to in this Article even if no insolvency proceedings have been opened in that Member State.

The first subparagraph shall also apply to an authority competent under national law to approve the termination or modification of the contracts referred to in this Article.

Article 13 thus provides that the effects of insolvency proceedings on the continuation or termination of employment and on the rights and obligations of all parties to such employment should be determined by the law applicable to the relevant employment contract, the lex contractus. Therefore, Article 13 acts as an exception to the general rule of Article 7, which stipulates that insolvency proceedings and their effects are governed by the insolvency law of the Member State in which the insolvency proceedings are opened.

Article 13(1) of the R-EIR is equal to Article 10 of the EIR. The changes with respect to contracts of employment are reflected in the new paragraph 2 which was added in the R-EIR. chapter 7 - contracts of employment 39

Which law applies to an employment contract? The applicable law to an employment contract is determined by the Rome I Regulation, in particular by Article 8 thereof. This provision establishes, in short, that the contract shall be governed by the law of the country in which or, failing that, from which the employee habitually carries out his work in performance of the contract. If there is no fixed place of work, the contract shall be governed by the law of the country where the place of business through which the employee was engaged is situated. However, when the contract is more closely linked to another country than indicated in paragraph 2 and 3 of this Article, the law of that other country shall apply.

Parties are allowed to choose the applicable law, but the law which is more favourable to the employee’s claims prevails. This principle of the most favourable law also applies in the context of determining the applicable law in connection with Article 13 of the R-EIR.

The scope of the exception for employment contracts under the R-EIR The exception only relates to the effects of the insolvency proceedings on the employment contract and relation, including the rights and obligations of employee and employer under such contract. Other insolvency questions remain subject to the law of the Member State where insolvency proceedings are opened, in accordance with Article 7 of the R-EIR.

For instance, the law of the Member State where insolvency proceedings are opened shall determine whether or not the employee’s claims are protected by preferential rights and what priority such preferential rights may have. This law shall also govern the status of wages or claims deriving from employment contracts adopted by the insolvency practitioner after the opening of the proceedings. In addition, matters relating to lodgement, verification and admission of claims are subject to the law of the Member State where insolvency proceedings are opened.

The question if and how an employment relation can be terminated in insolvency proceedings however shall be determined by the law applicable to the relevant employment contract.

Article 13(2) of the R-EIR The R-EIR introduces a new paragraph specifically for cases where the termination or modification of employment contracts requires approval under the law of a Member State of a court or other national authority, such as an administrative authority or a public agency. This was not addressed in the EIR. 40 chapter 7 - contracts of employment

Pursuant to this paragraph, jurisdiction to approve a termination or modification of contracts of employment is retained by the local authorities of the Member State in which the employer has an establishment even if secondary proceedings have not been opened in that Member State. The jurisdiction of such local authority to approve the termination or modification is limited to employment contracts governed by the law of that Member State.

For example, if main insolvency proceedings are opened in Member State A and the insolvency practitioner wants to terminate or modify a group of employment contracts governed by the law of Member State B in which the debtor has an establishment, the competent authority of Member State B shall have jurisdiction to carry out such approval in accordance with its own laws, provided that such approval is required under such law.

Robert Woudenberg T +31 20 71 71 862 M +31 6 20 21 04 62 E [email protected] chapter 8 - group companies 41

Chapter 8 Group Companies

Catrien Rozeman & Linda Tomassen 42 chapter 8 - group companies

Many companies within the European Union form part of a larger cross-border TAKEAWAYS group of companies located in several Member States. The EIR did not contain any • There is an obligation for IPs specific provisions relating to insolvency and courts to cooperate and proceedings concerning such groups communicate with each other in of companies, other than the possibility insolvency proceedings concerning to appoint a single IP if the COMI of the groups of companies relevant companies is located in one and • There is a possibility for group the same Member State. coordination proceedings on a voluntary opt-out basis However, if the COMIs of the relevant companies are located in two or more Member States, insolvency proceedings would need to be started in each Member State and different IPs will be appointed. This could lead to an inefficient administration of the insolvent estate of the group of companies. Therefore, a new chapter has been added to the R-EIR relating to insolvency proceedings of members of a group of companies.

The R-EIR provides for:

A. the obligation for different IPs and courts to cooperate and communicate with each other; and B. the option for each IP to apply for group coordination proceedings in order to further facilitate the effective administration of the different insolvency proceedings.

Cooperation and communication between IPs and courts The R-EIR provides that IPs and courts shall cooperate and communicate with each other as long as such cooperation:

1. is appropriate to facilitate the effective administration of those proceedings; 2. is not incompatible with the applicable rules; and 3. does not entail any conflict of interest. chapter 8 - group companies 43

Furthermore, an IP may request information and request assistance from any court before which the insolvency of another member of the same group of companies is pending or has been opened.

An IP appointed in insolvency proceedings relating to a group member may, to the extent appropriate to facilitate the effective administration of the proceedings, (i) be heard in the insolvency proceedings relating to any other group member and (ii) in relation to a restructuring plan for all or some group members, request a stay of any measure related to the realisation of another group member’s assets.

Group coordination proceedings In addition to the obligation of IPs and courts to cooperate and communicate with each other, the R-EIR introduces procedural rules on the coordination of the insolvency proceedings of members of a group of companies. The goal is to ensure the efficiency of the coordination, while at the same time respecting the separate legal personality of each group member.

This resulted in the possibility for an IP to request the opening of group coordination proceedings before any court having jurisdiction over the insolvency proceedings of a member of the group. The request to open group coordination proceedings will be granted if it is appropriate to facilitate the effective administration of the different insolvency proceedings and no creditor of any involved group member is likely to be prejudiced. If any IP objects to the inclusion of its proceedings in group coordination proceedings, he/she can opt-out of such proceedings.

The role of a coordinator is to identify and outline recommendations for the coordinated conduct of the insolvency proceedings and to propose a group coordination plan. The coordinator cannot be one of the IPs: he/she should be a person independent of the group members, their creditors and the IPs.

The group coordination proceedings are subject to a so called “comply or explain” regime. In principle the involved IPs must consider the recommendations of the coordinator and take into account the group coordination plan. However, there is room to deviate from these recommendations and/or the group coordination plan as long as the relevant IP reports his / her reasons for doing so to the relevant national authority and the coordinator. 44 chapter 8 - group companies

Critics Although specific rules in relation to insolvency proceedings concerning cross-border groups of companies are very much welcomed, legal writers have argued that the provisions of the R-EIR are too non-committal. It is believed that for group coordination proceedings to be successful, participation should be less voluntary. Furthermore, it has been argued that it might be useful to appoint one person, either an independent coordinator or one of the IPs, with farther-reaching powers who could give binding recommendations to manage the effective administration of the different insolvency proceedings. The general expectation thus is that the number of group coordination proceedings will be limited in practice.

Catrien Rozeman T +31 20 71 71 503 M +31 6 54 94 51 49 E [email protected]

Linda Tomassen T +31 20 71 71 502 M +31 6 46 92 89 09 E [email protected] chapter 9 - communication and filing of claims 45

Chapter 9 Communication and filing of claims

Jochem Hummelen 46 chapter 9 - communication and filing of claims

This Chapter contains an overview of some issues of a procedural nature regulated by the TAKEAWAYS R-EIR. In particular, this concerns: i) the filing of claims by foreign creditors and the obligation • Standard forms will be made to inform foreign creditors about the opening available for the filing of claims, of an insolvency proceeding; ii) the obligation through the e-Justice Portal for Member States to establish and maintain (https://e-justice.europa.eu) a national insolvency register; and iii) the • Member States are obliged to interconnection of national insolvency registers establish and maintain a national through the European e-Justice Portal. insolvency register as of 26 June 2018 Filing of claims and duty to inform • Starting in 2019, the national The R-EIR contains several provisions insolvency registers will be regarding the filing of claims by creditors and interconnected the provision of information to them.

As to the filing of claims, the R-EIR explicitly provides for the right for foreign creditors to file a claim in an insolvency proceeding. A similar right was also included in the EIR, but this right has been broadened under the R-EIR. The filing may now be done through any means of communication accepted by the law of the Member State where proceedings are opened. Furthermore, Member States may not require that a claim can only be filed by a lawyer or legal professional.

Also new in the context of the filing of claims is that the R-EIR prescribes that standard forms will be made available for the filing of claims (Article 55). These standard forms will be made available through the e-Justice Portal (https://e-justice.europa.eu). A creditor may still choose to file a claim by other means than a standard form, but is then required to include at least the information which has to be included under the standard form.

The R-EIR further provides foreign creditors the right to provide further information if there are doubts about the validity of the filed claim.

The R-EIR further provides that the court that has opened insolvency proceedings or the IP appointed by that court has the duty to inform the known foreign creditors (Article 55). While this duty was already included in the EIR, the R-EIR now provides that this notification is to be chapter 9 - communication and filing of claims 47

done by means of a standard form. Like the form for filing claims, this form will be made available through the e-Justice Portal.

Establishing and maintaining a national insolvency register The R-EIR imposes an obligation upon the Member States to establish and maintain a national insolvency register as of 26 June 2018. The Netherlands has instituted such an insolvency register by means of the Central Insolvency Register (http://insolventies.rechtspraak.nl/) in 2005.

The R-EIR also specifically prescribes which information needs to be included in the national insolvency registers. This mainly concerns personal information and (at least) general information about the time limit for filing claims and the time limit within which an appeal against the decision opening the insolvency proceedings is to be filed.

Interconnection of national insolvency registers The R-EIR further provides that, as of 26 June 2019, the national insolvency registers of the Member States shall be interconnected, which can be centrally accessed through the e-Justice Portal. The interconnected registers will be made searchable in the different languages of the European Union.

As of the publication of this booklet, eight Member States have already connected their national insolvency register to the e-Justice Portal. These Member States are the Czech Republic, Germany, Estonia, Latvia, the Netherlands, Austria, Romania, and Slovenia.

Jochem Hummelen T +31 20 71 71 548 M +31 6 46 92 92 10 E [email protected] 48 Restructuring and Insolvency Partners

Restructuring and Insolvency Partners

Amsterdam

Robert van Galen T +31 20 71 71 677 M +31 6 51 86 96 98 E [email protected]

Barbara Rumora-Scheltema T +31 20 71 71 449 M +31 6 53 77 58 28 E [email protected]

Teun Struycken T +31 20 71 71 461 M +31 6 20 21 05 17 E [email protected]

David Viëtor T +31 20 71 71 464 M +31 6 20 21 05 22 E [email protected] Restructuring and Insolvency Partners 49

Brussels

Stan Brijs T +32 2 566 8192 M +32 496 50 73 46 E [email protected]

Sophie Jacmain T +32 2 566 8194 M +32 497 51 47 73 E [email protected]

London

Marc Orval T +44 20 7786 9114 M +44 7960 778 790 E [email protected]

Luxembourg

Romain Sabatier T +352 26 12 29 47 M +352 691 12 29 47 E [email protected]

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