Since the global financial crisis, insolvency law has been at the forefront of law It results in the restoration of the balance sheet solvency of the.
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2 The Europe an Law Institute The European Law Institute (ELI) is an independent non-profit organisation established to initiate, conduct and facilitate research, make recommendations and provide practical guidance in the field of European legal development. Building on the wealth of diverse legal traditions, its mission is the quest for better law-making in Europe and the enhancement of European legal integration. By its endeavours, ELI seeks to contribute to the formation of a more vigorous European legal community, integrating the achievements of the various legal cultures, endorsing the value of comparative knowledge, and taking a genuinely pan- European perspective. As such, its work covers all branches of the law: substantive and procedural; private and public. ELI is committed to the principles of comprehensiveness and collaborative working, thus striving to bridge the oft-perceived gap between the different legal cultures, between public and private law, as well as between scholarship and practice. To further that commitment it seeks to involve a diverse range of personalities, reflecting the richness of the legal traditions, legal disciplines and vocational frameworks found throughout Europe. ELI is also open to the use of different methodological approaches and to canvassing insights and perspectives from as wide an audience as possible of those who share its vision. President: Diana Wallis Vice-President: Christiane Wendehorst Treasurer: Johan Gernandt Speaker of the Senate: Irmgard Griss European Law Institute Schottenring 16/175 1010 ViennaAustriaTel.: + 43 1 4277 22101 Mail: secretariat@europeanlawinstitute.eu Website: www.europeanlawinstitute.eu ISBN: 978-3-9503458-9-6 © European Law Institute 2017
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3 ACKNOWLEDGEMENT S Project Team Prof Em Bob Wessels (University of Leiden, The Netherlands; Reporter) Prof Stephan Madaus (Martin – Luther – University of Halle – Wittenberg, Germany; Reporter) Gert – Jan Boon (University of Leiden, The Netherlands) During the course of the project the Project Team was in its work kindly assisted by the ELI Bodies and the ELI Secretariat. ELI Advisory Committee Prof Jan Adriaanse (University of Leiden, The Netherlands) Dr Catherine Bridge (European Bank for Reconstruction and Development, United Kingdom) Prof Horst Eidenmüller (University of Oxford, United Kingdom) Prof Damien Geradin (Euclid Law, Belgium) Mr Robert Hodgkinson (Institute of Chartered Accountants England & Wales, United Kingdom) Prof Francis Kessler (Sorbonne Law School University Paris I, France) Mr Chris Laughton (Partner, Mercer & Hole, United Kingdom) Justice Rimvydas Norkus (Supreme Court of Lithuania) Mr Alberto Núñez – Lagos (Partner, Uría Menéndez, Spain) Prof Paul Oberhammer (University of Vienna, Austria) Justice Elizabeth Stong (US Bankruptcy Court, Eastern District of New York, United States) Prof Matthias Storme (Universities of Leuven and Antwerp, Belgium) Prof Onofrio Troiano (University of Fo ggia, Italy) Prof Heinz Vallender Judge (ret) (Cologne Bankruptcy Court; Hon Professor University of Cologne, Germany) Observers Ms Mihaela Carpus – Carcea (European Commission, Belgium) Ass Prof Kristin van Zwieten (University of Oxford, United Kingdom) National Correspondents Austria Dr Friedrich J ergitsch ( Partner Fres h fields Bruckhaus Deringer) Dr Florian Klimscha ( Partner Fres h fields Bruckhaus Deringer) Belgium Prof Melissa Vanmeenen ( University of Antwerp ) Dr Roel Fransis (Liedekerke Wolters Waelbroeck Kirkpatrick) England and Wales Dr Michael Schillig ( King’s College London) Mr Nick Segal ( Partner Fres h fields Bruckhaus Deringer)
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4 France Ms Saliha Bardasi (Droit et Croissance) Ms Sophie Vermeille (Droit et Croissance) Succeeded by Ms Hélène Bourbouloux (Partner Administrateurs Judiciaires Associés FHB) Mr Sylvain Hustaix (Administrateurs Judiciaires Associés FHB) Germany Prof Reinhard Bork (University of Hamburg) Prof Lucas Flöther (Partner Flöther & Wissing; Martin – Luther – University of Halle – Wittenberg) Greece Mr Stathis Potamitis (Partner Potamitis Vekris) Hungary Dr András Osztovits (Supreme Court of Hungary) Italy Mr Giorgio Corno (Studio Corno Avvocati) Prof Filippo Corsini (Studio Legale Chiomenti) Latvia Mr Helmuts Jauja ( Self – empl oyed ) The Netherlands Prof Reinout Vriesendorp ( Partner De Brauw Blackstone Westbroek; University of Leiden) Mr Rick van Dommelen ( Partner PwC ) Poland Prof Fryderyk Zoll (European Legal Studies Institute) Mr Spain Mr Juan Ferré (Partner Jones Day) Prof Ángel Mª Ballesteros (Concordia Abogados; Universidad Pablo de Olavide) Sweden Mr Erik Selander ( Partner DLA Piper) The views set out in this Instrument should not be taken as representing the views of those bodies, on whose behalf individual members of the working party and advisory group were also acting.
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5 We are pleased to present our ELI Business Rescue Report . It contains 11 5 recommendations on a wide variety of themes affected by the rescue of financially distressed businesses: the claims, labour law, laws relating to transaction avoidan ce and corporate law, all focused on business rescue, including specifying specific rules for MSMEs (Micro, Small and Medium sized businesses) . The se recommendations flow from our analysis of a selection of national laws with regard to restructuring and insolvency, a considerable volume of work that has been carried out in this field by organisations such as the United Nations Committee on International Trade Law (UNCITRAL) and the World Bank, and our own study and research of a vast amount of recent legal literature. For convenience of reference, the complete texts of our recommendations are set out in the front of this Report. Thereafter we provide, divided in ten chapters, our detailed analysis and references per chapter, pertaining to the recommendatio ns. In this preface, we explain our working method over the last four years. After having received approval of our proposal by the ELI Council in September 2013, we made a start with this study on title indicates, it surveys the legal rules and practices relevant for the rescue of financially distressed businesses and the application of such rules in practice. The ultimate aim of our study is to design a framework that will enable the further develo pment of coherent and functional rules for business rescue in Europe. The ELI Business Rescue Project ran over a period of three and a half year, with as outcomes : (i) a report containing inventory reports on national insolvency regimes in Europe, as well as an inventory of international recommendations from standard -setting non -governmental organisations ; and (ii) the present ELI Business Rescue Report. It states the law as it is on 28 February 2017. Since the global financial crisis, insolvency law has b een at the forefront of law reform initiatives in Europe and beyond. The specific topic of business rescue appears to rank top on the insolvency law related agenda of the EU institutions. The economic recession in Europe has faced a rapid growth of insolve ncies, clearly highlighting the importance of effective business rescue. More recent the downfall of oil prices and for instance the problems retail markets face, are other causes for ongoing harm for businesses. In an introductory overview in the report, we provide further background to the developing legal background of business rescue, including the initiatives taken since 2011 by European institutions, particularly the European Commission, resulting in its Proposal for a Restructuring Directive in Novem ber 2016. We further also set out our working method over the last three years. Crucial for our work has been our cooperation with National Correspondents who provided detailed insights into the national insolvency regimes of EU Member States by preparin g inventory as well as normative reports. They did so on the basis of a detailed Questionnaire, which is to be found in Annex 1, and a set of normative questions, to be found in Annex 2. In this way, the reporters obtained detailed information of each sele cted jurisdiction on their rescue -related restructuring and insolvency laws. In addition, we considered it to be both appropriate and necessary to take account of the considerable volume of work that has
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6 already been carried out in the field of restructuri ng in recent years by a number of international non -governmental organisations . Selecting, analysing and identifying core values and principles in the area of business rescue therefore has been an integral part of our work. The project also draws from the expertise of the Members Consultative Committee consisting of ELI Members and an Advisory Committee, with renowned experts from very different fields of law that took an interest in the project and its outcomes. The names of the National Correspondents and the members of the Advisory Committee, in all some forty persons, are listed in Acknowledgments . In recent years, many Member States have introduced laws regarding business restructuring or amended existing laws to create systems ensuring the survival of economically efficient, but financially viable businesses. International non -governmental organisations have produced principles, guidelines and statements of best practices, all aiming for well -functioning restructuring a nd insolvency systems. The European Commission introduced by way of a Recommendation in March 2014 its new policy to prevent business failures and insolvency leading to recent proposals on preventive restructuring frameworks and second chance for entrepren eurs. The result of all these rather uncoordinated streams of rules is a delta with a bewildering variety of technical terms and expressions used in the various texts, Expressions ( following the text of the full set of recommendations at the beginning of the Report) , with the aim of promot ing the development of a uniform European legal terminology in matters relating to restructuring and insolvency. The Glossary contain ing around 160 of those terms serves the homogeneity of workout, pre -insolvency (restructuring) and insolvency processes and should assist insolvency practitioners, courts and legislators in their work. The Glossary partly finds its basis in a Glossary, in cluded in As a follow – Commission published late November 2016 its Proposal for a Restructuring Directive on (amongst others) preventive restructuring frameworks , just two months before the date of our planning to finalise the text of our Report so it could be subject to the process of dis cussion and approval within the European Law Institute . With the approval of the ELI Counc il we have not integrated specific rules of this proposal in the body of our texts. Leaving aside the fact that the first reactions to the Proposal for a Restructurin g Directive (2016) have been rather mixed, the final text is far from being certain as it will be the result of several consultations with the E uropean Parliament and the Council, which may take considerable time. In some cases , however, we thought it appr opriate to include references to the proposal in our footnotes. Still, the theme of the Proposal Restructuring Directive (2016) of enhancing a rescue culture in Europe is the theme of our whole report and we have been fortunate that the staff of the Commission was involved in all stages of development of our recommendations as an observer , and that the reporters have had the chance to influence the process that lead to the proposal by attending stakeholder meetings in 2016 in Brussels.
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8 Europe. If the reports and the recommendation s are formally approved by ELI, they can be commended for use by the European institutions active in this field, Member States, organisations and associations of turnaround managers, insolvency practitioners and judges, and other groups across Europe, in t he meaning of the terms of our initial engagement. As reporters, we have reached the completion of our joint labours and we wish to express our appreciation to ELI for the privilege of having served as reporters for this most timely and important project , and to all those who have provided input during its elaboration. We cherish the hope that the outcome will make a significant contribution to the European architecture of restructuring and insolvency. Bob Wessels Emeritus professor of international insolvency law, University of Leiden, the Netherlands Stephan Madaus Professor of civil law, civil procedure and insolvency law, Martin Luther University Halle -Wittenberg, Germany July 2017
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9 CHAPTER OVERVIEW Chapter 1: Actors and procedural design 105 Chapter 2: Financing a rescue 215 Chapter 3: Executory contracts 232 Chapter 4: Ranking of creditor claims; governance role of creditors 240 Chapter 5: Labour, benefit and pension issues 255 Chapter 6: Avoidance transactio ns in out – of – court workouts and pre – insolvency procedures and possible safe harbours 276 Chapter 7: Sales on a going – concern basis 285 Chapter 8: Rescue plan issues: procedure and structure; distributional issues 303 Chapter 9: Corporate group issues 342 Chapter 10: Special arrangements for small and medium – sized enterprises (SMEs) including natural persons (but not consumers) 363
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10 CONTENTS Acknowledgements 3 p reface 5 Chapter overview 9 Contents 10 List of abbreviations 17 List of abbreviation s of often used sources 20 Business rescue recommendations 21 Glossary of terms and descriptions in restructuring and insolvency 38 Introduction 77 1. Overview 77 2. Background of the Report 79 2.1. Harmonisation efforts of the European Commission 79 2.1.1. Recommendation on A New European approach to business failure and insolvency 79 2.1.2. European Insolvency Regulation (2015) 82 2.1.3. Establishing a Capital Markets Union 85 2.1.4. Proposal for a Restructuring Directive (2016) 86 2.2. A global dimension 87 2.3. A contractual context 91 3. Methodology 93 3.1. The project design 93 3.1.1. Inventory and Normative Questionnaires 94 3.1.2. Selecting 13 EU jurisdictions 95 3.1.3. National Correspondents and their National Reports 95 3.1.4. Inventory Report on International Recommendations 96 3.2. The project report 97 3.2.1. Reports and studies 97 3.2.2. Presentations and discussions 98 4. 99 4.1 Objectives 99 4.2 Assisting present harmonisation efforts 100 4.3. The structure of the report 102 4.4 Theoretical foundation of the report 103
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11 Chapter 1: Actors and procedural design 105 1.1. Actors in restructuring and insolvency proceedings 105 1.1.1. Role of the court 111 1.1.1.1. Requirements for judges 113 1.1.1.2. Impetus for recommendations 121 1.1.1.3. Recommendations 123 1.1.2. Role of a mediator 124 1.1.2.1. Mediation in civil and commercial law matters 125 1.1.2.2. International developments in insolvency mediation 127 1.1.2.3. Insolvency mediation in the EU 130 1.1.2.4. Impetus for recommendation 132 1.1.2.5. Recommendations 133 1.1.3. Role of a Supervisor 133 1.1.3.1. International developments regarding a supervisor 134 1.1.3.2. Court appointed supervisors in the EU 135 1.1.3.3. Impetus for recommendation 135 1.1.3.4. Recommendations 136 1.1.4. Insolvency practitioners 136 1.1.4.1. Significant elements from National Reports 136 1.1.4.2. Significant international tendencies 142 1.1.4.3. INSOL Europe Statement of Principles and Best Practice for Insolvency Office Holders in the EU 146 1.1.4.4. Im petus for recommendations 149 1.1.4.5. Recommendations 153 1.1.5. Debtor in possession 153 1.1.5.1. Significant elements from National Reports 155 1.1.5.2. Significant international tendencies 158 1.1.5.3. 163 1.1.5.4. Impetus for recommendations 167 1.1.5.5. Recommendations 170 1.1.6. Turnaround management 170 1.1.6.1. Turnaround manager in the EU 172 1.1.6.2. INSOL Europe Turnaround Wing Guidelines 172 1.1.6.3. Recommendations 172 1.1.7. Chief Restructuring Officer 173 1.2. Procedural design of a restructuring and insolvency framework 175 1.2.1 Workout 175 1.2.1.1. Rational hold – outs 176
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