Abstract
Over the past several years, European firms have been active in cross-border regulatory arbitrage to benefit from a more favourable bankruptcy regime. The European Insolvency Regulation (EIR), an instrument determining the competent courts and the applicable law in EU cross-border insolvency proceedings, has long sought to curb such efforts. A major reform which came into force in 2017 has the specific objective of further restricting abusive versions of forum shopping, in particular by introducing a three-month ‘suspension period’ for forum shopping activities carried out shortly before the debtor files for insolvency. This chapter demonstrates that these efforts fail to achieve a satisfactory response to forum shopping. The reform started from the sensible proposition to distinguish between beneficial and ‘abusive’ variants of forum shopping. However, the key element of the reform, the suspension period, is both over-inclusive and under-inclusive in its scope of application and may, at best, be entirely without effect. But even then, the new rule will also create significant uncertainty and undermine effective ways of business restructuring. At the same time, the reform does not address new variants of forum shopping, such as the use of the British ‘scheme of arrangement’ by continental European firms. Such ‘procedural’ forum shopping may be effected entirely without any physical relocation, as it does not come within the scope of application of the EIR Recast. The laudable goal of the EIR Recast to improve the pricing of risks in cross-border insolvencies is jeopardised where the rules on jurisdiction are unclear or uncertain. The 2017 reform is a missed opportunity to improve the system by attaching substantive bankruptcy law and jurisdiction to a company’s registered office as the only clear and predictable connecting factor. Instead, the reform introduces new riddles and inconsistencies. Such steps will blur rather than improve the pricing of insolvency risk and thereby ultimately drive up the cost of capital.
This chapter draws heavily on my commentary on EIR Article 3 in Bork and van Zwieten 2016.
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Notes
- 1.
Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) [2015] OJ L141/19 (‘EIR 2015’).
- 2.
Article 3(1) EIR Recast 2015. This corresponds almost exactly to the wording previously found in recital 13 to the original EIR. There are small linguistic differences. The 2015 version says ‘shall’ and not ‘should’, and omits ‘therefore’. It does not appear that any consequences are connected to these minor changes. Using the former recital came at the suggestion by European Parliament 2011, para 2.2.
- 3.
Article 3(1) subpara 2 EIR Recast 2015.
- 4.
Case C-341/04 Eurofood IFSC Ltd [2006] ECR I-3813, ECLI:EU:C:2006:281, para 34. See also case C-396/09 Interedil Srl v Fallimento Interedil Srl, Intesa Gestione Crediti SpA [2011] ECR I-9915, ECLI:EU:C:2011:671, para 52; case C-444/07 MG Probud Gdynia sp z o o [2010] ECR I-417, ECLI:EU:C:2010:24, para 37.
- 5.
The Commission had deliberately introduced the Interedil language in recital 13a of its original proposal. See European Commission 2012a, Sect. 3.1.2.
- 6.
Another version would be to shift the COMI between application for insolvency and the court’s opening decision. See on this Ringe 2016, paras 3.73 ff.
- 7.
See Ringe 2008.
- 8.
- 9.
Council Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency proceedings, [2000] OJ L160/1.
- 10.
- 11.
See recitals 29–34 EIR Recast.
- 12.
See on this Ringe 2008, pp. 586–587.
- 13.
Council Regulation (EC) No. 2157/2001 of 8 October 2001 on the Statute for a European company, [2001] OJ L294/1, Article 8.
- 14.
Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies, [2005] OJ L310/1.
- 15.
Re Hellas Telecommunications (Luxembourg) II SCA [2009] EWHC 3199 (Ch).
- 16.
Often labelled ‘bankruptcy tourism’. See in detail Ringe 2016, paras 3.126 ff.
- 17.
Re Rodenstock GmbH [2011] EWHC 1104 para 54.
- 18.
For a recent in-depth analysis, see Mr. Justice Snowden’s excellent opinion in Re van Gansewinkel [2015] EWHC 2151.
- 19.
See also recitals 29 and 31 EIR Recast: ‘This Regulation should contain a number of safeguards aimed at preventing fraudulent or abusive forum shopping’.
- 20.
See below.
- 21.
This is the view taken in the European Commission 2012b, p. 20.
- 22.
See recitals 29–34 EIR Recast 2015.
- 23.
Article 4 EIR Recast 2015.
- 24.
Article 5 EIR Recast 2015.
- 25.
See also the assessment by de Weijs and Breeman 2014, p. 504 f.
- 26.
- 27.
- 28.
See on this and the following Ringe 2008, pp. 601 ff, 614 f and 617.
- 29.
- 30.
Council Regulation (EC) No. 2157/2001 of 8 October 2001 on the Statute for a European company, [2001] OJ L294/1, Article 8. See Ringe 2007.
- 31.
Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies, [2005] OJ L310/1.
- 32.
These safeguards represent the ‘price’ that the company must pay in order to profit from a different (insolvency) jurisdiction. See Ringe 2007, Sect. 5.2.2.
- 33.
See, for example, most recently the important Polbud decision: Case C-106/16 Polbud—Wykonawstwo sp. z o.o. ECLI:EU:C:2017:804.
- 34.
This may change once the new directive is implemented into national law: See European Commission, Proposal for a Directive of the European Parliament and of The Council amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions COM (2018) 241.
- 35.
- 36.
INSOL Europe 2012, p. 38 ff.
- 37.
INSOL also proposed exceptions to the rule, for example where the creditors consented to the COMI shift. See INSOL Europe 2012, p. 39.
- 38.
- 39.
‘General Approach’: Council document 10284/14 ADD 1 (3 June 2014) 10.
- 40.
Council, Outcomes of the first trilogue held on 15 October 2014, Document 14462/14.
- 41.
Circulaire de la DACS n° 2006–19 du 15 décembre 2006 relative au règlement n° 1346/2000 du 29 mai 2000 relatif aux procédures d’insolvabilité, para 1.2.1.; Jazottes and Monsèrié-Bon 2007, para 12.
- 42.
Marshall, para 1.007.
- 43.
Frind 2008, p. 365.
- 44.
See Article 6 Draft Convention on bankruptcy, winding-up, arrangements, compositions and similar proceedings 1980, EC Bulletin Supplement 2/82, available at http://aei.pitt.edu/5480/.
- 45.
In this way, it needs to be distinguished from a ‘hard’ suspension, as proposed by the European Parliament, see above n 36. In favour of a hard suspension period: Carballo Piñeiro 2014, p. 210.
- 46.
See above Sect. 1.2.
- 47.
See above Sect. 1.3.
- 48.
Ringe 2008, pp. 600 ff.
- 49.
Ringe 2008, pp. 600 ff.
- 50.
The Commission had this concern itself. See European Commission 2012b, p. 35; European Parliament 2013, p. 4. See also the UK Delegation, Comments on the Commission Proposal, Council Document 9080/13, p. 3: ‘[A suspension period] creates an unnecessary complication to the procedure for determining jurisdiction and reduces, rather than increases, legal certainty for stakeholders.’
- 51.
McGovern and Hatchard 2015.
- 52.
Marks 2013, p. 24 (on the planned one year suspension period).
- 53.
Garcimartín, p. 6.
- 54.
House of Commons, Select Committee, European Scrutiny Committee, debate on 26 November 2014 (‘Insolvency Proceedings’): ‘We do not believe this change will impact adversely on genuine COMI relocation cases as the court is not prevented from finding COMI without the ability to rely on the presumptions under Article 3(1). This maintains a definition of the centre of main interest that is based on commercial reality.’ Available at http://www.publications.parliament.uk/pa/cm201415/cmselect/cmeuleg/219-xxi/21913.htm.
- 55.
For companies and firms, see Article 54 TFEU.
- 56.
Case C-55/94 Reinhard Gebhard v Consiglio dell’Ordine degli Avvocati e Procuratori di Milano, [1995] ECR I-4165, ECLI:EU:C:1995:411, para 25.
- 57.
Article 52 TFEU.
- 58.
- 59.
INSOL Europe 2012, p. 39 [proposed Article 3(1)(i)].
- 60.
Proposals from the delegations of the Netherlands, Germany and Spain on abusive COMI-transfer, Council document 10306/14 (10 June 2014).
- 61.
Ibid. 3.
- 62.
Ibid. 4.
- 63.
See above n 37.
- 64.
Bundesgerichtshof, judgment of 20 March 1996, X ARZ 90/96, reported in BGHZ 132, 195.
- 65.
Re A Debtor (No. 784 of 1991) [1992] Ch. 554; Theophile v Solicitor-General [1950] AC 186 (HL); see Moss et al. 2009, para 8.105.
- 66.
Re TXU Europe German Finance BV [2005] BCC 90 para 19.
- 67.
Rotstegge 2008, p. 961.
- 68.
Eidenmüller 2011.
- 69.
Kindler 2018, para 5.
- 70.
- 71.
Moss and Paulus 2006, p. 3.
- 72.
- 73.
For example, Re Drax Holdings Ltd [2004] 1 WLR 1049; Trimast Holding Sarl v TeleColumbus GmbH [2010] EWHC 1944 (Ch); Re Rodenstock GmbH [2011] EWHC 1104.
- 74.
- 75.
Re Rodenstock GmbH [2011] EWHC 1104; Primacom Holding GmbH & another v A Group of Senior Lenders & Credit Agricole [2011] EWHC 3746 (Ch); Primacom Holding GmbH & another v A Group of Senior Lenders & Credit Agricole [2012] EWHC 164 (Ch); Cortefiel SA and MEP 11 Sarl [2012] EWHC 2998 (Ch); Re Vietnam Shipbuilding Industry Group [2013] EWHC 2476 (Ch).
- 76.
Apcoa Parking (UK) Ltd [2014] EWHC 997 (Ch) and [2014] EWHC 1897 (Ch). See also Re DTEK Finance BV [2015] EWHC 1164 (Ch).
- 77.
Re Magyar Telecom BV [2013] EWHC 3800 (Ch); Re Zlomrex International Finance SA [2013] EWHC 4605 (Ch).
- 78.
In fact, the English courts assess the future enforceability before they endorse the scheme in each individual case, but they appear rather generous with this requirement.
- 79.
And in fact, a legal barrier ex ante: Sompo Japan Insurance Inc v Transfercom Ltd [2007] EWHC 146 (Ch), Re Rodenstock GmbH at [73]–[77].
- 80.
- 81.
Bundesgerichtshof, decision of 15 February 2012 (IV ZR 194/09), [2012] NJW 2113 (Equitable Life).
- 82.
Recognising the scheme, for example, Landgericht (Regional Court) Rottweil, decision of 17 May 2010 (3 O 2/08), [2010] ZIP 1964; rejecting it, by contrast, OLG (Court of Appeal) Celle, decision of 8 September 2009 (8 U 46/09), [2009] ZIP 1968.
- 83.
In re Magyar Telecom B.V., Case No. 13-13508 (SHL) (Bankr. D. Del. Dec. 12, 2013).
- 84.
Re van Gansewinkel [2015] EWHC 2151 para 4.
- 85.
The European Commission had initially considered covering schemes of arrangement. See European Commssion 2012c, p. 6. The UK’s lobbying efforts were successful to keep schemes of arrangement outside the scope of the EIR to ‘preserve the UK’s restructuring flexibility and the use of schemes in both the corporate and restructuring context’. See Tett and Crinson 2015, p. 66.
- 86.
As in Apcoa Parking (UK) Ltd [2014] EWHC 997 (Ch) and [2014] EWHC 1897 (Ch).
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Ringe, WG. (2020). Insolvency Forum Shopping, Revisited. In: Lazić, V., Stuij, S. (eds) Recasting the Insolvency Regulation. Short Studies in Private International Law . T.M.C. Asser Press, The Hague. https://doi.org/10.1007/978-94-6265-363-4_1
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