eurofenixBankruptcy and Strategic Communications The importance of planning an effective strategy The journal of INSOL Europe Autumn 2009 Cross-border Security The challenges involved COMI in Greece & Germany The interaction of insolvency proceedings in different member states Stockholm Congress Preview Issue 37 ISSN 1752-5187 €30 37 EECC Conference report 9 771752 518006 3-4 SOUTH SQUARE Michael Crystal QC Christopher Brougham QC Gabriel Moss QC Simon Mortimore QC Stuart Isaacs QC Richard Adkins QC Richard Sheldon QC Richard Hacker QC Robin Knowles CBE QC Mark Phillips QC Robin Dicker QC William Trower QC 3-4 South Square is a set of barristers chambers with a pre-eminent reputation in insolvency and reconstruction law and specialist expertise in banking, financial services, company law, trust law, professional negligence, domestic and international arbitration, mediation, European Union law, insurance/reinsurance law and general commercial litigation. Martin Pascoe QC Fidelis Oditah QC David Alexander QC Antony Zacaroli QC Stephen Atherton QC David Marks QC Lexa Hilliard QC Ronald DeKoven John Briggs Mark Arnold Adam Goodison Hilary Stonefrost Lloyd Tamlyn Glen Davis Andreas Gledhill Barry Isaacs Ben Valentin Felicity Toube Jeremy Goldring Lucy Frazer David Allison Daniel Bayfield Tom Smith Richard Fisher Barristers Blair Leahy Stephen Robins Marcus Haywood Hannah Thornley Simon Fuller William Willson Georgina Peters Adam Al-Attar Professor Ian Fletcher * Professor Sarah Worthington * Professor Riz Mokal * Please feel free to contact our Senior Practice Manager, Paul Cooklin regarding the work we do, how we charge, the expertise of members of chambers or if you have any other questions. * Academic Member Tel: +44 (0)20 7696 9900 Fax: +44 (0)20 7696 9911 Email:
[email protected] LDE: 338 (Chancery Lane) www.southsquare.com 3-4 South Square Gray’s Inn London WC1R 5HP EDITORS’ COLUMN Welcome At this time of our annual conference, here in Stockholm, with Sweden holding the presidency of the European Union, it is more difficult than it has been for a long time to predict in which direction the economy is heading. A crossroads for Sweden and Europe. Newspapers and statistics speak sometimes about a decreasing rate of the economic downturn and other times about a certain degree of recovery. Other experts believe we have far to go, with some believing that the worst is still ahead of us before the turnaround. Unemployment continues to increase in many places throughout the world, including Sweden. Retail sales have improved, but travel continues to decline. The large and small national airlines face great challenges with decreasing numbers of passengers and large fixed costs. Transportation companies in Sweden have had more to do since some of the notices of termination were withdrawn, but also at the cost of other transportation companies going bankrupt. Industrial corporations continue to run at high capacity. The motor vehicle industry has experienced a large part of the acid test but is still fighting with significant over-capacity. In short, the signals are very ambiguous. Our members from Eastern Europe have seen more dramatic swings but have insolvency legislation which is not yet fully developed and insolvency administration which can be improved. This has imposed great demands on those working with insolvency. At the INSOL Europe Congress this year, restructuring possibilities are the focus. More and more companies are seeking restructuring and distressed investment capital, in order to finance the restructuring to protect their assets, know-how and jobs. In Sweden, company reorganisation has become a prominent way of correcting a company’s problems and critical situations. The number of proceedings has increased significantly. The trend is obvious, but Sweden, as well as large parts of Europe, still faces the challenges which turnaround operations involve. I am thinking primarily of the expertise and experience possessed by turnaround management. Many feel the call and eagerly wish to work with problem companies, but not all possess the experience required in the tough world of operative restructuring. Yet, in the reorganisation of Saab Automobile which we carried out starting in February of this year, our experience has been encouraging. The skills within Saab and the ability to work under a great amount of pressure without affecting quality have been surprising. The trials have been many but the core values have never given way. The leadership which CEO Jan Åke Jonsson demonstrated was outstanding, Annerose Tashiro Guy Lofalk including his unshakeable belief in Saab’s future. He was also surrounded by a number of extremely competent people in management. Saab’s leadership also demonstrated what can be achieved: turning around a situation in which Saab was entirely counted out to a position now where both the Government as well as the media are very demanding as to who should get to purchase Saab. The battle of the buyers has been tough and the candidates have done their best. A large part of the success comes from the management presentation which Jan Åke and his management were able to present to interested purchasers. This shows us how extremely important management is, especially when the cold winds are blowing, and that you also have to keep a cool head. Perhaps we come out of these crises with better leadership with expertise in turnaround techniques. Guy Lofalk Välkommen Inför vår årliga konferens, denna gång i Stockholm, när Sverige är ordförandeland i EU, är det svårare än på länge att bedöma vart konjunkturen är på väg. Ett vägskäl för Sverige och Europa. Tidningar och statistik talar omväxlande om minskad takt i nedgången och om viss återhämtning. Andra bedömare tror att vi har mycket kvar, en del tror att vi har det värsta kvar innan det vänder. Arbetslösheten fortsätter att öka på många håll i världen också även i Sverige. Detaljhandeln går bättre men resandet fortsätter att minska. De stora och små nationella flygbolagen står inför stora utmaningar med fallande passagerarunderlag med stora fasta kostnader. Åkerierna i Sverige har fått mer att göra sedan en del varsel har återkallats men också på bekostnade av att andra åkerier gått i konkurs. Industrierna kör med fortsatt hög kapacitet. Fordonsindustrin har genomgått en stor del av stålbadet men kämpar fortfarande med en betydande överkapacitet. Kort sagt signalerna är väldigt spretiga. Våra medlemmar från Östra Europa har fått se mer dramatiska svängningar men en inte fullt utvecklad insolvenslagstiftning och en administration som kan förbättras. Det har ställt stora krav på de som arbetar med insolvens. Inför Insol Europes konferens i år står rekonstruktionsmöjligheterna i centrum. Alltfler frågar efter rekonstruktion och riskvilligt så kallat distressed investment capital för att finansiera rekonstruktioner för att ta tillvara värden och kunskap samt arbetstillfällen. I Sverige har rekonstruktion blivit ett alltmer uppmärksammat sätt att komma tillrätta med bolags problem och kritiska situationer. Antalet inledda förfaranden har ökat kraftigt. Trenden är tydlig men fortfarande står Sverige men också stora delar av Europa inför de utmaningar som turn operationer medför. Jag tänker främst på kompetens och erfarenhet inom turn around management. Många känner sig kallade och vill gärna arbeta med problemföretag men inte alla har den erfarenhet som krävs i den tuffa värld det är att jobba med operativa rekonstruktioner. I den rekonstruktion av Saab Automobile som vi genomfört sedan februari i år har dock erfarenheten inom detta område varit uppmuntrande. Kompetensen inom Saab och förmågan att jobba under högt tryck utan att göra avkall på kvalitén har varit häpnadsväckande. Prövningarna har varit många men aldrig har de kärnvärdena sviktat. Utmärkande har också det ledarskap som verkställande direktören Jan Åke Jonsson visat med en orubblig tro på Saab och framtiden. Runt sig har han också haft en rad mycket kompetenta personer inom management. Ledarskap visar också vad som är möjligt att åstadkomma från en situation där Saab var helt uträknat till en position där såväl regeringen som journalistkåren nu är petiga med vilka som skall få köpa Saab. Köparstriden har varit hård och kandidaterna har gjort sitt yttersta. En stor de av den framgången kommer från den management presentation som Jan Åke och hans management var mäktiga att uppvisa för de intresserade köparna. Detta visar oss hur oerhört viktigt management är särskilt när det blåser kallt och det gäller att även huvudet hålls kallt. Kanske vi får det med oss från dessa kriser; ett bättre ledarskap med kompetens inom turn around teknik. Autumn 2009 3 Contents FEATURES 12 14 17 20 24 27 29 33 34 40 42 INSOL Europe Annual Congress 2009 A preview of the programme Bankruptcy and Strategic Communication What can be achieved? Financial and Operational Turnaround One long honeymoon? COMI in Greece and Germany The interaction of insolvency proceedings Cooperation between administrators The Pros and Cons Cross-border Security Challenges Recent developments 5th EECC Conference Report from Dubrovnik Fruitful collaboration New avenues for cooperation Changes in the Czech Republic New anti-crisis measures Bankruptcy in Poland Consumer insolvency proceedings UNCITRAL Update Progress report on Working Group V 12 Annual Congress 2009, Stockholm 29 5th EECC Conference, Dubrovnik 4 Autumn 2009 REGULARS 3 6 7 8 10 36 38 44 46 Editors’ Column Annerose Tashiro & Guy Lofalk Executive Column Marc Udink Publications Special offer President’s Column Carlos Mack News round-up Turton Award Winner 2009 Remuneration of bankruptcy administrators Croatia Bankruptcy Law in the US Why Chapter 11 makes sense Country reports Updates from a jurisdiction near you Dates for your diary INSOL Europe contacts 44 Country reports Bankruptcy Law in the US 38 Autumn 2009 5 . Not only endurance wise but also in bringing the best and the ablest forward and come up with the most reasonable solution balancing all and everything. Everyday our professionals – whether insolvency practitioners. The whole world is watching what we do and whether or not we do that responsibly. happens here. The attendance is overwhelming even in these busy times. Academics watch this and do not yet know what to make of it. Everybody is busy but still contributes to our cause. in the next few months. The EBRD and also Russia and the INSOL family 6 Autumn 2009 . The Academic Forum has a very interesting meeting and will present us with their latest insights. The INSOL Europe Executive will. The world is smaller then ever and solutions and diseases spread quicker then ever before. we meet. creditors. This is why we write and read. This teaches us that the membership and the whole field acknowledges the value that can be found within our organisation. Though the times are testing and we cannot find a free moment in private life. The turnaround community joins us to share their thoughts and give us ample opportunity to see what they came up with in these testing times. There we will find ample opportunities to learn what is going on in our profession. Judicial Wing etc to ensure we contribute sufficiently. INSOL Europe Secretary General MARC UDINK INSOL Europe Secretary General “Everybody is busy but still contributes to our cause. Judges all over the world are asked to vet new solutions or come up with unseen alternatives. lenders. the Academic Forum. I am also glad to announce former International President Bob Sanderson’s continued support with INSOL Europe. The Judicial Wing has an unprecedented attendance. bankers. All our committees have their meetings during the Stockholm conference. Our women’s networking meeting will take place again. both having arisen from the 2008 conferences. ” Still the world suffers from the greatest crisis we have seen since the great depression of the thirties. Amidst all this we meet in Stockholm to share our experiences and spread out our knowledge. Global significance New publications and technical inspiration INSOL Europe has recently launched two new publications and at least two more are underway. INSOL Europe and INSOL International see it as their mission to assist Russia as much as possible in organising the rules of turnaround and insolvency in a way that enables all persons involved in these matters to adhere to the values accepted globally. During the first week of October we meet for our annual conference in the land of the Swedes. I wish all of you the force to bring out the best of your talents and serve the global interests. appoint a Chief Technical Officer. This new executive will focus exclusively on the technical aspects of our work and will liaise with the conference technical committees. These are testing times. Of course we will use the INSOL Europe Guidelines as part of that exercise. He will help us to liaise with the Americas. As all of you undoubtedly know the work of INSOL International is of paramount importance for the global developments in our field. accountants or turnarounders – are tested. SOAM are involved and INSOL Europe will assist as much as they need us. INSOL Europe created a budget for two new projects too (one from the Nijmegen University and one under the aegis of Dr Jens Lowitzsch of Berlin and in cooperation with the EU). We are therefore glad and grateful that Sumant Batra – the current INSOL International president – is joining us in Stockholm. The Academic Forum published the Leiden and Barcelona papers. The EECC meets to decide upon yet another regional destination for the accessing and emerging countries. This is why we meet in Stockholm. What happens there.EXECUTIVE COLUMN Our endurance test continues by Marc Udink. It is also Bob Sanderson who joined me in his appeal for responsible behaviour as practitioners. development and future of communication and cooperation in cross-border insolvency cases between insolvency practitioners and the courts.co.co.elliott@dentonwildesapte.
[email protected] Michael Thierhoff michael. this would be the one.com) and quote your INSOL Europe Membership number and the OUP/INSOL Europe discount code which is ALMOWEIN09. the executive panel of INSOL Europe or the contributors for any errors. and practices that have developed and are quickly emerging to coordinate and enhance international administrations. No part of this magazine may be reproduced.co. Schultze & Braun (Achern) Executive Committee Libby Elliott elizabeth.Volf@accura. Basford. £76. This offer is available only until 30 November 2009 and is only available from Oxford University Press. The book was published as a result of a multi-year joint project between the International Insolvency Institute (III) and the American College of Bankruptcy. Nottingham NG7 7BT UK.co. Annerose Tashiro (Joint Chief Editor)
[email protected] Siv Sandvik. Lofalk Advokatbyrå AB (Stockholm) Annerose Tashiro. email: paulnewson@pndesign. omissions or otherwise.com Caroline Taylor carolinetaylor@insol-europe. On behalf of the authors. Simply said.thierhoff@thierhoffilly. the book is the best available and most authoritative treatment of the complex international insolvency issues that we are all faced with on a daily basis. including ideas for articles.com David Conaway. jlvallens@yahoo. Bruce Leonard is Chair of the International Insolvency Institute (iiiglobal.com Ana Irina Sarcane irina. the editor.PUBLICATIONS International Cooperation in eurofenix Bankruptcy and Insolvency Matters Autumn 2009 (Wessels/Markell/Kilborn.ru.uk Guy Lofalk (Joint Chief Editor) guy.
[email protected]. gielen@cleber. and thorough.viimsalu@gmail. The book analyses the structures. should be addressed to: Paul Newson. Oxford University Press. If there was only one book that you could have in your international insolvency library. Chilwell.pwc. Markell of the United States Bankruptcy Court for the District of Nevada.pndesign. please call Oxford University Press at 44 (0)1536 741 727 (email at
[email protected] or Fotolia.00 but Members of INSOL Europe may order the book at a 20% discount i. Barton House.org) and a proud Member of INSOL Europe’s small North American outpost. and Professor Jason Kilborn of the John Marshall Law School in Chicago.80.de Giorgio Cherubini giorgio.uk Giulia Pusterla giulia@giuliapusterla. the UNCITRAL Model Law on Cross-Border Insolvency and features an extensive commentary on the EU Regulation on Insolvency Proceedings.vermunt@jur. The book is authoritative.de Florica Sincu
[email protected] Jean-Luc Vallens.com Signe Viimsalu.fr Niels Vermunt. Editors Guy Lofalk. The result is the best current analysis anywhere on coordination and cooperation between administrations in international bankruptcies and restructurings.ru Jesper Trommer Volf Jesper.co. for Members of INSOL Europe to receive an attractive discount on the purchase price of the book. 61 High Road. 2009) Reviewed by Bruce Leonard of Cassels Brock & Blackwell LLP (Toronto) A publication that may well be the finest current work on the complex issues involved in international insolvencies has recently been published by Oxford University Press. a distinguished United States Bankruptcy Judge and a prominent American insolvency Professor prior to his elevation to the Bench. Autumn 2009 7 .com) Advertising & Sales enquiries: Edward Taylor MRP Print (eurofenix@mrp. Tel: +44(0)115 955 1000 NEXT ISSUE PUBLISHED: January 2010 Copy deadlines available on request from Paul Newson. Nottingham Road. systems. To order the book and take advantage of the INSOL Europe discount. Nottingham NG9 4AJ UK Tel: +44(0)115 922 0017 Email:
[email protected] Eurofenix is published by PNDesign on behalf of INSOL Europe. n. we know that everyone who has the opportunity to consult the book will be pleased with the depth of its research and analysis and will find it a very attractive addition to their libraries.com Chris Laughton chrislaughton@mercerhole. The work is a complete review of the origins and development of systems and structures for international cooperation in cross-border and multinational reorganisations and liquidations.org Editorial board Agustín Bou.se Paul Newson (Designer & Publisher) paulnewson@pndesign. The list price for the book is £96.cherubini@studiopirola. in any form or by any means.uk. The authors are Professor Bob Wessels.com Artur Trapitsyn. Siv.uk Translation: Peter Wells Printed by: MRP Print (
[email protected] Louise Verrill..
[email protected] Web: www. the development of cooperation through cross border protocols.
[email protected] Aniek Gielen.
[email protected]) Jubilee House. The authors provide readers with invaluable insights into the origins. Its analysis of the development of international cooperation in bankruptcy matters from the earliest days through the development of Cross-Border Insolvency Protocols to recent experience under the European Union Regulation on Insolvency Proceedings is comprehensive and readable. or transmitted. hbusshardt@schubra. or by the firms or organisations of which the authors are members.com (unless specified otherwise) Special Offer Special arrangements have been made with the publishers. The book focuses on the development of unilateral and bilateral forms of national cooperation. The opinions expressed in the articles that appear are not necessarily shared by the editor or publisher or any representative of INSOL Europe.com Harald Bußhardt. Oxford University
[email protected] Dr. Correspondence. Judge Bruce A. Images ©iStockphoto.e. Copyright: © INSOL Europe 2009.uk Disclaimer: No responsibility (legal or otherwise) is accepted by the publisher. a prominent member of INSOL Europe and Chair of INSOL Europe’s Academic Forum.lofalk@lofalk. PNDesign.com László Csia. succinct.Sandvik@dlapiper. without the prior permission of INSOL Europe. signe. the American College of Bankruptcy and the International Insolvency Institute. Robert Shiller. quite on the contrary. part II” staring Michael Douglas and set in New York in the days of last year’s financial crisis.PRESIDENT’S COLUMN It’s been a great joy Carlos Mack gives us his last report as President of INSOL Europe CARLOS MACK INSOL Europe President “ The crisis made clear that the so often invoked free market rules do not apply to some of its participants. including the possibility that a bank goes down the drain albeit under a special insolvency regime for financial (as well as insurance) institutions.” For all those who have already been to the Venice International Film Festival or had the opportunity to see Michael Moore’s latest film “Capitalism: A Love Story” this message will not be surprising. Once you create a two-class insolvency regime – those who go bankrupt and those who do not – you start eroding both democracy as well as the positive expression of true capitalism: fair competition in the interest of all market participants. At the end the Swedish Governor cashed in even a small surplus. a close friend of Italian Prime Minister Silvio Berlusconi. I don’t think so. Especially in the US. you have to eliminate it and replace it with something that’s good for all people. Unfortunately.” says Stone.” I don’t know whether you had tea with Cristina but I can assure you that either I met the wrong people on the Andean path when as a student I travelled through LatinAmerica or nobody has told her yet that she is continuously overdressed. The 66th Mostra Internazionale d’Arte Cinematografica had some other rum starts: Venezuela’s President Chavez. This crisis offers the chance to repair and improve the (non)existing regulatory tools. Do we have to evict the evil? Should we become Venezuelans? As I already said in a previous column. Argentine President Cristina Kirchner asserts in the film: “It is the first time in history that the leaders of so many countries look like the people they govern. Looking at what is going on in the parliaments around the globe. but it took care to construct safer ones. What outcome awaits him? Lehman’s or Bank of America’s one? That is the question. Nobody will deny that one prickly aspect of the financial crisis is the widely shared conviction that capitalism has favoured only the (very) rich and powerful to the detriment of the majority. this is admitted by the World Bank. As soon as the business improves the State sells the shares for a price that at least covers the initial investment.” People around the world are still wondering why their governments did not follow the Scandinavian experience: Either shareholders find a solution under the governing law or the State takes over the bankrupt bank through a “share deal” and recapitalises it with tax payers money. paid an unofficial visit for the screening of Oliver Stone’s newest work “South of the Border. and that something is called democracy. the contents of her humble wardrobe are more a running gag than a secret of State. Among other personalities. Northern Rock was an extraordinary example of what has been wrongly called “financial socialism. the discussion in the last weeks has been around such subjects as to whether top managers remuneration should be capped.” It is a documentary blended with interviews starring some other Latin American heads of state that examines the free market policies trumpeted by both the US and IMF and its consequences as well as about Venezuela’s “peaceful revolution”. It is not the salary but the implementation and protection of a fairly balanced economic system called “well regulated capitalism” that matters. As a matter of fact. my impression is that especially in the AngloSaxon/Western part of it we are about to miss the chance to 8 Autumn 2009 . Surprisingly. You cannot regulate evil. The crisis made clear that the so often invoked free market rules do not apply to some of its participants. In Europe. compared the crisis with the sinking of the Titanic and asks: Did the world stop building ships afterwards? No. nobody cared to ask him whether he spoke to the middle classes and/or where the money for the social improvement comes from (almost solely petrodollars). How can a small but innovative enterprise compete with an entity that has got an “insolvency-free guarantee”? Monopolistic structures have never been a sign of a well functioning economy. Yale Professor of Economics. That’s it. What is the actual reality in the Western world? The cash injected has been used to pay out hefty bonuses to those responsible for the misery or/and to swallow competitors. “Capitalism is evil. the government helps create larger financial institutions instead of splitting banks into smaller entities in order to spur competition between financial institutions while making sure that bankers lose the ability to blackmail (the word was used by German chancellor Merkel) governments. By the time you are reading this column Stone will have finished shooting “Wall Street. its effects on the rest of the Continent and on the fact that Chavez is not the “public ” enemy number one” as so often described in the media. In which society do we live in? As far as I am concerned since last year I have no doubt that we live in a society where the “golden rule” rules: Those who have the gold make the rules. The answer is therefore selfevident to me: Capitalism needs as much regulation as to make sure that the whole system and the markets work properly. “Social improvement has been extreme in Venezuela… the poverty rate has been cut in half. “Too big to go bust” is one of its most revealing expressions. It is the joy of humbly contributing to the realisation of a great vision. well-respected and esteemed by regulators. We are all constantly thinking about possible improvements in all fields of interest to both members and industry-players in order to maximise the benefits. Bearing in mind that the EIR will be shortly reviewing. All other wings and especially the two newest ones. And the warmest thanks to Chris Laughton for having being there every time I needed him. Wendy Cooper and Florica Sincu) – for the excellent teamwork. I would like to thank David Buchler for the accurate balance sheets and the interesting handling of currencies developments. Capitalism should be there to serve people and not vice versa. Moreover. Against this background the role played by both insolvency and restructuring practitioners has a new dimension. Alan Perry for his inspiring faith and friendship and Marc André with whom I spent plenty of time organising conferences and who has shown me how to celebrate even the smallest events. It has been a great achievement to attract the active participation of so many judges from so many jurisdictions. It has also been a great joy to act as president of our association. our incoming president. have continuously secured the availability of the much needed means in order to finance our activities. Sometimes I have got the impression that society is more interested to vet the surgeons rather than to investigate the wrongdoers. Heinz Vallender has played the pivotal role and I am convinced about a further enlargement in his wing. Both the Academic Forum and the Judicial Wing are established committees within the organisation. and Neil Cooper for bestowing on me the title of an “almost Brit”. an independent and impartial European organisation in the field of insolvency and restructuring. Malcolm Cork. especially the International Insolvency Institute. as someone said. More than ever we need to act in accordance with the internationally accepted standards of best practice while at the same time taking up the chance to play a decisive role in the shaping of new laws and policies in our profession. Their yearly conferences are well attended and successful. The impact of the tackling that started with Marc under Alan Perry’s presidency has become visible to all of us. It is unconceivable that a pivotal sector of the economy and of our societies as well has managed to get away without any substantial regulation of its activities. my best wishes in her new role and the most successful time at the helm: Grazie mille a tutta mia famiglia INSOL Europe! Arrivederci in Stockholm! Autumn 2009 9 . The latest publications are only one example of the lively activity of our academia lead by Bob Wessels and Paul Omar. The consequences will be worse than the ones we have been confronted with since last September. we have implemented a more closer relationship with the EUauthorities (commission and parliament). I would like to express my most sincere thanks to all of you both for entrusting me with the office and for your continuous support. Last but not least: David Rubin and Ottmar Hermann from the sponsorship committee. To all my colleagues in Council my gratitude for their confidence and to the members of the Executive – and especially our talented and hard working Caroline Taylor and her band (Linda Smith. We want the Russian Federation as the largest European country to be closer to our club and will therefore make sure that this neighbour becomes even more involved in both our Council as well as in EECC work. All involved in this field are in the focus of public attention. Marc André and de facto technical officers Martin Prager and Nick Hood have confirmed their commitment. A badly functioning capitalism puts democracy at risk. The 5th EECC Conference in Dubrovnik was a remarkable success not only for the quality of the technical programme and the breathtaking location but also for the number of delegates. I hope to have nearly come up to your expectations. To Patricia Godfrey. “turnaround” chaired by Steffen Koch and “lenders” lead by Patricia Godfrey will over fulfil our expectations. “great joy” is flawed by the underlying lack of credibility. through INSOL International we will participate more actively in the work of both UNCITRAL and other international institutions such as OECD and the World Bank as well as professional associations. Capital markets are not as efficient as the prevailing theory of the last 20 years wanted us to believe. It is unacceptable. You might think that I am just being polite because. I sincerely wish that INSOL Europe continues to thrive and prosper in the future. What I mean by great joy is the pleasure of doing something absentmindedly in the sense that it is the activity itself and not the pay-off that counts. For me it has been the greatest honour to serve our association.PRESIDENT’S COLUMN The 5th EECC Conference in Dubrovnik was a remarkable success implement the greatly needed historic overhaul of financial rules. I would also like to extend my deepest thanks to three former presidents. I would like to thank every one of you very much indeed for giving me this opportunity. I give my warm thanks to our Secretary General Marc Udink for his colossal effort in the turnaround of INSOL Europe. many thanks for tangoing so pleasantly. Our membership should have no doubt whatsoever about the steady dedication of both Council and Executive to enhancement of the association. for you will not expect someone to speak about a “small joy”. judiciary and other stakeholders as well as its members. We will play into the hands of populists at the outskirts of the political spectrum. Most of the delegates agreed that the hotel and city are a perfect setting for further seminars and conferences. International Private Law. For further information about the Associations activities. The reason for the creation of the ISIR. She attended the Bologna University. Giuseppe Trabucchi (Counsel). Luisa Melara (Treasurer). • Agree to the conditions below. 2009 Richard Turton had a unique role in the formation and management of INSOL Europe. not only domestic but also international. Goffredo Caverni (Secretary). “Istituto Italiano di Studi Internazionali di insolvenza e risanamento” (ISIR) is to develop the technical and practical aspects of insolvency procedures. Mr. Commercial Law and European Law. the Association of Business Recovery professionals in the UK. Belarus. Be under 35 years of age at the date of the application. A panel representing the four associations adjudicated the applications. We are delighted that the award has attracted such enthusiasm and response from the younger members of the profession and know that Richard would also be extremely pleased that there had been such interest. Yana is studying at the Belarusian State University. the Board of the association will be formed by the following Executive Officers: Carlos Mack Castelletti (President). We would like to congratulate Yana for her inspired application and also thank all the candidates who applied for the award this year. Renato Viale has been appointed Chairman of the Board of Arbitrators. The committee is delighted to announce that the winner is Yana Hankovich from Minsk. She is currently studying for her PhD where her Dissertation topic is on “Assignment of receivables”. For the period 2009-2012. INSOL International. In recognition of those aspects in which Richard had a special interest. the award for 2009 was open to applicants who fulfilled all of the following: • spoken English to benefit from the conference technical programme. she studied Civil Law. Work in and are a national of a developing or emerging nation.EUROPEAN NEWS News Richard Turton Award. Giorgio Cherubini and Francesco Serao (Vice Presidents). Have sufficient command of • Applications for the award were invited to write a statement detailing why they should be chosen in less than 200 words. Work in or be actively studying insolvency law & practice. Italy on a ten month exchange as part of her course. also known as “Insolvency Italy” originates from the increase of need of special advice in the insolvency field and it is the first time in Italy that an association has been formed by both lawyers and tax accountants. The Insolvency Practitioners Association and R3. In recognition of his achievements the four organisations jointly created an award in his memory. 10 Autumn 2009 . The panel members are as follows: Stephen Adamson – INSOL Europe. Federico Pernazza (Counsel). Patricia Godfrey – R3 and Maurice Moses the IPA. As part of the award Yana has been invited to the INSOL Europe Congress in Stockholm. The main aim of the newborn association. • Insolvency Italy On 8 June 2009 a new association was created in Italy. The committee received numerous applications for the award and it was a very close run decision as the standard of applicants was superb. She will be writing a paper that will be published in summary in one or more of • the Member Associations’ journals and in full on the websites. The Richard Turton Award is an annual award providing an educational opportunity for a qualifying participant to attend the annual INSOL Europe Congress.it. Neil Cooper – INSOL International. through the close cooperation with INSOL Europe on matters of research and conference organisation. Additionally she worked at UNCITRAL for two months earlier this year analysing materials of the 30th to the 42nd EG6 – sessions (1996-2008) on Security Interests in Receivables Financing and Insolvency Procedures and prepared a review comparing the UNCITRAL texts on receivables financing with the Russian legislation governing debts restructuring and assignment of claims. Minsk. please contact the Secretary at: caverni@tin. with more opportunities for contributions of different kinds from different jurisdictions. Europe and North America. Its purpose is to identify and recognise exceptional women across the globe who have made extraordinary contributions to the insolvency and turnaround profession. please do offer your ideas and proposals for future articles. paulnewson@pndesign. Extraordinary performance.uk We welcome any relevant news stories which can be added to this page in the interests of our members. Regular readers will have noticed how Eurofenix has developed and grown over the last few years.co. negotiating skill. whether established experts in their field or newly qualified graduates has helped to make this journal the dynamic and well respected read that it is today. IWIRC is the premier networking organisation devoted to enhancing the professional status of women in the practice of insolvency and restructuring. and judges. Please send your suggestions or articles to paulnewson@pndesign. please get in touch with Paul Newson. leadership and mentoring with more than 800 members worldwide in 32 active networks in Asia-Pacific. The involvement and interaction of INSOL Europe members and other practitioners. academics. The changes we have introduced along the way have helped the magazine move into different areas. So. Nominations should be submitted by any interested party to info@iwirc. Nominees must be women who are actively engaged or recently retired from the restructuring industry and may include attorneys. For further details of copy requirements and a production schedule for the forthcoming year. on 4 December 2009 at the luncheon featuring guest speaker Amity Shlaes. turnaround managers. All contributions are offered voluntarily. investors. professional development.com before 26 October 2009 and include a statement of the candidate’s specific achievements.uk (clearly marked ‘eurofenix news item’) Autumn 2009 11 . IWIRC’s Woman of the Year will be honored at the ABI’s Winter Leadership Conference at La Quinta. bankers. innovative application of laws. teamwork. California. without which we would have nothing to publish. or an embryonic topic which you would like to develop – get in touch with one of us and we will discuss your idea at one of our regular board meetings. creative restructuring strategies. Founded in 1994. if you would like the opportunity to have your work published and to get your name known amongst your peers and the wider readership of Eurofenix. IWIRC provides opportunities for networking. almost doubling in length on a regular basis. subjects – whether you have a finished paper.co. themes.EUROPEAN NEWS IWIRC seeks top Would you like to performers for 2009 contribute to Woman of the Year Eurofenix? in Restructuring Award The International Women’s Insolvency and Restructuring Confederation (IWIRC) is seeking nominations for its 2009 Woman of the Year in Restructuring Award. leadership. and support of other women in the industry are just a few of the criteria that will be considered. runs through the programme of events for the 2009 Congress his year’s congress is to be held at the Grand Hotel in Stockholm. has designed a varied and up-to-date programme and assembled a panel of high profile speakers. Our Technical Committee. Dr Kjell A. a hotel with a splendid view of the Swedish capital and where the Nobel prize-winners stay before being ferried over to the City Hall for the grand prize-giving ceremony. The T EVERT VERWEY CMS Derks Star Busmann. Once upon a time… There were times that it was no issue finding funds. He has served as an advisor/consultant to several large multinationals and to the government of the United Kingdom. Amsterdam technical programme is expected to give participants an overview of the developments of the facts that led up to the current global financial crisis and where the future may take us. Dr Nordström has 20 years of experience working with multinational companies throughout the world and is presently an associate professor at the Institute of International Business at the Stockholm School of Economics.STOCKHOLM 2009 Annual Congress 2009. secretary of the Congress Technical Committee. under the chairmanship of Patricia Godfrey (Nabarro) and Guy Lofalk (Lofalk). Leveraging a 12 Autumn 2009 . drawing a framework that will be useful for the whole congress. Stockholm Evert Verwey. Nordström will kick-off the congress. His research and consulting focus is in the areas of strategic management in multinational corporations and will give an overview of the global economy. A highly experienced panel formed by Ronald DeKoven (3-4 South Square). pre-packs across Europe. A panel lead by Peter Briggs (Alvarez & Marsal) will explain what happened in the automotive business. Neil Cooper (Zolfo Cooper). The reason for choosing these subjects will become clear.com General Sponsors: Dr Pannen Rechtsanwälte • www.eu Nordia Law • www. otherwise the economy will meet a severe recession. After lunch. We have two bankers from Swedbank on the panel who will provide an insight from recent distressed situations.nabarro.imv-ffm. After an evening enjoying the capital of Sweden.drpannen. a panel led by Christine Elliott (Chief Executive & Director of Institute for Turnaround) will handle the topic of operational and financial turnaround.bondpartners.com Our thanks also to supporters of our Congress – The Financial Times • www. The once flourishing motor industry is facing painful times across the world.STOCKHOLM 2009 company and expanding the facilities was a day-to-day business that gave companies the chance to expand and invest. it will be time to “drive” across Europe. professionals and governments are trying to save the backbone of the world’s economy? After the coffee break James Sprayregen (Kirkland & Ellis) will fly through the recent restructurings and consolidations in the EU and US aviation industry. In this light it is important to see if it is possible to find alternative types of funding. The break-out-sessions are the heart of the congress.com Event Sponsors: Bond Partners LLP • www. but the emphasis will be on holding discussions relevant to all practitioners. Since mid 2009 this has changed. before the end. A panel of three will focus on bank’s considerations before releasing or expanding facilities to distressed companies. Armed with the knowledge that comes from being a captain of industry. the panel will show the legal possibilities and pitfalls of these two aspects of restructuring.hermann-law. continues and trading has to be stimulated. What is the game behind the curtains in which banks. Chairman of the Board of Directors of OJSC GAZ will kick the day off.ie McStay Luby hww wienberg wilhelm • www.uk Sprecher Grier Halberstam LLP • www.williamfry.bakernet. and recent developments in Eastern Europe. Cross-border lawupdate. Each participant may attend two different sessions. he will provide an outline of the global market and a bird’s-eye view of the day-to-day trade of a multinational in stressed times. Rutger Schimmelpenninck (Houthoff Buruma). Bo Andersson. Congress participants may think it is winding down when. George Seligman (Slaughter and May) and Laurent Fisch (Molitor.com Maples & Calder • www.ft.hww-kanzlei. The subject matter for these sessions will be.de Nordia Law • www.com Autumn 2009 13 . however. “break-out-sessions will show that the exchange of crossborder information about insolvency law is essential to the daily practice of a European insolvency practitioner A great programme ” Saturday morning INSOL Europe would like to thank all sponsors of our 2009 Congress in Stockholm Main Sponsor: Baker & McKenzie • www. They will be led by different insolvency practitioners from a variety of jurisdictions. Our thanks go out to INSOL Europe for preparing an outstanding social programme that will allow delegates to renew old friendships and make new contacts and friends.sghlaw. Michael Thierhoff (Thierhoff Illy & Partner) and Karl Wüthrich (Wenger Plattner) have been involved in cross-border insolvencies and are able to explain the guidelines and keystones in a major cross border insolvency.com HERMANN Rae WP StB • Driving through Europe www.maplesandcalder. With a modern and highly industrialised economy.com William Fry • www.de Bernsau & Lautenbach • www. After a short coffee break.de Nabarro LLP • www. Tom Burton (Ernst & Young).nordialaw.nordialaw. A pan-european panel under the leadership of John Willcock (Global Turnaround) will give an overview of the “new” financing possibilities. Break-out-sessions will follow which deal with different hot topics around Europe.de Leonhardt Westhelle & Partner • www. We are looking forward to seeing you all and to taking this cross-border insolvency adventure with you. Irish property in distress.bl-law. The break-outsessions will show that the exchange of cross-border information about insolvency law is essential to the daily practice of a European insolvency practitioner. By using case studies and different jurisdictions. This will cover the motor industry and explore why this sector has been struck so tremendously in recent times. the participants will gather again the next morning to continue attending the programme.com IMV GmbH • www. This specific industry has been hit severely by the crisis and the session will focus on key issues facing this industry. enjoying a developed distribution system as well as excellent internal and external communications. We have seen that even banks and multinationals have collapsed and that consumers are not sure if or where their savings are safe. Business.co. the Swedish economy is still one of the most prosperous in the world. Fisch & Associés) will provide insight on the difficulties that many banks have encountered in recent years. and with particular emphasis on distressed companies. high profile speakers will get on stage to give their impressions of the global cooperation between different jurisdictions in an insolvency.leonhardt-westhelle. As guests in “Volvo-land” this is a topic that should be discussed. with players being added who cannot be identified during the planning phase. the communication strategy should cover the whole range of internal and external channels. Successful communication then helps to maintain value and makes a significant contribution towards safeguarding creditors’ interests. Nevertheless. The only thing to remember for large-scale Companies often realise too late that internal = external 14 Autumn 2009 . However. interpretative sovereignty over the news and preventing speculation. and amongst staff. in reality. All communication should be geared towards maintaining Many aspects of communication may seem obvious. the subject of bankruptcy has been on everyone’s lips. this can be a key factor for potential company investors. redundancies and failure to sufficiently fulfil creditors’ claims. the way they work is often disregarded. People still do not realise that a carefully considered bankruptcy reorganisation plan offers companies an opportunity for sustainable restructuring. It is therefore advisable to initiate strategic communication early on in the process in order to eliminate stakeholders’ resentment and fears and consequently help to ensure that the proceedings are successful. creditors and investors are all coordinated centrally. It is basically about finding out what interests the different stakeholders have in a company or what fears drive them. bankruptcy is still typically associated with liquidation. and the number often grows in the course of the proceedings. At the same time. VIVIEN KREMER Pleon GmbH Germany “ It is advisable to initiate strategic communication early on in the process in order to eliminate stakeholders’ resentment ” Communication challenges What can communication achieve? The prime objective of communication is to maintain the company and brand’s reputation during bankruptcy proceedings. They often fear leaving themselves open to attack by providing information. it is crucial that staff are provided with information promptly and openly in order to uphold their commitment to the company. responsible political bodies. This is used as a basis for deriving instruments and content for a targeted dialogue. of course. it is important here to identify what details are likely to be made public anyway. specific relevance and unifying them within a coherent overall strategy. suppliers and loan insurance companies if media coverage tallies with the information provided to them personally. The major challenge is identifying these different approaches to communication. and local opinion leaders is also useful as the proceedings progress. In addition to continuously fostering media contacts. Systematically prepared knowledge about those involved in the proceedings and the links between them. staff communication and information for customers. key business partners. Another challenge is encouraging the company itself to accept transparent communication. The aim must always be for the company to control messages itself and define interpretations before someone else does. New confidence in the bankrupt company can quickly be instilled in customers. This is a problem in both the media and companies themselves. This is particularly true as a large number of interest groups are usually involved. business partners. Ideally. political communication. However. determining their Everyone knows that (informal) networks exist.COMMUNICATION Bankruptcy and the importance of strategic communications Vivien Kremer writes from a German perspective on important communications issues which are relevant across all jurisdictions in all countries Since the financial crisis broke. This fear is not unfounded. It is important to formulate internal wording guidelines and therefore interpretations for these (negative) subjects and to take a proactive approach to communicating them. Companies which have little or no obligation to publish information – especially SMEs – often hesitate to initiate comprehensive communication processes. Only by closely dovetailing the content and organisation of these communication channels can all stakeholders’ information needs be catered for. (potential) investors and politicians – all in equal measure. Press and media work. Spectacular cases such as Opel and Arcandor have prompted people in Germany to take a more differentiated look at the subject than they did just a year ago. The predominant critical attitude means that the economic crisis at a company is often exacerbated by the public interpretation when bankruptcy proceedings are announced. In this case. you plan to inform the other stakeholder groups (staff. The challenge is not just to furnish the company’s external spokespeople with uniform wording guidelines. This regularly leaves the organisation open to attack. you necessarily must expect the management team to lose control over the communication process. Lengthier. “ Everyone knows “One voice” policy that (informal) networks exist. the challenge for communication is to develop a logical storyline which takes all interests into account. more detailed dialogue can be offered in the days that follow. the various groups of company stakeholders need different – sometimes fundamentally different – information. For example: you inform a number of bodies within the company that you are applying for a bankruptcy reorganisation. The focal points are all that change. This results in speculation and widespread uncertainty. clients. creditors. politicians) the next day. which enables all stakeholder groups to be informed. This risk naturally grows with the size of an organisation. For example. the press. the probability of the information being disseminated sooner than planned increases over time at an exponential rate. The end effect of this is that the same content is essentially communicated to each individual stakeholder group. it incites speculation and gives the impression of inconsistencies. the way they work is often disregarded ” Autumn 2009 15 . especially on the day of the announcement.COMMUNICATION communication processes is that it is impossible to provide individual groups with information and expect them not to pass it on or for details to be passed between the various groups. an investor may be content to accept redundancies while the workers’ council will initially fight them. However. However. but also to continuously send out the same messages internally. The temporal risk The best communication plan is worth nothing if the time frame is not sufficiently taken into account. However. It may also imply that the company or management is not unified. As it is quite simply impossible to take individual networks into account due to their complexity. This calls for a tight schedule. in reality. The company has lost control over the information. If this occurs. As the group of people in the know grows. Closely associated with the temporal risk is the danger of uncontrolled and contradictory statements from the company itself. The press often runs rumours (frequently from unnamed sources). in particular. By immediately utilising all communication channels. crucial to the process is to closely refer to the legal strategy. This means that the managers have a crucial role as spokespeople both within and outside the organisation. The communication measures and their focal points must be tailored to both the originator and the recipient. personal contacts are better than written statements. Especially when elections – be they European. As described above. the company demonstrates that it is well prepared and that the relevant contacts are in place. it is important to clearly stress that he is pursuing the same objective as the company and working with the management. In addition to implementing a professionally managed communication process during a specific bankruptcy reorganisation. it is impossible to completely rule out leaks. personal contact with the relevant stakeholder groups is the most Typically German? Especially at an international level. It must be remembered that workers’ councils are often closely linked with trade unions and politicians. Actively addressing these interest groups early on offers the company a chance to at least participate in the dialogue between these groups and shape it to some extent. It is therefore advisable for the company to use dialogue wherever capacities allow. Precondition is that all parties involved are committed to the communications strategy. Well-organised dialogue with all the relevant journalists can help to prevent this kind of thing from ever occurring.e. As a general rule. For example. it is often difficult to explain the significance of the German codetermination system. If they gain currency in a third medium. This comprises a daily press review and ad hoc monitoring of agency releases. Due to subsequent changes to the German Insolvency Statute adopting a Chapter 11 approach and insufficient public awareness of this. industrial and political situation into account when drafting a communication strategy. it must be remembered that measures accompanying bankruptcy quickly become politically relevant. they appear in a second medium. Companies sometimes face the difficulty at this stage that there is a lack of facts to communicate. A sophisticated communication strategy therefore also includes preparations for the case that premature communication becomes necessary. If a receiver is involved. the ongoing existence of the company. 16 Autumn 2009 . it therefore seems logical to initiate an informative campaign targeting a wide public about bankruptcy reorganisation itself. Regional differences should be considered: taking local factors into account can become a key factor for successful bankruptcy proceedings. This forms the basis for the company to regain control over information and the way in which it is interpreted. this means clear top-down processes throughout the organisation. it is therefore crucial to clarify functions and roles. when not providing content it is even more important to explain how the process will proceed (including the timeframe). the motives behind choosing a reorganisation – i. This at least gives staff and business partners some degree of security when making plans. This means communication measures also have to provide a great deal of information about bankruptcy reorganisation itself. It is therefore advisable to take the local demographic. If no comment is received in even the shortest space of time. That goes for both external and internal communication. In any case. announcing plant closures in a region which has already been hard hit by redundancies and is therefore all the more reliant on the remaining companies can meet with more resistance (especially in the run-up to elections) than in a high-growth region which offers new employment opportunities. In terms of the communication structure. regional or local – are in the offing. Conversely. companies should initiate dialogue early on and seek solutions hand in hand with their staff representatives. as this allows the largest number of people to be informed via personal contact. The sponsor of the process is typically either the board or the receiver. it is particularly difficult for companies undergoing bankruptcy proceedings in Germany to maintain acceptance or confidence. blog entries and radio news. However. especially among their business partners. During the preparation stage. they are often considered fact.COMMUNICATION “ A sophisticated Not just a question of style communication strategy also includes preparations for the case that premature communication becomes necessary ” As a rule of thumb. Even if the bankruptcy announcement has been almost perfectly prepared. this is a prime consideration for the communication accompanying restructuring processes in general and bankruptcy reorganisations in particular. Leak strategies Staying informed Comprehensive monitoring of all relevant media is an important part of press work as it enables the company to react to speculation and rumours immediately at any time. national. In addition – especially in the case of bankruptcy reorganisations – it should be ensured that the existing management team’s credibility is maintained. Project management and processes The explanations above show how important it is to thoroughly prepare communication as part of a bankruptcy reorganisation. valuable and makes the greatest contribution towards achieving a company’s objectives. we have seen that resistance is high in areas with low unemployment because staff cannot imagine being made redundant and trade unions are able to exert a lot of pressure (also on other companies in the region). This can be counteracted by listing the formal reasons for bankruptcy and. However. TURNAROUND Financial and Operational Turnaround: One long honeymoon? Christine Elliott introduces the issues in relationships between Turnaround Professionals and Insolvency Practitioners’ tools. Refinancing not an escape route Autumn 2009 17 . produced and overseen by a person both qualified and experienced in turnaround. albeit with slightly shorter hair. What is ‘turnaround’? Leadership is crucial ” Turnaround Professionals and Insolvency Practitioners have complementary roles that should be quite distinct.” Of course. Barclays’ UK Graham Rusling agrees that insolvency can be avoided provided that certain key criteria are met. Yet there is also evidence of company directors getting ‘informal’ advice from an IP which subsequently converts to an insolvency appointment. There will be a core plan. in the context of financial and operational turnaround sk a Turnaround Professional. There are firstrate professionals of each discipline and they work compatibly alongside to help achieve financial and operational restructurings. a crisis is the opportunity to make essential changes that put a business on the road to long-term viability. Inappropriately delegated decisions are one factor in extending the process beyond a point when a satisfactory outcome can be achieved. Institute for Turnaround “ Turnaround Professionals and Insolvency Practitioners have complementary roles that should be quite distinct For the turnaround professional. one example of the ‘creative tension’ that exists between the disciplines and apparently under the umbrella of ‘turnaround’. “No. “equity returns for equity risk. if all the criteria are not fulfilled. A CHRISTINE ELLIOTT Chief Executive and Director. the abiding problem is the value break and inability to exit at any price – let alone an attractive one. “where there is not a viable business or we have a weak management team.” says David Lovett from AlixPartners. Barclays holds these activities in its equity house Barclays Ventures and its involvement “is not passive. Although SIVs were intended to stay in business indefinitely. Crucial to this success is the Turnaround Plan – and its implementation. Leadership is the province of all the principal stakeholders involved in a turnaround. However.” Pricing that risk is more of an art than a science. SIVs borrowed short-term at low interest. Business plans and sensitivity analysis are reviewed often and keenly with an eye on the comparable potential return represented from an insolvency process. some in the wake of a successful restructuring that was entirely financial in nature. crystallise losses for a business looking for an escape route. until there was no difference. ‘accelerated M&A’! Complementary roles A renowned asset manager says that a well-executed turnaround delivers.” From Rusling’s perspective. in the context of financial and operational turnaround. Speed remains of the essence. including financial and legal advisers. the bar for success is set especially high. The Structured Investment Vehicle (SIV) is a classic example.” Comparing returns Private equity houses that instigated early portfolio reviews may have been lucky enough to engineer early exits in 2008. a management team. Having the experience and ability to make decisions fast is crucial to surviving a crisis. the business has to be mended operationally. “Does financial restructuring always go together with operational turnaround?” and the answer you are likely to get is. educational institutions. but it should do. the Third Sector (charities and voluntary sector) and the huge range and scale of activities covered by ‘companies’. The expectations on turnaround leaders are great and for this reason. enough time and money to fix the business and most important. they have all disappeared. ‘Organisations’ encompasses the myriad public and private structures and operations of (for example) National Health Primary Care Trusts. This article introduces the issues in relationships between Turnaround Professionals and Insolvency Practitioners’ tools. The IFT defines turnaround as. Turnaround Professionals contend that any form of insolvency should have a mandatory Turnaround Plan. ‘the rehabilitation and return to viability of under-performing organisations’. loaned the money buying long-term at high interest and profited for investors from the difference. Professionals in the restructuring market understand what is euphemistically called. Insolvency tools can be effective in a restructuring context yet per se they “actually destroy value and worse. there are cases to which this mantra does not apply. it simply puts off the evil day and we all end up losing more money. not just a financial restructuring. Popular for a decade until the 2008 market crash. “We are looking for the consensual solution. The definition is short but the use of language is very deliberate. ’ David Ereira of Linklaters recognises that “pre-pack is an Different types of businesses clearly require different strategies and as a general rule. who is impaired or not. These issues should be considered on a country-by-country basis with awareness of the potential advantages of an insolvency or out-of-court process. Labour force restructuring Underlying problems A common current theme is highly leveraged transactions that have gone off plan. the best solutions are achieved when operational and financial work goes hand-in-hand. an abiding theme is how to execute a transfer to the specialists in time to address the critical issues in a distressed business. That is one reason why an insolvency service In a multi-jurisdictional reorganisation labour force restructuring will involve differing levels of cost and complexity. The company capital structure becomes unsustainable. economically. the major lesson from the last recession is about avoiding a fire sale of assets in a falling market. may induce them to behaviour that is principally defensive. to compose a conversion. which preserve employees’ terms and conditions when a business or undertaking. portfolios have doubled over the last six months covering from minority warrant holdings to 100% ownership. For instance. we have seen many more situations where lenders have moved from association with a business. Why? A number of reasons: financial institutions themselves in turnaround.TURNAROUND “ For banks. the stakeholders have to make some decisions. The market in the current recession and its aftermath has been widely viewed as dysfunctional. The impact of EU law also needs to be mitigated. new money. whether it be assetbased lending protections or other investors. the lenders have to choose whether to crystallise their losses and take cash out or to shoulder the balance sheet problem and aim to create value over a period of time through careful ownership. the question with complexity in the debt structure is how. have long known that nurturing value goes hand-in-hand with taking responsibility for value. In the right hands. Furthermore. The warrant holder’s risks if a moratorium is extended is another critical area.” These time-consuming transactions are difficult to execute and turn on where the value breaks. there is current uncertainty over the transfer of undertakings (protection of employment) regulations (TUPE). in the UK. especially from nondomestic markets. how is value established. The 18 Autumn 2009 . large restructurings (as ever) carry on and the mid-market has been unexpectedly quiet – for now. In many highly leveraged transactions. particularly in any case where the purchase of assets involves the prior management. finding it difficult to call the bottom of the market. on the basis that the only option is to repair the underlying asset – the business. From the UK perspective. particularly the turnaround specialists. Transferring trouble early consultation currently doing the rounds in the UK may prove controversial: if priority is given to new money. affecting the underlying profitability. is transferred to a new employer. ‘old-fashioned operational management. for instance through warrants. If the owners are unwilling to put in new money when required. private equity has been building its access to turnaround skills. with the balance between the two varying according to the nature and scale of the organisation. As a result. creditors will expect to be protected against the risks of a future insolvency. an insolvency tool to excise a specific financial problem should be like a surgeon wielding a scalpel (not a blunt instrument!) option but beyond that. Private equity houses. that puts an onus on existing providers to produce more funding and in the event they do not. in debt-to-equity. Operational-financial balance Lessons from history For banks. the major lesson from the last recession is about avoiding a fire sale of assets in a falling market Faced with this new reality. For an out-of court procedure to be successful. The question mark over TUPE is caused by the poor drafting of the recent legislation and the attitude of the redundancy payments office in interpreting this legislation. meaning that the biggest constraint is the capacity to introduce. it is not clear where the fulcrum of security lies. the knowledge that priority lending will be permissible is almost certain to change lending practice at the outset of a banking relationship. “The main function of the insolvency process is to convince people to come to reasonable terms when faced with an unpalatable alternative. Business ownership trends ” Over the course of the last twelve months. has been scarceto-none. In more than one institution.” says Ereira. At that point. insolvency techniques are not the way to resolve very complex financing structures with tiers of debt and various levels of interest in the equity. a second ‘wave’ of bad debts round existing lending is anticipated once toxicity abates. or part of one. The workout units of the clearing banks have differentiated models for their support units but without question. to full ownership because this represents the best medium-to-long term option for recovering value that would otherwise dissipate or be destroyed. Legal and other difficulties Out-of-court risks Syndication is usually dominant in the league of difficulties. which is invariably in contention. a tendency in law not to respect the corporate veil. Governance revolves round the question of whose interests are being protected. sustainable turnaround is likely to happen where operational and financial turnaround makes a harmonious couple. No restructuring has yet failed for want of a procedure and the most effective. retail and service businesses usually require operational turnaround with an element of financial. industrial. In some jurisdictions (though not the UK) the affiliation of debt to equity means that debt claims can be subordinated. The UK has one of the most flexible and effective restructuring frameworks in the world and most restructuring work – the real turnaround – are done outside formal insolvency procedures. On the other hand. the interests are conjoined. There is bound to be ‘creative tension’ between priorities of the lenders who want to maximise ongoing debt whilst also being control of the company. There is a tendency in law not to respect the corporate veil be that on environmental. Consents may cover public shareholders and private stakeholders as well as subordinated secured creditors who must all be persuaded to comply. Additional rescue tools are welcome provided that the emphasis needs to be re-focused on businesses and people rather than institutions and processes. tax or pensions issues and these challenges undoubtedly complicate what is never going to be an easy task. “ Large-scale restructurings in Europe and elsewhere have again demonstrated the complementary nature of operational and financial turnaround ” Autumn 2009 19 . Real estate businesses predominantly need re-organising financially in order to create breathing space while the market recovers and investors have generally recognised the mutual interest in not seeking fire sales of assets. Sometimes. governance.TURNAROUND legalese must focus on: consents necessary to effect the recapitalisation. Financial and operational turnaround needs interchangeable velvet gloves and iron hands! Conclusion Horses for courses Large-scale restructurings in Europe and elsewhere have again demonstrated the complementary nature of operational and financial turnaround. Other difficulties may present themselves through funds who may decide (or not) to put in money and the value investors whose judgment and support can be pivotal in securing the optimum outcome. as with asset-based lending. and undertook a variety of cross-border business activities. The defendant stated. This is quite notable. Weissbrodt and Carlos Mack comment on decision 10 U 9/70. and Art. by firstly reviewing the facts. 16 EUInsVO in connection with Art. given in Art.e. 25 EUInsVO and summarise our view of the question tabled above.COMI COMI in Greece and Germany: The interaction of insolvency proceedings in different member states Anja J. The temporary liquidator appointed in Katerini has denied his appointment – it was not yet decided on his appeal in Greece at that time. On 23 November 2007 the defendant presented a decision of the Higher Regional Court of Katerini. likewise. what are the implications) the commencement of insolvency proceedings outside Germany interrupt and over-ride insolvency proceedings in Germany. the company could not longer trade because of the divestment. 3 I EUInsVO) A 20 pril this year the Higher Regional Court of Hamburg delivered a judgement on a case. a business partner in Hamburg.. The Regional Court of Hamburg gave a judgment on the Greek Ltd. which went to the Court of Appeal (Higher Regional Court) of Hamburg in December 2006. The defendant. dealing again with Art. does (and if yes. 16 EUInsVO. stated that German primary insolvency proceedings are always valid ubiquitously2 and they based their decision on Art. stated that the insolvency proceedings in Greece do not interrupt the domestic proceedings. of the Higher Regional Court of Hamburg: are proceedings interrupted by the opening of insolvency proceedings in another member state (Art. The Country Court of Duisburg for instance. Autumn 2009 . too. The plaintiff. before we consider the premises of Art. The Higher Regional Court of Hamburg decided that the proceedings in Germany were interrupted. the Country Court of Düsseldorf 3 acted completely not in compliance to the principle of automatic recognition. In this article we have a closer look at this decision. in Germany connected with Article 240 Code of Civil Procedure. concerning an EnglishGerman cross-border case. 16 EUInsVO in connection with Art 3 I EUInsVO and the question. and its estate. that they had filed an appeal before the Higher Regional Court of Katerini. and that the latter had been “sealed”. had its registered office in Katerini (North Macedonia). 3 EUInsVO. amongst others). i. 16 EUInsVO. even if the temporary liquidator had denied his appointment and because the defendant had justified the plaintiff ’s stance as the company had claimed it was solvent and that there were no insolvency issues at all. The defendant claimed that the opening of the insolvency proceedings in Greece should interrupt and over-rule the case that was dealt by the Higher Regional Court of Hamburg. The facts The Higher Regional Court of Hamburg had to decide on the aforementioned question. a “limited” company (referred to here as Greek Ltd. 16 EUInsVO in connection with Art. discussed in the German literature (for example by Cranshaw1. as German Courts in the past have often found and ruled to the contrary.) according to Greek law. which stated that insolvency proceedings have been opened against the Greek Ltd. “ defendant had The its registered office in Katerini (North Macedonia) and undertook a variety of cross-border business activities ” Autumn 2009 21 . but only that the first court applied the law incorrectly. the Court also considered Art. Recital (13) tries to clarify that “the COMI should correspond to the place where the debtor conducts administration of his interests on a regular basis and is therefore ascertainable by third parties”. EUInsVO is the “core” (basic principle) of the EUInsVO. as well as Art. It was successfully claimed that EUINsVO differentiated between the filing of application and the decisions made on these filings. 3 EUInsVO ” Art. the Court considered whether the commencement of the proceedings was in accordance with: the correct insolvency statute. According to Art. According to the opinion of the Higher Regional Court of Hamburg. 16 ff. locus is decided by which action is commenced first. “the courts of the Member State within the territory of which the centre of a debtor‘s main interest (COMI) is situated shall have jurisdiction to open insolvency proceedings”. 3 I EUInsVO. produce the same effects in any other Member State as under this law of the opening of proceedings. 2 part a EUInsVO and that the liquidator was listed in Annex C in accordance with Art.. Furthermore the defendant did not plead that the decision was void by law.. Art. 17 Paragraph I EUInsVO. In summary it has to be said that Art. and moreover the estate of the Greek Ltd. and if this court had appointed a liquidator temporarily. we will return to consider the “further formalities” later in this article. 3 Paragraph 2 phrase 2 EUInsVO. has been “sealed”. Opening of the proceedings In the case at hand the plaintiff claimed that insolvency proceedings in Greece were not yet opened. and that they always have to be judged according to the lex fori concursus. It concluded that there was no scope for an ambiguity as the main insolvency proceedings were commenced according to Art. The Attorney-General Jacobs pleaded that if Ireland had filed for insolvency at the responsible court according to Art. and his appeal has not yet been decided. 16 EUInsVO in that the Court considered which jurisdiction had precedence where two member states each claimed their action over-ruled the other. with no further formalities. Cranshaw noted that the Higher Regional Court of Hamburg had not dared to consider the facts under the scope of phrase 2. this should suffice to confirm that proceedings have been commenced. automatic recognition and Universality 22 Autumn 2009 .COMI “ the Court considered which jurisdiction had precedence where two member states each claimed their action overruled the other The premises of Art. 3 Paragraph 1 phrase 1 EUInsVO. Any later action taken in a different member state cannot interrupt or over-rule the earlier proceedings. It was shown that the proceedings were mentioned in Annex A according to Art. because the temporary liquidator had denied his appointment and that the defendant had appealed against the judgment of the Higher Court of Katerini (by claiming that they were solvent and that there were no issues that could lead to an insolvency). 16 Paragraph 1 Subparagraph 1 EUInsVO shows. the COMI was not for discussion here. 3 EUInsVO does not deal explicitly with the case that two courts of two different Member states each declare themselves to have locus over the proceedings. 17 Paragraph 1 EUInsVO that the effects of the opening of proceedings differs from state to state. This is highlighted in Art. 3 Paragraph 1 phrase 2 EUInsVO (whereby the debtor has to posses an establishment within a territory of another Member State to empower its courts to file for insolvency against this debtor) were inapplicable. the Greek decision had to be accepted. 17 Paragraph 1 of the Greek Insolvency Code 3588/2007 the liquidator had the sole power to dispose of the company assets once proceedings had been commenced. 1 Paragraph 1. in this regard it is said that the temporary order is essential. universality. Premises of recognition The Higher Regional Court of Hamburg dealt with the premises of recognition in the sense of Art. The Higher Regional Court of Hamburg asserted that according to Art. 16 EUInsVO in connection with Art. when proceedings are opened and when not.)” – besides. Special intermediate proceedings for the recognition of a decision in another Member State (called “exequatur procedure”) are not allotted and because the regulation is based on the principal of mutual trust6. and did not go against public policy (ordre public). Notwithstanding the above. it was discussed by literature that the ruling above was too general to be valid in all circumstances. 2 part b EUInsVO5. The term “universality” deals with a form of insolvency law that is based on the idea that the insolvency proceedings of a debtor is to be treated according to the same insolvency law worldwide. it was found that the proceedings were opened correctly. Surprisingly however. 3 I EUInsVO. because the Greek company had its registered office in the area of the Higher Regional Correct insolvency statute Court of Katerini. In this case. The thought is that it would be much better if the insolvency could be dealt with in one global proceedings according to one global law – “the world is a village” as Paulus puts it. The EUInsVO tries to get as near as possible to this ideal by three means: international jurisdiction. and the considerations of Art. where it is stated that “shall. As such. The Greek liquidator has yet only applied for (at the Higher Regional Court of Thessaloniki) being released. as even if the plaintiffs had proved that the Greek Court declared itself responsible. (. In the case C-341/04 Eurofood/Parmalat4 there were similar points to consider and the ruling discussed in detail. lex fori processus. the judgments of the foreign court do not have to be legalised (as it has to be under section 438 paragraph 2 of the German code of civil procedure) and there is no need of an apostil (see Hague Convention of 5 October 1961). DZWIR 2003. the Higher Regional Court of Hamburg found no evidence of an offence against the public policy of Germany. ZIP 2003. 6. WEISSBRODT Partner.curia. that should be obsolete after the commencement of main insolvency proceedings abroad. The effects of the opening of insolvency proceedings on pending lawsuits therefore only base upon the lex fori processus. so Jacobs in his final proposal. But surprisingly there are still uncertainties concerning legislation. 16 EUInsVO – as explained above – there is no exequatur procedure necessary. This principle is also implemented in the Greek insolvency law. even if Art. which was both not necessary. opening of proceedings are recognised with no further formalities. vide Country Court of Düsseldorf. 2. Recognition “with no further formalities” Art. “Nothing in this Law prevents the court from refusing to take an action governed by this Law if the action would be manifestly contrary to the public policy of this State”. so Recital (22). 15 EUInsVO allows the court to deal with its own rules and regulations. The Higher Regional Court of Hamburg stressed the single premises very well. 6 UNCITRAL-ml7). 861 . Proceedings are to be recognised without further requirements. that declares proceedings as aforementioned are interrupted. 3 Paragraph 2 EUInsVO to open secondary insolvency proceedings. 15 EUInsVO seemed to be disregarded. 88. that the public policy has to be checked in every single individual case. vide Cranshaw. In the present case. As the EUInsVO states the universally accepted principle of relative universality. 15 EUInsVO... which are dealt with in Art. par. 5. That is. 26 EUInsVO states that this can only be applied where recognition of the proceedings shall be “manifestly” contrary to the public policy. JurisPR-InsR 26/2008. No.876/03. But the public policy clause should only be executed in exceptional cases. It also indicates. Note 5. According to Art. The judgment dealt again with the question of interruptions by foreign insolvency proceedings in the light of EUInsVO. so that the Higher Regional Court of Hamburg was able to reaffirm universality in this case. so there is still work to be done to clarify some terms and conditions of the EUInsVO and to obtain a better understanding of its single rules. 4 Paragraph 2 Phrase 2 lit f EUInsVO). 7. White & Case (Munich) Autumn 2009 23 . A problem here is to co-ordinate this lawsuit with the insolvency proceedings and its right to have locus universally. provided with an apostil. Attorneys Schmidt § Hofert (Munich) CARLOS MACK Partner. COMI etc.pl?lang=en. This led in the case at hand to Section 240 Phrase 1 Civil Procedure Code.398. 25 EUInsVO states explicitly that judgments concerning the The last key aspect – which was not mentioned by the Higher Regional Court of Hamburg – was that the effects of the foreign proceedings on the home proceedings tend to the lex fori processus (home insolvency regulations). This limit is in accordance with the standard of international insolvency law (see Art. as public policy is derived from the law of each member state. Art. 1362. whereby any Member State may refuse to recognise the proceedings where the effects of such action would be manifestly contrary to the public policy of that state. it is possible according to Art. Art.COMI decisiveness of the lex concursus. this time focused on Greek law. 502 IN 126/03. Excluded are explicitly effects on lawsuits pending. That is to protect legal certainty and and legal clarity. 16 EUInsVO standardises the recognition and extent of foreign primary insolvency proceedings according to the principle of universality. lex fori processus Public Policy (ordre public) The last premise of recognition is the so-called “ordre public”. 3. so cases and their decisions may differ from state to state. 4. As a result a liquidator can work in all Member States and “may exercise all powers conferred on him by the law of the State of the opening proceedings”. Art. so that Recital (12) can be really taken into account: “These proceedings have universal scope and aim at encompassing all the debtor‘s assets. That is why Art. High Court of Justice Leeds.int/jurisp/cgibin/form. The lex fori concursus governs the effects of the opening of foreign proceedings on means of legal action/litigation of single creditors (art. 47 ff. 62 IN 190/02. for example concerning the case at hand dealing with the interruption of insolvency proceedings. 400. accessable at http://www. 15 EUInsVO is a special regulation which refers to the law of the Member State in which the lawsuit is pending. In the case at hand the original judgement of the Court of Katerini was presented to the Higher Regional Court of Hamburg. vide UNCITRAL-ml 86-88: Conclusion “ The thought is that it would be much better if the insolvency could be dealt with in one global proceedings according to one global law ” ANJA J. 102 ff. Hence the single effects may differ quite a lot.eu. DZWIR 2003. so Country Court of Duisburg.” Footnotes 1. The following aspects are contributory factors. we often see one administrator being appointed who is responsible for different entities of that group. for the first time in the life of the group. In favour of a single administrator is that less coordination problems are expected. discusses the cooperation between administrators of an insolvent multinational group of companies D RUTGER SCHIMMELPENNINCK Partner. Houthoff Buruma. When preparing a request for insolvency proceedings of a national group the parties involved. This is hardly ever the case. to include also other (Court appointed) representatives as well as restructuring officers in Chapter 11 type of proceedings. former INSOL Europe President. in theory each insolvent entity would require its own administrator with a specific duty of care to its own creditors. Even in situations where a firm of internationally operating insolvency practitioners is appointed. One or more administrators? While the specific interest of creditors of individual subsidiaries in a going concern situation is understandably not apparent. lawyers and judges will have to consider whether one administrator or several administrators should be appointed. but will not be qualified to act as administrator in this country B. All this will result in a more efficient procedure and lower costs.COOPERATION One or more administrators? Rutger Schimmelpenninck. A multinational group calls for a different consideration. Often they are managed centrally. there is a chance that one administrator is more cautious than the other in sharing information. still in each jurisdiction local partners of such a firm are appointed as administrators in accordance with local laws who will carry out their 24 Autumn 2009 . This argument would only compensate the disadvantages of the loss of synergy if the intercompany conflicts are extensive and if there are no alternatives to responsibly resolve these conflicts. The only real argument in favour of appointing separate administrators for each individual company is that creditors have more certainty that their interests are taken care of independently where intercompany situations are concerned. As an aside: there are always potential conflict situations in bankruptcies. if there are more administrators. once the group becomes insolvent. spring to life and overshadow the group interest. The documentation of intercompany transactions is more often than not as detailed as that of third party transactions. separate administrators can be appointed. This may be an advantage if a speedy sale or reorganisation of the interrelated business operations is required to maximise the value of the group’s assets. Amsterdam uring the life of a multinational the parent and subsidiaries are organised and exist for the benefit of the group. in the event of an insolvent group active in the same jurisdiction. For this reason usually different persons in different countries are appointed when international groups are concerned. A professional administrator aware of his duties should be able to handle these in a proper and transparent manner. and often has centralised bookkeeping and IT functions. This was the solution in a part of the Swiss Air bankruptcy (SAirLines). whilst keeping an eye on the interests of each specific group of creditors. As an alternative the same administrator can be appointed in each of the insolvency proceedings together with an additional administrator per subsidiary who has a specific task in dealing with conflict situations. The group publishes consolidated accounts. Usually an administrator who is qualified in country A might be recognised as such in country B under a treaty or under the EU Insolvency Regulation. Financing is arranged on a joint and several basis or with parent company guarantees. “Administrator” in this article is used in its broadest meaning. a single administrator has direct access to the information of all the companies involved. Supervision by courts or creditors’ committees contributes to the possibility of having one administrator responsible for different entities. Furthermore. the interests of creditors of a specific company. whereas. As a consequence. The efficiency advantages of having one administrator in place are obvious. However. If a clear conflict appears at the time of filing. referring to the interest of “his or hers” creditors. just like before the insolvency. in my view necessary. The issue I am concerned with is how the. Administrators should not deny the practical consequences of such structure which has been shaped over years prior to the insolvency. Eurofenix is published four times a year and is sent to all INSOL Europe members providing unique access to Europe’s leading insolvency business recovery professionals and academics. it can be achieved that foreign (group) companies in one country are joined in insolvency proceedings. to critically hold the concept of cooperation with foreign administrators against the light. why should this be different in cross-border situations? Are nationalist aspects of incomprehension and fear for the law in other countries a factor? I admit that it is safe for an administrator to strictly comply with national law and. page 17.com Sponsorship & Advertising Opportunities The journal of INSOL Europe Autumn 2009 25 . But just like in the event of a nationally operating group it should not be forgotten that it concerns or concerned a group that was operating economically as one and that. It is essential reading for INSOL Europe members. (See: Christoph Paulus in Eurofenix Spring 2009. significant synergy advantages can be gained by good cooperation and open communication. The joint administrators of the holding of Rover. If in national situations confidence exists that a single administrator can be efficient while he or she can still respect the interests of separate groups of creditors. The consequences of a multi-national going into insolvency are of course drastic and the complex organisational structure of a group with companies that are interdependent adds another layer of complexity.uk. Also by moving the Centre of Main Interest (COMI) to the country where one wishes the insolvency proceedings to be opened. licensed insolvency practitioners and all professionals involved in business recovery throughout Europe. were also appointed in the insolvency proceedings of many European affiliates. Necessary cooperation In this article I will not further address the pros and cons of the appointment of one or several insolvency trustees.) Thus we see that in Europe the same administrator can be appointed in various jurisdictions if the COMI of the group companies is located in the same member state. even if legally. Since the introduction of the EU Insolvency Regulation it has been possible to appoint one administrator when centrally managed international groups are concerned. To advertise in Eurofenix contact eurofenix@mrp. different insolvency “significant synergy advantages can be gained by good cooperation and open communication ” eurofenix eurofenix is the official quarterly journal of INSOL Europe.COOPERATION respective duties independently of each other. properly solve intercompany situations and adequately deal with information sharing between the estates under his or hers control. especially in crossborder situations where no regulation or treaty is applicable. cooperation between different administrators of companies belonging to a group should be. for example. In other words. “it is important that where an Insolvent Lehman Affiliate is a creditor of LBIE (or LBL).” The joint administrators also mention that there is no precedent (in the UK context) that would provide for different legal entities that were formally part of a group. since in the end all administrators involved in the Lehman Brothers case endorse the principle and necessity of cooperation. about the provision of information or services. The foundation for this was laid in a Multi Party Protocol that was signed in the months of May and June 2009. The administrators in Japan and Luxemburg are still considering joining the protocol but did already participate in the consultations between the administrators (“official representatives”) who signed the protocol. The music suddenly stopped and hastily appointed administrators from various countries were suddenly placed on entirely different chairs. The Netherlands and the Netherlands Antilles. Australia. Singapore. This letter. The fundamentally different approach (bilateral vs. Moreover. 26 Autumn 2009 . The Lehman Brothers is an example of a highly complex global operation going into various insolvency proceedings. multilateral) leads in the view of other Lehman Brothers administrators to inefficiencies when issues on a multilateral level need to be resolved. as a matter of fact. for example. The negotiations about a number of more complex bilateral matters are still carried on or still have to begin. Switzerland (PWC Switzerland). who supervises the insolvency proceedings of LBHI. From the start it was clear that it would not be possible to properly manage the insolvency of this worldwide operating investment bank and broker/dealer without optimal cooperation between the administrators involved. This cooperation slowly got under way with bilateral arrangements between administrators.COOPERATION “it is obvious that a major difference of views exist as to how cooperation between administrators should be achieved ” proceedings of different entities lead to a first-time compartmentalisation of the group. which court supervises the insolvency proceedings in the UK. Some found a lot. As a consequence the joint administrators have decided to pursue the strategy of bilateral agreements “as an alternative to developing an overarching protocol as they believe their approach is more likely to meet their commercial objectives and is consistent with the proper discharge of their duties under English law. information sharing and in the end maximising return for creditors. The joint administrator’s arguments were not subject to discussion in Court. Others did not have any financial records or employees at their disposal. Only the administrators of a large number of UK based companies. Whilst in favour of the principle of cooperation. Some of these agreements in themselves were so complicated that the negotiations between administrators often lasted several months. but which are subject to separate insolvency proceedings under different laws in different jurisdictions becoming subject to a single process or protocol. When Lehman Brothers Holdings Inc. expressed themselves in favour of this non-binding but directional protocol focussed on cooperation and exchange of information. communication and coordination in cross-border insolvency proceedings which were adopted by The United Nations Commission on International Trade Law on 1 July 2009 are very helpful in reaching this goal. something happened that reminds one of musical chairs. there is a considerable risk that the creditors of the relevant group company or of other group companies suffer damage. in my view if an administrator refuses to cooperate closely and share information. they argue that they are bound to treat each insolvent entity as a separate legal entity and “any framework that seeks to achieve a different outcome” would not be permitted under English Insolvency law. (“LBHI”) and various group companies applied for insolvency proceedings in the US and the UK on 15 September 2008. The Lehman Case Germany. This is regrettable. (“the joint administrators”) did not sign the protocol. The administrators in the various proceedings in the US. The draft UNCITRAL Notes on cooperation.” The quotations above are derived from a letter of 13 May 2009 from the joint administrators’ counsel to Judge Peck of the United States Bankruptcy Court Southern District of New York. We can also learn from the Lehman Brothers multi party protocol which has been considered acceptable in many jurisdictions. was approved in advance by Justice Blackburne of the High Court of Justice for England and Wales. however. It soon became clear. Hong Kong. that a broader form of cooperation was needed. it is not treated in a manner that is materially different from that accorded to other creditors. it is obvious that a major difference of views exist as to how cooperation between administrators should be achieved. including important entities such as Lehman Brothers International Europe (“LBIE”) and Lehman Brothers Limited (“LBL”). Most administrators found no or very little money in their estates. in a closed session in which only the joint administrators were present or represented. Without going into further detail on the reasoning of the joint administrators. It would therefore be to the credit of our profession if we would be able to accept universally acceptable rules or guidelines for cross-border cooperation which would serve as a framework to come to efficient arrangements on matters that we all consider important: timing. This is due to historical reasons and based on Roman law. such a uniform framework has not been achieved. The Romans relied Autumn 2009 27 .CROSS-BORDER Challenges in taking cross-border security Anne-France Catoir discusses the challenges involved and asks whether continental Europe is growing closer to common law jurisdictions ANNE-FRANCE CATOIR is an associate in the London office of Brown Rudnick LLP “ Enforcing cross- border securities has become of paramount importance. It has been of great help in clarifying the scope of main and secondary proceedings. despite several attempts through international conventions. The main features differentiating civil and common-law jurisdictions Civil Law jurisdictions Civil law jurisdictions are cautious in their approach to nonpossessory security. divided due to its historical and cultural differences. does not change the fact that Europe remains. International conventions have either sought uniform substantial laws (for example the 2001 Cape Town Convention on mobile equipment or the Financial Collateral Arrangement Directive 2002/47/EC) or conflict of laws rules (such as the 1980 Rome Convention on the law applicable to contractual obligations). The main partition line is between civil law jurisdictions and common law ones. as some continental European jurisdictions seem to be adopting systems closer to common law countries. as well as the development of multinational enterprises with global assets. have highlighted the practical importance of ensuring a homogenous security framework. In the past few years. however. This. especially for banks. the increasing size of finance transactions. especially for banks W ” ith the increase in the number of insolvencies due to current market conditions. The EU regulation also deals with retention of title (which remain unaffected by the opening of main proceedings in another country) and rights subject to registration (which are subject to the country of registration). Regarding conflict of law rules in the context of insolvency. requiring the involvement of several banks through syndication. the EU Regulation 1346/2000 is worth mentioning. enforcing cross-border securities has become of paramount importance. The applicable law will be the local law. Secondary proceedings may be opened where the debtor has an establishment but will only apply to assets located in that country. with respect to security laws. Recent developments however give rise to a hope that differences may fade. As of today. by enacting special statutes on non-possessory pledges for specific assets. • adaptability of transactions to the need of a particular transaction. they can be attached to assets as soon as they enter an estate. France France seems to have broken the strict partition of Europe referred to above. In England. Furthermore. a reluctance to recognise security over future acquired property (a new act of transfer is necessary). In such jurisdictions it is possible to secure present and future debts over present and future assets. However only financial institutions may use this instrument. as an instrument for raising finance based on security over future and fluctuating assets. • clear rules governing priority. Also. The requirement of dispossession has been relaxed with the creation of a pledge without dispossession for tangible assets. of a single form of consensual security right called a charge. Common law jurisdictions have a more liberal approach toward security. in order to overcome the practical problems caused by the need for security to be in the possession of the creditor. The EBRD Model Law identifies the core principles of a model secured transaction regime as being: • a single security right (called a charge) for all type of assets or rights. In order to remedy this problem. The exclusion of future debt seems to mainly apply to future loans which are not contemplated by the documentation at the time they were entered into. a new instrument was created in 1981: the Bordereau Dailly. In such a case. In Germany. retention of title arrangements are often put in place. allowing for a mortgage to be attached to future assets or a fluctuating pool of assets. France has undertaken a substantial liberalisation of its laws governing securities. By way of anecdote. such as receivables. This is now available to all types of debtors (subject to consumer credit laws). The result is a piecemeal approach to security. • simplicity in the creation of security interests. The doctrine of specificity was not however completely relaxed (it is therefore still not possible to create charges over a class of assets generically or over all the assets of the debtor present or future and a minimum requirement of individualisation is still necessary). legal professionals in civil law countries have sought ways of circumventing this issue. A debtor is not able to utilise the collateral for his business purposes. Italy has a special 1985 non possessory registrable security over ham. the latter are a creation of Equity. civil law countries have extended the code provisions on possessory pledges. In addition. Conclusion 28 Autumn 2009 . justified no doubt by the excellence of Italian prosciutto ” mainly on the possessory pledge (pignus). and the recognition of charges created over future assets to secure future debts and universal charges. Differences between national security laws remain substantial. for example stock in trade. However recent developments provide hope that national laws may be growing closer to each other. Changes in Civil Law countries: e. replacing the transfer of possession by the requirement of notification to the receivables’ debtor. or assigning receivables by way of security – Sicherungsabtretung. As a notification adversely affects the business reputation of the pledgor.CROSS-BORDER “ By way of anecdote. • expeditious satisfaction on default. Overall. the pledge will be registered to ensure publicity. This is how the floating charge was created. connecting security to a requirement of possession has proven very disadvantageous. While the first are subject to the common law rules. Its main features are: the creation Taking security in cross-border transactions remains a challenging task. Identification is broad so that it may capture all obligations arising under a credit agreement. In France. The EBRD Model Law adopts a registration system with a priority rule determined by the time when a charge is created. which allows the assignment of a bulk of present or future claims against a debtor. the EBRD issued a model law on secured transactions in April 2004 (“EBRD Model Law”).g. justified no doubt by the excellence of Italian prosciutto. • security to be available over all types of assets to secure all types of debts. and • applicability to business credits (consumer credits are therefore excluded). Italy has a special 1985 non possessory registrable security over ham. France now virtually recognises a universal security over all present and future assets. which are not determined. civil law countries can be characterised by the requirement of specificity or individualisation. A minimum of formality Common Law jurisdictions is required to take security interests. This model has been adopted by several countries in Eastern Europe such as Lithuania. this requirement is circumvented by means of the practice of transferring ownership of moveable assets – Sicherungsubereignung. As no formalities are required for equitable mortgages. • the existence of an effective means of publicising the existence of security rights. it is worth mentioning that it is not yet possible in the case of all assets to create security for present and future claims. However. Is continental Europe growing closer to common law jurisdictions? The European Bank for Reconstruction and Development (“EBRD”) As part of its effort to modernise the legal framework of securities in eastern Europe. Turning to intangible assets. there are legal and equitable mortgages created on movable and immoveable property. civil law countries have created a variety of instruments. and notification requirements of debt assignments. Slobodan Spasic. our Association’s VicePresident! It is not common either to see and hear – in one place – representatives from 16 very different countries (see list of names at the end of the article): each brought an impressive contribution to the successful outcome of this 5th seminar. we owe this new success to the INSOL Europe team – Malcolm Cork. Serbia (host of the third) and Russia (for the fourth event) immediately answered yes to our proposition of participation! Thus we counted Vesna Gacesa from Serbia and Artur Trapytsin among our renowned speakers without any delay. permitting all practitioners to create sustained ties between themselves. each after his fashion.5TH EECC CONFERENCE A new success which no longer astonishes anybody! Marc André. was all for. President of the EECC introduces this year’s conference report First of all. Florica Sincu and Linda Smith – who completely invested themselves in solving all the material problems linked to the organisation of such a conference in order to allow Martin Prager’s technical programme team (to which Jelena Marjanovic from Serbia brought substantial support) to present an exceptional programme focusing on particularly up-to-date problems. I think I can affirm that our Committee was indeed successful in favouring the professional exchanges and encounters. retained at the last minute. for instance. a magic destination our President. Sanderson. We also need to express our deepest thanks to the sponsors of the event. sincerity in meeting again and meeting new people. And I say this especially in connection with the country report presented by the Romanian Cornel Florea. How else to explain the faithful presence of such a man like Lászlo Csia from Hungary who organised with us the first ever EECC seminar! And the fact that Poland (where our second seminar was held). even prodigious speakers. Martin Prager points out the highlights of the technical programme so much anchored in today’s issues. In his report (see page 30). Artur Trapitsyn. Carlos Mack. but also passion. brought a major contribution to the success of this 5th EECC seminar. This successful event shows again that INSOL Europe has indeed fulfilled its goal by creating the Eastern European Countries’ committee: bringing together practitioners of different cultures. who replaced our dear Zbigniev Fornal. Warmth. then president of the INSOL International federation and those of Patricia Godfrey. Yes. Romania – massively represented in number of delegates in all our events – is the next destination of our committee: we already work hand in hand with the Romanians for next year’s conference! Autumn 2009 29 . from very different countries. it is more and more obvious that the dominating spirit within INSOL Europe’s EECC events is that of sincere and warm exchanges. It was not very difficult to boast such a spirit this summer in Dubrovnik. already five successful conferences! Beyond the scientific aspects. Poland being represented by Pawel Kuglartz. characterised this seminar. who conquered all delegates with his passionate presentation. in a spirit of exchanging ideas and making new friends. followed by the welcoming words of Robert O. Cornel Florea MARC ANDRÉ President of the EECC “INSOL Europe has indeed fulfilled its goal by creating the Eastern European Countries’ committee ” What a privilege. I can say together with him that the 31 speakers. President of the Dubrovnik Chamber of Commerce and Industry. without which the conference would not have been so bright from all points of view. Panel members: Marc André. to listen to the opening address by Terezina Orlic. In fact. with the help of top-quality. the recognition of foreign decisions. Italy. Last but not least. Nikola Vujacic for Montenegro. Germany. PLUTA Rechtsanwalts GmbH. and Joint Chair of the EECC who welcomed all participants in his charming French manner. was held in Dubrovnik. Patricia Godfrey from UK. Dubrovnik Martin Prager reports from the recently well-attended conference in Dubrovnik he 5th Eastern European Countries’ Committee (EECC) conference. Rover. Pawel Kuglarz for Poland. Serbia. Hotel Excelsior. T MARTIN PRAGER Lawyer. EMTEC. Jasnica Garasic from Croatia. Special thanks are in order for the 31 speakers and panellists (listed on page 31) who spared no efforts and enriched us with their excellent contributions. kept all delegates enthralled. introduced Vasile Deleanu (Romania). Czech Republic. the most important cases in Europe (Isa Daisytek. Romania. She reported about the economic problems in Croatia in general and the Dubrovnik region in particular. StaubitzSchreider. Nick Hood. from which a splendid view of the Old Town can be admired. Srdjan Gavranic for Croatia. Slobodan Spasic for Serbia and Cornel Florea for Romania. Poland. Pau Donat from Spain. Jan Brodec for the Czech Republic. At the end of the first day we listened to a panel concerned by the present-day financial crisis with its consequences for our profession in various countries. Switzerland. followed by Robert O. the effects of cross-border bankruptcy proceedings and the cases under way. Croatia.5TH EECC CONFERENCE Financial Crisis. under panel leader Marc André. Patricia Godfrey. Parmalat). 30 Autumn 2009 . In these busy times for the insolvency community. Jan-Philipp Hoos from Germany and Alessandra Santonocito from Italy reported about their experiences. Vice President of INSOL Europe welcomed the delegates on behalf of INSOL Europe. Russian Federation. was the keynote speaker of the conference. Sanderson. who presented the developments in the insolvency sector: Artur Trapitsyn for Russia. Slovakia. as panel leader and speaker for the UK. President of the Croatian Chamber of Economy. We were therefore quite delighted and honoured to welcome about 113 delegates from 16 different countries – Austria. The evening started with a very pleasant cocktail party on the terrace of the hotel. “Financial Crisis. on 5-6 June 2009. Josefa Llinares (UK) and Carol Patterson (Russia) who all delivered highly valuable contributions. Ms. Montenegro. then President of INSOL International. Nerena Country. INSOL Europe proved once again how the perfect organisation of a conference is to be done. Germany “Ms. and UK. Netherlands. Annerose Tashiro from Germany. László Csia for Hungary. listed in the UNESCO registry of world monumental heritage. Panel leader Isabelle Didier from France guided us through agile contributions regarding the application of the EIR. Dubrovnik. with an introduction about the INSOL organisation and the advantages of the membership. the jurisdiction in avoidance matters. Restructuring & Best Practice in Eastern Europe 5th EECC Conference. The destination was an incentive for many and the town. The “country reports”. enjoyed the presence of specialists from the Eastern European countries. Restructuring & Best Practice in Eastern Europe”. it was very difficult for many to take leave and find some time for the conference. Terezina Orlic reported about the economic problems in Croatia in general and the Dubrovnik region in particular ” Day one The conference was opened by Marc André. knowing that Croatia welcomes about 10 million tourists a year. INSOL Europe Council member. France. Spain. After lunch a lively discussion about the European Insolvency Regulation took place. Terezina Orlic. 5TH EECC CONFERENCE 113 delegates from 16 countries took some time out of their busy schedules to attend For the Gala Dinner. i. as it was yet another great opportunity to talk to old friends and meet new ones. a private company with limited liability.e. the panel having Alessandro Scarso from Italy as panel leader. in terms of their knowledge and experience. and their remuneration. and – more generally – their personal abilities) on the one hand. with his presentation of März München AG. specialised in electrical and installation engineering. Last but not least. welcomed all delegates and warmed them up for a pleasant evening. Day two The second day of the conference started with the topic “Continuation of Commercial Activities & Case Studies” with Martin Prager as panel leader and speaker. Remuneration and Best Practice”. Jana Fialova from the Czech Republic reported on the continuation of an engineering company within and outside of the Czech reorganisation proceedings. Zdravko “The last part of the conference dealt with the optimal balance between personal qualification and remuneration ” Autumn 2009 31 . on the other hand. At the beginning Karl Wüthrich from Switzerland introduced the famous Swiss Air case and pointed out how important the liquidity is and why it is necessary to keep the key personnel during the insolvency proceedings. Carlos Mack. President of INSOL Europe and Joint Chair of the EECC. With reference to the contents of these contributions. the incentive for them to acquire the skills needed in order to carry out their job in the best possible way. Next. The idea underlying the topic was the optimal balance between the personal qualification of insolvency practitioners (specifically. The last part of the conference dealt with “Regulation. He was followed by Martin Prager. It seemed that everybody enjoyed interesting chats until late in the night. Ulla Reisch from Austria gave a lecture about the reorganisation plan within the bankruptcy proceedings concerning Jäger & Kronsteiner. März München AG is a cloth manufacturer where business continued though insolvency administration was opened in 2004. Nick Tollenaar from Netherlands spoke about the Dutch experience especially focusing on a problem peculiar to Dutch statutory provisions related to insolvency practitioners. Jan-Philipp Hoos. namely their obligation to wind up an insolvent business once they have been appointed by the competent court even in cases where the realisation of the remaining assets would not allow for their remuneration. The organising committee would like to address special thanks to the distinguished speakers for the interesting speeches they have provided and to the sponsors of the conference for having made it possible for us all to meet. hww wienberg wilhelm. Vesna Gacesa. Karl Wüthrich Thanks also to our sponsors: Begbies Global Network. Cornel Florea. especially when doubts as to the appropriateness of such a “cap” exist. Vesna Gacesa from Serbia outlined the statutory framework within which insolvency practitioners operate in Serbia. White & Case. Hermann. Jana Fialova. FOE – The Hungarian Association of Insolvency Practitioners The Gala dinner provided an excellent opportunity to network with colleagues 32 Autumn 2009 . Carlos Mack. Robert O. László Csia. in order to ensure that the existing incentives drive the right people to become insolvency practitioners. Slobodan Spasic. Carol Patterson. Sanderson. All delegates highly appreciated the organisation of the event and pointed out the importance and necessity of further collaboration opportunities. Martin Prager. Alessandro Scarso. Annerose Tashiro. and focused on the criteria laid down by these provisions in order to determine their remuneration. tackling the problem of the balance between the remuneration of insolvency practitioners and their professional qualification. Ulla Reisch. as it usually happens whenever such provisions have to be applied. Nick Tollenaar. Nick Hood. PLUTA Rechtsanwalts GmbH. Zrdavko Seki. Vasile Deleanu. Patricia Godfrey. Artur Trapitsyn.5TH EECC CONFERENCE Seki from Croatia portrayed the most significant provisions of the Croatian insolvency law and stressed the role of sanctions in order to ban or at least reduce the risk of corruption. Pau Donat. Terezina Orlic. discuss and focus on substantial and up-to-date issues. Srdjan Gavranic. She provided very interesting concrete examples showing that the result varies significantly depending on how the statutory provisions are interpreted. He was perplexed about the “cap” applied to the insolvency practitioners’ remuneration currently existing in Croatia. Jasnica Garasic. Josefa Llinares. Nikola Vujacic. Bob Sanderson followed. Jan Brodec. Pawel Kuglarz. Isabelle Didier. Alessandra Santonocito. UNPIR – The National Union of Romanian Insolvency Practitioners. Speakers/panellists: Marc André. it created an origo for mutual future cooperation between the countries in the region. corruption. and at some important points a huge diversification can be experienced: the influence of creditors on the assignment and release of the insolvency practitioner and regarding the sales of assets. the extremely high ratio of proceedings with no or very little bankruptcy assets. HAIP (Hungarian Association of Insolvency Practitioners) “ is a huge need there of communication and networking of neighbouring countries ” similar problems regarding insolvency procedures and law: remuneration. there is a huge need of communication and networking of neighbouring countries in order to conduct cross-border procedures on a highly professional and efficient level. Russia counts 40 organisations with obligatory membership. which was sent out with the assistance of INSOL Europe to the chairmen of the associations in the region. in Serbia an official. Depending on the size of a country. or the small ratio of reorganisation (approx. HAIP administration created a detailed questionnaire. The idea for the meeting arose through the fact that on the one hand Hungary stood in the entrance of a new amendment of Hungarian Bankruptcy Law and the insolvency community was eager to collect information from countries that went through the same process in the near past. On the other hand it gave HAIP and related countries an excellent opportunity to learn and understand how other countries’ official insolvency-related associations and organisations function in their own country in order to improve and supervise its own services towards its members. to build connections with fellow foreign co-workers. but globally related) problem is the understanding and best practice of cross-border insolvency procedures. the number of the functioning associations or organisations differs also. Through other and similar questions we got a comprehensive overview of the activity of associations in the region. To learn each other’s best practice. whose members cover 99% of the entire insolvency community with a membership on voluntary basis. The results of the questionnaire show – also confirmed by the presentations during the conference – that momentarily the Eastern European countries are facing A RÉKA KOROMPAY Managing Director. Autumn 2009 33 . Serbia. the Czech Republic and Russia sent back their answers. evaluation. state entity. The status of the Associations varies within the countries: in the Czech Republic CCIP operates as a chamber. supervision and professional control of insolvency practitioners. Whereas in Hungary there is only one association. the Bankruptcy Supervision Agency controls the work of insolvency and asset controlling specific companies. Based on the geographical closeness and the extensive globalisation experienced on the field of insolvency. The initiation of HAIP was welcomed with great enthusiasm and though the meeting was short and informal. Almost every European country has been through major and partial amendments to their Bankruptcy Law. whilst answers from Romania and Poland are being still awaited.COLLABORATION One small step towards fruitful collaboration Réka Korompay introduces a new avenue for cooperation and sharing of experiences t the recent EECC conference in Dubrovnik (see full report on page 29) the Hungarian Association of Insolvency Practitioners (HAIP) initiated an informal “corner meeting” of the associations’ representatives and presidents of the neighbouring Eastern European countries. in Hungary the chamber status of HAIP is not supported by the present government. although HAIP initiated its transformation into a professional public chamber under the new Creditor Protection and Insolvency Act. 1-3%) compared to liquidation procedures. to listen and evaluate their country specific problems – this is what HAIP aimed to establish with this small step towards a future fruitful and smooth collaboration. Another real (and not just Europe specific. and our aim is to establish and sign an agreement on association and collaborative deals between Eastern European countries. in pre-packaged reorganisation filings under S. leaving the debtor equally cash-strapped. the court will appoint a separate ad hoc trustee to deal with the particular conflicting situation. insolvency cases of debtors belonging to the same corporate group before the same insolvency judge. the Czech Parliament approved amendments to the still relatively new Insolvency Act 182/2006 which went into force on 1 January 2008. It is the restrictions on set-off that perhaps represent the most significant debtor-protectionist element of the amendments. getting the agreement of all creditors in order 34 Autumn 2009 . Secondly. Firstly. Thirdly. It should be noted that.CZECH REPUBLIC Anti-crisis measures in the Czech Republic Tomáš Richter. upon the application by a party in interest and where this is not contrary to the common interest of creditors. for several years to come. the amendments removed the debtor’s (and directors’) duty to file on the grounds of the balance sheet test. if such appointment results in potential conflict between the affiliated companies. these protections may be largely illusory – all that may happen in practice is that setoffs will occur before the protections kick in. and in connection with the previous rule. although the insolvency court will be entitled to grant an exemption from the ban. Therefore. to “waive” the balance sheet test and the resulting directors’ liability is much more difficult. albeit only in specific cases and for specified periods of time. Of course. it may cause losses for outside creditors who extend new credit not knowing that the debtor is already balance sheet insolvent. the incentive to have the business recapitalised. they really only remedy inaction on the part of the judiciary Set-off ” The amendments brought three partial changes to the way insolvency trustees are appointed. lecturer with The Institute of Economic Studies in Prague and counsel in Clifford Chance’s Prague office describes notable recent amendments to the Czech Insolvency Act Several months after the Czech cabinet set out to frame a package of responses to the economic downturn which has now fully reached large parts of the Czech economy. Promulgated in July 2009 as Act 217/2009. the amendments are aimed at easing the impact of the crisis on businesses and households. the insolvency court will appoint the same trustee for all debtors who belong to the same corporate group. as a rule. Furthermore. while the latter may be waived by the particular creditor or syndicate (and at the moment often are as lenders try to avoid enforcement in the current market environment). Although this change may ease the pressure on some debtors. the insolvency court will now be bound to appoint the trustee proposed in the pre-agreed plan. the amendments brought about several changes to Czech insolvency proceedings. it also weakens the directors’ incentive to do something about the fact that the debtor is no longer solvent on a balance sheet basis – most obviously. At the same time.148(2) of the Insolvency Act. While the restriction after a court-ordered moratorium may be TOMÁŠ RICHTER Clifford Chance LLP. The difference is that. only earlier on in its financial difficulties. whilst the new rule may make life easier for directors and shareholders. these rules will not fix the problem of the lack in professionalism of many trustees – here. The amendments banned setoff after a court order declaring a moratorium and after the filing of an application for reorganisation. they really only remedy inaction on the part of the judiciary – Czech insolvency courts could easily have arranged matters to this effect without Parliament’s intervention. This relaxation is temporary – the rule will revert to its original wording at the end of 2011. Also. The more notable ones are described briefly in this article. Being the first substantive revision of the new code. the commercial reality is that events that would have been caught by the balance sheet test will be caught (often earlier) by loan covenants. Prague “ although these amendments are useful. A related amendment to the Act on Courts and Judges will achieve the concentration of Insolvency trustees and judges Duty to file on the grounds of the balance sheet test Chiefly out of concern that the prevailing asset price volatility and uncertainty of valuations may force debtors to file for insolvency even in cases where the filing would be unsubstantiated in times of more stable asset valuations. although these amendments are useful. the insolvency court will have the power to ban set-off in other procedural phases as well. the insolvency system will grapple with the fact that the reform was launched without the trustees having to be first subjected to exam scrutiny. Notably. Parliament decided to leave the law on this point unchanged. the mortgagee’s remaining claim will not be discharged. the amendments involve the trustee and the debtor’s employer in the process of distribution of the instalments among creditors. Thirdly. “the restrictions on set-off represent the most significant debtor-protectionist element of the amendments ” Autumn 2009 35 . This means that post-insolvency financing will still be available on an administrative-priority basis and will be subject to the approval of the creditor’s committee and to At least three changes are notable in relation to discharge proceedings. Under the amendments. capable of being satisfied solely from the collateral and not the debtor’s other assets. Failing such application. Where the debtor is able to show that he or she will pay no less than 50% of his or her debts (as opposed to the minimum of 30% related to the statutory exemption).700 per month. the amendments also allow creditors to take away the debtor’s exclusive right to propose a reorganisation plan. This change should make the proceedings attractive to other than the lowest income groups of debtors.CZECH REPUBLIC of limited use given that the court may only declare a moratorium with the prior approval of the majority of creditors. the insolvency court will have the power to set the monthly instalments in such a way that the debtor will be able to keep more than the statutory exempt minimum. Firstly. capped at some CZK 8. absolving the debtor of the responsibility of making distribution calculations that were often beyond the debtors’ capabilities. however. Reorganisation In addition to protecting the debtor who attempts reorganisation against set-off. Consumer discharge proceedings Post-insolvency financing Following a major and widely publicised controversy about proposals to change the Act’s rules on post-insolvency financing. where under the debtor was only allowed to keep the exempt minimum income. the collateral will not be sold – i. the restriction kicking in as of the filing of an application for reorganisation may help protect the cash-flow of those debtors who are eligible for reorganisation under the Act’s size test.e. However. the mortgagee will have to apply for the sale of the collateral if sale is to occur. The law has so far been construed as meaning that the mortgaged property would always have to be sold even in instalment-type proceedings. Post-insolvency financing provided following the approval of the reorganisation attempt in order to further the reorganisation’s goals will have super priority over other administrative expenses and the new lender will rank pari passu with existing secured creditors if the latter did not make use of their pre-emptive right to provide the new financing. Interestingly. a factor that may mean that reorganisation remains difficult in situations where current management has lost the trust of creditors. Finally. this decision can be taken by the vote of a simple majority of claims present or represented. it will again turn into a de facto limited recourse claim. the amendments did not remove the shareholders’ right to elect and remove directors even during reorganisation. an important change will affect mortgage loans in instalment-type discharge proceedings. Secondly. the amendments codified current court practice under which new debts incurred during the discharge proceedings are not really treated as administrative priority claims. the mortgagee will participate in the instalments alongside other creditors. the amendments vested the insolvency court with the power to set a different amount for monthly instalments than the statutory regime. The amendments explicitly provide that new debts will not have administrative priority over old ones. the pre-emptive rights of existing secured creditors. the mortgagee having recourse solely to the proceeds of the sale. such application will mean that the secured claim will in fact turn into a limited recourse claim. In the discharge ruling at the end of the five-year instalment period. even from the same courts. This criteria could actually be applied in all cases regardless in which manner the proceedings have been concluded and regardless of its duration. bankruptcy administrators have.D. whereas now they are forced not to delay the proceedings. been cast into a very dynamic one ” The Regulation has therefore attempted to level out the criteria of remuneration of bankruptcy administrators.. The Regulation has seen to a more transparent calculation of remunerations and payment of bankruptcy administrators. In cases where bankruptcy proceedings last longer than the prescribed term. in practice we have seen many dualities. The Regulation in practice During the examination hearing there has been a more quality 36 Autumn 2009 . A part of the Regulation subject to the greatest criticism in practice is the request of bankruptcy administrators in cases where the bankruptcy administrator is not objectively able to conclude proceedings within the prescribed term (establishment of assets.CROATIA The remuneration of bankruptcy administrators in Croatia Zdravko Seki outlines the most significant provisions of the Croation insolvency law in terms of the remuneration of bankruptcy administrators in Croatia The Bankruptcy Act in Croatia regulates the remuneration of bankruptcy administrators in the manner that such remuneration is established by the bankruptcy judge in accordance with a special regulation which establishes the criteria and calculation of such remuneration. their advance payments were guaranteed. to solve questions of legal security and to reach a more efficient conducting of bankruptcy proceedings. the calculation and payment of remuneration. duration of civil proceedings etc. The bankruptcy administrator has the right to an advance of the remuneration pursuant to this Regulation in cases when the bankruptcy debtor has continued his business activities. The Regulation enables the bankruptcy administrator to gain the right to an additional 5%– 20% besides the final remuneration if he is able to cash the assets before the prescribed deadlines for the conclusion of bankruptcy proceedings. from a somewhat static position. the bankruptcy administrator has the right to 20.000). €41. due to the fact that earlier. which is three years.000 kuna (approx.).000 kuna. The Regulation also sets a remuneration for the bankruptcy administrator in all cases when proceedings or the bankruptcy plan are not conducted or terminated or when another bankruptcy administrator has been appointed. A principle of the Bankruptcy Act has been to establish the setting of remuneration in relation to the bankruptcy estate as a rule. Croatia Dynamic forces “ bankruptcy administrators have. Therefore. the final remuneration cannot be higher than 300. from a somewhat static position. and to the judge’s annual salary which amounts to approximately 100. SEKI J. Bankruptcy administrators have become more prompt in preparing the documentation necessary for cashing the assets of the debtor and the conducting of civil proceedings as in the payment of creditors in means of partial division. In this way the final calculation of remuneration is is not interfered with and the bankruptcy administrators are stimulated to efficiently cash the bankruptcy estate and to settle the creditors claims with partial divisions. It is the opinion of many colleagues that in this way bankruptcy administrators have become more oriented to the conclusion of proceedings regarding all aspects of the proceedings itself. within the established final calculation is performed in proportion to each partial division. ZDRAVKO SEKI Director. whereat this amount is conditionally related with the term of duration of the bankruptcy proceedings. approach to the examination of claims. been cast into a very dynamic one. The Regulation was passed by the Croatian Government at the end of 2003 and states that the remuneration amount is established by the bankruptcy judge considering the nature and amount of work of the bankruptcy administrator as well as the value of the cashed bankruptcy estate according to the schedule. Unfortunately this has not lasted long.000 kuna for each following year up to the conclusion of the proceedings. should not be altered significantly as in practice it has proven to be well accepted.T. The part which refers to the stimulative increase of the remuneration above the final remuneration of 5%–20%. After the expiration of the Regulation. By this means of remuneration. This is due to the fact that the debtors have no assets from which the bankruptcy debtor could settle his claim. the Bankruptcy Act regulates that if the applicant does not make an advance payment in the amount of 10. In this way none of the participants are at loss. practice has shown that a greater part of expenses is spent on compensations. and the bankruptcy administrator cannot receive an adequate remuneration for his work and effort. What occurs in practice is that a temporary bankruptcy administrator does not acquire an amount higher than 3. In this way “constant attention would be paid to the fact that the most possible number of creditors’ claims should be settled and unnecessary costs of proceedings would be eliminated ” the bankruptcy administrator would be stimulated for drafting a bankruptcy plan which gives a new economic perspective to the bankruptcy debtor which is also an advantage to the community as a whole. This should stimulate or de-stimulate the bankruptcy administrator. nature of the bankruptcy administrator’s performed work and activities) when calculating the final remuneration. the amount and percentage of the settlement of the owner (this is peculiar. attorney’s fees etc.000 kuna. the bankruptcy judge shall reject the proposal.000–15. in spite of a very complicated procedure of establishing the existence of reasons for initiating bankruptcy proceedings.CROATIA Other criteria for remuneration Perhaps other criteria should be added to the present criteria (value of the cashed bankruptcy estate. all of which diminish the chances of the creditors for a higher settlement.000 kuna for proceedings costs along with an additional fee of 10. Unfortunately. In fact. the bankruptcy administrator should be stimulated in relation to the final remuneration in the manner that he should be awarded a higher remuneration than the one received as a bonus for property that has been cashed before the prescribed deadline. due to the fact that it is the fees that are sometimes the reason for not initiating bankruptcy proceedings. as they are not all experts in every field (this may also be a subject of a separate discussion). and the bankruptcy administrators would either be stimulated or destimulated. It would be proper to include the additional criteria of remuneration such as the amount and percentage of the final settlement of creditors during the bankruptcy proceedings. it should affect the necessary categorisation of bankruptcy administrators. Such practice should be altered in the manner that a temporary bankruptcy administrator in complicated situations should be adequately remunerated or that the court fees necessary for presenting the proposal for initiating bankruptcy proceedings be reduced. Autumn 2009 37 .000 kuna. In a case where the bankruptcy administrator has drafted a bankruptcy plan and such plan has been accepted.. Problems also occur in situations when the bankruptcy debtors’ assets consist mainly of claims which cannot se settled regardless of the existence of final court judgements.000 kuna for setting up a Fund for covering bankruptcy proceedings costs which cannot be paid from the debtor’s assets. which in practice occurs very often. Some problems The Regulation prescribes that a temporary bankruptcy administrator has the right to a lump sum remuneration for activities performed during the preliminary procedure to the maximum amount of 10. Such bankruptcy proceedings last a long time considering the nature of civil proceedings. Besides. It is also necessary to present the range and complexity of the bankruptcy administrator’s activities and establish the final remuneration in relation to these criteria. but cases like these do occur). In this manner constant attention would be paid to the fact that the most possible number of creditors’ claims should be settled and unnecessary costs of proceedings would be eliminated. In this way a balance of relations between all participants of bankruptcy proceedings would be reached. an executory contract. A debtor can reject a union contract if the union refuses to accept modifications to the contract necessary to permit reorganisation and to assure all creditors. Section 365 gives the debtor the right to assume. reducing the dealer network is. The damage claim arising from the debtor’s breach of contract is deemed to be a pre-petition general unsecured claim. CONAWAY Attorney at Law. a necessary step. Section 365 of the Bankruptcy Code is the perfect tool for this purpose. These provisions make it relatively cheap and easy for a debtor to rid itself of “burdensome” contracts.US BANKRUPTCY LAW Bankruptcy Law in the US In this edition we start a regular column by US contributor David H. days of US Congressional hearings. or reject. GM and Chrysler both filed for protection under Chapter 11. Without Section 365 and 38 Autumn 2009 . and months of speculation about “too big to fail” or the “cascading” effect throughout the supply chain. LLP market share. which are treated similarly to executory contracts. it appears that while modifications were made to the union contracts to reduce costs. it appears that political forces tempered the full power and impact of Section 1113. unfortunately. particularly in absence of key creditor objections. which often has minimal value. LLP GM and Chrysler: The Chapter 11 Solution After US Government “bailout” loans. Here’s why Chapter 11 makes sense Power to reject contracts Perhaps the primary reasons Chapter 11 makes sense for GM and Chrysler are Sections 365 and 1113 of the Bankruptcy Code regarding “executory contracts” (including dealer agreements) and collective bargaining agreements (union contracts). respectively. As the US auto industry attempts to right-size itself in response to declining sales and DAVID H. Rarely does a Bankruptcy Court challenge the exercise of a debtor’s business judgment on this point. Loop & Kendrick. With GM and Chrysler. Shumaker. the debtor and affected parties are treated fairly and equitably. the unions have ended up owning a substantial equity stake in the new entities. Bankruptcy Code Section 1113 is a powerful tool for dealing with union contracts. an Attorney at Law with Shumaker. Loop & Kendrick. Conaway. The rejection of an executory contract is treated as a breach of contract by the debtor. In these cases of unprecedented government intervention. piece-meal sale of assets. by contrast. Section 363 allows for a quick sale of assets to avoid further operating losses and hopefully achieve maximum value for the assets. which provides that a creditor is secured only to the extent of the value of its collateral. In the case of GM and Chrysler. The Section 363 sale often culminates in an “auction” where the “best” bid is selected and approved by the Bankruptcy Court. the liquidation value of the GM assets was between $6– $10 billion. ” Autumn 2009 39 . Another motivation may have been the leverage of the US Treasury Department as many of the lenders were TARP (Troubled Asset Relief Program) participants. which will likely require litigation and very often results in a non-unified. including substantially all of its assets. Moreover.US BANKRUPTCY LAW Chapter 11 and exit lender. a debtor must comply with the laws of each jurisdiction where assets may be located. In GM. the Indiana State Teachers Retirement Fund. both “debtors” were able to obtain quick Bankruptcy Court approval of Section 363 sales. For example. the debtor’s pre-petition lender is often the debtor’s One more reason Chapter 11 is the best option for GM and Chrysler is Section 363 of the Bankruptcy Code. The tools of Chapter 11. Other dynamics may impact the debtor’s use of Section 506(a) as a tool to write-down debt. lenders may be able to “negotiate” the secured debt write-down. In particular. The reason why secured lenders can be compelled to accept less is Section 506(a) of the Bankruptcy Code. Thus. This eliminates the need to adjudicate the rights of various parties in the assets prior to sale. to sell assets. objected to the Chrysler settlement. “Section 363 allows a debtor to sell assets free and clear of liens Power to sell assets free and clear of liens 1113. Interestingly. free and clear of liens. in Chrysler the secured Power to write down secured debt lenders received only 29% of their claims. In a non-bankruptcy setting. The respective rights of parties’ competing secured or lien interests must be resolved prior to sale. Section 506(a) (write-down of secured debt) and Section 363 (sale of assets) make Chapter 11 the ideal solution for GM and Chrysler. This would be an overwhelming task as virtually every state’s laws would be involved and litigation would almost certainly be required. reorganise. It could take years and incredible financial resources to terminate contracts without Section 365 of the Bankruptcy Code… neither cheap nor easy. relating to sales of assets. dealership laws and state contract law. Another reason why Chapter 11 makes sense relates to the Bankruptcy Code’s treatment of secured debt. Section 363. one non-TARP secured lender to Chrysler. specifically Sections 365 and 1113 (rejection of contracts). By the time the parties’ respective rights are adjudicated. The recent headlines reported that GM and Chrysler’s major creditors took substantial “hair cuts” regarding the indebtedness owed to them. debtors would be required to terminate contracts under various state and federal laws including labour laws. franchise laws. the Bankruptcy Court found that even though the secured debt was approximately $50 billion. and to liquidate business operations and their assets. These tools have been and will continue to provide struggling businesses in all industries substantial incentive to choose Chapter 11 as a business strategy to restructure. the operating losses have likely eroded the asset values substantially. allows a debtor to sell assets. with the liens attaching to the proceeds of sale. POLAND Consumer insolvency proceedings under the amended Polish bankruptcy law INSOL Europe Academic Forum member Patryk Filipiak writes on the new law relating to consumers and entrepreneurs in Poland Introduction Since 31 March 2009 there has been a personal insolvency proceeding available in Poland (Articles 4911-49112 of Polish Bankruptcy and Reorganization Act dated 28 February 2003 amended by the Law of 5 December 2008. extraordinary and not dependent on the debtor itself – in this case there is a statutory “guideline” according to which when an already insolvent debtor takes further liabilities and/or if the employment agreement was beforehand terminated on the grounds for which the employee/debtor is liable. a serious obstacle to the broad application of the new Law is the requirement of minimum assets.000– €3. apart from companies and other entities. 1. the insolvency proceeding. insolvency proceedings are in this case excluded If courts interpret this section literally. a list of debtors. However. along with it’s ruling there comes another which is a rejection of the insolvency petition on the grounds of a lack of minimum assets to carry on the insolvency proceedings! The consumer insolvency is exclusively a winding-up insolvency. PATRYK FILIPIAK Attorney at Law – trainee at Sojka&Maciak LLP in Poznan. The insolvency court may however reject the petition if certain prerequisites are met.234 sec. Moreover. The paradox is that the consumer may file to the court for the exemption from the cost of proceedings. The liquidation of assets is usually managed by the appointed liquidator however it may be allowed that the debtor will carry it on personally under the supervision of a liquidator. there is a 10-year period when the petition of a past bankrupted consumer shall be denied. • There were already insolvency proceedings or any similar proceedings carried out in which all or part of the debts were discharged. The scope of the new regulation covers the debtors who are not involved in business.88 PLN). The form of the petition is prescribed by Law and must provide the insolvency court with similar information as in the case of corporate debtors.e. entrepreneurs. which means all of the assets will be liquidated and the creditors will be (partially) paid off with the proceeds. The debtor’s insolvency is not caused by factors which are Payment plan After the final plan of proceeds is drafted but not before the debtor moves out of its apartment or a house. a list of creditors with the amounts due. Journal of Laws (2008) No. In general. • There were already insolvency proceedings carried out and the debtor violated its financial obligations toward the creditors or there was already a consumer insolvency proceeding carried out and it was discontinued on other basis as the joint motion of all creditors. The insolvent debtor must cover the proceedings’ cost which means in practice that there must be a minimum of about €2. Before. In the course of the previous 10 years one or more of the following conditions were met. a list of collaterals on the debtors assets (such as a mortgage). • There was an actio pauliana ruling against the debtor. €798 (3287. The court may grant the exemption when the debtor is in a very poor financial condition. a list of liabilities paid off in the period of the previous six months. In the majority of cases such an amount is not available for an overindebted individual (the minimum monthly salary is as low as approx. was only available to so-called business individuals i. The information include inter alia: reasons of the insolvency (inability to pay debts only!). the expression “the non-dependent factors” may be construed in a very adverse way for an insolvent debtor. a plan of paying off the creditors within a certain period of time (payment plan) is the 40 Autumn 2009 . The petition fee in case of consumers amounts to about €48 (200 PLN) whereas it is €243 (1000 PLN) in the case of business individuals and companies.000 of personal and easily recoverable assets out of which about €500–€700 must be in cash to meet this requirement. consumers.e. i. Poland A candidate for PhD degree at the Chair of Civil Proceedings of Adam Mickiewicz University in Poznan “ insolvent debtor The must cover the proceedings’ cost Conditions to be met and highlights of the proceedings ” The new Law provides that only the debtor and not its creditors could file for bankruptcy. There is an explicit provision that even a private apartment or a house of the debtor should be sold and the debtor is to be secured with the amount sufficient for a one-year lease. 2. €310 (1276 PLN) and the average salary in June 2009 was approx. it will be almost impossible to hand down an insolvency ruling.1572). In both cases debtors secured their spouses businesses which later went bankrupt. the debtor cannot purchase items above a certain value or using credit facilities or a prolonged payment scheme. the debtor should submit a yearly statement concerning the executing of the payment plan as well as its current financial status. The statistics indicate clearly that regulation proves to be too strict both as a matter of material and the financial prerequisites for filing an effective consumer insolvency petition. In case of private individuals (consumers) it is not yet sure whether the above provision applies. Finally. the court after a hearing may revoke the plan and discontinue the proceedings. employment claims. The plan provides what will be the payment period (not longer than five years with a possibility of a one-time exceptional prolonging of two years) and what will be the amount of installments to be paid during this time out of debtor’s revenues (e. maintenance money). The regulation is very strict for the insolvent debtor as in every event of breach of the plan (duties incurred by the plan which include also duty to disclose all the debtor’s incomes and assets). salary).POLAND subject of a confirmatory ruling of a court. 369 of the Law). The important part of the new regulation implies certain duties upon the debtor during the payment period.e. I think the courts should follow the per analogiam interpretation. If the debtor’s financial situation increases materially. The plan includes only the liabilities due until the day of confirming the plan. death. In case of individuals running a business activity. may be subject to a discharge apart from any alimony (spousal support. disability pensions.g. each creditor may file for the change of the plan and a rise in the monthly installment. Moreover. the plan provides for what part of the liabilities the debtor will be discharged. In such a case a discharge shall not effect and the next insolvency proceedings will not be available for the debtor in a 10 years period. The law provides that the insolvent debtor shall act only within the scope of normal course of his activity i. Statistics “ in the first three Discharge After the payment plan is successfully executed the rest of the liabilities are discharged in the manner set out in a plan. Statistical data provided by the Polish Ministry of Justice for the end of June 2009 show that in the first three months of the new Law being in force there were about 450 court applications out of which only two (!) succeeded. premiums for the social insurance (art. if they may be proved on the grounds of the documents of the insolvent debtor). and all kinds of injury. all claims that were listed on the claims list (or claims that could have been listed but were not months of the new Law being in force there were about 450 court applications out of which only two (!) succeeded ” Autumn 2009 41 . During the meeting the draft recommendations on the domestic treatment of enterprise groups in insolvency were discussed in further detail and many of them were adopted in substance. In December 2006 the Working Group started its consideration of the treatment of corporate groups in insolvency. Furthermore recommendations were discussed with regard to reorganisation plans. held at the United Nations Headquarters in New York. 18-22 May 2009 Introduction to the current work of Working Group V of insolvency on a security right in intellectual property. Furthermore legislators are advised to introduce the possibility of coordination of two or more insolvency proceedings (‘procedural coordination’). coordination of procedures for the filing of claims. During this session the Working Group discussed primarily the treatment of enterprise groups in insolvency but also the cooperation. the introduction of the so-called ‘substantive consolidation’. The Netherlands This article aims to provide an update on the work of Working Group V of the United Nations Commission on International Trade Law (UNCITRAL) after completion of its 36th meeting. etc. The Working Group continued its deliberations during several sessions. It soon became clear that the Working Group aimed to complement two previous texts adopted by UNCITRAL. with legislative recommendations regarding the treatment of enterprise groups in insolvency. joint notices to stakeholders. Both domestic and international issues were discussed. the outcome of the meeting is discussed. the timing of application. the persons permitted to apply. Domestic (‘national’) issues With regard to the domestic treatment of enterprise groups for example. These sessions were held in Vienna and New York over the last few years. communication and coordination in cross-border insolvency proceedings as well as the impact Treatment of enterprise groups in insolvency The deliberations with regard to the treatment of enterprise groups took place on the basis of draft recommendations. competent courts. This article will specifically focus on the first two topics mentioned. ROMANA BREMER Advocaat at Trip Advocaten & Notarissen Leeuwarden. This joint application enables the commencement of insolvency proceedings with respect to two or more enterprise group members at the same time.UNCITRAL UNCITRAL Working Group V: A timely update Romana Bremer gives us a progress report on the 36th meeting of UNCITRAL Working Group V (Insolvency Law). a pooling of the 42 Autumn 2009 . In 2006 UNCITRAL agreed that the topic of the treatment of corporate groups in insolvency should be further developed. The recommendations further suggest. These recommendations cover several subjects with regard to the treatment of enterprise groups in insolvency proceedings. for example. acknowledging the separate legal identity of the group members involved. yielding a better return to creditors. The possibility of obtaining finance after the commencement of insolvency proceedings should enhance the likelihood of survival of the business of the enterprise group members and is also meant to safeguard the value of their assets. The significant progress of these meetings has resulted in the drafting of working papers by the Secretariat which provided the basis for further deliberations by the Working Group in the next sessions. The recommendations further advise legislators to facilitate the obtaining of so-called ‘postcommencement finance’. namely the UNCITRAL Legislative Guide on Insolvency Law and the UNCITRAL Model law on CrossBorder Insolvency. The latest meeting in New York was the sixth session on the treatment of enterprise groups in insolvency. etc. legislators are advised to permit coordinated reorganisation plans involving two or more enterprise group members in order to facilitate the coordinated rescue of the businesses of these group members. Here. The objective of this meeting was to further deliberate on the complex topic of the treatment of enterprise groups in insolvency. Working Group V was asked to consider the subject and make recommendations with regard to the form and scope of its possible future work. drafted by the Secretariat. several key suggestions will be highlighted. After a brief introductory section on the current work of the Working Group. Such procedural coordination may include coordination of hearings. Here. the introduction in the insolvency law of a ‘joint application’ is suggested. assets and liabilities of two or more enterprise group members to form a single insolvency estate. According to the Working Group substantive consolidation may be an appropriate remedy in cases where the assets or liabilities of the enterprise group members are intermingled to such an extent that they cannot be separated without undue expense or delay. The discussions also covered provisions regarding. Hereby cost efficiency will increase. It also may provide an appropriate remedy when the group members involved are engaged in fraudulent activities and the pooling of assets and liabilities is necessary to rectify such activities. scheduled for 9-13 November 2009 in Vienna. With the exception of the EC Insolvency Regulation and a few regional treaties there is a lack of multilateral treaties designed to streamline the legal and practical aspects of cross-border insolvency cases. In addition. judges and stakeholders all over the world. Many of the draft recommendations were adopted in substance. the notes provide useful guidelines to practitioners and judges on practical aspects of cooperation and communication in international insolvency cases (as the CoCo Guidelines do with respect to the EC Insolvency Regulation). It soon became clear that the Working Group strongly supported the contents of the notes and acknowledged their usefulness. the treatment of claims. In light of the fact that cross-border insolvency agreements might provide an important tool in achieving these goals. domestic and international. With the adoption of the Practice Guide a useful tool is given to practitioners. However.UNCITRAL “the notes provide During the session progress was also made on several international issues. Briefly. However there are only a few legal regimes. Specifically the possibility to negotiate and use cross-border agreements to facilitate cross-border cooperation and coordination is illustrated. a compilation of practical experiences was made by the Secretariat. These sample clauses cover diverse subjects such as allocation of responsibilities between courts and the insolvency representatives involved. as the official report of the session also shows. the Model Law does not specify the means by which this cooperation. The subject was then referred to the Working Group for discussions. The draft recommendations on international issues specifically stress the need to facilitate and stimulate cooperation and communication between courts and insolvency representatives as well as among insolvency representatives with respect to insolvency proceedings of enterprise group members. etc. the Working Group adopted the notes with the following title: ‘Practice Guide on cooperation. the choice of applicable law.org.uncitral. article 27 of the UNCITRAL Model Law provides a legislative framework authorising the cooperation. the Commission asked for a compilation of practical experiences on the negotiation and use of such agreements. communication and coordination in crossborder insolvency proceedings Cross-border insolvency cases are complicated by many legal and practical difficulties. several of the topics will have to be discussed in further detail at the next session of the Working Group. communication and coordination in international insolvency cases. UNCITRAL adopted the ‘Practice Guide’ in its current form. However. communication and coordination in cross-border insolvency proceedings’. specifically in the context of the current financial crisis. the methods of communication between courts and between parties involved. On the 1 July 2009. Importantly. After consultations with judges and insolvency practitioners. All the working documents of Working Group V and the official reports on its sessions can also be found on this website. legislators are advised to authorise the conclusion and use of cross-border agreements. Next to guidelines on negotiation and use of cross-border agreements (also known as courtto-court protocols) a large number of sample clauses are given for guidance. International issues Cooperation. In May 2009 the Working Group had before it notes prepared by the Secretariat and commented upon by the governments of the member states. The work of Working Group V will continue at its next session. At the meeting. Several draft recommendations were discussed. The interested reader may find the interim text of the Practice Guide on www. useful guidelines to practitioners and judges on practical aspects of cooperation and communication in international insolvency cases ” Autumn 2009 43 . Several forms in which this cooperation and communication can take place are specified and safeguards are proposed to protect the rights of parties and the jurisdiction of the different courts involved. the coordination of the recovery of assets. that address these international aspects of insolvency cases. yielding agreement on specific main points. communication or coordination can be achieved. with the first big wave of bankruptcies expected for the first quarter of 2009 at the latest. The potential bankruptcy candidates have managed to cheat the gallows through tough negotiations with their creditors. This spurred the imagination of certain circles. In October 2008. A slump in economic development did not appear until the last quarter of 2008. although there were enough signs of such prospects in the horizon. the emerging unrest in the financial markets soon subsided. employment figures were at a historical high. however. The reports on company insolvencies and developments in the labour markets gave reason for further worries. So far the repercussions of the economic crisis have remained relatively moderate. a certain gold rush feeling began to spread. Needless to say. Some prominent personalities expressed worries that this would be hard to manage with the personnel available. the IPs hopes for a big catch are fading away. enabling banks to increase their equity capital – a measure some of them were in urgent need of. the state issued an unlimited guarantee on savings deposits to restore confidence in banks. various IPs are worried about their future. and practically without any political dispute. This package The prophecy that the massive crisis in the financial and capital markets would infect the real economy became a dramatic reality in the USA as early as spring 2008. failed to materialise. The insolvency statistics published by the Kreditschutzverband 1870 for the first half of 2009 were quite sobering. at least with regard to the first three quarters. Is the economic crisis now hitting Austria? In the spring of 2008. However. On the contrary. showing only a slight increase of 10%. a package was drawn up. Once again. As a result. however. Meanwhile. An unprecedented wave of insolvencies was predicted. who are timeously bringing themselves into position for a possible assignment as administrator or liquidator.COUNTRY REPORTS The Financial Crisis: Country reports Austria GÜNTHER VIEHBÖCK Viehböck Breiter Schenk & Nau Rechtsanwälte OEG (Austria) proved effective and successful. When Lehman Brothers filed for bankruptcy protection and the spectre of national bankruptcy loomed over Iceland in September 2008. nerves wore thin in the banking industry. Although the respective forecasts have been revised often enough. the year 2008. To this day. revenue from the liquidation business is declining. The automotive industry and other export businesses reported sometimes severe declines in incoming orders. The predicted wave of bankruptcies. it became evident that developments of transatlantic origin always take time to affect Austria. Contrary to forecasts and expectations. This is significantly less than in the previous year. a major insolvency has failed to materialise. the subprime crisis caused a certain agitation among Austrian banks. Many are asking themselves whether and when this wave will roll over our country. One thing is sure: the wave of insolvencies has not reached Austria. It was feared that the crisis would have a negative impact on their annual results. for most companies across all industries. export-oriented companies and the entire transport 44 Autumn 2009 . when the increase in the first six months was 16%. lucrative bankruptcies simply have not occurred. business are suffering from the global crisis and some are in dire straits. was the most successful one of the last decade. Colleagues were advised to build up capacities to cope with the expected volume of work. At an IP congress in November 2008. As economic development in Eastern Europe – where these banks have significant stakes – showed clear signs of collapse. People are beginning to hope that the situation may not significantly deteriorate after all. the state was hastily called in for help. the real economy in Austria did not feel the repercussions of the crisis. Nevertheless. This bank rescue package possibly prevented a number of banks from filing bankruptcy. In a surprisingly swift manner. These potential candidates for large-scale insolvencies are being watched by IPs like hawks. In addition. At the hearing the Judge orders that. this implicates that the obligation to file an insolvency petition as specified in section 15a InsO is no longer valid for this company. The debtor drafts an agreement of restructuring of the debts containing a reimbursement plan to submit to the creditors and. it is important to sustain the families and the companies. Acting negligently will suffice. In this respect. the debtor must file the list of all the creditors. 335 InsO. the correct fulfilment of the assumed obligations leads to the conclusion of the procedure. Obligations of insolvent or overindebted companies file an insolvency petition (incumbent on him/her since 1 November 2008). The next step is to wait for the possible modifications to the text made by the Chamber. excluded by the Italian bankruptcy law as well as to the entrepreneurs in a situation of over indebtedness. and has laid down in the new section 15a(1) InsO (German Insolvency Code) a general obligation to file an insolvency petition for all those who are subject to the German insolvency law. Together to the proposal. Once insolvency proceedings have been opened. given the fact that. in recent years. Since 1 November 2008. The obligation to file a petition arises if the company becomes insolvent or is overindebted. the German insolvency law shall apply according to Art. if the goods or the incomes of the debtor are not enough to guarantee the feasibility of the plan. the phenomenon that the excessive indebtedness has reached. This has been the stated aim of the legislator. Even the newly extended obligation applies: the obligation to file an insolvency petition in case the company should be without management applies to the shareholders of a limited liability company (GmbH) or the board members of a stock corporation (AG) and a cooperative according to German company law. namely if the company’s centre of main interest (COMI) lies in Germany. only in cases where a German insolvency court is competent. informing the creditors as well when related to the activity of a company. activated by the debtor in “over indebtedness”. Autumn 2009 45 . Such violation may be punished by a fine or imprisonment not exceeding three years. is significant. individual executive actions cannot be initiated or carried forward. the insolvency administrator will pursue all prospective liability claims. The proposal of the agreement foresees the restructuring of the debts and the satisfaction of the credits through any form. today Italian companies face a difficult assignment. foreign companies and their representatives must observe the obligation to file an insolvency petition. which is effective from 1 November 2008. The peculiarity of the procedure consists of the fact that it is directly In this context. and thus the obligation to file an insolvency petition according to section 15a (1) page 1 InsO. subsequently. according to which the centre of main interest is to be defined individually for each legal entity in a group. approved 1 April 2009 by the Senate and now under examination at the Chamber.” This is the motto that is always repeated in this period. From this time onwards. the ECJ decision in the Eurofood case. they may be obliged to file an insolvency petition. originated from the demand to hold in consideration the weak people. at least insofar as it could be argued that the centre of main interest lies in Germany and therefore an insolvency petition filed in Germany may be successful. In addition to the failure to file an insolvency petition. Dresden (Germany) The German legislator has relocated the obligation for a company to file an insolvency petition. proceeds to the publication of the same in the Register of Companies. a term indicating a situation of persisting economic unbalance between the obligations and the available funds.COUNTRY REPORTS Germany HARALD BUßHARDT Schultze & Braun. which have been anticipated to be present. however. If such shareholder gains knowledge that the management of its company has disappeared or is permanently not available a duty to assess the company’s financial situation may exist. 3(1). “Against the crisis. The agreement must be approved from all the creditors participating in the procedure and the non-respect towards one or more creditors terminates it. the project of law 2364. the same may also occur should the insolvency petition not be filed in accordance with the legal formalities or if it is incomplete. 4(1) EIR and section 42. Undoubtedly. The international financial and economic crisis has also had a remarkable effect on the productive system and the institutions must operate and support the companies and the families financially. The violation against the obligation to file an insolvency petition will also result in immediate civil liability. it is foreseen that the debtor can get the agreement made valid with the approval of the majority of his/her creditors and granting the regular payment of the creditors non signatory of the agreement. the company has its centre of main interest outside of Germany or if it relocates its centre of main interest abroad. however. he/she incurs a penalty for delay in filing a petition in insolvency. to the insolvency law. with the indication of the amounts due and the attestation on the feasibility of the plan. The obligation to file a petition applies to all members of the company’s statutory organ of representation and its liquidators. Italy GIORGIO CHERUBINI Pirola Pennuto Zei & Associati (Rome) For a foreign company which was founded in accordance with the company law of a member state. for not over 120 days. the agreement is filed in Court with the list of all the creditors and the sums due to them. The second section of the project of law is entirely devoted to the procedure for the composition of the crises and proposes to find a solution to apply to the individuals. the proposal must be signed by one or more third parties securing the repayment through assets or incomes enough for the implementation of the agreement. which was previously governed by the corporate laws. due to the situation that has involved the whole world and also depends on the anomalous growth of the indebtedness of the families as well as from the misregulation of the financial markets. also through transfer of the future incomes and. The beginning of a new era for the debtor? The project of Law 2364 The proposal is filed before the Court of the place of residence of the debtor and the Judge immediately fixes a hearing. an insolvency petition is to be filed in the name of the company without undue delay within three weeks. The way of living has become a sort of game to credit and the Italian families have shown that they know exactly how to play. If a member of the statutory organ of representation of a foreign company violates the obligation to If. Sweden Further Information: www.org) Tel/Fax: +44 (0) 115 878 0584 Website: www.uk) Academic Forum Prof Bob Wessels (
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[email protected]@thierhoffilly.godfrey@nabarro. P O Box 7149. UK (26 – 27 March 2009) on the theme of “Celebrating the 30 Years since Publication of the Cork Report”. Publication is already being planned of papers from the Joint Insolvency Conference at Brighton. and the Annual Conference (1 – 2 October 2008).INSOL Europe Technical Series Publications INSOL Europe are pleased to announce two new additional publications to the current Technical Series. Clifton. on the theme of “The Intersection of Company and Insolvency Law”. The publications contain papers delivered by speakers and panellists at those conferences. Nottingham NG11 6WD. INSOL Europe. arising from events organised by the INSOL Europe Academic Forum. The texts form a comprehensive report of the conferences and contain accounts of recent research in the insolvency field that will be useful for academics and practitioners alike. UK Fax: +44 115 8780584 Email: carolinetaylor@insol-europe. Ancillary texts (draft laws and rules) debated at the conferences are also included. The conferences for which reports have been produced are the Joint Insolvency Conference at Leiden (5 – 6 June 2008). It is anticipated that these publications will inaugurate a regular series of conference reports.org Autumn 2009 47 . Only €20 each Please contact: Caroline Taylor. on the theme of “Crossing (Dutch) Borders in Insolvency”. which will appear in late 2009. com
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