International Insolvency Law General Introduction We will try to work on what is interesting for you. It does not matter how fast we mave, but we must move, and we will mave according to our needs. This class is a process of building-up knowledge Insolvency law is @ difficult course that louches upon very different and interrelaled issues. We will look at both European and international insolvency law. It is a legal topic but it also engages a lot of other fields. So be involved in class to be best prepared for the exam, that it the best guarantee, Teaching method * «Tell me and | forget, teach me and I remember, involve me and learn » * Lectures: must be eractive, require participation and preparation. * Practice sessions: cases and exercises. Course materials * Slides: available on BB after the lecture; do not capy all the slides during class * Personal nates: take notes if items an the slides are not sufficient * Supporting documents to understand the topie: legislation, case law, ete * Optional books: Transnational Commercial Law, Goode & Kronke. Preparation of lectures * Reading assignments available on BB after the lecture for the next week All the texts will have to be read for the exam, 80 prepare them already in advance. * Preparation of exercises: apply the rules to an international insolvency case Evaluation * Written exam, closed book (highlighted legislation is allowed but without annotations). * Cases (analysis + precise questions) and apen-questions. For the exam, you need a good understanding of what we did during the lectures. * 1/20 point: preparation and discussion of case study for Module PLBL - see BB In this Case study, elements of the four courses will be integrated. If you salved the question related to international insolvency law correctly, you will get the point. This will be discussed al the workshop of May 20 Learning outcomes “find and interpret relevant rules and regulations on international insolvency law (discussed in class)* demonstrate advanced understanding of the legal rules, principles and institutions that regulate international insolvency * apply the rules on jurisdiction and applicable law in the EU Insolvency Regulation © analyze and solve a case with an international dimension © explain and comment on international insolvency case law —> if you prepare yourself well for each lecture and participate during the class discussions and exercises, you will get the best guarantee to pass the exam. —> itis better to take hand-written notes. The purpose of the noting is to understand whal is staid and to put it into your own words.Introduction on International Insolvency Law 1. Introductory assignment What is insolvency law? Personal insolvency concerns natural persons indebted who cannet pay their debis anymore. We will not facus on personal insolvency law, but on corporate insolvency law. You also have to make a distinction between companies/entrepreneurs (run a business for themselves) = natural persans (no entrepreneurial activity) Generally, in insolvency law, one option is to liquidate/bankrupicy, the other option, if viable, is the restructuring. In the EU, there is @ legislation restructuring: we want to promote business savings. Bankwuptcy! is a legal process through which entities wha cannot repay debts to creditors may seek relief fram some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor. Bankruptcy law thus provides all the rules on the selling of all the assets of a firm and distribution among the creditors. It is about fundamental problems that cannot be solved in the short time —> there is a time component. The « insolvency test ~ (i.6. to know whether the company is insolvent or not} depends on the national insolvency law. ing: analysis of whether some assets of the company can be rescued/saved or if the whole business is ou! —> rescue mechanism Different stakes must be taken into account when taking decisions on insolvency. As regards the protection af creditors, collateraP / security interests */ priority rights are alsa very important. In principle, equa! treament is the basic principle, but the majority of creditors have priority rights thanks to their security interests. What are the legal sources of insolvency law? Insolvency law is always a matter of national law Some may be influenced by international or European standards that wi uence national insolency laws to have amore harmonized insolvency law. Take @ look at your national laws to get an idea on how it works. What is international insolvency law? lf employees, assets, debtors or creditors are located in different jurisdictions, we enter in cross-border insolvency and thus in international insolvency law. 1) which court will have the jurisdiction to open proceedings? 2) what about the choice of the applicable law? "lie ° Garantajesuien 2 SteadAs you soon as you have determined the court which has the jurisdiction to open the proceedings, the choice af the law falows —> lex coneursus = the law of the MS of the apening of the proceedings determines all procedural and substantive effects of the insolvency proceedings in the EU communty. However, there are some exceptions to that general rule 3) what about the recognition of the decision taken by national insolvency proceedings on creditors from ather countries? States may have two types of approaches: universalism (one proceeding as regards one debtor will govern all the creditors and assets wheraver they are) * ferriforialism (ona proceeding as regards one debtor will not apply to creditors in other States) —> majority approach. The salution is « miligated universalism » mixing the two approaches. We need communication, coordination and cooperation between the courts and administrators. of their own national rules of each other and of the possibilities on working tagether —> how to access information from different jurisdiction? What are the legal sources of international insolvency law? * EU European Insolvency Regulation: directly applicable to all MS; overuies national rules within the EU! context * UNCITRAL Madel Law on Cross-Border Insolvency: this is a model thal ean be implemented by national legislators; extra legal instrument 2. National Insolvency Law Insolvency law is about the prevention, regulation and administering of (dis}continuily of a debtor in financial difficulty It comes from the latin word in-soivere (nat able to pay). Insolvency is an ambiguous concept: * sensu stricto insolvency: « being insolvent » - insolvency test —> liquidation or bankruptcy. * sensu latu insolvency: « facing (financial) difficulties « - there Is a potential risk of insolvency but you are not insolvent yet —> restructuring or reorganization This two notions of insoWency leads to different scopes and different rules (e.g. in Belgium there are two separate sections provided in Livre XX of the CDE). We should distinguish corporate debtors = personal debtors. In this course, we will focus on corparate insolvency. From the perspective of creditors, all those rules are included in insolvency law. Key aspects * Position of debtor and creditors assels (actif/biens) vs. liabilities (passitidettes) = the estate. | Parimonedebts (of the debtor) vs. claims® {of the creditor) = liabilities. * Insolvency proceedings are the solution af conflicting interests * Security interest: ta secure a claim Rights in rem: real security interest (e.g. mortgage in real estate, liens and pledge” for movable assets): if the debtor does not pay his debt, the creditor can sell debtor's moral or immoveable assets to get pay. Personal security rights (6.9. bank guarantee: a third person, a bank, will quarantee the debt, so if the debtor cannoi/dogs net pay, the bank will pay. In tum, the bank will reclaim the money from the debtor. The risk is that if the debtor does not pay his creditor he will not be able to pay the bank neither —> the bank must evaluate the risks of Quarantesing of a debtor) Others: set-off (a set-off clause is a legal clause that gives a lender the authority to seize a debtor's deposits when they default on a loan. A setoff clause can also refer to a settlement of mutual debt between a creditor and a debtor through offsetting transaction claims. This allows creditors to collect a greater amount than they usually could under bankruptey proceedings}, reservation of title? (legal rule that sold and delivered merchandise remains the property of the seller until the buyer pays the purchase price in full - e.g. car seller keeps the property file on the car until the client has fully payed the car); credit market; liability of directors; protection of employees; criminal law. [nsolvency proceedings * National definitions. E.g: according to Art. 2, 1° of the Belgian Code de droit économique, an involsvency proceeding is = a judicial reorganisation procedure by amicable agreement or by collective agreement or by transfer under the authority of a court or bankruptey court . * Principles of European Insolvency Law: liquidation = reorganization. §1.1: = Io an insolvency proceeding (preceeding) the assets of an insoivent debtor are collected and converted into money to be distributed among the creditors (‘iquidation), ar the labilties of an insolvent debtor ar@ restructured in order to re-establish the debtors ability t0 meet liabilities (‘reorganisation). The proceeding can be a cambination of fquidation and reorganisation. » * European Insolvency Regulation, 2015/848, 20 May 2015 (EIR 2015) Art 1.1. » Public caliactive proceedings, inckiding interim proceedings, which are based on laws relating te insolvency and in which, for the purpose of rescue. adiusiment of debt. ceorganisation or liquidation: (a) a debtor is totaly or partially divested of its assets and an insolvency practitioner & appainied * ordarce (rate réeron 1 Gane » Canmenaaton "ree Ca previ,(b)ihe assets and affairs of a debtor are subject to control ar supervision by a court, or (c) a temporary stay of individual enforcement proceedings is granted by a court or by operation af law, in order to allow for negotiations between the dabtar and ts creditors, provided that the proceedings in which the stay is granted provide ior suitable measures te protect the general body of creditars, and, where no agreement is reached, are preliminary to one of the proceedings referred ta in point (a) ar (D). Where the proceedings referred to in this paragraph may be commenced in situations where there is only a likelihood of insolvency, their purpase shall be ta avoid the debtor's insolvency or the cessation of the debtor's businass activities. The proveedings refered ta in this paragraph are listed in Annex A. Annex A EIR 2015 provides a closed list of national insolvency proceedings. Generally the list should corresponds to the definition in Article 1, 1 EIR. As a rule, you take the list and you check whether a specific MS is in the list. If it is not in the list, you cannot apply the regulation to that MS —> basic principle. * How to settle claims? Execution, enforcement, seizures, take assets —> the general rule is that all assets of all debtors are the way claims are going to be settled. Those types of rules are not insolvency law, it concemed individual enfomement. |t is a different approach than insolvency regulation, which only concerns collective proceedings (ie. all creditors are are part of that collective proceeding). Thus, an individual can decide to be part of collective proceedings. Sources (national level) You only find insolvency law in natianal sources. Yet, national legislation is influenced by European and international instruments, * National legislations: substantive law and procedural law —> diversity among Slates Although we have international insolvency law, national insolWency law is crucial: i is t icy (protection of debtor, creditor, employees, eic) —> in insolvency law, the national level determines everything. * European Insolvency Regulation 201 5/848 (supra): direct impact in EU]. 3. International Insolvency Law The problem arises when debtors have assets, offices, creditors, contractual parties, etc in different states. Why? Because domestic insalyency law is not applicable nar enforceable in another state —> need for cross-border insolvency rules. International or cross-border insolvency law is « the body of rules, which concern facts with an international element that are relevant in the context of insolvency » /\ yet, international insolvency law is nat a systematically elaborated legal framework. It only provides for conflict of law rules and some ather rules. Key aspects © International jurisdiction - competent court* Applicable law * Recognition of proceedings. * Steamilining!® of proceedings: coaperation and communication between courts, insolvency practitioners (IP's) Sources * Transnational binding laws (e.g. many bilateral treaties; EIR 2015; Title Vl OHADA Uniform Act on Bankruptcy proceedings 2015) * National binding laws: special rules on cross-border insolvency aspects (e.g Art 116-121 Belgian Private International Law Code; Title Vil Book XX Belgian Gode of Ecenomic Law, Chapter 15 US Bankruptcy Code) 43 countries have implemented the UNCITRAL Model Law; some countries have thelr own set of rules; yel, some countries do not have any rules on Insolvency —> diversily. * Soft law: (e.g. UNCITRAL Model Law an Cross-border Insolvency: World Bank Principles of Effective Insolvency and Creditor/Debtor Regimes) The EU Principles of European Insolvency Law reflect the common characteristics of the insolvency laws of the MS and to provide @ basis for greater harmonization. * Harmonisation efforts: in Europe, we are currently in a harmonization phase as regards insolvency —> EU Directive 2019/1023 of 20 June 2019 specifically targets resitucturing and insolvency. The objective is clear: we want to save businesses in the EU, we want to give all businesses the same opportunities and this is the reason ‘why an harmonization framework has been launched, Alter this first class, you must really consider the: + Difference between insolvency law and international insolvency lave + Key elements of insolvency law and intemational insolvency law. Insolvency law is quite long and detailed because national legislator wants to find a solution for every prablem and aspect of insolvency. 10 RetiabeienPart I. Basic Principles of Insolvency Law Chapter |. Framework 1. Overview and structure First, what does national insolvency law look like? Each legislation has its own rules, but the Principles of European Insolvency Law are an example of how insolvency law could look like Further on, there are further approaches: whet should national insolvency law laok like? We can look at the WB Principles; at UNCITRAL Legislative Guide and at harmonization of European Insolvency, as regards recent initiatives. —> we will get to know the core aspects of national insolvency law, through an analysis of the Principles of European InsoWency Law and link them with other instruments that describe what insolvency law should be: 2. Principles of European Insolvency Law (PEIL} The PEIL are actually contained in a quite huge book (Flessner, Mcbride and Kortmann, 2003, 675) which provides @ general introduction, a general commentary on Principles and national reports fram the different countries that were used to draft the PEIL (Belgium, Denmark, England, France, Germany, Italy, Luxembourg, the Netherlands, Scotland, Spain) —> what were the general rules existing in the different MS at the time of the drafting of the PEIL, ie. in 2003 —> soft law. But this it outdated. ‘The PEIL are originally in English, but are translated into French, Geman and Spanish PEIL try to capture common main characteristics of national insalvency law in some European States: common features of insolvency laws in 2003 (what does insolvency [aw look fke - not what insoWency law should should look like); there was no model law provisions (>< UNCITRAL / Warld Bank) It is an attempt to show that there is a great common ground ta start from and that it does not complicated to have greater harmonization of these core principles —> foundation for a greater harmonization. PEIL are substantive law principles: what insolvency regulates? + Scope of the PEIL * Debtor with professional or business activities: need of a professional activity * Only formal insolvency (this is already a bit ouldated because today we look at both formal and informal insolvency, e.g. EU Directive) * There is no voluntary debtor-creditor arrangements (this is part of contract law) * Qutside the scope: special rules for certain activities (banks, insurance companies, state ‘entomprises): general rules are nat specific enough for those types of businesses. —> these Principles give us an averviaw of whal the core of insolvency law is, It is just an instrument to help us to understand what insolvency law in Europe, and even broad, looks like and entails.3. UNCITRAL Legislative Guide on Insolvency Law It contains the key objectives and principles that should be reflected in a Siale's insolvency laws. There was a need for an instrument that could guide legislators in making their insolvency laws more powerful and effective —> instrumental approach: what should insolvency law look like based on basic common criteria? This instrument assists insolvency law reform around the world: it is not imposed, it is just the propasal of the best way to reform insolvency law The first two parts (approved in 2004) contain basic and general topics. The third an fourth parts are very specific and target specific problems related to insolvency. Part | (2004): Designing the key objectives and structure of an effective and efficient insolvency law. Part II (2004): Core provisions for an effective and efficient insolvency law. Part IIl (2010) The treatment of enterprise groups in insolvency Part IV (2013): Directors’ obligations in the period approaching insolvency. Scope of the Legislative Guide (Guide Part II, Recom 8-13) * Commercial insolvency: legal persons and natural persons conducting economic activities. * Possible exclusion of financial sector, for which special rules are needed. * Suggest to include quid-state owned enterprises in the general insolvency Iramewark, without exception. * Informal workout included (Recom. 160-168): they are aware of an informal way of solving insolvency issues. Informal insolvency proceedings (informal arrangement between the debter and creditors —> contract law, parties may refer to alternative dispute settlement mechanisms and entities) # formal insalveney proceedings (proceeding befare courts, according to the rules seltled). Yet, many aspects of insolvency are painting to law principles and rules which are binding, it may be of public importance that these mules aré followed —> no mediation is possible. LIP: get a better grasp of insolvency law concept by reading the glossary in the Legislative Guide, the definitions are those of general understanding. 4. World Bank Principles - The World Bank Principles for Elfective Insolvency and CreditowDeblor Regimes - When combined, these principles offer a very comprehensive view of what insolvency lan is. It develops benchmarking principles for core commercial law systems —> institutional perspective. It dates from 2001, but it was revised in 2005, 2011 and 2015 - Scope of the WB Principles * Principle C3: all enterprises or corporate entities, including state-owned enterprises. 9* Principle B4: Informal workout included + Insolvency and Creditor Rights Standard (\CR-Standard) It is an assessment tool to evaluate and improve insolvency and creditor debtor regimes, from a creditor point of view —> combination of the WE Principles and the UNCITRAL Legislative Guide 5. Harmonisation of European Insolvency Law First of all, there is an important difference ta make between * EIR (2018) which is a binding regulation directly applicable in EU (with exceptions for UK and Denmark). * other EU instruments which need a transposition in national law. We will only discuss substantive insolvency law. on the substantive aspects. 1) E1R (2015): limited impact on substantive insolvency law, focus on PIL aspects Scope of the EIR (Article 1): * insolvency proceedings (annex A: if a proceeding is not mentioned in this annex, then itis €xcluded from that regulation) * corporate and cansumer (legal persons and natural persons) * excluded: banks, insurances companies, financial sector. In principle, public aspects will be excluded, 2) Recommendation on new approach to business failure and insolvency, European Commission (2014) The EU Commission asks all MS to use that recommendation to amend their insolvency national laws, but a& it was not-binding, it has @ limited impact on national insolvency legislations —> lack of initiative by MS. 3) EU Directive 2019/1023 of 20 June 2019 an preventive resiructuring ameworks, on discharge of debt and alsqualifieations, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 —> EU Restructuring and insolvency Directive (ERID 2019) * Restructuring. we want to save the business; it can be done through bath a formal or informal structure. * Discharge of debt the Directive elaborates common rules that aim to affer a kind of equilibrium between the possibility for natural persons to exercise their freedom of movement and the limits of that exercise If you have a natural person declared bankrupt, when all his assets are solved and thus the insolvency proceeding closed, but that the persen still has debts, he will have to pay his debts all his life, which is however not possible >< the legal person declared bankrupt disappears once the Insolvency proceeding is closed. 1aThe problem is that if we do not have common rules, an entrepreneur that risks being declared bankrupt could use his !reedom of movement and ga to another MS in ather to exercise its activities in that other MS >< this is a kind of abuse of law. ERID (2019) sets a minimum legal framework | minimum standards —> MS should amend their national insolvency legislation by 17 July 2021 + Scope of the ERID (Article 1) * Preventive restructuring / second change (« discharge ») / Measures to increase efficiency of these mechanisms * Debtor with professional or business activities — legal persons and natural persons (entrepreneurs: Art, 2.1(9) + possibilities to extend/restrict, * Informal and formal workout * Excluded: banks; insurance companies, financial sector, public bodies —> how are all these different instruments related which each olher? The idea is to see what is existing (i.e. the PEIL) and what should be attained if we follow the models and guides {.2. WB Principles, UNCITRAL Legislative Guide, etc) 6. How to manage the instruments? —> try to get a general idea of the basic content of the Legislative Guide (Part 1 and 2), World Bank Principles. and ERID 2019 browse through, compare the main focus of the instruments, You do nolhave to know all the principles, rules and content of these documents: you can only bring the Principles of EU Insolvency Law al the exam, but not the Legislative Guide and WB Principles. You may have to comment one af these principles, but you do not have ta learn everything by heart + Legislative Guide (I&tl): * Table of contents * Discussion of topics (paragraphs) * Recommendation al the end of each topie = summary + World Bank Principles * Executive summary: very debtorereditor oriented; link insolvency and credit economy as such (the WB needs to see the broader picture); focus on investment climate insolvency law is viewed in the broader picture. * Principles: creditor-debtor rights; risk management and corporate workout; legal framework for insolvency: implementation: institutional and regulatory framework + ERID 2019 * Considerations (‘where as"): general context; explanation of articles * Tilles | to Vi: we will mainly focus on that Titles I and IllW You have to see these instruments as examples of what we are discussing. you do not need to know the whole text. Sometimes, you need to read some parts (e.g. considerations) to see what the provisions are about. Chapter II. Principles of European Insolvency Law (PEIL) Introduction PEIL set the principles on how to conduct an insolvency preceeding. There is a loton liquidation, because at the time restructuring was nol as used as it is now. Core elements of PELL * What is an insolvency proceeding * Institutions and participants * Chronolagical steps in an insalvency proceeding: the course of the events that will or may happen in an insolvency proceeding Class assignment * what? (§ 1.1}; who?(§1.3, §2}; when? (§1.2); why? (§1.1) —> the principles are very similar to what we can identify in different national insolvency laws The question when you are allowed to enter in proceedings is very important: when the deblor is unable / likely to be unable to par debts (§1.2) * in many jurisdictions, here Is the possibility to have a formafar an informal liquidation >< the PEIL only provides for formal liquidation, according to the rules set in them. Also, liquidation can be done without any problem if there Is enough money to pay all the creditors. * administrator = appointed to manage the whale praceeding (i! liquidator; curator). 1. Insolvency proceeding - §1 (what?) PLEL $1.1, = Definition * Liquidation vs. reorganization * Double track nature Traditional collective enforcement procedure: sale of assets and distribution of the proceeds OR Restoring the balance between debtor and creditor: moratorium — restructuring the debtor's labilties Moratorium / stay of enforcement = limited period of time as part of the restructuring plan during which all the creditors cannot enforce their claims against the debtor, it makes sure that creditors will not enforce their claims by fear that the deblor would not be ab, after the restructuring, to mest his/her liabilities.12 When we look at the impact, if you have liquidation you aimed to sell all the assets of the debtor >< if you have a restructuring, you want to lind a balance between the need to answer the claims and the need to restructure the debtor's liabilties There are two distinct proceedings = altematives with different rules and conditions OR Unitary proceeding = after a period of investigation a decision is taken to reorganize or liquidate * The abjective Is thal the assets of the debtor must be kept tagether and preserved for the creditors Assets should be withdrawn from the unrestricted control of the debtor and from the attachment of the creditors Neutral administration (see alsa § 2.2 and §3) or debtor in possession (under supervision of the court or person appointed by court - §14) : you need to somebody to manage the assets. * Liquidation vs. reorganization UNCITRAL Guide (Recom. 1-5) stresses the need to strike a balance between the two, it is only if reorganization is not possible that we can rely on liquidation WB Principles (C1) on key objectives and policies: provides similar objectives. ERID 2019 (Art. 4.1): preventive restructuring measures to avoid an insolvency procedure. Compare with EIR 2015 (Art. 1): collective proceeding - liquidation and reorganisation PIEL §1.2. - Requirements for opening ~ Debtor's financial inability to pay debts at maturity * World Bank Principle C4. * UNCITRAL Legislative Guide: Recom. 14-29 - There are two different national approaches tawards the insolvency test: * cessation of payments / cash flow test (liquidliy): you basically do not have the maney to pay the creditors 80 you just stop your activity; * balance sheet test / over-indebtedness (excess of flabillies over assets): you do not look at the liquidity, but at the overall value, ie. what are the value of the liabilities and the value of the claims? * Compare Art, 2, 2 ERID 2019. + Insolvency law should only, and only, intervene when the ability to pay is demonstrably lacking >< normal law of obligations and claims enforcement. We must be sure that the debtor is in fact insolvent. It is however very difficult to determine in practice, because it is not visible. Moreover, rules and practices vary in13 every jurisdiction —> difficulties. Because it is sa dificut and diferent among jurisdictions, people are thus very reluctant to determine specific rules in this regard. - The debtor is unable /or likely to become unable ta meet liabilities What does this mean? how far should you be / not be? The different instruments take a mix approach: it is up to the national insolvency courts to decide, but we want restructuring proceedings to be open only if a company is viable, You cannot let an enterprise that is not viable into this protective proceeding —> very difficult to put in words; judges adopt a case-by-case approach. * Likelihood is an even mare difficult concept: rescue of business but no insolvency sensu stricto, as the company must be viable. E.g.: Art. 4,1 ERID 2019: likelihood of insolvency = starting point + compare with Art. 7,3 ERID 2019: debtor is unable to pay its debts as they tall due: = ‘insoWent"? * There is no clear line between actual insoWency and imminent insolvency E.g. in Belgium: (potential) continuity threat. ~ Is debtor's economic recovery required to: It could be that the debtor is not viable for the time being but with a good plan, he/she may recover. What should the impact of the problems may be? There are very different approaches, and depending on where we put the bar we will have different results. * open a reorganization proceeding? Cir. Art. 4,1 and 4.3 ERID 2019 * approve a restructuring plan? Cir Art. 8, 1, (h) and Art. 10,3 ERID 2019 * impactthe BIEL $1.3. - Power to submit application - initiative Compare World Bank C.4 and Guide Recom 14-21. Who can initiate an insolvency proceeding? ‘of the debtor. * The most common way the debter goes to court asking for the opening of the proceedings —> debtor and courts are very fundamental actors. \t implies that all creditors will be of one collective insalvency proceedings and they cannot have an individual enforcement against the debtor. The application of the debtor is considered as a presumption of insolvency: the debtor needs a solution and he will probably answer all the requirements needed in insolvency law. In some countries, the debtor has the obligation to declare state of insolvency {if the debtor does not apply to courts, he can be subject to criminal sanctions or the personal liability of directors can be engaged). * In many cases, the creditor can refer to court for the execution of his claims The evidence of insolvency of the debtor must be positively demonstrate to the full satisfaction of the court: it is perfectly possible that a deblor proves that he is not answering the requirement of insolvency (e.g. unsuccessiul debt collection procedure) Legitimate interest required?14 Quid alternative of individual claim enforcement? * Itean be also be initiated by the State or any other public authority If nobody else dees, the public authority can open the proceedings. Why? Because insolvency has a general impact on economy and trade, it is of the general interest of the public and of the employment to start an insolvency proceeding —> there is a need totake this company out of the system, otherwise it can be very damaging. E.g.: 6x officio (own court initiative); public prosecutor; public bodies as creditor such as in tax issues. * Itmay be that the debtor makes a declaration, without court intervention. ff) do not forget the difference between commencement of liquidation and reorganization The majority view is that reorganization proceedings are initiated by the debtor only, because we need the debtor willing to cooperate in these proceedings. Otherwise, it is useless to foree the rescue of the business. See aft. 4,7 ERID 2019: debtor only + exceptions art, 4,8 ERID 2019. See Guide §48-53 PIEL $1.4. - Publicity. Publicity is key but it is also the enemy. Why? Itis.a key for the creditors but also for the clients of the creditors. Itis also necessary lo have a general view of whal is happening in the econamy. It is the enemy from the perspective of the debtor especially in restructuring, it is very negatively perceived to be in a restructuring proceeding. In general, the public does not want to contract with businesses that have been in a restructuring proceeding —> infarmal proceedings must be confidential; as soon as we enter in formal proceedings, an appropriate publicity must be ensured. —> Compare WB C.2 and Guide Renom 22-25 An insolvency proceeding affects the deblor (depriving total or partial power over assets) and the ereditors (no enforcement measures). It also impacts third parties dealing with the debtor. Opening and clasing of proceeding is generally published, sometimes other important aspects. E.g.: public register: State Gazette; news papers: electronic register, etc The way it is done varies among countries. There is a special publicity for ereditors —> see PEIL § 10 Within the ELL we ate supposed to have a common dalabase where all the information is gathered —> interconnected insolvency registers, clr. Art. 24 EIR 2015: European e- Justice Portal So far we only have 9 national legislations in this database. You can also gel some information on the insolvency proceedings that have been launched (e.g. Thomas Cook) —> beller overview of what is opening within the EU. As long as all MS are involved, it would be a very effective instrument. For the time being, itis still insufficient15 2. Institutions and participant - §2 (who?) Who are the key players in insolvency? Who are the protagonists? Role of the court? Role of insalvency practitioner (IP) such as the administrator, the curator? * the debtor generally will nat be involved in the proceeding, except for the debtor in possession (but it & generally limited to restructuring). Yel, he has a duty to ‘cooperate * the ereditor has to comply with the rules of proceedings; he submits his claim to the court to make sure that he will get his part of the assets —> once the proceeding is open, submission of claim is crucial because there is no other way to have the claim satisfied; generally, the IP is responsible to inform all the creditors to give them information on haw, when, where to submit their claims; creditors can decide to gather tagether in a committee to represent their creditars' collective interests; equal ‘treatment of creditors; * the IP has to treat all the creditors equally and make sure that they are all informed on how, when, where ta submit their insolvency claim, What profile IP should have? You are there to solve the problem $0 if you are not familiar the rules you could make it worse; there is a need of experience in insolhency issues —> specialized field, taken info account different aspects (legal rules, business rules, finance law, accountability and the interaction between them). * the court will open and supervise the proceedings. E.g.: there are different stages in insolvency proceadings. For example, for a liquidation: courts will take decisions 1) to open the proceedings by a formal decision, due to the impact on debtor and creditors (bankruptcy declaration of the business); 2) on how to answer claims ; 3) on how to distribute the money. This can be done by @ court or a public agency, Le. any agency having authority to open or to make decisions in the proceeding. What profile insolvency judges should have? You need legal knowledge but also technicalfeconomic knowledge on insolvency (0.9. how to run a business, etc) —> very spanific dispute to decide of. The advise is to make sure that judges. are well-trained, well-equipped and really involved in the matter (knowledge of legal rules, business rules, finance law, accountability and the interaction between them). PIEL §2.4 - Court —> Compare WB (Part D) and Legislative Guide (Institutional Framework, p. 33). Can we have an opening of proceeding by the debtor? Court supervision may have many forms and degrees. * formal court intervention should be limited as much as possible: formal court decision ‘should not be required to iniliale reorganization proceeding European view: formal court decision should not be required to initiate reorganization proceedings —> EC Recommendation on new approach to business failure and insolvency, 2014; ERID 2019.16 * quality and experience of judges/authorties is key: for good insolvency, you need good insolvency judges —> ERID-2019 see art 25; World Bank D2. PIEL §2.2 - Administrator - Insolvency Practitioner (IP) * Appointed by the court ~ sometimes by creditors * The powers and duties vary according to the proceedings (managing the assets vs. supervision af the debtor) * Neutral person taking into account all interests involved * Independent - impartial — codes of conduct * Personal and professional competence (e.g. obligatory education; experience; regulated profession like lawyers or accountants} * Falling in official duties = personal liability The IP may fail in official duties = personal liability can be engaged —> it is a challenging but also very dangerous jab. World Bank DB ~- Competence and Integrity of Insolvency Representatives Guide Recom 115-125 Qualifications (paras. 36-41) - Conflict of interest (paras. 42 and 43) Appointment (paras. 44-47) ~ Remuneration (paras. 53-59) ~ Duties and functions of the insolvency representative (para. 49) ~ Liability (paras. 60-65) ~ Removal and replacement (paras. 73 and 74). ERID 2019 (practitioner in the field of restructuring) Art. 2, 1, (12): definition Art. 5, 2 and 3: appointment of practitioner Art. 26: quality guarantee Art. 27 supervision and renumeration E.g.: remuneration of the IP is very important; you need a mechanism to pay the practtioner to make sure that he will be remunerated for the task cone, but there should be a balance between a minimum pay and an over-exaggerated remuneration. IP are generally independent and do not belong to.a company. The aasiast way to be sure that the IP is paid! is to take the amount he deserved from the assets of the debtor —> priority over insolvency claims. In this17 regard, national insowency law generally provides specific rules on how ta calculate the amaunt that should be deserved to the IP. This will be basedon the total amount of the sales made. PIEL§2.3 - Debtor —> Compare Guide Reoom. 108-114. * Duty ta co-operate with the courtithe IP * Give information J) * Debtor in possession, see PIEL §14 PLEL §2.4 - Croditors —> Compare WB C7 and Guide Recom. 126-136. * A creditor = holder of an insolvency claim (PIEL, §3.3) * Insolvency proceeding = creditors are forced into @ collective graup ~ loss of power to act individually * Creditors act by means of the creditor's committee ar creditor's representative * Form of representation and pawers varies widely (in the different proceedings and the different countries). 3. Effects of the opening of the proceeding - §3 The opening of the proceeding must ensure the protection of the assets andmake sure that there are divided in a equal way, taken into account all the claims of the creditors. * Opening of the proceedings —> protection of the assets and regulation of the claims Prevention af dissipation of the assets - Impartial and equal treatment of the creditors. * Dale of the apening of the proceeding is crucial. PIEL $3.1 - Assets included in the proceedings —> Compare World Bank C.8 and Guide Recom 35-38. * all assets of the debtor al the time of the proceedings and as from the opening of the proceedings = insolvency estate (=assels of the proceedings) * but...it should be assets belonging to the debtor There may be assets of the debtor that do not belong to the debtor alone: there may be some assets of common property with athers (e.g. a spouse); ar the debtor may also use assets that do not belong to himself (e.g. the debtor uses the car of his brother). Quid of the reservation of title? E.g.: you buy a car but you do not get the ownership until the whole amount of the car is paid. If there is still an amount to pay and the buyer is declared insolent, the-seller can reclaim the car because he still the owner of the: car.18 * During the insolvency proceedings E.g.: value from a disputed claim; personal liability of directors; avoidance actions; claw back actions. * Exclusion of certain assets - policy considerations Basic assels which are necessary for dignity and productive life (e.g. essential clothing, tools, household goods). —> not everything that is found in the insalveney state of the debtor will be part of the insolvency proceedings, because some assets may be reclaimed by third patties that fully or commonly own the assets. * What da you do with the « encumbered assets » where the securily rights are vested ‘on? Are they part of the insolvency state or are they excluded? E.g.: what to do with the assets with security rights, such as a house which is mortgaged? Is it part of the insolvency state or not? Case: Laura started a small bakery but she is eventually declared bankrupt —> the oven is part of the insolvency estate; the leased car is not part because it still belongs to the leasing company which is still the owner; the TV could be partof the insolvency estate because it is not considered as essential (cfc national law}; her bed is not part of the insolvency estate. —> the insolvency estate of natural persons includes both professionals AND private assets (exceptions possible in national inselvency legislation) # the insolvency state of companies (incorporated) only includes the professional assets If you are a natural person/entrepreneur, everything will be sold except the goods necessary ta live a normal life (which will be determined in national insolvency law). You will only be able to keep the minimum, i.e. your necessities. Insolvency estate (other) Insolvency claims Assets of the debtor Priority claims Ordinary claims19 * Security rights: rights in rem on which a security right is vested on (6.9. mortgage: isn): reserved for the secured creditors (prior right to these assets) —> contractual security rights / secured creditors, Secured creditors wil receive their money first because they have a reserved amount of money from the assets of the debtor for their security interests. * Only insolvency claims will be treated equally: priorty claims/elaims of priarity creditors (according to the provisions of national insoWency law, # security rights) and ‘then ordinary claims/slaims of ordinary creditors. The priority claims will be satisfied on the basis of the available assets of the debtor. Examples of priority claims declared insolvent. * (other) Assets of the debtor. * Excluded assets: third party's properly. PLEL §3.2 - Divesimentot the debtor The powers ta manage and dispase of the assets are transferred to the IP. As a result, the debtor can no longer decide on his assets —> total or pattial divestment. \cludes employment claims of employees of the firm * the debt loses. control aver his assets / awnership remains with the debtor! >< debtor in possession * acts by the debtor in relation to the assets are not binding on the IP and the creditors: Administrator manages in the interest of all parties. PIEL §3.3 - Insolvency claims - submission * a claim against the deblor existing at the time of the opening (>< alter the opening: estate claims ~ PEIL§ 5) * submission of the claim: make a monetary claim to the IP by a formal notification - see PEIL§ 10 * « only »: generally a creditor who fails to lodge his claim will not receive a dividend Only if you submit your claim you can benelit from a part of the final dividend. * Secured creditors (security rights) may have special rights (see PEIL § 9) * This rule applies to local and foreign creditors: same rights ~ specific protection for foreign creditors < e.g. protection EIR 2015. BIEL §3.4 - Fixation - equal treatment * Fixation of creditor's right at the opening of the praceeding ~ ‘picture of the claims and conesponding security rights’ © Paritas creditorum = pari passu: equal treatment — no improvement to the detriment ofother creditors (@.9. higher claim, new security right) ~ see PEIL§ 12.2 20 All normal creditors should be treaty equally so many credits are not going to be treated equally —> al the opening of the proceedings, there should be a fixation of creditor's right = « picture of ihe claims and corresponding seourity rights ». Afterwards, there cannot be extra security rights. PIEL §3.5 - Interim measures * Time laps between filing of the application and decision to open a proceeding * Protection of assets (¢.9. moratorium, general seizure of assets, provisional administrator) 4, Management of the assets - §4 The administrator (and/or the debtor) collects and manages the assets of the debtor. There ere a different type of management according ta type of proceeding (liquidation/ reorganization). PIEL §4.1 - Administrator * Administrator (PIEL) / insolvency representative (World Bank & Guide) /practitioner in the field of restructuring (ERID) / insolvency practitioner (art. 2 (5) EIR) —> it depends ‘on the legal instrument * Debior in possession (DIP): § 14 Principles; art. 5 ERID; art. 2,(3) EIR 1° Liquidation: exclusive management by IP He must makes sure to create as much money as possible; as af day one of the opening of the proceedings, everything stops —> PEIL § 12,1 : realize the assels and distribute the proceeds E.g.: Inventory of the assets; tracing assets; reversing juridical acts; carrying out contracts; litigation; 2* Reorganisation: management by IP and/or DIP The business is aways running during reorganization; if you would stop the business, it would nat be possible to rescue it *PEIL§11 * DIP: Art. 5 ERID 2019 / Guide Recom. 112 * Day tot day operation of business: World Bank C2 * Slay of enforcement actions: What? Duration? Cir. World Bank C5/ Guide Recom. 49-51 / Art. 6 ERID * Submitting a reorganization plan PIEL§4.2 - External consent Sometimes the administrator may be required to receive the external consent of the court af the creditors.at * Important transactions: contral or consent of the court; assistance of a supervisory judge; consent of the creditor's committee or representative * E.g. private sale of real estate property * Decision on pending litigation 5. Obligations incurred by, and feeds of, the administrator - §5 (other) Insolvency Assets of claims the debtor | priority claims Ordinary claims In principle, secured claims are solved by themselves. So, outside these secured claims, the ranking is the folowing (see Guide Recom. 189) 1* estate claims 2* priority claims 8° ordinary (unsecured) claims 4° deterred claims or claims subordinated. PELL §5.1 - Priority of estate claims * Estate claims = administrative claim (Guide Glossary p. 4) Estate claims include every clainvfee thal is due as from the opening proceedings to make sure that the insolvency process is correctly carried out. This is a decision of the administrator —> estate claim that comes from the administrative procedure itself = insolvency claims included in the proceedings. * Obligations incurred by the IP: oullays and expenses in dealing with the estate ~ liabilities. arising from proper administration of the estate E.g. rent of a warehouse to stock materials; removal expenses; continuation of employment contracts, insurance, atc. * Fees of the IP: the IP is always paid first” ESlalé Claims will DE Charged on the Gebtors assets: * Cf. Guide Recom 86 22 * Insolvency claims # estate claims Priority for estate claims over insolvency claims Estate claims will be peid first before any creditor is paid. As a rule, the security creditors will have their claims solved by themselves. Bul there is one exception E.g.: if you have a house (with a secured right) that is sold by the administrator, there will ba some costs by doing this transaction, and the administrator must be paid (estate claims) —> this is an exception to the ule that secured creditors have their claims solved by themselves ~ Enforcement of the estate claims during the proceeding possible In case of bankruptcy. for insolvency claims, creditors have fixed claims and will all be involved into one collective proceedings # estate claims; removers will be directly paid by the administrator. But if he does not, they have the exclusive right ta enforce their claims on the assets of the bankruptcy during the praceeding. * Inguflicient assets to cover the estate claims. ~ Immediate termination of the proceeding ~ see §13. 1 in fine - Guide Recom 86 If there are not sufficient assets to cover the costs, if the claims are way toa high, the proceedings should be stopped. Why could this happen? If there are too many security rights. It very often happens that they are many assets available but then you see thal they are all collateral (i, e. they are all coming fram secured creditors). In thal case, you just close the proceedings and itis over. if you have a company that has been involved in fraudulent activities: it is highly possible that there is no more money for carrying aut the insolvency proceedings, there will not be any lability Claims of directors nor reversal of juridical acts. Why? Because if you want to cover up a fraudulent insolvency, you must make sure that there is some asset left to pay the administrator. Otherwise, he will just stop and close the proceeding. ~ Competition between the estale creditors ~ ranking of estate creditors Ifthe assets are nat enough to pay estate claims (e.g. there are so many costs and they are way higher than the value of the assets available), these claims will have to be ranked in the same way as it done for insolvency claims: 1) security interests; 2) priority estate claims; 3) ordinary estate claims.23 6. Treatment of contracts - §6 There is a need of balance between general contract law and insolvency proceedings. Insolvency law is an area which invowes/is influenced by many different areas of law. Executory contract * Cfr. §6.3 PEIL: Guide Recom 69-86; WB C.10.1; Art. 2(6) ERID 2019 * An executory contract is a contract that neither party has fully performed. It is a contract in which claims from both parties are pending. If you do not have @ performance required from both parties, then you have either an insolvency claim (if debtor has not performed) or a claim of the debtor that will be enforced by the IP (if the debtor has already performed). E.g.: laase contract; electricity contract; patent licenses; employment contract; ate, * What would be the reflex of the counter party if the debior is facing a restructuring plan? Your claim is endangered and you do not know what the future would bring. Many counter patties will look for a way out. How could they do that? By inserting a contractual clause in advance providing that in case of insolvency of the ather party, the contract should be terminated —> joso facio clause Will these clauses be respected in case af opening of insolvency proceedings? * Recommendation 70 of Legislative Guide on ipso facto clauses. If the debtor does not perform and is declared insolvent, you can always terminate the contract based on the non-performance # but you cannot terminate the contract solely on the basis that an insolvency proceeding will be opened. The impact of the non allowance of ipso facto is limited: most of the time, the insolvent debtor will not be able to perform his obligations. PIEL §6.1 - No automatic termination * Opening of the insolvency proceeding —> no automatic end As a rule, you cannot terminate @ contract because of the opening ofthe request to open the proceedings. It varies. according to national insolvency law: the majority view is not to allow them, except for exceptional circumstances. E.q.: in Belgium, thare is no prohibition on ipso facto clauses in bankruptcy. * Contract clauses can expressly terminate contract = ‘ipso facto clauses’ Yet, from @ reorganization point of view, the Legislative Guide, the ERID and the WB recommend States ta cverride these causes —> national insolvency law should override these clauses - WB C.10.2/ Guide Recom 70 / Art. 7,5 ERID 2019 Itis normal because we must avoid that creditors raise this clause when there is a risk for the dehtar ta became hankrint athenwise there will he an nnasibility ta continue thebusiness and it will not be passible to rearganize the business. 24 * As aruie IP decides what will happen with the executory contract — PEIL § 6.3 / WB C. 10.2 & 3 / Guide Recom 72-73 In case of a executory contract, it is always up-to the IP to decide what to do. How? The IP-can only act in the benefit of the insolvency estate, that is the reason why he should be the sole responsible for taking this decision. If the contract is beneficial far the estate, he will perform the contract if the contract is detrimental for the insolvency state, he will terminate the contract. Thus, the counterparty cannot enforce the performance of the contract the debtor has to perform, PIEL §6.3- IP's decisi : * World Bank C.10.2 & 3 / Guide Recom 72-73 "If the IP decides to adopt the contract (i. if there is a financial advantage to the insolvency estate} —> il becomes an estate claim. Estate claims have a preferential statute, they will be paid first. The IP is getting a benefit from the contract he has decided to perform. To get thal benefit, he will pay everything that is necessary, such as the obligations incurred for a sale (=estate claim) When the IP decides to continue a contract, he acts in the benefit of the insolvency estate. If there is a benefit for that, the IP has to pay for that. * Ifthe IP decides not to continue the contract —> insolvency claim. Here, the IP is just saying that because there is insolvency we will terminate the contract. He is nat acting in the benefit of the insalvency estate. E.g.: you do not need a building, a shop, a car because the business is stopped. So, you will not decide to continue the contract. Thus the landlord of the building or the shop will have an insolvency law and there will be no more contractual obligations between them and the debtor. * The decision of iP must be taken in a reasonable time (Guide Recom 74-78) It is to avoid uncertainty for the other cantracting party. The length of the « reasonable lime » Is decided by national law. E.g.: in Balgium, itis 6 days. Comparison * WB C10: general approach * Legislative Guide Recom. 69-86: strict approach with detailed rules * ERID 2019: restructuring perspective to ensure continuity of the business ~ Art. 7(4) ERID: you must protect all the (essential) executory contracts * Execution requiredINU TU GING LUIS LUBA GULUTY GUILD Galt U1 Pel UGLULITIY ~ Art. 7(5) ERID: ipso facto clauses —> no impact 25 EXAM: you must be able to compare these instruments and ta know what is at stake; why a decision to terminate/oontinue a contract is relevant, what is the impact on the creditor and deblor. 7. Position of employees - §7 Employees are protected in a special way, for two reasons: 1) special protection for social and political reasons; 2) employees are creditors but with additional rights. PELL §7.1 - Termination of a contract * Termination of cantract by IP or employee, generally no automatic dismissal There is no-general dismissal; the decision to apen insalveney proceedings does not mean that all employees are dismissed form that move, there is a need of a decision. On the one hand, generally, employees can decide to leave. On the ather hand, if the IP decides 10 terminate the employment contract, it is mare complicated. Employees cannot just be dismissed, there are special rules to protect them. How do those rules work out in insolvency law? * Special rules resting from the liquidation: emplayment contract needs to be terminated outside the scope of general dismissal rules The general approach is that the specific protection rules are not applicable: generally, insolvency will apply al the employees at once —> insolvency as an extemal cause, In that case, there is nothing lel! to do, it is nat a situation against your employer, it is just that the activity of the business stopped. So, in general, there is a very leeway to approach termination of employment contracts —> national law will determine haw specific employment rules interact with insolvency law. See World Bank C.10.4; Guide para 145 p. 130-131 * Reorganisation proceedings: information + active participation of employees In a reorganisation proceedings, employees want to slay and the business wants to keep its employees. Yel, usually, restructuring will entail cutting/transfer of a number of employees. Then, there is a clash: who will continue? who will be cut or transfer? —> mind field. The basic rule is that if you transfer a business, you should take all the basic employees with you. However, there are exceptions. Insolvency is one of them. But these exceptions are interpreted in a very strict way. These rules are very important. There are many discussions on how ta protect employees in case of restructuring. Cir ERID 2079: special protection: e.g. art. 3,5; art. 4,8: art. 8, 1, (g); Art. 13. PLEL §7.2 - Protection by preferential ranking * Wages are sums due to the (lermination of ) employment contract * Paid before ordinary creditorsamet RUA eS Ht TIS Nees 2 POU LY SURREY. CLAW VEM, Ih may not be enough * Statutory priority rules ~ limited in time and amount 26 * Cir. World Bank G.12.4 ; Guide Recom. §72-73, p. 272 PIEL §7.3 - Protection by public fund * To guarantee payment of outstanding wages and other sums You can have priority rights as an employees, but if assets are insufficient you will not get anything. That fund will pay all the outstanding wages and other sums, * To protect the employees: certainty of payment; quicker payment * Public {und —> subrogation in righis of employee in the insolvency estate —> public fund assumes the risks of delay in payment or non-payment If the deblorlemployer has still some money, the public fund will, in a second time, ask the employer to reimburse t. If the debloremployer does not have enough maney, it is totally paid by public funds. PIEL §7.4 - Transfer of business * Automatic transfer of employment contracts * Many discussions 8. Reversal of juridical acts - §8 A debtor who is (nearly) insolvent, may be tempted to ‘save! some of his assets, before the pening of an insolvency proceeding Bul this diminishing of the value of the insolvency estate may be detrimental to the general body of creditors. The objective of avoidance (=target every act that would detrimental to the general body af creditors) is to protect creditors from those detrimental transactions. E.g.: future insolvent debtor can donations of what is contained in his assets; you have 5 creditors, you know you cannot pay all of them, if you starting paying only some of them, it is detrimental to the others. * The insolvency or possibility of insolvency gives rise to suspicion —> juridical actions became challengeable retraspectively * = reversal = avoidance actions - claw back actions (=synonyms) * Cir. World Bank C11 — Guide Recom 87-99 * Suspect period: changeabilily during @ specified period of time prior to apening of insolvency proceeding The suspect period is the lapse of time within which you can perform thase detrimental acts (2.9. 6 months prior the declaration of bankruptcy); it does not have to be detrimental, but it could be detrimental —> you want to protect the assets in the period before the solvency proceedings.Itonly applies to kquidation, and not to restructuring. Chr, more details in Guide Recom 89 (§188-191) ~ World Bank C.11.3 2 PIEL $8.1 - Reversal of juridical acts * Unfair nature of transaction —> the intention or deemed intention to prejudice the general body af creditors * Transactions prior to the apening of the insolvency proceeding are scrutinized * Initiative by the administrator (others? Guide Recom 9) - see §14.3 PEIL: never the debtor * Reversal: bring back to original position = recover assets; annulment of benelit - see Guide Recom 98 PIEL §8.2- Examples * Some common examples in Europe of objectionable actions ‘Compare with World Bank C.11.2; Guide Recom 87-88 * Transaction = broad meaning: agreements, payments, transfer, gifts, etc * Intent of defrauding credilors ~ actio pauliana * Presumptions of detrimental acts inadequate countervalue (e.g. sale of assets to familyffriends). no existing enorceable obligation (e.g. payment of crediter-triend = you pay a claim that is nat enforceable) Transaction with creditor after the diliag of an insolvency application - Transaction with creditor in situation of imminent insolvency —> knowledge of the creditor is required If the creditors knows that there is an insolvent debtor coming trying to protect his claims with security rights, it is problematic ~ Creation of security right to secure a pre-existing obligation (Guide Recom 88) Comparison. * World Bank C11: general approach: ater commencement/prior! suspect period * Legislative Guide Recom 87-99: detailed rules * ERID 2019: protection of new financing and other related transactions: art. 17-18How to distribute the assets? Right in rem = security right vested in.a specific asset. John as general asset of 1000 but with a house on mortgage of 300 —> available asseis are thus of 700. Lizzy does not have priority on the assets of John himself —> Lizzy is an ordinary creditor, she has no priority whatsoever on the assets of John. She only has a security right on the assets of the father, Charly. 1) Tom, secured creditar of the right in rem (300) 2) Ben, Mario, Lizzy are ordinary creditors (700). How? The principle of equality requires a proportionality of their claim: Ben (200); Marie (300), Lizzy (200) 3) Lizzy would ask Charly, the father to pay her the rest of the claim as he acts as an additional guarantee (200)—» she will have her full claim satisfied, 9. Security rights and set-off - §9 Security rights - Security rights = security interest - There are different types of security rights + Security rights are relevant both in reorganization and liquidation proceedings In reorganisation, there will not be a sale of goods and thus priority olaims are going to hae ince immartant bait otill thas are ralanentMS Re TEEN EE Thy A SLE ae Gee fee wee Also, you could have twa creditors having vested rights on the same goad. - National laws on security rights and ranking differ greatly 29 + The PEIL only relate to general rules - Compare WB * Part A: Creditor/debtor rights - security rights (immoveable and movable assets) registry of security rights / enforcement of security rights) * C12. treatment of stakeholder rights and priorities - €.12.1 and C.12.2 position of secured creditors: priority - Compare Legislative Guide - references in Annex | —> inclusive anproach There is no specific recommendation on secured creditors: they should be discussed in a integrated way throughout the instrument PIEL $9.1 - Security rights * The prime test whether or nat a security right exists, depends on the question whether it survives an insolvency proceeding and can be given effect after the opening of a proceeding * Generally the secured creditor may enforce the security right against the assels during the proceeding — exceptions are passible It would depend whether or nat your contract will be effective in insolvency law generally, national insalvency law reduces the possibility to create security interests by contract. In general, there are rules on how to vest them and to make them effective, and if these rules are not flowed, there will nat be recognized during proceedings. * Compare World Bank 0.12.2 * Aller the opening of proceeding: no new security rights —> creditor rights are fixed at ‘the opening of proceedings Once you facing the fact that the debior is insolvent, can you still try to get a belter position, can you still negotiate a security interest? As acrule, you cannot, You must negotiate before the opening af the insolvency proceedings, * Any security right granted prior to the opening of the proceeding may be subject to reversal PIEL §9.2 - Realization of encumbered assets * Where there is a conflict between the secured creditor's right to sell and the administrator's duty to sell * Even more complex with multiple security rights in the same asset It wil depend on whether there are multiple security rights in the same asset. In this nase itwill he even mare eamnlex* Sometimes, national insolvency law prefers the liquidator to take the lead and to be the sole one authorized to sell the assets of the whale group of creditors 30 * Liquidation is a process which involves the totality of the assets and the action af one secured creditor may interfere with the best possible administration of the estate. Sometimes, it is important that the liquidator remained in the control of the assets: if you live it up to one creditor to sell his assets, it may complex the liquidation proceedings. * National rules establish specific rules, however the secured creditor is entitled to the proceeds Set-off * The creditors can sett off the sums they are due to pay to the debtor against their claims as creditor —> compare WB C.10.4; Guide Recom 100; ERID Art. 716} * Compensation = # one of the persons (B) is insolvent, the other (A) will get payment by setting of the claim B should pay to A. * Advantage for creditors: their claims are ‘paid by the debtor's claims against them * Disadvantage for the other creditors: they lose an asset = the claim of the debtor against some creditors = Claims are an important asset in commercial life - Assignment of claims is commonplace in many jurisdictions. * Set-off should be allowed alter insolvency ~ however national laws take different views on the possibility of setoff aller the opening of insolvency proceedings. Can | proceed set-off during insolvency proceedings? The main wiew is yes, set-off can operate during insolvency proceedings, although it operates to the disadvantages of the ather creditars. * Set-off main interfere with many other contractual agreements, $0 it deserves being discussed in a different way * netting - close-out netting - financial contracts —> special protection because of systemic risks These mechanisms. aré very important in the financial sector. If these mechanisms are not controlled in a correct way, there are risks. * Guide Recommendation 101-107 + Art. 7(6) ERID 2019: stay shall not apply to netting 10. Submission and admission of insolvency claims - §10 * Submission and admission serve the purpase af: ~ distribution (liquidation proceedings); - voting (organisation proceedings)* Submission/admission = formal national rules Compliance with the national rules is essential to have a valid insolvency claim. * Disadvantage for foreign creditors —> international rules to protect fareign creditors. E.g.: Art 53-66 EIR (see standard form); Guide Recom 174 and footnote 7. at Submission of claims Creditors submit their claim to make clear what their claim is about: it must contain the amount of the claim, the nature of the claim, whether the creditor has secured interest (and if so, provide a proof of it) What is the relevance/purpase of the submission? * otherwise creditor claims will not be satisfied * fix all the assets and debts: averview of the claims The IP must be able to determine which assets of the estate are indeed part of the estate or not: assets reserved to secured creditors are not part of the estate. Admission of claims. What is the relevance/purpose of the admission? The IP must verify whether or not claims should be accepted. If he refused to accept the claim, then there is a disputed claim: court must decide whether or not that disputed claim must be Considered as an insolvency claim Itig always determined by national rules, at the disadvantage of foreign creditors, who may be informed later (language issues, etc). For that reason, there are specific rules at the Eurapean level to make sure to have a valid submission of the claims. pie - ‘ Information of the submission rues: who, where, time limit, what information PIEL §10.2 - Submissi ; ; * Basic information is required * Amaunt and nature of claim — priority claims / security interest PIE - Disputing | , * The IP can dispute the claim — independent and impartial person * The creditor should prove the claim * Admittance: full admittance - conditional admittance PIEL §10.4 - Special insolvency claims: * Valuation of claims * Unmatured claim: at the time that the proceeding is open, the claim cannot be enforced, it will become payable some time in the future. However, to proceed the insolvency proceeding you have to take that claim into account because at the timethe amount will be Gue, the procedure may already be closed. E.g.: loan should be repaid in March 2021; the proceeding is opened on March 2020 and the craditer is not allowed to claim this because the limit is in one year. So, already at the time of the opening of the proceeding we should take it into account and consider its existence. * Iiliquid claim: claim where the amount is uncertain 32 * Conditional claim: there are many types of conditions; valuation Is difficult, so we value the claim for the discounted value or conaitianally for the full amount. * Non-monetary claim: the claim for performance must be converted into a monetary value in order to organize the distribution of assets in money; It cancers liquidation E.g.: you have a claim for the painting of a wall from the debtor, PIEL $10.5 - Secured insolvency claims To allow the secured creditor to participate in the insolvency proceeding, but take account of the value of the security that is deducted from the creditor's claim Compare * WB C2. general approach: notification (C2) and claims resolution (C13) * Legislative Guide Recom. 169-184: very clear and specific cules on the admission and submission of claims. 11, Reorganisation - §11 * §11 PEIL; WB C.14: imited to some aspects of reorganization - there are many more aspects that need to be regulated PEIL make a summary ot the existing insolvency law, if there are only few rules in those principles, it means that there many national differences in reorganization approaches. * Guide Recommendation 139-159 (§§1-75) - ERID 2019: examples of the principal elements of a reorganisation proceeding * What do you think are the key elements of a reerganization proceeding? ~ restructuring/reorganization plan that must be agreed by creditors: what is the solution to the financial troubles the debtor is experiencing at that time? The most basic solution is debt reduction. But there has to be a perspective that the business will be saved and will be profitable again in the future: it is a kind of temporary solution assuming thal creditors will benefit from that solution when the debter will be doing well again E.g.: reorganize shareholders and finding new investors; agreement with the creditors that they will Not be payed in full —> raduce the amount of claims make sure that there is some kind of standstill in order to build trust and a durable solution among creditors and the debtor —> you need a stay/moratorium. It ls not required but if you don't have it, sometimes, you will not get to the plan. Why? Because when there is an unpaid claim, the creditor will alnays try to enforce the claim and get his money. And we need to avoid that.reorganisation = continuity ~ save the business alternative to liquidation ~ new approach to insolvency - many differences between states 33 financial relief for debtor: debtor will generate new income for the benefit of the creditors and other parties with an interest in the debtor's economic well-being. * There are many jurisdictions: DIP (debtor in possession) regime with court supervision (0.9. Art. 5 ERID) - compare with WBC 6.2 * Opening requirements may differ (6.9. financial difficulties; ikelinood ot insoWwency: viability) As from what moment are you likely ta become insolvent? How do you decide when a business is stilino longer viable? Compare Art. 11a); Art. 4,1, Art. 10,3 ERID 2019. Cir. preamble considerations 15, 24 and 26 ERID: there cannot be restructuring if the business is to viable. * Generally, a reorganization proceeding involves a mevatorium = stay of individual enforcement = relief Cir. Ar. 6 and 7 ERID - temporary protection against enforcement of claims. by the creditors (definition provided in Art. 2.1.4 ERID) limited stay vs general stay: if it is a limited stay, it will be for the caurt to decide ~ in some jurisdictions secured creditars are not affected by the stay On the one hand, the idea is to avoid to have those secured creditors to be paid in any case because their claims are not part of the estate that wil be available for the proceeding: but on the other hand, these secured creditors may have a right in rem on a building that is necessary forthe functioning of the business, sowe need to keep them on thé board. enables debtor to negotiate a reorganisation plan with the creditors - duration: from 4 to 12 months Compare WB C5; Guide Recom. 46-49 PLEL § 11.1 - Content of reorganization’ restructuring plan * A comprehensive and coherent proposal incorporating all arrangements between the debtor and his ereditors * PEIL§11.1 states the minimum content of a reorganisation plan which ean be found in many jurisdictions = restructuring liabilities * Compare with Art 2(1)(2) ERID: « restructuring » * Examples: reducing claims, deferring claims or converting claims into other ‘entitlements (debt/equity swap)E.g: debvequity swap (an equity is a share, so the swap entails that creditors become shareholders in the business) * Additional measures are also possible: selling of assets which are no longer needed, to cut down or rearrange security rights in the deblors assets; to take up new loans with new security rights (new finance), reordering of participations and shares in the debtor; issuance of new shares, 34 Everything is possible as long as you get money of it * Art. 8 ERID: content restructuring plan Identity of debtor and (affected and unaffected) parties + identity of IP Affected parties are thase creditors whose claims are affected by the restructuring = unaffected parties are those creditors who have claims but who decide not to be affected by this reorganization proceeding. Classes of affected parties: groups in which you divide all the affected parties, so generally the creditors + rationale (Art, 9.2 ERID) Terms of the plan Viability statement (+ optional external control) - Check list and model plan ta be developed by MS ta help SME¢ to design the restructuring plan: accessibility and easy use are keys. ~ Campare Guide Recom. 141-144. BIEL $14.2 - Initiative, * Deblor or administrator (depending on the jurisdiction) * Participation of debtor is essential for the plan's preparation and implementation * See Art 9.1 ERID: debtor + creditor and IP As a rule, the debtor will draft the plan, but creditors. and the IP can also be involved. ~ Art. 9 ERID: adaption invalves a voling process Only affected parties can vole, so unaffected parties cannot vole. Alsa, some specific groups can be excluded from the voting process. Voting parties are divided into classes depending on their common interest. Why? Because these parties have different interests. Each creditor has one vote. E.g.: NV Friet Factory, company with registered office in Antwerp: 7 creditors. Bank A (1000) and Bank B (2000)- secured creditors. Supplier X (100) and supplier ¥ (300) unsecured creditors. 3 employees (each 50) = unsecured. Majority of 56% required to adopt the plan. Vote: Bank B, Supplier Y, 1 employee: YES >< Bank A, Supplier X and 2 employee: NO Is the plan adopted?We should first discuss the different classes: at minimum, we need the secured class (the banks A and B); the unsecured class (the suppliers and the employees). Depending on national insolvency law, employees can be put in a third class. ‘Secured creditor Yes Bank & (2000) >< No Bank B (1900) —> majority. Unsecured claims: Yes supplier ¥ (300), 1 empkoyee (50) >< No supplier X (100) and 2 employees (100) —> majarity. 36 Here, we have majority in both classes. And would the pian be confirmed? Whether or nat you have small or big classes is determined by national insolvency law. The results will depend on these sizes. Some national insolvency law also requires a majority in numbers (e.g. halt of the creditors}. - Art. 10 ERID: confirmation by a judiciavadministrative authority According to Art. 10(1)(a), a8 soon as you have dissenting affected parties (e.g. some voles in favor, other against), you need confirmation by a court = if all creditors. agree, no confirmation by a caurtis needed, but itis quite rare Bul this exira-slep of a confirmation by the court daes not mean that the plan will never be binding, there is just a need of a court confirmation Cir. Art 10(2\(d), where there are dissenting creditors, the restructuring plan must salisly the bestinleres|-of-credilors tes! credilors can not be worst off as it would be when the liquidation would have started; you cannot make the creditors worst off in reorganization than he would be in liquidation Gir. Art. 11(1) - ctoss-class cram down: there are dissenting affected parties but there is also al least a whole class that did not approve the class —> the plan can thus nat be confirmed on the basis of Art. 10, but it can be on the basis of Art. 11(1) ERID. —> for cross-claim cram down, we have a whole class of dissenting creditors. E.g.: class of employees did not agree with the plan, there is no majority in the class of employees; if you want that plan nevertheless confirmed, you needto rely on Art. 11(1) PIE _Adonti icmat + Generally, itis a two step procedure: * Parties affected vote on the plan = adoption “If the plan is adopted By the required majority, the court decides whether to ‘confirm of reject it = confirmation The majority approves it, but in principle this means that there are necessarily other parties which have disagreed with, thus we have dissenting affecting parties, and thus we need a confirmation by the court In other words, with confirmation, the court decides whether the plan should be binding on dissenting (classes of) creditors. Exceptionally there is only one decision maker: the affected parties or the court.~ agopuon of ine reorganizauon pian * Voting process: many alternatives. * Quorum requirements: minimum number of participants, amount of claims represented; ete. * Qualified majority (e.g. number of creditors voting and amount of claims represented by the altending creditors). 36 * Voting in separate classes (6.9. secured and unsecured creditors; persons with difierent legal or economic positions} * Blocking voles: lo protect cerlain categories of affected creditors. - Example: Art 8 ERID 2019 - Adoption by the affected parties * Right to vole: creditors + exceptions * Class formation minimum 2 classes (secured vs. unsecured claims, workers, SME's} * Adoption - majority in the amount of claimsfinterests in each and every class - [optional] majority in number of affected parties - vote // cansultation and agreement * Dissenting affected parties (Art. 10) >< dissenting voting classes (Art. 11) - Confirmation of the reorganization plan by court: * to check the adopted reorganisation plan + binding effect (§ 11.4 PEIL) * protection of dissenting minorities against unfairness. * common grounds for rejection: violation of procedural provisions; incompatibility with the public policy; feasib lity of the reorganisation plan — viability * compare with Guide Recom 152 - Example: Art. 10 ERID 2019 - Confirmation of restructuring plan by court * dissenting creditors | new financing /loss —> 25% of workforce * minimum requirements: adaption and notification; equalfpropartional treatment - classes; best interest of creditors test ~ see Art. 2,1, 6) ERID, new finance * viability test * cross-class cram down - Art, 11 ERID Ifthe plan has not been approved by each and every class Minimum requirements. * Involvement of equity holders ~ Art. 12 ERID * protection of workers: Art. 13 ERID PLEL §11.4 - Binding effect of 4 reorganization plan- Amicable settlements between debtor and ereditor(s) (=contract) # legally binding reorganisation plans via court confirmation (=court decision) - A-canfirmed plan is binding on dissenting and non-attending creditors ~ Compare with Art 15 ERID aT = The (security) rights of creditors against third parties are nol _aliected by a reorganisation plan, unless the plan expressly provides otherwise ~ Third parties = joint debtors, guarantors, owners of encumbered assets Gb Overview art. 8-11 ERID Step 1: reorganisation plan: art. 8 Step 2: adoption: art. 9: voting by affected parties in classes ae ¥ v Approal by all the — Approal by all the Approal by some affected parties —_ classes (majority classes (majority acquired) but acquired) but dissenting affected dissenting classes parties g g Confirmation Cross-class cram- Step 4: y art. “gE down art 11 reorganisation plan is binding: art. 15 12. Liquidation - §12 * Sale of assels - sometimes specific rules: public auction, private sale with safeguards * Sale by the administrator - control/approval by court, supervisory judge, creditors, * Distribution of proceeds to creditors according to their ranking. “IM in reorgarisation proceedings assets can also be sold - but distinction is not always clear in mixed proceedings E.g.: sale of the totality of the business going concem = liquidation or organisation?PIEL §12.2- Ranking ofclaims * All creditors have equal rights subject to ranking rules. * Pavilas crediloriern: all ereditors in a particular class are treated equally inprapartion to their claims. Enueorise en activité: entenrige prosnére. 38 * There are various classes of creditors —the frigher the ranking of the class, the greater the chance of repayment * Compare with WB C.12 and Guide Recom. 185-193 13, Closure of the proceeding - $13 PIEL§13.1 - Closure * Distinction between reorganisation # liquidation In a reorganisation, the proceeding is closed upon the confirmation of the reorganisation plan or upon its performance. In a fiquidetion, the proceeding is closed after the realisation of all the debtor's assets and the distribution of the proceeds. * Closure has important consequences: for the competence af the deblor/administrator, the outstanding claims (discharge), discovery of new assets * Insufficient assets to fund the proceedings —> early closure. PIEL $13.2 - Effect of closure - discharge * Natural person: possbiliy of a fresh start = may be discharged from his debts ~ Discharge implies that outstanding claims eannot be recovered + Automatic discharge; conditional discharge; at courts discretion; grounds. of refusal = Rehabilitation of the debtor = Rights of creditors against third parties - unaffected * Art. 20-24 ERID: minimum rules ~ Insolvent entrepreneurs: Art. 2(9) ERID ~ Max. 3 years ~ automatism: Art 21 ERID > Discharge vs. disqualfication period: Art, 22 ERID - Derogations passible: Art, 23 ERID * Legal person: cease to exist after the closure Outstanding claims cannot be recovered No discharge is required.—> natural person (discharge; possible re-start) = legal person (ne discharge; cease} PIEL $13.3 - Discovery of assets after closure Discovery of assets after closure may give rise to reopening liquidation proceedings or starting new independent proceedings. 39 14, Debtor in possession (DIP) - §14 Compare with Art. 5 ERID. It is @ very common practice nowadays, there is not always a need to appoint an administrator. * What are the advantages? ~ Last chance for the debtor - incentive for debtor to start the proceeding timely enough - Experience and ability of the debtor - Limited formalities and no expenses of an administrator. * The PEIL stale which of the principles apply without alteration (§14.1); or with an adaptation ( §14.2) or not at all (§14.3) PIEL§14.1 - Procedure * DIP: same tasks as administrator but with court supervision or other external supervision * Special approval for certain decisions * Limit: « except to the extent that the principles presuppase an administrator » PIEL §14.2- DIP as administrator There are specific tasks of the DIP where he is considered as an administrator. There is no reversal juridical acts where the insolvency proceeding is dealt by the DIP.40 Part Il. International Insolvency Law: European Perspective Chapter |. Different approaches to cross-border insolvency Cross-border or international insolvency proceedings refer to insolvency proceeding with international elements (e.g. debtors have assets, offices, creditors, contractual parties in diferent States). International insolvency law is in the legal framework that deals with such international insolvency cases —> IIL is « the body of rules, which concern facts with an Intemational element thal are relevant in the context of insolvency » (UHIL consist mainly in conflict of law rules and ether rules but is nat a legal framework with substantive insolvency rules. ~ Universalism: cross-border insolvency in a single insolvency proceeding It is essential to determine the debtors « home country » since courts and rules of «home country » govern insolvency proceeding that covers all assets in all states. ~ Titel: one nselvensy praseting per state Consequently, parallel insolvency proceedings can be initiated in each State where the debtor has assets, establishments, creditors, etc. This will raise questions as to whether one should be treated as auxiliary to the ather or should operate independently and whether there should be cooperation between the courts and office holders involved. Moreover, insolvency proceedings will aniy caver focal assets. 3. International instruments Different international instruments have tried te reconcile these different approaches to cross-border insolvency law. "European Insolveney Ragulatin (1 These instruments try to sirke a Bilan between identfing ofa malnproceeding that has primacy over local proceedings whila at the same tme respecting local (jurisdictions and thelr authority aver local assets.Insolvency Courts around the warld have lang had to 8. Individual pursuit of insolvency proceedings in one jurisdiction without regard to existing or impending parallel proceedings elsewhere may impede a sensible restructuring of the deblor company and may thus be very detrimental to the interests of creditors —> cooperation needed, At (GTEIGIESIOND 21's in relation to insolvencies with a foreign element: ould it be ‘when proceedings have been opened in one State > should the principle be one of unity of proceecings or of purty? GD) AEBIEE of the insolvency cout CSS ST (GQSECONINEDIONOSAIESEE: —= should universality or tevritariality prevail? “While in $6me countries jurisdiction is limited to local assets the gensral approach of an it wherever situated, while bei u imi i jurisdiction by foreign insolvency courts. Most commentators agree that a pure cancept of universalism is The model emerging in recent years is the UNCITRAL Model [>] Law and the European Insolvency Regulation —> ““ertitorial proceedings, Territorial proceedings are in turn sub-divided inlo secondary proceedings opened aller the apening of main proceedings = independenijlerritorial proceedings opened at a time when there is no main proceeding). “(Main proceedings can be instituted only in the jurisdiction where the debtor has its centre of main interests (COMI) but except to the extent territorial proceedings are permissibly commenced. * Territorial proceedings may be instituted in other jurisdictions where the debtor has an establishment but are liited to local a886t8, any surplus resulting from a winding-up in the territorial proceedings being handed over to the administrator of the main proceedings. Moreover, national Courts have increasingly accepted that there are cases in which their role is. ancillary to thal af fereign courts in which main proceedings are apened and is esaemtily thet of _eeulOkbaesststncagto oe ore oon ORT - acminitrsers, An important principle & that of onndiscrimination agains! tosion cxediions The concept of territorial proceedings is not incompatible with this principle. All creditors, whether local or otherwise, may participate and prove for a dividend in such proceedings as well as in the main proceedings, though to preserve the principle of squalty among creditors a creditor who has akeady recelved a dividend in one proceeding will usually be precluded from receiving a dividend in the other proceedinguntil the creditors in the latter have received a dividend at the same rate —> hotchpot ule? In allowing local assets to be dealt with in local praceedings, rather than in combination with the trealment of assets held elsewhere, territorial proceedings do risk the disposal of the deblor's assets on a break-up basis when they would be worth mare kept together —> coordination between territorial and main proceedings is necessary. 2 The putting together, blending or mbing of various prpertes in order to achieve equal division armong beneficiaries. Eg. residue of anestate io be given fo ‘my chicken, share and share ake Tomake such distri uton nossibie, al of he tems are nut inhe hoichoot and then divided. 42 Chapter 1.Bbropeanlitsoivency Regulation — AIntraduction How is cross-border insolvency in the EU? The European Insolvency Regulation can be seen as a The EIR SS insolvency pro itor ingly, * International juridictian - competent court * Applicable law * Recognition of insolvency proceedings * Streamlining of proceedings: cooperation and communication between courts; |Ps. The OF does ook imaase- a interratinnal nankency (amewat al subarea on liquidation and reorganization of international companies. Brief history of the E1R * Attempts for a Eurapean Convention (1990) * Convention on Insolvency Proceedings, 23 November 1995 (signed by 14 MS) * EC Regulation on InsoWency Proceedings of 29 May 2000 (into force in 2002) * EU Regulation on InsoWeney Proceedings of 20 May 2015 (into force in 2017) «2. Basi¢featuresofthe EIR EU Regulation 2015/848 on Insolvency Proceedings of 20 May 2015 = EIR/20151/") + Objective The main is to foster the proper functioning of the internal market through the regulation of cross-border insoWency proceedings (§3) rey romiarisay the field of insolvency law will improve the functioning of the inter The Regulation aims to §5, §31, Art. 3.1 EIR: companies are thew rnnaitinead ne SaneA ins" Macias aitenceeliaanedliaasnaind narielivainsianiadchaieeiaandnetnen alinntennind Miheusedincmaliesnan bank i behaviour is indeed considered as disruptive for the functioning of the internal market, and incited the EU Io actively fight against. + Compromise The EIR is also a result of @amipromise) —» §22: no substantive European insolvency law: First, the EU realized that there was no sufficient support to create a substantive European insolvency law. Because of widely differng substantive laws, it was 43 EU. Consequenty, the EP seltled for a EU Regulation —> = Regulation is a binding legislative act which must be directly applied in ils entirety acmss the EU (except Denmaik). Also, 2 Regulation has more direct and harmonizing effect than a Directive, ~ > $28:miigated universalism: Second, he ER ors a as ground between unvereaism and eritraism. * Main insolvency proceedings: universal Scope over all the assets of the creditors - « the world is mine « * Territorlaisecondary Insolvency proceedings: (@#HitDHG!/SE0B8 over the @SSEIS)o! the (Creditors - « the assets are mine » E.g.: NV Friat Factory is a Belgian company (registered effice in Antwerp) with locations (ether offices and establishment) in BE, FR, ES, IT and NL. Imagine NV Friet Factory has financial problems and entered into insolvency proceedings. The main insolvency proceadings will be opened in BE based on the registered office in the Belgian jurisdiction (COMI) but it will be exttended to the assets NV Friet has in all the other MS (FR, ES, IT and NL) —> universalism. However, secondary insolvency proceedings may also be initiated in MS where the company has establishments, for example in France and Spain —> temitorialismy these optional secondary proceedings wil be: limited to local assets and local creditors. termined by ‘Universalism is pursued in the EIR via the main insolvency proceedings (de hich normally et, texitorialis! features in due to the jact that secondary insolvency proceedings in MS where the company has establishments —> mitigated universalism. + Overview 1) The intemational jurisaictian (1 + @RBIGE:: main proceedings (COMI in MS) ax tertitorialsecondary proceeding (establishment in MS) * The location ‘of COM! of establishment is situated in their jurisdiction) + specify the grounds on which ‘the jurisdiction is based —> (main proceedings) or if there is an establishment af the insolvent company in thelr jurisdiction