Amendment of the Recast European Insolvency Regulation

Regulation (EU) 2021/2260 of 15 December 2021

The Recast European Insolvency Regulation (EIR)¹ was recently amended by Regulation (EU) 2021/2260 of 15 December 2021 (Amendment Regulation). The Amendment Regulation replaces Annexes A and B of the EIR which contain lists of the applicable proceedings and practitioners referred to in the EIR. The amendment became necessary after 8 Member States had informed the Commission of the implementation of new restructuring proceedings in their respective national laws. For instance, the Netherlands introduced the WHOA and Germany the StaRUG on 1 January 2021. The recent amendments to the EIR are in connection with the European Restructuring Directive (ERD)² which had required that Member States implement so-called “restructuring frameworks” in their restructuring and insolvency laws until 17 July 2022. Restructuring frameworks supply debtors with modern restructuring tools to overcome financial distress as early as possible and outside of formal insolvency proceedings.

The following countries have recently informed the Commission of the implementation of new restructuring proceedings and the below changes have been made to the Annexes of the EIR:

The amendment of Annex A and B of the EIR becomes effective in all Member States (except Denmark and (at least for the moment) Ireland) on 9 January 2022, i.e. 20 days after the publication in the official journal of the EU on 20 December 2021.

Only public proceedings are listed in Annex A

Art. 1 para 1 EIR requires proceedings under the EIR to be public proceedings. In order to be listed in Annex A, Member States needed to ensure that the relevant proceedings are in fact public proceedings. Publicity as such is not required by the ERD and hence, not all restructuring proceedings are public in nature. This is in particular the case for the Dutch WHOA and the German StaRUG. Although generally private in nature, these proceedings allow the debtor to switch into public mode. For instance, under the StaRUG a debtor can request the restructuring court to make announcements in public.³ This request must be made before the first restructuring decision of the court, e.g. a stabilisation order (moratorium). From then on, the debtor is bound by its decision. Only the public option of the German StaRUG has been listed in Annex A of the EIR. As a result, in a German StaRUG, a debtor must apply for public announcements before the first restructuring decision is taken by the court to receive the benefit of automatic recognition under the EIR. Whether or not this is advisable must be decided on a case-by-case basis, as publicity comes at a cost. Public announcements like the debtor’s application or the appointment of a restructuring expert may reveal the debtor’s distress to a wider audience. This can be detrimental for a debtor’s business. In any event, a debtor is well advised to get legal and strategic advice before deciding on the procedural option.

Effects of amendment

Recital (2) of the Amendment Regulation explicitly states that the “new types of insolvency proceedings and insolvency practitioners comply with the requirements set out in Regulation (EU) 2015/848”. They are now to be treated as “insolvency proceedings” and “insolvency practitioners” pursuant to Art. 2 para 4 and 5 EIR; in particular the international jurisdiction and the recognition of the effects of these procedures will have to be determined in line with the EIR. International jurisdiction will be assumed at the place of the debtor’s centre of main interest⁴ and recognition is automatic and in general⁵ only subject to the ordre public. Negative publicity of public proceedings may thus be traded-off against automatic recognition under the EIR, in particular where a debtor holds significant assets or operations in other Member States.

Debtors in Germany must wait until 17 July 2022

Although the Amendment Regulation becomes effective on 9 January 2022, debtor’s in Germany unfortunately need to wait longer for automatic recognition. The public option of the StaRUG – now listed in Annex A of the EIR – will only be available from 17 July 2022. The German legislator was of the opinion that the infrastructure for public announcements as well as for a new “restructuring forum” in the German electronic gazette (eBanz) needs more time to be set-up properly.⁶ Hence, distressed German debtor’s with EU operations should discuss the right timing to initiate a StaRUG proceeding as well as the recognition strategy with their advisors before entering proceedings.

Remaining questions

Procedural recognition under the EIR is generally straightforward; however, a few questions remain open for further discussion:

• Recognition of private proceedings. It is currently at best unclear if and how private proceedings, the default option e.g. under the German StaRUG, can be recognised in Member States. These proceedings are not listed in Annex A of the EIR; hence, they must not be recognised under the EIR. It is argued by some that court decisions within private proceedings should be recognised as “decisions” under the European Judgments Regulation (EJR).⁷ However, the EJR and the EIR are supposed to dovetail completely with each other. It is therefore argued by others that this leaves no room for a double-treatment, in particular where the procedural options do not differ significantly from each other. Recognition may thus be sought in line with applicable international treaties (e.g. the Hague Choice of Court Convention, the Rome I Regulation or international restructuring laws of the respective jurisdictions). The latter approach makes recognition particularly burdensome, in particular where there are many potential points of contact between different jurisdictions.

• Recognition of group-wide effects. Some effects of a restructuring plan may interfere with the rights of debtors vis-a-vis other group entities. For instance, the StaRUG allows group entities to be included in a stabilisation order (moratorium) or the release of guarantees provided by group entities as collateral.⁸ These options significantly facilitate group-wide restructurings; however, it becomes complicated where a guarantee is governed by a law other than German law or the group entity providing the guarantee is domiciled in another Member State. It is currently unclear if recognition of the effects of a restructuring plan in a public StaRUG proceeding under the EIR also extends to the creditors of group entities which have their centre of main interest in another country. A German court is generally prohibited from opening proceedings over group entities having their centre of main interest outside of Germany. However, it may be argued that it is sufficient that the main debtor has its centre of main interest in Germany and the group entities have been included in the proceedings over the main debtor.

^{1 Regulation (EU) 2015/848 of 20 May 2015.
2 Directive (EU) 2019/1023 of 20 June 2019.
3 Announcements are to be made online and become effective and binding two days after they have been publicised online.
4 Pursuant to Art. 3 para 2 EIR there exists a (rebuttable) assumption for companies and juristic persons that the centre of main interest is located at the debtor’s registered seat.
5 Except for special provisions, in particular Art. 8 EIR (Third parties' rights in rem), Art. 11 EIR (Contracts relating to immoveable property) and Art. 13 EIR (Contracts of employment).
6 The restructuring forum enables creditors to officially invite other creditors to support a certain voting strategy.
7 Regulation (EU) 1215/2012 of 12 December 2012.
8 In-rem security will likely fall outside of the scope of recognition under the EIR, see Art. 8 EIR.}