An insolvency practitioner's view on the European Parliament's vote on the EC Regulation on Insolvency reforms

An insolvency practitioner's view on the European Parliament's vote on the EC Regulation on Insolvency reforms

What will the changes proposed by the European Parliament to the reforms to the EC Regulation on Insolvency mean for UK insolvency practitioners? Chris Laughton, a licensed insolvency practitioner and partner at Mercer & Hole, spoke to us about the effect of last week’s vote by the European Parliament.

What has happened?

Press Release: European Parliament backs Commission proposal to give viable businesses a 'second chance', LNB News 05/02/2014 147

The proposals, including extending insolvency rules to cover rescue proceedings, have been approved by the European Parliament in order to modernise the EU’s rules on insolvency.

What's your general reaction to the changes?

In my view, the Parliament’s proposals have too much court-based, liquidation-type thinking behind them, which could be the product of too much litigation experience and not enough commerciality on the European Parliament's Committee on Legal Affairs (JURI committee). A theoretical and potentially impractical emphasis was revealed in the Recitals to the proposals by the Parliament’s stated intention, in the context of helping sound companies to survive and giving a second chance to entrepreneurs, of promoting the rescue of debtors in severe financial distress, rather than those that are economically viable. Some debtors that are not viable need to fail.

What about multiple proceedings?

I am not sure I can wholeheartedly support the suggestion that 'the possibility of avoiding the opening of multiple proceedings' was endorsed. Any endorsement was begrudged. For example, the Parliamentary amendment limiting the period for the insolvency representative of the main proceedings to challenge the opening of secondary proceedings to one week (art 29a(4)) results in a period that is unnecessarily short. More pertinently, the Commission have introduced a proposal to amend art 18 to allow the liquidator in main proceedings to give an enforceable and binding undertaking to recognise the distribution and priority rights that local creditors would have had if secondary proceedings had been opened. A Parliamentary amendment (art 29a(2C)) proposes that the court seised of a request to open secondary proceedings may appoint a trustee with limited powers (including of petitioning the court in the main proceedings) to ensure that the undertaking is duly performed and to 'participate in its implementation'. This additional layer of non-judicial supervision not only adds cost and complexity, but flies in the face of the principle that all officeholders in main and secondary proceedings act in t

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.