Recast EC Regulation on Insolvency approved by European Parliament

Following the approval of the Recast EC Regulation by the European Parliament on 20 May 2015, we  explore what this new legislation will mean in practice.

Original news

EU legislation to give struggling companies a second chance, LNB News 21/05/2015 155

On 20 May 2015, the European Parliament approved the European Council's position at first reading of the Recast EC Regulation (the Recast Regulation) (see Position of the Council of 17 March 2015 on Regulation of the European Parliament and of the Council on insolvency proceedings ) as adopted by the Council at first reading on 12 March 2015), noted that the act is adopted in accordance with the Council's position and gave instructions for it to be published in the Official Journal.

When do the reforms come into effect?

Following extensive three-way discussions between the European Commission, European Parliament and Council, the final text of the Recast Regulation was approved by the European Parliament. The next step is that it will be published in the Official Journal and it will become effective 20 days after publication.

The Recast Regulation has direct effect in each member state (apart from Denmark, which has opted-out) without the need for separate enactment at a national level.

However, the majority of the provisions are not effective until two years after the Recast Regulation comes into force (ie 2017). This is to allow member states to familiarise themselves with the new provisions. The European Regulation on Insolvency (EC) 1346/2000—the original Regulation—will continue to apply to proceedings opened before the Recast Regulation comes into force.

What changes are made?

The European Commission has summarised the main changes which the Recast Regulation will bring as follows:

  • a broadened scope—the rules will cover a broader range of commercial and personal insolvency proceedings, such as the so-called Spanish scheme of arrangement, the Italian reorganisation plan procedure or the Finnish consumer insolvency procedures
  • legal certainty and safeguards against bankruptcy tourism—if a debtor relocates shortly before filing for insolvency, the court will have to carefully look into all circumstances of the case to see that the relocation is genuine and not abusive
  • interconnected insolvency registers—businesses, creditors and investors will have easy access to any national insolvency register on the European e-Justice Portal (this system has already been piloted for seven member states)
  • increased chances to rescue companies—the new rules avoid secondary proceedings in other member states being opened, while at the same time guaranteeing the interests of local creditors and it will be easier to restructure companies in a cross-border context
  • a framework for group insolvency proceedings—with increased efficiency for insolvency proceedings concerning different members of a group of companies, there will be greater chances of rescuing the group as a whole

Kathy Stones, solicitor in the Lexis®PSL Restructuring & Insolvency team.

Further Reading

If you are a LexisPSL subscriber, click the link below for further information:

EC Regulation on Insolvency 1346/2000—overview

Not a subscriber? Find out more about how LexisPSL can help you and click here for a free trial of LexisPSL Restructuring and Insolvency.

First published on LexisPSL Restructuring and Insolvency

 

Relevant Articles
Area of Interest