14 Apr 2017
Regulation (EU) N° 2015/848 of 20 May 2015 introduces new provisions regarding groups of compagnies - Part one
Regulation (EU) N° 2015/848 is to replace current Regulation (EC) N°1346/2000 of 29 May 2000 on insolvency proceedings.
The new regulation will apply only to proceedings opened after 26 June 2017.
It introduces a number of innovations and improvements, including a new Chapter V (Articles 56 to 77) entitled "Insolvency proceedings of members of a group of companies".
A "group of companies" is defined as "a parent undertaking and all its subsidiary undertakings" in Article 2 of Regulation (EU) N°2015/848. This concept was not covered by Regulation (EC) N°1346 /2000 that only addressed "establishments" - which in practical terms was a major lack.
How have groups of companies been dealt with under application of Regulation (EC) N°1346/2000?
In case of conflicting laws, Article 3 of Regulation (EC) N°1346/2000 provides as follows:
"International jurisdiction
The new regulation will apply only to proceedings opened after 26 June 2017.
It introduces a number of innovations and improvements, including a new Chapter V (Articles 56 to 77) entitled "Insolvency proceedings of members of a group of companies".
A "group of companies" is defined as "a parent undertaking and all its subsidiary undertakings" in Article 2 of Regulation (EU) N°2015/848. This concept was not covered by Regulation (EC) N°1346 /2000 that only addressed "establishments" - which in practical terms was a major lack.
How have groups of companies been dealt with under application of Regulation (EC) N°1346/2000?
In case of conflicting laws, Article 3 of Regulation (EC) N°1346/2000 provides as follows:
"International jurisdiction
1. The courts of the Member State within the territory of which the centre of a debtor's main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary.
2. Where the centre of a debtor's main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if he possesses an establishment within the territory of that other Member State. The effects of those proceedings shall be restricted to the assets of the debtor situated in the territory of the latter Member State."
Based on Article 3 and case-law derived from it, a number of rules have emerged:
▪ Prior to assuming jurisdiction, the court seised of an application to open insolvency proceedings must ascertain that the center of the debtor’s main interests is located within the territory where it has jurisdiction;
▪ In this respect, the concept of "center of main interests" has an autonomous meaning, i.e. national courts may not construe it based on their respective definitions;
▪ The center of the debtor’s main interests is deemed to be the place where the registered office is located. This is a merely rebuttable presumption, meaning that it may be discarded if it is possible to gather reasonable evidence showing that the debtor mainly operates from another Member state than the country where the company has its registered office (for instance, the following may be taken into account by the judge: location of economic activity, movable and immovable assets).
It is clear from the above rules that Regulation (EC) N° 1346/2000 doesn’t cover situations involving groups of companies, which include legally autonomous subsidiaries (which, as such, aren’t establishments of the group).
The problem faced by law practitioners has been to know which court has jurisdiction to open insolvency proceedings where the mother company and its subsidiaries have their respective registered offices in more than one Member state.
In the absence of any special provisions regarding groups of companies, some courts deemed it necessary to centralize the opening of insolvency proceedings for all companies of a group (the mother company and its subsidiaries) within one jurisdiction and under the same law, in order to be able to implement an overall recovery plan for the whole group.
In doing so, courts have tended to use a broad interpretation of the concept of “center of main interests”, which for subsidiaries was considered to be the registered office of the mother company.
This solution was nevertheless rejected by the European Court ofJustice (ECJ) in its judgement regarding the “EUROFOOD” case (ECJ, 2 May 2006, Case C-341/04, Eurofood IFSC Ltd). The ECJ ruled in favor of a narrow interpretation of the concept of “center of main interests”.
In this case, the Italian PARMALAT group owned an Irish subsidiary named “EUROFOOD Ltd”.
The Irish court opened main insolvency proceedings in Ireland for the subsidiary, whereas the Italian court opened same in Italy, considering that the center of EUROFOOD’s main interests was the country where the mother company had its registered office, i.e. Italy.
The Irish Supreme court then seised the European Court of Justice to clarify the concept of “center of main interests” in view of the case.
In its ruling, the ECJ stated that the center of main interests is the country in which the registered office is located and that this determining factor equally applies to groups of companies.
The ECJ then defined strict conditions under which the presumption may be rebutted, considering that “where a company carries on its business in the territory of the Member state where its registered office is situated, the mere fact that its economic choices are or can be controlled by a parent company in another Member state is not enough to rebut the presumption laid down by the Regulation”.
With this stance, the ECJ ruled in favor of treating the registered office of each group company as its center of main interests.
On the one hand, this solution is a step forward in that it clarifies which court should have jurisdiction to open insolvency proceedings; on the other hand, it leads to a plurality of proceedings, which makesit harder to develop a comprehensive recovery plan at group-level.
This is the reason why this aspect of Regulation (EC) N°1346/2000 needed to be revised.
Part Two of this paper provides a further insight into the changes introduced by Regulation (EU) N° 2015/848.
2. Where the centre of a debtor's main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if he possesses an establishment within the territory of that other Member State. The effects of those proceedings shall be restricted to the assets of the debtor situated in the territory of the latter Member State."
Based on Article 3 and case-law derived from it, a number of rules have emerged:
▪ Prior to assuming jurisdiction, the court seised of an application to open insolvency proceedings must ascertain that the center of the debtor’s main interests is located within the territory where it has jurisdiction;
▪ In this respect, the concept of "center of main interests" has an autonomous meaning, i.e. national courts may not construe it based on their respective definitions;
▪ The center of the debtor’s main interests is deemed to be the place where the registered office is located. This is a merely rebuttable presumption, meaning that it may be discarded if it is possible to gather reasonable evidence showing that the debtor mainly operates from another Member state than the country where the company has its registered office (for instance, the following may be taken into account by the judge: location of economic activity, movable and immovable assets).
It is clear from the above rules that Regulation (EC) N° 1346/2000 doesn’t cover situations involving groups of companies, which include legally autonomous subsidiaries (which, as such, aren’t establishments of the group).
The problem faced by law practitioners has been to know which court has jurisdiction to open insolvency proceedings where the mother company and its subsidiaries have their respective registered offices in more than one Member state.
In the absence of any special provisions regarding groups of companies, some courts deemed it necessary to centralize the opening of insolvency proceedings for all companies of a group (the mother company and its subsidiaries) within one jurisdiction and under the same law, in order to be able to implement an overall recovery plan for the whole group.
In doing so, courts have tended to use a broad interpretation of the concept of “center of main interests”, which for subsidiaries was considered to be the registered office of the mother company.
This solution was nevertheless rejected by the European Court ofJustice (ECJ) in its judgement regarding the “EUROFOOD” case (ECJ, 2 May 2006, Case C-341/04, Eurofood IFSC Ltd). The ECJ ruled in favor of a narrow interpretation of the concept of “center of main interests”.
In this case, the Italian PARMALAT group owned an Irish subsidiary named “EUROFOOD Ltd”.
The Irish court opened main insolvency proceedings in Ireland for the subsidiary, whereas the Italian court opened same in Italy, considering that the center of EUROFOOD’s main interests was the country where the mother company had its registered office, i.e. Italy.
The Irish Supreme court then seised the European Court of Justice to clarify the concept of “center of main interests” in view of the case.
In its ruling, the ECJ stated that the center of main interests is the country in which the registered office is located and that this determining factor equally applies to groups of companies.
The ECJ then defined strict conditions under which the presumption may be rebutted, considering that “where a company carries on its business in the territory of the Member state where its registered office is situated, the mere fact that its economic choices are or can be controlled by a parent company in another Member state is not enough to rebut the presumption laid down by the Regulation”.
With this stance, the ECJ ruled in favor of treating the registered office of each group company as its center of main interests.
On the one hand, this solution is a step forward in that it clarifies which court should have jurisdiction to open insolvency proceedings; on the other hand, it leads to a plurality of proceedings, which makesit harder to develop a comprehensive recovery plan at group-level.
This is the reason why this aspect of Regulation (EC) N°1346/2000 needed to be revised.
Part Two of this paper provides a further insight into the changes introduced by Regulation (EU) N° 2015/848.