How can complex, costly and time-consuming recognition processes or parallel restructuring proceedings in different jurisdictions be avoided?
Whilst the avenue for the EU-wide automatic recognition of restructuring proceedings has now been opened for several jurisdictions by an amendment to the European Insolvency Regulation ((EU) 2015/848) (EIR), the query above remains unanswered as regards restructuring proceedings falling outside the scope of application of the EIR.
Annexes A and B to the EIR list national insolvency proceedings and practitioners to which the latter Regulation, including its recognition mechanism, applies. By the Regulation (EU) 2021/2260, the annexes have been replaced with new ones and are now supplemented with new types of restructuring proceedings and practitioners which eight Member States have introduced in local restructuring and insolvency laws following the implementation of the European Restructuring Directive ((EU) 2019/1023) (ERD).
Under the ERD, Member States must implement "preventive restructuring frameworks" in national law. In doing so, the European legislator has given Member States an option: such restructuring frameworks may comply with the requirements of the EIR, but they do not have to. However, if Member States do make use of such option, the restructuring framework must be a public proceeding according to Art. 1 (1) of the EIR. Only such public proceedings are included in Annex A to the EIR and thus enjoy EU-wide recognition (see below).
Currently, several Member States have made use of such option. In Austria, for example, the new Restructuring Code (Restrukturierungsordnung) (RC) (see A giant leap forward? The new draft for a restructuring code in Austria) introduced, as an alternative to regular restructuring proceedings, which are of a private nature, European Restructuring Proceedings (Europäisches Restrukturierungsverfahren), the initiation of which (i) may be chosen by the debtor and (ii) according to Sec. 44 of the RC needs to be published in the publicly available Austrian Edicts Database (Ediktsdatei). Contrary to regular restructuring proceedings under the RC and in line with the requirements of Art. 1 (1) of the EIR, the European Restructuring Proceedings have been included in Annex A to the EIR.
Similarly, new types of insolvency proceedings of other Member States, namely the Netherlands (WHOA), Germany (StaRUG), Italy, Lithuania, Cyprus, Poland and Hungary (see country update below), have been included in Annex A to the EIR.
Inside the scope of application of the EIR
By including European Restructuring Proceedings in Annex A to the EIR, such proceedings are deemed to be "insolvency proceedings" within the meaning of the EIR and thus, in particular subject to the EIR's directly applicable rules concerning international jurisdiction and recognition.
The centre of the debtor's main interests (COMI) is therefore relevant for the international jurisdiction as regards cross-border European Restructuring Proceedings.
Those furthermore enjoy EU-wide recognition. This particularly concerns the opening of European Restructuring Proceedings which shall, in principle, (i) according to Art. 19 of the EIR, be automatically recognised in all other Member States and (ii) according to Art. 20 of the EIR, produce the same effects in any Member State (in each case other than in Denmark).
The above consequences may be of practical relevance in particular if the opening of European Restructuring Proceedings is associated with court ordered stay of enforcement actions with a view to foreign assets.
Outside the scope of application of the EIR
Whether and how private restructuring proceedings under the RC can be recognised in Member States is still unclear in Austria. As they are not listed in Annex A to the EIR, they do not fall within the scope of its respective rules. According to academic literature on the subject, the applicability of Regulation (EU) 1215/2012 is in question; on the contrary, some have argued that national procedural rules and the rules on international private law are applicable. Accordingly, the same queries arise as regards the international jurisdiction for private restructuring proceedings under the RC with a cross-border element.
If a debtor - not willing to reveal its financial distress to a wider audience - decides against the initiation of European Restructuring Proceedings, it may thus face legal uncertainty concerning the cross-border treatment of its restructuring.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.