IMF and the Law Society reject EU Parliament’s insolvency proposals
Christine Lagarde, managing director of the IMF, and Nicholas Fluck, President of the Law Society of England & Wales, suggest that the European Parliament's proposals to amend the European Commission’s proposed revisions to the European Insolvency Regulation effectively promote liquidation at the expense of rescue.
A stated aim of the Commission's proposal - an aim purportedly accepted by the Parliament - is business rescue, but Lagarde and Fluck (and other commentators) consider that the flexibility inherent in the Commission’s proposals is more likely than the MEPs’ ideas to achieve this.
Specifically, the Parliament proposes that court (ie judicial) decisions open all insolvency proceedings to which the Regulation applies. So, CVLs, CVAs and out of court administrations would not be recognised in Europe; and any European assets (including debts) of an English company that had traded in Europe and was subject to such a process could be seized by a local (European) IP with no requirement to cooperate with the UK IP! This is ludicrous.
Also, the Parliament proposes that the insolvency law that applies to a legal or natural person depends on where their Centre Of Main Interests was (an arbitrary) 3 months before they applied for court insolvency. This is impractical legalistic madness, which is said to attempt to avoid forum shopping. The Regulation, in pursuit of the EU's fundamental principle of freedom of movement, allows individuals and companies to move freely between Member States. The clearest rule for everyone is where, as now, the applicable insolvency law is that applicable to the debtor at the date of filing (or petitioning) for insolvency.
Unfortunately, some civil law lawyers and academics, including many from the predominant German-led European political grouping, appear uncomfortable with some of the flexible and innovative cross-border restructuring and insolvency solutions developed in other jurisdictions, notably the UK (which is of course in the political minority in Europe).
In the UK, we would probably accept restrictions on individual forum shopping - the infamous "bankruptcy tourists", often from Germany or Ireland, who sometimes pretend (rather than try) to move their COMI to the UK because of the 1-year automatic discharge or other potentially attractive features of our bankruptcy regime.
There are lots more problems with the Parliament's proposals - but that's another discussion!
Date: 4th February, 2014
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