Sie sind auf Seite 1von 48


Bankruptcy and Strategic Communications

The importance of planning an effective strategy

The journal of INSOL Europe Autumn 2009

Cross-border Security
The challenges involved

COMI in Greece & Germany

The interaction of insolvency proceedings in different member states

Stockholm Congress Preview

Issue 37
ISSN 1752-5187


EECC Conference report

771752 518006


Michael Crystal QC Christopher Brougham QC Gabriel Moss QC Simon Mortimore QC Stuart Isaacs QC Richard Adkins QC Richard Sheldon QC Richard Hacker QC Robin Knowles CBE QC Mark Phillips QC Robin Dicker QC William Trower QC 3-4 South Square is a set of barristers chambers with a pre-eminent reputation in insolvency and reconstruction law and specialist expertise in banking, financial services, company law, trust law, professional negligence, domestic and international arbitration, mediation, European Union law, insurance/reinsurance law and general commercial litigation. Martin Pascoe QC Fidelis Oditah QC David Alexander QC Antony Zacaroli QC Stephen Atherton QC David Marks QC Lexa Hilliard QC Ronald DeKoven John Briggs Mark Arnold Adam Goodison Hilary Stonefrost Lloyd Tamlyn Glen Davis Andreas Gledhill Barry Isaacs Ben Valentin Felicity Toube Jeremy Goldring Lucy Frazer David Allison Daniel Bayfield Tom Smith Richard Fisher


Blair Leahy Stephen Robins Marcus Haywood Hannah Thornley Simon Fuller William Willson Georgina Peters Adam Al-Attar Professor Ian Fletcher * Professor Sarah Worthington * Professor Riz Mokal *

Please feel free to contact our Senior Practice Manager, Paul Cooklin regarding the work we do, how we charge, the expertise of members of chambers or if you have any other questions.

* Academic Member

Tel: +44 (0)20 7696 9900 Fax: +44 (0)20 7696 9911 Email: LDE: 338 (Chancery Lane)

3-4 South Square Grays Inn London WC1R 5HP


At this time of our annual conference, here in Stockholm, with Sweden holding the presidency of the European Union, it is more difficult than it has been for a long time to predict in which direction the economy is heading. A crossroads for Sweden and Europe. Newspapers and statistics speak sometimes about a decreasing rate of the economic downturn and other times about a certain degree of recovery. Other experts believe we have far to go, with some believing that the worst is still ahead of us before the turnaround. Unemployment continues to increase in many places throughout the world, including Sweden. Retail sales have improved, but travel continues to decline. The large and small national airlines face great challenges with decreasing numbers of passengers and large fixed costs. Transportation companies in Sweden have had more to do since some of the notices of termination were withdrawn, but also at the cost of other transportation companies going bankrupt. Industrial corporations continue to run at high capacity. The motor vehicle industry has experienced a large part of the acid test but is still fighting with significant over-capacity. In short, the signals are very ambiguous. Our members from Eastern Europe have seen more dramatic swings but have insolvency legislation which is not yet fully developed and insolvency administration which can be improved. This has imposed great demands on those working with insolvency. At the INSOL Europe Congress this year, restructuring possibilities are the focus. More and more companies are seeking restructuring and distressed investment capital, in order to finance the restructuring to protect their assets, know-how and jobs. In Sweden, company reorganisation has become a prominent way of correcting a companys problems and critical situations. The number of proceedings has increased significantly. The trend is obvious, but Sweden, as well as large parts of Europe, still faces the challenges which turnaround operations involve. I am thinking primarily of the expertise and experience possessed by turnaround management. Many feel the call and eagerly wish to work with problem companies, but not all possess the experience required in the tough world of operative restructuring. Yet, in the reorganisation of Saab Automobile which we carried out starting in February of this year, our experience has been encouraging. The skills within Saab and the ability to work under a great amount of pressure without affecting quality have been surprising. The trials have been many but the core values have never given way. The leadership which CEO Jan ke Jonsson demonstrated was outstanding,

Annerose Tashiro

Guy Lofalk

including his unshakeable belief in Saabs future. He was also surrounded by a number of extremely competent people in management. Saabs leadership also demonstrated what can be achieved: turning around a situation in which Saab was entirely counted out to a position now where both the Government as well as the media are very demanding as to who should get to purchase Saab. The battle of the buyers has been tough and the candidates have done their best. A large part of the success comes from the management presentation which Jan ke and his management were able to present to interested purchasers. This shows us how extremely important management is, especially when the cold winds are blowing, and that you also have to keep a cool head. Perhaps we come out of these crises with better leadership with expertise in turnaround techniques. Guy Lofalk

Infr vr rliga konferens, denna gng i Stockholm, nr Sverige r ordfrandeland i EU, r det svrare n p lnge att bedma vart konjunkturen r p vg. Ett vgskl fr Sverige och Europa. Tidningar och statistik talar omvxlande om minskad takt i nedgngen och om viss terhmtning. Andra bedmare tror att vi har mycket kvar, en del tror att vi har det vrsta kvar innan det vnder. Arbetslsheten fortstter att ka p mnga hll i vrlden ocks ven i Sverige. Detaljhandeln gr bttre men resandet fortstter att minska. De stora och sm nationella flygbolagen str infr stora utmaningar med fallande passagerarunderlag med stora fasta kostnader. kerierna i Sverige har ftt mer att gra sedan en del varsel har terkallats men ocks p bekostnade av att andra kerier gtt i konkurs. Industrierna kr med fortsatt hg kapacitet. Fordonsindustrin har genomgtt en stor del av stlbadet men kmpar fortfarande med en betydande verkapacitet. Kort sagt signalerna r vldigt spretiga. Vra medlemmar frn stra Europa har ftt se mer dramatiska svngningar men en inte fullt utvecklad insolvenslagstiftning och en administration som kan frbttras. Det har stllt stora krav p de som arbetar med insolvens. Infr Insol Europes konferens i r str rekonstruktionsmjligheterna i centrum. Alltfler frgar efter rekonstruktion och riskvilligt s kallat distressed investment capital fr att finansiera rekonstruktioner fr att ta tillvara vrden och kunskap samt arbetstillfllen. I Sverige har rekonstruktion blivit ett alltmer uppmrksammat stt att komma tillrtta med bolags problem och kritiska situationer. Antalet inledda frfaranden har kat kraftigt. Trenden r tydlig men fortfarande str Sverige men ocks stora delar av Europa infr de utmaningar som turn operationer medfr. Jag tnker frmst p kompetens och erfarenhet inom turn around management. Mnga knner sig kallade och vill grna arbeta med problemfretag men inte alla har den erfarenhet som krvs i den tuffa vrld det r att jobba med operativa rekonstruktioner. I den rekonstruktion av Saab Automobile som vi genomfrt sedan februari i r har dock erfarenheten inom detta omrde varit uppmuntrande. Kompetensen inom Saab och frmgan att jobba under hgt tryck utan att gra avkall p kvalitn har varit hpnadsvckande. Prvningarna har varit mnga men aldrig har de krnvrdena sviktat. Utmrkande har ocks det ledarskap som verkstllande direktren Jan ke Jonsson visat med en orubblig tro p Saab och framtiden. Runt sig har han ocks haft en rad mycket kompetenta personer inom management. Ledarskap visar ocks vad som r mjligt att stadkomma frn en situation dr Saab var helt utrknat till en position dr svl regeringen som journalistkren nu r petiga med vilka som skall f kpa Saab. Kparstriden har varit hrd och kandidaterna har gjort sitt yttersta. En stor de av den framgngen kommer frn den management presentation som Jan ke och hans management var mktiga att uppvisa fr de intresserade kparna. Detta visar oss hur oerhrt viktigt management r srskilt nr det blser kallt och det gller att ven huvudet hlls kallt. Kanske vi fr det med oss frn dessa kriser; ett bttre ledarskap med kompetens inom turn around teknik.

Autumn 2009


12 14 17 20 24 27 29 33 34 40 42

INSOL Europe Annual Congress 2009 A preview of the programme Bankruptcy and Strategic Communication What can be achieved? Financial and Operational Turnaround One long honeymoon? COMI in Greece and Germany The interaction of insolvency proceedings Cooperation between administrators The Pros and Cons Cross-border Security Challenges Recent developments 5th EECC Conference Report from Dubrovnik Fruitful collaboration New avenues for cooperation Changes in the Czech Republic New anti-crisis measures Bankruptcy in Poland Consumer insolvency proceedings UNCITRAL Update Progress report on Working Group V

Annual Congress 2009, Stockholm

5th EECC Conference, Dubrovnik

Autumn 2009


3 6 7 8 10 36 38 44 46

Editors Column Annerose Tashiro & Guy Lofalk Executive Column Marc Udink Publications Special offer Presidents Column Carlos Mack News round-up Turton Award Winner 2009 Remuneration of bankruptcy administrators Croatia Bankruptcy Law in the US Why Chapter 11 makes sense Country reports Updates from a jurisdiction near you Dates for your diary INSOL Europe contacts

Country reports

Bankruptcy Law in the US


Autumn 2009


Our endurance test continues

by Marc Udink, INSOL Europe Secretary General
MARC UDINK INSOL Europe Secretary General

Everybody is busy

but still contributes to our cause.

Still the world suffers from the greatest crisis we have seen since the great depression of the thirties. Everyday our professionals whether insolvency practitioners, bankers, lenders, creditors, accountants or turnarounders are tested. Academics watch this and do not yet know what to make of it. Judges all over the world are asked to vet new solutions or come up with unseen alternatives. Amidst all this we meet in Stockholm to share our experiences and spread out our knowledge. During the first week of October we meet for our annual conference in the land of the Swedes. There we will find ample opportunities to learn what is going on in our profession. The attendance is overwhelming even in these busy times. This teaches us that the membership and the whole field acknowledges the value that can be found within our organisation. Everybody is busy but still contributes to our cause. Though the times are testing and we cannot find a free moment in private life, we meet. All our committees have their meetings during the Stockholm conference. The Judicial Wing has an unprecedented attendance. The Academic Forum has a very interesting meeting and will present us with their latest insights. The EECC meets to decide upon yet another regional destination for the accessing and emerging countries. The turnaround community joins us to share their

thoughts and give us ample opportunity to see what they came up with in these testing times. Our womens networking meeting will take place again.

SOAM are involved and INSOL Europe will assist as much as they need us. As all of you undoubtedly know the work of INSOL International is of paramount importance for the global developments in our field. We are therefore glad and grateful that Sumant Batra the current INSOL International president is joining us in Stockholm. I am also glad to announce former International President Bob Sandersons continued support with INSOL Europe. He will help us to liaise with the Americas. What happens there, happens here. The world is smaller then ever and solutions and diseases spread quicker then ever before. It is also Bob Sanderson who joined me in his appeal for responsible behaviour as practitioners. The whole world is watching what we do and whether or not we do that responsibly. These are testing times. Not only endurance wise but also in bringing the best and the ablest forward and come up with the most reasonable solution balancing all and everything. This is why we meet in Stockholm. This is why we write and read. I wish all of you the force to bring out the best of your talents and serve the global interests.

Global significance

New publications and technical inspiration

INSOL Europe has recently launched two new publications and at least two more are underway. The Academic Forum published the Leiden and Barcelona papers, both having arisen from the 2008 conferences. INSOL Europe created a budget for two new projects too (one from the Nijmegen University and one under the aegis of Dr Jens Lowitzsch of Berlin and in cooperation with the EU). The INSOL Europe Executive will, in the next few months, appoint a Chief Technical Officer. This new executive will focus exclusively on the technical aspects of our work and will liaise with the conference technical committees, the Academic Forum, Judicial Wing etc to ensure we contribute sufficiently.

INSOL Europe and INSOL International see it as their mission to assist Russia as much as possible in organising the rules of turnaround and insolvency in a way that enables all persons involved in these matters to adhere to the values accepted globally. Of course we will use the INSOL Europe Guidelines as part of that exercise. The EBRD and also

Russia and the INSOL family

Autumn 2009


International Cooperation in eurofenix Bankruptcy and Insolvency Matters Autumn 2009

(Wessels/Markell/Kilborn, Oxford University Press, 2009) Reviewed by Bruce Leonard of Cassels Brock & Blackwell LLP (Toronto)
A publication that may well be the finest current work on the complex issues involved in international insolvencies has recently been published by Oxford University Press. The work is a complete review of the origins and development of systems and structures for international cooperation in cross-border and multinational reorganisations and liquidations. The book was published as a result of a multi-year joint project between the International Insolvency Institute (III) and the American College of Bankruptcy. The authors are Professor Bob Wessels, a prominent member of INSOL Europe and Chair of INSOL Europes Academic Forum; Judge Bruce A. Markell of the United States Bankruptcy Court for the District of Nevada, a distinguished United States Bankruptcy Judge and a prominent American insolvency Professor prior to his elevation to the Bench; and Professor Jason Kilborn of the John Marshall Law School in Chicago. The authors provide readers with invaluable insights into the origins, development and future of communication and cooperation in cross-border insolvency cases between insolvency practitioners and the courts. The book analyses the structures, systems, and practices that have developed and are quickly emerging to coordinate and enhance international administrations. The book focuses on the development of unilateral and bilateral forms of national cooperation, the development of cooperation through cross border protocols, the UNCITRAL Model Law on Cross-Border Insolvency and features an extensive commentary on the EU Regulation on Insolvency Proceedings. The result is the best current analysis anywhere on coordination and cooperation between administrations in international bankruptcies and restructurings. The book is authoritative, succinct, and thorough. Its analysis of the development of international cooperation in bankruptcy matters from the earliest days through the development of Cross-Border Insolvency Protocols to recent experience under the European Union Regulation on Insolvency Proceedings is comprehensive and readable. Simply said, the book is the best available and most authoritative treatment of the complex international insolvency issues that we are all faced with on a daily basis.
Editors Guy Lofalk, Lofalk Advokatbyr AB (Stockholm) Annerose Tashiro, Schultze & Braun (Achern) Executive Committee Libby Elliott Chris Laughton Guy Lofalk (Joint Chief Editor) Paul Newson (Designer & Publisher) Giulia Pusterla Dr. Annerose Tashiro (Joint Chief Editor) Florica Sincu Editorial board Agustn Bou, Harald Buhardt, Giorgio Cherubini David Conaway, Lszl Csia, Aniek Gielen, Siv Sandvik, Ana Irina Sarcane Caroline Taylor Michael Thierhoff Artur Trapitsyn, Jesper Trommer Volf Jean-Luc Vallens, Niels Vermunt, Louise Verrill, Signe Viimsalu, Eurofenix is published by PNDesign on behalf of INSOL Europe. Correspondence, including ideas for articles, should be addressed to: Paul Newson, PNDesign, Barton House, 61 High Road, Chilwell, Nottingham NG9 4AJ UK Tel: +44(0)115 922 0017 Email: Web: Translation: Peter Wells Printed by: MRP Print ( Advertising & Sales enquiries: Edward Taylor MRP Print ( Jubilee House, Nottingham Road, Basford, Nottingham NG7 7BT UK. Tel: +44(0)115 955 1000 NEXT ISSUE PUBLISHED: January 2010 Copy deadlines available on request from Paul Newson, email:
Disclaimer: No responsibility (legal or otherwise) is accepted by the publisher, the editor, the executive panel of INSOL Europe or the contributors for any errors, omissions or otherwise. The opinions expressed in the articles that appear are not necessarily shared by the editor or publisher or any representative of INSOL Europe, or by the firms or organisations of which the authors are members. Copyright: INSOL Europe 2009. No part of this magazine may be reproduced, or transmitted, in any form or by any means, without the prior permission of INSOL Europe. Images or (unless specified otherwise)

Special Offer
Special arrangements have been made with the publishers, Oxford University Press, for Members of INSOL Europe to receive an attractive discount on the purchase price of the book. The list price for the book is 96.00 but Members of INSOL Europe may order the book at a 20% discount i.e., 76.80. To order the book and take advantage of the INSOL Europe discount, please call Oxford University Press at 44 (0)1536 741 727 (email at and quote your INSOL Europe Membership number and the OUP/INSOL Europe discount code which is ALMOWEIN09. This offer is available only until 30 November 2009 and is only available from Oxford University Press. On behalf of the authors, the American College of Bankruptcy and the International Insolvency Institute, we know that everyone who has the opportunity to consult the book will be pleased with the depth of its research and analysis and will find it a very attractive addition to their libraries. If there was only one book that you could have in your international insolvency library, this would be the one. Bruce Leonard is Chair of the International Insolvency Institute ( and a proud Member of INSOL Europes small North American outpost.

Autumn 2009


Its been a great joy

Carlos Mack gives us his last report as President of INSOL Europe

CARLOS MACK INSOL Europe President

The crisis made

clear that the so often invoked free market rules do not apply to some of its participants.

Capitalism is evil. You cannot regulate evil, you have to eliminate it and replace it with something thats good for all people, and that something is called democracy. For all those who have already been to the Venice International Film Festival or had the opportunity to see Michael Moores latest film Capitalism: A Love Story this message will not be surprising. The 66th Mostra Internazionale dArte Cinematografica had some other rum starts: Venezuelas President Chavez, a close friend of Italian Prime Minister Silvio Berlusconi, paid an unofficial visit for the screening of Oliver Stones newest work South of the Border. It is a documentary blended with interviews starring some other Latin American heads of state that examines the free market policies trumpeted by both the US and IMF and its consequences as well as about Venezuelas peaceful revolution, its effects on the rest of the Continent and on the fact that Chavez is not the public

enemy number one as so often described in the media. Social improvement has been extreme in Venezuela the poverty rate has been cut in half, this is admitted by the World Bank, says Stone. Surprisingly, nobody cared to ask him whether he spoke to the middle classes and/or where the money for the social improvement comes from (almost solely petrodollars). Among other personalities, Argentine President Cristina Kirchner asserts in the film: It is the first time in history that the leaders of so many countries look like the people they govern. I dont know whether you had tea with Cristina but I can assure you that either I met the wrong people on the Andean path when as a student I travelled through LatinAmerica or nobody has told her yet that she is continuously overdressed. As a matter of fact, the contents of her humble wardrobe are more a running gag than a secret of State. By the time you are reading this column Stone will have finished shooting Wall Street, part II staring Michael Douglas and set in New York in the days of last years financial crisis. What outcome awaits him? Lehmans or Bank of Americas one? That is the question. The crisis made clear that the so often invoked free market rules do not apply to some of its participants. In Europe, Northern Rock was an extraordinary example of what has been wrongly called financial socialism. People around the world are still

wondering why their governments did not follow the Scandinavian experience: Either shareholders find a solution under the governing law or the State takes over the bankrupt bank through a share deal and recapitalises it with tax payers money. As soon as the business improves the State sells the shares for a price that at least covers the initial investment. At the end the Swedish Governor cashed in even a small surplus. What is the actual reality in the Western world? The cash injected has been used to pay out hefty bonuses to those responsible for the misery or/and to swallow competitors. In which society do we live in? As far as I am concerned since last year I have no doubt that we live in a society where the golden rule rules: Those who have the gold make the rules. Too big to go bust is one of its most revealing expressions. Nobody will deny that one prickly aspect of the financial crisis is the widely shared conviction that capitalism has favoured only the (very) rich and powerful to the detriment of the majority. Once you create a two-class insolvency regime those who go bankrupt and those who do not you start eroding both democracy as well as the positive expression of true capitalism: fair competition in the interest of all market participants. How can a small but innovative enterprise compete with an entity that has got an insolvency-free guarantee? Monopolistic structures have never been a sign of a well functioning economy. Especially in the US, the

government helps create larger financial institutions instead of splitting banks into smaller entities in order to spur competition between financial institutions while making sure that bankers lose the ability to blackmail (the word was used by German chancellor Merkel) governments. Do we have to evict the evil? Should we become Venezuelans? As I already said in a previous column, I dont think so. Yale Professor of Economics, Robert Shiller, compared the crisis with the sinking of the Titanic and asks: Did the world stop building ships afterwards? No, quite on the contrary, but it took care to construct safer ones. Thats it. The answer is therefore selfevident to me: Capitalism needs as much regulation as to make sure that the whole system and the markets work properly, including the possibility that a bank goes down the drain albeit under a special insolvency regime for financial (as well as insurance) institutions. This crisis offers the chance to repair and improve the (non)existing regulatory tools. Unfortunately, the discussion in the last weeks has been around such subjects as to whether top managers remuneration should be capped. It is not the salary but the implementation and protection of a fairly balanced economic system called well regulated capitalism that matters. Looking at what is going on in the parliaments around the globe, my impression is that especially in the AngloSaxon/Western part of it we are about to miss the chance to

Autumn 2009


The 5th EECC Conference in Dubrovnik was a remarkable success

implement the greatly needed historic overhaul of financial rules. Capital markets are not as efficient as the prevailing theory of the last 20 years wanted us to believe. The consequences will be worse than the ones we have been confronted with since last September. We will play into the hands of populists at the outskirts of the political spectrum. A badly functioning capitalism puts democracy at risk. Capitalism should be there to serve people and not vice versa. It is unconceivable that a pivotal sector of the economy and of our societies as well has managed to get away without any substantial regulation of its activities. It is unacceptable. Against this background the role played by both insolvency and restructuring practitioners has a new dimension. All involved in this field are in the focus of public attention. Sometimes I have got the impression that society is more interested to vet the surgeons rather than to investigate the wrongdoers. More than ever we need to act in accordance with the internationally accepted standards of best practice while at the same time taking up the chance to play a decisive role in the shaping of new laws and policies in our profession. Our membership should have no doubt whatsoever about the steady dedication of both Council and Executive to enhancement of the association. We are all

constantly thinking about possible improvements in all fields of interest to both members and industry-players in order to maximise the benefits. I give my warm thanks to our Secretary General Marc Udink for his colossal effort in the turnaround of INSOL Europe. The impact of the tackling that started with Marc under Alan Perrys presidency has become visible to all of us. Bearing in mind that the EIR will be shortly reviewing, we have implemented a more closer relationship with the EUauthorities (commission and parliament). We want the Russian Federation as the largest European country to be closer to our club and will therefore make sure that this neighbour becomes even more involved in both our Council as well as in EECC work. Moreover, through INSOL International we will participate more actively in the work of both UNCITRAL and other international institutions such as OECD and the World Bank as well as professional associations, especially the International Insolvency Institute. Both the Academic Forum and the Judicial Wing are established committees within the organisation. Their yearly conferences are well attended and successful. The latest publications are only one example of the lively activity of our academia lead by Bob Wessels and Paul Omar. It has

been a great achievement to attract the active participation of so many judges from so many jurisdictions. Heinz Vallender has played the pivotal role and I am convinced about a further enlargement in his wing. The 5th EECC Conference in Dubrovnik was a remarkable success not only for the quality of the technical programme and the breathtaking location but also for the number of delegates. Most of the delegates agreed that the hotel and city are a perfect setting for further seminars and conferences. Marc Andr and de facto technical officers Martin Prager and Nick Hood have confirmed their commitment. All other wings and especially the two newest ones, turnaround chaired by Steffen Koch and lenders lead by Patricia Godfrey will over fulfil our expectations. Last but not least: David Rubin and Ottmar Hermann from the sponsorship committee, have continuously secured the availability of the much needed means in order to finance our activities. For me it has been the greatest honour to serve our association, an independent and impartial European organisation in the field of insolvency and restructuring, well-respected and esteemed by regulators, judiciary and other stakeholders as well as its members. It has also been a great

joy to act as president of our association. I hope to have nearly come up to your expectations. You might think that I am just being polite because, as someone said, great joy is flawed by the underlying lack of credibility, for you will not expect someone to speak about a small joy. What I mean by great joy is the pleasure of doing something absentmindedly in the sense that it is the activity itself and not the pay-off that counts. It is the joy of humbly contributing to the realisation of a great vision. I would like to thank every one of you very much indeed for giving me this opportunity. I sincerely wish that INSOL Europe continues to thrive and prosper in the future. I would like to express my most sincere thanks to all of you both for entrusting me with the office and for your continuous support. To all my colleagues in Council my gratitude for their confidence and to the members of the Executive and especially our talented and hard working Caroline Taylor and her band (Linda Smith, Malcolm Cork, Wendy Cooper and Florica Sincu) for the excellent teamwork. I would like to thank David Buchler for the accurate balance sheets and the interesting handling of currencies developments. I would also like to extend my deepest thanks to three former presidents, Alan Perry for his inspiring faith and friendship and Marc Andr with whom I spent plenty of time organising conferences and who has shown me how to celebrate even the smallest events, and Neil Cooper for bestowing on me the title of an almost Brit. And the warmest thanks to Chris Laughton for having being there every time I needed him. To Patricia Godfrey, our incoming president, many thanks for tangoing so pleasantly, my best wishes in her new role and the most successful time at the helm: Grazie mille a tutta mia famiglia INSOL Europe! Arrivederci in Stockholm!

Autumn 2009


Richard Turton Award, 2009
Richard Turton had a unique role in the formation and management of INSOL Europe, INSOL International, The Insolvency Practitioners Association and R3, the Association of Business Recovery professionals in the UK. In recognition of his achievements the four organisations jointly created an award in his memory. The Richard Turton Award is an annual award providing an educational opportunity for a qualifying participant to attend the annual INSOL Europe Congress. In recognition of those aspects in which Richard had a special interest, the award for 2009 was open to applicants who fulfilled all of the following:

spoken English to benefit from the conference technical programme;

Agree to the conditions below.

Work in and are a national of a developing or emerging nation; Work in or be actively studying insolvency law & practice; Be under 35 years of age at the date of the application; Have sufficient command of

Applications for the award were invited to write a statement detailing why they should be chosen in less than 200 words. A panel representing the four associations adjudicated the applications. The panel members are as follows: Stephen Adamson INSOL Europe, Neil Cooper INSOL International, Patricia Godfrey R3 and Maurice Moses the IPA. The committee received numerous applications for the award and it was a very close run decision as the standard of applicants was superb. We are delighted that the award has attracted such enthusiasm and response from the younger members of the profession and know that Richard would also be extremely pleased that there had been such interest. The committee is delighted to announce that the winner is Yana Hankovich from Minsk.

She is currently studying for her PhD where her Dissertation topic is on Assignment of receivables. Yana is studying at the Belarusian State University, Belarus, Minsk, she studied Civil Law, International Private Law, Commercial Law and European Law. She attended the Bologna University, Italy on a ten month exchange as part of her course. Additionally she worked at UNCITRAL for two months earlier this year analysing materials of the 30th to the 42nd EG6 sessions (1996-2008) on Security Interests in Receivables Financing and Insolvency Procedures and prepared a review comparing the UNCITRAL texts on receivables financing with the Russian legislation governing debts restructuring and assignment of claims. As part of the award Yana has been invited to the INSOL Europe Congress in Stockholm. She will be writing a paper that will be published in summary in one or more of

the Member Associations journals and in full on the websites. We would like to congratulate Yana for her inspired application and also thank all the candidates who applied for the award this year.

Insolvency Italy
On 8 June 2009 a new association was created in Italy. The main aim of the newborn association, Istituto Italiano di Studi Internazionali di insolvenza e risanamento (ISIR) is to develop the technical and practical aspects of insolvency procedures, not only domestic but also international, through the close cooperation with INSOL Europe on matters of research and conference organisation. The reason for the creation of the ISIR, also known as Insolvency Italy originates from the increase of need of special advice in the insolvency field and it is the first time in Italy that an association has been formed by both lawyers and tax accountants. For the period 2009-2012, the Board of the association will be formed by the following Executive Officers: Carlos Mack Castelletti (President); Giorgio Cherubini and Francesco Serao (Vice Presidents); Goffredo Caverni (Secretary); Luisa Melara (Treasurer); Federico Pernazza (Counsel); Giuseppe Trabucchi (Counsel). Mr. Renato Viale has been appointed Chairman of the Board of Arbitrators. For further information about the Associations activities, please contact the Secretary at:


Autumn 2009


IWIRC seeks top Would you like to performers for 2009 contribute to Woman of the Year Eurofenix? in Restructuring Award
The International Womens Insolvency and Restructuring Confederation (IWIRC) is seeking nominations for its 2009 Woman of the Year in Restructuring Award. Its purpose is to identify and recognise exceptional women across the globe who have made extraordinary contributions to the insolvency and turnaround profession. Founded in 1994, IWIRC is the premier networking organisation devoted to enhancing the professional status of women in the practice of insolvency and restructuring. IWIRC provides opportunities for networking, professional development, leadership and mentoring with more than 800 members worldwide in 32 active networks in Asia-Pacific, Europe and North America. Nominees must be women who are actively engaged or recently retired from the restructuring industry and may include attorneys, turnaround managers, bankers, investors, academics, and judges. IWIRCs Woman of the Year

will be honored at the ABIs Winter Leadership Conference at La Quinta, California, on 4 December 2009 at the luncheon featuring guest speaker Amity Shlaes. Nominations should be submitted by any interested party to before 26 October 2009 and include a statement of the candidates specific achievements. Extraordinary performance, leadership, innovative application of laws, negotiating skill, creative restructuring strategies, teamwork, and support of other women in the industry are just a few of the criteria that will be considered.

Regular readers will have noticed how Eurofenix has developed and grown over the last few years, almost doubling in length on a regular basis. The involvement and interaction of INSOL Europe members and other practitioners, whether established experts in their field or newly qualified graduates has helped to make this journal the dynamic and well respected read that it is today. The changes we have introduced along the way have helped the magazine move into different areas, with more opportunities for contributions of different kinds from different jurisdictions.

All contributions are offered voluntarily, without which we would have nothing to publish. So, if you would like the opportunity to have your work published and to get your name known amongst your peers and the wider readership of Eurofenix, please do offer your ideas and proposals for future articles, themes, subjects whether you have a finished paper, or an embryonic topic which you would like to develop get in touch with one of us and we will discuss your idea at one of our regular board meetings. For further details of copy requirements and a production schedule for the forthcoming year, please get in touch with Paul Newson,

We welcome any relevant news stories which can be added to this page in the interests of our members. Please send your suggestions or articles to (clearly marked eurofenix news item)

Autumn 2009



Annual Congress 2009, Stockholm

Evert Verwey, secretary of the Congress Technical Committee, runs through the programme of events for the 2009 Congress
his years congress is to be held at the Grand Hotel in Stockholm, a hotel with a splendid view of the Swedish capital and where the Nobel prize-winners stay before being ferried over to the City Hall for the grand prize-giving ceremony. Our Technical Committee, under the chairmanship of Patricia Godfrey (Nabarro) and Guy Lofalk (Lofalk), has designed a varied and up-to-date programme and assembled a panel of high profile speakers. The

EVERT VERWEY CMS Derks Star Busmann, Amsterdam

technical programme is expected to give participants an overview of the developments of the facts that led up to the current global financial crisis and where the future may take us. Dr Kjell A. Nordstrm will kick-off the congress. Dr Nordstrm has 20 years of experience working with multinational companies throughout the world and is presently an associate professor at the Institute of International Business at the Stockholm School of Economics. His research and

consulting focus is in the areas of strategic management in multinational corporations and will give an overview of the global economy, drawing a framework that will be useful for the whole congress. He has served as an advisor/consultant to several large multinationals and to the government of the United Kingdom.

Once upon a time

There were times that it was no issue finding funds. Leveraging a


Autumn 2009


company and expanding the facilities was a day-to-day business that gave companies the chance to expand and invest. Since mid 2009 this has changed. We have seen that even banks and multinationals have collapsed and that consumers are not sure if or where their savings are safe. Business, however, continues and trading has to be stimulated, otherwise the economy will meet a severe recession. In this light it is important to see if it is possible to find alternative types of funding. A pan-european panel under the leadership of John Willcock (Global Turnaround) will give an overview of the new financing possibilities, and with particular emphasis on distressed companies. After a short coffee break, a panel led by Christine Elliott (Chief Executive & Director of Institute for Turnaround) will handle the topic of operational and financial turnaround. By using case studies and different jurisdictions, the panel will show the legal possibilities and pitfalls of these two aspects of restructuring. With a modern and highly industrialised economy, enjoying a developed distribution system as well as excellent internal and external communications, the Swedish economy is still one of the most prosperous in the world. A panel of three will focus on banks considerations before releasing or expanding facilities to distressed companies. We have two bankers from Swedbank on the panel who will provide an insight from recent distressed situations. After lunch, it will be time to drive across Europe. A panel lead by Peter Briggs (Alvarez & Marsal) will explain what happened in the automotive business. As guests in Volvo-land this is a topic that should be discussed. The once flourishing motor industry is facing painful times across the world. Break-out-sessions will follow which deal with different hot topics around Europe. The subject matter for these sessions will be; Irish property in distress, pre-packs

across Europe, Cross-border lawupdate, and recent developments in Eastern Europe. The reason for choosing these subjects will become clear, but the emphasis will be on holding discussions relevant to all practitioners. The break-outsessions will show that the exchange of cross-border information about insolvency law is essential to the daily practice of a European insolvency practitioner. The break-out-sessions are the heart of the congress. Each participant may attend two different sessions. They will be led by different insolvency practitioners from a variety of jurisdictions. After an evening enjoying the capital of Sweden, the participants will gather again the next morning to continue attending the programme. Bo Andersson, Chairman of the Board of Directors of OJSC GAZ will kick the day off. Armed with the knowledge that comes from being a captain of industry, he will provide an outline of the global market and a birds-eye view of the day-to-day trade of a multinational in stressed times. This will cover the motor industry and explore why this sector has been struck so tremendously in recent times. A highly experienced panel formed by Ronald DeKoven (3-4 South Square), Tom Burton (Ernst & Young), George Seligman (Slaughter and May) and Laurent Fisch (Molitor, Fisch & Associs) will provide insight on the difficulties that many banks have encountered in recent years. What is the game behind the curtains in which banks, professionals and governments are trying to save the backbone of the worlds economy? After the coffee break James Sprayregen (Kirkland & Ellis) will fly through the recent restructurings and consolidations in the EU and US aviation industry. This specific industry has been hit severely by the crisis and the session will focus on key issues facing this industry. Congress participants may think it is winding down when,

before the end, high profile speakers will get on stage to give their impressions of the global cooperation between different jurisdictions in an insolvency. Rutger Schimmelpenninck (Houthoff Buruma), Neil Cooper (Zolfo Cooper), Michael Thierhoff (Thierhoff Illy & Partner) and Karl Wthrich (Wenger Plattner) have been involved in cross-border insolvencies and are able to explain the guidelines and keystones in a major cross border insolvency. Our thanks go out to INSOL Europe for preparing an outstanding social programme that will allow delegates to renew old friendships and make new contacts and friends. We are looking forward to seeing you all and to taking this cross-border insolvency adventure with you.


will show that the exchange of crossborder information about insolvency law is essential to the daily practice of a European insolvency practitioner

A great programme

Saturday morning

INSOL Europe would like to thank all sponsors of our 2009 Congress in Stockholm

Main Sponsor: Baker & McKenzie

General Sponsors: Dr Pannen Rechtsanwlte Nordia Law

Driving through Europe

Event Sponsors:
Bond Partners LLP Sprecher Grier Halberstam LLP William Fry McStay Luby hww wienberg wilhelm Nabarro LLP Maples & Calder IMV GmbH Bernsau & Lautenbach Leonhardt Westhelle & Partner Nordia Law
Our thanks also to supporters of our Congress The Financial Times

Autumn 2009



Bankruptcy and the importance of strategic communications

Vivien Kremer writes from a German perspective on important communications issues which are relevant across all jurisdictions in all countries
Since the financial crisis broke, the subject of bankruptcy has been on everyones lips. Spectacular cases such as Opel and Arcandor have prompted people in Germany to take a more differentiated look at the subject than they did just a year ago. Nevertheless, bankruptcy is still typically associated with liquidation, redundancies and failure to sufficiently fulfil creditors claims. People still do not realise that a carefully considered bankruptcy reorganisation plan offers companies an opportunity for sustainable restructuring. This is a problem in both the media and companies themselves, and amongst staff, business partners, (potential) investors and politicians all in equal measure. The predominant critical attitude means that the economic crisis at a company is often exacerbated by the public interpretation when bankruptcy proceedings are announced. It is therefore advisable to initiate strategic communication early on in the process in order to eliminate stakeholders resentment and fears and consequently help to ensure that the proceedings are successful. interpretative sovereignty over the news and preventing speculation. Successful communication then helps to maintain value and makes a significant contribution towards safeguarding creditors interests. At the same time, this can be a key factor for potential company investors. Ideally, the communication strategy should cover the whole range of internal and external channels. Press and media work, political communication, staff communication and information for customers, creditors and investors are all coordinated centrally. Only by closely dovetailing the content and organisation of these communication channels can all stakeholders information needs be catered for. In addition to continuously fostering media contacts, it is crucial that staff are provided with information promptly and openly in order to uphold their commitment to the company. New confidence in the bankrupt company can quickly be instilled in customers, suppliers and loan insurance companies if media coverage tallies with the information provided to them personally. specific relevance and unifying them within a coherent overall strategy. This is particularly true as a large number of interest groups are usually involved, and the number often grows in the course of the proceedings, with players being added who cannot be identified during the planning phase. Systematically prepared knowledge about those involved in the proceedings and the links between them, responsible political bodies, key business partners, and local opinion leaders is also useful as the proceedings progress. Another challenge is encouraging the company itself to accept transparent communication. Companies which have little or no obligation to publish information especially SMEs often hesitate to initiate comprehensive communication processes. They often fear leaving themselves open to attack by providing information. This fear is not unfounded, of course. However, it is important here to identify what details are likely to be made public anyway. It is important to formulate internal wording guidelines and therefore interpretations for these (negative) subjects and to take a proactive approach to communicating them. The aim must always be for the company to control messages itself and define interpretations before someone else does.

VIVIEN KREMER Pleon GmbH Germany

It is advisable to initiate strategic communication early on in the process in order to eliminate stakeholders resentment

Communication challenges

What can communication achieve?

The prime objective of communication is to maintain the company and brands reputation during bankruptcy proceedings. All communication should be geared towards maintaining

Many aspects of communication may seem obvious. It is basically about finding out what interests the different stakeholders have in a company or what fears drive them. This is used as a basis for deriving instruments and content for a targeted dialogue. The major challenge is identifying these different approaches to communication, determining their

Everyone knows that (informal) networks exist. However, in reality, the way they work is often disregarded. The only thing to remember for large-scale

Companies often realise too late that internal = external


Autumn 2009


communication processes is that it is impossible to provide individual groups with information and expect them not to pass it on or for details to be passed between the various groups. However, the various groups of company stakeholders need different sometimes fundamentally different information. For example, an investor may be content to accept redundancies while the workers council will initially fight them. As it is quite simply impossible to take individual networks into account due to their complexity, the challenge for communication is to develop a logical storyline which takes all interests into account. The end effect of this is that the same content is essentially communicated to each individual stakeholder group. The focal points are all that change.

The temporal risk

The best communication plan is worth nothing if the time frame is not sufficiently taken into account. For example: you inform a number of bodies within the company that you are applying for a bankruptcy reorganisation. However, you plan to inform the other stakeholder groups (staff, creditors, clients, the press, politicians) the next day. In this case, you necessarily must expect the management team to lose control over the communication process. As the group of people in the know grows, the probability of the information being disseminated sooner than planned increases over time at an exponential rate. This results in speculation and widespread uncertainty. The company has lost control over the information. This calls for a tight schedule, especially on the day of the announcement, which enables

all stakeholder groups to be informed. Lengthier, more detailed dialogue can be offered in the days that follow. Closely associated with the temporal risk is the danger of uncontrolled and contradictory statements from the company itself. If this occurs, it incites speculation and gives the impression of inconsistencies. It may also imply that the company or management is not unified. This regularly leaves the organisation open to attack. This risk naturally grows with the size of an organisation. The challenge is not just to furnish the companys external spokespeople with uniform wording guidelines, but also to continuously send out the same messages internally.

Everyone knows

One voice policy

that (informal) networks exist. However, in reality, the way they work is often disregarded

Autumn 2009



A sophisticated

Not just a question of style

communication strategy also includes preparations for the case that premature communication becomes necessary

As a rule of thumb, personal contacts are better than written statements. That goes for both external and internal communication. It is therefore advisable for the company to use dialogue wherever capacities allow. In addition especially in the case of bankruptcy reorganisations it should be ensured that the existing management teams credibility is maintained. This means that the managers have a crucial role as spokespeople both within and outside the organisation. If a receiver is involved, it is important to clearly stress that he is pursuing the same objective as the company and working with the management.

valuable and makes the greatest contribution towards achieving a companys objectives. In terms of the communication structure, this means clear top-down processes throughout the organisation, as this allows the largest number of people to be informed via personal contact. During the preparation stage, it is therefore crucial to clarify functions and roles. The communication measures and their focal points must be tailored to both the originator and the recipient. Even if the bankruptcy announcement has been almost perfectly prepared, it is impossible to completely rule out leaks. A sophisticated communication strategy therefore also includes preparations for the case that premature communication becomes necessary. Companies sometimes face the difficulty at this stage that there is a lack of facts to communicate. This can be counteracted by listing the formal reasons for bankruptcy and, in particular, the motives behind choosing a reorganisation i.e. the ongoing existence of the company. However, when not providing content it is even more important to explain how the process will proceed (including the timeframe). This at least gives staff and business partners some degree of security when making plans. By immediately utilising all communication channels, the company demonstrates that it is well prepared and that the relevant contacts are in place. This forms the basis for the company to regain control over information and the way in which it is interpreted.

Leak strategies

Staying informed

Comprehensive monitoring of all relevant media is an important part of press work as it enables the company to react to speculation and rumours immediately at any time. This comprises a daily press review and ad hoc monitoring of agency releases, blog entries and radio news. The press often runs rumours (frequently from unnamed sources). If no comment is received in even the shortest space of time, they appear in a second medium. If they gain currency in a third medium, they are often considered fact. Well-organised dialogue with all the relevant journalists can help to prevent this kind of thing from ever occurring.

Project management and processes

The explanations above show how important it is to thoroughly prepare communication as part of a bankruptcy reorganisation. Precondition is that all parties involved are committed to the communications strategy. The sponsor of the process is typically either the board or the receiver. In any case, crucial to the process is to closely refer to the legal strategy. As described above, personal contact with the relevant stakeholder groups is the most

Typically German?

Especially at an international level, it is often difficult to explain the significance of the German codetermination system. However, this is a prime consideration for the communication accompanying restructuring processes in general and bankruptcy reorganisations in particular. As a general rule, companies should initiate dialogue early on and seek solutions hand in

hand with their staff representatives. It must be remembered that workers councils are often closely linked with trade unions and politicians. Actively addressing these interest groups early on offers the company a chance to at least participate in the dialogue between these groups and shape it to some extent. Especially when elections be they European, national, regional or local are in the offing, it must be remembered that measures accompanying bankruptcy quickly become politically relevant. Regional differences should be considered: taking local factors into account can become a key factor for successful bankruptcy proceedings. For example, announcing plant closures in a region which has already been hard hit by redundancies and is therefore all the more reliant on the remaining companies can meet with more resistance (especially in the run-up to elections) than in a high-growth region which offers new employment opportunities. Conversely, we have seen that resistance is high in areas with low unemployment because staff cannot imagine being made redundant and trade unions are able to exert a lot of pressure (also on other companies in the region). It is therefore advisable to take the local demographic, industrial and political situation into account when drafting a communication strategy. Due to subsequent changes to the German Insolvency Statute adopting a Chapter 11 approach and insufficient public awareness of this, it is particularly difficult for companies undergoing bankruptcy proceedings in Germany to maintain acceptance or confidence, especially among their business partners. This means communication measures also have to provide a great deal of information about bankruptcy reorganisation itself. In addition to implementing a professionally managed communication process during a specific bankruptcy reorganisation, it therefore seems logical to initiate an informative campaign targeting a wide public about bankruptcy reorganisation itself.


Autumn 2009


Financial and Operational Turnaround: One long honeymoon?

Christine Elliott introduces the issues in relationships between Turnaround Professionals and Insolvency Practitioners tools, in the context of financial and operational turnaround
sk a Turnaround Professional, Does financial restructuring always go together with operational turnaround? and the answer you are likely to get is, No, but it should do. Of course, there are cases to which this mantra does not apply. The Structured Investment Vehicle (SIV) is a classic example. Popular for a decade until the 2008 market crash, SIVs borrowed short-term at low interest; loaned the money buying long-term at high interest and profited for investors from the difference; until there was no difference. Although SIVs were intended to stay in business indefinitely, they have all disappeared, some in the wake of a successful restructuring that was entirely financial in nature. This article introduces the issues in relationships between Turnaround Professionals and Insolvency Practitioners tools, in the context of financial and operational turnaround.

CHRISTINE ELLIOTT Chief Executive and Director, Institute for Turnaround

Turnaround Professionals and Insolvency Practitioners have complementary roles that should be quite distinct

For the turnaround professional, a crisis is the opportunity to make essential changes that put a business on the road to long-term viability. Having the experience and ability to make decisions fast is crucial to surviving a crisis. The IFT defines turnaround as, the rehabilitation and return to viability of under-performing organisations. The definition is short but the use of language is very deliberate. Organisations encompasses the myriad public and private structures and operations of (for example) National Health Primary Care Trusts, educational institutions, the Third Sector (charities and voluntary sector) and the huge range and scale of activities covered by companies. The expectations on turnaround leaders are great and for this reason, the bar for success is set especially high. Crucial to this success is the Turnaround Plan and its implementation. Turnaround Professionals contend that any form of insolvency should have a mandatory Turnaround Plan, produced and overseen by a person both qualified and experienced in turnaround. Leadership is the province of all the principal stakeholders involved in a turnaround, including financial and legal advisers. Speed remains of the essence. Inappropriately delegated decisions are one factor in extending the process beyond a point when a satisfactory outcome can be achieved.

What is turnaround?

Leadership is crucial

Turnaround Professionals and Insolvency Practitioners have complementary roles that should be quite distinct. There are firstrate professionals of each discipline and they work compatibly alongside to help achieve financial and operational restructurings. Yet there is also evidence of company directors getting informal advice from an IP which subsequently converts to an insolvency appointment; one example of the creative tension that exists between the disciplines and apparently under the umbrella of turnaround. Professionals in the restructuring market understand what is euphemistically called, accelerated M&A!

Complementary roles

A renowned asset manager says that a well-executed turnaround delivers, equity returns for equity risk. Pricing that risk is more of an art than a science. Business plans and sensitivity analysis are reviewed often and keenly with an eye on the comparable potential return represented from an insolvency process. Insolvency tools can be effective in a restructuring context yet per se they actually destroy value and worse, crystallise losses for a business looking for an escape route, says David Lovett from AlixPartners. Barclays UK Graham Rusling agrees that insolvency can be avoided provided that certain key criteria are met. We are looking for the consensual solution. There will be a core plan, a management team, enough time and money to fix the business and most important, the business has to be mended operationally, not just a financial restructuring. From Ruslings perspective, if all the criteria are not fulfilled, where there is not a viable business or we have a weak management team, it simply puts off the evil day and we all end up losing more money. Barclays holds these activities in its equity house Barclays Ventures and its involvement is not passive.

Comparing returns

Private equity houses that instigated early portfolio reviews may have been lucky enough to engineer early exits in 2008, albeit with slightly shorter hair. However, the abiding problem is the value break and inability to exit at any price let alone an attractive one.

Refinancing not an escape route

Autumn 2009



For banks, the

major lesson from the last recession is about avoiding a fire sale of assets in a falling market

Faced with this new reality, private equity has been building its access to turnaround skills, on the basis that the only option is to repair the underlying asset the business.

Business ownership trends

Over the course of the last twelve months, we have seen many more situations where lenders have moved from association with a business, for instance through warrants, to full ownership because this represents the best medium-to-long term option for recovering value that would otherwise dissipate or be destroyed. In the right hands, an insolvency tool to excise a specific financial problem should be like a surgeon wielding a scalpel (not a blunt instrument!)

option but beyond that, insolvency techniques are not the way to resolve very complex financing structures with tiers of debt and various levels of interest in the equity. These time-consuming transactions are difficult to execute and turn on where the value breaks, which is invariably in contention. The main function of the insolvency process is to convince people to come to reasonable terms when faced with an unpalatable alternative, says Ereira. The workout units of the clearing banks have differentiated models for their support units but without question, an abiding theme is how to execute a transfer to the specialists in time to address the critical issues in a distressed business.

Transferring trouble early

consultation currently doing the rounds in the UK may prove controversial: if priority is given to new money, whether it be assetbased lending protections or other investors, that puts an onus on existing providers to produce more funding and in the event they do not, may induce them to behaviour that is principally defensive. Furthermore, the knowledge that priority lending will be permissible is almost certain to change lending practice at the outset of a banking relationship. The warrant holders risks if a moratorium is extended is another critical area.

Labour force restructuring

Underlying problems

A common current theme is highly leveraged transactions that have gone off plan. The company capital structure becomes unsustainable, affecting the underlying profitability. At that point, the stakeholders have to make some decisions. If the owners are unwilling to put in new money when required, the lenders have to choose whether to crystallise their losses and take cash out or to shoulder the balance sheet problem and aim to create value over a period of time through careful ownership. Private equity houses, particularly the turnaround specialists, have long known that nurturing value goes hand-in-hand with taking responsibility for value.

Operational-financial balance

Lessons from history

For banks, the major lesson from the last recession is about avoiding a fire sale of assets in a falling market. In more than one institution, portfolios have doubled over the last six months covering from minority warrant holdings to 100% ownership, meaning that the biggest constraint is the capacity to introduce, old-fashioned operational management. David Ereira of Linklaters recognises that pre-pack is an

Different types of businesses clearly require different strategies and as a general rule, the best solutions are achieved when operational and financial work goes hand-in-hand, with the balance between the two varying according to the nature and scale of the organisation. The market in the current recession and its aftermath has been widely viewed as dysfunctional. Why? A number of reasons: financial institutions themselves in turnaround; new money, especially from nondomestic markets, has been scarceto-none; a second wave of bad debts round existing lending is anticipated once toxicity abates; finding it difficult to call the bottom of the market. As a result, in the UK, large restructurings (as ever) carry on and the mid-market has been unexpectedly quiet for now. For an out-of court procedure to be successful, creditors will expect to be protected against the risks of a future insolvency. That is one reason why an insolvency service

In a multi-jurisdictional reorganisation labour force restructuring will involve differing levels of cost and complexity. These issues should be considered on a country-by-country basis with awareness of the potential advantages of an insolvency or out-of-court process. From the UK perspective, there is current uncertainty over the transfer of undertakings (protection of employment) regulations (TUPE), which preserve employees terms and conditions when a business or undertaking, or part of one, is transferred to a new employer. The question mark over TUPE is caused by the poor drafting of the recent legislation and the attitude of the redundancy payments office in interpreting this legislation, particularly in any case where the purchase of assets involves the prior management. The impact of EU law also needs to be mitigated.

Legal and other difficulties

Out-of-court risks

Syndication is usually dominant in the league of difficulties. For instance, in debt-to-equity, the question with complexity in the debt structure is how, economically, to compose a conversion; how is value established; who is impaired or not. In many highly leveraged transactions, it is not clear where the fulcrum of security lies. The


Autumn 2009


legalese must focus on: consents necessary to effect the recapitalisation; governance; a tendency in law not to respect the corporate veil. Consents may cover public shareholders and private stakeholders as well as subordinated secured creditors who must all be persuaded to comply. There is bound to be creative tension between priorities of the lenders who want to maximise ongoing debt whilst also being control of the company. Other difficulties may present themselves through funds who may decide (or not) to put in money and the value investors whose judgment and support can be pivotal in securing the optimum outcome. Governance revolves round the question of whose interests are being protected. In some jurisdictions (though not the UK) the affiliation of debt to equity means that debt claims can be subordinated. There is a tendency

in law not to respect the corporate veil be that on environmental; tax or pensions issues and these challenges undoubtedly complicate what is never going to be an easy task. Financial and operational turnaround needs interchangeable velvet gloves and iron hands!


Horses for courses

Large-scale restructurings in Europe and elsewhere have again demonstrated the complementary nature of operational and financial turnaround. Real estate businesses predominantly need re-organising financially in order to create breathing space while the market recovers and investors have generally recognised the mutual interest in not seeking fire sales of assets. On the other hand, industrial, retail and service businesses usually require operational turnaround with an element of financial. Sometimes, as with asset-based lending, the interests are conjoined.

The UK has one of the most flexible and effective restructuring frameworks in the world and most restructuring work the real turnaround are done outside formal insolvency procedures. Additional rescue tools are welcome provided that the emphasis needs to be re-focused on businesses and people rather than institutions and processes. No restructuring has yet failed for want of a procedure and the most effective, sustainable turnaround is likely to happen where operational and financial turnaround makes a harmonious couple.

Large-scale restructurings in Europe and elsewhere have again demonstrated the complementary nature of operational and financial turnaround

Autumn 2009



COMI in Greece and Germany: The interaction of insolvency proceedings in different member states
Anja J. Weissbrodt and Carlos Mack comment on decision 10 U 9/70, of the Higher Regional Court of Hamburg: are proceedings interrupted by the opening of insolvency proceedings in another member state (Art. 16 EUInsVO in connection with Art. 3 I EUInsVO)


pril this year the Higher Regional Court of Hamburg delivered a judgement on a case, discussed in the German literature (for example by Cranshaw1, amongst others), dealing again with Art. 16 EUInsVO in connection with Art 3 I EUInsVO and the question, does (and if yes, what are the implications) the commencement of insolvency proceedings outside Germany interrupt and over-ride insolvency proceedings in Germany. In this article we have a closer look at this decision, by firstly reviewing the facts, before we consider the premises of Art. 16 EUInsVO in connection with Art. 3 EUInsVO, and Art. 25 EUInsVO and summarise our view of the question tabled above.

The facts

The Higher Regional Court of Hamburg had to decide on the aforementioned question, in Germany connected with Article 240 Code of Civil Procedure. The defendant, a limited company (referred to here as Greek Ltd.) according to Greek law, had its

registered office in Katerini (North Macedonia), and undertook a variety of cross-border business activities. The Regional Court of Hamburg gave a judgment on the Greek Ltd., which went to the Court of Appeal (Higher Regional Court) of Hamburg in December 2006. On 23 November 2007 the defendant presented a decision of the Higher Regional Court of Katerini, which stated that insolvency proceedings have been opened against the Greek Ltd. and its estate, and that the latter had been sealed, i.e. the company could not longer trade because of the divestment. The temporary liquidator appointed in Katerini has denied his appointment it was not yet decided on his appeal in Greece at that time. The defendant stated, that they had filed an appeal before the Higher Regional Court of Katerini, too. The defendant claimed that the opening of the insolvency proceedings in Greece should interrupt and over-rule the case that was dealt by the Higher Regional Court of Hamburg.

The plaintiff, a business partner in Hamburg, stated that the insolvency proceedings in Greece do not interrupt the domestic proceedings, even if the temporary liquidator had denied his appointment and because the defendant had justified the plaintiff s stance as the company had claimed it was solvent and that there were no insolvency issues at all. The Higher Regional Court of Hamburg decided that the proceedings in Germany were interrupted. This is quite notable, as German Courts in the past have often found and ruled to the contrary. The Country Court of Duisburg for instance, stated that German primary insolvency proceedings are always valid ubiquitously2 and they based their decision on Art. 16 EUInsVO; likewise, concerning an EnglishGerman cross-border case, the Country Court of Dsseldorf 3 acted completely not in compliance to the principle of automatic recognition, given in Art. 16 EUInsVO.

Autumn 2009

defendant had The

its registered office in Katerini (North Macedonia) and undertook a variety of cross-border business activities

Autumn 2009



the Court considered which jurisdiction had precedence where two member states each claimed their action overruled the other

The premises of Art. 16 EUInsVO in connection with Art. 3 EUInsVO

Art. 16 ff. EUInsVO is the core (basic principle) of the EUInsVO. This is highlighted in Art. 17 Paragraph I EUInsVO, where it is stated that shall, with no further formalities, produce the same effects in any other Member State as under this law of the opening of proceedings, (...) besides, we will return to consider the further formalities later in this article.

Premises of recognition

The Higher Regional Court of Hamburg dealt with the premises of recognition in the sense of Art. 16 EUInsVO in that the Court considered which jurisdiction had precedence where two member states each claimed their action over-ruled the other. As such, the Court considered whether the commencement of the proceedings was in accordance with: the correct insolvency statute, universality, and did not go against public policy (ordre public).

Opening of the proceedings

In the case at hand the plaintiff claimed that insolvency proceedings in Greece were not yet opened, because the temporary liquidator had denied his appointment and that the defendant had appealed against the judgment of the Higher Court of Katerini (by claiming that they were solvent and that there were no issues that could lead to an insolvency). In the case C-341/04 Eurofood/Parmalat4 there were similar points to consider and the ruling discussed in detail, when proceedings are opened and when not. The Attorney-General Jacobs pleaded that if Ireland had filed for insolvency at the responsible court according to Art. 3 I EUInsVO, and if this court had appointed a liquidator temporarily, this should suffice to confirm that proceedings have been commenced. It was shown that the proceedings were mentioned in Annex A according to Art. 1

Paragraph 1, 2 part a EUInsVO and that the liquidator was listed in Annex C in accordance with Art. 2 part b EUInsVO5. Notwithstanding the above, it was discussed by literature that the ruling above was too general to be valid in all circumstances. It was successfully claimed that EUINsVO differentiated between the filing of application and the decisions made on these filings. Art. 16 Paragraph 1 Subparagraph 1 EUInsVO shows, as well as Art. 17 Paragraph 1 EUInsVO that the effects of the opening of proceedings differs from state to state, and that they always have to be judged according to the lex fori concursus. The Higher Regional Court of Hamburg asserted that according to Art. 17 Paragraph 1 of the Greek Insolvency Code 3588/2007 the liquidator had the sole power to dispose of the company assets once proceedings had been commenced, and moreover the estate of the Greek Ltd. has been sealed. The Greek liquidator has yet only applied for (at the Higher Regional Court of Thessaloniki) being released, and his appeal has not yet been decided. Furthermore the defendant did not plead that the decision was void by law, but only that the first court applied the law incorrectly. In this case, it was found that the proceedings were opened correctly.

According to Art. 3 I EUInsVO, the courts of the Member State within the territory of which the centre of a debtors main interest (COMI) is situated shall have jurisdiction to open insolvency proceedings. Recital (13) tries to clarify that the COMI should correspond to the place where the debtor conducts administration of his interests on a regular basis and is therefore ascertainable by third parties. According to the opinion of the Higher Regional Court of Hamburg, the COMI was not for discussion here, because the Greek company had its registered office in the area of the Higher Regional

Correct insolvency statute

Court of Katerini. Surprisingly however, the Court also considered Art. 3 Paragraph 2 phrase 2 EUInsVO. It concluded that there was no scope for an ambiguity as the main insolvency proceedings were commenced according to Art. 3 Paragraph 1 phrase 1 EUInsVO, and the considerations of Art. 3 Paragraph 1 phrase 2 EUInsVO (whereby the debtor has to posses an establishment within a territory of another Member State to empower its courts to file for insolvency against this debtor) were inapplicable. Cranshaw noted that the Higher Regional Court of Hamburg had not dared to consider the facts under the scope of phrase 2, as even if the plaintiffs had proved that the Greek Court declared itself responsible, the Greek decision had to be accepted. In summary it has to be said that Art. 3 EUInsVO does not deal explicitly with the case that two courts of two different Member states each declare themselves to have locus over the proceedings; in this regard it is said that the temporary order is essential. Special intermediate proceedings for the recognition of a decision in another Member State (called exequatur procedure) are not allotted and because the regulation is based on the principal of mutual trust6, locus is decided by which action is commenced first. Any later action taken in a different member state cannot interrupt or over-rule the earlier proceedings. The term universality deals with a form of insolvency law that is based on the idea that the insolvency proceedings of a debtor is to be treated according to the same insolvency law worldwide. The thought is that it would be much better if the insolvency could be dealt with in one global proceedings according to one global law the world is a village as Paulus puts it. The EUInsVO tries to get as near as possible to this ideal by three means: international jurisdiction, automatic recognition and



Autumn 2009


decisiveness of the lex concursus. Art. 16 EUInsVO standardises the recognition and extent of foreign primary insolvency proceedings according to the principle of universality. Proceedings are to be recognised without further requirements. As the EUInsVO states the universally accepted principle of relative universality, it is possible according to Art. 3 Paragraph 2 EUInsVO to open secondary insolvency proceedings. As a result a liquidator can work in all Member States and may exercise all powers conferred on him by the law of the State of the opening proceedings. This principle is also implemented in the Greek insolvency law, so that the Higher Regional Court of Hamburg was able to reaffirm universality in this case.

opening of proceedings are recognised with no further formalities. According to Art. 16 EUInsVO as explained above there is no exequatur procedure necessary; the judgments of the foreign court do not have to be legalised (as it has to be under section 438 paragraph 2 of the German code of civil procedure) and there is no need of an apostil (see Hague Convention of 5 October 1961). In the case at hand the original judgement of the Court of Katerini was presented to the Higher Regional Court of Hamburg, provided with an apostil, which was both not necessary.

lex fori processus

Public Policy (ordre public)

The last premise of recognition is the so-called ordre public, whereby any Member State may refuse to recognise the proceedings where the effects of such action would be manifestly contrary to the public policy of that state. This limit is in accordance with the standard of international insolvency law (see Art. 6 UNCITRAL-ml7). But the public policy clause should only be executed in exceptional cases. That is why Art. 26 EUInsVO states that this can only be applied where recognition of the proceedings shall be manifestly contrary to the public policy. It also indicates, that the public policy has to be checked in every single individual case. That is, as public policy is derived from the law of each member state, so cases and their decisions may differ from state to state. In the present case, the Higher Regional Court of Hamburg found no evidence of an offence against the public policy of Germany.

Recognition with no further formalities

Art. 25 EUInsVO states explicitly that judgments concerning the

The last key aspect which was not mentioned by the Higher Regional Court of Hamburg was that the effects of the foreign proceedings on the home proceedings tend to the lex fori processus (home insolvency regulations). The lex fori concursus governs the effects of the opening of foreign proceedings on means of legal action/litigation of single creditors (art. 4 Paragraph 2 Phrase 2 lit f EUInsVO). Excluded are explicitly effects on lawsuits pending, which are dealt with in Art. 15 EUInsVO. A problem here is to co-ordinate this lawsuit with the insolvency proceedings and its right to have locus universally. Art. 15 EUInsVO is a special regulation which refers to the law of the Member State in which the lawsuit is pending, lex fori processus. That is to protect legal certainty and and legal clarity. The effects of the opening of insolvency proceedings on pending lawsuits therefore only base upon the lex fori processus. Hence the single effects may differ quite a lot, for example concerning the case at hand dealing with the interruption of insolvency proceedings. Art. 15 EUInsVO allows the court to deal with its own rules and regulations. This led in the case at hand to Section 240 Phrase 1 Civil Procedure Code, that declares proceedings as aforementioned are interrupted.

The judgment dealt again with the question of interruptions by foreign insolvency proceedings in the light of EUInsVO, this time focused on Greek law. The Higher Regional Court of Hamburg stressed the single premises very well, even if Art. 15 EUInsVO seemed to be disregarded. But surprisingly there are still uncertainties concerning legislation, COMI etc., that should be obsolete after the commencement of main insolvency proceedings abroad, so there is still work to be done to clarify some terms and conditions of the EUInsVO and to obtain a better understanding of its single rules, so that Recital (12) can be really taken into account: These proceedings have universal scope and aim at encompassing all the debtors assets. Footnotes
1. vide Cranshaw, JurisPR-InsR 26/2008, Note 5. 2. so Country Court of Duisburg, 62 IN 190/02, DZWIR 2003,398. 3. vide Country Court of Dsseldorf, 502 IN 126/03, DZWIR 2003, 400; High Court of Justice Leeds, No. 861 - 876/03, ZIP 2003, 1362. 4. accessable at 5. so Jacobs in his final proposal, par. 47 ff., 88, 102 ff. 6. so Recital (22). 7. Nothing in this Law prevents the court from refusing to take an action governed by this Law if the action would be manifestly contrary to the public policy of this State; vide UNCITRAL-ml 86-88:


The thought is

that it would be much better if the insolvency could be dealt with in one global proceedings according to one global law

ANJA J. WEISSBRODT Partner, Attorneys Schmidt Hofert (Munich)

CARLOS MACK Partner, White & Case (Munich)

Autumn 2009



One or more administrators?

Rutger Schimmelpenninck, former INSOL Europe President, discusses the cooperation between administrators of an insolvent multinational group of companies

RUTGER SCHIMMELPENNINCK Partner, Houthoff Buruma, Amsterdam

uring the life of a multinational the parent and subsidiaries are organised and exist for the benefit of the group. Often they are managed centrally. Financing is arranged on a joint and several basis or with parent company guarantees. The group publishes consolidated accounts, and often has centralised bookkeeping and IT functions. The documentation of intercompany transactions is more often than not as detailed as that of third party transactions.

Administrator in this article is used in its broadest meaning, to include also other (Court appointed) representatives as well as restructuring officers in Chapter 11 type of proceedings.

One or more administrators?

While the specific interest of creditors of individual subsidiaries in a going concern situation is understandably not apparent, once the group becomes insolvent, the interests of creditors of a specific company, for the first time in the life of the group, spring to life and overshadow the group interest. As a consequence, in theory each insolvent entity would require its own administrator with a specific duty of care to its own creditors. However, in the event of an insolvent group active in the same jurisdiction, we often see one administrator being appointed who is responsible for different entities of that group. The efficiency advantages of having one administrator in place are obvious. If a clear conflict appears at the time of filing, separate administrators can be appointed. As an alternative the same administrator can be appointed in each of the insolvency proceedings together with an additional administrator per subsidiary who has a specific task in dealing with

conflict situations. This was the solution in a part of the Swiss Air bankruptcy (SAirLines). Supervision by courts or creditors committees contributes to the possibility of having one administrator responsible for different entities, whilst keeping an eye on the interests of each specific group of creditors. When preparing a request for insolvency proceedings of a national group the parties involved, lawyers and judges will have to consider whether one administrator or several administrators should be appointed. The following aspects are contributory factors. In favour of a single administrator is that less coordination problems are expected. This may be an advantage if a speedy sale or reorganisation of the interrelated business operations is required to maximise the value of the groups assets. Furthermore, a single administrator has direct access to the information of all the companies involved, whereas, if there are more administrators, there is a chance that one administrator is more cautious than the other in sharing information. All this will result in a more efficient procedure and lower costs. The only real argument in

favour of appointing separate administrators for each individual company is that creditors have more certainty that their interests are taken care of independently where intercompany situations are concerned. This argument would only compensate the disadvantages of the loss of synergy if the intercompany conflicts are extensive and if there are no alternatives to responsibly resolve these conflicts. This is hardly ever the case. As an aside: there are always potential conflict situations in bankruptcies. A professional administrator aware of his duties should be able to handle these in a proper and transparent manner. A multinational group calls for a different consideration. Usually an administrator who is qualified in country A might be recognised as such in country B under a treaty or under the EU Insolvency Regulation, but will not be qualified to act as administrator in this country B. For this reason usually different persons in different countries are appointed when international groups are concerned. Even in situations where a firm of internationally operating insolvency practitioners is appointed, still in each jurisdiction local partners of such a firm are appointed as administrators in accordance with local laws who will carry out their


Autumn 2009


respective duties independently of each other. Since the introduction of the EU Insolvency Regulation it has been possible to appoint one administrator when centrally managed international groups are concerned. The joint administrators of the holding of Rover, for example, were also appointed in the insolvency proceedings of many European affiliates. Also by moving the Centre of Main Interest (COMI) to the country where one wishes the insolvency proceedings to be opened, it can be achieved that foreign (group) companies in one country are joined in insolvency proceedings. (See: Christoph Paulus in Eurofenix Spring 2009, page 17.) Thus we see that in Europe the same administrator can be appointed in various jurisdictions if the COMI of the group companies is located in the same member state.

Necessary cooperation

In this article I will not further address the pros and cons of the appointment of one or several insolvency trustees. The issue I am concerned with is how the, in my view necessary, cooperation between different administrators of companies belonging to a group should be, especially in crossborder situations where no regulation or treaty is applicable. If in national situations confidence exists that a single administrator can be efficient while he or she can still respect the interests of separate groups of creditors, properly solve intercompany situations and adequately deal with information sharing between the estates under his or hers control, why should this be different in cross-border situations? Are nationalist aspects of incomprehension and fear for the law in other countries a factor? I admit that it is safe for an

administrator to strictly comply with national law and, referring to the interest of his or hers creditors, to critically hold the concept of cooperation with foreign administrators against the light. But just like in the event of a nationally operating group it should not be forgotten that it concerns or concerned a group that was operating economically as one and that, just like before the insolvency, significant synergy advantages can be gained by good cooperation and open communication. The consequences of a multi-national going into insolvency are of course drastic and the complex organisational structure of a group with companies that are interdependent adds another layer of complexity. Administrators should not deny the practical consequences of such structure which has been shaped over years prior to the insolvency, even if legally, different insolvency

significant synergy

advantages can be gained by good cooperation and open communication

eurofenix is the official quarterly journal of INSOL Europe. It is essential reading for INSOL Europe members, licensed insolvency practitioners and all professionals involved in business recovery throughout Europe. Eurofenix is published four times a year and is sent to all INSOL Europe members providing unique access to Europes leading insolvency business recovery professionals and academics.
To advertise in Eurofenix contact

Sponsorship & Advertising Opportunities

The journal of INSOL Europe

Autumn 2009



it is obvious that a

major difference of views exist as to how cooperation between administrators should be achieved

proceedings of different entities lead to a first-time compartmentalisation of the group. In other words, in my view if an administrator refuses to cooperate closely and share information, there is a considerable risk that the creditors of the relevant group company or of other group companies suffer damage. The Lehman Brothers is an example of a highly complex global operation going into various insolvency proceedings. When Lehman Brothers Holdings Inc. (LBHI) and various group companies applied for insolvency proceedings in the US and the UK on 15 September 2008, something happened that reminds one of musical chairs. The music suddenly stopped and hastily appointed administrators from various countries were suddenly placed on entirely different chairs. Most administrators found no or very little money in their estates. Some found a lot. Others did not have any financial records or employees at their disposal. From the start it was clear that it would not be possible to properly manage the insolvency of this worldwide operating investment bank and broker/dealer without optimal cooperation between the administrators involved. This cooperation slowly got under way with bilateral arrangements between administrators, about the provision of information or services, for example. Some of these agreements in themselves were so complicated that the negotiations between administrators often lasted several months. The negotiations about a number of more complex bilateral matters are still carried on or still have to begin. It soon became clear, however, that a broader form of cooperation was needed. The foundation for this was laid in a Multi Party Protocol that was signed in the months of May and June 2009. The administrators in the various proceedings in the US,

The Lehman Case

Germany, Switzerland (PWC Switzerland), Australia, Hong Kong, Singapore, The Netherlands and the Netherlands Antilles, expressed themselves in favour of this non-binding but directional protocol focussed on cooperation and exchange of information. The administrators in Japan and Luxemburg are still considering joining the protocol but did already participate in the consultations between the administrators (official representatives) who signed the protocol. Only the administrators of a large number of UK based companies, including important entities such as Lehman Brothers International Europe (LBIE) and Lehman Brothers Limited (LBL), (the joint administrators) did not sign the protocol. Whilst in favour of the principle of cooperation, they argue that they are bound to treat each insolvent entity as a separate legal entity and any framework that seeks to achieve a different outcome would not be permitted under English Insolvency law. Moreover, it is important that where an Insolvent Lehman Affiliate is a creditor of LBIE (or LBL), it is not treated in a manner that is materially different from that accorded to other creditors. The joint administrators also mention that there is no precedent (in the UK context) that would provide for different legal entities that were formally part of a group, but which are subject to separate insolvency proceedings under different laws in different jurisdictions becoming subject to a single process or protocol. As a consequence the joint administrators have decided to pursue the strategy of bilateral agreements as an alternative to developing an overarching protocol as they believe their approach is more likely to meet their commercial objectives and is consistent with the proper discharge of their duties under English law. The quotations above are derived from a letter of 13 May 2009 from the joint administrators counsel to Judge Peck of the United States Bankruptcy Court

Southern District of New York, who supervises the insolvency proceedings of LBHI. This letter, as a matter of fact, was approved in advance by Justice Blackburne of the High Court of Justice for England and Wales, which court supervises the insolvency proceedings in the UK, in a closed session in which only the joint administrators were present or represented. The joint administrators arguments were not subject to discussion in Court. Without going into further detail on the reasoning of the joint administrators, it is obvious that a major difference of views exist as to how cooperation between administrators should be achieved. The fundamentally different approach (bilateral vs. multilateral) leads in the view of other Lehman Brothers administrators to inefficiencies when issues on a multilateral level need to be resolved. This is regrettable, since in the end all administrators involved in the Lehman Brothers case endorse the principle and necessity of cooperation. It would therefore be to the credit of our profession if we would be able to accept universally acceptable rules or guidelines for cross-border cooperation which would serve as a framework to come to efficient arrangements on matters that we all consider important: timing, information sharing and in the end maximising return for creditors. The draft UNCITRAL Notes on cooperation, communication and coordination in cross-border insolvency proceedings which were adopted by The United Nations Commission on International Trade Law on 1 July 2009 are very helpful in reaching this goal. We can also learn from the Lehman Brothers multi party protocol which has been considered acceptable in many jurisdictions.


Autumn 2009


Challenges in taking cross-border security

Anne-France Catoir discusses the challenges involved and asks whether continental Europe is growing closer to common law jurisdictions

ANNE-FRANCE CATOIR is an associate in the London office of Brown Rudnick LLP

Enforcing cross-

border securities has become of paramount importance, especially for banks

ith the increase in the number of insolvencies due to current market conditions, enforcing cross-border securities has become of paramount importance, especially for banks. In the past few years, the increasing size of finance transactions, requiring the involvement of several banks through syndication, as well as the development of multinational enterprises with global assets, have highlighted the practical importance of ensuring a homogenous security framework. As of today, despite several attempts through international conventions, such a uniform framework has not been achieved. International conventions have either sought uniform substantial laws (for example the 2001 Cape Town Convention on mobile

equipment or the Financial Collateral Arrangement Directive 2002/47/EC) or conflict of laws rules (such as the 1980 Rome Convention on the law applicable to contractual obligations). Regarding conflict of law rules in the context of insolvency, the EU Regulation 1346/2000 is worth mentioning. It has been of great help in clarifying the scope of main and secondary proceedings. Secondary proceedings may be opened where the debtor has an establishment but will only apply to assets located in that country. The applicable law will be the local law. The EU regulation also deals with retention of title (which remain unaffected by the opening of main proceedings in another country) and rights subject to registration (which are subject to the country of registration). This,

however, does not change the fact that Europe remains, with respect to security laws, divided due to its historical and cultural differences. The main partition line is between civil law jurisdictions and common law ones. Recent developments however give rise to a hope that differences may fade, as some continental European jurisdictions seem to be adopting systems closer to common law countries.

The main features differentiating civil and common-law jurisdictions

Civil Law jurisdictions Civil law jurisdictions are cautious in their approach to nonpossessory security. This is due to historical reasons and based on Roman law. The Romans relied

Autumn 2009



By way of anecdote, Italy has a special 1985 non possessory registrable security over ham, justified no doubt by the excellence of Italian prosciutto

mainly on the possessory pledge (pignus). However, connecting security to a requirement of possession has proven very disadvantageous. A debtor is not able to utilise the collateral for his business purposes. In order to remedy this problem, civil law countries have created a variety of instruments, by enacting special statutes on non-possessory pledges for specific assets. The result is a piecemeal approach to security. By way of anecdote, Italy has a special 1985 non possessory registrable security over ham, justified no doubt by the excellence of Italian prosciutto. Turning to intangible assets, such as receivables, civil law countries have extended the code provisions on possessory pledges, replacing the transfer of possession by the requirement of notification to the receivables debtor. As a notification adversely affects the business reputation of the pledgor, legal professionals in civil law countries have sought ways of circumventing this issue. In Germany, this requirement is circumvented by means of the practice of transferring ownership of moveable assets Sicherungsubereignung, or assigning receivables by way of security Sicherungsabtretung. In France, a new instrument was created in 1981: the Bordereau Dailly. However only financial institutions may use this instrument, which allows the assignment of a bulk of present or future claims against a debtor. Overall, civil law countries can be characterised by the requirement of specificity or individualisation, a reluctance to recognise security over future acquired property (a new act of transfer is necessary), and notification requirements of debt assignments. In addition, in order to overcome the practical problems caused by the need for security to be in the possession of the creditor, retention of title arrangements are often put in place. Common law jurisdictions have a more liberal approach toward security. A minimum of formality Common Law jurisdictions

is required to take security interests. In such jurisdictions it is possible to secure present and future debts over present and future assets. In England, there are legal and equitable mortgages created on movable and immoveable property. While the first are subject to the common law rules, the latter are a creation of Equity. As no formalities are required for equitable mortgages, they can be attached to assets as soon as they enter an estate, allowing for a mortgage to be attached to future assets or a fluctuating pool of assets. This is how the floating charge was created, as an instrument for raising finance based on security over future and fluctuating assets, for example stock in trade.

of a single form of consensual security right called a charge; and the recognition of charges created over future assets to secure future debts and universal charges. The EBRD Model Law adopts a registration system with a priority rule determined by the time when a charge is created. This model has been adopted by several countries in Eastern Europe such as Lithuania. Changes in Civil Law countries: e.g. France France seems to have broken the strict partition of Europe referred to above. France has undertaken a substantial liberalisation of its laws governing securities. The requirement of dispossession has been relaxed with the creation of a pledge without dispossession for tangible assets. In such a case, the pledge will be registered to ensure publicity. Furthermore, France now virtually recognises a universal security over all present and future assets. This is now available to all types of debtors (subject to consumer credit laws). The doctrine of specificity was not however completely relaxed (it is therefore still not possible to create charges over a class of assets generically or over all the assets of the debtor present or future and a minimum requirement of individualisation is still necessary). Also, it is worth mentioning that it is not yet possible in the case of all assets to create security for present and future claims, which are not determined. Identification is broad so that it may capture all obligations arising under a credit agreement. The exclusion of future debt seems to mainly apply to future loans which are not contemplated by the documentation at the time they were entered into.

Is continental Europe growing closer to common law jurisdictions?

The European Bank for Reconstruction and Development (EBRD)

As part of its effort to modernise the legal framework of securities in eastern Europe, the EBRD issued a model law on secured transactions in April 2004 (EBRD Model Law). The EBRD Model Law identifies the core principles of a model secured transaction regime as being: a single security right (called a charge) for all type of assets or rights; simplicity in the creation of security interests; expeditious satisfaction on default; adaptability of transactions to the need of a particular transaction; security to be available over all types of assets to secure all types of debts; the existence of an effective means of publicising the existence of security rights; clear rules governing priority; and applicability to business credits (consumer credits are therefore excluded). Its main features are: the creation

Taking security in cross-border transactions remains a challenging task. Differences between national security laws remain substantial. However recent developments provide hope that national laws may be growing closer to each other.



Autumn 2009


A new success which no longer astonishes anybody!

Marc Andr, President of the EECC introduces this years conference report
First of all, we owe this new success to the INSOL Europe team Malcolm Cork, Florica Sincu and Linda Smith who completely invested themselves in solving all the material problems linked to the organisation of such a conference in order to allow Martin Pragers technical programme team (to which Jelena Marjanovic from Serbia brought substantial support) to present an exceptional programme focusing on particularly up-to-date problems, with the help of top-quality, even prodigious speakers. We also need to express our deepest thanks to the sponsors of the event, without which the conference would not have been so bright from all points of view. In his report (see page 30), Martin Prager points out the highlights of the technical programme so much anchored in todays issues. I can say together with him that the 31 speakers, each after his fashion, brought a major contribution to the success of this 5th EECC seminar. This successful event shows again that INSOL Europe has indeed fulfilled its goal by creating the Eastern European Countries committee: bringing together practitioners of different cultures, from very different countries, in a spirit of exchanging ideas and making new friends. It was not very difficult to boast such a spirit this summer in Dubrovnik, a magic destination our President, Carlos Mack, was all for. I think I can affirm that our Committee was indeed successful in favouring the professional exchanges and encounters.
Panel members: Marc Andr, Artur Trapitsyn, Slobodan Spasic, Cornel Florea

MARC ANDR President of the EECC

INSOL Europe has

indeed fulfilled its goal by creating the Eastern European Countries committee

What a privilege, for instance, to listen to the opening address by Terezina Orlic, President of the Dubrovnik Chamber of Commerce and Industry, followed by the welcoming words of Robert O. Sanderson, then president of the INSOL International federation and those of Patricia Godfrey, our Associations VicePresident! It is not common either to see and hear in one place representatives from 16 very different countries (see list of names at the end of the article): each brought an impressive contribution to the successful outcome of this 5th seminar. Yes, already five successful conferences! Beyond the scientific aspects, it is more and more obvious that the dominating spirit within INSOL Europes EECC events is that of sincere and warm exchanges, permitting all practitioners to create sustained ties between themselves. How else to explain the faithful presence of such a man like Lszlo Csia from Hungary who organised with us the first

ever EECC seminar! And the fact that Poland (where our second seminar was held), Serbia (host of the third) and Russia (for the fourth event) immediately answered yes to our proposition of participation! Thus we counted Vesna Gacesa from Serbia and Artur Trapytsin among our renowned speakers without any delay, Poland being represented by Pawel Kuglartz, who replaced our dear Zbigniev Fornal, retained at the last minute. Warmth, sincerity in meeting again and meeting new people, but also passion, characterised this seminar. And I say this especially in connection with the country report presented by the Romanian Cornel Florea, who conquered all delegates with his passionate presentation. In fact, Romania massively represented in number of delegates in all our events is the next destination of our committee: we already work hand in hand with the Romanians for next years conference!

Autumn 2009



Financial Crisis, Restructuring & Best Practice in Eastern Europe

5th EECC Conference, Dubrovnik Martin Prager reports from the recently well-attended conference in Dubrovnik
he 5th Eastern European Countries Committee (EECC) conference, Financial Crisis, Restructuring & Best Practice in Eastern Europe, was held in Dubrovnik, Hotel Excelsior, on 5-6 June 2009. The destination was an incentive for many and the town, listed in the UNESCO registry of world monumental heritage, kept all delegates enthralled. In these busy times for the insolvency community, it was very difficult for many to take leave and find some time for the conference. We were therefore quite delighted and honoured to welcome about 113 delegates from 16 different countries Austria, Croatia, Czech Republic, France, Germany, Italy, Montenegro, Netherlands, Poland, Romania, Russian Federation, Serbia, Slovakia, Spain, Switzerland, and UK. Special thanks are in order for the 31 speakers and panellists (listed on page 31) who spared no efforts and enriched us with their excellent contributions. Last but not least, INSOL Europe proved once again how the perfect organisation of a conference is to be done.

MARTIN PRAGER Lawyer, PLUTA Rechtsanwalts GmbH, Germany

Ms. Terezina Orlic

reported about the economic problems in Croatia in general and the Dubrovnik region in particular

Day one

The conference was opened by Marc Andr, INSOL Europe Council member, and Joint Chair of the EECC who welcomed all participants in his charming French manner. Ms. Terezina Orlic, President of the Croatian Chamber of Economy, Nerena Country, Dubrovnik, was the keynote speaker of the conference. She reported about the economic problems in Croatia in general and

the Dubrovnik region in particular, knowing that Croatia welcomes about 10 million tourists a year. Patricia Godfrey, Vice President of INSOL Europe welcomed the delegates on behalf of INSOL Europe, followed by Robert O. Sanderson, then President of INSOL International, with an introduction about the INSOL organisation and the advantages of the membership. The country reports, under panel leader Marc Andr, enjoyed the presence of specialists from the Eastern European countries, who presented the developments in the insolvency sector: Artur Trapitsyn for Russia, Srdjan Gavranic for Croatia, Nikola Vujacic for Montenegro, Jan Brodec for the Czech Republic, Pawel Kuglarz for Poland, Lszl Csia for Hungary, Slobodan Spasic for Serbia and Cornel Florea for Romania. After lunch a lively discussion about the European Insolvency Regulation took place. Panel leader Isabelle Didier from France guided us through agile contributions regarding the application of the EIR, the most

important cases in Europe (Isa Daisytek, Rover, StaubitzSchreider, EMTEC, Parmalat), the recognition of foreign decisions, the jurisdiction in avoidance matters, the effects of cross-border bankruptcy proceedings and the cases under way. Pau Donat from Spain, Jasnica Garasic from Croatia, Annerose Tashiro from Germany, Patricia Godfrey from UK, Jan-Philipp Hoos from Germany and Alessandra Santonocito from Italy reported about their experiences. At the end of the first day we listened to a panel concerned by the present-day financial crisis with its consequences for our profession in various countries. Nick Hood, as panel leader and speaker for the UK, introduced Vasile Deleanu (Romania), Josefa Llinares (UK) and Carol Patterson (Russia) who all delivered highly valuable contributions. The evening started with a very pleasant cocktail party on the terrace of the hotel, from which a splendid view of the Old Town can be admired.


Autumn 2009


113 delegates from 16 countries took some time out of their busy schedules to attend

For the Gala Dinner, Carlos Mack, President of INSOL Europe and Joint Chair of the EECC, welcomed all delegates and warmed them up for a pleasant evening. It seemed that everybody enjoyed interesting chats until late in the night, as it was yet another great opportunity to talk to old friends and meet new ones.

Day two

The second day of the conference started with the topic Continuation of Commercial Activities & Case Studies with Martin Prager as panel leader and speaker. At the beginning Karl Wthrich from Switzerland introduced the famous Swiss Air

case and pointed out how important the liquidity is and why it is necessary to keep the key personnel during the insolvency proceedings. He was followed by Martin Prager, with his presentation of Mrz Mnchen AG. Mrz Mnchen AG is a cloth manufacturer where business continued though insolvency administration was opened in 2004. Next, Ulla Reisch from Austria gave a lecture about the reorganisation plan within the bankruptcy proceedings concerning Jger & Kronsteiner, a private company with limited liability, specialised in electrical and installation engineering. Last but not least, Jana Fialova from the Czech Republic reported on the continuation of an engineering

company within and outside of the Czech reorganisation proceedings. The last part of the conference dealt with Regulation, Remuneration and Best Practice, the panel having Alessandro Scarso from Italy as panel leader. The idea underlying the topic was the optimal balance between the personal qualification of insolvency practitioners (specifically, in terms of their knowledge and experience, and more generally their personal abilities) on the one hand, and their remuneration, i.e. the incentive for them to acquire the skills needed in order to carry out their job in the best possible way, on the other hand. With reference to the contents of these contributions, Zdravko

The last part of the

conference dealt with the optimal balance between personal qualification and remuneration

Autumn 2009



Seki from Croatia portrayed the most significant provisions of the Croatian insolvency law and stressed the role of sanctions in order to ban or at least reduce the risk of corruption. He was perplexed about the cap applied to the insolvency practitioners remuneration currently existing in Croatia, especially when doubts as to the appropriateness of such a cap exist. Vesna Gacesa from Serbia outlined the statutory framework within which insolvency practitioners operate in Serbia, and focused on the criteria laid down by these provisions in order to determine their remuneration. She provided very interesting concrete examples showing that the result varies significantly depending on how the statutory provisions are interpreted, as it usually happens whenever such provisions have to be applied. Nick Tollenaar from Netherlands spoke about the Dutch experience especially focusing on a problem peculiar to Dutch statutory provisions related to insolvency practitioners, namely their obligation to wind up an insolvent business once they have been appointed by the competent court even in cases where the realisation of the remaining assets would not allow for their remuneration. Bob Sanderson followed, tackling the problem of the balance between the remuneration of insolvency practitioners and their professional qualification, in order to ensure that the existing incentives drive the right people to become insolvency practitioners. All delegates highly appreciated the organisation of the event and pointed out the importance and necessity of further collaboration opportunities. The organising committee would like to address special thanks to the distinguished speakers for the interesting speeches they have provided and to the sponsors of the conference for having made it possible for us all to meet, discuss and focus on substantial and up-to-date issues.

Marc Andr, Jan Brodec, Lszl Csia, Vasile Deleanu, Pau Donat, Isabelle Didier, Jana Fialova, Cornel Florea, Vesna Gacesa, Jasnica Garasic, Srdjan Gavranic, Patricia Godfrey, Nick Hood, Jan-Philipp Hoos, Pawel Kuglarz, Josefa Llinares, Carlos Mack, Terezina Orlic, Carol Patterson, Martin Prager, Ulla Reisch, Robert O. Sanderson, Alessandra Santonocito, Alessandro Scarso, Zrdavko Seki, Slobodan Spasic, Annerose Tashiro, Nick Tollenaar, Artur Trapitsyn, Nikola Vujacic, Karl Wthrich

Thanks also to our sponsors:

Begbies Global Network, PLUTA Rechtsanwalts GmbH, Hermann, hww wienberg wilhelm, White & Case, UNPIR The National Union of Romanian Insolvency Practitioners, FOE The Hungarian Association of Insolvency Practitioners

The Gala dinner provided an excellent opportunity to network with colleagues


Autumn 2009


One small step towards fruitful collaboration

Rka Korompay introduces a new avenue for cooperation and sharing of experiences
t the recent EECC conference in Dubrovnik (see full report on page 29) the Hungarian Association of Insolvency Practitioners (HAIP) initiated an informal corner meeting of the associations representatives and presidents of the neighbouring Eastern European countries. The idea for the meeting arose through the fact that on the one hand Hungary stood in the entrance of a new amendment of Hungarian Bankruptcy Law and the insolvency community was eager to collect information from countries that went through the same process in the near past. On the other hand it gave HAIP and related countries an excellent opportunity to learn and understand how other countries official insolvency-related associations and organisations function in their own country in order to improve and supervise its own services towards its members. HAIP administration created a detailed questionnaire, which was sent out with the assistance of INSOL Europe to the chairmen of the associations in the region. Serbia, the Czech Republic and Russia sent back their answers, whilst answers from Romania and Poland are being still awaited. The initiation of HAIP was welcomed with great enthusiasm and though the meeting was short and informal, it created an origo for mutual future cooperation between the countries in the region. The results of the questionnaire show also confirmed by the presentations during the conference that momentarily the Eastern European countries are facing

RKA KOROMPAY Managing Director, HAIP (Hungarian Association of Insolvency Practitioners)

is a huge need there

of communication and networking of neighbouring countries

similar problems regarding insolvency procedures and law: remuneration, corruption, the extremely high ratio of proceedings with no or very little bankruptcy assets, or the small ratio of reorganisation (approx. 1-3%) compared to liquidation procedures. Almost every European country has been through major and partial amendments to their Bankruptcy Law, and at some important points a huge diversification can be experienced: the influence of creditors on the assignment and release of the insolvency practitioner and regarding the sales of assets; evaluation, supervision and professional control of insolvency practitioners. Depending on the size of a country, the number of the functioning associations or organisations differs also. Whereas in Hungary there is only one association, whose members cover 99% of the entire insolvency community with a membership on voluntary basis, Russia counts 40 organisations with obligatory membership. The status of the Associations varies within the countries: in the Czech Republic CCIP operates as a chamber; in Serbia an official, state entity, the Bankruptcy Supervision Agency controls the work of insolvency and asset controlling specific companies; in Hungary the chamber status of HAIP is not supported by the present government, although HAIP initiated its transformation into a professional public chamber under the new Creditor Protection and Insolvency Act. Through other and similar questions we got a comprehensive overview of the activity of

associations in the region, and our aim is to establish and sign an agreement on association and collaborative deals between Eastern European countries. Another real (and not just Europe specific, but globally related) problem is the understanding and best practice of cross-border insolvency procedures. Based on the geographical closeness and the extensive globalisation experienced on the field of insolvency, there is a huge need of communication and networking of neighbouring countries in order to conduct cross-border procedures on a highly professional and efficient level. To learn each others best practice, to build connections with fellow foreign co-workers, to listen and evaluate their country specific problems this is what HAIP aimed to establish with this small step towards a future fruitful and smooth collaboration.

Autumn 2009



Anti-crisis measures in the Czech Republic

Tom Richter, lecturer with The Institute of Economic Studies in Prague and counsel in Clifford Chances Prague office describes notable recent amendments to the Czech Insolvency Act
Several months after the Czech cabinet set out to frame a package of responses to the economic downturn which has now fully reached large parts of the Czech economy, the Czech Parliament approved amendments to the still relatively new Insolvency Act 182/2006 which went into force on 1 January 2008. Being the first substantive revision of the new code, the amendments are aimed at easing the impact of the crisis on businesses and households. Promulgated in July 2009 as Act 217/2009, the amendments brought about several changes to Czech insolvency proceedings. The more notable ones are described briefly in this article. insolvency cases of debtors belonging to the same corporate group before the same insolvency judge. It should be noted that, although these amendments are useful, they really only remedy inaction on the part of the judiciary Czech insolvency courts could easily have arranged matters to this effect without Parliaments intervention. Also, these rules will not fix the problem of the lack in professionalism of many trustees here, for several years to come, the insolvency system will grapple with the fact that the reform was launched without the trustees having to be first subjected to exam scrutiny. to waive the balance sheet test and the resulting directors liability is much more difficult. Although this change may ease the pressure on some debtors, it also weakens the directors incentive to do something about the fact that the debtor is no longer solvent on a balance sheet basis most obviously, the incentive to have the business recapitalised. Therefore, whilst the new rule may make life easier for directors and shareholders, it may cause losses for outside creditors who extend new credit not knowing that the debtor is already balance sheet insolvent. It is the restrictions on set-off that perhaps represent the most significant debtor-protectionist element of the amendments. At the same time, these protections may be largely illusory all that may happen in practice is that setoffs will occur before the protections kick in, leaving the debtor equally cash-strapped, only earlier on in its financial difficulties. The amendments banned setoff after a court order declaring a moratorium and after the filing of an application for reorganisation, although the insolvency court will be entitled to grant an exemption from the ban. Furthermore, upon the application by a party in interest and where this is not contrary to the common interest of creditors, the insolvency court will have the power to ban set-off in other procedural phases as well, albeit only in specific cases and for specified periods of time. While the restriction after a court-ordered moratorium may be

TOM RICHTER Clifford Chance LLP, Prague

although these

amendments are useful, they really only remedy inaction on the part of the judiciary


The amendments brought three partial changes to the way insolvency trustees are appointed. Firstly, in pre-packaged reorganisation filings under S.148(2) of the Insolvency Act, the insolvency court will now be bound to appoint the trustee proposed in the pre-agreed plan. Secondly, as a rule, the insolvency court will appoint the same trustee for all debtors who belong to the same corporate group. Thirdly, and in connection with the previous rule, if such appointment results in potential conflict between the affiliated companies, the court will appoint a separate ad hoc trustee to deal with the particular conflicting situation. A related amendment to the Act on Courts and Judges will achieve the concentration of

Insolvency trustees and judges

Duty to file on the grounds of the balance sheet test

Chiefly out of concern that the prevailing asset price volatility and uncertainty of valuations may force debtors to file for insolvency even in cases where the filing would be unsubstantiated in times of more stable asset valuations, the amendments removed the debtors (and directors) duty to file on the grounds of the balance sheet test. This relaxation is temporary the rule will revert to its original wording at the end of 2011. Of course, the commercial reality is that events that would have been caught by the balance sheet test will be caught (often earlier) by loan covenants. The difference is that, while the latter may be waived by the particular creditor or syndicate (and at the moment often are as lenders try to avoid enforcement in the current market environment), getting the agreement of all creditors in order


Autumn 2009


of limited use given that the court may only declare a moratorium with the prior approval of the majority of creditors, the restriction kicking in as of the filing of an application for reorganisation may help protect the cash-flow of those debtors who are eligible for reorganisation under the Acts size test.


In addition to protecting the debtor who attempts reorganisation against set-off, the amendments also allow creditors to take away the debtors exclusive right to propose a reorganisation plan. Interestingly, this decision can be taken by the vote of a simple majority of claims present or represented. Notably, the amendments did not remove the shareholders right to elect and remove directors even during reorganisation, a factor that may mean that reorganisation remains difficult in situations where current management has lost the trust of creditors.

the pre-emptive rights of existing secured creditors. Post-insolvency financing provided following the approval of the reorganisation attempt in order to further the reorganisations goals will have super priority over other administrative expenses and the new lender will rank pari passu with existing secured creditors if the latter did not make use of their pre-emptive right to provide the new financing.

Consumer discharge proceedings

Post-insolvency financing

Following a major and widely publicised controversy about proposals to change the Acts rules on post-insolvency financing, Parliament decided to leave the law on this point unchanged. This means that post-insolvency financing will still be available on an administrative-priority basis and will be subject to the approval of the creditors committee and to

At least three changes are notable in relation to discharge proceedings. Firstly, the amendments vested the insolvency court with the power to set a different amount for monthly instalments than the statutory regime, where under the debtor was only allowed to keep the exempt minimum income, capped at some CZK 8,700 per month. Where the debtor is able to show that he or she will pay no less than 50% of his or her debts (as opposed to the minimum of 30% related to the statutory exemption), the insolvency court will have the power to set the monthly instalments in such a way that the debtor will be able to keep more than the statutory exempt minimum. This change should make the proceedings attractive to other than the lowest income groups of debtors. Secondly, an important change will affect mortgage loans in instalment-type discharge proceedings. The law has so far

been construed as meaning that the mortgaged property would always have to be sold even in instalment-type proceedings. Under the amendments, the mortgagee will have to apply for the sale of the collateral if sale is to occur. However, such application will mean that the secured claim will in fact turn into a limited recourse claim, the mortgagee having recourse solely to the proceeds of the sale. Failing such application, the collateral will not be sold i.e. the mortgagee will participate in the instalments alongside other creditors. In the discharge ruling at the end of the five-year instalment period, the mortgagees remaining claim will not be discharged, however, it will again turn into a de facto limited recourse claim, capable of being satisfied solely from the collateral and not the debtors other assets. Thirdly, the amendments codified current court practice under which new debts incurred during the discharge proceedings are not really treated as administrative priority claims. The amendments explicitly provide that new debts will not have administrative priority over old ones. Finally, the amendments involve the trustee and the debtors employer in the process of distribution of the instalments among creditors, absolving the debtor of the responsibility of making distribution calculations that were often beyond the debtors capabilities.

the restrictions on

set-off represent the most significant debtor-protectionist element of the amendments

Autumn 2009



The remuneration of bankruptcy administrators in Croatia

Zdravko Seki outlines the most significant provisions of the Croation insolvency law in terms of the remuneration of bankruptcy administrators in Croatia
The Bankruptcy Act in Croatia regulates the remuneration of bankruptcy administrators in the manner that such remuneration is established by the bankruptcy judge in accordance with a special regulation which establishes the criteria and calculation of such remuneration. The Regulation was passed by the Croatian Government at the end of 2003 and states that the remuneration amount is established by the bankruptcy judge considering the nature and amount of work of the bankruptcy administrator as well as the value of the cashed bankruptcy estate according to the schedule. Therefore, the final remuneration cannot be higher than 300,000 kuna (approx. 41,000), whereat this amount is conditionally related with the term of duration of the bankruptcy proceedings, which is three years, and to the judges annual salary which amounts to approximately 100,000 kuna. The Regulation enables the bankruptcy administrator to gain the right to an additional 5% 20% besides the final remuneration if he is able to cash the assets before the prescribed deadlines for the conclusion of bankruptcy proceedings. In cases where bankruptcy proceedings last longer than the prescribed term, the bankruptcy administrator has the right to 20,000 kuna for each following year up to the conclusion of the proceedings. The bankruptcy administrator has the right to an advance of the remuneration pursuant to this Regulation in cases when the bankruptcy debtor has continued his business activities. The Regulation also sets a remuneration for the bankruptcy administrator in all cases when proceedings or the bankruptcy plan are not conducted or terminated or when another bankruptcy administrator has been appointed. approach to the examination of claims. The Regulation has seen to a more transparent calculation of remunerations and payment of bankruptcy administrators. A principle of the Bankruptcy Act has been to establish the setting of remuneration in relation to the bankruptcy estate as a rule. Unfortunately this has not lasted long. After the expiration of the Regulation, in practice we have seen many dualities, even from the same courts. A part of the Regulation subject to the greatest criticism in practice is the request of bankruptcy administrators in cases where the bankruptcy administrator is not objectively able to conclude proceedings within the prescribed term (establishment of assets, duration of civil proceedings etc.), the calculation and payment of remuneration, within the established final calculation is performed in proportion to each partial division. In this way the final calculation of remuneration is is not interfered with and the bankruptcy administrators are stimulated to efficiently cash the bankruptcy estate and to settle the creditors claims with partial divisions. This criteria could actually be applied in all cases regardless in which manner the proceedings have been concluded and regardless of its duration. The part which refers to the stimulative increase of the remuneration above the final remuneration of 5%20%, should not be altered significantly as in practice it has proven to be well accepted.

ZDRAVKO SEKI Director, SEKI J.T.D., Croatia

Dynamic forces

bankruptcy administrators have, from a somewhat static position, been cast into a very dynamic one

The Regulation has therefore attempted to level out the criteria of remuneration of bankruptcy administrators, to solve questions of legal security and to reach a more efficient conducting of bankruptcy proceedings. By this means of remuneration, bankruptcy administrators have, from a somewhat static position, been cast into a very dynamic one, due to the fact that earlier, their advance payments were guaranteed, whereas now they are forced not to delay the proceedings. It is the opinion of many colleagues that in this way bankruptcy administrators have become more oriented to the conclusion of proceedings regarding all aspects of the proceedings itself. Bankruptcy administrators have become more prompt in preparing the documentation necessary for cashing the assets of the debtor and the conducting of civil proceedings as in the payment of creditors in means of partial division.

The Regulation in practice

During the examination hearing there has been a more quality


Autumn 2009


Other criteria for remuneration

Perhaps other criteria should be added to the present criteria (value of the cashed bankruptcy estate, nature of the bankruptcy administrators performed work and activities) when calculating the final remuneration. It would be proper to include the additional criteria of remuneration such as the amount and percentage of the final settlement of creditors during the bankruptcy proceedings, the amount and percentage of the settlement of the owner (this is peculiar, but cases like these do occur). In this way a balance of relations between all participants of bankruptcy proceedings would be reached, and the bankruptcy administrators would either be stimulated or destimulated. In this manner constant attention would be paid to the fact that the most possible number of creditors claims should be settled and unnecessary costs of proceedings would be eliminated. In this way none of the participants are at loss. Unfortunately, practice has shown that a greater part of expenses is spent on compensations, attorneys fees etc., all of which diminish the chances of the creditors for a higher settlement. It is also necessary to present the range and complexity of the bankruptcy administrators activities and establish the final remuneration in relation to these criteria. This should stimulate or de-stimulate the bankruptcy administrator. Besides, it should affect the necessary categorisation of bankruptcy administrators, as they are not all experts in every field (this may also be a subject of a separate discussion). In a case where the bankruptcy administrator has drafted a bankruptcy plan and such plan has been accepted, the bankruptcy administrator should be stimulated in relation to the final remuneration in the manner that he should be awarded a higher remuneration than the one received as a bonus for property that has been cashed before the prescribed deadline. In this way

constant attention

would be paid to the fact that the most possible number of creditors claims should be settled and unnecessary costs of proceedings would be eliminated

the bankruptcy administrator would be stimulated for drafting a bankruptcy plan which gives a new economic perspective to the bankruptcy debtor which is also an advantage to the community as a whole.

Some problems

The Regulation prescribes that a temporary bankruptcy administrator has the right to a lump sum remuneration for activities performed during the preliminary procedure to the maximum amount of 10,000 kuna. What occurs in practice is that a temporary bankruptcy administrator does not acquire an amount higher than 3,000 kuna, in spite of a very complicated procedure of establishing the existence of reasons for initiating bankruptcy proceedings. Such practice should be altered in the manner that a temporary bankruptcy administrator in complicated situations should be adequately remunerated or that the court fees necessary for presenting the proposal for initiating bankruptcy proceedings

be reduced, due to the fact that it is the fees that are sometimes the reason for not initiating bankruptcy proceedings. In fact, the Bankruptcy Act regulates that if the applicant does not make an advance payment in the amount of 10,00015,000 kuna for proceedings costs along with an additional fee of 10,000 kuna for setting up a Fund for covering bankruptcy proceedings costs which cannot be paid from the debtors assets, the bankruptcy judge shall reject the proposal, which in practice occurs very often. Problems also occur in situations when the bankruptcy debtors assets consist mainly of claims which cannot se settled regardless of the existence of final court judgements. This is due to the fact that the debtors have no assets from which the bankruptcy debtor could settle his claim. Such bankruptcy proceedings last a long time considering the nature of civil proceedings, and the bankruptcy administrator cannot receive an adequate remuneration for his work and effort.

Autumn 2009



Bankruptcy Law in the US

In this edition we start a regular column by US contributor David H. Conaway, an Attorney at Law with Shumaker, Loop & Kendrick, LLP

GM and Chrysler: The Chapter 11 Solution

After US Government bailout loans, days of US Congressional hearings, and months of speculation about too big to fail or the cascading effect throughout the supply chain, GM and Chrysler both filed for protection under Chapter 11. Heres why Chapter 11 makes sense Power to reject contracts
Perhaps the primary reasons Chapter 11 makes sense for GM and Chrysler are Sections 365 and 1113 of the Bankruptcy Code regarding executory contracts (including dealer agreements) and collective bargaining agreements (union contracts), respectively. These provisions make it relatively cheap and easy for a debtor to rid itself of burdensome contracts. Section 365 gives the debtor the right to assume, or reject, an executory contract. Rarely does a Bankruptcy Court challenge the exercise of a debtors business judgment on this point, particularly in absence of key creditor objections. The rejection of an executory contract is treated as a breach of contract by the debtor. The damage claim arising from the debtors breach of contract is deemed to be a pre-petition general unsecured claim, which often has minimal value. As the US auto industry attempts to right-size itself in response to declining sales and

DAVID H. CONAWAY Attorney at Law, Shumaker, Loop & Kendrick, LLP

market share, reducing the dealer network is, unfortunately, a necessary step. Section 365 of the Bankruptcy Code is the perfect tool for this purpose. Bankruptcy Code Section 1113 is a powerful tool for dealing with union contracts, which are treated similarly to executory contracts. A debtor can reject a union contract if the union refuses to accept modifications to the contract necessary to permit reorganisation and to assure all creditors, the debtor and affected parties are treated fairly and equitably. With GM and Chrysler, it appears that political forces tempered the full power and impact of Section 1113. In these cases of unprecedented government intervention, it appears that while modifications were made to the union contracts to reduce costs, the unions have ended up owning a substantial equity stake in the new entities. Without Section 365 and


Autumn 2009


Chapter 11 and exit lender. Thus, lenders may be able to negotiate the secured debt write-down.

Section 363 allows

a debtor to sell assets free and clear of liens

Power to sell assets free and clear of liens

1113, debtors would be required to terminate contracts under various state and federal laws including labour laws, franchise laws, dealership laws and state contract law. This would be an overwhelming task as virtually every states laws would be involved and litigation would almost certainly be required. It could take years and incredible financial resources to terminate contracts without Section 365 of the Bankruptcy Code neither cheap nor easy.

Another reason why Chapter 11 makes sense relates to the Bankruptcy Codes treatment of secured debt. The recent headlines reported that GM and Chryslers major creditors took substantial hair cuts regarding the indebtedness owed to them. In particular, in Chrysler the secured

Power to write down secured debt

lenders received only 29% of their claims. The reason why secured lenders can be compelled to accept less is Section 506(a) of the Bankruptcy Code, which provides that a creditor is secured only to the extent of the value of its collateral. In GM, the Bankruptcy Court found that even though the secured debt was approximately $50 billion, the liquidation value of the GM assets was between $6 $10 billion. Another motivation may have been the leverage of the US Treasury Department as many of the lenders were TARP (Troubled Asset Relief Program) participants. Interestingly, one non-TARP secured lender to Chrysler, the Indiana State Teachers Retirement Fund, objected to the Chrysler settlement. Other dynamics may impact the debtors use of Section 506(a) as a tool to write-down debt. For example, the debtors pre-petition lender is often the debtors

One more reason Chapter 11 is the best option for GM and Chrysler is Section 363 of the Bankruptcy Code, relating to sales of assets. In a non-bankruptcy setting, to sell assets, a debtor must comply with the laws of each jurisdiction where assets may be located. The respective rights of parties competing secured or lien interests must be resolved prior to sale, which will likely require litigation and very often results in a non-unified, piece-meal sale of assets. By the time the parties respective rights are adjudicated, the operating losses have likely eroded the asset values substantially. Section 363, by contrast, allows a debtor to sell assets, including substantially all of its assets, free and clear of liens, with the liens attaching to the proceeds of sale. This eliminates the need to adjudicate the rights of various parties in the assets prior to sale. Moreover, Section 363 allows for a quick sale of assets to avoid further operating losses and hopefully achieve maximum value for the assets. The Section 363 sale often culminates in an auction where the best bid is selected and approved by the Bankruptcy Court. In the case of GM and Chrysler, both debtors were able to obtain quick Bankruptcy Court approval of Section 363 sales. The tools of Chapter 11, specifically Sections 365 and 1113 (rejection of contracts), Section 506(a) (write-down of secured debt) and Section 363 (sale of assets) make Chapter 11 the ideal solution for GM and Chrysler. These tools have been and will continue to provide struggling businesses in all industries substantial incentive to choose Chapter 11 as a business strategy to restructure, reorganise, and to liquidate business operations and their assets.

Autumn 2009



Consumer insolvency proceedings under the amended Polish bankruptcy law

INSOL Europe Academic Forum member Patryk Filipiak writes on the new law relating to consumers and entrepreneurs in Poland
Since 31 March 2009 there has been a personal insolvency proceeding available in Poland (Articles 4911-49112 of Polish Bankruptcy and Reorganization Act dated 28 February 2003 amended by the Law of 5 December 2008, Journal of Laws (2008) No.234 sec.1572). The scope of the new regulation covers the debtors who are not involved in business, i.e. consumers. Before, the insolvency proceeding, apart from companies and other entities, was only available to so-called business individuals i.e. entrepreneurs. extraordinary and not dependent on the debtor itself in this case there is a statutory guideline according to which when an already insolvent debtor takes further liabilities and/or if the employment agreement was beforehand terminated on the grounds for which the employee/debtor is liable, insolvency proceedings are in this case excluded If courts interpret this section literally, it will be almost impossible to hand down an insolvency ruling; the expression the non-dependent factors may be construed in a very adverse way for an insolvent debtor. 2. In the course of the previous 10 years one or more of the following conditions were met. There were already insolvency proceedings or any similar proceedings carried out in which all or part of the debts were discharged; There were already insolvency proceedings carried out and the debtor violated its financial obligations toward the creditors or there was already a consumer insolvency proceeding carried out and it was discontinued on other basis as the joint motion of all creditors; There was an actio pauliana ruling against the debtor. In general, there is a 10-year period when the petition of a past bankrupted consumer shall be denied. Moreover, a serious obstacle to the broad application of the new Law is the requirement of minimum assets. The insolvent debtor must cover the proceedings cost which means in practice that there must be a minimum of about 2,000 3,000 of personal and easily recoverable assets out of which about 500700 must be in cash to meet this requirement. In the majority of cases such an amount is not available for an overindebted individual (the minimum monthly salary is as low as approx. 310 (1276 PLN) and the average salary in June 2009 was approx. 798 (3287.88 PLN). The paradox is that the consumer may file to the court for the exemption from the cost of proceedings. The court may grant the exemption when the debtor is in a very poor financial condition. However, along with its ruling there comes another which is a rejection of the insolvency petition on the grounds of a lack of minimum assets to carry on the insolvency proceedings! The consumer insolvency is exclusively a winding-up insolvency, which means all of the assets will be liquidated and the creditors will be (partially) paid off with the proceeds. There is an explicit provision that even a private apartment or a house of the debtor should be sold and the debtor is to be secured with the amount sufficient for a one-year lease. The liquidation of assets is usually managed by the appointed liquidator however it may be allowed that the debtor will carry it on personally under the supervision of a liquidator.

PATRYK FILIPIAK Attorney at Law trainee at Sojka&Maciak LLP in Poznan, Poland A candidate for PhD degree at the Chair of Civil Proceedings of Adam Mickiewicz University in Poznan

insolvent debtor The

must cover the proceedings cost

Conditions to be met and highlights of the proceedings

The new Law provides that only the debtor and not its creditors could file for bankruptcy. The form of the petition is prescribed by Law and must provide the insolvency court with similar information as in the case of corporate debtors. The information include inter alia: reasons of the insolvency (inability to pay debts only!), a list of creditors with the amounts due, a list of collaterals on the debtors assets (such as a mortgage), a list of debtors, a list of liabilities paid off in the period of the previous six months. The petition fee in case of consumers amounts to about 48 (200 PLN) whereas it is 243 (1000 PLN) in the case of business individuals and companies. The insolvency court may however reject the petition if certain prerequisites are met. 1. The debtors insolvency is not caused by factors which are

Payment plan

After the final plan of proceeds is drafted but not before the debtor moves out of its apartment or a house, a plan of paying off the creditors within a certain period of time (payment plan) is the


Autumn 2009


subject of a confirmatory ruling of a court. The plan provides what will be the payment period (not longer than five years with a possibility of a one-time exceptional prolonging of two years) and what will be the amount of installments to be paid during this time out of debtors revenues (e.g. salary). Finally, the plan provides for what part of the liabilities the debtor will be discharged. The plan includes only the liabilities due until the day of confirming the plan. The important part of the new regulation implies certain duties upon the debtor during the payment period. The law provides that the insolvent debtor shall act only within the scope of normal course of his activity i.e. the debtor cannot purchase items above a certain value or using credit facilities or a prolonged payment scheme. Moreover, the debtor should submit a yearly statement concerning the executing of the

payment plan as well as its current financial status. If the debtors financial situation increases materially, each creditor may file for the change of the plan and a rise in the monthly installment. The regulation is very strict for the insolvent debtor as in every event of breach of the plan (duties incurred by the plan which include also duty to disclose all the debtors incomes and assets); the court after a hearing may revoke the plan and discontinue the proceedings. In such a case a discharge shall not effect and the next insolvency proceedings will not be available for the debtor in a 10 years period.

if they may be proved on the grounds of the documents of the insolvent debtor), may be subject to a discharge apart from any alimony (spousal support, maintenance money), and all kinds of injury, death, disability pensions, employment claims, premiums for the social insurance (art. 369 of the Law). In case of private individuals (consumers) it is not yet sure whether the above provision applies. I think the courts should follow the per analogiam interpretation. Statistical data provided by the Polish Ministry of Justice for the end of June 2009 show that in the first three months of the new Law being in force there were about 450 court applications out of which only two (!) succeeded. In both cases debtors secured their spouses businesses which later went bankrupt. The statistics

indicate clearly that regulation proves to be too strict both as a matter of material and the financial prerequisites for filing an effective consumer insolvency petition.


in the first three


After the payment plan is successfully executed the rest of the liabilities are discharged in the manner set out in a plan. In case of individuals running a business activity, all claims that were listed on the claims list (or claims that could have been listed but were not

months of the new Law being in force there were about 450 court applications out of which only two (!) succeeded

Autumn 2009



UNCITRAL Working Group V: A timely update

Romana Bremer gives us a progress report on the 36th meeting of UNCITRAL Working Group V (Insolvency Law), held at the United Nations Headquarters in New York, 18-22 May 2009
Introduction to the current work of Working Group V
of insolvency on a security right in intellectual property. This article will specifically focus on the first two topics mentioned. assets and liabilities of two or more enterprise group members to form a single insolvency estate. According to the Working Group substantive consolidation may be an appropriate remedy in cases where the assets or liabilities of the enterprise group members are intermingled to such an extent that they cannot be separated without undue expense or delay. It also may provide an appropriate remedy when the group members involved are engaged in fraudulent activities and the pooling of assets and liabilities is necessary to rectify such activities. The discussions also covered provisions regarding, for example, the persons permitted to apply, the timing of application, competent courts, etc. The recommendations further advise legislators to facilitate the obtaining of so-called postcommencement finance. The possibility of obtaining finance after the commencement of insolvency proceedings should enhance the likelihood of survival of the business of the enterprise group members and is also meant to safeguard the value of their assets. Furthermore recommendations were discussed with regard to reorganisation plans. Here, legislators are advised to permit coordinated reorganisation plans involving two or more enterprise group members in order to facilitate the coordinated rescue of the businesses of these group members. During the meeting the draft recommendations on the domestic treatment of enterprise groups in insolvency were discussed in further detail and many of them were adopted in substance.

ROMANA BREMER Advocaat at Trip Advocaten & Notarissen Leeuwarden, The Netherlands

This article aims to provide an update on the work of Working Group V of the United Nations Commission on International Trade Law (UNCITRAL) after completion of its 36th meeting. The objective of this meeting was to further deliberate on the complex topic of the treatment of enterprise groups in insolvency. After a brief introductory section on the current work of the Working Group, the outcome of the meeting is discussed.

In 2006 UNCITRAL agreed that the topic of the treatment of corporate groups in insolvency should be further developed. Working Group V was asked to consider the subject and make recommendations with regard to the form and scope of its possible future work. In December 2006 the Working Group started its consideration of the treatment of corporate groups in insolvency. It soon became clear that the Working Group aimed to complement two previous texts adopted by UNCITRAL, namely the UNCITRAL Legislative Guide on Insolvency Law and the UNCITRAL Model law on CrossBorder Insolvency, with legislative recommendations regarding the treatment of enterprise groups in insolvency. The Working Group continued its deliberations during several sessions. These sessions were held in Vienna and New York over the last few years. The significant progress of these meetings has resulted in the drafting of working papers by the Secretariat which provided the basis for further deliberations by the Working Group in the next sessions. The latest meeting in New York was the sixth session on the treatment of enterprise groups in insolvency. During this session the Working Group discussed primarily the treatment of enterprise groups in insolvency but also the cooperation, communication and coordination in cross-border insolvency proceedings as well as the impact

Treatment of enterprise groups in insolvency

The deliberations with regard to the treatment of enterprise groups took place on the basis of draft recommendations, drafted by the Secretariat. These recommendations cover several subjects with regard to the treatment of enterprise groups in insolvency proceedings. Both domestic and international issues were discussed. Here, several key suggestions will be highlighted. Domestic (national) issues With regard to the domestic treatment of enterprise groups for example, the introduction in the insolvency law of a joint application is suggested. This joint application enables the commencement of insolvency proceedings with respect to two or more enterprise group members at the same time. Furthermore legislators are advised to introduce the possibility of coordination of two or more insolvency proceedings (procedural coordination). Such procedural coordination may include coordination of hearings, joint notices to stakeholders, coordination of procedures for the filing of claims, etc. Hereby cost efficiency will increase, yielding a better return to creditors. The recommendations further suggest, acknowledging the separate legal identity of the group members involved, the introduction of the so-called substantive consolidation, a pooling of the


Autumn 2009


the notes provide

During the session progress was also made on several international issues. Several draft recommendations were discussed, yielding agreement on specific main points. The draft recommendations on international issues specifically stress the need to facilitate and stimulate cooperation and communication between courts and insolvency representatives as well as among insolvency representatives with respect to insolvency proceedings of enterprise group members. Several forms in which this cooperation and communication can take place are specified and safeguards are proposed to protect the rights of parties and the jurisdiction of the different courts involved. In addition, legislators are advised to authorise the conclusion and use of cross-border agreements. Many of the draft recommendations were adopted in substance. However, as the official report of the session also shows, several of the topics will have to be discussed in further detail at the next session of the Working Group.

International issues

Cooperation, communication and coordination in crossborder insolvency proceedings

Cross-border insolvency cases are complicated by many legal and practical difficulties. However there are only a few legal regimes, domestic and international, that address these international aspects of insolvency cases. With the exception of the EC Insolvency Regulation and a few regional

treaties there is a lack of multilateral treaties designed to streamline the legal and practical aspects of cross-border insolvency cases. Importantly, article 27 of the UNCITRAL Model Law provides a legislative framework authorising the cooperation, communication and coordination in international insolvency cases. However, the Model Law does not specify the means by which this cooperation, communication or coordination can be achieved. In light of the fact that cross-border insolvency agreements might provide an important tool in achieving these goals, the Commission asked for a compilation of practical experiences on the negotiation and use of such agreements. After consultations with judges and insolvency practitioners, a compilation of practical experiences was made by the Secretariat. The subject was then referred to the Working Group for discussions. In May 2009 the Working Group had before it notes prepared by the Secretariat and commented upon by the governments of the member states. It soon became clear that the Working Group strongly supported the contents of the notes and acknowledged their usefulness, specifically in the context of the current financial crisis. Briefly, the notes provide useful guidelines to practitioners and judges on practical aspects of cooperation and communication in international insolvency cases (as the CoCo Guidelines do with respect to the EC Insolvency Regulation). Specifically the possibility to negotiate and use cross-border agreements to facilitate cross-border cooperation and coordination is illustrated.

Next to guidelines on negotiation and use of cross-border agreements (also known as courtto-court protocols) a large number of sample clauses are given for guidance. These sample clauses cover diverse subjects such as allocation of responsibilities between courts and the insolvency representatives involved, the choice of applicable law, the coordination of the recovery of assets, the treatment of claims, the methods of communication between courts and between parties involved, etc. At the meeting, the Working Group adopted the notes with the following title: Practice Guide on cooperation, communication and coordination in cross-border insolvency proceedings. On the 1 July 2009, UNCITRAL adopted the Practice Guide in its current form. With the adoption of the Practice Guide a useful tool is given to practitioners, judges and stakeholders all over the world. The interested reader may find the interim text of the Practice Guide on All the working documents of Working Group V and the official reports on its sessions can also be found on this website. The work of Working Group V will continue at its next session, scheduled for 9-13 November 2009 in Vienna.

useful guidelines to practitioners and judges on practical aspects of cooperation and communication in international insolvency cases

Autumn 2009



The Financial Crisis: Country reports

GNTHER VIEHBCK Viehbck Breiter Schenk & Nau Rechtsanwlte OEG (Austria)

proved effective and successful. As a result, the emerging unrest in the financial markets soon subsided. This bank rescue package possibly prevented a number of banks from filing bankruptcy.

Is the economic crisis now hitting Austria?

In the spring of 2008, the subprime crisis caused a certain agitation among Austrian banks. It was feared that the crisis would have a negative impact on their annual results. When Lehman Brothers filed for bankruptcy protection and the spectre of national bankruptcy loomed over Iceland in September 2008, however, nerves wore thin in the banking industry. As economic development in Eastern Europe where these banks have significant stakes showed clear signs of collapse, the state was hastily called in for help. In a surprisingly swift manner, and practically without any political dispute, a package was drawn up, enabling banks to increase their equity capital a measure some of them were in urgent need of. In addition, the state issued an unlimited guarantee on savings deposits to restore confidence in banks. This package

The prophecy that the massive crisis in the financial and capital markets would infect the real economy became a dramatic reality in the USA as early as spring 2008. The reports on company insolvencies and developments in the labour markets gave reason for further worries. Nevertheless, the real economy in Austria did not feel the repercussions of the crisis. On the contrary, for most companies across all industries, the year 2008, at least with regard to the first three quarters, was the most successful one of the last decade. In October 2008, employment figures were at a historical high. Once again, it became evident that developments of transatlantic origin always take time to affect Austria. A slump in economic development did not appear until the last quarter of 2008. The automotive industry and other export businesses reported sometimes severe declines in incoming orders. This spurred the imagination of

certain circles. At an IP congress in November 2008, a certain gold rush feeling began to spread. An unprecedented wave of insolvencies was predicted, with the first big wave of bankruptcies expected for the first quarter of 2009 at the latest. Some prominent personalities expressed worries that this would be hard to manage with the personnel available. Colleagues were advised to build up capacities to cope with the expected volume of work. The predicted wave of bankruptcies, however, failed to materialise. The insolvency statistics published by the Kreditschutzverband 1870 for the first half of 2009 were quite sobering, showing only a slight increase of 10%. This is significantly less than in the previous year, when the increase in the first six months was 16%. Meanwhile, various IPs are worried about their future. Contrary to forecasts and expectations, revenue from the liquidation business is declining.

business are suffering from the global crisis and some are in dire straits. These potential candidates for large-scale insolvencies are being watched by IPs like hawks, who are timeously bringing themselves into position for a possible assignment as administrator or liquidator. However, a major insolvency has failed to materialise. The potential bankruptcy candidates have managed to cheat the gallows through tough negotiations with their creditors. So far the repercussions of the economic crisis have remained relatively moderate. People are beginning to hope that the situation may not significantly deteriorate after all. One thing is sure: the wave of insolvencies has not reached Austria. Many are asking themselves whether and when this wave will roll over our country. Although the respective forecasts have been revised often enough, the IPs hopes for a big catch are fading away.

To this day, lucrative bankruptcies simply have not occurred, although there were enough signs of such prospects in the horizon. Needless to say, export-oriented companies and the entire transport


Autumn 2009



HARALD BUHARDT Schultze & Braun, Dresden (Germany)

The German legislator has relocated the obligation for a company to file an insolvency petition, which was previously governed by the corporate laws, to the insolvency law, and has laid down in the new section 15a(1) InsO (German Insolvency Code) a general obligation to file an insolvency petition for all those who are subject to the German insolvency law, which is effective from 1 November 2008. The obligation to file a petition arises if the company becomes insolvent or is overindebted. From this time onwards, an insolvency petition is to be filed in the name of the company without undue delay within three weeks. The obligation to file a petition applies to all members of the companys statutory organ of representation and its liquidators.

Obligations of insolvent or overindebted companies

file an insolvency petition (incumbent on him/her since 1 November 2008), he/she incurs a penalty for delay in filing a petition in insolvency. In addition to the failure to file an insolvency petition, the same may also occur should the insolvency petition not be filed in accordance with the legal formalities or if it is incomplete. Acting negligently will suffice. Such violation may be punished by a fine or imprisonment not exceeding three years. The violation against the obligation to file an insolvency petition will also result in immediate civil liability.


GIORGIO CHERUBINI Pirola Pennuto Zei & Associati (Rome)

For a foreign company which was founded in accordance with the company law of a member state, the German insolvency law shall apply according to Art. 3(1), 4(1) EIR and section 42, 335 InsO, and thus the obligation to file an insolvency petition according to section 15a (1) page 1 InsO, only in cases where a German insolvency court is competent, namely if the companys centre of main interest (COMI) lies in Germany. This has been the stated aim of the legislator. If a member of the statutory organ of representation of a foreign company violates the obligation to

If, however, the company has its centre of main interest outside of Germany or if it relocates its centre of main interest abroad, this implicates that the obligation to file an insolvency petition as specified in section 15a InsO is no longer valid for this company.

Even the newly extended obligation applies: the obligation to file an insolvency petition in case the company should be without management applies to the shareholders of a limited liability company (GmbH) or the board members of a stock corporation (AG) and a cooperative according to German company law. If such shareholder gains knowledge that the management of its company has disappeared or is permanently not available a duty to assess the companys financial situation may exist, they may be obliged to file an insolvency petition.

Since 1 November 2008, foreign companies and their representatives must observe the obligation to file an insolvency petition, at least insofar as it could be argued that the centre of main interest lies in Germany and therefore an insolvency petition filed in Germany may be successful. In this respect, the ECJ decision in the Eurofood case, according to which the centre of main interest is to be defined individually for each legal entity in a group, is significant. Once insolvency proceedings have been opened, the insolvency administrator will pursue all prospective liability claims.

The second section of the project of law is entirely devoted to the procedure for the composition of the crises and proposes to find a solution to apply to the individuals, excluded by the Italian bankruptcy law as well as to the entrepreneurs in a situation of over indebtedness. The peculiarity of the procedure consists of the fact that it is directly

In this context, the project of law 2364, approved 1 April 2009 by the Senate and now under examination at the Chamber, originated from the demand to hold in consideration the weak people.

The international financial and economic crisis has also had a remarkable effect on the productive system and the institutions must operate and support the companies and the families financially. The way of living has become a sort of game to credit and the Italian families have shown that they know exactly how to play, given the fact that, in recent years, the phenomenon that the excessive indebtedness has reached.

Against the crisis, it is important to sustain the families and the companies. This is the motto that is always repeated in this period. Undoubtedly, however, today Italian companies face a difficult assignment, due to the situation that has involved the whole world and also depends on the anomalous growth of the indebtedness of the families as well as from the misregulation of the financial markets.

The beginning of a new era for the debtor? The project of Law 2364

The proposal is filed before the Court of the place of residence of the debtor and the Judge immediately fixes a hearing, informing the creditors as well when related to the activity of a company, proceeds to the publication of the same in the Register of Companies.

The proposal of the agreement foresees the restructuring of the debts and the satisfaction of the credits through any form, also through transfer of the future incomes and, if the goods or the incomes of the debtor are not enough to guarantee the feasibility of the plan, the proposal must be signed by one or more third parties securing the repayment through assets or incomes enough for the implementation of the agreement.

The debtor drafts an agreement of restructuring of the debts containing a reimbursement plan to submit to the creditors and, subsequently, the agreement is filed in Court with the list of all the creditors and the sums due to them; it is foreseen that the debtor can get the agreement made valid with the approval of the majority of his/her creditors and granting the regular payment of the creditors non signatory of the agreement.

activated by the debtor in over indebtedness, a term indicating a situation of persisting economic unbalance between the obligations and the available funds.

At the hearing the Judge orders that, for not over 120 days, individual executive actions cannot be initiated or carried forward. Together to the proposal, the debtor must file the list of all the creditors, with the indication of the amounts due and the attestation on the feasibility of the plan.

The agreement must be approved from all the creditors participating in the procedure and the non-respect towards one or more creditors terminates it; the correct fulfilment of the assumed obligations leads to the conclusion of the procedure. The next step is to wait for the possible modifications to the text made by the Chamber, which have been anticipated to be present.

Autumn 2009



INSOL Europe contacts INSOL Europe, PO Box 7149, Clifton, Nottingham NG11 6WD Enquiries: Caroline Taylor ( Tel/Fax: +44 (0) 115 878 0584 Website: eurofenix Franais Enquiries: Florica Sincu ( The executive Secretary General Marc Udink ( President Carlos Mack ( Deputy President Patricia Godfrey ( Vice President Chris Laughton ( Treasurer David Buchler ( Director of Administration Caroline Taylor ( INSOL Europe committee chairs Membership Recruitment Patricia Godfrey ( Congress Technical, Stockholm 09 Guy Lofalk ( Website director Chris Laughton ( Sponsorship David Rubin ( Ottmar Hermann ( INSOL International Michael Thierhoff ( Constitution Jane Marshall ( Eastern European Countries Committee (EECC) Marc Andr ( Dr Carlos Mack ( Membership approval Dr Carlos Mack ( EU regulation monitor Patricia Godfrey ( EU political monitor Marc Udink ( Neil Cooper ( Case register Chris Laughton ( Academic Forum Prof Bob Wessels ( Dr. Paul Omar ( Glossaries Marc Udink ( Future plans Neil Cooper ( Judicial Wing Heinz Vallender ( Michael Thierhoff ( Turnaround Wing Chris Laughton ( Steffen Koch ( Lenders Wing Patricia Godfrey (

INSOL Europe Academic Forum Conference

Date: 30 September1 October Location: Stockholm, Sweden Further Information:

INSOL Europe Annual Congress

Date: 14 October Location: Stockholm, Sweden Further Information:

INSOL Europe EECC Conference

Date: 78 May Location: Timisoara, Romania Further Information:

INSOL Europe Annual Congress

Date: 1417 October Location: Vienna, Austria Further Information:

INSOL Europe Annual Congress

Date: 2225 September Location: Venice, Italy Further Information:


Autumn 2009

INSOL Europe Technical Series Publications

INSOL Europe are pleased to announce two new additional publications to the current Technical Series, arising from events organised by the INSOL Europe Academic Forum.
The conferences for which reports have been produced are the Joint Insolvency Conference at Leiden (5 6 June 2008), on the theme of Crossing (Dutch) Borders in Insolvency, and the Annual Conference (1 2 October 2008), on the theme of The Intersection of Company and Insolvency Law. The publications contain papers delivered by speakers and panellists at those conferences. Ancillary texts (draft laws and rules) debated at the conferences are also included. The texts form a comprehensive report of the conferences and contain accounts of recent research in the insolvency field that will be useful for academics and practitioners alike. It is anticipated that these publications will inaugurate a regular series of conference reports. Publication is already being planned of papers from the Joint Insolvency Conference at Brighton, UK (26 27 March 2009) on the theme of Celebrating the 30 Years since Publication of the Cork Report, which will appear in late 2009.

Only 20 each

Please contact: Caroline Taylor, INSOL Europe, P O Box 7149, Clifton, Nottingham NG11 6WD, UK Fax: +44 115 8780584 Email:

Autumn 2009


INSOL Europe Sponsors

Academic Forum Sponsors

Experts in all aspects of insolvency and restructuring

2 Stone Buildings, Lincolns Inn London WC2A 3TH T: (+44) 020 7691 4000 E: