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EC Regulation on Insolvency Proceedings

Author: Nigel Cook

Changes to some of the provisions of the EC Regulation on Insolvency Proceedings (ECRIP) will come into effect in 2017. The main changes relate to the assessment of the centre of main interests (COMI) both for corporate and individuals; broadening the scope of secondary proceedings; protection of local i.e. national creditors outside secondary proceedings; and coordination of cross border group insolvencies.

1. COMI CHANGES

There has been considerable debate about the perceived abuse of COMI (i.e. forum shopping) – mainly in individual insolvencies but also in corporate insolvencies. The rebuttable presumption that the registered office of a company is its COMI will no longer apply if it has been moved within three months prior to the commencement of insolvency proceedings.

For individuals there will now be a distinction between those who carry on an independent business or professional activity and others. In the case of the business person his principal place of business will be presumed to be his COMI, again unless this has moved in the previous three months. For all others the COMI will be the habitual place of residence unless moved within the previous six months.

In out of court insolvency proceedings it will be for the office holder to examine whether he has jurisdiction; and his decision can be challenged by a debtor or creditor on the grounds of lack of jurisdiction.

2. SECONDARY PROCEEDINGS

Previously secondary proceedings were restricted to winding up proceedings. From 2017 a secondary proceeding can be opened in any type of procedure which is available for main proceedings e.g. CVA, administrations “Establishment” will in future be defined as a “place of operations where the debtor carries out or has carried out in the 3 months prior to the request to open the main insolvency proceedings a non-transitory economic activity…..”.

3. PROTECTING LOCAL CREDITORS

It will, in future, be possible to avoid a secondary proceedings if the main office holder gives, with the approval of a qualified majority of local creditors, an undertaking to respect local priority rules. The local Courts may refuse to open the secondary proceedings if satisfied that the undertaking adequately protects general creditors.

4. GROUP INSOLVENCIES GOVERN CO-ORDINATION AND COMMUNICATION

There will in future be a voluntary regime for groups of companies allowing the appointment of a group co-ordinator who can propose a group re-structuring plan. This will be accompanied by mandatory communication and co-operation between office holders in main and secondary proceedings, and by Court to Court communication.