Motion concerning the Commission Proposal for a Regulation of the European
Parliament and of the Council amending Council Regulation (EC) No 1346/2000
on insolvency proceedings
Intervention by Mr. Alan Shatter, TD, Minister for Justice and Equality and
Defence
I would like to thank the Committee for making time available to discuss
this motion today. The motion relates to the exercise by the State of the
option which Ireland has to take part in the adoption and application of
the Proposal for a Regulation of the European Parliament and of the Council
amending Council Regulation (EC) No 1346/2000 on insolvency proceedings.
The legal basis for the Commission proposal is to be found in Title V of
Part Three of the Treaty on the Functioning of the European Union. In
consequence, the terms of the Protocol which we share with the United
Kingdom, whereby we have three months to exercise our option to take part
in the adoption and application of relevant measures, apply. We have been
informed that the three month period will expire by 10 April. Accordingly,
if we are to exercise our option within the required timeframe, it is
necessary to obtain the prior approval of both Houses of the Oireachtas
before that date.
Members will be very familiar with the procedure in relation to Protocol
measures since a large volume of proposals which attract the provisions of
the Protocol have come before the House in recent years.
The proposal under consideration today is designed to revise the current EU
Insolvency Regulation, which entered into force on 31 May, 2002, and to
streamline cross-border insolvency proceedings, whether they apply to a
single company, several companies as a group, or a natural person be they
engaged in trade or professional activity or as a consumer.
The current EU Insolvency Regulation provides a framework for determining
in which Member State insolvency proceedings should be commenced where a
debtor has assets or creditors in more than one Member State. It also
provides for EU-wide recognition of those proceedings. The Regulation
determines which Court has jurisdiction for opening insolvency proceedings.
The Commission’s proposal for a revised and modernised Regulation,
published on 12 December last, is part of a wider response to the economic
downturn being experienced across Europe. Modernised cross-border
insolvency law, to make proceedings more efficient, can benefit both
debtors and creditors throughout the European Union. The debt crisis of the
past number of years has a direct effect on many European citizens, their
jobs and their business activities.
Ireland was pleased, as the current President of the European Union, to
facilitate the "political" launch of the proposed Regulation. The initial
discussion took place at the informal Justice and Home Affairs Council
meeting held in Dublin on 18 January last. The Ministers engaged in a
lengthy and constructive discussion on the proposals. The broad thrust of
the Commission’s proposals received a very positive political welcome from
the Ministers.
A major new focus of the Regulation is that it facilitates a move away from
a traditional liquidation approach to insolvency to a "second chance
approach" for viable businesses and "honest" entrepreneurs in financial
difficulties when cross-border insolvency proceedings are involved. The
Regulation, does not of course, apply in strictly domestic insolvency
proceedings.
The key features of the revised Regulation include:
· new procedures in regard to "pre-insolvency" or "hybrid" insolvency
proceedings, which were not in the original scope,
· greater cooperation between courts and liquidators involved in
cross-border main and secondary insolvency proceedings,
· clarification of the Centre of Main Interest (COMI) test, to reflect
European Court of Justice judgments, in regard to the opening of
insolvency proceedings where the location of the COMI of the debtor may
be in contention,
· a new approach to the coordination of the insolvency of cross border
groups of companies,
· an enhanced approach to the treatment of secondary proceedings
opened for the same debtor as in the primary proceedings, and
· the development of standard, multilingual insolvency registers so as
to improve the information on and lodging of insolvency claims.
The Commission’s proposal extends the Regulation's scope by revising the
definition of "insolvency proceedings" to include the restructuring of a
company at a pre-insolvency stage and permit hybrid proceedings which may
leave the existing management in place as well as debt discharge and other
insolvency proceedings for natural persons where these processes exist in a
Member State. This is a critical extension of the scope of the Regulation.
It is, we feel a desirable objective and is in tune with Ireland’s domestic
approach to seek where possible, to provide a mechanism to restructure
potential economically viable debtors.
The proposal also includes a new rule in respect of secondary insolvency
proceedings. The current Insolvency Regulation allowed secondary insolvency
proceedings to be opened in a Member State where the main proceedings had
been opened in another Member State by Court accordance with the COMI test.
However, these secondary proceedings could only be winding-up proceedings.
This stipulation has now been dropped, primarily to facilitate the second
chance approach. It is proposed that there be a requirement on the court
seized of a request to open secondary insolvency proceedings, to consult
with the liquidator or the court in the main proceedings and to postpone or
refuse the secondary proceedings where they are not necessary to protect
the interests of local creditors.
In either postponing or refusing to open secondary proceedings, the Court
will have to consider what undertakings the main liquidator in the main
proceedings has made to the creditors in the secondary proceedings. These
undertakings would likely be along the lines of providing at least as good
a return to those creditors as they would obtain if they sough to open
secondary proceedings.
There is also to be a greater requirement for cooperation and communication
by the courts involved in insolvency proceedings relating to two or more
members of a group of companies.
The proposed Insolvency Regulation also includes a requirement for Member
States to establish an insolvency register available to the public
containing information on the debtor and the liquidator as well as
information relating to the insolvency proceedings. These insolvency
registers are to be interconnected and accessible via the European
e-Justice Portal. The European Commission has been conducting a pilot
project in this regard with certain Member States.
Perhaps, the Commission’s most newsworthy proposal is in regard to the
retention, with some modification, of the now established concept of Centre
of Main Interest or COMI. The modifications proposed are designed to ensure
that the COMI test is consistent with the body of case law from the
European Court of Justice and elsewhere that has developed since 2002 in
regard to the operation of the Regulation. The COMI test is now extended to
private individuals or natural persons in cross-border insolvency
proceedings. There will be a duty on the court that is requested to open
the insolvency proceedings to examine the COMI of the debtor and specify
the ground on which the court’s jurisdiction is decided. Creditors from
other Member States will have a right to challenge the court’s decision. It
is a matter for the court concerned to satisfy itself that the provisions
in its national law in this regard have been observed.
In this area of jurisdiction, we must be conscious of the need to avoid
abuses in this regard, often described as forum shopping or bankruptcy
tourism. At the informal EU Justice and Home Affairs Council meeting in
Dublin on 18 January last, Ministers were concerned as to the need for a
more uniform approach in regard to the establishment of the centre of main
interest so as to combat potential abuses.
However, on the other hand, it must be acknowledged that a company or
natural person is entitled to change a COMI and could do so for a number of
purposes. This entitlement arises under the broad rubric of freedom of
movement in the Internal Market and such freedom has been enforced by
decisions of the European Court of Justice.
Thus, it is likely that despite our reform, we may continue to see a number
of Irish people establishing a COMI in the UK with the ultimate intention
of taking advantage of the lower discharge period for bankruptcy there.
However, we have also see in regard to several Irish applicants, some of
them very notable persons, that the UK courts can and have refused to
accept or have revoked jurisdiction in insolvency proceedings where an
abuse has been detected.
As President of the Council, I have made it clear that I want to facilitate
a comprehensive and intensive examination of the Regulation during the
Irish Presidency. This priority is reflected in the current scheduling of
eight meeting days of the relevant Council Working Group. This approach is
shared by my colleague the Minister for Enterprise, Jobs and Innovation
whose Department is centrally involved given their responsibility in regard
to corporate insolvency.
Thus, it is important that Ireland respond positively to the proposal by
exercising our right now to opt-in to discussions on the Regulation. This
will maximise our ability to influence the shape of the final outcome.
However, it should be emphasised that exercise of our opt-in does not
necessarily mean that all elements of the Commission’s proposal are
acceptable. During the continuing negotiation of the Regulation, the
Departments concerned will, of course, seek any necessary legal advice from
the Office of the Attorney General as required.
By way of background, I would say to Members that the proposal which we are
discussing today has been initiated by the European Commission as part of
its response to the economic downturn across Europe. The objective of the
proposed reform is to modernise cross-border insolvency law in order to
make cross-border insolvency proceedings more efficient, benefiting both
debtors and creditors throughout the EU. The new Regulation is designed to
give potentially viable companies and entrepreneurs a second chance before
being declared insolvent.
The proposed Regulation reflects a high political priority at European
level to take measures aimed at creating sustainable growth and prosperity
in Europe. The economic crisis has led to an increase in the number of
failing businesses across Member States. Statistics published by the
European Commission in December last show that in the period from 2009 to
2011, an average of 200,000 firms went insolvent per year in the EU. About
one-quarter of these corporate insolvencies have a cross-border element.
About 50 % of all new businesses do not survive the first five years of
their life. 1.7 million jobs are estimated to be lost throughout Europe due
to insolvencies every year.
Growth has been put at the heart of the Commission’s agenda on justice
(entitled ‘Justice for Growth’), in line with the growth strategy Europe
2020, the Annual Growth Survey and the recently adopted Single Market Act
II. Modernising the EU’s insolvency rules to facilitate the survival of
viable businesses and to present a second chance for entrepreneurs has been
identified as a key action to improve the functioning of the internal
market. The 2009 Stockholm Programme for the European area of justice
highlighted the importance of insolvency rules in supporting economic
activity. The effective handling of insolvency cases is an important issue
for the European economy and sustainable growth.
Ireland, and all of the Member States, will continue their own internal
examination of the detail of the proposals contained in the Regulation.
However, it is not yet possible to offer definitive national comments
beyond our broad initial welcome of the stated objectives of bringing
greater clarity to cross-border insolvencies and expanding the scope of the
existing Regulation.
The Committee will appreciate that it would be inappropriate for Ireland,
as current holder of the Presidency of the European Union to seek to
express, on behalf of the Council and the Member States, a firm opinion on
the detail of the Commission proposals at this early point of the
consideration of the proposal in the Council Working Group.
In Ireland, we have had since 1990, a very effective corporate
restructuring mechanism introduced by the Companies (Amendment) Act 1990.
This is the examinership process, whereby a company experiencing
difficulties can seek the protection of the High Court to appoint an
Examiner to attempt to work out a rescue approach.
The Minister for Jobs, Enterprise and Innovation, will shortly introduce
proposals to allow examinership applications to be considered by the
Circuit Court, so as to reduce the costs involved. The Companies Bill,
published in December 2012, contains proposals to allow small private
companies access the examinership process through the Circuit, rather than
the High Court. The rationale for this proposal, which was included in a
report by the Company Law Review Group to Minister Bruton in September
2012, is to reduce costs for this cohort of companies and to make the
examinership process more accessible to them.
The Group had been asked to recommend on whether a legally binding non-
judicial process for commercial debt settlement was feasible. However they
found that the Constitution requires that any compulsory write down of
debts for less than market value requires compensation for the loss,
consent of the creditors or a court order whether by substantive approval
of a scheme of arrangement or a right of objection to the Court for
dissenting creditors.
The revised Insolvency Regulation does not deal exclusively with corporate
insolvency. It also updates the approach to cross-border proceedings in
regard to personal insolvency. This is an area of the law which has
recently undergone significant reform in this country and in other Member
States. As indeed you will be aware, the Personal Insolvency Bill 2012 was
passed by both Houses of the Oireachtas on 19 December, 2012 and signed
into law by the President on 26 December, 2012.
The Personal Insolvency Act will be fully commenced as soon as all of the
necessary preparations for administration of its provisions are finalised.
It represents the most comprehensive reform of our insolvency law and
practice since the foundation of the State and is a key element of the
Government’s strategy to return this country to stability and economic
growth.
The Act is an extensive and legally complex piece of legislation. It
introduces new concepts to Irish law. Indeed, the new Personal Insolvency
Arrangement introduces a concept which, I understand to be unique in
international insolvency law, in providing for the negotiated resolution of
secured debt in a court sanctioned process that provides certainty for
creditors and, if I may say so, hope and relief for debtors.
The Act fulfils both a key commitment in the Programme for Government and
also a requirement of the EU-IMF-ECB Programme of Financial Support for
Ireland. It introduces three new procedures for debt resolution which
though requiring approval by the court, are essentially non-judicial in
nature. These are:
· The Debt Relief Notice (DRN) will allow for the full write-off of
qualifying unsecured debt up to €20,000, subject to a three year
supervision period.
· The Debt Settlement Arrangement (DSA) provides for the agreed
settlement of unsecured debt, with no limit involved, normally over
five years.
· The Personal Insolvency Arrangement (PIA) will enable the agreed
settlement of secured debt up to €3 million, although this cap may be
increased with the consent of all secured creditors, and unsecured
debt without limit, normally over six years.
The Act also provides for significant reform of the Bankruptcy Act 1988.
The critical change is to provide for the automatic discharge from
bankruptcy, subject to certain conditions, after 3 years, which I believe
represents a reasonable balance of the legitimate interests and
expectations of both debtors and creditors. This period is in line with the
European norm in regard to insolvency proceedings.
The Act also provides for the establishment of a new Insolvency Service to
operate the new non-judicial insolvency arrangements. The Director of the
Insolvency Service of Ireland, Mr. Lorcan O’Connor, is working with all
possible speed to ensure that the full operation of the provisions of the
Personal Insolvency Act 2012 can begin as soon as possible.
In conclusion, the proposed EU Regulation to modernise cross-border
insolvency proceedings, while undoubtedly somewhat technical and legally
complex in nature, is a significant proposal. I would reiterate my view
that it is important that Ireland responds positively to the proposal by
exercising our right to opt-in to the negotiations from an early stage.
This positive signal is particularly important when we are the current
holders of the Presidency and have chaired the first meetings of the
Council Working Group.
I hope the Committee will support the Motion to exercise Ireland’s opt-in
to the negotiation of this proposal to modernise the EU regulation in
regard to cross-border insolvency proceedings.
I need hardly add that any points raised by members of the Committee on the
European Commission proposal will be noted and will be taken into account
during the negotiation process. I look forward to your comments and to
your questions.
Thank you.