European parliament gives final approval to cross-border insolvency regime based on business rescue

The new Insolvency Regulation includes changes to the rules for establishing a company's 'centre of main interest' (COMI) which "seek to prevent people from exploiting differences between national laws", the European parliament said in a statement. The final version of the new rules was approved by the European Council in March.

Once in force the new Insolvency Regulation will cover 19 additional national commercial and personal insolvency mechanisms rather than just the liquidation proceedings already covered by the current regulation, which has been in force since 2002. They will apply to certain pre-insolvency procedures, such as restructuring at a stage where there is only a likelihood of insolvency and proceedings where the debtor is left fully or partially in control of its assets.

Around 200,000 EU businesses face insolvency every year, affecting 1.7 million jobs, according to EU figures. Of those businesses, 50,000 of them owe money to someone in another EU member state. The Insolvency Regulation in its current form attempts to clarify which court should be handling a cross-border case and helps the courts in different countries to cooperate on jurisdiction, recognition of judgments and applicable law. The COMI test usually requires proceedings to be opened in the state where the company has its registered office.

The final text of the new regulation was agreed between the Council and parliament during compromise negotiations in November 2014. It further clarifies the COMI concept in order to prevent "abusive forum-shopping practices", by taking into account the actual perception creditors have about where the business is administered from. Courts will be required to proactively check that they have jurisdiction over a particular dispute, and to request further evidence from the debtor where there are doubts about its COMI.

Once proceedings are brought in the relevant member state, the results of those proceedings will then apply universally across the EU. Any secondary proceedings could only be brought in other member states in relation to the debtor's assets based in that state, and a court that is asked to open secondary proceedings will be required to notify the insolvency practitioner in the main proceedings. The regulation also sets out specific situations in which a court should be able to postpone or refuse the opening of secondary proceedings.

EU member states will also be required to keep a publicly-accessible register of cross-border insolvency cases once the new regulation is in force, which will be interconnected via the EU's central 'e-Justice' portal. This is designed to make more information available to creditors and courts, and to prevent parallel proceedings. The regulation also contains a set of procedural rules aimed at making insolvency proceedings relating to different companies within the same corporate group more efficient.

The regulation will come into force 20 days after its publication in the Official Journal of the EU, although most of its provisions will not take effect until 2017.