In Bank Handlowy, The ECJ has arguably done the most it can for restructuring operations, within the constraints of the current Insolvency Regulation. The review of the Insolvency Regulation is in full swing, and the position of restructuring proceedings is but one of the many interesting challenges. From the very start of the negotiation of the Regulation (and its antecedents), the position of restructuring was discussed. Limiting the Regulation to winding-up proceedings would have had the distinct advantage of limiting the spread of opened procedures, ditto for applicable laws. It would however have cut out restructuring entirely from the Regulation, which would have been unacceptable given its large impact in practice. A ‘compromise’ was found in only allowing the Member State of the debtor’s COMI (Centre of Main Interests) to open main proceedings (which could be either restructuring or winding-up), and to limit proceedings in other Member States to winding-up proceedings vis-a-vis local assets.
The compromise works mathematically only, however: it may limit the amount of proceedings; it does nothing to address the complex overlap.
The EC has summarised the facts in Bank Handlowy as follows: Christianapol is a Polish company specialised in the production of furniture. It is part of the Cauval Industries Group with its head office in France to which it supplies all its production. The group suffered from the recession and went into financial difficulties. In an attempt to rescue the group, several members, including Christianapol, filed for sauvegarde proceedings in France. These proceedings aim at permitting solvent companies to restructure themselves under court protection at a pre-insolvency stage. They are covered by the Regulation although concerns have been raised as to whether they comply with the definition One of the Polish creditors of Christianapol, Bank Handlowy, applied for secondary proceedings in Poland where the company’s furniture factory was located. The winding-up of the factory would have prevented the successful implementation of the restructuring plan elaborated in the French sauvegarde proceedings. This problem prompted the Polish court to seek a preliminary ruling from the CJEU.
Of note is that all of Christianopol’s assets are located in Poland; this does not prevent COMI from being in France.
The ECJ first of all confirms that the Member States master the inclusion, or not, of proceedings in the Regulation: when a procedure is included in the Annex, upon proposal by the Member State, the EU is not to second-guess whether these are ‘true’ insolvency proceedings. ‘Insolvency’ may be a substantial condition for the Regulation to apply, however it is not defined by it. Further, even if the main proceedings have a protective purpose (here: a procedure de ‘sauvegarde’), that in itself does not prevent the opening- of secondary, necessarily winding-up proceedings in another Member State. This may evidently sink the ‘restructuring’ operation in the Member State of COMI. However – and this is where the Court pushes the boat out – the ECJ flags the various options available to the liquidator to influence the secondary procedure: at para 61 ff:
‘The liquidator in the main proceedings thus has certain prerogatives at his disposal which allow him to influence the secondary proceedings in such a way that the protective purpose of the main proceedings is not jeopardised. Under Article 33(1) of the Regulation, he may request an order for stay of the process of liquidation for up to three months, which may be continued or renewed for similar periods. Under Article 34(1) of the same regulation, the liquidator in the main proceedings may propose closing the secondary proceedings with a rescue plan, a composition or a comparable measure. Article 34(3) provides that, during the stay of the process of liquidation under Article 33(1) of the Regulation, only the liquidator in the main proceedings or the debtor, with the liquidator’s consent, may propose such measures. The principle of sincere cooperation laid down in Article 4(3) EU requires the court having jurisdiction to open secondary proceedings, in applying those provisions, to have regard to the objectives of the main proceedings and to take account of the scheme of the Regulation, which (…) aims to ensure efficient and effective cross-border insolvency proceedings through mandatory coordination of the main and secondary proceedings guaranteeing the priority of the main proceedings.’
Any further than this and the Court would effectively be re-writing the Regulation. One of the main issues under consideration in the Insolvency package will be to what extent the EU wants to and can harmonise the lex concursus in itself.