Group Insolvency Law 2017

THE NEW GROUP INSOLVENCY LAW

Information and Background Materials

  1. Europe
    Regulation (EU) 2015/848 of the European Parliament and of the Council (EIR), OJ . L 141/19 published on 5 June 2015, S. 19
    http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32015R0848&from=EN
    See, Chapter V: Insolvency Proceedings of Members of a Group of Companies

    Please also note our separate site on the EIR Recast 2015, found here: https://www.schubra.de/de/restrukturierung/EuInsVO_Reform_2015.php

  2. Germany
    a. Implementing legislation of the Insolvency Regulation
    1) Statute implementing Regulation (EU) 2015/848 on insolvency proceedings from 5 June 2017, BGBI. (Federal Gazette) I 2017, 1476
    See Art. 102c §§ 22 ff. Introductory Act to the Insolvency Code (in German only)
    Statute implementing Regulation (EU) 2015/848 on insolvency proceedings (PDF)

    2) Report and Recommendation from the German Parliament’s Committee on Legal Affairs and Consumer Protection of 26 April 2017, BT-Drs. 18/12154 (in German only)
    http://dipbt.bundestag.de/dip21/btd/18/121/1812154.pdf

    3) The federal government’s draft legislation introduced on 11 January 2017, BT-Drs. 18/10823 (in Germany only)
    http://dipbt.bundestag.de/dip21/btd/18/108/1810823.pdf

    b. Insolvency Code (Insolvenzordnung)
    1) Statute facilitating the administration of corporate group insolvency enacted on 13 April 2017, BGBl. (Federal Gazette) I 2017, 866 (translation provided by S&B)
    Statute facilitating the administration of corporate group insolvency (PDF)

    2) Report and Recommendation from the German Parliament’s Committee on Legal Affairs and Consumer Protection introduced on 8 March 2017, BT-Drs. 18/11436 (in German only)
    http://dipbt.bundestag.de/dip21/btd/18/114/1811436.pdf

    3) The federal government’s draft legislation introduced on 30 January 2014, BT-Drs. 18/407 (in German only)
    http://dipbt.bundestag.de/dip21/btd/18/004/1800407.pdf

  3. Synopsis: Group Insolvency Law in the EIR vs. German Insolvency Code
    Synopsis on Group Insolvency Law (PDF)

  4. Country Reports:
    a. USA

    In the United States, different members of corporate groups may be administered before the same bankruptcy court in a single proceeding either through joint administration or through substantive consolidation.

    1) Joint Administration: The assets and liabilities of related debtor entities are not merged and each debtor will be treated as a separate entity, but the multiple insolvency proceedings are practically dealt with together (regarding hearings, documents, orders, reports, etc.).  This method is most often used in cases of group insolvencies and generally does not affect creditors’ rights.

    2) Substantive Consolidation: All assets and liabilities of the debtor entities are merged into a single bankruptcy estate for the purposes of distribution. This method is more controversial because it affects the substantive rights of the parties and may impair the rights of certain creditors.

    3) An overview of procedural and substantive consolidation can be found here: www.sbli-inc.org/archive/2010/documents/F.pdf

    4) The United States Court of Appeals for the Sixth Circuit recently discussed substantive consolidation and why the chapter 7 trustee did not satisfy the burden of alleging sufficient facts for substantive consolidation. The Court’s discussion of substantive consolidation can be found in Section III (B) of the decision, here: www.opn.ca6.uscourts.gov/opinions.pdf/17a0001n-06.pdf

    5) For a basic overview of the US Bankruptcy Process: http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics

    b. Italy
    The Italian insolvency code ("Legge Fallimentare - L.F.") does not provide rules for the insolvency of a group of companies. Nevertheless, referring to Court driven compositions with creditors there have been attempts in practice to introduce elements of coordinating proceedings of group companies. The Italian Court of Cassation has rejected any such practices. The Court has decided that since there is no statutory scheme providing for such practice, Court driven compositions with creditors for group companies are inadmissible. In this regard, each individual company belonging to the same group must file separate petitions with the relevant insolvency court. The pooling of assets and liabilities of company members of the same corporate group (i.e. substantive consolidation) is not permitted.

    In a broad sense group law rules can be found in the special provisions of the “legge Prodi,” relating to the insolvency of companies with a high number of employees.

    On 10 February 2016, the Italian government adopted a draft bill proposed by the so-called Rordorf Commission, concerning a comprehensive reform of the insolvency law. The draft bill provides for the implementation of a uniform insolvency proceeding for more than one group company.  Specific regulations will be implemented in the event of proceedings pending before more than one court. For this purpose, regulations will be implemented in order to determine local jurisdiction and regarding the respective authority’s duty to provide information.
    The draft bill also provides for the possibility of submitting a uniform request for judicial confirmation of a debt consolidation agreement regarding all group liabilities or a preventative settlement procedure involving all group companies. Through this, either a single uniform or several plans can be proposed. In any case, the assets and liabilities of each company in the group must remain separate from those of the other companies in the group insolvency. In this respect, pooling of assets and liabilities of company members (substantive consolidation) is not permitted. On 1 February 2017, the Chamber of Deputies of the Italian Parliament (camera dei deputati) adopted the draft bill (legge nr. 3671), which implements the Rordorf Commission’s proposed reform. This bill still requires the approval of the Italian Senate (“senato della repubblica”).