Last year in Bucharest, the European insolvency practitioners association, INSOL Europe, held their annual congress. During that congress Professor  Bob Wessels of the Vrije Universiteit Amsterdam and Professor Miguel Virgós of the Universidad Autonoma de Madrid presented their Public Draft of September 2006 on the non-binding European Communication and Cooperation Guidelines for Cross-border Insolvency proceedings, also known as the ‘CoCo-guidelines’. With their presentation in Bucharest Bob Wessels and Miquel Virgos were seeking to test the draft rules against the experience of the INSOL Europe practitioners. Insol Europe’s Secretary General, Marc Udink, who initiated this project for Insol Europe, during the Bucharest Congress appointed a Committee Best Practices to further develop the CoCo guidelines. As secretary of this CoCo-project, I would like to inform the members of ILN of the importants of the CoCo guidelines for a better and faster cross border recovery.

The CoCo guidelines ensure that cross-border insolvency procedures are dealt with in an efficient an effective manner. They aim to provide liquidators (and courts) in parallel insolvency proceedings of the same debtor, some guidance when they have to communicate and cooperate with each other pursuant to the EC Insolvency regulation.

In this article I briefly explain why parallel cross-border insolvency proceedings of the same debtor can be opened (par. 1), why cooperation and communication obligations between liquidators exist under the EC Insolvency Regulation (par. 2), what the CoCo-guidelines add to these obligations (par. 3). I conclude with the future developments of the CoCo project.

1. Parallel insolvency proceedings under the EC Insolvency Regulation

The EC Insolvency Regulation provides the possibility to start insolvency proceedings in several member-states regarding the same debtor who has assets in these member states. The insolvency proceedings can be distinguished in a ‘main insolvency procedure’ and ‘secondary insolvency procedures’.

The main insolvency procedure can be opened in the member state where the debtor’s Centre of Main Interest (COMI) is located. Parallel to the main insolvency procedure a secondary insolvency procedure can be opened in another member state where the debtor has a branch office. The law of that other member state is applicable on the secondary insolvency procedure (article 4 EC Insolvency Regulation). The secondary insolvency procedure is limited to the assets of the debtor that are located in that member state. As a secondary procedure is limited to a liquidation procedure, in the Netherlands such procedure is limited to bankruptcy proceedings (‘faillissement’) and debt restructuring procedures for private persons (‘WSNP’).

A secondary procedure can be opened by the main liquidator or a creditor (article 29 EC Insolvency Regulation). Material bankruptcy is not required (article 3 section 3 EC Insolvency Regulation). A creditor may open a secondary insolvency procedure for several reasons. For instance, employee-creditors may start such a procedure if the insolvency law that is applicable under the secondary proceedings provides them better protection compared to the law applicable on the main insolvency procedure. Another example. A liquidator in a main insolvency proceeding wants to sell the insolvent company’s (going concern) business with assets in several other member states. The liquidator will have an interest to open a secondary insolvency proceeding in a member state under which insolvency law he can prevent the energy supplier of the company to use his rights to force payments of his pre-bankruptcy claims by shutting-off the gas and energy supply (see for example article 37b of the Dutch Insolvency Law (“Faillissementswet”).

2. Coordination and communication duties (EC Insolvency Regulation)

Profound coordination regarding the different parallel cross-border insolvency procedures is necessary in order to ensure that cross-border insolvency procedures are dealt with in an efficient an effective manner. The EC Insolvency Regulation therefore contains several mutual communication and cooperation obligations for the different liquidators in parallel insolvency procedures of the same debtor.

Consideration 20 of the EC Insolvency Regulation provides in this respect:

“The main condition here is that the various liquidators must cooperate closely, in particular by exchanging a sufficient amount of information. In order to ensure the dominant role of the main insolvency proceedings, the liquidator in such proceedings should be given several possibilities for intervening in secondary insolvency proceedings which are pending at the same time. For example, he should be able to propose a restructuring plan or composition or apply for realisation of the assets in the secondary insolvency proceedings to be suspended.”

These obligations apply to both smaller insolvency procedures (like assets of a private person in the Netherlands or in Spain), and large, complex insolvency procedures (as for instance the insolvency procedure of car-part supplier Collin & Aikman with more than 4.000 employees in 10 European countries, or Eurofood / Parmalat).

3. CoCo-Guidelines – public draft

The communication and cooperation obligations in the EC Insolvency Regulation are formulated briefly and are quite abstract. Therefore, professor Miguel Virgós and professor Bob Wessels have developed non-binding CoCo-guidelines. They have been supported by approximately 20 insolvency specialists, amongst which liquidators, judges and academics from 10 countries. The first concept (public draft) of the CoCo-guidelines contains 18 guidelines regarding:

-         their non-binding nature

-         the professional requirements for liquidators

-         the language to use in cross-border communications

-         how to handle costs of fees which relate to more than one estate

-         how liquidators should cooperate (protocol check list)

-         how courts should cooperate.

When drafting the CoCo-guidelines, Professor Virgós and Professor Wessels were inspired by the UNCITRAL Model Law on Cross-border Insolvency and the Principles of Cooperation in Transnational Insolvency cases of the American Law Institute.Some of the following questions are addressed by the guidelines.

- What are the duties of the secondary liquidator re providing information?-

According to the Insolvency Regulation, when parallel proceedings occur, the main liquidator is dominant. The secondary liquidator should therefore assist the main liquidator. The secondary proceedings however are inflexible, as their purpose is limited to liquidate the local assets. In that respect Guideline 8 says that where a reorganization plan can be adopted in secondary proceedings that would give better value to creditors in main proceedings or reduce the overall debt, the liquidator in main proceedings and the court shall take advantage of the opportunity to promote the adoption of this plan.

According to article 31 (3) the liquidator in the secondary proceedings must give the liquidator in the main proceedings the opportunity to submit proposals on the realization or use of the assets in the secondary proceedings. To facilitate the submission of these proposals, Guideline 8 says that a liquidator in any secondary proceedings should for this purpose provide information to the liquidator in the main proceedings. The secondary liquidator is encouraged to provide advice to the main liquidator on how to best to proceed.

- How should cooperation take place?-

According to guideline 12 re cooperation, cooperation takes place, to the maximum extend permissible under national law, with other liquidators with the view to minimizing conflicts between parallel proceedings and maximizing prospects. Cooperation may be best attained by way of an agreement or protocol that establishes decision making procedures. A protocol should include rules for the coordination of court approval for decisions and actions whenever required and for communications with creditors as required under any applicable law. The guidelines obtain a framework for such a protocol.

- Should the court co-appoint the main liquidator in secondary proceedings?-

Article 16.3 of the CoCo guidelines advises the court to co-appoint the main liquidator in a secondary proceedings, because itwould form an appropriate way of ensuring cooperation between liquidators in different proceedings under the court supervision. During the Bucharest Congress it was discussed that Guideline 16.3 may cause problems for some jurisdictions where strict licensing rules or different criteria for appointment apply. But, according to the discussion, that might not be a reason to remove it.

- Should the cooperation of courts be implemented in the insolvency regulation?-

Mutual communication and cooperation between courts is not explicitly provided in the insolvency regulation, however it is not excluded and flows generally from the rational of the duty of mutual assistance and cooperation between member states as provided in article 10 of the EC treaty. In this regard, guideline 16 encourages cooperation of courts to manage insolvency proceedings efficiently. The majority in Bucharest agreed that the cooperation of courts should be implemented in the Insolvency Regulation.

4.         The future of CoCo

Professor Virgós and Professor Wessels will adjust the draft guidelines taking into account the input provided at the Bucharest congress. Insol Europe’s Secretary General, Marc Udink, took the initiative to appoint a Committee Best Practices. This Committee will further develop the CoCo-guidelines and develop a promotional program (training, publications, et cetera).

The draft CoCo guidelines can be down loaded from our website www.ujlaw.nl.

W.J.B. van Nielen

Attorney at law with Udink & de Jong

wvannielen@ujlaw.nl.