Restructuring of Corporate Groups in Europe
Restructuring of corporate groups was discussed at the joint conference of the European Law Institute (ELI) and the Business & Liability Research Network of Leiden University took place in Leiden (the Netherlands). During this conference, developments at both the national and European levels were discussed. The ELI’s Instrument on Rescue of Business in Insolvency Law (ELI Business Rescue Instrument) drafted under the leadership of Prof Em Bob Wessels and Prof Stephan Madaus was the starting point for discussions on the treatment of insolvent corporate groups.
Professor. em. Bob Wessels (Leiden University) introduced the ELI Business Rescue Project. This project – led by himself and prof. Stephan Madaus (Halle-Wittenberg University, Germany) – resulted in 115 recommendations on a legal framework enabling further development of coherent and functional rules for business rescue in Europe. The recommendations were presented in the ELI Business Rescue Instrument, which was adopted unanimously in 2017.
Dealing with insolvent corporate groups
Stephan Madaus introduced the recommendations, contained in Chapter 9 of the ELI Business Rescue Instrument on the issue of corporate groups. He highlighted that different approaches can be distinguished, from no or limited coordination up to substantive consolidation. Insolvent members of corporate groups in Europe are traditionally treated on an entity-by-entity basis. Domestic rules on corporate groups remain rare in the EU. This was also illustrated by prof. Joeri Vananroye (Katholieke Universiteit Leuven, Belgium), who elaborated on the possibilities for corporate group restructurings under Belgian law. Prof. Reinout Vriesendorp (Leiden University) highlighted that further research needs to consider the role of directors of insolvent corporate group members in the European context.
A joint presentation was given by Jessie Pool, Ilya Kokorin and Gert-Jan Boon (researchers at Leiden University), who discussed the existing legal mechanisms to facilitate efficient resolution of group distress. First, they considered the European Insolvency Regulation (EIR 2015) and concluded that, due to the voluntary nature of group coordination proceedings and an easy opt-out from them, such innovation may have limited effect. Different alternatives were considered, including the appointment of the same insolvency practitioner, establishing an enterprise COMI and using synthetic or “reversed” synthetic proceedings. But currently these options are either unavailable or face significant (practical) difficulties. Insolvency protocols were suggested as the most flexible tool. However, to make their adoption more prevalent, training for judges and insolvency practitioners is needed.
The next step
The conference revealed that approaches to restructuring of corporate groups are still very much in development. To date, there are no experiences yet with the group coordination proceedings under the EIR 2015. The application of other tools, such as insolvency protocols, has also remained limited. From the discussion it follows that in a cross-border setting, but also domestically, improving coordination by means of cooperation and communication may be the most feasible direction to pursue at the moment. To this end, judges and practitioners may rely on recommendations and best practices, for instance the ELI Business Rescue Instrument, but also those from other standard-setting organisations, which should support the restructuring of corporate groups.