Corporate Rehabilitation

The JCOERE Project, funded by the European Commission’s DG Justice Programme (2014-2020), addresses two aspects of the European Union’s strategy to respond to the problems of cross-border insolvency within the increasingly integrated internal market. The European Commission’s strategy is described in the Commission Recommendation 2014/135/EU on a new approach to business failure. The first aspect concerns the co-operation obligations that have been imposed on all domestic Member State courts and judiciary under the European Insolvency Regulation (Recast) 2015/848 (EIR Recast). The second concerns the implementation, subsequent to the Preventive Restructuring Directive 2019/1023, of a preventive restructuring framework in the domestic law of all Member States.

The second JCOERE Report analyses the co-operation obligations arising from the EIR Recast, which are imposed on courts and practitioners in EU Member States to co-operate in cross-border insolvency and restructuring matters. The Report also undertakes a benchmarking of judicial utilisation and awareness of best practice guidelines on co-operation that have been adopted by European and international organisations. This was achieved through engagement with judicial networks during a number of interactive workshops and through the distribution of a judicial survey to three focus groups comprised of members of the judiciary. This, together with JCOERE Report 1, has contributed to answering the overall project research question, which asks:

Based on existing experience with restructuring (e.g. Ireland), will obstacles to court co-operation arise from substantive rules, which are particular to preventive restructuring.
Will some of these obstacles to court co-operation be exacerbated in the preventive restructuring context, given that they pertain to existing procedural rules?
JCOERE Project Report 2 reflects the goals of Workpackage 3 of the Project and accordingly focusses on the courts, including judicial and administrative authorities, charged with approving and implementing restructuring plans and to which the co-operation obligations are addressed. The second Report considers the application of best practices for co-operation of cross-border preventive restructuring cases, judicial awareness of existing obligations and guidelines and judicial practice in this area. Report 2 also considers broader questions, such as differences in judicial culture across the EU Member States, how this impacts mutual trust and effective cooperation, and how the obligations and broader initiatives concerning judicial co-operation are fundamental to the question of European integration and harmonisation.

The research in Report 2 also undertakes a comparative analysis of judicial co-operation in another federalised jurisdiction, undertaking a comparison between the European Union and the United States.

https://www.ucc.ie/en/jcoere/research/report2/

JCOERE will focus on the strengthened co-operation obligations imposed on the judiciary in the Recast Regulation but will confine its enquiry to preventive restructuring processes. In addition to exploring challenges that procedural rules might present to co-operation, this project will focus on specific substantive problems that will likely become more acute in the restructuring context, such as the commencement of secondary proceedings to protect a creditor’s interests in the face of the ‘cram-down’ provisions as envisaged by the Directive. The question of whether it is reasonable for a court in the second state to decline jurisdiction becomes more immediate in such circumstances. Radical restructuring processes may make co-operation more difficult which may, in turn, inhibit restructuring in the EU.

The Preventive Restructuring Directive passed in June 2019 has introduced a number of concepts that are new and untested throughout much of the EU. While the concepts themselves are not unfamiliar, due to their well-known usage in the American Chapter 11 procedure and in other pre-existing frameworks in a number of Member States, many of the new provisions included in the PRD have created a field of controversy and debate among academics, practitioners, and policy makers as legislators begin to work toward implementation by 17 July 2021. The PRD has created fertile ground for these debates, given that there are so many alternatives available within the legislative framework. Consequently, implementing legislation may generate different variations on the approach to corporate rescue and is not expected to yield a harmonised European preventive restructuring culture. These differences may also create difficulties in the coordination of cross-border preventive restructuring procedures by creating potential obstacles to court-to-court cooperation of both a substantive and procedural nature. It is in this issue of cooperation, (enhanced under the EIR Recast) which has been the focus of the JCOERE Project.

The JCOERE Project has researched the question as to whether the enhanced obligations imposed on courts and practitioners to co-operate in the EIR Recast5 will be particularly difficult in the context of the introduction of robust preventive restructuring mechanisms derived from the PRD. Within a ‘big picture’ context, the question of cooperation is inextricably linked to the need for mutual trust among jurisdictions and judiciaries, which the European institutions have acknowledged is closely connected to the effectiveness (or not) of European integration generally. Thus, while this Project has focused on what appears to be a narrow area of law in the cross over between the PRD and the EIR Recast in terms of court-to-court cooperation, it interfaces with the some of the fundamental principles necessary to the success of the European project. The purpose ofthis chapter is to provide a snapshot of some of the Project findings to date with a particular focus on a pre-existing robust restructuring process, namely the Irish Examinership procedure,6 which, like the PRD is based (to some extent) on Chapter 11 of the US Bankruptcy Code.

This Chapter will begin with a snapshot of the JCOERE Project teasing out some implications connected to the Preventive Restructuring Directive and the cooperation obligations under the EIR Recast against the backdrop of emerging European debates. It will go on to consider how the PRD reflects a range of preventive restructuring processes that already exist in the EU with a particular focus on the Irish Examinership process. When one considers the interface between the PRD and the co-operation obligations in the EIR Recast it should be noted that not all of these processes will be covered by the EIR Recast. In Ireland, for example, there is one process that is specifically included in Annexe A of the EIR Recast (Examinership) and one that is not (Schemes of Arrangement), which is modelled exactly on the UK scheme of arrangement and which has been part of Irish law since at least 1948). The Chapter will continue with a focus on the Irish Examinership process and consider the substantive rules which are part of a robust restructuring framework in light of the 30 years of experience with Examinership in the Irish courts. It will consider these rules in light of significant cases by the Irish courts and this discussion will add to the theoretical debate currently being conducted in Member States regarding implementation of the PRD.

The JCOERE Project, funded by the European Commission’s DG Justice Programme (2014-2020), addresses two aspects of the European Union’s strategy to respond to the problems of cross-border insolvency within the increasingly integrated internal market. The European Commission’s strategy is described in the Commission Recommendation 2014/135/EU on a new approach to business failure. The first aspect concerns the co-operation obligations that have been imposed on all domestic Member State courts and judiciary under the European Insolvency Regulation (Recast) 2015/848 (EIR Recast). The second concerns the implementation, subsequent to the Preventive Restructuring Directive 2019/1023, of a preventive restructuring framework in the domestic law of all Member States. The second JCOERE Report analyses the co-operation obligations arising from the EIR Recast, which are imposed on courts and practitioners in EU Member States to co-operate in cross-border insolvency and restructuring matters. The Report also undertakes a benchmarking of judicial utilisation and awareness of best practice guidelines on co-operation that have been adopted by European and international organisations. This was achieved through engagement with judicial networks during a number of interactive workshops and through the distribution of a judicial survey to three focus groups comprised of members of the judiciary. This, together with JCOERE Report 1, has contributed to answering the overall project research question, which asks: Based on existing experience with restructuring (e.g. Ireland), will obstacles to court co-operation arise from substantive rules, which are particular to preventive restructuring. Will some of these obstacles to court co-operation be exacerbated in the preventive restructuring context, given that they pertain to existing procedural rules? JCOERE Project Report 2 reflects the goals of Workpackage 3 of the Project and accordingly focusses on the courts, including judicial and administrative authorities, charged with approving and implementing restructuring plans and to which the co-operation obligations are addressed. The second Report considers the application of best practices for co-operation of cross-border preventive restructuring cases, judicial awareness of existing obligations and guidelines and judicial practice in this area. Report 2 also considers broader questions, such as differences in judicial culture across the EU Member States, how this impacts mutual trust and effective cooperation, and how the obligations and broader initiatives concerning judicial co-operation are fundamental to the question of European integration and harmonisation. The research in Report 2 also undertakes a comparative analysis of judicial co-operation in another federalised jurisdiction, undertaking a comparison between the European Union and the United States. https://www.ucc.ie/en/jcoere/research/report2/