On 13 April 2017, the German Parliament enacted a ‘Statute for a Simplified Treatment of Group Insolvencies’. It will enter into force on 21 April 2018 and will supplement the prescriptions of the German Insolvency Code (Insolvenzordnung) (InsO). This law is domestic in scope, but it immediately captured the attention of foreign scholars and practitioners because it reproduces – with improvements – the highly-criticized prescriptions on group insolvencies of EU-Regulation 2015/848 (EIR). The weaknesses of both the statute and the regulation also emerge more clearly.
The German statute has a long history which started in 2013 and paralleled the efforts by the EU in drawing up prescriptions on group insolvencies (Arts 56-77 EIR). This coincidence in time explains some of the convergences in both pieces of regulation: for instance, both resist substantial consolidation and both regulate group insolvencies though a single group-forum, the appointment of the same IPs for all the proceedings, duties of cooperation, and coordination proceedings. However, there are also some divergences.
The first divergence concerns the definition of a group. Arts 2.13 and 2.14 EIR and Arts 56-77 EIR refer to companies only – even though a comparison between their different linguistic versions show some uncertainties in policy; by contrast, para 3e.1 InsO refers to firms in a broader sense. Here, ‘firm-group’ means a group of firms which are legally independent, have their Centres of Main Interest (‘COMIs’) in Germany, and are directly or indirectly connected either because one firm exercises a dominant influence over another firm, or because all the firms operate under a single leadership. Finally, para 3e.2 InsO lays down that a partnership and its members with unlimited liability may be considered as a group too. When compared with the EU-definition, the German definition appears more apt: firstly, because it is independent of the regulation on the organizational aspects of groups; secondly, and consequently, because the German definition is more consistent with the goal of a regulation which ought to facilitate firms’ rescue through either their restructuring, or a sale of their assets as a whole. Understandably, a situation where a partnership runs a firm and a member with unlimited liability holds a patent which has a pivotal role for the partnership business is regarded as being a case in point.
The second divergence concerns single group-forum and the appointment of the same IP for all the proceedings. The EIR contains only a small amount of guidance (Recitals 53 and 50), while the German act is more detailed. Para 3a InsO lays down that a firm belonging to a firm-group has the power to apply to the court that is competent in relation to its own insolvency in order to open proceedings against the other group-firms; this implies that there will be many proceedings – the premise is ‘no substantial consolidation’ – but only one court. Some constraints prevent a court which is competent to open proceedings against a firm that plays a marginal role within the group from becoming competent also to open proceedings against the other firms in that group. A set of rules regulates the case where two or more firms of the same group apply for a single group-forum, while para 3d InsO regulates the referral, allowing the court that has already opened proceedings against a group-firm to transfer these proceedings to the court which has been considered as competent for the group. Finally, para 56b InsO allows the same IP to be appointed for all the proceedings – it does not matter if these have been opened in the same court or in various courts.
If many different proceedings are opened in various courts, paras 269a, 269b and 269c InsO provide for a general duty of cooperation and for a list of subjects where such cooperation is required – this list inter alia refers to preventative measures, the appointment of IPs, and the quantification of assets and liabilities. Moreover, while the EIR imposes these duties on courts and IPs only, the German statute extends these also to the creditor committees – in Germany, these are crucial. Like the EIR, the German insolvency statute also provides for coordination proceedings. When compared with the EIR, the German regulation appears relatively simple: para 269d InsO lays down that both group-firms and creditor committees may apply to a court for coordination proceedings and the appointment of a coordinator. The latter will draw up a coordination plan that will likely suggest measures to restrict the IPs’ powers to sell assets, settle IPs’ conflicts, and make it easier for them to conclude agreements. The plan is non-binding, but IPs may deviate from it on a comply-or-explain basis (para 269i InsO). However, despite these improvements the policy on coordination proceedings is not exempt from criticism – even the German version of this policy appears cumbersome; further, if any damage occurs, the cases where an IP is responsible and those where a coordinator is responsible could prove difficult to distinguish.
Renato Mangano is Professor of Commercial Law and Insolvency Law at the University of Palermo.