Transcript Slide 1

Welcome Address
Bob Wessels
(University of Leiden)
First Session:
Groups of Companies
and Insolvency I
Chair: Prof Bob Wessels
(University of Leiden)
Though fathom thee
non may –
Corporate Groups &
Insolvency Law
Alexander Dähnert
I.
Legal Perceptions of
Corporate Groups
II. Unity and Diversity –
The Nature of Groups
III. In medias res:
What is to be done?
IV. Concluding Remarks
I. Legal Perceptions
of Corporate Groups
The Group as a Legal Shadow
•Konzern
Group
(of Companies)
•Common denominator:
Lacking Legal Personality
The Group as a
Single Economic Unit
integrated group
(Ronen-Mevorach)
single economic unit
(Griffin)
the subsidiary as the parent
company’s alter ego (Adams v Cape Industries)
economic entity of the group
(Muchlinski)
the group as an integrated whole
(Sarra)
• Perception of the group as
an organism
holistic view
• Answers to the problem of
defining the terminology?
Divergence between Legal and
Economic Reality
Economic Integration
Legal Segmentation
• Perception of the group
phenomenon:
divergence between legal
and economic reality as a
leitmotiv
• Attempts to reconcile these
“two versions of reality”
• Konzernrecht as a mediator between
the legal independence of affiliated
companies and the group as an
economic unit
(Kuhlmann/Ahnis)
• Preserving the business as a whole
rather than disintegrating it
(Ronen-Mevorach)
II. Unity and Diversity –
the Nature of Groups
• Corporate groups represent unity
and diversity at the same time
(Druey)
• Poly-corporative character
(„Polykorporativer Charakter des Konzerns“ Bälz)
Structural Integrity
•Shareholding as prerequisite
towards corporate groups with
a certain level of permanence
•But:
question about the level of
shareholding anything but
easy to determine
The Supremacy of Group Interests
•Formal structure as such does not
provide sufficient answers about
the degree of integration
(Druey)
•Substitution of interest
subordination under
supreme group interests
“This is especially the case when a
parent company owns all the shares
of the subsidiaries, so much so that
it can control every movement of the
subsidiaries. These subsidiaries are
bound hand and foot to the parent
company and must do just what the
parent company says.”
(Lord Denning, DHN Food Distributors )
• Conduct, management, control
idea of exerting
dominating influence
• Correlation between control
and integration
• Any useful abstract definition?
III. In Medias Res:
What is to be done?
• Supremacy of group interests
• Correlation between control
and integration
Inferences for the attempt
to grasp groups?
The Invisibility of
Corporate Control
past attempts:
• Qualifiziert faktischer Konzern
(qualified de facto group)
• Agency relationships
However:
• Both attempts failed
• No reliable criteria
• Process of subordination is
not objectively ascertainable
Implications for Insolvency Law
•ECJ (Eurofood):
presumption for the subsidiary’s
COMI could only be rebutted if
factors existed which were both
objective and ascertainable
by third parties…
Dismissing the approach
Asking the right questions?
• Creditor interests?
• Creditor expectations?
• Creditors’ choice?
Abuse of the Corporate Form
Triggering Legal Intervention?
•Unfairness vs. misuse
•UNCITRAL scenarios:
intermingling of assets
fraudulent schemes/
illegitimate businesses
IV.
Concluding Remarks
Groups of companies in
German autonomous
insolvency law
- the lex lata,
its application and
proposals for reform
Dr. Jessica Schmidt, LL.M.
Friedrich-Schiller-University Jena, Germany
I. The lex lata
1. The legal framework
provided by the
Insolvenzordnung (InsO)
2. Application in practice
a) Jurisdiction
§ 3 InsO: Local jurisdiction
(1) The insolvency court in whose district the debtor
has his place of general jurisdiction shall have
exclusive local jurisdiction. If the centre of the debtor's
self-employed business activity is located elsewhere,
the insolvency court in whose district such place is
located shall have exclusive jurisdiction. ...
•
PIN
AG Cologne of 1 February 2008
- network of ca. 100 postal companies,
spread all over Germany
- PIN S. GmbH (registered in Berlin) as service
company for all members of the group
- new director of PIN S. GmbH conducted all
business activities from Cologne
- newly installed central management committee
met weekly with directors of group companies
in Cologne
•
Arcandor/Quelle
AG Essen of 1 September 2009
Arcandor AG
100 %
Primondo GmbH
100 %
Quelle
GmbH
Primondo
Operations
GmbH
Primondo
Management
Service GmbH
b) Liquidator
c) Cooperation
d) Coordinated insolvency plans
e) Eigenverwaltung
(debtor in possession)
II. Proposals for reform
1. Preliminary question:
definition of corporate group
§ 290(2) HGB:
(2) Dominant influence of a parent undertaking exists if
1.it has a majority of the shareholders’ voting rights in another
undertaking;
2.it has the right to appoint or remove a majority of the
members of the administrative, management or supervisory
body which determines the financial and corporate policy of
another undertaking and is at the same time a shareholder of
that undertaking;
3.it has the right to determine the financial and corporate
policy pursuant to a domination contract entered into with
another undertaking or pursuant to a provision in the statutes
of that other undertaking; …
2. Substantive consolidation?
3. Procedural consolidation
a) Special venue for
group insolvencies?
 potential models:
(1) allowing prorogation
(2) choice between alternative grounds
for jurisdiction
(3) priority principle
(4) registered office of parent company
(5) registered office + referral
b) Liquidator
c) Coordination of procedures
aa) Coordination duties
bb) Coordinated insolvency plans
d) Other issues
aa) Actions to set transactions aside
bb) Lodgement of claims
III. Conclusion
The groups of
companies
A factual reality without a
proper regulation within the
Romanian legislation
Gheorghe Piperea, PhD
Plan:
I. Introduction. Concept. European
community regulation.
II. The group of companies, the
composition and the insolvency
proceedings. The application of
the technique piercing the
corporate veil.
III. Conclusion.
I.
Introduction. Concept.
European community
regulation
The groups of companies.
Advantages
A better management of business risks;
Increased funding opportunities;
Cash pooling;
Tax optimization opportunities: tax havens
jurisdictions, consolidated VAT at group level and
consolidated taxes and rates for the whole group;
Flexibility regarding the image and
marketing policy;
Unitary leadership.
Reconfiguring the traditional
concepts of law
Along with the creation of these new structures,
the necessity of rethinking the traditional
concepts of law which did not correspond to the
complexity of the new corporate structures
became obvious.
Therefore, new regulations and sets of principles
started to emerge, bringing in line the new
realities with a modern legal order, capable of
satisfying the efficiency and transparency
requirements of the global economy.
Romanian law. Regulations of
the group of companies
The Romanian law does not provide for a
unitary regulation of the group of companies,
this concept being treated heterogeneously in
various matters:
Capital market legislation;
The legislation of credit institutions;
Insurance area;
Competition area;
Tax legislation - uncorrelated transposition of
the Directive 2006/112/EC;
Financial-accounting reporting matter;
Companies’ Law – “controled company”
DEFINITION – the group
of companies
An assembly of legally independent
companies, connected each other by
a set of relations based on which one
of the companies dominates the
other companies by carrying out its
influence, direction and control and
by determining a decision unity
Dominating company.
Financial company
Most of the times, the dominating company of the
group takes the form of a financial company.
The most common forms of financial companies
are:
securities companies (which have as an only
purpose the rational investment of the funds
within the group, purchasing their own
securities);
control companies (their purpose is to
supervise and control the participations of the
societies within the group);
investment companies (they use their funds
not for financial investments, but for assets or
industrial activities or commercial activities).
The group of companies represents
rather an economic notion than a
legal one, characterized by:
A strong decentralization
between the companies within
the group;
A unitary management
A group of companies can range from
a few subsidiary companies to several
hundred companies of this type.
The group of companies vs. Holding
A holding is a company whose sole object of
activity is to acquire shares from other companies
and to manage and capitalize these shares,
without getting involved in a direct/indirect way in
managing the company concerned.
The holding: benefits/advantages
•high degree of flexibiliy and adaptability;
•operation costs - it’s easier and cheaper to gain
the control over a company than to merge (merger
or consolidation);
•financial strength of the group.
II. The group of companies, the
Composition proceeding and
the insolvency. The
application of the technique
piercing the corporate veil
Composition law
•aims to safeguard the Romanian companies
in difficulty;
•Romania has an alliance with the countries
of the EU that benefits of this regulation;
•assures a way of preventing insolvency
in order to remove or to mitigate the
sacrifices and limitations of rights caused
by insolvency proceedings;
•The Composition law is dedicated only
to enterprises in difficulty organized by
juridical persons and not to the ones held
by natural persons;
•covers a lack of legislation, as the
Romanian regulations emphasize the
means for treating the insolvency and
not the ways for its prevention.
The group of companies – subject of the
Composition proceeding
•according to the law, the group of companies is
not excluded from the composition proceedings;
•the group of companies is treated as a single
debtor by the banking regulations regarding the
legal and financial treatment of large exposures;
•all regulations relating to the group and its
obligations are based upon the idea of risk:
a group is treated as a single debtor by the banks,
the state, by the competition bodies etc.
•the shareholders are also taking a risk in the
group in which they invest => they should be
subjected to the same rules for identical, or, at
least, for similar reasons.
Competition law
•the group is treated as a single trader
when his behaviour is analyzed as potential anticompetitive practice.
Banking law
•the group of company = group of clients as
two or more natural and/or juridical persons that
constitute a single risk, because one of them
holds a direct or indirect control over
the other or others.
The banks treat the group as a single debtor
•
The various legal regulations give an express
definition of the ,,group” only when it comes to
establishing certain obligations for the legal
entities that are part of the group or that control it;
•
Fairly, there must be also taken into consideration
the advantages or the rights that might arise from
the quality of participant to a group (investor);
It must be accbetween trader entities (forming a
group) must lead to admitting :
- the decisional epted that exercising the
supervision string right of the entity that has
invested more than the others (has higher
percentages within the string) and
- its right to try to recover the group’s business
through a consolidated Composition proceeding.
•
• For the common interest both of
creditors and shareholders, the group
could be dealt with as a separate
entity from the companies within the
group, and a consolidated
Composition proceeding could be
considered as possible.
The groups of companies might be a
possible subject of the composition
proceeding, procedure which creates
for the enterprises in difficulty a
possibility of a consolidated recovery.
• the same conclusion can apply also in the
case of the group’s judicial reorganization;
• an enhanced plan for the group might have
a great impact, because the winding of a
company could be combined with the
reorganization of other companies, all
under the control of the same trustee;
Nevertheless, it must be also taken into
consideration the level of the regulations in
force and the fact that currently the group
of companies has no legal status
Control of the group
•is composed of two or more companies
that are theoretically autonomous, but, in
fact, subjected to a single economic and financial
control;
•can be exercised through the same administration
(managerial control) or
through the same controlling shareholders
(shareholder control)
The group has no legal personality and,
consequently, cannot be, de lege lata,
subject of the insolvency proceedings
ECJ, “Akzo Nobel” case
•the Court has confirmed that, under the EC
competition law, a 100% shareholding in a
subsidiary creates a rebuttable presumption that
the parent exercises a decisive influence over the
subsidiary.
•consequently, for the purposes of EC competition
law, the two entities will be
treated as a single undertaking.
the parent company can therefore be held
liable for any anti-competitive conduct of the
subsidiary even if it did not itself participate
in such activities
The insolvency might indirectly
affect the group itself, as a
consequence of:
the legal status of the
fictitious company
or
the piercing the corporate
veil technique
 The fictitious company is a business
corporation that, although apparently
has a legal status, in reality has a
precarious corporate body or even a
false one, either as a result of a
simulation or as a result of a patrimony
assets confusion.
• The legal status of the fictitious
company can be removed by judicial
proceedings or by a legal act of the
liquidator during the winding-up
procedure if the conditions from art.
237¹ in the Companies’ Law are met.
The fictitious company
A simulated company has a
precarious corporate legal status,
while a fictitious company has a
false corporate body.
An apparent company has a false,
fictitious corporate body/legal status
as a result of the patrimony assets
confusion between the company
and one or several associates.
The fictitious company
(continuation)
•In some cases, the fictitious character
of a company is not the result of a simulation
because it’s source is related
to the conclusion of the contract but of
its execution.
•Both situations suppose that two or
more natural/legal persons, which are
autonomous and independent legal subjects
with apparently distinct patrimony assets,
create a confusion of assets, the elements of
one patrimony assets being encountered in
the other, and opposite.
The fictitious company
(continuation)
The simulation theory is inapplicable
and unconceivable in the case of some
companies that have an apparent legal
status because:
some companies have no conventional base;
the execution of the corporate contract
sometimes leads to the emergence of
fictitious corporate relations;
some state companies have an apparent
company feature but in reality they are
public institutions.
Generally, in these cases,
the patrimony assets of
the apparent companies is
fictitious, or is confused
with the assets of the sole
associate, of the state or
of the parent company
 the piercing the
corporate veil rule was
introduced in the
Companies’ Law in
December 2006.
The rule is nothing else but
a special and innovative,
expressly regulated method
of applying the fictitious
company’s theory
The “Piercing the corporate
veil” rule (continuation)
•The rule provides that the
associates who are in the situations
provided by the law could be held liable
together and unlimited for the
company’s debts.
Paradox: the legal text refers to
companies in which associates’ liability
is limited by the capital contribution, but
in the expressly regulated situations
their liability becomes unlimited
The ,,Piercing the corporate
veil” rule (continuation)
Inexplicably, the Romanian law limits
the applicability of this rule only to
associates, namely to the limited liability
companies, excluding the shareholders
and the joint-stock companies
The “Piercing the corporate veil”
rule is also applicable for the business
corporation’s bankruptcy, that is nothing
else but a judicial winding-up
The ,,Piercing the corporate
veil” rule (continuation)
•The law gives no details about the
entitled person to ascertain the fraud;
After ascertaining the simulation, the
liquidator will proceed to the liquidation
of debts against the associate who
received under these circumstances
an unlimited liability
For the group of companies, the
patrimony assets confusion leads
to the situation where the companies
part of a group are not, strictly
speaking, independent.
•It happens very often that the
companies within a group have the same
administrators, undertake obligations
without equivalent
(loans, warranties) and, in general, they
keep abnormal juridical and financial
relationships revealing the assets
confusion.
The case law of states like France,
Great Britain or Germany ruled that
the arrangements concerning
treasury management and currency
exchange, as well as the
arrangements on exchanging
of personnel and advancing funds
by the parent company are
abnormal financial relationships
that result in assets confusion
between the parent company and
its subsidiary
 In order to entail the liability of the
parent company, it must be established
with certainty a management fault,
consisting of subsidiary’s abusive
support causing a degradation of the
asset impairment ;
 The French case-law admitted even
that the liability of the parent company
may be triggered for the unfair
competition performed under the
cover of one of its subsidiaries.
If the insolvency proceedings was
commenced against the fictitious
company, and the fictitious character is
established after displaying the final
claim for debts table, it is possible to
open the insolvency proceedings against
the associate/associates in the fictitious
company who became associates with
unlimited liability due of the fact that
such have created and maintained the
confusion of assets
If, by the year 2004, the matters relating to the
fictitious companies were rather a theoretical
speculation, practically ignored by the Romanian
legislature or jurisprudence, currently, the national
law as well as the European Community law has a
serious concern with the companies having a false
legal personality, especially from a tax perspective
and to prevent money laundering as well as the
financing of potential terrorist activities.
In practice, there are increasingly more
cases where the parent company, a
subsidiary or affiliate of a company in
insolvency is required to be responsible
as an administrator for the determining
or maintaining the state of insolvency of
that company, which may indirectly lead
to the insolvency of the parent
company, its subsidiary or affiliated
company which performed or usurped
the responsibilities of administrator
 In cross-border insolvency cases,
the Community regulations allow
even the bankruptcy of a
subsidiary company in the event
that its parent company is declared
insolvent by a court decision in one
of the EU Member States.
 Companies within a group may be
affected by the bankruptcy of one
of the group’s companies through
the domino effect (snowball), or as
a result of the panic extended to
the whole group.
• The Eurofoods case, which reached the
European Court of Justice, is very interesting
in this respect. The Court had to interpret
certain provisions of Regulation no.1364/2000
on cross-border insolvency proceedings
relating to the relationship between
insolvency proceedings against a parent
company and the legal status of its subsidiary
(Eurofoods was established in Ireland as a
subsidiary of the Italian firm
Parmalat, a company which
went bankrupt in 2005).
There is a dispute over
jurisdiction to initiate
insolvency proceedings
against a subsidiary.
Finally, our legal environment in the recent years
has taught us that bankruptcy can also be
directed so that the debt is erased by the effect
of the closure of procedure while the assets are
"moved" around in the group until they are lost.
E.g.: the case of the UniversAll supermarket
chain that went bankrupt after all stores had
been transferred to another company owned by
the holder.
III. Conclusions
The draft law on holding companies,
edited, promoted and sent for approval
to the ministries since September 2009
has remained, so far, unanswered.
The draft of the legislative act has the
appearance of an "over-regulation",
uncorrelated to the current legal
provisions referring to groups of
companies, rules that reflect themselves
the undue haste of the authorities to
implement EU directives in order to reach
certain targets at a theoretical level
The current regulation of groups
of companies is a form without
substance, a heterogeneous set
of rules, held in various areas
(competition, capital markets,
taxation, accountancy) and which
may prove difficult to apply in
the absence of a coordinated
regulation of the concept itself.
Most often, groups of persons controlling
Romanian companies create a holding
company in jurisdictions that provide
for a suitable environment in this
respect, the most wanted being Cyprus
and the Netherland Antilles.
A state with laws favourable to the
development of groups of companies,
including Cyprus, Netherlands,
Switzerland, Belgium and Spain should
not be associated with the idea of tax
haven, which can be found in Jersey,
Guernsey, British Virgin Islands
Under the British law, a company is a
subsidiary to another company, called
the holding company, if it:
possesses the majority of voting rights;
is a partner or shareholder and is entitled
to appoint a majority of board members;
is partner or a shareholder and controls,
under an agreement with other partners/
shareholders, the majority of voting rights
Although the proposed legal text (the
draft law on holding companies) is
perfectible, the introduction of
exemptions from VAT for the activities of
intra-group companies, the suspension
from consumption taxes of the products
transferred intra-group and the
introduction of income tax payments
based on the consolidated financial
results through the algebraic sum of
individual financial results of the
companies members of the group are
to be appreciated.
The introduction of the concept of
“fiscal neutrality” for all intra-group
transactions “that are considered
transfers of goods and intra-group
services” is interesting, but it would
still be useful to specify comprehensively
and in accordance with the provisions
of the Fiscal Code what revenues should
be taken into account under this special
exemption
Coffee break
Report on Past
Activities
2009-2010
Paul Omar
(University of Sussex)
Past Projects:
• Stockholm Conference
(30 Sep-1 Oct 2009)
• Leiden Conference
(1-2 July 2010)
• Publications Series
(Sussex/Stockholm/Leiden)
Sponsorship:
• Edwin Coe LLP
• Travel/Research Grants
• Book Prizes
• Edwin Coe Lecture:
Westbrook/Moss/Kawaley
Future Planning:
• Milan Conference (Apr 2011)
• Venice Conference (Sep 2011)
• Publications Series (Vienna,
Milan, Venice)
• Co-Operation with INSOL
International Academic Group: Joint
Conference Project 2012
What you can do:
• Technical Papers/Books
(Leiden HC)
• Conferences/Workshops
• Volunteer Assistance
Second Session:
Groups of companies
and Insolvency II
Chair: Dr Paul Omar
(University of Sussex)
Corporate groups & the impact of the EC
Insolvency Regulation
Alexandra Kastrinou
(University of Westminster)
Scope of the Regulation:
• Article 1(1) The Regulation: “shall apply to collective insolvency
proceedings which entail the partial or total divestment of a
debtor and the appointment of a liquidator”
• Note: The Regulation does not define the meaning of
insolvency, but Article 2(a) defines ‘insolvency proceedings’ as
collective proceedings referred to in Article 1(1) and listed in
Annex A, which contains a list of proceedings that fall within the
ambit of the Regulation.
• Objective:
• To provide a framework for efficient and effective cross-border
insolvency
The definition of COMI
• The COMI is presumed to be the place of the debtor’s
registered office, unless proof to the contrary exists:
• Article 3(1) of the Regulation states that:
‘The courts of a Member State within the territory of which the debtor’s
main interests is situated shall have jurisdiction to open insolvency
proceedings. In the case of a company or a legal person, the place of the
registered office shall be presumed to be the COMI in the absence of
proof to the contrary’.
COMI & Corporate groups
• Daisytek ISA Limited [2004] B.P.I.R. 30.
• MG Rover [2005] EWHC 874(Ch.)
• Eurofood IFS Limited, Case C-341/04 ECJ
(2 May 2006)
The definition of COMI (Cont.)
• problematic definition
- Recital 13: “The ‘centre of main interests’ should correspond to
the place where the debtor conducts the administration of his
interests on a regular basis and therefore ascertainable by third
parties.”
• An array of factors may be taken into account by domestic courts
while interpreting the meaning of COMI, such as the location of
the registered office, the location of main creditors and
employees and the location of the parent company.
The Eurofood decision & the meaning
of COMI
• Held: Eurofood’s COMI was where its registered office was.
1. Emphasis was placed on the presumption stated in Art. 3. It was
highlighted that this presumption would not be rebutted purely on
the basis of parental control.
2. It was acknowledged that the presumption could be rebutted, where
the factors are objective and ascertainable by third parties, as
stated in Recital 13.
However, the court failed to identify the exact criteria and instead
provided an example of where the presumption could be rebutted,
i.e. where a ‘letterbox’ company is involved.
Forum-shopping & the Regulation
A controversial definition of COMI may give rise to
forum-shopping, i.e. those responsible for the formation
of a company engineer its finances so it becomes
subject to the laws of a MS, whose regulatory regime is
more indulgent towards those who control and manage
it.
-See Hellas Telecommunications (Luxemburg) II SCA
[2009] EWHC 3199 (Wind Hellas)
Time of ‘Opening’ & the race to the court
•
Art. 2(f) states: the time of the opening of proceedings shall mean the time at which the
judgment opening becomes effective, whether it is a final judgment or not’.
Example: In the UK a winding up order does not have retrospective effect for the
purposes of the Regulation, so in the event of a petition, a judgment becomes effective on
the day it is made not on the day the petition was filed.
•
•
The approach in Eurofood:
The appointment of a provisional liquidator constituted an opening even though there was
no judgment delivered by the Irish Court as to the location of COMI or the insolvency of
the company.
•
Held: ‘A decision to open insolvency proceedings for the purposes of the Regulation must
be regarded as including not only a decision which is formal described as an opening
decision by the legislation of the MS of the court that handed it down, but also a decision
handed down following an application, based on the debtor’s insolvency, seeking the
opening of proceedings referred to in Annex A to the Regulation’.
COMI migration & the Regulation
A company may migrate to take advantage of a particular regime- to
give effect to a corporate restructuring by making use of a favourable
regime which is available in the new jurisdiction but not in the
previous MS.
•
•
•
Re Staubitz-Schreiber [2006] ECR I-701, COMI migration possible,
provided that it is done before a request for the opening of proceeding
is filed
The unclear definition of COMI leads to forum-shopping
Hans Brochier Ltd v Exner [2006] EWHC 2594(Ch)- a virtual race to
the court by directors to initiate administration proceedings in the UK.
See Hellas Telecommunications (Luxemburg) II SCA [2009] EWHC
3199 (Wind Hellas)
COMI Migration (Cont.)
• The Wind Hellas case shows that there is a trend of
COMI migration in the EU
Facts: The COMI of Wind Hellas was moved to England
from Luxemburg and then the company entered into
the controversial pre-pack administration proceedings.
• The court was satisfied that the COMI was in England at
the time of the hearing and was ascertainable by third
parties.
• London has been described as the ‘restructuring capital’
of Europe whilst as ‘a bankruptcy brothel’ by a Wind
Hellas pre-pack creditor.
Conclusion
The way forward??
A closer examination of domestic and
cross-border issues
Helen Sevenoaks
Graduate Student
University of British Columbia
Introduction
 Enterprise groups : common but restructuring
problematic – why?
 Law fails to recognise enterprise groups
 Canadian courts active in developing solutions =
substantive consolidation under the CCAA
Objective of the Study
 (a) understand how substantive consolidation has
evolved under the CCAA
 (b) investigate whether the current legal landscape
provides the most appropriate framework for dealing
with the key issues
 (c) consider how, if necessary, the position could be
enhanced.
Key Issues of the Study

(1) Factors supporting consolidation

(2) Effect of consolidation

(3) Application for consolidation
persons permitted to apply
timing of an application
notice
inclusion of a solvent group member

(4) Substantive consolidation in the cross-border context
What is the CCAA?
 Canada’s primary restructuring Act
 Purpose: enable financially distressed companies to
restructure their affairs through a formal plan while
maximising return for creditors
 Eligibility: insolvent with debts greater than $5 million
What is an Enterprise Group?
 Two or more enterprises that are interconnected by
control or significant ownership
 Common business structure globally
 Not recognised under the CCAA
What is Substantive Consolidation?
 The treatment of the assets and liabilities of two or
more enterprise group members as if they were part of
a single insolvency estate.
 Distinct from: (a) procedural consolidation and
(b) lifting the corporate veil
Factors Supporting Consolidation
 Three principles laid down in Re Atlantic Yarns:
(1) appropriate in the circumstances
(2) elements of consolidation are present e.g.
significant intertwining of assets and liabilities
(3) the benefits of consolidation outweigh the
prejudice to particular creditors
Significant Intertwining
 How to determine whether there is an intertwining of
assets and liabilities?
(1) impossible to identify assets and liabilities
(2) without undue cost or delay
(3) without disproportionate expense or delay
= most appropriate for CCAA
Effect of Consolidation
 Two common effects outlined in case law:
(1) potential to prejudice the rights of creditors
stemming from the levelling of recoveries
(2) extinguishment of inter-company debts and
obligations
 What is the effect on priority, unsecured and secured
creditor claims?
Application for Consolidation
 Various issues stemming from an application
(1) persons permitted to apply
(2) timing of application
(3) notice
(4) inclusion of solvent group member
Persons Permitted to Apply
 In most CCAA cases, application by debtor or creditor
 Can the monitor make an application?
 Can the court make an order on its own initiative?
Timing of an Application
 Current approach is flexible
 Advantages:
(1) available in a variety of cases
(2) available at any given moment in the restructuring
process
Notice
 Should notice be a prerequisite?
 Should notice be given to all creditor groups?
 Should notice be given to creditors of solvent group
members?
Inclusion of a Solvent Group
Member
 CCAA: insolvent with debts greater than $5 million
 Re Stelco: defines insolvent as “reasonably expected to
run out of liquidity within a reasonable proximity of
time”
 Does the CCAA permit the inclusion of solvent group
member ?
Substantive Consolidation in the
Cross-Border Context
 Current landscape:
(1) CCAA cross-border provisions fail to address
enterprise groups
(2) principle of cooperation limited
(3) various difficulties posed by a cross-border
case
Substantive Consolidation in the
Cross-Border Context
 How do we facilitate the global treatment of
enterprise groups ?
(1) extend the principle of cooperation to apply to
enterprise groups
(2) cross-border protocols
Summary
 (1) current landscape fails to address key issues
relating to substantive consolidation under the CCAA
 (2) this study proposes various policy options for
substantive consolidation under the CCAA
 (3) hope future legislators and courts will carefully
consider these key issues
ALI-III Project
Treatment of secured
rights
Bob Wessels
1. Introduction
http://bobwessels.nl/wordpress/?p=996
One illustration:
Secured Rights of Banks
In International Insolvency
2. Applicable law (InsReg)
• 2.1. General rule: lex concursus
• 2.2. Which ‘law’ applies
Art. 5(1) (InsReg) ‘The opening of insolvency
proceedingsshall not affect the rights in rem of
creditors or third parties in respect of tangible
or intangible, moveable or immoveable assets –
both specific assets and collections of indefinite
assets as a whole which change from time to
time - belonging to the debtor which are situated
within the territory of another Member State at
the time of the opening of proceedings.
• 2.3. Rationale
• 2.4. Justification
3. Art. 5(1) InsReg further explored
•
•
•
•
•
3.1.
3.2.
3.3.
3.4.
3.5.
Opening of insolvency proceedings
Shall not affect
Rights in rem of creditors
Assets belonging to the debtor
Localisation of the debtor’s assets
4. Art. 5(1) tested in practice
•
•
•
•
•
•
4.1.
4.2.
4.3.
4.4.
4.5.
4.6.
Right to redeem
Cooling-off period
Lodging the claim
Paying certain costs
Realization of the asset
Affected by rescue plan
Method of interpretation?
5. Towards a global rule?
• UNCITRAL Legislative Guide
• Pre-draft NL (2007)
• Article 10.4.2(1): ‘The insolvency of the debtor
shall not affect the rights in rem of creditors or
third parties in respect of assets, both specific
assets and whole collections of undefined assets
changing from time to time, belonging to the debtor
which are situated within the territory of another
state at the time of the opening of proceedings’.
5. Towards a Global Rule (cont’d)
• Rule 15
Rights of secured creditors
• 15.1. ‘Insolvency proceedings shall not
affect the rights in rem of creditors or
third parties in respect of tangible or
intangible, moveable or immoveable
assets - both specific assets and
collections of indefinite assets as a
whole which change from time to time
- belonging to the debtor which are
situated within the territory of another
state at the time of the opening of
proceedings.’
Comfort break
Prof. Dr. Walter H
Rechsberger
Please contact Wendy Cooper in
the Congress Office