1. EUROPEAN (EU) COMPANY LAW
Prof. M.E. de Leeuw
Università di Ferrara
Spring semester 2018

2. Lecture 18: Liquidation and insolvency procedures M.E. de Leeuw
EU corporate law
Lecture 18: Liquidation and insolvency procedures
M.E. de Leeuw

3. Liquidation in Netherlands
A Dutch company is liquidated when:
Resolution to that effect by the general meeting of shareholders;
An event that automatically triggers liquidation
An order to that effect by Chamber of commerce;
An order to that effect by the court.
The liquidator must convert the companies assets into cash and pay its debts. If the liquidator determines that the liabilities of the company exceeds the assets, the liquidator is obliged to file for bankruptcy.

4. Dutch Insolvency Proceedings
Dutch Bankruptcy Act:
Bankruptcy;
Suspension of payment;
A debt rescheduling scheme.

5. Dutch Insolvency Proceedings
Who can petition?
Debtor, creditor or, exceptionally, the public prosecutor
Where?
Before district court of the place of the debtor’s residence in NL (companies, place of incorporation and registration); when moved out, the last place of domicile; no domicile in NL, then place where business is conducted in NL
Against whom?
All debtors, including natural persons, companies and other legal entities, commercial partnershipscan be declared bankrupt.

6. Opening Dutch Bankruptcy Proceedings
When? Legal ground: Debtor has ceased to pay his debts;
Creditor must provide evidence of showing debtor has ceased to pay its debts; the fact that debtor is unable to pay and that there is at least another creditor.
The district Court will appoint a bankruptcy trustee (curator) and a supervisory judge. The trustee acts under supervision of this judge.
Publication of opening proceedings in OJ.

7. Objective Dutch Bankruptcy Proceedings
Objective: Liquidation of the debtor’s assets and distribution of the proceeds to creditors each according to their rank.
The “estate” includes all property of the debtor as of the time of the petition as well as that acquired during the process;
Debtor looses power to manage and dispose of his assets, this power in now in the hands of the trustee. Only the trustee may dispose of the property.

8. Dutch Bankruptcy proceedings
Trustee’s tasks:
Administer and liquidate the bankrupt’s estate;
Decide whether or not to continue temporarily the business;
In case no continuation, trustee may sell the assets (not contravene any security interests of creditor);
The selling takes place by public auction or private contract.
Power to terminate leases and employment contracts;
Invoke “Actio Pauliana”.
The supervisory judge supervises the trustee, and the trustee needs the authorisation of the judge for certain acts (e.g. termination employment contracts, rental contracts..).
Court can dismiss trustee.

9. Actio Pauliana
If the rights of recourse on the debtor’s assets have been prejudiced by legal acts performed by the debtor without obligations, the trustee has a right to institute a claim against the management board or directors.
Trustee can keep all directors personally liable on a joint and severe basis for the entire deficit of the bankruptcy (piercing the corporate veil!).

10. The claims
Creditors, not secured by a right of mortgage or pledge, must present their claims in writing to the trustee;
Creditors’ meeting is held in front of court, in which the claims are allowed or challenged and classified as preferred or non preferred. –only in case proceeds of assets exceeds debts of estate and tax collector and social security claims.
Creditors with insolvency claims are entitled to the proceeds of the sale of the debtor’s assets.
Certain claims that arise from the adjudication of bankruptcy are called “claims against the estate” (e.g. cost of bankruptcy trustee, costs of liquidating estate, wages employees). They have to be satisfied in priority to insolvency claims.

11. Dutch Bankruptcy proceedings: creditors
Leading principle is “paritas creditorum”, meaning that all creditors have an equal right to payment and that proceeds of the bankrupt’s estate shall be distributed in proportion to the seize of their claims.
Category of creditors:
Secured creditors: those who hold mortgage or a right of pledge. Paritas creditorum principle does not apply. They may sell collateral by public sale or private sale, without trustee’s cooperation. No charge of pro rata share of bankruptcy costs.
Creditors with preference: those who have statutory priority or non statutory priority. Paritas creditorum principle does not apply.Present claims to trustee. Pay pro rata share of bankruptcy costs.
Unsecured and non preferred creditors are paritas creditorum creditors. Present claim to trustee.

12. Dutch Bankruptcy proceedings: termination
Termination and distribution of proceeds:
Cancellation;
Liquidation (when unsecured creditors get at least some payments, result dissolution);
Closing (no or little assets, result dissolution);
Simplified completion (when no payment can be done to non-preferred creditors, but assets (partially) enough to pay tax and/or social security);
Composition (agreement between debtor and creditors which provides (partial) payment of creditors in full satisfaction of their claims- if accepted- estate will not be liquidated)

13. Liquidation
Termination bankruptcy with liquidation: Only when unsecured creditors receive at least some payments from sell of estate (after tax and social security reduction);
Pay their pro rata share of the costs of bankruptcy;
List of preferred and non preferred creditors: plan of distribution;
Finally, dissolution of company after 10 days of acceptance of plan by creditors.

14. Suspension of payment
Suspension of payment gives the debtor temporary relief against its creditors, with the aim of having time for reorganisation and continuation of viable businesses in financial distress.
It can only be granted by the court at the request of a debtor.
Period max. 1,5 year with possibility of unlimited extension each time with 1,5 years.
During suspension business is managed by debtor and a court appointed administrator jointly.

15. Insolvency proceedings
A company is insolvent when it cannot pay its debts anymore (financial state). This can lead to bankruptcy proceedings (legal consequence), in which the company’s assets will be liquidated to pay the creditors and the company be wind-up.
A situation of cross-insolvency occurs when a debtor goes bankrupt- be it an individual or company- and whom has conducted his business in more than one MS, and so has creditors and/or assets scattered across the Union.

16. The EU Insolvency Regulation no° 1346/2000 of 29 May 2000
Why is an EU Regulation on cross-border insolvency needed?
Preamble:
(1) The European Union has set out the aim of establishing an area of freedom, security and justice.
(2) The proper functioning of the internal market requires that cross-border insolvency proceedings should operate efficiently and effectively and this Regulation needs to be adopted in order to achieve this objective which comes within the scope of judicial cooperation in civil matters within the meaning of Article 65 of the Treaty.
(3) The activities of undertakings have more and more cross-border effects and are therefore increasingly being regulated by Community law. While the insolvency of such undertakings also affects the proper functioning of the internal market, there is a need for a Community act requiring coordination of the measures to be taken regarding an insolvent debtor's assets.
(4) It is necessary for the proper functioning of the internal market to avoid incentives for the parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position (forum shopping).

17. The EU Insolvency Regulation no° 1346/2000 (revised by 2015/848/EU- not in force yet)
The object: Establish common rules regarding:
The court competent to open insolvency proceedings;
The applicable law;
The recognition of the court’s decisions for cases where a debtor becomes insolvent.
The aim: Dissuading the debtor from transferring his/her assets or the judicial proceedings from one country to another in order to improve his/her legal position (forum shopping)
The Regulation applies the principle of proceedings with universal scope. Unitary insolvency proceedings for each debtor, with universal scope with regard to both (i) the insolvency estate and (ii) the body of creditors. All assets of the debtor, regardless of the Member State where they are situated, are subject to these proceedings; and all creditors are entitled to (and obliged to) participate in them.

18. No harmonisation of substantive insolvency proceedings!!!!
Reason, recital 11.

19. Legal base and scope
The legal base: insolvency proceedings are excluded from the scope of Brussels Convention Based on art. X FTEU (Judicial cooperation in civil matters).
The scope:
The regulation applies to “collective insolvency proceedings” (art. 1(1) and 2(a), Annex A).
Dutch example (annex A): Het faillissement; De surséance van betaling; De schuldsaneringsregeling natuurlijke personen.
Excluded are: insurance undertakings, credit institutions, investment undertakings and collective investment undertakings.

20. Competence of the Court
Court with jurisdiction to open MAIN proceedings: are those of the EU country where the debtor has his centre of main interests, i.e. the place where he usually administers his interest and that is verifiable by third parties (Art. 3(1)/recital 13).
If a company this is the place of registered office in absence to proof to the contrary (Eurofood case).
SECONDARY (territorial) proceedings (listed in annex B) may be opened subsequently in another EU country, if the debtor has an establishment in its territory (art. 3(2)). These procedures must be winding-up proceedings (as regards assets in that MS).
They can be opened by liquidator of the main proceedings or other persons according to the law of the territorial proceeding.
They can be opened up prior to main proceedings (art. 3(4)).

21. Applicable law
The law of the country in which the proceedings are opened determines all the terms of those proceedings (art. 4 ).
The rights in rem of third parties, the right of a creditor to demand a set-off and the rights of a seller based on reservation of title, are not affected by the opening of procedures (art.5, 6 and 7).
Rights to property are only governed by the law of the EU country where the property is situated (art. 8).
Employment contracts and relationships are governed by the law of the MS applicable to the contract of employment (art. 10).
Community patents and trademarks or any other similar right established by Community law may be included only in the Main proceedings (art. 12)

22. Recognition of insolvency proceedings and judgments
Judgments of closure of insolvency proceedings shall be recognised (art. 25, except art. 26 public policy)
Judgments opening proceedings: Any decision opening insolvency procedures handed down by a court of a MS which has jurisdiction pursuant art. 3, shall be recognised in all MS from the time it becomes effective in the state of opening the proceedings (art. 16).
Effect (art. 17):
The effects of the judgment opening the main proceedings produce the same effect in any other MS as under this law of the state of opening, unless Reg. provides otherwise (…):
The effects of secondary proceedings may not be challenged in other MS.

23. Powers of the liquidator, and return duty for creditor, publication
Liquidator’s power are governed by the law of the country in which proceedings are opened (art. 18(1))
He may remove the debtor’s assets from the territory of another MS in which they are situated, subject to art. 5/7 (art. 18(1)).
Creditor must return the total or partial satisfaction of his claim on the assets belonging to the debtor to the liquidator (art. 20).
Publication measures may be taken in any other EU country at request of liquidator (art. 21).
Payment to debtor in good faith (art. 24).
The Regulation is not applicable to DK,UK to limited extent, and any EU country which has obligations in respect of winding-up as laid down in prior Conventions concluded with third country.

24. Eurofood, example
Cross border element:…