FS_Kuebler_Wessels - Prof. Dr. Bob Wessels

BOB WESSELS
Harmonisation of Requirements for Insolvency Holders on a
European Level
I. Introduction
Harmonisation of law within the EU, now with 28 Member States, often is thought of
as the approximation or harmonisation respectively of matters of substantial law. Although
certain matters could be a subject of harmonisation (such as certain topics of contract law
or the law of obligations), harmonisation of insolvency law often receives critical observations: is it desirable? Is it possible? Is it practical? And, as a last but certainly not the final
observation: is it in line with the principal of subsidiarity as codified in Article 5(3) of the
Treaty on European Union (TEU), and in the new, post-Lisbon Treaty ‘Protocol on the
application of the principles of subsidiarity and proportionality’?1
Although I am not convinced that harmonisation is not possible at all,2 I think a distinctively different approach to harmonisation of (substantive and procedural) laws is possible
by looking at the organisational structure within which such laws operate. For matters of
insolvency the most important actors in nearly any insolvency proceeding in Europe are
the court and the insolvency office holder. Both have well extended roles, based on or
limited to the provisions of domestic law as well as provisions in the EU Insolvency Regulation (EIR). In practice – as Bruno M. Kübler certainly will acknowledge – a successful
insolvency proceeding is heavily dependent on a skilled and experienced insolvency office
holder and an efficient and experienced court. Indeed, as has been submitted by Austin,
Texas professor Jay Westbrook:
‘In the field of insolvency there are two actors whose integrity and experience are central to the
functioning of the insolvency system: judges and administrators’.3
1 Article 5(3) TEU reads as follows:
Under the principle of subsidiarity, in areas which do not fall within its exclusive competence,
the Union shall act only if and in so far as the objectives of the proposed action cannot be
sufficiently achieved by the Member States, either at central level or at regional and local level,
but can rather, by reason of the scale or effects of the proposed action, be better achieved at
Union level.
The institutions of the Union shall apply the principle of subsidiarity as laid down in the Protocol
on the application of the principles of subsidiarity and proportionality. National Parliaments
ensure compliance with the principle of subsidiarity in accordance with the procedure set out
in that Protocol.
2 See Ian F. Fletcher/Bob Wessels, Harmonisation of Insolvency Law in Europe, Reports presented to the Nederlandse Vereniging voor Burgerlijk Recht (Netherlands Association of Civil Law),
Deventer, 2012. Fletcher and I plea for a conscious step-by-step approach and have summarised
our findings and presented our conclusions in a final chapter, which is separately published,
see http://bobwessels.nl/wordpress/?attachment_id=2409. Some parts of this contribution are
derived from our research into the phenomenon of ‘harmonisation of insolvency laws’.
3 Jay Lawrence Westbrook et al., A Global View of Business Insolvency Systems, The World
Bank, Washington DC, 2010, 203. Generally on the roles of other actors, such as academia and
legislators, see Bob Wessels, On the future of European Insolvency Law, INSOL Europe Acade-
758
Bob Wessels
In this contribution to Bruno M. Kübler’s Festschrift I will highlight some aspects of the
European Commission’s recent policy on insolvency matters, the so called ‘New European
approach to business failure and insolvency’ (par. II). After some general comments about
harmonisation of selected insolvency topics (par. III) I enter the main theme of my contribution, more specifically the need for harmonisation of requirements for liquidators
(par. IV) and the need for harmonisation of methods of supervision of liquidators (par. V).
I will explain that legislation on this topic on a European level has not been introduced,
so it has been a praiseworthy step for the European insolvency practitioners association
INSOL Europe4 to have developed, with a research group of the Leiden Law School, an –
what in draft is called – INSOL Europe Statement of Principles and Best Practice for
Insolvency Office Holders in Europe (par. VI). I will end with a short conclusion.
II. A new European approach to business failure and insolvency
Late 2011 the European Parliament (EP) approved a ‘Motion for a European Parliament
resolution with recommendations to the Commission on insolvency proceedings in the
context of EU company law’. In this motion, the EP requests the Commission to submit
to the Parliament, on the basis of Article 50, Article 81(2) or Article 114 of the Treaty on
the Functioning of the European Union (TFEU), one or more legislative proposals:
‘[…] relating to an EU corporate insolvency framework, following the detailed recommendations
set out in the Annex hereto, in order to ensure a level playing field, based on a profound analysis of
all viable alternatives.’5
One of the categories on the EP’s wish-list concerns matters related to harmonisation
of national insolvency law. As topics ready for research on the suitability of harmonisation
the EP suggests (amongst others):
(a) certain aspects of the opening of insolvency proceedings,
(b) certain aspects of the filing of claims,
(c) aspects of avoidance actions,
(d) aspects of restructuring plans, and
(e) general aspects of the requirements for the qualification and work of liquidators, which
is the EU term for a variety of insolvency office holders working in the EU Member
States.
In this contribution my attention will be on this latter topic (e).
The response from the European Commission came on 12 December 2012. The Commission introduced the ingredients for a new policy, named ‘A new European approach to
business failure and insolvency’, which would aim to harmonise national insolvency and
company law regarding the following features:
(a) a second chance for entrepreneurs in honest ‘bankruptcies’,
(b) discharge periods,
mic Forum’s 5th Edwin Coe Lecture, in: Rebecca Parry (ed.), European Insolvency Law: Prospects for Reform, INSOL Europe, Nottingham Paris, 2014, pp. 131–158 (ISBN 978-09570761-6-7), also published in International Insolvency Law Review 2014/3, pp. 310–332
(ISSN 2190-4952). For the role of judges, see Bob Wessels, Towards A Next Step in Cross-border
Judicial Cooperation, in: 27 Insolvency Intelligence 2014/7, 100 ff.
4 Bruno M. Kübler was president of INSOL Europe from 1992–1994.
5 See Motion for a European Parliament resolution with recommendations to the Commission
on insolvency proceedings in the context of EU company law (2011/2006(INI). In the motion
the EP confirms ‘[…] that the recommendations respect the principle of subsidiarity and the
fundamental rights of citizens.’ For all related documents, see http://www.europarl.europa.eu/
sides/getDoc.do?type=REPORT&reference=A7-2011-0355&format=XML&language=EN.
Harmonisation of Requirements for Insolvency Holders on a European Level
759
(c) rules on the opening of proceedings,
(d) the unfulfilled expectations of creditors for different categories of debtors,
(e) uncertainty for creditors relating to procedures to file and verify claims,
(f) promoting restructuring plans, and
(g) special needs of small and medium enterprises to promote second chance.6
Using the outcomes of a public consultation of July 2013, the European Commission
presented on 12 March 2014 its Recommendation on ‘[…] a new approach to business
failure and insolvency.’
The objective of the Recommendation is to shift the focus away from liquidation towards
encouraging viable businesses to restructure at an early stage to prevent insolvency. With
around 200,000 businesses across the EU facing insolvency and 1.7 million people losing
their jobs each year as a result, the Commission wants to give viable enterprises the opportunity to restructure and stay in business. The chosen method is to reform national insolvency legislation with the aim to assist viable firms in business and safeguard jobs and at
the same time improve the environment for creditors who will be able to recover a higher
proportion of their investment than if the debtor had gone in a formal insolvency proceeding.
The Recommendation has 20 recitals and 36 recommendations and offers for implementation in the national laws of the Member States a set of ‘minimum standard’ for ‘preventive
restructuring frameworks’.7
As follows from the response to the EP as well as the contents of the Recommendation,
the European Commission has chosen (for reasons unknown) not to suggest a form of
harmonisation of ‘general aspects of the requirements for the qualification and work of
liquidators’, where the EP had asked for.
III. Harmonisation of selected insolvency topics
Harmonisation of topics of insolvency law does not bear a long history. Since decades
one finds comparative studies on all sorts of insolvency topics related to countries that share
the foundations of a legal system and the use of one language, most notably English as a
language, especially the USA, England and the commonwealth countries. However, when
non-English speaking countries are involved, the development of comparative insolvency
law studies – and we add: presented in English8 – is still in its infant’s shoes. During the
past few years, however, such comparative sources have gained in depth, but their number
6 See COM(2012) 742. In the same period the Commission presented its ‘Entrepreneurship
2020 Action Plan: Reigniting the entrepreneurial spirit in Europe’ which invited Member States
to:
– Reduce, when possible, the discharge time and debt settlement for an honest entrepreneur
after bankruptcy to a maximum of three years by 2013;
– Offer support services to businesses for early restructuring, advice to prevent bankruptcies,
and support for SMEs to restructure and re-launch; and to
– Provide advisory services to bankrupt entrepreneurs to manage debt and to facilitate economic
and social inclusion and develop programmes for ’second starters’ for mentoring, training and
business networking.
See COM(2012)795.
7 For an overview, see Stephan Madaus, The EU Recommendation on Business Rescue –
Only Another Statement or a Cause for Legislative Action Across Europe?, in: 27 Insolvency
Intelligence 2014, no. 6, 81 ff.
8 Let me make this statement once more: Several PhD’s or similar publications in WesternEurope, contain thorough studies of topics with a comparison of different jurisdictions, but in
the European or even global discourse their role is limited as these are written in languages such
760
Bob Wessels
is still rather limited.9 More recently, comparative studies have been published, either at
the initiative of scholars,10 for instance on the question what belongs to the insolvency
estate11 or – on the contrary – what is exempted from such an insolvency estate12 and for
instance with regard to the process of rescuing companies in England and Germany.13
Harmonisation is a careful process. Harmonisation of certain topics is possible, but it has
to be acknowledged that many of these topics will prove to be interconnected to larger
(non insolvency law related) legal areas, such as employment law, property law, contract
law or procedural law. For the German practitioner Kolmann this latter observation is
decisive. He argues that only in case that greater consensus in these non-insolvency areas
exists, harmonisation of insolvency law will have a greater prospect of success.14 Other
authors seem more hopeful.15
IV. Need for harmonisation of requirements for liquidators
Let me now turn to the harmonisation of general aspects of the requirements for the
qualification and work of liquidators. The EP sets to topic forth, but it is not suggesting a
certain harmonisation instrument. It recommends harmonisation on the following (I have
added numbers):
1. the liquidator must be approved by a competent authority of a Member State or
appointed by a court of competent jurisdiction of a Member State, must be of good
repute and must have the educational background needed for the performance of his/
her duties;
as French, Dutch or German. It is recommended that such studies should contain at least an
adequate summary in English. It is recalled that several studies from French authors in the early
90s favour strongly harmonisation of certain aspects of insolvency. See the authors mentioned
by Paul J. Omar, European Insolvency Law, Aldershot: Ashgate, 2004, 50.
9 Reference is made to Otto E. Fonseca Lobo (ed.), World Insolvency Systems: A Comparative
Study, Sweet & Maxwell, 2009, and Christopher Mallon (ed.), The Restructuring Review, London: Law Business Research, 3rd ed., 2013. Presented as an academic exercise, see: Dennis Faber/
Niels Vermunt/Jason Kilborn/Thomas Richter (eds.), Commencement of Insolvency Proceedings,
Oxford International and Comparative Insolvency Law Series, Oxford University Press, 2012.
The latter I regard as a valuable source for the countries presented, but most remarkably a
synthesis of the topic of ‘commencement’ is lacking. See for a short review: Bob Wessels, International Insolvency Law Review 4/2012, 591–592.
10 See the contributions in: Wolf-Georg Ringe/Louise Gullifer/Philippe Théry, Current Issues in
European Financial and Insolvency Law. Perspectives from France and the UK, Studies of the
Oxford Institute of European and Comparative Law, Vol. 11, Hart Publishing, 2009.
11 H. Rajak, Determining the Insolvent Estate – A Comparative Analysis, 20 International
Insolvency Review, Spring 2011, Issue 1, 1 ff.
12 D. McKenzie Skene, The Composition of the Debtor’s Estate on Insolvency: A Comparative
Study of Exemptions, 20 International Insolvency Review, Spring 2011, Vol. 20, Issue 1, 28 ff.;
Rolef J. de Weijs, Harmonisation of European Insolvency Law and the Need to Tackle Two
Common Problems: Common Pool & Anticommons, 21 International Insolvency Review 2012,
67 ff.
13 Reinhard Bork, Rescuing Companies in England and Germany, Oxford University Press,
2012.
14 See his paper presented at a Joint international insolvency conference in Amsterdam, April
2011. Stephan Kolmann, Thoughts on the governing insolvency laws, at www.eir-reform.eu/
uploads/pdf/ammend_Kolmann.pdf.
15 See David Marks, EU Insolvency law in harmony or totally atonal, in: 3-4 Digest, July
2010, 20 ff; Luminit¸a Tuleas¸ca˘, The Harmonization of the European Laws of Insolvency, Lex Et
Scientia International Journal (LESIJ) No. XVIII, Vol. 1/2011 (http://lexetscientia.univnt.ro/
402_389_lesij_js_XVIII_1_2011_art _014.pdf).
Harmonisation of Requirements for Insolvency Holders on a European Level
761
2. the liquidator must be competent and qualified to assess the situation of the debtor’s
entity and to take over management duties for the company;
3. when main insolvency proceedings are opened, the liquidator should be empowered for
a period of six months to decide on the protection of assets with retroactive effect in
cases where companies have moved capital;
4. the liquidator must be empowered to use appropriate priority procedures to recover
monies owing to companies, in advance of settlement with creditors and as an alternative
to transfers of claims;
5. the liquidator must be independent of the creditors and other stakeholders in the insolvency proceedings;
6. in the event of a conflict of interest, the liquidator must resign from his/her office.
Klaus Lehne is the reporter for the EP. He indicates that ‘liquidator’ means the liquidator
described in Article 2(b) EIR. Lehne rightly notes that according to Article 4(2)(c) EIR
the Member State of the opening of collective insolvency proceedings shall determine the
powers of the liquidator, and that Articles 18 and 19 contain basic provisions for the liquidator. He states:
‘[…] While the rapporteur would not endeavour to harmonise the powers and duties of liquidators
at that stage, he would still like to propose some common requirements. Some harmonisation in this
area would support the idea of closer cooperation between the liquidators and enhance the comparability
in the profession.’
As with the topic of ‘opening’ of insolvency proceedings the reporter seems to limit his
remarks to liquidators appointed in cross-border cases, whilst the proposals of the EP seem
to have a wider scope.
The EP recommends harmonisation of certain elements of the profession of an insolvency office holder, and topics 1, 2, 5 and 6 (mentioned above) typically constitute elements
for the deontology of nearly any profession in the commercial area. Topics 3 and 4, however, sound odd in this list, in that they recommend certain powers which, when executed,
will have an immediate effect on third parties. Where the first group relates to the nature
of the profession, these latter topics would better fit in a category close to recommendation
1.3 (‘Aspects of avoidance actions’).
Where in any insolvency proceeding the judge is an insolvency office holder’s antipole,
it is observed that it is remarkable that the EP is silent with suggesting a similar recommendation for the work of an insolvency judge. Its recommendation 2.4 (‘Recommendation
on cooperation between courts’) only provides
‘[…] that Article 32 [read 31; Wess.] of the Insolvency Regulation should provide for an unequivocal duty of communication and cooperation not only between liquidators but also between courts.’
Back to the ‘liquidator’. INSOL Europe had been invited by the EP to provide background for the matters that could be a subject for harmonisation. INSOL Europe’s Note
displays some eight EU Member State reports, from which it follows that the laws of EU
Member States have different rules on the qualifications and eligibility for the appointment,
licensing, regulation, remuneration, supervision and professional ethics and conduct of liquidators. Where the drafters of the Note have not experienced that the use of different
systems in the EU Member States have caused any difficulties in practice, they conclude
that
‘[…] there is no merit in seeking to harmonise these issues until a further harmonisation of
substantive insolvency law and company law has been achieved”.16
Here it seems that the Note is carried away by its main message of allowing cross-border
group insolvencies under the guidance of one insolvency office holder being appointed in
16
INSOL Europe Note 2010, at 20.
762
Bob Wessels
the insolvency of an ‘ultimate parent’ company as well as proceedings involving subsidiaries.17
INSOL Europe seems to underline the importance of what a liquidator normally in its
day-to-day work does. It’s not the person, but its actions. However, I think the emphasis
should lay on the person, on a liquidator’s inherent professional and personal qualities, both
in an international as well as in a national context. With the automatic recognition of an
opening judgment, the powers of any appointed liquidator can be exercised – within the
rules set by Article 18 and onwards of the Insolvency Regulation – in 26 other Member
States. The coordination of activities related to the insolvent debtor’s estate in all Member
States in the EU is in her or his hands. The model on which the EU Insolvency Regulation
is based may result in one main insolvency proceeding with the liquidator dealing with
assets located in any other Member State, or it may result in a split of insolvency proceedings
opened against the debtor, who has assets or operations in two or more jurisdictions of the
EU: main insolvency proceedings can be opened in Member State X, when the centre of
the debtor’s main interest (COMI) is in Member State X (Article 3(1) EIR); secondary
insolvency proceedings can be opened in the other Member States where the debtor has
an establishment within the meaning of Article 2(h) EIR. These proceedings, as they are
both concerned with the same debtor, should be coordinated, but they do not operate on
an equal footing:
‘Main insolvency proceedings and secondary proceedings can […] contribute to the effective realisation of the total assets only if all the concurrent proceedings pending are coordinated. The main
condition here is that the various liquidators must cooperate closely, in particular by exchanging a
sufficient amount of information. In order to ensure the dominant role of the main insolvency proceedings, the liquidator in such proceedings should be given several possibilities for intervening in secondary
insolvency proceedings which are pending at the same time’,
thus recital (20) preceding the text of the EU Insolvency Regulation. This position
requires certain specific qualities and skills.
On a national level I am adhering to a vision which was already expressed over thirty
years ago:
‘The success of any insolvency system […] is very largely dependent upon those who administer it.
If they do not have the confidence and respect, not only of the courts and of the creditors and debtors,
but also of the general public, then complaints will multiply and, if remedial action is not taken, the
system will fall into disrepute and disuse’.18
It should be stressed that it is not only the creditors’ confidence, but the trust the market
puts in the insolvency office holders’ actions, which may translate in her/his ability to
exercise a transparent process, e. g. for unsecured creditors to be informed in a clear way
about any process and to be able to influence any administration, to understand the way
the profession is regulated, which would include a mechanism to maintain trust in any
regulatory regime, such as a post-action review or a complaints procedure.
17 See also INSOL Europe Revision Report 2012, Robert van Galen et al., Revision of the
Insolvency Regulation, INSOL Europe, 2012, 91 ff recommending a Chapter V (‘Insolvency of
Groups of Companies’) to be included in the Insolvency Regulation.
18 Cork Report, Insolvency Law and Practice – Report of the Review Committee (Chairman, Sir Kenneth Cork) (June 1982, Cmnd. 8558), London, HMSO ISBN 0 10 185580, at
para. 732. This highly influential report is the basis for the reform of insolvency law in the UK,
centred on the Insolvency Act 1986.
Harmonisation of Requirements for Insolvency Holders on a European Level
763
V. Need for harmonisation of methods of supervision of liquidators
The European Parliament not only paid attention to the requirements for a liquidator’s
qualification. The first part of the first recommendation of the EP provides that
‘[…] the liquidator must be approved by a competent authority of a Member State or appointed
by a court of competent jurisdiction of a Member State.’
This touches on the subject of ‘entry to the market of insolvency’ and the control over
a liquidator’s actions.
From existing research it follows that for the functioning of insolvency office holders in
several EU Member States some common criteria apply. In 2006, the German practitioner
Köhler-Ma reviewed some 12 jurisdictions in Europe19 and concluded that in all jurisdictions reviewed for the selection of insolvency administrators it is necessary to possess the
appropriate training, that
‘[…] it is either expressly or implicitly stated that persons who may be selected must, at least,
possess the necessary mental and physical health and be able to prove that they have no relevant
criminal record.’
The general view seems to be that the most important general exclusion criterion is that
the insolvency administrator is not be exposed to any conflict of interest, e. g. an accountant
previously involved in preparing a financial statement or a previous attorney-client relationship that gives rise to similar objections.20
In an overview of a few different jurisdictions21 it is demonstrated that selection of
insolvency office holders, their supervision and their remuneration can be arranged in ‘[…
] quite a number of ways’.22 A few years ago, in his dissertation, Henke made an effort to
measure supervision systems.23 He compares the German system of supervision with the
English system. For Germany he distinguishes preventive and repressive (‘informationrepressive’) supervision, performed either by the State (‘staatlich’) or privately (‘privat’). In
the UK Henke explains that ‘the State’ can be a Court or the Secretary of State) and
‘privately’ contains creditors and the recognised professional bodies (RPBs).24 Such (governmental) agencies are also operational in the Czech Republik and Sweden, but nonexistent in Belgium, France, Germany, Poland, Spain and the Netherlands. Henke’s conclu19 Christian Köhler-Ma, Insolvency Administrator Selection and Quality Criteria in International Comparison, www.insol.org/emailer/september 2006_downloads/ENL_insolvency_01_
sep_2006.doc. See too Christian Köhler-Ma, Verwalterauswahl und Qualitätskriterien im internationalen Vergleich, DZWiR 2006, 228 ff.
20 See Reinhard Bork, Die Unabhängigkeit des Insolvenzverwalters – ein hohes Gut, ZIP 2006,
58 ff.; Björn Laukemann, Die Unabhängigkeit des Insolvenzverwalters. Eine rechtsvergleichende
Untersuchung, Heidelberger Rechtswissenschaftliche Abhandlungen, Tübingen, 2010.
21 Australia, Canada, Finland, United Kingdom, United States, Slovakia, China.
22 Jay Lawrence Westbrook et al., A Global View of Business Insolvency Systems, The World
Bank, Washington DC, 2010, 208 ff.
23 Johannes Henke, Effektivität der Kontrollmechanismen gegenüber dem Unternehmensinsolvenzverwalter. Eine Untersuchung des deutschen und englischen Rechts, Studien zum ausländischen und internationalen Privatrecht, nr. 229, 2009.
24 The recognised professional bodies that regulate the practice of insolvency in Great Britain
are: The Association of Chartered Certified Accountants; The Insolvency Service; Insolvency
Practitioners Association; The Institute of Chartered Accountants in England and Wales; Chartered Accountants, Ireland; The Institute of Chartered Accountants of Scotland; The Law Society
of Scotland; Solicitors Regulation Authority. See Insolvency Act 1986, s. 391, together with
S. I.1986/1764: the Insolvency Practitioners (Recognised Professional Bodies) Order 1986.
764
Bob Wessels
sions are not easy to grasp, in that the author’s method (‘Mechanismusdesign-Theory’ as a part
of game theory) is a challenge to understand.
Comparative studies of a practical nature may be of use. In a report of 2007, published
by the European Bank for Reconstuction and Development (EBRD), the results of a
comparative review can be found of the manner in which the laws of eight south-eastern
European countries make provision for issues such as qualifications, licensing, appointment,
removal/retirement/replacement, standards of work and conduct, discipline and remuneration of office holders in insolvency cases.25 The principal purpose of the survey was to
determine whether and the extent to which the respective laws of the countries mentioned
make such provision. Aware of the relatively young and rather untested legal regimes related
to insolvency in these countries the drafters’ main conclusions are:
(i) that in all the topics mentioned a variety of approaches have been chosen in a country’s
laws and regulations,
(ii) that there is a clear need for appropriate detailed standards to guide office holders in
their work and to improve the basis on which their work can be measured and assessed,
and
(iii) that in general there is an inadequate disciplinary system for insolvency office holders
(either related to the vague ground for disciplinary action or the limited type of available
sanctions).
The International Association of Insolvency Regulators (IAIR)26 has conducted a comparative study into a similar list of topics as mentioned under above.27 From this report –
limited to commercial insolvency – the main results of 19 organisations that participated
are three of a kind:
(i) in all jurisdictions represented insolvency professionals play a role in administering
insolvency proceedings,
(ii) in the majority of jurisdictions insolvency professionals are private sector professionals
(17),
(iii) in 55 % of the jurisdictions insolvency professionals are licensed, most often licences
are renewable and there is a register of insolvency professionals, whilst (non licensed)
registration in a register of insolvency professionals is available in ‘some’ jurisdictions.
Finally, attention should be paid to a 2103 report of the EBRD, which offers an assessment and evaluation of the insolvency office holder profession in a selected number of
EBRD countries of operations.28 EBRD used a set of benchmarks and key indicators to
gauge the relative performance of the IOH profession related to nearly all topics mentioned
above. It found that the main distinction that has emerged is between countries that take
an active approach to the development and regulation of the profession (examples given
are Serbia, Romania and to a lesser extend Latvia) and those that adopt a more passive
25 Jay Allen/Neil Cooper/Ron Harmer, A Regional Report on Insolvency Office Holders in
South-East Europe, June 2007. See www.ebrd.com/downloads/legal/insolvency /insolserv.pdf.
These eight countries are Albania, Bosnia and Herzegovina, Bulgaria, FYR Macedonia, Montenegro, Romania, Serbia, and Slovenia.
26 The International Association of Insolvency Regulators (IAIR) is an international body
with around 25 members, being government departments, agencies or public authorities (further: ‘agencies’) which have responsibility in their country for insolvency regulation, practice,
policy and/or legislation. Among its members are agencies of Australia, Canada, China, India,
Mexico, Russian Federation and the USA. EU Member States represented are Czech Republic,
Finland, Ireland, Romania, UK: England & Wales (The Insolvency Service), UK Northern
Ireland (The Insolvency Service) and UK Scotland - Accountant in Bankruptcy.
27 IAIR, An international comparative study of the development of an insolvency profession
and its performance, March 19, 2010, see www.insolvencyreg.org.
28 Bosnia and Herzogovina, Latvia, Poland, Romania, Russia, Serbia and Tunesia (since the
‘Arab Spring’ a new EBRD country of operation).
Harmonisation of Requirements for Insolvency Holders on a European Level
765
approach. Here Bosnia and Herzegovina, Poland and Tunisia are mentioned. Another conclusion is that whilst some countries follow similar practices, there are substantial differences
of approach towards the IOH profession within the jurisdictions surveyed. EBRD submits
that this may lead to differences amongst IOHs themselves and the state of comparative
development of the profession in a particular jurisdiction. On the topic of licensing or
registration of IOHs, EBRD notes that this area has proved to be closely
‘[…] interlinked with regulation, supervision and discipline, since these functions are often, although
not exclusively, performed by the same regulating entity, which is often responsible for the separate
area of higher qualification and training.’
Supervision in the form of judicial oversight takes place in Bosnia and Herzegovina, Poland
and Tunisia with the appointment of a ‘judge commissioner’ with day-to-day responsibility
for management of insolvency cases, which appeared to limit an IOH’s autonomy.29
VI. INSOL Europe Statement of Principles and Best Practice for Insolvency
Office Holders in Europe
The lack of further legislative action and the revisions to be expected to be made to the
Insolvency Regulation has led to an initiative taken in 2012 by the largest insolvency
practitioners association in Europe, INSOL Europe. In December 2012 the European
Commission (EC) submitted a report on the application of the EIR to the European
Parliament (EP), the Council and the Economic and Social Committee.30 In accordance
with article 46 EIR, this report was accompanied by a proposal to adapt the Regulation.
The focus of the EC Proposal31 is on (a) enhanced restructuring possibilities, and (b)
intensification of communication and cooperation between liquidators, between courts,
and between each other. On the intensification of communication and cooperation, the
last line of Recital 20 of the Proposed EIR reads:
‘[…] In their cooperation, liquidators and courts should take into account best practices for cooperation in cross-border insolvency cases as set out in principles and guidelines on communication and
cooperation adopted by European and international associations active in the area of insolvency law.’
The recital opens the door to already existing ‘best practices’, such as the European Communication and Cooperation Guidelines for Cross-border Insolvency (also termed: ‘CoCo
Guidelines’), which were endorsed by INSOL Europe during its Annual Congress in October 2007 in Budapest, Romania. The CoCo Guidelines initiative was jointly chaired by
professor Miguel Virgós (University Autonomá, Madrid, Spain) and myself. These Guidelines
have received attention both in legal literature as well as from judges and practitioners, and
were for instance taken into account in the June 2009 Global Cross-Border Insolvency Protocol for the Lehman Brothers Group of Companies.32 Further steps to promoting court-tocourt communication were taken in June 2012, when the American Law Institute (ALI) and
International Insolvency Institute (III) Global Principles for Cooperation in International
Cases (‘Global Principles’) were published. These Global Principles include Global Guidelines
29 I am just mentioning a few items from this interesting report, see http://assessment.ebrd.com/insolvency-office-holder/2013-pilot/report.html.
30 Proposal for a regulation of the European Parliament and of the Council amending Council
Regulation (EC) No 346/2000 on insolvency proceedings, {SWD(2012) 416 final}, {SWD(2012)
417 final}.
31 http://ec.europa.eu/justice/civil/commercial/insolvency/index_en.htm.
32 See Bob Wessels/Miguel Virgós, European Communication and Cooperation Guidelines for
Cross-Border Insolvency, INSOL Europe, 2007. See www.insol-europe.org, or www.bobwessels.nl, weblog, document 2007-09-doc1. These Guidelines are explained in e. g. Bob Wessels/
766
Bob Wessels
for Court-to-Court Communications in International Insolvency Cases and were drafted by
professor Ian Fletcher (University College London) and myself.33
Early 2013 INSOL Europe granted Leiden Law School the assignment to design a set
of Principles and Best Practices for Insolvency Office Holders in Europe. The founding
idea is that by designing this set of Principles and Best Practices the general quality of IOHs
in Europe would improve and the mutual trust between IOHs as well as the trust in the
IOHs’ work by the general public would be enhanced. The basic idea underlying the
English Insolvency Act 1986, see above. In addition, IOHs would be able to work more
efficient, which once again would enhance the trust in the IOH profession on the market.34 The study is in its final stage. It may be expected that the final result – a non-binding
statement of professional and ethical guidelines for insolvency office holders – will be
available in December 2014, after have digested the results of discussion of seven ‘principles’
(briefly set out below), and over thirty best practices (not set out here) taking place during
the Annual Congress on Insol Europe in Istanbul, mid October 2014.
INSOL Europe and Leiden Law School decided to divide the work over three phases.
During the first phase, leading to a Report I, the focus was on the existing international
rules. The following research questions were addressed:
Miguel Virgós, Accommodating Cross-border Coordination: European Communication and Cooperation Guidelines for Cross-Border Insolvency, in: International Corporate Rescue, Vol. 4, Issue
5, 2007, 250 ff. The European Communication & Cooperation Guidelines for Cross-border Insolvency of 2007 aim to provide rules to be applied by insolvency administrators within their duties
to communicate and cooperate in cross-border insolvency instances to which the EU Insolvency
Regulation is applicable. Their reception has been welcomed by scholars (e. g. Mario Hortig,
Kooperation von Insolvenzverwaltern, Schriften zum Insolvenzrecht, Diss. Köln, Bd. 25, 2008:
‘[…] it is to be expected that the Guidelines will develop to the European standard of cooperation’,
at 258), and insolvency practitioners (Stephen J. Taylor, The Use of Protocols in Cross Border
Insolvency Cases, in: Pannen (ed.), European Insolvency Regulation, Berlin, 2007, 678 ff (‘highly
laudable initiative’, at 681); Lars Westpfahl/Uwe Goetker/Jochen Wilkens, Grenzüberschreitende
Insolvenzen, Köln, 2008 (‘extremely helpful’, p. 125); Louise Verrill, The INSOL Europe Guidelines for Cross Border Communication, in: Bob Wessels and Paul Omar (eds.), Crossing (Dutch)
Borders in Insolvency, Nottingham, Paris: INSOL Europe 2009, 39 ff (‘[it is] important for the
professions to be aware of and understand the need to adopt the CoCo Guidelines’, at 45). See
also Andreas Geroldinger, Verfahrenskoordination im Europäischen Insolvenzrecht. Die Abstimmung
von haupt- und Sekundärinsolvenzverfahren nach der EuInsVO, Veröffentlichungen des LudwigBoltzmann-Institutes für Rechtsvorsorge und Urkundenwesen, Wien, 2010, p. 31, qualifying the
CoCo Guidelines as a first and by all means very promising attempt (Ein erster durchaus viel
versprechender Versuch). See also Paul H. Zumbro, Cross-border Insolvencies and International
Protocols – an Imperfect but Effective Tool, in: 11 Business Law International no. 2, May 2010,
157 ff, at 167 (‘The CoCo Guidelines reflect best practices both inside and outside Europe’);
Patrick E. Mears/Timothy S. McFadden, Court-to-Court Communications, Reform of European
Regulation, ABI Journal, October 2012, at 33 ff. For an in depth analysis of the CoCo Guidelines,
see Olaf Benning, International Prinzipien für grenzüberschreitende Insolvenzverfahren, Schriften
zum Verfassungsrecht, Bd. 45, Frankfurt, 2013, stressing another aspect, in that the CoCo Guidelines also can be used to trace European or even global principles for cross-border insolvency
proceedings (‘[…] um europaweit oder sogar weltweit geltende Prinzipien für grenzüberschreitende Insolvenzverfahren zu ermitteln’), at 83.
33 For the Global Guidelines, see http://www.ali.org/index.cfm?fuseaction=publications.ppage&
node_id=85, or http://www.iiiglobal.org/component/jdownloads/finish/557/5932.htm. See Ian
F. Fletcher/Bob Wessels, Shaping Rules for Coordination in International Corporate Insolvency Cases
through Dialogue, in: European Company Law 7, issue 4 (2010), pp. 149–153.
34 The Leiden Law School research has as its members for this IOH-project prof. Jan Adriaanse
(professor of Turnaround Management), prof. Iris Wuisman (professor of Company Law), and
Dr. Bernard Santen, Senior Researcher, all at Leiden Law School (www.tri-leiden.eu). I acted as
a consultant to this IOH-project.
Harmonisation of Requirements for Insolvency Holders on a European Level
767
(i) would it be possible to develop a framework for the uniform analysis of the existing
rules for IOHs?; and
(ii) would the results of the analysis of existing international rules be supportive to the
design of Principles and Best Practices for IOHs? Report II analysed the sets of rules
applicable to IOHs in 11 European countries. The core queries in this Report were:
(iii) would the results of the analysis of existing national rules in 11 European countries be
supportive to the design of Principles and Best Practices for IOHs?, and
(iv) which topics in IOH related rules would be served by creating Principles and/or Best
Practices? Report III then delivers the Principles and Best Practices for IOHs in Europe
including explanatory comments (see below).
Given the lack of a framework for the uniform analysis of the existing rules for IOHs,
the research team created its own uniform unique framework.35 From a tentative analysis
it induced four main categories of subjects:
(1) IOH selection and appointment (regarding the question how to become an IOH),
(2) Professional standards (covers professional and ethical standards for an IOH,
(3) Roles and responsibilities (relates to what an IOH should do once appointed in an
individual case), and
(4) Insolvency governance (the various monitoring functions on the IOH’s work.
(5) Figure 1 depicts this framework:
Figure 1 therefore represents a framework to compare professional and ethical rules for
IOHs. Any person considering to become an IOH should pass a selection procedure of
some sort and should subsequently be appointed (Category 1.0). Once selected as an IOH,
he or she should adhere to professional and ethical standards (Category 2.0) and should act
according to certain roles and responsebilities (Category 3.0). Finally, a governance system
(Category 4.0) is necessary in order to ascertain a minimum quality of work and to avoid
carelessness or abuse. During the analysis the researchgroup expanded and refined the elementary framework of figure 1 with 15 so called Level II provisions (‘Subcategories’) and
35 With assistance of master students, see Bob Wessels, Teaching and research in international
insolvency law: challenges and opportunities, Valedictory lecture University of Leiden, April 14,
2014, Universiteit Leiden (forthcoming).
768
Bob Wessels
34 Level III provisions (‘Topics’). This enabled the Group to categorize all relevant provisions into the framework. Figure 1, in full, presents this expanded and refined framework.
Level I Categories
Level II Subcategories
1.1 License and
registration
1.0 IOH selection and 1.2 Establishment of
appointment
authority
1.3 Corporate groups
2.1 Education
2.0 Professional
standards
2.2 Professional skills
2.3 Professional ethics
2.4 Insurance
3.1 Administration
3.2 Liability & litigation
3.0 Roles &
responsibilities
3.3 Communication
3.4 Coordination and
cooperation
Level III Topics
1.1.1 Requirements & contra indicators
1.1.2 Licensing procedures
1.2.1 Basis of authority
1.2.2 Mandate
1.2.3 (Inter)national recognition
1.3.1 Appointment of a single
IOH
1.3.2 Administration as one estate
2.1.1 Recurring training
2.2.1 Experience
2.2.2 Other qualities
2.3.1 Ethical standards
2.4.1 Liability insurance
3.1.1 Managing the estate
3.1.2 Reversal of legal acts
3.1.3 Agreements
3.1.4 Creditor ranking
3.1.5 Liquidation
3.1.6 Reorganization
3.2.1 Establishing liability
3.2.2 Initiation of litigation
3.3.1 Communication with creditors, courts and other stakeholders
3.3.2 Communication protocol
3.3.3 Reporting standards
3.4.1 Coordination and cooperation among IOHs (in corporate groups)
3.4.1 Coordination & cooperation
among foreign representatives (in cross-border insolvency)
3.4.3 Coordination & cooperation
with foreign courts (in
cross-border insolvency)
Harmonisation of Requirements for Insolvency Holders on a European Level
Level I Categories
Level II Subcategories
4.1 Accountability
4.0 Insolvency
governance
4.2 Remuneration
4.3 Supervision
4.4 Disciplinary action
Level
4.1.1
4.1.2
4.1.3
4.2.1
4.2.2
4.3.1
4.4.1
4.4.2
769
III Topics
Disclosures
Mandatory audit
Liability insurance
Fees
Costs & expenses
Competent authority
Investigation
Disciplinary proceedings
The last report, Report III, will be presented and discussed at the Annual Congress,
October 2014. During the whole process assessments and discussions have taken place with
a group of around 20 consultants, from at least 10 EU Member States, covering academic
scholars, judges and insolvency practitioners. The following draft Statement with seven
principles, flowing from the full framework, is the subject of discussion.
Principle 1. Insolvency Office Holder
1.1. An Insolvency Office Holder (‘IOH’) is any person or body appointed either in corporate
rescue oriented or in liquidation proceedings (‘proceedings’), whose function is to administer or liquidate
assets of which the debtor has been divested or to supervise the administration of its affairs.
1.2. In performing his/her duties an IOH is bound by the law including case law and other
regulations that apply in the country of appointment, as well as by regulations and guidelines set by
a widely recognised national or regional professional association of IOHs in that country.
1.3. An IOH is guided by this non-binding Statement of Principles and Best Practices (‘Statement’) unless and insofar as they contravene the aforementioned rules.
Principle 2. Professional Standards
2.1. An IOH performs his/her tasks according to the state-of-the-art in insolvency practice, uses
competent and trained personnel, occupies appropriate office space and applies adequate office equipment.
2.2. An IOH behaves diligently, with courtesy and consideration towards all parties involved, and
avoids behaviour discrediting the profession.
2.3. At the moment of appointment and regularly thereafter, a IOH carefully evaluates whether
(s)he is capable to handle an appointment, and if it appears that the appointment exceeds his/her
capabilities, (s)he either takes appropriate steps to manage the situation and/or the assignment or (s)he
does not accept the appointment or resigns.
Principle 3. Ethical Standards
An IOH performs with
(a)integrity, meaning that an IOH is straightforward and honest;
(b)objectivity, including impartiality and independence, meaning that an IOH does not allow bias,
conflict of interests or undue influence of others to override professional or business judgments and
is solely guided by the interests of the estate;
(c) confidentiality, meaning that an IOH complies with the confidentiality of information acquired as
a result of the appointment and avoids the abuse of confidential information.
Principle 4. Administration of the Estate
4.1. An IOH is responsible for determining and continuously adapting the adequate strategy for
the administration of the specific insolvency proceedings (s)he is appointed on and carefully evaluating
the various options the law provides.
770
Bob Wessels
4.2. In administering an IOH acts expeditiously, efficiently and transparently. (S)he continuously
keeps in mind the overriding duty to protect and preserve the estate and to act in its best interests, while
taking into account the effects of his/her decisions on the legitimate interests of all parties involved.
Principle 5. Communication
5.1. An IOH recognises the importance of swift, timely, proper, clear and open communication and
communicates accordingly with all parties involved.
5.2. An IOH refuses to provide information only if disclosure would clearly harm the interests of
the estate or those of others.
Principle 6. Coordination and cooperation
IOHs coordinate their actions and cooperate to the maximum extent possible with each other and
with courts involved in the insolvency proceedings, in order to
(a) promote the orderly, effective, efficient, and timely administration of the proceedings;
(b) provide for timesaving procedures to avoid unnecessary court proceedings or unnecessary costs; and
(c) secure and enlarge the collectivity of assets.
Principle 7. Insolvency governance
An IOH recognises the utmost importance of insolvency governance for the benefit of the estate as
wel as the professional quality, the profession’s prestige and the trust in the profession on the market
and therefore gives priority to all insolvency governance related activities.
Research in this area continues. In August 2014 at the Leiden Law School, Mr. Mark R.
Fidder received his Master of Laws degree. His thesis was on the subject of ‘Conflict of
interest involving liquidators. Recommendations to the European Union Legislator’. The
topic is particularly interesting as the EP has suggested that ‘conflict of interest’ should be
a test, which should be included in the revised Insolvency Regulation. The thesis explores
the concept of conflict of interest involving liquidators, following these recent (legislative)
proposals at a European Union level. Fidder identified three main questions:
(i) what is a conflict of interest involving a liquidator?,
(ii) what should be the response to such a conflict of interest?, and
(iii) would harmonisation of a rule on such a conflict of interest be desirable?
Based on an analysis of various sources these questions are addressed. Four national
jurisdictions (the Netherlands, Belgium, Germany and England) have been assessed, as well
as relevant international sources drafted by organizations such as UNCITRAL, the World
Bank and EBRD. A great deal of attention is paid to non-legal literature, concerned with
professional and business ethics and morality, on conflict of interest. This non-legal literature is extensively used to answer the first and second main question. These general findings
on conflict of interest are transposed to fit the special position of the liquidator in insolvency
proceedings. The thesis suggests that harmonisation of a rule on conflict of interest at the
level of the European Union is desirable and provides seven recommendations to the European Union legislator on the substance of such a rule.36
VII. Conclusion
Harmonisation in Europe of law, including insolvency law, is often thought of as harmonising substantial, material topics of law. Insolvency law is blessed, as it can only function
with the assistance of experienced and knowledgeable role players, such as the insolvency
36 It was a pleasure to supervise Mr. Fidder’s thesis together with Hannover attorney Volker
Römermann, also a professor at Humboldt University Berlin. See for the thesis and the recommendation: www.bobwessels.nl, weblog, at 2014-09-doc1.
Harmonisation of Requirements for Insolvency Holders on a European Level
771
office holder. Where he or she has and crucial role in the efficient administration of insolvency proceedings to which the EU Insolvency Regulation is applicable, it is evident that
liquidators should have the appropriate know how to play that role.37 From the sources
mentioned above, as well as from the studies of the Leiden Law School it follows that a
variety of solutions is found on basic matters such as appointment, supervision, education
or renumeration. Although national rules may hinder the efficient application of the EU
Insolvency Regulation, that is not my primary concern. Of utmost importance is that
IOHs work on the basis of trust, which is not so much the believe a professional may have
in its own ethical behaviour, integrity and know how, but how third parties in the market
see IOHs, or better: the perception of these third parties in the market.
The insolvency profession (individual IOHs, regional or national associations of IOHs)
should take the opportunity the EU legislature has left to be ‘the master of their own fate’.
I would recommend that the profession discusses the Principles as presented by the Leiden
research group. It is my believe that they are generally in line with existing national and
international norms, are well thought through and are injected with practical experience
and theoretical observations. In all a group of some fifty experts from all over Europe have
contributed to what will ultimately be presented to INSOL Europe. More importantly, the
Guidelines are timely and an adequate professional voluntary response to what the European Parliament had asked the Commission to deliver (but who let it outside the scope of
the Recommendation of 12 March 2014). INSOL Europe or national associations of insolvency practitioners should take a careful look at the outcome of the discussion. I am
confident that the ‘IOH Principles’ (or whatever the final name will be) presents a tool in
building a trusted insolvency regime for the internal market.
37 Therefore CoCo-Guideline 4.2 reads: ‘A liquidator is required to act with the appropriate
knowledge of the EC Insolvency Regulation and its application in practice.‚