NordicBaltic Insolvency Network Annemari unpuu Harmonization Harmony the

Nordic-Baltic Insolvency Network Annemari Õunpuu

Harmonization *Harmony: the quality of forming a pleasing and consistent whole. Oxford Dictionary „Until at least a decade ago the combination of harmonization and insolvency law in Europe was regarded just as impossible as combination of water and fire. /---/ Insolvency proceedings available still differ to a large extent, be it that concepts of continuity (or `corporate rescue`) in Europe generally have found their legal form only since the mid-1980 s of last century“ Bob Wessels. Harmonization of Insolvency Law in European Company Law 8, no 1 (2011): 27 -31. 30. 05. 2014 2

EU harmonization initiatives Ø 2002 (2017) EU Insolvency Regulation - competent court to open insolvency proceedings; - applicable law - recognition of insolvency decisions Ø April 2010 report on the harmonization of Insolvency Law at European Union Ø 2014 Commission Recommendation on a new approach on business failure and insolvency Ø 2015 Capital Markets Union action plan Ø December 2015 Commission set up an Expert Group Ø 2016 Insolvency Report commissioned by the European Commission DG Justice Ø November 2016 EU Commission Proposal for a directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures. Ø ECB interest, NPL-s. 30. 05. 2014 3

Nordic-Baltic Insolvency Network. Why? Financial crisis Experience Restructuring The need for the creation of Nordic-Baltic Insolvency Network arose from practical experience of: - seeing the differences and inefficiencies of company restructuring regimes during financial crisis in the Baltics; and - in high-profile restructuring cases in the Nordics (such as SAAB case in Sweden and Talvivaara Mining Company in Finland that both have also had impact on taxpayers/public money). 30. 05. 2014 4

Nordic-Baltic Insolvency Network. Why? Discussions in the expert group which already started in 2011 lead the experts to conclude that: - There are deficiencies in the existing regulations and practice; and - A better approach to restructuring is needed before the next financial crisis arrives. Ø In the Baltics the inefficiencies of the restructuring regime has made banks reluctant to support formal restructurings as the latter are seen as means to postpone bankruptcy. Ø In the Nordics the restructuring laws can be said to lack support for handling bondholder related issues in case of formal company restructurings. 30. 05. 2014 5

Nordic-Baltic Insolvency Network. Why? In both regions the regulations: - Do not provide enough incentives for companies to file for restructurings early; and For creditors to make additional investment to companies under restructuring (distressed financing). - Ø All this undermines the potential for successful company restructurings and preservation of jobs. 30. 05. 2014 6

Nordic-Baltic Insolvency Network. Why? It is a postulate of economic theory that complex, inefficient and unpredictable legal rules and institutions can severely hinder trade and investment. This is mainly due to increased transaction costs regarding risk and uncertainty related to differences between legal cultures of foreign trading partners. Therefore, from the perspective of investors and investment climate a great value can be seen in legislative harmonization initiatives. 30. 05. 2014 7

EU has taken initiative … but still… Harmonization at European level - Would concentrate on rather limited number of topics; - Probably result in a directive that would still leave a lot of room for national discretions; - Be a lengthy process due to high level of compromises necessary between all Member States. This conclusion left the experts asking whethere was a better way to deal with harmonization in a region where economic reality sees active export-import relations mainly between Nordic and Baltic countries. 30. 05. 2014 8

Nordic-Baltic Insolvency Network. Structure and working method Ad hoc expert group consisting of leading academics and practitioners of the region working on developing a common approach to company restructuring regulation and practice. Working sessions twice a year from 2011 -2016. Emphasis on reorganization law. Result: Nordic-Baltic Insolvency Network recommendations. Final text version mainly prepared by Professor Mikael Möller at Uppsala University (Member of the 2015 EU Expert Group) 30. 05. 2014 9

Nordic-Baltic Insolvency Network Recommendations Ø Introduction: Overall objectives and features of an effective and efficient insolvency law I. Application and commencement of insolvency proceedings: II. Representatives’ liability due to the continued operation of insolvent companies III. Immediate legal effects of the commencement decision IV. Treatment of the debtor’s contracts V. Treatment of pending lawsuits in liquidation proceedings VI. The order of priority regarding insolvency claims VII. Proof of debt procedure VIII. Treatment of post-commencement claims IX. Recovery to the estate X. Insolvency claims XI. Administration of insolvency proceedings XII. The reorganization plan XIII. Treatment of environmental claims in insolvency proceedings XIV. Treatment of groups of companies in insolvency proceedings XV. Short-term 30. 05. 2014 protection of voluntary restructuring negotiations 10

Nordic-Baltic Insolvency Network Recommendations To highlight… § Representatives’ liability due to the continued operation of insolvent companies - Ombudsman role Legal effects of the commencement decision Treatment of the debtor’s contracts Recovery in reorganization The court’s qualifications and role § § § - Specialized courts The reorganization plan Short-term protection of voluntary restructuring negotiations 30. 05. 2014 11

Recommendations vs „second chance“ Directive Who can commence the proceedings? Grounds for commencing proceedings Restrictions on the debtor’s right of disposition Protection of the estate against enforcement and sale of securities Stay of enforcements proceedings vs time limit for presenting the restructuring plan § Directive: Initial stay max 4 months, up to 12 months § Recommendations: plan in no less than 2 months, no longer than 6 months, extension by 2 -3 months, up to a maximum of 12 months. Short-term protection of voluntary restructuring negotiations by stay of enforcement proceedings for no longer than 3 weeks Ø Confirmation of the plan Ø Specialization of courts 30. 05. 2014 12

To be continued… Ø Meeting of Nordic and Baltic Ministers of Justice Ø Co-ordination Committee Ø Guidelines/recommendations Ø Networks recommendations as a starting point 30. 05. 2014 13

Thank you! 30. 05. 2014 14