Welcome Address Bob Wessels University of Leiden First

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 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 (Ins. O)

2. Application in practice a) Jurisdiction § 3 Ins. O: 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. Gmb. H (registered in Berlin) as service company for all members of the group - new director of PIN S. Gmb. H 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 Gmb. H 100 % Quelle Gmb. H Primondo Operations Gmb. H Primondo Management Service Gmb. H

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, Ph. D

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 üA better management of business risks; üIncreased funding opportunities; üCash pooling; üTax optimization opportunities: tax havens jurisdictions, consolidated VAT at group level and consolidated taxes and rates for the whole group; üFlexibility regarding the image and marketing policy; üUnitary 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: üCapital market legislation; üThe legislation of credit institutions; üInsurance area; üCompetition area; üTax legislation - uncorrelated transposition of the Directive 2006/112/EC; üFinancial-accounting reporting matter; üCompanies’ 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: üsecurities companies (which have as an only purpose the rational investment of the funds within the group, purchasing their own securities); ücontrol companies (their purpose is to supervise and control the participations of the societies within the group); üinvestment 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: ØA strong decentralization between the companies within the group; ØA 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: Øthe legal status of the fictitious company or Øthe piercing the corporate veil technique

Ø 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: üsome companies have no conventional base; üthe execution of the corporate contract sometimes leads to the emergence of fictitious corporate relations; üsome 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

Ø 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

ü 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 ; ü 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

ü 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. ü 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 Univers. All 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: üpossesses the majority of voting rights; üis a partner or shareholder and is entitled to appoint a majority of board members; üis 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? ?

Substantive Consolidation under the Companies’ Creditors Arrangement Act 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 whethere 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 (Ins. Reg) • 2. 1. General rule: lex concursus • 2. 2. Which ‘law’ applies Art. 5(1) (Ins. Reg) ‘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) Ins. Reg 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