Recently the European Communication and Cooperation Guidelines For Cross-border Insolvency have been published (in our jargon called CoCo Guidelines). These Guidelines aim to overcome the cumbersome procedural model of the EC Insolvency Regulation dealing with assets of one debtor spread over several or all jurisdictions in the EU. This can add up to 26 member states (not Denmark). That model is built on a procedural division between two or more member states (main proceedings based on COMI; secondary proceedings wherever the debtor has an establishment) and a mandatory coordination between the liquidators of these proceedings. Main and secondary proceedings, as they are both concerned with the same debtor, should be coordinated and the Guidelines mainly focus on insolvency practitioners in inviting them indeed to take this role generously. Main and secondary insolvency proceedings do not operate on an equal footing. The main proceeding has the dominant position. It is mainly in the power of the liquidator in the main insolvency proceedings to exercise measures for coordination, e.g., he may request opening of secondary proceedings in other member states (Article 29), participate in secondary proceedings (Article 32(3)), request a stay of the process of liquidation of secondary proceedings (Article 33(1)) and propose a rescue plan in the context of these secondary proceedings or he may disagree with finalizing liquidation in secondary proceedings (Article 34(2)).
Mutual Duty to Communicate and to Cooperate
Both the main and the secondary liquidator are duty bound to communicate information (Article 31(1)) and to cooperate (Article 31(2)). This mutual duty symbolizes the bridging of the still existing deficit of uniform law in Europe. Given the absence of guidance in the text of Article 31 of the EC Insolvency Regulation a group of academics and practitioners, supported by several judges, have discussed proposals to address the principal issue of the liquidators’ duties of communication and cooperation in cross-border insolvency instances. This has led to INSOL Europe’s European Communication and Cooperation Guidelines For Cross-border Insolvency, drafted by Professor Miguel Virgós (Madrid, Spain) and myself. These Guidelines reflect the central principle of cooperation and coordination between insolvency proceedings pending in two or more member states relating to several practical issues, where the text of the Regulation is left open or is vague. They should serve as a realistic set of rules that should ensure as best as possible to make the Regulation work in practice, so that either liquidation or reorganisation of the debtor’s estate is dealt with efficiently. The Guidelines should function as a first step in a framework to realize the objective of enabling liquidators and courts to efficiently and effectively operate in cross-border insolvency proceedings in the context of the EC Insolvency Regulation. In individual cases, the Guidelines are to be seen as minimum requirements and may need to be supplemented by other measures designed to address particular conditions. They surely have not been designed as a cookbook of recipes certain to succeed in all cases. They should inspire all actors to tailor solutions in specific cases. The Guidelines furthermore strongly endorse the use of agreements concerning cooperation or “protocols” as a means to codify coordination in decision-making procedures related to two or more insolvency proceedings in two or more member states’ jurisdictions. It is clear that the Guidelines, developed by a group of interested academics and practitioners, do not have any binding force, although more than 200 practitioners have had a say during the drafting process. See Guideline 3, which seeks to ensure that the Guidelines do not cause friction with existing applicable laws or professional rules or with duties flowing from the EC Regulation, nor that the Guidelines create any rights.
The Guidelines set standards concerning knowledge and professional behavior, provides descriptions for certain terms, like “communication,” for issues regarding language, fees and costs.
The goal of the EC Insolvency Regulation cannot be reached with practitioners that do not or only vaguely understand how the main and secondary proceedings are interwoven, and the supportive function of the latter. Guideline 4 aims to promote the efficient and effective operation of cross-border insolvency proceedings and should prevent undue instances of conflicts between liquidators. The collaborative spirit, which underpins Article 31 of the Insolvency Regulation, requires a relationship between liquidators (and courts) of trust and cooperation for the benefit of efficient and effective operations in cross-border insolvency proceedings. Several Guidelines find their inspiration in other sets of rules. Several of the provisions find their inspiration in, e.g., the principles laid down in the Council of Bars and Law Societies of Europe (CCBE) Charter of core principles of the European legal profession (2006), the European Bank for Reconstruction and Development (EBRD) Insolvency Office Holders Principles (Draft January 2007), related to setting standards for the qualifications, appointment, conduct, supervision and regulation of office holders in insolvency cases, the American Law Institute (ALI)/UNIDROIT Principles on Transnational Proceedings of 2004, the ALI Principles of Cooperation in Transnational Insolvency Cases among NAFTA members and the Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases, both of 2001.
Article 31 of the EU Insolvency Regulation only provides a duty on the liquidators to communicate information and to cooperate as far as the relationship between main and secondary liquidators is concerned. Article 31 does not express a duty for any court involved in related proceedings. Nevertheless, in certain countries, judgments have accepted that a court is subject to the principles stated in Article 31.
Furthermore, under the application of the Insolvency Regulation, there is some experience that in other cross border insolvency cases, communication between courts (in England, Germany, the Netherlands and France) has proven efficient in the alignment of judicial developments in these cases. Guideline 16 has been taken on board, with support of several of the judges involved. The cooperative spirit in which cross-border coordination between liquidators takes place should inspire courts to operate in a cooperative manner to resolve any dispute relating to the intention or the application of the Guidelines or the terms of any cooperation agreement or protocol.
Practitioners Must Make It Work
As indicated, the Guidelines are nonbinding. It is (very) soft law. The drafters have not been modest, where the last Guideline reads “18. Whilst the aim of these Guidelines is to facilitate the coordination of the administration of insolvency proceedings involving the same debtor (including through the use of a protocol), liquidators or administrators and courts outside the scope of the EC Insolvency Regulation are encouraged, wherever possible, to use these Guidelines so as to facilitate or increase the prospects of cooperation in other proceedings taking place.”
Although the drafters do not represent organisations and the general support from involved audiences is limited to several hundred practitioners, academics and judges, the CoCo Guidelines may bring a tiny legal influence when serving as a guide for interpretation in certain situations. Where appropriate, the applicable national law will determine the liquidator’s liability where the latter has not complied with duties arising from Article 31 of the EC Insolvency Regulation. In assessing relevant criteria with regard to liability, a court may take notice of certain of the CoCo Guidelines. Again, this does not mean that these Guidelines have any binding force by themselves. It means that the court sees them in the given circumstances of a case as reflecting a general consensus with regard to professional standard and trustworthiness. Ultimately however, it is to the actors in international insolvency practice (organizations of professionals and individual practitioners alike, and even maybe practitioners from the United States) to decide whether the European CoCo Guidelines are a vivid tool to promote efficiency or a dead letter on its arrival.