3.5 Conclusion

This chapter provided an overview of a number of mechanisms for enhancing legal certainty in cases of the cross-border insolvency of MCGs with the objective of reducing abusive forum shopping, namely, the substantive consolidation mechanism, the cooperation and coordination mechanism, harmonisation, and the party autonomy mechanism.

The substantive consolidation mechanism enables the treatment of MCGs as a single entity by combining all of the assets and liabilities of the group into a single ‘pot’, which makes it easier to take control and distribute all of the assets of the company. This mechanism is very useful when the assets of the group cannot be disentangled and the identification of the actual ownership and the division of assets is extremely expensive or time-consuming. However, court decisions show that it is extremely difficult to determine the circumstances in which a court will decide to treat all the assets of the company as a single unit, and this consequently makes it inadequate for enhancing legal certainty in the cross-border insolvency of MCGs.

The coordination and cooperation mechanism is less difficult to implement than the substantive consolidation mechanism because coordination and cooperation respects the separate legal personality of the companies in the group. By effectively utilising coordination between the courts or the administrators involved in the insolvency proceedings, legal certainty can increase, especially when the coordination is led by the court or administrator in charge of the main insolvency proceedings. However, this is not always a guaranteed result because the courts have the discretion to evaluate various factors to determine whether procedural coordination is appropriate or not. Coordination and cooperation can also be very expensive and time-consuming because of linguistic differences between the different courts and the resistance of some judges to interacting with foreign courts.

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The harmonisation mechanism can help enhance legal certainty in cross-border insolvency cases of MCGs by harmonising the substantive insolvency laws of EU Member States, thereby causing insolvency cases at different EU domestic courts to produce the same outcome. This is useful for enhancing legal certainty and can make abusive forum shopping redundant. These results, however, are not guaranteed, because domestic courts can still interpret and apply the same law in different ways. It is also practically difficult to force Member States to adopt the same insolvency laws because of the challenges mentioned above, such as social security strategy and regulatory competition.

Finally, the “party autonomy” approach could be achieved through international protocols, which are cross-border agreements that provide the courts and the parties to any insolvency proceedings with a framework for communication and cooperation. Such protocols can enhance legal certainty by helping clarify the expectations of the parties and preventing any jurisdictional conflict. However, the utility of this mechanism is limited in places where it is not permissible to conclude such protocols without the prior permission of the court, especially in civil law countries where judges may or may not be willing or able to authorise such protocols without specific legislation in place. It is also questionable whether a protocol reached between the parties will be binding upon a third party.

Alternatively, the ‘party autonomy’ approach can be in the form of the “Choice Model”, which gives companies the right to select the jurisdiction and the applicable law most preferable to them. This contributes to enhancing legal certainty by allowing the parties to choose in advance which law will be applicable in the event of insolvency. However, it is uncertain whether all relevant parties will reach an agreement, and the debtors in most cases have the tendency to select the jurisdiction that serves their own interests instead of choosing the most efficient insolvency law, and this may negatively affect the creditors’ interests.

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The examination of these mechanisms illustrates that they all have advantages and disadvantages when it comes to enhancing legal certainty in cross-border insolvency cases involving MCGs. However, these mechanisms are not independent and some can be used collectively or at different stages of the insolvency proceedings. In light of the fact that these mechanisms do not provide a complete solution to the problem of legal certainty in such insolvency cases, the next chapter examines the Recast Regulation, which was issued in the Official Journal on 5 June 2015 and will replace Regulation 1346/2000 with effect from 26 June 2017, to assess the extent to which it helps resolve this problem.

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Chapter 4:

The New Recast EIR 2015: An Enhancement of Legal Certainty?

Chapter 2 enumerated the problems associated with legal certainty in the way the rules of the European Insolvency Regulation 2000 (EIR 2000) have been applied to cross-border insolvencies. It also looked at the extent to which the notion of the Centre of Main Interests (COMI) enhances legal certainty in the cross-border insolvency of multinational company groups (MCGs) and the lack of any specific rules in the Regulation relating to the insolvency of such groups.1 The focus of the analysis was on the extent to which these issues could lead to abusive forum shopping, to the disadvantage of creditors. The analysis in Chapter 3 of the Thesis of the potential mechanisms that could be used to enhance legal certainty in crossborder insolvency cases revealed that even though such mechanisms provide numerous opportunities for enhancing legal certainty through consolidation, cooperation, coordination, and harmonisation, they also have certain disadvantages and may not provide a workable solution to the problems of legal certainty and abusive forum shopping.2

After 10 years, the EIR 2000 was due for a revision, and this was especially needed as the notion of the COMI under the EIR 2000 was vague, and the EIR 2000 did not include any special provisions for MCGs, making cross-border insolvency proceedings problematic for such companies in the EU.3 Additionally, the New Recast EIR 2015 intends to ensure that the

1See Chapter 2 “Centre of Main Interests as a Mechanism to Enhance Legal Certainty”.

2See Chapter 3 “Other Mechanisms for Enhancing Legal Certainty”.

3Michael Weiss, ‘Bridge over Troubled Water: The Revised Insolvency Regulation’ (2015) 24 International

Insolvency Review 192.

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