Nordic-Baltic Insolvency Network

1. Nordic-Baltic Insolvency Network Annemari Õunpuu

2. 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-1980s of last century“ Bob Wessels. Harmonization of Insolvency Law in Europe. European Company Law 8, no 1 (2011): 27-31.

3. EU harmonization initiatives • 2002 (2017) EU Insolvency Regulation • competent court to open insolvency proceedings; • applicable law • recognition of insolvency decisions • April 2010 report on the harmonization of Insolvency Law at European Union • 2014 Commission Recommendation on a new approach on business failure and insolvency • 2015 Capital Markets Union action plan • December 2015 Commission set up an Expert Group • 2016 Insolvency Report commissioned by the European Commission DG Justice • 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. • ECB interest, NPL-s.

4. 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).

5. 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. • 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. • In the Nordics the restructuring laws can be said to lack support for handling bondholder related issues in case of formal company restructurings.

6. 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). • All this undermines the potential for successful company restructurings and preservation of jobs.

7. 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.

8. 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 whether there 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.

9. 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)

10. Nordic-Baltic Insolvency Network Recommendations • Introduction: Overall objectives and features of an effective and efficient insolvency law • Application and commencement of insolvency proceedings: • Representatives’ liability due to the continued operation of insolvent companies • Immediate legal effects of the commencement decision • Treatment of the debtor’s contracts • Treatment of pending lawsuits in liquidation proceedings • The order of priority regarding insolvency claims • Proof of debt procedure • Treatment of post-commencement claims • Recovery to the estate • Insolvency claims • Administration of insolvency proceedings • The reorganization plan • Treatment of environmental claims in insolvency proceedings • Treatment of groups of companies in insolvency proceedings • Short-term protection of voluntary restructuring negotiations

11. 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

12. 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 inno 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 restructuringnegotiations by stay of enforcement proceedings for no longer than 3 weeks • Confirmation of the plan • Specialization of courts

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

14. Thank you!