Members of the Working Group and observers to the session deliberated on the development of two projects: (1) asset tracing and recovery in insolvency proceedings, and (2) applicable law in insolvency proceedings. The ELI was actively involved in these deliberations.
Asset tracing and recovery (ATR) in insolvency proceedings
The session started with a review of the updated draft of a descriptive, informational and educational text on civil asset tracing and recovery in insolvency proceedings. Being non-prescriptive, the main text as it is drafted to date only aims at increasing awareness of available ATR tools and related matters among policy makers, legislators, judges and practitioners. And indeed, policy makers as well as researchers may find the draft text already informative when assessing availability, accessibility, effectiveness and efficiency of their domestic (and cross-border) ATR framework. In addition, judges and practitioners may find helpful references in the text to ATR tools used in other jurisdictions, including legal requirements for their use, issues that arise from the use of those tools and possible solutions for addressing them.
A possible way of deviating from a strictly non-prescriptive approach to the ATR text is provided in appendix I of the draft text. It describes a toolkit of measures that, if implemented and available in national laws, could expedite ATR efforts across borders. Based on the mechanics of recognition and relief under the Model Law on Cross-Border Insolvency, the toolbox lists a number of ATR means that could be supported in another country in an expedited manner.
The ambition to increase the effectiveness and efficiency of ATR globally is essential in a digital age that brings new challenges for ATR across borders, in particular due to the ease of movement of assets between jurisdictions and the instantaneous conclusion of multiple and numerous transactions whose parties may not be (immediately) identifiable. At the same time, technological developments bring new opportunities, including for updating or otherwise adjusting traditional ATR measures and practices to make them more flexible, creative and innovative to keep up with ATR challenges. The toolkit intends to assist lawmakers confronted with those endeavours. At the same time, the draft does not present a standalone attempt to define digital assets or technology for the purposes of ATR in insolvency. Instead, it connects the reader to the work of relevant organisations active in this area of policy making, such as UNIDROIT.
The Working Group reviewed and – principally – supported both the text of the draft and the appendix. A toolbox approach for ATR in insolvency proceedings as described in appendix I was widely welcomed. The future structure and shape of the draft text remains open for further debate. The toolbox could be included into the main text as the guiding approach. Alternatively, some key features identified in the toolbox could be recommended or highlighted in the main text. For anyone interested in the topic of ATR, the draft text can already provide an insightful read.
Applicable law in insolvency proceedings
The second part of the session was devoted to the project on applicable law in insolvency proceedings. The current text provides draft legislative provisions with accompanying commentary. It contains a list of the body of insolvency law rules that are meant to from the lex fori concursus. Similar to the structure of the European Insolvency Regulation (EIR), the general rule on the governing law is supplemented by a limited number of exceptions (labour contracts; payment, clearing and settlement systems; close-out netting; pending arbitration proceedings).
Divergent views remained visible for a number of matters as regards the scope of the lex fori concursus and exceptions to its application. Most prominently, the ability of the lex fori concursus of a (main) insolvency proceedings to stay or amend the security interest in collateral abroad is a topic of intense debate. While some delegations strongly supported the application of the lex fori concursus, others insisted on disagreeing. For the European lawyer it will be interested to hear that the EU delegation abandoned a position that firmly demanded the adoption of Art 8 EIR, which would prohibit any impairment of security rights in assets situated in another Member State. Instead, a compromise text was introduced that included the ability to affect such security rights under the insolvency law of the country where the assets are located. Such a compromise would be a welcomed approach for a tentative reform of Art 8 EIR in the near future.
You can read more about the ELI Rescue of Business in Insolvency Law project here.
