Documents considered by the Committee on 8 March 2017 Contents

2Insolvency, Restructuring and Second Chances for Business and Entrepreneurs

Committee’s assessment

Legally and politically important

Committee’s decision

(a) Not cleared from scrutiny; drawn to the attention of the Business, Energy and Industrial Strategy Committee; further information requested; (b) and (c) cleared from scrutiny (decision reported on 7 September 2016)

Document details

(a) Proposed Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU; (b) Proposed Regulation replacing lists of insolvency proceedings and insolvency practitioners in Annexes A and B to Regulation (EU) 2015/848 on insolvency proceedings; (c) Proposed Council Implementing Regulation replacing the lists of insolvency proceedings, winding-up proceedings and liquidators in Annexes A, B, C to Regulation (EC) No. 1346/2000 on insolvency proceedings

Legal base

(a) Articles 53 and 114 TFEU; ordinary legislative procedure; QMV; (b) Article 81(2)(a), (c) and (f) TFEU; ordinary legislative procedure; QMV; (c) Article 45 of Regulation (EC) 2000/1346;—; QMV

Department

Business, Energy and Industrial Strategy

Document Numbers

(a) (38313), 14875/16 + ADDs 1–2, COM(16) 723; (b) (37822), 9710/16 + ADD 1, COM(16) 317; (c) (37860), 10142/16 + ADD 1, COM(16) 366

Summary and Committee’s conclusions

2.1Existing EU insolvency legislation, (the 2002 Insolvency Proceedings Regulation3 and the 2015 recast),4 provides a framework for mutual recognition and judicial cooperation in respect of cross-border insolvencies in the EU. The Regulations do not seek to harmonise domestic insolvency laws and so there remain wide-ranging differences between Member States’ insolvency regimes and procedures.

2.2The proposed Directive on preventative restructuring frameworks (document a) seeks to harmonise two areas of substantive national insolvency law to ensure that Member States have effective procedures to help businesses in financial difficulties to restructure early to avoid bankruptcy and to ensure honest entrepreneurs have a “second chance” to do business after bankruptcy.

2.3The last time we reported on the proposal we said that:

2.4The prospect of having to change UK insolvency law raised the important question of how likely it is that the proposal would apply to the UK before Brexit day (sometime in March 2019, applying current expectations). Once adopted as a Directive, the proposal would need to be implemented within two years of entry into force. On this analysis, the UK would only have to implement the proposal if it was adopted before 31 March 2017. Nevertheless, given uncertainty about the timing of Brexit, we asked the Government to keep us updated on this issue, taking into account how it might affect the UK’s approach to negotiations. We also asked whether it was possible that the UK might want to align with EU insolvency law post Brexit.

2.5Overall, we considered that Government’s focus should be on minimising any potentially disruptive changes to UK law, particularly in relation to restructuring inclosing matters devolved to Scotland and Northern Ireland. We were particularly concerned about measures to ensure that levels of creditor protection and restructuring and second chance procedures are not open to abuse, given the reduced levels of court involvement envisaged by the proposal. We were also mindful of the need to ensure that the UK’s successful insolvency industry remains competitive and effective.

2.6The Government response now deals with those questions, saying it does not expect rapid progress, it also provides an update on (b) and (c), which proposes to amend the annexes to the original Regulation on coordinating insolvency proceedings (EC) No. 1346/2000 and its recast Regulation 2015/488. These Regulations organise the administration of cross-border insolvencies where the debtor’s centre of main interest (COMI) is in the EU. They provide a hierarchy of judicial competence, determining one “main” set of proceedings in a single Member State (where the debtor’s COMI is situated), with the possibility of other “secondary” or “territorial” proceedings in any other Member States where the debtor has an establishment. The annexes of the Regulations set out different national insolvency procedures and the practitioners governed by it.

2.7As the amendments were otherwise technical and the opt-in issues on (b) had been addressed, we cleared both documents from scrutiny last year. However, we had one outstanding question about the Commission’s claim that it had implied exclusive competence in relation to document (b), which would mean that the subsidiarity protocol would not apply. Although we agreed with the Government that document (b) satisfied the subsidiarity test, we were concerned about any unhelpful precedent being set for future legislative proposals. We wanted the Government to press the point with the Commission that this policy area is one of shared competence, not implied exclusive competence. The Government has told us it did raise this matter, although the Commission did not agree with its assessment.

2.8We are grateful to the Minister (Margot James) for her updates on all three documents and her response about the outstanding matter concerning implied exclusive competence of the Commission in respect of document (b). We are reassured that the Government will remain vigilant in ensuring that subsidiarity assessments continue to be provided by the Commission in relation to further amendments to the annexes to this Regulation.

2.9We retain document (a) under scrutiny, having already cleared documents (b) and (c). We draw document (a) and this chapter to the attention of the Business, Energy and Industrial Strategy Committee.

Full details of the documents

(a) Proposal for a Directive of the European Parliament and Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU: (38313), 14875/16 + ADDs 1–2, COM(16) 723; (b) Proposal for a Regulation replacing lists of insolvency proceedings and insolvency practitioners in Annexes A and B to Regulation (EU) 2015/848 on insolvency proceedings: (37822), 9710/16 + ADD 1, COM(16) 317; (c) Proposal for a Council Implementing Regulation replacing the lists of insolvency proceedings, winding-up proceedings and liquidators in Annexes A, B, C to Regulation (EC) No. 1346/2000 on insolvency proceedings: (37860), 10142/16+ ADD 1, COM (16) 366.

The Minister’s letter of 24 February 2017

2.10The Minister for Small Business, Consumers and Corporate Responsibility (Margot James) says:

“The committee asked if it was likely that the proposal will be adopted in time to require implementation before the latest expected Brexit date of 31 March 2019. At present it is difficult to give an estimate of the likely timeframe. The Secretary of State for the Home Department laid a statement in Parliament on 02 February following the first (informal) meeting of EU Interior and Justice Ministers where this proposal was presented. At the meeting some Member States cautioned against over-harmonisation as this is an area where national laws and practices diverge. Given that this is the first time the EU has proposed measures to harmonise insolvency, I do not anticipate rapid progression on this proposal but I will keep the committee informed of progress.

“Secondly, the committee asked if the government would align UK law with the measures in this proposal after Brexit. I hope the committee will understand that, as substantive negotiations are yet to begin, I am unable at this stage to pre-empt the outcome. However, we will seek to ensure that the proposal supports the interests of UK businesses and while we remain a member of the EU we will play a full and active role in the negotiations in the usual way. I will keep the committee informed of developments.

“I would also like to take this opportunity to provide an update on a matter considered by the committee in September on proposals to amend the Annexes of the EC and EU Insolvency Regulations, which the committee cleared from scrutiny. In its 10th report, the committee welcomed the Government’s position that the Commission did not have implied exclusive competence in respect of amendments to the Annexes in the recast EU and asked if this important message had been conveyed to the Commission to avoid any unhelpful precedent being set for future legislative proposals.

“We have raised this matter with the Commission but they do not agree with our assessment. We will nonetheless continue to seek to ensure that any future proposals to amend the Annexes of the Regulation provide a full and accurate explanation of the applicability of the subsidiarity principle.”

Previous Committee Reports

(a) Twenty-sixth Report HC 71-xxiv (2016–17), chapter 2 (18 January 2017); (b) and (c): Tenth Report HC 71-viii (2016–17), chapter 9 (7 September 2016); Seventh Report HC 71-v (2016–17), chapter 6 (6 July 2016).





10 March 2017