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Summary

INTRODUCTION

Identifying the treaties between France and third States which, under Article 75(1) of the European Succession Regulation, prevail over the Regulation is a task significantly more challenging than it might seem. Only one example stands out, the Hague Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions, but the case of this particular instrument is envisioned in the second part of Article 75(1). It can accordingly be excluded from this survey.

France is a party to the 1973 Washington Convention providing a Uniform Law on the Form of an International Will, but, as the name suggests, this convention does not contain choice-of-law rules, but rather a third model for testaments which has taken its place in substantive French law beside the holograph and notarial wills. It need not be addressed, nor do the various consular treaties which contain neither choice-of-law rules nor rules on jurisdiction. Similarly, the innumerable bilateral treaties on judicial cooperation which frequently cover recognition and enforcement of foreign judgments cannot interfere with the Regulation and will thus not be discussed.

Beyond these examples, the search for treaties that could be relevant is a process that almost irresistibly evokes a fumble in the dark. Nothing is mentioned, as far as France is concerned, in the Regulation commentaries as regards Article 75, not even in those that are written in French. The books or articles written with practitioners in mind are equally silent. This should perhaps not come as a surprise since, in the field of private international family law, the treaties France is party to do not cover succession matters.

Only one author has recently – albeit in a context unrelated to the European Succession Regulation – flagged international instruments that could perhaps be relevant. But whether they actually are relevant is far from clear. The main difficulty, which is addressed in the next section (section 2), stems from the fact that these treaties do not refer specifically to succession matters, but to what is known in French private international law as statut personnel, a pivotal concept which in the present context gives rise to considerable uncertainty.

Summary

INTRODUCTION

Before the Succession Regulation came into force, Croatian private international law of succession was governed by the Croatian Private International Law Act (hereinafter : Croatian PIL Act), several bilateral treaties and one multilateral treaty, i.e. the Hague Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions.

Amongst all the bilateral treaties dealing with succession matters with an international element, only a few outlived the entrance into force of the Succession Regulation. Most bilateral treaties have been derogated from by the Succession Regulation, by virtue of its Article 75(2), since they were concluded with other EU Member States. Those treaties deal with a wide scope of international legal assistance in civil and even criminal matters. They are, of course, still in force, but the parts dealing with succession matters have been replaced by the Succession Regulation. The majority of such treaties cover jurisdictional issues, conflict of laws, and recognition and enforcement of foreign decisions in succession matters, whereas the minority cover only recognition and enforcement of foreign decisions in succession matters.

Three bilateral treaties were not influenced by the Regulation in any way since they are outside of its scope of application. Treaties with Bosnia and Herzegovina of 1996, (today: North) Macedonia of 1994 and Turkey of 1999 were concluded to regulate issues of legal assistance in civil (and criminal) matters. They apply to recognition and enforcement of decisions in civil matters, including succession matters. The issue of recognition and enforcement of decisions is also governed by the Succession Regulation, but only between Member States. Seeing that these bilateral treaties apply to recognition and enforcement of decisions from non-EU Member States, and do not cover conflict of laws or jurisdiction, they are not in collision with the Regulation. If and when some of those States accede to the European Union, the Succession Regulation will prevail in application between them as well.

The only bilateral treaty that applies in Croatia pursuant to Article 75(1) of the Succession Regulation is the one on legal assistance with the former Soviet Union (Treaty 4). That treaty was in force in Croatia when the Succession Regulation came into force; it regulates the issues covered by the Succession Regulation and was not concluded exclusively between Member States. It thus meets all the criteria under Article 75(1), and therefore the Regulation does not influence its application.

Summary

INTRODUCTION

OBJECT AND SCOPE OF THE REPORT

This report gives an account of the international conventions relating to succession which are currently in force between Italy, on the one hand, and non-Member States of the European Union, on the other. Specifically, the report examines the conventions that deal with matters covered by Regulation (EU) No. 650/2012 of 4 July 2012 on successions (hereinafter the European Succession Regulation, or the Regulation), to the extent to which they benefit from the subordination clause in Article 75 of the Regulation.

THE CONVENTIONS ON SUCCESSIONS: AN OVERVIEW

Multilateral Conventions

Neither the Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions nor the Convention of 2 October 1973 Concerning the International Administration of the Estates of Deceased Persons, both adopted at the Hague Conference on Private International Law, are in force for Italy. Italy signed them, but ratification never followed.

Italy is a party to the UNIDROIT Convention Providing a Uniform Law on the Form of an International Will, concluded in Washington on 26 October 1973, and the Council of Europe Convention on the Establishment of a Scheme of Registration of Wills, signed in Basel on 16 May 1972. The two instruments, however, are concerned with the substantive aspects of successions and do not include provisions that affect the operation of the European Succession Regulation.

Bilateral Conventions

Italy is a party to several bilateral conventions which lay down rules relating to cross-border successions. These include treaties of friendship, commerce and navigation, and consular and establishment conventions.

The vast majority of these rules have no bearing on the operation of the European Succession Regulation. They will not be considered in this report.

They concern, for example, rules on the taxation of estates, a matter which falls plainly outside the scope of the Regulation pursuant to Article 1(1), and rules regarding the measures that the consular authorities of each Contracting State may take, along the lines of the customary rule in Article 5(g) of the Vienna Convention on Consular Relations of 24 April 1963, whenever a national of that State dies on the territory of the other. These measures do not prevent the courts of the former country – Italy, for present purposes – from exercising their jurisdiction, if any, under the Regulation.

Summary

INTRODUCTION

With effect from 17 August 2015, the European Succession Regulation has led to a unification of the international law of succession in the Member States of the EU – with the exception of Denmark, Ireland and the United Kingdom. However, there is no full harmonization since, according to Article 75(1) SR, the Regulation does not affect the application of international agreements to which one or more Member States were parties at the time of the adoption of the Regulation and which relate to the subjects covered by the Regulation. Bilateral treaties concluded between individual Member States and third States take precedence over the Regulation, too. Treaties of this kind exist in many Member States. As these agreements are often based on traditional legal principles, such as the principle of nationality, the lex rei sitae rule for succession to immovable property and the exclusion of party autonomy, their application can lead to significant tensions with the European Succession Regulation.

TREATIES AND CONVENTIONS TAKING PRECEDENCE OVER THE EUROPEAN SUCCESSION REGULATION

OVERVIEW

Germany has entered into three bilateral treaties with third States which concern matters covered by the European Succession Regulation. These are in the order of conclusion:

Summary

Like many other EU regulations, Article 75 of the Succession Regulation contains rules which clarify the relationship between the Regulation and existing multilateral and bilateral conventions.

The Regulation prevails on existing multilateral and bilateral conventions between the Member States. This solution is understandable because it is the only way to create a uniform international succession law between the Member States. The only exception is the Hague Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions. The provisions of this Convention apply, instead of Article 27 of the Succession Regulation, with regard to the formal validity of wills and joint wills. The implications of the prevalence of the Regulation are not too significant because, besides some bilateral treaties, the Convention of 1961 is the only important convention on international succession law. The Hague Convention of 2 October 1973 concerning the International Administration of the Estates of Deceased Persons was only ratified by the Czech Republic, Portugal and Slovakia. Other conventions such as the Convention of 16 May 1972 on the Establishment of a Scheme of Registration of Wills and the UNIDROIT Convention of 26 October 1973 providing a uniform law in the form of an international will, deal with substantive succession law which is not covered by the Regulation.

As to treaties between Member States and third States, a distinction is to be made between treaties concerning recognition and enforcement of foreign decisions and treaties concerning jurisdiction and applicable law. Although the first category covers decisions in succession matters, they do not confict with the Succession Regulation, which is limited to the recognition and enforcement of decisions of the Member States. The second category conflicts with the Succession Regulation, but the Regulation does not affect the application of such treaties. They prevail on the Regulation. This solution is nothing more than the application of an important rule of international law, namely pacta sunt servanda as enshrined in Article 351 Treaty on the Functioning of the European Union. Until now, it has not been easy to get an overview of all the treaties concluded by the Member States with third States. It has been even more difficult to gain an insight into the application of those treaties in the contracting States.

Summary

INTRODUCTION

This contribution intends to evaluate the impact of bilateral treaties concluded between certain European countries and Iran from the perspective of Iranian law. In the late 1920s and early 1930s, Iran concluded a series of such treaties with different countries, including Poland, Germany, Belgium and Luxembourg, Greece, France, Switzerland, Austria and Czechoslovakia. Some of these treaties were concluded on a provisional basis and were not extended after their initial period of validity; some of them have been extended and renewed and are still in force today.

The question of whether and how these treaties are dealt with in Iranian legal writing and interpreted by Iranian courts is difficult to answer for mainly three reasons. The first is that Iranian legal writing does not discuss the treaties in any depth. Where reference is made to any of these treaties, they figure as abstract examples of treaties concluded by Iran that take priority over the domestic conflict-of-laws rules, without any detailed analyzes of their structure, purpose or interpretation. This relates also to a second blank spot, which is the lack of case law on the application of the treaties. In fact, until very recently court decisions were not published at all by any official State-run institution. For a long time case law could only be retrieved from two sources: the compilation of the legal opinions of the plenary session of the Iranian Supreme Court, published by the court itself (since 1995), and private compilations of cases collected by lawyers, law professors or researchers. Both sources, however, are selective, and none of the reported cases relates to the application of the treaties. In an endeavour to bring about more transparency, in 2011 the Law on the five-year development scheme of the Islamic Republic of Iran incorporated a regulation according to which the judiciary became obliged to publish important court decisions. Although some compilations have been published, here again no mention is made of the application or the interpretation of these treaties.

This brings us to the last point, which is a factual one: the lack of academic interest in the treaties as well as of case law may be accounted for by the very few numbers of European nationals having an Iranian domicile or habitual residence. In fact, their number can be assessed only vaguely. The Statistical Centre of Iran that conducts censuses on a five-year basis publishes its findings regularly online.

Summary

SUMMARY

Despite having improved their reputation, leveraged buyouts remain a controversial legal issue that can only be resolved through a comprehensive analysis of the transaction and a specification of the role to be played by the different branches of the law involved. In this regard, it is the agency costs arising between creditors with a low bargaining power and those with a higher one that pose the most important legal challenge. Company law should not establish any form of prohibition or restrictive approach since that would not guarantee every beneficial transaction taking place. Still, creditor protection could be ameliorated if solvency tests were introduced, as they are not costly, do not lead to any form of risk aversion, and can be an interpreting element if insolvency eventually takes place. Concerning insolvency law, legislators should focus on the mechanisms that may guarantee the continuance of a company's economic activity after an insolvency procedure. Finally, regarding banking law, the rules on the compensation of directors should be designed to avoid excessive risk-taking and thus making them refrain from providing liquidity to certain transactions.

KEYWORDS

Leveraged buyout, financial assistance, creditor protection, solvency test

INTRODUCTION

For a long time, leveraged buyouts have mistrustfully been regarded as being a source of harmful effects for creditors, minority shareholders, and even employees. Financing company acquisitions through substantial amounts of debt was regarded as a signal of future difficulties when having to return them and would hence result in an increase of the risk of financial distress as a result. Indeed, highly leveraged transactions have historically been associated with the collapse of big firms, as well as with periods of economic crisis, such as the one following World War I in the United Kingdom. Still there is an untold part of the story since most of these situations have a beneficial component which can be observed both at firm and at macroeconomic level. In most cases, though, the way in which this kind of transaction seems to have been legally addressed is far from being a technical, but rather an impulsive one, and there are plenty of statutory examples that can be considered in this regard. In recent times, despite the fact that normative proposals have been sufficiently discussed both at legislative level and in the literature, its legal treatment has remained quite restrictive and sometimes inefficient across European jurisdictions, if not generally lacking legal certainty.

Summary

SUMMARY

Luxembourg law applying to the limited company (SàRL) does not appear to be particularly focused on the protection of the company's creditors even though one may not say that this protection appears to be significantly neglected. Most policy choices made in Luxembourg gravitate around the promotion of the SàRL as a flexible investment vehicle where the protection of the majority shareholder(s)/investor(s) would be adequately met.

As a consequence the law applying to the Luxembourg SàRL continues to be rooted in a rather conservative minimum capital requirement the amount of which does not appear to be a disturbing factor for investors and a recent company law reform focused on opening up financing techniques and tools rather than on a significant increase of creditor protection.

KEYWORDS

Private limited liability company; Luxembourg; Creditor Protection

INTRODUCTION AND CONTEXT

LUXEMBOURG COMPANY LAW

The provisions of Luxembourg's company law are to be found (marginally) in the Civil Code (Articles 1832–1873), applicable only when they are not derogated from by the Law of 10 August 1915, relating to commercial companies (LCC) as subsequently modified.

In December 2017, the numbering of all the articles of the LCC was modernized/changed. In the following contribution we shall refer to the new numbering followed by the old numbering (“ex”) as, of course, all previous descriptions of Luxembourg company law refer to the LCC's old numbering.

INITIALLY (1915) LUXEMBOURG's LCC WAS ALMOST ENTIRELY COPIED FROM BELGIAN LAW

Belgian law remains a source of reference for company law practitioners in Luxembourg. Considering the fact that Luxembourg is an international financial centre attracting investors mainly based in other jurisdictions, other legal systems do exercise some influence on Luxembourg company law as well, such as the French, Swiss, Anglo-American and German ones. However, more specifically relating to the private company (or limited liability company, SàRL), Belgian law's influence was always quite limited as this company form was introduced in Luxembourg in 1933 (French law was then used as a reference), namely before it became part of the Belgian company law system in 1935.

This volume contains the papers presented during a workshop at Ghent University's Financial Law Institute. The aim of the workshop was to confront the new Belgian framework on creditor protection in closed companies with foreign experiences and insights from recent legal and empirical research. The book deals with questions of creditor protection throughout the lifespan of companies: from the time of their formation, over the different kinds of distributions, to their winding-up. Some contributions focus on more topical issues of creditor protection like the subordination of shareholder loans or the foreclosure of security interests. The book contributes to the continuing debate on the optimal legal strategy regarding creditor protection. Furthermore, it provides valuable insights on the background and foundations of the remarkable approach towards creditor protection in closed companies in the new 2019 Belgian Companies Act.Contributions by Diederik Bruloot and Evariest Callens, Isabelle Corbisier, Hans De Wulf, Miguel Gimeno Ribes, Frederic Helsen, Simon Landuyt, Christoph Van der Elst and Jasper Van Eetvelde.

Summary

SUMMARY

Whether or not shareholder loans should be automatically subordinated in bankruptcy is a much discussed topic in corporate and insolvency law. In this article I show that, because of the existence of non-adjusting creditors, shareholder-managers will sometimes have the incentive to take excessive risk. The subordination of shareholder loans forces the shareholder to internalize these costs. On the other hand, subordination of shareholder loans might also deter the undertaking of desirable projects. On balance, it is likely that subordination is efficient and reduces the agency cost of debt. Furthermore, I will show that shareholders should bear more risk because they are better monitors, do not suffer from information asymmetries and have higher expectations of default. Therefore, if shareholders and outside creditors could hypothetically bargain ex ante in a world without transaction costs on the rank of their debt claim, there is not much doubt that they would agree on subordination. Proving that subordination of shareholder loans is inefficient would imply that the subordinated position of equity is inefficient – and further shake the concept of legal capital on its foundations.

KEYWORDS

Agency Cost of Debt; Subordination; Shareholder Loans; Capital Structure; Limited Liability; Non-Adjusting Creditors

INTRODUCTION

The existence of a rationale for the by law automatic subordination of loans provided by a shareholder (’inside debt’) on insolvency (or liquidation) of a limited liability company has caused much ink to flow from the pens of academics and other company and insolvency law experts without reaching consensus. For example, about half of the respondents to the consultation of the High Level Group of Company Law Experts instituted by the European Commission deemed that subordination (of inside debt) was undesirable, while another 41% believed subordination is a valuable feature of corporate and insolvency law. This debate is also reflected in the prevailing law, some jurisdictions have rules automatically subordinating shareholder loans, others not. Although the liquidation dividend flowing to unsecured creditors is known to be low to non-existing on average, case law in many jurisdictions shows that oft en the (automatic) subordination of shareholder loans does matter to the outside creditors.

Summary

SUMMARY

This contribution intends to explore the optimal design of rules on distributions to shareholders. To this end, we commence by examining why and in what scenarios rules on shareholder distributions might be useful from a creditor protection perspective. Against this backdrop, we proceed by assessing the traditional continental approach and its net assets and retained earnings test. More specifically, we map out the benefits and drawbacks of the continental approach. Subsequently, we examine how the Dutch legislator has aimed to mitigate the downfalls of the traditional continental European approach by fundamentally altering its approach to shareholder distributions in closed companies. In a very similar way, we analyse the recent changes to the Belgian rules on distributions to shareholders. Finally, we assess to what extent the Dutch and Belgian approaches come close to an optimal regime for distributions to shareholders in closed companies.

KEYWORDS

Distributions; Dividends; Balance sheet test; Liquidity test; Solvency test

INTRODUCTION

In this contribution, we intend to explore the optimal design of rules on distributions to shareholders. To this end, we commence by examining why and in what scenarios rules on shareholder distributions might be useful from a creditor protection perspective. Against this backdrop, we proceed by assessing the traditional continental approach and its net assets and retained earnings test. More specifically, we map out the benefits and drawbacks of the continental approach. Subsequently, we examine how the Dutch legislator has aimed to mitigate the downfalls of the traditional continental European approach by fundamentally altering its approach to shareholder distributions in closed companies. In a very similar way, we analyse the recent changes to the Belgian rules on distributions to shareholders. Finally, we assess to what extent the Dutch and Belgian approaches come close to an optimal regime for distributions to shareholders in closed companies.

THE NECESSITY OF RULES ON DISTRIBUTIONS TO SHAREHOLDERS

COMPANY LAW AND RULES ON CREDITOR PROTECTION IN GENERAL

Over the last fifty years, the predominant view in continental Europe has been that company law should play an important role in the protection of limited liability companies’ creditors. In most EU Member States, the legal framework is in line with this paradigm. More specifically, based on the model advanced in the Second Company Law Directive (Second CLD), most Member States have opted for a comprehensive framework construed around the concept of “legal capital”.

Summary

SUMMARY

The binding force of contract, and of obligations in general, hinges upon the ability to enforce against a debtor's assets. The same applies to security interests, which are designed to enhance obligations in favour of particular creditors. This paper takes the aforementioned realization to its logical and practical endpoint: what are the exact and practical means of enforcing (secured) obligations, and how can these processes be optimized, from a law and economics perspective?

The legal systems analysed in light of this question are Belgian and US law, both for movable and immovable property. The analysis proceeds along two general tracks. One is the creation of an efficient incentive framework, to counter moral hazard, both on the side of the creditor and of the debtor, by looking into the benefits of centralizing enforcement with a neutral and properly incentivized third party. The second track deals with the reduction of transaction, search and uncertainty costs, and uses current developments in the market and the law to identify strengths and weaknesses that can immediately be dealt with in practice.

The ultimate goal is to provide an enforcement mechanism that allows for cost-effective market access, and, through transparent procedures, conveys free and clear title to the asset to the ultimate buyer.

KEYWORDS

Security; foreclosure; insolvency; seizure; auction

INTRODUCTION: GENERAL PRINCIPLES OF ENFORCEABILITY OF BLIGATIONS

OBLIGATIONS REQUIRE PREDICTABLE, EFFECTIVE AND EFFICIENT ENFORCEMENT

Without enforcement mechanisms, there would be no binding obligations. Indeed, if compliance cannot be imposed, then the obligatory nature of a contract is quite elusive, and will be a function of the counterparty's good will rather than a matter of reliable certainty. Much like the contractual obligations themselves, their enforcement will be inextricably linked to the party that assumed them. Once the necessity of access to enforcement mechanisms is established, the question becomes how these mechanisms can be optimally designed. From the very outset, the problematic nature of forced execution on the person in civil matters automatically refocuses attention on that party's assets.

Taking the matter of effective enforcement one step further, be it along the same lines, one can think about how obligations can be strengthened beyond the minimum level of bare enforceability.

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PART II - THE PERSPECTIVE OF THIRD STATES

Contents

List of Treaties and Conventions

France

Summary

Croatia

Summary

Italy

Summary

Germany

Summary

Foreword

Summary

Iran

Summary

List of Contributors

Index

Creditor Protection and Leveraged Buyouts in Europe: A Policy Approach

Summary

Creditor Protection in Private Companies - The Luxembourg Experience

Summary

Contents

Miscellaneous Endmatter

Belgian and European perspectives on creditor protection in closed companies

A Capital Question, Should Shareholder Loans be Automatically Subordinated?

Summary

Regulating Distributions to Shareholders: The Low Countries’ Experiences with the Design and Enforcement of Solvency Tests

Summary

Frontmatter

Designing the Foreclosure of Security Interests

Summary

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Belgian and European perspectives on creditor protection in closed companies

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