Content Listing

Summary

INTRODUCTION

The fact that German and Austrian law together with Swiss law and some other laws may be considered part of the Germanic Law System within the Continental Europe Law Family must not obscure the fact that these laws just like the laws of many other Continental European legal systems are greatly influenced by Roman law. This finding also applies to the security rights provided by German and Austrian law. The pledge (pignus) and even the disputed transfer of title by way of security (fiducia cum creditore) being common security rights in Germany and Austria have their roots in Roman law as well as the principle requiring the transfer of possession over tangible assets in order to establish security rights over them. There are, with some exclusions, no provisions for the registration of security rights over movable assets. As far as the transfer or establishment of security rights over real estate and certain types of movable assets is concerned this principle has been displaced by the introduction of specific registers which goes back to the introduction of certain court records during the Roman Imperium of the ancient German Nation.

Both German and Austrian law mostly meet the requirements of the core principles stipulated by the European Bank for Reconstruction and Development for an effective security rights law that fulfils the needs of the credit market. Despite the application of the principle of specialty (excluding a comprehensive security right such as the floating charge) generally all kinds of assets can be used as security to enable financing among all participants in legal transactions, legal entities as well as natural persons. Depending only on a contractual agreement and some publicity requirements, the contracting parties normally should be able to implement at any time security rights which can be created quickly and simply although this naturally may depend on the size of the transaction at hand.

Security rights are of fundamental importance to the granting of credit. They are generally considered to increase the availability and lower the cost of credit but there appear to be divergent views across Europe and elsewhere on the extent to which it should be possible to create security rights over assets. Moreover, laws in many countries - avoidance laws - strike at advantage gaining by creditors in the period immediately before formal insolvency proceedings are instituted. It is seen as potentially unfair to other creditors who may be forced into taking enforcement proceedings against the debtor and this may precipitate the premature liquidation of the debtor with an overall loss of economic value. The book will assess the conception of security rights according to the different European legal traditions. It will also evaluate the appropriateness of the protection given to security rights in light of:- developments in those European legal traditions;- the objective of the Insolvency Regulation to facilitate the more effective administration of cross-border insolvency cases; - the need for security in the context of the financial crisis;- the basic principles of ensuring fairness between creditors;- forestalling premature liquidation; and- reinforcing the collective nature of the insolvency process. The growth strategy put forward by the European Commission, Europe 2020, is designed to achieve economy recovery and sustainable growth, targeting as primary goals a higher investment rate and the preservation of employment. The rescue of troubled enterprises is at the core of this strategy and the book plots the alignment between this strategy and the evolution of the Insolvency Regulation. The objective is to facilitate a situation where economic and social systems are adaptable, resilient and fair; where economic activity is sustainable; and where human values are respected. About the book 'This very broad comparative study includes analysis and evaluation of the laws on secured rights demonstrating rather divergent views across the EU regarding the extent to which it should be possible to create security rights over assets. It presents a broad array of options and solutions which might spark further thoughts and innovations. It goes deeply into the meaning of Article 5 of the EU Insolvency Regulation 1346/2000, now the similar Article 8 Recast. It analyses also the many differences countries have when defining a right in rem" and its effects. The full study may assist Member States in enhancing their domestic laws or possible law reform. It should be read by representatives of the banking industry and economists who often confuse insolvency with pure asset liquidation. In the academic world it will allow for discussion and circulation of ideas.

Summary

INTRODUCTION

The regulations on security rights in rem in France, Italy and Spain converge to a great extent, but also have some divergences. The similarities are due, on the one hand, to the common origin of all three regulations as they all stem from Roman law and its subsequent developments, and on the other hand to the fact that all three systems have transplanted some quasi-security rights as evolved in common-law jurisdictions, while following worldwide accepted principles on insolvency law. Concerning the similarities lying in their historical origin, it would be interesting to research whether the main features of these systems such as the fact that security rights in rem closely follow the property right‘s model, derive from classic Roman law or whether it is an outcome of its medieval and post-medieval evolution. Last but not least, the reader of this report has to take into account that this report was updated on 1 May 2016 and that, in Italy, some reforms of insolvency law and security rights law are in progress. These reforms inter alia include the introduction of a form of non-possessory pledge. However, this regulation is not operational, since the planned register has not yet been established. In the following pages these reforms will not be dealt with, while footnote 14 will provide for further information in this respect.

Creation of security rights

France, Italy and Spain converge in the fact that security rights in rem involve the right to expropriate the encumbered assets with a view to satisfying the secured claim on the proceeds of the sale, and the right to have preferential satisfaction over other unsecured creditors. Each of the above-mentioned systems ensures that the right in rem is effective even against third parties in possession of the secured asset, i.e. it can be claimed against a purchaser for example.

All three jurisdictions distinguish two categories of security rights in rem, namely, mortgage and pledge classified in accordance with the nature of the encumbered assets: mortgage refers to immovable assets – but also to movable ones susceptible to registration – while pledge is created over movable assets, including intangible assets such as claims. Noteworthy is that France and Spain maintain a particular security right in rem, the antichresis.

Summary

This book arises out of a research project that was very generously funded by the European Commission under the Civil Justice Action programme – grant JUST/2013/JCIV/AG/4631. We thank the European Commission for their funding.

The events of 23 June 2016 may cast a long shadow but we hope that they do not dim unduly the prospects for further European scientific research and cooperation.

This book is very much a team effort led by Gerard McCormack at the University of Leeds in the UK and including Reinhard Bork at the University of Hamburg in Germany, Laura Carballo Pineiro and Marta Carballo Fidalgo at the University of Santiago de Compostela in Galicia, Spain, Renato Mangano at the University of Palermo in Italy and last, but certainly not least, Tibor Tajti at the Central European University, Budapest, Hungary.

The book aims to analyse critically the provisions governing rights in rem (security rights) and transactional avoidance in the European Insolvency Regulation – now Regulation 2015/848 – and to address whether there is scope for reform of the law. Security rights are essentially rights over property intended to secure payment of a debt or other obligation. They are of fundamental importance to the granting of credit and are generally considered to increase the availability and lower the costs of credit with concomitant benefits for both debtors and the overall economy. But there are divergent views on the extent to which it should be possible to create and enforce security rights over assets.

The book also:

Summary

INTRODUCTION

In Chapter 2 it was explained that in cases with a cross-border EU element, Article 13 of the EIR (Article 16 of Recast) makes it difficult for an insolvency practitioner (IP) successfully to challenge transactions that have been entered into by the debtor prior to the commencement of formal insolvency proceedings and that are detrimental to the general body of creditors. The defendant in any avoidance action has a defence if it can show that the transaction was subject to the law of an EU Member State which does not allow avoidance in the particular case. Inevitably the IP‘s task is more difficult and it becomes a struggle to capture or recapture‘ value’ for the benefit of the insolvency estate. The effect of the Article 13 defence is greatly to narrow the potential application of avoidance provisions and therefore greatly to weaken implementation of the policies of fairness and priority that underlie such avoidance provisions. To take an example, the law of the forum State may have 7 avoidance preconditions in its insolvency law but only 2 of these are shared with the State to whose laws the transaction is subject. This State however, may have 5 additional requirements. Therefore, to challenge the transaction successfully the IP would need to overcome an effective double avoidance hurdle and establish that all 12 elements were present in the particular case once the defendant raised the lex causae as a defence. This is a tough burden for the IP on any reckoning.

The Article 13 defence is designed to safeguard the stability of transactions and to protect legitimate transactions. Chapter 2 discussed Article 13 in detail and explored various options for achieving a more appropriate balance in reconciling and accommodating the potentially conflicting goals of transactional avoidance and transactional stability. One of these options was to harmonise the substantive law on transactional avoidance in the EU Member States but this may not be a realistic and feasible option given the divergences between current national laws. The main part of this chapter considers in detail and from a comparative perspective, the substantive law on transactional avoidance in the countries that form the subject matter of this research project.

Summary

The following report is draft ed from the perspective of the common law. It focuses on the law in England though incidental references are made to the law in the Republic of Ireland where the law is fundamentally the same though some statutory differences do exist. The report does not consider specifically the law in Scotland where there is a mixed Common Law/Civil Law heritage though the statutory provisions in respect of insolvency are largely the same as those in England .

INTRODUCTION

There is no universally recognised definition of security rights under the common law but‘ security‘ in this context is generally taken as signifying a right over property to ensure the payment of money or the performance of some other obligation and the property over which security is taken is referred to as‘ secured’ or‘ collateralised’.

It is widely understood among the international lending community that a modern law of security rights or interests/secured transactions should conform to certain key elements. These key elements are reflected in the‘ Core principles for a secured transactions law’ drawn up by the European Bank for Reconstruction and Development (EBRD). In summary these principles are as follows:

Summary

This project is funded by the European Commission under the Civil Justice Action programme – grant JUST/2013/JCIV/AG/4631.

The intention is critically to analyse and evaluate the provisions governing rights in rem (security rights) and transactional avoidance in Regulation 1346/2000 and address whether there is scope for reform of the law. Security rights are essentially rights over property intended to secure payment of a debt or obligation. They are of fundamental importance to the granting of credit and are generally considered to increase the availability and lower the costs of credit with concomitant benefits for both debtors and the overall economy. However, there are divergent views on the extent to which it should be possible to create security rights over assets. Moreover, avoidance laws in many countries strike at advantage gaining by creditors in the period immediately before formal insolvency proceedings are instituted. This is seen as potentially unfair in that one creditor gets paid ahead of another, and because of transaction cost issues, or their own involuntary status, some creditors may not be in a position to bargain for security.

There is extensive academic and theoretical literature analysing security rights under the main European legal traditions as well as the advantages and disadvantages of recognising security rights from economic and distributional justice perspectives. There is a lack, however, of developed analyses that synthesise the legal protection of security rights under the different legal traditions as well as framing this analysis in the context of Articles 5 and 13 of Regulation 1346/2000. In particular, a Report on Harmonisation of Insolvency Law at EU Level presented by INSOL to the Directorate General for Internal Policies in 2010 in part acknowledges the gap.

The project aims to fill that gap and considers the need for further European harmonisation. The project:

Summary

This chapter will consider Articles 4(2)(m) and 13 of the Insolvency Regulation – Regulation 1346/2000 – and the equivalent provisions in the‘recast’ Regulation, Regulation (EU) 2015/848. These provisions deal with transactional avoidance. Article 4 sets up the possibility for transactional avoidance while Article 13 provides a defence. Aft er a brief section setting out the policy background, the main body of the chapter will consider the scope of application of Articles 4 and 13. The third section will consider options for reform of the relevant provisions.

INTRODUCTION

Transactional avoidance in insolvency situations is a feature of all the legal systems considered in this report. This is so for a number of different reasons, all of them related to the achievement of insolvency objectives, namely the enforcement of the system of priorities laid down by insolvency law; sanctioning the debtor‘s intention to defraud creditors; the protection of creditors against any actions detrimental to the insolvency estate; and finally assisting in the restructuring of the debtor‘s business. The Court of Justice has classified these actions as’ actions which derive directly from those proceedings and which are closely connected to them‘. By the same token, Article 4(2)(m) establishes that’ the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to all the creditors‘are subject to the law governing the insolvency proceedings, i.e. the lex fori concursus.

Nevertheless, and to safeguard the expectations of third parties and the certainty of transactions, Article 13 lays down that‘Article 4(2)(m) shall not apply where the person who benefited from an act detrimental to all the creditors provides proof that: the said act is subject to the law of a Member State other than that of the State of the opening of proceedings, and that law does not allow any means of challenging that act in the relevant case’. While transactional avoidance entails the impugning of apparently valid acts, this provision aims to protect legal certainty by making sure that the last word on the validity of an act or transaction is pronounced by the law governing it, i.e. the lex causae.

Summary

INTRODUCTION

The coverage of the report

This report adresses security rights and the avoidance of transactions from the perspective of a select number of national laws from the region of Central and Eastern Europe (CEE). The closure date for this Report was 30 March 2016, save the mention of the most important changes introduced by the June 2016 amendments of the 2013 Hugarian Civil Code.

Hungary is herein the legal system discussed in most detail though the coverage of Lithuanian and Polish laws will also provide the reader with a fair insight into their security and insolvency laws not limited to their idiosyncratic features. It is to be noted as well that this report is not a commentary of national laws. It rather aims to provide a fairly in-depth insight into the Region‘s laws but without commenting on each provision of the analysed laws. Consequently, consulting local laws and counsel is essential whenever the application of these laws comes into the picture.

Methodology caveats

As this project aimed to canvass not only the positive law (i.e. black-letter law in force) but also to collect information and indicia on how the targeted laws work in reality – in particular the EU Regulation 1346/2000 on Insolvency Proceedings – the following caveats in particular ought to be highlighted. Needless to say, much more is known about how national secured transactions and insolvency laws work in practice compared to their cross-border kin.

On a national level the frequent amendments or the substantial rewriting of law creates considerable uncertainty yet not just in terms of their practical application. Due to lack of understanding, inappropriate travaux preparatoires and the speed of change, omissions, imperfect draft ing and similar defects plague local laws, as a result of which it is oft en hard (or impossible) to provide proper answers even to questions that in other jurisdictions might be easy to answer. The reader therefore should not be puzzled that occasionally no crystal clear answers can be provided to some questions.

Although the number of publicised domestic court cases (or decisions/ positions of regulatory bodies) has been growing in all the countries in the region during the last decade or so, the relatively small number of available reported cases continues to be an obstacle for the researcher.

Summary

INTRODUCTION

This chapter critically evaluates the protection given to secured creditors by the Insolvency Regulation (EIR) – both in its‘ original’ and‘ recast’ versions – Regulation 1346/2000 and Regulation (EU) 2015/848. It will assess the validity of the criticism that the protection is over-broad and also look at possible ways forward in any future revision of the Regulation by the European Commission.

The Regulation establishes a detailed framework for the management of cross-border insolvency cases within Europe. It also goes some way towards harmonising conflicts-of-law rules. It does not, however, harmonise substantive insolvency law or the law relating to security rights. Its centralising mission stops short in this regard. The Regulation puts the law of the State where the debtor has its centre of main interests (COMI) at the heart of the insolvency administration process. The COMI State is centre stage when it comes to collection and administration of the debtor‘s assets, surveying the debtor‘s legal affairs and the effect of the insolvency on other parties. Security rights, or‘rights in rem’ as they are referred to in the Regulation, are however at least partially immunised from the centralising effects of the COMI. The Regulation is said to establish a‘hard and fast’ rule in this respect.

In addition to the Introduction, this chapter consists of four main sections, though section 4 is considerably larger than the others. Section 2 will examine the philosophy of the European Insolvency Regulation. Section 3 looks at the nature of security rights and what they can do for you. Section 4 contains a detailed analysis of the protection of security rights in rem under Article 5 (Article 8 of recast). It is divided into five subsections as follows:

Intersentia

Refine listing

Refine listing

Actions for selected content:

7719 results in Intersentia

Index

Chapter 5 - Germanic Legal System – Germany and Austria

Summary

List of Authors

Part II - National Reports

Disclaimer

Security Rights and the European Insolvency Regulation

Chapter 7 - Roman Legal System – Spain, Italy and France

Summary

Contents

Preface

Summary

Chapter 4 - Transactional Avoidance, National Laws and Possible Reforms

Summary

Chapter 6 - Common Law System – England and the Republic of Ireland

Summary

Table of Abbreviations

Questionnaire

Introduction

Summary

Chapter 2 - Transactional Avoidance and the Insolvency Regulation

Summary

Chapter 8 - Central and Eastern European Systems – Hungary, Poland and Lithuania

Summary

Index

Chapter 1 - Security Rights under Article 5 of the Insolvency Regulation and Article 8 of theRecast

Summary

Table of Cases

Frontmatter

Intersentia

Refine listing

Refine listing

Actions for selected content:

Save Search

7719 results in Intersentia

Summary

Security Rights and the European Insolvency Regulation

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary