How are groups of companies treated on the restructuring or insolvency of one of more members of that group? Is there scope for cooperation between office holders?

Restructuring & Insolvency

Italy Small Flag Italy

The IBL does not contain specific rules relating to the bankruptcy and/or restructuring proceedings of enterprise groups. However, specific tools have been introduced to enhance co-ordination among the extraordinary administration proceedings of insolvent large enterprises that use the group structure. Specifically, the extraordinary administration proceeding of a company of the group may be extended to other insolvent companies of the group (even if, individually, they do not satisfy the size requirements for commencement) as long as (i) such companies have concrete prospects to rescue the business through its continuation as a going concern or (ii) there is a need to ensure a unitary management of the insolvency proceedings within a group. From a formal standpoint such insolvency proceedings are kept separate and the assets and liabilities of each group entity are not consolidated. However, procedural mechanisms are designed to ensure administrative co-operation, including the appointment of the same governmental trustee for all the insolvent companies and the possibility of closing all the proceedings by means of one single composition with creditors procedure (concordato) to be approved by the creditors of all the group companies.

Spain Small Flag Spain

Unlike other jurisdictions, Spain does not have an insolvency procedure for group of companies, although there are some rules which seek coordination between individual proceedings concerning each company within a group: (i) joint petition for insolvent of companies within the same group before a single court pursuant to article 25 of the Spanish Insolvency Act, relevant court at the COMI of the parent company of the group; (ii) accumulation of insolvent procedures of companies within the same group according to article 25.bis of the Spanish Insolvency Act; (iii) appointment of an insolvency administrator to the insolvency procedure of companies belonging to the same group in accordance with article 28.2 of the Spanish Insolvency Act; or (iv) a single refinancing agreement to restructure the debt of the group companies pursuant to article 71.bis of the Spanish Insolvency Act.

Japan Small Flag Japan

In general, there are no specific legal provisions on how to treat group companies in restructuring or insolvency proceedings. However, as a practical matter, group companies will usually file these proceedings at the same time because they have to resolve guarantee claims with respect to bank loans, typically in situations where the parent company has guaranteed its subsidiary’s bank loans.

There are no specific legal provisions on cooperation between office holders. However, in general, the court will usually appoint the same trustee if group companies have a parent-subsidiary relationship. If the relationship is other than parent-subsidiary, and a subsidiary is extremely large or there are potential conflict issues among the group companies, the court sometimes will appoint different trustees. Nevertheless, the same court will have jurisdiction over the group companies in most cases, which makes it easy to proceed with several restructuring or insolvency proceedings at the same time and to construct a cooperative relationship between the trustees.

Denmark Small Flag Denmark

When insolvency proceedings commence against a company, it is treated as an independent legal entity. This means that the remaining part of a group is not affected by the insolvency.

If restructuring or proceedings are commenced against more companies of the same group, it will often be the same trustee or restructuring administrator who administers the estates.

Group companies are not entitled to vote in restructuring proceedings.

Australia Small Flag Australia

In insolvency proceedings involving corporate groups, a consolidated group is not considered as a single entity. Where companies operate as a consolidated group, the starting legal position is that the ‘separate legal personality’ principle prevents creditors of an insolvent company from gaining access to the funds of other companies for payment of their debts.

Having said that, groups of companies often enter into a deed of cross guarantee to afford themselves the benefit of consolidated financial reporting. That deed commits the companies a party to it to pay the liabilities of all the other companies party to it in a liquidation.

The Corporations Act does provide for a holding company to be liable for the debts of its insolvent subsidiaries in certain circumstances. These provisions enable the subsidiary’s liquidator to recover amounts from the parent company equal to the amount of the new debt incurred by the subsidiary after the subsidiary becomes insolvent, but only where the parent company failed to prevent the subsidiary from incurring the debts and where there were reasonable grounds to suspect that the subsidiary was cash flow insolvent.

The corporate veil may also be lifted in circumstances where an insolvent subsidiary is deemed to be acting as a mere agent, conduit or partner of its parent company. However, Australian courts have displayed some reluctance to lifting the corporate veil in these circumstances.

Pooling of group funds may occur in limited circumstances, as prescribed by Division 8 and Part 5.6 of the Corporations Act, being section 5.71 to 5.79L. Generally, those circumstances are where there is a substantial joint business operation between members of the same corporate group and external parties; such members of the group are jointly liable to creditors. The liquidator of the corporate group entity being wound up makes what is called a pooling determination, after which separate meetings of the unsecured creditors of each company must be called to approve or reject the determination. The court may vary or terminate any approved pooling determination.

Finally, in group insolvencies, office holders tend to be appointed from the same firm. If material conflicts arise, special purpose officeholders tend to be appointed.

Cayman Islands Small Flag Cayman Islands

This will largely depend on where the insolvent company sits within the group. However, generally speaking, liquidators of a holding company will have the ability to take control of and sell the company's subsidiaries.

Consolidated proceedings are not recognised by Cayman Islands law and the Court will generally recognise the separate legal personality of each company within the group. However, if multiple companies within the group are the subject of winding up proceedings, the Court may appoint the same or common liquidators if it is satisfied that it is appropriate to do so (and having regard to the facts of the case and the risk of any conflicts of interest arising).

No statutory provisions exist in order to govern co-operation between liquidators of different group companies, although liquidators appointed over different group companies may co-operate informally if it is in the best interests of both estates. In exceptional circumstances, the Court may also permit to allow the pooling of assets and liabilities between members of the same corporate group, for example, to allow the liquidators to achieve a compromise in relation to cross-claims between the group entities.

Switzerland Small Flag Switzerland

Swiss insolvency law does not recognize the concept of substantive consolidation. Hence, separate insolvency or restructuring proceedings will have to be initiated for each member of a corporate group. That said and pursuant to Art. 4a DEBA, Swiss insolvency authorities are held to coordinate their actions to the extent possible in a group insolvency. A similar obligation is currently proposed for international group insolvencies where the Swiss authorities would have to coordinate and cooperate with foreign office holders.

Germany Small Flag Germany

The Insolvency Code does not differentiate between debtors belonging to a group of companies and those standing alone. Thus, in case of insolvencies of groups of companies, for each company an insolvency procedure will be opened and an insolvency administrator be appointed. There are no joint insolvency proceedings.

In practice, however, at least, if the same insolvency court is competent for two or more group companies, in general the same insolvency administrator will be appointed, unless a conflict of interest between these companies is apparent. In case several administrators are appointed, they may cooperate, but each has to act exclusively in the interests of the estate of the debtor for which he or she has been appointed. In some insolvencies of international groups, protocols have been concluded between German and foreign insolvency administrators; such protocols may require the consent of the creditors’ committee.

In 2014, a reform project was presented by the government aiming at regulating group insolvencies. This reform has, however, still not entered into force.

Denmark Small Flag Denmark

When insolvency proceedings commence against a company, it is treated as an independent legal entity. This means that the remaining part of a group is not affected by the insolvency.

If restructuring or proceedings are commenced against more companies of the same group, it will often be the same trustee or restructuring administrator who administers the estates.

Group companies are not entitled to vote in restructuring proceedings.

Mexico Small Flag Mexico

Entities of the same corporate group are entitled to file a petition for joinder insolvency with the only requirement that one of the entities of the corporate group complies with any of the Insolvency Standards (as described in our answer to Question 3 above), and such event results in one or more of the corporate group´s entities being in the same situation.

The Insolvency proceedings of entities belonging to a corporate group accumulate as a single proceeding but are dealt with on a separate basis. Furthermore, the estates of each entity shall remain independent throughout the Insolvency Proceedings.

British Virgin Islands Small Flag British Virgin Islands

There are no specific provisions of the IA that deal with the restructuring or liquidation of groups, though it is possible that an arrangement could be tailored towards rescuing a group of companies in financial difficulties. In such a situation, the relevant approvals would be needed from the different classes of stakeholder and (save in the case of creditors’ arrangements) the court would need to be satisfied that the arrangement satisfied the relevant requirements. Although a creditors’ arrangement might be formulated to rehabilitate a group of companies, there might be a greater risk that a disgruntled shareholder or creditor might allege that their interests were unfairly prejudiced.

Bermuda Small Flag Bermuda

Where related companies enter into insolvency or restructuring, the corporate veil remains in place.

Liquidators’ duties will be owed only to the creditors of the company to which they were appointed. In practice, where a number of entities in a corporate group enter liquidation, it would be usual for the same persons to be appointed liquidators over each of the insolvent entities, and the Court will generally favour that approach where faced with competing candidates for appointment. In relation to cooperation generally, see the discussion under the preceding heading.

Greece Small Flag Greece

The notion of “group” of companies is not recognized under Greek law. Therefore bankruptcy of one entity within a group will not trigger insolvency in other companies of the same group.

The restructuring plan or the rehabilitation agreement can include provisions regarding treatment of participations or provisions regarding simultaneously restructuring of affiliated companies provided that such companies are included as contracting parties to the agreement.

Singapore Small Flag Singapore

Each company in the group is treated as a separate legal entity and separate insolvency proceedings must be commenced for each company. Unless the corporate veil can be pierced or where assets were transferred to other companies in order to defraud creditors, the creditors of a company can only claim against that particular company in its own insolvency proceedings.

Typically, the respective insolvency proceedings of the member companies to be heard before the same judge. In this manner, the related proceedings involving the various companies in the group can be dealt with by one presiding judge. In practice, the same office holders are usually appointed for the various entities in the group, unless there are conflicts of interest.

United Kingdom Small Flag United Kingdom

Under English law, each company in a group is treated as a single entity and directors are required to consider the interests of creditors in relation to that particular company (rather than the group as a whole). However, the commercial reality is that what is beneficial for a group is often beneficial for each individual company, and there is scope for co-ordination between affiliated entities.

The recast EU Insolvency Regulation (which will apply from June 2017) makes specific legislative provision to try to facilitate co-ordination between officeholders (albeit on a voluntary basis).

The case may be different where a group may be looking to offload an unprofitable subsidiary through an insolvency process. Given the need to consider the creditors of each company on an individual basis, directors that sit on both group and company boards in such a scenario may need to consider whether a conflict of interest exists and, if so, recuse themselves from one of the boards.

Indonesia Small Flag Indonesia

The concept of a company group is not recognized under the Bankruptcy Law or the Company Law. The Bankruptcy Law is silent on joint proceedings for a family/group of companies. This means that there can be no single court file, single list of creditors or single notice list for the combined members of the group. The case for each member of the company group will require separate proceedings and there is no practical acknowledgement of related proceedings. However, if the Bankruptcy or Delay of Payment proceedings involve a holding company, it may possibly affect its subsidiaries because the shares of the holding company in the subsidiaries may be considered its assets.

However, it is common for a member of a company group to act as a creditor (either secured or unsecured) of its affiliate that has filed for bankruptcy or a Delay of Payment due, for example, to the existence of an affiliated loan agreement.

France Small Flag France

The French insolvency regime did not include specific rules tailored for corporate groups until Law No. 2015-990 dated 6 August 2015. Before that, insolvent corporate groups were obliged to initiate separate plenary insolvency proceedings for individual companies. This new law created specialised commercial courts which have jurisdiction in case of large insolvency cases. If a specialised commercial court has jurisdiction over the parent company, it will also have jurisdiction over its subsidiaries.

In addition, the corporate veil may be lifted and insolvency proceedings initiated against a company may be extended to another company on the ground either that (i) the debtor is held to be a fictitious legal entity, or (ii) that the assets and liabilities of the parent company and those of its subsidiary are so intertwined that they should be deemed to be one single entity.

Finally, European law tends to take into consideration the existence of a corporate group. EU Regulation 2015/848 of the European Parliament and of the Council dated 20 May 2015 has introduced a group co-ordination proceeding between all courts before which an insolvency proceeding is opened by an entity of a group.

Israel Small Flag Israel

When insolvency proceedings commence against a company, it is treated as an independent legal entity, and the other parts of a group are therefore not affected by the insolvency. However, if it is proven that the separation between the group companies was artificial and the companies were functioning as a single company, the court may pierce the corporate veil (see above, Piercing the corporate veil).

The Netherlands Small Flag The Netherlands

For the purposes of (amongst others) streamlining and coordination with respect to insolvency proceedings of group companies, the same person is often appointed as the trustee for, in principle, all members of the group. It is of relevance to note that even though the trustee could be the same person for various members of a corporate group, each proceeding remains distinct and separate from the other.

There are no specific Dutch rules on group insolvencies.

Luxembourg Small Flag Luxembourg

Under Luxembourg law, there is no recognition of the concept of group. Each company within a group structure is considered to be a separate legal entity (except if the conditions for piercing the corporate veil are met). Hence, the insolvency of a parent company does not automatically lead to the insolvency of its subsidiaries.

Belgium Small Flag Belgium

Under Belgian law, there is no so-called company group law. Each company within a group structure is considered to be a separate legal entity (except if the conditions for piercing the corporate veil are met). Hence, the insolvency of a parent company does not automatically lead to the insolvency of its subsidiaries.

Argentina Small Flag Argentina

A group of companies may file for their reorganization procedure as a group, provided that they prove the existence of the group. The filing for reorganization procedure as a group must include all the members without exception.

General rules for reorganization procedure apply to the group filing but, however, there are certain special rules:

  • The cessation of payments of the group is proved by the cessation of payments of any of the companies of the group.
  • The jurisdiction will be determined by the company with the most assets.
  • The receiver (síndico) will be the same for all the group (but the judge may appoint more than one).
  • There will be one individual process for each member of the group, with only one general report which will contain a consolidated report as regards assets and liabilities.
  • The members may offer a unified proposal. The majorities are the same as in the normal reorganization procedures but proposals will be also considered approved if they receive the approval of 75% of the creditors of the group and at least 50% in each category.
  • If approvals are not obtained, then the judge will declare the bankruptcy of every company of the group.

Updated: May 24, 2017