 Thank you very much, Tobi, for this quite merciful introduction, and thank you very much for the Centre for Corporate and Commercial Law for inviting me today. I really appreciate that, and I'm looking forward to this half hour of presentation and possibly if you're interested to have a discussion on the issue. So the issue is principles and reform of corporate group in Sovereignty Law in the European Union. So we have to do with creditors, the relationships to the single companies and separate companies within the corporate group. And the question is, is it one for all and all for one? Are there things to be separated? I'd like to structure my talk into five issues. Firstly, an introduction to the fundamental issues. Then briefly introduce the rules that govern corporate group in Sovereignty and Rescue in the European Union. And then explain the main part of the talk on reform questions that have been proposed by the European Commission. And I would like to add my own opinion to that. Then that being mainly statutory law, I would like then to move on to contract law, which is important in practice and theory and conclude with an overview of reform ideas. Corporate group in Sovereignty and Rescue of course is international. A good example is the case of Collins and Aikman, very well documented by two cases of the High Court. Automotive industry, the crisis was in 2005. Collins and Aikman, between other things, had patents and production of such hangers for car trunks where you could hang your shopping bags. I hadn't seen that before. If you haven't, then it's probably a good idea why Collins and Aikman ran into trouble. If you have such a hanger in your car trunk, then you're not responsible for it. The world war turnover of Collins and Aikman was 1 billion US dollars, 23,000 employees, 17 jurisdictions. The US companies were restructured using a Chapter 11 procedure. In the EU, there were 24 companies in 10 jurisdictions, 27 operational sites and 4,500 employees. At the time, what one did is to bring all those companies under English insolvency law, so that means all the European companies, they were under the administration procedure and finally the assets were acquired by international automotive components. But Collins and Aikman should not fool us that there's just always one structure of corporate groups and the solutions applicable. There are different types of corporate groups. Their economic integration differs. There are sometimes common cash management systems. There are inter-company sales and services at adjusted prices. Some other groups are not integrated that much. Each company more or less running its own business. Legal organization varies. National corporate forms compete with super national company forms like the Societas au pair. Some groups use subsidiary companies to conduct business in various member states. Others rather use establishments, that means just sending people and assets to those countries. And then there are different types of crisis and solutions. Sometimes it's just a profitability crisis. That means it is a profitability crisis. That means that the business concept does not create a sustained income over time. Sometimes it's only a financial crisis. It means that the business concept itself is sound, but the companies cannot carry the debt burden. Sometimes the whole group is affected. A subgroup might be affected or just a single company. And so there are different types of legal solutions needed with an array of different procedures and actors. Sometimes it's rescue. Sometimes it's liquidation if there's no sound business concept. The rules that you find in Europe are actually not that much on this issue. We do not have a common European insolvency law. What we do have is just the European insolvency regulation that coordinates, for example, coordinates international jurisdiction and the applicable insolvency law. Articles 3 and 4 of the insolvency regulation determine that jurisdiction and the applicable law using the Comey concept. The Comey is the place of the registered office unless the central administration, as it is ascertainable by third parties, is in a different place. And where the Comey is, that court has jurisdiction and that law applies. There are currently no rules for corporate groups in the insolvency regulation and practice to increase the value gains in liquidation or rescue actually work around by so-called forum shopping. That means migrate the companies to an insolvency law that you think is beneficial. That means you have to move your Comey, your administration, or using rescue through procedures that do not fall under the insolvency regulation, such as protocols between administrators, which are essentially contracts that administrators of companies make, or using the scheme of arrangement that you have in the Companies Act that is not falling under the insolvency regulation. The EU Commission has reacted to this perceived lack of rules by a proposal from 12 December 2012, which I brought with me just the essential pages. But before going on to evaluate this proposal and adding my own ideas to it, I would like to very briefly introduce my own normative basis on which I do evaluate these proposals. First of all, I think that corporate insolvency should be governed by an efficiency goal, meaning to maximize the asset value by preserving the assets in liquidation or facilitating rescue. That is then mirrored on the creditor's side by the minimization of creditor losses and externalities on others. A good yardstick to evaluate whether a rule actually is efficient is to analyze its influence on the cost of finance. However, I do think that not all is fair in love, war, and corporate insolvency, so legal ethics should be considered. The foundation there is that persons whose interests are interfered with demand a justification. That is a legal ethical position that is usually referred to as normative individualism. In societies such as ours, where individuals actually benefit from cooperation, this justification of interference with interests can be given and then contributions by individuals may be required. But corporate insolvency reform is not only what academics might think is useful, it's also politics. Group insolvencies are exposed to political influence. Member states have different ideas about workers' rights and they want to preserve workers' rights, and there's a competition of jurisdictions. So member states have an interest to keep business, restructuring business within their jurisdiction. Now I'm turning to reform ideas. The first step in deciding how a legal system of governing corporate group insolvency and rescue is to decide between substantive consolidation and procedural coordination. Substantive consolidation essentially means that the separation of legal personalities within a corporate group is discontinued. All assets and liabilities collapse and are then only held by one entity. I do think that the disadvantages of that approach clearly dominate. It is impossible with that approach to make sure that each creditor would get what the creditor hypothetically would have gotten, would there not have been any consolidation. That then disappoints finance expectations and as a result increases the cost of credit ex ante. It is also, I believe, beyond the ethical borders of cooperation if you think about proportionality, why should a creditor of a richer company actually cross finance insolvency a creditor of a poorer company because the result of consolidation is that you do not pay out creditors according to what they would have gotten in their individual company but consolidate it. Also substantive consolidation does not allow restructuring of single companies within the group so you could not, for example, restructure just a holding company. Instead, therefore, I would like to argue for procedural coordination to be the way forward. That means that legal persons within the corporate group stay separate, that you intensify the procedural coordination with the goal of increasing efficiency and that is also the approach that the European Commission has taken. If you follow me with that, then the next question is how do we decide on the applicable law? Do we take the Comey approach that we have or could we rather go for private choice? The Comey approach in essence means that the state determines which criteria apply for determining the applicable law. There is no free choice as we know it from company law and to choose insolvency law you have to incur considerable costs, that means moving the Comey. In practice moving your Comey, meaning moving your administration, is generally considered to take two to three months and it comes with considerable costs because you have to move offices, you have to move your directors, you have to get a new bank account, you have to pay the new leases, you have to move people, you need communication and so on. The other model would be private choice. One variant of that model is data choice. The idea here being put forward by Rasmussen in 2000 and that idea is that the company chooses the applicable insolvency law at its incorporation, that the applicable insolvency law is then published in the company register, the creditors can adjust to that information when extending credit to the company. The other variant of that has been put forward by Schwartz two years earlier. The idea being that insolvency law should not be mandatory at all, that creditors and companies should be able to decide on the applicable law in their contracts. That private choice certainly right now does not have any chance for political consensus in the reform process. States are not willing right now to give away the decision on the applicable law completely to the private actors, but since we are free spirits and may dream about what things should be, one can still ask that question. I think that private choice faces considerable inefficiency issues. It means, first of all, that this ex-ante choice might be wrong due to ex-ante information deficits or exposed changes which can be factual changes or law changes. Then if you want to remedy that, you need to find a mechanism to move or to transfer the applicable law for which you need majority decisions and those majority decisions are very likely to expropriate those who are not in control. Also the contracting approach, it means you decide at some ex-ante point, means that you have to update that choice if circumstances change and then again this gives rise to contracting costs. Over the life-circle of a company, those contracting costs are quite considerable. In addition there are collective choice problems and the first empirical evidence that we have in 2005 article suggests that the costs of these continued contracting events are actually greater than the gains you would get from it. As a result, I think that you might add other arguments. Actually private choice would increase cost of credit and not lower it. Also I think that private choice faces some ethical critique. The idea is that usually consent has a presumption for efficiency on the one hand side but also for fairness because you consent ex-ante. However, insolvency differs from consent situation which we have in the contractual or incorporation stage. Because there is a limitation of funds, creditors can actually not leave without giving up a substantial part of their claim. So it's actually a factual monopoly situation. Then to remedy the problem that you choose the applicable law ex-ante means that later you need unilateral or majority control of moving the applicable law which is likely leading to wealth transfers. From those not in control to those in control which I think is ethically very difficult to justify. That leads me to the point where I would like to argue for a coordination approach in corporate insolvency based on the Comey principles that we have but at selected private choice elements. The EU commission also goes that road and stays with the Comey approach in article 3 of the regulation. Now the next two points of reform I'd like to mention is reform concerning the courts and reform concerning insolvency administrators. Regarding courts, would it make sense to do it, how the courts did it in Collins and Aikman and bring all companies that have their Comey in the European Union under one jurisdiction, say the English jurisdiction. The competent court would either have to apply its own law to all companies or it would have to apply multiple foreign laws. Courts currently would not like to apply foreign laws because that takes time you need expert reports and insolvency you need quick decisions. To apply your own law would actually mean if you just consider one aspect that would be rankings in insolvency. Rankings in insolvency are different in different jurisdictions. So actually if you would bring a company that has been situated with its Comey before in France to England would mean you change payout rankings in insolvency. Again this would disappoint finance expectations and it would lead to rising costs of credit. So I think this is neither desirable nor realistic chance right now in the political arena and the commission completely abstains from even mentioning that approach. Instead the commission proposes to improve cooperation between courts. Article 42b essentially requires courts to cooperate and examples of such cooperation are an appointment of court representatives, communication between courts, assistance between courts, coordination of the supervision, hearings and protocol approvals. That is I would say a kind of basic common understanding that probably everyone would agree to. My own proposal would go further. I would actually like to see an optional coordination court. So that optional coordination court could be determined by application of the company with an abuse exception and to actually determine what the corporate group is I would like to propose using a definition of the corporate groups we already have in European law. That is the group definition in the consolidated accounts directive. Instead what the commission does in the proposal of the insolvency regulation is to propose a new and different definition of the group which you have in article 2, I and J. I think that is not a good approach because it leads to us having two separate definitions of corporate groups in European law without any good reason. Going back now to this coordination court that I would like to envision that would have coordination competences. A point of the coordination administrator decide on competence conflicts between administrators of group companies and between courts and it could sanction a group coordination plan. Turning to the administrators, again kind of a maximum approach would be that one person could be administrator of companies in different member states. The idea being that that would raise efficiency because that one person would not suffer from information deficits which you have separate persons or administrators in separate companies. So generally that would be desirable. However right now that is not a realistic solution to the issues because the courts are very reluctant to appoint an administrator with an education in one member state to be the administrator in another member state where that administrator is not familiar to the law that governs the process. The commission does not even mention that possibility. I would like to actually more see it mentioned but with a discretion of the courts to apply one person in different member states as an administrator if it makes sense. In any case and that is the commission's proposal, the coordination of the administrators should be improved by coordination duties. Here the commission in article 42a and c imposes duties on the administrators to cooperate and communicate. Examples are protocols contracts between the administrators duty to communicate, coordinate restructuring, coordinate the administration of the affairs, request information from the courts and adds in article 42 to these duties procedural rights. So the administrator of a company in one member state under article 42d would have the right in an administration in a procedure in another member state to be heard, to attend meetings, to request a stay of the other proceeding to propose rescue plans for just this one company or for other companies. Again I would like to go a step further by having an optional coordination administrator that would be kind of a lead administrator who could request information, request preservation of assets and draft a group rescue plan. Again this would be an option on application of the group and in the discretion of the coordination court. The result then being that my proposal would be a two tiered flexible system. The first basic tier is the system proposed by the European Commission that is cooperation rights and duties between administrators and courts. I think in groups where there's a clear lead company where you have a holding company that has led the group so far it would make sense to offer for such, especially for such groups this optional intensified coordination regime where you have a coordination court, a coordination administrator and a coordination plan. Again this is not mandatory it would be on application of the group and in the discretion of the courts and it would actually answer to what I tried to show at the beginning that there's different kinds of groups with different kinds of requirements in insolvency and I think that option would be helpful. Now the last five minutes of my presentation I would like to move to contracts so far that was statutory law which role does contract play in reform of corporate rescue and insolvency of corporate groups. The ideas of course the contracts allow for a tailoring of rescue and insolvency procedures and we have seen these cross border insolvency protocols in practice. A quite well known one is the one that was used in the Lehman Bank insolvency case where the administrators of the companies in various countries concluded such a protocol. As I said such contracts are based on an assumption of being fair and efficient and possible the clauses of such protocols are communication details so how do the administrators communicate between each other, asset preservation, conflict resolution which prevents administrators to spend time and energy fighting themselves, going to courts, slowing things down instead in such protocols the administrators set up private conflict resolution procedures. They can coordinate claims and especially in corporate groups intercompany claims play a decisive role in restructuring because if the companies in the group start claiming payment from other group members you will have huge difficulties in rescue in such a group because actually each company will be faced with massive claims which will certainly put off potential buyers. So that was contract in insolvency. There are also contracts in the pre insolvency phase and I think creditors and companies should be allowed to more easily choose in their contracts pre insolvency restructuring schemes. A good example is the case that has come before the courts here in the UK, the Rodenstock case. It is a case where a German company had in its finance documentation a syndicated loan contract. It had clauses choosing English law and English jurisdiction. While I am mentioning this is that I think that such restructuring schemes may be helpful but they suffer from legal uncertainties. Why? Because for example in the Rodenstock case on the basis of the choice of English law and jurisdiction a scheme of arrangement under the companies act was used but the problem was the question of recognition of that restructuring in other member states. I think that such pre insolvency choices can be presumed to be efficient and ethically justified and they are particularly relevant because they can apply to large loan contracts and bonds which are essential in restructuring. To illustrate that I would like to briefly mention a case study, the Rodenstock case. Quite a typical history of a company in recent years went well quite well through the decades in 2005. It had a turnover of 345 million euros. Then a few years later bought by a private equity investor. The idea to float the company did not materialize. Instead crisis was not far away. The company could not service the bank debt due to the leveraged acquisition costs. The Comey, that means the administration of that company was in Germany. The banks were over 305 million euros and this bank debt had a English law and jurisdiction choice. Under German law you would have needed 100% lender consent to restructure the loan. It was clear at the outset that you would not get 100% because there was a minor minority creditors who clearly said that they would not agree. Instead then, on the basis of the English jurisdiction and law choice, the company used the English scheme of arrangement, sections 895 of the company's act through the structure. The majority in value and number as required had been achieved. What you can see in my opinion is first of all there is a competition of insolvency laws based on its anti-contractual choice of law and jurisdiction. If we now consider how such pre-insolvency restructuring regimes fit into the insolvency regulation, I think they differ from insolvency proceedings because everyone involved had agreed. It was only the contractual creditors who were affected. They agreed to this choice of law and jurisdiction and if we would now, what the European Commission intends, include such contractual reorganization schemes in insolvency regulation, the effect would be that the creditors could not any longer choose a foreign law and jurisdiction. Why? Because the Komi principle as we've seen is mandatory, it forces creditors under the law where the administration is. So in the Rodenstock case the company would be forced to apply German law and I think that is different from general insolvency law proceedings where the creditors did not consent to the choice of a different law but they rather acted on the expectation that the law applies of the administration. Now to conclude, I think the diverse types of corporate groups and crisis solutions necessary require a flexible system where I'd like to argue for efficiency as a goal but also for borders that are set by legal ethics. There is a need for reform. The European Commission has seen that and acted upon it. Procedural coordination as the road the European Commission chooses, this is the right way to go. It is to be preferred over substantial consolidation but this procedural coordination should foresee a basic coordination on the first tier but add a flexible optional system for more intense coordination where it makes sense. Pre-insolvency contracts and insolvency contracts should be strengthened but that does not necessarily mean to draw them under the insolvency regulation because they are actually how it's designed right now. You take away private autonomy from the actors and that is not necessary where everyone can consent. Thank you very much for your attention for coming here to this lunch lecture and actually staying after the lunch. I'd be very interested if you have a creative comments or any other points for discussion. Thank you.