The website of the Netherlands Association for Comparative and International Insolvency Law (NACIIL) has published in open access the reports (“preadviezen”) on Limits to Group Structures and Asset Partitioning in Insolvency.
This book contains reports prepared by prof. R. Squire (US), prof. J. Vananroye, A. van Hoe and dr. G. Lindemans (Belgium), prof. F.M.J. Verstijlen and A. Karapetian (Netherlands) and A.L. Jonkers (Netherlands). From the introduction to reports by the NACIIL board:
“In insolvency procedures, administrators have to accept the estate as they find it. Furthermore, administrators are commonly appointed in the proceeding as to a specific legal entity and have to respect the separate legal personality. By means of limited liability and separate legal personality, groups can incorporate in ways where liabilities and assets are allocated in different legal entities. This creates room for opportunism, especially in relation to creditors.
The 2018 NACIIL annual reports focus on the theme ‘Limits to Group Structures and Asset Partitioning in Insolvency’. This theme encompasses two related topics at the intersection of corporate law and insolvency law: (1) the artificial subdivision of enterprises over different legal entities (asset partitioning) and (2) selective perforation by means of guarantees.
There are different manifestations of artificial subdivision of enterprises over different legal entities. The clearest and most blatant one is an artificial division within a group between profit making and loss making parts. Also, increasingly common are corporate structures where an operating company is insolvent, but cannot be sold to outside parties because the IP rights or other key assets required for running the business are held by another group company. Dutch law and other legal systems are struggling to come to terms with such cases of asset partitioning. Belgian law is more creative and has for example implemented rules requiring that in case of asset sales out of insolvency, the acquirer should also be able to make a bid on the necessary ‘missing assets’, thus protecting the value of a company in insolvency.”