Article 36 EIR undertaking: local distribution rights without secondary proceedings

Article 34 EIR describes secondary proceedings in a Member State where a main proceeding has been recognised and secondary proceedings may be opened. Their effects concern assets located in that state. Article 35 generally points to the law of that state.

Article 36 addresses that possibility. The practitioner in the main proceeding may give a unilateral undertaking to respect local distribution and priority rights when distributing the assets or their realisation proceeds. The proceeding remains concentrated in the main state while local protection is organised through the undertaking.

The first review therefore needs the opening state, the location of the local assets, the intended realisation and the affected creditors. The COMI question and the jurisdiction to open the main proceeding are separate issues.

The undertaking covers assets situated in the state where secondary proceedings could be opened. This requires a specific inventory. Land, movable assets, claims or proceeds should be assigned individually by location, ownership, value and realisation route.

Article 36(1) also requires the factual assumptions underlying the undertaking. In particular, it refers to the value of local assets and the possibilities of realising them. A valuation without a traceable realisation route leaves the amount available for later distribution uncertain.

The national law of the possible secondary state determines the creditors’ rights. Ranking, security, priority rights and the extent of satisfaction from local assets need separate review. The undertaking should not compress these questions into a general dividend.

Article 36(3) requires the official language or one of the official languages of the Member State where secondary proceedings could be opened. Where several official languages exist, the language of the place where proceedings could be opened may also matter. Language is therefore part of the validity review.

The undertaking must be in writing. The form and approval requirements applicable to distributions in the state of the main proceeding also apply. Keep the original, the language used and the records showing which approvals were required.

Known local creditors must approve the undertaking. Article 36(5) refers for qualified majority and voting to the rules governing the adoption of reorganisation plans in the possible secondary state. Remote participation is available where national law permits it. The practitioner must explain the undertaking, the rules, the procedure and the result.

An approved undertaking binds the insolvency estate. Before distributing local assets or proceeds, the practitioner must notify local creditors of the intended distribution. The calculation must follow the undertaking and the applicable national law.

If the notice departs from the undertaking or applicable law, any local creditor may challenge the distribution before a court of the state of the main proceeding. Distribution is suspended until the court decides. The undertaking, approval, notice and calculation should therefore be kept together.

Local creditors may also ask the courts of the main state to secure compliance with the undertaking through appropriate measures. In the state where secondary proceedings could have been opened, interim or protective measures may be available. The practitioner is liable to local creditors for loss caused by failure to comply with Article 36 duties.

The undertaking does not exclude secondary proceedings forever. If secondary proceedings open under Articles 37 and 38 EIR, the practitioner in the main proceeding must hand over assets removed from the affected state after the undertaking. If they have already been realised, the proceeds must be handed to the practitioner in the secondary proceedings.

Article 37(2) sets a 30-day period for applying to open secondary proceedings where an undertaking under Article 36 has become binding. The period runs from receipt of the notice of approval. The date and receipt of that notice belong in the case file.

For a specific review, keep the opening order, undertaking, translation, local asset list, valuation, creditor list, voting records, approval notice and distribution calculation. Only then can the local position be compared with the intended distribution.