Iva Kuna: “Some Thoughts on Insolvency Proceedings of Corporate Groups Reflection on Case Agrokor”

Iva Kuna: “Some Thoughts on Insolvency Proceedings of Corporate Groups Reflection on Case Agrokor”

This article is based on a paper presented by Prof. Dubravka Aksamovic, an associate professor at the Faculty of Law in Osijek, Croatia. The presentation was given at the EU Business Law Forum in Gyor, Hungary, in June 2017. The paper could be read in the publication of the aforementioned Forum that will be published in the second half of 2017.



The so called case Agrokor[1] took place in the beginning of 2017 when the word about Agrokor’s collapse was spread. What in the beginning seemed only as a rumour brought severe problems to the Republic of Croatia, but also to its neighbouring countries – Slovenia, Bosnia and Serbia in which Agrokor as a parent company has its subsidiaries and employs lots of their citizens. The main question was: what would happen to all the subsidiaries (in Croatia, Slovenia, Bosnia and Serbia) if a parent company Agrokor collapsed, would they be forced to undergo the insolvency proceeding as well? The answer to this question can be found in the new Insolvency regulation[2] that came into force in June 2017 and for the first time introduced the chapter on Insolvency Proceedings of Members of a Group of Companies[3]. According to that, this article will briefly reflect on the situation before the enactment of the new Insolvency regulation, on the new provisions of insolvency of group of companies and on the possible scenario of Agrokor’s insolvency[4].


The Path that Led to the New Insolvency Regulation

Group of companies or corporate groups are widely recognized and the most common structure of international enterprises. This is mainly because of the fact that the parent company has its own legal identity separated from the identity of its subsidiaries which means that the parent company has limited liability for the debts of its subsidiaries.[5] Member states benefit from corporate groups, because they improve employment and economic growth in the country. Because of the ubiquity of corporate groups on the markets of member states and since their great importance for the domestic economy, member states found it inevitable to tailor legal frames for corporate groups.

However, when it comes to the “closing the business” stage in the life of a corporate group, it has been neglected for many years. That led to the unregulated field of insolvency of groups of companies. Even when some member states regulated the insolvency proceedings of corporate groups, there were many different solutions in those legislations because it was “difficult to devise an international model that will be acceptable“[6] for all member states. So, those differences in legal approaches created many obstacles for insolvency proceedings of corporate groups.

Similar, the insolvency of group of companies was not regulated on the European level for a long time as well. Regulation 1346/2000[7] that was in force from May 31st 2002 till June 26th 2017 when the Regulation 2015/848 came into force, it lacked the provisions on insolvency proceedings for group of companies. In its Report from 2012[8] the Commission stated that Regulation 1346/2000, although functioning well, needed some improvements one of the reasons why improvement was needed was the lack of specific rules about the insolvency proceedings of the single legal entities members of the group of companies.

However, those long ten years in which the insolvency of groups of companies was not given any attention, did not mean that there were no such situations that groups of companies collapsed, so the courts and insolvency practitioners found themselves in difficult situations where they needed to derive some solutions from the available provisions which were tailored for single entities’ insolvency proceedings[9]. Those solutions were mostly connected to the questions such as: should the group of company be considered as a one legal entity in the insolvency proceeding; if the parent company undergo the insolvency proceeding should the insolvency proceeding be opened on its subsidiaries as well; should there be only one insolvency practitioner for all the insolvency proceedings etc.?

The Regulation 2015/848 finally introduced the chapter that deals with the insolvency of the group of companies. Even though the Regulation 2015/848 chose the “mild” approach that restrained from strictly binding rules that will demand strict procedures and special type of behaviour of courts and insolvency practitioners, it definitely brought novelties into corporate groups’ insolvency proceedings.  

What New the “New” Regulation Brought

To the Insolvency Proceedings of Corporate Groups

Regulation 2015/848 dedicated a new chapter V to the insolvency of groups of companies. It is structured in a way that first section of the chapter V pertains to Cooperation and Communication and second section to Coordination.

When it comes to cooperation and communication, the Regulation 2015/848 obliges insolvency practitioners and courts to communicate and cooperate with each other in order to facilitate the effective administration of those proceedings. In its recital the Regulation 2015/848 says that insolvency practitioners and the courts involved in insolvency proceedings should have similar obligation to cooperate and communicate. That insolvency practitioners and courts do not have the same, but only similar obligations arises from the Art. 56, 57 and 58. When it comes to the communication and cooperation between insolvency practitioners and between courts the Regulation 2015/848 says that they “shall” cooperate with each other. On the other hand, when it comes to the relationship between insolvency practitioners and courts, there is a duty for the insolvency practitioners to cooperate with the courts, but vice versa it says that insolvency practitioners “may request the information from the court”, which means that there is no obligation for the courts to provide insolvency practitioner with requested information.[10]

However, it is important to mention that insolvency practitioners communicated in insolvency proceedings of group of companies even before the new Regulation was enacted. The communication helped them to retain the connection between the companies and it made insolvency proceedings faster and more effective. The only difference was that then cooperation and communication depended on their good will, and now they are obliged to cooperate and communicate. But, who will supervise the actual communication and cooperation or are they some sanctions for not behaving in that way? The Regulation 2015/848 does not regulate the liability for breaching the duty to cooperate, neither there are provisions on supervision of cooperation between insolvency practitioners and courts.

The section on Coordination is however much thoroughly regulated, but in substance the purpose of coordination is to achieve more coherence in the insolvency proceedings among members of the same group. The idea of group coordination is “to have a tool that allows insolvency proceedings opened in different member states in relation to different members of group of companies to be heard in a coordinated manner”[11].

Thus, the Regulation 2015/848 assigns insolvency practitioners that are appointed for one member of the group to request opening of the group coordination proceeding. The coordination is established only on a voluntary basis, unlike the cooperation and communication, and it refers to insolvency practitioners only, not to the courts.

The court will decide to open the group coordination proceeding if it finds that the opening of such proceedings is appropriate to facilitate the effective administration of the insolvency proceedings, that no creditor of any group member is likely to be financially disadvantaged, and that the proposed coordinator fulfils the requirements. However, the Regulation 2015/848 gives insolvency practitioners a right to object to the inclusion of the proceeding in which he has been appointed in group coordination proceedings or to the person proposed as a coordinator.

The group coordination proceeding is not obligatory. As it was mentioned before, the insolvency practitioners have a right to object. Then, even though the purpose of the group coordination proceeding is to achieve a higher coherence between the proceedings and insolvency practitioners shall consider recommendations of the group coordinator, they are not obliged to do so and the insolvency proceeding can be carried out without coordination.

So what would actually be different in the insolvency proceedings of members of group of companies now when the new Regulation was adopted? Firstly, each company will be considered as a separate legal entity, regardless the fact that they are members of the same group. This rule was set in Eurofood case before the Regulation 2015/848 was enacted. The Regulation 2015/848 also adopted the same rule.[12] Secondly, if one company, member of the group, becomes insolvent, that will not affect other companies (even if the parent company is the one that became insolvent it will not affect subsidiary companies). But, if several companies of the group or all companies of one group become insolvent there is an obligation for the insolvency practitioners and the courts to exchange information (to cooperate and communicate), or a right for the insolvency practitioner to request the opening of a coordination procedure. As the result, there will be more coherence between those companies in insolvency, which will hopefully result in faster, cheaper and more effective insolvency proceedings.

Case Agrokor through the Lens of the Regulation 2015/848

In the sense of everything that is mentioned for the insolvency proceeding of the group of companies under the new Regulation, some conclusion can be made for the possible Agrokor’s insolvency.

If the Agrokor as the parent company undergo the insolvency proceeding, its subsidiary companies do not have to undergo insolvency proceeding as well. They can continue doing business as before. However, in reality if Agrokor as the parent company collapses, it will indirectly definitely influence other members of group, especially if we consider the fact that some of the biggest Agrokor’s creditors are some of its subsidiaries. It is questionable if they will be able to continue doing business with such large debts.

Also, if some of the subsidiaries of the Agrokor concern become insolvent, they will be consider as separate legal entities, regardless the fact that they are all subsidiary companies of the parent company. They have their own legal personality, and are solely responsible for their debts. For each of them the separate insolvency proceeding will be open.

When it comes to the rules on cooperation and communication and coordination, if Agrokor faces the insolvency and some of its subsidiaries as well, they would have to follow the rules from Regulation 2015/848 that obliges them to cooperate and communicate. Then, the group coordination procedure might be open according to the rules from Regulation 2015/848, but only on subsidiaries in Croatia and Slovenia. The situation is different when it comes to the subsidiaries in Bosnia and Serbia. Since they are not members of the European Union, the rules on coordination are not applicable on them and they will just have to follow the rules on cooperation and communication which are regulated in their national laws (the section on international insolvency).


Even though it is questionable if the new Regulation brought in substance anything new to the insolvency of group of companies, it should be greeted because it for the first time put insolvency of group of companies into spotlight. The provisions from the Regulation 2015/848 can be considered as the first steps towards more regulated and harmonized insolvency law. So, in the following years, we will see if the new Regulation will be sufficient to put in order insolvency proceedings of group of companies or some new rules should be made that will modify or replace existing ones.



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Insolvency proceedings in case of groups of companies: Prospects of harmonisation at EU level

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Moreno. Alberto Diaz. Comments to the new EU regulation on insolvency proceedings. Insolvency of members of a group of companies. Analysis GA&P, July 2015

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[1] Agrokor is the Croatian biggest retail company, a concern by its nature, has a network of companies in Bosnia, Slovenia and Serbia. More about Agrokor can be found here: http://www.agrokor.hr/en/

[2] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, Official Journal of the European Union, L 141/19

[3] Chapter V of the Regulation 2015/848

[4] Even though the criteria for opening the insolvency proceeding on Agrokor were fulfilled, the proceeding was postponed by the new Law that was enacted by Croatian Parliament, which purpose was to “save” Agrokor from the collapse, because of the great importance of Agrokor for the Croatian economy. The text of the new Law in Croatian language can be reached here: http://narodne-novine.nn.hr/clanci/sluzbeni/2017_04_32_707.html

[5] Mevorach, Irit. Appropriate treatment of corporate groups in insolvency: a universal view. European Business Organization Law Review (2007), 8 (2) ISSN 1566-7529, pg 180

[6] Mevorach, Irit. Appropriate treatment of corporate groups in insolvency: a universal view. European Business Organization Law Review (2007), 8 (2) ISSN 1566-7529, pg 182

[7] Council Regulation (EC) No 1346/2000 of 26 May 2000 on insolvency proceedings, Official Journal of the European Communities, L 160/1

[8] Report from the Commission to the European Parliament, the Council and the European economic and social committee on the application of Council regulation (EC) No 1346/2000 od 29th May 2000 on insolvency proceedings, Strasbourg, 12.12.2012., COM(2012) 743

[9] For example in Eurofood case, where the Court of Justice of European Union stated that in insolvency proceedings of different companies members of the same group of companies should be treated as a one legal entity. But, then in the Collins and Aikman case, the court decided that it was the best to have the one procedure for all companies because they are all controlled by the same parent company.

[10] That duty to cooperate and communicate means to communicate relevant information to each other, to coordinate the administration and supervision of the affairs etc.

[11] Moreno. Alberto Diaz. Comments to the new EU regulation on insolvency proceedings. Insolvency of members of a group of companies. Analysis GA&P, July 2015, pg 6

[12] This rule is based on the procedural consolidation approach. UNCITRAL defined procedural consolidation (or somewhere it is called coordination) as: „coordination of the administration of two or more insolvency proceedings in respect of enterprise group members. Each of those members, including its assets and liabilities, remains separate and distinct.“ UNCITRAL Legislative Guide on Insolvency Law – Part three: Treatment of enterprise groups in insolvency, 1st July 2010, pg. 2. The procedural consolidation approach is the opposite of the substantive consolidation approach.