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EUROPEAN UNION REGULATION ON INSOLVENCY PROCEEDINGS
An Introductory Analysis (October 2006) (Annexes deleted)
Prof. Bob Wessels
www.bobwessels.nl
Preface
Over four years ago, after nearly 40 years of preparation, the European Union Regulation on Insolvency
Proceedings entered into force. Within the development of insolvency law in Europe 31 May 2002
symbolises a historic day. The EU Insolvency Regulations sets forth a framework for cross border
insolvency within the European Union, especially providing rules for the international jurisdiction of a
court in a Member State for the opening of insolvency proceedings, the (automatic) recognition of these
proceedings and the powers of the ‘liquidator’ in the other Member States, and important choice of law
provisions. Since mid 2002 further developments have taken place. Ten mainly central and eastern
European states have joined the EU and therefore are bound by the Regulation. Some 150 court cases have
been published dealing with all kind of issues relating to the Regulation. A hot debated issue is ‘COMI’,
the acronym of the debtor’s centre of main interest, which forms the judicial basis for opening insolvency
proceedings. Several battles between jurisdictions have been taken place which involves cases that also
have had quite some attention in the USA, including BRAC Rent-A-Car, Daisytek, Collins & Aikman and
Eurofood IFSC Ltd/Parmalat.
Although the Regulation only applies to insolvency proceedings where the centre of the debtor’s main
interest is located in the European Community, and therefore is territorial in its scope, the Regulation will
have its effects on US corporations with economic activities or operations in the EU. The American
Bankruptcy Institute (ABI) has recognized that it is of enormous importance for businesses, banks and
bankruptcy practitioners, involved in international dealings and international aspects of bankruptcy, to be
aware of the key issues of the EU Insolvency Regulation. This was, in short, the aim of the first edition of
this booklet and this approach has been taken again in the preparation of the second edition.
It is evident that in the publication the text of the Insolvency Regulation and its Annexes contain the three
groups of changes that have been made since 2002. I have included references to the two cases relating to
the interpretation of the Regulation that have been decided by the European Court of Justice in January
2006 (Suzanne Staubitz-Schreiber) and May 2006 (Eurofood/Parmalat). Finally, I have included a concise
bibliography for those readers that are looking for more detailed information and analysis.
The contents of this publication has been finalised during the first week of October 2006.
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PREFACE
1.
INTRODUCTION
1.1.
1.2.
1.3.
1.4.
1.5.
1.6.
1.7.
1.7.1.
1.7.2.
1.7.3.
1.7.4.
1.7.5.
The EU Private International Law Insolvency system
History of the Insolvency Regulation
From Convention to Regulation
Goal and Method of the Regulation
Scope of the Regulation
Exclusions
Quick Summary of the Regulation
Chapter I - General Provisions (Articles 1-15)
Chapter II - Recognition of Insolvency Proceedings (Articles 16-26)
Chapter III - Secondary Insolvency Proceedings (Articles 27-38)
Chapter IV - Provision of information for creditors an lodgement of their claims (Articles 3942)
Chapter V – Transitional and final provisions (Articles 43- 47)
2.
GENERAL PROVISIONS
2.1.
2.2.
2.2.1.
2.2.2.
2.2.3.
2.2.4.
2.2.5.
2.2.6.
2.3.
2.4.
2.5.
2.6.
2.7.
2.8.
2.9.
2.10.
2.11.
2.12.
2.13.
2.14.
Scope and Definitions
International jurisdiction
Main insolvency proceedings
Local insolvency proceedings
Independent territorial insolvency proceedings
Secondary territorial proceedings
European Court of Justice 17 January 2006 (Suzanne Staubitz-Schreiber)
European Court of Justice 2 May 2006 (Eurofood)
Law applicable
Third parties’ rights in rem (Article 5)
Set-off (Article 6)
Reservation of title (Article 7)
Contracts relating to immovable property (Article 8)
Payments systems and financial markets (Article 9)
Contracts of employment (Article 10)
Effects on rights subject to registration(Article 11)
Community patents and trademarks (Article 12)
Detrimental acts (Article 13)
Protecting third-party purchasers (Article 14)
Effects of the insolvency procedure on lawsuits pending (Article 15)
3.
RECOGNITION OF INSOLVENCY PROCEEDINGS
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3.1.
3.2.
3.2.1.
3.2.2.
3.3.
3.4.
3.5.
3.6.
3.7.
3.8.
3.9.
Principle
Effects of recognition
Recognition of the main proceedings
Recognition of secondary proceedings
Powers of the liquidator
Proof of the liquidator’s appointment
Return and imputation
Publication, registration and costs
Honouring of an obligation to a debtor
Recognition and enforceability of other judgments
Public policy
4.
SECONDARY INSOLVENCY PROCEEDINGS
4.1.
4.2.
4.3.
4.4.
4.5.
4.6.
4.7.
4.8.
4.9.
4.10.
4.11.
Opening of proceedings
Applicable law
Right to request the opening of secondary proceedings
Duty to cooperate and communicate information
Exercise of creditors’ rights
Stay of the process of liquidation
Measures ending secondary insolvency proceedings
Assets remaining in the secondary proceedings
Subsequent opening of the main proceedings
Conversion of earlier proceedings
Preservation measures
5.
PROVISION OF INFORMATION FOR CREDITORS AND
LODGMENT OF THEIR CLAIMS
5.1.
5.2.
5.3.
5.4.
Right to lodge claims
Duty to inform creditors
Content of the lodgement of a claim
Languages
6.
RELATIONSHIPS WITH NON EU MEMBER-STATES
6.1.
6.2.
The EU Insolvency Regulation; some tentative conclusions
EU Insolvency Regulation and non-member States
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1.
Introduction
1.1. The EU Private International Law Insolvency system
The EU Regulation on Insolvency Proceedings, which entered into force 31 May 2002, is an instrument
that forms a part of a more comprehensive framework of the Private International Insolvency Law system
of the EU. This wider framework consists of the following components:
a. The System of International Jurisdiction and Enforcement of Judgments in Civil and Commercial
Matters. This system, set up in the 1968 Brussels Convention on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters, is based on Article 220 EC Treaty. Insolvency proceedings
relating to the winding-up of insolvent companies or other legal persons, judicial arrangements,
compositions and analogous proceedings are excluded from the scope of the 1968 Brussels Convention.
The EU Insolvency Regulation (also: InsReg) aims to fill up the gap.
The Insolvency Regulation provides for rules regarding jurisdiction, applicable law and recognition. Since
it also contains conflict of law rules (private international law) it goes beyond the traditional scope of the
Brussels Convention. This latter Convention has been transformed into a Regulation as of 1 March 2002
(Council Regulation No. 44/2001 of 22 December 2000, Official Journal L 12 of 22 December 2001).
Article 25 Insolvency Regulation aligns the recognition and enforceability of insolvency related
judgements (concerning the course and the closure of insolvency proceedings and court approved
compositions) with the Brussels Regulation 2002.
b. Insurance Undertakings, Credit Institutions and Investment Undertakings. Insolvency proceedings
concerning insurance undertakings, credit institutions, investment undertakings, holding funds or
securities for third parties and collective investment undertakings are excluded from the scope of the
Insolvency Regulation, see Article 1(2) InsReg. The excluded entities and undertakings are not defined in
the Regulation, but by other instruments of EU Community law. The entities and undertakings which fall
under the definitions given by the relevant Community Regulations and Directives are excluded from the
Insolvency Regulation since they are subject to special arrangements and, to some degree, national
Supervisory authorities have extremely wide-ranging powers of intervention.
‘Insurance undertakings’ will be defined according to the description, laid down in Directive 2001/17 of
the European Parliament and the Council of 19th March 2001 on the reorganisation and winding-up of
insurance undertaking (Official Journal L 110 of 20 April 2001), and ‘credit institution’ will be covered
by the definition to be found in Directive 2001/24 of the European Parliament and the Council of 4th April
2001 on the reorganisation and winding-up of credit institutions (Official Journal L 125 of 5 May 2001).
Opposite to a Regulation a Directive will go through a legislative implementation process in each
individual Member-State. The implementation dates are 20 April 2003 (insurance) and 5 May 2004 (credit
institutions) respectively and a large number of countries have enacted their implementation legislation.
The aforementioned Directives are in nature and content quite similar to the Insolvency Regulation. The
differences flow from some specific characteristics:
- these institutions operate according to the principle of one single licence, issued by one Member State,
but applicable in all Member States. In addition the supervisory system for these institution is based on
home country control. For this reason the Directives provide for one main insolvency proceeding, to avoid
unnecessary interference because of a secondary insolvency proceeding in another member State;
- jurisdiction for the relevant court is based on the law of the statutory seat;
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- the Insurance Directive will contain certain provisions with regard to harmonising the system of
protection of rights of policy holders.
A draft Directive on Winding Up of Investment Undertakings is still under consideration.
c. Credit Institutions. Within the context of Credit institutions three other EC measures are of importance:
1. Deposit-guarantee schemes. The main objective of this Directive 94/19 (Official Journal L 135 of 31
May 1994) is to protect a depositor up to € 20 000 in the event of a deposit becoming unavailable, e.g.
when a bank becomes insolvent. A home Member State bank is responsible for the deposit-protection
scheme for branches established in other EEA Member countries. The EEA (European Economic Area)
countries contain the 25 EU Member States and also Norway, Iceland and Liechtenstein. Home country
schemes shall guarantee depositors of a bank and of the branches, set up by banks in other Member States,
although branches may opt to join a host country protection scheme.
2. Netting and Securities settlement Systems. The EU Directive 1998/26 (Official Journal L 166 of 11 June
1998) protects netting in payment and securities settlement systems and insulates collateral given to
operators of these systems or the Central Banks in the performance of their functions from the effect of
bankruptcy. The implementation date was 1 January 1999;
3. Financial Collateral Arrangements. A EU Directive on Financial Collateral Arrangements has been
issued (Official Journal C 180 of 26 June 2001). It will apply to collateral arrangements between parties,
providing a uniform conflict of laws treatment of book entry securities used as collateral in a cross-border
context, and protects these arrangements from the effect of bankruptcy. The implementation date is 27
December 2003 and most EU Member States have enacted legislation on the topic.
d. Other relevant community provisions. Other provisions concerning ‘insolvency’, which have a source in
EC community law, include:
1. Directive 77/187/EC with regard to Safeguarding of Employees’ Rights in the event of Transfer of
Undertakings;
2. Directive 90/314/EC re the insolvency of a Tour Operator;
3. Directive 97/9/EC re Investor Compensation Schemes;
4. Directive 2000/35 with regard to Late Payments in Commercial Transactions;
5. Directive 2000/74 on the Protection of Employees in the Event of Insolvency of their Employer
(updating Directives 77/187 and 80/987)
6. Regulation 2001/2157 with regard to the European Company Statute, in which Article 67 provides that
an ECS will have the same treatment as public limited liability company set up in accordance with law of
the Member State in which its registered office is situated.
1.2. History of the Regulation
The intention of this summary of the EC Insolvency Regulation is to provide a general overview of
purpose and contents of the Insolvency Regulation. For more extensive commentaries one should consult
specific sources of literature. See Appendix II (Select Biography).
In order to complete the internal EC market the absence of a Treaty on Insolvency Proceedings was
viewed as a lack in the legal protection of persons and businesses. Only national law (including its private
international law) is applicable in the event of a (legal) person going bankrupt. At the same time a whole
range of cross-border activities is increasingly being undertaken by persons – notably legal persons,
companies – trading only within the borders of one Member State. In order to face these and future
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problems the European Community Ministers of Justice met informally in San Sebastian from 25 to 27
May 1989. There they expressed the wish that a solution was needed, and therefore they re-launched
discussions and negotiations regarding a Convention on Cross-border Insolvencies that could apply in the
European Community. Member States gave instructions to that effect by setting up, within the Council of
the European Communities, an ad hoc Working party on a Bankruptcy Convention. A number of national
experts, under chairmanship of Dr Manfred Balz (Germany), were therefore designated. The ad hoc
Working Party met and discussed frequently from 1991 until the conclusion of the definitive text of the
European Convention of Insolvency Proceedings in 1995 (hereafter referred to as the Convention). The
Convention itself was tabled for approval by the EU Council of Ministers on 25 September 1995.
1.3. From Convention to Regulation
Legal basis of the Convention was Article 220 EC Treaty. It provides:
‘Member States shall, so far as is necessary, enter into negotiations with each other with a
view to securing for the benefit of their nationals: the protection of persons and the
enjoyment and protection of rights under the same conditions as those accorded by each State
to its own nationals, ……., the simplification of formalities governing the reciprocal
recognition and enforcement of judgments of courts and arbitration awards’.
The characteristics of a Convention are that all EC Member States must ratify the Convention, and powers
to give rulings on interpretation are conferred upon the Court of Justice of the European Communities
(ECJ). These powers are granted in the text of the Convention itself and not in additional protocols.
The text of the EU Convention on Insolvency Proceedings was open for signature between 23 November
1995 and 23 May 1996. Out of the 15 Member States 14 signed the Convention. When the deadline for
completion of signatures passed only the United Kingdom remained outstanding, due to political
controversies with regard to the distorted relations between the UK and the other Member States because
of the ‘mad cow disease’ (an epidemic disease named ‘bovine spongiform encephalopathy’, or: BSE) and,
later, between UK and Spain regarding the sovereignty over the tiny territory of Gibraltar.
Now most of the content of this Convention is subject of the Insolvency Regulation, based on the postTreaty of Amsterdam 1998 area of creating private international private law (conflict of laws), especially
international private procedural law directly. A Regulation is a Community law instrument, which is
binding and directly applicable in Member States. The Insolvency Regulation has as its basis Article 65
and Article 67 (judicial cooperation) of the EC Treaty. Its application has immediate effect in all Member
States as of 31 May 2002, except for Denmark, see Whereas (33). The Regulation applies since 1 May
2004 to the ten new entrants to the EU. See 1.5.
By Declaration Portugal has reserved its rights concerning the application of Article 26 and Article 37
(Official Journal C 183 of 30 June 2000, p. 1), stating that ‘public policy’ of Portugal in applying Article
37 InsReg may lead to defend important local interests when an independent territorial proceeding, as
referred to in Article 3(4), is requested to be converted into a main insolvency proceeding as meant in
Article 3(1) InsReg.
1.4. Goal and Method of the Regulation
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The European Union has set out the aim of establishing an area of freedom, security and justice. The
activities of undertakings have more and more cross-border effects and are therefore increasingly being
regulated by European Community law. While the insolvency of such undertakings also affects the proper
functioning of the internal market, the EU wants to respond to the need for a Community act requiring
coordination of the measures to be taken regarding an insolvent debtor’s assets. The proper functioning of
the internal market requires that cross-border insolvency proceedings should operate efficiently and
effectively and the Regulation aims to achieve this objective within the scope of judicial cooperation in
civil matters within the meaning of Article 65 EC Treaty. For the purpose mentioned above it is necessary
to:
a. determine the jurisdiction of the courts or authorities with regard to the intra-Community effects of
insolvency proceedings,
b. create certain uniform conflict-of-laws or private international law rules for such proceedings,
c. ensure the recognition and enforcement of judgments given in such matters,
d. make provisions for the possibility of opening secondary insolvency proceedings, and
e. guarantee information for creditors and a right to lodge claims.
See Whereas (8).
The Insolvency Regulation adopts a combined method (or: mixed model), which introduces main
insolvency proceedings, reflecting the principle of universality, but permits local proceedings, necessary
to protect local interests. The Regulation acknowledges the fact that as a result of widely differing
substantive laws in the Member States it is not practical to introduce insolvency proceedings with
universal scope in the entire Community. The application without exception of the law of the State of
opening of proceedings would, against this background, lead to several difficulties, e.g. with regard to the
widely differing laws on security interests and the differing laws re preferential rights enjoyed by some
creditors in insolvency proceedings. The Regulation, therefore, provides for two categories of special rules
on applicable law, being (i) special rules with regard to particularly significant rights and legal
relationships (e.g. rights in rem and contracts of employment), or (ii) national proceedings covering only
assets situated in the State of opening. The former group is excluded form the principle that the law
applicable to insolvency proceedings is the law of the Member State within the territory of which such
proceedings are opened (also referred to as: ‘lex concursus’ or ‘lex forum concursus’). The latter group
leads to allowing local proceedings alongside main insolvency proceedings with universal scope (see
Whereas (11)). The result of this combination of different interests leads to a system in which the main
insolvency proceedings can be opened in the Member State where the debtor has the centre of his main
interests. These proceedings (only one) have universal scope and aim at encompassing all the debtor’s
assets. To protect the diversity of interests, the Regulation permits secondary proceedings to be opened in
other Member States and to run in parallel with the main proceedings. These proceedings, called
secondary proceedings, may be opened in the Member State where the debtor has an establishment as
defined in Article 2(h). The effects of secondary proceedings are however limited to the assets located in
that specific State. In addition, mandatory rules of coordination with the main proceedings satisfies the
need for unity in the Community.
1.5. Scope of the Regulation
The Insolvency Regulation applies to collective insolvency proceedings, which entail the partial or total
divestment of a debtor and the appointment of a liquidator. See Article 1(1). Two annexes (A and B) to the
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Regulation determine the national proceedings covered by the Insolvency Regulation. A third Annex (C)
determines the persons or bodies that act as ‘liquidator’. These Annexes form an integral part of the
Regulation. The consequences of proceedings and ‘liquidators’ being listed in the Annexes A, B and C are
the encumbrance of the scope of the Regulation and the eligibility for recognition under the provisions of
the Regulation, as also the automatic recognition of the liquidator’s appointment and powers.
In all, in 2006 the EU Insolvency Regulation applies to 81 types of insolvency proceedings and 93 types
of persons/bodies (acting as ‘liquidators) in 24 countries. The Regulation originally in 2002 applied to 52
types of proceedings and 58 types of liquidators in 14 countries (Denmark excluded). The entry of 10 new
Member States into the European Community as of 1 May 2004 added 29 types of proceedings and 35
types of ‘liquidators’. These countries are (with their capital between brackets): Cyprus (Nicosia), Czech
Republic (Prague), Estonia (Tallinn), Hungary (Budapest), Malta (Valetta), Latvia (Riga), Lithuania
(Vilnius), Poland (Warsaw), Slovakia (Bratislava) and Slovenia (Ljubljana). The enlargement has led to
some minor changes in the text of the Insolvency Regulation.
Under Article 2(a) and (c), ‘insolvency proceedings’ covered by the Regulation must also have been
expressly entered by the State concerned in the lists of proceedings in Annexes A and B. Only those
proceedings expressly entered in the list will be considered insolvency proceeding as covered by the
Regulation and therefore will be able to benefit from its provisions. The term ‘liquidator’ used by in the
Regulation reflects a very broad concept. Under Article 2(b) InsReg it includes any person or body whose
function is to administer or realise the assets or supervise the management of the debtor’s business. A
court itself may fulfil this role. The persons or bodies considered to be liquidators by the Regulation are
set in the list in Annex C to the Regulation. The Annexes have been amended three times (March 2004,
April 2005 and April 2006). Appendix I contains the most recent text of the regulation and its Annexes.
1.6. Exclusions
The Regulation applies to all listed insolvency proceedings, whether the debtor is a natural person or a
legal person, a trader, a merchant or an individual. As previously discussed, insolvency proceedings
concerning insurance undertakings, credit institutions, investment undertakings holding funds or securities
for third parties and collective investment undertakings are excluded from the scope of this Regulation.
See paragraph 1.1.
1.7. Quick Summary of the Regulation
The following provides for a quick summary of the contents of the Insolvency Regulation.
1.7.1.
Chapter I - General Provisions (Articles 1-15)
The general provisions establish the area of application of the Regulation. It is confined to ‘proceedings
which entail the partial or total divestment of a debtor and the appointment of a liquidator’, see Article
1(1) InsReg. As far as the jurisdiction is concerned the Regulation is based on the general principle that
‘the courts of the Member State within the territory of which the centre of the debtor’s main interests is
situated shall have jurisdiction to open insolvency proceedings’, see Article 3(1). For a company or legal
person, the centre of its main interests is the place of its registered office (Article 3(1) last line). In
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addition, the court of another Member State shall have only jurisdiction, if ‘the debtor possesses an
establishment within the territory of that other Member State’ (Article 3(2)). The effects of the latter
proceedings are however restricted to the assets of the debtor situated in the territory of the other Member
State (Article 3(2) last line).
The law applicable to insolvency proceedings under the Regulation is that ‘of the Member State within the
territory of which such proceedings are opened’, see Article 4(1), known as: lex concursus or lex forum
concursus.
The exceptions to the application of the lex concursus are referred to in Article 5 – 15 InsReg. These
exceptions include third parties’ rights in rem and reservation of title (Article 5 and 7), set-off rights
(Article 6), contracts relating to immovable property (Article 8) and contracts of employment (Article 10).
1.7.2.
Chapter II - Recognition of Insolvency Proceedings (Articles 16-26)
Recognition of a judgement opening insolvency proceedings in a Member State means that the judgment
produces the same effects in the other States as under the law of the State of the opening of these
proceedings. This key issue of the Regulation is granted by Article 16. Insolvency proceedings opened in
the opening State where the debtor has his centre of main interests will be (automatically) recognised in all
the other Member States. Nevertheless such recognition does not prohibit the opening of secondary
proceedings in a State where the debtor owns an establishment, see Article 16(2). This recognition
includes the termination of the debtor’s authority to dispose of the assets. It also puts an end to a judgment
that results in executing in favour of an individual creditor. The chapter describes furthermore, amongst
others, the powers of a liquidator, the publication of the opening judgement in another Member State or in
public registers.
1.7.3.
Chapter III - Secondary Insolvency Proceedings (Articles 27-38)
As already has been pointed out, opening of main insolvency proceedings in the opening State where the
debtor has his centre of main interests does not preclude the opening of secondary proceedings in other
Member States provided that the debtor has an establishment. Secondary proceedings can be said to serve
mainly two purposes: (i) they protect creditors, usually local creditors, from the main proceedings, and (ii)
at the same time they assist and support the operation of the main insolvency proceedings. The opening of
secondary proceedings may be requested by the liquidator in the main proceedings or by any other person
authorised to do so under local law (Article 29). A creditor for example who thinks that his chances will
be better in local proceedings than in the main proceedings in an other State, may file such a request.
1.7.4.
42)
Chapter IV - Provision of information for creditors an lodgement of their claims (Articles 39-
Any creditor has the right to lodge claims in writing, if his residence is located in a Member State other
than the State of the opening of proceedings. He may either file in main proceedings or in secondary
proceedings. This provision is meant also for the tax authorities and social security authorities (Article
39). The chapter further provides for a duty to inform known creditors in the other Member State and the
language to be used in the specific notice.
1.7.5.
Chapter V – Transitional and final provisions (Articles 43- 47)
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The Insolvency Regulation applies only to insolvency proceedings opened after its entry into force
(Article 43), which is (Article 47) 31 May 2002. Ten years later the Commission shall present an
Evaluation Report on the application of the Insolvency Regulation (Article 46).
As the Annexes A, B and C relate exclusively to the legislation of Member States, there are specific and
substantiated reasons for the Council to reserve the right to amend these Annexes in order to take account
of any amendments to the domestic law of the Member States. The Annexes can be amended in a simple
manner, see Article 45.
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2.
General provisions
2.1. Scope and Definitions
Article 1(1) defines a framework for the applicability of the Regulation, requiring four cumulative
conditions, which all have to be fulfilled:
1. Proceedings must be ‘collective’.
This means that all creditors concerned may seek satisfaction only through these insolvency proceedings,
as individual actions will be precluded. A proceeding may comprise acts and formalities set down in the
applicable law (Whereas (10)).
2. The proceedings must be based on ‘the debtors insolvency’ and not on other grounds.
The insolvency-test itself is rooted in the legislation of the lex concursus.
3. The proceedings must entail the total or partial divestment of the debtor.
It should be stated that partial divestment, regarding the debtor’s assets or his power of administration, is
sufficient. The legal nature that such divestment may take, depending on the national legislation
applicable, has no bearing on the application of the Regulation to the proceedings in question.
4. The proceedings should entail the appointment of a ‘liquidator’.
This requirement is directly linked to the previous condition. In general in any insolvency procedure, in
order to achieve a divestment, a transfer of powers to another person, the liquidator, takes place. This
transfer covers powers of administration or disposal over all or a part of the debtor’s assets, and the
limitation of the powers of the debtor, through the intervention and control of the debtor’s actions.
For the Insolvency Regulation to be applied, it is however not sufficient that the proceedings in question
meet the four conditions mentioned above. A fifth condition should be met. The specific ‘proceeding’ and
its ‘liquidator’ should be mentioned in one of the applicable Lists in the Annexes:
- A. Insolvency proceedings referred to in Article 2(a);
- B. Winding up proceedings, referred to in Article 2(b), and
- C. ‘Liquidator’, as referred to in Article 2(c).
Insolvency proceedings do not necessarily involve the intervention of a judicial authority. For this reason
the expression ‘court’ in this Regulation has been given a broad meaning and includes a person or body
empowered by national law to open insolvency proceedings, see Article 2(d).
2.2. International jurisdiction
The rules of jurisdiction set out in the Regulation establish only international jurisdiction. Article 3 InsReg
therefore designates the Member State of which the courts may open insolvency proceedings. Territorial
jurisdiction within that Member State itself must be established by the national law of the Member State
concerned (Whereas (15)).
The essential design of the Regulation is to establish a hierarchical scheme of main (primary) and
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secondary (subsidiary) jurisdictional competence in relation to a debtor. The court where the ‘centre of the
debtor’s main interests’ (COMI) is situated, so within the territory of a Member State, will have the
primacy to open the proceedings. It is important to keep in mind that the principle of subordination
between primary and secondary proceedings is set forth by Articles 3(2) – (4): where the centre of the
debtor’s main interests is situated within the territory of a Member State, the courts of another State have a
jurisdiction to open insolvency proceedings only if the debtor possesses an ‘establishment’ in the territory
of that other State (Article 3(2) and Article 2(h) InsReg). See 2.2.2.
Consequently several proceedings in relation to the same debtor, which run under the insolvency laws of
two or more different Member States, are due to be opened. However, only one main proceeding (opened
in the State where the centre of the debtor’s main interest is situated) is allowed, whilst there could be as
many secondary proceedings in other States as the debtor possesses establishments in these territories.
The Regulation does not provide any express rule to resolve cases where the courts of two States
concurrently claim jurisdiction in accordance with Article 3(1). Such conflicts of jurisdiction are seen as
an exception, given the necessarily uniform nature of the criteria of jurisdiction. The principle of mutual
trust forms the basis on which any dispute should be resolved where the courts of two Member States both
claim competence to open the main insolvency proceedings. The decision of the first court to open
proceedings should be recognised in the other Member States without those Member States having the
power to scrutinise the court’s decision (Whereas (22)).
2.2.1
Main insolvency proceedings
The Regulation does not define the concept of ‘centre of main interests’ as meant in Article 3(1), but it
appears that only economic interests are to be taken into consideration. ‘Main’ is meant to serve as a
criterion where these interests include activities of different type or nature. Article 3(1) 2nd sentence
assumes that the registered office is the centre of main interests, in the absence of proof to the contrary.
The assumption serves as a rebuttable presumption. Most commonly such a place corresponds to the
actual head office of a debtor. Actually this might not be so: in the UK, for instance, it is quite common
for the registered office to be somewhere else than the actual operational headquarters of the company.
One might argue that if the ‘actual head office’ was elsewhere this would be required sufficient to rebut
the presumption. To determine the ‘centre of main interest’ (COMI) of a natural person, the Regulation
does not contain presumptions. The concept of COMI must be interpreted as the place where the debtor
conducts the administration of his interests on a regular basis, which is therefore ascertainable by third
parties (see Whereas (13)). In two decisions issued in 2006 the European Court of Justice has provided
further guidance for interpreting COMI, see 2.2.5 and 2.2.6. It should be mentioned that ‘centre of main
interest’ and the method of dividing proof by the same rebuttable presumption has found its way to
Section 1502(4) and Section 1516 (c) U.S. Bankruptcy Code.
2.2.2.
Local insolvency proceedings
In cases where the debtor’s centre of main interests is located in a Member State, the courts of other
Member States have no power to open main insolvency proceedings. However, any of those States may
open territorial proceedings, if the debtor has an ‘establishment’ in the territory of that State. This is called
a secondary proceeding. An establishment means any place of operations where the debtor carries out a
non-transitory economic activity with human means and goods according to Article 2(h). The UNCITRAL
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Model Law’s definition of ‘establishment’ (Article 2(f) UNCITRAL Model Law) has been derived from
Article 2(h) InsReg. Section 1502(2) U.S. Bankruptcy Code is inspired by the Model Law’s description of
establishment. The mere presence of an asset or only a bank account is not enough to create this
establishment.
Consequently Article 3(2) does not grant jurisdiction to open territorial proceedings to the courts of the
States where the debtor does not have an establishment. The assets located in that State are encompassed
in the main insolvency proceedings, if such proceedings have been opened. As said, in the event of there
being a number of establishments located in different Member States, several sets of secondary
proceedings may be opened.
2.2.3
Independent territorial insolvency proceedings
Article 3(4) deals with situations that exist prior to the opening of main proceedings, since there are yet no
main proceedings to which they are subordinated. This is exceptional with regard to the universal scope of
the proceedings now that territorial proceedings may be opened in advance, in order to satisfy ‘local’
creditors. The courts of a Member State having jurisdiction under Article 3(2) may open, prior to the main
proceedings, territorial insolvency proceedings (also called: independent territorial proceedings), in only
two cases: (i) the conditions for opening the insolvency proceedings, as set out by the law of the State
where the centre of a debtor’s main interests is located, do not allow main proceedings to be opened, see
Article 3(4)(a), e.g. the debtor misses the qualification of being a merchant, and (ii) where the opening is
requested by a local creditor (‘a creditor who has his domicile, habitual residence or registered office in
the Member State within the territory of which the establishment is situated’) or whose claim arises from
the operation of that establishment, within the meaning of Article 3(4)(b). In this case one can think
especially of local suppliers.
The reason for this restriction is that cases where territorial insolvency proceedings are requested before
the opening of main insolvency proceedings are intended to be limited to what is absolutely necessary. If
the main insolvency proceedings are opened, the territorial proceedings become secondary proceedings.
See Whereas (17).
2.2.4
Secondary territorial proceedings
Article 3(3) InsReg requires that, after the main proceedings have been opened by the competent court
within the meaning of Article 3(1), the subsequent proceedings opened by the court of the State where the
establishment is located, in accordance with Article 3(2), are secondary proceedings subject to Chapter III
of the Insolvency Regulation. Following the opening of the main insolvency proceedings, the right to
request the opening of insolvency proceedings in a Member State where the debtor has an establishment is
not restricted by this Regulation. The liquidator in the main proceedings or any other person empowered
under the national law of that Member State may request the opening of secondary insolvency
proceedings, see Article 29 InsReg.
Secondary insolvency proceedings do not only serve the protection of local interests. In a case ‘where the
estate of the debtor is too complex to administer as a unit or where differences in the legal systems
concerned are so great that difficulties may arise from the extension of effects deriving from the law of the
State of the opening to the other States where the assets are located’ the liquidator in the main proceedings
may request the opening of secondary proceedings ‘when the efficient administration of the estate so
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requires’ (Whereas (19)).
2.2.5. European Court of Justice 17 January 2006 (Suzanne Staubitz-Schreiber)
In the beginning of 2006 the first full case concerning the application of the Insolvency Regulation has
been given by the European Court of Justice on 17 January 2006 (Case C-01/04). The decision also
concerns COMI, but this time for a natural person. The applicant for opening insolvency proceedings is
Suzanne Staubitz-Schreiber, a resident in Germany where she operated a telecommunications equipment
and accessories business as a sole trader. She ceased to operate that business in 2001 and requested, on 6
December 2001, the opening of main insolvency proceedings regarding her assets before the Court in
Wuppertal. On 1 April 2002, she moved to Spain in order to live and work there. By judgement of 10
April 2002, the Wuppertal Court refused to open the insolvency proceedings applied for on the ground
that there were no assets. The appeal brought by the applicant in the main proceedings against that order
was dismissed in appeal, on the ground that the German courts did not have jurisdiction to open
insolvency proceedings in accordance with Article 3(1) of the Regulation, since the centre of the main
interests of the applicant in the main proceedings was situated in Spain. Susanne brought an appeal before
the German Supreme Court (Bundesgerichtshof) in order to have the latter order set aside and the case
referred back to the Court in Wuppertal. She submits that the question of the international jurisdiction of
the court should be examined in the light of the situation at the time when the request to open insolvency
proceedings was lodged, or, in this case, by taking account of her domicile in Germany in December 2001.
The German Supreme Court refers the following question to the ECJ for a preliminary ruling: ´Does the
court of the Member State which receives a request for the opening of insolvency proceedings still have
jurisdiction to open insolvency proceedings if the debtor moves the centre of his or her main interests to
the territory of another Member State after filing the request but before the proceedings are opened, or
does the court of that other Member State acquire jurisdiction?
Where is Suzanne’s COMI?
It follows that in the case of main proceedings the national court must determine whether it has
jurisdiction in the light of Article 3(1) of the Regulation. The ECJ indicates that this provision does not
specify whether the court originally seised retains jurisdiction if the debtor moves the centre of his main
interests after submitting the request to open proceedings but before the judgment is delivered. The ECJ
considers that a transfer of jurisdiction from the court originally seised to a court of another Member State
on that basis would be contrary to the objectives pursued by the Regulation. The ECJ submits that the
preambles to the Regulation express the intention to avoid incentives for the parties to transfer assets or
judicial proceedings from one Member State to another, seeking to obtain a more favourable legal
position:
´That objective would not be achieved if the debtor could move the centre of his main
interests to another Member State between the time when the request to open insolvency
proceedings was lodged and the time when the judgment opening the proceedings was
delivered and thus determine the court having jurisdiction and the applicable law.´
Transfer of jurisdiction would also be contrary to the objective of efficient and effective cross-border
proceedings and retaining the jurisdiction of the first court seised ensures greater judicial certainty for
creditors who have assessed the risks to be assumed in the event of the debtor’s insolvency with regard to
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the place where the centre of his main interests was situated when they entered into a legal relationship
with him.
´The answer to be given to the national court must therefore be that Article 3(1) of the
Regulation must be interpreted as meaning that the court of the Member State within the
territory of which the centre of the debtor’s main interests is situated at the time when the
debtor lodges the request to open insolvency proceedings retains jurisdiction to open those
proceedings if the debtor moves the centre of his main interests to the territory of another
Member State after lodging the request but before the proceedings are opened.´
It is interesting to note that in the ECJ’s approach to the aims and objectives of the Insolvency Regulation
the recitals (whereasses) are pivotal. Furthermore, emphasis is laid on the interests and the protection of
creditors, which seems to function as a forerunner of the ECJ decision in the Eurofood case. On 9
February 2006 the German Supreme Court decided that the judgment of the Wuppertal Court of 10 April
2002 is overturned and the Supreme Court referred the matter for a new decision to the same court.
2.2.6 European Court of Justice 2 May 2006 (Eurofood)
On 2 May 2006 the European Court of Justice has published its long awaited judgment, which is also
important for the interpretation of COMI. Eurofood IFSC Ltd is registered in Ireland in 1997 as a
´company limited by shares´ with its registered office in the International Financial Services Centre in
Dublin. It is a wholly owned subsidiary of Parmalat SpA, a company incorporated in Italy, whose
principal objective was the provision of financing facilities for companies in the whole Parmalat group.
On 24 December 2003, in accordance with Decree-Law No 347 of 23 December 2003 (Amministrazione
straordaninaria delle grandi impresi in stato di insolvenza - extraordinary administration for large
insolvent undertakings; GURI No 298 of 24 December 2003, p. 4), Parmalat SpA was admitted to
extraordinary administration proceedings by the Italian Ministry of Production Activities, who appointed
Mr Bondi as the extraordinary administrator of Parmalat. On 27 January 2004, the Bank of America
applied to the High Court (Ireland) for compulsory winding up proceedings to be commenced against
Eurofood and for the nomination of a provisional liquidator. That application was based on the contention
that Eurofood was insolvent. The Irish High Court appointed on the same day Mr Farrell as the
provisional liquidator, with powers to take possession of all the company’s assets, manage its affairs, open
a bank account in its name, and instruct lawyers on its behalf.
Two weeks later, on 9 February 2004, the Italian Minister for Production Activities admitted Eurofood to
the extraordinary administration procedure and appointed Mr Bondi as the extraordinary administrator.
This was followed a day later by an application filed before the Tribunale Civile e Penale di Parma
(District Court, Parma, Italy) for a declaration that Eurofood was insolvent. The hearing was fixed for 17
February 2004, Mr Farrell being informed of that date on 13 February. On 20 February 2004, the District
Court in Parma, taking the view that Eurofood´s COMI was in Italy, held that it had international
jurisdiction in the meaning of Article 3(1) of the Insolvency Regulation to determine whether Eurofood
was in a state of insolvency.
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Back to Ireland: by 23 March 2004 the High Court decided that, according to Irish law, the insolvency
proceedings in respect of Eurofood had been opened in Ireland on the date on which the application was
submitted by the Bank of America, namely 27 January 2004. Taking the view that the COMI of Eurofood
was in Ireland, it held that the proceedings opened in Ireland were the main proceedings. It also held that
the circumstances in which the proceedings were conducted before the District Court in Parma were such
as to justify, pursuant to Article 26 of the Regulation, the refusal of the Irish courts to recognise the
decision of that court. Finding that Eurofood was insolvent, the High Court made an order for winding up
and appointed Mr Farrell as the liquidator. Mr Bondi appeals against that judgment and the Irish Supreme
Court considered it necessary, before ruling on the dispute before it, to stay the proceedings and to refer
several questions, including the one regarding COMI, to the Court of Justice for a preliminary ruling.
On this topic the European Court of Justice (Grand Chamber) 2 May 2006 (Case C-341/04) rules as
follows:
´Where a debtor is a subsidiary company whose registered office and that of its parent
company are situated in two different Member States, the presumption laid down in the
second sentence of Article 3(1) of Council Regulation (EC) No 1346/2000 of 29 May 2000
on insolvency proceedings, whereby the centre of main interests of that subsidiary is
situated in the Member State where its registered office is situated, can be rebutted only if
factors which are both objective and ascertainable by third parties enable it to be
established that an actual situation exists which is different from that which location at that
registered office is deemed to reflect. That could be so in particular in the case of a
company not carrying out any business in the territory of the Member State in which its
registered office is situated. By contrast, where a company carries on its business in the
territory of the Member State where its registered office is situated, the mere fact that its
economic choices are or can be controlled by a parent company in another Member State is
not enough to rebut the presumption laid down by that Regulation.´
The European Court court too decides that the main insolvency proceedings opened by a court of a
Member State must be recognised by the courts of the other Member States, without the latter being able
to review the jurisdiction of the court of the opening State. This all means that the judgment based on the
application on 27 January 2004 before the High Court (Ireland) must be recognized.
For a company or legal person, the presumption is that the centre of the debtor´s main interests is the place
of its registered office, but this presumption may be rebutted, see Article 3(1) last line. This presumption
should be taken serious. It only can be rebutted ´if factors which are both objective and ascertainable by
third parties´ enable it to be established that reality differs from legal form (the formal location at that
registered office). The ECJ provides two examples: (i) when the company is not carrying out any business
in the territory of the Member State in which its registered office is situated, and (ii) where a company
carries on its business in the territory of the Member State where its registered office is situated. In the
first example (POboxes; sham companies) the presumption may easily be rebutted. In the second example,
the COMI of the debtor could be in the other Member State, but ´the mere fact that its economic choices
are or can be controlled by a parent company in another Member State´ is not enough to rebut the
presumption. Internal ´invisible´ (potential) control by the parent company will be not or hardly
ascertainable. Rebutting the presumption based on these facts does not work. That is only possible if
factors which are both objective and ascertainable by third parties would lead to that consequence.
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2.3.
Law applicable
The Regulation sets out, for the matters covered by it, uniform rules on conflict of laws, which replace
national rules of private international law. Therefore Article 4 lays down the basic rule on conflict of laws
of this Regulation, determining the law applicable to the insolvency proceedings, the product thereof and
their effects. Unless otherwise stated by this Regulation, the law of the Member State of the opening of the
proceedings (or: lex concursus) is applicable. This rule on conflict of laws is valid both for the main
proceedings and for local proceedings (being secondary or independent territorial proceedings), repeated
by Article 28 InsReg for secondary proceedings. It should be noted that the German text seems more
narrow as it is formulated that the law applicable is das Insolvenzrecht des Mitgliedstaats, which is (not
the ‘law’, but) the ‘insolvency law’ of the Member State.
The law applicable of the State of the opening of the proceedings determines all the effects of the
insolvency proceedings, both procedural and substantive, on the persons and legal relations concerned.
This lex concursus governs all the conditions for the opening, conduct and closure of the insolvency
proceedings, the admissibility of claims and the rules on distribution and preferences, etc. These
substantive effects are in a broad sense quite typical for insolvency law and are also necessary for the
insolvency proceedings to fulfil its aims. See Article 4(2)(a) – (m), that provides that the lex concursus
shall determine in particular:
(a) against which debtors insolvency proceedings may be brought on account of their capacity;
(b) the assets which form part of the estate and the treatment of assets acquired by or devolving on the
debtor after the opening of the insolvency proceedings;
(c) the respective powers of the debtor and the liquidator;
(d) the conditions under which set-offs may be invoked;
(e) the effects of insolvency proceedings on current contracts to which the debtor is party;
(f) the effects of the insolvency proceedings on proceedings brought by individual creditors, with the
exception of lawsuits pending;
(g) the claims which are to be lodged against the debtor’s estate and the treatment of claims arising after
the opening of insolvency proceedings;
(h) the rules governing the lodging, verification and admission of claims;
(i) the rules governing the distribution of proceeds from the realisation of assets, the ranking of claims and
the rights of creditors who have obtained partial satisfaction after the opening of insolvency proceedings
by virtue of a right in rem or through a set-off;
(j) the conditions for and the effects of closure of insolvency proceedings, in particular by composition;
(k) creditors’ rights after the closure of insolvency proceedings;
(l) who is to bear the costs and expenses incurred in the insolvency proceedings;
(m) the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to all the
creditors.
Insolvency proceedings to which the law of the opening State normally applies, and their automatic
recognition as provided in Article 16, may interfere with the rules under which transactions are carried out
in other Member States. To ‘protect legitimate expectations and the certainty of transactions’ (see Whereas
(24)) in Member States other than that in which proceedings are opened, provisions have been made for a
number of exceptions to the general rule. The exceptions to the application of the law of the State of the
opening (exceptions to the lex concursus) are referred to in art. 5 – 15 InsReg.
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Three subjects are excluded from the legal consequences normally attached to the opening of insolvency
proceedings: third parties’ rights in rem (Article 5), set-off (Article 6), and reservation of title (Article 7).
For six subjects the Regulation refers to another applicable law than the lex concursus. This is the case for:
contracts relating to immovable property (Article 8), rights and obligations of parties to a payment or
settlement systems or to a financial market (Article 9), contracts of employment (Article 10), the debtor’s
rights in immoveable property, a ship or an aircraft subject to registration (Article 11), the validity of some
acts of a debtor concluded after the opening of insolvency proceedings, in order to protect third-party
purchasers (Article 14), and the effects of insolvency proceedings on lawsuits pending (Article 15).
Article 12 (Community patents and trade marks) provides that certain rights may be included only in the
main proceedings.
Article 13 (Detrimental acts) creates a defence against the applicability of the lex concursus. (see Scheme
1).
I will now deal with some specifics of Articles 5 – 15.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Scheme 1
EXCEPTIONS TO LEX CONCURSUS (Articles 5 – 15)
1. Exclusion from lex concursus: opening ‘shall not affect…’
- third parties’ rights in rem (Art. 5)
- set-off (Art. 6)
- reservation of title (Art. 7)
2. Reference to another applicable law (another than the lex concursus)
Subject
Choice of Law
- contracts relating to
immovable property (Art. 8)
- law of Member State within
which property is situated
(Lex rei sitae)
- rights and obligations of parties
to payment or settlement systems
or to a financial market (Art. 9)
- law of Member State
applicable to system or
market
- contracts of employment (Art. 10)
- law of Member State
applicable to the employment
contract
- the debtor’s rights in immoveable
ship or aircraft subject to
registration (Art. 11)
- law of Member State under property,
the authority of which the
register is kept
- validity of some acts of the
debtor’s debtor concluded
after the opening of
insolvency proceedings,
to protect third-party purchasers (Art. 14)
- law of Member State within
the territory of which the
immovable asset is situated
or under the authority of
which the register is kept
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- the effects of insolvency proceedings
on lawsuits pending (Art. 15)
- law of Member State in
which lawsuit is pending
3. Rights only to include in main proceeding
Article 12 (Community patents and trade marks)
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
2.4. Third parties’ rights in Rem
Protection of trade has been a major concern during the drafting process. Rights in rem have a very
important function with regard to the granting of credit and obtaining capital investment. They protect
their holders against the risk of insolvency of the debtor and the interference of third parties. They allow
credit to be obtained under conditions that would not be possible without this type of guarantee. The
Regulation also acknowledges the interest of each State in protecting its market’s trade. The rationale of
Article 5 is that the basis, validity and extent of such a right in rem should normally be determined
according to the lex situs and not be affected by (the law of the State of) the opening of insolvency
proceedings. The proprietor of the right in rem should therefore be able to continue to assert his right to
segregation or separate settlement of the collateral security.
Article 5 InsReg excludes from the effects of the opening of the insolvency proceedings rights in rem of
creditors or third parties in respect of assets belonging to the debtor, which – at the time of the opening of
the proceedings – are situated within the territory of another Member State. The Regulation imposes only
an obligation to respect third parties’ rights in rem over assets located within the territory of a State
different from the State of the opening of proceedings. The holder of the right in rem may exercise his
right to separate the security from the estate and, where necessary, realise the asset individually satisfying
his claim. On the other hand, the liquidator, even if he is in possession of the asset, cannot take any
decision on that asset which might affect the right in rem created on it, without the consent of its holder.
The rule, laid down in Article 5, however does not ‘immunise’ fully rights in rem against the debtor’s
insolvency. Article 5(1) states that the opening of insolvency proceedings shall not affect rights in rem in
respect of assets located in other Member States; it does not say that the proceedings shall not affect assets
located in another State. As the main proceedings are universal they encompass all the debtor’s assets.
One should note that Article 5 does not interfere with the goods, which are subject to the right itself.
If the law of the State where the assets are located allows these rights in rem to be affected in some way,
the liquidator (or any other person empowered to do so) may request secondary insolvency proceedings be
opened in that State if the debtor has an establishment there. The secondary proceedings are conducted
according to national law and they allow the liquidator to affect these rights under the same conditions as
in purely domestic proceedings. If a secondary proceeding is not opened, the surplus on sale of the asset
covered by rights in rem must be paid to the liquidator in the main proceedings (Whereas (25)).
The Regulation does not intend to impose its own definition of a right in rem, running the risk of
describing as rights in rem legal positions which the law of the Member State where the assets are located
does not consider to be rights in rem, or not encompassing rights in rem which do not fulfil the conditions
of that definition. In order to facilitate the application of the Regulation and to avoid doubts Article 5(2)
provides a list of types of rights that are commonly considered by national laws as rights in rem.
Under Article 5(3) it is provided that the right, recorded in a public register and enforceable against third
parties, under which a right in rem within the meaning of Article 5(1) may be obtained, shall be
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considered a right in rem. Under Article 5(4), it is stated that Article 5(1) shall not preclude the actions for
voidness, voidability or enforceability laid down in Article 4(2)(m).
2.5. Set-off
Set-off is a way of paying one’s obligations, governed by the relevant rules of private international law
regarding the law applicable to obligations. Set-off in principle means that two claims will be off-set
mutually. Which law determines the set-off in cross-border insolvency cases in Europe?
Under Article 4(2)(d), insolvency set-off is subject to the competence of the State of the opening of the
insolvency proceeding, the lex concursus. It must be considered however that some countries restrict or
prohibit set-off in situations of insolvency. If the lex concursus allows the set-off no problem will arise
under Article 4. On the other hand, if the lex concursus does not allow for set-off, Article 6 constitutes an
exception to the general rule of the applicability of the law of the Member State where the proceedings are
opened. This Member State shall permit the set-off, according to the conditions established for insolvency
set-off by the law applicable to the debtor’s claim. As this creditor is entitled to the set-off if it is possible
under the law applicable to the claim of the insolvent debtor, he will acquire – through the set-off – ‘a kind
of guarantee ….. based on legal provisions on which the creditor concerned can rely at the time when the
claim arises’(Whereas (26)).
Article 4(2)(d) determines whether the lex concursus allows the set-off. Article 4 deals with the effects of
the opening of the insolvency proceedings; it does not imply to apply material conditions with regard to
the set-off. Article 4 presumes, at the time op the opening of the proceedings, an existing debt versus an
existing claim. Article 6 is most-favourable for set-off ‘permitted by the law applicable to the insolvent
debtors’ claim’. In legal literature some authors are of the opinion that ‘law’ only means ‘general civil
law’; other authors however argue that ‘law’ also encompasses ‘insolvency law’ of the court opening the
insolvency proceedings. Although Article 6 is not clear it seems most likely that the provision implies that
‘law applicable’ is the applicable law of a Member State. In the case a claim is not (yet) mature in the
opinion that ‘law’ stands for ‘general civil law’, the creditor is according to the Civil Code of the
Netherlands (Art. 6:127) not able to set-off, as maturity (payability) of the claim is a prerequisite. In Dutch
Insolvency law (Art. 53 Bankruptcy Act) on the other hand maturity is not a condition to be fulfilled.
Authors defending the latter view hold the opinion that the creditor indeed can set-off.
In other circumstances the former view would give the creditor a right to set-off, e.g. in general French
law, that provides for relatively wide criteria to set-off. In the latter view – applying the ‘double standard’
of both civil law and insolvency law of France – the creditor can not set-off his claim, as French
insolvency law applies quite narrow conditions. The example shows that with engineering of financial
transaction ‘forum shopping’ could raise the possibilities for set-off, although this seems to go against the
rationale of the Regulation, see Whereas (4), indicating that for the proper functioning of the internal
market it is necessary to avoid ‘incentives for the parties to transfer assets or judicial proceedings from one
Member State to another, seeking to obtain a more favourable legal position (forum shopping).’
As in the case of Article 5(4), also Article 6(2) provides that any actions detrimental to all the creditors
may be corrected by bringing actions for voidness, voidability or enforceability as provided for in Article
4(2)(m).
2.6. Reservation of title
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Article 7, paragraphs 1 and 2, divide between rules applicable to a purchaser and those applicable to a
seller.
Article 7(1) governs the insolvency of the purchaser (buyer) of an asset, by allowing the seller to preserve
his rights based on a reservation of title. For this to occur the asset must be located, at the time when the
insolvency proceedings are opened, in a Member State other than the one where the proceedings are
opened. A change of the location, after the opening of the proceedings, does not affect the application of
the provision.
Article 7(2) covers the insolvency of the seller of an asset after delivery of the asset, allowing the sale to
remain valid. If the purchaser continues to make payments, he shall acquire title at the end of the period
set out in the contract. For this rule to be applied, it is also a requirement that at the time the insolvency
proceedings are opened the asset is located within a State other than the State of the opening of
proceedings.
Actions for voidness, voidability or unenforceability, as provided for in Article 4(2)(m) can also be
brought against this reservation of title, see Article 7(3) InsReg.
2.7. Contracts relating to immovable property
In nearly all the EU Member States, contracts covering immovable property are subject to special rules.
This means that both on a level of conflict of laws as well as on the level of international jurisdiction, one
has to take into account several interests. The main categories are the interests of the parties to the contract
and the general interests protected by the State in which the immovable property is to be found. Protection
of these specific interests were considered to justify an exception to the application of the law of the State
of the opening of the proceeding. Therefore Article 8 InsReg makes the effects of the insolvency
proceedings solely subject to the law of the Member State where the immovable property is located. The
word ‘solely’ illustrates that only and exclusively the law of the Member State of the location of the
immovable property (lex rei sitae), and not the lex concursus under Article 4, is applicable to establish
these effects.
2.8. Payments systems and financial markets
The Insolvency Regulation recognises the need for special protection in the case of payment or settlement
systems, e.g. to the position-closing agreements and netting agreements to be found in such systems as
well as to the sale of securities and to the guarantees provided for such transactions as governed in
particular by the EU Directive 1998/26 (Official Journal L 166 of 11 June 1998) on Settlement Finality in
Payment and Securities Settlement Systems. By applying on transactions like this the law which is
material, so the law applicable to the system or ‘financial market’ concerned, it is intended to prevent the
possibility of mechanisms for the payment and settlement of transactions provided for in the payment and
set-off systems or on the regulated financial markets of the Member States being altered in the case of
insolvency of a business partner. By making the effects of insolvency exclusively subject to the law
applicable to the payment and the financial market and avoid any modification of the mechanisms for
regulating and settling transactions provided for in payment or settlement systems or organised financial
markets operating in Member States in the event of insolvency of a party to a transaction, which would
otherwise result in the application of the lex concursus, general confidence in these mechanisms is
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protected. Directive 98/26/EC contains special provisions, which take precedence over the general rules in
the Insolvency Regulation.
The reference to Article 5 in Article 9(1) InsReg means that protection of rights in rem of any kind of
creditors or third parties over assets belonging to the debtor is always carried out in the same way under
the Regulation. This is regardless to the location of the assets, of the type of creditor or institution, which
may benefit from its function as a guarantee. Rights in rem affect third parties and therefore uniform
treatment is essential in order to protect trade.
For the same reason as in Articles 5 – 7, any possible voidness, voidability or unenforceability of a
payment or transaction carried out under this system or market, which may be detrimental to all the
creditors system or financial market, can set aside this payment of transaction. The law applicable to the
relevant payment system or financial market is decisive here.
2.9. Contracts of employment
In order ‘to protect employees and jobs, the effects of insolvency proceedings on the continuation or
termination of employment and on the rights and obligations of all parties to such employment must be
determined by the law applicable to the agreement in accordance with the general rules on conflict of law’,
see Whereas (28). Article 10 therefore derogates from the general rule of the applicability of the law
applicable to the opened insolvency proceedings by virtue of Article 4. At the same time it subjects the
effects of the proceedings on employment contracts and on labour relations to the law of the Member State
applicable ‘to the contract of employment’.
It is clear that this provision aims to protect employees and labour relations from the application of a
foreign law, which might be different from the law that governs the contractual relations between
employer and employees. For this reason, the contract will be subject of the general conflict of laws rules
to be determined by the law applicable. This law regulates effects of the insolvency proceedings on the
continuation or termination of the employment relationship and on the rights and obligations of each party
under such relationship. Consequently the 1980 Rome Convention on the Law applicable to Contractual
Obligations will determine the law applicable to employment contracts. Any problems regarding possible
conflicts between the two laws are avoided. The word ‘solely’ emphasises that only the law applicable to
the employment contract is applied in order to establish these effects and not the lex concursus as provided
in Article 4. Any other insolvency-law questions, such as whether the employees’ claims are protected by
preferential rights and what status such preferential rights may have, should however be determined by the
law of the opening State, see Whereas (28).
2.10. Effects on rights subject to registration
The Insolvency Regulation does not try to modify systems that deal with registration of rights in rem of
the Member States. To preserve these systems, Article 11 establishes an exception to the application of the
lex concursus. This exception seems, however, more limited than the exceptions contained in Articles 8, 9,
and 10 of the Regulation. Contrary to these provisions, Article 11 does not submit the effects of the
insolvency proceedings ‘solely’ to the law of the Member State under the authority of which the register is
kept. This would mean that the general applicability of the law of the State of the opening under Article 4
will not be interfered with.
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Article 11 does not cover assets but rights (of the debtor over immovable property, ships or aircraft and
only their effects) that are subject to registration in public registers, the purpose of which is to determine
who is the holder or which are the rights in rem over assets. It also includes systems of registration of
deeds relating to immovable property to effect priorities such as the Register of Deeds which exists in
Ireland.
2.11. Community patents and trademarks
Trade marks or similar rights are created based on The Agreement relating to the 1989 Convention on
Community patents, the 1993 Council Regulation on the Community trademark and the 1994 Council
Regulation on plant variety rights. This all forms Community law and covers the whole territory of the
EU. The Regulation opens up the possibility of insolvency proceedings with universal effects if the
debtor’s main interests are located in a Member State. By virtue of Article 3(1), in conjunction with this
provision, Article 12 is only applicable when the debtor has his centre of main interests in a Member State.
2.12. Detrimental acts
The conditions, content and the consequences of the voidability of acts between a debtor and a creditor are
derived from the law of the opening State. The purpose of Article 13 and the law governing the act
concerned, is to neglect the application of that law in a given case. The aim of Article 13 is to
acknowledge legitimate expectations of creditors or third parties. Given the validity of the act in
accordance to the national law that normally would be applicable, without any interference from a
different lex concursus, Article 13 represents a defence against the application of the law of the State of
the opening. The defence must be pursued by the interested party to claim it. In this respect it acts as a
‘veto’ against the validity of the act decreed by the law of the State of the opening.
2.13. Protecting third-party purchasers
Article 14 fosters the desire to protect the confidence of third parties in the content of property registers
when the debtor, after the insolvency proceedings have been opened, disposes for consideration of an asset
from the estate, and the opening of proceedings or the restrictions on the debtor have not yet been entered
or referred to in the register in question. The provision covers a ship, an aircraft, immovable assets or
certain securities subject to registration in a public register. The ‘law of the State within the territory of
which the immovable asset is situated or under the authority of which the register is kept’ applies in
relation to dispositions of these assets by a debtor to a third party after commencement of the insolvency
proceedings. The English, French and German version of the text refer to ‘State’ (l’État, Staates), where
the Dutch text reads ‘lidstaat’ (Member State). System and ratio of the Regulation imply that Article 14 is
limited to the law of the respective Member State. To be protected by this provision, it is necessary that
the debtor disposes of one of these assets for consideration and not gratuitously.
2.14. Effects of the insolvency procedure on lawsuits pending
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The Insolvency Regulation distinguishes between the effects of insolvency on individual enforcement
proceedings and those on lawsuits pending. The effects on individual enforcement actions are governed by
the law of the State of the opening of the insolvency proceedings as meant under Article 4(2)(f). The
interests of individual enforcement are carried on in collective insolvency proceedings that prevent any
individual enforcement action brought by creditors against the debtors’ assets. Effects of the insolvency
proceedings on other legal proceedings concerning the assets or rights of the estate are, according to
Article 15, governed by the law of the Member State in which these proceedings are underway. The
procedural law of this State shall decide whether or not the proceedings are to be suspended, how they are
to be continued and whether any appropriate procedural modifications are needed in order to reflect the
loss or the restriction of the powers of disposal and administration of the debtor and the intervention of the
liquidator in his place.
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3.
Recognition of Insolvency Proceedings
3.1. Principle
The Insolvency Regulation provides for immediate recognition of judgments concerning the opening,
conduct and closure of insolvency proceedings, which come within its scope and of judgments handed
down in direct connection with such insolvency proceedings. Automatic recognition should therefore
mean that the effects attributed to the insolvency proceedings by the law of the State in which the
proceedings were opened (lex concursus) extend to all other Member States. Recognition requires no
preliminary decision or other formality by a court of the requested State. Within the territory of the
Member States Article 16 establishes the general principle of recognition of a judgment opening
insolvency proceedings. These proceedings are adopted by the competent authority of a Member State
under Article 3 InsReg (so all proceedings including both main and territorial, either secondary or
independent). Only insolvency proceedings within the scope of the Regulation benefit from the system of
recognition of the Regulation. To fall within it, the proceedings must be listed in the Annexes to the
Regulation. Proceedings not listed in those Annexes shall not be eligible for recognition under the
Regulation nor shall they prevent the recognition of proceedings provided for in the Regulation.
The European Court of Justice 2 May 2006 (Case C-341/04) re Eurofood has ruled that the main
insolvency proceedings opened by a court of a Member State must be recognised by the courts of the other
Member States, ‘without the latter being able to review the jurisdiction of the court of the opening State’.
A decision to open insolvency proceedings for the purposes of Article 16’s rules of automatic recognition
is, according to the European Court, a decision handed down by a court of a Member State to which
application for such a decision has been made, based on the debtor’s insolvency and seeking the opening
of proceedings referred to in Annex A to the Regulation, where that decision involves the divestment of
the debtor and the appointment of a liquidator referred to in Annex C to the Regulation. Such divestment
implies that the debtor loses the powers of management that he has over his assets.
3.2. Effects of recognition
While Article 16 establishes the general principle of the recognition of a judgment to open insolvency
proceedings, Article 17 makes a distinction between the recognition of main proceedings and the
recognition of territorial proceedings.
3.2.1.
Recognition of the main proceedings
The principle of universality of main proceedings opened under Article 3(1), embracing all the debtor’s
assets and in principle affecting all his creditors, implies recognition of the proceedings and their effects in
the other Member States in which those assets or creditors are situated. The Regulation guarantees this
universality through the setting up of a system of mandatory and automatic (ex lege) recognition in all
Member States. This means that in any Member State the same effects are produced as under the law of
the State of the opening of proceedings. The recognition is immediate in this sense that it takes place by
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virtue of the Regulation (‘ex lege Regulatorae’) without any need to resort to preliminary proceedings, to
be fully effective, and without further formalities, like a publication.
In order to determine the effects in another State of the judgment opening the proceedings referred to in
Article 3(1) the law of the State of the opening shall be applicable. The lex concursus of one Member
State therefore is ‘exported’ to another Member State. This law shall apply to all the effects both
procedural and substantive. The substantive effects are included by virtue of the general applicability
under Article 4, which the Regulation attributes to the law of the State of the opening. Therefore they are
subject to the same exceptions (see Article 5 et seq.) as are provided for by the Regulation in respect of
that law.
The recognition of main proceedings opened under Article 3(1) shall, in accordance with Article 3(2), be
limited by the opening of secondary proceedings. In respect of the assets and legal situations, which come
within the jurisdiction of secondary proceedings, the main proceedings cannot produce their ‘automatic’
effects, see Article 16(2). The secondary proceedings protect local interests and for that purpose the
national law of that Member State applies. However, the main proceedings may influence the conduct of
secondary proceedings as a result of co-ordination and sub-co-ordination rules which derive from the
Regulation and to which secondary proceedings are subject. See 4.4.
3.2.2.
Recognition of secondary proceedings
Secondary proceedings can have their effects only on the assets situated in the State of the opening as
referred to in Article 3(2). Recognition cannot imply, therefore, the extension of the effects of those
proceedings to property situated in other Member States. Recognition of secondary proceedings means
admitting the legal force of the opening of the local proceedings. The effects, which they produce over the
assets located in the territory of the State of the opening, cannot be challenged in another Member States
(see Article 17(2), 1st sentence). This is the case, for example, where the liquidator in those proceedings
has to demand the return of assets belonging to the estate in the secondary proceedings, which were
transferred abroad – after the opening of proceedings – without his authorisation. Moreover, the opening
of the secondary proceedings limits the universal effects of the main proceedings, which may no longer
include the assets situated in the State where those secondary proceedings are opened. The main
proceedings must observe that limitation.
3.3. Powers of the liquidator
The main effect of the recognition of insolvency proceedings opened in a Member State is the recognition
of the appointment of the liquidator and of his power in all other Member States. The term ‘liquidator’
must be understood in the wide sense of the definition given in Article 2. By virtue of this recognition the
appointed liquidator will be able to exercise his powers – conferred upon him by the law of the State of
the opening – in other Member States. Within the limits laid down in the Regulation, this means in the
whole of the territory of the European Community (except for Denmark). The nature, obligations and
scope of the liquidator’s powers will be determined by the law of the State of the opening and of the
proceedings in respect of which he was appointed. Article 18(1), last line, expressly stipulates that the
liquidator may even transfer assets out of the State in which they are situated. In this regard the liquidator
must respect however Article 5 (Third parties right in rem) and Article 7 (Reservation of title) since the
proceedings cannot affect rights in rem of creditors or third parties over assets, situated at the time of the
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opening in a Member State other than the State of the opening of proceedings. The creditors can prevent
such a transfer by requesting the opening of secondary proceedings concerning those assets, provided that
the conditions laid down in Article 3(2) or Article 3(3) are fulfilled.
The powers of the liquidator in the main proceedings are subject to two general restrictions:
i. The first restriction derives from the possible opening of insolvency proceedings in another Member
State under Article 3(2). This restriction is logical since the assets cannot be subjected to the powers of
two different liquidators. Consequently the liquidator in the secondary proceedings will have exclusive
powers over the local assets. Once proceedings have been opened, the direct powers of the liquidator in
the main proceedings no longer apply to assets situated in the State of the opening of the territorial
proceedings. This does, however, not imply that the main liquidator loses all influence over the debtor’s
estate situated in the other Contracting State. That influence must be exercised through the powers
conferred upon the liquidator by Article 31 – 37 InsReg to co-ordinate the territorial proceedings and the
main proceedings. Amongst others, the liquidator in the main proceedings has to be given the opportunity
by the liquidator in the secondary proceeding to submit proposals on the liquidation or on using the assets,
see Article 31(3);
ii. The second restriction is laid down in Article 18(3). It derives from the liquidator’s obligation to
comply with the law of the State within the territory of which he intends to take action exercising his
powers. The liquidator shall exercise his powers without infringing the laws of the State in which he is
about to take action.
In addition to the following explanation in par. 4.10 a scheme is provided that gives a checklist/overview
of the rights and duties of a liquidator under the EU Insolvency Regulation.
3.4. Proof of the liquidator’s appointment
A liquidator may establish proof of his appointment by a certified copy of the original decision, issued by
either a person authorised by the State in which the decision was taken or by any other certificate issued
by the competent court affirming the appointment (see Article 19, 1st sentence). In case of doubt or
opposition, it seems reasonable that these powers, based on the law of another Member State, are used by
the person who invokes them. As the Insolvency Regulation contains no rules regarding the means of
proving the scope of the liquidator’s powers, proof may be established by a certificate issued by the Court
appointing the liquidator, which shall define his powers, or by any other means of evidence admitted by
the law of the State where the liquidator intends to exercise his powers.
A translation into the official language(s) of the Member State(s) in which the liquidator intends to act
may be required. This translation shall take into account the requirements established in the State
regarding translations of official documents (see Article 19, 2nd sentence).
3.5. Return and imputation
The Insolvency Regulation considers its geographical scope (the European Community, except Denmark)
to be a single economic area. The main proceedings produce legal effects within this whole area
(‘universality’). Where the Regulation allows for the opening of secondary proceedings, the whole area
should be taken as a reference for the distribution of dividends, making it compulsory to take into account
the sum obtained in each set of proceedings by means of a sort of consolidated account of the dividends
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obtained on a European scale. The aim of Article 20 is to guarantee the equal treatment of all the creditors
of a single debtor. The principle of universality of the main proceedings leads to the provision that a
creditor who, after the opening of the proceedings referred to in Article 3(1) InsReg, obtains by any
means, in particular through enforcement, total or partial satisfaction of his claim on the assets belonging
to the debtor situated within the territory of another Member State, shall return what he has obtained to the
liquidator (see Article 20(1)). Otherwise he would have breached the principle of collective satisfaction on
which the insolvency proceedings are based. The liquidator may demand either the return of the assets
received or the equivalent in money. The obligation to return is subject to Article 5 and Article 7, which
exclude from the scope of the main proceedings rights in rem of creditors and third parties in respect of
the debtor’s assets situated outside the State of the opening of proceedings at that time. As long as these
articles apply, a creditor who obtains satisfaction of claims guaranteed by rights in rem by realization of
the security does not enrich himself to the detriment of the estate and does not breach the principle of
collective satisfaction.
In order to ensure equal treatment of creditors a creditor who has – in the course of insolvency
proceedings exercising his right (Article 32(1)) – obtained a dividend on his claim, shall share in
distributions made in other proceedings only where creditors of the same ranking or category have, in
those other proceedings, obtained an equivalent dividend, see Article 20(2). This provision allows the
creditor to keep what he received in the first proceedings in which distribution took place. Nevertheless, in
order to guarantee the equality of all creditors on a EU Community level, a creditor may not, once this
payment has been received, participate in other distributions until all creditors of the same ranking have
obtained equal satisfaction. The ranking or category of each claim is determined for each of the
proceedings by the law of the State of the opening (Article 4(2)(i)). It may be that the application of
different insolvency laws to the different proceeding leads to different ranking of the same claim lodged in
two different proceedings. The only ranking or category which is taken into account in order to apply
Article 20(2), is that given to the claim by the law governing proceedings in which distribution is to be
given effect.
3.6. Publication, registration and costs
The publication of the opening of insolvency proceedings in another Member State is not a precondition
for the recognition of those proceedings or for the recognition and exercise of the powers of the liquidator
appointed in such proceedings. For business considerations, the main content of the decision opening the
proceedings should be published in the other Member States at the request of the liquidator. If there is an
establishment in the Member State concerned, there may be a requirement that publication is compulsory,
but in neither case, however, should publication be a prior condition for recognition of the foreign
proceedings (see Whereas (29)). Publication may produce significant legal effects in relation to the
evaluation of the behavior of the persons concerned. For this reason Article 21(1) vests the right of the
liquidator to request that notice of the judgment opening insolvency proceedings and, where appropriate,
the decision appointing him, be published in any other Member State in accordance with the publicationprocedures provided for in that State. Such publication shall also specify the liquidator appointed and
whether the jurisdiction rule applied is that pursuant to Article 3(1) or Article 3(2).
Any Member State within the territory of which the debtor has an establishment may require mandatory
publication. In such cases, the liquidator or any authority empowered to that effect in the Member State
where the proceedings referred to in Article 3(1) are opened shall take all necessary measures to ensure
such publication (see Article 21(2)).
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The liquidator may also request that the judgment opening the main proceedings be registered in the land
register, the trade register and any other public register kept in the other Member States (see Article
22(1)). The registration requirement relates to the main proceedings, since the territorial proceedings
cannot affect assets situated outside the State of the opening of proceedings. As with publication also in
this case a Member State may require mandatory registration. In these cases too, the liquidator or any
authority empowered to that effect in the Member State where the main proceedings have been opened
shall take all necessary measures to ensure such registration (see Article 22(2)). Like in Article 21 InsReg
in no case such mandatory publication may be a precondition for recognition.
The costs of the publication and registration provided for in Article 21 and 22 shall be regarded as costs
and expenses incurred in the proceedings, see Article 23.
3.7. Honouring of an obligation to a debtor
The automatic recognition of insolvency proceedings opened in another Member State, and the lack of any
general system of prior publication, guarantee the immediate and full effectiveness of the judgment
opening proceedings in all the Member States. Nevertheless, it is realistic to suppose that a number of
persons and businesses may be unaware of the opening of proceedings and may act in good faith in
contradiction with these new circumstances. Article 24(1) provides a form of protection: where an
obligation has been honoured in a Member State for the benefit of a debtor who is subject to insolvency
proceedings opened in another Member State, when it should have been honoured for the benefit of the
liquidator in those proceedings, the person honouring the obligation (meaning the place where the
obligation in fact has been performed by the debtor of the obligation) shall be deemed to have discharged
it if he was unaware of the opening of proceedings. Article 24(2) lays down two rebuttable presumptions.
Where such an obligation is honoured before the publication provided for in Article 21 has been effected,
the person honouring the obligation shall be presumed, in the absence of proof to the contrary, to have
been unaware of the opening of insolvency proceedings; where, however, the obligation is honoured after
such publication has been effected, the person honouring the obligation shall be presumed, in the absence
of proof to the contrary, to have been aware of the opening of proceedings.
3.8. Recognition and enforceability of other judgments
The recognition of the opening of insolvency proceedings and to its effects is dealt with in Article 16 and
in Articles 17 – 24 respectively. The recognition of judgments relating to the conduct and closure of the
insolvency proceedings and of judgments adopted in the framework of those proceedings is dealt with
generally in Article 25. This provision also regulates the enforcement of all judgments, as regards all its
consequences except the opening itself. Enforcement implies the exercise of the State’s compelling power
to ensure compliance. The principle of exclusive territorial sovereignty precludes the direct exercise of a
State’s power within the territory of another Member State. By virtue of this principle, direct application
of compelling powers is limited to the authorities of the State where the assets or persons to which this
action relates, are situated. The Regulation has not altered this state of affairs. As a consequence, the
enforcement of judgments of courts of other Member States shall depend on prior authorisation by the
authorities of the State in which it must be carried out. This authorisation is obtained by means of a special
procedure in order to convert foreign judgments, called ‘exequatur’.
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Under Article 25(1), first subparagraph, judgments relating to insolvency proceedings (their conduct and
closure) present no specific problem of qualification. Like the judgment regarding the opening of
insolvency proceedings they also shall be recognised with no further formalities. The simplified system of
exequatur provided for in the Brussels I Regulation 2002 (replacing the 1968 Brussels Convention) is used
for judgments adopted in the framework of insolvency proceedings. In order for enforcement to take effect
in the State requested, the judgment should be already enforceable in the State in which it was given and
that effect should not have been suspended there. Grounds for rejection of the exequatur are taken not
from the Brussels I Regulation 2002 (Article 34(2) of the 1968 Brussels Convention is expressly
excluded), but from Article 26 InsReg.
The Regulation also governs (see Article 25(1), second subparagraph) the recognition and the enforcement
of judgments resulting from the insolvency proceedings. These are judgments ‘deriving directly from the
insolvency proceedings and which are closely linked with them’ (but not related to the opening, conduct
and closure of insolvency proceedings). The court having jurisdiction under Article 3(1), also has the
jurisdiction to decide the seizure of the debtor’s assets or any other preservation measure, even if the
assets concerned are situated abroad. Recognition and enforcement of such judgments are also governed
by the Regulation. The definition is in accordance with the decision of the European Court of Justice of 22
February 1979 (Case 133/78) (Gourdain/Nadler) and, thus, avoids gaps between the Insolvency
Regulation and the 2002 Brussels I Regulation. It includes judgments concerning actions to set aside acts
detrimental to the general body of creditors (see now Article 13), actions on the personal liability of
directors based upon insolvency law, actions relating to the admission or the ranking of a claim, and
disputes between the liquidator and the debtor on whether an asset belongs to the bankrupt’s estate.
Preservation measures ordered by a court having jurisdiction under Article 3(1), after the request for the
opening of insolvency proceedings, are subject to the same system of recognition and enforcement, see
Article 25(1), subparagraph 3.
Actions deriving from law other than that relating to insolvency, although perhaps affected by the opening
of proceedings, will lead to judgments other than those referred to in Article 25(1). They will deal e.g.
with actions on the existence or the validity under general law of a contractual claim or relating to its
amount, actions to recover another’s property the holder of which is the debtor; and, in general, actions
that the debtor could have undertaken even without the opening of insolvency proceedings. Recognition
and enforcement of these judgments is subject to the 2002 Brussels I Regulation (see Article 25(2)).
Article 25(3) excludes from the obligation to recognize and enforce those judgments handed down in
another Member State which might result in a limitation of the personal freedom or postal secrecy of the
insolvent debtor or of any other person who may be affected by the limitations derived from the
insolvency proceedings.
3.9. Public policy
Recognition of judgments delivered by the courts of the Member States is based ‘on the principle of
mutual trust. To that end, grounds for non-recognition should be reduced to the minimum necessary’ (see
Whereas (22)). The Regulation, therefore, is based on the principle of ‘community trust’ and on the
general legal presumption that the judgment handed down in another Member State is valid. The
Regulation contains no provisions as to the verification or the review of the international jurisdiction of
the court of the State of origin. For this reason it establishes that the only ground for opposing recognition
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is that the judgment, handed down in a Member State, would be that it is ‘manifestly contrary’ to the
public policy of the other Member State. All questions regarding the legal foundations must be discussed
before the courts of the State of the opening proceedings. In the State where recognition or enforcement is
requested, the court may only decide whether the foreign judgment will have effects which would be
‘manifestly contrary to that State’s public policy, in particular its fundamental principles or the
constitutional rights and liberties of the individual’, see art. 26. Public policy operates as a general clause
as regards recognition and enforcement covering fundamental principles of both substance and procedure.
Public policy may result in total or partial rejection of the judgment handed down in another Member
State. The ‘public policy’ defence itself can only be brought forward by a Member State. Any interested
party seeking to challenge the international jurisdiction of a national court, must apply to the State of the
opening of proceedings to appeal against the decision asserting jurisdiction. The interpretation of the
European Court of Justice 2 May 2006 (Case C-341/04) re Eurofood of Article 26 of the Regulation is that
a Member State may refuse to recognise insolvency proceedings opened in another Member State where
the decision to open the proceedings ‘was taken in flagrant breach of the fundamental right to be heard,
which a person concerned by such proceedings enjoys’.
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4.
Secondary insolvency proceedings
4.1. Opening of proceedings
The Regulation permits the opening of local proceedings by the courts of the State where the debtor has an
establishment, see Article 3(2). If main proceedings have been opened in a State, those local proceedings
can only be ‘secondary’ proceedings. Secondary proceedings are the subject of the national law of the
opening State (Article 28). The Regulation, however, modifies the conditions established by the national
law for the opening of insolvency proceedings in two ways:
i. The national law requirement regarding the debtor’s insolvency does not need to be met, if the judgment
that opens the main insolvency proceedings in another State, is recognised (Article 27, 1st sentence). The
judgment opening main insolvency proceedings contains this specific effect. The court of the State where
the debtor has an establishment and that is entitled to open local proceedings as meant in Article 3(2) shall
indeed permit the opening without the debtor’s insolvency being examined;
ii. In accordance with Article 3(3) secondary insolvency proceedings opened after the main proceedings
have been opened must be winding-up proceedings within the meaning of Article 2(c). Such proceedings
are listed in Annex B. Their purpose is to realise the debtor’s assets. The court cannot open insolvency
proceedings for the purpose of any reorganisation of the debtor’s business or of his financial situation. The
main insolvency proceedings include by contrast both winding-up proceedings and reorganisation
proceedings. These are mentioned in Annex A.
Furthermore the court, requested to open secondary proceedings, examines its jurisdiction within the
meaning of Article 3(2): the debtor must have an establishment as defined in Article 2(h) within the
territory in question. The court appraises the facts to determine whether the debtor has an establishment in
that territory. In fact the court may be led to consider that the debtor’s activities in that territory constitute
more than a simple establishment, and therefore could have been considered as the centre of the debtor’s
main interests. The principle of mutual trust and the effect of Article 16 however leads to the conclusion
that the court in a situation like that should not open ‘main’ proceedings. The court is not able to review
the jurisdiction of the court of the opening State. See 3.1. If on the other hand there is not an establishment
secondary proceedings cannot be opened.
The Regulation deals only with international jurisdiction. The Member State in which an establishment is
situated shall ensure that their legislation designates the court, which has territorial jurisdiction to open
secondary proceedings. In accordance with Article 3(2) secondary proceedings only produce effects with
regard to the debtor’s assets within the territory of the Member State where the establishment is situated.
Although the secondary proceeding is limited by the territory of the Member State, the secondary
liquidator has however the right to act outside his territory. He is by virtue of Article 18(2) authorised to
recover an asset, moved out of that State after the opening of the secondary proceedings. Furthermore he
can act outside his territory in case of fraud against the creditors of those proceedings according to Article
13 in conjunction with Article 4(2)(m). The local liquidator therefore may request the court of a Member
State the return of the assets.
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4.2. Applicable law
Article 28 expressly stipulates that, save as otherwise provided by the Regulation, the law of the State in
which secondary proceedings are opened shall apply to these proceedings. In fact, this provision
reformulates Article 4: the law applicable to the main proceedings is the law of the State where the main
proceedings are opened, and the law applicable to the secondary proceedings is the law of the State of the
opening of the secondary proceedings: the lex (forum) concursus.
4.3. Right to request the opening of secondary proceedings
The right to request the opening of secondary proceedings is directly given to the liquidator of the main
insolvency proceedings (Article 29(a)). The liquidator in secondary proceedings has, however, no right
derived from the Regulation to request the opening of other secondary proceedings in another Member
State. This illustrates the relationship of dependency of the secondary proceedings upon the main
insolvency proceedings. Authorities and persons empowered by national law to request the opening of the
insolvency proceedings, referred to in Annex B, are also entitled to request the opening of secondary
proceedings. They are not limited by the requirement of having a specific interest, see Article 29(b).
Where the law of the Member State in which the opening of secondary proceedings is requested requires
that the debtor’s assets be sufficient to cover in whole or in part the costs and expenses of the proceedings,
the court may, when it receives such a request, require the applicant to make an advance payment of costs
or to provide appropriate security (Article 30).
4.4. Duty to cooperate and communicate information
Main insolvency proceedings and secondary proceedings can contribute to the effective realisation of the
total assets only if all the concurrent proceedings pending are coordinated. The Regulation is based on the
rationale that the various liquidators must cooperate closely, in particular by exchanging a sufficient
amount of information. In order to ensure the dominant role of the main insolvency proceedings, the
liquidator in such proceedings has been given several possibilities for intervening in secondary insolvency
proceedings which are pending at the same time. For this reason Article 31(1) sets forth that, subject to the
rules restricting the communication of information, the liquidator in the main proceedings and the
liquidators in the secondary proceedings shall be duty bound to communicate information to each other.
They shall immediately communicate any information, which may be relevant to the other proceedings, in
particular the progress made in lodging and verifying claims and all measures aimed at terminating the
proceedings. In addition to this mutual obligation to communicate information, they are bound by a
mutual obligation to cooperate. See Article 31(2), which provides that, subject to the rules applicable to
each of the proceedings, the liquidator in the main proceedings and the liquidators in the secondary
proceedings shall be duty bound to cooperate with each other.
The liquidator in the secondary proceedings shall give the liquidator in the main proceedings an early
opportunity of submitting proposals on the liquidation or use of the assets in the secondary proceedings,
see Article 31(3). The liquidator in the main proceedings will therefore be able to propose a restructuring
plan or a composition or apply for realisation of the assets in the secondary insolvency proceedings to be
suspended.
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See for a listing of the rights of the liquidator in the main insolvency proceedings, Scheme 2.
4.5. Exercise of creditors’ rights
By virtue of Article 4(2)(h), the law of the Member State of the opening of secondary proceedings
determines the rules governing the lodging of claims. The Regulation itself contains provisions on persons
entitled to lodge claims. The creditor is entitled to lodge in the proceedings of his choice, even in several
proceedings (Article 32(1)). Both the liquidator in the main proceedings and each liquidator in secondary
proceedings may lodge claims in the other proceedings. The aim of this provision, which seems to result
in quite some paperwork, is to facilitate the exercise of the rights of the creditors.
The possibility that claims are permitted to be lodged by the liquidator in other proceedings (multi-filing
across jurisdictions) is meant to reinforce their influence in other proceedings. Under Article 32(2), a
liquidator shall lodge in other proceedings claims, which have already been lodged in his own
proceedings. The Regulation allows a creditor the right to oppose a claim lodged in other proceedings by
the liquidator. In proceedings other than those he himself has selected, the creditor may have various
reasons for opposing the lodging of his claim. A specific appraisal for each claim would involve a difficult
task for the liquidator, and would be a costly and would mean a lengthy procedure. The obligation to
lodge such claims exists however only if it is in the general interests of all the creditors in this proceedings
or of a typical group of creditors. Finally, Article 32(3) empowers any liquidator to participate in other
proceedings. The aim of this provision is to better ensure the presence of creditors and the expression of
their interests through the liquidator. In order to resolve the frequent absence of creditors, the provision
allows the liquidator to attend creditors’ meetings.
4.6. Stay of the process of liquidation
At the request of the liquidator in the main proceedings, the process of liquidation in secondary
proceedings may be stayed in whole or in part, see Article 33(1), 1st sentence. The liquidator in the main
proceedings submits a request for the stay of liquidation in the secondary proceedings. The court may not
refuse the stay, except if ‘it is manifestly of no interest to the creditors in the main proceedings’, see
Article 33(1), 2nd sentence. The ground for a stay may therefore only be appraised in relation to the
interests of the creditors in the main proceedings. The court may take into account the interests of all the
creditors in the secondary proceedings, as well as certain groups of creditors, imposing on the liquidator in
the main proceedings a guarantee which it determines as appropriate before ordering the stay (Article
33(1), 1st sentence).
The stay is limited to a maximum of three months. Once this period is over, it may be extended for another
three months maximum each time. The number of successive extensions is not limited, see Article 33(1),
last line. The court shall terminate the stay of the process of liquidation at the request of the liquidator in
the main proceedings, at its own motion, at the request of a creditor or at the request of the liquidator in
the secondary proceedings if that measure no longer appears justified, in particular, by the interests of
creditors in the main proceedings or in the secondary proceedings (Article 33(2)).
4.7. Measures ending secondary insolvency proceedings
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If the law of the State, in which the secondary proceedings are opened, allows insolvency proceedings to
be closed by means of a rescue plan, a composition, or a comparable measure, all those stipulated by that
law, may propose such a measure. In addition, Article 34(1) empowers the liquidator in the main
proceedings to propose this kind of measures himself. Under rescue plans, compositions or comparable
measures, the creditors may accept a rescheduling of debts or waive some of their rights and the debtor
may undertake to meet certain conditions. As this may affect the interests in the main proceedings, such a
measure must obtain the consent of the liquidator of in the main proceedings. A closure of secondary
proceedings by a measure referred to in Article 34(1), first subparagraph, shall not become final without
the consent of the liquidator in the main proceedings. In adopting his decision, the liquidator may take into
consideration all the interests of the creditors in the main proceedings, including the interests in
reorganizing and continuing the main business.
Opposing a rescue plan or a composition, and therefore failing the liquidator’s agreement, however,
closure of a secondary procedure may become final if the financial interests of the creditors in the main
proceedings are not affected by the measure proposed (Article 34(1), 2nd sentence). The financial interests
are estimated by evaluating the effects which the rescue plan or the composition has on the dividend to be
paid to the creditors in the main proceedings. If those creditors could not reasonably have expected to
receive more, after the transfer of any surplus of the assets remaining in the secondary proceedings (see
Article 35), in the absence of a rescue plan or a composition, their financial interests are not thereby
affected.
Any restriction of creditors’ rights arising from a measure like a rescue plan or a composition, which is
proposed in secondary proceedings, such as a stay of payment or discharge of debt, may not have effect in
respect of the debtor’s assets not covered by those proceedings without the consent of all the creditors
having an interest, see Article 34(2). During a stay of the process of liquidation ordered pursuant to Article
33, only the liquidator in the main proceedings or the debtor, with the former’s consent, may propose
measures laid down in Article 34(1) in the secondary proceedings. Other proposals for such a measure
shall not be put to the vote or approved, see Article 34(3).
4.8. Assets remaining in the secondary proceedings
If the assets in the secondary proceedings are sufficient to meet all claims allowed in them, any assets not
distributed are to be transferred to the main proceedings. Therefore Article 35 provides that if the
liquidation of assets in the secondary proceedings allows meeting all claims under those proceedings, the
liquidator appointed in those proceedings shall immediately transfer any assets remaining to the liquidator
in the main proceedings. The transfer of any remaining assets to the main proceedings reflects the primary
nature of those proceedings.
4.9. Subsequent opening of the main proceedings
Whenever insolvency proceedings have been opened by a court in the Member State in which the centre
of the debtor’s main interests is located, after independent territorial proceedings were opened in a State in
which there is an establishment, the former will necessarily have to be regarded as secondary. Here one
sees again the reconfirmation of the main proceeding’s primacy. As far as the progress of the independent
territorial proceedings so permits, the rules for co-ordination between the main proceedings and the
secondary proceedings as laid down in Articles 31 – 35 are to be followed (Article 36).
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4.10. Conversion of earlier proceedings
The liquidator in the main proceedings is entitled to request that independent territorial reorganisation
proceedings, as mentioned in Annex A, will be converted into secondary winding-up proceedings. The
Regulation does not prohibit the law of the Member State competent under Article 3(4) from allowing the
liquidator in the main proceedings simply to request the closure of independent territorial reorganisation
proceedings under the conditions laid down by the law. The court is not obliged to order conversion of the
proceedings at the liquidator’s request. It is necessary that the conversion proves to be ‘in the interests of
the creditors in the main proceedings’, see Article 37.
The unilateral influence the main liquidator has with regard to the secondary proceeding leads to accept
the idea that the Insolvency Regulation brings together a universal approach (of the main proceeding),
with an exclusion captured in secondary proceedings with territorial effect, which seems to create
(formally) different proceedings, but in the system of the Regulation (substantially) reflect a model of
coordinated universalism. The model of coordination expresses itself by the duties of communication,
cooperation and the right of the liquidator to involve himself in secondary proceedings. See Scheme 2.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Scheme 2. DOMINANCE OF MAIN INSOLVENCY PROCEEDINGS
The liquidator in the main proceedings may:
(i) May remove assets of debtor from territory of other Member State, subject to Articles 5
and 7 and secondary proceedings (Article 18(1));
(ii) May exercise right ex Article 20 (creditor in other Member State shall return what he has
obtained);
(iii) May request publication in another Member State of opening judgment (Article 21);
(iv) May request registration of judgment in public registers kept in another Member State (Article
22);
(v) Has power to apply for secondary proceedings in other Member States (Article 29);
(vi) Can ask liquidators in the secondary proceedings for information (Article 31(1));
(vii) Can exercise the power to put forward certain proposals in the context of the
secondary proceedings (pursuant to Article 31(3));
(viii) May request a stay of the process of liquidation in these secondary proceedings
(Article 33(1));
(ix) May request the termination of a stay (Article 33(2));
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(x) May propose a rescue plan in the secondary proceedings (see Article 34(1)), also during
the stay of the process of liquidation (Article 34(3));
(xi) May bar any rescue plan reached in secondary proceedings (Article 34(1), 2nd
sentence);
(xii) Shall lodge in other proceedings claims which have already been lodged (Article 32(2));
(xiii) Has the power to participate in the other proceedings on the same basis as the
creditors (Article 32(3));
(xiv) Has the power to collect any remaining assets from the secondary proceedings (Article
35).
(xv) May request that insolvency proceedings, opened previous to the main insolvency proceedings,
will be converted in winding up proceedings (Article 37)
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
4.11.
Preservation measures
The court having jurisdiction to open the main insolvency proceedings is able to order provisional and
protective measures from the time of the request to open proceedings. Preservation measures both prior to
and after the commencement of the insolvency proceedings serve as a guarantee for the effectiveness of
the insolvency proceedings. The court competent for the main insolvency proceedings is also able to order
provisional protective measures covering assets situated in the territory of other Member States. In
addition, a liquidator temporarily appointed prior to the opening of the main insolvency proceedings is
able, in the Member States in which an establishment belonging to the debtor is to be found, to apply for
the preservation measures which are possible under the law of those States (Whereas (16)).
If the court of a Member State, which is authorised to open main insolvency proceedings, appoints a
temporary administrator in order to ensure the preservation of the debtor’s assets, that temporary
administrator shall be empowered to request any measures to secure and preserve any of the debtor’s
assets situated in another Member State, provided for under the law of that State, for the period between
the request for the opening of insolvency proceedings and the judgment opening the proceedings (see
Article 38). The position of this temporary administrator, appointed after the request, but before the
opening, of the main insolvency proceedings reflects a provisional task of preserving the assets, which is
entrusted to him. Such a temporary administrator does not correspond with the definition in Article 2(b) of
a ‘liquidator’ and the function is not necessarily listed in Annex C.
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5.
Provision of information for creditors and lodgement of their claims
Articles 39 – 42 of the Insolvency Regulation are applicable both to main proceedings and to territorial
(independent or secondary) insolvency proceedings (see Whereas (21)).
5.1. Right to lodge claims
Every creditor, who has his habitual residence, domicile or registered office in the Community, has the
right to lodge his claims in each of the insolvency proceedings pending in the Community relating to the
debtor's assets. This also applies to tax authorities and social insurance institutions. However, in order to
ensure equal treatment of creditors, the distribution of proceeds must be coordinated. The system is that
every creditor should be able to keep what he has received in the course of insolvency proceedings, but
should be entitled only to participate in the distribution of total assets in other proceedings if creditors with
the same standing have obtained the same proportion of their claims (so called ‘hotchpot-rule’). Laying
down the right of foreign creditors to lodge claims in writing in insolvency proceedings, art. 39 establishes
a rule of substantive law. This provision derogates from the application of national law pursuant to Article
4(2)(h).
The national law of each proceeding determines the costs, to the charge of a creditor, attached to the claim
and to the verification of the debts. A prudent creditor will take into account the rules relevant to these and
other costs, and will estimate the interest that his claim presents. He will obviously examine the ranking
that the law of the proceedings accords to his claim and the importance of the assets that will be
distributed. The right to lodge claims for a creditor situated in the Member State in which proceedings are
opened, is governed by national law. Article 39 gives creditors the right to lodge claims in writing, but it
does not prevent national law from permitting their claims to be lodged in any other more favourable form
for creditors.
Establishing the right of foreign creditors to lodge claims means that lodgement of their claims cannot be
disallowed, not even on the grounds that the creditor is situated in another Member State or that the claim
is governed by the public law of another Member State.
5.2. Duty to inform creditors
Without any delay the court having jurisdiction or the liquidator must inform known creditors, who have
their habitual residence, domicile or registered office in the other Member States, about the opening of
insolvency proceedings and the need to lodge their claims (see Article 40(1)). The Regulation aims to
improve the situation of intra-Community creditors situated outside the Member State in which
proceedings are opened. The liquidator’s duty to inform creditors situated in the State in which
proceedings are opened, is governed by national law. The Regulation does not take into consideration
creditors from outside the European Community to whom the national law of the State in which the
proceedings are opened, applies; this law determines whether creditors located outside the EU should be
informed.
Article 40(2) lays down the form and the content to be taken by the information provided for creditors.
The liquidator is required to send a notice to each creditor. This notice has to state the time limits for
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lodging claims, the legal consequences laid down for failing to meet those time limits and the person or
body with whom claims must be lodged. It must specify whether creditors with preferential claims or
claims secured in rem, are required to lodge them.
5.3. Content of the lodgement of a claim
Under Article 4(2)(h), the lodging of claims is subject to the law of the State of the opening of
proceedings. In exception to that rule Article 41 constitutes, together with Article 39 and 42(2), the
content of claims lodged by creditors situated in another State. The requirements set out in Article 41 are
intended to identify their claim, which is sought to be lodged. As this provision is meant to facilitate the
exercise of intra-Community creditors’ rights, national legislation may impose no additional conditions on
the content of the lodgement of claims by foreign creditors protected by the Regulation.
A creditor may lodge his claim in writing (Article 39), supplying copies of supporting documents, if any,
stating (as referred to in Article 41): the nature of the claim, the date on which it arose, its amount. It must
also specify any preference, security right or reservation of title alleged, as well as the assets covered by
the guarantee invoked. Under Article 4(2)(h), however, national law of the opening State governs the
verification and admission of claims and determines the procedure by which a creditor must establish his
claim in order to have any admitted to the proceedings.
5.4
Languages
The information for creditors regarding the opening of proceedings for their debtor’s insolvency and the
lodging of claims, is to be given by an individual notice in the official language or one of the official
languages of the State of the opening of proceedings. In order to help those creditors, who do not
understand the language of the State in which proceedings are opened, the form of the information notice
has to be headed: ‘Invitation to lodge a claim. Time limits to be observed’. In order to help courts and
liquidators to comply with these requirements, a form has been drawn up by the European Commission to
be used for this purpose or to serve as a model. The model in English follows (see Scheme 3).
Creditors from other States are allowed to lodge claims in an official language of the State in which they
have their habitual residence, domicile or registered office. However, their written statement must,
according to art. 42(2), be headed ‘Lodgement of claim’ in a language of a State in which proceedings are
opened. Use of the creditor’s language is the rule, although a translation into the official language may be
required in the course of the proceedings. There are also specific conditions on the content of the
lodgement of claim as well as on supporting documents. In view of facilitating the exercise of foreign
creditors' rights in such proceedings, a form has been drawn up by the European Commission to be used
for this purpose or to serve as a model. The model in English follows (see Scheme 4).
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Scheme 3. Model ‘Invitation to lodge a claim. Time limits to be observed’.
«Convocatoria para la presentación de créditos. Plazos aplicables».
"Opfordring til anmeldelse af fordringer. Vær opmærksom på fristerne."
„Aufforderung zur Anmeldung einer Forderung. Etwaige Fristen beachten!“
«Προ΄σκληση για αναγγελι΄α απαιτη΄σεως. Προσοχη΄ στις προθεσµι΄ες»
‘Invitation to lodge a claim. Time limits to be observed’
«Invitation à produire une créance. Délais à respecter»
«Invito all’insinuazione di un credito. Termine da osservare»
„Oproep tot indiening van schuldvorderingen. In acht te nemen termijnen”
«Aviso de reclamação de créditos. Prazos legais a observar»
”Kehotus saatavan ilmoittamiseen. Noudatettavat määräajat”
”Anmodan att anmäla fordran. Tidsfrister att iaktta”
This information notice is to be filled in and sent by the court or the liquidator to each creditor,
immediately after the opening of the insolvency proceedings.
1.
Information about the debtor
2.
Information about proceedings for the lodgement of claims
3.
•
Time limits:
•
Penalties in regard to time limits:
•
Body or authority empowered to accept the lodgement of claims:
•
Other requirements:
Information about certain categories of claims
Creditors whose claims are preferential or secured in rem:
†
†
need lodge their claims
are exempted to do so
Done at ……………………………………………….., date …………………………...
Signature and/or stamp ……………………………………………………………………
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Scheme 4 Model ‘Lodgement of claim’
«Presentación de crédito»
"Anmeldelse af fordring"
„Anmeldung einer Forderung“
«Αναγγελι΄α απαιτη΄σεως»
‘Lodgement of claim’
«Production de créance»
«Insinuazione di credito»
„Indiening van een schuldvordering”
«Reclamação de crédito»
”Saatavaa koskeva ilmoitus”
”Anmälan av fordran”
1.
Personal data
2.
Information about your claim
•
•
•
Nature:
Date:
Amount: ………………………EURO
Please supply copies of supporting documents
3.
In respect of this claim, do you allege:
†
†
†
Any preference
Any security in rem
Any reservation of title
Please cross the relevant box and give below a description of assets that are covered by
the guarantee: …………………………………………………………
Done at ……………………………………., date ……………………………...
Signature ………………………………………..…………………………………
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6.
RELATIONSHIPS WITH NON-EU MEMBER-STATES
6.1. The EU Insolvency Regulation; some tentative conclusions
In general the opinion in Europe is that the EU Insolvency Regulation is an enormous step forward in
providing a recognisable framework that facilitates interaction and alignment of different insolvency
systems throughout the European Community. Cross border insolvencies should become much more
predictable with the enacted system of moderate universalism.
Although a Regulation is binding and directly applicable in Member States, most countries will need to
amend their domestic insolvency law in the short term to be able to put the Regulation into practical
effect. See Scheme 5.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Scheme 5
ISSUES for LEGISLATORS OF MEMBER STATES
Measures for putting Insolvency Regulation into practical effect:
Procedural:
- Should the request for opening expressly ask for ‘main’ or ‘secondary’ proceeding?
- Must the court look into its int’l jurisdiction this ‘ex officio’?
- Can a foreign liquidator appeal to a judgement of the court of another Member State?
- Will a foreign liquidator in submitting his requests need mandatory administrative
support, e.g. by a ‘clerk’ or a court official?
Details re registrations:
- Method and contents re registration in national ‘Bankruptcy’ register, when debtor has
establishment
- Method and contents re registration in same register of a foreign main proceeding
- And: in the registers of which court (when Member States has no central registration)?
Publications (and third party rights):
- Changes in legal situation of immovable assets may result in publications in Public
Register in other Member State
- Adaptation of national Trade Register, e.g. with regard to a foreign court with
appropriate int’l jurisdiction, that opens main proceeding abroad against debtorentrepreneur in which a foreign liquidator is appointed
- In which sources (Official Gazette/Newspaper) and in which languages?
Facilitate co-ordination of main and secondary proceedings
- Liquidator can ask a stay (Article 33) in secondary proceeding and may ask to terminate
this stay: which court in the other Member State? Possibility of appeal? By whom?
- Same questions with regard to the ending of secondary proceedings (Article 34) and
converting earlier proceedings (Article 37)
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- Same question re the request of preservation measures: which court in the other Member
State? Possibility of appeal? By whom? (Article 38)
- Certain obligations for court staff re information / registration / translation
- Provision re power of liquidator to propose rescue plan in case domestic law only provides
that a debtor himself can issue said proposal (Article 34)
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
In the light a the ongoing trend of businesses that spreads and globalises in regions and continents all over
the world, one of the shortcomings of the EU Insolvency Regulation is its limited territorial scope. See
Whereas (14): ‘This Regulation applies only to proceedings where the centre of the debtor’s main interests
is located in the Community’. When the centre of the debtor’s interests is located outside the territory of a
Member State, the Regulation consequently does not apply, e.g. in Norway, Switzerland, Turkey, CIS or
the USA. Also the debtor with only an establishment does not fall into the scope of the Insolvency
Regulation. A subsidiary outside the US may nevertheless have its centre of main interest inside the EU.
When the presumption of Article 3(1) can be rebutted the Regulation will apply to a debtor incorporated
outside the EU Member States having its centre of main interest in the Community. The Regulation does
not apply either in a case where the debtor, with his centre of main interest outside the EU, has two or
more establishments in the Member States. Whilst the Insolvency Regulation is territorial in scope it fails
to address the problems of co-operation with Countries (courts or ‘liquidators’) other than those of the
Member States. Other shortcomings should be recognised too: the Regulation does not deal with the
position of economic groups, consisting of a number of related companies (holding-subsidiary relations),
nor with concepts like ‘substantive consolidation’. In some cases one would wonder whether the
predictability of the Regulation is sufficient enough. The Regulation contains several vague concepts as
‘centre of main interest’, ‘establishment’, and ‘public policy’ and it may give rise to creative engineering
of certain transactions by drafting and applying legal arrangements and contracts that limits the risks of
being opposed to provisions with regard to detrimental acts or that limits (or, as the case may be,
optimises) set-off.
With an eye on the practical consequences the question has been raised whether the Insolvency Regulation
isn’t too traditional in its approach by trying to align certain procedural aspects. Given the fact that
secondary proceedings (aiming at establishments in another Member State) must be winding-up
proceedings, does the Regulation promote a rescue culture enough? Does Article 34 InsReg provide the
liquidator in the main proceedings enough space to propose plans that are in the best interest of the
continuity of debtor’s business? Other practical matters to be mentioned are the costs and delay that may
be involved in applying the system of the Insolvency Regulation and the practicality of the assumption of
the mutual duty of liquidators in main and secondary insolvency proceedings to communicate with each
other, given the variety and differences of the domestic languages in all Member States.
The EU Insolvency Regulation nevertheless is a historic mark in the process to a proper functioning of the
internal EU market and will be of major influence in carrying through or settlement of cross border
business and transactions in cases of an insolvent debtor that does not limit his enterprise to the
geographical borders of a Member State. Every insolvency practitioner needs to anticipate whether in a
given cases his or her moves have an actual or potential EU angle. In preparing proceedings or
transactions the Regulation will have an influence on structuring certain aspects of matters (carry out a
search for Member States with better preferences or apply certain choice of law-provision) and timing of
certain procedural steps. As a whole the insolvency community has the opportunity to make the
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Regulation work in practice, where courts may adopt imaginative interpretation based on the Regulation’s
own aims and concepts.
6.2 EU Insolvency Regulation and Non-member States
As said, the EU Insolvency Regulation in principle only has intra-Community effects. When the centre of
a debtor’s main interests is in a Member State and the Regulation is applicable, its provisions are restricted
to relations with other EU Member States. This is recognised by the Chairman of the ad hoc Working
party, that prepared the (then) Convention (now: Regulation), Dr Manfred Balz, who once stated: ‘It is fair
to say that the Convention is universal within the EEC, but territorial as to third Countries’. The EU
Insolvency Regulation indeed may be seen as a cheese cover over a main part of Europe.
Note, however, that the Regulation provides for EU related, directly applicable community law, but that it
does not interfere with certain international concepts in the domestic insolvency law of Member States
itself. Member States may provide for a wider applicability of those issues than the Regulation addresses.
Consider the following two examples:
(i) Opening of insolvency proceedings in a Member State towards a debtor, who’s centre of main interest
is outside EU, but where the specific national legislation offers sufficient ground for the jurisdiction of the
court in that Member State, or
(ii) The duty to inform immediately known creditors who have their habitual residences, domiciles or
registered offices in the other Member States’ (art. 40(1)), but where the respective national legislation
contains wider provisions, e.g. to inform all known creditors, wherever they are located.
Member States may therefore, in their own domestic law, presently have wider provisions with
international dimensions. Individual Member States may furthermore wish to fill in certain gaps, for
example with regard to recognition of insolvency proceedings and its effects, opened in Member States,
but fallen outside the scope of the EU Insolvency Regulation, because the debtor is located outside the
territory of the EC or a proceeding is not listed in Annex A. That same wish may be more broad, for
example to provide for domestic legislation on the effects of insolvency proceedings opened outside the
EU with regard to a debtor with a centre of main interest outside the EU, to provide for the possibility of
opening secondary proceedings – with territorial limitation – when the debtor has no establishment (but
may have just one or more assets), or to provide for certain rules on ‘group’ or ‘consolidated’ insolvency,
whether or not based on mutuality.
To fill in gaps in certain insolvency cases with international aspects, other options come to mind too. On
an individual bases a Member State’s court may follow the method of application of the EU Insolvency
Regulation on non-EU insolvencies by analogy. The Member State may wish to codify a rule of this
nature, whether or not based on mutuality from another State in question, as it then may wish to enact
legislation containing (additional) provisions with regard to cooperation and coordination between
‘liquidators’ and / or court-to-court communication.
Given the historic step taken by the EU a next step seems logical, e.g. with regard to the coordination of
the insolvency proceedings of ‘establishments’ in Member States from a debtor with his centre of main
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interest outside the EU. EU initiatives may even be more robust. As cross-border insolvency is settled now
on a European level a global equivalent seems desirable, giving evil-minded debtors no opportunity
regarding the circumstances and providing some predictability and certainty in cross-border cases, that
now hardly are regulated.
Nearly ten years ago a world standard that recognises the need for co-operation between courts,
institutions and liquidators and for the recognition of foreign judgments has been created. On 31 May
1997 the United Nations Commission on International Trade Law (UNCITRAL) accepted a Model Law
on Cross-border Insolvency. This Model Law aims to urge and inspire in a way to adapt the national
insolvency law, consequently it must be stated explicitly that the UNCITRAL Model Law shall be
implemented voluntary by each country. Several countries have, in a modified form, adopted the Model
Law, for example Mexico, South-Africa, Japan, Poland and Romania. The USA followed in October 2005
and Great Britain in April 2006. Other important States are in a process of adopting the Model Law, like
Australia, India and Canada. It seems that the solutions the Model Law presents receive universal
acceptance, both in economically developed countries as in economies in transition as well as in common
law jurisdictions and in civil law jurisdictions. Where Article 3 UNCITRAL Model Law respects
international obligations of enacting States, and therefore also the EU Insolvency Regulation, adoption of
the Model Law (with country-tailored adaptations) would provide for a workable regime for the MemberStates’ relations with those countries to whom the Insolvency Regulation presently does not apply.
45