1 European Insolvency Regulation 1346/2000 Dr Loukas Mistelis Clive M Schmitthoff Senior Lecturer in International Commercial Law

2 Issues covered Historical background Legal background and context Scope, and salient features of Regulation 1346/2000 Outstanding issues and the future If time allows, a case study

3 “ if the Gods wish to punish us, they usually begin by answering our prayers ” Ancient Greek proverb

4 Historical background Major legislative activity in the last decade: new laws in Germany, Japan, Australia, Canada, and Mexico, and EC Reform beyond domestic laws to international co-operation and co- ordination Abandon the legislative and nationalist attitude of the 1970s and 1980s

5 Few Examples UNCITRAL Model Law on Cross-Border Insolvency with Guide 1997 EC Regulation on Insolvency Proceedings (2000) ALI Principles of Cooperation in Transnational Insolvency Cases Among the Members of NAFTA (2002)

6 UNCITRAL Model Law Text at solven/insolvency.htm solven/insolvency.htm To date several countries have adopted / enacted the Model Law including US, Canada, Australia, New Zealand, South Africa Overlap with the EC Regulation

7 Model Law continued Primarily intended to prevent local realisation of assets in situations where there are insolvency proceedings within a specific country, and The company forming the subject matter of those proceedings has assets throughout the world.

8 Background of Regulation : a draft convention doomed from the start 1990s: revival of the project: new, more modest proposal, originally suggested as a treaty Regulation adopted in May 2000, came into force on 31 May 2002

9 EU Private International Insolvency Law Framework 1968 Brussels Convention / Regulation 44/2001 Regulation 1346/2000 Insurance undertakings Directive 2001/17 (entry into force on 20 April 2003); credit institutions Directive 2001 (entry into force on 5 May 2004)

10 … continued Netting and securities settlement systems Directive 1998/26 (1 January 1999) Financial collateral arrangements – implementation date 31 December 2004 Late payments in commercial transactions Directive 2000/35 – implementation date 8 August 2002

11 Application / Scope I All EU member states but DK Applies to intra-EU effects of insolvency proceedings. It does not regulate the position as between member states and non-member states Applies to several UK insolvency procedures: Compulsory winding up, company voluntary liquidations, administrations, partnerhip winding up bankruptcy, individual voluntary agreements …

12 Application / Scope II Insolvency proceedings opened after 31 May 2002 Replaced 10 bilateral or multilateral conventions between Member States Replaces Council of Europe Convention of Istanbul 1990 Reservation by Portugal re Articles 26, 37

13 Application / Scope III Applies to proceedings Which are collective Which are based on the debtor ’ s insolvency and not on other grounds Which entail total or partial divestment of the debtor ad Where a liquidator has been appointed.

14 Application / Scope IV Limited framework Proceedings and liquidator should be mentioned in one of the applicable lists in the annexes Insolvency proceedings – Article 2(a) Winding up proceedings – Article 2(c) Liquidator – Article 2(b)

15 Application / Scope V The Regulation applies To all listed (52) insolvency proceedings In which a person/body acting as liquidator (58) is appointed In 14 EU countries, whether the debtor is a natural or a legal person But not to insolvency proceedings concerning financial institutions

16 Objectives of Regulation Coordination of measures to be taken re insolvent debtor ’ s assets – proper functioning of internal market: Determine international jurisdiction of the courts or authorities with regard to intra-EU effects of insolvency proceedings Create uniform conflict of laws rules for such proceedings Ensure recognition and enforcement of judgements given in such matters

17 … Make provisions for the possibility of opening secondary insolvency proceedings Ensure mutual coordination and communication between liquidators in main and secondary proceedings Guarantee information for creditors and a right to lodge claims

18 Fundamental Principles I 1. Main insolvency proceedings can only be commenced in the Member State where the debtor ’ s Centre of Main Interest (COMI) is located – Article COMI presumption – place of registered office 3. Main insolvency proceedings, once commenced, are to be automatically recognised across all Member States

19 Fundamental Principles II 4. The law of the Member State where main insolvency proceedings are commenced will govern the proceedings – Articles 4 and The office holder may exercise all powers that he has under the law of the Member State where main proceedings have been commenced, in any other Member State 6. Insolvency Proceedings may also be commenced in a Member State where a debtor has an “ establishment ” for assets there

20 Non-main proceedings Secondary proceedings, if commencement in a Member State after main proceedings have been initiated – Articles 3.2 and 27 protect usually local creditors, assist and support main proceedings and may be requested by main liquidators Territorial proceedings, if no main proceedings have been commenced – Article 3.4

21 COMI Must be established for proceedings to start in a Member State The Member State where the debtor conducts the administration of his interests on a regular basis In the case of a company/legal person the registered office is presumed to the COMI Interest is widely defined, and extends to general economic activities

22 “ Establishment ” It must be established for secondary or territorial proceedings Any place of operations where the debtor carries out a non-transitory economic activity within human means and goods A place of operations within a particular Member State – mere presence of assets is in itself insufficient

23 Applicable Law – Lex Forum Concursus – Articles 4 and 28 The law of the Member State where proceedings commenced It governs all the effects of the insolvency proceedings both procedural and substantive Article 4.2 (a) – (m) Exceptions – Articles

24 Exceptions – Articles Third parties ’ rights in rem – Article 5 Set off – Article 6 Reservation of title – Article 7 In some aspects another applicable law is mentioned Article 8 (immovable property); 9 (financial markets settlement systems); 10 (employment contracts); 11 (ship/aircraft); 14 (third party purchasers) …

25 Recognition Immediate recognition of judgments concerning opening, conduct and closure of insolvency proceedings, unless secondary proceedings in other Member State are opened – Art. 16 Automatic recognition also for other judgments – 44/2002 – Art. 25 Meaning of automatic recognition Principle of universality Defence – public policy – Art. 26

26 Liquidator Power Art. 2(b) / Annex C, Art Restrictions Proceedings in another Member State Obligation to comply with law Appointment Art 19 Effects of publication – Art. 24

27 Coordination Art. 20 – return what he has obtained Art. 21 – request publication Art. 22 – request registration Art. 29 – request secondary proceedings Art. 32 – participate in secondary proceedings Art. 33/34 – request stay of proceedings Art. 33 – request termination of stay Art. 34 – propose a rescue plan

28 Coordination Art – dis-content with finalising liquidation in secondary proceedings Art. 35 – claim the remaining assets Art. 37 – request that the proceedings will be converted in winding up proceedings

29 Issues for Legislators of MS Procedural Main or secondary? International jurisdiction? Ex officio? Registrations National bankruptcy register Of which court? Publications and third party rights National trade register In which sources? Facilitate coordination of main and secondary proceedings

30 EU information e/fsj/civil/insolvency/fsj_civil_1346_en.h tm e/fsj/civil/insolvency/fsj_civil_1346_en.h tm