European Insolvency Regulation 1346/2000

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European Insolvency Regulation 1346/2000

• Dr Loukas Mistelis
• Clive M Schmitthoff Senior Lecturer in
  International Commercial Law

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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

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if the Gods wish to punish us, they usually
begin by answering our prayers

• Ancient Greek proverb

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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

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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)

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UNCITRAL Model Law

• Text at http//www.uncitral.org/english/texts/inso
  lven/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

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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.

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Background of Regulation

• 1970-1982 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

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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)

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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

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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

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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

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Application / Scope III

• Applies to proceedings
• Which are collective
• Which are based on the debtors insolvency and
  not on other grounds
• Which entail total or partial divestment of the
  debtor ad
• Where a liquidator has been appointed.

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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)

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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

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Objectives of Regulation

• Coordination of measures to be taken re insolvent
  debtors 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

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• 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

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Fundamental Principles I

1. Main insolvency proceedings can only be commenced
   in the Member State where the debtors Centre of
   Main Interest (COMI) is located Article 3.1.
2. COMI presumption place of registered office
3. Main insolvency proceedings, once commenced, are
   to be automatically recognised across all Member
   States

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Fundamental Principles II

1. The law of the Member State where main insolvency
   proceedings are commenced will govern the
   proceedings Articles 4 and 28
2. 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
3. Insolvency Proceedings may also be commenced in a
   Member State where a debtor has an
   establishment for assets there

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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

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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

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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

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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 5 - 15

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Exceptions Articles 5 -15

• 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)

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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

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Liquidator

• Power
• Art. 2(b) / Annex C, Art. 18.1
• Restrictions
• Proceedings in another Member State
• Obligation to comply with law
• Appointment
• Art 19
• Effects of publication Art. 24

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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

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Coordination

• Art. 34.2 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

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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

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EU information

• http//europa.eu.int/comm/justice_home/fsj/civil/i
  nsolvency/fsj_civil_1346_en.htm