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European Insolvency Regulation 1346/2000

Dr Loukas MistelisClive 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/insolven/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 debtor’s

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 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

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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 debtor’s 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 II4. The law of the Member State where main

insolvency proceedings are commenced will govern the proceedings – Articles 4 and 28

5. 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

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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/insolvency/fsj_civil_1346_en.htm