Insolvency

With a view to ensuring the proper operation of the internal market, arrangements have been made for cross-border insolvencies within the EU by means of Regulation (EC) No. 1346/2000 of the Council of 29 May 2000.

Because the substantive law of the various member states can have highly divergent legal consequences, it was deemed to be inadvisable to introduce universal insolvency proceedings for all of the contracting states.

For this reason regulations were introduced instead which make it possible to institute insolvency proceedings simultaneously in various countries having regard to the various interests of all of the creditors involved while respecting the differences between the insolvency proceedings of the various countries.

The underlying principle is that the primary insolvency proceedings are to be instituted in the country which serves as the centre of the relevant debtor's main interests. This is deemed to be the place where that creditor normally manages their interests and which is recognisable to others as such. In the case of a legal entity this is presumed to be the place in which they have their statutory registered office.

In addition, secondary insolvency proceedings may be instituted in other member states in which the creditor concerned has an establishment. That may occur either before or after the primary proceedings are instituted. The consequences of any secondary proceedings will only apply in relation to those goods belonging to the creditor which may be found in the territory of the state in which those secondary proceedings have been instituted.

Before such secondary insolvency proceedings are instituted, the court which enjoys jurisdiction to hear the primary insolvency proceedings, as well as a provisional administrator in that country, may apply for provisional protective measures in another member state.

Before primary proceedings are instituted in the country which serves as the centre of a debtor's main interests, only local creditors may file a petition for insolvency proceedings in any other country in which the debtor has an establishment, or the creditors of that establishment. This is also allowed where it is not permitted to institute insolvency proceedings in which the debtor maintains the centre of their main interests.

Once primary proceedings are instituted, in principle, every creditor that is party to current insolvency proceedings may file a claim against the debtor. Nevertheless, it must be ensured that all creditors that rank equally enjoy the same rights wherever they are. For this reason coordination between the various administrators is required. Every creditor must be able to retain what they have acquired pursuant to any insolvency proceedings, albeit that they may only require any disbursement pursuant to other proceedings after equally ranking creditors have received a proportionate share of the claim in the course of those proceedings.

If this occurs before primary insolvency proceedings are instituted in the country serving as the centre of the debtor's main interests, any insolvency proceedings in another country will become secondary as soon as the primary proceedings are instituted in the country serving as the centre of the debtor's main interests.

Secondary proceedings may be important to ensure the efficient administration of a debtor's entire estate but also because of differences between the legal systems involved which cannot be bridged. For this reason an administrator that is party to primary proceedings may file a petition for secondary insolvency proceedings in another country if this is required to ensure the efficient administration of the estate.

The idea is that the primary proceedings will be decisive in relation to the secondary ones. The regulation provides for the various proceedings to be coordinated by the administrator that is party to the primary proceedings. The latter will play a leading position for the purposes of settlement. They may intervene by proposing a recovery plan or a composition, or by seeking the suspension of settlement in any secondary proceedings. The regulation stipulates that the administrators in the various member states will collaborate with each other and keep each other informed.

The main rule is that the law of the country in which insolvency proceedings are instituted will govern those proceedings and their consequences.

In order to safeguard the credit system and secure legal certainty, the regulation does not alter the rights of any holder of real rights in relation to goods belonging to the debtor. The establishment, validity and scope of real rights are determined by the law of the country in which the relevant goods are located and are not affected by the institution of insolvency proceedings. The holders of real rights must be able to exercise their rights as though no insolvency proceedings are current.

Existing rights of settlement are also left unaffected. Where settlement is permitted in accordance with the law of the state which governs a creditor's claim, such a right may also be invoked if such settlement is not permitted in accordance with the law of the country in which insolvency proceedings have been instituted.

The regulation respects the law and regulations which govern the payment systems and financial markets that are covered by European Directive 98/26/EC.

With regard to an employment contract, the consequences of insolvency proceedings are determined by the law governing that employment contract.

The regulation does not apply in the case of insolvency proceedings involving insurance companies, investment institutions that provide services which include maintaining custody of funds or securities, and credit and collective investment institutions.  

This regulation applies in all of the EU member states with the exception of Denmark.

You may view the full text of the Insolvency Regulation by clicking here.