Bernd H. Klose - Lawyer - Specialized in Bernd H. Klose - Lawyer - Specialized in Insolvency LawInsolvency Law

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COUNCIL REGULATION (EC) COUNCIL REGULATION (EC)

No. 1346/2000No. 1346/2000

ON INSOLVENCY PROCEEDINGSON INSOLVENCY PROCEEDINGS

Scope of validity of Regulation Scope of validity of Regulation

Generally and directly in each member Generally and directly in each member state of the European Union (EU) – except state of the European Union (EU) – except for Denmarkfor Denmark

Insolvency proceedings within the Insolvency proceedings within the meaning of Annex A attached to meaning of Annex A attached to RegulationRegulation

Not applicable to insolvency proceedings Not applicable to insolvency proceedings in respect of the assets of insurance in respect of the assets of insurance companies, credit institutes and companies, credit institutes and investment enterprisesinvestment enterprises

Contents of RegulationContents of Regulation

NoNo uniform European insolvency law uniform European insolvency law – but:– but:• Uniform proceedings of recognitionUniform proceedings of recognition

Purpose:Purpose:• Smooth function of the internal marketSmooth function of the internal market• Avoidance of „forum shopping“Avoidance of „forum shopping“• See: Preamble of Regulation, paragraph See: Preamble of Regulation, paragraph

44

Types of proceedingsTypes of proceedings

Main Insolvency proceedingsMain Insolvency proceedings• In the member state where Debtor has In the member state where Debtor has

his „Centre of Main Interest“ (COMI)his „Centre of Main Interest“ (COMI) Secondary ProceedingsSecondary Proceedings

• In parallel to the main proceedingsIn parallel to the main proceedings• In the member state where Debtor has In the member state where Debtor has

his establishmenthis establishment Territorial ProceedingsTerritorial Proceedings

• Separately from the main proceedingsSeparately from the main proceedings

COMI – Centre of main interestCOMI – Centre of main interest

Precondition for the institution of Precondition for the institution of main proceedingsmain proceedings

Basically, the proceedings and the Basically, the proceedings and the effects thereof shall be governed by effects thereof shall be governed by the law of the state instituting the law of the state instituting proceedingsproceedings

COMI – Centre of main interestCOMI – Centre of main interest

Problem of construction; CriteriaProblem of construction; Criteria• Art. 1 (2) RegulationArt. 1 (2) Regulation

Location of the statutory place of business Location of the statutory place of business (in corporations and corporate bodies)(in corporations and corporate bodies)

Paragraph 13 Preamble RegulationParagraph 13 Preamble Regulation• The place where Debtor conducts the The place where Debtor conducts the

administration of his interests on a regular basis administration of his interests on a regular basis and is, therefore, ascertainable by third partiesand is, therefore, ascertainable by third parties

Purpose of the RegulationPurpose of the Regulation

COMI – Centre of main interestCOMI – Centre of main interest

Relationship to third countriesRelationship to third countries• „„protocol“protocol“

Contemporary issue:Contemporary issue:• Change of the COMI after the application Change of the COMI after the application

for instituting insolvency proceedings for instituting insolvency proceedings have been filedhave been filed

Main ProceedingsMain Proceedings

If COMI is determined the court has to open If COMI is determined the court has to open main proceedings – entailing:main proceedings – entailing:• Attaching Debtor‘s entire assets located within Attaching Debtor‘s entire assets located within

the Communitythe Community• Automatic recognition of the proceedings in all Automatic recognition of the proceedings in all

the rest of the member statesthe rest of the member states• Priority principle: the court having first instituted Priority principle: the court having first instituted

the main proceedings shall have jurisdiction the main proceedings shall have jurisdiction within the meaning of Art. 3 (1) Regulationwithin the meaning of Art. 3 (1) Regulation

• The „second“ proceedings can only be The „second“ proceedings can only be conducted as co pending/territorial proceedingsconducted as co pending/territorial proceedings

Main ProceedingsMain Proceedings

Consequences of Recognition:Consequences of Recognition:• Lex fori concursusLex fori concursus

Applies to the conditions for opening Applies to the conditions for opening proceedings, to the conduct and the closure proceedings, to the conduct and the closure of the proceedingsof the proceedings

YetYet: No or restricted applicability of the lex : No or restricted applicability of the lex fori concursus in cases pursuant to Art 5 et fori concursus in cases pursuant to Art 5 et seq (e.g. in set-off or employment contracts)seq (e.g. in set-off or employment contracts)

Restrictions under the lex fori Restrictions under the lex fori concursusconcursus

Power of disposal of Power of disposal of the foreign liquidatorthe foreign liquidator

Lawsuits pendingLawsuits pending

Contracts authorizing Contracts authorizing the acquisition or use the acquisition or use of an intangible assetof an intangible asset

The law of the state The law of the state where the asset/title is where the asset/title is situated (state of situated (state of locationlocation

The law of the The law of the member state where member state where the lawsuit is pendingthe lawsuit is pending

The law of the state of The law of the state of locationlocation

Restrictions under the lex fori Restrictions under the lex fori concursusconcursus

Employment contractsEmployment contracts The law of the place of The law of the place of employmentemployment• Whether, in what way, Whether, in what way,

what times and what what times and what legal consequences the legal consequences the contract can be contract can be terminated as a result terminated as a result of insolvencyof insolvency

The law of the state The law of the state where proceedings are where proceedings are conductedconducted• Ranking of employees‘ Ranking of employees‘

claimsclaims

Restrictions under the lex fori Restrictions under the lex fori concursusconcursus

Voidability of Debtor‘s Voidability of Debtor‘s legal actionslegal actions

BasicallyBasically, the law of , the law of the state instituting the state instituting proceedingsproceedings

UnlessUnless: Beneficiary : Beneficiary furnish evidences in furnish evidences in support of the law of support of the law of that the law of that the law of another member state another member state applies and that the applies and that the action under that law action under that law in no way is in no way is challengeablechallengeable

Restrictions under the lex fori Restrictions under the lex fori concursusconcursus

Set-offSet-off Basically, the law Basically, the law of the state of the state instituting instituting proceedingsproceedings

The law applicable The law applicable to the claim, to the claim, provided that it provided that it permits a set-offpermits a set-off

Restrictions under the lex fori Restrictions under the lex fori concursusconcursus

Security interest Security interest (third-party rights (third-party rights in rem)in rem)

If at the time If at the time insolvency insolvency proceedings were proceedings were instituted the instituted the assets were assets were situated within the situated within the territory of another territory of another member state; the member state; the insolvency law of insolvency law of the state of the state of location shall applylocation shall apply

Secondary ProceedingsSecondary Proceedings In parallel to the main proceedingsIn parallel to the main proceedings Opening of proceedings with Opening of proceedings with no examinationno examination of of

Debtor‘s insolvencyDebtor‘s insolvency• Main proceedings must have been institutedMain proceedings must have been instituted

Proceedings within the meaning of Annex B Proceedings within the meaning of Annex B ((winding-upwinding-up proceedings) proceedings)

Extending espacially to rights in rem not affected Extending espacially to rights in rem not affected by main proceedingsby main proceedings

Coordination of the proceedingsCoordination of the proceedings• Mutual information and cooperationMutual information and cooperation

Creditors may lodge their claims in all Creditors may lodge their claims in all proceedings, as may the liquidators (Art 32)proceedings, as may the liquidators (Art 32)

Territorial ProceedingsTerritorial Proceedings

Purpose of territorial proceedings:Purpose of territorial proceedings:• Restricted to the assets in the state conducting Restricted to the assets in the state conducting

proceedingsproceedings• Conduction possible if the opening is not Conduction possible if the opening is not

possible in the COMI-statepossible in the COMI-state E.g. because debtor is not eligible for insolvency in E.g. because debtor is not eligible for insolvency in

the COMI-statethe COMI-state Separate from the main proceedingsSeparate from the main proceedings When instituting main proceedings – When instituting main proceedings –

territorial proceedings will become territorial proceedings will become secondary proceedingssecondary proceedings

Helpfull PagesHelpfull Pages

www.iiiglobal.org www.eir-database.com www.ilf-frankfurt.de/publications/ILF_

WP_017.pdf (Bob Wessels, International (Bob Wessels, International jurisdiction to open insolvency jurisdiction to open insolvency proceedings in Europe, in particular proceedings in Europe, in particular against (groups of) companies)against (groups of) companies)

Argumentation Aids for the COMIArgumentation Aids for the COMI

Skeleton Argument on behalf of Skeleton Argument on behalf of petitioner – in the matter of ENRON petitioner – in the matter of ENRON DIRECTO SOCIEDAD LIMITADA – DIRECTO SOCIEDAD LIMITADA – Exhibit 2Exhibit 2

VIRGOS-SCHMITT ReportVIRGOS-SCHMITT Report• http://aei.pitt.edu/archive/00000952/01/http://aei.pitt.edu/archive/00000952/01/

insolvency_report_schmitt_1988.pdfinsolvency_report_schmitt_1988.pdf