This law lays down common rules for cross-border insolvency proceedings in European Union (EU) countries, except Denmark.

It seeks to dissuade debtors from transferring assets or judicial proceedings from one country to another to improve their legal position.

When do I have to apply the Regulation ?

The law applies to collective insolvency proceedings that entail the partial or total divestment of a debtor and the appointment of a liquidator.

Can I choose the location where the insolvency proceedings will be opened ?

The answer is no.

But we can have a main proceeding in a country, and a secondary proceeding in another country.

The courts with jurisdiction to open main proceeding are those of the EU country where a debtor has his/her centre of main interests (i.e. where a company's registered office is based, in the absence of proof to the contrary).

This proceeding has a global scope and is designed to cover a debtor's worldwide assets and to be of interest to creditors, wherever they may be.

Alongside the main proceeding, courts in another EU country may open a secondary proceeding if the debtor has economic operations in its territory but this is limited to the assets of the debtor located in that territory.

To ensure the debtor's estate is administered effectively, the law requires that main and secondary proceedings are coordinated.

The liquidators appointed in each are obliged to cooperate closely, in particular by sharing information.

The liquidator in the main proceeding can also intervene in the secondary proceedings, for example to propose a restructuring plan or request that the sale of assets be suspended.

What about applicable law ?

As a general rule, the law of the EU country in which insolvency proceedings are opened is applicable.

This rule is valid both for main and for secondary proceedings.

But there are exceptions, for example: Rights to real estate are governed solely by the law of the EU country where the property is situated.

The law of the EU country where the proceedings are opened determines in particular:
 

  • the conditions for their opening, conduct and closure ;

 

  • the definition of debtors and assets, the respective powers of the debtor and the liquidator and the effects of proceedings on contracts, individual creditors, claims, etc.


What is the scope of applicable law ?

These rules relate to:
 

  • the court authorised to open insolvency proceedings ;

 

  • the recognition of legal decisions in insolvency cases ;

 

  • the relationship between different insolvency proceedings opened in relation to the same debtor ;

 

  • the lodging of claims by foreign creditors.


What about the recognition of insolvency proceedings in the other EU countries ?

If a court of an EU country decides to open insolvency proceedings, the law requires the decision to be recognised in all other EU countries.

The law also ensures that decisions closely linked to insolvency proceedings - such as actions to set aside detrimental acts (i.e. acts that are harmful to the creditors) - are recognised in the other country.

The effects of the decision are those provided for by the law of the country where proceedings are opened.

Recognition can only be refused where its effects would be contrary to that country’s public policy.

 

                                                             Nasser Merabet
                                                                   Attorney