EU Insolvency Regulation

1. EU Insolvency Regulation EC regulation 1346/2000 on rules on jurisdiction, applicable law, recognition and enforcement in disputes arising from insolvencies

2. Words needing explanation • Insolvency:Insolvency is a financial condition experienced by a person or business entity when their assets no longer exceed their liabilities('balance-sheet' insolvency) or when the person or entity can no longer meet its debt obligations when they come due ('cash-flow' insolvency). • Debtor: An individual or company that owes debt to another individual or company (the creditor). • Liquidation:When a company goes bankrupt or is terminated, creditors are paid by selling off assets of the company and any remaining money is distributed to shareholders / The conversion of securities, such as stock to cash. Winding up:A process that entails selling all the assets of a business entity, paying off creditors, distributing any remaining assets to the principals, and then dissolving the business. • Liquidator:a liquidator is the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting in all of the assets of the company and settling all claims against the company before putting the company into dissolution.

3. Entry into force and purpose • The Regulation was adopted by the Council on 29 May 2000 and came into force on 31 May 2002. It has direct effect in all member states of the European Union, except in Denmark. • Purpose of this regulation is to avoid forum shopping.

4. Scope • The regulation applies to all insolvency proceedings, whether the debtor is a natural or a legal person, a trader or an individual. • The regulation does not apply to insolvency proceedings concerning insurance undertakings, credit institutions, investment undertakings that provide services involving the holding of funds or securities for third parties and collective investment undertakings.

5. Jurisdiction • The Regulation contains rules of jurisdiction, which establish which court in which Member State is competent to open and conduct insolvency proceedings. It is based on the principle that there is only one universal insolvency procedure, which consists of the main proceedings with universal scope and eventual further secondary proceedings

6. Applicable law - rule • The governing law, applicable throughout the EU, for the main insolvency proceedings will be the law of the state where the proceedings are opened and will cover such aspects as the conditions for the opening of the proceedings, their conduct and their closure, as well as practical rules such as the definition of debtors and assets, the respective powers of the debtor and the liquidator, the effects of proceedings on contracts, individual creditors, claims and so on.

7. Applicable law - exceptions • • rights in rem (broadly, mortgages, liens and floating charges) of • creditors and third parties in respect of assets situated within the • territory of another member state; • • rights under contracts of employment; • • some set-off rights; and • • reservation of title clauses. • Rights in rem and reservation of title provisions will be subject to the • law of the state in which the asset is situated.

8. Recognition:chapter II of the regulation • the judgement opening insolvency proceedings shall be recognised in all Member States from the time that it becomes effective in the State of opening, Article 16 • It will produce, with no further formalities, the same effects as under the law of the State of opening, Article 17, unless the recognition would be manifestly contrary to the State’s public policy, Article 26.

9. Eurofood case: Facts: Eurofoodis an Irish-registered wholly owned subsidiary of ParmalatSpA, the Italian food company which faced serious financial problems in 2003, forcing it and a number of its subsidiaries into liquidation in late 2003. Eurofood was one of these subsidiaries. In 2004 the Irish High Court ruled that the insolvency proceedings had been opened in Ireland. Issues: - Jurisdiction in which the main insolvency proceedings should be opened - Recognition of another Member State court judgment, if the court of that MS has failed to comply with fair procedures in coming to that decision.   ECJ Judgment: - Where the company’s registered office is situated and which the company conducts its business should be the place of the main proceedings. - A Member State is bound under Article 16 of the EC Insolvency Regulation to recognize proceedings opened by an other court of a Member State. Rule of law from Eurofood case: - Once main proceedings have been opened, recognition of those proceedings in all other Member States is automatic and mandatory.   - the appointment of the liquidator and his power conferred by the law of the State of the opening will be fully recognised in other Member States, Article 18.

10. Enforcement • Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters contains rules on enforcement in another Member State.