Primer on the New European Insolvency Framework
The Convention is widely seen as a milestone in cross-border insolvency within the EU. It is closely linked with the EU Convention on Jurisdiction and Enforcement of Judgements in Civil and Commercial Matters of September 27, 1968, which expressly excluded insol-vency judgements from its scope because already at that time the EU Commission was developing a separate bankruptcy convention.
In general, the EU Convention (a) determines the jurisdiction of the 15 states' courts or authorities with regard to the intra-community effects of insolvency proceedings, (b) creates certain uniform conflict of laws rules for such proceedings, (c) ensures the recognition and enforcement of judgements given in such matters, (d) makes provisions for the possibility of opening secondary insolvency proceedings, and (e) guarantees information for creditors and rights to lodge claims. Insurance undertakings, credit institutions, investment undertakings holding funds or securities for third parties and collective investment undertakings are all excluded from the scope of the Convention. The excluded entities and undertakings are not defined in the Convention but by other instruments of EU Community law. The entities and undertakings that fall under the definitions given by the relevant Community Regulations and Directives, are excluded from the Convention.
Summary of the EU Convention
The general provisions (Articles 1-15) establish the area of application of the Convention. It is confined to "proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator." Jurisdiction rests on the general principle that "the courts of the contracting state within the territory of which the centre of the debtor's main interests is situated, shall have jurisdiction to open insolvency proceedings." For a company or legal person/entity, the center of its main interests is the place of its registered office. In addition, the court of another contracting state shall have only jurisdiction, if "the debtor possesses an establishment within the territory of that other contracting state." The effects of the latter proceedings are, however, restricted to the assets of the debtor situated in the territory of the other contracting state. The law applicable to insolvency proceedings under the Convention is that "of the contracting state within the territory of which such proceedings are opened."
The recognition of insolvency proceedings (Articles 16-26) results in a judgement that produces the same effects in the other contracting states, as under the law of the state of the opening of the proceedings. Article 16 provides that insolvency proceedings opened in the contracting state where the debtor has its center of main interests will be recognized in all the other states. Nevertheless such recognition does not prohibit the opening of secondary proceedings in a contracting state where the debtor owns an establishment. This recognition includes the termination of the debtor's authority to dispose of the assets. It also puts an end to judgement executing in favor of individual creditors.
As pointed out, the opening of main insolvency proceedings in the contracting state where the debtor has his center of main interests does not preclude the opening of secondary proceedings in other contracting states where the debtor has an establishment (Articles 27-38). Secondary proceedings can be said to serve mainly two, seemingly mutually incompatible purposes: (a) protection of creditors, usually local creditors, from the main proceedings, (b) at the same time assisting and supporting the main proceedings.
The opening of secondary proceed-ings may be requested by the "liquidator" in the main proceedings or by any other person authorized to do so under local law. A creditor, for example, who thinks that his chances are better served in local proceedings than in the main proceedings in an other state, may request the opening of secondary proceedings.
Any creditor has the right to lodge claims (Articles 39-42) in writing, if his residence is located in a contracting state other than the state of the opening of proceedings. This provision is also for the tax and social security authorities. The Court of Justice of the European Community has jurisdiction to give preliminary rulings on the interpretation (Articles 43-46).1
Recent Rulings in European Cross-border Cases
It's too early to assume that supreme courts in other countries will follow the same approach as the German and Dutch courts. It is fair to say that the Dutch judges may embrace the EU Convention, but the full effect of its application will not be evident until further down the road. Regardless, the Netherlands have to become accustomed to the universal effect of a foreign insolvency under the Convention. Despite questions about the effects of the EU Convention, one thing is perfectly clear: where governments fail, judges play a major role in cross-border insolvency cases as "deputy-legislators."2
Footnotes
1See Balz, International Financial Law Review, July 1994; Omar, International Company and Commercial Law Review, 1996/5; Dahan, The Company Lawyer, 1996/6; Johnson, International Insolvency Review, 1996, 81-107; McKenzie, European Review of Private Law, 1996, 181-200; Bogdan, International Insolvency Review, 1997, 114-126. Return to article
2See the Special Issue 'The Internationalisation of Insolvency', International Business Lawyer, May 1996, and on the important role of judges in this context: Millett, International Insolvency Review, 1997, 99-113. The growing importance of judicial cooperation is also expressed in UNCITRAL's Model Law on Cross-Border Insolvencies. Return to article