Vol 1 (2004) - Issue 5

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Conflicts under the EC Insolvency Regulation: First Come, First Served? Part II

The saga continues, and reference should be made to the article setting out the origins of this matter in this publication, volume 1, issue 3 at page 123. On 27th July 2004 the Irish Supreme Court, being a five-man court, delivered two judgments, both delivered by Fennelly J.
The appeal which is the subject of the first of the two judgments dealt with three issues, firstly whether insolvency proceedings had been opened first in Ireland or in Italy, secondly whether the centre of main interests of the Company was in either of those countries, and thirdly whether there was such an absence of fair procedure leading up to the decision of the Italian court in Parma that its decision should not be recognized.
The findings of fact take up much of the first judgment of Fennelly J and stress, certainly beyond a balance of probabilities, that the activities of the Company were conducted mainly, if not exclusively, in Ireland.
The most interesting part of this first judgment is towards the end when there is a section dealing with the opening of insolvency proceedings. To recap matters, the Regulation applies, according to Article 1.1, to ‘collective insolvency proceedings which entail partial or total divestment of a debtor and the appointment of a liquidator’. Article 2(a) states that these proceedings are listed in annex A, which includes compulsory winding up, certainly in the case of Ireland. There can be no doubt, therefore, but that the petition presented to the High Court on 27 January was such a proceeding. If nothing else, the appointment of a provisional liquidator involved at least a partial divestment within the meaning of the words quoted. The Supreme Court stressed the effect of the relation back provisions in the Irish companies legislation and then went on to consider whether the presentation of the petition and more particularly the appointment of the provisional liquidator on 27
January constituted the opening of insolvency proceedings within the meaning of the Regulation itself.
It is worth returning to fundamentals at this point. Article 16 of the Regulation provides that ‘any judgment’ opening insolvency proceedings handed down by a court of a Member State with the appropriate jurisdiction is to be recognized in all other Member States. The Regulation is to apply to ‘collective insolvency proceedings’ in the sense described above. Article 2 deals with definitions and provides that the term ‘judgment’, both in relation to the opening of insolvency proceedings or to the appointment of a liquidator, should include the decision of any court ‘empowered to open such proceedings or to appoint a liquidator.’ In the case of Ireland, by virtue of Article 2(b) and Annex C, the word ‘liquidator’ includes a provisional liquidator. The Supreme Court therefore took the view that an order appointing a provisional liquidator was to be considered as a judgment opening insolvency proceedings entitled a recognition under Article 16. Despite what was suggested in the earlier article in these pages about the lower Irish Court’s decision, namely that reliance could properly be placed on the Irish relation-back doctrine, there remains the argument not addressed by the Supreme Court that recognition should reflect an Annex A event, i.e. the making of an order as distinct from an event dealt with in Annex C. The Court expressed its view that it was not clear whether Article 2(e) intended to create any distinction for the purposes of
Article16 between the opening of insolvency proceedings and the appointment of a liquidator. Pausing here, it may well be that the framers of the Regulation took the view that the opening of insolvency proceedings could take the form either of a court order declaring such to be the position as well as a situation in which a liquidator was formally appointed. In other words, Article 2(e) reflects the fact that some systems of law within the Community allow for a situation in which there is the opening of insolvency proceedings (without there in fact being a liquidator), whereas other systems would immediately appoint a liquidator which itself would constitute the opening of the proceedings themselves. It is suggested that this is a viable reading and would fit within the general precept set out in Article 16 that ‘any judgment opening insolvency proceedings’ is to be recognized throughout the Community.