Vol 2 (2005) - Issue 3

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Miguel Virgós and Francisco Garcimartín, The European Insolvency Regulation: Law and Practice

Council Regulation (EC) 1346/2000 on Insolvency Proceedings (the ‘Insolvency Regulation’) is an ambitious project aimed at managing European cross-border insolvency. Although the ultimate interpretation of many provisions of the Insolvency Regulation lies with the European Court of Justice, much of the day-to-day working of the Insolvency Regulation depends on interpretation by the Member States’ courts. For example, it was initially through English case-law that we knew that the Insolvency Regulation also applies to companies incorporated outside the European Union (see Re Brac Rent-A-Car International [2003] EWHC 128 (Ch); [2003] 1 WLR 1421).While divergence of interpretation between different Member States’ courts is inevitable, it is important to minimize any such conflicting interpretation. Serving to mitigate any such conflicting interpretation is a report (commonly known as the Virgós/Schmit Report) by Miguel Virgós and Etienne Schmit published in July 1996 on the Convention on Insolvency Proceedings whose text is produced virtually verbatim in the Insolvency Regulation. Although one English court described the Virgós/Schmit Report as ‘of questionable status’ with regard to the meaning of the Insolvency Regulation (see Re Salvage Association [2003] EWHC 1028 (Ch); [2004] 1 WLR 174, para. 22), it remains that the Virgós/Schmit Report is an indispensable and the most authoritative travaux preparatoire in matters of interpretation of the Insolvency Regulation.

One should view this book as playing a role similar to that played by the Virgós/Schmit Report and supplementing the Virgós/Schmit Report. It is an important (and probably authoritative) explication of the working of the Insolvency Regulation, no less because one of the authors is also the co-author of the Virgós/Schmit Report. While the title suggests that it is only concerned with the Insolvency Regulation, it is helpful that the authors also discuss the analogous provisions of Directives 2001/17/EC and 2001/24/EC on the reorganization and winding-up of insurance undertakings and credit institutions respectively.

In terms of layout, this book differs from the Virgós/Schmit Report and other academic commentary on the Insolvency Regulation (such as G. Moss, I. F. Fletcher and S. Isaacs, The EC Regulation on Insolvency Proceedings: A Commentary and Annotated Guide (OUP, Oxford, 2002)) in that its coverage is arranged thematically, as opposed to an article-by-article analysis. Broadly the book is divided into the following sections. First, it outlines the background to the Insolvency Regulation and its theoretical underpinnings. One important message that this section conveys is that the Insolvency Regulation should be interpreted as part ‘of a consistent (although still unfinished) statutory scheme’ in EC law (p. 10; see also p. 28). This view is rather similar to the conception of law as integrity advocated by Professor Dworkin with respect to the common law system (see R. Dworkin, Law’s Empire (Fontana, 1986)). Second, it describes the operation of main proceedings opened in the jurisdiction where the debtor has its centre of main interests (commonly known as COMI). Third, it describes the operation of territorial proceedings and their interaction with main proceedings. Fourth, it considers the recognition of foreign insolvency proceedings and the coordination between insolvency proceedings opened in different Member States.

One of the most thorny practical issues concerning the operation of the Insolvency Regulation is the concept of COMI. This book goes some way towards alleviating these practical problems by showing how COMI is to be understood and applied. For example, it confirms that a debtor may so organize its affairs as to shift its COMI (p. 8). This is also consistent with English case-law (see Shierson v Vlieland-Boddy [2004] EWHC 2752 (Ch)). Moreover, the presumption of a company’s registered office being its COMI is meant to simplify the application of the COMI concept and reduce the risk of different conclusions being reached by different courts (p. 38). This renders questionable some English dicta that ‘[t]here seems to be no reason to suppose that the presumption that a company has its COMI at the place of its registered office is a particularly strong one [and that the presumption] is rather just one of the factors to be taken into account with the whole of the evidence in reaching a conclusion as to the location of the COMI’ (Re Ci4net.com (unreported, 20 May 2004); see also Re Parkside Flexibles (unreported, 9 February 2005), para. 9, to the same effect).
In fact, the decision in Re Parkside Flexibles might have been easier if the court had the benefit of this book. There the question facing the court was whether the COMI of a Polish registered company with Polish registered office was in England.