Vol 11 (2014) - Issue 2

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Secondary Insolvency Proceedings in France: Potential Liability of Directors of Foreign Companies for Insufficiency of Assets in France

I. The principle of universality in cross-border insolvency proceedings under EC Regulation No. 1346/2000 of 29 May 2000
EC Regulation No. 1346/2000 of 29 May 2000 on insolvency proceedings (the 'Insolvency Regulation') is a foundation text which aims to allow the efficient operation of cross-border insolvency proceedings in Europe. The Insolvency Regulation, a practical example of the principle of judicial cooperation in relation to insolvency procedures, had become a real necessity in order to regulate potential conflicts of law as well as practical problems caused by overlapping national regulations in the different Member States. At a more global level, the Insolvency Regulation was also required to streamline cross-border insolvency proceedings to avoid them, to the extent possible, disrupting the proper and effective functioning of the internal market.
In practice, the different parties involved in cross border proceedings would regularly come up against conflicts of laws, some of which would be more favourable to creditors whilst others would be more favourable to debtors or employees. In addition, practitioners would often be faced with problems relating to protective legal measures having been taken in relation to assets of the debtor in other Member States to the one in which the main proceedings had been commenced.
Obstacles such as the ones outlined above inevitably led to debtors forum shopping in an attempt to move their centre of main interests (COMI) to a Member State with more favourable legislation. This ultimately made the liquidation of a debtor company’s assets complicated to carry out to the detriment of having fairly balanced proceedings and equality amongst creditors.
In this context, the principle represented by the Insolvency Regulation has sought to bring some clarity to the problem. Accordingly, subject to specific rules which relate to certain overriding issues in each state (such as in respect of property, employment law etc), the insolvency proceedings opened in the Member State in which the debtor has its COMI will have universal application and be fully recognised by all other Member States.
In other words, this procedure enables the liquidator designated in the main proceedings to take all measures in relation to all the assets of the debtor irrespective of the Member States in which such assets may be located and, in relation to questions of liability, to take any action against any directors who may be at fault.
As a corollary of this principle, if secondary liquidation proceedings are commenced in one or more other Member States in which the debtor may have a place of business, the effects of such secondary proceedings and the measures which may be taken by the liquidator will be limited to assets located in the Member State or States in question.
In this context, it is relevant to consider how the courts have dealt with the application of these principles in relation to directors’ liability.

II. A restrictive application of the Insolvency Regulation by both European and French courts
In the renowned Gourdain judgment, the Court of Justice of the European Union held that the former comblement de passif action (making good liabilities – now replaced by the liability for insufficiency of assets) fell within the jurisdiction of the courts of the Member State in which the insolvency proceedings had been commenced given that such courts had knowledge of 'all actions which originate directly from the insolvency proceedings and which are closely connected to them'. The Court therefore adopted a strict interpretation of the principle of vis attractiva concursus.