Vol 1 (2004) - Issue 3

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

It is said that the Parmalat collapse represents the largest fraud in Europe to date. The black hole which was created amounts to at least EUR 4.5 billion with over 100,000 private investors and the like directly affected, not to mention over 30,000 job losses. There are, it seems, over 400 different corporations or entities involved across the world, including substantial offshore elements including, but not limited to, the Cayman Islands, where at least one piece of intriguing litigation is in the process of working itself out, primarily with regard to which officeholder or officeholders run which corporations or entities.

Before turning in more detail to the litigation which is the subject of this article, it is perhaps important to bear a number of basic legal requirements in mind. The EC Insolvency Regulation Council Regulation (EC) No. 1346/2000, 29 May 2000, has been in force for long enough to be the provider of a significant body of case law even in the English High Court. The Regulation came into force on 31 May 2002. Since the beginning of May 2004 the 10 new States who have joined up to the European Union are also now bound by the Regulation. The Regulation permits Member States in which a debtor’s ‘centre of main interests’ is situated to open so-called main proceedings (Article 3(c)). In the case of a corporate debtor there is a rebuttable presumption that such a centre is the location of the corporation’s registered office. The Recitals to the Regulation are critical in assisting in its interpretation and implementation. Consequently, an examination should invariably be conducted into where the debtor, personal or corporate, is seen to conduct the administration of his or its interests on a regular basis as ascertainable by third parties (Recital 13). The above approach has in effect been applied by the first fully contested English decision on the Regulation, namely Geveran Trading Company Limited v Skjevesland [2003] BCC 209; see also Re Daiseytek ISA Limited [2003] BCC 562.

Main proceedings when opened in any one Member State can only be succeeded by secondary proceedings in another Member State. Article 3(3) provides that the latter must be of a winding-up nature. The law of the State of the opening of the proceedings in general determines the conditions for the opening of those proceedings as well as their conduct and closure: Article 4(2). An extensive number of illustrations of that general principle is afforded by Article 4(2), e.g. the rules governing the powers of a liquidator and the question of claims generally.

Article 2(e) defines the term ‘judgment’ in relation to the opening of insolvency proceedings or the appointment of a liquidator as including ‘the decision of any court empowered to open such proceedings or to appoint a liquidator’. The term ‘judgment’ is important because Article 16(1) prescribes that any ‘judgment’ opening insolvency proceedings handed down by a court of a Member State which has jurisdiction pursuant to Article 3 should be recognized in all other Member States from the ‘time it becomes effective in the State of the opening of proceedings’. Equally important, therefore, is the definition of the expression ‘the time of opening of proceedings’ in Article 2(f) which is interpreted as meaning ‘the time at which the judgment opening proceedings becomes effective whether it is a final judgment or not’. The particular expression ‘the time of the opening of proceedings’ is not found extensively throughout the Regulation but can be found in such Articles as Article 5 which excludes third parties’ rights in rem as being subject to the law of the State of the opening of proceedings with regard to assets within the territory of another Member State ‘at the time of the opening of proceedings’. On the other hand it must be arguable that when Article 3 talks about the jurisdiction being afforded to the court of the Member State where the centre of main interests is situated ‘to open insolvency proceedings’ it can only be on the basis that it had such jurisdiction at the relevant time. Indeed Article 2(f) is extremely important because much turns on whether or not insolvency proceedings have actually been opened. There is for the moment an academic debate in England on whether an English creditors’ voluntary liquidation would be regarded as opened in the absence of court confirmation. Moreover the relevant conditions which must be in place for the opening of proceedings must also be satisfied at this ‘time’ although as indicated above this is more a matter of necessary construction of the relevant language rather than express importation of the phrase defined in Article 2(f).