Vol 8 (2011) - Issue 6

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Connock and another v Fantozzi (Re Alitalia Linee Aeree Italiane Spa) [2011] EWCH 15 (Ch)

1. Executive summary

On 18 January 2011 the High Court confirmed that under the Council Regulation (EC) 1346/2000 on insolvency proceedings (the 'Insolvency Regulation') the law applicable to secondary proceedings is the law of the member state in which those proceedings are opened. This case determined that the assets of an English subsidiary of an Italian company, which was the subject of secondary proceedings in England and Wales fell to be distributed in accordance with English insolvency law rather than with Italian insolvency law (where main proceedings had already been commenced in Italy).

2. The legal framework

(a) The EC Insolvency Regulation and its aim

Insolvency laws and procedures vary greatly between jurisdictions. The Insolvency Regulation regulates the jurisdiction in which insolvency proceedings may be commenced.

The Insolvency Regulation acknowledges that due to 'widely differing substantive laws' it would be impractical to impose insolvency proceedings with universal scope across the EU (paragraph 11, Preamble Insolvency Regulation). Therefore, it does not seek to harmonise substantive law or policy between Member States but to improve the efficiency and effectiveness of insolvency proceedings having cross- border effects.

(b) Distinction between 'main' and 'secondary' proceedings

The Insolvency Regulation provides that 'main' insolvency proceedings should be commenced where the debtor has its centre of main interest or 'COMI' (Article 3(1) Insolvency Regulation). These proceedings are of universal scope and aim to encompass all of the debtor’s assets (paragraph 12, Preamble Insolvency Regulation).

To protect the diversity of creditor’s interests the Insolvency Regulation also permits, and provides for, the commencement of secondary proceedings in the Member State where the debtor has an 'establishment' (as defined in Article 2(h) Insolvency Regulation) which shall run parallel to the main proceedings.

Secondary proceedings can only be winding-up proceedings (as defined in Annex B, Insolvency Regulation) and the effects of those proceedings are restricted to the assets located in the Member State where the debtor has an establishment (Articles 3(2) and 3(3) Insolvency Regulation).

3. Factual background

(a) The main proceedings: extraordinary administration in Italy On

4 September 2008 Alitalia Linee Aerree Italiane S.p.A. ('Alitalia'), a heavily insolvent Italian company, was admitted to Italy’s extraordinary administration procedure for large companies. Professor Fantozzi, the Respondent in this matter, was appointed as administrator (the 'Administrator').

It was common ground that Alitalia’s COMI was in Italy. Therefore, for the purposes of the Insolvency Regulation, the Italian extraordinary administration represented the main proceedings.

(b) The offer from Compagnia Aerea Italia S.p.A

The court was informed that the purpose of the extraordinary administration procedure was to facilitate the reorganisation of large insolvent companies enabling, amongst other things, the relevant company to be restructured on the basis of a two-year plan proposed by an administrator.

On 31 October 2008 Compagnia Aerea Italia S.p.A ('CAI') submitted an offer in excess of EUR 1 billion to the Administrator for the assets and contracts of the Alitalia group, of which Alitalia was a member.