Vol 9 (2012) - Issue 1

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Strictly Territorial

The ECJ has given a ruling on the interpretation of Article 3(4)(a) and (b) of Council Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency proceedings (the 'Regulation'). The Court adopted a strict interpretation of the circumstances under which territorial insolvency proceedings may be opened and a strict interpretation as to who may request the opening of such territorial insolvency proceedings.


Facts

On 14 November 2006 an application for a declaration of insolvency was made at a Belgian Court of First Instance by the Belgian Public Prosecutor against Zaza Retail BV ('Zaza Retail'), the Belgian establishment of a Dutch company. At that stage no insolvency proceedings against Zaza Retail had been begun in the Netherlands, although over a year later, on 8 July 2008, Zaza Retail was declared insolvent by the District Court of Amsterdam.

In the Belgian proceedings, the Court of First Instance declared Zaza Retail insolvent on 4 February 2008, but the Antwerp Court of Appeal overturned the decision on 9 October 2008 and ruled that neither it nor the Court of First Instance had jurisdiction to rule on the opening of territorial insolvency proceedings against the Belgian establishment of Zaza Retail.

The Public Prosecutor appealed to the Belgian Supreme Court equivalent (Hof van Cassatie van België), which referred the matter to the European Court of Justice (the 'ECJ') for a preliminary ruling.

Law

Ancillary insolvency proceedings are permitted under the Regulation. These are designated secondary proceedings when main proceedings have already been opened in the Member State where the debtor has its centre of main interests, or COMI, and territorial proceedings when main proceedings have not been opened in the Member State where the debtor’s COMI is located.


Secondary proceedings under EC Insolvency Regulation

According to Recital 12 in the preamble to the Regulation, main insolvency proceedings may only be opened in the Member State of the European Community where the debtor has its COMI. Secondary proceedings can be opened in any Member State in which the debtor has an establishment and will run in parallel to main proceedings in order to protect the diversity of interests. Secondary proceedings must be coordinated with the main proceedings and the effects of the secondary proceedings are limited to assets located in the Member State where the secondary proceedings have been opened.

Article 29 (a) and (b) of the Regulation permit the following persons to request the opening of secondary proceedings:

(a) the liquidator in the main proceedings; and

(b) any other person or authority empowered to request the opening of insolvency proceedings under the law of the Member State within the territory of which the opening of secondary proceedings is requested.

Territorial proceedings under EC Insolvency Regulation

According to Recital 17 of the Regulation, territorial proceedings can be opened prior to the opening of main proceedings in a Member State where the debtor has an establishment provided that the proceedings are limited to local creditors and creditors of the local establishment or where main proceedings cannot be opened under the law of the Member State in which the debtor’s COMI lies. If main proceedings are later
opened, the territorial proceedings become secondary.