Dr Marek Porzycki

the debtor has some assets abroad the debtor has creditors abroad the debtor carries out his activities on a

cross-border basis the debtor is a multinational entity, with

establishments in several countries the debtor is a multinational entity, carrying

out business in several countries under legal form of local subsidiaries and in other countries by establishments

UNIVERSALISM vs. TERRITORIALITY

Territoriality – traditional approach, based on state sovereignty

Universalism – modern approach, based on cross-border effects of bankruptcy proceedings

state’s sovereignty bankruptcy decisions issued by foreign authorities are neither effective nor enforceable within the state

decisions issued by the state’s authorities are neither effective nor enforceable abroad

insolvency proceedings are strictly limited to assets of the debtor situated within one jurisdiction

Weak point:Isolated country-based efforts are not able to

solve complex cross-border cases.

insolvency proceedings opened in relation to a debtor affect his entire estate (including assets located abroad)

foreign insolvency proceedings are recognized and their effectiveness is guaranteed

Advantage: possible coordination of liquidation or restructuring efforts in all relevant jurisdictions

possibility of conflicts over jurisdiction between courts of various states

taking into account local interests in other jurisdictions, e.g.

- employees in a debtor’s foreign establishment- creditors with collateral rights on the debtor’s

assets situated abroad highly divergent solutions adopted by

substantive insolvency laws – are results of application of foreign insolvency law acceptable under the basic concepts of domestic law?

Limitations by measures to safeguard local interests, e.g.

requirement of a formal recognition of foreign insolvency proceedings by a local court (not applied in EU law)

additional territorial proceedings over the debtor’s local assets

modification to effects of foreign insolvency proceedings in order to take into account local interests

- 1st draft Convention – 1970- EU Convention on Insolvency Proceedings of

1995 – endorsed by the EU Council but blocked by non-signature by the UK

explanatory report to the Convention by Miguel Virgos and Etienne Schmit (Virgos-Schmit Report) - unofficial explanatory memorandum to the European Insolvency Regulation

- Council Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency proceedings (European Insolvency Regulation)

12.12.2012 - initial proposal by the Commission for an amendment of the EIR (COM(2012) 744 final)

March 2015 – draft recast EIR: http://data.consilium.europa.eu/doc/document/ST-16636-2014-REV-5/en/pdf

Adoption by the Council and by the European Parliament expected in mid-2015

Entry into force in 24 months after adoption

Articles 378-417 of the Law of 28.02.2003 0n Bankruptcy and Rehabilitation (Prawo upadłościowe i naprawcze)

To be substantially amended by Law on restructuring (Prawo restrukturyzacyjne), adopted by the Sejm on 9.4.2015

overriden by EU law applies only outside the scope of application of the Regulation No. 1346/2000 (EIR) mostly in non-EU cases

example recognition and effects of U.S. bankruptcy proceedings in Poland

coordination of the measures regarding insolvency – in the context of more cross-border activities in the Community

filling a gap left by the Brussels Convention, currently Regulation (EU) No. 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) ('Brussels Ia')

avoiding incentives for 'forum shopping‘ NOT AIMED – unification of substantive

insolvency laws

EIR: Scope of application

(a) insolvency proceedings (Article 1(1), Article 2(a) + Annex A)

(b) centre of main interests (COMI) of a debtor located in the EU, except Denmark (recitals 13 and 14 in connection with Article 3)

EIR: Centre of a debtor’s main interests (COMI)

The place where the debtor conducts the administration of his interests on a regular basis (recital 13)

(a) ascertainable by third parties (in particular by creditors)(b) for companies and legal persons – presumption of COMI being in the place of its registered office, Article 3(1)(c) for natural persons – habitual residence for non-professionals or professional domicile for professionals (Virgos-Schmit)

EIR: Jurisdiction to open insolvency proceedings

(a) main proceedings – courts of the Member State within the territory of which the debtor’s COMI is situated, Article 3(1)

(b) territorial proceedings (secondary or independent territorial proceedings) – courts of the Member State within the territory of which the debtor possesses an establishment, Article 3(2)

EIR: Definition of an establishment Article 2(h)

place of carrying out an economic activity

(a) of non-transitory character

(b) with human means and goods

EIR: Main and territorial proceedings

Main proceedings, Article 3(1)- opened in the state, where the debtor’s COMI is situated- subject to automatic recognition and immediately effective in other Member States

Territorial proceedings, Article 3(2)-(4), Articles 27 to 38- opened in the state, where the debtor’s establishment is situated- their effects are generally limited to the Member State where they are opened- if running in parallel to main proceedings – secondary proceedings

EIR: Recognition and effectiveness of insolvency proceedings in other Member States

- opening of insolvency proceedings by a court of a Member State which has jurisdiction pursuant to Article 3 is automatically recognized in other Member States (Article 16)- main proceedings are automatically effective in other Member States (Article 17)-decisions issued in course of the insolvency proceedings are subject to automatic recognition and enforcement according to the Regulation No 44/2001 (Brussels I), Article 25-Exception: public policy clause (ordre public ) (Article 26)

EIR: Law applicable

- rule: law of the State of the opening of proceedings (lex fori concursus, Article 4)

- exceptions (for protection of local interests): i.a. third parties’ rights in rem (Article 5), immovable property (Article 8), contracts of employment (Article 10) – various grades of taking into account the law of another Member State with a link to the particular situation