RECOGNITION AND EFFECTIVENESS OF INSOLVENCY PROCEEDINGS

DR MAREK PORZYCKI

European Insolvency Regulation

Recognition of insolvency proceedings (Art. 16 of the EIR)

scope: any judgment opening insolvency proceedings handed down by a court of a Member State competent under Art. 3 both main and territorial proceedings

automatic recognition ie. no other formalities required no exequatur, no need for formal recognition by the court (cf. different approach taken by the UNCITRAL Model Law and Art. 385-404 of the Polish BRL)

precondition: effectiveness in the State of the opening of proceedings (effective ≠ final, see e.g. Art. 50(2) of the Polish BRL)

Effectiveness of insolvency proceedings

(Art. 17)

applies to main insolvency proceedings, as long as no territorial proceedings are opened in the Member State in question

„extension model” – extension of the effects of the opening of insolvency proceedings to the whole territory of the EU (minus Denmark)

effects according to the law of the State of the opening of proceedings (Art. 4 of the EIR) example: automatic stay, ban on individual enforcement against the debtor, if the law of the State of the opening so provides (Art. 4(2)(f) )

limited effectiveness of territorial/secondary proceedings (Art. 17(2) of the EIR)

Recognition and enforceability of other judgments related to the insolvency

proceedings (Art. 25)

relation between the EIR and the Regulation No. 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“Brussels I”, earlier the 1968 Brussels Convention)

- „Brussels I” does not apply to „bankruptcy, proceedings related to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings” (Art. 1(2)(b) of „Brussels I”)

- ECJ judgment in Gourdain vs. Nadler (Case 133/78, 22.2.1979, available on Eur-Lex): judgments related to insolvency proceedings are also excluded from the Brussels Convention if they derive directly from these proceedings and remain within close bounds of the bankrputcy or composition proceedings

the EIR aims to bridge the gap left by „Brussels I”

Recognition and enforceability of other judgments related to insolvency proceedings

(Art. 25)

judgments on the course and closure of insolvency proceedings (example: discharge of the debtor, changes in the scope of „debtor-in-possession” arrangements, changes between winding-up and reorganization options in bankruptcy proceedings), compositions approved by the court:

- automatic recognition, - enforceability according to Art. 38-52 of

“Brussels I”, with exception of its provisions on refusal of enforceability exequatur

Recognition and enforceability of other judgments related to the insolvency

proceedings (Art. 25)

insolvency-related judgments, even if handed down by another court, Art. 25(1), 2nd subparagraph (examples: avoidance actions, disputes concerning inclusion of assets in the insolvency estate, disputes on recognition of claims, actions on the liquidator’s liability for damages) – automatic recognition, enforcement according to „Brussels I”

judgments on preservation measures handed down prior to the opening of main proceedings - automatic recognition, enforcement according to „Brussels I”, with attention to the following:

- after Eurofood some preliminary measures may actually constitute an opening of main proceedings under the EIR

- a temporary administrator may also request any national preservation measures under Art. 38 of the EIR

Recognition and enforceability of other judgments related to the insolvency

proceedings (Art. 25)

other judgments (not directly related to insolvency proceedings) – recognition and enforcement according to Brussels I, provided that Brussels I is applicable (Art. 25(2) of the EIR)

exception for judgments which might result in a limitation of personal freedom or postal secrecy (Art. 25(3) of the EIR)

Public policy clause (Art. 26)

determined incidentally (automatic recognition rules out any formal proceedings to recognize insolvency proceedings)

„ground for non-recognition should be reduced to the minimum necessary” (recital 22 to the EIR) Art. 26 to apply in exceptional cases, no review of the judgment opening the proceedings

in particular a breach of fundamental principles or the constitutional rights and liberties of the individual

example given by the ECJ in Eurofood:

- flagrant breach of the fundamental right to be heard, which a person concerned enjoys but no transposition of the national concept of the right to be heard to foreign proceedings

Powers of the liquidator (see Annex C)

liquidator in main proceedings (Art. 18(1)): exercising powers granted by the law of the State of the opening in other Member States,

- subject to territorial proceedings or preservation measures in other Member States

- in particular removing the debtor’s assets from the territory of other Member States

liquidator in territorial proceedings (Art. 18(2)):- „right to pursue assets”- bringing avoidance actions in the interest of creditorsrequirement to comply with the law of the Member

State in questionno coercive measures nor the right to rule on disputes

Publicity of insolvency proceedings & the liquidator’s appointment

no EU-wide register for insolvencies (see EP initiative below)

right to request the publication of the notice on foreign insolvency proceedings and on the appointment of the liquidator according to national publiaction procedures (Art. 21(1))

possibility to provide for mandatory publication (Art. 21(2))right to request & possible mandatory registration in

public registers (Art. 22)Significance: good faith according to provisions on

efectiveness of legal acts related to the debtor following the opening of proceedings, e.g. payment of a debt to the debtor instead of the liquidator (see Art. 24), disposal of real estate (see Art. 14)

proof of the liquidator’s appointment (Art. 19)

Additional reference

Draft report by the Committee of Legal Affairs of the European Parliament 2011/2006(INI), proposing i.a. the establishment of an EU-wide register for insolvencies (see p. 11) http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+COMPARL+PE-467.008+02+DOC+PDF+V0//EN&language=EN

- adopted as a resolution on 15 November 2011 http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-2011-0484