This regulation establishes common rules regarding the court competent to open insolvency proceedings, the applicable law and the recognition of the court’s decisions for cases where a debtor, whether a company, a trader or an individual, becomes insolvent. It is aimed at dissuading the debtor from transferring his/her assets or the judicial proceedings from one country to another in order to improve his/her legal position.
Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings.
This regulation establishes a common framework for insolvency proceedings in the European Union (EU). The purpose of harmonised arrangements regarding insolvency proceedings is to avoid assets or judicial proceedings from being transferred from one EU country to another in order to obtain a more favourable legal position to the detriment of creditors (“forum shopping”).
It should be noted that one quarter of cases of insolvency in the EU are associated with late payments.
Avoiding the transfer of assets or judicial proceedings from one EU country to another
Cases of insolvency with cross-border implications affect the proper functioning of the internal market. With a view to developing more uniform procedures that will discourage the parties from transferring assets or judicial proceedings from one EU country to another in order to obtain a more favourable legal position, the proposed solutions rely on the principle of proceedings with universal scope. At the same time, they retain the possibility of opening secondary proceedings within the territory of the EU country concerned.
The regulation applies to “collective insolvency proceedings that entail the partial or total divestment of a debtor and the appointment of a liquidator”. It applies equally to all proceedings, whether the debtor is a natural or a legal person, a trader, or an individual. A “liquidator” is a person or body that administers or liquidates the assets of which the debtor has been divested or supervises the administration of his/her affairs. Annex C of the regulation lists the persons or bodies who are authorised to exercise this function in each EU country.
However, the regulation does not apply to insolvency proceedings concerning:
- insurance undertakings;
- credit institutions;
- investment undertakings that provide services involving the holding of funds or securities for third parties;
- collective investment undertakings.
Determining the courts with jurisdiction and the applicable law
The regulation defines the concept of “court” as a judicial or other competent body that is authorised in national law to open proceedings. The courts with jurisdiction to open the main proceedings are those of the EU country where the debtor has his/her centre of main interests. This should be the place where the debtor usually administers his/her interests and that is verifiable by third parties. In the case of a company or legal person, this is the place of the registered office, in the absence of proof to the contrary. In the case of a natural person, in principle it is the place where his/her work is domiciled or the place of his/her usual residence.
Secondary proceedings (listed in Annex B) may be opened subsequently in another EU country if the debtor has an establishment in its territory. “Establishment” means any place of operations where the debtor carries out a non-transitory economic activity with human resources and goods. The effects of the winding-up proceedings must be limited to the assets of the debtor located in that territory. The opening of such proceedings may be requested by the liquidator of the main proceedings or by other persons or authorities according to the law of the country in which the opening of the proceedings is requested. In some cases, such territorial proceedings may be opened independently before the main proceedings, if the local creditors and the creditors of the local establishment request it or where main proceedings cannot be opened under the law of the EU country where the debtor has his/her centre of interests. However, these proceedings will become secondary proceedings once the main proceedings are opened.
The law of the EU country in which insolvency proceedings are opened determines all the terms of those proceedings: the conditions for their opening, conduct and closure. It also determines practical rules such as the definition of debtors and assets, the respective powers of the debtor and the liquidator, the effects of proceedings on contracts, individual creditors, claims, etc.
There are provisions throughout the EU guaranteeing the rights in rem of third parties, the right of a creditor to demand a set-off and the right of a seller based on reservation of title, such that these rights are not affected by the opening of the proceedings. Rights to immovable property are governed solely by the law of the EU country where the property is situated. Similarly, employment contracts and relationships, as well as the rights and obligations of parties to a payment or settlement system or to a financial market are governed solely by the law of the EU country that is applicable to them (for further details, see the directive on settlement finality in payment and securities settlement systems).
Recognition of insolvency proceedings
Decisions by the court with jurisdiction for the main proceedings are to be recognised immediately in other EU countries without further scrutiny, except:
- where the effects of such recognition would be contrary to the country’s public policy;
- in the case of judgments that might result in a limitation of personal freedom or postal secrecy.
However, restrictions on creditors’ rights (a stay or discharge) are possible only if they have given their consent.
If a court of an EU country decides to open insolvency proceedings, the decision is to be recognised in all other EU countries, even if the debtor could not be the subject of such proceedings in the other countries. The effects of the decision are those provided for by the law of the country in which proceedings are opened and they come to an end in the event of secondary proceedings being opened in another EU country.
The liquidator appointed by a court with jurisdiction may act in the other EU countries in accordance with his powers provided for by the law of the EU country where the proceedings are opened, but respecting the law of the country on whose territory s/he is acting. In particular, s/he may have the debtor’s assets removed and may bring any action to set aside that is in the interests of the creditors if assets were removed from the country of the main proceedings after the opening of the proceedings, subject to rights in rem of third parties or reservation of title.
A creditor domiciled in the EU who obtains total or partial satisfaction of his/her claim on the assets belonging to the debtor must return what s/he has obtained to the liquidator (subject to rights in rem or reservation of title). A consolidated account of dividends for the Union is drawn up to ensure that creditors receive equivalent dividends.
Publication measures may be taken in any other EU country at the request of the liquidator (publication of the decision opening the insolvency proceedings and/or registration in a public register). Publication may be mandatory, but in any event it is not a prior condition for recognition of the foreign proceedings.
If a person concerned is not aware of the opening of proceedings, s/he may be considered to act in good faith when making a payment to the debtor instead of the liquidator in another EU country. If such a payment is made before publication of the decision opening the proceedings, the person concerned is considered to have been unaware of the opening of proceedings. On the other hand, if a payment is made after publication of the decision, the person concerned is assumed to have been aware unless there is proof to the contrary.
Limitation of the applicability of the regulation
The regulation does not apply to:
- any EU country where it is irreconcilable with obligations in respect of winding-up resulting from a convention concluded prior to its entry into force by this country and one or more third countries;
- the United Kingdom, to the extent that it is irreconcilable with existing arrangements with the Commonwealth.
The regulation applies to insolvency proceedings opened after its entry into force on 31 May 2002. It replaces existing bilateral and multilateral conventions between two or more EU countries.
The winding-up of insolvent companies, compositions and analogous proceedings are excluded from the scope of the 1968 Brussels Convention. Work has been carried out at various levels since 1963 with a view to formulating a Community instrument in the field. A convention on insolvency proceedings was concluded on 23 November 1995. However, this convention could not enter into force because one EU country failed to sign it within the time limit.
The Amsterdam Treaty, signed on 2 October 1997, lays down new provisions for judicial cooperation in civil matters. It was on this basis that this regulation on insolvency proceedings was adopted.
|Act||Entry into force||Deadline for transposition in the Member States||Official Journal|
|Regulation (EC) No 1346/2000||
OJ L 160 of 30.6.2000
Successive amendments and corrections to Regulation (EC) No 1346/2000 have been incorporated in the basic text. This consolidated version is for reference purposes only.
- European Commission Directorate-General for Justice website on insolvency