Bernd H. Klose - Lawyer - Specialized in Insolvency Law Fraudnet conference Monaco September 29, 2005 COUNCIL REGULATION (EC) No. 1346/2000 ON INSOLVENCY PROCEEDINGS

Scope of validity of Regulation Generally and directly in each member state of the European Union (EU) – except for Denmark Generally and directly in each member state of the European Union (EU) – except for Denmark Insolvency proceedings within the meaning of Annex A attached to Regulation Insolvency proceedings within the meaning of Annex A attached to Regulation Not applicable to insolvency proceedings in respect of the assets of insurance companies, credit institutes and investment enterprises Not applicable to insolvency proceedings in respect of the assets of insurance companies, credit institutes and investment enterprises

Contents of Regulation No uniform European insolvency law – but: No uniform European insolvency law – but: Uniform proceedings of recognitionUniform proceedings of recognition Purpose: Purpose: Smooth function of the internal marketSmooth function of the internal market Avoidance of „forum shopping“Avoidance of „forum shopping“ See: Preamble of Regulation, paragraph 4See: Preamble of Regulation, paragraph 4

Types of proceedings Main Insolvency proceedings Main Insolvency proceedings In the member state where Debtor has his „Centre of Main Interest“ (COMI)In the member state where Debtor has his „Centre of Main Interest“ (COMI) Secondary Proceedings Secondary Proceedings In parallel to the main proceedingsIn parallel to the main proceedings In the member state where Debtor has his establishmentIn the member state where Debtor has his establishment Territorial Proceedings Territorial Proceedings Separately from the main proceedingsSeparately from the main proceedings

COMI – Centre of main interest Precondition for the institution of main proceedings Precondition for the institution of main proceedings Basically, the proceedings and the effects thereof shall be governed by the law of the state instituting proceedings Basically, the proceedings and the effects thereof shall be governed by the law of the state instituting proceedings

COMI – Centre of main interest Problem of construction; Criteria Problem of construction; Criteria Art. 1 (2) RegulationArt. 1 (2) Regulation Location of the statutory place of business (in corporations and corporate bodies) Location of the statutory place of business (in corporations and corporate bodies) Paragraph 13 Preamble Regulation Paragraph 13 Preamble Regulation The place where Debtor conducts the administration of his interests on a regular basis and is, therefore, ascertainable by third partiesThe place where Debtor conducts the administration of his interests on a regular basis and is, therefore, ascertainable by third parties Purpose of the Regulation Purpose of the Regulation

COMI – Centre of main interest Relationship to third countries Relationship to third countries „protocol“„protocol“ Contemporary issue: Contemporary issue: Change of the COMI after the application for instituting insolvency proceedings have been filedChange of the COMI after the application for instituting insolvency proceedings have been filed

Main Proceedings If COMI is determined the court has to open main proceedings – entailing: If COMI is determined the court has to open main proceedings – entailing: Attaching Debtor‘s entire assets located within the CommunityAttaching Debtor‘s entire assets located within the Community Automatic recognition of the proceedings in all the rest of the member statesAutomatic recognition of the proceedings in all the rest of the member states Priority principle: the court having first instituted the main proceedings shall have jurisdiction within the meaning of Art. 3 (1) RegulationPriority principle: the court having first instituted the main proceedings shall have jurisdiction within the meaning of Art. 3 (1) Regulation The „second“ proceedings can only be conducted as co pending/territorial proceedingsThe „second“ proceedings can only be conducted as co pending/territorial proceedings

Main Proceedings Consequences of Recognition: Consequences of Recognition: Lex fori concursusLex fori concursus Applies to the conditions for opening proceedings, to the conduct and the closure of the proceedings Applies to the conditions for opening proceedings, to the conduct and the closure of the proceedings Yet: No or restricted applicability of the lex fori concursus in cases pursuant to Art 5 et seq (e.g. in set-off or employment contracts) Yet: No or restricted applicability of the lex fori concursus in cases pursuant to Art 5 et seq (e.g. in set-off or employment contracts)

Restrictions under the lex fori concursus Power of disposal of the foreign liquidator Power of disposal of the foreign liquidator Lawsuits pending Lawsuits pending Contracts authorizing the acquisition or use of an intangible asset Contracts authorizing the acquisition or use of an intangible asset The law of the state where the asset/title is situated (state of location The law of the state where the asset/title is situated (state of location The law of the member state where the lawsuit is pending The law of the member state where the lawsuit is pending The law of the state of location The law of the state of location

Restrictions under the lex fori concursus Employment contracts Employment contracts The law of the place of employment The law of the place of employment Whether, in what way, what times and what legal consequences the contract can be terminated as a result of insolvency The law of the state where proceedings are conducted The law of the state where proceedings are conducted Ranking of employees‘ claims

Restrictions under the lex fori concursus Voidability of Debtor‘s legal actions Voidability of Debtor‘s legal actions Basically, the law of the state instituting proceedings Basically, the law of the state instituting proceedings Unless: Beneficiary furnish evidences in support of the law of that the law of another member state applies and that the action under that law in no way is challengeable Unless: Beneficiary furnish evidences in support of the law of that the law of another member state applies and that the action under that law in no way is challengeable

Restrictions under the lex fori concursus Set-off Set-off Basically, the law of the state instituting proceedings Basically, the law of the state instituting proceedings The law applicable to the claim, provided that it permits a set-off The law applicable to the claim, provided that it permits a set-off

Restrictions under the lex fori concursus Security interest (third-party rights in rem) Security interest (third-party rights in rem) If at the time insolvency proceedings were instituted the assets were situated within the territory of another member state; the insolvency law of the state of location shall apply If at the time insolvency proceedings were instituted the assets were situated within the territory of another member state; the insolvency law of the state of location shall apply

Secondary Proceedings In parallel to the main proceedings In parallel to the main proceedings Opening of proceedings with no examination of Debtor‘s insolvency Opening of proceedings with no examination of Debtor‘s insolvency Main proceedings must have been institutedMain proceedings must have been instituted Proceedings within the meaning of Annex B (winding-up proceedings) Proceedings within the meaning of Annex B (winding-up proceedings) Extending espacially to rights in rem not affected by main proceedings Extending espacially to rights in rem not affected by main proceedings Coordination of the proceedings Coordination of the proceedings Mutual information and cooperationMutual information and cooperation Creditors may lodge their claims in all proceedings, as may the liquidators (Art 32) Creditors may lodge their claims in all proceedings, as may the liquidators (Art 32)

Territorial Proceedings Purpose of territorial proceedings: Purpose of territorial proceedings: Restricted to the assets in the state conducting proceedingsRestricted to the assets in the state conducting proceedings Conduction possible if the opening is not possible in the COMI-stateConduction possible if the opening is not possible in the COMI-state E.g. because debtor is not eligible for insolvency in the COMI-state E.g. because debtor is not eligible for insolvency in the COMI-state Separate from the main proceedings Separate from the main proceedings When instituting main proceedings – territorial proceedings will become secondary proceedings When instituting main proceedings – territorial proceedings will become secondary proceedings

Helpfull Pages frankfurt.de/publications/ILF_WP_01 7.pdf (Bob Wessels, International jurisdiction to open insolvency proceedings in Europe, in particular against (groups of) companies) frankfurt.de/publications/ILF_WP_01 7.pdf (Bob Wessels, International jurisdiction to open insolvency proceedings in Europe, in particular against (groups of) companies) frankfurt.de/publications/ILF_WP_01 7.pdf frankfurt.de/publications/ILF_WP_01 7.pdf

Argumentation Aids for the COMI Skeleton Argument on behalf of petitioner – in the matter of ENRON DIRECTO SOCIEDAD LIMITADA – Exhibit 2 Skeleton Argument on behalf of petitioner – in the matter of ENRON DIRECTO SOCIEDAD LIMITADA – Exhibit 2 VIRGOS-SCHMITT Report VIRGOS-SCHMITT Report /insolvency_report_schmitt_1988.pdfhttp://aei.pitt.edu/archive/ /01 /insolvency_report_schmitt_1988.pdf