European Union Regulation on Insolvency Proceedings


Highlights of Recent Developments


Council regulation (EC) No.1346/2000 of 29 May 2000, came into force throughout the EU (except Demark) on 31 May 2002.

As a matter of European law the Regulation is self-executing and overrides all domestic legislation.

The Regulation has no retrospective effect and only applies to insolvency proceedings opened (e.g. the making of an administration or winding-up Order, not the filing of a petition) on or after 31 May 2002 and any acts of a debtor before 31 May 2002 are to be governed by the law applicable to them at the relevant time.

The purpose of the Regulation is to improve the efficiency and effectiveness of insolvency proceedings with a cross-border dimension by either simplifying or removing formalities previously associated with recognition and enforcement.

Relevant proceedings

The only types of insolvency proceeding directly covered by the Regulation are:

Winding-up by the Court;

CVL (with confirmation by the Court - see below);


CVAs and IVAs;


Schemes of arrangement, whether as insolvency or reconstruction proceedings, are not listed.

Nevertheless, if a scheme can be described as a "composition" and is over-arched by a listed proceeding, such as administration, it would seem that once the scheme is approved by the Court it will be entitled to recognition throughout the EU (see, for example, Article 25 (1)).

The Regulation lists a sub-class of "winding-up proceedings" in Annex B, consisting of: Winding-up by the Court, Creditors' Voluntary Winding-Up (with confirmation by the Court), and Bankruptcy.

Annex C lists "liquidators" as: Liquidators, Supervisors, Administrators, Official Receivers and Trustees in Bankruptcy. Administrative Receivers are not included.

Excluded matters

The Regulation does not cover:

Schemes under Section 425 of the Companies Act 1985, as mentioned above;

Insurance undertakings (Article 1(2)), although there is no definition of "insurance undertaking" in the Regulation;

Credit Institutions and Investment Undertakings (Article 1(2)), which provide services involving the holding of funds or securities for third parties. Such Credit Institutions will be covered by a separate directive;

There is no provision for groups of companies. The Regulation also has no direct application to a subsidiary in one EU member state, of a company which is in a form of insolvency proceeding in another EU member state. The shares of the subsidiary will be treated as an asset located in another state and therefore be affected by the provisions of the Regulation dealing with those assets.

Legislative changes

Despite the fact that the Regulation will prevail in any conflict between national law and the Regulation itself, limited changes to both primary and secondary legislation have been necessary.

For example, the jurisdictional provisions of IA 1986 (Sections 117, 120, 221, 225 and 265) have been amended to reflect the fact that their operation is subject to the Regulation.

Amendments made to IR 1986 include provisions to deal with applications for the conversion of territorial administration and voluntary arrangement proceedings into winding-up proceedings (see further below).

Provisions have also been made for applications by liquidators for confirmation by the Court in a CVL. That confirmation will be required for the proceedings to be recognised and (where applicable) enforceable in other EU member states.

A number of statutory forms (principally relating to the opening of insolvency proceedings) have been modified, and a limited number of new forms has been introduced.

Jurisdiction - Proceedings under the Regulation

The Regulation governs the jurisdiction to commence insolvency proceedings.

Main proceedings

When considering the commencement of "main" insolvency proceedings in England and Wales, it will be necessary pursuant to Article 3(1) to consider where the "centre of a debtor's main interest is situated". Only that jurisdiction can open "main" proceedings. In the case of a corporate entity, there is a rebuttable presumption that the place of the registered office is the centre of its main interest.

Secondary and Territorial proceedings

If the centre of a debtor's main interest is in another EU member state, the English Court will have jurisdiction to open proceedings only if the debtor has "an establishment" within the UK. In that event, the English proceedings will be limited to the assets of the debtor in the UK (see Article 2(g)) pursuant to Article 3(2).

"Establishment" is defined in Article 2(h) as "any place of operations where the debtor carries out a non-transitory economic activity with human means and goods". This is similar to the "established place of business" in English law although the reference to "goods" is unhelpful and should most likely be interpreted as meaning "property" or "assets".

Nevertheless, since the mere presence of assets and other traditional connections to the UK under English law, will no longer be sufficient for jurisdiction to commence territorial or secondary proceedings (see below) when the Regulation applies, the meaning of "establishment" will be very important.

Where such proceedings are opened before main proceedings they are termed territorial proceedings, and where after main proceedings, they are termed secondary proceedings.

Secondary proceedings can only be winding-up proceedings (listed in Annex B), and not rescue or rehabilitation proceedings (Article 3(3)).

This may pose difficulties where, for example, a debtor's centre of main interest is in another EU member state and is unprofitable, but there is an establishment with a profitable business in England. Whereas it might be advantageous to have an administration in England, the effect of Article 3(3) of the Regulation is such that unless territorial administration proceedings are opened first under Article 3(2), it will not be possible to have administration proceedings in England, since they are not winding-up proceedings listed in Annex B, capable of being used as secondary proceedings. It will also be important to start territorial proceedings rather than secondary proceedings wherever possible since the provisions of Articles 31 - 35, which regulate...

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