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Last update: 04-11-2009
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Bankruptcy - Community law

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The European Union has set up a system for the coordination of insolvency proceedings.

On 29 May 2000 the European Union adopted a Regulation on insolvency proceedings , which came into force on 31 May 2002.

The main objective of the Regulation is to ensure that the parties (the bankrupt firm as debtor, and its creditors) have no incentive to transfer their assets or court proceedings from one Member State to another to obtain more favourable treatment.

The Regulation is directly applicable in all Member States except Denmark, so litigants can plead it in the national courts. It does not apply to insurance companies or to credit and investment establishments.

To attain its objective the Regulation lays down common rules on the jurisdiction of the courts, the recognition of judgments and the applicable law, and compulsory coordination of proceedings opened in several Member States.

The Regulation applies to insolvency proceedings which comprise the following elements:

  • Insolvency proceedings are collective - all the creditors' rights are considered at the same time and individual proceedings are suspended.
  • The debtor is insolvent - it has been established that he cannot meet his financial obligations.
  • The debtor is disqualified from acting - his powers to manage his assets and dispose of them are limited and under the administrator's control.
  • Methods are laid down for the appointment of an administrator.

The courts with jurisdiction to open insolvency proceedings are those for the Member State in which the “centre of a debtor's main interests” is situated. Where a company is concerned, this will generally mean its registered head office.

But secondary proceedings can be opened later to liquidate assets in another Member State. The law of the Member State in which such insolvency proceedings are opened determines their effects.

The Regulation provides that proceedings opened in several Member States are to be coordinated between them, notably via active cooperation between administrators.

All decisions taken by a court in a Member State that has jurisdiction in the main proceedings is basically recognised automatically in the other Member States without further review.

Reference document

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Last update: 04-11-2009

 
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