The tenth anniversary of the EU Council Regulation on insolvency proceedings (EC No 1346/2000) has arrived amidst wide debate surrounding whether the regulation remains valid and current in its existing form. The European Commission recently launched a consultation examining the current insolvency regime in Europe.
The consultation is focusing on three main issues: the effectiveness of the EC Regulation, whether the scope of the EC Regulation should be expanded to include pre-insolvency proceedings and whether the concept of the centre of main interests of a debtor, or COMI, remains workable and has withstood the rigours of recent experiences.
The proposals for improvements to the EC regulation have been made expressly from the point of view of insolvency practitioners. Incorporating practitioners’ views and needs is a step forward in the handling of the amendment process. Working on the basis of practical experiences and needs is a clear step down the right path.
The Council Regulation entered into force on 31 May 2002, and it is now celebrating the tenth anniversary of its application. The EC Regulation coordinates and facilitates cross-border insolvency proceedings within the European Union. It can be considered mainly a choice of law regulation. It regulates the mutual recognition of insolvency proceedings and the law applicable to them .
The EC Regulation is directly applicable in the Member States, excluding Demark. In practice, the application of the regulation varies in different countries. In Finland, the regulation has been applied, but issues falling under its scope have seldom come up.
The EC Regulation is not the only cross-border regulation in the field of insolvency proceedings concerning Finland. The Nordic Bankruptcy Convention was concluded in 1933 between Denmark, Finland, Iceland, Norway and Sweden. The Convention is based on the universality of insolvency proceedings opened in any of the States. It applies the lex concursus, as does the EC Regulation, throughout the territory and provides estate administrators wide ranging powers exercisable in all five countries. With regard to Finland and Sweden, the Convention was replaced by the EC Regulation.
Main Content of the Regulation
According to the EC Regulation, the main insolvency proceedings shall be opened by the courts in the Member States where the centre of main interests of a debtor, often abbreviated as COMI, is located. According to Article 3 of the EC Regulation, the place of the company’s registered office shall be presumed to be the COMI in the absence of evidence to the contrary. The COMI should correspond to the place where the debtor conducts the administration of its interests on a regular basis and which is, therefore, ascertainable by third parties.
If the centre of a debtor's main interests is situated within the territory of a Member State, the courts of another Member State shall not have jurisdiction to open insolvency proceedings against that debtor unless the debtor has an establishment within the territory of that other Member State. Such proceedings are considered secondary proceedings, and can only be winding-up proceedings. The effects of secondary proceedings are restricted to the assets of the debtor situated in the territory of the latter Member State. In Finland, only bankruptcy proceedings can be carried out as secondary proceedings.
The law applicable to insolvency proceedings and their effects shall be that of the Member State where the proceedings were opened. Also, any judgment opening insolvency proceedings handed down by a court of a Member State with jurisdiction shall be recognised in all the other Member States from the time that it becomes effective in the State where the proceedings were opened. However, this recognition of the main proceedings does not preclude the opening of secondary proceedings.
When considering what rights creditors have in insolvency proceedings in general or what they must do in order to secure their rights in cross-border insolvency cases, it must be noted that bankruptcy and restructuring proceedings themselves are not governed by the EC Regulation. The rights of creditors are governed by the national laws of the country in which the proceedings were opened.