Business Recovery – Michael Prior.

On 29 May 2000 the EU Council of Ministers resolved to introduce the European Insolvency Regulation which will come into effect from 31 May 2002. Yet when I spoke at a conference in the latter part of 2000 a questioner asked me ‘this European thing isn’t really going to happen, is it?’ and was shocked to be told ‘it already has’! A ‘regulation’ is automatically, without further action, part of domestic law.

The UK is in Europe and this useful European legislation will come into effect. The Insolvency Service Review Group on the EIR has already met and is considering drafts of implementation documentation.

The essential principle is that EU members recognise from inception each other’s relevant insolvency officers and proceedings. Proceedings are classified as ‘main’ if they are initiated where the debtor’s centre of main interest is located. If a branch establishment exists in a territory then limited ‘secondary’ proceedings may be brought.

In ‘main’ proceeding office holders can pursue claims, seize assets and raise material enquiries pursuant to its law throughout the EU.

Years of non-recognition from EU courts in pursuing remedies abroad may now be past. However, although the law of the ‘main’ insolvency is applicable this is nonetheless subject to a range of exceptions. The EIR does not apply to an administrative receiver’s activities. These are regarded as enforcement of security and do not receive recognition as an insolvency procedure. This, however, does not vary the position existing prior to the EIR.

It is a major step forward. Despite the ifs and buts, office holders in main proceedings can assert their powers in all EU countries simultaneously and with effect from an identical date. This can only be beneficial. A single creditors-pool sharing in a single asset adds to predictability of outcome of an insolvency.

There will still be cases where an insolvent company need only liquidate in its country of origin and will not need recognition elsewhere in the EU, but this is increasingly rare.

Look out for the issue of enabling documents like certificates of date of insolvency for production to courts as evidence of the commencement date. Finally, remember this law becomes effective on 31 May 2002 (only 15 months to go!)

– Michael Prior is a partner at Nabarro Nathanson and chairman of R3’s international committee.

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