The Effect of the Regulation on Cross-Border Security and Quasi-Security

This chapter examines the impact of insolvency proceedings recognized by the Regulation on the rights of secured creditors, particularly the rights of such creditors to enforce their security and participate in the relevant insolvency proceedings. It also considers the impact of the Regulation on banks which hold security/quasi-security, addressing in particular the cross-frontier security rights of banks which hold security over the assets of companies or persons who enter into insolvency proceedings regulated by the Regulation, and the effect of those insolvency proceedings on the banks’ security interests. The chapter identifies those Articles of the Regulation which are particularly relevant to the position of a bank as a secured creditor, addresses the interpretation of those provisions (including the identification of difficult points of construction), and considers the practical aspects and the issues which are likely to face banks seeking to enforce security following the Regulation coming into force.

Financial Institutions

This chapter considers the Insurance Directive and the Solvency II Directive, directives that concern the reorganization and winding-up of insurance undertakings. It examines how European regulation has been adopted so that financial institutions can and must make use of a single authorization granted by the home Member State’s supervisory authority. Both of the Directives apply to insolvency proceedings concerning national and legal persons; however, four categories of financial institutions are excluded: the insurance undertakings; credit institutions; investment firms and other firms, institutions and undertakings to the extent that they are covered by Directive 2001/24/EC of the European Parliament and of the Council; and collective investment undertakings. The chapter also discusses the Settlement Finality and Collateral Directive and the Credit Institutions Directive, where settlement in effect represents the satisfaction or payment of a monetary obligation owed or owing by a counterparty to a financial institution.

Scope and Jurisdiction

This chapter explains the scope of operation of the EC/EU Regulation on Insolvency Proceedings. It emphasizes Article 1, which defines the Regulation’s scope in terms of the type of proceedings to which it does and does not apply, and Article 3, which prescribes the rules of international jurisdiction for all cases which fall within the Regulation’s sphere of application. Article 1(1) defines the scope in positive terms, by declaring that it ‘shall apply to collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator’. On the other hand, Article 3 imposes a set of jurisdictional rules which are applicable to all cases under the Regulation. The chapter concludes with a summary of the principal changes which will take effect under the provisions of the Recast Regulation (RR) which was adopted on 20 May 2015.

Choice of Law Rules

This chapter outlines the uniform rules of choice of law which are applicable to all proceedings governed by the original EC/EU Regulation on Insolvency Proceedings. It emphasizes Articles 4–15, which contain these rules. The uniform rules indicate, as between various Member States and also in relation to third states whose laws may potentially be applicable in a given situation, which state’s law shall govern. In most cases, the rules contemplate a choice only between the laws of different Member States. Article 4 expresses the basic principle of lex concursus which states that the law of the Member State in which proceedings are opened is to be applied, and shall determine their effects. The Article also states thirteen particular matters which these laws govern. The chapter concludes with a summary of particular changes once the RR comes into effect.

Recast Regulation 2015/848 on Insolvency Proceedings (‘RR’)

Chapter I: General Provisions 8.472 (RR) Article 1—Scope 8.472 Proceedings must be public 8.476 Proceedings must be collective 8.479 Proceedings can be ‘interim proceedings’ 8.484 Proceedings must be ‘based on laws relating to insolvency’ 8.486 The purpose of proceedings must be rescue, adjustment of debt,...

Recognition and Enforcement

This chapter considers the recognition of insolvency proceedings and the enforcement of the rights and powers of liquidators under the Regulation. In the UK, the position of foreign insolvency practitioners depends upon the degree of recognition or judicial assistance available. Recognition involves giving direct effect to a foreign law, to an order of a foreign court, or the foreign legal status of a foreign administrator or representative. The chapter also describes the recognition of insolvency proceedings and their enforcement, and powers of insolvency practitioners under the RR, who have substantially ‘amplified’ their rights and powers in two ways. First, more detailed provision has been made in relation to the duty of cooperation and coordination in cases where both main and secondary proceedings have been opened in different Member States. Secondly, a new set of rules has been implemented relating to cooperation and communication in proceedings concerning groups of companies.

Commentary on Regulation 1346/2000 and Recast Regulation 2015/848 on Insolvency Proceedings

This chapter provides a commentary on the ‘original’ Regulation on Insolvency Proceedings (OR) and the Recast Regulation (RR). It first highlights how the OR is not only intended to deal with the fact that insolvencies increasingly have cross-border aspects but is also intended to be one element in the progress towards a complete and free internal market between all the Member States. With its application to collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator, the OR encompasses four elements: the proceedings must be collective; the proceedings must be insolvency proceedings; the proceedings must entail the total or partial divestment of the debtor; and the proceedings must entail the appointment of a liquidator. The chapter then turns to the RR, where it analyses some of the changes, such as the newly-proposed three types of proceedings which fall under the RR.

Historical Overview: The Drafting of the Regulation and its Precursors

This introductory chapter briefly reviews the development and adoption of Council Regulation (EC) 1346/2000, the Regulation on Insolvency Proceedings in the EU. It describes two principal phases that led to its formation. The first phase covers the period of 1960–1980, when the six original Member States worked on and published the Preliminary Draft Convention. The Draft contained a three-tier hierarchy of jurisdictional criteria linking the debtor to the territory of the state in which proceedings could be opened. Unfortunately, the Draft is considered to be a failure due to the shortcomings of the jurisdictional rules. The second phase started in 1989 and formed another Convention which drew from the Phase I Draft EC Convention and the Istanbul Convention. This eventually became Regulation 1346/2000, which contained provisions that were more workable and politically acceptable over matters of credit, security, and insolvency.

The Insolvency Regulation as an EU Legal Instrument

This chapter examines the legal attributes which the Insolvency Regulation has as an EU measure, through the Treaty on the Functioning of the European Union (TFEU), and describes the way in which it is to be understood as a matter of EU law in the UK. It also sets out the legal mechanisms established by the EU whereby solutions to questions of validity and interpretation may be obtained. Essentially, the TFEU governs the Regulation’s legal effect in the UK in many ways as it provides the legal basis for its adoption by the EU, and provides the purposive framework within which the Regulation is to be interpreted. Additionally, the TFEU also governs the Regulation’s three legal attributes: to have ‘general application’; to be ‘binding in their entirety’; and to be ‘directly applicable in all Member States’.