This law lays down common rules for cross-border insolvency proceedings in European Union (EU) countries, except Denmark. It seeks to dissuade debtors from transferring assets or judicial proceedings from one country to another to improve their legal position.

The law introduces a coherent system of legal rules to govern transnational insolvency procedures involving companies, traders or individuals. It permits coordinated measures to be taken concerning the assets of an insolvent debtor located in different EU countries. These rules relate to:

The law applies to collective insolvency proceedings that entail the partial or total divestment of a debtor and the appointment of a liquidator. The national proceedings covered are listed in an annex to the law.

It does not apply to proceedings concerning insurance undertakings, credit institutions, investment undertakings that provide services involving the holding of funds or securities for third parties, or collective investment undertakings.

The courts with jurisdiction to open main proceeding are those of the EU country where a debtor has his/her centre of main interests (i.e. where a company's registered office is based, in the absence of proof to the contrary). This proceeding has a global scope and is designed to cover a debtor's worldwide assets and to be of interest to creditors, wherever they may be.

Alongside the main proceeding, courts in another EU country may open a secondary proceeding if the debtor has economic operations in its territory but this is limited to the assets of the debtor located in that territory.

To ensure the debtor's estate is administered effectively, the law requires that main and secondary proceedings are coordinated. The liquidators appointed in each are obliged to cooperate closely, in particular by sharing information. The liquidator in the main proceeding can also intervene in the secondary proceedings, for example to propose a restructuring plan or request that the sale of assets be suspended.

As a general rule, the law of the EU country in which insolvency proceedings are opened is applicable. This rule is valid both for main and for secondary proceedings.

The law of the EU country where the proceedings are opened determines in particular:

Provisions exist guaranteeing the security rights of third parties with respect to a debtor's tangible and intangible assets and the right of a seller based on reservation of title, such that these rights are not affected by the opening of the proceedings if the assets are located outside the country where insolvency proceedings have been opened.

Rights to real estate are governed solely by the law of the EU country where the property is situated. The liquidator's right to terminate employment contracts, the right of a creditor to demand a set-off and rights and obligations of parties to a payment system or to a financial market are also governed solely by the law of the EU country that is applicable to them.

If a court of an EU country decides to open insolvency proceedings, the law requires the decision to be recognised in all other EU countries.

The law also ensures that decisions closely linked to insolvency proceedings - such as actions to set aside detrimental acts (i.e. acts that are harmful to the creditors) - are recognised in the other country.

The effects of the decision are those provided for by the law of the country where proceedings are opened. Recognition can only be refused where its effects would be contrary to that country’s public policy.

The law gives every creditor resident in an EU country the right to lodge their claims in insolvency proceedings opened in another EU country.

This right also applies to tax authorities and social insurance institutions. Where several proceedings have been opened in relation to the debtor's assets, the law requires that the distribution of proceeds has to be coordinated between the different proceedings, to ensure all creditors receive equal treatment.

REFERENCES

Act	Entry into force	Deadline for transposition in the Member States	Official Journal
Regulation (EC) No 1346/2000	31.5.2002	-	OJ L 160 of 30.6.2000, pp. 1-18

Successive amendments and corrections to Regulation (EC) No 1346/2000 have been incorporated in the basic text. This consolidated version is for reference purposes only.

This recommendation contains a series of principles for national insolvency procedures for businesses in financial difficulty. The emphasis is on encouraging viable businesses to restructure at an early stage so as to prevent insolvency. The Commission considers that reforming national insolvency rules would help keep viable firms in business and safeguard jobs and, at the same time, improve the environment for creditors who would be able to recover a higher proportion of their investment than if the debtor had gone bust.

Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee: A new European approach to business failure and insolvency (COM(2012) 742 final, 12.12.2012).