An Outline of The EU Regulation on Insolvency Proceedings

Transcription

1 An Outline of The EU Regulation on Insolvency Proceedings Sandy Shandro Freshfields Bruckhaus Deringer June 2003 ( )

2 CONTENTS PART ONE - A GUIDE T O THE REGULATION... 1 INTRODUCTION...1 SCOPE OF APPLIC ATION OF THE REGULATION...2 PRINCIPAL PROVISIONS OF THE REGULATION...4 IMPACT OF THE REGULATION...9 PART TWO A NOTE ON BRAC RENT A-CAR INTERNATIONAL INC...12 LD553456/6+ ( ) Page i

3 PART ONE - A GUIDE T O THE REGULATION INTRODUCTION On 29 May 2000 the EU Council adopted the Regulation on Insolvency Proceedings (the Regulation). The Regulation came into force on 31 May To a great extent, the Regulation replicates the text of the draft EC convention on insolvency proceedings 1995 (the Convention). The Convention failed to receive the required unanimous support as, due to the underlying territorial concerns over Gibraltar, the UK failed to sign within the prescribed time. The Convention therefore lapsed on 23 May The adoption of the Regulation in 2000 was welcome news for the member states of the EU, some of which had been working towards pan-european consensus on insolvency issues for the past 30 years. The Regulation aims to introduce uniform conflicts of law rules for insolvency proceedings and connected judgments. This will help address the difficulties that arise when an insolvency involves a number of different European jurisdictions. It does not, however, seek to harmonise substantive law or policy as between different EU countries. LD553456/6+ ( ) Page 1

4 SCOPE OF APPLICATION OF THE REGULATION The Regulation came into force on 31 May With the exception of Denmark, the Regulation is directly applicable in all member states. In accordance with its Protocol to the Treaty of Amsterdam (1 May 1999), Denmark does not participate in the Regulation; however, Denmark has indicated that it will introduce parallel legislation. The objective of the Regulation is to establish common rules on cross-border insolvency proceedings, based on principles of mutual recognition and co-operation. It replaces various conventions between member states insofar as they relate to insolvency proceedings. Under article 1(1) the Regulation applies to collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator. Annexe A lists the insolvency proceedings covered by the Regulation, which, as currently drafted, applies to the following UK proceedings:?? winding up by, or subject to the supervision of, the court;?? creditors voluntary winding up (with confirmation by the court);?? administration;?? voluntary arrangements under insolvency legislation (both company and partnership voluntary arrangements); and?? bankruptcy and sequestration, in respect of, as appropriate, individual debtors, sole traders and most corporate entities. Under article 45, the EU Cou ncil may, by qualified majority, modify the Annexes to the Regulation and could therefore extend the list of insolvency proceedings covered by the Regulation. The moratorium provisions introduced by the Insolvency Act 2000, which aim to facilitate the chances of a company in financial difficulties putting together a voluntary arrangement, fall under the scope of the Regulation. The recently proposed moratorium provisions with respect to schemes of arrangement under section 425 of the Companies Act 1985 would not fall within the Regulation s scope, as the Regulation does not apply to those schemes of arrangement unless the scheme is part of an administration. The Regulation does not apply to administrative or other receiverships. Receiverships are excluded on the basis that they are not collective insolvency proceedings. Also, the Regulation does not apply to the administration of the insolvent estate of a deceased person. Insurance undertakings, credit institutions, investment undertakings holding funds or securities for third parties and collective investment undertakings are specifically excluded from the scope of the Regulation. The rationale for these exclusions is that such corporate entities are subject to special arrangements and their national supervisory authorities have wide-ranging powers of intervention. EU finance ministers have also reached agreement on the proposed Council directive on the LD553456/6+ ( ) Page 2

5 reorganisation and winding up of credit institutions (the credit institutions directive) and the proposed Council directive on the winding up of insurance undertakings (the insurance directive). These two directives were formally adopted in The Regulation does not have retrospective effect. It applies only to insolvency proceedings opened after the Regulation comes into force. Further, any acts performed by a debtor prior to the Regulation coming into force continue to be governed by the law that was applicable to them at the time they were carried out. In broad terms, the Regulation provides that main insolvency proceedings are to be opened in the member state where the debtor has its centre of main interests. These proceedings will have universal scope and will encompass all of the debtor s assets and affect all creditors, wherever located. The Regulation also provides that secondary proceedings may be opened in one or more other member states. Such proceedings will be limited to the assets in that state and will run in parallel to the main proceedings. Any independent territorial insolvency proceedings opened prior to the main insolvency proceedings may be converted into secondary proceedings at the behest of the insolvency office holder if this proves to be in the interests of the creditors of the main proceedings. The Regulation is of assistance princ ipally in those cases where a company or business has a branch or presence, or significant assets or activity, in more than one EU member state. Subsidiaries, being separate corporate entities, would each be subject to a different set of main insolvency proceedings. LD553456/6+ ( ) Page 3

6 PRINCIPAL PROVISIONS OF THE REGULATION MAIN PROCEEDINGS AND THE CENTRE OF MAIN INTERESTS The Regulation provides for two basic types of insolvency proceedings: main proceedings of universal scope and local proceedings of territorial scope; depending on whether they occur prior to or post commencement of the main proceedings, local proceedings are categorised as independent territorial or secondary proceedings, respectively. Article 3 of the Regulation confers the jurisdiction to open main insolvency proceedings. Member states are free to designate the national courts that may open insolvency proceedings. These insolvency proceedings will be recognised and effective in all other member states without further formalities. They will encompass all the debtor s assets on a worldwide basis, save where the Regulation specifies otherwise. Main proceedings may take the form of either reorganisation or winding up proceedings. The appointed insolvency office holder will have the authority to act in all member states, provided that he complies with the laws of the local state. Officeholders are referred to as liquidators under the Regulation. Liquidator is a defined term under the Regulation and means any person or government body whose function is to adm inister or liquidate the debtor s assets or to supervise the administration of the debtor s affairs. The authorised persons and bodies are listed in Annexe C of the Regulation. In the UK, this includes liquidators, administrators, supervisors of voluntary arrangements, the official receiver, trustees and judicial factors. The courts with jurisdiction to open the main insolvency proceedings are those of the member state where the debtor has its centre of main interests. In relation to a company, there is a rebuttable presumption that the place of the registered office is the centre of its main interests. The preamble to the Regulation states that the centre of main interests should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties. Early cases suggest a willingness on the part of the courts to accept that the presumption is rebutted in a particular case (see Enron Directo ). In a previous draft of the pream ble, the centre of main interests was defined as the place where the debtor regularly has very close contact, where his main commercial interests are concentrated and the bulk of his assets are situated. It now appears that a more stringent test should apply. Despite the presumption and the explanation in the preamble, it may be difficult to predict what factual criteria would constitute a centre of main interests. Cases discussed in Part Two of this paper provide the beginnings of a guide. In an increasingly mobile business environment, it is possible that the centre of main interests may shift with time or that two or more states could qualify as the centre of main interests. Nevertheless, only one set of main proceedings is permitted. Cases decide d since the Regulation has come into force (see Re BRAC II Rent-A-Car, discussed in Part II below) make it clear that the Regulation, as anticipated, will extend the recognition of insolvency proceedings of companies incorporated outside LD553456/6+ ( ) Page 4

7 the EU. For example, if a company incorporated in the US (or a tax haven) carries on business on a regular basis in the EU and the company or its products are thereby associated with a particular EU state, it can be argued that, for the purposes of the Regulation, the US company s centre of main interests is in fact in an EU member state, rather than in the US. Numerous conflict of laws issues arise in such a case. It is therefore likely that the determination of the centre of main interests will, particularly in large and complex cases, give rise to disputes. This could delay the coordination of insolvency proceedings. In the absence of any procedure within the Regulation to resolve such disputes, they are left to be determined by the EU member state s court that first considers the question. This may give rise to inconsistency in interpretation, as it is possible that the phrase may be interpreted differently in different member states courts. However, as each member state has an obligation to interpret the terms of the Regulation in accordance with established EU law principles of statutory interpretation, such differences should be kept to a minimum. Any inconsistency in interpretation could theoretically lead to the lengthy process of a referral to the European Court of Justice (ECJ) and attendant delays in protecting or dealing with the estate. How realistic this is in the context of an insolvency must be open to question. However, once a decision on the question of interpretation has been given by the ECJ (which is not bound by its previous decisions), such interpretation is likely to be followed in subsequent cases. Over time, we can expect the ECJ to evolve an independent interpretation of important concepts used in the Regulation. This is what has happened in the case of the Brussels Convention on jurisdiction. SECONDARY PROCEEDINGS AND ESTABLISHMENT The Regulation permits the opening of secondary proceedings in another EU state after the opening of the main proceedings if the debtor has an establishment in that state. Establishment is defined as meaning any place of operation where the debtor carries out a non-transitory activity with human means and goods. This formulation would not only encompass a branch of a debtor but could also have a wider meaning. For example, it may include a commercial agent of the debtor. Inconsistencies in approach to interpretation between different member states courts are to be expected. Secondary proceedings may only take the form of winding up proceedings. They may be requested by the insolvency office holder in the main proceedings, or by any other person empowered to do so under the law of the state where the proceedings are sought. There is no need to re-examine the question of solvency. Secondary proceedings are to run in pa rallel with the main proceedings and are strictly territorial (as opposed to the universal nature of the main proceedings). The preamble to the Regulation states that secondary proceedings may serve different purposes. In addition to the protection of the interests of creditors located within that state, they may be used to assist the insolvency office holder in the main proceedings in circumstances where the debtor s estate is too complex to administer as a whole. Secondary proceedings will apply solely to the assets of the debtor situated in the territory of the EU member state in which the secondary proceedings are commenced or to the recovery of those assets removed from that state after the opening of the LD553456/6+ ( ) Page 5

8 secondary proceedings. The Regulation provides guidance and rules as to the meaning of location of assets but interpretation may still prove problematic. Tangible property is considered to be located in the place in which it is physically situated. Property and rights which are required to be recorded in a public register are considered to be located in the member state where they are registered. However, the location of claims is less easy to determine. Claims are considered to be located in the member state where the third party required to meet the debt in question has the centre of his main interests. As noted above, centre of main interests is open to more than one interpretation. CONVERSION OF EARLIER PROCEEDINGS It is possible for territorial insolvency proceedings to be initiated prior to the opening of the main proceedings if:?? the proceedings are requested by a creditor resident, habitually domiciled or with a registered office in the other member state, where the claim arises from the operation of the debtor s establishment in that state; or?? the main insolvency proceedings cannot be opened because of conditions laid down by local law in the state in which the debtor s centre of main interests is situated. In both cases, such proceedings are subordinated to any subsequent main proceedings. The office holder can request that they be converted into secondary winding up proceedings. APPLICABLE LAW The governing law, applicable throughout the EU, for the main insolvency proceedings will be the law of the state where the proceedings are opened. That law will (subject to some exceptions) cover such aspects as set-off, proofs of debts, the powers of the liquidators and the distribution of assets. The exceptions include:?? rights in rem (broadly, mortgages, liens and floating charges) of creditors and third parties in respect of assets situated within the territory of another member state;?? rights under contracts of employment;?? some set-off rights; and?? reservation of title clauses. Rights in rem and reservation of title provisions will be subject to the la w of the state in which the asset is situated. SETTLEMENT FINALITY REGULATIONS Another exception is that the rights and obligations of parties to a payment or settlement system or to a financial market will be governed by the law of the member state applicable to that system or market. This helpfully preserves part VII of the Companies Act 1989, which provides that the provisions of market contracts or the rules of the exchange or clearing house with respect to default and settlement will prevail over the general law of insolvency with respect to participants in recognised LD553456/6+ ( ) Page 6

9 financial markets. The London Stock Exchange, LIFFE and the London Commodity Exchange are some of the recognised financial markets under part VII of the Companies Act. The Regulation also states that the EU directive on settlement finality in payment and securities settlement systems (which was implemented in the UK by the Financial Markets and Insolvency (Settlement Finality) Regulations 1999) should take precedence over the Regulation. UNENFORCEABLE TRANSACTIONS All assets the subject of any void, voidable or unenforceable transactions may be recovered under the Regulation. This includes assets covered by special rules (for example, rights in rem, rights in respect of set-off and retention of title) and transactions governed by the Settlement Finality Regulations. Where the special rules apply, the Regulation may in certain circumstances effectively impose a double - actionability requirement in relation to the recovery of those assets. First, the suspect transaction must be capable of being avoided under the law of the main proceedings (see article 4(2)(m)). In England, this would include the provisions of the Insolvency Act 1986 relating to preferences, fraudulent preferences and transactions at an undervalue. Secondly, an action cannot be brought by the office holder in the main English proceedings to set aside a transaction subject to the law of another EU state unless the transaction could be set aside not only under English law but also under the law of that other EU state (see article 13). CREDITORS CLAIMS AND CO-OPERATION BETWEEN OFFICE HOLDERS Each creditor, wherever domiciled in the EU, has the right to assert claims with regard to the debtor s assets in each of the insolvency proceedings pending. This right extends to each member state s taxation and social security authorities, thereby eliminating the traditional rule against the enforcement of foreign revenue debts. However, this does not mean that claims will have similar prior ity in other states. A taxation authority enjoying priority status as a preferential creditor under domestic laws is likely to be able to prove only as an ordinary unsecured creditor in other member states proceedings. In order to ensure equal treatment of creditors, the distribution of assets is coordinated by the office holder and a hotchpot rule operates (this is a procedure that ensures dividends are paid evenly to creditors regardless of the number of jurisdictions in which they have lodged claims). The Regulation also attempts to protect the interests of all creditors by empowering the liquidator in the main proceedings to lodge the claims of all creditors in any secondary proceedings where it serves the creditors interests. Any surplus of assets in the secondary proceedings, after payment of all claims provable under local law, must be remitted to the insolvency office holder in the main proceedings. There may be an incentive for local creditors, especially for preferential creditors such as taxation authorities, to institute secondary proceedings where they have provable claims under local law, if a significant amount of the troubled company s assets are LD553456/6+ ( ) Page 7

10 situated in that locality. This is because all claims provable under local law must be paid first (to the extent that the local assets permit). Although a local creditor may only recover a percentage of the debt in this manner this may still be a higher percentage recovery than the general body of creditors could hope to recover from the pool of assets in the main proceeding. An added attraction is that one large tranche of the debt could be recouped relatively quickly, as opposed to piecemeal by payments of dividends. It may therefore be of little relevance to the local creditor that he will receive no further dividend. An obvious consequence of such action is that the percentage recovery for non-local creditors will decrease proportionately. In appropriate cases the effects of the secondary proceedings may be postponed, albeit temporarily. The insolvency office holder in the main proceedings may apply for a stay (in whole or in part) of the secondary proceedings on the basis that they affect the interests of the creditors in the main proceedings. Such a stay may only be rejected by the court with jurisdiction over the secondary proceedings if it is manifestly of no interest to the creditors in the main proceedings. A stay may be ordered for up to three months and is renewable but the court may require the insolvency holder in the main proceedings to effect suitable measures to safeguard the interests of the creditors in the secondary proceedings and of individual classes of creditors. The Regulation does not elaborate on the meaning of suitable measures. RECOGNITION OF INSOLVENCY PROCEEDINGS IN OTHER MEMBER STATES Both orders opening proceedings (main or secondary) and judgments handed down in connection with those proceedings are automatically recognised in all other member states. Generally, the opening of main proceedings produces the same effect in other member states as under the law of the state where the proceedings are opened, as long as no secondary proceedings are opened in the other states. Main proceedings may not be challenged in any other member state s court, save where they are manife stly contrary to public policy and subject always to the right to open secondary proceedings, where appropriate. The insolvency office holder may, subject to provisions regarding reservation of title clauses and certain rights in rem, remove assets, bring claims or bring actions to set aside transactions in other member states. In doing so, he will be subject to the laws of the member state within which he is taking such action, in particular with regard to procedures for the realisation of assets. A member state may, however, refuse to enforce such orders (in whole or in part) on public policy grounds. Where secondary proceedings (which may only be winding up proceedings) are opened, however, local law applies and no other member state may challenge the effects of those proceedings (see article 17(2)). The proceedings may lead to a restriction on creditors rights, in particular a stay or discharge, but secondary proceedings (unlike main proceedings) will only have extraterritorial effect if creditors with assets situated in other member states consent to such a restriction on their rights. It is not clear whether this limitation applies only to rights in rem (for example, rights under mortgages and liens) or has more general application. LD553456/6+ ( ) Page 8

11 IMPACT OF THE REGULATION The Regulation will have an impact on many aspects of financial and security transactions. The impact on due diligence, the taking of security, set-off, contractual netting and the Regulation s impact on the emerging rescue culture, are considered below. DUE DILIGENCE When entering into a banking transaction with a customer, it is standard banking practice to undertake due diligence on the customer as at the date of the transaction. Under the Regulation, however, the determination of the centre of main interests will be considered as at the date of the opening of main proceedings rather than the date when the transaction is entered into. Simply relying on the presumption that the place of incorporation of a company is the centre of its main interests may be risky. Difficulties may arise if, unknown to the bank, the customer moves the centre of its main interests to another country. A bank may find that the jurisdictions it believed were relevant to a particular transaction are no longer relevant at the time of insolvency. This could hinder the effective enforcement of security and the commencement of any insolvency process under the Regulation. An obvious concern for banks is that it will be difficult, if not impossible, for them to monitor exactly w here a customer s centre of main interests is at all times throughout the duration of the banking relationship. Due diligence difficulties will arise when banks take security and consider their rights of set-off, both of which are discussed below. SECURITY It is essential for banks to know the risks they run if a customer becomes insolvent and what rights they will have against an insolvent customer. For example, if an English registered company with multi-european national interests were to borrow from an English bank, the bank could take a fixed and floating charge as security for the loan. How will the Regulation affect the enforcement of such security by the English bank? Under the Regulation, assuming that the customer s centre of main interests is and remains located in England, the security will (subject to usual vires/anti-avoidance issues under English law) be valid in the event that main insolvency proceedings are commenced in England. If secondary insolvency proceedings were opened in another member state (for example, Italy), these proceedings would not affect the validity of the security in England, as the secondary proceedings would be limited to the assets of the company within Italy. In the event that the company s centre of main interests were or became located in France, under the Regulation the main insolvency proceedings would be opened in France and French law would apply. However, French law would not apply to the English security because, as mentioned above, the Regulation protects certain security LD553456/6+ ( ) Page 9

12 rights (rights in rem), including floating charges. Whether this recognition may extend to include the recognition of any receiver appointed under such security is not clear. Receivers are not included in the list of insolvency office holders recognised under the Regulation. It is arguable, however, that as their appointment is an exercise of a right in rem, other states are required to recognise the appointment of a receiver. Whether other member states courts would agree with this interpretation remains to be seen. SET-OFF Article 6 of the Regulation states that the opening of insolvency proceedings shall not affect the right of creditors to demand the set-off of their claims against the claims of the debtor, where such set-off is permitted by the law applicable to the insolvent debtor s claim. There is no reference to the law applicable to the creditor s claim. Under English law, rule 4.90 of the Insolvency Rules 1986 provides that set-off of mutual debts is mandatory in all liquidations and cannot be excluded by agreement between the parties. As set-off is compulsory under English law, its availability is an integral part of the credit assessment undertaken by banks when lending to an English company. The availability of legally enforceable set-off remedies may also have an impact on risk weighting and, therefore, the capital cost of a transaction. Under article 4.2(d) of the Regulation, however, the English set-off rule will not apply in the liquidation of an English company that has its centre of main interests in an EU state other than England. The law of that other state would apply. The right to set-off may not be available under that state s law. As mentioned above, it may be difficult to advise with any certainty as to where a company s centre of main interests is located. It may not as a practical matter be possible to ensure that it does not shift during the life of the transaction. This will have an impact on the ability to advise conclusively as to whether rule 4.90 will apply. CONTRACTUAL NETTING Contractual netting is not specifically addressed under the Regulation but the provisions relating to set-off (see articles 4.2(d) and 6) and payment systems and financial markets (see article 9) are relevant in this context. It appears that, at least under English law, contractual netting may not be caught by article 6 of the Regulation. In 1996, the Financial Law Panel (the Panel), in its evidence to the House of Lords sub-committee on the practical implications of the Convention (as the Regulation then was) put forward the view that article 6, under English law, only addressed equitable set-off and had no impact on contractual netting or insolvency set-off. The issue was one of semantics: article 6 only contemplates a debtor s claim as opposed to claims, whereas contractual netting involves agreement (usually under a master agreement) that disparate claims from a large number of individual contracts of the insolvent debtor will be set off against the various claims of the creditor, the end result being a net loss or profit for one party. However, the Panel did consider that the text of article 6 could be interpreted differently in other member states. As the term set-off is used to describe different mechanisms in different member states, article 6 might be interpreted in such a way that does not confine its operation to equitable set-off. If such a wider interpretation is LD553456/6+ ( ) Page 10

13 given it might affect the operation of contractual netting. This could have unpredictable consequences for the international financial markets. Article 9 provides that the effects of insolvency proceedings on the rights and obligations of the parties to a payment or settlement system or to a financial market shall be governed solely by the law of the member state applicable to that system or market. This means that Part VII of the Companies Act 1989 and the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 will govern netting agreements used in recognised financial markets. However, many netting agreements regulate contracts that do not take place on one of the recognised markets and are therefore excluded from the scope of article 9. RESCUE CULTURE There has been a clear trend in recent years towards the rehabilitation of companies in financial difficulties (for example, by statutory moratoria or informal reorganisation measures) rather than placing them into liquidation. Many European jurisdictions have formal procedures designed to facilitate rescues, which grant companies a breathing space in which to put together a rescue plan. Generally, such procedures prevent creditors from enforcing their rights while the company attempts a rescue. As long as there is only one proceeding, the Regulation will improve the prospects of success of a company rescue, as the recognition of the insolvency proceedings under the Regulation will mean that any moratorium on the enforcement of security rights or proceedings will be recognised throughout the EU. It is interesting to note that the moratorium procedure under the Insolvency Act 2000 is universal in scope as voluntary arrangements are specified as insolvency proceedings in Annexe A. On the other hand, since it is still possible for secondary proceedings to be opened in other states, rescue may be impeded. As discussed above, secondary proceedings can only be liquidation proceedings and therefore do not include the rehabilitation proceedings of the local jurisdiction. This means that an office holder seeking to put in place a rescue plan could be at the mercy of a group of creditors in a particular jurisdiction who calculate that the cost/liability ratio in this jurisdiction means that a secondary liquidation better serves their interests. LD553456/6+ ( ) Page 11

14 PART TWO A NOTE ON BRAC RENT-A-CAR INTERNATIONAL INC On 14 January of this year, Lloyd J. made an administration order in respect of a Delaware company, Brac Rent-A-Car Inc. (Brac Rent-A-Car). This event is of more than passing significance. It confirms the birth of an expanded jurisdictional reach not only in the UK but also throughout the EU. The position until recently was that a UK court had no jurisdiction to make an administration order in respect of a foreign company save in a limited number of exceptional cases. The exceptions were those jurisdictions often uncharitably described as cricket playing nations whose courts were accorded special status under UK insolvency law by virtue of membership in the Commonwealth. The result of this anomalous position was that companies incorporated in jurisdictions such Anguilla, Tuvalu and the Turks and Caicos Islands could be the subject of English administration proceedings but companies incorporated in the US or anywhere in the EU could not. As discussed in Part One of this paper, the Regulation came into force on 31 May The Regulation applies in its entirety in all Member States except Denmark. As far as the UK is concerned, it applies to liquidations, administrations and bankruptcies. There will be jurisdiction wherever the Centre of Main Interests of the debtor is located in a Member State. In the case of a corporate debtor, the Centre of Main Interests is presumed to be located in the jurisdiction where the registered office is situated (i.e. the jurisdiction of incorporation). However, the presumption may be rebutted if it can be established that at the time the petition is heard the debtor actually conducts the administration of its interests somewhere else within the EU. This was established in Brac Rent-A-Car: it did not trade in the US, but instead ran its business from the UK, engaged most of its employees and had its banking relationships here. Once it was determined that its Centre of Main Interests was in the UK, the fact that Brac s jurisdiction of incorporation was outside the EU was irrelevant. A number of consequences flow from this decision. First, it should now be assumed that there will be jurisdiction in any EU Member State to subject a non-eu company to those local insolvency proceedings contemplated in the Regulation whenever it can be established that the Centre of Main Interests of the company in question is in that Member State. Quite how jurisdictions which traditionally recognise only those insolvency proceedings taking place in the jurisdiction of incorporation will cope with this remains to be seen. Will a Belgian court, for example, now not only recognise such proceedings but also accept primary jurisdiction over the winding up proceedings of a French company on the grounds that its Centre of Main Interests is in Belgium? They may ha ve no choice. Secondly, while one has read countless articles about the long arm jurisdiction of the US courts, particularly in cases involving Chapter 11 bankruptcy proceedings, once can see an interesting conflict emerging where both a US bankruptcy court and an EU court claim co-extensive jurisdiction over a US-incorporated company whose Centre of Main Interests is in an EU Member State. In Brac Rent-A-Car, it so happened that the company was in Chapter 11 in the US, but the US Creditors Committee supported the application. One wonders what the position would have been had the Centre of Main Interests LD553456/6+ ( ) Page 12

15 point been more evenly-balanced, or if the Committee had opposed the application. One can readily imagine cases where the risk of inconsistent results could be difficult to manage. Thirdly, where the Centre of Main Interests of a UK company is elsewhere in the EU, a UK court is now deprived of its traditional insolvency jurisdiction based on corporate domicile: the main insolvency proceedings must be elsewhere. Finally, and in stark contrast, where a UK company s Centre of Main Interests is outside the EU altogether then the traditional jurisdiction could continue to be exercised, and such a company could be the subject of a UK administration proceeding. Only vigilance by judges and counsel throughout the EU will minimise the risk of chaos in the face of jurisdictional complexities of such magnitude. The boards of companies with significant operations in the EU, foreign officeholders already appointed to such companies and creditors wherever located will need comprehensive advice on the most appropriate strategy to adopt before deciding on what insolvency proceeding to commence within the EU and where to do so. Sandy Shandro Freshfields Bruckhaus Deringer 65 Fleet Street London EC4Y 1HS Tel: sandy.shandro@freshfields.com LD553456/6+ ( ) Page 13