New EC Regulation on Insolvency Proceedings

A new EC Regulation on insolvency proceedings has just been passed. It will enter into force on 31 May 2002. A Regulation is a type of EC legislation which is applicable in individual Member States directly without any need for implementing local legislation. This Regulation applies to all Member States, including the UK, but excluding Denmark. Its aim is to ensure that cross-border insolvency proceedings operate efficiently and effectively. In the UK, the Regulation applies to winding-up by the court, creditor's voluntary winding-up, administration, voluntary arrangements, bankruptcy or sequestration (Scotland) and their equivalent collective proceedings in other Member States. The Regulation does not, however, apply to insolvency proceedings concerning insurance undertakings, credit institutions, investment undertakings which provide services involving the holding of funds or securities for third parties, or to collective investment undertakings.

The Regulation enables main and secondary proceedings to be brought. Main proceedings can be opened in the Member State where the debtor has the centre of his main interests. Secondary proceedings can be opened in a Member State where the debtor has an establishment, however these secondary proceedings are limited to the assets located in that State.

The proceedings shall be carried out according to the insolvency law of the Member State where the proceedings are opened. The Regulation also resolves conflict of laws issues arising from interstate actions.

Creditors from other Member States will have the right to lodge claims and be informed of proceedings being started.

The long-awaited introduction of this legislation is welcome and should help considerably in cases of cross-border insolvency.

For further information, please contact Inga West on 020 7367 3478 or by e-mail on [email protected].