International insolvency law – basic principles within the European union. The aim of international insolvency law – the reasons for its establishment.
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Insolvency may be generally understood as situation when the debtor has not sufficient financial resources to comply with his obligations (is not able to pay his debts).
Each national law has its own regulation of this situation – with the aim of redistribution of available debor‘s resources to his creditors in such way that each creditor gains at least a part of his receivable.
A problem may arise when the debtor has his assets not only in one country --- there are big differences between the national regulations and to cover the debor‘s assets in another country by the effects of insolvency proceedings in one country may cause big troubles (may be incompatible with the national law of the other state.)
The international insolvency law shall react upon the situations when there is an insolvent debtor having assets in more countries.
The aim is to set down rules which assure that no debtor‘s assets will be left outside of insolvency proceedings (i.e. all assets will be used to settle the claims of his creditors.)
The international insolvency law is based upon the principle of universality – the insolvency proceedings affect all the assets of the debtor regardless the place where it is situated. BUT !!! To affect assets of the territory of a state it requires a decision issued within the state‘s power (authority) – applying the principle of universality shall mean that one member state would be allowed to exercise his powers on the territory of another state
Establishment of so called principle of controlled universality – there shall exist one insolvency proceeding (so called primary insolvency proceeding) which affects all the assets of the debtor. Beside this primary proceeding there may exist secondary proceeding in another state which may affect only the assets situated on the territory of that state and support the primary proceeding.
1997 – UNCITRAL Commission prepared the Model law on cross-border insolvency.
This law regulates especially the position of the bankruptcy trustee, the recognition of the insolvency proceeding in foreigner country.
Under this law insolvency proceeding in one state has no direct effects in another country – sets down conditions for international legal aid.
Since 1990 there exists European convection on certain international aspects of bankruptcy – it is opened for the signature, but the ratification procedures are very slow, the convention has not entered into force yet. (no complex regulation, only ceratain aspects are regulated).
Applies to collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator.
It does not apply to insolvency proceedings concerning undertakings, credit institutions, investment undertakings which provide services involving the holding of funds or securities for third parties or to collective investment unduertakings.
Insolvency proceedings – collective proceedings – listed in the Annex A.
Liquidator – any person of body whose function is to administer or liquidate assets of which the debtor has been divested or to supervise the administration of his affairs (concrete persons – listed in Annex C)
The jurisdiction to open insolvency proceeding have the courts of the Member state within the territory of which the centre of a debtor‘s main interests is situated – see also judgment Judgment of the Court (Grand Chamber) of 2 May 2006. Eurofood IFSC Ltd.
In the case of company or legal person – the place of main interests is the place of the registered office (in absence of proof to the contrary).
It is the so called „main insolvency proceeding“ – with the effects on the assets of the debtor situated in another Member state as well.
The liquidator appointed in this proceeding may exercise his powers in another Member state as well as long as no other proceeding has not been opened there.
Court of another Member state than where the centre of debtor‘s main interests is situated shall have jurisdiction to open insolvency proceeding against the same debtor only if he possesses an establishment (any place of operation where he carries out o non-transitory economic activity with human means and goods) within the territory of that Member state.
It is so called secondary insolvency proceeding.
The effects shall be restricted to the assets of the debtor situated in the territory of that Member state.
Article 16 of the Regulation sets down the „principle“ – any judgment opening insolvency proceeding issued by court having jurisdiction upon this Regulation shall be recognised in all other Member states from the time it becomes effective in the State of opening proceedings.
This does not mean that a secondary insolvency proceeding may not be opened.