Assistant of the University of Modena and Reggio Emilia
Relationships between main proceeding and secondary proceedings in Reg. CE 1346/2000 (*)
SUMMARY: 1. The establishment of the “limited universality” principle in the European context. - 2. The “limited universality” principle in the legislation of some Countries. – 3. UNCITRAL model law on cross-border insolvency. – 4. The problem of “veil” of the legal status. – 5. Main proceeding and secondary proceedings within the EC Regulation on insolvency proceedings n. 1346 del 2000. – 6. Next: development of the issues come out with regard to secondary proceedings. – 7. Discipline of the relationships among proceedings, in particular the proofs of debt system.
1. – In the last century, international bankruptcy was essentially dealt on the basis of two opposite ideas: the jurisprudence of the universality or uniqueness of bankruptcy, to which the theory of territoriality or plurality of bankruptcies was opposed().
The theory of universality maintained that the rights of the creditors could be fulfilled only in one place, the domicile of the debtor. Once stated this, it was necessary to assess how to face the problem of the possible presence of properties outside the cognizance of that specific court or even in another Country. The solution came from the recognition of a personal procedure in the bankruptcy, a formulation which made it impossible to assume a plurality of procedures: the same person who goes bankrupt at the same time more than once, in the end the declarative bankruptcy judgment had to produce its effects everywhere according to the universality system and properties, wherever they were located, had to be sold following the due national procedures, but the price had to be paid to the bankruptcy court.
On the contrary, the theory of territoriality can be described as the real theory of bankruptcy, which applies immediately and directly the concept of territorial supremacy of the single State and denies that the bankruptcy judgment passed in a Country could be extended outside its territory. In fact, territorial supremacy deals with the properties located within the State; therefore we need to give so many judgments so many are the States involved in bankruptcy.
Only recently these theories have been overcome. If we look at the then European Economic Community, the six founder States, in 1972, Ireland, Denmark and United Kingdom joined it and their contribution in 1980 led to a convention project on theinsolvency matter (),accepted by Greece, too, which joined EEC in 1981. It was a project linked to principle of unitariness and universality proceedings, which excluded the coexistence of different proceedings against the same debtor in the different Countries, providing on the contrary, for the application of the convention, regardless of the existence of international implications, to every kind of proceedings it was referred, that is to say, the convention should have been extended to every bankruptcies, even merely internal ones (). Anyway, at Committee stage, the strong opposition to such project by the Federal Republic of Germany had to be registered(), and the impossibility to come to an agreement led to the substantial desertion of the works.
At the European Council stage, in parallel with these events, at first in competition with the works within EEC, an initiative aiming at fixing the rules relevant to cross-border insolvencies hypothesis, started off. It was a less ambitious project than the EC one, aiming at reaching a convention which disciplined some of the most relevant aspects, such as the powers to be recognized to the trustee within States different from that which opened the proceeding, and the proof of debt procedures abroad. Such project was not particularly incisive, but during works Chapter III was added, whose content was very innovative, containing the renunciation to a single and universal proceeding and the recognition of the possibility to open “secondary” bankruptcy proceedings in Countries different from the one in which the proceeding has started off ().
It is a notation of a “territoriality” aspect of bankruptcy proceedings which overcomes the idea of universal character, normally attributed to national bankruptcy proceedings, which basically have to extend their effects even on the properties located outside the national territory, to reconcile territoriality aspects deeply rooted in the procedural provisions.
The works ended in 1989 with theEuropean convention on certain international aspects of bankruptcy, of the European Council(), also known as the Istanbul Convention. Anyway, such Convention has been ratified only by Cyprus, and its entry into force seems decidedly improbable. Besides, it would be overcome, in the relationships among EU States, by the insolvency proceedings Rules.
At the EU community stage, the activity remained suspended, also for the will to wait for the conclusion of the negotiations entered within the EU Council; once the Istanbul Convention was signed, in 1990 the works resumed in a continuity line compared with the outcome of the negotiations entered at the EU Council stage. Not only the explicit mention to the principle of universality and unitariness disappears, but most of all the consequences involved in such choice. The adopted solution was in line with the Istanbul Convention. It is the judge of the contracting State in whose territory the main centre of the debtor’s interests is situated, who has the jurisdiction to open a bankruptcy proceeding;next to this, there is also the possibility that the judges of another State in whose territory a dependency is located, open, with effects limited to the properties which are situated in such territory, a “secondary” proceeding. Besides, the decision to open a proceeding must be recognized by all the other contracting States as soon as it produces effects in the Country where it has been opened.For what concerns the procedural aspects and aspects of substantive nature, the principle of the enforcement of the lawof the State in which the proceeding is opened, is indicated. These are only some of the essential contents of the Conventionon insolvency proceedingsworked out within the scope of what has meanwhile become the European Union, to which in 1986 Spain and Portugal had jointed().
The EU Convention on insolvency proceedings is opened to signature in Bruxelles on 23 November 1995, but, of the twelve member States, only eleven signed it, not the United Kingdom (). Once the term for the signature has elapsed, fixed for 23 May 1996, as per art. 49, paragraph 3, of the sameConvention, this does not come into force, being subject to the approval of the whole member States. Meanwhile, in 1995, with the fourth EU enlargement, Austria, Finland and Sweden join the community().Convention on insolvency proceedings remains outstanding.
The EU Regulation on insolvency proceedingsis the result of art. 65 EC Treaty, on whose basis the Initiativeof thefederal Republicof Germanyand RepublicofFinlandto adopt a Council regulation on insolvency proceedings, presented to the Council on 26 May 1999(), has been presented and led to the adoption of the same Regulation. Actually the content of the Regulation is effectively identical to the one of the EU Convention dated 1995; anyway, thanks to this different juridical instrument, it has been possible to let the rules come into force, which, in a conventional capacity, should not be enforced lacking the signatures of the whole contracting States. Anyway, it is worth reminding how thirteen protocols are attached to the Amsterdam Treaty, among which the one on the position of the United Kingdom and Ireland and the one on the position of Denmark with regard to Title IV of the EC Treaty “ Visas, asylum, immigrationand otherpolicies related to the free movement of persons”(). The United Kingdom, even if it did not signed the previous Convention, hasnotified, together with Ireland, the will to take part in the adoption and enforcement of the Regulation; therefore, it is enforced towards such Countries, whereas it cannot be enforced towards Denmark which is not involved in the adoption of the Regulation following the mentioned Protocol.
As already pointed out, the EU Regulation on insolvency proceedings, reproduces almost completely the provisions of the Conventiononinsolvencyproceedings, dated 1995 and, within the scope of our interest,it follows the choices adopted in the Convention of Istanbul. It turns out to be evident the success of an international bankruptcy model based on the definable criterion of “limited universality”(), limited by the possibility to open “secondary” proceedings in a State different from the one in which the centre of the main interests of the debtor are situated and where the main proceeding has been opened, and all thiswithout having to reexamine the objectiveor subjective insolvency assumptionin that Country, too.
2. – It is not a completely new solution.Difficulties which arise for international bankruptcies within systems linked to the unitariness and universality of insolvency proceedings, had already been faced from single laws with orientations known as “particular universality” or “universal plurality”().
We can mention the federal Swiss law on the international private law dated 18 December 1987 (LDIP, in German IPRG)(), which envisages ad hoc regulations of insolvency proceedings with cross-border implications, in chapter 11, on the «Bankruptcy and Composition» (artt. 166-175). According to art. 170, the recognition of the foreign insolvency proceeding gives rise to a Swiss bankruptcy proceeding, limited to the debtor’s assets situated on the Helvetic territory; at the end of this proceeding, the prospective credit balance will be at the disposal of the foreign proceeding or entitled creditors (as provided by the following art. 173)().
Hints for an extensive interpretation in this direction, had already been pinpointed by the pre-existing German legislation ofKonkursordnung par. 238(). Then, the Insolvenzordnung(InsO)dated 1994 followed, in force from 1° January 1999, and related law containing preliminary and implementation provisions, that is Einführungsgesetz zur Insolvenzordnung(EGInsO)dated 5 October 1994(), divided in three parts, and in the last one, art. 102 disciplinedthe international insolvency law (). Such discipline in a few words: an insolvency proceeding opened abroad, included also the properties situated in Germany, unless, according to German laws, the judicial authorities of the State in which the proceeding was opened, lacked jurisdiction, or, the recognition that the foreign proceeding was in contrast with the basic principles of German regulations. Recognition of the foreign proceeding did not exclude the opening in Germany of a separated insolvency proceeding, limited to the properties therein situated. The opening of this secondary proceeding did not need the evidence of the debtor’s insolvency. Here, the reference to EU Regulation was evident; no wonder Germany, together with Finland, promoted the EU regulation proposal on insolvency proceedings, as we reminded here above. Today, the legislative set-up relevant to German international insolvency law, has still further changed with the new law dated 14 March 2003 Gesetz zur Neuregelung des Internationalen Insolvenzenrechts, in forcefrom 20 March 2003(). Such law wholly reformulates the mentioned art. 102 of preliminary and implementation provisions to the law on insolvency proceedings, changing its content: it is no more a matter of international insolvency law, but according to its new headline, it disciplines the “Implementation of (EC) Regulation n. 1346 dated 2000 oninsolvency proceedings». Today, the mentioned art. 102 is a structured provision, made of 11 sections,divided in paragraphs, which introduces the necessary adaptations of the German set-up and insolvency law to the European rule.After having introduced these implementation rules of the EU regulation, law dated 14 March 2003 makes changes to Insolvenzordnung dated 1994, too, which today is no more made up of eleven but twelve parts and the eleventh part is wholly reformulated dealing with international insolvency law, which, disappearing the discipline initially contained in the amended art. 102 ofthe preliminary and implementation provisions to the law on insolvency proceedings, is now widely disciplined directly inside the Insolvenzordnungthrough art. 335-358. The German international insolvency law is now based on the general principle, stated by the amended art. 335 of Insolvenzordnung, so that the insolvency proceeding and its effects are governed, with a few exceptions, by the State law in which proceeding has been opened. Exceptions are contained in the first chapter of the eleventh part of Insolvenzordnung, which contains other two chapters: the second one on foreign insolvency proceedings (art. 343-353) and the third one on territorial proceedings for the assets situated in Germany (art. 354-358).
Even the Spanish insolvency law is very interesting, recently amended: l. 22/2003 dated 9 July2003, inforce from 1° September 2004. Before such rule, Spain was totally lacking in legal rules on international insolvency, since it had not concluded bilateral or plurilateral international conventions on the matter(). With the new law, the Spanish legislator has widely dealt with international insolvency. If we consider the Exposición de motivos XI of l. 22/2003, this points out the special attention given to insolvency proceeding assumptions which showed extraneousness elements; this attention led to the introduction in the prescriptive text of Title XI (art. 199 - 230) entitledDe las normas de derecho internacional privado, specifically dedicated to international insolvency law, which do not exhaust the discipline on the matter, for which we have to refer also to art. 10 - 12 on jurisdiction and cognizance, and to art. 49. Going back to the Exposición de motivos XI, this explains that the rules of private international law introduced follow, with proper adaptation, the provisions of EC Regulation n. 1346 dated 2000 and which likewise have been influenced by UNCITRAL model law on cross-border insolvency. These paternities are evident if we examine the prescriptive text.The above mentioned rules are not applied to “internal” insolvencies, but exclusively to international ones, excluding the cases which involve the sole community scope, which will follow Regulation n. 1346 dated 2000.
Once examined these experiences of continental origin, we now refer to common law experiences. We have to point out that, with regard to cross-border profiles, both in the Unites States and in Great Britain, the opening of secondary proceedings had already been envisaged:“ancillary”, which can be a matrix to which refers the individuation of solutions linked to the limited universality model, even if we must be very cautious to refer them to the current EU Regulation or our experiences, which are hardly comparable with the Anglo-Saxon law.
In Great Britainthe main regulatory reference is the l’Insolvency Actdated 1986, which, with various modifications and integrations, contains general discipline of insolvency proceedings. The Insolvency Actdated 1986 deals with the cooperation among magistrates having jurisdiction on bankruptcy mattersin sec. 426, but the core aspect of the evolution of cross-border regulation, is constituted by the Insolvency Act dated 2000, which modifies and integrates the Insolvency Actdated 1986, and in sec. 14 authorizes the state secretary Minister, in England and in Wales in agreement with the Lord chancellor, and in Scotlandin agreement with ministers, to adopt, even without modifications, the UNCITRAL model law on cross-border insolvency. Such authorization became topical with the Statutory Instrument 2006 n. 1030, dated 3 April2006, inforce from the following day; the act deals with insolvencies both forcompaniesandindividuals, and takes the name of «Cross-border Insolvency Regulations 2006». With such legislative instrument, the UNCITRAL model law on cross-border insolvency is legally binding in Great Britain in the report contained in Attachment 1, report which contains the modifications to model lawdeemed necessary to adapt it to the British system. Attachments 2 and 3 follow, dealing with procedural aspects in England, Wales and Scotland. We expect that in case of conflict between the regulation on insolvency and the new Cross-border Insolvency Regulations 2006,these last should prevail, stating that for their interpretationit is necessary to refer to the UNCITRAL text, and related preparatory works, as well as to the Guide to enactment of the UNCITRAL model law.
The basic regulatory reference for insolvency law in the U.S.A. () is theBankruptcy Reform Actdated 1978 also known asBankruptcy Code()and procedural rules of the Federal Rules of Bankruptcy Procedure(), which provide various proceedings and the presence of qualified judges, that is to say specialized federal jurisdictions (bankruptcy districts, in someStates, there are more than one). TheBankruptcy Codehas been recently modified and approved on 20 April 2005, wholly come into force on 17 October 2005. It is a wide legislative regulation, which, as we can understand from its title «Bankruptcy Abuse Prevention and Consumer Protection Act of 2005», deals, from many points of views, with private bankruptcies which are not isolated assumptions, but represent a high percentage of the American insolvency proceedings. Within the American insolvency law, the principle of limited universality is present for a long time. First of all, effects are recognized at the opening of an insolvency proceeding within the State in which the debtor has domicile, habitual residence, establishment o the greatest part of his assets; anyway, consequences arising from a bankruptcy sentence, such as the freeze on individual shares, are subject to practical and economical considerations, such as, most of all, the protection of American creditors. Already in theBankruptcy Reform Actdated 1978(), par. 304 enabled the foreign trustee to request the opening of an ancillary proceedingin the United States, to assistthe foreign proceeding, should there be assets on the American territory which the American judge could give the trustee of the foreign proceeding. Even if there are no bankrupt’s assets in the United States, the foreign trustee could act as above,to prevent creditors from obtaining judgments in their favor within the American jurisdiction. The following par. 305, with respect to a request for bankruptcy presented in the United States with a insolvency proceeding pending abroad, authorized the foreign trustee to request its suspension or interruption (). Anyway, they are institutions defined in an unsystematic way, very flexible, which allowed great discretionary power to the American judge, considerably different from the very structured concept of secondary insolvency proceedings dealt in the EU Regulation. The reform occurred in 2005 has seen a considerable evolution of the regulatory framework related to the international insolvency: sec. 801 hasaddedChapter 15, toTitle 11 of the United States Code, or, according to another designation, to theBankruptcy Code; sec. 802 introduces various coordination amendments both toTitle 11 and toTitle 28, of the United States Code().To sum up, the newChapter 15 aims at adopting theModel law on cross-border insolvencyworked out within UNCITRAL, to better manage the assumptions of cross-border insolvency.