The Law
Recognition of the UK bankruptcy in the EU
From 1 January 2021:
According to the Insolvency Service Guidance “Cross-border Insolvencies: Recognition and Enforcement in EU Member States from 1 January 2021” published on 15 January 2021:
After 31 December, the law of the UK and the relevant domestic laws of each of the individual member states instead apply. New EU insolvency proceedings can seek recognition and enforcement in the UK under our Cross-Border Insolvency Regulations[footnote 2], our implementation of the UNCITRAL Model Law on Cross-Border Insolvency
The international standard and best practice in this area. This process already applies to non-EU insolvency proceedings originating from countries across the world. It requires a court application and is subject to greater court scrutiny than the EU Insolvency Regulation, and represents a well-tested framework under which foreign insolvency officeholders can seek assistance to deal with assets in the UK.
To date four of the remaining EU member states have implemented the UNCITRAL Model Law. The procedure that applies to UK insolvency proceedings seeking to deal with assets in the other EU jurisdictions is dependent on each country’s own approach, and the assistance available varies quite widely.
The change in the legal framework therefore has implications for UK insolvency officeholders wishing to deal with assets in EU states in future.
Before 1 January 2021:
Recognition of the UK insolvency proceedings throughout the EU is based on the EC Regulation on Insolvency Proceedings 1346/2000 (the Regulation), which came into force on 31 May 2002. The Regulation applicable in all EU member states (Denmark excepted) and takes effects in the domestic legal system of any particular member state automatically, without the need for that member state to transpose it into national legislation.
The general principle of the Regulation is that any judgement opening insolvency proceedings handed down by a court of a member state where the debtor’s centre of main interests (COMI) situated is to be recognised in all the other member states from the time that it becomes effective in the state where proceedings are opened. This rule shall also apply where, on account of his capacity, insolvency proceedings cannot be brought against the debtor in other member states.
The law of the state of the opening of proceedings shall determine the conditions for the opening of those proceedings, their conduct and their closure. However, any member state may refuse to recognise insolvency proceedings opened in another member state or to enforce a judgment handed down in the context of such proceedings where the effects of such recognition or enforcement would be manifestly contrary to that state’s public policy, in particular its fundamental principles or the constitutional rights and liberties of the individual.
The courts of the member state within the territory of which the centre of the debtor’s main interests (“COMI”) is situated shall have jurisdiction to open insolvency proceedings. In general terms, the law applicable to insolvency proceedings and their effects will be that of the member state within the territory of which such proceedings are opened.
Under the Regulation the “Centre of Main Interests (COMI)” should correspond to the place where the debtor conducts the administration of his interests on a regular basis. The Court will usually regard as COMI the country in which the debtor carries out his main trade, profession or self-employment. In other cases the debtor’s habitual residence (i.e. the place where the debtor normally lives) is considered to be the COMI. The COMI is determined at the date the bankruptcy petition is presented. Thus, the English courts have ruled that, the location of creditors and the country in which debts were incurred are not vital factors in determining a debtor’s COMI.
Borrowers may change their COMI at any time and for what may be a self-serving purpose – for example, to take advantage of more favourable bankruptcy laws; but the relocation must be real! It is the fact of the relocation, rather than the intention behind the relocation, which is the decisive factor.
Please follow this link to access the EU Insolvency Regulation (1346/2000)
The new, updated text of the EU Insolvency Regulation (2015/848) can be found here
