Conducting business activity gives lots of development and networking opportunities. This kind of cooperation however, requires the knowledge of foreign legal regulations. How does the international insolvency proceeding look like in the situation when the insolvent’s assets are in different countries? You will find details in the article below.
We encounter the international insolvency proceeding in the situation when bankrupt’s assets are in different countries – also known as cross border insolvency. It is generally controlled by Council Regulation (WE) no. 1346/2000 from 29th of May 2000 on insolvency proceeding. The goal of this regulation is to, i.a. create an area for liberty, safety and justice as well as correct functioning of internal market. In order to achieve that, it crucial to avoid a situation in which the assets or judicial proceedings would be transferred to another Member State in order to secure a more favourable legal circumstances (“forum shopping” effect). It is important to remember that any detailed procedures are determined by a country in which the proceeding is being held and that mentioned regulation is not effective on the territory of Denmark.
The regulation is applicable in case of “collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator”. It relates to all the insolvency proceedings, regardless of the fact if the debtor is a natural or legal person, a trader or an individual. “Liquidator” refers to any person or body whose function is to administer, liquidate or to supervise debtor’s affairs.
The Regulation is not applicable in case of insolvency proceedings concerning:
- insurance undertakings
- credit institutions
- investment undertakings holding funds or securities for third parties
- collective investment undertakings
Insolvency proceeding takes place in a country of debtor’s centre of main interests, which is a place where the debtor usually administers his affairs. If the debtor has a division of his company in a different Member State than where the centre of his main interest is located, there is a possibility to open insolvency proceeding in that other country. In such situation its effects will be restricted to the assets located in the latter Member State.
It is worth to remember that, depending on the country in which the international insolvency proceeding is held, different regulations shall be applied, which will determine proceeding’s course and effects. As an example, Law on Insolvency and Restructuring (Prawo Upadłościowe i Naprawcze) of 28 February 2013 is the main regulating act in Poland. This is the reason why it is crucial to get familiar with regulations binding in specific countries where the debtor’s assets are located. It allows to choose the Member State, which regulations are more favourable for the creditor. The safest option is to refer the case to experienced specialists – this way we may be sure that it will be conducted correctly.