If an Irish Company with significant international trade seeks protection from its creditors by appointment of an Examiner to formulate a scheme of arrangement the prospects for the Company’s survival may depend on whether creditors in foreign countries can be bound to the scheme. Otherwise foreign creditors might seize local assets or have a liquidator appointed locally. If companies are to have the full benefit of protective legislation, thereby preserving commercial undertakings and employment and protecting investment, cross border recognition and enforcement of insolvency orders is essential. It is also essential to ensure equal distribution among creditors in a liquidation involving assets in several Countries.
The new E. C. Council Regulation on Insolvency proceedings referred to below comes into force on 31st May 2002 and applies to collective Insolvency Proceedings (other than insolvency proceedings concerning credit institutions or insurance undertakings or certain investment undertakings) which entail the partial or total divestment of a debtor and the appointment of a liquidator. It is to be noted that in the case of Ireland the list of collective Insolvency proceedings contained in the Regulation includes compulsory winding up, Creditors voluntary winding up (with confirmation of a Court) and Company Examinership. A liquidator is defined as meaning any person or body whose function is to administer or liquidate assets of which the debtor has been divested or to supervise the administration of his affairs, and it is to be noted that in the case of Ireland the list of such persons contained in the Regulation includes Liquidator, Provisional Liquidator and Examiner.
At present in the UK Irish Insolvency Orders may be recognised under Section 426(4) of the UK Insolvency Act and UK SI No. 2123. Under these provisions orders have been obtained in a number of cases recognising the appointment of Irish Examiners and enforcing the protection from creditors during the examination period afforded by Irish legislation, and orders have also been obtained enforcing the terms of Irish Examiners schemes of arrangement which have been approved by the Irish Court. It has also been possible under the foregoing provisions to obtain recognition of appointment of an Irish Liquidator and enforcement of the provisions of Sections 218, 219 and 222 of the Irish Companies Acts for avoidance of dispositions of and execution against property of, and for a stay of actions against, an Irish Company following liquidation save with leave of the English or Irish Courts.
It was also found possible in the Bell Lines case to obtain recognition and enforcement in France of Irish Insolvency Orders by a procedure known as Exequatur. This entails application to the French Courts grounded on the relevant Irish Court Order and copies of resultant Irish official advertisements (e.g. Re. appointment of an Examiner or Liquidator) and Certificate of the Irish Supreme Court Office confirming non-appeal of the Order together with an Affidavit of Law by a practising Irish lawyer as to the nature and effect of relevant Irish Law and copies of relevant Irish legislation, and official translations into French of all the foregoing.
In the Bell Lines case, although Orders were obtained in France recognising the appointment of the Examiner and the Liquidator and enforcing in France the relevant provisions of Irish Law an appeal was successfully brought by French employees and a French Liquidator appointed over the French Branch of the Company following refusal by the French Employers Insolvency Fund to make payments to French employees in the absence of an independant French liquidation in light of the decision of the European Court of 17th September 1997 in the Carina Mosbaek case. Thankfully that case has since been distinguished by the decision of the European Court of Justice of 16th December 1999 in case C - 198/88 on appeal by English employees of Bell Lines against a similar refusal of the English Insolvency Fund to make payments; the European Court having ruled that in the case of liquidation of a Company in one Member State, having employees employed by a branch in another Member State, it is the Insolvency Fund of the State in whose territory the employees were employed which is responsible for payment of claims.
In foreign countries where recognition of Irish Insolvency Orders is not possible at present (e.g. Holland) or where foreign procedures are incompatible or impractical it may in some cases be possible to bind foreign creditors to an Irish Examiners scheme of arrangement by agreement or binding acknowledgement but this may be incomplete as a solution. Also, in some Examinership cases it may be beneficial at present to consider the possibility of preserving part of a company’s undertaking involving foreign elements in a new company, but again this may not always provide a solution.
In some countries (e.g. Spain), at present, in order to obtain recognition and enforcement of foreign (Irish) Insolvency Orders, it is necessary to show reciprocity (i.e. that equivalent Spanish Orders would be recognised and enforced in Ireland).
No ministerial Orders have been made in Ireland pursuant to Section 36 Companies (Amendment) Act, 1990 to facilitate enforcement of foreign Orders made for or in the course of reorganisation or reconstruction of foreign companies. However Section 250 of the Companies Acts, 1963-1999 together with SI No. 42 of 1964 contain provision to facilitate enforcement of U.K. Orders made for or in the course of winding up of non-Irish companies. Part X of the Companies Acts deals with winding up in Ireland of foreign companies, and principles of conflict of laws and comity may possibly be of some assistance to foreign Liquidators in respect of moveable property in Ireland of foreign companies against claims of a non security or non proprietary nature.
The United Nations Commission on International Trade Law (UNCITRAL) has adopted a model law on cross border insolvency and it remains to be seen to what extent this will be implemented.
However progress has now been made by the passing of E. C. Council Regulation No. 1346/2000 of 29th May 2000 on Insolvency Proceedings.
The Regulation comes into force on 31st May 2002 for Insolvency Proceedings1 opened after that date. It will be directly binding on member States apart from Denmark, who have opted out. The regulation will apply, inter alia, to "Liquidators" appointed or confirmed by a Court, who will be recognised and empowered to act in other member States (save where manifestly contrary to public policy or irreconcilable with a prior convention with a third Country). Furthermore apart from main proceedings in the territory in which the centre of the debtors main interests or administration is situated secondary proceedings may when appropriate be opened in another territory where the debtor has an establishment. Such secondary proceedings are restricted to assets in that other territory, and the regulation provides for co-operation between "liquidators" in main and secondary proceedings.
The Regulation provides that Judgements in the course of recognised Insolvency Proceedings are to be enforced in accordance with the Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial matters (see Irish Statute No. 3 of 1988).
The Law applicable to Insolvency proceedings is that of the member State in whose territory the relevant proceedings have been opened. However without prejudice to actions for voidness, the opening of Insolvency Proceedings will not, in respect of assets situate in another member State, affect creditors or third parties rights in rem (generally security interests), or sellers rights based on reservation of Title. Local Law applies to contracts conferring the right to acquire or make use of immovable property and to certain rights of a Debtor on Public registers (e.g. in Land, Ships or Aircrafts); and set off is unaffected if permitted by the Law applicable to the insolvent debtors claim. The effect of insolvency proceedings on payment systems and financial markets, and on employment contracts and relationships is to be governed by the Law of the member state which is applicable to them, but whether employees claims have preferential status is determined by the Law of the State where the relevant insolvency proceedings are opened.
A full reading of the Regulation is essential.
Footnote
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.