Week 4 ICIL
LECTURE
4.1 – THE APPLICABLE LAW UNDER INSOLVENCY REGULATION
The main rule and the exceptions
Main rule
Art. 7 EIR 2015: determines what will be the applicable law under the Regulation on the insolvency
proceedings.
‘Lex fori concursus ‘shall determine the conditions for the opening’:
- Preconditions for the opening of insolvency proceedings
- Rules which designate the persons who are obliged to request the opening of those proceedings;
- Consequences of an infringement of that obligation
‘The law applicable to insolvency proceedings and their effects shall be that of the member states within
the territory in which the proceedings were opened.’
What are the conditions for the opening of the insolvency proceedings?
- Who may request the opening of a proceeding?
- Who is obliged to request?
- What formalities must be complied with?
- What if these formalities are not complied with?
Art. 7 explains the uniform approach to the opening of insolvency proceedings. This art. Has a layered
structure:
1. General rule (par. 1)
2. Qualification of general rule
3. General rule in relation to procedure
4. Particular instances
Only one set of laws applied (per set of proceedings)
A different lex fori concursus will apply to secondary and territorial proceedings.
Paragraph 2 of art. 7 give examples when the applicable law applies. So, if a main proceeding is started in
the Netherlands, then the Dutch law is the applicable law throughout the EU. If this Dutch debtor has an
establishment in Germany, and a secondary proceeding can be opened, the secondary proceeding will be
governed by German law. This is only the case for Germany; in all other companies, Dutch law would
govern the secondary proceeding.
Matters covered by the lex fori concursus
In order to determine whether the specific question is answered by art. 7, the boundaries for this article
must be established – the boundaries of lex fori concursus. A 3-step plan is applied:
1. Do the questions fall within the examples set out in art. 7(2)(A-M)? If it is mentioned within any of
these paragraphs, it is governed by the lex fori concursus. However, this is not an exhaustive list.
, 2. Are the provisions that govern said subject matter generally of civil law nature or do they belong to
the derogating rules specific to insolvency proceedings? (If found in insolvency laws, then most
probably relate to insolvency proceedings)
3. Is there an insolvency-specific purpose (e.g. protection of general body of creditors)? Does the action
require opening of insolvency proceedings or an insolvency of a debtor? If so, it falls within the scope
of art. 7.
Exceptions: general
Why do we want to have exceptions? (Rct. 67 EIR 2015)
- Protection of legitimate expectations.
- And the certainty of transactions.
The exceptions provided by art. 7 are mostly tied to the abovementioned reasons for exceptions.
What are the exceptions? (EIR 2015)
- Art. 8 – rights in rem
- Art. 9 – set-off
- Art. 10 – reservation of title
- Art. 11 – contracts relating to immovable property
- Art. 12 – payment systems and financial markets
- Art. 13 – contracts of employment
- Art. 14 – effects on rights subject to registration
- Art. 15 European parents; community trademarks
- Art. 16 – detrimental acts
- Art. 17 – protection of third-party purchasers
- Art. 18 pending lawsuits or arbitral proceedings
Exceptions: rights in rem
Art. 8 EIR 2015
The opening of insolvency proceedings shall not affect the
- Rights in rem of creditors or third parties in respect of assets belonging to the debtor
- Which are situated within the territory of another Member State at the time of the opening of
proceedings.
This is opposed by rights in persona. Rights in rem give a specific position and is applicable when
assets of a debtor are located in the territory of another Member State at the time of the opening of a
proceeding.
Why are rights in rem not affected by the applicable insolvency law of the Member State where the
proceedings are opened?
The reasoning behind this is related to the fact that there is a direct relationship between the asset and
the other jurisdiction of the other Member State.
Furthermore, the absolute nature of rights in rem play a big part, the allocation of the rights to the
holder works ‘erga omnes’.
This stems from the Virgos/Schmit Report 1996 (par. 61 and 103 on rights in rem:
a. the direct and imminent relationship with the asset covered;
LECTURE
4.1 – THE APPLICABLE LAW UNDER INSOLVENCY REGULATION
The main rule and the exceptions
Main rule
Art. 7 EIR 2015: determines what will be the applicable law under the Regulation on the insolvency
proceedings.
‘Lex fori concursus ‘shall determine the conditions for the opening’:
- Preconditions for the opening of insolvency proceedings
- Rules which designate the persons who are obliged to request the opening of those proceedings;
- Consequences of an infringement of that obligation
‘The law applicable to insolvency proceedings and their effects shall be that of the member states within
the territory in which the proceedings were opened.’
What are the conditions for the opening of the insolvency proceedings?
- Who may request the opening of a proceeding?
- Who is obliged to request?
- What formalities must be complied with?
- What if these formalities are not complied with?
Art. 7 explains the uniform approach to the opening of insolvency proceedings. This art. Has a layered
structure:
1. General rule (par. 1)
2. Qualification of general rule
3. General rule in relation to procedure
4. Particular instances
Only one set of laws applied (per set of proceedings)
A different lex fori concursus will apply to secondary and territorial proceedings.
Paragraph 2 of art. 7 give examples when the applicable law applies. So, if a main proceeding is started in
the Netherlands, then the Dutch law is the applicable law throughout the EU. If this Dutch debtor has an
establishment in Germany, and a secondary proceeding can be opened, the secondary proceeding will be
governed by German law. This is only the case for Germany; in all other companies, Dutch law would
govern the secondary proceeding.
Matters covered by the lex fori concursus
In order to determine whether the specific question is answered by art. 7, the boundaries for this article
must be established – the boundaries of lex fori concursus. A 3-step plan is applied:
1. Do the questions fall within the examples set out in art. 7(2)(A-M)? If it is mentioned within any of
these paragraphs, it is governed by the lex fori concursus. However, this is not an exhaustive list.
, 2. Are the provisions that govern said subject matter generally of civil law nature or do they belong to
the derogating rules specific to insolvency proceedings? (If found in insolvency laws, then most
probably relate to insolvency proceedings)
3. Is there an insolvency-specific purpose (e.g. protection of general body of creditors)? Does the action
require opening of insolvency proceedings or an insolvency of a debtor? If so, it falls within the scope
of art. 7.
Exceptions: general
Why do we want to have exceptions? (Rct. 67 EIR 2015)
- Protection of legitimate expectations.
- And the certainty of transactions.
The exceptions provided by art. 7 are mostly tied to the abovementioned reasons for exceptions.
What are the exceptions? (EIR 2015)
- Art. 8 – rights in rem
- Art. 9 – set-off
- Art. 10 – reservation of title
- Art. 11 – contracts relating to immovable property
- Art. 12 – payment systems and financial markets
- Art. 13 – contracts of employment
- Art. 14 – effects on rights subject to registration
- Art. 15 European parents; community trademarks
- Art. 16 – detrimental acts
- Art. 17 – protection of third-party purchasers
- Art. 18 pending lawsuits or arbitral proceedings
Exceptions: rights in rem
Art. 8 EIR 2015
The opening of insolvency proceedings shall not affect the
- Rights in rem of creditors or third parties in respect of assets belonging to the debtor
- Which are situated within the territory of another Member State at the time of the opening of
proceedings.
This is opposed by rights in persona. Rights in rem give a specific position and is applicable when
assets of a debtor are located in the territory of another Member State at the time of the opening of a
proceeding.
Why are rights in rem not affected by the applicable insolvency law of the Member State where the
proceedings are opened?
The reasoning behind this is related to the fact that there is a direct relationship between the asset and
the other jurisdiction of the other Member State.
Furthermore, the absolute nature of rights in rem play a big part, the allocation of the rights to the
holder works ‘erga omnes’.
This stems from the Virgos/Schmit Report 1996 (par. 61 and 103 on rights in rem:
a. the direct and imminent relationship with the asset covered;
