EU Regulation 2015/848, titled “On Insolvency Proceedings” (the European Insolvеncy Regulation – EIR) significantly reformulated and replaced the earlier Regulation (EC) 1346/2000 to create a more coherent and effective legal framework for handling insolvencies that span multiple EU Member States. Its main purpose is to streamline cross-border insolvency procedures, reduce legal uncertainties, and foster cooperation among courts and insolvency practitioners across the EU. The need to avoid forum shopping is one of the leading principles in the EIR.
The regulation applies to insolvency proceedings concerning debtors with establishments in the EU, including corporate entities (companies, partnerships, etc.) and individual debtors in specific circumstances (e.g., debt relief proceedings). It does not cover certain types of insolvency procedures, such as those related to insurance or banking sectors, unless explicitly included as well as proceedings initiated outside the EU.
Core Principles and Provisions of the EIR
- Main Proceeding (Art. 3), the central mechanism of the EIR: shall be opened in the Member State where the debtor has its “center of main interests” (COMI). The COMI is presumed to be the place of registration or incorporation unless proven otherwise. The opening of the main proceeding results in automatic recognition across the EU, providing a legal framework for the proceedings to have authority throughout the jurisdiction;
- Secondary (or Territorial) Proceedings (Art. 4 and 6): can be initiated in other Member States to address specific issues such as asset preservation, collection, or enforcement. These proceedings are subsidiary to the main and subordinate to its directives. They do not result in the bankruptcy of the debtor but facilitate localized assets or legal actions;
- Recognition and Automatic Effect (Art. 15-19): once a foreign proceeding (main or secondary) is opened, automatic recognition is triggered. Recognition entails full legal effect across other EU jurisdictions. Courts must not automatically recognize or enforce foreign proceedings if they violate EU law or public policy;
- Coordination and Cooperation (Art. 27-36): courts and insolvency practitioners are obliged to cooperate and share information. The EIR encourages comity and mutual respect in managing cross-border cases. The European Judicial Network in Civil and Commercial matters serves as a platform for facilitating cooperation and information exchange.
Bulgarian Case Study C-296/17
The scope and exclusive nature ot the “vis attractiva concursus” is laid down in Art. 6 of the EIR. “The attracting force of the bankruptcy proceeding” refers to the legal principle where a court that has opened insolvency proceedings gains sole jurisdiction over claims against the debtor and related disputes. This principle aims to centralize all insolvency-related matters within the jurisdiction of the court handling the main insolvency case, promoting efficiency and consistency.
One of the decisions of the European Court of Justice on the “vis attractiva concursus” application is on Case C-296/17 Wiemer& Trachte v Tadzher (2018) ECLI:EU:C:2018:902.
Wiemer & Trachte GmbH, a joint stock company, registered in the Federal Republic of Germany (W&T) established in 2004 a branch in Sofia, Bulgaria. In April 2007 a temporary trustee of W&T was appointed by the German court, competent as per COMI, and the court ruled that all disposals with W&T assets should be sanctioned by the trustee as otherwise would not be valid. A month later a full prohibition of disposition was imposed and consequently insolvency proceedings were commenced. Meanwhile in Bulgaria, after the appointment of the trustee two outgoing transfers were made from W&T branch’s bank account to a Bulgarian citizen (Mr. Tadzher) without the knowledge and approval of the trustee.
W&T trustee claimed before the Bulgarian court that both transfers violated the German Insolvency Act and requested the return of the respective amounts from the payee to the bankruptcy estate on the grounds of art. 812 of the German Civil Code. The defendant objected the competency of the Bulgarian court and finally the case was referred by the highest third instance court – the Supreme Court of Cassation – to the European Court of Justice for a preliminary ruling.
ECJ confirmed the exclusive jurisdiction for set aside (pauliana) actions of the courts of the Member State within the territory of which insolvency proceedings have been opened (COMI or secondary proceedings). Not therefore jurisdiction under the Brussels I Recast for the State of domicile of the defendant, namely Bulgaria. As a result, the Supreme Court of Cassation invalidated the first and second instance court decisions and terminated the proceedings due to lack of competence of the Bulgarian courts.
Like the Bulgarian case and still on the old regulation but with effect also for Art. 6 of the EIR is the ECJ decision on Case C-493/18 UB v VA and Others. The court states that an action brought by the trustee in bankruptcy appointed by a court of the Member State within the territory of which the insolvency proceedings were opened seeking a declaration that the sale of immovable property situated in another Member State and the mortgage granted over it are ineffective as against the general body of creditors falls within the exclusive jurisdiction of the courts of the first Member State. So, it is irrelevant where the real estate assets are located.
Significance
The EIR modernizes and harmonizes cross-border insolvency processes in the EU, making it easier for businesses to navigate insolvency proceedings involving multiple jurisdictions. It aligns with broader EU objectives of a Single Market by ensuring that insolvency proceedings are managed transparently and efficiently. Its well-defined rules for jurisdiction, recognition, and cooperation enhance insolvency resolution, promoting economic stability and legal clarity in an increasingly interconnected economy.
