Amendment to EC Insolvency Regulation - Out of court appointments of administrators
When the EC Insolvency Regulation (Regulation No. 1346/2000 on insolvency proceedings) was introduced in 2002, it was considered that a review of its workings after ten years would be appropriate. In fact, in view of changes in the form of insolvency proceedings in a number of member states, and also because of the accession of the ten new states in 2004, the Council is already proposing to amend the Regulation. The current proposal, however, is confined to amending the three annexes setting out the forms of insolvency procedure and the descriptions of the office holders in the various states.
In the UK, the significant change since the Regulation came into force is the streamlining of the administration procedure introduced by the Enterprise Act 2002 and in particular the procedure for out of court appointments of administrators. Accordingly Annexe A now refers to administration including appointments made by filing prescribed documents with the court and Annexe B now has winding up through administration, including appointments made by filing prescribed documents with the court. The reference to an administrator in Annexe C is not changed, but provisional liquidators are added to the list of UK office holders.
The addition of provisional liquidators is clearly sensible.
The amendments in respect of administration probably do not serve the intended purpose. Many commentators have considered that an administrator appointed out of court would have difficulty in getting his status recognised in Europe. The reason is as follows. Article 16, which sets out the principle of recognition of insolvency proceedings, states that "Any judgment opening insolvency proceedings handed down by a court of a member state … shall be recognised in all the other member states from the time that it becomes effective in the state of the opening of proceedings". Article 17 states that the judgment opening the proceedings "…. shall, with no further formalities, produce the same effects in any other member state as under the law of the state of the opening of proceedings".
The difficulty arises from the fact that, although an administrator appointed out of court may well qualify as a liquidator (as defined in the Regulation) who is therefore entitled to "exercise all the powers conferred on him by the law of the state of the opening of proceedings in another member state …", it is hard to see how an out of court appointment can qualify as a "judgment opening the proceedings".
This is so notwithstanding the expanded definition of judgment, which includes "the decision of any court empowered to open such proceedings or to appoint a liquidator", and court is widely defined as meaning "the judicial body or any other competent body of a member state empowered to open insolvency proceedings or take decisions in the course of such proceedings". The conclusion which commentators have drawn from this is that an out of court appointment of an administrator is not a judgment and there is nothing which could qualify as a "court" in relation to an out of court appointment, notwithstanding that documents are required to be filed with the court for such an appointment to be effective. There is still no judgment of a court.
It is, therefore, hard to resist the conclusion that where an administrator will need to have his appointment recognised immediately throughout the EU (except in Denmark) it will still be necessary to seek an order of the court appointing the administrator. Thus, at least from a UK perspective, the Council is proposing to make changes to the Regulation that are not necessary, and are not proposing to address changes that need to be made.
It is understood that the date for adoption by the Council may be on 14 April 2005. Please click here to view the draft proposal.
