Jurisdiction to open main insolvency proceedings

In the case of Eurofood, the ECJ laid down an explanation of the right of acourt of a Member State to open main insolvency proceedings within the meaningof EC Regulation No 1346/2000 on insolvency proceedings (“Regulation No.1346”). In essence, the ECJ held that the jurisdiction to open the maininsolvency proceedings, which applies to assets of debtors situated in allMember States, is vested in the court of the Member State where the registeredoffice of the debtor is located, unless there are objective and ascertainablecircumstances to justify locating the debtor’s centre of main interests inanother country. The ECJ’s judgment thus provides a guide for interpreting the“centre of main interests” concept envisaged by Regulation No. 1346.

Pursuant to the Regulation No. 1346, the court of the state where thedebtor’s centre of main interests is located has jurisdiction to open maininsolvency proceedings against the debtor. In case of a legal entity, RegulationNo. 1346 presumes the debtor’s centre of main interests as being in the state ofits registered office, unless there is a proof to the contrary.

Eurofood, an Irish subsidiary of Parmalat SpA (the Italian entity underextraordinary administration since 2003), provided certain financial facilitiesto the Parmalat Group. Following the extraordinary administrative takeover ofEurofood’s mother company, Parmalat SpA, in 2003, the Bank of America appliedfor liquidation of Eurofood on account of its debts. The Irish High Courtaccepted the application and appointed an Irish provisional liquidator inJanuary 2004. In February 2004 on order of the Italian administrator ofParmalat, Eurofood was placed under extraordinary administration by the Italianadministrator in Italy on the grounds that Eurofood’s centre of main interestswas in Italy. This assumption was based on the fact that Eurofood was awholly-owned subsidiary of Parmalat SpA and entrusted with financing the wholeParmalat Group. The Irish High Court however refused to recognize theadministration in Italy and the decision was subsequently challenged by theItalian administrator.

The ECJ held that in determining the centre of the main interests of a debtorcompany, the simple presumption laid down by Community legislature in favor ofthe registered office of that company can be rebutted only if factors which areboth objective and ascertainable by third parties establish that an actualsituation exists different from the location of the registered office. The ECJfurther held that this could be so in the case of a ‘letterbox’ company thatdoes not carry out any business in the territory of the Member State in whichits registered office is situated. By contrast, if a company carries out itsbusiness in the territory of the Member State where its registered office issituated, the mere fact that its economic choices are or can be controlled by aparent company in another Member State is not enough to rebut the presumptionlaid down by Regulation No. 1346.

The ECJ further held the principle of mutual trust requires the courts ofother Member States to recognize a court decision to open main insolvencyproceedings without being able to review the jurisdiction of the court of theMember State where the proceedings were opened.

The ECJ laid down the criteria for “opening insolvency proceedings” underRegulation No. 1346. A decision to open insolvency proceedings involves (i)divestment of the debtor and (ii) appointment of a liquidator referred to inAnnex C of the Regulation No. 1346. Such divestment implies the debtor loses thepowers of management over his assets.

In connection with this case, the ECJ further clarified that a Member Statemay refuse to recognize insolvency proceedings opened in another Member Statewhere the decision to open the proceedings was taken in flagrant breach of thefundamental right to be heard, which a person concerned by such proceedingsenjoys.

The Eurofood judgment may be regarded as upholding certain main principles onwhich the Regulation No. 1346 and Community cross-border insolvencies stand –namely, the principle of one main insolvency proceedings, recognition, mutualtrust and equality of arms.