The European Insolvency Regulation has been in force since 1 May 2002. These European rules provide important rules for bankruptcy proceedings, which you will not find in Dutch bankruptcy law. To understand bankruptcy law, you must also be aware of the EU Insolvency Regulation. What are the main points of this regulation?

The purpose of the regulation

The purpose of the Insolvency Regulation is to determine which court of which country has jurisdiction to hear a bankruptcy petition if a person, or a company or an institution, owns and/or has offices in several European Union countries. In addition, the regulation provides rules for settling the bankruptcy of this person or company/institution in the various countries.

Not just for bankruptcies

As the word “Insolvency Regulation” indicates, the regulation does not only apply to bankruptcy cases, but also to related matters such as the WSNP (Debt Rescheduling of Natural Persons Act) and the suspension of payments and the various variants of these schemes in the other EU countries. This all falls under insolvency law.

Companies, institutions and “natural” persons

Not only companies or institutions with offices in several countries may be affected by the Insolvency Regulation, ordinary people may also be affected by the Regulation. For example, a person can work in the Netherlands and live in Germany. Then it is obvious that a possible bankruptcy will be handled in Germany. It becomes complicated if this person officially lives in Germany and at the same time owns, for example, rented property in the Netherlands. The settlement is then mainly a Dutch matter: that is where the assets are located. The regulation lays down rules for designating a competent court in such cross-border cases that can pronounce the bankruptcy. This judge will therefore supervise the settlement of the bankruptcy.

Center of main interests

This term refers to: the place where the company, institution or person whose bankruptcy is filed, manages its assets. For the Dutchman who lives in Germany, but who drives daily to and from his Dutch office to manage his real estate portfolio, you end up in a Dutch court. Although he lives in Germany, the focus is still in the Netherlands. This approach is in line with the task of the future curator: most of the work is waiting for him in the Netherlands. In a company or institution with foreign branches, the center of main interests will usually be the head office where the management is located. What doesn’t say much about companies is the form of incorporation or “nationality” of the company. For example, a company may be incorporated under UK law – the company is then a “Limited” or a PLC. However, such a company may have a head office in another EU country; a well-known example is Shell.

Bankruptcy of foreign legal forms

The consequence of the Insolvency Regulation is that the Dutch court can declare the bankruptcy of, for example, a Belgian “BVBA”, provided that the center of main interests is located in the Netherlands. The reverse is also possible: a Belgian court may conclude that the center of main interests of a Dutch BV is in Belgium. This aspect of the regulation is very important. There are, for example, constructions where a Dutch owner uses a cheap English “limited” to do (dubious) business in the Netherlands. This can be tackled well thanks to the regulation, a company is “tangible” in the country where the activities are carried out.

Effect on the bankruptcy filing

If a company, institutions or private individual has foreign assets or establishments, the applicant for bankruptcy will have to convince the Dutch court – if it deems it competent – that the center of main interests is located in the Netherlands. If the applicant anticipates that most of the assets or headquarters will be abroad, he will have to file for bankruptcy abroad. The “ordinary” rules in the Bankruptcy Act and the Dutch Civil Code apply to choosing the right competent court in the Netherlands.

Effect after the bankruptcy filing

The Insolvency Regulation is not only important during the bankruptcy application. The bankruptcy trustee in the main proceedings (the bankruptcy that is pending in the country where the center of main interests is located) may open ancillary proceedings in European countries where other establishments or assets are located. The trustees in those countries must cooperate with the trustee in the main proceedings. In this way, foreign assets can come within the reach of the trustee in the main proceedings.