In a vast majority of the cases, the insolvency proceeding takes place according to the law of the country of the debtor, where creditors are also from the same country. A more complicated situation involving a foreign element appears in insolvency proceedings increasingly more often, though, too. On European level, Regulation no. 2015/848 on insolvency proceedings (hereinafter “the Regulation”), which, among other things, regulates the so-called main and the secondary insolvency proceeding, handles this.

Main and secondary insolvency proceeding

The main insolvency proceeding always takes place, it is the standard insolvency proceeding. If the debtor and all creditors are from one country and a single insolvency proceeding takes place, it can actually also be considered the main proceeding. Courts of justice in the country, where the main interests of the debtor are concentrated, are pertinent for conducting the main proceeding.

In some cases, though, a so-called secondary proceeding may also be conducted. The purpose of the secondary insolvency proceeding is more efficient protection of the debtor’s creditors in other member states, where the debtor developed his activities, or more efficient asset management in such a member state.

A secondary insolvency proceeding may be initiated in a member state, where the debtor has his business premises. Such a secondary insolvency proceeding is limited only to assets in the given member state and ends at the time of settlement of assets in that country. The complementary nature of these proceedings is also reflected in the fact that if there are funds remaining after settlement of liabilities in the secondary proceeding, they are subsequently transferred to the main insolvency proceeding.

A secondary insolvency proceeding is governed by the law of the State that initiated it, but if the debtor's insolvency has been established in the main proceeding, this fact is not re-examined in the secondary proceeding. It has not been ruled out, though, that every insolvency proceeding may be handled in a different way. Both the insolvency administrator in the main insolvency proceeding and any other person who is entitled to initiate insolvency proceedings under the law of the respective Member State may submit the request to initiate it.

The insolvency administrator of the main insolvency proceeding also has the option of avoiding opening a secondary insolvency proceeding, if he or she makes a promise to creditors that he or she will follow the rules of the Member State where the secondary insolvency proceedings would be opened when distributing the assets in question. Such a promise must be approved by local creditors.

Claims in secondary insolvency proceedings are filed separately by creditors, both local and also for example from the state where the main insolvency proceedings are taking place. This can also be done by the insolvency administrator in the main proceeding who files claims of creditors who have already filed their claims in the main proceeding.

Both main and secondary insolvency proceedings take place based on the principle of mutual coordination and should not favour some creditors to the detriment of others. Each creditor should only be entitled to participate in the distribution of the total assets in other proceedings if creditors, who are in the same position, receive the same proportionate share of their claims.

Main interests of the debtor

As mentioned above, the decisive factor for the determination of the main insolvency proceeding is the place of main interests, the so-called COMI (Centre of Main Interests). Only a court in such a country can have jurisdiction to conduct the main insolvency proceeding. In the case of legal entities under the Regulation, the primary presumption applies according to their registered office until proven otherwise. The Regulation then explicitly stipulates that the decision to initiate is automatically recognised in other Member States.

The location of the main interests is also significant from the perspective of the overall scope of European Courts. According to point 25 of the Preamble, only insolvency proceedings against a debtor, whose main interests are concentrated in the territory of a Member State of the European Union, can be initiated under the Regulation.

European law is based on the principle of mutual trust and primarily assumes that the courts in the individual Member States will be able to assess this aspect independently and duly. The original Insolvency Regulation, which preceded the current one, did not foresee any possibility of review, either. However, the Regulation currently grants this option to the debtor or any of its creditors. The specific court, before which the decision may be challenged, as well as the time limit for exercising that right, is determined by the national law of the country, where the proceeding in question had been initiated. In addition, this information needs to be published in the insolvency register of that country. Other persons have this authorisation only if the national law grants it to them.

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