26. INSOLVENCY PROCEEDINGS
Letter from Lord Tordoff, Chairman of
the Committee, to Dr Kim Howells MP, Parliamentary Under-Secretary
of State for Consumers and Corporate Affairs, Department of Trade
and Industry
Sub-Committee E (Law and Institutions) considered
the draft Regulation at its meeting on 3 November. You will recall
that the Committee examined in detail the proposal for a Convention
and reported on it in 1996 (Convention on Insolvency Proceedings,
Seventh Report 1995-96). The Committee notes your observation
that the draft Regulation is in most respects a replica of the
draft Convention. For this reason the Committee has concentrated
on the implications of the conversion of the Convention into a
Regulation under Title IV of the EC Treaty.
You may recall that during the negotiations
of the Convention a number of technical points (concerning floating
charges, netting agreements and settlement arrangements in financial
markets) of great importance in practice in the United Kingdom
were dealt with by appropriate amendments to the Explanatory Report
to the Convention. How will these matters be dealt with in the
context of the Regulation? Has the Explanatory Report been satisfactorily
transferred into the recitals and/or substantive Articles of the
Regulation?
A further point of difficulty at the time of
conclusion of the Convention was its territorial application.
Your Explanatory Memorandum does not address the question of the
applicability of the Regulation to Gibraltar. Could you confirm
that as an EC Regulation the proposed regime would, consistent
with Article 299(4) of the EC Treaty, apply in relation to Gibraltar?
The Committee would also be grateful if you
could give your views on the implications of the conversion, from
Convention to EC Regulation, as regards the external competence
of the Community and the ability in future of the United Kingdom
to enter into agreements (Treaties, Conventions etc.) with third
States on insolvency matters. What are the consequences for participation
by the UK in any other international forum and for the UK negotiating
bilateral arrangements with non-Member States? Further, can you
confirm that the Regulation would not prejudice the operation
of section 426 of the Insolvency Act 1986 and the designation
of countries and territories under that section?
Your Explanatory Memorandum indicates that the
United Kingdom has notified its wish to "opt in" to
the Regulation. Has Ireland done likewise? Denmark has, as you
will be aware, a different position under the Treaties. What will
be the consequences of Denmark not being subject to the Regulation?
Is it envisaged that there will be an arrangement whereby the
Regulation's regime will apply as between Member States and Denmark?
If so, what form will it take?
Finally, the Committee notes that the Government
is consulting practitioners on the proposed Regulation. The Committee
is interested to learn the outcome of that exercise. It would
be helpful if in due course you could provide a summary of responses.
The Committee looks forward to receiving the
information requested above. In the meantime the draft Regulation
remains under scrutiny.
4 November 1999
Letter from Kim Howells MP, Parliamentary
Under-Secretary of State for Consumers and Corporate Affairs,
Department of Trade and Industry, to Lord Tordoff, Chairman of
the Committee
Thank you for your letter of 4 November.
Before addressing the detail of the points you
have raised, it may be helpful if I take this opportunity to bring
you up to date with both recent and likely developments concerning
the Regulation. The EU Civil Law Committee completed its consideration
of the proposals on 3 November. The Regulation is now likely to
be considered by COREPER on 17 or 24 November and by the Council
of Ministers on 2 or 3 December. We have, of course, advised that
the matter has not yet cleared parliamentary scrutiny. A revised
text of the Regulation has just been received and I shall shortly
submit a supplementary Explanatory Memorandum.
Dealing now with the specific issues raised
in your letter—
FLOATING CHARGES
We have secured amendments to Article 5.1 of
the Regulation which I believe ensure that the floating charge
is recognised as a right in rem. Article 5.1 now reads: "The
opening of insolvency proceedings shall not affect the rights
in rem of creditors or third parties in respect of tangible or
intangible, movable or immovable assets (both specific assets
and collections of indefinite assets as a whole which change from
time to time) belonging to the debtor which are situated within
the territory of another Member State at the time of the opening
of proceedings".
I am advised that the words in italics provide
the certainty we are seeking in this area but the text may yet
be subject to challenge at COREPER.
NETTING ARRANGEMENTS
It has not been possible to have all the details
of the Convention's Explanatory Report transposed into the Recitals.
Nevertheless I believe that the wording of Recital 24 (which remains
unchanged) established clearly that contracting parties will continue
to be entitled to rely on legal certainties, existing before insolvency
proceedings were opened, remaining in place.
SETTLEMENTS SYSTEMS
IN FINANCIAL
MARKETS
Recital 25 recognises the need for special protection
for payment systems and financial markets. It states unequivocally
that: "For such transactions, the only law which is material
should thus be that applicable to the system or market concerned".
This is clearly an important provision for all Member States and
I am advised that the Regulation provides adequate safeguards.
GIBRALTAR
I am advised that by virtue of Article 299(4)
of the EC Treaty the Regulation would apply in relation to Gibraltar.
EXTERNAL COMPETENCE
The conversion of a Convention to an EC Regulation
made under a Title IV legal basis can give rise to a co-extensive
external Community competence. If the UK opts into the Regulation,
it would not be free to enter into agreements with third countries
which would affect the Regulation. I consider that the nature,
scope and effects of the Regulation are such that it would be
unlikely to give rise to a substantial extension of external competence
by the Community. I do not consider that the Regulation will restrict
the applicability of section 426 of the Insolvency Act 1986 in
relation to third countries. The operation of that section in
relation to such countries will not affect the Regulation. Moreover,
designation of countries under section 426 is not dependent on
agreement with the country in question, nor on reciprocal treatment
by that country.
IRELAND AND
DENMARK
I can confirm that Ireland has exercised its
opt-in. The position of Denmark is covered by a separate Protocol
to the Amsterdam Treaty but I can let you known that it has indicated
that it would wish to enter into appropriate arrangements with
other Member States.
You have asked me to provide a summary of the
responses received by the Department to the limited consultation
referred to in paragraph 11 of the Explanatory Memorandum. I presume
that the Committee is in fact interested primarily in those areas
of possible difficulty which consultees have identified. These
can be summarised as follows:—
(1) Inadequate identification of entities
to which the Regulation would not apply, that is investment and
insurance undertakings.
(2) Time of opening of proceedings in a creditor's
voluntary winding-up.
(3) Is a floating charge a right in rem?
(5) Languages in which notifications to creditors
are to be given.
(6) Equal treatment of creditors throughout
the Community.
You will recognise that a number of these concerns
mirror those which your Committee previously expressed and with
which I have already dealt. I believe that other concerns are
already adequately addressed in the Regulation and, as regards
the identification of investment and insurance undertakings, my
officials are exploring ways in which that identification can
be achieved.
17 November 1999
Letter from Lord Tordoff, Chairman of
the Committee, to Kim Howells MP Parliamentary Under-Secretary
of State, for Consumers and Corporate Affairs Department of Trade
and Industry
Thank you for your letter of 17 November. This
was considered by Sub-Committee E at its meeting on1 December.
The Committee is grateful for the information you have given and
has decided to clear the document from scrutiny.
As regards the application of the Regulation
to Gibraltar, the Committee notes that you are advised that the
Regulation would apply. Can the Committee infer from your statement
that the problems which beset the conclusion of the Convention
have now been satisfactorily addressed and that insolvency proceedings
commenced in Gibraltar will be recognised in all other Member
States?
2 December 1999
Letter from Kim Howells MP, Parliamentary
Under-Secretary of State for Consumers and Corporate Affairs,
Department of Trade and Industry, to The Lord Tordoff, Chairman
of the Committee
Thank you for your letter of 2 December. I am
pleased to note that the Regulation has now been cleared from
scrutiny.
I am afraid that the Gibraltar issues remains
unresolved, although nothing has happened to affect the advice
that by virtue of Article 299(4) of the EC Treaty the Regulation
would apply in relation to Gibraltar. After consultation with
the authorities there, we are also satisfied that the UK's entries
in the annexes to the Regulation are apt to include Gibraltarian
insolvency proceedings.
The text of the Regulation was agreed at a meeting
of the Justice and Home Affairs Council on 2 December. However,
the proposal was not adopted then because the opinion of the European
Parliament and of the Economic and Social Committee is still awaited
and particularly because Spain maintained a reservation on the
territorial scope of the Regulation. Of course, that reservation
is not unique to the Regulation and it would seem that further
progress will not depend on successful completion of negotiations
between ourselves and Spain on the Gibraltar question as it affects
a wide range of draft EC legislation.
23 December 1999
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