major change

15 January 2004

Claire Mourlaque

On 4 September 2003, the Court of Appeal of Versailles handed down a decision in respect of the effects of an administration order made in England and Wales against an English company’s French subsidiary. The decision is the first application of the EC Regulation n° 1346/2000 (“the Regulation”) on insolvency proceedings since it came into force on 31 May 2002.

The issue was to determine whether insolvency proceedings, properly commenced in England and Wales against a French company, could be directly recognised in France or whether the French Courts could commence similar proceedings against the same company.

Jurisdictional issues arising out of insolvency proceedings are dealt with in Article 3-1 of the Regulation. Article 3-1 provides that jurisdiction is granted to the courts of that Member State where the centre of the company's main interests is situated. In the absence of evidence to the contrary, the centre of the company’s main interests is presumed to be the company’s registered office.

In this case, insolvency proceedings against the French company SAS ISA Daisytek, a subsidiary of the English company Daisytek-ISA Limited were commenced by an administration order of the Leeds High Court of Justice dated 16 May 2003. The court held that the French subsidiary’s main interests were also in England (although the company itself was incorporated in France). The reason quoted was that major decisions concerning the French subsidiary were taken in England at the office of the Group’s parent company.

This seems to be a broad interpretation of the “centre of main interests” by the English court and is all the more notable because it appears to go against the classic English concept of “place of incorporation” and leans more towards the concept of “effective place of business” or “siège réel” which is adopted into French law.

Ten days after the administration order was made by the Leeds High Court of Justice, the Commercial Court of Pontoise commenced insolvency proceedings in France against SAS ISA Daisytek and a French receiver was appointed. The Court of Appeal of Versailles quashed this decision by the Commercial Court of Pontoise on the basis of the Regulation. The Court of Appeal’s decision is significant in that it recognised the English insolvency proceedings and therefore properly respected the spirit of the Regulation and, more generally, the purposes of the European Community.

This case highlights the difficulty that could be encountered by Members States when interpreting whether or not it is entitled to seize jurisdiction in insolvency proceedings. The Regulation does not provide any clear definition of a company’s “centre of main interests”. It simply says that it is “the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties”. This does offer some guidance but it is clear that interpretation will vary across the Member States. This may increase the number of disputes until the criterion is eventually clarified and standardised by a decision from the European Court of Justice.

Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.