Chapter 5 Recognition and Enforcement of Insolvency and Related Judgments

• Jurisdiction: United States

5. Recognition and Enforcement of Insolvency and Related Judgments

The issues of recognition are covered in Chapter II of the EIR Recast. Article 19 contains a general principle under which any judgment opening insolvency proceedings by a court of a Member State that has jurisdiction pursuant to Article 3 (i.e., both main and secondary proceedings) shall be recognized in all other Member States from the moment it becomes effective in the state of the opening of proceedings. The same approach applies to other insolvency-related judgment, deriving directly from insolvency proceedings and closely connected to them.

The term "court" as used in Article 19 shall be interpreted broadly. According to Article 2(6)(ii) EIR Recast, it should include the judicial body or any other competent body of a Member State empowered to open insolvency proceedings, to confirm such opening or to take decisions in the course of such proceedings.

Chart 2. Recognition Process

5.1. Immediate and Automatic Recognition

The EIR Recast, in line with the EIR 2000, provides for the immediate recognition of judgments concerning opening, conduct and closure of insolvency proceedings that fall within its scope (Recital 65 EIR Recast). Judgments handed down in the course of proceedings not listed in Annex A (e.g., UK schemes of arrangement) fall outside the scope of the EIR Recast and do not enjoy the benefits of automatic recognition. The same approach is adopted to recognition of judgments handed down in direct connection with such insolvency proceedings. This system of automatic, and immediate recognition is based on mutual trust between Member States, underpinning the EIR Recast system as a whole. Based on this mutual trust, the decision of the first court to open proceedings should be recognized in other Member States without those Member States having the power to scrutinize that court's decision on either procedural or substantive grounds. The only exception to this rule — public policy — will be discussed below.

Importantly, even if insolvency proceedings cannot be brought against the debtor in the recognizing Member State, e.g., due to his professional capacity or his public or private nature, as in the case of nontraders in certain countries (para. 148 Virgós-Schmit Report, Article 19(1) EIR Recast), the recognizing state is obliged to recognize a foreign insolvency judgment without a second thought.

The EIR approach to recognition, built on the principles of mutual trust and favor...