In May 2005, we reported that the appointment of administrators by the English High Court in respect of SAS Rover France was held by the French Commercial Court to be a valid appointment pursuant to the EC Regulation Insolvency Proceedings (1346/2000) ("Regulation").
Notwithstanding the very robust and commercially grounded decision of the Commercial Court of Nanterre, the appointment of the English administrators in respect of SAS Rover France has been the subject of an appeal by the French Attorney General who pleaded several articles under the Regulation. The decision of the French court of appeal has been handed down on 15 december; it is another success for Hammonds Hausmann and a further endorsement of the application of the Regulation by the court of appeal in France.
The Attorney General brought his appeal against the application of the English administration order on three main grounds:
The English administration order that determined that the centre of main interests of SAS Rover France to be in England was invalid.
The application of English insolvency procedure, in particular with regard to the rights of the French employees, was contrary to French public policy.
There should be a secondary insolvency procedure opened in France in respect of SAS Rover France.
Validity of the jurisdiction of a Member State
It was argued by the Attorney General that the French courts have a duty to verify the jurisdiction of the court of another member state, not only to determine that the correct criteria for choosing the jurisdiction has been applied, but also to ensure that the centre of main interest was correctly determined to be within the jurisdiction.
Such an argument, if sustainable, would be entirely contrary to both the spirit and the terms of the Regulation. The aim of the Regulation is to improve the efficiency and effectiveness of insolvency proceedings with a cross border effect. Automatic recognition of another state’s insolvency proceedings is a central principle of the Regulation. To require the courts in each Member State to verify insolvency proceedings opened in another Member State would be a barrier to such efficiency. For this reason, Article 17 of the Regulation provides that the opening of main proceedings in a Member State shall, "with no further formalities", produce the same effects in any other Member State as under the law of the country in which the proceedings are opened.
The French appeal judge held that the only obligation on the French courts is to ensure that the decision to open main proceedings in another Member State has complied with the conditions necessary for the proceedings to be recognised in France. If those conditions are met, namely that the court has jurisdiction under Article 3 of the Regulation because the company’s centre of main interest is located within that Member State, no further formality or verification is required.
When can main proceedings commenced in another Member State be refused as contrary to French public interest?
The issue of appointment of administrators from outside France in respect of French incorporated subsidiaries of international groups is not new. The equally controversial appointment of English administrators of the French subsidiary of the ISA Daisytek Group of Companies continues to be the subject of legal argument in France: the decision on the second appeal by the Public Prosecutor is expected in January/ February 2006. However at Court of Appeal level, there has now been a second decision recognising that the Regulation makes this possible.
Article 26 provides that a Member State can refuse to recognise insolvency proceedings opened in another Member State when they would be manifestly contrary to its public policy. The Regulation describes this as meaning contrary to its fundamental principles or the constitutional rights and liberties of the individual. The Attorney General relied on this article to say that the English insolvency procedure ignored the French employee’s rights.
The French court of appeal took the view that the grounds for non-recognition should be reduced to a minimum. In this particular case, Hammonds Hausmann and the administrators had taken significant steps to consult with local insolvency practitioners to ensure full compliance with French employment law, had complied with all the duties of notification and consultation and had made financial provision to meet the claims of the French employees on terms equivalent to French law. The English administration was therefore found not to be contrary to French public policy.
Opening secondary proceedings
Not a point of appeal but as a separate action, the Attorney General requested that secondary proceedings be opened in France. This was rejected by the Court of Appeal; the Attorney General was unable to demonstrate that there would be any advantage, in particular the protection of local interest or a better realisation of assets, in the commencement of secondary liquidation proceedings in respect of SAS Rover France. It was satisfactorily demonstrated, on behalf of the English administrators, that the administration had been successfully run, as account had been taken of all relevant interests, and the likely outcome was that the sale operations would be continued for some time. Secondary proceedings would only add unnecessary costs and formalities, to the detriment of the creditors.
The interpretation and application of the Regulation continues to be a fast growing area of law. Currently pending is the European Court of Justice’s decision in the Eurofoods/ Parmalat case, which includes arguments on public policy between Ireland and Italy. This is likely to be succeeded by the further French decision in ISA Daisytek.
This French court of appeal decision in SAS Rover France has established some principles.