All countries in Europe have national laws that relate to insolvency, bankruptcy and the rights and obligations, generally and specifically, of debtors and creditors. For example, the rules in Denmark and Italy, when read together (and even though they differ in some details), may be taken as fairly typical of the situation in Europe, overall.

Denmark. Danish law recognises voluntary administration procedures both in terms of suspension of payments, straight bankruptcy (which can also be instigated by a creditor), voluntary composition and compulsory composition. Except for voluntary compositions, all procedures are regulated by the Danish Act on Bankruptcy ("Konkursloven", Act 118 of 4 February 1997, as amended). An advisor dealing with a voluntary composition has no official title but is similar to a "tilsynsf0rende" ("supervisor") dealing with a suspension of payments procedure.

Suspension of payments proceedings ("betalingsstandsning") often operate like an "automatic stay" ("forbud mod individualforf0lgning") and involve a period during which the debtor seeks to avoid bankruptcy and to recover financially, such as by a voluntary composition or by an asset sale. Voluntary administration procedures outside the scope of the Act on Bankruptcy and suspension of payments are both seen as methods of trading while insolvent. Individual proceedings against a debtor initiated by a single creditor cannot go forward, as from the date of the filing of notice of suspension of payments and, simultaneously therewith, the debtor is debarred from making material transactions without approval from the supervisor or a majority of the creditors.

Similarly, individual proceedings against a debtor initiated by a single creditor cannot go forward, as from the date when the procedures regarding other collective insolvency procedures have been ordered by the court and, simultaneously therewith, the debtor is not allowed to assign or abandon its property, to accept payments and other services rendered, to accept contract terminations, complaints, and similar declarations, to incur debts, or to dispose of property in any other way, with any effect as regards the estate.

Except for a voluntary composition outside the scope of the Act on Bankruptcy, creditors' committees may be appointed by the court.

A creditor whose claim is fully secured does not have a legal interest in bankruptcy, that is, it may enforce its rights against specific secured assets but may not vote regarding the appointment of the bankruptcy trustee, whereas certain creditors are treated as bankruptcy "preferred creditors" ("priviligeret fordringshaver"), i.e., creditors who have reserved ownership (title) to goods in the position of the debtor, lenders, lessors and pledgors of specific property. Such creditors are entitled to satisfaction independently of the bankruptcy proceedings. Other creditors are satisfied according to the priority of debts in bankruptcy as follows: (1) costs and expenses incurred at the commencement of bankruptcy and for the administration of the estate; (2) costs and expenses incurred in an attempt to provide a total arrangement of the debtor's financial situation, debts incurred with the consent of the supervisor, court fees; (3) claims for wages and other consideration for work performed in the debtor's service; (4) suppliers'

claims for tax duties on goods which are dutiable and which have been delivered to the debtor for resale within 12 months before the petition date (5) any further claims (including corporate income tax and other overdue taxes); and (6) after all other categories of claims for interest accrued after adjudication, fines, penalties etc. and claims under gratuitous promises. (In general, all creditors (via the trustee/receiver/supervisor) are able to obtain financial information regarding the debtor.) The order of such priorities and the categories of priorities altogether may vary somewhat from one

European country to another.

Certain transactions affecting the debtor and made within a short period prior the date of notice of the bankruptcy petition may be invalidated (although transactions approved by the supervisor are usually upheld). The most important and common types of transactions which may be set aside are: (1) alleged gifts effected within six months before the date of notice; (2) payments of wages or other remuneration in favour of affiliated parties that exceed what is reasonable for the work performed; (3) payments of debt three months prior to the date of notice, when paid before the due date, or by unusual means of payment or in amounts which have substantially impaired the debtor's ability to pay its general debts; (4) security which was not formally granted to the creditor at the time the debt was incurred but was effectuated within three months before the date of notice; (5) executions levied on the debtor's property within three months before the date of notice (these are without any legal effect towards the estate); (6) payments of debt and other dispositions of estate property made after the date of notice, unless necessary to maintain the debtor's business.

Directors and officers who have acted with gross negligence can be held personally liable for losses suffered by the creditors of the company. Similarly, except in cases of gross negligence, as a general rule a parent company is not liable for any of the debts of a bankrupt subsidiary.

As a general rule, judgements in foreign insolvency proceedings are not recognised in Denmark but, if the Danish courts acknowledge the constitutional effect and validity of a foreign decree, the control of the assets and liabilities of the debtor in Denmark may be transferred to the appropriate foreign trustee. Conversely, bankruptcy proceedings may be initiated in Denmark, despite the fact that the debtor is already subject to bankruptcy proceedings in another country.

Italy. In Italy, the law governing bankruptcy is embodied in Law No. 267 of 16 March 1942. The main conditions for a declaration of bankruptcy are (1) that the debtor is an entrepreneur and (2) is insolvent. The court which opens the bankruptcy proceedings is invested with jurisdiction over the entire proceedings, with such proceedings being directed by a delegated judge ("Giudice Delegato"). The Court also appoints a receiver ("Curatore Fallimentare"). who administrates the assets of the bankrupt estate, under the direction of the Giudice Delegato

Bankruptcy proceedings can be initiated by the debtor itself, by any creditor, by the Public Prosecutor ("Pubblico Ministero") or by the Court itself. The procedure is commenced with the filing of a written petition ("Istanza di fallimento") with the court at the place where the debtor has its main offices. The court fixes a noticed hearing for declaring the bankruptcy, which then gives the debtor automatic stay protection from the creditors. All proceedings are dealt by the bankruptcy procedure and no private arrangements are valid once proceedings have commenced.

The main purposes of Italian bankruptcy procedure are, on the one hand, to "remove" the insolvency and, on the other hand, to safeguard the interests of all the creditors of the debtor declared bankrupt by applying the principle of par conditio creditorum (a procedure whereby no single creditor can exercise rights alone, with the usual outcome being the sale of the business and assets of the whole debtor company to third parties). The par conditio creditorum principle is found in many European countries, such in Portugal under Article 10 of Decreto-Lei no. (Decree-Law) 103/80 and in Spain, where bankruptcy provisions are embodied in Commercial Code Sections 1829 and 1885 (articles 870-941) and in Procedural Law 1881 (as amended by Law 1/2000). The principle is also encountered in Germany, where the Insolvency Act ("Insolvenzordnung") gives the creditors' meeting ("Glaubigerversammlung") the right to decide whether the insolvent company will be wound up or whether the company's business is to be continued.

This concept is also consistent, for example, with the approach in the new Estonian Bankruptcy Act (Articles 2(1) and 28), consolidated text May 2002) (Pankrotiseadus (terviktekst Mai 2002) §2(1) Pankrotimenetlus; § 28 Pankrotitoimkond) as well as in the comparable bankruptcy and insolvency legislation in other New EU Accession countries.

Italian law provides the appointment of a Creditors' Committee, composed of at least three creditors. Such a committee mainly has an advisory role but its views must be heard by the Giudice Delegato in certain cases such as (1) for the appointment of any consultants; (2) for the completion of transactions ("extraordinary acts") well outside the normal scope of business; (3) for the sale of secured and unsecured assets; (4) if there is intended litigation against the companies' directors or liquidators; (5) for the temporary conduct of business of the bankrupt company; and (6) in all other cases where the Court deems it necessary. The committee's own resolutions are not binding, except for certain negative resolutions (such as forbidding the temporary conduct of specific business by the bankrupt).

As in Denmark, there are specific rules in Italy regarding the priority of specific credits, with priority being given to credits supported by a

mortgage ("ipoteca"), pledge ("pegno") and liens ("privilegi"). Privileges are divided in two categories: general privileges ("privilegi generali", which can be paid out of any moveable assets in the estate) and special ones ("privilegi speciali", which can only be satisfied from specific moveable assets or from specific immoveable assets).

A list of the most relevant examples of privileged credits is provided here in the order of their preferential status:

• Credits in "pre-deduction" ("pre-deducibili"), expenses and debts

contracted by the receivers, for the bankruptcy proceedings;

• Credits for judicial expenses for proceedings started in favour of all

creditors (special privilege);

• Credits related to payments of employees (general privilege);

• Credits related to payments for professional assistance (lawyers,

accountants, etc.) due in the two years prior to the date of the

bankruptcy (general privilege);

• Credits related to agency agreements for payments due in the last year

of performance of the contract (general privilege);

• Credits related to temporary work (general privilege);

• Credits granted with pledges or mortgages (special privilege);

• Certain credits connected to certain financing granted by banks

(special privilege);

• Government taxes and VAT (special privilege);

• Government taxes, levies and contributions for compulsory

employment insurance (general privilege);

• Credits supported by mortgages or encumbrances on registered

moveable assets (e.g., cars, special privilege).

In general, privileged creditors are entitled to 100% of their claims (if assets are available), as compared to unsecured general creditors, who may only be paid from remaining assets.

The bankruptcy proceeding is closed by the Court's decree: if all the creditors have been paid; or if all the assets have been distributed to the creditors; or if it is not possible to make any kind of distribution because the estate has no assets; or if the creditors do not file adequate or timely proof of their claims.

In addition to the foregoing, Italian law provides some special types of insolvency and bankruptcy proceedings.

Concordato preventivo One of these is a pre-bankruptcy proceeding called concordato preventivo ("composition with creditors"). Such a proceeding tends to avoid straight bankruptcy and tends to be approved by the Court (as is required) (1) when the debtor is considered basically sound and well established, (2) where there is a likelihood of rehabilitation, (3) where the accounts and books have been properly kept for at least two years, (4) where the same debtor was not declared bankrupt, admitted to another concordato preventivo or other insolvency procedure within the previous five years; and (5) where the debtor gives warranties that it can repay the privileged creditors in full and the other creditors in a percentage not inferior to 40%, or offers all its assets to the creditors ("general assignment for the benefit of creditors") and such an assignment enables the privileged creditors to be paid in full and the other creditors in, at least, a percentage not inferior to 40%.

Once the Court has ascertained the existence of the above mentioned requirements and the deposit of the guarantees for the payment of the creditors has been made, the court formally rules upon the matter. All the creditors have to vote and approve this type of composition. If approved, the court either validates the concordato or not. If not, with the same decision the Court can declare the debtor in straight bankruptcy but if the Court approves the arrangement, the various creditors can only recover their claims as set forth in the court approved concordato.

The whole proceeding is administered by a Giudice Delegato with the assistance of a judicial commissioner (instead of a receiver). There is also a creditor committee that has the same principal function as the one in bankruptcy proceedings.

Amministrazione controllata. There is also an Italian procedure of "controlled administration", which is available to businesses which are not insolvent but in temporary difficulties and with a reasonable likelihood of rehabilitation.

Upon successful petition to the Court by such a business, it may generally continue to manage its own affairs and assets but cannot (without Court approval) pay pre-petition debts and cannot arrange for funding of those debts. The Judge must authorize all payments and all extraordinary operations.

Such a procedure must come to an end at the expiry of the two years (or other shorter time frame granted) and, if the temporary difficulties are not by then overcome, the procedure may be converted into a concordato preventivo or straight bankruptcy.

Liquidazione coatta ammin.sitrativa. Italian law also provides for this special procedure of "forced administrative liquidation" that is only available to certain types of special businesses or enterprises such as banks, insurance companies, pension funds which cannot be declare bankrupt in

the usual sense. This type of procedure is administered by the public authority that regulates the specific business sector in question and appoin a liquidator to liquidate the assets.

The overall effects of this procedure are that the business is not declared bankrupt but (unlike some of the procedures above, which may allow for ongoing business operations) all the powers of the board of directors, shareholders and even the auditors are suspended and all payments made after the procedure has started are ineffective. The liquidator sells the assets, with the authorisation of the Court and of the public authority, and then pays the creditors in the same way the law provides for bankruptcy, as above (privileged and ordinary creditors, in the appropriate priorities, subject to the available assets).

Amministrazione straordinaria. Special insolvency proceedings may be available for insolvent businesses that have at least 200 employees, debts of at least two-thirds of their balance sheet assets and if, in the opinion of the Court, there is a reasonable plan and likelihood of rehabilitation.

If this is found to be the case, the Court appoints a Giudice Delegato and one or more commissioners to carry out and supervise the plan of recovery

The overall effect of such a ruling is that (1) after the procedure starts creditors can no longer pursue individual proceeding against the company and (2) the management of the business is taken over by the commissioners, who also must report to the Court and evaluate the possibility that the business can be returned to solvency or, on the contrary, that it is better that the company be declared bankrupt and be liquidated.

The EU. Generally similar procedures and substantive rules (in various forms and combinations) are found in all European jurisdictions, including Switzerland and Norway. However, the situation within the EU and its member countries is in the course of substantial evolution, since the adoption by the EU on 29 May 2000 of Regulation 1346/2000, on insolvency proceedings (entered into force on 31 May 2002).

This Regulation evolved from many decades of international treaties on the subject (including the 1995 EC Convention on Insolvency Proceedings, the 1990 Istanbul Convention [European Convention on Certain International Aspects of Bankruptcy] and many country to country treaties such as the 1977 Convention between Austria and Italy on Bankruptcy, Winding-Up and Compositions and a similar 1969 Convention between Belgium and Austria) and from many decades of academic study (notably the 1996 "Virgos-Schmit Report on the Convention on Insolvency Proceedings").

The Regulation itself covers a very wide variety of issues that arise in domestic and in cross-border insolvency and bankruptcy situations, including: (1) various rules of jurisdiction relating to the debtor's "centre of main interest" ("COMI") (Regulation, Recital 14); (2) choice of law rules ("lex concursus") (Regulation, Article 4) (with many specific exceptions (Articles 5-15), including third party rights in rem, set-offs,

matters involving payment systems and financial markets, contracts of employment, community patents and trademarks; (3) equal treatment of creditors (Article 20) (namely that the main proceedings should produce similar results within the entire EU and should guarantee equal treatment of all the creditors of a single debtor): (4) the powers of liquidators (Article 18); (5) the exercise of creditors' rights (Article 32); and (6) the conversion of prior insolvency proceedings (Article 37). The Regulation replaces the country to country treaties mentioned above and several others involving Belgium and France (1899), Belgium and the Netherlands (1925), Germany

and Austria (1979), France and Austria (1979), France and Italy (1930), the Netherlands and Germany (1962), Belgium and the UK (1934), the 1933 Convention among Denmark, Finland, Norway and Sweden (the so-called "Nordic Bankruptcy Convention") and the 1990 Istanbul Convention.

Estonian Finnish Hungarian English French German
antud haiilte absoluutne aiinten ehdoton abszolut szavazati absolute majorite absolue absolute Mehrheit der
enamus enemmisto tobbseg majority of votes des suffrages abgegebenen Stimmen
      cast exprimes  
asulaplaneerimine kaavoitus varostervezes town and amenagement Raumordnung, Planung
      country planning du territoire  
asutamisvabadus sijoittautumisvapaus szabad munkaero freedom of liberte Niederlassungsfreiheit
    aramlas establishment d'etablissement  
direktiiv Direktiivi iranyelv Directive directive Richtlinie
keskkonna kvaliteet ympariston laatu kornyezet allapota quality of qualite de Qualitat der Umwelt
konkurentsi kilpailun verseny torzulasa distortion of distorsions de Wettbewerbsverzerrung
kahjustamine vaaristyminen   competition concurrence  
kvalifitseeritud maaraenemmisto mino segi tobbseg qualified majority majorite qualifizierte Mehrheit
haalteenamus     (voting) qualifiee  
liidu kodakondsus unionin kansalaisuus allampolgarsag citizenship of the citoyennete de Unionsburgerschaft
      Union l'Union  
maksuseadused verolainsaadanto adotorveny tax law legislation Steuerrecht
maarused (Euroopa asetukset (joita EU sz.abalyozasok Regulations reglements Verordnungen (vom
Parlamendi ja naukogu Euroopan   (adopted jointly (arretes Europaischen Parlament
poolt iihiselt parlamentti ja   by the Council conjointement und vom Rat gemeinsam
vastuvoetud) neuvosto yhdessa   and the par le Parlement erlassen)
  antavat)   European europeen et le  
      Parliament) Conseil)  
pohisumma kiinteamaarainen teljes osszeg lump sum somme Pauschalbetrag
  hyvitys     forfaitaire  
tolli- ja tulli- ja vam es tariff and trade accords Zoll-und
kaubanduskokkulepped kauppasopimukset kereskedelmi agreements tarifaires et Handelsabkommen
    egyezmenyek   commerciaux  
vastastikune vastavuoroinen kolcsonos elismeres mutual reconnaissance gegenseitige
tunnustamine tunnustaminen   recognition mutuelle Anerkennung
voimalus saada tood tyohonpaasy munkaeroforrashoz access to acces a l'emploi Zugang zum Arbeitsmarkt
    valo hozzaferes employment    

Interesting Europe-fact: Some miscellaneous legal terms in Estonian, Finnish, and Hungarian (and English, French, German).

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