Answering the Call of the European Court of Justice in Eurofoods

a Proposed Package of Due Process Rights with a View Toward the 2012 Revision of the European Insolvency Regulation
3 / 2011
Alan J. Stomel


This paper anticipates the 2012 revision of the European Insolvency Regulation, which is the sole Union legislation on the subject of cross border insolvency proceedings.

The paper first describes the historical background of the Regulation. The salient point of the historical discussion is that the Regulation is the product of forty years of negotiation and arises from a historical context that is no longer applicable to current economic realities, i.e. it provides for liquidation, not reorganization, it doesn’t deal with cross border groups of companies, and it lacks an effective mechanism for transparency and creditor participation.

The paper then reviews the unique hybrid jurisdictional system of concurrent universal and territorial proceedings that the Regulation imposes. It looks at this scheme from a practical viewpoint, i.e. what issues arise with concurrent proceedings in two states, involving the same assets, the same creditors, and the same company.

The paper then focuses on a significant issue raised by the European Court of Justice in the Eurofoods case, i.e. the need to comply with fundamental due process principles that, while not articulated in the Regulation, lie at the core of Union law. Specifically, the paper considers the ramifications of the Court’s holding that “a Member State may refuse to recognize insolvency proceedings opened in another Member State where the decision to open the proceedings was taken in flagrant breach of the fundamental right to be heard.”

In response to the Court’s direction, this paper proposes a package of due process rights, consisting principally of an accessible, efficient and useful insolvency database, the infrastructure of which already exists, but the content and use of which has not yet been developed. As part of a cohesive three part due process package, the paper also proposes the formation of cross border creditors' committees and the establishment of a European Insolvency Administrator. Finally, on the institutional level, this paper proposes that the revision of the Regulation and the development of the insolvency database not only need to be coordinated, but need to be conceptualized, managed and undertaken, not as the separate efforts of diverse institutions, but as a single, unified endeavor.

About the author

Alan Stomel has been an attorney specializing in insolvency for twenty--five years. He began his career as an intern at the U.S. Department of Justice, Office of the United States Trustee and has worked at major international law firms before starting his own firm in 1999. He has participated in the reorganization of more than fifty companies under Chapter 11 of the U.S. Bankruptcy Code and has participated in the liquidation of hundreds more. He is quoted in the U.S. Congressional Record as an expert in the bankruptcy of firearms manufacturers and appears prominently in the book Lawyers, Guns and Money, an expose' of the cheap handgun industry in the United States. He received his J.D. degree from Loyola Law School in 1986 and his LL.M. (magna cum laude) in European and International Law from Vrije Universiteit Brusssel in 2011. Currently, he is a Legal Advisor at the European Commission, Justice Directorate