4 . 1 . LAW O F D E P L O Y M E N T

In the case that the universal application ot the law of deployment results in obstacles

to trade, the interest that may justify the measure is the preservation and enhancement

of the value of the estate for the benefit ol the creditors. L'nder C'ommunity law the

Member State claiming universality must be able to show a sufficiently close c o n n e c tion

between this interest and its sphere ot influence.

Under the cross-border insolvencv laws of the Member States universal jurisdiction

is asserted on various bases, most commonly either domicile, establishment or assets.

Whether these bases constitute a sufficiently close connection ior the purposes of Community

law is a matter for the Court of Justice. This in itself is already important. For

instance, United Kingdom courts have jurisdiction to wind up foreign companies if

a sufficient link between the debtor and the court can be established. Though this

generally presumes the presence of some asset(s) and one or more persons within the

court's jurisdiction with an interest in the proper distribution ol the assets, jurisdiction

has been exercised even in the absence of assets.' " Within the scope of Community

law, this assessment is no longer a matter solely tor the United Kingdom courts

but may be subject to scrutiny by the Court of Justice.

At what point exactly the weight of contacts is sufficient to establish jurisdiction is hard

to say. In any event, where the interest of optimal deployment is entirely absent from

a Member State's territory, it may safely be concluded that that Member State lacks

jurisdiction. However, only very rarely would this be the case. The principal beneficiaries

ot the preservation or enhancement of the estate's value through insolvency

law are the creditors holding unsecured claims.1 ' " Arguably, therefore, whenever an

unsecured claim is connected to a particular Member State - by its applicable law or

some other way - the interest of optimal deployment cannot be said to be entirely

absent from a Member State's 'sphere of influence and responsibility'.1 ' ' Furthermore,

the interest cannot be said to be wholly foreign to Member States where (some of) the

debtor's assets are located either. When multiple creditors - whether their claims are

governed by that Member State's law or not - seek recourse against these assets, the

Member States are confronted with an actual concursits creditoniin. Such a eonatrsits

requires the intervention by insolvency law's collective regime.1'

S e c t i o n T w o . C o m m u n i t y Law a n d C r o s s - B o r d e r I n s o l v e n c y R e g u l a t i on

outside its regulatory jurisdiction. For instance, in the case of insolvency proceedings

being opened in Germany, as the debtor's Member State of domicile, would the protection

of an employee still be within the regulatory jurisdiction of the forum concursus,

where this employee carries out his or her work exclusively in France as well as pays

taxes and social security contributions there?1'

On the basis of Alpine Investment!, where the Court held that the protection of consumers

in other Member States was not as such a matter for the Netherlands to regulate,

it could be argued that the protection of the employee abroad by giving his or

her claim a priority in insolvency does not in itself belong to the regulatory jurisdiction

ot the forum concursus.1* The forum eoitcursiis could refer to the law, including the

rules of private international law, of the Member State that has regulatory jurisdiction

over the matter. In the example above, the insolvency forum would have to determine

the existence, extent and rank of the priority in respect of the employee's claim in

accordance with French (private international) law and possibly accord effect to the

priority provided by French insolvency law.1-'1'

According to Von Wilmowsky this would generally allow, and under Article 10 IV

oblige, a court in insolvency to distribute the proceeds according to the rules of distri

bution from the various jurisdictions."" The requirement of regulatory jurisdiction

would produce 'interlocking' rather than overlapping and conflicting measures. " If

Member States would limit their laws of distribution to only those claims that are

within their own regulatory jurisdiction, the application of priorities originating from

different legal systems would present ' n o difficulties'.1"

However, the regulatory powers of Member States in fact appear significantly, il

indirectly, to extend beyond this limit. The Court's judgment in Alpine Investmentillustrates

that the protection of the consumer abroad, or any other foreign interest,

may be necessary to attain the effective protection of an interest that is within the

jurisdiction of the regulating Member State. I n Alpine Investments it was the protection

of the foreign consumer, which was necessary for the protection of the reputation ot

the Dutch financial market. The situation in insolvency presents an analogous situation

o f ' i n d i r e c t ' or 'necessary' jurisdiction. A Member State's scheme of distribution in

insolvency is interdependent. As there is a limited (and generally insufficient) pool

of assets/proceeds from which distribution is to be made, one cannot change the

relative entitlements of one category of creditors without affecting at least one other.

To have regulatory jurisdiction in respect of a single (type of) claim is therefore

nonsensical. To increase the rank of one claim vis-a-vis the claims of other creditors

by definition means reducing the ranking of the latter against the former. To be

specific, by according a (higher) priority to a particular claim in insolvency, one reduces

the relative entitlements of all claims which were equal or higher in rank but

become subordinated.

Assume, for instance, that insolvency proceedings are opened over a Dutch debtor

in the Netherlands. T h e debtor's workforce includes employees, some of which reside

and carry out their work in the Netherlands and some in France. Assume further thai

the ranking in insolvency according to Dutch law provides for: 1. secured creditors,

2. employees and 3. general unsecured creditors, while French law provides tor 1.

employees, 2. secured creditors and 3. general unsecured creditors. In order tor France

to protect its employees effectively, it must and on the basis of Alpine Investments may

equally make sure that all other claims, including the claims of Dutch employees and

secured creditors, are subordinated. These latter claims however also belong to the

regulatory jurisdiction of the Netherlands. The Netherlands, in order to be able to

pursue its own policy regarding these interests, must at the same time be able to

control what claims, including those of French employees, tank equal or higher. 1 he

protection of o n e creditor through thepnoritisation of debt necessitates control over

the relative ranking of the other creditors affected. Consequently, a Member State

would (indirectly) be entitled to address the foreign interest, as it is necessary for the

effective exercise of its regulatory powers in respect of those interests that are within

its jurisdiction.

CONCLUSION

The universal application of ins< ilvency rules affecting creditor entitlements that arose

in the exercise of one of the freedoms may result in an obstacle to trade. Such hindrance

may be assumed to exist in the case of secured transactions; in respect of

unsecured transactions an obstacle to trade cannot be excluded. Where the application

hinders interstate trade, Community law prohibits its application unless it can be

shown to be necessary and proportionate for the protection of a mandatory requirement

of the public interest taking precedence over the freedoms.

I Section T w o . CCommunity I aw a n d ( j o s s - B o r d e r i n s o l v e n c y R e g u l a t i on

Mandatory requirements ot the public interests capable of justifying obstacles to

trade may not be of an economic nature. More particularly, a Member States mav not

aim to protect its national economy. In light of this requirement, the application of

national rules ot deployment which are not solely concerned with the maximisation

ofthe value of the estate but aim to protect such interests as employment or economic

infrastructure under the open-ended account of insolvency law becomes problematic.

The universal application of such rules, where it results in obstacles to trade, would

appear to go against the l o g i c and limits' of Community law. This holds for rules of

distribution pursuing the same goals. On the other hand, the 'logic and limits' of

Community law are not so rigid as to leave no r o om at all for independent distributional

policies. Member States are left with a margin ol appreciation and error. The

universal application of a national rule of distribution resulting in an obstacle to trade

could in principle be justified by reference to the protection of the consumer,

employee, and environment. The protection of public creditors, however, appears

problematic.

The universal application of rules of deployment and distribution raise no particular

problems in respect of their regulatory intensity. Universal application of these rules

can be considered to be both suitable and proportionate to attain their respective

objectives. Neither does Community law impose? significant limits on the regulatory

jurisdiction of Member States. While it is true that the sole fact of a debtor being incorporated

and/or registered under the laws of a Member State is unlikely to be sufficient

to establish regulatory jurisdiction in deployment for that Member State, the threshold

is presumably (very) low. A sufficiently close link may be established both by unsecured

claims and by the presence of assets. In respect of measures regarding the

distribution o i l the proceeds of) the cross-border estate, a Member State must instead

show a sufficiently close link with those creditors it finds in need ot protection, whether

or not any assets are located within its territory. However, the effective protection of

particular creditors through the adjustment of relative entitlements also allows control

over the relative ranking of all claims affected

Although Member States may claim universality under Community law, it does not

tollow that universality forms part o f ( ^immunity law. Nothing is said as to how sister

Member States are to respond to universality claimed bv another Member State. This

concerns the status o f t h e principle of territoriality under Community law and is

discussed in the next Chapter.