1. T E R R I T O R I A L I T Y ' S DEMISE: FROM T E R R I T O R I A L I T Y TO CO-OPERATION

Community law does not leave Member States free in their decision of whether to

accord effect to insolvency proceedings and the law of a sister Member State. Community

law not only informs Member States in the application ol their own rules of

law to transactions entered into in the exercise oft he freedoms; it also informs Member

Slates in their response to such measures lawfully taken by sister Member States. The

exercise of regulatory responsibility by one Member State triggers a duty of mutual

assistanceand co-operation in good faith f o r t h e o t h e r M e m b e r S t a t e s . In the context

of cross-border insolvency law, this duty signals the demise o f t h e principle of territoriality

between the Member States. Member States are not entitled to deny outright

a sister Member State assistance in matters ot insolvency, as would be the case under

the principle of territoriality.

The 'trigger' of the duty of mutual assistance and co-operation in good faith is the

exercise of regulatory responsibility by a sister Member State. It was argued earlier that

the regulatory powers of the Member States to take measures necessary lor the

protection of interests taking precedence over the freedoms should in fact be regarded

as a regulatory responsibility. The characterisation of these powers as a responsibility

rather than a right is reflected in the fact that both regulatory action and inaction may

be contrary to Community law. Member States may be required to take all necessary

and appropriate measures to ensure free movement. In a situation where a Member

State would be under an obligation of Community law to take measures and that

Member State would require the assistance of other Member States to comply with

that obligation, those other Member States would be duty bound to provide that assistance

in good faith. As submitted earlier, it cannot be maintained that this duty first

comes into existence by a Member State failing to act where Community law requires

it to act, but must equally exist where a Member State does act on its regulatory

responsibility in accordance with Community law.-

Insolvency law's objectives of the preservation and maximisation of the value of the

estate for the benefit of the creditors in respect of deployment and the protection of

various (creditor) groups, such as employees, consumers, and the environment in

respect ot distribution, may all be regarded as overriding interests capable of justifying

resulting obstacles to free movement. As such, these interests enjoy a special quality

in the Community legal order and the taking of measures for the protection of these

interests should be regarded not as merely the exercise of a right but also a responsibility

for the Member States.

Case law does offer some - albeit indirect - support for regarding the effective regulation

of cross-border insolvencies as a regulatory responsibility for the Member States.

In case 0 2 6 5 / 9 5 [Spanish strawberries) France was ordered to take 'all appropriate

and necessary measures' for the adequate protection of private property against physical

violence and threats thereof.1 To require Member States to provide that type of

protection can raise little concern. I A - C I I the most liberal conception o f state and market

would accept the need for regulation and intervention by the state for the protection

of private property and contractual obligations. O n e may he willing to accept a duty

for the Member States to protect and regulate property rights but not lo extend thai duty into other regulatory areas. However, as far as cross-border insolvency ts concerned

there is a more direct analogy between the lack ot protection of strawberries

and the absence of an effective cross-border insolvency regime.

Property rights (ownership) in corporeal things (strawberries! are not that distinct

from creditor entitlements in insolvency. According to Article 6( 2) I T ' the fundamental

rights as guaranteed by the Furopean Convention on the Protection of Human

Rights and fundamental Freedoms (ECHR) are recognised as general principles of

Community law." By virtue of Article 1 of the first Protocol the 'peaceful enjoyment

of possessions' is ensured. The concept of'possessions' - or bieus in the French text

- is however 'not limited to ownership of physical goods'; it equally includes 'certain

other rights and interests constituting assets'. The Human Rights Court has held

security interests as well as claims arising from contract or tort to be assets coming

within the scope of Article 1 of Protocol No. 17s Accordingly, claims of creditors against

the debtor and/or the debtor's estate should also be regarded as property rights. Moreover,

to the extent that they are the object of, or arose in the exercise of, one of the

economic freedoms of Community law, they ought to enjoy a similar protection to

the ownership of strawberries.

In fact, the analogy may be pursued even further. According to the Court in Spanish

strawberries, it was not just the actual damage inflicted that resulted in an obstacle lo

trade. The Court also noted a 'climate of insecurity and uncertainty', which had 'a

deterrent effect on trade flows as a whole'.'' Although admittedly of a less physical

nature, the absence of the effective regulation of cross-border insolvencies may also

be said to result in a climate of uncertainty hindering intra-Community trade. A prospect

of inefficient, unpredictable and unfair (cross-border) insolvency proceedings

translates itself into ex ante costs potentially resulting in a reluctance to enter into

cross-border transactions.1 1 1 Accordingly, Member States would also be bound to take

the necessary and appropriate measures for the effective regulation of (cross-border)

insolvencies. Moreover, where a Member State cannot provide for such effective

regulation of insolvency without the assistance of sister Member States, those sister

Member States would be under a duty, as follows from the judgments in Mattaica

and Athanasoponlos, to provide the assistance requested and to co-operate in good

faith:

The very existence of this duty of mutual assistance and co-operation in good faith

in insolvency, even without further elaboration, is already of crucial significance for

cross-border insolvencies in a Community context. As a direct result of this duty the

principle of territoriality can no longer be lawfully relied upon between the Member

States. After all, a refusal of assistance and co-operation (is a matter of principle cannot

be reconciled with the duty to provide such in good faith. Thus, for instance, if universal

proceedings were opened in a Member State claiming to take effect in all other

Member States, the latter would not be entitled to deny these effects merely by referring

to the principle of territoriality. Under Community law they would be duty bound

to assist the Member State opening proceedings in attaining the desired universal effect

by according effect to the proceedings, unless they could show there to be in fact

'imperative reasons'justifying not so doing.