European Insolvency Regulation 8. Recognition and effectiveness of insolvency proceedings Dr Marek Porzycki

Recognition of insolvency proceedings (Art. 19 EIR) scope: any judgment opening insolvency proceedings handed down by a court of a Member State competent under Art. 3  both main and territorial proceedings automatic recognition ie. no other formalities required  no exequatur, no need for formal recognition by the court (cf. different approach taken by the UNCITRAL Model Law and Art. 386- 404 of the Polish BL) precondition: effectiveness in the State of the opening of proceedings (effective ≠ final, see e.g. Art. 51(2) of the Polish BL)

Effectiveness of insolvency proceedings (Art. 20 EIR) applies to main insolvency proceedings, as long as no territorial proceedings are opened in the Member State in question „extension model” – extension of the effects of the opening of insolvency proceedings to the whole territory of the EU (minus Denmark) effects according to the law of the State of the opening of proceedings (Art. 7 EIR)  example: automatic stay, ban on individual enforcement against the debtor, if the law of the State of the opening so provides (Art. 7(2)(f) EIR) limited effectiveness of territorial/secondary proceedings (Art. 20(2) EIR)

Recognition and enforceability of other judgments related to the insolvency proceedings (Art. 32 EIR) relation between the EIR and the Regulation (EU) No. 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) (“Brussels Ia”, earlier the 1968 Brussels Convention and then Regulation No. 44/2001) „Brussels Ia” does not apply to „bankruptcy, proceedings related to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings” (Art. 1(2)(b) of „Brussels Ia”) ECJ judgment in Gourdain vs. Nadler (Case 133/78, 22.2.1979, available on Eur-Lex): judgments related to insolvency proceedings are also excluded from the Brussels Convention if they derive directly from these proceedings and remain within close bounds of the bankruptcy or composition proceedings the EIR aims to bridge the gap left by „Brussels Ia”

Recognition and enforceability of other judgments related to insolvency proceedings (Art. 32 EIR) judgments on the course and closure of insolvency proceedings (example: discharge of the debtor, changes in the scope of „debtor-in-possession” arrangements, changes between winding-up and reorganization options in insolvency proceedings), compositions or arrangements approved by the court: automatic recognition, enforceability according to Art. 39-44 and 47-57 of “Brussels Ia”, with exception of its provisions on refusal of enforceability  „ without any declaration of enforceability being required” (Art. 39 of „Brussels Ia”) - no exequatur needed

Recognition and enforceability of other judgments related to the insolvency proceedings (Art. 32 EIR) insolvency-related judgments, even if handed down by another court, Art. 32(1), 2nd subparagraph (examples: avoidance actions, disputes concerning inclusion of assets in the insolvency estate, disputes on recognition of claims, actions on the liquidator’s liability for damages) – automatic recognition, enforcement according to „Brussels Ia” judgments on preservation measures handed down prior to the opening of main proceedings - automatic recognition, enforcement according to „Brussels Ia”, with attention to the following: after Eurofood some preliminary measures may actually constitute an opening of main proceedings under the EIR a temporary administrator may also request any national preservation measures under Art. 52 EIR

Recognition and enforceability of other judgments related to the insolvency proceedings (Art. 32 EIR) other judgments (not directly related to insolvency proceedings) – recognition and enforcement according to Brussels Ia, provided that Brussels Ia is applicable (Art. 32(2) EIR)

CJEU judgment of 4.9.2014, Nickel & Goeldner Spedition, C‑157/13 28.5.2009 – insolvency proceedings opened against Kintra in Lithuania. Lithuanian liquidator sued Nickel & Goeldner Spedition, a debtor based in Germany, for payment of an amount owed to Kintra. The lawsuit was brought to a Lithuanian court. The liquidator based the competence of the Lithuanian court on a provision of Lithuanian insolvency law. Nickel & Goeldner Spedition claimed that German court would be competent, as provided for Brussels I Regulation and the 1956 Convention on the Contract for the International Carriage of Goods by Road. Question: does an action for the payment of a debt brought by the insolvency administrator of an insolvent undertaking in the course of insolvency proceedings opened in one Member State and directed against the recipient of those services, established in another Member State, fall within the scope of the EIR or of the Brussels I (Ia) Regulation?

CJEU judgment of 4.9.2014, Nickel & Goeldner Spedition, C‑157/13 Answers:  actions which fall outside the scope of Article 3(1) EIR fall within the scope of Brussels I (Ia) Regulation broad definition of the concept of ‘civil and commercial matters’ under Brussels I Regulation; by contrast, the scope of application of the EIR should not be broadly interpreted only actions which derive directly from insolvency proceedings and are closely connected with them are excluded from the scope of the Brussels I (Ia) Regulation application of the EIR: actions based on provisions derogating from the general rules of civil law, based in the national rules relating to insolvency proceedings (examples: actions against former managers of a bankrupt company, action to set aside a detrimental act of the debtor) application of Brussels I (Ia) Regulation: if question of law raised in an action is independent of the opening of insolvency proceedings. EXAMPLE: an action by the liquidator to pursue a contractual claim belonging to the estate

Public policy clause (Art. 33 EIR) application determined incidentally (automatic recognition rules out any formal proceedings to recognize insolvency proceedings) „grounds for non-recognition should be reduced to the minimum necessary” (recital 22 to the old EIR/recital 65 to the recast EIR)  Art. 33 to apply in exceptional cases, no review of the judgment opening the proceedings in particular a breach of fundamental principles or the constitutional rights and liberties of the individual example given by the ECJ in Eurofood: - flagrant breach of the fundamental right to be heard, which a person concerned enjoys  but no transposition of the national concept of the right to be heard to foreign proceedings

Powers of the insolvency practitioner (see Annex B to the EIR) insolvency practitioner in main proceedings (Art. 21(1) EIR): exercising powers granted by the law of the State of the opening in other Member States, subject to territorial proceedings or preservation measures in other Member States in particular removing the debtor’s assets from the territory of other Member States insolvency practitioner in territorial proceedings (Art. 21(2) EIR): „right to pursue assets” bringing avoidance actions in the interest of creditors requirement to comply with the law of the Member State in question no coercive measures, no right to rule on disputes

Powers of the insolvency practitioner- examples Case A: Main insolvency proceedings have been opened against Schuldner AG, a spare part dealer, in Austria. The debtor has spare parts located at a warehouse in Poland. Is the Austrian liquidator entitled to bring those spare parts from Poland to Austria? Case B: Main insolvency proceedings have been opened against Schuldner AG in Austria and secondary insolvency proceedings have been opened in Slovakia where the debtor has an establishment. The debtor has spare parts located at a warehouse in Poland. Some of those parts were brought to Poland before the opening of secondary proceedings but another batch was transported from Slovakia to Poland 2 days after the opening of secondary proceedings. Is the Slovak liquidator entitled to bring those spare parts from Poland to Slovakia?

Case C-444/07, MG Probud Gdynia sp. z o.o. ECJ judgment of 21.01.2010 Facts of the case: MG Probud Gdynia sp. z o.o. – a company of Polish law with registered office in Poland and a branch in Germany Polish insolvency proceedings (upadłość obejmująca likwidację) opened on 9 June 2005 by the Sąd Rejonowy Gdańsk-Północ Customs Office of Saarbrücken, Germany applied for attachment of assets of the debtor (balance held on a banking account in Germany and claims against German parties), in order to secure claims resulting from alleged infringement against social security regulations. Attachment order issued by the Amtsgericht Saarbrücken on 11 June 2005

MG Probud Gdynia - facts of the case 2 Appeal against the attachment order was dismissed by the Landsgericht Saarbrücken on 4 August 2005. Fear that Polish liquidator would transfer the amounts in question to Poland was quoted as reason for upholding the attachment order. No secondary proceedings in Germany Sąd Rejonowy Gdańsk-Północ questioned the lawfulness of the attachment, as under Polish bankruptcy law (Article 146 of the then Bankruptcy and Rehabilitation Law) attachment of assets belonging to the bankruptcy estate is not allowed  according to the general rule that bankruptcy proceedings exclude singular enforcement proceedings against the debtor.

Legal issues addressed by the ECJ Polish decision to open insolvency proceedings did not indicate grounds for international jurisdiction Registered office of the debtor in Poland + no grounds to rebut the presumption of Art. 3(1) EIR  COMI in Poland, Polish proceedings are main proceedings Main insolvency proceedings opened in Poland  automatic recognition and universal effect under Art. 16(1) and 17(1) old EIR [currently Art. 19(1) and 20(1) EIR] Polish law decides whether enforcement measures related to the assets of the debtor are allowed (Art. 4 old EIR [currently Art. 7 EIR]) German authorities are not entitled to order enforcement measures related to assets of the debtor if Polish law does not allow them. Attachment by German authorities is unlawful, Polish liquidator can presumably transfer the assets to Polish main proceedings (Art. 18(1) old EIR [Art. 21(1) EIR]), unless secondary proceedings are opened in Germany.