1. In the judgement of the European Supreme Court (EuGH) dated 16. December 2008 (C-210/06) in the legal matter Cartesio the question was significant whether a company in country A may transfer their registered seat to country B whilst simultaneously retaining their corporate structure as a registered business in country A.
The decision was made on the basis of a Hungarian company with an established seat in Hungary which made an application to the Hungarian Commercial Register to enter their registered offices as being in Italy. They took legal action against the rejection of this entry. The question was submitted to the European Supreme Court (EuGH) for their decision. The European Supreme Court held the opinion – which was quite surprisingly based on the opinion of the Advocate-General P. Maduro – that there was no violation of the freedom of establishment in this case, which is regulated in Article 43, 48 EC.
That power includes the possibility for that Member State not to permit a company governed by its law to retain that status if the company intends to reorganise itself in another Member State by moving its seat to the territory of the latter, thereby breaking the connecting factor required under the national law of the Member State of incorporation.
Additionally the European Supreme Court (EuGH) also decided that a “conversion” into a company governed by the law of the Member State to which it has moved must always be possible. In this case the company may not be automatically dissolved and liquidated as a result of the company transferring their registered seat. A mandatory liquidation would represent an unjustified violation of the freedom of establishment.
2. In its decision of 12. February 2009 the European Supreme Court made a concise ruling in the proceeding C-339/07 on the question which court is competent for cross-border actions for rescission:
“Article 3 Para. 1 of the Act (EG) No. Article 3(1) of Council Regulation (EC) No 1346/2000 must be interpreted as meaning that the courts of the Member State within the territory of which insolvency proceedings have been opened have jurisdiction to decide an action to set a transaction aside by virtue of insolvency that is brought against a person whose registered office is in another Member State”.
According to this decision therefore at least with cross-border matters relating to contestation, the court of the Member State opening the insolvency is responsible. The ruling which followed the opinion of the Advocate-General word for word represents a veritable revolution for the legal situation in Germany: the principle of the so-called “vis attractiva concursus”, thus the concentration of the legal disputes relating to insolvency proceedings either at the courts of the same Member State, which is now advocated by the European Supreme Court – at least for matters relating to contestation. This was previously unknown in German Law. Therefore the German Insolvency Administrator is now on equal terms with other European colleagues who have previously had the jurisdiction of the insolvency courts for actions for rescission at their disposal. This will in fact improve his position if he no longer has the responsibility of filing the action in foreign courts.
Practice will show whether the concentration of jurisdiction as stipulated by the European Supreme Court will be restricted to matters relating to contestation or whether the courts of the Member State opening the proceedings will also be competent for actions relating to the provision of capital or even disputes relating to tax rebates. However at least for actions for rescission transactions relating to the legal concept of “equity substituting loan” or “equity substituting securities” which is virtually unknown abroad, this concentration of jurisdiction will in fact relieve the German insolvency administrator of these legal institutions.
3. The decision by the German Supreme Court of 29. May 2008 (IX ZB 103/07) relating to questions regarding the effects of an insolvency proceeding opened in Germany with the knowledge of a previously commenced insolvency proceeding abroad. This mainly related to dealing with previously entered asset liabilities. The German Supreme Court ruled that as the insolvency proceeding was not opened in Germany liabilities could not have been substantiated after commencement of the insolvency proceedings. Legal actions of the “bogus administrator” are void.
The German Supreme Court however, left the question unanswered as to how they would have ruled if the court had already opened the provisional proceeding whilst being unaware of the previously opened insolvency proceeding. Ultimately the lack of awareness cannot induce any other legal consequence. The application priority and the legal effectiveness of the European Insolvency Regulation (EuInsVO) are not affected by subjective elements. Merely with secondary claims the knowledge of the insolvency administrator must be taken into consideration.
4. In the process of the first international insolvency cases, such as Brochier or PIN, the question was raised whether a German so-called “provisional” insolvency proceeding should even by recognised as a main proceeding in accordance with Article 3, 16 European Insolvency Regulation and thus could lead to an impediment of further applications that are made in other EU countries to open a main insolvency proceeding. In this respect decisions from one Austrian and one English court are now available.
The Higher Regional Court Innsbruck (Decision of 8. July 2008 - 1 R 176/08d) ruled that at least the German so-called “strong” provisional insolvency administration must be recognised as such a main proceeding. In the relevant case the County Court (AG) Freiburg ruled in their decision of 21. May 2008 that the preliminary insolvency proceeding had been opened, a German provisional insolvency administrator had been appointed and had issued to the debtor a general automatic stay and the authorization for administration and right to dispose of the debtors assets was assigned to the provisional insolvency administrator (so-called “strong” provisional insolvency administrator).
The decision of the Higher Regional Court Innsbruck in this case is completely in line with the intention of the decision by the European Supreme Court in the matter “Eurofood” (European Supreme Court EuGH, Judgement of 02.05.2006 – C -341/04). Accordingly the preliminary commencement of an insolvency proceeding and the confiscation of property from the insolvency are sufficient to be able to presume that a main insolvency proceeding has commenced. Both were applicable in this case. This decision by a European Higher Regional Court is nevertheless interesting as it confirms the predominant opinion in legal literature in Germany and therefore adds to the legal certainty.
The English County Court of Croydon made a decision along the same lines on 21. October 2008 – No. 1256/08. In this case the County Court of Munich appointed a provisional “strong” insolvency administrator for the assets of an insolvency debtor. This preliminary insolvency proceeding took priority over the insolvency proceedings which commenced in England on 23. September 2008. The English court also accepted the German provisional insolvency proceeding with the implementation of a "strong” provisional administrator as binding.
These decisions will therefore generally contribute to the legal certainty and predictability in insolvency proceedings. A German provisional insolvency administrator will – if international involvement is expected during the insolvency, however have to increasingly take on the reluctant status of a “strong” provisional administrator with all corresponding liability risks.
Dr Volker Beissenhirz LL.M.
Attorney at Law in Germany
Registered European Lawyer (London)
The decision was made on the basis of a Hungarian company with an established seat in Hungary which made an application to the Hungarian Commercial Register to enter their registered offices as being in Italy. They took legal action against the rejection of this entry. The question was submitted to the European Supreme Court (EuGH) for their decision. The European Supreme Court held the opinion – which was quite surprisingly based on the opinion of the Advocate-General P. Maduro – that there was no violation of the freedom of establishment in this case, which is regulated in Article 43, 48 EC.
That power includes the possibility for that Member State not to permit a company governed by its law to retain that status if the company intends to reorganise itself in another Member State by moving its seat to the territory of the latter, thereby breaking the connecting factor required under the national law of the Member State of incorporation.
Additionally the European Supreme Court (EuGH) also decided that a “conversion” into a company governed by the law of the Member State to which it has moved must always be possible. In this case the company may not be automatically dissolved and liquidated as a result of the company transferring their registered seat. A mandatory liquidation would represent an unjustified violation of the freedom of establishment.
2. In its decision of 12. February 2009 the European Supreme Court made a concise ruling in the proceeding C-339/07 on the question which court is competent for cross-border actions for rescission:
“Article 3 Para. 1 of the Act (EG) No. Article 3(1) of Council Regulation (EC) No 1346/2000 must be interpreted as meaning that the courts of the Member State within the territory of which insolvency proceedings have been opened have jurisdiction to decide an action to set a transaction aside by virtue of insolvency that is brought against a person whose registered office is in another Member State”.
According to this decision therefore at least with cross-border matters relating to contestation, the court of the Member State opening the insolvency is responsible. The ruling which followed the opinion of the Advocate-General word for word represents a veritable revolution for the legal situation in Germany: the principle of the so-called “vis attractiva concursus”, thus the concentration of the legal disputes relating to insolvency proceedings either at the courts of the same Member State, which is now advocated by the European Supreme Court – at least for matters relating to contestation. This was previously unknown in German Law. Therefore the German Insolvency Administrator is now on equal terms with other European colleagues who have previously had the jurisdiction of the insolvency courts for actions for rescission at their disposal. This will in fact improve his position if he no longer has the responsibility of filing the action in foreign courts.
Practice will show whether the concentration of jurisdiction as stipulated by the European Supreme Court will be restricted to matters relating to contestation or whether the courts of the Member State opening the proceedings will also be competent for actions relating to the provision of capital or even disputes relating to tax rebates. However at least for actions for rescission transactions relating to the legal concept of “equity substituting loan” or “equity substituting securities” which is virtually unknown abroad, this concentration of jurisdiction will in fact relieve the German insolvency administrator of these legal institutions.
3. The decision by the German Supreme Court of 29. May 2008 (IX ZB 103/07) relating to questions regarding the effects of an insolvency proceeding opened in Germany with the knowledge of a previously commenced insolvency proceeding abroad. This mainly related to dealing with previously entered asset liabilities. The German Supreme Court ruled that as the insolvency proceeding was not opened in Germany liabilities could not have been substantiated after commencement of the insolvency proceedings. Legal actions of the “bogus administrator” are void.
The German Supreme Court however, left the question unanswered as to how they would have ruled if the court had already opened the provisional proceeding whilst being unaware of the previously opened insolvency proceeding. Ultimately the lack of awareness cannot induce any other legal consequence. The application priority and the legal effectiveness of the European Insolvency Regulation (EuInsVO) are not affected by subjective elements. Merely with secondary claims the knowledge of the insolvency administrator must be taken into consideration.
4. In the process of the first international insolvency cases, such as Brochier or PIN, the question was raised whether a German so-called “provisional” insolvency proceeding should even by recognised as a main proceeding in accordance with Article 3, 16 European Insolvency Regulation and thus could lead to an impediment of further applications that are made in other EU countries to open a main insolvency proceeding. In this respect decisions from one Austrian and one English court are now available.
The Higher Regional Court Innsbruck (Decision of 8. July 2008 - 1 R 176/08d) ruled that at least the German so-called “strong” provisional insolvency administration must be recognised as such a main proceeding. In the relevant case the County Court (AG) Freiburg ruled in their decision of 21. May 2008 that the preliminary insolvency proceeding had been opened, a German provisional insolvency administrator had been appointed and had issued to the debtor a general automatic stay and the authorization for administration and right to dispose of the debtors assets was assigned to the provisional insolvency administrator (so-called “strong” provisional insolvency administrator).
The decision of the Higher Regional Court Innsbruck in this case is completely in line with the intention of the decision by the European Supreme Court in the matter “Eurofood” (European Supreme Court EuGH, Judgement of 02.05.2006 – C -341/04). Accordingly the preliminary commencement of an insolvency proceeding and the confiscation of property from the insolvency are sufficient to be able to presume that a main insolvency proceeding has commenced. Both were applicable in this case. This decision by a European Higher Regional Court is nevertheless interesting as it confirms the predominant opinion in legal literature in Germany and therefore adds to the legal certainty.
The English County Court of Croydon made a decision along the same lines on 21. October 2008 – No. 1256/08. In this case the County Court of Munich appointed a provisional “strong” insolvency administrator for the assets of an insolvency debtor. This preliminary insolvency proceeding took priority over the insolvency proceedings which commenced in England on 23. September 2008. The English court also accepted the German provisional insolvency proceeding with the implementation of a "strong” provisional administrator as binding.
These decisions will therefore generally contribute to the legal certainty and predictability in insolvency proceedings. A German provisional insolvency administrator will – if international involvement is expected during the insolvency, however have to increasingly take on the reluctant status of a “strong” provisional administrator with all corresponding liability risks.
Dr Volker Beissenhirz LL.M.
Attorney at Law in Germany
Registered European Lawyer (London)