Effective Recognition of European Insolvency Regulation: Implications and Enforceability

1. EuropeanInsolvencyRegulation 8. Recognition and effectiveness of insolvency proceedings Dr Marek Porzycki

2. Recognition of insolvencyproceedings(Art. 19 EIR) • scope: anyjudgmentopeninginsolvencyproceedingshanded down by a court of a MemberStatecompetentunder Art. 3  bothmain and territorialproceedings • automatic recognitionie. no otherformalitiesrequired  no exequatur, no need for formalrecognition by the court (cf. differentapproachtaken 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, seee.g. Art. 51(2) of the Polish BL)

3. Effectiveness of insolvencyproceedings(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)

4. Recognition and enforceability of otherjudgmentsrelated to the insolvencyproceedings (Art. 32 EIR) • relation between the EIRand 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 BrusselsConvention and thenRegulation No. 44/2001) • „BrusselsIa” does not apply to „bankruptcy, proceedingsrelated to the winding-up of insolventcompaniesorotherlegalpersons, judicialarrangements, compositions and analogousproceedings” (Art. 1(2)(b) of „BrusselsIa”) • ECJ judgment in Gourdain vs. Nadler (Case 133/78, 22.2.1979, available on Eur-Lex): judgmentsrelated to insolvencyproceedingsarealsoexcluded from the BrusselsConventioniftheyderivedirectly from theseproceedings and remainwithinclosebounds of the bankruptcyorcompositionproceedings • the EIR aims to bridge the gap left by „BrusselsIa”

5. Recognition and enforceability of otherjudgmentsrelated to insolvencyproceedings (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 exequaturneeded

6. Recognition and enforceability of otherjudgmentsrelated to theinsolvencyproceedings (Art. 32 EIR) • insolvency-relatedjudgments, evenifhanded down by anothercourt, Art. 32(1), 2nd subparagraph (examples: avoidanceactions, disputesconcerninginclusion of assets in the insolvency estate, disputes on recognition of claims, actions on the liquidator’sliability for damages) – automatic recognition, enforcementaccording to „BrusselsIa” • judgments on preservationmeasureshanded down prior to the opening of mainproceedings - automatic recognition, enforcementaccording to „BrusselsIa”, with attention to the following: • afterEurofoodsomepreliminarymeasuresmayactuallyconstituteanopening of mainproceedingsunder the EIR • a temporary administrator mayalsorequestany national preservationmeasures under Art. 52 EIR

7. Recognition and enforceability of otherjudgmentsrelated to theinsolvencyproceedings (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)

8. 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?

9. 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

10. Public policyclause (Art. 33 EIR) • applicationdeterminedincidentally (automatic recognitionrules out anyformalproceedings to recognizeinsolvencyproceedings) • „grounds for non-recognitionshould be reduced to the minimum necessary” (recital 22 to the old EIR/recital 65 to therecast EIR)  Art. 33 to apply in exceptionalcases, no review of the judgmentopening the proceedings • in particular a breach of fundamentalprinciplesor the constitutionalrights and liberties of the individual • examplegiven by the ECJ in Eurofood: - flagrant breach of the fundamental right to be heard, which a person concerned enjoys but no transposition of the nationalconcept of the right to be heard to foreignproceedings

11. Powers of theinsolvencypractitioner (seeAnnex B to the EIR) • insolvencypractitioner in mainproceedings (Art. 21(1) EIR): exercisingpowersgranted by the law of the State of the opening in otherMemberStates, • subject to territorialproceedingsorpreservationmeasures in otherMemberStates • in particularremoving the debtor’sassets from the territory of otherMemberStates • insolvencypractitionerinterritorialproceedings (Art. 21(2) EIR): • „right to pursueassets” • bringingavoidanceactions in the interest of creditors • requirement to comply with the law of the MemberState in question • no coercivemeasures, no right to rule on disputes

12. Powers of theinsolvencypractitioner- examples • Case A: MaininsolvencyproceedingshavebeenopenedagainstSchuldner AG, a spare part dealer, in Austria. The debtorhassparepartslocatedat a warehouse in Poland. Is the Austrianliquidatorentitled to bringthosespareparts from Poland to Austria? • Case B: MaininsolvencyproceedingshavebeenopenedagainstSchuldner AG in Austria and secondaryinsolvencyproceedingshavebeenopened in Slovakiawhere the debtorhas an establishment. The debtorhassparepartslocatedat a warehouse in Poland. Some of thosepartswerebrought to Poland before the opening of secondaryproceedings but anotherbatch was transported from Slovakia to Poland 2 daysafter the opening of secondaryproceedings. Is the Slovakliquidatorentitled to bringthosespareparts from Poland to Slovakia?

13. 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 registeredoffice in Poland and a branch in Germany • Polishinsolvencyproceedings (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 (balanceheld on a banking account in Germany and claimsagainst German parties), in order to secureclaimsresulting from allegedinfringementagainstsocialsecurityregulations. • Attachment order issued by the AmtsgerichtSaarbrücken on 11 June 2005

14. MG Probud Gdynia - facts of the case 2 • Appealagainst the attachment order was dismissed by the LandsgerichtSaarbrücken on 4 August 2005. • FearthatPolishliquidatorwould transfer the amounts in question to Poland was quoted as reason for upholding the attachment order. • No secondaryproceedings in Germany • Sąd Rejonowy Gdańsk-Północ questioned the lawfulness of the attachment, as underPolishbankruptcy law (Article 146 of the thenBankruptcy and Rehabilitation Law) attachment of assetsbelonging to the bankruptcyestateis not allowed  according to the generalrulethatbankruptcyproceedingsexcludesingularenforcementproceedingsagainst the debtor.

15. Legalissuesaddressed by the ECJ • Polishdecision to open insolvencyproceedingsdid not indicategrounds for internationaljurisdiction • Registeredoffice of the debtor in Poland + no grounds to rebut the presumption of Art. 3(1) EIR  COMI in Poland, Polishproceedingsaremainproceedings • Maininsolvencyproceedingsopened in Poland  automatic recognition and universaleffectunder Art. 16(1) and 17(1) old EIR [currently Art. 19(1) and 20(1) EIR] • Polish law decideswhetherenforcementmeasuresrelated to the assets of the debtorareallowed (Art. 4 old EIR [currently Art. 7 EIR]) • German authoritiesare not entitled to order enforcementmeasuresrelated to assets of the debtorifPolish law does not allowthem. • Attachment by German authoritiesisunlawful, Polishliquidatorcanpresumably transfer the assets to Polishmainproceedings (Art. 18(1) old EIR [Art. 21(1) EIR]), unlesssecondaryproceedingsareopened in Germany.