European Judicial Training Network Barcelona, 11 12 April 2018 EJTN Seminar on Cross-border Insolvency in the EU Enforcement (recognition of insolvency proceedings in other Member States): the effects of the jugdments opening insolvency proceedings and other decisions deriving directly from the insolvency proceedings and which are closely linked with them Prof. Dr. Heinz VALLENDER University of Cologne (GERMANY)
recognition I. Recognition of insolvency proceedings in other Member States 1. General Art. 19 European Insolvency Regulation 2015 (EIR) (text see slide p. 6) primarily describes (as do Art. 20 and Art. 32 EIR) the recognition and extension of the effects throughout Europe of the main insolvency proceedings. Territorial proceedings also must be automatically recognized. ECJ, 11.1.2010, Case C-444/07, MG Probud Gdynia sp. z o.o., marginal number 27 As is shown by recital 22 in the preamble to the Regulation, the rule of priority laid down in Article 16(1) of the Regulation, which provides that insolvency proceedings opened in one Member State are to be recognised in all the Member States from the time that they produce their effects in the State of the opening of proceedings, is based on the principle of mutual trust (Eurofood IFSC, paragraph 39).
recognition An insolvency proceeding opened pursuant to Art. 3 EIR must therefore be recognized throughout the EU (with the exception of Denmark) without the need for any further formalities (see Art. 20 EIR). A preliminary exequatur procedure is not necessary. Insolvency proceedings means the proceedings listed in Annex A (see Art. 2 Nr. 4 EIR). The recognition provisions of the EIR only apply to insolvency proceedings falling within the scope of application. As stated in recital 65 (see text slide p. 7), recognition of jugdments delivered by the courts of the Member States should be based on the principle of mutual trust.
recognition ECJ, 21.01.2010, Case C-444/07, MG Probud Gdynia sp. z o.o., (mn 28) It is indeed that mutual trust which has enabled not only the establishment of a compulsory system of jurisdiction which all the courts within the purview of the Regulation are required to respect, but also as a corollary the waiver by the Member States of the right to apply their internal rules on recognition and enforcement in favour of a simplified mechanism for the recognition and enforcement of judgments handed down in the context of insolvency proceedings (Eurofood IFSC, paragraph 40, and by analogy, with regard to the Brussels Convention, Case C-116/02 Gasser [2003] ECR I-14693, paragraph 72, and Case C-159/02 Turner [2004] ECR I-3565, paragraph 24).
recognition Although the regulation provides for the automatic recognition in practice this recognition is not automatic and requires some effort on the part of the practitioner. Notwithstanding the universal scope of main proceedings, the exercise of powers in other Member States by the insolvency practitioner appointed in them may be subject to restrictions (see Art. 33 and 21 (1) EIR). If territorial proceedings have been opened, the insolvency practitioner in the main proceedings cannot exercise direct powers in respect of assets situated in the Member State where the territorial proceedings have been opened. The extent to which insolvency proceedings from outside of the European Union are recognised will depend on the domestic legislation and practice of each particular member state. see for example Sec. 343 German Insovency Code The openening of foreign insolvency proceedings shall be recognised.
recognition CHAPTER II RECOGNITION OF INSOLVENCY PROCEEDINGS Article 19 Principle 1. Any judgment opening insolvency proceedings handed down by a court of a Member State which has jurisdiction pursuant to Article 3 shall be recognised in all other Member States from the moment that it becomes effective in the State of the opening of proceedings. The rule laid down in the first subparagraph shall also apply where, on account of a debtor's capacity, insolvency proceedings cannot be brought against that debtor in other Member States. 2. Recognition of the proceedings referred to in Article 3(1) shall not preclude the opening of the proceedings referred to in Article 3(2) by a court in another Member State. The latter proceedings shall be secondary insolvency proceedings within the meaning of Chapter III.
recognition Recital 65 This Regulation should provide for the immediate recognition of judgments concerning the opening, conduct and closure of insolvency proceedings which fall within its scope, and of judgments handed down in direct connection with such insolvency proceedings. Automatic recognition should therefore mean that the effects attributed to the proceedings by the law of the Member State in which the proceedings were opened extend to all other Member States. The recognition of judgments delivered by the courts of the Member States should be based on the principle of mutual trust. To that end, grounds for non-recognition should be reduced to the minimum necessary. This is also the basis on which any dispute should be resolved where the courts of two Member States both claim competence to open the main insolvency proceedings. The decision of the first court to open proceedings should be recognised in the other Member States without those Member States having the power to scrutinise that court's decision.recital 65 states, grounds for non-recognition.
recognition Excursus The meaning of recitals in a preamble of a regulation see ECJ, 19.06.2014 Case C- 345/13, Karen Miller Fashions it should be borne in mind that the preamble to a Community act has no binding legal force and cannot be relied on either as a ground for derogating from the actual provisions of the act in question or for interpreting those provisions in a manner clearly contrary to their wording (Deutsches Milch-Kontor, C-136/04, EU:C:2005:716, paragraph 32 and the case-law cited). Nevertheless, the recitals have a special meaning. They are of particular importance for the teleological interpretation of legal acts. The recitals are used to determine the purpose of a legal norm.
recognition example ECJ, 11.1.2010, Case C-444/07, MG Probud Gdynia sp. z o.o., mn 27 As is shown by recital 22 in the preamble to the Regulation, the rule of priority laid down in Article 16(1) of the Regulation, which provides that insolvency proceedings opened in one Member State are to be recognised in all the Member States from the time that they produce their effects in the State of the opening of proceedings, is based on the principle of mutual trust (Eurofood IFSC, paragraph 39).
recognition Art. 19 EIR 2015 is identical to Art. 16 EIR 2000. The system of immediate and automatic recognition was not among the (potential) reform issues to be covered. There are two reasons: (1) The existing rule already provided for the maximum solution that can be achieved in this context. (2) No major problems had been identtified that would require fundamental changes
recognition 2. Proceedings falling within in the scope of the EIR Proceedings not listed in Annex A do not fall within the scope of the recast EIR. One consequence is: that a debtor s entry into such proceedings is not restricted by the EIR rules of jurisdiction; that such proceedings, where opened, are not entitled to auromatic recognition under the EIR in another Member States. Examples of proceedings not covered by the scope scheme of arrangement (UK) Mandat ad hoc (France) homologation (France)
recognition See ECJ in its decision of 21 January 2010 MG Probud Gdyniaq sp. Z.o.o. (case C 444/07) para 28. The court confirmed that there are only two grounds to deny recognition to judgments falling within the scope of the Insolvency Regulazion: - Art. 25 (3) EIR 2000 (limitation of personal freedom or postral secrecy) It does not appear in the EIR as it has been recast. The issues dealt with in Art. 25 (3) EIR 2000 are most likely subsumed under the public policy of Art. 33 (Bork/van Zwieten, Commentary on the European Insolvenvy Regulation, Art. 19 Rn. 19.04). - Art. 26 EIR 2000 (public policy) = Art. 33 EIR
Automatic recognition 3. Conditions for the automatic recognition a.jugdment opening Insolvency proceedings Art. 2 (7) contains a definition of this term judgment opening insolvency proceedings includes: (i) the decision of any court to open insolvency proceedings or to confirm the opening of such proceedings; and (ii) the decision of a court to appoint an insolvency practitioner; Interim or provisional proceedings are explicitly included within the scope of the Regulation. Once a national proceeding is listed in Annex A, no further examination may take place as to whether the proceedings concerned actually meet the conditions for applicability of the EIR.
Automatic recognition b. Court Art. 2 (6) ii EIR contains a definition of that term: court means: ii) in all other articles, the judicial body or any other competent body of a Member State empowered to open insolvency proceedings, to confirm such opening or to Recital 20 provides that the term should be interpreted broadly. This takes account of the fact that in some Member States certain insolvency proceedings are not necessarily openend by a judicial authority (for example administration proceedings under English law).
Automatic recognition c.jurisdiction Recognition under Art. 19 EIR requires that the jugdment opening insolvency proceedings was handed down by a court that has jurisdiction pursuant to Art. 3 EIR. The requirements for the jursidiction of the opening court may not be reviewed in the recognizing state, although such a subsequent review is not expressly prohibited by the EIR. But: such a subsequent review is, however, precluded based on the fact that it encroaches on the principle of Community trust. The principle of immediate and automatic recognition applies to both main and (secondary) territorial proceedings. Interested parties that wish to challenge the court s determination of its jurisdiction must make use of the remedies provided for in the laws of the Member State where the relevant proceedings were opened.
Automatic recognition Question: What happens if a court does not examine or specify the grounds on which its jurisdiction is based in accordance with Art. 4 EIR? Has the decision be recognized under Art. 19 EIR? There is no indication in the EIR to the contrary. Consequence: the rules on automatic recognition apply. But: this makes it difficult to determine the scope of such proceedings. This leads us to the following issue:
Automatic recognition Opening of two main insolvency proceedings Art. 19 EIR does not deal directly with the procedural handling of the opening of a second main insolvency proceedings. But: the principle of priority is a concept, that can already be gleaned from the history of the EIR. Even if this principle is not expressly stipulated in the EIR, Art. 19 (1) subpara 1 of the EIR operates to provide such a rule in favour of the first-rendered jugdment: the provision commands that every judgment to open main insolvency proceedings made by a court of a Member State with jurisdiction to do this must recognized the moment that such jugdment becomes effective in the State in which it was rendered. This is bolstered by Art.3 (3) EIR, which provides that any proceeding opened after the main sinsolvency proceedings can only be a secondary insolvency proceeding and not a main proceeding.
Automatic recognition German law Insolvency proceedings with the principle of priority are to be discontinued in Germany. You have to distinguish two situations: (1) The court obtains knowledge of the opening of a main insolvency proceedings in another Member State before the opening of its own proceedings. See Art. 102c 2 (1) EGInsO Where the court of another Member State has opened main insolvency proceedings and as long as these proceedings are pending, any petition made to a national insolvency court to open such proceedings in respect of the assets forming part of the insolvency assets is inadmissible.
Automatic recognition The court has to reject the application as inadmissible. (2) The court obtains knowledge of the opening of a main insolvency proceedings after the opening of its own proceedings As soon as the German insolvency court obtains knowledge that main insolvency proceedings falling within the scope of the EIR have been openend and - that these are effective and - have been opened at an earlier point in time the German proceedings may not be continued. Such proceedings must be stayed ex officio in favour of the courts of the other Member States of the European Union (see AG Düsseldorf NZI 2004, 269), Art. 102 c 3 EGInsO. Prior to staying the proceedings, the insolvency court must hear
Automatic recognition the German parties, namely the liquidator, the creditors commitee (if one has been appointed) and the debtor or the party (ies) granted powers to legally represent it. According to Art. 102c 3 (1) sentence 2 EGInsO, only the creditors in the insolvency proceedings are entitled to appeal against the order staying the proceedings. Effects of the stay of proceedings The stay of proceedings does not have a retroactive affect. The legal acts transacted by and with the German liquidator remain in affect and even supersede anything ordered to the contrary in the foreign main insolvency proceedings that has national effet (Art. 102c 3 (2) EGInsO). The reason for this is the safeguard the reliance placed on national legal transactions.
Automatic recognition d. jugdment effective in state of opening The jugdment can be a final or a provisional jugdment. It shall have effect in the whole territory covered by the Regulation from the moment it becomes effective in the Member State of the opening of proceedings. For the effectiveness of the opening it is crucial that it unfolds effects in the Member State of the opening of proceedings. Because the recognition occurs by operation of law, the effects of the insolvency proceedings are activated in all other Member Staes simultaneous to the effective opening of insolvency proceedings in the opening state.
Effects of recognition II. The effects of the jugdments opening insolvency proceedings Article 20 Effects of recognition 1. The judgment opening insolvency proceedings as referred to in Article 3(1) shall, with no further formalities, produce the same effects in any other Member State as under the law of the State of the opening of proceedings, unless this Regulation provides otherwise and as long as no proceedings referred to in Article 3(2) are opened in that other Member State. 2. The effects of the proceedings referred to in Article 3(2) may not be challenged in other Member States. Any restriction of creditors' rights, in particular a stay or discharge, shall produce effects vis-à-vis assets situated within the territory of another Member State only in the case of those creditors who have given their consent.
Effects of recognition Art. 20 (1), in conjunction with Articles 7 and 19, provides the basis for the universal scope of the main proceedings and ensures that, unless the Regulation provides otherwise, main proceedings produce the same effects troughout the European Union (Veder in Bork/van Zwieten, Commentary on the EIR, Art. 20, Rn. 20.03). A distinction is made between the main insolvency proceedings (para 1) and the secondary or territorial proceedings (para 2). The regulation in para. 1 is founded on the principle of universality, according to which the opening of insolvency proceedings has the effects attached to it by the law of the State of the opening of proceedings on all the assts situated in the Community. This principle applies in respect of effects under both substantive and procedural law, as it is clear from Art. 7. Exceptions are set out in Art. 8-18, which contain restrictions of the lex fori concursus. Further special provisions in the EIR e.g. Art. 21 para 3, Art. 31 must also be observed.
Effects of recognition Para 2 deals with the effect of the recognition of territorial proceedings within in the meaning of Art. 3 para 2, with secondary proceedings being a special example. In contrast to main insolvency proceedings, territorial proceedings develop effects only in respect of assets situated in the opening Member State. Any further effects will only concern creditors who have expressly consented to them. Art. 19 (2) Sentence 2 EIR regulates the situation where the lex fori concursus secondarii grants the debtor a stay (payment) or a discharge (of residual debts). In order to safegurad the interests of the creditors, the effects of such measures are not unrestrictedly extended to the other Member Stae but are restricted primarily to the in inland (=the state in the secondary insolvency proceedings are opened) situated assets. An extension of the effects of a stay or a discharge of residual debts to assets situated in another Membner Stae is only possible when this is consented to by the individual creditors.
Recognition and enforceability of other jugdments III. Other decisions deriving directly from the insolvency proceedings and which are closely linked with them (Art. 32) While Articles 19 ff. EIR deal with the jugdment opening insolvency proceedings and the legal consequences of the recognition of the opening of insolvency proceedings in another Member State, Art. 32 EIR adresses certain other jugdments (Bork/van Zwieten, Oberhammer, Commentary on the European Insolvenvy Regulation, Art. 32 Rn. 32.01). In this context, Art. 32 EIR provides for both the recognition and the enforcement.
Recognition and enforceability of other jugdments Art. 32 Recognition and enforceability of other judgments 1. jugdments handed down by a court whose jugdment concerning the opening of proceedings is recognised in accordance with Article 19 and which concern the course and closure of insolvency proceedings, and compositions approved by that court, shall also be recognised with no further formalities. Such judgments shall be enforced in accordance with Articles 39 to 44 and 47 to 57 of Regulation (EU) No 1215/2012. The first subparagraph shall also apply to judgments deriving directly from the insolvency proceedings and which are closely linked with them, even if they were handed down by another court. The first subparagraph shall also apply to jugdments relating to preservation measures taken after the request for the opening of insolvency proceedings or in connection with it. 2. The recognition and enforcement of judgments other than those referred to in paragraph 1 of this Article shall be governed by Regulation (EU) No 1215/2012 provided that that Regulation is applicable.
Recognition and enforceability of other jugdments Art. 32 deals with four types of jugdments: (closer to it Bork/van Zwieten, Oberhammer, Commentary on the European Insolvenvy Regulation Art. 32 Rn. 32.10 ff.) 1. jugdments handed down by the court having opened insolvency proceedings recognised according to Art. 19 which concern the course and closure of insolvency proceedings, and compositions approved by that court (1) subpara 1 - Such decisions might already be contained in the jugdment opening the insolvency proceedings where the jugdment contains decisions other than the decision on the mere opening of the proceedings. The difference between recognition according to Art. 19 EIR and recognition according to Art. 32 (1) EIR is practically irrelevant simply because both provisions provide for the same legal consequences. (Bork/van Zwieten, Oberhammer, Commentary on the European Insolvenvy Regulation Art. 32 Rn. 32.10).
Recognition and enforceability of other jugdments 2. jugdments which derive directly from the insolvency proceedings, whether handed down by the court having opened the insolvency proceedings, or another court ( annex proceedings/jugdments (2), subpara 2.) The EIR provides not only for the recognition of orders of the insolvency court itself, but also of jugdments resulting from insolvency-related litigation. But: this applies (according to the case law of the European Court of Justice) the following standards: - The insolvency practitioner has to be a party to the proceedings. Actions brought by creditors in order to protect their individual interests are not eligible. It will be decisive that it is a claim based on provisions which attribute specific legal consequences to the insolvency of a debtor. It suffices that the claim relates to the debtor becoming insolvent (for example: jugdments handed down by courts in voidability or liability actions). (see Bork/van Zwieten, Oberhammer, Commentary on the European Insolvenvy Regulation Art. 32 Rn. 32.28 ff.).
Recognition and enforceability of other jugdments 3. jugdments relating to preservation matters taken after the request for the opening of insolvency proceedings or in connection with it (1) subara 3 Art. 32 (1) subpara 3 merely stipulates that preservation measures ordered by the competent court commencing with the request to open insolvency proceedings must be automatically recognized. The result of the provision is that the effects of such preservations measures also need to be taken into account in all other member states (see ECJ eurofood-decision). Note: a temporary administrator appointed before the opening of the proceedings may also apply for preservation measures in other Member States on the basis of Art. 52 EIR. (Bork/van Zwieten, Oberhammer, Commentary on the European Insolvenvy Regulation Art. 32 Rn. 32.42). 4. jugdments other than those referred to in Art. 32(1).
Recognition and enforceability of other jugdments Every court or authority of a Member State has to recognise decisions under Art. 32 EIR whenever the effects of such decisions may become relevant in the respective proceedings. The recast did away the requirement of a declaration of enforceability (exequatur proceedings). It provides for the direct enforcement of foreign decisions coming under the scope of the recast Brussels I Regulation without such specific exequatur proceedings. The debtor to such enforcement proceedings may bring forward grounds for the refusal of enforcement with an application of refusal of enforcement according to Art. 48 ff. of the Brussels I Regulation. Art. 25 (3) EIR 2000 released the Member States from their obligation to recognise pursuant to (1) if the jugdment concerned would result in limitation of personal freedom or postal secrecy. This regulation is no longer found in Art. 32.
Recognition and enforceability of other jugdments How the above mentioned jugdments can be enforced, i.e. mandatorily put into execution in the other Member State with the aid of the coercive power of the State, is regulated in Para 1 subpara 1 Sentence 2 by reference to the Brussel I Regulation (No. 1215/2012). Art. 32 EIR refers to: - Art. 39-44 ( Enforcement ) - Art. 47-51 ( Refusal of enforcement ) - Art. 52-57 ( Common provisions ) Please note: Art. 32 EIR does not refer to Articles 45 und 46 (Refusal of recognition ) of the Brussels I Regulation. The reason is: The EIR provides independent grounds for the refusal of cognition and enforcement in its Art. 33.
Recognition and enforceability of other jugdments Article 47 1. The application for refusal of enforcement shall be submitted to the court which the Member State concerned has communicated to the Commission pursuant to point (a) of Article 75 as the court to which the application is to be submitted. Article 75 By 10 January 2014, the Member States shall communicate to the Commission: (a)the courts to which the application for refusal of enforcement is to be submitted pursuant to Article 47(1); (b)the courts with which an appeal against the decision on the application for refusal of enforcement is to be lodged pursuant to Article 49(2); (c)the courts with which any further appeal is to be lodged pursuant to Article 50; and(d)the languages accepted for translations of the forms as referred to in Article 57(2).The Commission shall make the information publicly available through any appropriate means, in particular through the European Judicial Network.
Recognition and enforceability of other jugdments In Germany, for example, the request is to be directed to the Landgericht (district court) having jurisdiction for the habitual residence of the debtor or the place of judicial execution. Article 49 1. The decision on the application for refusal of enforcement may be appealed against by either party.