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EU Court sets guidelines for cross-border insolvency proceedings

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By Leo Gasteen

Once initial insolvency proceedings have been opened in a Member State the competent authorities of another Member State are, in principle, required to recognize and enforce all judgements relating to the main insolvency proceedings, the European Court of Justice (ECJ) has ruled. As such, they are not entitled to order enforcement measures on the insolvent company's assets situated in its territory when the legislation of the State of the opening of proceedings does not so permit. 

The ruling follows the request from Sąd Rejonowy Gdańsk-Północ w Gdańsku (North Gdansk District Court, Gdansk) (Poland) to clarify whether an attachment effected by the German authorities was lawful since Polish law, which is the law applicable to the insolvency proceedings because Poland is the State of the opening of those proceedings, would not allow such attachment after the undertaking has been declared insolvent.

MG Probud, an undertaking in the building sector whose registered office is in Poland, engaged in construction work in Germany through the activities of a branch. In 2005 MG Probud was declared insolvent by a Polish court.

Following procedures initiated by the Hauptzollamt Saarbrücken (Principal Customs Office, Saarbrücken) against the manager of MG Probud’s German branch, who was suspected of having infringed the legislation on the posting of workers by reason of failure to pay a number of Polish workers and to make social security contributions in their regard, the Amtsgericht Saarbrücken (Local Court, Saarbrücken) ordered attachment of MG Probud’s assets held by banks in the amount of €50 683.08 and of various claims of the undertaking against German parties with whom it had entered into contracts.

Subsequently, the North Gdansk District Court asked the ECJ whether, after main insolvency proceedings have been opened in a Member State the competent authorities of another Member State are permitted, in accordance with their legislation, first, to order the attachment of assets of the debtor who has been declared insolvent that are situated in the territory of the latter Member State and, second, to refuse to recognise and, as the case may be, to enforce judgments concerning the course and closure of insolvency proceedings opened in the first Member State.

The ECJ highlighted that Community regulation (Council Regulation (EC) No 603/2005) makes provision for two types of insolvency proceedings. 

  1. Insolvency proceedings opened by the competent court of the Member State within the territory of which the centre of a debtor’s main interests is situated, described as the ‘main proceedings’, produce universal effects in that the proceedings apply to the debtor’s assets situated in all the Member States. 
  2. Although, subsequently, proceedings may be opened by the competent court of the Member State where the debtor has an establishment, those proceedings, described as ‘secondary proceedings’, produce effects which are restricted to the assets of the debtor situated in the territory of the latter State. It follows that only the opening of secondary insolvency proceedings is capable of restricting the universal effect of the main insolvency proceedings.

The ECJ also noted that the judgment opening insolvency proceedings in a Member State is to be recognised in all the other Member States from the time that it becomes effective in the State of the opening of proceedings and that it is, with no further formalities, to produce the same effects in any other Member State as under the law of the State of the opening of proceedings. Recognition of all judgments other than that relating to the opening of the insolvency proceedings likewise occurs automatically.

European Court of Justice - Justice and Application - Full Text


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