2017-07-doc2 International jurisdiction for annex and related (to insolvency) actions

The recast European Insolvency Regulation will bring in new jurisdictional provisions for actions that either derive from, or are closely linked to, insolvency proceedings in the EU. Bob Wessels, professor emeritus of international insolvency law at Leiden University and expert counsel on restructuring and insolvency to the European Commission, welcomes the changes and discusses how they can be further improved.
Readers of the Europe column in GRR will be aware that on 26 June 2017 the EU Insolvency Regulation Recast (EIR 2015) will come into effect. It introduces some innovations, a few of which I have discussed in past editions. The most-anticipated is the solid rule of international jurisdiction for the opening of insolvency proceedings: that goes to the courts of the member state where the debtor has its centre of main interest (COMI), which shall be the place where the debtor conducts the administration of its interests on a regular basis, and which is ascertainable by third parties, now laid down in Article 3(1) EIR 2015.
Since 2002, when the original Insolvency Regulation came into force, COMI and all the words used in the definition to establish COMI have been litigated. In my private collection of EIR cases some 300(!) are COMI matters.
Now one of the novelties is that courts of the member state within the territory of which insolvency proceedings have been opened, shall also have jurisdiction for legal actions that derive directly from those insolvency proceedings and are “closely linked” with them. Recital 35 to the EIR 2015 provides that such actions “… should include avoidance actions against defendants in other member states and actions concerning obligations that arise in the course of the insolvency proceedings, such as advance payment for costs of the proceedings”. I will call these “annex actions”. International jurisdiction for annex actions is provided for in a new Article 6(1) EIR 2015.
Actions “… related to another action based on general civil and commercial law”, recital 35 continues, can, as an alternative, be brought in the courts of the defendant’s domicile if the insolvency practitioner considers it more efficient to bring the action in that forum. I will call these “related actions”. An example is the case where the insolvency practitioner wishes to combine an action for director’s liability on the basis of local insolvency law with an action based on company law or general tort law. International jurisdiction for these related actions is provided for in a new Article 6(2) EIR 2015. I will take a closer look at these provisions.
Annex actions
Article 6(1) EIR 2015 can be regarded as a response to national reports, which, having reviewed the application of the former EU Insolvency Regulation over more than 10 years, highlighted the necessity to have clear grounds regarding international jurisdiction of annex actions in the new regulation.
In effect, Article 6(1) EIR 2015 codifies the existing case law of the Court of Justice of the EU. The most well-known example is the 2009 case Seagon v Deko Marty Belgium, which concerns the following: on 14 March 2002, Frick Teppichboden Süpermarkte GmbH, which has its registered seat in Germany, transferred €50,000 to an account with KBC Bank in Düsseldorf in the name of Deko Marty Belgium NV, a company with its seat in Belgium. Pursuant to an application made by Frick the following day, the Local Court in Marburg, Germany, opened insolvency proceedings on 1 June 2002 in respect of Frick’s assets.
By application to the Regional Court in Marburg, Mr Seagon, in his capacity as liquidator in respect of Frick’s assets, requested that court to set a transaction aside by virtue of the debtor’s insolvency, and to order Deko to repay the money. The court dismissed the liquidator’s application on the ground that it did not have international jurisdiction to hear and determine the case. Since the appeal brought by Mr Seagon also was dismissed, the case went to the European Court of Justice (the ECJ, as it was called until the end of 2009).
The ECJ observed that it was clear the action to set aside a transaction (undertaken before the insolvency proceedings were opened and detrimental to the creditors) was governed by German insolvency law, which states that only the liquidator may bring such an action in the event of insolvency with the sole purpose of protecting the interests of the general body of creditors. The action to set aside a transaction at issue in the main insolvency proceedings was therefore intended to increase the assets of the undertaking in insolvency proceedings.
The ECJ then, based on several arguments, decided that it was appropriate to examine whether these actions to set aside a transaction were included within the scope of the Insolvency Regulation. Based on the intention of the legislature and the need for effectiveness of the regulation, the ECJ decided that Article 3(1) of the EIR, providing international jurisdiction for the courts of a member state to open insolvency proceedings on the basis of the debtor’s COMI “… must be interpreted as meaning that it also contributes international jurisdiction on the member state within the territory of which insolvency proceedings were opened in order to hear and determine actions which derive directly from those proceedings and which are closely connected to them.”
In summary, the ECJ ruled that Article 3(1) 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, which is brought against a person whose registered office is in another member state by virtue of insolvency law.
After the determination of a debtor’s COMI, the second most contested group of cases has been the matter of international jurisdiction of annex actions, notably avoidance actions.
It is now confirmed in Article 6(1) EIR 2015 that if an action can be characterised as an action that derives directly from the insolvency proceedings and is closely linked with them, international jurisdiction is conferred to the courts of the member state where insolvency proceedings have been opened.
What is still undecided is whether this court has exclusive jurisdiction?
There are a few cases with different outcomes. The Amsterdam Court of Appeal in November 2009 in Groet Houdersmaatschappij BV/ Gold-Zack AG, decided it had exclusive jurisdiction as the opening court, and that there is no room, based on the common law of international jurisdiction, for the court of the statutory seat of the defendant, for instance. In a German case, a similar judgment followed: but remarkably the District Court of Amsterdam on 26 September 2012, denied exclusivity.
Literature is vast on the issue of exclusive or elective (or: optional, facultative or competing) jurisdiction. A majority follows the theory of exclusive jurisdiction, primarily based on the following arguments: (i) an elective or optional jurisdiction for another court might result in a contradiction in the interplay between the respective action and the insolvency liability regime, significantly improving procedural economy in the case that the insolvency practitioner (IP) is acting as defendant; (ii) it saves the IP the burden of going to a foreign court, including saving associated costs and time; and (iii) a positive outcome of an annex action proceeding benefits from the system of recognition and enforcement (now) laid down in Article 32 EIR 2015.
I also would see as a general advantage that the COMI-decision and the annex action decision fall under the same set of rules of applicable law, the lex fori concursus. Article 6(1) EIR 2015 follows this conclusion: the courts of the member state where the insolvency proceeding has been opened “shall” have jurisdiction, whether the IP acts as a plaintiff and when he is called as a defendant.
Recently, the benefits of exclusively have been rejected by University of Hamburg professor Wolf-Georg Ringe (see citation below) putting forward two main arguments: (i) exclusive jurisdiction limits the choices of the insolvency practitioner unduly, and (ii) the theory runs counter to the objective of Article 6(1), to improve the efficiency of insolvency proceedings. As so often with these cases, we’ll have to wait for the Court of Justice of the EU to decide on the matter.
Related actions
As to what I have called “related actions”, a new Article 6(2) EIR 2015 provides international jurisdiction for these type of actions, that is to say, legal actions that derive directly from the insolvency proceedings and are closely linked with them (in the meaning of Article 6(1)), where they are “… related to an action in civil and commercial matters against the same defendant”.
In such a case the IP has a choice. He “… may bring both actions before the courts of the member state within the territory of which the defendant is domiciled, or, where the action is brought against several defendants, before the courts of the member state within the territory of which any of them is domiciled, provided that those courts have jurisdiction pursuant to Regulation (EU) No 1215/2012”. This is a reference to what is known as the Brussels I regulation. Therefore, in case of a related action the IP has a choice where to file his claim: the COMI court, or the courts in the member state where the defendant is domiciled. Which court that is, will be determined by national law.
In the case of several defendants – two or more with different domiciles – the IP has a right to bundle jurisdiction and bring the action before the courts of the member state within the territory of which any of the defendants is domiciled.
Article 6(3) EIR 2015, finally, presumes that for the purpose of Article 6(2) actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.
Efficiency, clarity and preventing loss of time and costs seem good reasons for the provisions discussed and they should be welcomed. On a “wish-for-the future” list we can place a list of examples of annex actions, a decision regarding the matter of exclusivity, and a more specified meaning of “so closely connected” in Article 6(3).

Further reading
Georg Ringe in Reinhard Bork and Kristin van Zwieten (eds.), Commentary on the European Insolvency Regulation, Oxford University Press, (2016), 6.37ff.
Case references
Seagon v Deko Marty Belgium, European Court of Justice, 12 February 2009, Case C-339/07, ECLI:EU:C:2009:83
Groet Houdersmaatschappij B.V./Gold-Zack AG, Court of Appeal Amsterdam, 3 November 2009, ECLI:NL:GHAMS:2009:BL8405
District Court of Amsterdam, 26 September 2012, ECLI:NL:RBAMS:2012:BY1621

This is a slightly adapted version of a regular column Bob Wessels is writing for Global Restructuring Review (GRR) on the topic of cross-border restructuring and insolvency in a European context. GRR is a subscription-only publication, but here is a link to the full piece, which appeared in April 2017, on GRR’s website at http://globalrestructuringreview.com/

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