In principle, an insolvency practitioner appointed by a court that has jurisdiction pursuant to Article 3(1) of the recast European Insolvency Regulation (EIR 2015), has the authority to exercise all the powers conferred on him by the lex concursus in other member states. The Lex concursus is the law applicable to the insolvency proceedings and their effects, being the law of the member state within the territory of which such proceedings are opened. The term “opening” means a decision of the court to open insolvency proceedings, to confirm the opening of such proceedings, or to appoint an IP.
Like judgments opening insolvency proceedings, an IP’s powers shall be recognised “automatically” in all EU member states. The number of powers that an insolvency practitioner may have, the nature of such powers and their legal effects are all determined by the lex concursus. Furthermore, the lex concursus is decisive with regard to the IP’s legal tasks, duties, the scope of his power and the grounds and procedure for his removal.
For example, in Dutch main insolvency proceedings, the appointed IP will be subject to supervision by the supervisory judge (“rechter-commissaris”) when taking steps in other member states.
In literature, one finds the opinion that the lex concursus will also be decisive in determining the insolvency practitioner’s liability for failure or weakness of performance, including the standard of care required. However, the possibility cannot be excluded that certain (third) parties could start liability proceedings before the courts of another state within the territory of which certain acts of the IP have caused damages. As to jurisdiction in those circumstances, a Barcelona Court in 2013 decided that a main IP from Germany may act in Spain, fully in accordance with the domestic powers afforded to him by Spanish law. He can be liable in Germany, to be decided by a German court, but such an action can also be decided by a Spanish court (see “References” below for the case number).
The IP may also find in the Insolvency Regulation some specific additional powers.
The second sentence of Article 21(1) in the EIR 2015 explicitly provides for the main insolvency practitioner to have power to remove the debtor’s assets from the territory of the member state in which these assets are situated, subject to Articles 8 and 10, respectively on third parties’ rights in rem and reservation of title. The provision creates a substantive rule, as this power may also be exercised when the lex concursus itself does not include a power of this nature. However, when removing assets, the IP must respect Articles 8 and 10, as the main insolvency proceedings cannot affect rights in rem of creditors or third parties over assets situated, at the time of the opening, in a member state other than the state of the opening of the proceedings.
In addition, the insolvency practitioner in the main insolvency proceedings only has authority to exercise his powers in the other member states within the limits of the Insolvency Regulation – see the first sentence of Article 21(1) of the EIR 2015: and therefore only “… as long as no other insolvency proceedings have been opened there and no preservation measure to the contrary has been taken there further to a request for the opening of insolvency proceedings in that State.” This general limitation relates to the possibility of opening territorial insolvency proceedings pursuant to Article 3(2) of the EIR 2015. Within the system of the Regulation this is a logical restriction, since the assets cannot be subject to the powers of two different IPs.
Once secondary proceedings (which have territorial effect) have been opened in another member state, the direct powers of the IP in the main proceedings no longer apply to assets situated in the state of the opening of the secondary proceedings. The IP in these latter territorial proceedings has exclusive powers over those assets. This does not, however, imply that the main IP loses all influence over the debtor’s estate situated in the other member state, it rather means that his influence must be exercised through the powers conferred on that IP by the Regulation to coordinate the territorial proceedings and the main insolvency proceedings.
In addition to those limitations, the IP in the main insolvency proceedings shall, in exercising his powers, comply with the law of the member state within the territory of which he intends to take action, in particular with regard to procedures for the realisation of assets. Such powers may not include coercive measures, unless ordered by the court of that member state, or the right to rule on legal proceedings or disputes (see Article 21(3) of EIR 2015). In any given case where the persons affected by an IP’s act do not voluntarily agree to its performance and coercive measures are required with regard to assets or persons, the IP must apply to the authorities of the state where the assets or persons are located to have them adopted and implemented.
The meaning of “shall comply with” local law may be confusing. The English text (“shall comply”) appears to be stricter than various other texts, for example the Dutch text uses eerbiedigen (which is the equivalent of “to respect”), the French text doit respecter, Spanish deberá respectar. The rationale is that the IP has the powers based on the lex concursus of main insolvency proceedings. They stay intact, with due respect to the lex concursus of the other member state, in as far as it concerns taking actions, more specifically procedures for the realisation of assets. Where procedural law in the other member state does not include specific provisions that allow the main IP to address the court, or where national law is interpreted in a way that is not beneficial to the main IP, it may be necessary to request the opening of secondary proceedings.
A remarkeable example of infringing the laws of the state in which the IP takes action comes from The Dutch Council of State in 2016. Although the IP may transfer assets belonging to the estate in another member state, this power may be subject to rules limiting the free movement of goods. An asset, for instance, may be part of the historical and cultural heritage of a member state and may be subject to an export ban protected under Article 30 of the Lisbon Treaty and Article 36 of the Treaty on the Functioning of the European Union (TFEU).
As stated in the last sentence of Article 21(3) in the EIR 2015, not all powers of an IP may be exercised, as he may not employ coercive measures or exercise the right to rule on legal proceedings or disputes. The main IP can not be a judge in their own case.
An example (based on Article 18 of the former Insolvency Regulation, which is similar to Article 23 of the EIR 2015) is a case decided by the Netherlands Supreme Court in 2011.
Three joint administrators had been appointed over a debtor, Y, on 10 December 2008 by the Country Court of Huddersfield in England. At the request of the joint liquidators, the Huddersfield Country Court issued an order in July 2009 against Handelsveem BV in Rotterdam (in Dutch, “handelsveem” translates as “commercial warehousing company”) to submit a detailed list to the joint administrators of all the relevant documents relating to stock situated in all of its locations, present between 1 January 2008 and 31 December 2008.
The liquidators also requested recognition of the English court’s disclosure order from a District Court in Rotterdam on the basis of Article 25 of the EIR 2000 (generally reflected in Article 32 of the EIR 2015), and the court granted this request on appeal on 12 January 2010.
According to the court, the given order was an action that derived directly from the insolvency proceedings and which was closely connected to them. The plaintiff complained that the given order was in conflict with Article 18(3) of the EIR 2000, as it opened the possibility of exercising coercion measures in the Netherlands without an exequatur or any other form of control by a Dutch court. The District Court denied that Article 18(3) of the EIR 2000 was applicable. The plaintiff appealed, but the Netherlands Supreme Court decided: “Article 18(3) is a limitation to the principle rule, laid down in Article 18(1) that the liquidator of another Member State can exercise all the powers which are conferred to him by the law of the Member State in which the proceedings have been opened, in as far as these powers include coercive measures. These latter measures are to be regarded as only those coercive measures which flow directly from such law. The limitation does not relate to the case at hand in which the liquidator aims to act in another Member State on the basis of a decision which can be recognised and executed in the meaning of Article 25. Article 18(3) does not stand in the way to the possibility that the joint liquidators in the Netherlands request for recognition of the order, given by the English court, if necessary with the application of coercive measures available under Dutch law. The District Court's decision that Article 18(3) does not apply in this case therefore is correct.”
I note that the powers of an insolvency practitioner in territorial proceedings will be limited to the administration and disposal of assets belonging to the proceedings under which the powers of the IP are derived. Article 21(2) of the EIR 2015 provides that the IP in the secondary proceeding may apply to these other states and request from their courts the return of the assets, or may insist on such a transfer for any other purpose useful to the local proceedings.
One may wonder which specific court in the other jurisdiction the IP should address? In my view the IP should address the foreign court, but which specific foreign court that is must be determined by the law of the particular country in question.
The question remains open as to whether the IP may directly approach a bank in a foreign member state to request transmission of funds to territorial proceedings in the event that the debtor has transferred money to a foreign account. Where the IP, pursuant to Article 21(2), may claim “out of court” that moveable property was removed, he may approach the bank. However, the bank’s predictable response if it had reason to refuse would be that the money does not qualify as “moveable property”.
Court (Audienca) Provincial Barcelona 6 March 2013, NZI 13/2014, 576.
Raad van State 17 February 2016, ECLI:NL:RVS:2016:411.
Netherlands Supreme Court 18 March 2011, LJN BP1404.
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 March 2018 on GRR’s website at http://globalrestructuringreview.com