Many creditors in insolvencies are inspired by the Beatles’ song of 35 years ago: “Now give me money (That’s what I want)”. In European cross-border cases these creditors are assisted by Chapter IV of the recast European Insolvency Regulation (EIR 2015). It comprises Articles 53 to 55 specifying which information must be provided to the creditors and the rules concerning the lodgement of claims. These provisions apply to the main insolvency proceedings opened as well as to any territorial (secondary and independent) proceedings. The articles mentioned contain autonomous European rules relating to creditors’ claims and displace all national procedural rules on matters as the right to lodge claims, the duty to be informed, or the languages to be used.
The recast Regulation has overriden the former regulation’s rules of domestic law requiring that a creditor be legally represented in the process of lodging claims. Furthermore, standard forms for the notification of information concerning the opening of insolvency proceedings and the lodging of claims have been introduced in Articles 54 and 55 of the EIR 2015, and a minimum period for the filing of claims by foreign creditors has been included in Article 55(6).
The latter says that a claim shall be lodged within the period stipulated by the law of the member state of the opening of the insolvency proceedings. The minimum period for lodging, in the case of a foreign creditor, shall not be less than 30 days following the publication of the opening of insolvency proceedings in the insolvency register of the state where they are opened. The recast revision aims to address the general finding that, in cross-border cases, time periods prescribed by the domestic law of the proceedings are too short.
In all, the EIR 2015 has some small improvements. These are minor steps, however they should reduce the costs of filing claims abroad and these should work particularly to the benefit of small creditors who are often deterred by the disproportionately high costs from lodging their claims abroad.
As indicated, it’s do it yourself. Lodging a claim can be done by the claimant (creditor) and by a legal representative, but the latter is not mandatory. The Regulation does not prevent insolvency practitioners from lodging claims on behalf of certain groups of creditors, for example employees, where the national law so provides.
Who can lodge a claim?
Article 53 provides that any “foreign” creditor has the right to lodge his claim in any pending insolvency proceedings. A “foreign” creditor is (see Article 2(12) of the EIR 2015) a creditor which has its habitual residence, domicile or registered office in a member state other than the state of the opening of proceedings, including the tax authorities and social security authorities of member states. The gate that Article 53 creates is wide: the creditor may lodge claims by any means of communication, which are accepted by the law of the state of the opening of the proceedings. This open door reflects the core pillar of equal treatment between creditors. Under EU law discrimination on grounds of nationality, including grounds of residence, is prohibited.
The gate is also wide because any creditor may lodge in any main or secondary proceedings, a mechanism referred to as multi-cross filing. In practice, multi-cross filing can be an administrative nightmare, but necessary as long as applicable priority rules in main and secondary proceedings are different.
And what about foreign creditors who do not reside in the EU? Here, it is the national law – including private international law – of the member state in which the proceedings are pending that determines the answer to whether creditors who have their habitual residence outside the EU may lodge their claims in the proceedings.
There is a delicate balance of law applicable. Article 53 establishes the aforementioned “European-based” right, but Article 7(2)(h) of the EIR 2015 determines that the national law of the state of the opening of the proceedings will govern such matters as the time limit for lodging a claim, the effect of a late lodgement, the method of verification, the claim’s admissibility, the validity of the claim or certain payments of certain costs associated with this verification process.
The EU is rather unique in that Article 53 of the EIR 2015 provides the right to lodge claims also to tax authorities and social security authorities of member states. This principle breaks with the so-called “revenue rule”, generally followed in nearly all nations, that tax debts owed by the insolvent debtor to any foreign state are not enforceable in (insolvency) courts, and therefore are not provable in the state in which the insolvency proceedings are pending.
The result of the rule of automatic recognition in the EIR is that, for instance, the German tax authorities will accept that, for an insolvent debtor who has a tax debt in Germany of around 1000 euros the consequences of it being in a Dutch debt rescheduling insolvency proceeding (schuldsaneringregeling natuurlijke personen) are that after three years, all claims, including the German tax claim, will be unenforceable (See District Court ‘s-Hertogenbosch 29 January 2007). The result is that a “natural obligation” exists towards the German tax authority (Article 358 of the Dutch Bankruptcy Act). So any payment after the three year period will not be regarded as a gift (schenking).
Article 53 does not specify the nature of the claims of the tax authorities and social security authorities. It is formulated wide enough to allow claims related to direct or indirect tax, including VAT or local taxes. It has been submitted that a “tax” claim does not include certain fines or financial penalties. The prevailing view seems different though: Article 53 establishes the right of foreign creditors to lodge claims because such lodgment cannot be disallowed on the grounds that the creditor is situated in another member state or that the claim is governed by the public law of another Member State.
Furthermore, it follows from the text of Article 53 that the public policy defence in the EIR 2015 at Article 33 cannot be triggered against recognition or enforcement of a judgment within which such claims have been submitted. The same Dutch court noted that the German tax authorities would not invoke the public policy defence against the legal consequences of a Dutch debt rescheduling for a natural person. The German tax authority had only lodged its claim in the Dutch estate for verification purposes.
It may be the case, based on the domestic insolvency law of a member state, that the insolvency practitioner or a creditor whose claim has already been verified, has the right to challenge the admissibility of a foreign tax claim. Article 32(2) of the EIR 2015 provides that the recognition and enforcement of judgments other than those referred to in Article 32(1) shall be governed by the Brussels I Regulation “provided that that Regulation is applicable”.
From Article 32(2) of the EIR 2015 it can be taken that the recognition and enforcement of these types of judgments are subject to the Brussels I Regulation. These judgments include: (i) actions with regard to the existence or the validity of a claim under general law (e.g. a contract) or relating to its amount, or (ii) claims which have been lodged, but are contested, such as the Dutch claim validation proceedings (renvooiprocedure). However, tax claims are excluded from the Brussels I Regulation.
Now, which court has jurisdiction to decide on the matter? One line of thinking is that the competent court should be the court of the state from which the tax claim originates, as another court generally will not have jurisdiction to decide on “public” claims, because it would be contrary to the conventions providing cross-border assistance in case of enforcement of tax claims to have the matter decided by the court in which proceedings have been opened. The EIR 2015 does not have a clear rule and any controversy is likely to go to the Court of Justice of the EU.
As the foreign tax authority has a discretion to make use of Article 53 and the rule of equal treatment of creditors is paramount in light of the Regulation’s objective of improving the effectiveness and efficiency of insolvency proceedings having cross-border effects (recitals 3 and 8), a case can be made that the courts of the member state in which the insolvency proceeding is pending will have international jurisdiction. The rule, however, is that a creditor is entitled to lodge claims in the proceedings of his choice, and he may even do so in several proceedings. As the text refers to any “creditor” without further specification, creditors with a preference and creditors without a preference – according to the national legal system – may lodge therefore a “non-preferenced" creditor claim in member state A, and a “preferenced” claim in state B.
Article 53 only provides the basis for lodging a claim, but it does not mention the applicability of certain preferences that the law governing the proceedings accords to claims of a certain nature. The majority finding in literature is that a tax claim has the status of an unsecured claim. Some authors, on the other hand, refer to the Directives on reorganisation and winding up of credit institutions (2001/24) and insurance undertakings (2001/17), which establish a principle of equal treatment for claims of member states’ public authorities: these claims shall be treated in the same way and accorded the same ranking as claims of an equivalent nature lodged by public authorities of the member state of the opening.
With an eye on Article 7(2)(i) of the EIR 2015, according to which the rules governing the ranking of claims are determined by the lex concursus, the “equal treatment”’ of all claims from member states relating to tax or social security can only be decided by the national legislator. On this topic the Court of Justice of the EU can provide certainty.
In the meantime, in member states where tax authorities know that their claims have a high ranking, they will prefer to open secondary proceedings.
Now give me money (That’s what I want), With the Beatles, 1963
District Court ‘s-Hertogenbosch 29 January 2007, LJN AZ7355.
This is a slightly adapted version of a regular column I am writing for Global Restructuring Review (GRR) on a 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 July 2018 on GRR’s website at http://globalrestructuringreview.com