Leiden Law Blog

Courts should be leading in solving cross-border insolvency matters

Courts should be leading in solving cross-border insolvency matters

Christianapol sp. z.o.o. (“Christianapol”) is a wholly-owned subsidiary of a German company, which itself is owned for 90% by a French company. On 1 October 2008 the Tribunal de commerce de Meaux (France) opened main insolvency proceedings (procédure de sauvegarde) against Christianapol. Opening these proceedings in France is possible on the grounds that the debtor was not in a situation calling for cessation of payments, but that it would be in that situation if financial restructuring was not undertaken quickly. In June 2009, in Poland, Bank Handlowy, established in Warsaw (Poland), in its capacity as creditor of Christianapol, asked the Polish court to open secondary insolvency proceedings against Christianapol under Article 27 of the Insolvency Regulation (InsReg). A month later, the French court approved a rescue plan for Christianapol. The court upheld the appointment of the persons responsible for representing the interests of creditors for the period up to the closure of the procedure for the verification of claims and the submission of a final report on the activities of those representatives. In its judgment it also appointed a person to oversee the implementation of the plan (commissaire à l’exécution du plan).

Following the approval of the rescue plan by the French court, Christianapol contended that the secondary insolvency proceedings should be discontinued, since the French main proceedings had closed. It also submitted that it was fulfilling its obligations under the plan approved by the French court, with the result that no pecuniary claims were outstanding against Christianopol under Polish law and that there were therefore no grounds supporting a declaration of insolvency.

It should be noted that in this case the communication between the Polish and the French court is abominable. I quote: “The referring court [from Poland; Wess.] asked the Tribunal de commerce de Meaux whether the insolvency proceedings in France, ….., were still pending. The answer given by the French court did not provide the necessary clarification. The referring court then consulted an expert.” It is therefore no surprise that the Poznan Court (Sąd Rejonowy Poznań-Stare Miasto w Poznaniu) decided to stay the secondary proceedings and to refer questions to the European Court for a preliminary ruling.

After having decided that the question whether the French proceedings had been closed is to be decided on the basis of the national law of the Member State, i.e, French law, the Court of Justice of the EU (22 November 2012; Case C-116/11; Bank Handlowy v Christianapol) provides two interpretations of Article 27 InsReg:

(i) that the court before which an application to have secondary insolvency proceedings opened cannot examine the insolvency of a debtor against which main proceedings have been opened in another Member State, even where the latter proceedings have a protective purpose.

(ii) that it permits the opening of secondary insolvency proceedings in the Member State in which the debtor has an establishment (in this case: Poland), where the main proceedings have a protective purpose. The European Court adds that it is for the court having jurisdiction to open secondary proceedings to have regard to the objectives of the main proceedings and to take account of the scheme of the Regulation, in keeping with “the principle of sincere cooperation.”

The first decision is no surprise, the second however brings into play a fundamental principle of EU law to close a gap in the system of the Insolvency Regulation. As the Court observes, the fact remains that the opening of secondary proceedings, which must be winding-up proceedings, “… risks running counter to the purpose served by main proceedings, which are of a protective nature.” The basis for solving this clash lies in the interwovenness of the two proceedings for which the Regulation provides a number of mandatory rules of coordination intended to ensure, “the need for unity in the Community”, as recital 12 expresses. Based on the fact that main proceedings have a dominant role in relation to the secondary proceedings (see recital 20) the  liquidator in the main proceedings has several prerogatives at his disposal which allow him to influence the secondary proceedings in such a way that the protective purpose of the main proceedings is not jeopardised. The Court: “The principle of sincere cooperation laid down in Article 4(3) EU requires the court having jurisdiction to open secondary proceedings, in applying those provisions, to have regard to the objectives of the main proceedings and to take account of the scheme of the Regulation, which, ……, aims to ensure efficient and effective cross-border insolvency proceedings through mandatory coordination of the main and secondary proceedings guaranteeing the priority of the main proceedings.”

The European Court provides a wide interpretation of Article 4(3) EU, as in its texts the principle only refers to Member States. In this regard an independent court presumably is seen as an integral part of a State. In his doctoral thesis of 2005 the Dutch author Israel defended this point of view. It makes sense, although the practical implications seem rather uncertain. Recognition of insolvency judgments is based on the “principle of mutual trust” (recital 22) and it is not too great a step to submit that this principle is derived from the concept of sincere cooperation (or: loyalty) as mentioned in Article 4(3), first sentence, EU, inciting not only Member States but also judges of these States to be guided by the aims and purposes of a given community measure, such as the Insolvency Regulation.

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