Leiden Law Blog

Dealing with a fraudulent cross-border payment in an insolvency case

Posted on by Bob Wessels in
Dealing with a fraudulent cross-border payment in an insolvency case

For the second time this year the Court of Justice of the European Union (CJEU) has had to decide about the voidability of a cross-border payment. This time  it is in the judgment CJEU 15 October 2015, Case C‑310/14 (Nike BV v Sportland Oy). The Helsingin hovioikeus (Court of Appeal, Helsinki, Finland) referred several questions to the CJEU  in a case between Nike European Operations Netherlands BV (‘Nike’, incorporated in the Netherlands) and Sportland Oy, in liquidation (‘Sportland’, incorporated in Finland), concerning an action to have certain transactions declared void by virtue of insolvency. Sportland was a retailer of goods supplied by Nike under a franchising agreement, which by a choice-of-law clause was governed by the laws of the Netherlands. Sportland paid Nike outstanding debts arising from the purchase of stock set out in the agreement in 10 separate instalments made between 10 February 2009 and 20 May 2009, totalling  € 195,108.15. Two weeks prior to the last payment, with an application date 5 May, the District Court of Helsinki opened insolvency proceedings in respect of Sportland on 26 May 2009. Sportland brought an action before the court seeking an order that the payments be annulled and that Nike be required to make restitution of the amounts paid plus interest in accordance with Paragraph 10 of the Finish Law on the recovery of assets (takaisinsaannista konkurssipesään annettu laki). The provision states that the payment of a debt within three months of the prescribed date may be challenged if it is paid with an ‘unusual’ means of payment, is paid prematurely, or in an amount which, in view of the amount of the debtor’s estate, may be regarded as significant. Nike, on the contrary, sought an order that the action be dismissed. It relied, inter alia, on Article 13 of EU Insolvency Regulation No 1346/2000 (EIR), and claimed that the payments at issue were governed by Dutch law, and that Article 47 of the Bankruptcy Act (Faillissementswet) (providing that the payment of an outstanding debt, i.e. a claim which is due, may be challenged only if it is proven that when the recipient received the payment he was aware that the application for insolvency proceedings had already been lodged or that the payment was agreed between the creditor and the debtor in order to give priority to that creditor to the detriment of other creditors) does not apply. So, according to Nike, the payments in question could not be annulled.

The legal context of the case is formed by the interplay between Articles 4 and 13 EIR. Article 4(1) EIR states that, save as otherwise provided, the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened (lex fori concursus). It provides in Article 4(2) that this law shall determine the conditions for the opening of those proceedings, their conduct and their closure: ‘It shall determine in particular: ... (m) the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to all the creditors.’ Article 13 EIR provides: ‘Article 4(2)(m) shall not apply where the person who benefited from an act detrimental to all the creditors provides proof that: (first indent) the said act is subject to the law of a Member State other than that of the State of the opening of proceedings, and (second indent) that law does not allow any means of challenging that act in the relevant case.’ The key questions posed by the Finish Court relate to the interpretation to be given to the expression (in Article 13, second indent) ‘does not allow any means of challenging that act in the relevant case’, second to the scope of Nike’s obligation to adduce evidence regarding the content of Netherlands law and, third, to the question which party is to bear the burden of proof.

In summary, the CJEU decided, that Article 13 EIR must be interpreted as meaning (i) that, after taking account of all the circumstances of the case, the article applies provided that the act at issue cannot be challenged on the basis of the law governing that act (lex causae), and (ii) that the expression ‘does not allow any means of challenging that act …’ applies, in addition to the insolvency rules of the law governing that act (lex causae), to the general provisions and principles of that law, taken as a whole. For the purposes of the application of Article 13 EIR and in the event that the defendant in an action relating to the voidness, voidability or unenforceability of an act relies on a provision of the law governing that act (lex causae) under which that act can be challenged only in the circumstances provided for in that provision, it is for the defendant to plead that those circumstances do not exist and to bear the burden of proof in that regard. Finally, the Court notes that the Regulation is silent on specific procedural aspects. If the defendant (here: Nike) in an action relating to the voidness, voidability or unenforceability of an act shows that the law governing that act (lex causae), taken as a whole, does not allow for that act to be challenged, then the national court before which such an action is brought may rule that it is for the other party (the applicant) to establish the existence of a provision or principle of the lex causae on the basis of which that act can be challenged only where that court considers that the defendant has first proven, in accordance with the rules generally applicable under its national rules of procedure, that the act at issue cannot be challenged on the basis of the lex causae. Other cases on Article 13 EIR are pending. Slowly, step by step the European Court is building a system to deal with payments, detrimental to an insolvent estate, in a balanced way.

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