Insolvency Regulation protects bona fide third parties, even when they are being used by male fide debtor: Kokott AG in van Buggenhout /van de Mierop

In Case C-251/12 van Buggenhout /van de Mierop (qq liquidators of Grontimmo), directors at the insolvent Belgian company in what looks like a fraudulent transaction, ordered their bank in Luxembourg to settle a debt which they had acquired vis-a-vis a newly established company, established under the laws of Panama. The debt was settled using the proceeds of two debts which had been settled just days before in favour of the company, to the tune of Euro 1,400,000. This amount had been credited to the company just after insolvency proceedings had been initiated by a large creditor, but before the insolvency was established. The order to the Luxembourg bank, too, had been given by the directors in the interim period between the request for opening of the proceedings and establishment of insolvency. Once insolvency was established, the company lost control of it assets, in accordance with Belgian insolvency law. The very next day, the Luxembourg Bank proceeds with the order, writes a cheque in favour of Kostner International Ltd, the newly established company, which promptly proceeds to cash the cheque. The Euro 1,400,000 is therefore out off reach of the liquidators, who request the Bank to cough up the sum again, this time to the liquidators (trustees in insolvency). They do so on the basis of the automatic recognition of main insolvency proceedings: insolvency law in most Member States prescribes that the insolvent loses control over its assets and can no longer accept honouring of an obligation in their favour: any such honouring of an obligation needs to be done vis-a-vis the trustees.

The Insolvency Regulation however contains a provision to protect bona fide third parties: Article 24(1):

Where an obligation has been honoured in a Member State for the benefit of a debtor who is subject to insolvency proceedings opened in another Member State, when it should have been honoured for the benefit of the liquidator in those proceedings, the person honouring the obligation shall be deemed to have discharged it if he was unaware of the opening of proceedings. 

In the case at issue, the obligation being honoured did not benefit the debtor directly: rather, in honouring the obligation, the third party (the bank) absolved the debtor of its obligation vis-a-vis its creditor.

How therefore should the words ‘obligation … for the benefit of a debtor’ in Article 24 be interpreted? Must those words be interpreted as including a payment made to a creditor of the insolvent debtor at the latter’s request, in the case where the party which carried out that payment obligation on behalf and for the benefit of the insolvent debtor did so while unaware of the existence of insolvency proceedings which had been opened against the debtor in another Member State?

Advocate General Kokott today suggests [on the basis of teleological (not ‘theological’ 😉 ] and linguistic (always one of my favourites] interpretation that the protection of the bona fide party should extend to cases such as those at issue. The debtor (and the directors with it) can still be sued, often in criminal proceedings, for defrauding the bankruptcy, and the third party does need to prove that it was unaware of the opening of proceedings (which in the case at issue was only advertised in Belgium and not in Luxembourg). The intent of Article 24 very clearly being to protect bona fide third parties from having to pay twice, it does not, according to the AG, matter whether such honouring of a debt was directly towards the debtor or on behalf and for the benefit of the debtor.

I would imagine the Court itself will agree (and I assume it will do so before the summer).

Geert.

ps at the time of writing this post, the English version of the Opinion was not yet available, however I suspect it will be soon.

PS 2 the ECJ itself disagreed

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