Schmid v Hertel: ECJ confirms ‘extraterritorial’ reach of insolvency Regulation’s Seagon extension – Actio Pauliana

(Postscript April 2015: The ECJ confirmed these principles in C-295/13, H v HK).

Less is more, I know – Apologies for the long title and thank you to Matthias Storme for highlighting the case. In Case C-328/12 Ralph Schmid v Lilly Hertel, Schmid was the German liquidator of the debtor’s assets, appointed in the insolvency proceedings opened in her regard in Germany on 4 May 2007. The defendant, Ms Hertel, resides in Switzerland. Mr Schmid brought an action against Ms Hertel before the German courts to have a transaction set aside, seeking to recover EUR 8 015.08 plus interest as part of the debtor’s estate.

In Case C-339/07 Seagon the ECJ had ruled that the courts of the Member State within the territory of which insolvency proceedings have been opened have jurisdiction to decide an action to set a transaction aside (actio pauliana) that is brought against a person whose registered office is in another Member State. However does Seagon also apply where insolvency proceedings have been opened in a Member State, but the place of residence or registered office of the person against whom the action to have a transaction set aside is brought is not in a Member State, but in a third country?

The ECJ held that it does. Bob Wessels has a very good analysis here and I am happy to refer. Let me just add one or two things. The Brussels I Regulation, the overall Regulation on jurisdiction on civil and commercial matters, displays bias in favour of the defendant: actor sequitur forum rei. The overall jurisdictional angle of the Insolvency Regulation is different: avoiding forum shopping to the detriment of creditors is its main aim, and its insistence on verifiable and predictable criteria to determine COMI (which in turns determines jurisdiction) needs to be seen in that light. That non-EU domiciled defendants get caught up in EU proceedings on the basis of COMI is not generally seen as problematic within the context of the Regulation.

The ECJ is rather realistic with respect to the potential recognition and enforcement problems associated with judgments under the Regulation held against non-domicileds. In the absence of assets in the EU held by the non-dom (if there were, enforcement would be straightforward), classic bilateral treaties may come to the rescue and if there is no such treaty, so be it: the Regulation’s jurisdictional rules should not be held up by potential problems end of pipe.

An important judgment for the reach of the Insolvency Regulation.

Geert.

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