There’s case-law of the Essent, Kylie Minogue (eDate Advertising), Seal Pups, or Kiobel type. And then there is case-law of the, well, Burgo type. In Burgo Group v Illochrama SA, Case C-327/13, the ECJ held on 4 September. The judgment does not reveal anything shocking. (Some might argue at least some of the questions could have been acte claire). However the Court’s findings nevertheless put to bed some concerns which insolvency practitioners might have had.
On 21 April 2008, the Commercial Court, Roubaix-Tourcoing (France) placed all the companies in the Illochroma group — including Illochroma, established in Brussels (Belgium) — into receivership and appointed Maître Theetten as agent. On 25 November 2008, it placed Illochroma in liquidation and appointed Maître Theetten as liquidator.
Burgo Group, established in Altavilla-Vicentina-Vicenza (Italy), is owed money by Illochroma for the supply of goods. On 4 November 2008, Burgo Group presented Maître Theetten with a statement of liability in the amount of EUR 359 778.48. Maître Theetten informed Burgo Group that the statement of liability could not be taken into account because it was out of time.
Burgo Group then requested the opening of secondary proceedings in respect of Illochroma. The referring court (The Brussels Court of Appeal) observed that the Insolvency Regulation defines ‘establishment’ as any place where the debtor carries out a non-transitory economic activity with human means and goods, which is the situation in the present case. Illochroma is a company with two establishments in Belgium, where it is the owner of a building, buys and sells goods and employs staff. Illochrama and the liquidator contend that, since Illochroma has its registered office in Belgium, it cannot be regarded as an establishment within the meaning of Regulation No 1346/2000. They argue that secondary proceedings are restricted to establishments without legal personality (issue 1).
Belgian law applicable to the present case provides that any creditor, including a creditor established outside Belgium, may bring an action before a Belgian court for the opening of insolvency proceedings against its debtor. However, Illochroma maintains that that right is restricted to creditors established in the Member State of the court before which the action seeking the opening of secondary proceedings has been brought, since the sole purpose of such proceedings is to protect local interests (issue 2).
Finally, the referring court observes that Regulation No 1346/2000 does not state whether the possibility for the persons referred to in Article 29 thereof to request, in the Member State within the territory of which the establishment is situated, the opening of secondary proceedings is a right that must be recognised by the court having jurisdiction in that regard or whether that court enjoys a discretion as to whether it is appropriate to grant that request, with a view, in particular, to protecting local interests (issue 3).
With respect to issue 1, the ECJ first of all dismissed any suggestions that COMI may be second-guessed by courts in other Member States. Even if the French courts erred in accepting primary jurisdiction, per Bank Handlowy the courts in other Member States have to stick by that judgment. Any challenge to it must be brought in the national courts of the Member States were main proceedings were opened. The Regulation nevertheless of course has inserted the possibility of secondary proceedings precisely to protect local interests in other Member States. (Even though correction of COMI was not as such thought of when secondary proceedings’ architecture was conceived, in practice they do serve to offset some of the consequences of (alleged) wrong COMI assessment).
‘Establishment’ is defined in Article 2(h) of Regulation No 1346/2000 as ‘any place of operations where the debtor carries out a non-transitory economic activity with human means and goods’. Per Interedil, the fact that that definition links the pursuit of an economic activity to the presence of human resources shows that a minimum level of organisation and a degree of stability are required. It follows that, conversely, the presence alone of goods in isolation or bank accounts does not, in principle, satisfy the requirements for classification as an ‘establishment’. On the other hand, the definition does not refer to the place of the registered office of a debtor company or to the legal status of the place in which the operations in question are carried out.The Member State where the company has its registered office clearly is not excluded from the definition: otherwise local interests would be denied the opportunity of seeking protection, which would exist in other Member States where an establishment is present.
As for the second issue, the Regulation draws a clear distinction between territorial proceedings opened prior to the opening of main proceedings, and secondary proceedings. It is only in relation to territorial proceedings that the right to request the opening of proceedings is limited by the Regulation to creditors who have their domicile, habitual residence or registered office within the Member State in which the relevant establishment is situated, or whose claims arise from the operation of that establishment (at 48, with reference to Zaza Retail). Any other conclusion would amount to indirect discrimination on the grounds of nationality, since non-residents are in the majority of cases foreigners (at 49).
Finally, with respect to issue 3, the Regulation grants broad discretion, with regard to the opening of secondary proceedings, to the court before which an action seeking the opening of secondary proceedings has been bought. Article 28 of the Regulation determines in principle as the law applicable to secondary proceedings, that of the Member State within the territory of which those secondary proceedings are opened. Whether opening of the proceeding is ‘appropriate’ has to be determined by that applicable law. EU law does have an impact on that assessment, though (at 64 ff): in deciding appropriateness, Member States must not discriminate on the basis of place of residence or registered office; the Regulation’s motifs for allowing secondary proceedings must be respected (in the main: protection of local interests, given that universal proceedings may be preferred however do often lead to practical difficulties); and finally the principle of sincere co-operation implies that the court assessing the secondary proceedings, must have regard to the objectives of the main proceedings.
All in all therefore very much a common sense judgment, with the final instruction to the courts being quite relevant: secondary proceedings must not operate as isolated incidents and they have to take some lead from the main proceedings.