Tag: Insolvency

Posted on

East-West Logistics v Melars. A good reminder of the strength of a company’s place of incorporation as a presumption of Centre of Main Interests (insolvency).

A bit of a late follow-up to a 1 November Tweet but hey ho, I have been a tad busy and it is nevertheless good to still have the post up.

East-West Logistics Llp v Melars Group Ltd [2022] EWCA Civ 1419 is a good reminder of the importance of ascertainability by third parties for determination of a corporation’s Centre of Main Interests – COMI. The appeal against Miles J’s finding in [2021] EWHC 1523 (Ch) was rejected and Malta as place of COMI confirmed.

The Company was incorporated in the British Virgin Islands -BVI and entered into a charterparty with the Petitioner in December 2011 for a shipment to Turkmenistan. The address of the Company in the charterparty was stated to be in the BVI. The charterparty contained a clause providing for disputes to be resolved by arbitration in London under English law. Following a disputed shipment, the Petitioner tried to but failed to launch LCIA arbitration (the tribunal holding it did not have jurisdiction), followed by successful proceedings in BVI resulting in a judgment in default against the company, which the latter later managed to have set aside. Without notifying the Petitioner, the Company had in the meantime moved its place of incorporation, and hence its registered office, to Malta.

On 19 July 2016 the Petitioner then presented a winding up petition in London based upon its BVI judgment debt. The Petition alleged that COMI of the Company was in the UK, citing pro UK as COMI [11] (prima facie rather flimsily) that i) the six commercial contracts concluded by the Company of which the Petitioner was aware (including its own charterparty) were in the English language, were governed by English law and had arbitration clauses providing for arbitration in London; and ii) the Company participated in the LCIA arbitration in London and was represented by a London firm (or firms) of solicitors. Against Malta as COMI, it suggested i) the Company did not actually have an office there, its registered office address being that of a Cypriot law firm providing company administration services; ii) the Company did not have any employees or conduct any business in Malta; iii) the Company’s sole director was a nominee who was a Swiss national, resident in South Africa; and iv) the Company’s sole shareholder and principals were Russian.

Baister J made a winding-up order, citing [20] the forum shopping background and the corporation not much being involved in physical, rather virtual trade, deciding ‘ by a narrow margin and with misgivings, that on balance the greater use of English law for contracts, the greater use of London as a seat of arbitration, the actual recourse to or forced involvement in legal proceedings here and the consequential use of English lawyers makes the UK, on the balance of probabilities, the main centre of those interests. The company’s affairs seem to have been conducted in this country more than in Switzerland [SW plays a role because of a Swiss national, GAVC],  certainly as far as contractual and litigation interests were concerned, although it is, I accept, hard to be precise.”

That judgment was overruled on appeal, with Miles J concluding ‘that Judge Baister had erred in principle in three ways in his approach to the determination of the Company’s COMI. The first was in relation to the importance of the presumption in Article 3(1), the second was in relation to the concept of ascertainability, and the third was in failing to distinguish between matters of administration of the company’s interests and matters going to the operation of its business.’

Upon further appeal, Lewison LJ agreed with Miles J. [46] ‘lack of evidence that the debtor actually carries out any activities at the place of its registered office does not allow the court to ignore or disregard the legal presumption under Article 3(1).’

He is right! [47] ‘The court must be alert to detect fraudulent or abusive forum shopping by purported changes of COMI by a debtor’ however ‘the question in such cases is whether the move of COMI is real or illusory. It is not whether the move of the debtor’s registered office is real or illusory.’

[63] “the court should not invent a hypothetical “typical” third party creditor with “average” or “normal” characteristics, and form a view on what might (or might not) have been apparent to that creditor in the course of a notional dealing by him with the company. Neither the EU Regulation nor the jurisprudence of the CJEU refer to the concept of a “typical” creditor, but refer instead, and more generically, to “creditors” or “third parties”.”

[80] “none of the factors relied upon by the Petitioner were, individually or collectively, sufficient to establish that the Company actually conducted the administration of its interests on a regular basis in England (or any other particular location) so as to displace the presumption in favour of Malta under Article 3(1).”

One’s intuition in a case like this may be not to have much sympathy for a corporation engaging in COMI /seat forum shopping. However that intuition is not reflected in the Regulation’s presumptive treatment of incorporation as COMI.

Geert.

EU Private International Law, 3rd ed. 2021, Heading 5.6.1.

Posted on

X v PayPal. Questionable Dutch compulsory settlement jurisdiction reignites discussion similar to English scheme of arrangement tourism. Also raises the question whether compulsory settlements are ‘contracts’ under Rome I.

The Dutch first instance judgment in Groningen  earlier this month, in X v PayPal (Europe) S.a.r.l. & Cie S.C.A., sees claimant debtor essentially seeking a compulsory settlement – CS. PayPal (established in Luxembourg) is the only debtor refusing the settlement proposed by claimant’s bank.

The CS is not listed in Annex I to the Insolvency Regulation 2015/848 (always check for the consolidated version, for the Annex is frequently updated by the Member States’ communication of proceedings to be included). This is where the discussion of scope of application could and should end.

Instead, the judge tests the CS against A1(1)’s abstract criteria. She decides there is neither divestment of assets, nor a temporary stay of individual enforcement proceedings.

This then raises the applicability of Brussels Ia. Seeing as the judge finds the action does not meet with the CJEU F-Tex criteria (Brussels Ia’s insolvency exception only applies to actions which derive directly from insolvency proceedings and are closely connected with them), she holds that Brussels Ia’s ‘insolvency’ exception is not triggered and that BIa applies.

The judge then cuts the corner which English courts in schemes of arrangement have often cut, namely to consider the willing debtors, domiciled in The Netherlands, as ‘defendants’ per Brussels Ia, hereby triggering Article 8(1) BIa’s anchor defendant mechanism. The judge justifies this by stating that the other creditors are interested parties and that it is in the interest of the sound administration of justice that the CS be discussed viz the interested parties as a whole. That may well be so, however in my view that is insufficient reason for A8(1) to be triggered. A8(1) requires ‘defendants’ in the forum state, not just ‘interested parties’. The suggestion that a co-ordinated approach with an eye for all interested parties, justifies jurisdiction, puts A8(1)‘s expediency cart before the A4 ‘defendant’-horse.

The judge then also cuts corners (at least in her stated reasons) on the applicable law issue, cataloguing this firmly in Rome I. She argues that even if the CS is a forced arrangement, replacing a proposed contract which party refused to enter into, it is still a contractual arrangement. That is far from convincing.

Equally not obvious is as the judge holds, that  per A4(2) Rome I, the party required to effect the ‘characteristic performance’ of a compulsory settlement, is the claimant-debtor of the underlying debt, leading to Dutch law being the lex causae.

The judgment at the very least highlights the continuing elephant in the restructuring tourism room, namely the exact nature of these proceedings under Brussels Ia, EIR and Rome I.

Geert.

Posted on

Barings et al succeed in first instance winding up order against Galapagos on shaky COMI and Withdrawal Agreement grounds.

I discuss the background to Barings (UK) Ltd & Ors v Galapagos SA [2022] EWHC 1633 (Ch) here. At the end of August 2019 an opening of insolvency proceedings was requested by various Barings companies and Goldman Sachs, in respect of the Respondent, Galapagos S.A. – GSA.

While this request was pending before the English courts, a group of high yield noteholders (including Signal, the main opponent in the English proceedings) procured the replacement of GSA’s English directors with a German director, and the new German director and two creditors brought separate ex parte applications before the Düsseldorf Amtsgericht (District Court) for the opening of insolvency proceedings there. Following the opening of insolvency proceedings by the Düsseldorf court, the English proceedings were stayed. The German proceedings then led to a preliminary reference to the CJEU which resulted in a judgment on 24 March 2022, the judgment I discuss in my previous post.

[12] ff Bacon J summarises the procedural tussle (including the, I believe unreported August 2019 Norris J stay: [2019] EWHC 2355 (Ch)). Justice Norris had stayed the English proceedings believing inter alia that the German courts might dismiss the German proceedings once they had been properly told of the English action.

The dictum in C-723/20 was

Article 3(1) of Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings must be interpreted as meaning that the court of a Member State with which a request to open main insolvency proceedings has been lodged retains exclusive jurisdiction to open such proceedings where the centre of the debtor’s main interests is moved to another Member State after that request has been lodged, but before that court has delivered a decision on it. Consequently, in so far as that regulation is still applicable to that request, the court of another Member State with which another request is lodged subsequently for the same purpose cannot, in principle, declare that it has jurisdiction to open main insolvency proceedings until the first court has delivered its decision and declined jurisdiction.

 

The reference to ‘in so far as that regulation is still applicable’ refers to the Brexit element to the case which surprisingly perhaps was not included in the dictum: COMI presumptions ordinarily serve to protect the first court seized’ privilege to find, or reject, COMI in its jurisdiction however that privilege no longer applies vis-a-vis UK courts post Brexit.

As I note in my earlier review, the CJEU wrongly decided not to answer the German court’s question

Is Article 3(1) of [Regulation 2015/848] to be interpreted as meaning that:

(a)      the courts of the Member State within the territory of which the centre of the debtor’s main interests is situated at the time when the debtor lodges the request to have insolvency proceedings opened retain international jurisdiction to open those proceedings if the debtor moves the centre of its main interests to the territory of another Member State after lodging the request but before the decision opening insolvency proceedings is delivered, and

(b)      such continuing international jurisdiction of the courts of one Member State excludes the jurisdiction of the courts of another Member State in respect of further requests to have the main insolvency proceedings opened received by a court of that other Member State after the debtor has moved its centre of main interests to that other Member State?’

Neither, possibly because the question was not so asked by the referring court, does it entertain the issue of ‘permanency’ required to move COMI to another state (see my previous post for detail).

Applicants in the current case and Bidco say that the effect of the GalapagosCJEU judgment is that GSA’s winding up can and should now proceed in E&W. Signal, however, contends that the English insolvency proceedings should remain stayed or should be dismissed.

Of relevance in that assessment is Article 67(3) (c) withdrawal agreement, which reads

In the United Kingdom, as well as in the Member States in situations involving the United Kingdom, the following provisions shall apply as follows:…

Regulation (EU) 2015/848 of the European Parliament and of the Council shall apply to insolvency proceedings, and actions referred to in Article 6(1) of that Regulation, provided that the main proceedings were opened before the end of the transition period;

The question in my view is not ‘are the German insolvency proceedings to be regarded as the “main proceedings” within the meaning of Article 3 of the Recast EIR?’ which is the course which the judge seems to follow. Rather, whether either the German or the English insolvency proceedings were to be regarded as main proceedings.

In either case, in my view, main proceedings have been opened and the EU EIR continues to apply as acquired EU law.

[21] Signal’s position is that unless and until the German courts have given effect to CJEU Galapagos by setting aside or otherwise the Düsseldorf insolvency proceedings, the German insolvency proceedings remain the “main proceedings” for the purposes of the Recast EIR. Accordingly, under A67(3) WA the Recast EIR remains applicable and the German proceedings have to be recognised by the English court, precluding the making of a winding up order. If that is wrong, and the Recast EIR does not apply, Signal argue that GSA’s COMI is not in England, such that the UK IR (the retained Insolvency Regulation) does not apply, leaving s. 221 of the relevant UK law as the only jurisdictional basis for a winding up order. In addition, whether under the UK IR or s. 221, Signal contends that the circumstances are such that the court should not exercise its discretion to make the order.

The rather important questions are therefore summarised by Bacon J [23] as

i) The first issue is whether the Recast EIR remains applicable to these proceedings, as Signal contends. That in turn depends on whether the German proceedings are to be characterised as “main proceedings” for the purposes of Article 67(3)(c) of the Withdrawal Agreement. – as I note above, that issue is wrongly formulated.

ii) If the German proceedings are not “main proceedings”, such that the Recast EIR no longer governs the question of jurisdiction of the UK courts in the present case, the next question is whether there is jurisdiction to make a winding up order under the UK IR on the basis that GSA’s COMI is in England. – again see my own caveat above.

iii) The final issue is whether the court should exercise its discretion to make a winding up order under either the UK IR if that is applicable, or alternatively under s. 221 of the Insolvency Act 1986.

[48] the judge has the interim conclusion that up to and until 31 December 2020, the combined effect of the pending application before the High Court and the Recast EIR was to prohibit the German courts from declaring jurisdiction to open main insolvency proceedings. After that date, however, they could quite validly do so, if GSA’s COMI was by then situated in German territory.

I am not convinced that a mere request for opening of proceedings equates opening of these proceedings, and I am not convinced that the fall-back finding of COMI in England [83] ff, applying the Swissport ([2020] EWHC 3556 (Ch), unreported) summary of criteria, is solid: it is exactly on this point that the CJEU’s silence on the issue of ‘permanency’ is frustrating.

The judge concludes that a winding up order in respect of GSA be made however I think her analysis is incorrect and I assume permission to appeal must have been sought.

Geert.

Posted on

The CJEU confirms a corporation’s general duty of care is not caught by the corporate carve-out. Judgment in ZK v BMA (Peeters Gatzen suit) impacts on business and human rights litigation, too.

The CJEU a little while back held in C‑498/20 ZK v BMA on the applicable law for the Dutch ‘Peeters Gatzen’ suit, for which I reviewed the AG Opinion here. The suit is  a tortious suit brought by a liquidator. In Nk v BNP Paribas the CJEU held at the jurisdictional level it is covered by Brussels Ia, not by the Insolvency Regulation.

A first issue of note, which I discuss at some length in my earlier post, is whether the liability is carved-out from Rome II as a result of the lex societatis provision. The CJEU confirms the AG’s contextual analysis, without repeating his general criterion, emphasises the need for restrictive interpretation, and specifically for the duty of care holds that liability resulting from a duty of care of a corporation’s bodies and the outside world, is covered by Rome II. This is important for business and human rights litigation, too: [55]

Pour ce qui concerne spécifiquement le manquement au devoir de diligence en cause au principal, il convient de distinguer selon qu’il s’agit du devoir spécifique de diligence découlant de la relation entre l’organe et la société, qui ne relève pas du champ d’application matériel du règlement Rome II, ou du devoir général de diligence  erga omnes, qui en relève. Il appartient à la seule juridiction de renvoi de l’apprécier.

The referring judge will have to decide whether the case engages the duty of care vis-a-vis the wider community (including the collectivity of creditors) however it would seem most likely that it does. If it does, locus damni is held, confirming the AG view, to be The Netherlands if the referring judge finds that the insolvent corporation’s seat is based there. The financial damage with the creditors is indirect only and does not establish jurisdiction.

[44] Should a judge decide that they do not have jurisdiction over the main claim, they also and necessarily have to relinquish jurisdiction over the warranty /guarantee claim against a third party under A8(2) BIa. CJEU Sovag is referred to in support.

Geert.

Posted on

Galapagos Bidco v DE. The CJEU fails to clarify whether move of COMI by mere market notice, may be effective.

Krzysztof Pacula reported end of March on CJEU C-723/20 Galapagos Bidco v DE and justifiably highlighted the Brexit issue. The case concerns a move of COMI – centre of main interest within the context of the Insolvency Regulation 2015/848 and it is on the element of impromptu move that my post will focus.

Galapagos SA is a Luxembourg holding company whose centre of administration (‘effective place of management‘ according to the former directors) was moved in June 2019, at least so contend previous directors, to England. At the end of August 2019, they apply to the High Court in England and Wales to have insolvency proceedings opened.

Echos of the tussle are here and of course also in Galapagos Bidco SARL v Kebekus & ors [2021] EWHC 68 (Ch). The day after the move of centre of administration, the former directors were replaced with one other, who moved centre of administration to Dusseldorf and issued relevant market regulation statements to that effect. This move was subsequently recognised  by the Courts at Dusseldorf as having established COMI there. The High Court action in London was never withdrawn and would seem to have been dormant since.

Applicant in the proceedings is Galapagos BIDCO Sarl, a creditor of Galapagos SA. It is I understand (but I am happy to be corrected by those in the know) Luxembourg based. As Krzysztof reports, it contests that the German move has effected move of COMI which it argues lies in England (although I fail to see how its reasoning should not also apply to the earlier instant move from presumably Luxembourg to England).

The question that arises is whether, in the determination of the centre of a debtor company’s main interests, specific requirements must be imposed to prevent abusive conduct. Specifically, in the light of the Regulation’s stated aim of preventing forum shopping, whether ‘on a regular basis’ in the second sentence of the first subparagraph of Article 3(1) Insolvency Regulation 2015, presupposes an adequate degree of permanence and is not present if the establishment of a centre of administration is pursued at the same time as a request to have insolvency proceedings opened. Respondents in the appeal, which include the insolvency administrator (trustee) contend that the requirement of administration ‘on a regular basis’ is fulfilled if the administration is permanent.

The CJEU unfortunately fails to answer that question, choosing to reply instead with a hierarchical answer which encourages race to court: [36]

the court of a Member State with which a request to open main insolvency proceedings has been lodged retains exclusive jurisdiction to open such proceedings where the centre of the debtor’s main interests is moved to another Member State after that request is lodged, but before that court has delivered a decision on that request, and that, consequently, where a request is lodged subsequently for the same purpose before a court of another Member State, that court cannot, in principle, declare that it has jurisdiction to open such proceedings until the first court has delivered its decision and declined jurisdiction.

However in the case at issue, the Withdrawal Agreement has the effect that if the High Court has not, as it would seem, taken its decision on the opening of proceedings prior to the end of Brexit Implementation Day 1 January 2021 (CET), the German courts need no longer apply that consequence of mutual trust and are at liberty to determine the existence of COMI.

The CJEU ends by suggesting Q1 no longer needs answering. Yet I think it does. Perhaps not so much for the case at issue (which explains why the judicially economical CJEU does not offer a reply). The German courts, as Zacaroli J notes in his decision [14], held in October 2019 that COMI for GAS has successfully moved to Germany as from 25 August 2019, the day the capital market and bondholders were informed that the centre of administration had been moved to Düsseldorf. Yet the file does not suggest that COMI prior to the attempted move, existed in either the UK or Germany: it was allegedly established in Germany following the new director’s decision, which reversed an earlier impromptu decision by the former directors to ostensibly at least move COMI to the UK. In accordance with the Regulation’s presumptions, COMI would have previously existed in Luxembourg. The element of ‘on a regular basis’ therefore still matters. Is the CJEU suggesting that a mere information of the capital markets suffices to move COMI?

Geert.

EU Private International Law, 3rd ed. 2021, Heading 5.6.1.

Posted on

Air Berlin, CJEU holds that freely allocated emission trading rights do not absolutely belong to the estate of the corporation.

A brief note on Case C-165/20 Air Berlin in which the CJEU held that under the EU’s emission trading scheme, the number of greenhouse gas emission allowances allocated free of charge to an aircraft operator must, in the event of cessation of that operator’s aviation activities (here due to insolvency) during the period of greenhouse gas emission allowance trading in question, be reduced in proportion to the part of that period during which those activities are no longer carried out.

Of note is in particular the Opinion of Advocate General Hogan who earlier, in answering arguments with respect to property rights and the need for their protection under the EU Charter of Fundamental Rights and Freedoms, had opined (28) that

‘Given that the allowances in question were allocated free of charge pursuant to an EU legislative scheme and do not derive from the assets or occupational activity of an aviation operator, in this case Air Berlin, they do not constitute property rights which must be safeguarded by the Union legal order pursuant, inter alia, to Article 17 of the Charter’

and that

‘The emissions trading scheme is simply a mechanism designed to incentivise certain economic behaviour (namely, the reduction of greenhouse gases). While the allowances could be and were traded, this was permitted in the context of undertakings otherwise engaging in economic activity (such as aviation) which perforce was liable to contribute to environmental pollution. It was never envisaged that these allowances could themselves be monetised independently of this economic activity or that they would be regarded as tantamount to a form of quasi-currency which could then be treated as a liquid asset in an insolvency.’

Geert.

Posted on

Sánchez-Bordona AG in ZK v BMA on applicable law for the Peeters Gatzen insolvency suit. Includes important suggestions for the corporate life (lex societatis) exception and duty of care.

Sánchez-Bordona AG opined at the end of October on the law applicable to the Peeters /Gatzen suit (of Nk v BNP Paribas fame) in Case C‑498/20 ZK, in his capacity of successor to JM, insolvency practitioner in the insolvency of BMA Nederland BV v BMA Braunschweigische Maschinenbauanstalt AG – ZK v BMA for short. An English version of the Opinion is still not available.

Peeters /Gatzen is a tortious suit brought by a liquidator. In Nk v BNP Paribas the CJEU held it is covered by Brussels Ia, not by the Insolvency Regulation. The obvious applicable law port of call is Rome II. A first point which the AG reviews is a rather important discussion on the lex societatis exception to Rome II. The extent of that exception is important e.g. also for business and human rights cases, for the Peeters /Gatzen suit essentially engages duty of care towards third parties.

The AG emphasises (35) one of my points of attention in the BIa /Rome I/II interplay: that in accepting a certain amount of consistency in interpretation, the courts must nevertheless appreciate each instrument’s autonomy and quite different subject-matter. (46) The reasoning behind the exclusion of the lex societatis from the 1980 Rome Convention is said to be the ambition at the time to harmonise company law across the EU which, as we know from CJEU Daily Mail and all its successors, has still not come true. The AG then refers to the internal /external dimension of corporate relations such as discussed in C‑25/18 Kerr and C‑272/18 Verein für Konsumenteninformation. However he then suggests (51) that the reference to the ‘internal’ dimension of the life of a corporation does not suffice to justify 2 of the examples which Rome II explicitly lists in A1(2)d as being part of the corporate exception: the personal liability of officers and members as such for the obligations of the company or body and the personal liability of auditors to a company or to its members in the statutory audits of accounting documents.

At (52-53) he then posits his way out of the conundrum, immediately acknowledging that the criterion he suggests may not be easily applicable: all contractual and non-contractual elements for which a specific solution exists which emanates from the relationship between those elements and the internal life and mechanisms of a corporation (whether they relate to the internal workings or the external relations), are covered by one statutory corpus, namely the lex societatis. Put differently, they are excluded insofar as and because their corporate law element absorbs all other. Specifically viz non-contractual obligations, if the relevant rule is so ‘drenched’ with elements specific to the corporate law context that it looses its meaning outside that context, that rule qualifies as being part of the lex societatis exception.

He immediately acknowledges (56) that this kind of litmus test is not easy to apply in practice and suggest (57 ff) to employ the ratio legis of the liability at stake to assist with the exercise. If that ratio lies in the general neminem laedere rule, Rome II is engaged. If that ratio however immediately follows from corporate law considerations, such as a director’s loyalty to the corporation, the exception is engaged. The AG lists examples (63), including the scenario at stake in CJEU OFAB. At (66) the AG concludes, albeit not directly, that the Peeters Gatzen suit in all likelihood is not covered by Rome II and he discusses the other questions in subsidiary fashion.

(67ff) with reference ia to CJEU Lazar the CJEU refers to the tricky characterisation of damage as (in)direct and opts in cases such as these that the direct damage occurs in the insolvent (or otherwise facing liquidity issues) corporation: the diminishing impact on the creditors is indirect, ricochet. Locus damni therefore is The Netherlands if the referring judge finds that the insolvent corporation’s estate is based there. (76) Whomever initiates the suit (the insolvency practitioner and /or the creditors) is irrelevant, as is (80) the fact that some of the creditors are located outside the EU.

(83ff) then follows the discussion of A4(3) Rome II’s escape clause (most recently discussed in Scott v AIG). A pre-existing contractual relationship (which the AG suggests (95ff) may also be called upon by claimants that are not party to that relationship) is just one among many factors that may play a role – not a particularly dominant one: (93-94) particularly where such relationship (such as here, taking the form of a credit facility) is one where choice of law was made: A4(3) RII is directed at situations where the non-contractual relationship has a closer connection to a law other than the locus damni. Lex voluntatis does not necessarily reflect the tort’s closer relationship but rather the parties’ voluntary expression.

An important Opinion.

Geert.

EU Private International Law, 3rd ed 2021, para 4.22.,  para 4.39 ff.

Posted on

Windhorst v Levy. The High Court on the narrow window to refuse a Member State judgment under Brussels Ia, which subsequently got caught up in insolvency.

Update 2 December 2021 The Court of Appeal today, Windhorst v Levy [2021] EWCA Civ 1802, rejected the appeal, albeit with one variation. A stay of execution was granted, subject to a payment of security, pending the outcome of the German proceedings.

Windhorst v Levy [2021] EWHC 1168 (QB) has been in my in-tray a little while. The court was asked to consider whether registration of a German judgment under Brussels Ia should be set aside when the judgment debt in question was subsequently included within a binding insolvency plan, which is to be recognized in E&W pursuant to the European Insolvency Regulation  – EIR 1346/2000 (not materially different on this point to the EIR 2015). Precedent referred to includes Percival v Moto Novu LLC.

Appellant argues the registration order should be set aside as the initial 2003  judgment is no longer enforceable, having been waived as part of a binding insolvency plan, which came into effect by order of a German court on 31 August 2007 (“the Insolvency Plan”), and which this court is bound to recognize under the Insolvency Regulation.

In CJEU C-267/97 Coursier v Fortis Bank SA (held before the adoption of the EIR) it was held that enforceability of a judgment in the state of origin is a precondition for its enforcement in the state in which enforcement is sought. However that judgment then at length discussed what ‘enforceability’ means, leading to the Court holding that it refers solely to the enforceability, in formal terms, of foreign decisions and not to the circumstances in which such decisions may in practice be executed in the State of origin. This does not require proof of practical enforceability. The CJEU left  it to ‘the court of the State in which enforcement is sought, in appeal proceedings brought under [(now) Brussels Ia], to determine, in accordance with its domestic law including the rules of private international law, the legal effects of a decision given in the State of origin in relation to a court-supervised liquidation.’

The respondent contends that, applying the test laid down in Coursier v Fortis, the 2003 Judgment plainly remains enforceable in formal terms under German law.

The judge, at 52 ff, refers ia to CJEU Prism Investments and Salzgitter to emphasise the very narrow window for refusal of recognition, and holds [56] that the German judgment clearly is still formally enforceable in Germany (where enforcement is nota bene only temporarily stayed pending appeal proceedings). The effects of the German insolvency plan, under German law, are not such that the 2003 judgment has become unenforceable [58].

The request for a stay of execution is also denied, seeing as the appellant chose not to pursue a means available to it under German law and before the German courts, to seek a stay (it would have required it to put down the equivalent sum as court security).

Geert.

EU Private International Law, 3rd ed. 2021, 2.560 ff, 5.141 ff.

Posted on

Emerald Pasture. The High Court on on actions ‘related to’ insolvency (Gourdain; vis attractiva concursus) and jurisdiction for E&W courts post Brexit.

Update 4 February 2022 appeal against the findings under French law has today been dismissed: Cassini SAS v Emerald Pasture Designated Activity Company & Ors [2022] EWCA Civ 102 .

Update 3 September 2021 the judge [Emerald Pasture Designated Activity Company & Ors v Cassini SAS & Anor [2021] EWHC 2443 (Ch)] has now also held that under applicable French law, relevant Covenants remained enforceable against Cassini during the observation period of the French safeguard procedure.

In Emerald Pasture Designated Activity Company & Ors v Cassini SAS & Anor [2021] EWHC 2010 (Ch) there is an interesting split between pre and post Brexit applicable EU rules, with BIa not engaged yet the EU insolvency rules firmly in the picture.

Claimants Emerald are lenders, and first defendant Cassini is the borrower, under a senior facilities agreement dated 28 March 2019 (the SFA). The SFA is governed by English law and has an exclusive jurisdiction clause in favour of the English courts. Cassini is subject a French ‘Sauvegarde’) opened on 22 September 2020. This is a form of debtor-in-possession safeguard proceeding for a company in financial difficulties that wishes to propose a restructuring plan to its creditors. Sauvegarde is included in the proceedings that are subject to the Recast European Insolvency Regulation 2015/848. Parties are seemingly in agreement that the EIR 2015 continues to apply in the UK in respect of the Sauvegarde, because it was commenced prior to 31 December 2020, Brexit date.

Cassini contest jurisdiction, arguing that the claim derives from and is closely linked to the Sauvegarde and thus falls within A6(1) EIR, the so-called vis attractiva concursus which reads

“The courts of the Member State within the territory of which insolvency proceedings have been opened in accordance with Article 3 shall have jurisdiction for any action which derives directly from the insolvency proceedings and is closely linked with them, such as avoidance actions.”

This Article is the result of CJEU case-law such as Gourdain , Seagon , German Graphics , F -Tex.

Zacaroli J unfortunately repeats the suggested dovetail between BIa and the EIR, referring to CJEU Nickel & Goeldner.

As the judge notes [24] the application of A6(1) has not been made easier by the CJEU blurring the distinction between the conditions – with reference to Bobek AG in NK v BNP Paribas Fortis NV (on the Peeters /Gatzen suit).

Emerald argue that the question is whether the action itself derives from the insolvency proceeding. They contend that since the action is for declaratory relief in respect of a contract, its source is the common rules of civil and commercial law. Cassini focus on the issue raised by the action. They contend that since the only matter in issue in the action is whether the rights to information under the SFA are overridden by the Sauvegarde – and the principles of French insolvency law that govern the Sauvegarde – the real matter in issue concerns the effects of the insolvency proceedings so that the action falls within A6(1).

The judge [45] after discussion and assessment of the authorities (incl   ING Bank NV v Banco Santander SA ) discussed by both parties, decides against vis attractiva concursus. He holds that the legal basis for the declarations sought remains the SFA, and thus the rules of civil and commercial law, notwithstanding that the only issue which the court would be required to determine is the impact of French insolvency law on the obligations under the SFA. The question which the declarations are designed to answer, it is held, is the enforceability of the contractual rights.

On that basis, the exclusive choice of court clause grants E&W courts jurisdiction, under English common law (as it would have done under BIa, given the judge’s finding on vis attractiva).

If the claim goes ahead (one images appeal may be sought), the French insolvency proceedings will not have lost their relevance. Cassini argue on that issue [12 ff] that since the characteristic performance of the SFA is the loan of funds, which has already occurred, the SFA is not a “current contract” and as a result of French law, is no longer enforceable. Only the underlying debt subsists, they argue, which must be paid by way of dividends in the French insolvency proceedings. That argument, one assumes, will bump into further obstacles.

Geert.

EU Private International Law, 3rd ed, 2021, para 5.76 ff.

Posted on

DTEK Energy: Grounds for the Rome I issue of Schemes of Arrangement to be heading for the Court of Appeal.

In DTEK Energy BV, Re [2021] EWHC 1551 (Ch) Norris J yesterday expanded on his reason to sanction this scheme of arrangement of a Dutch corporation. I had referenced an earlier DTEK scheme in my post here. The judge firstly pointed out the straddle position of the E&W courts, in assessing the sanction of the scheme from the jurisdictional point of view: [30]:

for the purposes of testing whether the Judgments Regulation presented a jurisdictional bar to the English Court exercising jurisdiction over EU domiciled scheme members or creditors it was assumed to apply (and an appropriate gateway identified). But for the purposes of testing international effectiveness it was not assumed to apply, and the English Courts looked for expert evidence which demonstrated alternative bases.

He also points out [31] what I have repeatedly mentioned: the analysis was never extensive, for the schemes tended eventually to be unopposed. Summary of the default position is done [31] with reference to Van Gansewinkel (in which I acted as one of the experts) seeing as, like DTEK, it involved recognition and enforcement in The Netherlands.

At [37], importantly, the judge refers to a report produced by Prof. Dr. Christoph Paulus and Prof. Dr. Peter Mankowski as to the likelihood of the recognition of the Bank Scheme by EU Member States. They seemingly are of opinion that the Bank Scheme would be given effect in every Member State by virtue of Art 12(1)(d) Rome I. This provides that the law applicable to a contract (in the instant case, English law) shall govern the various ways of extinguishing obligations: and that rule covers all modes of extinguishing obligations (including those operating against dissentient creditors). At [38] this conclusion is said to have been supported by a number of relevant E&W precedents (all of which  I have reported on the blog; see eg Lecta Paper) however these all merely scratched the surface.

Gazprombank however oppose this conclusion and refer in support to a report produced (I have not seen it) by Dr Peters (sic; it’s Prof Dr Niek Peters) for the Dutch situation and, at [44] by Mr Vorkas for the Cypriot situation. Both question the opposability of the scheme to recalcitrant creditors in light of amended choice of law. I have not studied the issue in the detail these reports have, and I have not seen any of them. However my own view on this is that there is certainly merit in what is here the opponents’ input:  the position of certain English schemes under Rome I is really quite vulnerable.

At [41] the judge on balance sides with the Paulus /Mankowiski report for ‘it is common ground that I cannot decide between the rival Dutch views’ (later repeated for the Cypriot report). I do not think that is necessarily correct, or at least it deserves some discussion: Brussels Ia may not be retained EU law yet Rome I is, therefore this is arguably not an issue of ‘foreign law’ (and certainly not ‘Dutch law’).  

Conclusion [46]: If sanctioned, the Bank Scheme will certainly be effective as regards 95% of Energy’s creditors. There is a reasonable prospect that the sole dissentient creditor will be unable to mount any challenge to it. Even in the event of a challenge, uncontested evidence demonstrates that the Bank Scheme will be effective in the jurisdiction in which operations are undertaken and assets located.

Seeing as this is one of the first times the BIa and particularly the Rome I situation is discussed in greater detail, I do hope this case is heading for the Court of Appeal.

Geert.

EU Private International Law, 3rd ed. 2021, para 5.35 ff.

%d bloggers like this: