The European Court of Justice (Case Number C-444/07) has held that the German court was not entitled to make an attachment order against the German assets of MG Probud Gdynia sp. z o.o. ('MG Probud'), which was subject to Polish winding up proceedings.

Polish law provides for a stay of enforcement proceedings against the assets of a company that goes into liquidation. Shortly after the Polish proceedings were opened, the local court in Saarbrücken, Germany had ordered an attachment of various bank accounts and claims in Germany on the application of the German Customs Office

The Polish liquidator’s appeal was dismissed by the regional court in Saarbrücken on grounds that ‘there was reason to fear that those responsible within MG Probud would shortly collect the sums payable and transfer the corresponding amount to Poland in order to prevent the German authorities from having access to them’. It was also said that the copy of the judgement enclosed with the appeal was inadequate to enable determination of whether relevant Polish proceedings had been opened.

The ECJ emphasised that it is inherent in the principle of mutual trust it identified in Eurofood IFSC (Case C-341/04) that the court opening main insolvency proceedings examines whether the debtor’s centre of main interest (COMI) is situated in the Member State of that court. In return, the courts of the other Member States recognise the judgement opening main insolvency proceedings, without being able to review the assessment made by the first court as to its jurisdiction.

In this particular case the ECJ held that the documents available to the court contained nothing to affect the presumption in Article 3(1) of the European Insolvency Regulation No 1346/2000 ('the Regulation') that the place of the company’s registered office was the COMI and that this was therefore situated in Poland.

The ECJ also made clear that only the opening of secondary insolvency proceedings is capable of restricting the universal effect of the main insolvency proceedings.

This case illustrates the importance of COMI and it reminds us of the rebuttable presumption that the COMI is at the place of the company’s registered office. Once insolvency proceedings have been opened it is the insolvency law of the Member State in which they were opened that, subject to the exceptions in Articles 5 to 15 of the Regulation, governs the opening, conduct and closure of the insolvency proceedings.

This is of course why battles about the situation of a company’s COMI have been so intense.

In this case, the ECJ has awarded a clear win to the Polish liquidator (and arguably a yellow card to the German authorities!).

Chris Laughton is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Chris you can call him on 020 7353 1597. 

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The controversy surrounding Sir Allen Stanford has reached the Royal Courts of Justice. Both the Antiguan liquidator of Stanford International Bank Limited and the US receiver appointed over its assets sought recognition in the UK under The Cross Border Insolvency Regulations 2006. Both sought to be recognised as the foreign representative in foreign main proceedings.

Lewison J noted on 3 July 2009 that “the apparent lack of co-operation between them has resulted in an expensive application at the creditors’ expense.”

The judgement makes clear that The Cross Border Insolvency Regulations 2006, which were of course founded on the UNCITRAL Model Law, are closely tied to the EC Insolvency Regulation, particularly in relation to COMI.

“In my judgement it is a reasonable inference that the intention of the framers of the model law was that COMI in the Model Law would bear the same meanings as in the Regulation since it “corresponds” to the formulation in the EC Regulation.”

The judgement also considered Eurofood on the basis that Lewison J did not need to decide whether he was strictly bound to follow it but the parties agreed that he should do so. He went on to analyse application of the Head Office functions test and the presumption in favour of COMI coinciding with a company’s registered office, disapproving of his own previous judgement in Lennox Holdings, and concluding that the decision in ReCi4net.com Inc, to the effect that the location of the registered office is no more than a factor to be considered was also no longer be followed.

Interestingly, in relation to the presumption, Lewison J distinguishes between the US implementation of the law as Chapter 15 and The Cross Border Insolvency Regulations 2006. In Chapter 15 the registered office is presumed to be the debtors’ COMI in the absence of evidence to the contrary, whereas in The Cross Border Insolvency Regulations 2006, the debtor’s registered office is presumed to be the COMI is absence of proof to the contrary. 

Lewison J notes

“this change of language of the enactment, as it seems to me, may well explain   why the jurisprudence of the American courts has diverged from that of the ECJ”.

As a final point, having decided that the COMI of Stanford International Bank Limited was in Antigua, Lewison J decided that the powers and duties conferred or imposed on the receiver did not amount to a ‘foreign proceeding’ and that the receivership cannot be recognised under The Cross-Border insolvency Regulations 2006.

All in all an innings defeat of the US Receiver by the Antiguan liquidators!

The full judgement is available at http://www.bailii.org/ew/cases/EWHC/Ch/2009/1441.html. 

 Chris Laughton is a partner at Mercer & Hole. The views given in this blog are personal to the author.

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Does the appointment of a schwacher vorläufiger Insolvenzverwalter (a “weak” preliminary administrator) under German law normally entail the partial or total divestment of the debtor as set out in Article 1(1) of the European Insolvency Regulation?

I had understood from various German sources that it did not, and that therefore such an appointment would not normally constitute insolvency proceedings under the Regulation. Moreover, this is not an uncommon English view. In Hans Brochier Ltd vs Exner ([2006] EWHC 2594 (Ch)), Warren J found, although the point was not argued, that

"It is common ground [between the parties, one of whom is of course a German administrator] that under German law there is a preliminary appointment. . . . The German proceedings are therefore not open for the purposes of the Regulation”.

In the unreported decision of MG Rover Deutschland GmbH (in administration) (Chancery Division (Birmingham District Registry) 14 August 2006), coincidentally the day before the Brochier hearing, Norris HHJ held that the appointment of a preliminary administrator did not commence (in this case secondary) insolvency proceedings in Germany. Again, this was common ground between the parties, including the German administrator, but was not argued before the court. Allen & Overy’s commentary Duplicate officeholders - too many cooks spoil the broth? notes that the German court had held that the appointment opened preliminary secondary proceedings, a concept for which the Regulation does not provide.

The Eurofood ECJ decision addresses the question of opening of proceedings, but adds to the current debate by interpreting “divestment” (see below, emphasis added):

"52. As the Commission of the European Communities has argued, it is necessary, in order to ensure the effectiveness of the system established by the Regulation, that the recognition principle laid down in the first subparagraph of Article 16(1) of the Regulation, be capable of being applied as soon as possible in the course of the proceedings. The mechanism providing that only one main set of proceedings may be opened, producing its effects in all the Member States in which the Regulation applies, could be seriously disrupted if the courts of those States, hearing applications based on a debtor's insolvency at the same time, could claim concurrent jurisdiction over an extended period.

"53. It is in relation to that objective seeking to ensure the effectiveness of the system established by the Regulation that the concept of 'decision to open insolvency proceedings' must be interpreted.

"54. In those circumstances, a 'decision to open insolvency proceedings' for the purposes of the Regulation must be regarded as including not only a decision which is formally described as an opening decision by the legislation of the Member State of the court that handed it down, but also a decision handed down following an application, based on the debtor's insolvency, seeking the opening of proceedings referred to in Annex A to the Regulation, where that decision involves divestment of the debtor and the appointment of a liquidator referred to in Annex C to the Regulation. Such divestment involves the debtor losing the powers of management which he has over his assets. In such a case, the two characteristic consequences of insolvency proceedings, namely the appointment of a liquidator referred to in Annex C and the divestment of the debtor, have taken effect, and thus all the elements constituting the definition of such proceedings, given in Article 1(1) of the Regulation, are present.”

I have recently heard it suggested that since, when appointing a schwacher vorläufiger Insolvenzverwalter, the German insolvency court will routinely restrict the debtor’s powers to deal with its assets, giving such powers instead to the preliminary administrator, such an appointment will entail at least partial divestment of the assets.

It seems likely to me that the only viable approach to this issue is to consider the German court’s order in each case to ascertain whether there has been the partial or total divestment required by Article 1(1) for insolvency proceedings to have been opened for the purposes of the Regulation, but I would welcome opinions from those who know more about German insolvency law and practice than I do.

Can you answer the question?

Does the appointment of a schwacher vorläufiger Insolvenzverwalter under German law normally entail the partial or total divestment of the debtor as set out in Article 1(1) of the European Insolvency Regulation?

• Is this a straightforward point depending on the order given by the insolvency court in each case?
• If so, is there a normal scope for such orders, which stops short of divestment?
• Or is it a question of interpretation - does Vermögensbeschlag have the same connotations as divestment?
• And does the Eurofood decision’s clarification of divestment assist in answering the question? 

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The famous decision on COMI (Centre of Main Interests) and the opening of main insolvency proceedings under the European Insolvency Regulation, which involved an Irish subsidiary of the Italian Parmalat group, is not the easiest to find quickly on the internet, so here's the link:

Eurofood IFSC Ltd, European Court of Justice Case C-341/04, Judgement of the Court (Grand Chamber), 2 May 2006

and here's the preceding Advocate General's Opinion:

Opinion of Advocate General Jacobs, 27 September 2005

For a selection of commentaries, try the following links:

• eir-database.com: Commentary on Case C-341/04
• A&L Goodbody (solicitors for the Irish Provisional Liquidator): Eurofood ECJ Decision - Guidelines on COMI
• Weil, Gotshal & Manges (lawyers acting for the Italian Extraordinary Administrator): European Court of Justice Establishes Approach for Determining Debtor's Center of Main Interests
• Linklaters: Eurofood - the ECJ ruling on the determination of COMI
• Freshfields Bruckhaus Deringer: The Eurofood IFSC Case

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