CJEU applies onerous German law provisions to MDs of English company—Kornhaas v Thomas Dithmar

CJEU applies onerous German law provisions to MDs of English company—Kornhaas v Thomas Dithmar

We look at the imposition of onerous German law provisions, particularly the liability of managing directors (MDs) to reimburse payments made after the company becomes cashflow or balance sheet insolvent in Kornhaas v Thomas Dithmar, acting as liquidator of the assets of Kornhaas Montage und Dienstleistung Ltd (C-594/14).

Original news

The Court of Justice of the European Union (CJEU) considered a request for a preliminary ruling on the interpretation of article 4 of Council Regulation (EC) 1346/2000 of 29 May 2000 on insolvency proceedings (the EC Regulation on Insolvency) and of articles 49 and 54 of the Treaty on the Functioning of the European Union (TFEU). The request was made in proceedings between Mr Dithmar, acting as liquidator of the assets of Kornhaas Montage und Dienstleistung Ltd (the debtor company), and Ms Kornhaas, concerning an action for reimbursement of payments which Ms Kornhaas had made as MD of the debtor company after it had become insolvent.

What are the key take-aways?

The key points to note from this case are:

  • an MD of an English company can be subject to onerous German law provisions if the company's centre of main interests (COMI) is in Germany
  • accordingly, such an MD can be liable under German law for any payments made by the company after the company became insolvent or after it was established that the company was over-indebted
  • these German law provisions do not infringe the principle of freedom of establishment

How did the issues arise?

Kornhaas Montage und Dienstleistung Ltd was a company which although incorporated in England and reg-istered at the English Companies House, had its COMI in Germany. It was mainly active in Germany (installing ventilation systems and associated services), had a branch there and on that basis was also entered in the German companies register administered by the local Jena court. Main insolvency proceedings had been opened in Germany. As a matter

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.