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We look at whether a charge against immovable property in Germany to ensure payment of real property tax constitutes an in rem claim exempt under article 5 of the EC Regulation on Insolvency in SCI Senior Home v Gemeinde Wedemark.
C-195/15: SCI Senior Home v Gemeinde Wedemark
The Court of Justice of the European Union considered a request for a preliminary ruling on the interpretation of Article 5 of Council Regulation (EC) 1346/2000 of 29 May 2000 on insolvency proceedings (the EC Regulation on Insolvency). The request was made in proceedings between SCI Senior Home, in administration, represented by Mr Pierre Mulhaupt, acting as court appointed administrator, and Gemeinde Wedemark (Wedemark local authority, Germany) and Hannoversche Volksbank eG, concerning the compulsory sale of a property owned by Senior Home.
The key points to note from this case are:
Senior Home (the Company) was a real estate company incorporated under French law which owned real property in Germany. A German local authority (Wedemark) applied for the compulsory sale of the property by public auction to recover property tax and argued that it was a public charge on real property and so constituted an in rem right, meaning that the opening of French main proceedings did not affect this right. The charge over the property meant the German tax authorities had the status of a preferential creditor in the insolvency. A simplified chronology follows:
The German Federal Court referred the following question to the Court of Justice:
The referring German Federal Court was unsure whether the existence of the right in rem should be interpreted under German law or independently. In essence, the Court of Justice of the European Union said the question was whether EC Regulation on Insolvency, art 5 must be interpreted to the effect that security created by virtue of a provision of national law, by which the real property of a person owing real property taxes is, by operation of law, to be subject to a public charge and that property owner must accept enforcement, against that property, of the instrument recording that tax debt, constitutes a 'right in rem' for the purposes of that article.
The Court of Justice said it was clear from the case law (including C-527/10: Erste Bank Hungary Nyrt v Magyar Allam and C-557/13: Lutz v Bäuerle) that the validity and extent of such a right in rem must normally be determined according to the law of the place where the asset concerned is situated (here, Germany). Consequently, the issue of the qualification of the right concerned as a right 'in rem' for the purposes of applying EC Regulation on Insolvency, art 5(1) is to be examined having regard to national law, here German law.
Therefore it was up to the referring German Federal Court to determine whether the real property tax debt in this case was a right in rem under German law.
The Court of Justice noted that although the EC Regulation on Insolvency contains no definition of in rem rights, it does give several examples (including the right to dispose of assets/have them disposed of and to obtain satisfaction from the proceeds/income of those assets (eg a lien or mortgage) or the exclusive right to have a claim met (eg guaranteed by a lien)). It also noted that EC Regulation on Insolvency, art 5 must be interpreted strictly as it is an exception to the rule that the law of the main proceedings (here, French law) governs all matters. However, despite this, the exception should not be deprived of its effectiveness. Its aim is to protect legitimate expectations and the certainty of transactions in Member States other than that in which proceedings are opened. Therefore, without prejudice to the German Federal Court's decision, the Court of Justice found that the right did satisfy the criteria listed in EC Regulation on Insolvency, art 5(2) in that:
The Court of Justice found that Regulation (EC) 1346/2000, art 5 contained nothing that could limit the scope of that article on the basis of the origin of the right in rem concerned or the nature, whether governed by public or private law, of the debt guaranteed by that right in rem. Essentially, the commercial nature of the rights or debts was irrelevant.
In those circumstances, the Court of Justice concluded that the answer to the question referred was that:
This case is a useful clarification that although the Court of Justice is wary of extending the exceptions contained in EC Regulation on Insolvency, art 5, a charge over property to secure tax debts is a valid in rem claim. The Court of Justice was keen to protect legitimate expectations and certainty of transactions. Neither the origin of the in rem right nor the nature (whether governed by public or private law) will limit the scope of the EC Regulation on Insolvency, art 5 exception.
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Practice Note: Which law applies under the EC Regulation on Insolvency.
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First published on LexisPSL Restructuring and Insolvency
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