Does the EC Regulation on Insolvency apply to antecedent transactions even if the third party beneficiary is not resident in a member state?

Does the EC Regulation on Insolvency apply to antecedent transactions even if the third party beneficiary is not resident in a member state?

What does Schmid v Hertel C-328/12 [2014] All ER (D) 221 (Jan) tell us about whether the EC Regulation on Insolvency applies to transactions to set aside (or other antecedent transactions ) even if the third party which benefits from that transaction is not resident in a member state (in this case Switzerland)?

In the case the Court of Justice of the European Union (CJEU) made a preliminary ruling concerning the interpretation of Council Regulation (EC) 1346/2000, art 3(1) on insolvency proceedings (the EC Regulation on Insolvency). The request had been made in the context of a dispute between Mr Schmid, acting as liquidator of the assets of Ms Zimmermann and Ms Hertel, who was resident in Switzerland, concerning an action to set a transaction aside.

What did the court decide?

The CJEU decided that:

  1. the application of the EC Regulation on Insolvency, art 3(1) does not depend on the existence of a cross-border link involving another member state
  2. the courts of the member state where insolvency proceedings have been opened (here, Germany) have jurisdiction to hear and determine an action to set aside a transaction brought against a person whose place of residence is not within a member state (here, Switzerland)

How did the problem arise?

The applicant was the liquidator of an individual debtor's assets, appointed in the insolvency proceedings opened in Germany. The liquidator brought an action in the German courts against the third party (who was resident in Switzerland, which is not a member state for the purposes of the EC Regulation on Insolvency) seeking to have a transaction set aside.

The German liquidator pursued his action to have the transaction set aside by appealing to the Bundesgerichtshof (Federal Court of Justice) in Germany. The Bundesgerichtshof stayed its proceedings to refer the following question to the CJEU for a preliminary ruling: Do the courts of the member state within the territory of which insolvency proceedings regarding the debtor's assets have been opened have jurisdiction to decide an action

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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.