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How does the European Insolvency Regulation apply to cross border insolvencies? Paul Sidle, a senior professional support lawyer at Linklaters, answers some questions on the issues that arose out of the decision in ENEFI v DGRFP.
C-212/15: ENEFI Energiahatékonysági Nyrt v Directia Generala Regionala a Finantelor Publice Brasov (DGRFP)  All ER (D) 110 (Nov)
The Court of Justice of the European Union gave a preliminary ruling, deciding that article 4 of Council Regulation (EC) 1346/2000 (EIR) had to be interpreted as meaning that provisions of domestic law of the state of the opening of insolvency proceedings which provided, in relation to a creditor who had not taken part in the insolvency proceedings, for the forfeiture of its right to pursue its claim or for the suspension of the enforcement of such a claim in another Member State, came within its scope of application. Further, the fiscal nature of the claim pursued by means of enforcement in a Member State other than the state of the opening of proceedings had no bearing on the court’s answer.
In this case, a Romanian tax authority was seeking to enforce the non-payment of a VAT liability by a Hungarian company with an establishment in Romania. But, the Romanian tax authority had failed to lodge that tax claim in the Hungarian insolvency proceedings opened in respect of the Hungarian company. As a matter of Hungarian insolvency law, this meant that the Romanian tax authority could not bring the VAT claim against the debtor and the associated enforcement proceedings were void.
The EIR allocates international jurisdiction on insolvency matters between Member States and also provides for choice of law rules to determine the applicable law in cross-border insolvencies. The starting point is the general choice of law rule in EIR, art 4. That provides that the jurisdiction where insolvency proceedings are opened shall apply its own laws and procedural rules to the opening, conduct and closure of the insolvency proceedings. In the case of main insolvency proceedings (determined by reference to a debtor’s centre of main interests) this means that, other than where particular exceptions apply, the insolvency law of the state where those proceedings are opened shall have effect across all other Member States. Article 4 sets out a list of matters which, in particular, are determined by application of the general choice of law rule.
In relation to the enforcement of the Romanian tax claim, the local Romanian court referred two questions to the ECJ about the scope of the general choice of law rule in art 4:
The Romanian court had three main arguments:
The ECJ held that the scope of EIR, art 4 included provisions such as that found in Hungarian insolvency law which would take effect across all Member States and that the fiscal nature of the claim made no difference at all.
The ECJ rejected the arguments of the referring court. In general, it stated that art 4 was clear that, other than as provided in EIR, the law applicable to insolvency proceedings and their effects (both procedural and substantive) should be that of the state of the opening of proceedings. EIR, art 4(2)(g) and (h) makes clear that such law determines which claims must be lodged, the treatment of claims arising after the opening of insolvency proceedings and the rules governing the lodging, verification and admission of claims. To give proper effect to those provisions, art 4 must be interpreted so that the law of the state where proceedings were opened would determine the consequences for failing to respect the domestic claims filing rules (such as filing deadlines). This could properly include a forfeiture of the right to bring a claim and, as a corollary, a suspension of enforcement proceedings relating to that claim.
The main points to note from the ECJ’s reasoning are:
The ECJ’s decision highlights the need for creditors (and their advisors) to pay careful attention to the local law requirements for submitting a claim. The procedure for lodging claims in the insolvency of a debtor varies across the 28 EU Member States. For example, there may be particular forms to complete, fees to be paid or filing deadlines to be met. For foreign creditors not familiar with the local insolvency process, such practicalities may pose a real concern. This will be particularly so if the consequences for failure to meet the local rules for the lodging, verification and admission of claims would mean that a creditor lost its right to bring or enforce its claim.
Paul Sidle is part of the knowledge and learning team for Linklaters’ international banking group. His focus is on English and international restructuring and insolvency, including the resolution of financial institutions, providing R&I advice across the firm.
Interviewed by Janine Isenegger.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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First published on LexisPSL Restructuring and Insolvency
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