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In its interpretation of article 13 of the Insolvency Regulation, Stefan Ramel, a barrister at Guildhall Chambers, explains why the recent Nike decision is a positive and welcome judgment from the Court of Justice.
Nike European Operations Netherlands BV v Sportland Oy C-310/14  All ER (D) 151 (Oct)
The Court of Justice gave a preliminary ruling deciding, among other things, that article 13 of the Regulation (EC) 1346/2000 (the Insolvency Regulation) should be interpreted as meaning that its application was subject to the condition that, after taking account of all the circumstances of the case, the act at issue could not be challenged on the basis of the law governing the act (lex causae).
This case involved an attempt by a Finnish insolvency practitioner (IP) to set aside a number of payments made to a Dutch concern in the months leading up to the formal insolvency of a Finnish entity. The claim was based on Finnish transaction avoidance insolvency laws.
The Dutch company was Nike European Operations Netherlands BV. The Finnish entity was Sportland Oy. The companies were bound by a Dutch law governed franchise contract whereby Nike supplied goods to Sportland. By early 2009, Sportland owed Nike close to €200,000. Between 10 February and 20 May 2009, Sportland settled its debt by way of ten payments to Nike.
However, on 5 May 2009 a petition to open insolvency proceedings against Sportland was presented to the Finnish courts, and a few weeks later, on 26 May 2009, main insolvency proceedings were opened against Sportland. Finnish insolvency law contains provisions designed to unwind certain pre-insolvency transactions—para 10 of the law on recovery of assets, the ‘takaisinsaannista konkurssipesään annettu laki’.
At this point, it is necessary to refer to two provisions contained in the Insolvency Regulation. Article 4 contains provisions setting out the law which governs insolvency proceedings, and in particular by art 4(2)(m) it is provided that the law of the state of opening of proceedings governs 'the rules relating to voidness, voidability, or unenforceability of legal acts detrimental to all the creditors’. That law is described by the Court of Justice as the ‘lex fori concursus’.
Article 13 deals specifically with detrimental acts. It provides that art 4(2)(m) is dis-applied if ‘the person who benefited from an act detrimental to all the creditors provides proof’ of two things:
This type of law is described by the Court of Justice as the ‘lex causae’.
Article 47 is a provision in the Dutch law on insolvency (the faillissementswet). In summary, it requires a claimant seeking to set aside a pre-insolvency payment to prove that when the recipient received the payment he was aware that an application to commence insolvency proceedings had been lodged or was pending or alternatively that there was an agreement between the creditor and the debtor in order to give the creditor priority over the other creditors. Nike argued that the payments were governed by Dutch law, and then sought to rely on art 47 to assert that Dutch law did not allow any means for the payments to be set aside. In Finland, the case reached the Court of Appeal in Helsinki. That court decided to refer a number of questions to the Court of Justice
The object and purpose of art 13 was described in the following terms—it is to protect:
‘the legitimate expectations of a person who has benefited from an act detrimental to all the creditors by providing that the act will continue to be governed, even after insolvency proceedings have been opened, by the law that was applicable at the date on which it was concluded.’
However, because art 13 creates an exception to the choice of law rules fixed by art 4 of the Insolvency Regulation, it is necessary for art 13 to be interpreted strictly, so that its scope cannot go beyond what is reasonably necessary to meet its objective and purpose. For that reason, the Court of Justice concluded that a court must take into account all of the circumstances of the case, in order to rule on whether the lex causae does actually provide that the act cannot be challenged.
Some of the questions referred by the Finnish Court touched on the burden of proof as between the party making a claim that a transaction could be avoided according to the lex fori concursus (the claimant) and the party that benefited from the relevant act (the defendant). According to the Court of Justice, the burden of proof as regards art 13 falls squarely on the defendant’s shoulders. That conclusion was derived more or less directly from the last phrase of the opening sentence of art 13:
‘...the person who benefited...provides proof that…'
It is useful to have in mind the relevant words from art 13—it is for the defendant to a claim to prove that the ‘law does not allow any means of challenging that act in the relevant case’. That provision invites the question: What law? This was a point picked up by the Finnish Court since one of its questions for the Court of Justice was designed to test whether ‘law’ in that passage in art 13 means ‘insolvency law’ or is wider than that and means any law? The Court of Justice took the view that ‘law’ in the relevant part of art 13 meant any law of the lex causae.
That is straightforward to answer. The Court of Justice, having observed that there was no EU-level harmonisation in respect of the procedural and evidential aspects of domestic civil proceedings, did not engage strongly with this issue. It only supplied limited guidance, which can be summarised as being that, whatever civil procedure rules may exist, they must not be applied in a manner which will make it difficult or impossible to apply art 13.
On the whole, Nike is a positive and welcome decision from the Court of Justice. It is helpful for UK IPs to know that in cross-border situations involving a transaction avoidance claim, it is the defendant that will have the task of demonstrating that art 13 is engaged so as to successfully get off the hook. That is not to say of course that a claimant IP can entirely avoid having to get to grips with issues of foreign law, most likely with the assistance of a suitably qualified expert, but then that was always going to be the situation where art 13 is or might be engaged.
Stefan Ramel is a highly regarded commercial advocate who litigates regularly in the High Court and who is frequently instructed to undertake drafting and advisory work in multi-million pound cases. He is on the Attorney General's regional panel for government work, and also sits in a judicial capacity for British fencing. Practice areas include: insolvency, commercial, company directors’ disqualification, banking & finance, professional negligence and sports law. Stefan is top-rated for his insolvency work by Chambers and Partners.
Interviewed by Kate Beaumont.
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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