EU Law – Insolvency Regulation – article 13 – conflict of laws – detrimental acts
The Austrian applicant was a creditor of German company, ECZ, following the non-delivery of a car he purchased from them. An Austrian court issued an enforceable payment order against ECZ on 17 March 2008. On 20 May the same year, the court attached three of the debtor’s bank accounts. ECZ filed an application to open insolvency proceedings in Germany on 13 April 2008, and proceedings were duly opened in August 2008. In March 2009, the bank paid the applicant the debt owed to him out of ECZ’s accounts. The following October the respondent liquidator successfully challenged the attachment of the accounts and the payment made to the applicant in the German court as void.
The applicant appealed to the German Federal Court of Justice, relying on article 13 of the Insolvency Regulation, which provides that the law of the insolvency proceedings will not determine the validity of acts detrimental to creditors where that act is (1) subject to the law of a different member state and (2) that law does not allow any means of challenging the act.
The applicant argued that Austrian limitation provisions should apply, with the effect that the respondent liquidator’s challenge would have been time barred a year after the opening of insolvency proceedings.
On a reference to the European Court of Justice, the court ruled that, while article 13 would not generally apply to acts done after the opening of insolvency proceedings, it could be relied upon in cases where the creditor was exercising a pre-existing right in rem (which included a right to attach a credit balance). The court cited recital 25, which indicated the legislature’s intention to reserve rights in rem to the lex causae.
Further, there was nothing in article 13 to suggest that it only applied to substantive law. The distinction between procedural and substantive law varied between Member States. Therefore, if article 13 was held not to apply to procedural law this would prevent uniform application of the article. Consequently, it applied so that Austrian law governed whether the German liquidator could apply to set aside the payment.
Distilling a number of interrelated provisions in the Insolvency Regulation, the court determined that the validity of the exercise, during insolvency proceedings, of a right in rem established prior to the opening of such proceedings was a matter for the procedural and substantive law applicable to that right.
