Corporate insolvency – conflicts of law laws EC Regulation 1346/2000 – law applicable to reimbursement by directors
An English company called Kornhaas Montage und Dienstleistung Ltd had a branch in Germany and was mainly active there. Insolvency proceedings were commenced in the local court in Erfurt, Germany. Under German law, the company was insolvent from 1 November 2006 at the latest.
Ms Kornhaas was a managing director of the company and she had made payments borne by the company of some €110,000 from 11 December 2006 which were liable, under German insolvency law, to be repaid by her to the liquidator.
The German Court referred to the ECJ the question as to whether Article 4 of the EC Insolvency Regulation meant that the German law should be applied to the question of the managing director’s liability to reimburse the company.
The ECJ held that it did. Article 4(1) provides that “….the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened” and Article 4(2) provides that “The law of the State of the opening of proceedings shall determine the conditions for the opening of those proceedings, their conduct and their closure [and] in particular…(m) the rules relating to the voidness, nullity, voidability or unenforceability of legal acts detrimental to all the creditors.” There was nothing in the Treaty which precluded the application of the national provision in question.
This is welcome clarification from the ECJ that the law governing the obligation to repay money by a director of a company is the law of the state of the court winding up a company not the law of the state of the company’s incorporation.
