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C-493/18, UB v. VA and others – Exclusive jurisdiction under the European Insolvency Regulation

By Dr Lukas Schmidt (PhD EBS Law School), law clerk (Rechtsreferendar) at the Regional Court of Wiesbaden, Germany

In
cross-border insolvencies questions of international jurisdiction might arise either
in relation to the opening of an insolvency proceeding as such, or – further
down the road – in relation to proceedings deriving from already opened insolvency
proceedings. In both cases the European Insolvency Regulation Recast
(Regulation 2015/848) provides for answers: According to Article 3 of the
Regulation the courts of the Member State within the territory of which the
centre of a debtor’s main interests is situated shall have jurisdiction to open
insolvency proceedings. Article 6 of the Regulation provides that the courts in
such Member States shall have jurisdiction as well for actions deriving
directly from insolvency proceedings and closely linked with them. Both kind of
decisions are to be automatically recognized in all other member states, either
through Art. 19 (judgments opening insolvency proceedings) or through Art. 32
(other judgments).

Whereas
Article 3 is also to be found in the old EIR (Regulation 1346/2000) as is
Article 19 (Article 16) and Article 32 (Article 25), Article 6 is a new
provision, however based without any doubt on the ECJ´s settled case law (Seagon,
C-339/07 and Schmid, C-382/12) on the old EIR. Still on the old regulation, but
with effect also for Art. 6 and 32 EIR, the ECJ has now specified in the case
UB v. VA and others (C-493-18) the scope and the exclusive nature of the vis
attractiva concursus
as (now) laid down in Art. 6 of the EIR.

Some
facts are necessary to understand the case:

The
insolvent debtor UB, a Dutch citizen, owned an apartment and a property complex
in France. Although his assets had been frozen by an English court he and his
sister VA signed an acknowledgement of debt by which UB acknowledged owing VA
the sum of EUR 500 000 in respect of various loans. UB undertook to repay that
sum by 22 August 2017 and subsequently mortgaged, in favour of VA, the
apartment and the property complex which he owned in France. In March 2010 he
had sold the apartment to Tiger, a company founded by VA. On 10 May 2011
insolvency proceedings were opened against UB in the United Kingdom by the
Croydon County Court. The Croydon County Court authorised the insolvency
administrator, to bring an action before the courts in France in order to
obtain a ruling that the sale of the properties and the mortgages granted over
those properties were avoidable under the relevant United Kingdom bankruptcy
law provisions. The insolvency administrator made use of this authorisation and
succeeded before the French Regional Court and the Court of Appeal. However,
the Court of Cassation referred the question of international jurisdiction of
the French courts (and its recognition) to the ECJ for a preliminary ruling.

By
answering the first two referred questions the ECJ has made clear – rather not
surprising – that an action brought by the trustee in bankruptcy appointed by a
court of the Member State within the territory of which the insolvency
proceedings were opened seeking a declaration that the sale of immovable
property situated in another Member State and the mortgage granted over it are
ineffective as against the general body of creditors falls within the exclusive
jurisdiction of the courts of the first Member State.

The
ECJ has pointed out that for determining whether actions derive directly from insolvency
proceedings not the procedural context of the action is decisive, but its legal
basis (the trustee asked the French courts to rule on a declaration of
ineffectiveness rather than on an action to set the transactions aside).

Equally
insignificant for international jurisdiction to hear an action for the
restitution of immovable property to the bankruptcy estate is where those
assets are located. The court underlines that the objective of improving the
efficiency and speed of cross-border insolvency proceedings is only consistent
with concentrating all the actions directly related to the insolvency
proceedings before the courts of the Member State within the territory of which
those proceedings were opened.

More intriguing
and not yet subject to the ECJ’s case law is the question whether a court can
confer its international jurisdiction according to Art. 6 EIR. Eventually, this
is what the Croydon Country Court did by authorizing the administrator to bring
an action before the French courts in order to obtain a ruling that UB´s deals
regarding the French properties were avoidable transactions under the relevant
United Kingdom bankruptcy law provisions. The referring Court of Cassation therefore
asked in his third question if the UK court’s decision authorizing the
insolvency administrator to bring an action before the French courts could be
classified as a judgment concerning the course of insolvency proceedings within
the meaning of Article 25 (now Article 32), which may, on that basis, be
recognised with no further formalities, pursuant to that article.

The
court’s answer to this question is in line with its decision in Wiemer &
Trachte v. Tadzher (C-296/17) in which it already confirmed the exclusive
jurisdiction of the courts of the Member State within the territory of which
insolvency proceedings have been opened for set aside actions. Hence, the ECJ
refused the UK court’s approach quite quickly stating that Article 25 (now 32)
EIR cannot be interpreted in such a way as to call into question the said exclusive
nature of the international jurisdiction of the courts of the Member State
within the territory of which the insolvency proceedings were opened to hear
actions which derive directly from those proceedings and which are closely
connected with them. According to the ECJ Article 25 EIR merely allows for the
possibility that the courts of a Member State within the territory of which
insolvency proceedings have been opened may also hear and determine an action
which derives directly from those proceedings and is closely connected with
them, whether that be the court which opened the insolvency proceedings under
Article 3(1), or another court of that same Member State having territorial and
substantive jurisdiction.