Vol 4 (2007) - Issue 5

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Secondary Insolvency Proceedings in Germany over the Estate of a Dutch BV: Non-applicability of German Law Regarding Equitable Subordination

1. Factual overview

BenQ Mobile Holding BV (‘Debtor’) is BenQ Group’s holding company for the wireless telecommunications industry. Its purpose primarily concerned holding and managing approximately 20 largely wholly-owned subsidiaries in Europe and Latin America, and any strategic or investment decisions were made in that context. In addition, the Debtor was responsible for the European subsidiaries’ cash pooling. For this purpose, employees of BenQ Mobile GmbH & Co. OHG, a German sub-subsidiary of the Debtor, would occasionally perform tasks for the Debtor at the sub-subsidiary’s offices. Furthermore, a cash-pool account was kept for the Debtor in Germany.

The Debtor has its registered offices in the Netherlands. At the request of the Debtor’s managing director, on 27 December 2007 the Amsterdam court granted a temporary respite (‘surseance van betaling’), and appointed a temporary administrator.

On 29 December 2006, the Lower Court of Munich instituted preliminary insolvency proceedings (‘vorläufiges Insolvenzverfahren’) and appointed a preliminary insolvency administrator. The request for insolvency proceedings to be instituted in Germany was submitted by the German sub-subsidiary BenQ Mobile GmbH & Co. OHG, which itself was already undergoing preliminary insolvency proceedings at that time.
On 22 January 2007, the insolvency administrator of the German sub-subsidiary whose assets were subject to insolvency proceedings instituted on 1 January 2007 clarified the request of the German sub-subsidiary, noting that it sought the institution of main insolvency proceedings. Alternatively, it requested that secondary insolvency proceedings be instituted pursuant to Art. 3 para. 2, Art. 27 et seq. of European Council Regulation (EC) 1346/2000 on Insolvency Proceedings (‘European Insolvency Regulation’).

By order of 31 January 2007, the Amsterdam court revoked the preliminary respite and instituted insolvency proceedings with respect to the Debtor’s assets. On 5 February 2007, the Lower Court of Munich instituted secondary proceedings with respect to the Debtor’s assets situated in Germany. In the court’s view, main proceedings were out of the question because the Dutch proceedings, ‘surseance van betaling’, which were instituted as early as 27 December 2006, constituted the institution of main proceedings within the meaning of Art. 3 para. 1 of the European Insolvency Regulation and, as such, warranted recognition pursuant to Art. 16 para. 1 of the European Insolvency Regulation. Both the Debtor and the Debtor’s Dutch insolvency administrator appealed the Munich court’s decision to institute proceedings. The parties subsequently withdrew their appeals.

The case described above raises several interesting questions pertaining to international insolvency, company and private law. One question is if and to what extent, following the Eurofood/Parmalat ruling, preliminary proceedings (in Germany ‘vorläufiges Insolvenzverfahren’ and in the Netherlands ‘surseance van betaling’), could be regarded as insolvency proceedings instituted within the meaning of Arts. 3 and 16 of the European Insolvency Regulation.2 Another question arises with respect to the institution of the German secondary proceedings. It has been shown by way of an example that national courts of EU member states may be prepared, subject merely to minor conditions, to institute proceedings of that nature. A third issue is the determination in terms of conflict of laws made under German law regarding equitable subordination (Eigenkapitalersatzrecht), which makes an appearance here in another guise – i.e., that of secondary proceedings.