Vol 12 (2015) - Issue 5

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Challenging Detrimental Acts and European Insolvency Law

Each of the current European cross-border insolvency instruments contains provision for dealing with insolvency set-aside or anti-avoidance claims in a cross-border context.
Recently, two cases, which traverse similar territory, came up for decision before the European Court of Justice ('the ECJ') and the Court of Justice of the European Free Trade Association States ('the EFTA Court'). The cases provide some helpful guidance on the manner in which set-aside and anti-avoidance claims may be resisted by a defendant.
Lutz v Bäuerle Case C-557/13 concerned a request to the ECJ by the Bundesgerichtshof in Germany for a preliminary ruling concerning the interpretation of Articles 4(2)(m) and 13 of Council Regulation (EC) No 1346/2000 ('the EC Regulation').
LBI h.f. v Merrill Lynch International Ltd Case E-28/13 concerned a request to the EFTA Court by the Reykjavik District Court on the interpretation of Article 30 of Directive 2001/24/EC ('the Credit Institutions Directive').
Surprisingly, the ECJ did not refer to the earlier EFTA Court ruling in the course of its judgment. However, the conclusions in both cases are essentially the same on the extent to which a defendant can rely on the law which applies to the transaction or act in respect of which the defendant received a benefit in order to defeat an insolvency law claim made by a liquidator.

Lutz v Bäuerle
The facts in Lutz v Bäuerle were that a car supplier in Austria failed to deliver a car that Mr Lutz had paid for. An Austrian court issued a money judgment in Mr Lutz's favour against the Austrian company on 17 March 2008. On 20 May 2008 the Austrian court gave Mr Lutz permission to attach certain bank accounts held in the Austrian company's name at a bank in Austria. The notice of attachment was served on the Austrian bank on 23 May 2008. In the meantime on 13 April 2008 the Austrian company applied to a court in Germany to enter a German insolvency process. On
4 August 2008 the German court opened insolvency proceedings in respect of the Austrian company. An unusual feature of the case was that the German court opened insolvency proceedings in respect of a company which was registered in Austria and which did not appear to have its centre of main interests in Germany. However this fact was not commented upon the ECJ and the case proceeded upon the basis that insolvency proceedings in relation to the Austrian company had been properly opened in Germany.
On 17 March 2009 the Austrian bank paid Mr Lutz the amount secured by the attachment. On 23 October 2009 the German liquidator of the Austrian company served Mr Lutz with proceedings to recover the amount that he had been paid.
The general rule under the EC Regulation and the other European insolvency instruments is that the law of the place where the insolvency proceedings are opened (lex fori concursus) governs the opening, conduct and closure of those proceedings. However as recital 24 of the EC Regulation recognises the application of the lex fori concursus may interfere with the rules under which transactions are carried out in other Member States. Therefore 'to protect legitimate expectations and the certainty of transactions in Member States other than that in which proceedings are opened' the EC Regulation and other European insolvency instruments provide specific exceptions to this general rule.