EU: Consequences of court orders securing the debtor`s assets in insolvency proceedings, rendered by German courts

In the scope of insolvency proceedings, based on the regulation (EC) no. 1364/2000 of 29th May 2000, the district court in Augsburg secured the assets of the debtor by a stay order, prohibiting any creditor to commence enforcement measures and suspending already initiated enforcement measures (except foreclosures into real estate). Insolvency proceedings had been opened over a company with its registered seat in Poland, but whose Center of Main Interest (COMI) was located in Germany, while the production site was located in Poland. Despite the aforementioned court order by the German insolvency court, Polish creditors attempted to collect their outstanding receivables by means of enforcement measures.

There is no doubt that the issuing of a stay order securing assets after initiation of insolvency proceedings, as well as the appointment of a preliminary insolvency administrator, must be recognized by act of law in accordance with article 25 of the regulation (EC) no. 1346/2000 as decision on the implementation of security measures, issued after an application to open insolvency proceedings has been submitted. The recognition by act of law refers not only to a general restraining order, but also to the appointment of a preliminary insolvency administrator, i.e. an administrator in terms of article 2 item b of the regulation (EC) no. 1346/2000.

Current practice however showed that the state authorities, which must recognize foreign court orders (in this case the Republic of Poland) did not fully appreciated the scope of legal consequences and the impact, which the opening of insolvency proceedings over the assets of a Polish company by a non-Polish court based on regulation (EC) no. 1346/2000 had. Admittedly courts, in front of which litigations over assets belonging to the insolvent estate were pending, usually were able to cope with the application of European Community Law in practice. They recognized decisions rendered by the German court without insisting on any additional formal requirements and the Polish civil procedure laws in their pending court proceedings in compliance with article 15 of the regulation (EC) no. 1346/2000. Also the locally competent Polish social security institution (ZUS) recognized the decisions of the German insolvency court after analyzing the proper regulations and abstained from commencing enforcement measures.
However the preliminary insolvency administrator received a surprising reaction by a bailiff, who had entered into enforcement proceedings against the insolvent debtor. The bailiff did not take note of the court stay order securing the debtor`s assets and continued conducting enforcement measures. Those measures had been opposed in court. While the opposition proceedings, lasting 2 month, were still pending, the German insolvency court opened final insolvency proceedings over the debtor`s assets.

Initially the bailiff refused to suspend his enforcement proceedings due to the opening of insolvency proceedings by the German insolvency court, alleging that he would need a court order by a Polish court. After a meeting with the representatives of the insolvency administrator, the bailiff decided to suspend his enforcement proceedings.

The creditor however, who had engaged the bailiff, filed opposition in court against the bailiff`s decision and the district court in Zielona Góra lifted the bailiff`s action and ordered the sequel of the enforcement measures. As reason for this, the court explained that the insolvent company would attempt to “abuse” cross-border insolvency proceeding in its favour!!!. Contemporary the court condemned the attempts to dispose over the debtors assets in the main insolvency proceedings undertaken by the appointed insolvency administrator.
Due to an objection by the insolvency administrator against this court decision, the decision was lifted; however not due to the alleged non-application of European Community Law, but due to the fact that in the meantime secondary insolvency proceedings were opened over the debtor`s assets by a Polish court. For this reason the final position of the court of appeal in Zielona Góra with respect to the recognition of insolvency proceedings as well as the assessment of legal consequences on the territory of the state, which is obliged to recognize foreign court decisions, is unknown.
Moreover, in conjunction with the lifting of the enforcement measures by the bailiff, the insolvency administrator in the main insolvency proceedings withdrew all objections against measures undertaken in this proceedings, since they had lost its legal effects by opening of secondary insolvency proceedings.

The aforementioned case shows the discrepancy in the practical preparation of governmental authorities and courts regarding the application of regulation (EC) no. 1346/2000. Only shortly before the ECJ had to rule on a similar case against german courts ignoring court orders from a Polish insolvency court (see ECJ, Ruling from 21.01.2010 - C-444/07), therefore one could say that the lack of procedural and material law has proven to be reciprocal.

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This release was published on openPR.