ENEFI Energiahatékonysági Nyrt v Directia Generala Regionala a Finantelor Publice Brasov (DGRFP) [2016] All ER (D) 110 (Nov)

The Court of Justice of the European Union ("ECJ") has handed down a notable judgment in the case of ENEFI Energiahatékonysági Nyrt v Directia Generala Regionala a Finantelor Publice Brasov (DGRFP) [2016] All ER (D) 110 (Nov), ruling that domestic laws governing forfeiture of a claim in insolvency proceedings apply to foreign creditors too.

Background

ENEFI is a company based in Hungary and which entered into insolvency proceedings in December 2012. Main proceedings were therefore opened in Hungary, although ENEFI also had an establishment in Romania.

Shortly after commencement of the insolvency proceedings, the regional Director-General of Public Finances in Brasov, Romania, (the "DGRFP") was informed of ENEFI's insolvency and in January 2013 the DGRFP attempted to lodge two claims in the insolvency proceedings. However, the claims were not taken into account because the DGRFP had not paid the relevant fee or observed the applicable time limits.

Some months later, whilst ENEFI's insolvency proceedings were still underway, the DGRFP issued a tax notice for unpaid VAT. Crucially however it did not lodge the claim in relation to the tax notice in the ongoing insolvency proceedings. In August 2013 the DGRFP then attempted to enforce the tax notice.

ENEFI brought an action against enforcement of the tax notice, arguing that pursuant to Hungarian law any claims brought whilst ENEFI was engaged in insolvency proceedings that were not admitted as part of the insolvency proceedings, were forfeited. ENEFI applied Hungarian law to the DGRFP's Romanian claim on the basis of Article 4 of EC Regulation 1346/2000 on insolvency proceedings (the "Insolvency Regulation") which 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".

The question for the ECJ was therefore if a creditor has not taken part in the main insolvency proceedings, but then attempts to pursue a claim against the same debtor in another Member State, will the domestic law applicable to the main insolvency proceedings apply to forfeit the right to pursue the claim, and suspend the enforcement of the claim?

Decision

The ECJ agreed with ENEFI's argument and held that Article 4 of the Insolvency Regulation should be interpreted to bring within the scope any domestic provisions in the Member State in which proceedings were opened which dictate that creditors forfeit their right to pursue a claim.

In reaching this conclusion, the ECJ pointed out that Article 4 specifically provides that the domestic law of the main insolvency proceedings determines the treatment of claims, the lodging, verification and admission of claims, as well as effects and rights of creditors after the closure of proceedings. It would therefore render these provisions somewhat redundant if the effect of a creditor bringing a claim outside of the insolvency proceedings was not also determined by the same laws of that Member State.

Further, the ECJ noted that if domestic law did not apply in this way, creditors would be able to choose to submit their claims once insolvency proceedings have closed, which would lead to unequal treatment between creditors, and would also frustrate any attempts by debtor companies to restructure their liabilities.

Interestingly, the ECJ also noted that the fiscal nature of the claim being pursued had no bearing on the answer to the first question.

On a practical level, this is a useful reminder of the application of Article 4 and the need for all creditors to take appropriate advice on the lodging of claims when faced with an insolvency in another Member State.