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Cross Border Restructuring and Insolvency Update - January 2015

H. vs. H.K. (Case C-295/13) 

The Court of Justice of the European Union (the "ECJ") has confirmed that the court in which insolvency proceedings have been opened will have jurisdiction over an actio pauliana, a civil law remedy for fraudulent conveyance, even if the defendant is domiciled in a non-EU member state.

G.T. GmbH, a company with its registered office in Germany ("the Company"), entered liquidation in Germany in November 2009 and Main Proceedings were opened. The subsequently appointed Liquidator issued proceedings against the former Managing Director (an actio pauliana) to recover the transfer of €165,000 to its subsidiary. The Liquidator contended the transfer occurred at a time when the Company was insolvent. The Managing Director, who was domiciled in Switzerland, contested the claim on the basis that the German Court did not have jurisdiction over the matter.

The Managing Director argued that the action should fall within the scope of the Lugano Convention, which deals with the recognition and enforcement of judgments in civil and commercial matters, rather than the Insolvency Regulation, which deals with claims which directly derive from insolvency proceedings. He argued that the actio pauliana could be brought outside of insolvency proceedings and therefore, as the Lugano Convention applied, the German Court did not have jurisdiction over the matter and the action should be brought before a Swiss Court.

As we reported in our bulletin regarding the Schmid case it was irrelevant that the Managing Director lived in Switzerland if the Insolvency Regulation applied.

The German Court stayed the proceedings and requested a preliminary ruling from the ECJ. The ECJ held that the actio pauliana falls within the scope of the Insolvency Regulation. The fact that the actio pauliana could be brought even if no insolvency proceedings were opened did not preclude the action being characterised as deriving from insolvency proceedings. In fact, the ECJ held that, as the Company had to be insolvent to commence the action, such an action "derogates from the common rules of civil and commercial law specifically because of the insolvency of the debtor company".

This is a useful reminder that the Lugano Convention and the Insolvency Regulation are mutually exclusive, and that claims deriving from insolvency proceedings fall within the jurisdiction of the Courts of the Member State where the Main Proceedings have been opened, regardless as to where the Defendant is domiciled.

Re: Doyle (Unreported 2014)

The High Court has confirmed that the time to determine COMI is presentation of the petition despite a gap of nearly two years before the bankruptcy order was made.

The Debtor, an Irish property developer, presented a bankruptcy petition in January 2012 in England with debts of €270 million, all of which were incurred in the Republic of Ireland.

Following the High Court Protocol that provides creditors with notice of forthcoming petitions where COMI may be in issue, two creditors opposed the making of a Bankruptcy Order. The creditors argued that Mr Doyle's Centre of Main Interest ("COMI") was not in England and Wales. Directions were set for the exchange of evidence and a trial listed in November 2014.

The Debtor provided extensive evidence of living in London since July 2011, including tenancy agreements, bills and bank statements, together with evidence of having been employed in UK since that date (which included his tax returns).

The creditors alleged that the purported shift of Mr Doyle's COMI was illusory rather than substantial, stating that the supporting evidence would be easy to obtain and create the illusion of a permanent presence. Despite the delay they argued that the relevant window to examine the Debtor's COMI was presentation of the petition. They argued that the Debtor had retained economic interests in Ireland while residing in England, including Irish partnerships and companies from which he derived income, pensions and litigation in Ireland.

The Court agreed that it was bound by Re Staubitz-Schreiber so that the time the court must determine the COMI is the time of presentation of the petition, although this does not mean historical facts are excluded as they may have led to the position as it is at the time for determination.

Despite it being clear that the Debtor had economic interests in Ireland at the time of the presentation of his petition, the Court concluded on the facts that his main interests were in England at the relevant time and accordingly made the bankruptcy order.

Short Stories

Irish still seeking insolvency in the UK

AJ Debt Solutions, an Irish Insolvency firm, says it is still processing a significant amount of Individual Voluntary Agreements ("IVA") in the UK for Irish citizens. This is despite the fact that three new debt resolution mechanisms were introduced into Irish law in 2013. It is thought that the complexity of the Irish process is the reason for such high figures, as whilst Debt Settlement Agreements ("DSA") are the most similar process to UK IVAs, under a DSA a court application is required and creditors have up to 70 days to vote compared to between 14 - 28 days in the UK. Figures suggest that Irish people are opting for bankruptcy over other forms of debt resolution, and calls for simplification of the alternative processes have been made.

Ebola Ravages Economies in West Africa

Across the most affected nations in West Africa, Sierra Leone, Guinea and Liberia, Ebola has significantly affected businesses throughout the countries: tourism, agriculture, road construction, arts and crafts, diesel sales, tax collections, as well as many other industries, are suffering, costing billions of dollars in lost business that could take years to recover. More than any loss of life or manpower, it is the efforts to check the disease that are proving far more costly to the economies. Shutting schools, quarantining whole districts, sealing borders, cancelling flights and banning public gatherings may have helped reduce transmission of the disease, but such measures have crippled trade.

Foreign banks retreat from crisis-hit Russia

Foreign banks are retreating from Russia, having significantly cut back their exposure to the country throughout 2014, as a result of the rouble crisis. Loan volumes for 2014 fell to just 14 per cent of the 2013 total, as western lenders withdraw from a perceived risky market. Foreign banks are expected to continue retreating next year, putting further pressure on Russia’s already fragile economy. "There will probably be a credit crunch," said Magdalena Stoklosa, an analyst at Morgan Stanley. "The appetite to lend has already decreased dramatically. For the banks it’s not just about credit quality, it’s also the earnings risk that comes from a fall-off in business."

 

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