Ferreira da Silva e Brito and Others v Estado português (C-160/14)
The European Court of Justice ("CJEU") has ruled on the meaning of "transfer of a business" under Directive 2001/23 ("the Directive"), which determines the transferees rights and obligations upon the transfer of an undertaking or business. The CJEU has considered the circumstances in which a referring Court is obliged to seek a preliminary ruling under Article 267 TFEU on the interpretation of EU law.
Air Atlantis ("AA"), a Portuguese company that operated charter flights, was wound up in 1993 and an employee, Mr Ferreira de Silva e Brito, and 96 others (together "the Applicants"), were dismissed as part of a collective redundancy. A few months later AA's main shareholder, TAP, began operating flights that AA had been contracted to provide and began operating charter flights on routes that AA had previously served. In providing these services, TAP used the assets of AA, including office equipment and four aeroplanes for which it assumed responsibility for the leasing contracts. Several former employees of AA were also recruited by TAP.
The Applicants brought a case before the Lisbon Labour Court in Portugal against the collective redundancy, seeking reinstatement of their employment by TAP. The Court upheld the action in part, finding that there was a transfer of business to TAP under the Directive. On appeal to the Lisbon Court of Appeal, the judgment was set aside on the basis that the action was time barred. On appeal to the Supreme Court of Justice, it was found that there was no transfer of business.
Having exhausted their options, the Applicants instead brought an action for non-contractual civil liability against the Portuguese State for compensation, on the basis that the decision of the Supreme Court was manifestly unlawful. Their arguments were twofold:
1) The Supreme Court incorrectly interpreted the concept of "transfer of business".
2) The Court failed to comply with its obligation to refer to the CJEU.
The Lisbon Court of First Instance referred three questions to the CJEU for a preliminary ruling, namely:
1) Whether the situation in which the Applicants found themselves fell within the meaning of "transfer of business" under the Directive.
2) Whether the Supreme Court was under an obligation to refer to the CJEU as there is no judicial remedy against its decisions.
3) Whether the Portuguese law requirement, that the decision that caused the loss must be set aside before a claim for damages can be made against the State, is contrary to EU law.
The reference was heard before the CJEU on 9 September 2015. In relation to the first question, the Court found that the concept of "transfer of a business" encompassed the situation at issue, taking into account all the facts in the overall assessment. The fact that tangible assets and equipment of AA had been transferred was a "key factor" in the decision, as the assets were "essential for pursuing the activity" previously carried on by AA. Other relevant factors included that staff, customers, and chartered flights on routes previously operated by AA were taken over by TAP. In relation to the second question, the Court found that there were conflicting decisions of the lower Courts and difficulties of interpretation in the various Member States, and therefore the Court was obliged to refer to the CJEU in the present case. The Court did, however, make clear that the fact that there have been contradictory decisions is not in itself a "conclusive factor in triggering the obligation". In answering the third question, the Court found that national law which precluded a claim for damages against the state unless the decision had been set aside is contrary to EU law, and cannot be justified by reference to the principles of res judicata or legal certainty.
Goldman Sachs & Others v Novo Banco  EWHC 2371 (Comm)
The English Commercial Court has considered the English Court's jurisdiction under the recast Brussels Regulation.
Novo Banco ("NB") was set up as a bridge bank by Bank of Portugal ("BoP") in August 2014 as a resolution measure under the Bank Recovery and Resolution Directive 2014/59/EU ("BRRD"), which establishes the framework for the recovery and resolution of credit investment firms.
BoP transferred assets and liabilities of Banco Espirito Santo ("BES") to NB with the exception of certain liabilities. One liability that was originally said to be transferred was a facility agreement for $835m borrowed for a special purpose vehicle, Oak, arranged by Goldman Sachs ("GS").
The facility contained a jurisdiction clause, providing that the agreement was governed by English Law and provided for the exclusive jurisdiction of the English Courts in accordance with Article 25 of the recast Brussels Regulation ("the Regulation").
After NB was set up in August 2014, NB and BoP informed GS that the liability had been transferred. In December 2014, just before the first instalment was due, BoP issued a 'ruling' that the facility fell within the liabilities that had not been transferred to NB. The first repayment was therefore not made and the loan was accelerated. Oak had assigned the facility to GS and other parties. GS issued proceedings in the English Commercial Court for its portion of the sums owed, jointly with claims from the other assignees ("the Claimants").
NB disputed the English Court's jurisdiction, arguing that:
1) The Regulation did not apply as GS was seeking to challenge the December ruling, which was an "administrative matter" rather than a "civil and commercial matter";
2) If the Regulation did apply, the Court had no jurisdiction as it was obliged to give effect to the December ruling and therefore NB were not party to the facility agreement;
3) Even if the Court did have jurisdiction, it should decline to exercise it as the claims were non-justiciable and/ or raised the act of state doctrine; or
4) The Court should impose a case management stay.
The Court ruled that:
1) The Regulation applied, as the December decision formed no part of the Claimants' claim and only provided factual background. It was clearly a "civil and commercial matter" within the meaning of the Regulation.
2) Even if the Regulation did not apply, the English Court had jurisdiction as NB had been served in England via its UK establishment.
3) The Claimants had a good arguable case and the better of the argument, in that the December ruling had not been an exercise of resolution power conferred by BRRD and did not have effect in English law. NB had agreed the jurisdiction clause for the purposes of the Regulation as the August decision replaced BES for NB as a party to the loan agreement.
4) The Court rejected the argument that the December ruling was a BRRD "reorganisation measure", and stated the December ruling had no formal status under BRRD and so even if NB's argument regarding the act of state doctrine and non-justiciability could be raised under the Regulation, the Court was not being asked to adjudicate on the validity of the December ruling.
5) The Court declined to exercise its power to stay proceedings, in that the scope for exercising such power in a case within the Regulation was extremely limited and would only be exercised in "rare and compelling" circumstances, which had not been made out in this case.
NB's application was therefore dismissed and represents a firm approach by the English Courts where parties seek to circumvent an exclusive jurisdiction clause.
European Commission has assessed the implementation of its recommendations on a new approach to business failure and insolvency
On 12 March 2014, the European Commission published its Recommendations on a new European approach to business failure and insolvency. The Recommendations, which do not have legislative authority, sought to encourage harmonisation across Member States, with a focus on implementing a preventative framework to allow debtors to restructure their businesses with a view to avoiding insolvency, and giving entrepreneurs a second chance. The Commission's review of the implementation of the Recommendations concluded that whilst a few member states have implemented changes, reform has been partial, and the Recommendations have not had the desired effect. Therefore, the Commission has confirmed an intention to introduce a legislative initiative on business insolvency as part of its Action Plan on Building a Capital Markets Union. We await further details of what this will entail.
Germany: Claw Back Regime
On 29 September 2015, the German government agreed a legislative draft in relation to limitation of the German claw back regime. The draft will be debated and eventually approved (with any suggested amendments) by the German parliament. The proposed Act clarifies that payments by a debtor after a creditor granted payment accommodations are no longer generally contestable, with a statutory presumption in favour of the creditor that it was not aware of the debtor’s illiquidity. The deadline for claw backs shall be shortened from 10 to 4 years prior to insolvency. It should be noted that these new limitations to the claw back regime will not apply to fraudulent transfers of assets or transactions in relation to insolvency crimes.
UK: Small Business, Enterprise and Employment Act ("SBEEA")
Further provisions of SBEEA have come into force on 1 October 2015. Administrators can now bring claims for Wrongful and Fraudulent Trading. Administrators and Liquidators will now be able to assign insolvency claims, e.g. claims for Wrongful Trading, Fraudulent Trading and Transactions at an Undervalue, to third parties. The Courts now have power to order directors who are disqualified for misconduct to compensate creditors who have suffered a loss as a result of the directors' misconduct. The limitation period of applying for disqualification of a director has also been extended from two years to three.