Vol 13 (2016) - Issue 4

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Case Note on the Decision of the European Court of Justice in Kornhaas v Dithmar, Dated 10 December 2015 – C 594/14

Facts
The claimant was a German insolvency administrator appointed over the assets of K. Limited. K. Limited was a UK registered company, which conducted its business activities only in Germany and also had a registered branch in Germany.
The claimant brought an action for the reimbursement of certain payments made by the managing director of K. Limited after it had become illiquid but prior to the filing for formal insolvency proceedings before the courts in Germany. He based the action on section 64(2)(1) (now section 64(1)) of the German limited liability company act (GmbHG). The provision states that the managing director (Geschäftsführer) of a German Limited Liability Company (GmbH) must reimburse the company in relation to payments that are made by him after the company had become insolvent (i.e. illiquid or over-indebted).
The action by the insolvency administrator was upheld by the Regional Court of Erfurt and the Higher Regional Court of Jena. It was then appealed to the German Federal Court of Justice (BGH) which was uncertain as to whether section 64(1) of the GmbHG could also be applied to the managing director of a UK company, which had its centre of main interest (COMI) in Germany. Further, it was unclear to the BGH, whether the provision was consistent with EU law, especially the freedom of establishment as codified in the Treaty on the Functioning of the European Union (TFEU).
The BGH therefore referred the two following questions to the European Court of Justice (ECJ):
– If an insolvency administrator brings an action before a German court against a director of a UK company, in respect of whose assets insolvency proceedings have been opened pursuant to article 3(1) of the European Insolvency Regulation (EIR), the purpose of the action being to seek reimbursement of payments which the director made before the opening of insolvency proceedings but after the company had become insolvent (meaning illiquid or over-indebted), is that an action within the meaning of article 4(1) of the European Insolvency Regulation (EIR)?
– Does the action infringe freedom of establishment under articles 49 and 54 of the TFEU?

The decision
The ECJ answered the first question in the affirmative. By way of an autonomous interpretation the court came to the conclusion that section 64(1) of the GmbH is an insolvency law provision within the meaning of article 4(1) of the EIR, which determines the law applicable to insolvency proceedings and their effects (lex fori concursus).