Vol 14 (2017) - Issue 2

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Case Note on the Decision of the European Court of Justice in Senior Home, dated 26 October 2016 – C 195/15

Facts
French insolvency proceedings, as listed in Annex A of the European Insolvency Regulation (EIR), were opened over the assets of the debtor. The debtor is the owner of a property located in Germany. After the opening of insolvency proceedings the local tax authority applied for the compulsory sale of the property by public auction in order to recover arrears of real property tax, certifying that they were enforceable tax debts granting a public charge on the real property (öffentliche Last) according to sec. 12 of the German Property Tax Code (GrStG) in connection with sec. 77 para. 2 sentence 1 of the German Fiscal Code (AO).
The debtor objected to the compulsory enforcement on the grounds that according to French law, upon the initiation of insolvency proceedings, a general prohibition of enforcement exists. However, the competent German District Court ordered the compulsory enforcement. The competent German Regional Court further rejected the debtor’s appeal against this decision. The matter was appealed in the German Federal Court of Justice (BGH).
The BGH stayed the compulsory enforcement and referred the matter to the European Court of Justice (ECJ). In its reference to the ECJ the BGH states that in accordance with Article 4 of the EIR the insolvency proceedings opened over the debtor are governed by French law. French law essentially precludes the compulsory sale at issue. However, the BGH notes that according to Article 5(1) of the EIR the opening of insolvency proceedings does not affect the rights in rem of creditors or third parties in respect of assets belonging to a debtor which are situated within the territory of another Member State. Based on this, the BGH referred the following question to the ECJ:
‘Does the term 'right in rem' in Article 5(1) of the EIR include a national rule such as that contained in sec. 12 GrStG in connection with sec. 77 para. 2 sentence 1 AO pursuant to which real property tax debts grant by operation of law a public charge on real property, and the property owner must accept enforcement against the property in that respect?’

The decision
The ECJ comes to the conclusion that the disputed public charge on the real property, based on sec. 12 GrStG in connection with sec 77 para. 2 sentence 1 AO, constitutes a right in rem as per Article 5(1) of the EIR.
Preliminarily, the ECJ states that the basis, validity and extent of a right in rem must normally be determined according to the law of the place in which the asset concerned is situated (lex rei sitae).1 The question of whether public charge on the real property constitutes a right in rem is therefore governed first and foremost by national law, which is in this case German law.
If the public charge does constitute a right in rem in accordance with national law, the second step, according to the ECJ, would be to verify whether it satisfies the requirements set out within European Union law. While the term right in rem is not defined in the EIR the scope and eventual limits of this term can nevertheless be drawn from Article 5(2) and (3) of the EIR. These provisions explain, through a number of examples the type of rights described as right in rem, the scope and therefore the limits of the protection afforded by Article 5(1) of the EIR to the privileges, guarantees or other rights under the national law of the Member States of the creditors of an insolvent debtor.