Vol 7 (2010) - Issue 3

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The ECJ Judgement on German Court Competency Regarding an Action to Set a Transaction Aside by Virtue of Insolvency Brought Against a Company in Another Member State

In the case of insolvency proceedings under German law, the insolvency administrator is entitled to challenge transactions entered into prior to the filing for insolvency if such transaction adversely affects the creditors. An example of such an adverse transaction is the transfer of funds to a third party shortly before the filing for insolvency.
This, in fact, was the basis of an action brought by an insolvency administrator against a Belgian company, which received EUR 50,000 from a German company one day before the filing to open insolvency proceedings. The interesting question, however, was whether the insolvency administrator was entitled to file the claim for repayment of the EUR 50,000 against the Belgium company in a German court. This question was the subject of a judgment by the European Court of Justice dated 12 February 2009 (C-339/07), which was the basis of a judgment by the Germany Federal Supreme Court from 19 May 2009.

Facts of the case
A German limited liability company ('Company'), which operated more than 200 home improvement stores in Germany, began having financial difficulties so that relief payments from the Company's shareholders were necessary in order to avoid insolvency. However, after the financial difficulties worsened, the Company’s shareholders decided to stop further relief payments so that the Company's insolvency became unavoidable.
On 15 March 2002 the Company filed for insolvency. However, one day before the filing, the Company transferred EUR 50,000 to a company in Belgium. Once the insolvency administrator became aware of the payment transfer, he filed an action in Germany against the Belgian company for the repayment of the EUR 50,000.

Court decisions

Decisions of the German courts

The regional court (Landgericht) of Marburg, Germany, decided that the action was not admissible because the regional court does not have jurisdiction to hear the case.
The regional court stated that the Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters ('Commercial Matter Regulation') applies to the case because the matter to be decided constitutes a civil and commercial matter in the meaning of Art. 1 (1) of the Regulation No. 44/2001. Pursuant to Art. 2 of the Regulation No. 44/2001, the general rule states that persons domiciled in a Member State shall be sued in the courts of that Member State. Taking into account that the defendant in the case at hand was a company with its registered seat in Belgium, the court argued that the insolvency administrator should have sued the Belgian company in Belgium and not in Germany even though the insolvency proceedings were handled by the district court in Marburg, Germany.
The higher regional court (Oberlandesgericht) confirmed the opinion of the regional court, i.e. the court held that Art. 2 of Regulation No. 44/2001 applies, so that the regional court did not have jurisdiction to hear the case. In its judgment, the higher regional court commented on two crucial questions:
First, it discussed the meaning of Art. 1 (2) lit. b of Regulation No. 44/2001, which states that the Regulation does not apply to bankruptcy, proceedings related to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings. However, the court stated that even though Art. 1 (2) lit. b of Regulation No. 44/2001 states that Regulation No. 44/2001 does not apply to bankruptcy proceedings, this does not mean that Regulation 44/2001 does not apply to actions of the insolvency administrator to set a transaction aside by virtue of insolvency ('action for annulment').