The ECJ has issued a preliminary ruling on the use of Article 13 of Council Regulation (EC) No 1346/2000 on insolvency proceedings ("the Regulations") as a defence to clawback claims by an insolvency office holder.
In this case Sportland, a Finnish company, sold goods supplied by Nike European Operations Netherlands BV ("Nike"), a Dutch company, under a franchise contract governed by Dutch law. Sportland owed Nike approximately €200,000 and repaid their debts in ten instalments very shortly before insolvency proceedings were opened in Finland.
The Finnish officeholder of Sportland brought an action against Nike seeking to set aside the payments, based on Finnish insolvency law provisions regarding the recovery of assets.
Article 4 of the Regulations set out the provisions that governs insolvency proceedings, and in particular Article 4(2) states that the law of the state in which insolvency proceedings are opened governs 'the rules relating to voidness, voidability, or unenforceability of legal acts detrimental to all creditors.'
Article 13 of the Regulations relates to avoidance actions, and provides that Article 4(2) be disapplied if 'the person who benefited from an act detrimental to all the creditors provides proof that: (1) the said act is subject to the law of a Member State other than that of the State of the opening of proceedings, and (2) the law does not allow any means of challenging that act in the relevant case.'
Nike argued that the payments were governed by Dutch law, and under Article 13 sought to rely on Article 47 of the Dutch Bankruptcy Act, arguing that there was no means for the payments to be set aside. Article 47 requires a claimant seeking to set aside a pre-insolvency payment to prove that, when the recipient received the payment, he was aware that an application to commence insolvency proceedings had been lodged or was pending, or alternatively that there was an agreement between the creditor and the debtor in order to give credit the creditor priority over the other creditors.
The defence failed before the Finnish Court and Nike appealed. The Court of Appeal referred the matter to the ECJ for a preliminary ruling.
The ECJ ruled that where an officeholder brought an action to undo an avoidance action, the burden of proof is on the defendant when alleging that a local law defence applies under Article 13. The Court stated that the defence should take into account 'all of circumstances of the case' when putting forward an argument under Article 13 and it is for the defence to show that no other local law provisions or principles could allow for the act to be challenged. Where the defence relates to an act only being challenged in certain circumstances, it is for the Defendant to prove those circumstances do not exist.
The ECJ also ruled that Article 13 must be interpreted as meaning that the expression 'does not allow any means of challenging that act' applies, not just in relation to the insolvency laws of the member state governing that act, but also to general provisions and principles of the laws of that state.
The Court further ruled where the Defendant has first proven that the act cannot be challenged under relevant local law, the claimaint may rebut that defence and establish the existence of local law under which the act can be challenged.
This ruling provides useful clarification on the application of Article 13 as a defence to clawback proceedings.