Based on a referral by the German Federal Court of Justice (BGH) the ECJ held that provisions such as § 64 of the German Limited Liability Companies Act (GmbHG) which regulates the personal liability of German GmbH directors in cases of insolvency, can be regarded as an insolvency law rule by virtue of Art. 4 para. 1 European Insolvency Regulation. The provision can therefore be applicable to a UK limited company (having its centre of main interest in Germany) and its director respectively, in accordance with European law: according to Art. 4 para. 1 European Insolvency Regulation the insolvency law of the Member State in which the insolvency proceedings are opened shall apply to the insolvency proceedings and its effects, irrespective of the Member State in which the company is established and registered. The ECJ justifies this ruling by the fact that § 64 GmbHG has primarily the purpose to protect the insolvency estate on behalf of the insolvency creditors.
In the underlying case it was ruled that the director of the English limited company made payments which were forbidden payments to the disadvantage of the insolvency assets under German insolvency law following the occurrence of the inability to pay, for which he would be liable as the director of a German GmbH pursuant to § 64 GmbHG. The BGH argued that the German GmbH and the UK Limited were very similar company forms. With regard to forbidden payments under insolvency law this would justify the treatment of a UK limited director in the same way as a managing director of a German GmbH. In this case, the UK limited predominantly operated its business in Germany and hence the centre of the debtor’s main interests (COMI) was situated in Germany by virtue of Art. 3 para 1 European Insolvency Regulation. Since the insolvency proceedings over the assets of the English limited had also been opened in Germany, Art. 4 European Insolvency Regulation was applicable.
Furthermore, the ECJ held that such application of said German rule does not infringe European rights such as freedom of establishment (Art. 49 AEUV and Art. 54 AEUV) in such a scenario, since § 64 GmbHG would neither concern the foundation of a company nor its residence in another EU member state.
This ECJ ruling is reasonable and welcome as it renders some clarity on the treatment of foreign limited liability company directors in Germany with regard to liability resulting from forbidden payments to the disadvantage of the insolvency assets.