Council Regulation (EC) No 1346/2000 concerns insolvency proceedings with debtors which operate cross-border in the EU.
Broadly, the law applicable to insolvency proceedings is the law of the member state in which the insolvency proceedings are opened. This includes rules relating to the voidness, voidability or unenforceability of legal acts which are detrimental to all creditors; article 4.
Article 13 of the regulation provides that article 4 shall not apply, if a person benefitting from an act challenged in the insolvency proceedings can prove that the act is:
- governed by the law of another jurisdiction; and
- under that law the relevant act could not be successfully challenged.
The parties in the case were a retailer of sporting goods based in Finland and its supplier located in the Netherlands. The Finnish company filed for bankruptcy and the insolvency administrator sued the supplier under Finnish law for the return of certain payments. Contracts were governed by Dutch law. The supplier argued, under Dutch law it would have been able to keep the payments. The Finnish court asked the ECJ about application of article 13 of the regulation.
The ECJ ruled that article 13 of the regulation is only applicable if after taking into account all the circumstances of the case, the act being challenged in the insolvency proceedings cannot be challenged on the basis of the law governing the act. In this case the supplier bore the initial burden of proof to show that under Dutch law the payments could not be successfully challenged. If the supplier established Dutch law gave it a defence to the Finnish officeholder’s claim then the Finnish Court could require that officeholder to prove why that defence should not be regarded as available to the supplier.
Article 13 of the regulation aims to protect the legitimate expectations of contracting parties by promoting the certainty of transactions in member states. Once a defence under a governing law is raised by a defending party it will be for the relevant officeholder to prove that defence is not available in the Court’s dealing with the insolvency proceedings.