The qualification of a right as a 'right in rem' (zakelijk recht), within the meaning of Article 5 of Regulation No 1346/2000 of 29 May 2000 on insolvency proceedings (the "Regulation") must be determined according to the law of the place where the asset concerned is situated and the right in rem must satisfy certain criteria set out in Article 5(2) of the Regulation.

A French real estate company (the "Debtor") owned real property located in Wedemark, Germany. By a decision of 6 May 2013, the Debtor was put into court-supervised administration by a French court of first instance. On 15 May 2013, the Wedemark local authority applied for the compulsory sale of that property by public auction in order to recover arrears of real property tax, certifying that it was an enforceable tax debt. The court of first instance in Burgwedel ordered the compulsory sale of the real property on 21 May 2013. After dismissal of the appeal from the Debtor against that decision, the Debtor brought an action before the Bundesgerichtshof (German Federal Court of Justice (the "BGH")).

Article 4 of the Regulation provides as a general rule that the law of the Member State of the opening of insolvency proceedings shall determine the conditions of the proceedings, their conduct and closure. Article 5 of the Regulation is an exception to this general rule and stipulates that the opening of insolvency proceedings shall not affect the right in rem of a creditor or a third party over a debtor's assets which were located in the territory of another Member State at the time the proceedings were opened.

The BGH observed that under German law, debts due in respect of real property taxes are public charges on real property which are rights in rem and the owner of the encumbered real property must accept enforcement of the instrument recording those debts against that property. However, the BGH doubted whether Article 5(1) of the Regulation was to be interpreted as a conflict-of-laws rule under which German law should determine whether or not a right in rem exists or whether the notion of a 'right in rem' should be interpreted independently. The BGH decided to stay the proceedings and refer this question to the European Court of Justice (the "ECJ") for a preliminary ruling.

In essence, the question concerned the qualification of a right as a 'right in rem' within the meaning of Article 5 of the Regulation. According to ECJ case law, the basis, validity and extent of a right in rem must normally be determined according to the law of the place where the asset concerned is situated. Consequently, this exception to the general rule leads to application of the law of the Member State on whose territory the asset concerned is situated with regard to the right in rem. On this basis, the ECJ ruled that for the purposes of applying Article 5(1) of the Regulation, the issue of the qualification of the right concerned as a right in rem is to be examined having regard to national law.

The ECJ pointed out that although limbs (2) and (3) of Article 5 of the Regulation do not define the notion of right in rem, they do explain through certain (non-exhaustive) examples of rights which qualify as rights in rem the limits of the protection afforded by Article 5, i.e. that it (i) needs to be a charge that directly and immediately encumbers the asset and (ii) is an absolute right.

Finally, whilst acknowledging that an exception to a general rule must be interpreted strictly, the ECJ pointed out that neither the wording nor the objectives of the Regulation could lead to the conclusion that Article 5 of the Regulation does not cover rights in rem outside the context of a commercial transaction.

The ECJ clarified the interpretation of the notion of right in rem within the meaning of Article 5 of the Regulation. There is no independent interpretation of right in rem, but whether or not the right concerned qualifies as a right in rem should be determined according to the national law of the place where the asset concerned is situated and it needs to satisfy certain criteria set out in Article 5(2) of the Regulation.

For the Dutch legal practice this means that when insolvency proceedings are opened in another Member State, this has, in principle, no effect on a Dutch right in rem which (i) satisfies the criteria set out in Article 5(2) of the Regulation; and (ii) is vested on an asset located in the Netherlands at the time of opening of the insolvency proceedings. If the Dutch right in rem can be enforced under Dutch law, the debtor (most likely) must accept enforcement, even if the main insolvency proceedings explicitly precludes enforcement. The same applies to Dutch insolvency proceedings and a right in rem in another Member State.