In the Schmid case the European Court of Justice ruled on the issue of jurisdiction of the Courts of a Member State of the EU where an insolvency procedure was commenced, whose receiver started a claw-back action against a defendant domiciled in a non-Member State

The Case

Mr. Schmid, the receiver appointed in an insolvency procedure commenced in Germany, brought before a German Court a claw-back action against an individual, domiciled in Switzerland, pleading for repayment of an amount of money to the insolvent company.

The action was initially rejected in the first and in the second instance, due to lack of jurisdiction of the German Courts; the receiver appealed before the Bundesgerichtshof, which submitted the issue to the European Court of Justice.

The Issues

The German Judges of the Bundesgerichtshof submitted to the Court of Justice the issue whether according to Section 3, first paragraph, of Regulation No. 1346/2000 (hereafter “Regulation”) “[…]the Courts of the Member State, where an insolvency procedure of a debtor was commenced, have jurisdiction over a defendant domiciled in a non- Member State with respect to a claw-back action based on insolvency”.

Section 3, first paragraph, of the Regulation provides that the Courts of a Member State are competent to commence an insolvency procedure when the COMI (Center of Main Interests) of the debtor is located in such Member State, while Section 4 provides that the insolvency procedure is governed by the law of the Member State where it has been commenced.

When the defendant from an action brought by the receiver is domiciled in another Member State, there is no doubt that the Courts of the Member State where the insolvency procedure was commenced are competent to hear the case.

This conclusion becomes uncertain, when the only cross-border element of the insolvency procedure is the domicile of the defendant in a non-Member State: in this case, in particular, it is uncertain whether the Courts of the Member State determined according to Section 3 of the regulation are always competent with respect to the entire insolvency procedure and to all actions arising therefrom (including, therefore, the claw-back action brought by the receiver), or instead the domestic law of another State should be applied in order to determine the Courts having jurisdiction.

The Decisione of the Court

The European Court of Justice ruled that, according to Section 3, first paragraph, of the Regulation, the Courts of the Member State where the insolvency procedure was commenced are competent with respect to a claw-back action brought by the receiver when the defendant is not domiciled in a Member State.

Commentary

Section 3 of the Regulation does not contain any limitation to Member States of the EU and, therefore, can apply to any cross-border situation, including also a defendant who is not domiciled in a Member State.

The ruling of the Court takes an important stand, for the following reasons:

  • the general principle of the so-called vis attractiva of the place of jurisdiction determined according to Section 3 of the Regulation is not only confirmed, but is widened in scope1;
  • a primary role is attached to the aim of determining competence in cross-border insolvency proceedings according to foreseeable criteria;
  • this aim is linked to the COMI test, which becomes the main criterium in order to determine competence in in insolvency procedures, not only for commencing the procedure, but also for all the actions and situations connected with the procedure arising at a later time.

However, the solution adopted by the Court may involve the risk that the decision – taken by the Court whose competence is determined according to Section 3 of the Regulation – cannot be subsequently enforced, when it needs to be first recognized in another State. The risk in particular is that the law of the State which is not part of the EU does not recognize the vis attractiva concursus according to the Regulation as a sufficient link to the Member State whose Courts took jurisdiction and issued the decision. In this case, the decision may non be granted an exequatur and could not therefore be enforced, being of no use to the receiver.

In the Schmid case, therefore, the Court of Justice chose in favour of certainty with respect to the place of jurisdiction rather than to actual enforceability of the decision.

A possible remedy to this inconvenience is to conclude bilateral conventions between single EU Member States and other States.

Another possible remedy in the specific case – i.e. when the receiver knows that seizable assets of the defendant are located in another State and there is a risk that the decision may not be recognized there – is to waive the effects of the vis attractiva concursus and bring the claw-back action before the Courts of the State where the defendant is domiciled.