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Forum Shopping under the EU Insolvency Regulation

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Abstract

Cross-border forum shopping for a different insolvency law regime has become popular within the European Union in recent years. Yet legislators, courts and legal scholarship react with suspicion when debtors cross the border only to benefit from a different insolvency law system. The most prominent legal tool, the European Insolvency Regulation, is based on the assumption that forum shopping has a negative impact on the functioning of the European Internal Market.This paper questions the hostile attitude towards the phenomenon of forum shopping. It is argued that forum shopping can have beneficial effects both for the company and for its creditors, and that strong safeguards for creditors who oppose the migration are in place. Furthermore, the validity of the COMI approach of the Regulation under the fundamental freedoms of the Treaty is questioned; it is suggested that the current regime needs to be amended. The proposed new system would enable more corporate mobility within the European Union and create more legal certainty for all constituencies at the same time.

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References

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  96. However, in 2006, the French legislator introduced a new chapter 11-style ‘procédure de sauvegarde’, putting more emphasis on creditors’ needs.

  97. However, the Enterprise Act 2002 has somewhat reduced their primary status. Cf., e. g., R. Stevens, ‘Security after the Enterprise Act’, in J. Getzler and J. Payne, eds., Company Charges: Spectrum and Beyond (Oxford, OUP 2006) p. 153.

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  102. DNick Holding plc, Annual Report 2005, p. 36.

  103. S. Taylor, according to I. Simensen, ‘Schefenacker Restructuring Holds up Mirror to Cross-Border Differences’, Financial Times (London 11 October 2007).

  104. Simensen, ibid.

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  106. Referring to the famous debate on ‘Does law matter?’. On this, see the contributions to the ‘Norms & Corporate Law’ Symposium, 149 University of Pennsylvania Law Review (2001) p. 1607 et seq.; e. g., J. Coffee, ‘Do Norms Matter? A Cross-Country Evaluation’, 149 University of Pennsylvania Law Review (2001) p. 2151.

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  112. The Regulation follows the same idea. Recital 2 reads as follows: ‘The proper functioning of the internal market requires that cross-border insolvency proceedings should operate efficiently and effectively’, and Recital 8 mentions the ‘aim of improving the efficiency and effectiveness of insolvency proceedings having cross-border effects.’

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  120. K. Ayotte and D. Skeel, Why Do Distressed Companies Choose Delaware? An Empirical Analysis of Venue Choice in Bankruptcy, University of Pennsylvania Law School Working Paper 20 (2003).

  121. L. Enriques and M. Gelter, ‘Regulatory Competition in European Company Law and Creditor Protection’, 7 EBOR (2006) p. 417, at p. 447 et seq.

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  124. Discussed above at section 3.1.2.1.

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  126. Eidenmüller, supra n. 116, p. 476.

  127. On this principle, see A. Ohly, Volenti Non Fit Iniuria — Die Einwilligung im Privatrecht (Tübingen, Mohr Siebeck 2002); R. Zimmermann, The Law of Obligations — Roman Foundations of the Civilian Tradition (Oxford, OUP 1990) at p. 450, 1013.

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  128. Cf., the statement of Mr Registrar Baister in Re TXU Europe German Finance BV, supra n. 73, at para. 19.

  129. This is governed by sections 190 et seq. and 228 et seq. of the German Umwandlungsgesetz.

  130. Emphasising the concrete nature of the danger to be demonstrated: Bundesgerichtshof, judgment of 24 April 2002, [2002] NJW 2168, 2169. In more detail, see S. Simon, ‘Gläubigerschutz im Umwandlungsrecht’, 2 Der Konzern (2004) p. 191, at p. 194 et seq.; M. Fischer, ‘Formwechsel zwischen GmbH und GmbH & Co. KG’, 50 Betriebs-Berater (1995) p. 2173, at p. 2175 et seq.; H. Kallmeyer, ‘Gläubigerschutz bei Umwandlung beteiligungsidentischer GmbH & Co. KG’, 91 GmbH-Rundschau (GmbHR) (2000) p. 541.

  131. Based on section 128 Handelsgesetzbuch (Commercial Code), see K. Hopt, ‘§ 128’, in K. Hopt and H. Merkt Baumbach/Hopt — HGB, 33rd edn. (Munich, CH Beck 2008) para. 28 et seq.

  132. See above at section 3.1.2.1.

  133. Critical on this provision, B. Grunewald, ‘Der Gläubigerschutz bei grenzüberschreitenden Verschmelzungen nach dem Entwurf eines zweiten Gesetzes zur Änderung des UmwG’, 5 Der Konzern (2007) p. 106; M. Passarge and M. Stark, ‘Gläubigerschutz bei grenzüberschreitenden Verschmelzungen nach dem Zweiten Gesetz zur Änderung des Umwandlungsgesetzesden, 98 GmbHR (2007) p. 803, at p. 804 et seq.

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  134. On creditor protection and SE migration, see Ringe, supra n. 55.

  135. Article 8 of the 1997 Proposal, supra n. 54.

  136. Under German law, the most obvious remedy would be section 826 BGB (intentional damage contrary to public policy).

  137. Re TXU Europe German Finance BV, supra n. 73, at 94 et seq.

  138. United Nations Commission on International Trade Law, Model Law on Cross-Border Insolvency of 30 May 1997. Reproduced in L. Sealy and D. Milman, Annotated Guide to Insolvency Legislation 2006/2007 Volume 2, 9th edn. (London, Sweet & Maxwell 2006) p. 54. A number of leading economies have already adopted it (e. g., USA, Japan, South Africa and Poland).

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  139. See, e. g., sections 13, 14, 21 and 22 of the Model Act.

  140. Based on section 14 Insolvency Act 2000.

  141. Andres and Grund, supra n. 28, p. 142.

  142. Admittedly, this solution has become more difficult with Eurofood, supra n. 34, and the ECJ emphasising the principle of mutual trust.

  143. On the possibility of ‘forum shopping in secondary proceedings’, see Moss and others, supra n. 50, at paras. 8.65 and 8.168.

  144. Moss and others, supra n. 50, at para. 8.59.

  145. On this, see the references in n. 580.

  146. P. Ulmer, ‘Gläubigerschutz bei Scheinauslandsgesellschaften — Zum Verhältnis zwischen gläubigerschützendem nationalem Gesellschafts-, Delikts- und Insolvenzrecht und der EG-Niederlassungsfreiheit’, 57 NJW (2004) p. 1201, at p. 1205. In a similar vein, Kindler, supra n. 63, at para. 43.

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  147. Armour, supra n. 1, at p. 402.

  148. Armour, supra n. 1, at p. 402, referring to D. Skeel, ‘Rethinking the Line between Corporate Law and Corporate Bankruptcy’, 72 Texas Law Review (1994) p. 471; D. Skeel, ‘Corporate Anatomy Lessons’, 113 Yale Law Journal (2004) p. 1519, at p. 1550 et seq.

  149. In a similar way Armour, supra n. 1, at p. 405.

  150. See, e. g., ECJ, Case C-9/02 Hughes de Lasteyrie du Saillant v. Ministère de l’Économie, des Finances et de l’Industrie [2004] ECR I-2409; ECJ, Case C-446/03 Marks & Spencer plc v. David Halsey (HM’s Inspector of Taxes) [2005] ECR I-10837.

  151. ECJ, Case 79/85 DHM Segers v. Bestuur van de Bedrijfsvereniging voor Bank- en Verzekeringswezen, Groothandel en Vrije Beroepen [1986] ECR 2375; ECJ, Case C-337/97 CPM Meeusen v. Hoofddirectie van de Informatie Beheer Groep [1999] ECR I-3289.

  152. ECJ, Case C-43/95 Data Delecta Aktiebolag and Ronny Forsberg v. MSL Dynamics Ltd [1996] ECR I-4661.

  153. See, most recently, AG Maduro in his Opinion in ECJ, Case C-210/06 Cartesio Oktató és Szolgáltató bt of 22 May 2008, para. 30. Exemplary of the freedom to provide services: ECJ, Case C-20/92 Anthony Hubbard v. Peter Hamburger [1993] ECR I-3777 para. 19 and summary part 3. From the literature, see G. Bitter, ‘Niederlassungsfreiheit für Kapitalgesellschaften in Europa: Gläubigerschutz in Gefahr?’, in A. Tietze and others, eds., Europäisches Privatrecht — Über die Verknüpfung von nationalem und Gemeinschaftsrecht, Jahrbuch Junger Zivilrechtswissenschaftler 2004 (Stuttgart, Boorberg 2005) p. 299, at p. 310 et seq.; H. Eidenmüller and G. Rehm, ‘Niederlassungsfreiheit versus Schutz des inländischen Rechtsverkehrs: Konturen des Europäischen Internationalen Gesellschaftsrechts’, 33 ZGR (2004) p. 159, at p. 166.

  154. On competence, see ECJ, Case C-376/98 Germany v. European Parliament and Council (Tobacco Advertising) [2000] ECR I-8419. On substance, see ECJ, Case 15/83 Denkavit Nederland BV v. Hoofdproduktschap voor Akkerbouwprodukten [1984] ECR 2171 para. 15; ECJ, Case C-51/93 Meyhui NV v. Schott Zwiesel Glaswerke AG [1994] ECR I-3879 para. 11; ECJ, Case C-114/96 Criminal Proceedings against Kieffer and Thill [1997] ECR I-3629 paras. 27 and 33; ECJ, Case C-284/95 Safety Hi-Tech Srl v. S. & T. Srl [1998] ECR I-4301 para. 63; ECJ, Case C-341/95 Gianni Bettati v. Safety Hi-Tech Srl [1998] ECR I-4355 para. 61; ECJ, Case C-169/99 Hans Schwarzkopf GmbH & Co KG v. Zentrale zur Bekämpfung unlauteren Wettbewerbs eV [2001] ECR I-5901 para. 37; P. Dyrberg, ‘Full Free Movement of Companies in the European Community at Last?’, 28 European Law Review (2003) p. 528, at p. 537 n. 30. For the specific case of the Insolvency Regulation, cf., Enriques and Gelter, supra n. 121, at p. 449; D. Haß and C. Herweg in D. Haß and others, eds., EU-Insolvenzverordnung (Munich, CH Beck 2005) Article 4, para. 14.

  155. ECJ, Case C-212/97 Centros Ltd v. Erhvervs- og Selskabsstyrelsen [1999] ECR I-1459; ECJ, Case C-208/00 Überseering BV v. Nordic Construction Company Baumanagement GmbH [2002] ECR I-9919; ECJ, Case C-167/01 Kamer van Koophandel en Fabrieken voor Amsterdam v. Inspire Art Ltd [2003] ECR I-10155.

  156. See only Roth, supra n. 1; D. Zimmer, ‘Case Note on Inspire Art’, 41 Common Market Law Review (2004) p. 1127; Rickford, supra n. 1.

  157. Inspire Art, supra n. 155, para. 133.

  158. ECJ, Joined Cases C-418/93 and others Semeraro Casa Uno Srl v. Sindaco del Comune di Erbusco [1996] ECR I-2975 para. 32.

  159. This is the gist of Inspire Art (supra n. 155).

  160. Eurofood, supra n. 34, at para. 35. The case is discussed in I. Fletcher, Insolvency in Private International Law — Supplement to Second Edition (Oxford, OUP 2007) para. 7.44.

  161. The ECJ has held mere procedural rules to be ‘uncertain and indirect’, cf., ECJ, Case C-412/97 ED Srl v. Italo Fenocchio [1999] ECR I-3845 para. 11. See A. Flessner, ‘Diskriminierung von grenzüberschreitenden Rechtsverhältnissen im europäischen Zivilprozess’, 14 Zeitschrift für Europäisches Privatrecht (2006) p. 737, at p. 739 et seq.; W.-G. Ringe, ‘Überseering im Verfahrensrecht — Zu den Auswirkungen der EuGH-Rechtsprechung zur Niederlassungsfreiheit von Gesellschaften auf das Internationale Zivilprozessrecht’, 27 IPRax (2007) p. 388, at p. 390. But see K. Lenaerts and others, Procedural Law of the European Union, 2nd edn. (London, Sweet & Maxwell 2006) para. 3-001, esp. n. 385; and ECJ Case C-43/95 Data Delecta Aktiebolag and Ronny Forsberg v. MSL Dynamics Ltd [1996] ECR I-4661.

  162. ECJ, Case C-379/92 Matteo Peralta [1994] ECR I-3453.

  163. Semeraro Casa Uno, supra n. 158.

  164. With an allusion to the famous ‘selling arrangements’ developed by ECJ, Case C-267/91 Keck and Mithouard [1993] ECR I-6097.

  165. Überseering, supra n. 155.

  166. Moss and others, supra n. 50, at para. 3.11. Cf., H Eidenmüller ‘Der Markt für internationale Konzerninsolvenzen: Zuständigkeitskonflikte unter der EuInsVO’, 57 NJW (2004) p. 3455, at p. 3456 et seq.; O. Sussman, ‘The Economics of the EU’s Corporate-Insolvency Law and the Quest for Harmonisation by Market Forces’, in X. Freixas and others, eds., Handbook of European Financial Markets and Institutions (Oxford, OUP 2008) ch. 8; Enriques and Gelter, supra 121, at p. 442 (‘is not entirely unlike real seat theory’); T. Bachner, Die Limited in der Insolvenz (Vienna, LexisNexis 2007) p. 28.

  167. Armour, supra n. 1, p. 406, referring to T. Tröger, ‘Choice of Jurisdiction in European Corporate Law — Perspectives of European Corporate Governance’, 6 EBOR (2005) p. 3.

  168. This is all the more true since insolvency law apparently even attracts companies from foreign countries; thus, it may well also deter them.

  169. This was Article 4(4) of the famous ‘Wet op de Formeel Buitenlandse Vennootschappen’ [Law on Formally Foreign Companies]. See Inspire Art, supra n. 155, paras. 25 and 60 et seq.

  170. Eidenmüller, supra n. 115, at p. 428.

  171. Eurofood, supra n. 34.

  172. Paulus, supra n. 113, at p. 2.

  173. Only take into account that the battle over Hans Brochier took place well after the ECJ had delivered the Eurofood judgment (see above at section 3.1.2.3). More examples at Paulus, supra n. 113, at p. 2.

  174. Kindler ‘Internationales Handels- und Gesellschaftsrecht’, in Rebmann and others, supra n. 63, para. 434.

  175. See above at section 6.1.1.

  176. Eidenmüller, supra n. 115, at p. 445 et seq.

  177. Paulus, supra n. 113, at p. 5.

  178. Examples at Eidenmüller, supra n. 115, at p. 435.

  179. See above at section 6.1.1.

  180. Compare the Opinion of AG Alber of 30 January 2003 in ECJ, Case C-167/01 [2003] ECR I-10159 paras. 102 and 106, and the judgment in Inspire Art, supra n. 155, paras. 105 and 143. See in more detail, Ringe, supra n. 55, at p. 197 et seq.

  181. AG Alber, supra n. 180, para. 117.

  182. Inspire Art, supra n. 155, paras. 105 and 143.

  183. ECJ, Case C-55/94 Reinhard Gebhard v. Consiglio dell’Ordine degli Avvocati e Procuratori di Milano [1995] ECR I-4165 para. 37.

  184. For this solution, a separate rule for natural persons would need to be introduced.

  185. See above at section 6.1.2.1.

  186. The Court has stated that normally it would consider a procedural rule too ‘uncertain and indirect’ to be regarded as liable to hinder trade between Member States. See Fenocchio, supra n. 161, para. 11.

  187. Due to the high number of English limited companies in Germany in the wake of the ECJ decisions, the discussion has turned to the (fruitless) debate on how to differentiate between insolvency and company law; see only W.-G. Ringe and C. Willemer, ‘Die “deutsche Limited” in der Insolvenz’, 17 EuZW (2006) p. 621.

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  188. Eidenmüller, supra n. 115, at p. 429 et seq.

  189. As explained, this does not apply to creditor protection measures.

  190. See above at section 3.2.

  191. Centros, supra n. 155, at para. 27.

  192. This is why, for instance, the proposal made by Moss and Paulus (supra n. 81) to amend the text of the Regulation in a way that would further impede forum shopping has to be strongly rejected.

  193. Amtsgericht Köln, judgment of 19 February 2008, reported in 11 NZI (2008) p. 257, at p. 260 [Translation by the author].

  194. Article 8 of the SE Regulation provides for the cross-border transfer of the registered office. On this, see Ringe, supra n. 55.

  195. Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies, OJ 2005 L 310/1.

  196. See above at section 5.2.2.

  197. In detail, see W.-G. Ringe, Die Sitzverlegung der Europäischen Aktiengesellschaft (Tübingen, Mohr Siebeck 2006) p. 103 et seq. An exception has to be made for the requirement that both head office and registered office have to be in the same Member State (Article 7 SE Regulation). Cf., Ringe, supra n. 55.

  198. See above at section 3.1.1.

  199. Weller, supra n. 45, p. 413.

  200. Eurofood, supra n. 34, para. 26 et seq.

  201. UNCITRAL’s Working Group V is currently debating the ‘Treatment of Enterprise Groups in Insolvency’, see http://www.uncitral.org/uncitral/en/commission/working_groups/5Insolvency.html (accessed 28 October 2008). On German proposals for an insolvency law for corporate groups, see H. Hirte, ‘Vorschläge für die Kodifikation eines Konzerninsolvenzrechts’, 29 ZIP (2008) p. 444. On the European dimension, see D. Adam and C. Poertzgen, ‘Überlegungen zum Europäischen Konzerninsolvenzrecht’, 11 ZInsO (2008) pp. 281 and 347; H. Hirte, ‘Towards a Framework for the Regulation of Corporate Groups’ Insolvencies’, 5 ECFR (2008) p. 213.

  202. Sussman, supra n. 166, at p. 238 et seq.

  203. Sussmann, supra n. 166, at p. 259.

  204. C. Engel, ‘Imposed Liberty and Its Limits. The EC Treaty As an Economic Constitution for the Member States’, in T. Einhorn, ed., Spontaneous Order, Organization and the Law. Roads to a European Civil Society — Liber Amicorum Ernst-Joachim Mestmäcker (The Hague, T.M.C. Asser Press 2003) p. 429.

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    Wolf-Georg Ringe MJur (Oxon) (Lecturer at the University of Oxford and Deputy Director of the Institute of European and Comparative Law, Fellow of Christ Church College)

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Ringe, WG. Forum Shopping under the EU Insolvency Regulation. Eur Bus Org Law Rev 9, 579–620 (2008). https://doi.org/10.1017/S156675290800579X

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