CJEU Rules on Competition over Assets between Insolvency Practitioners in Main and Secondary Insolvency Proceedings and Creditors

On 18 April 2024, the CJEU delivered its judgment in Joint Cases C-765/22 and C-772/22, Air Berlin Luftverkehrs KG.

The case was concerned with the insolvency of German airline Air Berlin. Parallel insolvency proceedings were opened in Germany and in Spain and the insolvency practitioners appointed in each of these competed over the assets of the Spanish establishment of the debtor.

Background

Main insolvency proceedings were opened against Air Berlin in Germany in 2017. As Air Berlin had an establishment in Spain, Air Berlín Luftverkehrs KG, Sucursal en España, secondary proceedings were opened in Spain in 2020.

Spanish Employees

Employees of the Spanish establishment of the airline (the ‘Spanish employees’) were dismissed as a consequence of the opening of the main proceedings. They then challenged the dismissals in a Spanish labour court.

In 2018, the Spanish court ordered Air Berlin to pay various compensation to the Spanish employees, who filed a claim in the main insolvency proceedings in Germany. One of the employees also obtained a protective attachment over assets situated in Spain for the purpose of securing the payment of a € 250,000 claim made before the Spanish labour court.

Insolvency Practitioner in Main Proceedings

In 2019, the German insolvency practitioner sought to remove assets from Spain to Germany. For that purpose, he applied to a Spanish commercial court, which allowed the transfer of € 1 million on a fiduciary account. The Spanish court was not informed of the existence of the protective attachment, which covered part of those monies.

The Spanish employees challenged the validity of the removal in the Spanish commercial court, which eventually referred the matter to the CJEU.

Opening of Secondary Proceedings in Spain

In 2020, secondary insolvency proceedings were eventually opened in Spain.

The Spanish employees filed the same claims in the secondary proceedings.

The issue also arose as to whether the insolvency practitioner in the secondary proceedings could challenge the removal of the assets to Germany.

Ruling

The referring court asked four questions in two different cases which were joined and answered by the CJEU in the same judgment.

These questions had all in common that the Spanish insolvency practitioner (IP) tested the various options that he might have to get a hold over the assets which were removed from Spain to Germany.

Which Law Applied to the Treatment of the Claims of the Spanish Employees?

The only question asked in the first case (C-765/22) was how to determine the respective scopes of the law of the primary and secondary proceedings. The CJEU answers that that the law of the State of the opening of the secondary insolvency proceedings is to apply only to the treatment of claims arising after the opening of those proceedings, and not to the treatment of claims arising between the opening of the main insolvency proceedings and the opening of the secondary insolvency proceedings.

The result, it seems, was that Spanish law did not apply to the treatment of the claims, as they arose before the secondary proceeding were opened. The consequences of this proposition are unclear. Does it mean that the claims could not be filed in the secondary proceedings? That would contradict Article 45(1) of the Insolvency Regulation, which provides that “Any creditor may lodge its claim in the main insolvency proceedings and in any secondary insolvency proceedings.” Does it mean, then, that claims could be filed in the secondary proceedings under the law of the main proceedings? with a ranking under the law of the main proceedings? Is it possible that a court applies foreign insolvency law?

Are the Assets Removed from Spain still in Spain?

As readers will know, secondary proceedings are territorial insofar as they can only reach local assets. But in this case, assets initially situated in Spain had been removed to Germany by the insolvency practitioner in the main proceedings. The issue was thus whether these assets still fell within the scope of the secondary proceedings. The CJEU rules that they did not, and that only assets situated within the territory of the Member State of the establishment at the time of the opening of the secondary proceedings would fall within their scope.

Was the German IP Entitled to Remove the Assets from Spain?

The referring court also asked two questions with respect to the power of the insolvency practitioner in the main proceedings to remove the assets. First, it asked whether knowledge of the fact that there were local creditors with claims arising from employment contracts that had been recognised by local judgments limited the power of German IP to remove the assets from Spain.

The CJEU answers that, as long as no secondary proceedings were opened, the potentiality of such opening was irrelevant. The CJEU insists on the wording of Article 21(2), which limits the power of the IP in the secondary proceedings to seek the return of removed assets to assets removed after the opening of secondary proceedings.

A more interesting part of the same question was whether the German IP should have paid attention to the fact that the relevant assets (at least part of them) were covered by a protective attachment. The court barely elaborates on this point, but rules that this circumstance was irrelevant too. In other words, the Insolvency Regulation empowered the German IP to ignore a Spanish court order preventing the debtor from disposing of them. I do not know what the effect of a protective attachment is under Spanish law, but this conclusion seems quite remarkable. At the very least, it seems that the German IP should have sought the release of the funds in a Spanish court.

Could the Spanish IP Cancel the Removal of Assets from Spain by the German IP?

The last question asked to the CJEU was whether the (Spanish) insolvency practitioner in the secondary proceedings could challenge the validity of the act of the (German) insolvency practitioner in the main proceedings. In practical terms, it seems that the Spanish practitioner wanted to challenge the removal of the assets from Spain under the Spanish law of detrimental acts.

The CJEU answers that nothing in the Insolvency Regulation limits the power of insolvency practitioners in secondary proceedings. It would thus be possible for the Spanish practitioner to challenge the act of the German practitioner.

It is not immediately clear how this solution can be reconciled with the principle, that the CJEU also recalls in the judgment, that

“70. (….) the main insolvency proceedings have a dominant role in relation to the secondary insolvency proceedings (…). Regulation 2015/848 implements the objective of efficient and effective cross-border insolvency proceedings through the coordination of main and secondary insolvency proceedings, while observing the priority of the main insolvency proceedings”