Air Berlin Online Symposium: Assets relocation and avoidance actions in the interest of local creditors
This is the second post in the online symposium on the recent judgment of the CJEU in Air Berlin (see also here). It is authored by Antonio Leandro (University of Bari, Italy), who edited and contributed to the recent Elgar Commentary on the European Insolvency Regulation and Implementing Legislations. The first post was authored by Ilaria Queirolo and Stefano Dominelli.
As already noted in previous posts (see Cuniberti and Queirolo/Dominelli), the Air Berlin case addresses several issues of coordination between main and secondary insolvency proceedings.
Against the normative background of the European Insolvency Regulation (Recast) (‘EIR’), and the factual context in which the practitioner in the main proceedings (opened in Germany) obtained the removal of assets located in the State of the establishment (Spain) before the opening of secondary proceedings therein, the Court of Justice spells out, in particular, what the practitioners in the secondary proceedings may do in the interest of local creditors. For the sake of brevity, the insolvency practitioner appointed in the main proceedings and the one appointed in the secondary proceedings will be referred to respectively as ‘main insolvency practitioner’ and ‘secondary insolvency practitioner’.
It is worth remembering that the assets in question were the object of a freezing order granted by the Spanish courts before the opening of the Spanish secondary proceedings.
The Court echoes Article 21(2) of the EIR (on which see Cuniberti, Article 21, in Cuniberti, Leandro) when stressing that secondary insolvency practitioners may ‘bring any action to set aside which is in the interests of the creditors’. Additionally, the Court clarifies that such provision ‘has practical effect’ for ‘property […] removed from the territory of the Member State of the secondary insolvency proceedings before those proceedings were opened’ (emphasis added), while complaints concerning removals occurred after the opening fall under the first part of Article 21(2) (para 77). Furthermore, the Court recognizes that secondary insolvency practitioners may even bring such actions against main insolvency practitioners if they consider ‘that action to be in the interests of the creditors’ (para 84).
When depicting such ius standi, the Court also relies on Recital 46, which affirms that main insolvency practitioners ‘should not be able to realise or re-locate, in an abusive manner, assets situated in the Member State where an establishment is located, in particular, with the purpose of frustrating the possibility that such interests can be effectively satisfied if secondary insolvency proceedings are opened subsequently’. Recital 46 seems to put forward an avoidance uniform principle against specific abusive acts performed by the main insolvency practitioner.
This scenario seems to trigger uncertainty in practical terms, considering that Air Berlin emphasizes that the main insolvency practitioner is entitled to remove assets from the State of the establishment before the opening of secondary proceedings. In other words, the powers the CJEU recognizes to both the insolvency practitioners vis-à-vis situations occurred before the opening of the secondary proceedings seem to conflict with each other if one notes that the secondary insolvency practitioner may demand in the interest of local creditors to set aside assets acts that the main insolvency practitioner has previously performed to remove assets from the establishment.
However, the uncertainty fades after more closely noting that main insolvency practitioners are entitled to exercise powers, while secondary insolvency practitioners may bring actions that courts may well dismiss.
Moreover, Air Berlin stresses that, except for measures protecting secured rights and reservations of title under Arts 8 and 10, which can hamper the main insolvency practitioner’s powers, attachments merely preserving the claims of local creditors cannot prevent the main insolvency practitioner from realizing and relocating assets from the State of the establishment before the opening of secondary proceedings therein. Main insolvency practitioners may even act so after giving an undertaking pursuant to Article 36 to avoid the opening of the secondary proceedings; should the proceedings be concretely opened, they only must transfer to the secondary insolvency practitioner any assets removed or the proceeds realized after giving the undertaking, which implies that they have ‘the power to remove those assets’ (para 80). Admittedly, local creditors may avail themselves of specific remedies to ensure compliance by the main insolvency practitioner with the terms of the undertaking (see Requejo Isidro, Article 36, in Cuniberti, Leandro).
Ultimately, primauté and universality of the main proceedings with associated extraterritorial powers of the main insolvency practitioners override the protection of local creditors, who have no choice but to request as soon as possible the opening of secondary proceedings and seek protective measures after the request in order to be effectively satisfied if those proceedings are subsequently opened. If the measures were granted, the secondary insolvency practitioner would likely to rely on Recital 46 and submit avoidance actions against abusive contrary realisation or relocation conducted by the main insolvency practitioner.
It remains to figure out which courts have jurisdiction over the avoidance action brought by the secondary insolvency practitioner against the main insolvency practitioner. The Court was not requested to take position in this respect.
It is well known that Article 6 of the EIR, read in conjunction with Recital 35, confers vis attractiva to the courts in the main and secondary proceedings without substantial differences (Leandro, Article 6, in Cuniberti, Leandro). On the other hand, vis attractiva works in accordance with the territorial effects allocated to each proceeding under the modified universalism principle. And it is worth recollecting that both COMI’s and establishment’s courts have jurisdiction ‘to rule on the determination of the debtor’s assets falling within the scope of the effects of’ the proceedings they supervise (Comité d’entreprise de Nortel Networks SA and Others, para 46).
This means that the vis attractiva of the establishment’s courts covers actions, such as avoidance actions, which do meet the Gourdain requirements (actions must derive directly from the insolvency proceedings and be closely linked with them), but only vis-à-vis disputes concerning assets that are located in the State of that establishment at the time of the opening. In light of Air Berlin, this competence should also cover assets removed before the opening by the debtor, creditors or more generally by other people than the main insolvency practitioner.
Consequently, if secondary insolvency practitioners may take over avoidance actions against the main insolvency practitioner, as the Court of Justice maintains in Air Berlin, this hardly means that the COMI’s courts lose jurisdiction vis-à-vis assets that are located in the COMI’s State or in States other than that of the secondary proceedings at the time at which the action is brought, especially when the courts have determined that the assets belong to the main proceedings. Arguably, the secondary insolvency practitioners ought to act before the COMI’s courts, complain under the COMI’s insolvency rules (having regard to the effet utile of Recital 46), and, if needed, challenge the decision qualifying the assets as a part of the main insolvency proceeding’s estate.