State Immunity from Insolvency-based Avoidance Actions: What to Expect from the CJEU?
The author of this post is Antonio Leandro, Professor of Public and Private International Law at the University of Bari (Italy).
On 23 January 2025, the German Federal Court of Justice (Bundesgerichtshof) submitted a request for a preliminary ruling to the Court of Justice of the European Union concerning Article 6(1) of Regulation (EU) 2015/848 on insolvency proceedings (‘EIR’). The request has resulted in Case C-41/25, Orsay. The proceedings before the Court of Justice are currently pending.
Article 6(1) states that the
courts of the Member State within the territory of which insolvency proceedings have been opened in accordance with Article 3 shall have jurisdiction for any action which derives directly from the insolvency proceedings and is closely linked with them, such as avoidance actions.
The provision encapsulates the so-called vis attractive concursus of the courts that open and supervise the insolvency proceedings.
The Bundesgerichtshof asked whether the Article 6(1) of the EIR should be interpreted as meaning that
in view of the recognition of foreign insolvency proceedings, it contains an implied waiver by the Member States of the European Union of the principle of State immunity for actions in which the insolvency administrator, in accordance with the applicable insolvency law, claims that legal acts in relation to a Member State are voidable because they are to the detriment of the general body of creditors.
The Facts
The case revolves around avoidance proceedings brought in Germany by a German insolvency practitioner against the Treasury of the Republic of Poland in relation to VAT payments made by a debtor subject to insolvency proceedings in Germany (ECLI:DE:BGH:2025:160125BIXZR60.24.0).
The payments were made shortly after the request to open the German proceedings, but before the opening. Aware of the proceedings at the time of payment receipt, the Polish Treasury invoked its immunity from German jurisdiction. The lower courts sustained this defence and declined their jurisdiction. The case was then deferred to the Bundesgerichtshof.
While not disputing that tax impositions amount to acta iure imperii, the German Court argues that Member States might have impliedly waived their immunity within the EIR’s framework; otherwise, the effectiveness of the jurisdiction under Articles 3 and 6, the equal footing on which individuals and public authorities are put as ‘foreign creditors’ under Article 2(12), the efficiency of the proceedings within the EU judicial space made sure, among others, by the power to set aside and recover payments under avoidance rules of the lex concursus, would be seriously harmed.
State Immunity from Jurisdiction or …
The task for the CJEU is not easy, but not overly burdensome. It seems that the well-consolidated case law according to which the EU regime of jurisdiction applies to acts falling outside state sovereignty (acta iure gestionis) is not helpful. Neither may help the opposite principle crossing over public international law, EU law and domestic laws, according to which if the claim derives from acta iure imperii, and the dispute requires inquiring into State acts, immunity applies to bar jurisdiction, including that based on vis attractiva concursus.
The above is of little help because the action aims to recover payments and restore the pari passu relationship between other creditors and the foreign State receiving the tax payment. Undoubtedly, the debtor made such payments as required under its duty as a taxpayer, which abstractly rests on the subjection that taxpayers generally have vis-à-vis public powers. As a result, complaints about the effectiveness of tax payments, even for insolvency-law-based avoidance purposes, seem to require an assessment of the sovereign power to receive the payment.
Still, avoidance actions generally aim at challenging the act’s effectiveness without reviewing its validity. That is, the very actus iure imperii consisting in the power to levy taxes and collect revenues for governmental purposes, as well as the relationships between the State and the taxpayer, would not be evaluated.
Moreover, suppose the foreign State does not receive the tax payment. It would join the insolvency proceedings to get satisfaction, irrespective of its claim’s ranking. The EIR does not provide uniform privileged positions to public creditors lodging or otherwise being interested in foreign insolvency proceedings. Neither does it carve out the case of tax claims. On the contrary, as the Bundesgerichtshof rightly highlights, the EIR puts individuals and tax authorities on equal footing when defining ‘foreign creditors’ in Article 2(12) as owners of rights and interests that the EIR caters for through uniform rules or domestic laws (starting with the lex concursus).
One may argue that, if the State enforces such rights and interests, it would act as it does when ‘waiving’ immunity by bringing actions or counterclaims against private counterparts in adversarial proceedings. Put differently, immunity would only arise if the foreign State were the respondent in insolvency-related proceedings.
However, such comparisons make no sense, especially in relation to avoidance actions, and would result in a discrimination between public and private creditors that is inconsistent with the EIR’s regime. In fact, unlike private creditors or public bodies acting iure gestionis, tax authorities would be differently treated depending on whether they receive the payment before the opening of the insolvency proceedings in situations falling under avoidance rules of the lex concursus – by claiming immunity against the related avoidance action – or they lodge the outstanding payment in the proceedings – by seeking satisfaction as any other lodged creditors in compliance with the ranking set by the lex concursus.
… Immunity of Detrimental Acts from the lex concursus?
At closer inspection, the issue is not whether foreign States enjoy immunity from the jurisdiction under vis attractiva, but rather whether the States may claim that the payment received enjoys immunity from avoidance rules, notwithstanding that it is detrimental to the general body of creditors under the lex concursus.
Put differently, the issue boils down to determining under which law the ‘immunity’ of tax payments may be affirmed or negated. The answer flows from Article 16 of the EIR, as the Bundesgerichtshof seems to suggest in the final phrase of its decision. The provision preserves the legitimate expectations of those who had dealings with the debtor in Member States (and under laws) other than those in which the proceedings have subsequently been opened, to rely on the validity and effectiveness of the act according to its applicable law. In this case, the act at issue was a tax payment made under a foreign tax law with the foreign State as the receiver.
Consequently, if the foreign State demonstrates that the tax payment was and still is effective according to its applicable law, notwithstanding the subsequent opening of the insolvency proceedings against the taxpayer in another Member State, the payment will be immune from the avoidance action brought by the insolvency practitioner, without the need to indirectly achieve the same outcome by resorting to the doctrine of State immunity from the jurisdiction of insolvency courts.
Needless to say, the validity of this reasoning assumes that the ‘person’ whom Article 16 refers to also includes foreign States acting for sovereign purposes and that the ‘act’ detrimental to the general body of creditors also includes payments made under a foreign tax law. The ball now moves over to the Court of Justice.