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Vorl�ufiger Insolvenzverwalter - EuInsVO Art. 1(1)

Does the appointment of a schwacher vorläufiger Insolvenzverwalter (a “weak” preliminary administrator) under German law normally entail the partial or total divestment of the debtor as set out in Article 1(1) of the European Insolvency Regulation?

I had understood from various German sources that it did not, and that therefore such an appointment would not normally constitute insolvency proceedings under the Regulation. Moreover, this is not an uncommon English view. In Hans Brochier Ltd vs Exner ([2006] EWHC 2594 (Ch)), Warren J found, although the point was not argued, that

"It is common ground [between the parties, one of whom is of course a German administrator] that under German law there is a preliminary appointment. . . . The German proceedings are therefore not open for the purposes of the Regulation”.

In the unreported decision of MG Rover Deutschland GmbH (in administration) (Chancery Division (Birmingham District Registry) 14 August 2006), coincidentally the day before the Brochier hearing, Norris HHJ held that the appointment of a preliminary administrator did not commence (in this case secondary) insolvency proceedings in Germany. Again, this was common ground between the parties, including the German administrator, but was not argued before the court. Allen & Overy’s commentary Duplicate officeholders - too many cooks spoil the broth? notes that the German court had held that the appointment opened preliminary secondary proceedings, a concept for which the Regulation does not provide.

The Eurofood ECJ decision addresses the question of opening of proceedings, but adds to the current debate by interpreting “divestment” (see below, emphasis added):

"52. As the Commission of the European Communities has argued, it is necessary, in order to ensure the effectiveness of the system established by the Regulation, that the recognition principle laid down in the first subparagraph of Article 16(1) of the Regulation, be capable of being applied as soon as possible in the course of the proceedings. The mechanism providing that only one main set of proceedings may be opened, producing its effects in all the Member States in which the Regulation applies, could be seriously disrupted if the courts of those States, hearing applications based on a debtor's insolvency at the same time, could claim concurrent jurisdiction over an extended period.

"53. It is in relation to that objective seeking to ensure the effectiveness of the system established by the Regulation that the concept of 'decision to open insolvency proceedings' must be interpreted.

"54. In those circumstances, a 'decision to open insolvency proceedings' for the purposes of the Regulation must be regarded as including not only a decision which is formally described as an opening decision by the legislation of the Member State of the court that handed it down, but also a decision handed down following an application, based on the debtor's insolvency, seeking the opening of proceedings referred to in Annex A to the Regulation, where that decision involves divestment of the debtor and the appointment of a liquidator referred to in Annex C to the Regulation. Such divestment involves the debtor losing the powers of management which he has over his assets. In such a case, the two characteristic consequences of insolvency proceedings, namely the appointment of a liquidator referred to in Annex C and the divestment of the debtor, have taken effect, and thus all the elements constituting the definition of such proceedings, given in Article 1(1) of the Regulation, are present.”

I have recently heard it suggested that since, when appointing a schwacher vorläufiger Insolvenzverwalter, the German insolvency court will routinely restrict the debtor’s powers to deal with its assets, giving such powers instead to the preliminary administrator, such an appointment will entail at least partial divestment of the assets.

It seems likely to me that the only viable approach to this issue is to consider the German court’s order in each case to ascertain whether there has been the partial or total divestment required by Article 1(1) for insolvency proceedings to have been opened for the purposes of the Regulation, but I would welcome opinions from those who know more about German insolvency law and practice than I do.

Can you answer the question?

Does the appointment of a schwacher vorläufiger Insolvenzverwalter under German law normally entail the partial or total divestment of the debtor as set out in Article 1(1) of the European Insolvency Regulation?

Or these supplementaries?

  • Is this a straightforward point depending on the order given by the insolvency court in each case?
  • If so, is there a normal scope for such orders, which stops short of divestment?
  • Or is it a question of interpretation - does Vermögensbeschlag have the same connotations as divestment?
  • And does the Eurofood decision’s clarification of divestment assist in answering the question? 

 

 

Date: 13th May, 2007
Author: Chris Laughton

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