EIR Implementation

Unwirksamkeit insolvenzbedingter Lösungsklauseln  - Vorrang des lex fori concursus nach Art. 4 II 2 lit. e EuInsVO (German version)
Authors: Reinhard Damman (Clifford Chance, Paris) & Oda Lehmkuhl (Clifford Chance, Frankfurt)
Source: NJW 42/2012, 3069 (reproduced with the kind authorization of the authors).
Does Belgium call into question the Regulation 1346/2000?

The Belgian law and the Regulation

As you can read in the evaluation report[1] about the Belgian business continuity law, made by the Federation of Belgian Corporations (FEB) and launched with the presence of the then Minister of Justice, I concluded that "the law was essentially thought from a national perspective" and I referred to the loopholes contained in this law with regard to Regulation (EC) 1346/2000[2] saying that "the nature of the réorganisation judiciaire[3] par accord amiable procedure, which would not be covered by the Regulation, or the réorganisation judiciaire par accord collectif procedure that could also fall outside the scope of the Regulation, or the possible difficulty of requesting the appointment of a provisional liquidator and thus make the Belgian Court competent in order to face the race for the opening of the procedure”.
This conclusion, for which I sought the opinion of eminent professionals in the sector, could lead to make the Belgian firms unable to benefit from Regulation (EC) No 1346/2000, unlike all their European comparables. Specifically, a réorganisation judiciaire par accord amiable or a réorganisation judiciaire par accord collectif procedure opened in Belgium would not automatically be recognized in other European Union countries. This would cause that those States may apply their national procedures to Belgian companies, considering that its Centre Of Main Interests (COMI) is located in that country (creating a coexistence of insolvency procedures: one national and one European), or open insolvency procedures for the subsidiaries of these companies on foreign territory, or simply refuse any effect of the Belgian opening decision based on the Regulation.
Now a days we are in an age where, both small corporate groups and multinational groups, seek more and more to open réorganisation procedures concerning all the group’s companies in order to be effective against creditors, which they often share. This conclusion could only lead to the fact that it is necessary to establish as soon as possible a reparation law, and this is the opinion that will be supported through this article.

Belgium calls into question the Regulation’s Annex system

In a case that soon will be deliberated by the Court of Appeal of Liège (Belgium), the Director of Public Prosecutions has appealed a Commercial Court’s decision which established the opening of a réorganisation judiciaire par accord collectif procedure for a French company. This Court decided its competence because he considered that the COMI was in Belgium, thus the same country where its parent was located. In this ruling we can say that the Court applied well the principles of the Parmalat[4] decision.
The public prosecutor’s office posed in its appeal, as he will expose to the Court through its conclusions, several important issues that are essential to evaluate properly the law on réorganisation judiciaire procedure[5].
The first argument is that although Belgium (note that the public prosecutor’s office will never be seen by the European law as a dismembered institution of Belgium) has included the réorganisation judiciaire par accord collectif procedure in the Annexes to the Regulation, it is not possible that a Court may consider that this procedure is covered by the Regulation. Thus, according to the prosecutor’s office, this is not an "insolvency" procedure which entail a "divestment." Note also that the public prosecutor’s office has not used as an argument that this procedure will not lead to the appointment of a “liquidator".
Certainly, regarding to the text of the law on réorganisation judiciaire procedure, the opening decision of the réorganisation judiciaire par accord collectif procedure is not necessary and mandatory entailing a divestment. Neither entails an insolvency procedure (or another similar procedure as said by the ECJ in the case Gourdain[6]) nor necessarily appoints a liquidator within the meaning of a trustee in bankruptcy.

That company has placed its conclusions, as soon there will be the Court’s hearing, arguing that the terms "insolvency", "divestment" and “liquidator” from article 1 of the Regulation should not be interpreted under national law. Instead, as said in the ruling of case Parmalat, these are autonomous notions and must be interpreted independently and in relation to the objective pursued by the Regulation. They have also argued that when Mr. Virgos prepared his report[7], it was already known that it was impossible to establish a single definition of insolvency proceedings and of the concepts divestment or liquidator that could cover all the European Union’s countries. In some countries, insolvency proceedings begin with rather simple problems that do not lead by nature to a real insolvency situation, while in others, it’s required to be a real insolvency were assets are insufficient to meet current liabilities. In the same way, in other countries insolvency procedures can be conducted, particularly in cases of moderate difficulty, without the need for a real divestment and in others they just use partial divestments. Finally, in other countries the liquidator (appointed by the Court) may have a limited role.
Thus, there are three fundamental theories that will have to be dealt in the coming ruling: one based only on the Annexes, another focused on the nature of the proceeding and a last one combining both.
The first one maintains that, in order to consider that a proceeding falls within the scope of the Regulation, it needs to be listed in the Annexes and the judge will have to consider case by case that it fulfils the Regulation’s requirements. These requirements are that it has to be an insolvency procedure entailing a divestment and the appointment a provisional liquidator. It is also necessary that the judge could know the exact meaning of "insolvency", "divestment" and "provisional liquidator" within the sense of the Regulation, as it’s meant to be interpreted independently.
If the Court which has jurisdiction to address that matter does not request a preliminary ruling and gives judgement in favour of the public prosecution's office position, you might fear that from now on most of the Belgian réorganisation judiciaire par accord collectif procedures could not benefit from the Regulation.
The intervention of the Court of Appeal is expected and there is even the possibility of the intervention of the ECJ, whether at the Court of Appeal’s resort whether at the Court of Cassation’s. This case is not only vital to the concerned company but also for all those involved on the market.

The disagreement with ECJ’s ruling Parmalat about the COMI

In his second theory, the public prosecution’s office argues that it should be considered that the COMI of the company cannot be elsewhere than the place of its registered office, so that third parties can verify it in publications and on invoices. However, this case seems a joke: the registered office of the company was established in France in accordance with a registered office agreement, thus no business or industrial activity was developed there, nor had any employee on its payroll. All the management activities, whether from the board of directors or the middle managers, were held in Belgium. The creditors could easily verify this, indeed, many of them declared during the trial that they were aware of that because the only way to contact the company was through a Belgian phone number or via an e-mail with a Belgian domain. They also knew that the letters that where received at the location of the French registered office, systematically where sent to Belgium.

In addition, from all the company’s creditors a minority was located in France, while the production value that made it possible to achieve a turnover on French soil was reached outside France.

In fact, the parent company opened this limited liability company with only one partner with the sole purpose of obtaining an insurance for construction projects, which was mandatory in France. It would not have been possible to obtain it having a mere establishment in that country.
Despite all this, the Director of Public Prosecutions concluded that these facts were not enough to rebut the presumption thus that third parties should be able to verify the location of the company, which could only be done through the publication of the registered office.
In other words, according to the Director of Public Prosecutions, the criterion which has to been followed is the registered office because it is the only element that allows third parties to verify the effective location of a company.
However, this argument of the Director of Public Prosecutions is completely opposite to the case law doctrine, particularly in cases Daisytek[8] and Rover[9], in France, or more recently in the cases Emma or Pin group[10]. Accepting the position of Director of Public Prosecutions, would, this time definitely, put an end to the effects of the Regulation. By definition, foreign companies always have a published registered office, which can be verified by third parties. What the ECJ seems to mean in case Parmalat is that it is necessary that the Court has to verify in concreto the objective elements that could be known by a creditor on the basis of the facts of the case.

Thus the future ruling of the Court of Appeal, or eventually of the Court of Cassation or the ECJ, will be particularly interesting.

The issue of the provisional liquidator can also be clarified

There is also a third question that is crucial in this procedure which will soon have a response by the ruling of the Court of Appeal. The question is whether a third party requests the appointment of a provisional liquidator (administrador provisoire) based on Article 14 of the Belgian law, and for which it is specifically requested to have powers of administration (there is a divestment of the debtor), the decision admitting the petition may be considered the decision of the opening of the insolvency procedure within the meaning of the sentence Parmalat. And therefore, if this decision has as final effect the allocation of the competition on the Belgian Courts.

The public prosecution’s office replies that this designation is not directly provided by the Law on the réorganisation judiciaire procedure. Instead, the company says that as they invoked Article 14 of that law and it was the same Commercial Court that appointed the provisional liquidator who finally decided to open the réorganisation judiciaire procedure, this case is in the field of application of case law Parmalat. The Court of Appeal or the Court of Cassation will have to rule on that point.

The obligation of sincere cooperation of the Belgian State

The expected decision can still be used to clarify other interesting aspects.

In view of this case, there have been opinions that have stated that it is unacceptable that Belgium holds, through its Director of Public Prosecutions, that the Regulation is inapplicable while it was this same country (through its government authorities) who requested the addition of the réorganisation judiciaire par accord collectif procedure in the Annexes to the Regulation. They argue that anyhow, the Public Prosecutor’s office violates Belgian’s community obligations and that it has even caused a real legal uncertainty for the European citizens, who can no longer believe that a state seeks to ensure legal certainty regarding to ensure the free movement of insolvency judgments. This will be another issue that may be rendered by the ECJ, if the Court of Appeal considers necessary to ask for a preliminary ruling.

It could also be requested to the ECJ whether the national Court must apply an objection of inadmissibility against the argument of the Director of Public Prosecutions, because European judges must apply Community law by the latter prevail over national law.

The right to appeal of the Public Prosecutor’s office

The future ruling of the Court of Appeal may still have one last concern. The question arises whether the public prosecutor’s office may or may not file an appeal in the Belgian réorganisation judiciaire procedures since this is a matter that, as far we know, is not stated by the law. Thus it is possible that the appeal is considered inadmissible.


In any case, the decision of the Court of Appeal will be considered carefully. It could indeed revolutionize Belgian international insolvency law definitely because of the disqualification of the effects of EU Regulation and the rejection in cases of territorial insolvency: a Belgian ruling would never be recognized abroad and the foreign rulings would not be recognized in Belgium. Foreign creditors would be able to request the opening of proceedings against a Belgian company at the place of the COMI to a foreign Court and the company would not be able to defend itself from this situation. Moreover, the assets located in Belgium would be treated as establishments within the meaning of the Regulation and, if they were affected by a secondary procedure, they could only be winded up. As a final consequence, the Belgian assets located at Belgium, with an abundant workforce and represented by bank or financial debts could never lead to the cessation of activity.
As seen, the coming decision is fundamental for the international insolvency law.
Founding partner DBB, Lawyer and Insolvency Professional (Brussels)

[1] FEB INTERSENTIA ”La loi relative à la continuité des entreprises”, ANTHEMIS 2010, p. 248
[2] Council Regulation (CE) No 1346/2000 of may 29th on insolvency procedures
[3] A réorganisation judiciaire procedure could be translated to English as going into administration. There are 3 different types in Belgian law: par accord collectif, par accord amiable and par transfert sous autorité judiciaire.
[4] ECJ, Case C-341/04 from 2nd May 2006, Eurofood IFSC Ltd, according to the EJC’s site
[5] Loi relative a la continuité des entreprises from 31th January 2009, M.B. 09/02/2009.
[6] EJC, Case C-133/78 from 22nd February 1979, H. Gourdain c/ F. Nadler, p. 733, Vol. 1979, ECJ Case Law publication
[7] M. Virgós & E. Schmit, “Report on the Convention on Insolvency Proceedings” (Report no 75), 1996.
[8] Court of Appeal of Versailles, 24th Div., Case No 03/05038 of 14th September 2003.
[9] Commercial Court of Nanterre, Case SAS Rover France of 19th May 2005.
[10] AG Köln, Beschl.v.19.02.2008, 73 IE 1/08.
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