1. 

Article 3(1) of Council Regulation (EC) No 1346/2000 ( 2 ) (‘the Regulation’) determines which courts have international jurisdiction to open insolvency proceedings. In the context of such proceedings, liquidators may bring ‘any action to set aside which is in the interests of the creditors’. ( 3 ) The issue in this case is whether the jurisdiction rule laid down by Article 3(1) applies where the defendant to an action to set aside a transaction is resident in a third country.

2.

The Regulation essentially provides for the allocation of jurisdiction and the determination of applicable law with regard to, and mutual recognition of, insolvency proceedings. The present case turns on the interpretation of the general rule on international jurisdiction. However, it is necessary as part of the analysis to consider the general scheme of the Regulation and the role of the liquidator.

3.

Recitals 2, 3 and 4 in the preamble to the Regulation explain that the proper functioning of the internal market requires that cross-border insolvency proceedings should operate efficiently and effectively and that it is necessary for the proper functioning of the internal market to avoid incentives for the parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position (forum shopping).

4.

Recital 8 states that in order to achieve those aims it is ‘necessary … that the provisions on jurisdiction, recognition and applicable law in this area should be contained in a Community law measure’.

5.

Recitals 12 to 14 state:

6.

Chapter I of the Regulation is entitled ‘General Provisions’. Under this chapter, Article 1 (‘Scope’), provides at paragraph 1:

‘This Regulation shall apply to collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator.’

7.

Article 2(a) defines ‘insolvency proceedings’ to mean ‘the collective proceedings’ listed in Annex A to the Regulation, a listing that covers specific types of proceedings in each Member State as defined by national law.

8.

Article 2(b) defines ‘liquidator’ to mean ‘any person or body whose function is to administer or liquidate assets of which the debtor has been divested or to supervise the administration of his affairs’.

9.

Article 3 of the Regulation is entitled ‘International jurisdiction’. It provides:

‘1.   The courts of the Member State within the territory of which the centre of a debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary.

2.   Where the centre of a debtor’s main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if he possesses an establishment within the territory of that other Member State. The effects of those proceedings shall be restricted to the assets of the debtor situated in the territory of the latter Member State.

3.   Where insolvency proceedings have been opened under paragraph 1, any proceedings opened subsequently under paragraph 2 shall be secondary proceedings. These latter proceedings must be winding-up proceedings.

…’

10.

Under Chapter II, entitled ‘Recognition of insolvency proceedings’, Article 16 (‘Principle’) provides at paragraph 1:

‘Any judgment opening insolvency proceedings handed down by a court of a Member State which has jurisdiction pursuant to Article 3 shall be recognised in all the other Member States from the time that it becomes effective in the State of the opening of proceedings. …’

11.

Article 17 (‘Effects of recognition’) provides at paragraph 1:

‘The judgment opening the proceedings referred to in Article 3(1) shall, with no further formalities, produce the same effects in any other Member State as under [the] law of the State of the opening of proceedings, unless this Regulation provides otherwise and as long as no proceedings referred to in Article 3(2) are opened in that other Member State.’

12.

Article 18 (‘Powers of the liquidator’) provides inter alia:

‘1.   The liquidator appointed by a court which has jurisdiction pursuant to Article 3(1) may exercise all the powers conferred on him by the law of the State of the opening of proceedings in another Member State …

2.   The liquidator … may also bring any action to set aside which is in the interests of the creditors.

3.   In exercising his powers, the liquidator shall comply with the law of the Member State within the territory of which he intends to take action, in particular with regard to procedures for the realisation of assets. Those powers may not include coercive measures or the right to rule on legal proceedings or disputes.’

13.

Article 25 of the Regulation (‘Recognition and enforceability of other judgments’) provides at paragraph 1:

‘Judgments handed down by a court whose judgment concerning the opening of proceedings is recognised in accordance with Article 16 and which concern the course and closure of insolvency proceedings, and compositions approved by that court shall also be recognised with no further formalities. …

The first subparagraph shall also apply to judgments deriving directly from the insolvency proceedings and which are closely linked with them, even if they were handed down by another court.

…’

14.

Article 44(1) states that for matters falling within its scope the Regulation replaces previous bilateral conventions between two or more Member States. Article 44(3)(a) provides, however, that the Regulation shall not apply ‘to the extent that it is irreconcilable with the obligations arising in relation to bankruptcy from a convention concluded by the State with one or more third countries before the entry into force of this Regulation’.

15.

Mr Ralph Schmid is the liquidator in insolvency proceedings initiated on 4 May 2007 against Ms Aletta Zimmermann. Within those proceedings, he brought an action against Ms Lilly Hertel to set aside a transaction concluded between her and Ms Zimmermann. Ms Hertel, who is Ms Zimmermann’s stepmother, resides in Switzerland. It appears that there was no other international element to the proceedings (in particular, there was no element involving an EU Member State other than Germany). By the action, the liquidator seeks to recover, as part of Ms Zimmermann’s estate, EUR 8 015.08 plus interest.

16.

The action was dismissed as inadmissible by the lower courts, on the ground that the German courts did not have international jurisdiction. Mr Schmid appealed to the Bundesgerichtshof (Federal Court of Justice) (‘the referring court’) on a point of law (Revision) against that decision.

17.

Concluding that the outcome of the dispute depends upon the interpretation of Article 3(1) of the Regulation, the ninth civil chamber of the Bundesgerichtshof decided to stay the proceedings and request a preliminary ruling on the following question:

‘Do the courts of the Member State within the territory of which insolvency proceedings regarding the debtor’s assets have been opened have jurisdiction to decide an action to set a transaction aside by virtue of insolvency that is brought against a person whose place of residence or registered office is not within the territory of a Member State?’

18.

Written observations were submitted by Mr Schmid and the Commission. At the hearing on 10 April 2013, the German Government and the Commission presented oral argument.

19.

Mr Schmid submits that Article 3(1) of the Regulation must be interpreted as allocating jurisdiction to decide the action to the courts of the Member State in which proceedings have been opened. The only test for jurisdiction laid down by Article 3(1) is the location of the centre of the debtor’s main interests. To add a further condition, namely that there must be an element involving two or more Member States, would introduce legal uncertainty at the outset of proceedings. Interpreting Article 3(1) in the manner suggested satisfies the principle of unity of proceedings. It also enhances the proper functioning of the single market by averting the possible transfer of assets outside the European Union in order to gain advantage (forum shopping); and by facilitating the liquidator’s ability to challenge and annul the transfer of the debtor’s assets outside the European Union.

20.

The Commission agrees. Article 3(1) allocates international jurisdiction to the courts in the Member State in which the centre of the debtor’s main interests is situated. There is no additional condition as regards jurisdiction over actions that are closely linked to the insolvency proceedings: there does not need to be an element involving another Member State. A distinction can and should be drawn between the rules governing international jurisdiction and those concerning the recognition and enforcement of decisions. EU law cannot oblige third countries to recognise and enforce decisions made by EU courts in insolvency matters.

21.

The German Government submits that EU law can have effects for third countries only through bilateral or multilateral conventions. The European Union has no such agreement as regards insolvency proceedings with Switzerland, where Ms Hertel is resident. Moreover, the aims of the Regulation do not support extending the rule on international jurisdiction to ancillary proceedings to set aside a prior transaction involving a defendant located in a third country. The Regulation aims to ensure that insolvency proceedings function efficiently and effectively in the internal market, in which third countries do not participate. It does not deal with jurisdiction in an isolated manner; rather, the rules on jurisdiction are part of a general framework for efficient and effective insolvency proceedings. Since the rules on recognition and enforcement cannot be applied to third countries, it would be ineffective to interpret Article 3(1) as giving a court international jurisdiction vis-à-vis third countries. It would also expose such defendants, who are already the weaker party, to insolvency and procedural law with which they are unfamiliar, thus further weakening their position.

22.

The Regulation aims to improve the efficiency and effectiveness of insolvency proceedings having cross-border effects. ( 4 ) For that purpose, the Regulation lays down rules on jurisdiction common to all Member States; rules to facilitate recognition of judgments; and rules regarding the applicable law. ( 5 ) Those rules are based on the principles of unity and universality, ( 6 ) modified to permit limited secondary proceedings. Thus, the Regulation provides for a single set of main proceedings in one Member State to embrace the entirety of the debtor’s estate wherever the assets are located, subject to a limited possibility of opening secondary proceedings in a second Member State. ( 7 )

23.

The jurisdiction rule in Article 3(1) has been labelled the ‘cornerstone’ of the system established by the Regulation. ( 8 ) It provides that the courts of the Member State in which the centre of the debtor’s main interests is located have jurisdiction to open insolvency proceedings. Thus, under the Regulation, the centre of the debtor’s main interests plays the pivotal role in determining jurisdiction. ( 9 )

24.

The referring court asks whether the courts of the Member State within whose territory insolvency proceedings regarding the debtor’s assets have already been opened have jurisdiction to set aside a transaction against a defendant who is resident in a third country. Before answering that question, however, it is necessary to determine whether, in circumstances in which the only international element in the insolvency is between a Member State and a third country (rather than between two or more Member States), the courts of the Member State in which the centre of the debtor’s main interests is situated have jurisdiction over the insolvency proceedings by virtue of Article 3(1) of the Regulation, or as a result of that Member State’s national insolvency law and private international law. (In the latter event, whatever international jurisdiction those courts then enjoyed would be determined by any bilateral insolvency conventions that existed between that Member State and third countries.) Put a different way: does the Regulation apply to such proceedings at all?

25.

In my view it does. Article 1(1) of the Regulation states that the Regulation applies to ‘collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator’. Neither Article 1(1) nor Annex A appears to limit the application of the Regulation to proceedings that involve a cross-border element.

26.

The Regulation is a directly applicable measure. Upon its entry into force, it replaced any national law and bilateral conventions ( 10 ) to which the Member States were parties that determined international jurisdiction as regards insolvency proceedings, subject only to Article 44(3). ( 11 ) Where the centre of a debtor’s main interests is within the European Union, Article 3(1) (and not national law) therefore applies to determine which Member State’s courts have jurisdiction to open proceedings.

27.

As the German Government submits, the basis for the European Union’s legislative action in promulgating the Regulation is the need to ensure the proper function of the internal market (see recitals 2, 3, 4 and 8). However, it does not follow that it is necessary to show that there is a cross-border element in any particular insolvency proceedings for the Regulation to apply. To interpret the Regulation as applying only in circumstances where there is a cross-border element involving at least two EU Member States would lead to significant uncertainty and would frustrate the effectiveness and efficiency of proceedings.

28.

For the Regulation to apply, the insolvency proceedings themselves must self-evidently involve a debtor who has the centre of his main interests within a Member State (see recital 14). If they do not, there will be no question of the Regulation applying. The Regulation ‘enables the main insolvency proceedings to be opened in the Member State where the debtor has the centre of his main interests’ and specifies that ‘these proceedings have universal scope and aim at encompassing all the debtor’s assets’. ( 12 ) As I understand it, that statement reflects the principles of unity and universality. I take the view that those are desirable principles to apply in any insolvency procedure.

29.

Now, the determination of which court has jurisdiction must be made at the earliest possible stage, so that action may be taken to preserve the debtor’s estate for his creditors, thus ensuring the effectiveness and efficiency of proceedings. ( 13 ) Indeed, the Court held in Staubitz-Schreiber ( 14 ) that, for the purposes of determining which court has jurisdiction to open insolvency proceedings, the centre of the debtor’s main interests should be determined at the time that the request to open insolvency proceedings was made, rather than at the date the proceedings were actually opened. At that early stage, the existence of any cross-border element may be unknown. However, determination of the competent court cannot be postponed until such time as the locations of various aspects of the proceedings (such as the residence of potential defendants to ancillary actions or the location of each of the debtor’s assets) in addition to the centre of the debtor’s interests are known. To wait for complete knowledge would frustrate the objectives of efficiency and effectiveness of insolvency proceedings that the Regulation seeks to achieve and lead to legal uncertainty.

30.

Article 3(1) of the Regulation itself states unequivocally that ‘[t]he courts of the Member State within the territory of which the centre of a debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings’. ( 15 ) Any other element is irrelevant to the determination of the competent court. Thus, the location of the debtor’s assets is irrelevant, except insofar as it may be a factor to be taken into account in determining where the centre of the debtor’s main interests is and/or whether secondary proceedings need to be opened under Article 3(2). The place of residence of any potential defendant to an action which may (if necessary) subsequently be brought within those proceedings by the liquidator to set a transaction aside and recover additional assets for the benefit of the creditors is likewise irrelevant to the question of which is the competent court to open proceedings. Such an action comes within the jurisdiction of the court that has (already) opened such proceedings because it is an action that derives directly from such proceedings and is closely connected to them. ( 16 ) At that stage, the insolvency proceedings are already in train. The action to set aside is chronologically subsequent to the opening of the insolvency proceedings before the competent court. It follows that the location of the defendant to such an action cannot have any impact on the determination of which court has jurisdiction to open the insolvency proceedings in the first place.

31.

Accordingly, I am of the opinion that it is unnecessary to demonstrate a cross-border element involving two or more Member States in order for the Regulation to apply. Provided only that the centre of the debtor’s main interests is within the European Union, ( 17 ) Article 3(1) of the Regulation, which is directly applicable in all Member States, determines which is the competent court.

32.

Does the competent court also have jurisdiction over an action brought by the liquidator to set a transaction aside where the defendant to that action is domiciled not in another Member State, but in a third country?

33.

The German Government submits that the Regulation does not apply to allocate jurisdiction in respect of such an action. The potential defendant (and, very possibly, the assets in question) are located outwith the European Union. It would place the defendant in a weak position to have to defend the action in what is to him a foreign jurisdiction. Moreover, whereas the Regulation expressly provides for recognition and enforcement of judgments of the competent court in respect of transactions involving another EU Member State, ( 18 ) the courts of a third country are under no obligation to recognise or enforce any ruling that a competent court within the European Union may make.

34.

I am not persuaded by those arguments. In my view, the competent court under Article 3(1) of the Regulation has jurisdiction to decide an action brought by the liquidator to set aside a transaction involving a defendant who is domiciled in a third country.

35.

First, the principles of unity and universality plainly favour such an approach. Insolvency proceedings are collective proceedings, and the court where the centre of the debtor’s main interests is situated will (by definition) be dealing with the bulk of the debtor’s affairs (were it otherwise, the words ‘centre of main interests’ would be meaningless). ( 19 ) If that court – whose competence to deal with the insolvency should be relatively easy to predict ( 20 ) – is to oversee an accurate assessment of the debtor’s worth and an appropriate arrangement with his creditors, it must be empowered to determine an action initiated by the liquidator to set aside an earlier transaction between the debtor and a third party, whose object is to bring the subject-matter or proceeds of that transaction into the debtor’s estate for the benefit of the creditors.

36.

Second, I do not think that the fact that the provisions of the Regulation concerning recognition and enforcement of decisions cannot bind third countries precludes the application of the jurisdiction rule. It is both important and helpful to draw a distinction between jurisdiction, on the one hand, and recognition and enforcement, on the other hand.

37.

So far as jurisdiction is concerned, the Regulation determines this by reference only to the place where the centre of the debtor’s main interests is situated. The Court has already held in relation to a purely intra-EU insolvency that that court should have jurisdiction not only in respect of the main insolvency procedure but also in respect of any ancillary proceedings. ( 21 )

38.

So far as recognition and enforcement are concerned, I note first that those provisions can be read separately from the provision on the allocation of jurisdiction. Second, even absent the possibility to rely on the Regulation itself for recognition and enforcement, a determination by the competent court is not necessarily wholly without effect. It may be possible (albeit not, it appears, in the present case) to obtain recognition and enforcement of that determination under a bilateral convention.

39.

It is true that the liquidator, should he obtain a judgment that a particular prior transaction involving a third party should be undone, will have to seek recognition and enforcement of that judgment in the State where that third party is domiciled (and/or where the assets involved in that transaction are situated). From his perspective, that will usually, nevertheless, be a more efficient and less costly process than commencing completely separate proceedings in that jurisdiction (and a less costly process preserves more of the debtor’s estate for the benefit of the creditors). At best, the judgment that the liquidator has already obtained will be recognised and enforced; at worst, he will have to return to the competent court in the EU Member State and ask for a downwards adjustment of the assessment of the debtor’s assets before proceeding to the final composition with the creditors.

40.

From the perspective of the third party, the absence of automatic recognition and enforcement provides a degree of additional protection. It may well be that such a third party, when served with notice of the liquidator’s claim, will choose to enter an appearance and defend the proceedings before the court of the centre of the debtor’s main interests. If, for whatever reason, he has been unable or unwilling to do so, he will have stronger grounds for asking his local court not to recognise and enforce the judgment against him automatically, but to examine the claim on its merits.

41.

Third, it is noteworthy that in Owusu, ( 22 ) which involved the interpretation of the jurisdiction rule in Article 2 of the Brussels Convention ( 23 ) (providing that ‘persons domiciled in a Contracting State shall … be sued in the courts of that State’), the Grand Chamber held that that provision also applied in circumstances involving relationships between the courts of a single Contracting State and those of a non-Contracting State. ( 24 ) In that case, one of the defendants was domiciled in the United Kingdom, but several other defendants were domiciled in Jamaica, where the accident giving rise to the litigation had occurred, and it was (plausibly) argued that the forum conveniens was Jamaica. There (as here) the matter involved a Contracting State and a third country: the jurisdiction of no other Contracting State was in issue; and there was no connecting factor with any other Contracting State. ( 25 ) The Grand Chamber nevertheless held that the jurisdiction rule in Article 2 of the Brussels Convention was mandatory and overrode any possibility for the court of a Member State to apply the forum non conveniens doctrine and decline jurisdiction.

42.

The arguments advanced by the German Government in the present case are very similar to those put forward unsuccessfully by the United Kingdom in Owusu. ( 26 )

43.

Thus, it is clear that, when deciding Owusu, the Grand Chamber was aware that, should it hold that the courts of the Contracting State concerned (the United Kingdom) could not decline jurisdiction in favour of the courts of a non-Contracting State (Jamaica), there might potentially be difficulties about recognition and enforcement of the judgment delivered. ( 27 ) Similarly, in Owusu the Court specifically considered the principle of the relative effect of treaties (in that context, that the Brussels Convention could not impose any obligation upon States which had not agreed to be bound by it). It held that, ‘[i]n that regard, suffice it to note that the designation of the court of a Contracting State as the court having jurisdiction on the ground of the defendant’s domicile in that State, even in proceedings which are, at least in part, connected, because of their subject-matter or the claimant’s domicile, with a non-Contracting State, is not such as to impose an obligation on that State’. ( 28 ) The Court gave priority to the principles of legal certainty, ( 29 ) the protection of persons established in the Community ( 30 ) and the uniform application of the rules on jurisdiction, recalling that ‘the objective of the Brussels Convention is precisely to lay down common rules to the exclusion of derogating national rules’. ( 31 )

44.

The Grand Chamber expressly recognised that there might be real difficulties (such as ‘logistical difficulties resulting from the geographical distance, the need to assess the merits of the case according to Jamaican standards, the enforceability in Jamaica of a default judgment and the impossibility of enforcing cross-claims against the other defendants’); but held that ‘genuine as those difficulties may be … such considerations … are not such as to call into question the mandatory nature of the fundamental rule of jurisdiction contained in Article 2 of the Brussels Convention’. ( 32 )

45.

It seems to me that the same considerations that led the Grand Chamber to its conclusion in Owusu apply in the present case; and that the ruling in Owusu should therefore be applied by analogy here.

46.

Fourth, holding that the competent court under Article 3(1) of the Regulation also has jurisdiction, within the context of insolvency proceedings, to determine a claim to set aside a prior transaction between the debtor and a defendant domiciled in a third country is in conformity with the objective of the Regulation to promote the proper functioning of the internal market. The Regulation expressly recognises (in recital 4) the need ‘to avoid incentives for the parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position (forum shopping)’. But similar considerations also apply when considering the situation as between the European Union and a third country. If the competent court under Article 3(1) of the Regulation does not have jurisdiction to determine a claim to set such a prior transaction aside, there is an obvious incentive for a person (or enterprise) who realises that he is getting into financial difficulties to transfer assets outside the European Union through dubious or sham transactions with third parties domiciled in third countries, thus removing them from the reach of the liquidator and depriving the creditors of the possibility of recovering as much as possible against the debtor’s estate.

47.

Accordingly, I conclude that the approach advocated by Mr Schmid (the liquidator) and the Commission is to be preferred to that advocated by the German Government. Holding that the competent court under Article 3(1) of the Regulation has jurisdiction to hear a claim brought by a liquidator to set aside a prior transaction between the debtor and a defendant domiciled in a third country respects the principles of unity and universality and furthers the aims of the single market. The liquidator will be able to deal with the debtor’s estate more effectively and at lower cost, which will inure to the benefit of the creditors (many of whom are likely to be domiciled in the European Union). These advantages outweigh any disadvantage to the third country defendant of having to defend the claim in what is for him the ‘wrong’ jurisdiction; and – precisely because any judgment will not be granted automatic recognition and enforcement under the Regulation – he will in any event continue to enjoy a degree of protection from his local court.

48.

For the reasons set out above, I propose that the Court should give the following answer to the question referred by the Bundesgerichtshof (Germany):

Article 3(1) of Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings must be interpreted as meaning that the courts of a Member State in which insolvency proceedings have been opened have jurisdiction over an action to set aside a transaction by reason of insolvency which is brought against a person whose place of residence or registered office is not within the territory of a Member State.