The European Court of Justice has held that in proceedings where the assignee of a liquidator’s claim against an insolvent entity seeks to enforce that claim to set aside a transaction entered into by the insolvent entity with a third party, Council Regulation (EC) No 44/2001 (the Brussels Regulation) applies. Such proceedings are not derived from, or closely connected to, the insolvency proceedings for the purposes of the Council Regulation (EC) No 1346/2000 (the Insolvency Regulation):  Case C-213/10, F-Tex SIA v Lietuvos-Anglijos UAB (“Jadecloud-Vilma”).

Legal Context
The Brussels Regulation governs the recognition of civil and commercial proceedings and the enforcement of such judgments within the EU. It is based on the principle that a defendant ought to be sued in his home court. Article 1(2)(b) of the Regulation expressly excludes from its application any “bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings”.

In Gourdain v Nadler ECR 733 the European Court of Justice decided that proceedings “related to the winding-up of a company” where (i) they derived directly from the insolvency proceedings; and (ii) there was a close connection between the proceedings and the insolvency proceedings.

Jurisdictional disputes arising in the context of insolvency proceedings therefore generally fall to be determined exclusively in accordance with the provisions of the Insolvency Regulation under the general principle that insolvency proceedings should take place in the jurisdiction in which the insolvent entity’s centre of main interests (COMI) is situated.

Facts
In 2001, an insolvent German company, NPLC, made a number of payments to a Lithuanian company, Jadecloud. In 2005, insolvency proceedings were commenced in respect of NPLC in Germany and the German court concluded that the sole creditor of NPLC was F-Tex SIA.

In 2007, pursuant to German law, the German liquidator assigned all NPLC’s claims against third parties to F-Tex, including the right to demand repayment of the money paid to Jadecloud in 2001. Although F-Tex was not obliged to pursue claims against Jadecloud, it agreed that it would pay the liquidator 33% of the proceeds of any action as consideration for the assignment of the claims.

In 2009, a Lithuanian court dismissed a claim brought by F-Tex that Jadecloud should be required to pay it the money that it had received from NPLC in 2001. It held that the matter fell within the jurisdiction of the German courts as NPLC’s insolvency proceedings had been commenced in Germany. F-Tex appealed and ultimately the matter was referred to the European Court of Justice.

The Lithuanian Supreme Court asked the European Court to consider whether an action brought against a third party by the creditor of a debtor subject to insolvency proceedings, in circumstances where the debtor’s claims had been assigned to that creditor by the liquidator, should be subject to:

• The Insolvency Regulation, on the grounds that the action derives from the insolvency proceedings or is closely connected to them
• The Brussels Regulation, as a civil or commercial matter

European Court Decision
The European Court determined that as the applicant was an assignee of a right (and not acting as a liquidator), the Lithuanian proceedings were not closely connected to the insolvency proceedings, and accordingly the Brussels Regulation, and not the Insolvency Regulation, was applicable. The Court noted that F-Tex could freely decide whether to exercise the right of claim it had acquired and it was not legally obliged to enforce the claims taken over. It further noted that F-Tex could proceed with litigation without any reference to the liquidator. Indeed, F-Tex could, in principle, issue proceedings against Jadecloud after NPLC’s liquidation had come to an end. This autonomy meant that there was no close connection between proceedings under the assigned cause of action and the German liquidation.

The European Court held that F Tex’s obligation to pay the liquidator a percentage of the proceeds obtained from the assigned claim did not alter the fact that proceedings were not closely connected to the insolvency proceedings. The liquidator and F-Tex were free to choose to express the consideration payable by F-Tex in the form of a fixed sum or a percentage of any sums recovered.

Contributed by Delia McMahon