Cross-border insolvency challenge poses many problems. The attempt at harmonization at European level by the EuInsVO did not contribute to more clarification. That is why there are many ECJ rulings on this. Despite this, there are still problems. This includes, for example, the question of who is internationally responsible for appeals. We will follow this and explain how you can exploit the problem in your favor.

Through an insolvency challenge, the insolvency administrator of an insolvency proceeding recovers funds and assets that originally belonged to the debtor but were issued. These are often payments made by the insolvent company prior to the opening of insolvency proceedings on the basis of a mutual contract. The insolvency challenge has some requirements. For example, the insolvency administrator must prove that the beneficiaries of the insolvent company were aware of the crisis in the company. In principle, therefore, a legal act of the insolvency debtor before the opening of the insolvency proceedings, a concomitant creditor disadvantage and the existence of a ground for challenge is necessary.

A cross-border insolvency challenge exists if the respondent is based in another state and is therefore foreign. Then the challenge takes place across several state borders.

In the context of a cross-border insolvency challenge, it is problematic if the states set different challenge requirements in their national legislation. Then it is questionable which conditions are decisive.

The insolvency challenge is very close to the insolvency opening. It would therefore be obvious that the law of the State which is responsible for enforcing the debtor’s liability in order to satisfy its creditors in the context of insolvency proceedings also determines which transfers of assets are to be reversed by the insolvency challenge. The law of the State of insolvency would thus be decisive.

On the other hand, the retroactive challenge on the basis of the opening of insolvency always leads to an interference in the trust of legal traffic in the effectiveness of a legal act actually valid under civil law. Sufficient justification is therefore needed. Each national legislature must regulate this in the right of challenge by means of certain constituent elements. Therefore, the Member States must put the objective of the challenge, i.e. the protection of creditors, in a proportionate manner to the necessary interference with legal transactions. The facts therefore regularly contain requirements which result in the unworthiness of the respondent and which take into account the proximity of the legal act to the opening of insolvency. Accordingly, the challenge right of the insolvency opening State can therefore lead to unforeseeable results for potential respondents, since it can never predict with final certainty where subsequent insolvency proceedings will be opened when the potentially contestable act is carried out.

This is why the EU has tried to pre-determine the challenge right of the Member States through the EuInsVO. Nevertheless, there are considerable regulatory gaps there. In addition, Member States often provide for derogations.

Professional advice on cross-border insolvency challenge?

Art. 3 EUInsVO provides that the centre of main interests (COMI) of the debtor is a criterion for determining the insolvency opening state. This location is aligned with the location of interest management that can be identified by third parties. Nevertheless, this assessment is by no means easy. In addition, the debtor can relocate its COMI after performing the potentially contestable act. Therefore, despite the uniform European provisions, the respondent cannot be sure which law will decide on the future challengeability in connection with the state of interest administration. In order to avoid these uncertainties, the law in the insolvency opening state (lex fori consursus) interacts with the law applicable to the contestable act (lex causae).

According to Art. 7 II lit. The law in the opening State governs which legal acts are null and void, challengeable or relatively ineffective because they penalize the entirety of creditors. However, the respondent is entitled to object in accordance with art. 16 EuInsVO. Accordingly, the respondent can prove that an act contestable under the lex fori consursus applies to the law of another Member State of the European Union and that the act is in no way contestable under that law.

This right of appeal is particularly effective in cross-border insolvency appeals, especially in connection with Austria. The law there provides that appeals must be brought within one year of the opening of insolvency. However, the insolvency administrator has often not even determined the contestation issues during this period. This makes it particularly hostile and protects the insolvency opponent.

This basically establishes an anti-contestative statute of effectiveness over the stricter law of the insolvency opening state.

Art. 16 However, the European Ordinance does not apply if the more favourable effective state is a third country outside the European Union. Then the law of the opening state actually applies without restriction. In this case, however, the confidence of the opponent is once again not protected. Therefore, in this case one can assume an unplanned regulatory gap. In any case, this should be done if the national law of the opening state applies to the opponent with art. 16 EInsVO grants comparable right of objection.

If you have a company that has foreign group companies, you can avoid certain risks resulting from an insolvency challenge. For example, for business partners with uncertain payment behaviour, you can have their services provided by group companies at whose headquarters the insolvency challenge right is particularly favourable for you. Of course, you must take particular care that the contracts are made by these subsidiaries, that the services are actually provided by them and that payments are made there.