hurdles of cross-border insolvencies using the example of ...€¦ · niki - timeline: § december...

August 30, 2019

Hurdles of cross-borderInsolvencies using the exampleof the Air Berlin / NIKI case

Table of Contents:

§ Part 1: The Air Berlin / NIKI case

§ Part 2: Recognition of foreign insolvency proceedings in Germany

Hurdles of cross-border Insolvencies

Hamburg,DD.MM.YYYY 2

Air Berlin / NIKI


Air Berlin:

§ Founded 1978§ Second largest German Airline after Lufthansa§ Headquartered in Berlin, Germany§ August 15, 2017: Filing for Insolvency§ October 17, 2017: End of operations§ November 1, 2017: Opening of Main Insolvency Proceeding in Berlin, Germany§ August – December 2017: M&A proceedings (incl. NIKI-shares)

Air Berlin / NIKI


NIKI:

§ Founded 2003 in Austria – owned by Niki Lauda§ 2004 – 2010: majority of the shares bought by Air Berlin§ Registered Office in Vienna, Austria§ All relevant Flight Operations run from Berlin§ „Cost-Plus“ Agreement with Air Berlin§ Majority of Employees are „Flying Personel“ stationed mostly in Germany.

Air Berlin / NIKI


Article 3 (International jurisdiction) § 1:The courts of the Member State within the territory of which the centre of the debtor's main interestsis situated shall have jurisdiction to open insolvency proceedings (‘main insolvency proceedings’).The centre of main interests shall be the place where the debtor conducts the administration of itsinterests on a regular basis and which is ascertainable by third parties.In the case of a company or legal person, the place of the registered office shall be presumed to bethe centre of its main interests in the absence of proof to the contrary. That presumption shall onlyapply if the registered office has not been moved to another Member State within the 3-monthperiod prior to the request for the opening of insolvency proceedings.

NIKI: Where is the Centre of Main Interest (COMI) pursuant to Art. 3 §1 of the Regulation(EU) 2015/848?

Air Berlin / NIKI


Function Vienna Berlin

Management X X

Legal Division X

Asset Management X

Place of Documents X X

HR Division X X

Financial Accounting / Payments X

Sales / Customer Relations X

Regulating Authority (Flight Safety) X

Marketing X X

Ops X

Technical Maintenance X X

NIKI: Where is the CCOMI???

Air Berlin / NIKI


§ The local Court in Berlin had appointed various creditors as members of the provisional creditorscommittee, incl. aircraft lease provider and the head of the workers council (stationed in Vienna)

§ All members of the provisional creditors committee had unanimously declared, that Berlin is theCOMI of NIKI.

NIKI: Where is the COMI???

Air Berlin / NIKI


NIKI - Timeline:

§ December 13, 2017: Opening of Preliminary Insolvency Proceeding as European MainProceeding by the local court of Berlin

§ Mid-December 2017: creditor appeals against competent jurisidiction of local court Berlin§ January 8, 2018: Court of Appeal in Berlin suspends the Opening of the Preliminary Insolvency

Proceeding§ January 12, 2018: Local Court in Austria opens Insolvency Proceeding as European Main

Proceeding

Insolvency Proceedings in Germany and Austria

Air Berlin / NIKI


§ The Ruling of the Court of Appeals Berlin can be appealed.

§ It is debatable under German Law, whether the overruled decision is instantaneously void orwhether it only becomes void upon the expiration of the time limit to appeal.

§ The Austrian court had to make a judgement based on German Law.

§ No cooperation between the Austrian and the German court occured, despite Art. 42 § 1 of theRegulation (EU) 2015/848

Insolvency Proceedings in Germany and Austria

Air Berlin / NIKI


§ The Insolvency Administrator of Air Berlin (and at the beginning also NIKI) had hired variousexperts to ensure ongoing operations. Under German Law, the costs of such experts can be paidby the estate.

§ Pursuant to Austrian Law, the austrian Insolvency Administrator must not pay third party expertsout of the estate, but rather out of her own pocket.

§ Memorandum of Cooperation had to drafted.

Cross-Border Insolvencies – Practical Issues

Air Berlin / NIKI


Recognition of foreign insolvency proceedings in GermanyLegal framework for the recognition in Germany


Judgements opening andconcerning insolvency proceedings

EU lawJudgements handed down by courts

of Member States

German Int. LawJudgements handed down by courts

of third states

Insolvency proceedings

Art. 16 (1), Art. 2 (a) of theCouncil regulation on insolvency

proceedings, Annex A

§ 343 of the Insolvency Code

Liquidation

Art. 16 (1), Art. 2 (c) of theCouncil regulation on insolvency

proceedings, Annex B

§ 343 of the Insolvency Code

Recognition of foreign insolvency proceedings in GermanyLegal framework for the recognition in Germany


Other insolvency-related judgements

Judgements handed down by courtsof Member States

Judgements handed down by courtsof third states

Art. 25 (1) of theCouncil regulation on insolvency

proceedings

§ 328 of theCivil Procedure Code

Recognition of foreign insolvency proceedings in GermanyEU law


Applicability of the Council regulation (EC) No 1346/2000 ofMay 2000 (further „Regulation“) on insolvency proceedings

Territory Directly applicable in Germany and other Member StatesException: Denmark

Time Proceedings opened after 31.05.2002

Proceedings Insolvency and Liquidation

Preinsolvency rescue proceedings

Not applicable to insolvency proceedings concerninginsurance undertakings, credit institutions and someinvestment undertakings according to the definiton of Art.1 (2) of the Regulation.

Recognition of foreign insolvency proceedings in Germany

The elements required according to the Art. 16 of the Regulation

1. Proceedings within a definite list of the Regulation

- Insolvency proceedings: Art. 2 (a) of the Regulation, Annex A

- Liquidation proceedings: Art. 2 (c) of the Regulation, Annex B

- Preinsolvency rescue proceedings according to the Recast Regulation Exceptions

- Public Policy, Art. 26 of the Regulation

- Judgements which might result in a limitation of personal freedom and postal secrecy, Art. 25 (3)of the Regulation

Recognition procedure in Europe



The purpose of the exception

Public Policy exception is a corrective, which prevents creditors rights to be altered.

Art. 16 of the Regulation states that if the commencement of the foreign proceeding is incompatibleto an unacceptable degree with the legal order of the State in which recognition is sought, therecognizing State may decline the proceeding.

Public Policy exception



The Eurofood decision of the European Court of Justice (further „ECJ“)

Public Policy exemption must be reserved for exceptional cases: where recognition or enforcementof a judgment delivered in another member state is at variance to an unacceptable degree with thelegal order of the state in which enforcement is sought (ECJ, Eurofood/Parlament).

Example: the right of creditors to be heard and to participate in insolvency proceedings.

According to the ECJ, the article does not allow native courts to examine if the decisions of foreigncourts are without jurisdiction.




Decisions of German courts



Problem „Bankruptcy tourism“.

Background Foreign jurisdictions offer partially more autonomy andflexibility in restructuring of companies.

Creditor´s rights are usually less secured than inGermany.

Shorter discharge period in the personal bankruptcycontext: 6 years in Germany vs. one year in the UK.


Court of first instance Nuremberg, (2006) 8004 IN 1326 - 1331/06 (Hans Brochier HoldingLtd.).

The court refused to recognise the English judgement opening proceedings because it infringedpublic policy.

Reasons: Lack of joint administrator´s independence; deception of the court by the company´sdirectors as they misleadingly submitted the company´s centre of main interest („COMI“) to belocated in England.




Natural person´s insolvency

Higher Regional Court of Cologne (2013) 13 U 261/12; Regional Court of Berlin, (2013) Az.: 16O 455/12; Regional Court of Cologne (2011) Az.: 82 O 15/08

The recognition was refused in all cases.

Reason: the COMI was misleadingly submitted by debtors.

Higher Regional Court of Koblenz, (2012) Az.: 1 U 1/11

The recognition was refused.

Reason: the creditor´s right to be heard was ignored.




Actual revision of the judgement practice in Germany

German Federal Supreme Court revised and declined 2015 the decision of the Higher RegionalCourt of Cologne, named above.

It decided, contrary to all prior judgements, that the recognition can not be declined by nationalcourts even if the COMI is misleadingly submitted by a debtor in the way to take advantage of morefavourable regime, IX ZR 304/13.

As a result, the Public Policy exception is not more significant. The recognition can be refused justin such rare cases, when creditors can not proceed in the other country to protect their interests.




Third states proceedings

Recognition according to § 343 of the Insolvency Code

1. No list of recognised proceedings

2. Insolvency as ground to open proceedings

3. Formality of proceedings

4. Independent state supervision over the proceedings held by its courts

5. Compatibility with objectives according to the § 1 of the Insolvency Code

6. Recognition is not contrary to German public policy

German international law



USA

Chapter 11 proceedings

Chapter 11 proceeding is intended primarily for the reorganization of businesses. The court doesnot appoint an administrator, a debtor remains in control of the estate and is authorised to continueoperating and managing its business without specific court approval.

The recognition of Chapter 11 proceedings was a subject of discussions in Germany for a long time.One of the main points was, that Insolvency is not necessary for filing proceedings. Nevertheless,according to the desicion of the German Federal Supreme Court, Chapter 11 proceedings arecovered by § 343 of the Insolvency Code because of its compatibility with objectives according tothe § 1 of the Insolvency Code, (2009) X ZR 79/06, NZI 2009, 859.




Canada-, Australia-, Commonwealth-States

According to the German legislative materials, Anglo-American Insolvency Proceedings are coveredby § 343 of the Insolvency Code if they are similar to the britisch proceedings, listed in the Annex Aof the Regulation, BR-Drucks. 715/02, page 25.




Switzerland

Proceedings according to the Art. 166 (2) of the Federal Law on International Private Law, so-called minibankruptcy.

The recognition in Germany is problematical. Till now there is no court decision, which createsprecedent. Legal experts tend to see it as contrary to German public policy because ofdiscrimination against foreign creditors.

The purpose of the proceeding is to satisfy so-called collocated creditors, according to the Art. 172(1) of the Federal Law on International Private Law, just if they are residents of Switzerland.




Generally meaning

A Scheme of Arrangement is a britisch pre-insolvency procedure, regulated in Companies Act,primarily used to achieve compromise with company´s creditors.

The purpose of a scheme is a self-managed company restructuring.

It is based on majority-decisions, agreements need just a majority in number and 75% in value of allcreditors.

Tele Columbus, Rodenstock and Primacom are German companies, which used the Scheme ofArrangement succesfully.

Scheme of Arrangement (UK)



Creditors` Rights

There is no independend restructurer in the procedure, appointed by court, all decisions are to benegotiated between creditors. The law is also silent on procedural rules in support of restructuring.Following legal mechanisms prevent, the creditors` rights to be injured:

- The Public order principle (Art. 21 of the Rome I Regulation) guarantees, that even throughmajority-decisions there are no agreements possible, which injure (german) creditors` rightsagainst their will. All interested creditors have to compromise. The principle of the majority-decision aims to fasten the procedure, not to injure creditors`-minority rights.

- The Companies Act requires transparent documentation of decisions, authorizes the building ofcreditors` classes and the supervision of that process by the courts. The Scheme has to beapproved by the majority of each class and finally sanctioned by court.




Recognition in Germany

The recognition in Germany is problematical. The Higher Regional Court of Celle decided (2009)that the recognision is covered neither by § 343 of the Insolvency Code (because of its pre-insolvency character) nor by § 328 of the Civil Procedure Code (it is not a court ruling).

Contrary to this judgement decided the Regional Court of Rottweil (2010) to recognise the Scheme.Its decision was motivated by the recognition practice, concerning Chapter 11 proceedings.Because of the wording of the Insolvency Code is that decision much criticized by law experts inGermany, arguing Art. 25 of the Regulation instead of § 343 of the Insolvency Code.

The German Federal Supreme Court abstained (2012) from taking a final decision on this point andrefused recognition just for insurance companys according to a specific regulation. Law expertsconsider the desicion as a positive signal for der future recognition.




Foreign insolvency proceedings are generally recognised in Germany.

Recognition is automatic if all legal requirements are fulfilled. That concerns not just the EUmember states courts decisions but also such ones in the third states .

Before German Federal Supreme Court decided (2015), there was just a number of lower courtsdecisions, declining the recognition, mosly in cases of bad forum shopping in England. The newjudgement is of a big importance, not just for natural person´s, but also for companies insolvencyproceedings.

Because of the German Federal Supreme Court decision as well as the ECJ Eurofood/Parlament-decision there are no further restrictions, concerning the recogrition of foreign insolvenceproceedings in Germany, awaited.

Conclusion


Contact Person

30Hamburg,DD.MM.YYYY

Friedrich von Kaltenborn-StachauLawyer, Insolvency Practioner, Specialized lawyer insolvency law, Fellow INSOL Intl.

Jungfernstieg 3020354 Hamburg

[email protected]

Über BRL

BRL ist eine international ausgerichtete Partnerschaft von Rechtsanwälten, Wirtschaftsprüfern undSteuerberatern, die im Jahr 2006 gegründet wurde. Heute sind wir mit über 250 Mitarbeitern an denStandorten Hamburg, Berlin, Bochum, Hannover, Dortmund und Frankfurt vertreten. Durch eine eigeneGesellschaft sowie über ein globales Netzwerk unabhängiger WP/StB-Gesellschaften ist BRL bestensaufgestellt, um auch für länderübergreifende Fragestellungen zuverlässige und effiziente Lösungenbereitzustellen.

Die Qualität unserer Dienstleistungen hat bei uns höchste Priorität und wird durch ein internesQualitätsmanagement sichergestellt. Das spiegelt sich nicht nur in Rankings und Umfragen wider,sondern bringt BRL regelmäßig Auszeichnungen ein.

About BRL

BRL is an international partnership of lawyers, accountants and tax advisors founded in 2006.Today we are represented by over 250 employees in Hamburg, Berlin, Bochum, Hanover, Dortmund andFrankfurt. With its own company for international mandates and via a global network of independentauditory and tax advisory companies BRL is ideally positioned to handle crossnational matters for clientsquickly and dependably.

The quality of our services is our first priority, and we assure it through internal quality management.This is reflected not just in rankings and surveys, but also in the awards that BRL garners regularly.

HamburgJungfernstieg 3020354 Hamburg+49 40 35006-0

BerlinPariser Platz 4 A10117 Berlin+49 30 565556-0

HannoverGellertstraße 630175 Hannover+49 511 543688-31

BochumMeinolphusstraße 6 - 1044789 Bochum+49 234 610688-0

DortmundSemerteichstraße 54 - 5644141 Dortmund+49 231 08771-0

FrankfurtWesthafenplatz 160327 Frankfurt+49 69 1200 7471-10

[email protected]

www.BRL.de