By an order dated 16 January 2025, the German Federal Court of Justice (BGH) referred certain questions to the European Court of Justice (ECJ) concerning the interpretation of the European Insolvency Regulation (EuInsVO) in relation to the governing law for avoidance transactions.
Background
The case concerns a dispute between an Austrian company and its bankrupt German sister company regarding the avoidance of a shareholder loan repayment by the German company under section 135 of the German Insolvency Code (InsO).
The Austrian company invoked Article 13 (which is now Article 16 EuInsVO), which prevents avoidance if the relevant transaction is governed by the law of another Member State and is not avoidable under that law.
Referral to the ECJ
The BGH maintained that German provisions on the subordination and avoidance of shareholder loans (§§ 39 I 1 No. 5, 135 InsO) must not be circumvented through the application of foreign law.
Key takeaways
- If the ECJ endorses the BGH's view, repayments of shareholder loans would remain avoidable under German insolvency law including in cross-border cases.
- If not, the German rules on the avoidance of shareholder loans, which serve to protect creditors, will lose their effectiveness as they could easily be circumvented by granting loans from a foreign group company.
- On the other hand, this might simplify international insolvency practice and encourage foreign investment.
(Federal Court of Justice, suspension and submission order dated 16 January 2025, no. IX ZR 229/23)
Find out more
To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.
