Due to the increasing mobility of EU citizens and the ease of operating a business within the EU, we are increasingly confronted in legal transactions with insolvency cases that relate either to entrepreneurs with operations or assets in a number of countries or to natural persons whose assets are located in more than one EU country. This raises a number of legal questions regarding the insolvency regime in such cases.

Recently, our Law Firm provided legal advice to a foreign (German) insolvency practitioner who had commenced insolvency proceedings against an natural person residing in Germany and having its main centre of activity there, but having Polish citizenship and part of its assets in Poland. In connection with the above, a legal issue arose, inter alia, as to whether the insolvency practitioner, appointed by the German insolvency court, is entitled, and on what basis, to dispose of real estate belonging to such debtor if it is located in Poland.

Crucial to the resolution of this issue is Regulation (EU) 2015/848 of the European Parliament and of the Council of May 20, 2015 on insolvency proceedings (hereinafter Regulation 2015/848). Regulation 2015/848 provides, among other things, for automatic recognition of judgments of EU courts rendered in insolvency cases, which “should therefore mean that the effects attributed to the proceedings by the law of the Member State in which the proceedings were opened extend to all other Member States “. The principle of automatic recognition of the commencement of proceedings is provided for explicitly in Article 19(1) of Regulation 2015/848, according to which the commencement of insolvency proceedings by a court of a Member State with jurisdiction pursuant to Article 3(1) of the aforementioned Regulation (according to which the court of the Member State on the territory of which the centre of the debtor’s main activity is located at the time of the filing of the petition for the commencement of insolvency proceedings remains competent to hear it) is subject to recognition in all other Member States as soon as the judgment takes effect in the State of commencement. The norm of Article 19 of Regulation 2015/848 applies to both the main and the territorial insolvency proceedings. Thus, the regulation contained in Article 19 of Regulation 2015/848 means that a sovereign act issued by a competent authority of a Member State, by virtue of which main insolvency proceedings are opened in a Member State, produces effects in other Member States without the need for a recognition act or without the need for reciprocity. Thus, the above legal regulation triggers not only automatic recognition, but also “automatic” enforceability of such a judgment on the territory of other Member States.

Automatic recognition therefore means that the effects of insolvency proceedings rendered under the law of the Member State in which the proceedings were opened extend to all other Member States, with recognition of judgments rendered by the courts of Member States based on the principle of mutual trust.

Therefore, judgments issued by the courts of other Member States (except Denmark) are recognised in Poland by operation of law and, in such a case, the special provisions of Polish insolvency law concerning the recognition of judgments on the opening of a foreign insolvency order (i.e. Articles 386 – 404 of the Act of 28 February 2003 – Insolvency Law) do not apply. These provisions will only apply to insolvencies declared in non-EU countries and Denmark.

Accordingly, the basis for the actions of the insolvency practitioner appointed in Germany regarding the sale of the debtor’s real estate located in Poland will already be the ruling of of the insolvency court in Germany on the opening of the insolvency proceedings and the appointment of the respective insolvency practitioner. On the other hand, it will not be necessary for the Polish insolvency court to additionally recognise the aforementioned rulings or approve the sale of the debtor’s real estate in Poland, since, pursuant to Regulation 2015/848, their automatic recognition will occur.

As a side note, it should be pointed out that there is one exception to the principle of automatic recognition of insolvency proceedings in EU Member States, as stated by the (Polish) Supreme Court in its judgment of 16 February 2011 in case ref: II CSK 425/10. The Supreme Court indicated that “The exception to the principle of automatic recognition is Art. 26 of the Regulation (currently Art. 33 is Regulation (EU) 2015/848), which gives a Member State the right to refuse to recognise insolvency proceedings in another Member State, or to enforce them, to the extent that such recognition or enforcement would lead to a result that is manifestly contrary to its public policy, in particular its fundamental principles or the constitutionally guaranteed rights and freedoms of the individual.”

If you are interested on your part in the above topics, you are welcome to contact our Law Firm.