FCJ, judgement of 15 March 2016 - II ZR 119/14 (full text judgement - in German)

The director of a private company limited by shares, about the assets of which insolvency proceedings have been initiated in Germany, is subject to s. 64 sentence 1 Limited Liability Companies Act (GmbHG).

Facts
The plaintiff is insolvency administrator of the assets of a private company limited by shares (hereinafter "debtor") registered in England and Wales with a branch that is registered in the German commercial register.
The debtor had mainly been operating in Germany, where insolvency proceedings were initiated. The defendant is the debtor's director. The plaintiff had asserted claims against the defendant because of forbidden payments after insolvency pursuant to s. 64 GmbHG.

The Regional Court had granted the action. The Higher Regional Court had dismissed the defendant's appeal but also allowed a further appeal to the Federal High Court of Justice (“FCJ”). Then the FCJ had obtained a preliminary ruling by the European Court of Justice (“ECJ”) whether s. 64 para. 2 sentence 1 GmbHG old version / s. 64 sentence 1 GmbHG is a rule of insolvency law in terms of Article 4 para. 1 Council Regulation on Insolvency Proceedings and whether a corresponding action against the director of a Limited breaches the freedom of establishment pursuant to Article 49, 54 Treaty on the Functioning of the European Union.

The ECJ has stated in this regard:
1. Article 4 Council Regulation on Insolvency Proceedings is to be interpreted to that regard that its scope of application comprises an action before a German court, in which the insolvency administrator of a company under English or Welsh law asserts claims against the director of this company, about the assets of which insolvency proceedings were opened in Germany, regarding the compensation of payments that the director had made prior to the opening of the insolvency proceedings but after the point in time which had been determined as occurrence of the insolvency.

2. Articles 49 and 54 of the Treaty on the Functioning of the European Union are not opposed to the application of a national provision such as s. 64 GmbHG to the director of a company under English or Welsh law, about the assets of which insolvency proceedings were initiated in Germany.

Decision
The FCJ has confirmed the decisions by the courts of lower level of jurisdiction and determined that s. 64 GmbHG is also applicable to the director of a Limited.

The FCJ has justified this with the purpose of the provision to avoid reductions of the insolvency assets prior to the insolvency proceedings and in case the director does not comply with his duty to secure the insolvency assets to ensure that the company's assets will be refilled, so that it is available in the course of the insolvency proceedings to equally satisfy all of the company's creditors considering their rank.

The purpose of the law applies to both corporate structures, the German GmbH and the English Limited. Regarding both corporate structures the shareholders are not liable with their personal assets and there is the risk that a director who is not necessarily a shareholder makes payments to the detriment of the later insolvency creditors, thereby reducing the insolvency assets. According to the opinion of the FCJ this justifies treating the managing director under German law and the director under English law in the same way with regard to the liability for forbidden payments after insolvency.

Comment
Since the ECJ judgements "Centros", "Überseering" and "Inspire Art" regarding the freedom of establishment of capital companies in the area of the European Single Market there is a lively discussion regarding the question according to which rules the protection of creditors in case of capital companies must be granted in case of cross-border situations. The basic problem is that creditor protection is regularly composed of components from company law and insolvency law, which are to be assessed by two different legal systems. For example a capital company from another Member State that comes to Germany is subject to the company law of the country, in which the company had been founded, whereas the insolvency law in case of opening insolvency proceedings in Germany is subject to German law. This had inter alia been the reason for the legislator to detach the duty to file for insolvency from the respective laws governing the individual capital companies and to regulate it consistently in s. 15 a Insolvency Code (InsO) in order to achieve a clear association to insolvency law.

In the aforementioned decision the FCJ has now stated that also the interdiction of payments in s. 64 GmbH must be regarded as part of insolvency law and is, therefore, applicable to foreign capital companies in case of the opening of insolvency proceedings in Germany.

Vice versa this might imply that liability for forbidden payments after insolvency or over-indebtedness is excluded under German law if the seat of a company is moved to another European member state...

Contact
Bastian Finkel, Cologne
bastian.finkel@bld.de

Jan Kordes, LL.M., Cologne
jan.kordes@bld.de