Case Study 12: NK v BNP Paribas Fortis NV
Case C-535/17 NK v BNP Paribas Fortis NV (6th February 2019)
Request for preliminary ruling under Article 267 from the Netherlands
Court of Justice of the European Union
Summary of Facts of the Case
This case was brought by NK, the liquidator in the bankruptcies of PI Gerechtsdeurwaarderskantoor BV and PI against BNP Paribas Fortis NV in respect of the recovery of a sum unduly debited from an account with Fortis Bank in Belgium. Funds were transferred to Fortis Bank by PI over a period of time in 2008 and were then withdrawn in cash, an act classified as embezzlement and resulting in the sentencing and imprisonment of PI [para 11].
During the insolvency proceedings conducted in the Netherlands, proceedings were brought against Fortis Bank seeking an order that Fortis repay the debited funds on the basis that it had incurred liability toward the general body of creditors by cooperating with PI in breach of its statutory obligations in the withdrawals made, thereby resulting in losses to the creditors of the bankrupt estates [para 13].
Under Dutch law the liquidator can bring a single action against a bank to repay money in tort in what is called a Peeters-Gatzen action. This action can be brought by an individual creditor, liquidator and/ or anyone affected against a third party who was involved in causing the loss suffered by the general body of creditors [para 17]. For this reason, the Dutch liquidator took the proceeding in the Netherlands but the defendant bank, NK Fortis, said it was a tort claim and therefore should be brought in Belgium. The net question is whether the action is closely connected to the insolvency proceedings thereby being covered by the EIR Recast or is an action in tort falling outside the Regulation [para 19]. Because it is normal for a liquidator to bring this claim, the Dutch view was that the Dutch court should have jurisdiction as it is an action closely connected to the main insolvency proceedings being conducted in the Netherlands.
The questions referred by the Dutch Supreme Court concerning cooperation in this matter specifically were as follows:
(1) Is a claim for damages against a third party on behalf of all the creditors brought by a liquidator covered by the insolvency exception under article 1(2)(b) of the Brussels Regulation (bringing it into the scope of the EIR Recast)?
(2) If it is covered by the EIR Recast, will the claim be governed by the law of the Member State in which insolvency proceedings had been opened (the Netherlands in this case)?
Cooperation and/ or Coordination Issue
The question of co-operation in this case is around an action in tort ostensibly closely connected to the main insolvency proceeding brought in the Netherlands. The relevant tort action (Peeters-Gatzen) is brought by a liquidator in the Netherlands, so the balancing question is whether such an action is closely connected to the insolvency proceedings in order to be covered by the EIR Recast. If the action were deemed to be delivered directly on the basis of the insolvency proceedings and closely connected to them, then the jurisdiction for the action would be with the Netherlands, falling within the insolvency exception of the Brussels Regulation [para 2].
This is an important matter concerning cooperation because in finding that such actions are not covered by the EIR Recast, a party can effectively avoid cooperating within the insolvency proceedings in relation to the action concerned. While the fact that the action is technically a tortious claim, the fact that it is normally brought by a liquidator would seem to draw it within the closely connected sphere. These grey areas continue to introduce uncertainty in the jurisdiction of such cases under the Brussels Regulation or the EIR Recast and it remains to be resolved under the EIR Recast it was still the EIR 2000 that was applied in this case. Uncertainty is a classic impediment to mutual trust and effective cross-border co-operation, as noted in JCOERE Report 2, chapter 4.
Following the decade plus of cases dealing with actions that could be considered closely connected and derived directly from an insolvency proceeding, the CJEU cited previous cases to set out the important interplay between the Brussels Regulation and its insolvency exception in Article 1(2)(b) of that Regulation and the application of jurisdiction principles under the European Insolvency Regulation 1346/2000. Citing Tunkers para 17 (see JCOERE Case Note), the court recalls that the EIR must continue to be interpreted to avoid any overlap or vacuum between the rules of it and the Brussels Regulation. In addition, while the concept of ‘civil and commercial matters’ of the Brussels Regulation should be considered broadly, actions falling within the EIR should not be broadly interpreted (citing Tunkers para 18) [paras 24-25].
Further, the court recalls that ‘only actions which derive directly from insolvency proceedings or which are closely connected with them are excluded’ from the scope of the Brussels Regulation [para 26] a criterion also set out in Recital 6 of the EIR, delimiting the subject matter of that Regulation [para 27]. It is necessary to look to the legal basis of the action (rather than procedural) in order to determine whether the right or obligation forming the basis of the action is in ordinary civil and commercial law or if it sits within the rules specific to insolvency proceedings [para 28 citing Nickel & Goeldner para 27 and Tunkers para 22]. The decisive criterion is the closeness of the link between a court action and the insolvency proceeding [para 30].
In this matter, the CJEU decided that just because the liquidator brought the claim and is acting in the interests of the creditors this does not mean it is an insolvency procedure or closely connected enough with one to fall within the exception of the Brussels Regulation. It is still a tort claim in damages arising from liability for a wrongful act and is independent from the insolvency proceedings [para 29] and because individual creditors can also bring the claim [para 35] the court found that it is covered by the concept of ‘civil and commercial matters’ within the meaning of the Brussels Regulation [para 38] rather than falling within the scope of the EIR, which means the claim could be brought outside of the EIR.
Nevertheless, it would have been problematic to bring the action in Belgium because it is a specific and unique Dutch claim that does not have a legal basis in Belgium
Applicability to Preventive Restructuring
Actions in relation to the avoidance of transactions entered into prior to insolvency may not be as prevalent in preventive restructuring procedures given the nature of those proceedings occurring notionally prior to functional insolvency. That said, transactions entered into which are not directly arising from the restructuring itself, may also be covered by an alternative regulation if it cannot be covered by the EIR Recast (Article 6). This leaves a grey area, especially for preventive restructuring, as the possibilities are nearly endless in terms of what can be agreed under the circumstances of preventive restructuring.
Similar tortious claims could arise in a restructuring procedure where the legal basis for such a claim exists. If they are similar in facts, they will equally not fall under the EIR Recast, thereby splintering the claims relating to a cross-border restructuring procedure and reducing its potential efficiency.
Applicability of Existing Rules and Guidelines
Although the judgement of this case was given in 2019, the law applied during the time that the case was being heard in the CJEU was the EIR 2000. As such, it is still worth considering how the finding might have changed had the case been heard a little later and under the EIR Recast. The following is drawn from the JCOERE case note on FTex, which also deals with a transactional claim specifically related to an avoidance action.
One key change between the EIR and the EIR Recast in this area is the addition of Article 6, which deals with the ‘jurisdiction for actions deriving directly from insolvency proceedings and closely linked with them’. Article 6 has incorporated a line of case law that has dealt with this sticky issue beginning with the case of Seagon in 2007 and including the developments in F-Tex and Nickel & Goeldner (among others). Article 6(1) states the following:
The courts of the Member State within the territory of which insolvency proceedings have been opened in accordance with Article 3 shall have jurisdiction for any action which derives directly from the insolvency proceedings and is closely linked with them, such as avoidance actions.
This appears to place actions taken to avoid transactions within the specific jurisdiction of the place where primary insolvency proceedings were opened. However, the second paragraph widens the scope of jurisdiction to civil and commercial actions against the same defendant, giving the IP the choice of bringing actions where the defendant is domiciled provided those courts will have jurisdiction under the Brussels Regulation. Perhaps key in this new provision in the EIR Recast is the final paragraph, which explains that ‘actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.’
While the action in question in this case may not strictly fit within the definition of an avoidance action, being as it is an action in tort in the Dutch legal system, it is an action that occurs often in connection with an insolvency procedure and is generally brought by an insolvency practitioner. However, procedurally it can also be brought by other parties affected by the insolvency, which differentiates it from traditional avoidance actions, which are brought by an insolvency practitioner in the course of the insolvency proceedings. That said, it could be that in the interest of expediency and given the fact that the claim was not similarly available in Belgium, that the jurisdiction should have remained in the Netherlands on the basis of Article 6 of the EIR Recast.
Recommendations and Guidelines
In terms of guidelines, as this case specifically deals with jurisdictional issues again, it is to the EIR Recast that one must look to determine the outcome. Although the CODIRE and ELI Reports do both discuss aspects of transaction avoidance, these discussions are in the context of making recommendations about the what approach to legislation and reform should be taken among the Member States and do not assist by way of guidelines or recommendations to courts or judges.
However, the decision also gives credence to the importance of the principles of cooperation that should permeate all levels of EU regulation wherever there is a cross-border element to consider.