A trustee wants to initiate a claim in insolvency proceedings against an Indian company. But is the Dutch court competent to hear this dispute? And what if the dispute does not involve the bankruptcy itself, but a (derived) Paulian action against fraudulent acts in respect of creditors? Who is competent then? These questions were addressed in a recent case involving international insolvency law. Dutch lawyer for insolvency law Hidde Reitsma discusses the ruling.
The trustee in the bankruptcy of X Ltd. discovered that shortly before the bankruptcy a shady transaction had occurred between X Ltd., a sister company and the parent company. The outcome was that – without reasonable consideration – resources from X Ltd. were drawn on for the benefit of the parent company. A fine example of a Paulian insolvency. On this basis, the trustee made a claim under article 42 of the Bankruptcy Act: they called for the annulment of this transaction between the bankrupt company X Ltd. and the parent company.
In the procedure, which the trustee instituted at a Dutch court, the respondent – the parent company – claimed that the Dutch court had no jurisdiction to hear the dispute. The respondent was a company under Indian law, not Dutch law.
The court considered that because the claim now has an international character, the question should first be answered whether the Dutch court is competent to hear the case. In the absence of a specific international arrangement between Netherlands and India this should be considered on the basis of Dutch private international law. This includes the Insolvency Regulation, a European regulation on insolvency proceedings.
In the regulation, the starting point is that in bankruptcy cases the magistrate of the Member State, in which the interests of the bankrupt are mainly located, is competent. However, this is not a pure bankruptcy dispute, but a derived dispute, namely a claim by the trustee from a Paulian action for fraudulent acts in respect of creditors against the parent company (and not the bankrupt itself, a Dutch company).
The Dutch Court refers to the case law of the European Court of Justice. In a previous procedure, the European Court decided that a magistrate, who is competent to hear insolvency disputes, is also competent to hear proceedings from insolvency proceedings, such as Paulian actions against fraudulent conveyance.
Moreover, in the same judgement it is stated that this power extends to respondent parties, which are resident or established outside the European Union. The Dutch court deems itself, therefore, competent in this case to hear the claim by the trustee against the Indian company for a Paulian action due to fraudulent acts in respect of creditors. The case is referred to a new case list hearing for a substantive handling of the claim.