The German Federal Court of Justice has recently held (BGH, court order of 20.7.2017 – IX ZB 63/16) that the scope of the insolvency estate is determined by the lex fori concursus and that this also applies to earned income and pension income. The extent to which protection from enforcement can prevent attachment of the insolvency estate is therefore substantively a matter for the law of the state in which proceedings are commenced.
I. Facts of the case
The insolvency debtor, who is resident in Germany, and with regard to whose assets insolvency proceedings were commenced in Germany, received an ordinary retirement pension from Switzerland and a retirement pension in Germany. The insolvency administrator had requested that the two pensions be aggregated. The insolvency court granted this request on condition that the basic amount that is exempted from attachment be taken first of all from the Swiss pension. The German party liable for the pension filed an immediate appeal and appeal on a point of law (section 574(I) sentence 1(2) of the Code of Civil Procedure [ZPO]).
With respect to the question of aggregating the two pensions, the insolvency court referred to section 36(IV) sentence 1 and (I) sentence 2 of the German Insolvency Code, InsO, and section 850a(2a) ZPO. The appeal court also stated that section 850e ZPO should be attributed to insolvency law, albeit being stipulate in the Code of Civil Procedure and that insolvency law should be applied via the referral pursuant to section 36 InsO. Moreover, enforcement in Switzerland would not be required here since the attachable amount would be taken from the pension entitlement in Germany.
II. Legal assessment
The appeal on a point of law to the German Federal Court of Justice in accordance with section 574 ZPO was admissible but unsuccessful. The Federal Court of Justice upheld the decisions of the two lower courts. Aggregation was permissible provided that the current cash payments were attachable (section 850e(2) and (2a) ZPO).
While the local Swiss pension was not attachable in accordance with Article 92(I)(9a) of the Swiss Federal Debt Collection and Bankruptcy Act (SchKG), in the event of insolvency proceedings being commenced in Germany the provisions on protection from attachment in German law apply, not the relevant provisions of the state of enforcement, i.e. Switzerland.
The Federal Court of Justice states that in accordance with section 335 InsO and Article 4 European Insolvency Regulation, EIR, (old version) (Article 7 of the new EIR 848/2015) the law of the state in which proceedings were commenced is applicable to the insolvency proceedings. Appropriate examples to aid interpretation can be consulted in the list in Article 4 of the EIR (old version). However, the Regulation says nothing about provisions on protection from attachment. The appeal court division states how inconsistent the case law and literature is on this point and decides that the insolvency statute is applicable.
The court describes in detail a situation in which in the respective foreign substantive laws the scope of seizure and protection against attachment and the mechanisms for satisfying creditors are designed differently but aligned with each other. According to the statements made by the Federal Court of Justice, establishing protection against attachment on an individual basis in accordance with the law on individual compulsory enforcement could result, within the framework of insolvency proceedings, in omissions with respect to debtor protection or even creditor protection. In consequence, the court therefore comes to the evaluative conclusion that applying German substantive law to protection against attachment guarantees consistent debtor protection and at the same time enables the creditors to access the non-protected portion of the debtor’s assets.
While the appeal court division does not explicitly fail to recognise the conflict with the sovereignty of the law of the state of enforcement, it nevertheless does not wish to deny the objectively substantive applicability of the lex fori concursus for this reason.
However, in the present case enforcement is not relevant since the inclusion of the Swiss pension is in any event only a calculation value and the Swiss pension is in any case apportioned to the basic amount that is exempted from attachment.
Even if the conclusion here is comprehensible and apparently follows a practicable approach, its grounds are less easily understandable.
The Federal Court of Justice establishes that it has not yet dealt with the combination of facts that are found here. The very similar situation in the judgement of 20 December 2012 (BGH IX ZR 130/10) related to a third-party debtor in Germany and therefore it was not decisive whether an independent establishment of the provisions relating to attachability in addition to those of insolvency law was required in order to determine the insolvency estate. Nevertheless, in this 2012 judgment the Federal Court of Justice had made statements relating to this and had found that within the scope of compulsory enforcement the principle of territoriality applied because it was necessary for recourse to be had to the use of force by the state. The question of the scope of the protection against attachment was therefore determined in accordance with the law of the state of enforcement.
Unfortunately, in the decision in the present case the appeal court division did not adequately address the 2012 judgment and its grounds. While the court division directly admits the practical difficulties with its new decision, since an attachment abroad is only possible in accordance with the provisions applicable in the state of enforcement, this would not argue against the insolvency law being applicable with regard to the scope of the insolvency estate and the question of attachability. Ultimately, the Federal Court of Justice admonishes the insolvency administrator and third-party debtor to cooperate with each other.
The argument that otherwise it would be necessary to examine the law of the specific state of enforcement is probably somewhat unrealistic. In the era of the EIR and international insolvency law, conflict of law provisions in different forms are not an exception. Insolvency administrators must simply be able to deal with them.
In the present case, the court division refers to the debtor, who is resident in Germany and should be protected by this country’s attachment protection provisions. Insolvency debtors who move abroad during insolvency proceedings because of a job offer and have higher living expenses there (as is the case, for example, in Switzerland) than in Germany will scarcely be able to get by at the German protected earnings rate.
It is therefore foreseeable that the court will have to deal with this topic area again in future.
Dr Annerose Tashiro, German-qualified lawyer (Rechtsanwältin), (Registered European Lawyer)