Insights

On 27^th March 2025, the Court of Justice of the European Union (“CJEU”) delivered a ruling in the case Matthäus Metzler, acting as insolvency practitioner in insolvency proceedings vs. Auto1 European Cars BV (Case C‑186/24) concerning the interpretation of Article 31(1) of Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (the “Insolvency Regulation”). The request was made in proceedings between Mr Matthäus Metzler (the “Plaintiff”), acting as insolvency practitioner in insolvency proceedings opened against a debtor, and Auto1 European Cars BV (the “Defendant”) concerning the payment to the insolvency estate of an amount corresponding to the market value of a vehicle sold by the debtor to the Defendant after the opening of the insolvency proceedings.

Facts of the Case

The request originated from insolvency proceedings initiated in Austria against a debtor, with the Plaintiff being appointed as the insolvency practitioner. After the commencement of these proceedings, the debtor, in his own name, concluded a contract of sale of a vehicle to the Defendant, a company based in the Netherlands, without the Plaintiff’s knowledge or consent. The contract of sale was concluded at the Defendant’s branch in Austria. The proceeds from this sale, amounting to €48,870, were not directed to the insolvency estate.​

The Plaintiff contended that the amount of €48,870 belonged to the insolvency estate on the ground that the contract of sale was concluded after the opening of the insolvency proceedings and that the transaction was therefore invalid under Austrian insolvency law, which stipulates that assets acquired post-insolvency fall under the control of the insolvency practitioner. Given that the Defendant re-sold the vehicle to a third party, the Plaintiff brought an action before the Austrian courts seeking compensation in favour of the insolvency estate corresponding to the selling price of that vehicle, also seeking the recovery of the vehicle’s market value, namely €62,261, from the Defendant, on the basis that that the payment made to the debtor for the sale should have been made to the insolvency estate.​

The Defendant disputed the claim on the basis, inter alia, of Article 31 of the Insolvency Regulation. They contended that that claim could only be enforced against it if it had been aware of the opening of the insolvency proceedings when the vehicle in question was purchased. The Higher Regional Court of Linz upheld the applicability of this article since the Defendant did not have all the relevant information regarding the opening of the insolvency proceedings.

The Plaintiff brought an appeal against that decision before the Supreme Court of Austria (the “Referring Court”). In support of that appeal, the Plaintiff submitted that Article 31 of the Insolvency Regulation was not applicable because that provision presupposes that an obligation had been honoured on the basis of a valid legal act, which was not the case here in the light of the applicable Austrian insolvency law. In addition, he argued that the foreign element required by Article 31 of the Insolvency Regulation was lacking since the obligation referred to in the contract of sale at issue was honoured in Austria.

The Referring Court noted that according to Austrian law, legal acts concluded by the debtor after the opening of insolvency proceedings which affect the insolvency estate are to be unenforceable against the insolvency creditors. In those circumstances, if an asset were to be removed from that estate by reason of a legal act which is unenforceable against creditors, then that asset could be recovered.

In light of the above, the Supreme Court of Austria referred the following question to the CJEU for a preliminary ruling:​

1. Does Article 31(1) of the Insolvency Regulation encompass obligations arising from legal transactions concluded by the debtor after the opening of insolvency proceedings and the transfer of powers to the insolvency practitioner, which should have been honoured for the benefit of the insolvency estate?​

Considerations of the CJEU

The Insolvency Regulation governs cross-border insolvency proceedings within the EU. Article 31(1) specifically addresses situations where an obligation has been honoured in a Member State for the benefit of a debtor who is subject to insolvency proceedings opened in another Member State, when it should have been honoured for the benefit of the insolvency practitioner in those proceedings. In this case, the person honouring the obligation shall be deemed to have discharged it if he was unaware of the opening of the proceedings. Moreover, the Regulation states that the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened.

The CJEU examined whether Article 31(1) encompasses obligations arising from transactions entered into by the debtor after the commencement of insolvency proceedings. The court noted that the regulation aims to protect third parties who, unaware of the insolvency proceedings, make payments to the debtor in good faith. However, this protection is not absolute.​

The CJEU emphasized that once insolvency proceedings are opened, the debtor’s capacity to manage assets is typically restricted, and the insolvency practitioner assumes control. Therefore, transactions conducted by the debtor without the practitioner’s involvement may not be valid, and payments made in such contexts may not discharge the obligation unless the payer was unaware of the insolvency.​

The CJEU also stated that the concept of an ‘obligation honoured’ includes the honouring of an obligation arising from a legal act which is subsequent to the opening of insolvency proceedings and to the transfer of powers to the insolvency practitioner, provided that such a legal act is enforceable, in accordance with the law of the State of the opening of those proceedings, against the creditors who are parties to such proceedings.

Recognising the debt-discharging effect of the honouring of an obligation based on a legal act which is unenforceable against the creditors who are parties to those proceedings, under the law of the State of the opening of such proceedings, would go beyond the protection of the good faith of third parties intended by the EU legislature. In that situation, the third party would be protected from any claim brought against him or her by the insolvency practitioner on the ground of unjust enrichment.

In the present case, Austrian law provides that legal acts concluded by the debtor after the opening of insolvency proceedings which affect the insolvency estate are to be unenforceable against the creditors who are parties to those proceedings. It would follow that the deed of sale concluded by the debtor with the Defendant, after the opening of the insolvency proceedings concerning him, would be unenforceable under Austrian law, which is for the referring court to assess. Should that be the case, Article 31(1) of the Insolvency Regulation would not apply.

CJEU’s Ruling

In view of the above and in accordance with the purpose of the Insolvency Regulation, the CJEU, in response to the question referred, concluded that Article 31(1) must be interpreted as meaning that obligations honoured for the benefit of a debtor who is subject to insolvency proceedings, when they should have been honoured for the benefit of the insolvency practitioner in those proceedings, also include the honouring of an obligation arising from a legal act concluded by the debtor after the opening of those insolvency proceedings and the transfer of the administration of the assets to the insolvency practitioner, provided that such a legal act is enforceable, in accordance with the law of the State of the opening of those proceedings, against the creditors who are parties to such proceedings.

Disclaimer: Ganado Advocates is responsible for contributing to this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report. This article was first published in ‘The Malta Independent’ on 30/04/2025.