Insolvency protection against ship arrest across EU jurisdictions

Facts
Judgment
Comment

The Tribunal of La Spezia was recently asked to decide on an interesting issue relating to cross-border insolvency in circumstances where the application of EU Regulation 1346/2000 is invoked. Although few authorities are available in Italy in this respect, the question as to which effects of insolvency proceedings are recognised across jurisdictions has generated increasing interest in light of the financial distress that many shipowners face in the present economic climate.

Facts

On July 10 2013 the M/V Celia was arrested at the port of La Spezia on an ex parte application, on the allegation that salvage compensation was due for previous operations.

The shipowner responded by stating that it had entered into insolvency proceedings in Germany, and that it was therefore protected against cautionary measures, as it could avail itself of the protection afforded under German insolvency law to companies admitted to insolvency proceedings. The shipowner argued that the same benefits that are recognised under insolvency law in Germany should also be recognised in Italy through the application of EU Regulation 1346/2000.

Judgment

The tribunal allowed the respondent's application to lift the arrest on the grounds that in accordance with Regulation 1346/2000, the protection afforded under German insolvency law within the German jurisdiction should also be recognised in all EU jurisdictions. Article 16 of the regulation establishes that:

"any judgment opening insolvency proceedings handed down by a court of a Member State… shall be recognised in all the other Member States from the time that it becomes effective in the State of the opening of proceedings."

Further, Article 17 expressly states that "the judgment opening the proceedings… shall, with no further formalities, produce the same effects in any other Member State as under this law of the State of the opening of proceedings". Therefore, since under German insolvency law no cautionary actions are permitted against a debtor that has been admitted to insolvency proceedings, the same effect must be recognised in all EU jurisdictions.

Moreover, the tribunal noted that a German court had issued an order to lift the arrest after the opening of the insolvency proceedings. A few days after the arrest was granted on the ex parte application of the salvors, the German court had requested that the arrest be immediately lifted as it breached German insolvency law. The salvors disregarded this order, but the Italian judge gave judicial consideration to it, thereby concluding that the arrest was unlawful.

Comment

The application of national insolvency rules is often hindered where the debtor's assets are in different jurisdictions and cross-border issues are involved. This is particularly true where the debtor's main asset is a vessel, which by sailing from one jurisdiction to another, risks becoming the target of arrest proceedings.

Regulation 1346/2000 offers valid protection in this respect and the Tribunal of La Spezia, by upholding its application, upheld a precedent set by the Tribunal of Venice, thereby establishing firm authority for the application of EU insolvency law.

Most interestingly, by giving judicial consideration to the German court's order that the arrest be lifted, this decision recognised the cross-border effects of the orders given by European courts pursuant to Article 25.1 of the regulation in respect of the preservation measures taken in one EU member state and enforced in another.

For further information on this topic please contact Lawrence Dardani at Dardani Studio Legale by telephone (+39 010 576 1816), fax (+39 010 595 7705) or email (lawrence.dardani@genoachambers.it). The Dardani Studio Legale website can be accessed at www.dardani.it.