In the course of several decisions German courts have pondered this question. The decisions were based on lawsuits of different national insurance holders against one and the same British insurance company who had implemented scheme proceedings. The company claims to have reached an ultimately binding understanding with its insurance holders.
Due to the specialties in insurance law, the already mentioned Insolvency Regulation is not applicable. Thus, the courts did not have to deal directly with the Regulation when considering the acknowledgement of scheme proceedings in Germany. Nonetheless, the reasons for the judgment are revealing. A uniform approach cannot be observed, even though the same facts were present to the courts. The courts are of highly different opinions regarding essential legal issues. While the Local Court Rottweil basically wants to accept the effect of the “scheme of arrangement” and had already rejected the suit as inadmissible, this was considered differently by the Higher Regional Court Celle and the Local Court of Potsdam, and the suits were, however, rejected due to different reasons. The decision of the Higher Regional Court Celle is pending for appeal with the Federal Court of Justice, which might possibly clarify the matter.
The latest decision comes from the Local Court Rottweil. With its decision of 17 May 2010 – 3 O 2/08 it explained that a “scheme of arrangement” has to be accepted inland under special conditions and is opposed to a suit in the same matter in German courts. The judicial decision in England to accept the agreement is about to enter into effect also in Germany which is why it cannot be decided anew by the courts. As the Insolvency Regulation could not be applied, the facts were reexamined by the Local Court on the basis of national insolvency law with the result that the “scheme of arrangement” proceedings are very similar to the proceedings according to chapter 11 of the US bankruptcy code regarding company restructuring. These proceedings were recently assessed by the Federal Court of Justice as “insolvency proceedings” which must be accepted according to the German bankruptcy code (cp. BGH, order of 13 October 2009 – X ZR 76/06, NZI 2009, 859). This should also apply for the scheme as the proceedings are only slightly different. A result which is at least surprising, as chapter-11 proceedings aim for the reorganisation and restructuring of a tarnished company. A scheme, however, is not from the first related to an insolvency or a crisis and does not forcibly comprise the total assets of the debtor.
In its order of 8 September 2009, however, the Higher Regional Court Celle rejected the acceptability (we informed you, info letter Berlin, restructuring & insolvency II/2010, p. 6 f.). Concerning this case, the Higher Regional Court neither regarded the creditors of the insurance company in their entirety as comprised by the Scheme nor had the company been insolvent, so that proceedings comparable with German insolvency proceedings cannot have been present. Regulation (EG) No. 44/2001 of the council of 22 December 2000 concerning the competent jurisdiction and the acceptation and enforcement in civil and commercial matters does equally not lead to an approval as this would require a “decision” in contradictory proceedings which would exactly not be the case in a scheme of arrangement. In the end, in such proceedings the court would rather have a supervisory function than it is a decision-making body and the Scheme would primarily have the function of a settlement between company and creditors. For the same reasons an acceptation according to German civil procedure law is out of the question as well.
In its order of 22 October 2008 – 2 O 501/07, the Local Court Potsdam argued along the same lines as the Higher Regional Court Celle concerning the rejection of Scheme as insolvency proceedings. Unlike the Higher Regional Court Celle, however, the Local Court Potsdam assumes that the judicial acceptance in Scheme proceedings are a “decision” in the sense of Regulation (EG) No. 44/2001 which are therefore basically to be accepted. In the case at hand, however, it lacks the required agreement on jurisdiction for the High Court in London, so that the Scheme has no effect insofar for inland claimants.
A clarification in this aspect seems highly necessary. The practical meaning of a flexible instrument with which a company in dire straits can rearrange the dependency on its creditors on the basis of a majority decision is still high. For this reason, the German lawmaker would be well advised to create a similarly flexible instrument in order to make reorganisation easier for inland companies.
