The Walls Have Fallen, Run for the Keep: Insolvency Law as the New Company Law for Third Parties

Abstract

In Kornhaas, the European Court of Justice (CJEU) held that a German ‘wrongful trading’ action falls within the scope of the Insolvency Regulation and that its application to companies incorporated in another Member State (in accordance with the Insolvency Regulation) does not infringe the freedomof establishment. The Court expressly distinguished the Kornhaas case from precedents in which it did find a violation of the freedomof establishment. This judgment is reassuring for Member States looking to protect the interests of creditors against the externalities created by companies. Pursuant to the Kornhaas judgment, Member States can be relatively confident that the measures of creditor protection they adopt fall outside the scope of the freedom of establishment, as long as these measures do not directly relate to the company’s incorporation. This will be the case for most provisions of insolvency law, given that they necessarily become relevant only after the company has been formed. Moreover, the strength of such provisions is that they apply to all companies having their centre of main interests in the relevant Member State’s territory. Seen from that perspective, the CJEU has in Kornhaas endorsed a kind of a real seat theory in insolvency law, the very theory it has unsettled in company law.