An enforcement clause can be issued for a ruling against a bankrupt company | In Principle

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An enforcement clause can be issued for a ruling against a bankrupt company

The Polish Supreme Court has confirmed that there is no reason not to confirm that a foreign judgment against a bankrupt company is enforceable, and issue an enforcement clause. Courts of lower instance have ruled out this possibility.

Supreme Court judgment of 30 January 2018, III CSK 388/16

We recently handled a case in which an enforcement clause was issued against a receiver in a cross-border arbitration.

Defendant files for bankruptcy during arbitration proceedings

A defendant filed for bankruptcy with the option of an arrangement with creditors during arbitration proceedings. The proceedings were being conducted in Stockholm, leading the arbitration tribunal to find that the arbitration clause was governed by Swedish law. Having considered conflict of laws rules, the tribunal found that Swedish law was applicable also when determining the legal consequences of bankruptcy for arbitration proceedings. Eventually the tribunal carried on reviewing the case (this would not be possible under Polish law – art. 142 of the Bankruptcy and Recovery Law as worded at that time) and ruled against the defendant.

The defendant appealed against the ruling to the appeal court (Svea hovrätt). The appeal was dismissed and the court awarded the adverse party the costs of legal representation by Swedish counsel of EUR 60 000. Almost at the same time, the complainant’s bankruptcy proceedings were reclassified as liquidation bankruptcy proceedings.

In order to repay the amount payable under the appeal court judgment, the adverse party sought enforcement of that ruling before Polish courts for the section awarding the costs of the proceedings.

The courts of lower instance stated that an enforcement clause could not be issued due to administration of the bankrupt estate being taken over by a receiver

The Regional Court and Appeal Court in Cracow dismissed the motion, saying that the applicant could only seek satisfaction of a debt being the subject of a foreign judgment in bankruptcy proceedings. Both courts found that once the procedure changed from bankruptcy to liquidation bankruptcy of the debtor’s estate, an enforcement clause for a foreign judgment could no longer be issued. In this kind of proceedings, the bankrupt estate was administered by a receiver, and both courts took the view that an enforcement clause could not be issued against it because conducting enforcement proceedings with respect to bankrupt estate is not permitted.

The applicant questioned this position, saying that bankruptcy proceedings do not prevent a foreign judgment being confirmed as enforceable and issuance of an enforcement clause.

Supreme Court: issuance of an enforcement clause is in line with the Brussels I regulation 

The Supreme Court concurred with the applicant and found that Regulation (EC) 44/2001 (Brussels I) applied in the case. On that basis, enforceability could only be denied on the grounds specifically listed (art. 45 in conjunction with art. 34 and 35 of the regulation). Dismissal of an application because bankruptcy proceedings were being conducted against a debtor would be introduction of an additional condition for enforceability of a ruling in a manner contrary to the regulation.

At the same time, the Supreme Court confirmed that an enforcement clause could be issued against a receiver, because there are no substantive rulings on bankrupt estate in proceedings concerning recognition of foreign rulings and enforcement clauses.

Piotr Golędzinowski, legal adviser, Dispute Resolution and Arbitration practice, Wardyński & Partners