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EARN Annual Meeting 2024 in Amsterdam

Amsterdam, 2024-10-22

After being guests of EARN founding member Damsté Advocaten in Enschede, the Netherlands, exactly 10 years ago, this year’s EARN meeting from 17-19 October 2024 was held at the new Amsterdam office of Damsté, our partner law firm in the Netherlands, which has grown considerably in the meantime.

The annual EARN meeting is an integral part of the close Europe-wide network exchange in order to report and discuss current European regulations and directives, relevant decisions of the European Court of Justice, but also national developments in case law and, most recently, in particular in digitisation.

This year, the guest contribution by Frank van’t Geloof on the Reasonability in Dutch contract law based on the Haviltex standard was discussed particularly intensively, drawing parallels but also drawing distinctions from the participating EARN partners.

The highly praised EARN meeting was completed with the traditional Bitterballen on Friday afternoon, innovative Dutch cuisine and an enjoyable canal tour through Amsterdam. Many thanks to Irith Hoffmann and her team for organising such a successful meeting.

We are already looking forward to the meeting in 2025, which is expected to take place in Portugal.

Luxembourg: New Legislation on Business Preservation and Bankruptcy

Luxemburg, 27. August 2024

Given that the previous bankruptcy law in Luxembourg dated back to the 20th century, it was imperative to adapt it to the modern economy. With a new law of August 7, 2023, concerning the preservation of businesses and the modernization of bankruptcy law, while also integrating the European Directive 2019/1023 on preventive restructuring frameworks, Luxembourg has finally taken the long-awaited step to modernize its legal framework for insolvency proceedings.

This reform, which came into force on November 1, 2023, is timely, offering an appropriate response to the economic challenges faced in recent years. Its objective is to expedite procedures while promoting business restructuring and attempting to avoid liquidation. The new law not only aims to protect creditors and preserve jobs but also to support struggling entrepreneurs.

The first notable change in this law is the expansion of its scope, as outlined in Article 2. The law also applies to individuals engaged in professional activities, who are equally affected by economic pressures.

However, the centrepiece of this law is undoubtedly the procedures proposed to ensure the preservation of businesses and to avoid bankruptcy. Thus, it introduces three new procedures:

Conciliation, where, at the debtor’s request, the competent ministry may appoint a business conciliator to facilitate the reorganization of all or part of the debtor’s assets or activities.

The judicial reorganization procedure aims to preserve the continuity of the business under the supervision of a judge and offers three different options. The first option is to obtain a stay of proceedings to allow the conclusion of an amicable agreement. The second option involves establishing a reorganization plan, which consists of reaching a collective agreement. However, this plan must be approved by the various creditors. It can also be homologated by the court to facilitate its execution. The third option is a court-ordered transfer, which involves selling all or part of the debtor’s assets to one or more third parties.

Thirdly, for the establishment of the reorganization by amicable agreement, the debtor may propose an amicable agreement to all creditors to reorganize all or part of the debtor’s assets or activities.

In conclusion, this new law represents a significant advancement that allows to identify a struggling company before it finds itself in a situation where no positive outcome is possible. It offers them “a new chance” and gives an honest manager who has gone bankrupt another opportunity to undertake business activities.

Author:  Avocat à la Cour JULIE DENOTTE & ANNE-MARIE SCHMIT, L’ÉTUDE ANNE-MARIE SCHMIT, Luxembourg

‘Battle of forms’ under the United Nations Convention on contracts for the International sale of goods (hereinafter referred to as: CISG)

Enschede, Netherlands 2024-07-01

In case contracting parties each refer to the applicability of its own general terms and conditions in the offer and acceptance, the question arises which general terms and conditions apply to the contract. Under Dutch law, this question on the so-called ‘battle of forms’ must be answered using the ‘first shot rule’. The first shot rule states that the second reference to general terms and conditions has no effect unless the second reference explicitly rejects the applicability of the first general terms and conditions. In short: whoever ‘shoots first’ wins, unless the exception situation arises.

If there is a cross-border sale, it must first be assessed whether the CISG applies. In brief, the CISG applies to an international sale of movable goods between two professional parties (B2B). These parties must either be parties to the CISG themselves, or have declared the law of a country that is party to this convention applicable. If both parties point to its general terms and conditions at the contractual stage, the first question is whether those general terms and conditions apply at all. If the answer is yes, the second question is which set of general terms and conditions then applies to the (cross-border) contract of sale. Both questions are answered by the CISG.

In view of the provisions of Articles 14 and 18, in conjunction with Articles 8 and 9 of the CISG, general terms and conditions form part of the contract of sale if two requirements are met. The parties must have expressly or tacitly agreed to the incorporation of those general terms and conditions into the contract at the time of conclusion of the contract and the counterparty of the user of the general terms and conditions must have had a reasonable opportunity to familiarize himself with them.

If this test shows that both the general terms and conditions of the buying party and the general terms and conditions of the selling party form part of the contract, the question is therefore which set of general terms and conditions applies. Under the CISG, the CISG Advisory Council, an international expert group on the CISG, assumes the ‘knock out rule’. In Opinion No 13, rule number 10, the CISG Advisory Council briefly decided that general terms and conditions only apply if the general terms and conditions are substantively similar. General terms and conditions that differ in substance do not form part of the purchase contract concluded between the parties. For this, therefore, ‘knock out’ applies.

In the event that the ‘knock-out rule’ ensures that nothing is settled between the parties on certain subjects, the parties must fall back on the content of the CISG. To the extent that the subjects are also not regulated in the CISG, parties must fall back on the applicable law. Article 4 paragraph 1 sub a Rome I Convention (Regulation (EU) No 864/2007) stipulates that the contract for the sale of movable goods is governed by the law of the country where the seller has his habitual residence. In the event that there is a conflict situation on a subject that is not regulated by general terms and conditions, neither in the contract of sale nor in the CISG, the applicable law will have to be decisive.

Case study: cross-border purchase of pipes in a heat exchanger

In a recent case, we considered a purchase agreement for the purchase of pipes to be installed in heat exchangers. The selling party was based in the Netherlands. The buying party was based in Germany. The buyer in Germany needed the pipes for a major project: the construction of a heat exchanger at a third party, one of its customers. During the installation of the pipes in the heat exchanger, it turned out that the pipes were faulty. Among other things, there were several cracks in the pipes. Due to the breach of the sales contract, the German buyer suffered significant damages. First of all, the buyer had to have the faults investigated by an expert. This involved high costs. Second, the faulty pipes had to be removed piece by piece by the German buyer, and it had to install new proper pipes in the heat exchanger. Finally, the third party demanded a huge penalty from the German buyer for the late delivery of the heat exchanger.

As both the German buyer and the Dutch seller referred to its own general terms and conditions at the contracting stage, the question arose as to which set of general terms and conditions applied to the sales contract. As this was a cross-border sale of movable goods, between two professional parties, both of whom are contracting parties, the CISG applied. Using the CISG, it first had to be determined whether the general terms and conditions of either party applied at all. Then, using the ‘knock-out rule’, it had to be determined which general terms and conditions applied.

Both sets of general terms and conditions differed in substance on almost all points, including on exclusion of damages. On one point, the general terms and conditions agreed in substance: both parties had excluded the applicability of the CISG in its general terms and conditions. Because the general terms and conditions agreed on this point, the CISG did not therefore apply. The general terms and conditions on damages did not correspond in substance, so the knock-out rule applied to these provisions. The legal issue on the right to damages, therefore, had to be determined by the applicable Dutch law.

Do you have questions on this topic, or do you have a dispute regarding an (international) purchase agreement with regard to the Netherlands? If so, please contact us (Mrs. I.K.M. Hoffmann and Mrs L.E.M. Zanderink)

Author: Mrs L.E.M. Zanderink , Damste Advocaten, Netherlands

The new flexible corporation (FlexCo) in Austria

Vienna, 2024-04-19

Since 1 January 2024, Austria has had one more company form: the flexible corporation “FlexCo”. The FlexCo is often regarded as a hybrid form between the two existing forms of capital company, the GmbH and the AG.

It is intended to meet the requirements of start-ups for more flexibility and reduced formalities, although the switch to FlexCo is also available to established companies.

The FlexCo is based on GmbH law, but with flexible structuring options from stock corporation law. In principle, it can be founded by at least one natural or legal person for any permitted purpose. The minimum share capital is EUR 10,000.00, at least half of which has to be paid in at the time of formation – a regulation that now also applies to the GmbH. In comparison to the GmbH, however, the minimum share capital contribution is only EUR 1.00.

The core objective of FlexCo is to make it easier to invest in companies. In addition to the classic company shares, the articles of association can also provide for the issue of company value shares of up to 25% of the share capital. This is intended in particular to enable employees to participate in profits without voting rights. In the event that the founding shareholders leave the company, they have a mandatory right of sale.

Only the sum of the allocated company shares is entered in the company register, not the names of the owners. The transfer of shares is also significantly simplified compared to a GmbH: Neither the transfer of ordinary company shares nor of company value shares requires notarisation with FlexCo. Instead, a private deed from a lawyer is sufficient.

Another innovation is the introduction of no-par value shares with a nominal amount in the articles of association. Each share is associated with one vote and must have a nominal value of at least EUR 1.00. This means that shareholders can hold different shares and dispose of them separately. Options such as conditional capital, authorised capital and the issue of convertible bonds as well as the acquisition of treasury shares and company value shares are also made possible.

In the spirit of reducing formality, FlexCo also makes it possible to provide in the articles of association for resolutions to be passed by circulation at any time, so that this cannot be prevented by the refusal of individual shareholders, as is the case with a GmbH.

Overall, the FlexCo is a company form that not only sounds modern, but also offers a number of simplifications compared to a GmbH. Nevertheless, it remains to be seen whether it can prevail in practice.

Authors: Kristina Maria Steflitsch, Johannes Zink, hba Rechtsanwälte GmbH, Vienna, Austria

Spanish Royal Decree-law 6/2023

Granada, 2024-04-11

The Spanish Royal Decree-law 6/2023 was published on 20 December 2023 and entered into force on 20^th March 2024. It approves urgent measures to implement the Recovery, Transformation and Resilience Plan for the justice system, civil service, local government and patronage.

Its main purpose is, among others, to contribute to the modernisation and digitalisation of the justice system by adapting the Spanish courts to modern technology.

1. In civil and criminal proceedings, the general rule will now be to hold virtual hearings by videoconference or similar systems, with some exceptions and specific situations provided for in the laws regulating the different types of courts.
2. Thus, in civil matters, for example, judicial hearings in which parties, witnesses and experts are heard and examined will be held in person; but even in these cases virtual hearings may be requested in certain circumstances, such as when the person who has to intervene resides in a different municipality to that of the court.
3. Trials, hearings and other procedural acts that, in accordance with procedural laws, must be held in open court, can be broadcast when everyone taking part is doing so virtually.
4. All procedural notifications must be sent electronically, except in the case of individuals not represented by a solicitor (procurador), who may choose to make and receive them in paper or electronically.
5. Electronic judicial platforms (sedes judiciales electrónicas) have been created to give parties access to different types of content using a secure login system. These include the “Justice Folder” (Carpeta Judicial), the “General Access Point to the Justice System” (Punto de Acceso General a la Administración de Justicia) and the “Electronic Judicial File” (Expediente Judicial Informático).
6. The “Electronic Judicial File” (Expediente Judicial Informático) will be the focal point for digital justice going forward. In conjunction with the application of the general principle of data orientation, the intention is to open the door to new technological solutions and the use of artificial intelligence.
7. Bodies and mechanisms have been created to ensure cooperation between the authorities involved in the justice system, and the “Judicial Interoperability and Security Scheme” (Esquema Judicial de Interoperabilidad y Seguridad) will be developed as a set of mandatory technical instructions.

This legal change has crucial implications for companies, especially with regard to first summons. The change in the regulation implies that first summons and notifications to legal persons will be made electronically, marking a significant change from current practices (which are made on paper at companies’ registered offices).

Companies will have to ensure that they have effective control over the designated electronic platforms and, in the event of failure to download the notifications, within 3 days, they will proceed to publication on the Sole Judicial Notice Board (Tablón Edictal Judicial Único).

In addition, it highlights the need for companies to subscribe to alert systems on the aforementioned electronic platforms in order to be aware of judicial notifications in a timely manner.

However, Article 12.5 provides for a specific system of notifications for those companies whose volume of cases could make it difficult to manage through the general access point.

In conclusion, Royal Decree-Law 6/2023 marks a significant change, not only procedurally, but also with respect to the first summons to companies, prioritising telematic and electronic communication (as opposed to the traditional paper notification at the company’s registered office).

Author: Luis Sánchez Pérez, Director Mercantil, Medina Cuadros Abogados S.L, Granada, Spain

German Federal Court of Justice rows back on insolvency avoidance

Berlin, 05.02.2024

New ruling on the scope of the provision on presumption

After the Federal Court of Justice (BGH) had already dealt with the statutory presumption of fact in Section 133 (1) sentence 2 of the German Insolvency Code InsO in its decisions of 3 March 2022 (IX ZR 78/20) and 23 June 2022 (IX ZR 75/21), it took up this aspect again in a decision of 26 October 2023 (IX ZR 112/22) published only now in January 2024.

This confirms our assessment published at the time, according to which the Federal Court of Justice wishes to give the presumption of Section 133 (1) sentence 2 of the German Insolvency Code (InsO) more significance again. It can be assumed that the successive changes in the chairmanship of the IX. Civil Senate responsible for bankruptcy proceedings in the last three years are responsible for this change in case law to the detriment of creditors affected by avoidance actions.

Knowledge of the intention to disadvantage creditors

According to the provision in section 133 (1) sentence 2 of the German Insolvency Code (InsO), the presumption is that the opposing party is aware of the insolvency debtor’s intention to disadvantage creditors if he knew that the insolvency debtor was insolvent. On the other hand, knowledge of the impending insolvency can only be considered in cases in which the opposing party has not provided any direct consideration for the contested legal act. In this respect, the reform of avoidance law of 5 April 2017 has fortunately slightly improved the legal position of suppliers and service providers.

Following the decision of the Federal Court of Justice of 6 May 2021 (IX ZR 72/20), many creditors had assumed that the scope of statutory presumption of Section 133 (1) sentence 2 of the German Insolvency Code (InsO) is now only limited to exceptional cases.

Although the two decisions of 3 March 2022 and 23 June 2022 had brought a little more legal certainty for those creditors who received payments on the basis of a conclusive restructuring concept, but at the same time already clearly emphasised that the scope of Section 133 (1) sentence 2 of the German Insolvency Code (InsO) should not be restricted.

Key points of the BGH ruling IX ZR 112/22

In the now published decision of 26 October 2023, the Federal Court of Justice is once again giving particular attention to the scope of provision on presumption of Section 133 (1) sentence 2 of the German Insolvency Code (InsO).

The key points of this decision are clear: if the opposing party is aware of the insolvency of the subsequent insolvency debtor, the factual presumption of fact of Section 133 (1) sentence 2 of the German Insolvency Code (InsO) argues for the contesting insolvency administrator, i.e. they have provided evidence that the opposing party was aware of the debtor’s intention to disadvantage creditors.

For his part, he must now refute the legal presumption and provide full proof that he was not aware of the insolvency debtor’s intention to disadvantage creditors. To this end, he has to demonstrate to the conviction of the court that he can assume that the debtor will be able to fully satisfy his other existing and foreseeable additional creditors in the time available for this purpose. This alone puts huge obstacles in the way for an outside creditor who, from experience, does not know the economic situation of his debtor. However, the Federal Court of Justice has added another obstacle that is unlikely to be overcome: the opposing party may only make this forecast on a sufficiently reliable basis for assessment. So, in other words, he cannot trust vague information from the debtor, and mere hope that the other creditors will also be satisfied is not enough for the Federal Court of Justice. Rather, a sufficiently reliable basis for assessment is required; when this is given, the Federal Court of Justice will then leave it to the courts of lower instances to decide when this is the case.law.

As a result, this means that – once the presumption of Section 133 (1) sentence 2 of the German Insolvency Code (InsO) intervenes in favour of the insolvency administrator – the opposing party will only be able to refute this presumption in exceptional cases, for example if a reliable restructuring concept is available (for its requirements: see the Federal Court of Justice ruling of 3 March 2022 – IX ZR 78/20 and of 23 June 2022, IX ZR 75/21).

Conclusion

The Federal Court of Justice has not yet ruled on whether the assumption laid down in Section 133 (3) sentence 2 of the German Insolvency Code (InsO) in favour of the opposing party intervenes with regard to the opposing party not being aware of the insolvency of the debtor when concluding a payment agreement or granting payment facilitation. The Federal Court of Justice also leaves open the period of time it wants to use as a basis for the complete satisfaction of all creditors with the wording “in the available time”. The legal uncertainty for creditors will thus significantly increase again.

What does this mean for business partners of companies that are experiencing payment difficulties?

They should try to comply with the requirements of Section 133 (3) sentence 2 of the German Insolvency Code (InsO) in order to be able to claim at least this legal presumption of fact in favour of the opposing party.

In general, it is advisable to switch to the so-called cash transactions (Section 142 InsO) to continue the business relationship if a business partner has payment difficulties and to transfer any arrears to a payment agreement. However, this must be designed in a legally secure manner in order to actually be able to make use of the desired granting of privilege in the event of a contestation. Our insolvency law experts will be happy to help you with this.

EARN Annual Meeting Granada 2023

Granada, 01.11.2023

The Spanish EU Presidency 2023 has chosen the city of Granada to host the meeting of the European Political Community and the informal meeting of the Heads of State and Government on 5 and 6 October, respectively, due to its history, its current centrality and its future as an ideal place to continue advancing the values of the European Union. The location for our EARN Annual Conference 2023 could not have been better chosen for our meeting on 19 to 21 October 2023.

The Spanish partner law firm Medina Cuadros Abogados welcomed almost all of the EARN network members to its offices in the beautiful historic city centre. The subsequent conference in the historic Carmen de la Victoria of the renowned University of Granada was opened by Klaus Jochen Albiez Dohrmann, Catedrático, Civil Law Department, Granada University, with an interesting presentation on the collective practice of the legal profession in Spain, which was followed by a lively discussion and a comparison of country-specific regulations in the partner countries. Traditionally, all participants presented news from case law and legislation, but also on developments in electronic legal transactions in the member states. To summarise, the majority of electronic legal transactions have now been successfully implemented.

The fantastic supporting programme with the highlights of the city and culinary delights perfectly organised by Luis Sánchez Pérez were highly praised and appreciated by all participants. The intensive personal exchange in Granada further strengthened the close relationships between the participants and we are already looking forward to the next EARN annual meeting in Amsterdam in autumn 2024.

EARN-Meeting in Vienna

Vienna, 31.102023

After a 2-year break due to Corona, the annual meeting of the EARN network took place live again last weekend. The Austrian partner law firm hba Held Berdnik Astner & Partner Rechtsanwälte GmbH welcomed numerous network members to its centrally located Vienna office with a view of the imposing Votiv Church.

A thematic focus of the two-day meeting was in particular the country-specific regulations on the implementation of the EU Directives on “certain contract law aspects of the provision of digital content” and on “certain contract law aspects of the sale of goods” as well as the EU Restructuring Directive.

Other topics on the agenda included recent court decisions on cross-border cases and “the economic potential and legal challenges of the use of Artificial Intelligence (AI) in the legal system” as well as the further development of the European Business Code.

In general, the participants noted that the cooperation between the network partners had developed pleasingly successfully and agreed that the regular personal exchange was of particular value for cross-border case handling. Preparations for the next EARN annual meeting in 2023 have therefore already begun.