Supreme Court Rules on the Recognition of Foreign Insolvencies
In a recent decision the Liechtenstein Supreme Court considered whether and to what extent an insolvency administrator appointed in Russia and under Russian law has the right to appeal against a decision to open insolvency proceedings in Liechtenstein.
An insolvency administrator appointed in Russia (and under Russian law) appealed against a Liechtenstein decision to open insolvency proceedings on the assets of a company at the request of a creditor, arguing that his powers as an insolvency administrator appointed in Russia over the "total assets" also applied to the assets located in Liechtenstein, and that the opening of insolvency proceedings in Liechtenstein was therefore unlawful. Following the appeal, the Liechtenstein Court of Appeal had overturned the decision to open insolvency proceedings and declared the proceedings null and void.
In its decision of 2 September 2002 (05 KO.2021.317), the Supreme Court then overturned the decision of the Liechtenstein Court of Appeal and reinstated the decision of the court of first instance to open insolvency proceedings, on the grounds that there was neither an international agreement between Liechtenstein and the Russian Federation on the recognition of insolvency proceedings nor was the requirement of reciprocity with Russia met.
In its established case law, the Supreme Court takes the view that the effects of a foreign insolvency, and thus also the authority of a foreign insolvency administrator to conduct proceedings, are (only) to be recognised subject to compliance with the principle of reciprocity by the state concerned. This necessary consideration of reciprocity in connection with the recognition of insolvencies and their effects in Liechtenstein remains even after the revision of the Insolvency Act in 2020 pursuant to Article 5 (3) of the Insolvency Act. The Insolvency Act requires reciprocity in order for the Liechtenstein assets of a debtor to be surrendered to a foreign insolvency administrator upon request, if insolvency proceedings have been opened abroad - and thus implicitly governs the effects and recognition of foreign insolvency proceedings. According to the Supreme Court, the objective of a foreign insolvency administrator challenging the opening of insolvency proceedings in Liechtenstein by way of an appeal is obviously to drag domestic assets into foreign insolvency proceedings, i.e. in substance exactly what demands reciprocity pursuant to Section 5 (3) of the Insolvency Act. Since Liechtenstein insolvency law does not automatically extend the effect of a foreign insolvency to the debtor's assets located in Liechtenstein, an insolvency administrator who (in the absence of an insolvency agreement or an equivalent international agreement legitimising them) cannot prove that the reciprocity requirement is fulfilled, is also not entitled to appeal against the decision to open insolvency proceedings in Liechtenstein. With regard to reciprocity, the Supreme Court further noted that, in the absence of an international agreement, it is not sufficient that there is a legal basis for reciprocity; rather, reciprocity must be "observed", i.e. actually exercised. There were no known cases in which Russian courts had ordered the recognition of insolvency proceedings initiated in Liechtenstein, and therefore there was no observance of reciprocity with respect to Russia.
According to the Supreme Court, the foreign insolvency administrator was not entitled to file an appeal against the decision to initiate insolvency proceedings and therefore from a procedural point of view, there was no admissible appeal against the decision to initiate insolvency proceedings, which therefore was final.
The Liechtenstein Supreme Court has thus clarified that the requirement of reciprocity in connection with the recognition of insolvencies and their effects in Liechtenstein will continue to be relevant after the revision of the Insolvency Act in 2020.
For further information, please contact Benedikt Walch.