China Recognizes Another German Bankruptcy Judgment in 2023

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Key takeaways:

In January 2023, the Beijing First Intermediate People’s Court ruled, based on the principle of reciprocity, to recognize a bankruptcy ruling rendered by a local court of Aachen, Germany, which designated a bankruptcy administrator (See In re DAR (2022) Jing 01 Po Shen No. 786 ((2022)京01破申786号).
The case of In re DAR (2022) marks the second time that Chinese courts have recognized German bankruptcy judgments, and the first time the de jure reciprocity – a new liberal test-being used in the enforcement of foreign bankruptcy judgments in China.
Similar to the case of In re Xihe Holdings Pte. Ltd. et al. (2020), where a Singapore Bankruptcy Judgment was recognized in China, the case of In re DAR (2022) also reviewed the application in accordance with the Enterprise Bankruptcy Law (EBL), rather the Civil Procedure Law(CPL). The EBL has almost the same requirements as those under the CPL, except that for foreign bankruptcy judgments, there exists an additional requirement, i.e., the protection of the interests of creditors in the territory of China.
The case of In re DAR (2022) is the second case concerning de jure reciprocity, right after Spar Shipping v Grand China Logistics (2018) where an English monetary judgment was first recognized in China.
Considering the new principle of reciprocity in the SPC’s 2022 judicial policy is not applicable to bankruptcy cases, Chinese local courts seemed to have the discretion in interpreting the reciprocity, resulting in different views – with some courts (like Xiamen Maritime Court in In re Xihe Holdings Pte. Ltd. et al. (2020) ) adopting the de facto reciprocity test plus presumptive reciprocity test, while other courts (like the Beijing Court in In re DAR (2022)) applying the de jure reciprocity.

Chinese courts adopt a more lenient standard of de jure reciprocity this time compared with the first recognition of a German bankruptcy judgment in 2015.

This means that there is no substantial difference between the reciprocity standards currently adopted by Chinese courts and the reciprocal guarantee under Section 328 (1) No. 5 ZPO (German Code of Civil Procedure).

In 2015, the Intermediate People’s Court of Wuhan, China (the “Wuhan Court”), based on de facto reciprocity, recognized a German bankruptcy judgment for the first time. In other words, the Wuhan Court recognized the German bankruptcy judgment because Germany once recognized and enforced Chinese civil and commercial judgments.

This post will walk you through the case of In re DAR (2022) Jing 01 Po Shen No. 786 ((2022)京01破申786号) tried by the Beijing First Intermediate People’s Court (the “Beijing Court”) on 16 Jan. 2023, in which the applicant Dr. Andreas Ringstmeier (DAR) applied for recognition of the bankruptcy ruling (the “German Judgment”) rendered by a local court of Aachen (the “Aachen District Court”) of the Federal Republic of Germany.

In this case, the Chinese court adopted the de jure reciprocity standard in the recognition of German judgments. Specifically, the Beijing Court recognizes the German Judgment on the grounds that German courts may recognize Chinese bankruptcy judgments in accordance with the provisions of the German Insolvency Law.

I. Case background

The bankrupt enterprise, i.e., LION GmbH, General Contractor & Engineering, (hereinafter the “Company”) in this case is registered in Aachen, Germany, with the registration number HRB6267. The Company, with offices in Beijing and Shanghai and ownership of the real estate in Beijing, conducts cross-border goods exchanges with China.

On 7 Oct. 2010, the Company filed a bankruptcy application to the Aachen District Court due to its inability to pay and insolvency.

On 1 Jan. 2011, the Aachen District Court made a bankruptcy ruling, i.e., the German Judgment, with the case file number 91 IE5/10, and appointed DAR, a lawyer residing in Germany, as the bankruptcy administrator of the Company.

On 21 Nov. 2022, the Beijing Court accepted the application of the bankruptcy administrator DAR for recognition of the German Judgment. On the same day, the Beijing Court issued an announcement regarding this case on the National Enterprise Bankruptcy Information Disclosure Platform (available at: https://pccz.court.gov.cn/pcajxxw/index/xxwsy).

On 16 Jan. 2023, the Beijing Court made a civil ruling, indicating that: (i) to recognize the German Judgment; (ii) to recognize the capacity of DAR as the bankruptcy administrator; and (ii) to allow DAR to take over the property, account books and documents, determine the daily expenses, manage and dispose of the property of the Company in China.

II. Court views

1. Recognition of German bankruptcy judgments and the capacity of the bankruptcy administrator

(a) Is there a reciprocal relationship between China and Germany?

According to the Enterprise Bankruptcy Law of China (企业破产法), Chinese courts should examine the application for recognition of foreign bankruptcy judgments based on international treaties between China and the foreign country involved, or the principle of reciprocity in the absence of any international treaty.

Given that there are no relevant international treaties between China and Germany, Chinese courts should examine the application based on the principle of reciprocity.

The Beijing Court held that there was a reciprocal relationship between China and Germany on the following grounds:

i. Article 343 of the German Insolvency Law stipulates that the commencement of foreign insolvency proceedings should be recognized. Accordingly, the bankruptcy proceedings initiated by China can be recognized in Germany; a

ii. There is no evidence to prove that Germany once refused to recognize any Chinese bankruptcy judgment.

(b) Is the Aachen District Court a competent court?

The Company is registered and domiciled in Aachen, Germany. According to the Enterprise Bankruptcy Law of China, bankruptcy cases should be under the jurisdiction of the court located in the domicile of the debtor.

Therefore, the acceptance of this case by the Aachen District Court does not violate the provisions of the Enterprise Bankruptcy Law of China on jurisdiction.

(c) Have the legitimate rights and interests of creditors in China been damaged?

It is interesting to note that, similar to the case of In re Xihe Holdings Pte. Ltd. et al. (2020), where a Singapore Bankruptcy Judgment was recognized in China, the case of In re DAR (2022) also reviewed the application in accordance with the Enterprise Bankruptcy Law (EBL), rather the Civil Procedure Law(CPL). The EBL has almost the same requirements as those under the CPL, except that for foreign bankruptcy judgments, there exists an additional requirement, i.e., the protection of the interests of creditors in the territory of China.

The Beijing Court held that the legitimate rights and interests of creditors in China were not damaged on the following grounds:

i. The German Insolvency Law stipulates that the German insolvency proceedings are collective liquidation proceedings, and contain no discriminatory provisions against Chinese creditors;

ii. The Company is not involved in any litigation or arbitration cases in China;

iii. There are no Chinese creditors in the insolvency proceedings of the Company;

iv. There are no other right holders, except for the buyer, claiming against the property of the Company in China; and

vi. There is no interested party raising any objection to the Beijing Court during the announcement period.

2. Grant of authority to the bankruptcy administrator

The Beijing Court granted the authority applied to the bankruptcy administrator on the following grounds:

i. It is necessary for the disposal of the property of the Company in China;

ii. It is within the scope of authority of the bankruptcy administrator under the relevant provisions of the German Insolvency Law;

iii. It is within the scope of duties of the bankruptcy administrator under the Enterprise Bankruptcy Law of China.

III. Our comments

In our previous article, we introduced the case where the Saarbrucken Regional Court in Germany refused to recognize a Chinese judgment based on the lack of reciprocity in April 2021 (the “Saarbrucken Case”).

With regard to the recognition and enforcement of foreign judgments, the Saarbrucken Regional Court overlooked the fact that China had confirmed the reciprocity with Germany and its open attitude to foreign judgments.

For these years, we have been working to facilitate the accurate assessment of the possibility of recognizing and enforcing foreign judgments in China by enterprises, individuals, lawyers, and courts.

Naturally, we wrote a critical review, China Reluctant to Recognize Foreign Judgments? A Huge Misunderstanding, with regard to the Saarbrucken Case.

In that review, we introduce the first German judgment recognized and enforced by Chinese courts, that is, the German bankruptcy judgment recognized by the Wuhan Court first mentioned above.

It refers to the civil ruling “(2012) E Wu Han Zhong Min Shang Wai Chu Zi No.00016”((2012)鄂武汉中民商外初字第00016号) rendered by the Wuhan Court on 26 Nov. 2013.

In this ruling, the Wuhan Court recognized the decision (No. 14 IN 335/09) of the District Court of Montabaur of Germany, which was rendered on 1 Dec. 2009 and concerned the appointment of a bankruptcy administrator.

The Wuhan Court pointed out, in its ruling, that it confirmed the reciprocal relationship between China and Germany based on the 2006 decision of the Berlin Court of Appeal, and recognized the decision of the District Court of Montabaur accordingly.

The Saarbrucken Regional Court held that this was an isolated case, which was insufficient to show that a reciprocal guarantee in the general sense had been established through judicial practice.

Clearly, the case discussed in this post has further confirmed the reciprocal guarantee already existed between China and Germany. We believe that German courts may be more prone to recognize and enforce Chinese judgments under encouragement by this case.

Moreover, this case also reconfirms that Chinese courts have, while abandoning the principle of de facto reciprocity, resorted to the principle of de jure reciprocity.

This change comes from a landmark judicial policy issued by the Supreme People’s Court (SPC) at the beginning of 2022.

In March 2022, Shanghai Maritime Court ruled to recognize and enforce an English judgment in Spar Shipping v Grand China Logistics (2018) Hu 72 Xie Wai Ren No.1, marking the first time that an English monetary judgment has been enforced in China based on de jure reciprocity.

The First Time China Recognizes English Judgment, Implementing 2022 Judicial Policy in Full

This case mentioned here and recognized by the Beijing Court is the second case concerning de jure reciprocity after the above-mentioned case.

As a side note, considering the new principle of reciprocity in the SPC’s 2022 judicial policy is not applicable to bankruptcy cases (see “How Chinese Courts Review Applications for Enforcement of Foreign Judgments: Criteria and Scope of Application”) Chinese local courts seemed to have the discretion at interpreting the reciprocity, resulting in different views – with some courts (like Xiamen Maritime Court in In re Xihe Holdings Pte. Ltd. et al. (2020) ) adopting the de facto reciprocity test plus presumptive reciprocity test, while other courts (like the Beijing Court in this case) applying the de jure reciprocity.

In any case, we believe that this case is a positive signal, and will encourage more foreign judgment creditors to apply for recognition and enforcement of judgments in China.

Another case commentary can be found here on the website of the Asian Business Law Institute (ABLI).