Foreign insolvency with pending litigation: Which law governs the procedural effect

Article 18 EIR contains a specific conflict-of-laws rule. If pending litigation or arbitration concerns an asset or right forming part of the insolvency estate, the effects of the insolvency proceedings are governed exclusively by the law of the Member State in which the litigation is pending or in which the arbitral tribunal is located.

The state in which the insolvency proceedings opened is therefore not the sole connecting factor for the procedural effect. Proceedings may open in one Member State while the claim is pending before an Austrian court. Article 18 then directs the review of the effect on that claim to the law of the state where the litigation is pending.

This identifies the applicable legal system for the procedural effect. It does not decide whether the foreign opening decision is recognised, whether the opening court had jurisdiction or whether the underlying claim succeeds on its merits.

Article 18 requires the dispute to concern an asset or right forming part of the insolvency estate. The precise relief sought is therefore central to the initial review. A payment claim, delivery claim, ownership dispute or case concerning security may raise different questions about the estate connection.

Read the claim, contracts, annexes and opening decision together. The relevant question is which legal position is being enforced, secured or defended in the pending proceedings. The title of the case and the names of the parties provide only a starting point.

If the estate connection remains uncertain, record that issue expressly. The choice of applicable law should rest on the file rather than an assumption. This matters especially for claims against third parties, ownership disputes and proceedings concerning security rights.

For pending litigation, Article 18 refers to the state of the court. For pending arbitration, the Regulation uses a separate connecting factor: the relevant Member State is the one in which the arbitral tribunal is located.

Collect the arbitration clause, notice of arbitration, procedural rules and latest communications. The parties should compare the stated arbitral seat with the procedural records. An uncertain or changed seat can alter the review path.

Article 18 therefore identifies the law governing the effect of the insolvency on the pending arbitration. The validity of the arbitration clause, the tribunal’s jurisdiction and the merits of the claim remain separate questions.

A reliable review starts with a short chronology. Record the opening of the insolvency proceedings, the commencement of the litigation or arbitration, service of the relevant documents and the latest procedural step. This shows which proceedings were pending when the insolvency opened.

Then record the place of proceedings. For a state court, include the state, court and case reference. For arbitration, secure the seat, arbitration clause and case number. Add a precise description of the asset or right concerned by the dispute.

This structure provides the basis for the next review under the law of the state of proceedings. It does not decide whether a party may continue, amend or end the case.

Article 18 EIR and the Austrian rules on pending litigation perform different functions. Article 18 assigns the effects of the insolvency on the pending case to the law of the court state or arbitral state. That law must then be used to determine the concrete procedural consequence.

For proceedings in Austria, the applicable Austrian insolvency and procedural rules require a separate review. The article on interruption and entry in Austrian insolvency proceedings addresses that national question. Filing an insolvency claim or using an undertaking under Article 36 EIR follows its own structure.

Cross-border files should keep these levels separate: foreign opening, scope of Article 18, place of proceedings, the resulting procedural effect, and separate questions concerning recognition, jurisdiction or filing.