Kornhaas and the challenge of applying Keck in establishment

Abstract

Following years of expansive interpretation of the freedom of establishment for companies, in its recent Kornhaas decision the Court significantly limited the freedom’s scope by introducing an exception for such rules of the host Member State that relate to the conduct of the company’s business (as opposed to rules that affect the process of setting up the establishment itself).

In substance, this distinction very much resembles an application of the well-known Keck doctrine that was originally developed in the context of free movement of goods.

Kornhaas concerns the problem to what extent the host Member State’s insolvency law can be applied to a company that was formally set up and registered in another (home) Member State but carries out all or most of its business in the host Member State.

The case involved a number of legal problems, inter alia owing to the fact that the conflict-of-law clause contained in the European Insolvency Regulation points to the debtor’s 'centre of main interests' for the application of substantive insolvency law.

In line with this rule, the Court derives from the Treaty potentially far-reaching exemptions from the scope of freedom of establishment. This article demonstrates that the decision is deeply flawed and that the Keck doctrine is inappropriate in the present context.

Sweet and Maxwell: European Law Review http://www.sweetandmaxwell.co.uk/catalogue/productdetails.aspx?recordid=427&productid=6968

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