Instituto da Seguranca Social and Others (Judicial cooperation in civil matters - Exclusion of debts owed to the tax and social security authorities - Opinion) [2024] EUECJ C-20/23

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(Request for a preliminary ruling from the Tribunal da Relação do Porto (Court of Appeal, Porto, Portugal))

(Reference for a preliminary ruling – Judicial cooperation in civil matters – Directive (EU) 2019/1023 – Insolvency proceedings – Application for discharge of debt – Exclusion of debts owed to the tax and social security authorities – Requirement for justification)

1. This request for a preliminary ruling concerns the interpretation of Article 23(4) of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency), (2) and of Article 16 of the Charter of Fundamental Rights of the European Union. (3)

2. The request has been made in proceedings between SF, a natural person who has become insolvent (‘the debtor’), and parties including the Instituto da Segurança Social IP (social security institute, Portugal) and the Autoridade Tributária e Aduaneira (tax and customs authority, Portugal) concerning a request for discharge of debt made by SF in the insolvency proceedings concerning him.

3. At the request of the Court, I will focus my analysis on the question regarding the option for Member States to exclude tax and social security debts from the full discharge of debt, namely the second question referred for a preliminary ruling.

4. I will propose that the Court should hold that Member States may exclude tax and social security debts from the full discharge of debt provided for in Article 20 of Directive 2019/1023 by relying on Article 23(4) of that directive, provided that such a decision is duly justified, and that such a justification may be found in national law other than the regulations transposing the directive in question.

5. Article 23 of Directive 2019/1023, entitled ‘Derogations’, provides, in paragraph 4 thereof:

‘Member States may exclude specific categories of debt from discharge of debt, or restrict access to discharge of debt or lay down a longer discharge period where such exclusions, restrictions or longer periods are duly justified, such as in the case of:

(d) debts regarding maintenance obligations arising from a family relationship, parentage, marriage or affinity;

(e) debts incurred after the application for or opening of the procedure leading to a discharge of debt; and

(f) debts arising from the obligation to pay the cost of the procedure leading to a discharge of debt.’

6. In 2004 the Portuguese legal system introduced the possibility of accessing discharge of debt in insolvency proceedings for natural persons in Decreto-Lei n.^o 53/2004 (Decree-Law No 53/2004), (4) of 18 March 2004, which established the Código da Insolvência e da Recuperação de Empresas (Insolvency and Business Recovery Code) (‘the CIRE’).

7. Article 235 of the CIRE, which sets out the general principle of discharge of debt, provides:

‘If the debtor is a natural person, he or she may be discharged from any insolvency debts that have not been fully paid back during the insolvency proceedings or within three years of the end of those proceedings, under the conditions set out in this Chapter.’

8. With specific reference to the subject of discharge of debt, Article 245(2)(d) of the CIRE, in the version resulting from Decreto-Lei n.^o 84/2019 (Decree-Law No 84/2019), (5) of 28 June 2019 laying down the implementing rules for the State budget for 2019, provides that discharge of debt is not to include ‘tax and social security debts’.

9. In 2022, Lei n.^o 9/2022 (Law No 9/2022), (6) of 11 January 2022, transposing Directive 2019/1023, did not make any change to the list of categories of debt excluded from discharge of debt, in particular debt owed to the tax and social security authorities. That law did not provide any justification for the exclusion.

10. The legal basis of the Portuguese legal framework on the assessment of taxes is Decreto-Lei n.^o 398/98 (Decree-Law No 398/98), (7) of 17 December 1998, which approved the Lei Geral Tributária (General Tax Law) (‘the LGT’), setting out and defining the general principles governing Portuguese tax law and the powers of the tax authority, as well as the guarantees for contributors.

‘1. Taxation seeks to meet the financial needs of the State and of other public entities and to promote social justice, equal opportunities and the necessary corrections to inequalities in the distribution of wealth and income.

2. Taxation shall comply with the principles of universality, equality, lawfulness and substantive justice.’

‘2. Tax debt shall be unavailable and the conditions for reducing or waiving it may only be set in compliance with the principles of equality and tax legality.

3. The provisions of the previous paragraph shall take precedence over any specific legislation.’

III. The facts of the dispute in the main proceedings and the questions referred for a preliminary ruling

13. By judgment of 18 June 2018, which has become final, the debtor was declared insolvent.

14. On 23 January 2019, the court of first instance provisionally declared the debtor’s application for discharge of debt admissible.

15. On 29 July 2022, the insolvency administrator submitted a final report, in which he stated that the debtor should be entitled to a discharge of debt.

16. On 3 October 2022, the debtor was granted discharge of unpaid liabilities, except for tax and social security debts, pursuant to Article 245(2) of the CIRE.

17. The debtor brought an appeal against that decision before the Tribunal da Relação do Porto (Court of Appeal, Porto, Portugal). In support of his appeal, he submitted that Article 245(2) of the CIRE was not consistent with Article 23(4) of Directive 2019/1023, because the exclusion of discharge of tax and social security debts is not ‘duly justified’, contrary to the provisions of Article 23(4).

18. The referring court found that Law No 9/2022, transposing Directive 2019/1023 into national law, does not contain any justification for the exclusion of tax and social security debts and that no such justification was provided for in the draft law either. The referring court notes that, apart from any doubts concerning the compatibility of Article 245(2) of the CIRE with Directive 2019/1023, it also harbours doubts as to whether the exclusion provided for in that provision constitutes an obstacle to the objectives pursued by that directive, the TFEU and the effectiveness of EU law.

19. In those circumstances, the Tribunal da Relação do Porto (Court of Appeal, Porto) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) Must Article 23(4) of Directive [2019/1023] be interpreted as meaning that the exclusion of other debts (other than those listed in the respective letters of Article 23(4)) is permitted only if it is “duly justified”?

(2) Must the possibility for Member States of excluding specific categories of debt from discharge of debt (where such exclusions are duly justified as provided for in Article 23(4) of Directive 2019/1023) be interpreted as allowing Member States to exclude tax debts (which are not listed in that article), thereby placing themselves in a privileged position?

(3) If the answer to those questions is in the affirmative, what criteria must that justification satisfy, within the meaning of EU law, in order to comply with the general principles of EU law and the protection of fundamental rights, to which the European and national legislatures are subject [“prohibition of discrimination on grounds of nationality” (Article 18 TFEU), “freedom to conduct a business” (Article 16 of the [Charter]) and the fundamental economic freedoms of the internal market]?

(4) If the answer to the aforementioned question is in the negative, do the definitions (within the meaning of EU law and for the purposes of interpreting Directive 2019/1023) of “debts arising from or in connection with criminal penalties” and “debts arising from ‘tortious liability’” also include tax debts as provided for in the national legislative act transposing [that] directive … (Law [No 9/2022])?’

20. Written observations were lodged by the debtor, the social security institute, the Portuguese and Spanish Governments and the European Commission.

21. By its second question referred for a preliminary ruling, the referring court asks about the option for Member States to exclude specific categories of debt from discharge of debt, in particular tax and social security debts, thereby placing themselves in a privileged position.

22. In their observations, both the Commission and the Portuguese and Spanish Governments recognise the non-exhaustive nature of the list in Article 23(4) of Directive 2019/1023, since it provides that specific categories of debt may be excluded from discharge of debt with regard, in particular, to six categories of debt listed in the remainder of that paragraph.

23. Doubt may have been created by the initial wording of that article, in Spanish, which stated that the Member States could ‘exclude specific categories … from discharge of debt …, in the case of’. (8) However, that wording was replaced by ‘such as in the case of’ (9) in a corrigendum to the directive, (10) which brought the wording in Spanish in line with the other language versions.

24. There is thus no longer any room for doubt: the use of the words ‘Member States may exclude … from discharge of debt’ and the term ‘such as’ means that the list in Article 23(4) of Directive 2019/1023 is indeed a non-exhaustive list of categories of debt that may be excluded from discharge of debt, and that the list may be supplemented by Member States. That analysis is supported by recital 81 of the directive, read in the light of the discussions within the Council of the European Union, (11) from which it is apparent that the Member States should be able to exclude other categories of claims in duly justified cases.

25. More generally, regarding the margin of discretion that Member States have to exclude certain categories of debt from discharge of debt, it is necessary to distinguish between the principle of excluding a category of debt and the conditions for that exclusion.

26. As regards the exclusion of tax and social security debt as a matter of principle, it should be noted that Article 23(4) of Directive 2019/1023 lists six categories of debt that Member States may exclude from discharge of debt, or in respect of which the discharge of debt may be restricted or the discharge period extended. Those categories are: secured debts; debts arising from or in connection with criminal penalties; debts arising from tortious liability; maintenance debts; debts incurred after the application for or opening of the procedure leading to a discharge of debt; and debts relating to the cost of that procedure.

27. In its observations, the Commission puts forward the argument that there is a link between those different categories of debt that provides grounds for not allowing Member States wishing to create exceptions to the principle of full discharge of debt to have absolute discretion, because of the nature of the debt concerned.

28. Thus, the link, it argues, resides in a concern for substantive justice: in the first place, a debtor should not be able to escape the financial consequences of acts not related to normal business life (family debts, debts relating to criminal liability or debts relating to civil liability). In the second place, debts arising in the context of the procedure for discharge of debt or subsequently may not be the subject of a discharge of debt, in order to guarantee the effectiveness of that procedure. In the third place, secured debts may also be excluded, as they were secured specifically to avoid the consequences of insolvency.

30. First, the wording of Article 23 of Directive 2019/1023 itself provides for different types of option regarding possible exceptions to the principle of full discharge of debt. Paragraph 1 states that all Member States must provide for the exclusion of dishonest debtors or debtors acting in bad faith. On the other hand, paragraphs 3 and 5 indicate that Member States may provide for longer discharge periods or a longer period of disqualification, respectively, in certain strictly defined cases. Paragraph 4, the interpretation of which is sought in the present case, provides, as does paragraph 2, that Member States may choose exceptions to the principle of full discharge of debt, if they are duly justified, illustrating that possibility with a non-exhaustive list of examples. As a result, the procedure for full discharge of debt may operate in very different ways and have a significantly different scope depending on the choices made by each Member State. It therefore seems difficult to argue that the objective of harmonising the discharge of debt procedure justifies not authorising, as a matter of principle, the exclusion of certain specific categories of debt from such discharge of debt.

31. Second, there is nothing in the discussions prior to the adoption of Directive 2019/1023 to suggest that tax and social security debts could not be excluded from discharge of debt. The proposal for a directive clearly stated, with regard to Article 22 (which became Article 23 in the directive as adopted) that the Member States had ‘a large margin of discretion when setting limitations to the provisions on access to discharge and on discharge periods, provided that such limitations are clearly specified and are necessary to protect a general interest’. (12)

32. That desire to leave Member States sufficient flexibility was confirmed in the discussions in the Council. (13) In fact, during the negotiations within that institution, the exclusions from discharge of debt were added without any particular comments (14) and it was specified that Member States could also exclude certain types of claim under their national legislation without specifying the nature of those claims. (15) At the very end of the negotiations in the Council, Portugal made a statement in which it indicated, in substance, first, that the text was sufficiently flexible to allow Member States to maintain or introduce provisions excluding or restricting access to discharge of tax debts, because such measures had to be considered duly justified, due to the special nature of tax debts, and, second, that it wished to reserve its position regarding the regulation of access to discharge of tax debts when transposing the directive. (16)

33. The European Parliament’s Committee on Economic Affairs, having been asked for an opinion, proposed an amendment to the Committee on Legal Affairs, as the committee responsible, concerning a recital and a paragraph in favour of explicitly setting out the possibility of excluding claims governed by public law, in respect of which Member States would have to take into account the necessary balance between the general public interest and the promotion of entrepreneurship. (17)

34. Lastly, it is clear that Directive 2019/1023 is a directive seeking a minimum level of harmonisation in relation to the full discharge of debt, the objective of which is to create a procedure of that type in each of the Member States and not to create a harmonised discharge of debt procedure. The negotiations provided an opportunity for Member States to highlight the fact that such a procedure, whether or not it was new, depending on the Member State, had to have the flexibility to be adapted sufficiently so as not to interfere with national systems that worked efficiently, since such a procedure was interconnected with other areas of national law and since different Member States had different economic situations and legal structures. (18)

35. However, with regard to the conditions for excluding a category of debt, Article 23(4) of Directive 2019/1023 provides that ‘exclusions, restrictions or longer periods [shall be] duly justified’. Consequently, while the scope of Member States’ discretion is not restricted as regards the nature of the specific categories of debt which may be excluded, it is restricted in terms of the justification they must provide in support of such an exclusion.

36. Moreover, Member States have used that discretion to exclude certain categories of debt other than those listed in Article 23(4) of Directive 2019/1023. In France, debts excluded from discharge of debt include employees’ claims and claims resulting from actions relating to assets acquired under a succession process that began during the procedure. (19) In the Netherlands, debts linked to student loans are excluded. (20) In Spain, claims relating to salaries and claims governed by public law, in particular, are excluded. (21)

37. Through the wording ‘thereby placing themselves in a privileged position’, the referring court appears to take the view that the Portuguese Republic, by refusing to accept the same treatment as other creditors in the full discharge of debt procedure, since it excludes tax and social security debts from the discharge, is undermining equality among creditors. However, insolvency proceedings, to which a full discharge of debt procedure may be assimilated because of its effects on creditors, do not seek equality between all creditors but equality between creditors in similar situations. Thus, with regard to restructuring, Article 10(2)(b) of Directive 2019/1023 provides that creditors with sufficient commonality of interest in the same class are to be treated equally, and in a manner proportionate to their claim. Similarly, recital 52 of the directive provides that as a consequence of the best-interest-of-creditors test, where public institutional creditors have a privileged status under national law, Member States are able to provide that the plan cannot impose a full or partial cancellation of the claims of those creditors. Recital 44 of the directive points out that it is necessary, first, to ensure that rights which are substantially similar are treated equitably and that restructuring plans can be adopted without unfairly prejudicing the rights of affected parties, and that affected parties should be treated in separate classes which correspond to the class formation criteria under national law and, second, that it is necessary to permit Member States to treat types of creditors that lack a sufficient commonality of interest, such as tax or social security authorities, in separate classes.

38. Those rules are consistent with the case-law of the Court on freedom to conduct a business, protected by Article 16 of the Charter. The Court has held that if rights of ownership are protected by the constitutional laws of all the Member States and if similar guarantees are given in respect of their right freely to choose and practise their trade or profession, the rights thereby guaranteed, far from constituting unfettered prerogatives, must be viewed in the light of the social function of the property and activities protected thereunder. It added that, for this reason, rights of this nature are protected by law subject always to limitations laid down in accordance with the public interest. (22)

39. Therefore, by providing for the exclusion of tax and social security debts from the full discharge of debt procedure, the Portuguese Republic is not, in so doing, undermining equality among creditors as it is to be implemented in that connection, nor is it undermining the freedom to conduct a business.

40. With regard to the methods for justifying such an exclusion, the Commission submits that a mere pro forma statement is not sufficient, and that the Portuguese legislature has not provided any justification for such an exclusion of tax and social security debts, even one that is purely formal in nature.

41. However, as I pointed out above, Portugal made a specific statement during the negotiation of Directive 2019/1023 concerning the exclusion of tax debts. (23) Moreover, in its observations the Portuguese Government states that, on the one hand, Article 103(1) of the Constituição da República Portuguesa (Constitution of the Portuguese Republic) provides that the fiscal system is to aim to satisfy the financial needs of the State and of other public entities and to ensure a just distribution of income and wealth and, on the other hand, that Articles 5 and 30 of the LGT set out rules and principles justifying the exclusion, such as the satisfaction of the financial needs of the State, the promotion of social justice and equal opportunities and the necessary corrections to inequalities in the distribution of wealth and income, while complying with the principles of universality, equality, lawfulness, substantive justice and the unavailability of tax debt.

42. Article 23(4) of Directive 2019/1023 is silent regarding the form of justification required, but recital 81 provides that there must be a duly justified reason under national law. It does not seem to me that there is a requirement for the justification to be provided in the act transposing the directive itself if it already exists in national legislation (the Constitution, statutes or regulations), or even if it has been stated in the context of negotiating the said directive. Such a matter will be for the referring court to determine, taking into account all the applicable legislation and its consistency.

43. In conclusion, it seems to me that Directive 2019/1023 is a directive seeking a minimum level of harmonisation, the objective of which is the introduction in each Member State of a procedure for the discharge of debt, the outlines of which as to the nature of the claims which may be excluded from such discharge are largely left to the discretion of Member States, provided that the exclusions are duly justified, including outside the transposing act.

44. In the light of all these elements, I propose that the Court should answer as follows: Article 23(4) of Directive 2019/1023 must be interpreted as meaning that the list contained therein is not exhaustive and that specific categories of claims other than those included in that list may be the subject of discharge of debt, restricted discharge of debt or a longer discharge period, provided that such a decision is duly justified in national law, it being possible for such justification to appear elsewhere than in the provision transposing that directive.

45. In view of all the foregoing considerations, I propose that the Court should answer the questions referred for a preliminary ruling by the Tribunal da Relação do Porto (Court of Appeal, Porto, Portugal) as follows:

Article 23(4) of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency)

must be interpreted as meaning that the list contained therein is not exhaustive and that specific categories of claims other than those included in that list may be the subject of discharge of debt, restricted discharge of debt or a longer discharge period, provided that such a decision is duly justified in national law, it being possible for such justification to appear elsewhere than in the provision transposing that directive.

11 See note of 16 May 2018 from the Presidency to the Permanent Representatives Committee concerning the proposal for a directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU – Partial general approach (document 8830/18 ADD 1), and in particular footnote 14, which states that the recitals will clarify that Article 22(1) and (3) (Article 23(2) and (4) of the directive as adopted) are non-exhaustive.

12 See Proposal for a Directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU (COM(2016) 723 final), p. 26.

13 See paragraph 5 of the note of 19 May 2017 from the Presidency to Coreper/Council concerning the Proposal for a Directive on preventive restructuring frameworks, second chance and measures to be taken to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU – Policy debate (document 9316/17): ‘The objectives of the proposal received, in principle, broad support from ministers on 27 January 2017 during the informal Justice and Home Affairs meeting. Discussions during this meeting highlighted the importance of striking a fair balance between the interests of debtors and creditors and to allow a degree of flexibility so as not to interfere with national systems that work efficiently. Discussions within the Working Party on Civil Law Matters (Insolvency) have shown a general endorsement of the objectives of the proposal. However, delegations have also stressed the complexity of the proposed Directive due to its interconnection with other areas of national law, and the ensuing need to leave Member States enough flexibility to adapt the [European Union] measures to the local economic situation and legal structures.’

14 See note of 16 March 2018 from the Bulgarian Presidency and the incoming Austrian Presidency to the Working Party on Civil Law Matters (Insolvency) on the proposal for a Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU – Revised text on Articles 19, 20 and 22 of Title III and related definitions (document 7150/18), p. 6.

15 See note of 24 May 2018 from the Presidency to the Council concerning the proposal for a Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU – Partial general approach (document 9236/18 ADD 1), p. 9.

16 See note of 21 May 2019 from the General Secretariat of the Council to the Permanent Representatives Committee/Council concerning the draft Directive of the European Parliament and of the Council on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency) (first reading) – Adoption of the legislative act – Statements (document 9170/2/19 REV 2 ADD 1), pp. 1 and 2.

17 See Opinion of the Committee on Economic and Monetary Affairs of 7 December 2017 for the Committee on Legal Affairs on the proposal for a directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU, Rapporteur: Enrique Calvet Chambon, proposed amendments 22 and 94.

21 See Article 489(1)(4) and (5) of Ley 22/2003 Concursal (Law 22/2003 on insolvency).

22 See judgment of 14 May 1974, Nold v Commission (4/73, EU:C:1974:51, paragraph 14).

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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Instituto da Seguranca Social and Others (Judicial cooperation in civil matters - Exclusion of debts owed to the tax and social security authorities - Opinion) [2024] EUECJ C-20/23_O (11 January 2024) URL: http://www.bailii.org/eu/cases/EUECJ/2024/C2023_O.html Cite as: ECLI:EU:C:2024:29, EU:C:2024:29, [2024] EUECJ C-20/23_O

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