UPC CoA: No stay of UPC court proceedings during Chapter 11 proceedings

In an order dated 26 February 2024, the UPC Court of Appeal in Luxembourg decided that issuance of a decision in appeal proceedings regarding a preliminary injunction would not be stayed despite one of the parties, NanoString Technologies Inc., initiating proceedings under Chapter 11 of the US Bankruptcy code in the Federal District Court in Delaware on 4 February 2024. The Delaware court granted an order for a worldwide automatic stay of all ongoing legal proceedings involving Nanostring. On 6 February 2024, NanoString made an application to the Court of Appeal in Luxembourg to stay proceedings. This came after a hearing on the appeal had already been conducted by the Court on 16 December 2023 (case no. UPC_COA_335/2024). 

According to Rule 311 of the RoP, proceedings in front of the UPC can be stayed for up to 3 months if one of the parties has been declared insolvent. The Court stated that Rule 311 must be interpreted in accordance with Article 41(3) UPCA, and found that a stay of proceedings was unjustified, now that a Decision on the appeal against the preliminary injunction was ready to be issued. This order was published on the same day that the UPC Court of Appeal handed down its Decision on the appeal against a preliminary injunction that had been granted against Nanostring on 19 September 2023 by the Munich Local Division.  The UPC Court of Appeal revoked the preliminary injunction on the basis that the Court considered that on balance the asserted patent was invalid for lack of inventive step. 

In its decision on staying proceedings, the Court reasoned that it would be against both procedural economy and the interests of the parties to delay the final decision, further stating that the majority of costs had already been occurred. The Court concluded that in such cases “If the decision or order has an effect on the insolvency estate, it does not differ from the effect that a decision or order issued before the declaration of insolvency would have had.” This is a clear demonstration of the Court acting in a commercial and economically minded way, and using its discretion to apply the rules of procedure in a way that best benefits both parties and the Court itself.

The Court also left open the question as to whether opening US Chapter 11 proceedings actually constitutes a declaration of insolvency, given that the aim of Chapter 11 proceedings is to provide a window of time during which the company can be restructured, and during which the company will mostly retain administrative and representative powers. It is possible that we can expect to see this question answered in a future case where Chapter 11 proceedings are entered by one of the parties before the case has been heard. 

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