Fifth Avenue’s Insolvency Administrator Warns of Legal Impasse Over EU Sanctions

“Fifth Avenue is insolvent, not because it cannot pay, but because it is not allowed to,” says its insolvency administrator.

Fifth Avenue has substantial cash reserves and well-stocked warehouses. Yet the exclusive importer of Cuban cigars in Germany, Austria and Poland has now entered formal insolvency proceedings. The Local Court of Waldshut-Tiengen opened the proceedings on Sunday, November 1, and appointed attorney André Berbuer as insolvency administrator, after almost two months of provisional administration.

In a statement published on Tuesday, November 3, the administrator’s law firm describes a paradoxical situation: Fifth Avenue is an “economically sound” company, but its assets have been frozen because of EU sanctions targeting one of its indirect shareholders.

“The company is therefore insolvent in the legal sense, not because it cannot pay, but because it is not allowed to,” the statement explains. In practice, Fifth Avenue can neither pay its suppliers, nor freely pay its employees’ wages, nor ship the cigars stored in its warehouses.

Sanctions That “Go Beyond Their Objective”

The paralysis stems from international sanctions targeting Sino-Cambodian businessman Chen Zhi, who is accused by US prosecutors of fraud and human trafficking, among other charges.

Through a chain of holding companies, Chen Zhi has an indirect interest in Fifth Avenue. According to the insolvency administrator, that interest is small and does not give him control over the German distributor. The administrator also stresses that no wrongdoing is alleged against Fifth Avenue, its direct shareholders or its management.

“In my view, the sanctions go beyond their objective in this case,” Berbuer says.

For André Berbuer, the problem lies in a gap in German and European law. Insolvency rules require the administrator to administer and liquidate the company’s assets, while sanctions regulations do not, in his view, adequately provide for how frozen assets should be handled in that context. “The legislator has not created a sufficiently precise legal framework for the treatment of assets frozen because of sanctions, whether within or outside insolvency proceedings,” he explains.

He is careful, however, not to blame the German authorities responsible for enforcing these rules, which he says face the same legal difficulties.

Wages Authorized on a Case-by-Case Basis

Since the start of the proceedings, André Berbuer has been working with the German authorities and sanctions law specialists to obtain the release of Fifth Avenue’s assets.

A special mechanism already allows certain payments, including wages, to be authorized after individual review of each request. But this highly cumbersome process cannot be a lasting solution for a commercial business.

The statement gives no date for the resumption of deliveries.

Risk of a Domino Effect Among Retailers

The statement also stresses the consequences of this paralysis for specialist tobacco retailers.

Fifth Avenue, which employs around 50 people in Waldshut-Tiengen, supplies about 1,500 retailers and business partners in Germany, Austria and Poland. Since early September, these retailers have received no Habanos deliveries, with exclusive distribution arrangements preventing them from sourcing Cuban cigars through another authorized domestic importer.

The administrator warns that the prolonged disruption could push some specialist tobacco retailers into insolvency. According to his firm, several hundred jobs in specialist tobacco retail could be at risk, along with the tax revenue generated by the sale of Cuban cigars. In Germany, the products distributed by Fifth Avenue generate annual tobacco tax revenue “in the seven-figure range,” according to the administrator.

The administrator’s team warns of a “domino effect” that could cause lasting disruption to the entire sector.

At the end of October, the distributor told German La Casa del Habano franchisees that an alternative supply channel was being explored, without being able to specify how it would work or when. The November 3 statement makes no reference to this possible solution.

It does confirm, however, that the administrator’s priority remains obtaining the release of the assets so that Fifth Avenue can resume operations.

Laurent Mimouni