The Puzzle of the New European COMI Rules: Rethinking COMI in the Age of Multinational, Digital and Glocal Enterprises

Abstract

EU Regulation 2015/848 (Recast) laid down new rules on the debtor’s ‘centre of main interests’ (COMI) both to make it easier to determine international jurisdiction and to prevent a debtor from fraudulently relocating his/her/its COMI from one Member State to another. However, the terms of the litigation concerning the NIKI case and an in-depth analysis of the Recast demonstrate that this operation has been unsuccessful. This paper argues: first, that the new COMI rules contain logical and teleological flaws; secondly, that the prerequisite that the COMI ‘shall be the place […] which is ascertainable by third parties’ is a duplicate of the prerequisite ‘on a regular basis’; thirdly, that the ‘ascertainability’ prerequisite could even prove to be problematic when insolvency occurs within an enterprise that is multinational in nature; and/or conducts its relationships with suppliers and customers through digital networks; and/or deals with a business having glocal considerations. Consequently, this paper puts forward a proposal for a better regulation that would aim both at fixing the regulatory flaws and at addressing more efficiently insolvencies within multinational, digital and glocal enterprises.

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Notes

  1. 1.

    Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) [2015] OJ L 141/19.

  2. 2.

    The chronological sequence of the full case can be scanned as follows: on 13 December 2017, the District Court of Charlottenburg, Germany, opened one set of main insolvency proceedings in Germany ([2017] EIRCR(A) 668); on 4 January 2018, the District Court of Charlottenburg, following an appeal by a creditor, submitted the case to the Regional Court of Berlin ([2018] EIRCR(A) 669); on 8 January 2018, the Regional Court of Berlin overruled the decision of the District Court of Charlottenburg and ruled that the COMI of NIKI was in Austria; in the meantime, NIKI challenged this decision on points of law before the German Federal Court of Justice ([2018] EIRCR(A) 670); on 12 January 2018, the Regional Court of Korneuburg, Austria, opened one set of main insolvency proceedings in Austria, by arguing that the appeal to the Federal Court of Justice did not have suspensive effect and, consequently, that the decision to open proceedings in Germany was no longer effective (LG Korneuburg, 36 S 5/18d, which is available at: http://edikte.justiz.gv.at//edikte/id/idedi8.nsf/0/856BC97A77A5CF9BC125821300796738); on 23 January 2018, the appeal to the German Federal Court of Justice was withdrawn ([2018] EIRCR(A) 674). The dispute has at long last been settled and one set of main insolvency proceedings is safely pending in Austria, before the Regional Court of Korneuburg. Information on the progress of these proceedings can be obtained, in German, through the Austrian insolvency register (http://edikte.justiz.gv.at//edikte/id/idedi8.nsf/0/856BC97A77A5CF9BC125821300796738), and, (partially) in English, through an experimental application of the E-Justice Portal aiming at interconnecting national insolvency registers (https://e-justice.europa.eu/content_interconnected_insolvency_registers_search-246-en.do). Both databases were last accessed on 20 April 2018.

  3. 3.

    Of course, this manoeuvre is different from any action consisting, on the one hand, of leaving the place of the registered office as it is and, on the other, of shifting only the real place of administration to another jurisdiction. This technique, which falls outside the scope of this paper, aims at cunningly creating the conditions for the rebuttal of the COMI presumption.

  4. 4.

    For the sake of brevity, henceforth Council Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency proceedings [2000] OJ L160/1 will be abbreviated to ‘EIR 2000’, while EU Regulation 2015/848 will be abbreviated to ‘EIR 2015’. Moreover, the four subsections into which Article 3.1 EIR 2015 is divided will be abbreviated to: ‘Article 3.1.1’, ‘Article 3.1.2’, ‘Article 3.1.3’ and ‘Article 3.1.4’. Finally, since each of these subsections contains two sentences, these sentences will be abbreviated to: ‘Article 3.1.1.a’ and ‘Article 3.1.1.b’; ‘Article 3.1.2.a’ and ‘Article 3.1.2.b’; ‘Article 3.1.3.a’ and ‘Article 3.1.3.b’; ‘Article 3.1.4.a’ and ‘Article 3.1.4.b’. Last, but not least. The Court of Justice of the European Union will be abbreviated to ‘ECJ’.

  5. 5.

    For example, Case C-341/04 Eurofood IFSC Ltd., ECLI:EU:C:2006:281, determines, at para. 32, that ‘[t]he scope of that concept is highlighted by the 13th recital of the Regulation, which states that “the ‘centre of main interests’ should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties”’, and, at para. 33, that ‘[t]hat definition shows […]’. Further, at para. 31, the same decision establishes that ‘[t]he concept of the centre of main interests is peculiar to the Regulation. Therefore, it has an autonomous meaning and must therefore be interpreted in a uniform way, independently of national legislation.’ See, also, Fletcher (2005), para. 7.41; Fletcher (2009), para. 3.11; Hess (2014), para. 291; Pannen (2007), paras. 16 and 18; Wessels (2012), para. 10545.

  6. 6.

    AG Jacobs Case C-341/04 Eurofood IFSC Ltd., ECLI:EU:C:2005:579, para. 113. As regards the implicative method of definition, see Robinson (1963), pp 106–108.

  7. 7.

    AG Jacobs, para. 113. Both the addition in square brackets and the emphasis in italics occur in the original text.

  8. 8.

    Virgós and Schmit (1996), para. 75. Since EIR 2000 fully endorsed the contents of the 1995 ‘Convention on insolvency proceedings’, this Report was adopted as an explanatory text to EIR 2000.

  9. 9.

    Case C-341/04 Eurofood IFSC Ltd., which at para. 30 states ‘in the system established by the Regulation for determining the competence of the courts of the Member States, each debtor constituting a distinct legal entity is subject to its own court jurisdiction.’

  10. 10.

    Case C-341/04 Eurofood IFSC Ltd., ruling 1.

  11. 11.

    Case C-396/09 Interedil Srl, in liquidation v. Fallimento Interedil Srl and Intesa Gestione Crediti SpA, ECLI:EU:C:2011:671.

  12. 12.

    Case C-341/04 Eurofood IFSC Ltd., paras. 33 and 37 and ruling 1. In particular, para. 33 states: ‘[t]hat definition shows that the centre of main interests must be identified by reference to criteria that are both objective and ascertainable by third parties’; para. 37 states: ‘the presumption laid down in the second sentence of Article 3(1) of the Regulation, whereby the centre of main interests of that subsidiary is situated in the Member State where its registered office is situated, can be rebutted only if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at that registered office is deemed to reflect’; while ruling 1 lays down: ‘the presumption […] can be rebutted only if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which location at that registered office is deemed to reflect.’

  13. 13.

    AG Kokott Interedil Srl, in liquidation v. Fallimento Interedil Srl and Intesa Gestione Crediti SpA, ECLI:EU:C:2011:132, para. 70, stating ‘[a] rebuttal of the presumption in Article 3(1) by also taking into account the location of the company’s assets, its places of business or even its commercial activities therefore only comes into consideration if from the creditors’ perspective the place of the central administration is not at the registered office. In those circumstances, if necessary further objective factors are required, also from the creditors’ viewpoint, in order to clarify jurisdiction for the insolvency proceedings. In this respect an overall evaluatory assessment of the individual case must be carried out.’

  14. 14.

    Case C-396/09 Interedil Srl, in liquidation v. Fallimento Interedil Srl and Intesa Gestione Crediti SpA, ECLI:EU:C:2011:671, ruling 3. This ruling literally lays down: ‘a debtor company’s main centre of interests must be determined by attaching greater importance to the place of the company’s central administration, as may be established by objective factors which are ascertainable by third parties. Where the bodies responsible for the management and supervision of a company are in the same place as its registered office and the management decisions of the company are taken, in a manner that is ascertainable by third parties, in that place, the presumption in that provision cannot be rebutted. Where a company’s central administration is not in the same place as its registered office, the presence of company assets and the existence of contracts for the financial exploitation of those assets in a Member State other than that in which the registered office is situated cannot be regarded as sufficient factors to rebut the presumption unless a comprehensive assessment of all the relevant factors makes it possible to establish, in a manner that is ascertainable by third parties, that the company’s actual centre of management and supervision and of the management of its interests is located in that other Member State’. This ruling refers to a very peculiar case of a company under Italian law, originally incorporated in Italy, which transferred its registered office from Italy to the United Kingdom, where—before the date of the request to open insolvency proceedings—it was wound up and removed from the British register of companies.

  15. 15.

    Case C-191/10 Rastelli Davide e C. Snc v. Jean-Charles Hidoux, ECLI:EU:C:2011:838, ruling 2.

  16. 16.

    For further details about the new COMI rules, see: Wood (2016), paras. 8.555–8.568; Fletcher (2016), paras. 3.11–3.16; Mangano (2016), paras. 3.08–3.19; Ringe (2016), paras. 3.19–3.146. Actually, at para. 3.25 this author minimizes the evolution of the COMI concept by stating that the new definition ‘corresponds almost exactly to the wording previously found in Recital 13 of the EIR 2000.’

  17. 17.

    It is superfluous to say that there is more than one method to make definitions and that each method has its pros and its cons. For this reason, case by case Art. 2 EIR 2015 adopts various methods of definition. For the analytic method of definition, see Robinson (1963), pp 96–98.

  18. 18.

    Recital 30 EIR 2015.

  19. 19.

    Actually, this conflict did not occur because the Regional Court of Korneuburg opened one set of main insolvency proceedings in Austria when the decision to open the insolvency proceedings in Germany was no longer effective. See above, n. 2.

  20. 20.

    See above, Sect. 2.

  21. 21.

    Recital 30 adopts this criterion both for companies and legal persons, and for individuals. However, concerning companies and legal persons only, Recital 30 reproduces the passage of the Interedil and Rastelli cases by referring to a ‘comprehensive assessment of all the relevant factors’.

  22. 22.

    In this respect, Recital 30 EIR 2015 states: ‘[i]n the case of an individual not exercising an independent business or professional activity, it should be possible to rebut this presumption, for example where the major part of the debtor’s assets is located outside the Member State of the debtor’s habitual residence, or where it can be established that the principal reason for moving was to file for insolvency proceedings in the new jurisdiction and where such filing would materially impair the interests of creditors whose dealings with the debtor took place prior to the relocation.’

  23. 23.

    For the purpose of this revision, see the following documents of the UNCITRAL Working Group V (2010a, b, 2011a, b, 2012a, b, c, 2013a, b).

  24. 24.

    UNCITRAL (2014).

  25. 25.

    Corte di Cassazione 20144/2011, D. G. F. Holding v. Equitalia Gerit Spa and others [2011] EIRCR(A) 152; and Juzgado de lo Mercantil 1/2009, Dr. Krüger and Mrs. Weith-Krüger [2009] EIRCR(A) 75.

  26. 26.

    As regards both EIR 2000 and EIR 2015, it is commonly accepted that the COMI presumptions are to be interpreted, not as evidential presumptions aimed at inverting the burden of proof, but as regulatory instruments aiming at better localizing the COMI. See especially, concerning EIR 2000, Wessels (2012), para. 10562; and, concerning EIR 2015, Mangano (2016), para. 3.16. It is also widely recognized that legal rules are hypothetical normative propositions stipulating that, if certain circumstances occur, then certain consequences must follow. This implies that, given a specific rule A, the factual part of rule A consists of those factual circumstances which are required for its application, while the normative part of rule A consists of those legal consequences which derive from those circumstances.

  27. 27.

    Virgós and Schmit (1996), para. 75.

  28. 28.

    High Court of Justice of Northern Ireland, 10 January 2012, Irish Bank Resolution Corporation Ltd v. Quinn, [2012] BCC 608, para. 28, and [2012] EIRCR(A) 351.

  29. 29.

    Recital 28 EIR 2015. This Recital goes on to state: ‘[t]his may require, in the event of a shift of centre of main interests, informing creditors of the new location from which the debtor is carrying out its activities in due course, for example by drawing attention to the change of address in commercial correspondence, or by making the new location public through other appropriate means.’

  30. 30.

    See again Irish Bank Resolution Corporation Ltd v. Quinn [2012] NI Ch 1, [2012] EIRCR(A) 351. This, inter alia, rules that the COMI ‘is not ascertainable within the meaning of recital 13 of the EC Regulation if it can only be ascertained by a third party employing private detectives to follow the debtor or otherwise investigate his whereabouts.’

  31. 31.

    This connection between the prerequisite of ‘ascertainability by third parties’ and the sub-prerequisite of ‘on a regular basis’ is brought out well by Recital 28 EIR 2015. The full text of this states: ‘[w]hen determining whether the centre of the debtor’s main interests is ascertainable by third parties, special consideration should be given to the creditors and to their perception as to where a debtor conducts the administration of its interests. This may require, in the event of a shift of centre of main interests, informing creditors of the new location from which the debtor is carrying out its activities in due course, for example by drawing attention to the change of address in commercial correspondence, or by making the new location public through other appropriate means [emphasis added]’. Certainly, the fact that Recital 28 EIR 2015 suggests that the debtor who has shifted the COMI should inform his/her/its creditor helps to create an environment where the COMI is more easily ascertained. However, the imposition of this duty does not interfere with the idea that the prerequisite of ‘ascertainability by third parties’ tends to overlap with the sub-prerequisite of ‘on a regular basis’.

  32. 32.

    Probably, the clash between Recital 53 and Recital 28 EIR 2015 can explain why no court involved in the NIKI case mentioned Recital 53 EIR 2015.

  33. 33.

    It goes without saying that the global top-level domain name ‘.com’ gives no indication as to where a business is located. Moreover, even where the name uses a country code such as ‘.de’ or ‘.uk’, there is no guarantee that the firm is established in that country, since it is relatively common practice to keep web servers geographically separated from the actual location of the enterprise.

  34. 34.

    As regards the judicial activism of the ECJ, including its logic and limits, see: Dawson et al. (2013), especially pp 11 et seq.; and Lasser (2009), who delineates the ECJ’s powers by comparing and contrasting the ECJ with both the French ‘Cour de Cassation’ and the US Supreme Court.

  35. 35.

    For example, see European Commission (2012), paras. 3.4.1–3.4.2.

  36. 36.

    The Interedil and Rastelli rulings were cases in point.

  37. 37.

    See Canaris (1983), pp 15 et seq. and, especially, pp 91–92. This author provides a functional approach to teleological flaws that would allow a German court to perform a ‘teleological rephrasing’ (teleologische Umbildung) of a legal text with a view to fixing the mismatch between its letter and its spirit. Admittedly, that author did not refer to Union law, which—by contrast—should be interpreted in accordance with the ECJ ruling in the CILFIT case (Case C-283/81 Srl CILFIT and Lanificio di Gavardo SpA v. Ministry of Health, ECLI:EU:C:1982:335). Nevertheless, Canaris’s thesis seems to be applicable to ECJ decisions on the interpretation of European Union law for a number of reasons. First, the ECJ ruling in the CILFIT case suggests that the interpreter should ‘read’ any rule in the light of its regulatory pursuit—‘every provision of community law must be placed in its context and interpreted in the light of the provisions of community law as a whole, regard being had to the objectives thereof and to its state of evolution at the date on which the provision in question is to be applied’ (Case C-283/81, CILFIT, para. 20). Second, Recital 5 EIR 2015 makes it clear that EIR 2015, including the COMI rules, aims at preventing fraudulent forum shopping—‘[i]t is necessary for the proper functioning of the internal market to avoid incentives for parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position to the detriment of the general body of creditors (forum shopping).’ Third, the ECJ, when deciding on the interpretation of European Union law, always adopts a very activist approach.

  38. 38.

    Chapter 15 of the US Bankruptcy Code is the US domestic adoption of the UNCITRAL ‘Model Law on Cross-Border Insolvency 1997’. It replaces the previous section 304 of the US Bankruptcy Code and aims to provide a set of prescriptions for insolvency cases having a connection with more than one country in order to encourage co-operation between the US and other countries. Being consistent with the Model Law, Chapter 15 does not define COMI, but only lays down that ‘[i]n the absence of evidence to the contrary, the debtor’s registered office, or habitual residence in the case of an individual, is presumed to be the center of the debtor’s main interests’ (s. 1516(c)). The absence of a COMI definition in Chapter 15 gives rise to some uncertainties as well. Moreover, when US Courts refer to ECJ rulings these uncertainties even appear to be magnified (Re Stanford International Bank, [2010] EWCA Civ 137). Nevertheless, in the US there is an increasingly wider consensus that the COMI should be understood as the ‘principal place of business’, and that this concept should be put to the so-called ‘nerve center test’ according to which the principal place of business should not be ‘simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have travelled there for the occasion)’ (Morning Mist Holdings Ltd. v. Krys (In re Fairfield Sentry Ldt.), 714 F.3d 127, para. 138 (2d Cir., 2013). This decision explicitly refers to Hertz Corp. v. Friend, 559 US 77, paras. 92-93, (2010), where—even though in a different field—the US Supreme Court supported the ‘nerve center test’ in the terms quoted above in inverted commas.

  39. 39.

    In Art. 2 EIR 2015, the COMI definition ought to be formulated without the use of the verb ‘shall’ along the lines of the other definitions laid down there. However, this change of formulation does not undermine the prescriptive value of the COMI definition. Legal definitions are in fact never descriptive, but always prescriptive.

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Mangano, R. The Puzzle of the New European COMI Rules: Rethinking COMI in the Age of Multinational, Digital and Glocal Enterprises. Eur Bus Org Law Rev 20, 779–800 (2019). https://doi.org/10.1007/s40804-019-00141-3

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Keywords

  • EU Regulation 2015/848 (Recast)
  • International jurisdiction
  • COMI
  • Multinational group of companies
  • Digital enterprises
  • NIKI