COMI, Main Proceedings and Secondary Proceedings
The EC Convention on Insolvency Proceedings distinguishes between “main proceedings” and “secondary proceedings” (Article 3(1)).
Main Proceedings: main proceedings deal with all of the company’s business and assets, and can include rescue proceedings such as administration. They can only be brought in the jurisdiction in which the company’s “centre of main interests” or COMI is situated.
Secondary Proceedings: secondary proceedings are restricted to the assets of the company in the relevant jurisdiction, and are limited to liquidation and analogous proceedings.
Centre of Main Interests: a company’s COMI is where it conducts the administration of its interests on a regular basis and which is ascertainable by third parties. There is a rebuttable presumption that a company’s COMI is where its registered office is.
Why does this matter?
If a company has activities in more than one member state of the EU, there can be disputes about which state is entitled to open main proceedings. Aggrieved creditors can challenge the validity of an appointment by saying that the COMI was in a different state.
This is particularly important if the company has recently moved its registered office in order to take advantage of English insolvency procedures. This is entirely lawful, although it has generated controversy: when Wind Hellas, Greece’s third largest telecoms company, moved its registered office to London as part of its restructuring plan, one of the major creditors who opposed the restructuring attracted publicity after accusing the UK of becoming the “bankruptcy brothel of Europe”.
Identifying the company’s COMI
In Interedil, the ECJ had to deal with a company that moved its registered office from Italy to London shortly before becoming insolvent. In that case the Italian court had concluded that the COMI was still in Italy. The ECJ held that the COMI had been validly moved to London, and said that a company’s COMI is identified as follows:
- The COMI is presumed to be where the registered office is.
- That can be rebutted by factors which are “both objective and ascertainable” which show that the company’s “central administration” is somewhere else.
- A factor is “ascertainable” if it can be ascertained by third parties such as creditors. There is a suggestion that factors must be in the public domain to be relevant.
- The presence of assets in another jurisdiction, and the existence of contracts relating to those assets, are not in themselves sufficient to rebut the presumption that the registered office and the COMI are in the same place. The company’s “actual centre of management and supervision and of the management of its interests” must be shown to be in a different member state for the COMI to be in that state.
Moving the COMI and the relevant date for the test
The ECJ confirmed that a company’s COMI can be moved for the purpose of taking advantage of English insolvency procedures.
Simply moving the registered office to England will give rise to the presumption that the COMI is in England and the tests set out above have to be applied if anyone wants to challenge that presumption.
The relevant date for determining COMI is the date on which “a request to open insolvency proceedings is lodged” (ie, in England, the date on which a notice of intention to appoint administrators is filed, or an application for an administration order is presented to the court). If the registered office is moved after this date, the COMI does not move and the courts of the first member state retain jurisdiction.
Secondary Proceedings
Secondary Proceedings can only be opened if the company has an “establishment” in the relevant member state.
In Interedil the ECJ held that the company must have “a structure consisting of a minimum level of organisation and a degree of stability necessary for the purpose of pursuing an economic activity.” The presence of goods, assets or bank accounts is not in itself sufficient to meet that definition.
Practical points
If there is any element of doubt about COMI, it is normally best to ask the court to appoint administrators rather than using one of the out of court routes. If COMI is successfully challenged, the result will be that the administrators’ appointment is invalid. A court appointment is also likely to be more readily recognised in other jurisdictions where out of court appointments are unusual. For example, judges will often include short recitals of their reasons in an administration order if asked to do so to make it more easy to present to a foreign court or creditors.
The Interdil case makes it hard to argue that the COMI and the registered office are in different places in all but the most extreme cases. This makes successful challenges to transfers of a registered office to England much more difficult, particularly if the company is able to place a reasonable number of people in the registered office between the transfer and the administration.