Burning all bridges – a bridge too far: COMI and Real Seat of a Luxembourg Company
In a technical analysis of the difference between the Center of Main Interests (COMI) of a Luxembourg company and the application of the Real Seat, considering the facts of a 2019 judgement of the Luxembourg district court, Loyens & Loeff restructuring partner Michael Scott argues that it remains possible to shift COMI under the Insolvency Regulation without necessarily shifting the Real Seat of the company under Luxembourg corporate law and that the decision of the Luxembourg Court should be read in limited scope to apply to factors relevant only to shifting COMI.
With respect to Luxembourg commercial companies, it remains important to make a distinction between: (i) the application of the Real Seat Theory as a matter of corporate law, and (ii) the determination of the Center of Main Interests (COMI) for the purposes of the application of EU insolvency law.
The importance of this distinction arises from the fact that the application of the Real Seat Theory: is a matter of Luxembourg domestic corporate law; relates to the nationality of a company (no matter the other jurisdiction involved in the affairs of the company, i.e. EU or not); and determines the company law applicable to the entity. This as opposed to the concept of COMI under EU Law which is one of application of EU Insolvency Law, limited in scope to Member States, and applicable only in insolvency matters.
The Luxembourg District Court has in 2019 issued a judgement1 (the Judgement) - which although not specifically dealing with an analysis of these two concepts separately - would appear to require the wider criteria needed to rebut the presumption in application of the Real Seat Theory to be applied to the factors needed to rebut the presumption for the determination of COMI. The interpretation of the Judgement in this manner is in the view of the Author incorrect. The Judgement does give scope for a different more correct interpretation as reflected in this Article.
It is the absolute view of the Author that the Real Seat of a commercial company and the COMI of a company must remain distinct and separate concepts and the factors to be applied for rebuttal of the presumptions, even where they overlap in certain circumstances, must be applied differently. In other words, it must be possible for a commercial company to shift its COMI under EU Insolvency Law, without changing its Real Seat under Luxembourg domestic law.
For the purposes of this Article any reference to a Luxembourg commercial company shall be reference to a private limited liability company or a public limited liability company for the sake of simplification of arguments, but may equally apply to other forms apart from the European Company. All companies shall also be holding companies or finance companies and not operating companies.
1 Judgement 2019TALCH02/01728 of 15 November 2019
The Author determines from the Judgement and analysis above that:
- a commercial company properly formed by notarial deed and registered with the Register of Commerce and Companies in Luxembourg, which retains its shareholder meetings, registered office and accounting and company records in Luxembourg should be regarded as maintaining its Real Seat in Luxembourg without threat of liquidation for breach of law (in the case where the COMI has been shifted to another Member State);
- a commercial company which has shifted its COMI or has its COMI in another Member State, where the bridges have been burned with Luxembourg (by applying the factors for determining COMI only), has conducted a COMI shift without a shift of its Real Seat.
Consequently COMI can be shifted independently of application of the Real Seat theory on application of different factors. A burning of all bridges must be read narrowly to refer only to factors referenced for COMI shift and not factors referenced for Real Seat determination. COMI is a narrow concept to be analysed in great detail by a court, whereas Real Seat is a wider concept determined more easily by a court based on simpler factors.
Michael ScottPartner Attorney at law / Solicitor / Avocat à la Cour
Michael Scott, partner, is a member of the Corporate Practice Group in our Luxembourg office and co-heads the Luxembourg Restructuring Team. He focuses on private equity transactions, mergers and acquisitions and distressed debt restructurings. He mainly advises US and UK based clients investing through Luxembourg to European or other target jurisdictions.T: +352 466 230 294 M: +352 691 963 026 E: [email protected]