COMI – Luxembourg technical analysis & case law critique
This article deals with the insolvency concept of the center of main interests (COMI) under the European Union insolvency legislation, in particular Regulation 2015/848 on insolvency proceedings (the Insolvency Regulation or the Regulation).
Pursuant to the Insolvency Regulation COMI is one of the central unified and autonomous concepts1 of the insolvent debtor, i.e. it is an insolvency concept and not a corporate law or tax concept.
It is important to make a distinction between (i) the real seat of a company for the sake of Luxembourg corporate law, (ii) the effective management concept approach often taken with respect to the jurisdiction with taxation rights of a company, and (iii) the COMI concept, being the sole concept considered in this article.
COMI forms the basis for the jurisdiction of an EU court to open main insolvency proceedings according to Article 3 of the Regulation. Since the law applicable to the insolvency proceedings of a company is in principle the law of the forum where main proceedings are opened,2 (regardless of the country of incorporation of the company) it is crucial to define, properly understand and correctly apply the concept of COMI.
1 European Court of Justice (ECJ), 2 May 2006 (Grand Chamber), C-341/04, Eurofood IFSC Ltd., §31; 20 October 2011, C-396/09, Interedil, §43; 16 July 2020, C-253/19, §18
2 Article 7 Insolvency Regulation
It is the view of the authors that the approach of the UK High Court in Wind Hellas is correct in applying: (a) a full set of factors to rebut the presumption, (b) making a distinction between a holding company and operating company when applying such factors, and (c) in considering the place of negotiations with creditors as an important factor from both a creditor knowledge perspective as well as a sense of permanence of COMI shift (to the knowledge of creditors participating in such negotiations).
It is the view of the Authors that the approach of the Luxembourg District Court in Galapagos in holding that a COMI shift should have a greater measure of permanence is correct and an essential part of the intention of the Regulation which creates legal certainty.
It is the view of the Authors that the judgements of the Düsseldorf court in Galapagos in its apparent disregard for any sense of permanence in a COMI shift, in addition to its light approach taken to application of the factors indicated by the ECJ, are incorrect and in contrast to the provisions and intentions of the Regulation. Practical application of the position taken by the German courts in disregarding any sense of permanence would in the view of the authors create legal chaos.
In conclusion, forum shopping is not incompatible with the Regulation and any COMI shift undertaken to find jurisdiction of a Member State Court should be considered based on the factors set forth in Wind Hellas with a degree of permanence as to the COMI shift being a crucial factor as referenced by the Luxembourg District Court. A seeming “free for all” finding of jurisdiction as indicated in the German Court judgements appears inconsistent with the intention of the Regulation and results in uncertainties in negotiations with creditors where a company is in distress.
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: firstname.lastname@example.org