The European Union was the first jurisdiction to adopt the principle of COMI when it was introduced in the European Insolvency Regulation (EIR) which was adopted in 2000 and entered into force in 2002. Over the years, the European Court of Justice and courts in various jurisdictions within the EU have contributed immensely to the development of the concept.
EU member countries like Luxembourg and Ireland, which offer various tax incentives, have become popular destinations for companies to set up their corporate headquarters. In light of this, the EU has played an active role in ensuring the efficiency of the cross-border insolvency mechanism by giving more clarity and further expanding several key concepts in the subject, including that of COMI. The EIR 2000 was subsequently revised in 2017, which has greatly elaborated on the concepts of COMI.
The European Court of Justice (ECJ) in the famous case of Re Eurofoods, observed that the presumption of COMI shall be by default in the jurisdiction where the debtor maintains his registered corporate office. The ECJ, however. also ruled that such a presumption is rebuttable if evidence is provided that the registered office in the jurisdiction is no more than a letterbox address and the administration of the company along with a bulk of its economic activities are conducted elsewhere.
Further, the ECJ also held that the onus of determining COMI shall be on the court in which the insolvency proceedings are initiated. The court in the original state, prima facie ,will have to determine whether the debtor’s COMI lies in its jurisdiction in light of the evidence available. In the event the court decides that the debtor’s COMI shall lie in the original state, it is also imperative for other courts where parallel insolvency proceedings have been initiated against the same debtor to recognize the proceedings initiated in the jurisdiction of the first state as the main proceedings. In case a court in any other jurisdiction feels that the there is an error in the decision of the court in the original state, it may appeal to a higher court in the jurisdiction of the first state.
The decision in the Eurofoods case further places clear emphasis on the possibility of forum shopping by companies in order to seek lenient regulations concerning administration and liquidation. The decision of the ECJ clearly adds a rider that the court must look beyond the mere presence of a corporate office in a jurisdiction and must actively ascertain whether the registered office plays an active role in the administration of the company’s affairs.
Further, European jurisprudence on COMI also lays great emphasis on the views and opinions of the creditors of the debtor as to where is the principal place of business of the debtor. In addition to the above criteria, nationality of the directors of the debtor company along with the jurisdiction where the company’s board meeting is held regularly are also given due weightage whilst determining COMI.
Source: Barandbench
