The Puzzle of The New European COMI Rules

EU Regulation 2015/848 on insolvency proceedings (Recast) laid down new rules on the debtor’s ‘centre of main interests’ (COMI). However, one may doubt that these efforts have succeeded. Moreover, ‘ascertainability [of COMI] by third parties’, an element of the COMI test, could prove problematic when a multinational firm is run by a group of companies or conducts its relationships with suppliers and customers through digital networks.

Unlike Art 3(1) of EU Regulation 1346/2000, Art 3(1) of EU Regulation 2015/848 introduced a COMI definition, extended to individuals the presumption aiming at better ascertaining the COMI, and incorporated into a mandatory rule the judicial rule of thumb whereby any COMI shift that has occurred shortly before the request to open insolvency proceedings must be evaluated with suspicion. Moreover, in order to make this framework clearer and more easily applicable, eleven recitals were introduced (Recitals 25 to 34 and 53), one of which states that ‘the introduction of rules on the insolvency proceedings of groups of companies should not limit the possibility for a court to open insolvency proceedings for several companies belonging to the same group in a single jurisdiction if the court finds that the centre of main interests of those companies is located in a single Member State’ (Recital 53).

The set of disputes concerning the ‘NIKI Luftfahrt GmbH’ is an illuminating example of the deficiencies of the new COMI rules. ‘NIKI Luftfahrt GmbH’ (NIKI) was an insolvent company under Austrian law incorporated in Austria. However, NIKI was also a subsidiary of the ‘Air Berlin PLC & Co Luftverkehrs KG’, better known as ‘Air Berlin’. This is a company under German law registered in Germany. Therefore, the crucial question was: which Member State had jurisdiction to open main insolvency proceedings against NIKI? Did Austrian or German courts have jurisdiction? The answers to this question were various and contradictory. The NIKI dispute has at long last been settled, but the NIKI case is intriguing because it demonstrates that the new COMI rules still give rise to doubts as regards both the relation between ‘the place where the debtor conducts the administration of its interests on a regular basis’ and the place ‘which is ascertainable by third parties’, and the relation between the definition of COMI and the presumptions provided to make it easier to apply this definition.

Moreover, some practitioners maintain that the new COMI rules could facilitate COMI relocations. A company could move its registered office to another Member State; make the transfer public; await the expiration of the three-month period laid down by the time limit to the presumption; and apply for the opening of insolvency proceedings in the new jurisdiction. Consequently—this is the significant point—in this case the COMI shift would be more compliant with the letter of Art 3(1) of EU Regulation 2015/848 rather than with its spirit. The same counsels proposed a similar idea as regards individuals, mutatis mutandis. To our knowledge, there is not yet any evidence of abusive relocations. However, the suggestions from practitioners deserve attention because these are based on the application of some prescriptions that were conceived precisely to prevent a debtor from circumventing the COMI rules.

The problems with the new COMI rules do not end here. Sometimes the investigation about ‘ascertainability by third parties’ could prove problematic to a greater extent than under the EU Regulation 1346/2000: first, because EU Regulation 2015/848 deals with group insolvencies, as regards which Recital 53 enables the opening of insolvency proceedings for several companies belonging to the same group in a single jurisdiction—Recital 53 has mitigated the position held by the CJEU according to which national courts could open one set of insolvency proceedings for one group of companies in exceptional cases only; secondly, because the increasingly massive use of IT in business organizations is impacting dramatically on creditors’ perception as to where their debtors are located. The more complex a business organization is, the more often this situation arises. This is because the more complex a business organization is, the more possible it becomes for a firm to be split into many ‘units’ (the term is non-technical, including both a company belonging to a group and any relevant place within a digital network) which, on the one hand, are located in different countries and, on the other hand, are in contact with different groups of creditors. Case by case, these groups of creditors may have differing perceptions as to where the firm is located.

In my recent paper entitled ‘The Puzzle of the New European COMI Rules—Rethinking COMI in the Age of Multinational, Digital and Glocal Enterprises’, I addressed these issues. This paper argues: first, that the new COMI rules contain a teleological flaw—the rule laying down time limits for the COMI presumptions is conceived as an end in itself, and not just as a means to better ascertain COMI; secondly, that the new COMI rules contain a logical flaw—sometimes, the prerequisites ‘administration on a regular basis’ and ‘ascertainability by third parties’ could be de facto logically incompatible with each other; thirdly, that very often the prerequisite that the COMI ‘shall be the place … which is ascertainable by third parties’ is a duplicate of ‘on a regular basis’; fourthly, as indicated above, that the ‘ascertainability’ could prove increasingly 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 that has glocal considerations.

Renato Mangano is Professor of Commercial Law, University of Palermo, Palermo, Italy.