The Failure of COMI and the Case for Revisiting the UNCITRAL Model Law on Cross-Border Insolvency

The debtor’s centre of main interests (COMI) is one of the central pillars of modern cross-border insolvency frameworks and a key concept of the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law (UNCITRAL) and implemented in more than 60 jurisdictions worldwide. By incentivizing the initiation of insolvency proceedings in the debtor’s economic 'center of gravity' under the threat that proceedings commenced elsewhere may not be recognized, or at least not as foreign main proceedings, COMI is thought to promote predictability, limit forum shopping, and facilitate the fair and efficient administration of cross-border insolvencies.

COMI is a failure. In a recent article, we show that COMI a costly and inefficient concept that should be abolished or, at the very least, fundamentally revisited. Our analysis draws on practitioner interviews, judicial decisions, and a dataset of financially distressed airlines.

Our findings suggest that the costs and effects of COMI vary considerably depending on a company’s size. For large multinational companies, COMI is costly but largely irrelevant. These firms can often choose where to initiate insolvency proceedings regardless of their COMI. However, doing so may require paying what we call a 'COMI tax'. This may involve paying local creditors in full, conducting parallel proceedings, or avoiding recognition of the foreign proceedings in the company’s home jurisdiction.

For medium-sized enterprises, COMI can be prohibitively costly. Unlike large multinationals, these companies may lack the resources needed to afford the COMI tax. Consequently, they may be unable to access more efficient foreign restructuring regimes, even when doing so could preserve economically viable businesses, minimize job losses and maximize creditor recoveries. This problem is particularly relevant in emerging markets and developing economies, where domestic insolvency frameworks may be less efficient.

For small firms, COMI is largely irrelevant. Even without COMI, these businesses generally lack the resources and incentives needed to pursue insolvency proceedings abroad. Their restructuring options therefore depend primarily on their domestic insolvency regimes.

More generally, our analysis shows how COMI can undermine the goals of the Model Law by hampering international cooperation, creating uncertainty, and increasing restructuring costs. Paradoxically, it can also encourage old and new forms of territorialism, contrary to the principle of modified universalism embraced by the Model Law.

We argue that one of the fundamental problems with COMI is that it confuses value maximization with distributional fairness. While maximizing creditor recoveries may require allowing companies to restructure in a more efficient foreign jurisdiction, protecting creditors may require preserving their pre-existing priority rights. These objectives can be pursued separately without requiring companies to restructure in their COMI jurisdiction or bear the costs associated with the COMI tax.

We therefore discuss two possible reforms. The first is a Commitment Rule for Insolvency Forum, previously advanced by one of us in conjunction with Professors Anthony Casey and Robert Rasmussen, under which companies would commit in advance to a jurisdiction for conducting any future insolvency proceedings, through publicly accessible corporate documents such as their constitutions. By allowing companies to select more efficient insolvency regimes while limiting opportunistic changes to the chosen forum, the Commitment Rule could enhance predictability, reduce litigation and restructuring costs, facilitate the recognition of foreign proceedings, and strengthen creditor protection. In addition, by enabling companies to make a credible commitment to a particular insolvency forum, it could encourage lenders to extend credit at a lower cost, particularly to firms in countries with less efficient insolvency systems.

The second is a proposal that we call COMI 2.0. Under this approach, the COMI concept would be retained but fundamentally revisited. In particular, COMI would serve as a reference point for protecting creditors’ pre-existing rights rather than as a rule determining where foreign main proceedings must be commenced. Under this approach, companies would be able to initiate insolvency proceedings in any jurisdiction, as long as the laws of that jurisdiction permit it, and obtain recognition as foreign main proceedings even outside their COMI, provided that creditors, or a defined group of vulnerable creditors (eg, employees and tort victims) as identified under the relevant country’s insolvency laws, are not made worse off or, at least, do not lose their pre-existing priority rights.

To enhance predictability and reduce litigation, COMI 2.0 would also adopt a clearer and more objective definition of COMI, potentially through a non-rebuttable presumption based on the debtor’s headquarters, registered office, or place of incorporation, depending on whether UNCITRAL prefers an approach closer to the real-seat or incorporation doctrine. Under COMI 2.0, COMI would thus serve as a clear and predictable reference point for assessing and protecting creditors’ pre-existing rights, rather than restricting the choice of insolvency forum or making that choice more costly by imposing the COMI tax.

Our proposals are not panaceas. No policy can eliminate all costs associated with complex cross-border insolvency proceedings. The relevant question is whether feasible reforms can reduce current costs and do more to promote predictability, protect creditors, and facilitate efficient cross-border restructurings. Our proposals do that. 

Our paper thus reinforces earlier criticisms of COMI and provides new evidence and further support for abolishing or fundamentally revisiting the concept. As the Model Law approaches its 30th anniversary in 2027, it is time to reconsider one of its central pillars. Doing so could strengthen the Model Law’s ability to facilitate the fair and efficient administration of cross-border insolvency proceedings and ultimately foster entrepreneurship, investment, access to finance, and economic growth.

The full version of the article can be found here. 

Aurelio Gurrea-Martínez is a Professor of Law at the Singapore Management University Yong Pung How School of Law. 

Edward R. Morrison is the Charles Evans Gerber Professor of Law at Columbia Law School.