On 20 May 2015 the European Parliament adopted the recast Insolvency Regulation (the "Recast Regulation") amending the existing Council Regulation (EC) (No. 1346/2000) on Insolvency Proceedings (the "Regulations"). Amongst the changes implemented by the Recast Regulation is the incorporation of a definition of centre of main interest ("COMI").
A company's COMI is important from an insolvency perspective because COMI determines the jurisdiction in which a company can commence an insolvency proceeding. COMI has been a heavily debated element of the Regulations, both from a theoretical and a commercial standpoint, as many companies have sought to shift their COMI purely to gain access to a jurisdiction in which the insolvency regime is viewed as more favourable than their "home" jurisdiction. One of the central intentions of the Recast Regulation is to reduce the practice of abusive forum shopping, i.e. where the debtor seeks to enter insolvency proceedings in another member state in order to obtain a more favourable legal position to the detriment of its creditors.
Changes to COMI following adoption of the Recast Regulation
The Recast Regulation formally defines COMI at Art 3(1) as "the place where the debtor conducts the administration of his interests on a regular basis and which is ascertainable by third parties".
In an effort to prevent abusive forum shopping, the Recast Regulation now states that if a company's registered office has been relocated in the three months prior to the opening of insolvency proceedings, the rebuttable presumption that the place of the company's registered office will determine its COMI will not apply. This is meant to deter companies from shifting their COMI and then immediately commencing an insolvency proceeding in their "new" jurisdiction. Further, a company will be required to submit evidence supporting its COMI claim in the jurisdiction where they have commenced insolvency proceedings.
In codification of the case Interedil Srl (in liquidation) v Fallimento Interedil Srl and another [2011] the Recast Regulation further state in Art 3(1) that a company's COMI can only be rebutted by factors that are objective and ascertainable by third parties. Factors to assess include the location of the company's actual centre of management and supervision.
Following the adoption of the Recast Regulation courts are required to determine whether they have jurisdiction to open insolvency proceedings. Where they do, the court is required to outline their reasoning in the judgement that opens the insolvency proceedings. It is anticipated that this will provide additional clarity to the process of open insolvency proceedings.
Schemes of arrangement
Despite fears to the contrary the Recast Regulation declined to add schemes of arrangement to the list of proceedings which are within its scope. Therefore, foreign companies are still able to utilise a UK scheme of arrangement regardless of whether their COMI is located outside of the UK.
Conclusion
In practice, a COMI migration often takes between 6 and 12 weeks to take effect. Accordingly the changes introduced by the Recast Regulation are unlikely to markedly affect the current commercial reality.
Although COMI has been clarified, the Recast Regulation stopped short of including the controversial mandatory look back period of up to two years that was previously considered. Instead it has sought to prevent abusive forum shopping, whilst permitting (and seemingly acknowledging) that not all forum shopping is bad.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
