Where's your COMI? - Recognition of foreign proceeding - International Courts & Tribunals

This week's TGIF considers Wood v Astra Resources Ltd (UK Company No 07620218) [2016] FCA 1192, in which the Federal Court was asked to recognise a foreign proceeding under the Model Law on Cross Border Insolvency.

BACKGROUND

In November 2015, the High Court of Justice in England and Wales ordered that a UK company be wound up. The liquidators of the company then sought recognition in Australia of the proceedings in the UK under the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency (Model Law). Alternatively, the liquidators sought an order for the winding up of the company in Australia pursuant to s 583(c) of the Corporations Act.

The Model Law is given force in Australia by s 6 of the Cross-Border Insolvency Act 2008. Under the Model Law, for an Australian Court to recognise a foreign proceeding, it must be satisfied that the foreign proceeding is taking place in the same state as where the debtor has the centre of its main interests (COMI).

The Model Law does not define the term COMI. However, in the absence of evidence to the contrary, it does allow a court to presume that a debtor's COMI is its registered office.

PROCEEDING

The liquidators submitted that Australian Courts have adopted the approach taken by the European Court of Justice that the COMI should correspond to the place where the debtor conducts the administration of its interests on a regular basis and is therefore ascertainable by third parties.

The registered office of the company was and always had been in the UK.

The liquidators suggested that the following factors indicated that the presumption that the registered office of the company was its COMI, should not be displaced:

Its corporate secretary was located in London;
It had engaged solicitors in England in relation to the winding up proceedings;
It had retained auditors in England; and
It had been listed on the GXG Market Exchange operating in London.

However, the liquidators acknowledged that the company also had a number of links to Australia, in that:

It was a resident in Australia for tax purposes;
It had distributed share application forms and made offers of shares to several persons in Australia;
It's information brochure provided contact details in Australia;
Several of its previous directors were located in Australia;
It had retained an Australian accountant;
It had retained Australian brokers with respect to the issue of its shares;
It had business premises in Adelaide; and
It had several incorporated subsidiaries in Australia.

The liquidators further acknowledged that there were also objective factors which linked the company to a jurisdiction other than the UK and Australia, including that:

It had engaged a share registry service provider in Canada;
The address of the only current director was in Macedonia;
It may have pursued at least some form of activity in 11 different countries; and

The creditors known to the liquidators were located in a number of different jurisdictions, the largest being in the US.

DECISION

In light of the factors discussed above, his Honour held that the company's COMI was its registered office, being in the UK, and ordered that the UK proceedings be recognised as a foreign main proceeding in Australia.

In doing so, his Honour held that:

The COMI must be identified by reference to criteria that are both objective and ascertainable by third parties;
In order to rebut the presumption that a debtor's COMI is its registered office, there must be factors which are both objective and ascertainable by third parties that warrant that the presumption be displaced;
The identity and location of the company's shareholders are not necessarily irrelevant factors. However, although the majority of the company's shareholders were located in Australia, it was not a case where the shareholders could be regarded as the alter ego of the company;
That the objective factors pointing towards the COMI being in Australia or indeed the UK were largely historical (there being an absence of evidence of an actual business being conducted by the company in either jurisdiction) elevated the importance of the presumption of the COMI being the company's registered office; and
Although the Company had connections with jurisdictions other than the UK, most notably Australia, those factors were not sufficient to displace the presumption that the company's COMI was its registered office

COMMENT

This decision helpfully shows that when seeking recognition of the foreign proceeding, in the absence of clear factors which are both objective and ascertainable by third parties which warrant a debtor's COMI not being its registered office, the presumption that the COMI is the registered office will be very difficult to displace.

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.