UK: Interpreting the meaning of "Centre of Main Interests"

The European Court of Justice has issued its decision in the case of Eurofood IFSC Limited (Eurofood) on 2 May 2006.

The referral to the European Court of Justice was made by the Irish Supreme Court following a protracted "battle" between the Irish and Italian Courts for jurisdiction to oversee the winding up of Eurofood, a subsidiary of the Italian Parmalat Group.

The high profile case concerns the question of how to interpret the meaning of "centre of main interests" (COMI) in the European Insolvency Regulation (the regulation). The question of a company's COMI is central to the European Insolvency Regulation, and provides that where a company operating in more than one jurisdiction becomes insolvent, main insolvency proceedings must be brought in the member state where the company's COMI is located. Applying the definition in practice has been difficult in some cases for insolvency practitioners to work out which is the correct country in which to start insolvency proceedings.

The decision of the ECJ broadly agrees with the Opinion of the Advocate-General (27 September 2005) that you need to look at the circumstances of each debtor. It underlines the fact that the Regulation was meant to stop clashes of jurisdiction and shows that if you want to challenge the jurisdiction in a winding up, you should use the domestic remedies of that country rather than go to the ECJ.

The ECJ has ruled:

• Only factors that are both objective and ascertainable by third parties (i.e. by creditors of the company) will rebut the presumption that the COMI of the subsidiary is in the member state where the registered office is situated. The fact that a parent company controls the economic choices of its subsidiary but the subsidiary has a registered office in and carries on its business in another member state is not enough to rebut the presumption.

• The main insolvency proceedings opened by a court in one member state must be recognised by the courts of the other member states. The courts in other member states should not be able to review the jurisdiction of the court of the opening state. Any creditor who feels prejudiced by such a decision should appeal the decision using the domestic law process of that particular member state. They should not seek to persuade another court to open main proceedings.

• If a decision to open insolvency proceedings is to be recognised by the courts of other member states, it must be handed down by the court of the member state applied to for such a decision, based on the debtor's insolvency and seeking the opening of proceedings under the Regulation, where that decision involves the divestment of the debtor and the appointment of a liquidator.

• Courts in member states may only challenge or refuse to recognise the decision to open proceedings by another court in another member state where the decision to open the proceedings was taken in breach of creditors' fundamental rights to be heard at such hearings or some other infringement of a fundamental principle of that member states national law.

The meaning of "centre of main interests" still lacks clear definition, and practitioners must still look to the decisions of national courts for guidance as to what factors should be taken into account in determining a company's COMI.

Law: Council Regulation of 29 May 2000 on insolvency proceedings (1346/2000/EC); Case C-341/04 2 May 2006: reference for a preliminary ruling under Articles 68 EC and 234 EC from the Supreme Court (Ireland).

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 03/05/2006.