Tag: Centre of Main Interest

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East-West logistics: debatable COMI determination in the case of an insolvent virtual trading company, and proprio motu obligations of the judge.

In  East-West Logistics LLP v Melars Group Ltd [2020] EWHC 2090 (Ch), at issue was COMI – Centre of Main Interests determination under Regulation 2015/848 of a  trading company incorporated in BVI, until 10 December 2015. It then moved its registered office to Malta, two months after service of the claim form in BVI proceedings and a month after acknowledging service, with regard to a charterparty gone wrong.

CJEU Interedil including its insistence on third-party observability, is the main authority called upon by parties. Baister DJ adds Northsea Base Investment in particular and notes at 22

Because this company traded virtually rather than physically, much of the case law is of little assistance: it deals largely with companies of substance that have a headquarters, offices, a tangible physical presence or assets or staff who are located and work somewhere or other.

He also notes, at 23 and I agree, that the forum shopping which the company had clearly engaged in, is not of itself of material relevance (despite nota bene the Regulation’s recitals betraying a contempt for forum shopping): ‘a debtor is entitled to move his centre of main interests and to do so for self-serving reasons. The question is whether the move is real or illusory.’ Baister DJ refers to Shierson v Vlieland-Boddy [2005] EWCA Civ 974 which albeit held early in the life of the (previous) EU Insolvency Regulation continues to have relevance.

The judge comments at 22 that ‘there appears to have been no attempt to notify any third party of the move: no evidence is given of the company’s having done so; on the contrary,…, the company continued to use a BVI address after the move’ – which could make one think that in fact BVI should emerge as a strong contender for COMI – even if seemingly neither party suggested it was.

The judge at 27 emphasises the proprio motu instruction of the EIR, i.a. in Article 4: a judge cannot ‘avoid the obligation imposed on it by the Regulation to “examine of its own motion whether the centre of the debtor’s main interests…is actually located within its jurisdiction,..”: the place of registered office is not a fallback in case parties do not provide proper evidence: the judge must examine COMI on the facts himself.

Then follows an admirably serious engagement with the few elements present in the case, leading to Baster J opting for England as COMI: at 54:

I conclude on the basis of the documentary material, the location of the company’s banking facilities from time to time, the location of its legal advisers, the location of at least one judgment creditor to which a debt was to be paid and the place where the company was involved in litigation that at the relevant time the company was administering its interests in both the UK and Switzerland so that both were centres of the company’s interests. I conclude, by a narrow margin and with misgivings, that on balance the greater use of English law for contracts, the greater use of London as a seat of arbitration, the actual recourse to or forced involvement in legal proceedings here and the consequential use of English lawyers makes the UK, on the balance of probabilities, the main centre of those interests. The company’s affairs seem to have been conducted in this country more than in Switzerland, certainly as far as contractual and litigation interests were concerned, although it is, I accept, hard to be precise.

I tend to disagree and I believe it is at 35 that the mistake is being made:

Locating the company’s centre of main interests in Malta rests on its registered office being there and no more than that. There is unchallenged evidence from the petitioner that there is no operational office and no one conducting the business of the company there. The registered office is a “letter box” and no more. It follows that if the company “conducts the administration of its interests on a regular basis elsewhere” such that that “is ascertainable by third parties,” that “elsewhere” can only be either the UK or Switzerland.

The Registered office presumption despite its rebuttability, remains a presumption. If on the facts, ‘the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties’ (definition of COMI in A3(1) EIR) does not clearly point to another place than the registered office, the presumption must remain in place. In the case at issue, the starting point seems rather to have been to establish either the UK or Switserland as COMI. In doing so the judge I feel did not give enough weight to the COMI presumption. Even with the proprio motu instruction, the judge must not scavenge for alternative COMI; there must be convincing evidence of the alternative, which I do not think from the judge’s description, is available here.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.2.Heading 5.6.1.2.4.

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COMI in NIKI.

Thank you Bob Wessels for again alerting us (with follow-up here [update 15 January 2018 and here ; looks like regular revisits of prof Wessels’ blog are in order) and also reporting by Lukas Schmidt here) timely to a decision this time by the German courts in Niki, applying the Insolvency Regulation 2015, on the determination of COMI – Centre of Main Interests. Bob’s review is excellent per usual hence I am happy to refer for complete background.

Of particular note is the discussion on the extent of a court’s duty to review jurisdiction ex officio; the court’s correct assumption that in the event of foggy circumstances, the EIR’s presumption of COMI at the place of incorporation must have priority; and finally in my view the insufficient weight the court places on ascertainability by third parties.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.

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COMI in Powerstorm and in Bezuijen Holding v X: Dutch Courts warming up to the new Insolvency Regulation.

Thank you Bob Wessels for again alerting us timely to two recent decisions by the Dutch courts, applying the Insolvency Regulation 2015, on the determination of COMI – Centre of Main Interests. Bob’s review is excellent per usual hence I am happy to refer for complete background. In short, the decisions are

  • in Powerstorm: textbook applications on the public expression (hence ascertainability by third parties, to use the CJEU’s phrase of words) of COMI, which third parties have to rely on. Here: to displace the presumption of COMI in the United States (place of incorporation; in re Powerstorm) in favour of Amsterdam.
  • in Bezuijen BV against X, a natural person: with extensive reference to the recitals of the EIR 2015, that the Dutch courts have to consider jurisdiction proprio motu, evidently, and that they need serious evidence to uphold jurisdiction against a natural person who, both parties agree, no longer has his residence in The Netherlands (where it is, is in dispute but it is probably somewhere in the vicinity of Paris).

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.

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OCEAN Rig: COMI shopping cautiously welcomed by US Bankruptcy Court.

I have often argued that the European Commission and by extension the EU’s Insolvency Regulation is wrong in taking as a starting point that forum shopping in insolvency matters as a rule needs to be discouraged. This aversion towards forum shopping is one of the main reasons for the UK and other Member States to keep Schemes of Arrangement and other restructuring devises well out off the reach of the Regulation. (The Brussels I recast for instance allows for much more strategic choice of court use).

Thank you Debra Dandeneau for flagging the US Bankruptcy Court, Southern District of New York’s decision in Ocean Rig. The Court essentially argues that to use forum shopping in a restructuring /insolvency case is absolutely acceptable provided it is done in good faith, particularly with a view to maximizing chances of survival and /or maximal recovery by the creditors. Note that the Court, in determining COMI for the various companies in the group, pays specific attention to the ascertainability, by third parties, of COMI.

A judgment to be applauded. And this posting, incidentally, is the 500th on this blog. To 1000 and beyond!

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.1, Heading 5.4.6.

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Buccament Bay: Is there room for forum non conveniens in the Insolvency Regulation?

In Buccament Bay, 2014 EWHC 3130 (Ch), Strauss QC (DJ) dealt with the preliminary jurisdictional issue of whether the court should exercise its jurisdiction to hear winding-up petitions, based on largely undisputed debts, when neither of the companies concerned is incorporated in England (they are incorporated in Saint Vincent and the Grenadines, ‘SVG’).

[I have a copy of the judgment courtesy of Richard Clark, who with Patrick Cook authored this review of the judgment. Judgment was issued on 3 October but has not yet appeared in BAILII].

The judgment does not start with what logically it ought to have done, namely application of COMI per the EU’s Insolvency Regulation. Instead, Strauss DJ first considers the application of Section 221(1) of UK the Insolvency Act 1986, which i.a. gives the court jurisdiction to wind-up foreign  companies as ‘unregistered’ companies, provided, subject to relevant case-law, that there be sufficient connection with England. He decides there is not (in particular because the condition is not satisfied, required under relevant precedent, that the petitioners derive benefit from the winding up). It is only after having rejected application of Article 221(1) that the court summarily returns to COMI under the Insolvency Regulation. Arguments pro and contra (which also fed into the Section 221(1) analysis) are helpfully summarised by Anna Jeffrey here. They led, justifiably I believe (albeit that reference to ECJ precedent here, would have been helpful) to a finding on COMI being outside the EU.

This is then where the High Court comes to the most interesting part of the judgment, even if it was obiter (at 25). Namely that even had COMI being in the UK, the English court could still exercise constraints /room for manoeuvre, applying Section 221(1), including recourse to forum non conveniens. In the words of Strauss DJ, ‘the only effect of Article 3(1) [of the Insolvency Regulation] is to give the court jurisdiction, which it has anyhow under English domestic law, to open insolvency proceedings. Where a company’s COMI is in this country, it is highly likely that, by definition, the court will be satisfied that there is a substantial connection with this country, but otherwise the discretionary factors will be the same. In this case, even if I had been satisfied that the respondents’ COMI was here, it would still have made no sense to make winding up orders in a case which is obviously much more suitable for the SVG courts.‘

Respectfully, I disagree. Article 3(1) simply supersedes Section 221(1) in cases where COMI is in the UK. It generally supersedes national jurisdictional rules, again, provided COMI is in the EU. Article 221(1) being a jurisdictional rule and not one of substantive UK insolvency law (which applies as lex concursus), it cannot have calling had COMI been in England.

That leaves the overall question, whether the Insolvency Regulation accommodates forum non conveniens (it certainly does not have a formal rule on it, in contrast with the Brussels I recast). Although there is to my knowledge no ECJ case-law on this, it is quite likely that neither Regulation nor most definitely the ECJ have sympathy for FNC. (See my posting on Kemsley for the issue of anti-suit injunctions and the Regulation).

Geert.

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You name it! Dutch court adds to the criteria relevant in (not) rebutting COMI presumption for companies

Thank you Arie van Hoe for alerting me to this in some respect amusing judgment by the court at The Hague. Amusing, in that the court adds a curious consideration to the criteria for third parties’ perception of COMI.

Central Eastern European Real Estate Shareholdings BV is incorporated in The Netherlands. Per Article 3(1) of the Insolvency Regulation, The Netherlands is therefore presumed to be the Centre of Main Interests – COMI of the company. This presumption can be rebutted using the definition of COMI included in recital 13: COMI is the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties. The ECJ has repeatedly emphasised the combination of both: administration of the interests elsewhere,  and this as such being recognisable to third parties.

CEE itself suggests Romania as COMI. The court at The Hague correctly emphasises both elements of recital 13, paying particular attention to third party ascertainability. Consultation of the commercial register, the Court flags, reveals clearly to third parties that the company is being managed from the Netherlands, by Dutch directors. It is here that the Court adds the reference to the commercial register revealing the ‘typically Dutch names’ of the directors. That is amusing and was bound to attract attention – although to be fair it is not the core reasoning of the court. Of some relevance was the fact that the directors apparently, as was revealed at the hearing, regularly consult, in The Netherlands, with Netherlands based consultants.

It is of course difficult to read the entire mind of the court just from the succinctly written judgment, however what seemed to be crucial was the lack of convincing elements, provided by the company, that to third parties Romania clearly was the place of administration of the company’s interests. Indeed the judgment reveals no such factors at all. Aforementioned elements therefore acted in support of the presumption.

Reference to the directors’ names opens up an interesting prospect: that of first name shopping (or indeed change of name by deed poll) to impact on COMI. (Please just put that down as a silly suggestion rather than sound advice. For, again, the court itself also just made the comment in support ex multi).

Geert.

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Propertize: Should creditors’ domicile and mutual consent on COMI be relevant for insolvency Regulation?

In Propertize, (held 10 April 2014; delayed reporting for exam reasons) the court at ‘s-Hertogenbosch (Netherlands) held that Propertise BV has COMI in The Netherlands (and the presumption in favour of COMI being the place of corporate domicile therefore not dismissed), paying particular attention to the fact that (1) during argument at court both parties in the meantime had agreed that COMI was in The Netherlands, and (2) that the main creditors were based in The Netherlands.

Prof Wessels was right to be pleased to be quoted in the judgment – even if as he also rightfully points out, the court in fact only refers to his Handbook to cite relevant case-law and not to apply the COMI test properly (as prof Wessels’ book does): recital 13 of the Insolvency Regulation suggests COMI as being the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties. The ECJ has repeatedly emphasised the combination of both: administration of the interests elsewhere,  and this as such being recognisable to third parties (e.g. at 49 in Interedil). Neither location of the creditors nor agreement between creditors on the debtors’ COMI have any relevance.

Textbook inadequate application of COMI: hence very appropriate for an exam question. Geert.

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The Irish High Court in Harley Medical Group: Textbook application of COMI following PIP implants liability

In Harley Medical Group, the Irish High Court has made a textbook application of the determination of jurisdiction under the EU’s Insolvency Regulation. The Court held in May, the case has only now come to my attention.

Harley Medical Group (Ireland) Ltd has its registered office in the British Virgin Islands. It had registered in the Companies Registration Office (CRO) in Ireland as an external company with a branch established in the State pursuant to the European Communities (Branch Disclosure) Regulations 1993. The sole shareholder sought winding up in Ireland. Liabilities arose from claims against Harley by 158 former patients in respect of cosmetic treatment they received. Many of those claims arise from breast implant operations using breast implants from PIP, a French registered company. The Company was informed by its insurers that its insurance cover does not extend to product liability claims for products sourced from a third party.

The patients opposed jurisdiction, seeking to have the case heard in the UK instead: lex concursus would then have been English law, which allegedly would have been more favourable on account of the Third Parties (Rights against Insurers) Act 2010: this would allegedly give the claimants better rights against the insurer. As the High Court correctly held, however,

‘The perceived advantage to the Opposing Creditors of this Court declining jurisdiction to wind up the Company is articulated as follows in [  ] ’s second affidavit, where it is averred that –

“. . . the creditors believe their rights under UK legislation with regard to any relevant policies of insurance indemnifying or intended to indemnify the Company against claims such as those of the creditors will be stronger than under Irish law.”

The Court was referred to a UK statute entitled Third Parties (Rights against Insurers) Act 2010. That contention is immaterial to the Court’s function on this application and it would be inappropriate for the Court to express any view on it. (at 37)

The High Court swiftly rejected the notion that the Regulation does not apply because of the non-EU incorporation of the company: from the moment the company’s COMI – Centre of Main Interest is in the EU, the Regulation does apply. Neither does it matter that the company is part of a group of undertakings, and that a company within the group with which it was associated had been placed in administration in the UK: COMI, per Eurofood (notably, upon reference by the Irish Supreme Court), needs to be individually determined per corporation.

The Court subsequently reviewed the rebuttable presumption of COMI as being the place of incorporation (here: BVI). Per Interedil, this requires the court seized to review whether the Company’s actual centre of management and supervision and of the management of its interests is located in its territory, ! in a manner that is ascertainable by third parties. Both conditions were fulfilled:

On the condition of ‘actual centre of management and supervision and of the management of its interests’ the High Court accepted the following indices:

  • – The Company has never traded in any jurisdiction other than Ireland.
  • – all surgical treatments had been carried out in Ireland, the operations having been performed by surgeons registered with the Irish Medical Council;
  • – the Company was registered as a branch in Ireland and subsequently filed all of the statutory returns as was required by law.
  • – All employees of the Company are located in Ireland.
  • – The Company’s only place of business is at Dublin.
  • – The Company’s address for correspondence has at all times been located in Ireland.
  • – The Company is registered with the Irish Revenue Commissioners for VAT, and relevant national insurance payments.
  • – The Company is not tax resident in any other jurisdiction.
  • – The Company does not operate any bank account in any other jurisdiction other than Ireland;
  • – The Company board meetings typically took place in Guernsey. However, in the last fourteen months, they have taken place either in London or in Dublin.

On the matter of ascertainability by third parties, that all of the Company’s activities have been conducted in Ireland since 1999 and that the administration of its interests has been continuously conducted in Ireland, has been readily ascertainable by third parties by conducting a search in the CRO and an inspection of the documents filed by the Company in the CRO in accordance with the law of Ireland.

Top marks, I’ld say.

Geert.

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Insolvency, universality and forum non conveniens. Manx Court in Interdevelco seeing ‘”the challenges of our time through the world’s eye”.

I have only just now bumped into it [the judgment, not the Island; bumping into the latter would require one to be sailing, a delightful proposition however not one for which it is the right season]: in  Interdevelco Limited v Waste2energy Group Holdings Plc (October 10 2012), the Isle of Man High Court declined to accept jurisdiction in insolvency proceedings against a company incorporated in the Isle of Man. Waste2Energy may be incorporated in the Isle of Man – it has however considerable commercial connections in the US, where other companies within the group are located, and is subject to insolvency proceedings there.

The Manx court had jurisdiction in principle, on the basis of the incorporation there. However Manx rules on civil procedure include a general forum non conveniens rule, and its insolvency laws express clear preference for universality. The combination of both with comity, led the high Court to relinquish jurisdiction in favour of the US.

Importantly, the EU’s Insolvency Regulation does not apply to the Isle of Man. Had it done so, this outcome would have been a lot more difficult, if not impossible to obtain: whence seeing ‘”the challenges of our time through the world’s eye” (the judgment quoting Justice Michael Kirby) would have been a lot more difficult.

Geert.

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