Galapagos Bidco v DE. The CJEU fails to clarify whether move of COMI by mere market notice, may be effective.

Krzysztof Pacula reported end of March on CJEU C-723/20 Galapagos Bidco v DE and justifiably highlighted the Brexit issue. The case concerns a move of COMI – centre of main interest within the context of the Insolvency Regulation 2015/848 and it is on the element of impromptu move that my post will focus.

Galapagos SA is a Luxembourg holding company whose centre of administration (‘effective place of management‘ according to the former directors) was moved in June 2019, at least so contend previous directors, to England. At the end of August 2019, they apply to the High Court in England and Wales to have insolvency proceedings opened.

Echos of the tussle are here and of course also in Galapagos Bidco SARL v Kebekus & ors [2021] EWHC 68 (Ch). The day after the move of centre of administration, the former directors were replaced with one other, who moved centre of administration to Dusseldorf and issued relevant market regulation statements to that effect. This move was subsequently recognised  by the Courts at Dusseldorf as having established COMI there. The High Court action in London was never withdrawn and would seem to have been dormant since.

Applicant in the proceedings is Galapagos BIDCO Sarl, a creditor of Galapagos SA. It is I understand (but I am happy to be corrected by those in the know) Luxembourg based. As Krzysztof reports, it contests that the German move has effected move of COMI which it argues lies in England (although I fail to see how its reasoning should not also apply to the earlier instant move from presumably Luxembourg to England).

The question that arises is whether, in the determination of the centre of a debtor company’s main interests, specific requirements must be imposed to prevent abusive conduct. Specifically, in the light of the Regulation’s stated aim of preventing forum shopping, whether ‘on a regular basis’ in the second sentence of the first subparagraph of Article 3(1) Insolvency Regulation 2015, presupposes an adequate degree of permanence and is not present if the establishment of a centre of administration is pursued at the same time as a request to have insolvency proceedings opened. Respondents in the appeal, which include the insolvency administrator (trustee) contend that the requirement of administration ‘on a regular basis’ is fulfilled if the administration is permanent.

The CJEU unfortunately fails to answer that question, choosing to reply instead with a hierarchical answer which encourages race to court: [36]

the court of a Member State with which a request to open main insolvency proceedings has been lodged retains exclusive jurisdiction to open such proceedings where the centre of the debtor’s main interests is moved to another Member State after that request is lodged, but before that court has delivered a decision on that request, and that, consequently, where a request is lodged subsequently for the same purpose before a court of another Member State, that court cannot, in principle, declare that it has jurisdiction to open such proceedings until the first court has delivered its decision and declined jurisdiction.

However in the case at issue, the Withdrawal Agreement has the effect that if the High Court has not, as it would seem, taken its decision on the opening of proceedings prior to the end of Brexit Implementation Day 1 January 2021 (CET), the German courts need no longer apply that consequence of mutual trust and are at liberty to determine the existence of COMI.

The CJEU ends by suggesting Q1 no longer needs answering. Yet I think it does. Perhaps not so much for the case at issue (which explains why the judicially economical CJEU does not offer a reply). The German courts, as Zacaroli J notes in his decision [14], held in October 2019 that COMI for GAS has successfully moved to Germany as from 25 August 2019, the day the capital market and bondholders were informed that the centre of administration had been moved to Düsseldorf. Yet the file does not suggest that COMI prior to the attempted move, existed in Germany: it was established there following the new director’s decision. In accordance with the Regulation’s presumptions, it would have previously existed in Luxembourg. The element of ‘on a regular basis’ therefore still matters. Is the CJEU suggesting that a mere information of the capital markets suffices to move COMI?

Geert.

EU Private International Law, 3rd ed. 2021, Heading 5.6.1.

 

COMI for natural persons and the EIR. The High Court unconvincingly in Lin v Gudmondsson.

Lin v Gudmundsson & Ors [2021 EWHC 820 (Ch) is an application to annul the bankruptcy of Mr Gudmundsson by his ex-wife. She argues inter alia that the bankruptcy order should not have been made because England was not Mr Gudmundsson’s COMI.

At 54, Briggs J (presumably so led by counsel) oddly holds that the EU Insolvency Regulation (‘EIR’) 2015/848 only defines COMI in its recital 13. Odd, for that was the case under the previous Regulation, 1346/2000, not the current one which does define COMI in the text of the Regulation proper (Article 3(1) – see Heading 4 of my overview here). However that issue is of minor importance for the real hesitation I have with the judgment is

that the judge despite the EIR’s specific instruction that COMI needs to be determined proprio motu, retreats to the default adversarial nature of common law proceedings and defers to the claimant’s concession ‘that even if the court were to find that Mr Gudmundsson did not have his COMI in England and Wales it should not exercise its discretion to annul the bankruptcy order’ [57]; and

that the judge resorts to section 265(2) of the Insolvency Act 1986’s jurisdictional anchor (“in the period of three years ending with the day on which the petition is presented …a place of residence in England and Wales”) instead of the autonomous concept of ‘habitual residence’ in the Regulation. The meaning of that concept was recently discussed by the CJEU in C-253/19 Novo Banco.

Geert.

EU Private International Law, 3rd ed 2021, Chapter 5, para 5.95.

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.

CJEU in Novo Banco: confirms mere presence of a natural person’s core immovable asset (the ‘family home’) does not in itself determine COMI (in insolvency).

When I reviewed Szpunar AG’s opinion, I pointed out that the crux of this case is the determination of ‘centre of main interests’ in the context of natural persons not exercising an independent business or professional activity, who benefit from free movement. The CJEU has now held.

With respect to natural persons outside of a profession, the Insolvency Regulation 2015/848 (‘EIR 2015’) determines ‘(i)n the case of any other individual, the centre of main interests shall be presumed to be the place of the individual’s habitual residence in the absence of proof to the contrary. This presumption shall only apply if the habitual residence has not been moved to another Member State within the 6-month period prior to the request for the opening of insolvency proceedings.’

‘Habitual residence’ is not defined by the EIR 2015. The CJEU runs along the usual themes: need for predictability and autonomous interpretation; emphasis on the Regulation generally defining COMI as ‘the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties’ (at 19 and referring to recital 13 of the previous Regulation); among those third parties, the important position of (potential) creditors and whether they may ascertain said centre (at 21); to agree with the AG at 24 that

relevant criteria for determining the centre of the main interests of individuals not exercising an independent business or professional activity are those connected with their financial and economic situation which corresponds to the place where they conduct the administration of their economic interests or the majority of their revenue is earned and spent, or the place where the greater part of their assets is located.

Like the AG, the CJEU holds that the mere presence of a natural person’s one immovable asset (the ‘family home’, GAVC) in another Member State than that of habitual residence, in and of itself does not suffice to rebut COMI (at 28).

At 30, the Court specifically flags that COMI in effect represents the place of the ’cause’ of the insolvency, i.e. the place from where one’s assets are managed in a way which led the insolvent into the financial pickle: 

In that regard, although the cause of the insolvency is not, as such, a relevant factor for determining the centre of the main interests of an individual not exercising an independent business or professional activity, it nevertheless falls to the referring court to take into consideration all objective factors, ascertainable by third parties, which are connected with that person’s financial and economic situation. In a case such as the one in the main proceedings, as was observed in paragraph 24 above, that insolvency situation is located in the place where the applicants in the main proceedings conduct the administration of their economic interests on a regular basis or the majority of their revenue is earned and spent, or the place where the greater part of their assets is located.

As in all other scenarios of rebuttal, the ascertainability in particular by (potential) creditors is key and is a factual consideration which the national courts have to make.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.

Akkurate: Whether English discovery may act extraterritorially under the EU Insolvency Regulation, and a clear difference following Brexit.

Graham Woloff eaor Calzaturificio Zengarini eaor re Akkurate Ltd, [2020] EWHC 1433 (Ch) concerns the question whether the court has the power under section 236(3) of the Insolvency Act 1986 to require persons resident in the EU to produce books and papers and an account of their dealings with a company being compulsorily wound up in England and Wales (it is not disputed that Akkurate’s centre of main interests (“COMI”) was in England and Wales under the European Insolvency Regulation EIR).

EIR 2000 applies to this case, because the winding up of Akkurate was before 26 June 2017, however the issue is not materially different in the new Regulation. There are inconsistent first instance decisions which Vos C reviews ia at 27 ff and at 54 after consideration, he considers s236(3) does not have extraterritorial effect on the basis of what he considers to be the binding authority of Re Tucker (a bankrupt) [1990] Ch. 148. however that following the EIR 2000 (unchanged in EIR 2015) the European regime can and does extend the territoriality of purely domestic insolvency provisions. CJEU authority cited is in particular C-339/07 Seagon v Deko Marty Belgium (at 58 ff) – which I find may be a bit optimistic. Vos C also decides that he can and should apply his discretion to grant orders as formulated at 68.

Clearly, post Brexit, the situation will revert to Tucker. Which would make the English courts less attractive than their continental counterparts – although of course one would have to wait for CJEU authority to confirm the issue less equivocally.

Geert.

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

 

Szpunar AG in Novo Banco: COMI (in insolvency) for natural persons, not self-employed, with assets in former Member State of habitual residence.

I sincerely continue to be humbled when cited by Advocates-General at the CJEU. Even more so therefore when it happens twice (see also Movic) in one week. In his Opinion in C-253/19 Szpunar AG refers to the Handbook’s analysis of C-341/04 Eurofood. The reference to that judgment is part of his assessment of ‘centre of main interests’ in the context of natural persons not exercising an independent business or professional activity, who benefit from free movement. The CJEU has not ruled on the issue before.

The AG points out that the European Insolvency Regulation (EIR) 1346/2000 (‘EIR 2000’), unlike its successor, Regulation 2015/848 (‘EIR 2015’), did not have time limitations under which the presumptions of COMI apply (see here for my paper on the main changes introduced by EIR 2015). However the EIR 2000 did have such presumption without the time limits, for companies and legal persons, and it generally, like the current EIR, requires courts to check whether COMI for natural persons or otherwise is located on their territory. This requires the court to check against the criteria for rebuttal of any presumptions of COMI. That test runs along the criteria that have repeatedly featured on the blog (cue search string ‘COMI’): COMI designates the place where the debtor conducts the administration of its interests on a regular basis and is therefore ascertainable by third parties.

‘Habitual residence’ is not defined by the EIR 2015 and I concur with the AG that references to its application in family European PIL are of limited value. At 45: priority should be given not to factors relating to a debtor’s social or family situation but to those relating to a debtor’s financial position. In the case of natural persons not engaged in a self-employed activity, the line separating their financial situation and their family situation is blurred (at 46). The Virgos Schmitt report already discussed the application of of the insolvency regime to natural persons and advised that COMI as applied to natural persons ought to focus on the economic interests.

At 49 the AG suggests that ‘habitual residence’ no longer reflects a natural person’s COMI if does not fulfil its role as the place where a debtor’s economic decisions are taken, as the place where the majority of its revenue is earned and spent, or as the place where the major part of its assets is located. That entails quite a broad scope for rebuttal of course. The AG refines this in the remainder of the Opinion. He refers to national case-law on the issue, and to the importance of free movement rights. He also suggests an important limitation: namely that in his view, the mere presence of a natural person’s  one immovable asset (the ‘family home’, GAVC) in another Member State than that of habitual residence, in and of itself does not suffice to rebut COMI.

As in all other scenarios of rebuttal, the ascertainability in particular by (potential) creditors is key. That is a factual consideration which the national courts are in prime position to make.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.

Forum shopping and personal insolvency. The High Court (briefly) in Wilson and Maloney (in re McNamara). Is this the last UK reference to the CJEU?

Update 6 May 2022 the CJEU handed down judgment on 11 November 2021 (C-168/20) and Nugee LJ’s judgment following that CJEU ruling [Wilson & Anor v McNamara & Ors [2022] EWHC 243 (Ch)] discusses ia the modus operandi for an EU Member  State court (here: an ex-EU MS court instructed by the Withdrawal Agreement to abide by the CJEU view) to address the issues of fact and interpretation left by the CJEU.

[2020] EWHC 98 (Ch) Wilson and Maloney (bankruptcy trustees of Michael McNamara), concerns mostly Article 49 TFEU (freedom of establishment) and Article 24(1) of the Citizens’ Rights Directive 2004/38 (equal treatment). (At 114) the critical question is whether the exclusion of pension rights on bankruptcy is something that can impact on the right of establishment, or is otherwise within the scope of Art 49 TFEU.

The substantive case at issue concerns the inclusion or not of in investment in a certain pension scheme, into the bankruptcy. My interest in the judgment lies in the succinct reference to forum shopping under insolvency regimes.

Mr McNamara was made bankrupt on 2 November 2012 on his own petition, presented that day. Prior to his bankruptcy Mr McNamara had been a high profile property developer operating primarily, if not exclusively, in the Republic of Ireland. But he and his wife had moved to London in July 2011, and the Court accepted that he had moved his centre of main interests (or COMI) from Ireland to England by the date of presentation of the petition.

Nugee J decided to refer to the CJEU for preliminary review (this having happened on 23 January, clearly one of the last if not the last UK reference to go up to the CJEU). Whether COMI was moved for forum shopping purposes is not likely to feature in the eventual judgment – for there does not seem to be any suggestion that the move of COMI to England had not been properly established.

Geert.

 

Ema Garp Fund v Banro Corp: Chapter 15 and international comity.

Chapter 15 is the typical entry gate for a foreign insolvency practitioner to engage in US bankruptcy proceedings – it is also the general jurisdictional gateway for US courts viz international insolvencies, COMI and insolvency tourism discussions etc. By way of example see Norton Rose’s 2017 overview here.

In Ema Garp Fund v. Banro Corp., Case No. 18-01986 Law360 summarise the outcome as it stands (I understands motion to appeal has been filed) as follows: ‘Canada’s Banro Corp. won’t face a suit in New York federal court alleging the mining company lied to investors about its operations in the Democratic Republic of Congo after a judge ruled (..) that those claims were resolved last year in bankruptcy proceedings in Canada.’

Kelly Porcelli excellently reviews the issues here, with justified emphasis on comity considerations – I am happy to refer.

One for the comparative litigation ledger.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.5, Heading 5.6.

Zetta Jet: COMI, time of filing, forum shopping, ordre public in insolvency. A comparative law Fest in Singapore.

An interesting comparison may be made between [2019] SGHC 53 Re Zetta Jet Pte Ltd and [2018] EWHC 2186 (Ch) Videology on which I reported here. Both concern recognition of foreign main (or not) proceeding under of the UNCITRAL Model Law on Cross-Border Insolvency (“the Model Law”). Zetta Jet came to me courtesy of my former student Filbert Lam, and has now also been analysed to great effect by Tan Meiyen and colleagues here.

The judgment is a master class on COMI determination, but also on comparative legal analysis re time of filing etc.: best read judgment and Tan’s note for oneself. Of particular note are

  • the expression of sympathy by Aedit Abdullah J for forum shopping in insolvency law; compare also with Ocean Rig, and Kekhman; here this took the particular form of following the US approach to selecting the date on which the application for recognition is filed, as relevant to COMI determination (friendlier to forum shopping than the EU’s and England’s date of commencement of the foreign insolvency proceedings);
  • the emphasis on the basket of criteria required to identify COMI;
  • the narrow approach to ordre public despite Singaporean court order having been defied; yet also the relevance of the fact that these orders post defiance had been varied.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1 et al.

Deutsche Apotheker- und Arztebank v Leitzbach. A straightforward COMI assessment to start the week.

I am working on rather intricate conflicts issues this week (which I am enjoying) so I am turning to the blog for a little cerebral relief (equally pleasing). In [2018] EWHC 1544 (Ch) Deutsche Apotheker- und Arztebank EG v Leitzbach , reported with thanks by Ashfords, Hodge J correctly applied the COMI test of Regulation 1346/2000 to dismiss jurisdiction for the courts in England and Wales.

Dr Leitzbach had obtained a bankruptcy order after a previous attempt in which he had failed to testify to COMI in England and Wales. His, successful, second attempt, it now became clear, was obtained after misrepresentation. Dr Leitzbach’s arguments pro COMI it seems were mostly based on residence in the UK, proof for which he sought to obtain from (in fact non-existing) supermarket loyalty cards, as well as receipts of purchases made hundreds of miles apart within a short time-frame.

Note at 27 Hodge J’s in my view entirely correct sympathy for forum shopping in insolvency: as long as COMI can be correctly ascertained in the jurisdiction, this is an entirely justifiable phenomenon. Except indeed COMI was not in the UK as the High Court equally found:

at 71: ‘I simply cannot accept the evidence of Dr Leitzbach as to the fact that he was living and working …as a consultant in England and Wales at the relevant time. I simply do not accept his evidence to that effect. Secondly, however, I would in, any event, have found that, as a professional dentist who had been practising as such in Germany, Dr Leitzbach had never acquired a COMI in England and Wales…’

at 74: ‘so far as his visibility as a dentist is concerned, third parties would clearly have formed the view that he was continuing to practise with his brother in Germany until the end of 2012. He remained on the appropriate public dental register until the end of 2012. He secured a certificate that he was unfit for dental work at the end of 2011; but even that document was addressed to the former practice address in Hochheim, and it operated simply to relieve the debtor from making contributions to his official German dental pension scheme only until 30 June 2012…Dr Leitzbach accepted..that he was representing to third parties that he remained in practice as a dentist in the Hessen dental register until the end of December 2012. It was that dental practice address that was used by Dr Leitzbach to register himself on the postgraduate dental course that he undertook. He accepted that others on the course would all have assumed that he was continuing to practise as a dentist in Germany. His CV, written for the purpose of a published article in a dental journal, gave the impression that he had worked as a dentist in Germany until the end of 2012, and that, thereafter, his only professional activity was attending the postgraduate dental course.’

COMI never have been in the UK, the carpet was pulled from underneath the previous Bankruptcy order and this had to be annulled.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.

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