A Brief Defense Of COMI

• Published date: 24 February 2024
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Insolvency/Bankruptcy
• Law Firm: Goodwin Procter LLP
• Author: Mr Daniel Glosband and Meredith Mitnick

I. COMI Antecedents¹

For a foreign proceeding to be recognized under the UNCITRAL Model Law on Cross-Border Insolvency ("Model Law")² and its offspring, chapter 15 of the Bankruptcy Code³, the foreign proceeding must be either a foreign main proceeding or a foreign nonmain proceeding. A foreign main proceeding is one taking place in the country where the debtor has the center of its main interests ("COMI"). A foreign nonmain proceeding is one taking place in a country where the debtor has an establishment, i.e. a place of operations where the debtor carries out a non-transitory economic activity. Model Law Articles 2(b), (c), (f), 17(2); chapter 15 '1502(2), (4), (5), 1517(b). Recognition of a foreign main proceeding has automatic effects on the debtor's property and the conduct of creditors (for example, protection of property from creditor actions and the halting of lawsuits); recognition of a foreign nonmain proceeding permits such relief but it is not automatic. In addition, the status of a proceeding as a foreign main proceeding often effects crucial choice of law determinations, such as the fixing of the law governing whether transactions prior to the commencement of insolvency proceedings may be avoidable by a liquidator.

UNCITRAL adopted the COMI terminology from the then-pending European Union Convention on Insolvency Proceedings, which evolved into (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on Insolvency Proceedings (the "EC Reg").⁴The EC Reg was modified in 2015 by Council Regulation (EC) No. 1346/2000 on Insolvency Proceedings (the "Recast Reg").⁵

The EC Reg relied on the May 3, 1996 Report on the Convention on Insolvency Proceedings by Miguel Virgos and Etienne Schmit⁶and the Guide quotes from the Virgos-Schmit Report discussion of COMI:

84. The Virgos-Schmit Report explained the concept of "main insolvency proceedings" as follows:

"73. Main insolvency proceedings "Article 3 (1) enables main insolvency universal proceedings to be opened in the Contracting State where the debtor has his centre of main interests. Main insolvency proceedings have universal scope. They aim at encompassing all the debtor's assets on a world-wide basis and at affecting all creditors, wherever located. "Only one set of main proceedings may be opened in the territory covered by the Convention. M. Virgos and E. Schmit, Report on the Convention on Insolvency Proceedings, Brussels 3 May 1996....

"75. The concept of 'centre of main interests' must be interpreted as the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties. "The rationale of this rule is not difficult to explain. Insolvency is a foreseeable risk. It is therefore important that international jurisdiction (which, as we will see, entails the application of the insolvency laws of that Contracting State) be based on a place known to the debtor's potential creditors. This enables the legal risks which would have to be assumed in the case of insolvency to be calculated.⁷

Both the EC Reg and the Recast Reg emphasize the COMI element "ascertainable by third parties" in their introductory recitals.⁸For EU purposes, the concept of COMI is jurisdictional - when a court in an EU country (except Denmark, which did not subscribe to the EC Reg) determines that a debtor's COMI is in that country and opens an insolvency proceeding, that proceeding (and the opening country's insolvency law) will apply throughout the EU.⁹The universal jurisdiction of the "main proceeding" country is subject to the possibility that a secondary proceeding may be commenced in a different country, but the secondary proceeding will be limited to assets in the secondary country.¹⁰

In contrast, for purposes of the Model Law and chapter 15, the COMI determination is among the requirements for recognition of a foreign main proceeding (including one governed by the Recast Reg) that will enable a domestic court to assist a foreign proceeding. Recognition is essentially an eligibility test of whether there were sufficient "connecting factors" between the debtor and the foreign court to warrant recognition of the foreign proceeding. The Model Law and chapter 15 contain a presumption that a debtor's country of registration is its COMI.¹¹In discussing the presumption that an entity's COMI is its country of registration/incorporation, the Guide states:

41. Although the presumption contained in article 16, paragraph 3 corresponds to the presumption in the EC Regulation, it serves a different purpose. In the Model Law, the presumption is designed to facilitate the recognition of foreign insolvency proceedings and the provision of assistance to those proceedings. Under the EC Regulation, the presumption relates to the proper place for commencement of insolvency proceedings, thus determining the applicable law, and to the automatic recognition of those proceedings by other European Union member States. Under the Regulation, the decision on centre of main interests is made by the court receiving an application for commencement of insolvency proceedings at the time of consideration of that application. Under the Model Law, a request for recognition of a foreign proceeding may be made at any time after the commencement of that proceeding; in some cases it has been made several years later. Accordingly, the court considering an application for recognition under the Model Law must determine whether the foreign proceeding for which recognition is sought is taking place in a forum that was the debtor's centre of main interests when the proceeding commenced (the issue of timing with respect to the determination of centre of main interests is discussed at paras. 157-160 below). Notwithstanding the different purpose of centre of main interests under the two instruments, the jurisprudence with respect to interpretation of that concept in the EC Regulation may be relevant to its interpretation in the Model Law.

The adoption of COMI as a test of the legitimacy of the foreign proceeding was...