Chapter 3 International Jurisdiction

• Jurisdiction: United States

3. International Jurisdiction

Just like the EIR 2000, the EIR Recast defines only international jurisdiction for insolvency cases within the EU; that is to say, it designates the Member State the courts of which may open insolvency proceedings (Recital 26). Territorial jurisdiction within that Member State itself is established by the national law of the Member State concerned. This division of powers stems from the principle of subsidiarity, underpinning the EU legislation. According to Article 5(3) of the Treaty of the European Union (TEU), in areas that do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level. For instance, while the EIR Recast may designate the Netherlands (as a country) for the opening of insolvency proceedings, it is Article 2 of the Dutch Bankruptcy Act ("Faillissementswet) of 1896 that shall define the competent national court (i.e. one of the 11 courts of first instance) to open such proceedings.

Article 3(1) EIR Recast states that the courts of the Member State within the territory of which the centre of the debtor's main interests is situated shall have jurisdiction to open insolvency proceedings ("main insolvency proceedings"). Such proceedings have universal scope and aim at encompassing all the debtor's assets. At the same time, following in the footsteps of the EIR 2000, the EIR Recast allows for the opening of secondary proceedings, which run in parallel to main insolvency proceedings and produce effects only on assets situated within a state of secondary proceedings (Recital 23). Secondary proceedings protect the diversity of interests, promote effective administration of complex insolvency estates and mitigate difficulties arising from divergent national laws (Recital 40).

While main insolvency proceedings are linked to COMI, secondary proceedings can be opened in any country in which the debtor has an establishment (Article 3(2) EIR Recast). A debtor can have only one COMI, thus main insolvency proceedings can only be opened in one location. At the same time, there could be as many secondary proceedings as there are establishments of the debtor across the Member States (i.e., the main insolvency proceedings and 26 secondary insolvency proceedings). Consequently, several proceedings in relation to the same debtor, running under different national insolvency laws, are frequently encountered in practice. This creates a complex system with one main proceeding dominating the course of the debtor's insolvency and one or more secondary proceedings. This complexity may hamper the efficient administration of the insolvency estate (Recital 41).

This is why the EIR Recast sets out two specific situations in which the court that is requested to open secondary insolvency proceedings should be able, at the request of the insolvency practitioner in the main insolvency proceedings, to postpone or refuse the opening of such secondary proceedings. One of them is the so-called "as-if treatment," in which the insolvency practitioner in the main insolvency proceedings gives an undertaking to known local creditors located in the Member State in which secondary proceedings could be opened that, in respect of the assets located in that Member State, those local creditors will be treated as if secondary insolvency proceedings had been opened (Article 36 EIR Recast). Another entails a stay of the opening of secondary insolvency proceedings in prescribed circumstances (Article 38 EIR Recast). The dominance of main insolvency proceedings is also evident from the right of the main insolvency practitioner to request a stay of the realization of assets in secondary proceedings (Article 46 EIR Recast).

3.1. Main Insolvency Proceedings: COMI

As highlighted above, main insolvency proceedings are intrinsically connected to the debtor's centre of main interests. Such proceedings can only be opened in a jurisdiction of the debtor's COMI. The EIR 2000 did not contain a definition of COMI; however, it provided some guidance in its Recital 13. By contrast, the EIR Recast mandates that the centre of main interest shall be the place where the debtor conducts the administration of its interests on a regular basis and that is ascertainable by third parties (Article 3(1) EIR Recast). These words are nearly similar to those provided in said Recital 13 EIR 2000, but including them in the main text of the regulation adds authority, since recitals are not enforceable as such. The definition adopted in the EIR Recast is backed by the settled case law of the CJEU.

In one of the most important cases on interpretation of the EIR 2000, Case C-341/04, Eurofood IFSC Ltd., ECLI:EU:C:2006:281 (May 2, 2006), the court stressed that the concept of COMI is peculiar to the regulation. It has an autonomous meaning and must therefore be interpreted in a uniform way, independently of national legislation (para. 31 in Eurofood IFSC Ltd.). The case concerned Eurofood IFSC Ltd., with its registered office in Ireland. It was a wholly owned subsidiary of Parmalat SpA, a company incorporated in Italy. Eurofood's principal objective was the provision of financing facilities for companies in the Parmalat group. In December 2003, Parmalat SpA was admitted to extraordinary administration proceedings in Italy. In January 2004, an application was made to the High Court (Ireland) for compulsory winding-up proceedings to be commenced against Eurofood, and a provisional liquidator was appointed. Despite this, in February 2004 the District Court in Parma (Italy), taking the view that Eurofood's COMI was in Italy, held that it had international jurisdiction to decide on Eurofood's insolvency. In March 2004, the High Court confirmed Eurofood's COMI to be in Ireland and refused to recognize the judgment of the Italian court.

When resolving this jurisdictional conundrum, the CJEU first noted the autonomous meaning of the term COMI and emphasized that it must be identified by reference to criteria that are both objective and ascertainable by third parties (para. 33 in Eurofood IFSC Ltd.). That objectivity and possibility of ascertainment by third parties pursues legal certainty and foreseeability for all stakeholders dealing with the debtor.

In order to make COMI more predictable, both the EIR 2000 and the EIR Recast contain a registered office presumption — namely that the insolvent company's COMI is presumed to be the jurisdiction where such company has been registered. This presumption can be rebutted only if the objective factors indicate that the administration of the debtor's interest happens in a state that is different from the state of its registered office (e.g., in the case of a "letterbox" company).

Ascertainability is closely related to the time factor. In other words, the activity of the debtor in a particular Member State should be regular and lasting. This criterion is crucial to combat the practice of abusive forum-shopping, when a debtor moves its assets, personnel or registered office to a different Member State to obtain a more favorable legal position to the detriment of the general body of creditors. Notably, the EIR Recast does not fight insolvency forum-shopping as such, but only its harmful or abusive forms, which would cause damage or disadvantage to the debtor's creditors. The change of the insolvency venue can be for the benefit of having a successful restructuring or a streamlined and advantageous sale of the business. The possible beneficial effects of insolvency forum-shopping have been recognized in In re Ocean Rig UDW Inc., 570 B.R. 687 (Bankr. S.D.N.Y. 2017). In this case, the court came to the conclusion that forum-shopping was acceptable because it was done in good faith, particularly with a view to maximizing chances of business rescue or enhancing recovery by the creditors.

In Europe, public perception of pre-insolvency COMI shifts remains generally negative...