Tuesday, May 8, 2012

Cross-border Insolvency: The European Court of
Justice on Determining the Centre of Main Interests

The European Court of Justice (“ECJ”) in Interedil Srl (in liquidation) vFallimento Interedil Srl, Intesa Gestione Crediti SpA has provided further guidance on determining a debtor company’s centre of main interests and on interpreting the term “establishment” under the Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (“Regulation”). The court reiterated that the company’s place of registration is not always the right jurisdiction in which to issue insolvency proceedings.  

Article 3(1) of the Regulation states that the courts of the member state in which a debtor has its centre of main interests (“COMI”) shall have jurisdiction to open insolvency proceedings. In the absence of proof to the contrary, the place of a debtor’s registered office is presumed to be its COMI. Under Article 3(2), the courts of a different member state shall only have jurisdiction if the debtor possesses an “establishment” in that other member state. Article 2 defines “establishment” as “any place of operations where the debtor carries out a non-transitory economic activity with human means and goods.”

In 2001, Interedil Srl (“Interedil”) had been removed from the Italian companies register and transferred to the UK register. In 2002, the company ceased all activity and was removed from the UK register. A year later, Intesa Gestione Crediti SpA filed insolvency proceedings against Interedil in Italy. Interedil challenged the jurisdiction of the Italian court on the ground that only the UK courts would have jurisdiction following the company’s transfer to the UK. The ECJ was asked to provide guidance on how the COMI under Articles 2 and 3 was to be interpreted.

In following its earlier decision in Re Eurofood IFSC Ltd, the court stressed that the definition of COMI must be interpreted in a uniform way and by reference to European Union law. Recognising the guidance provided by the preamble to the Regulation, the court held that “greater importance” must be attached to the place of the debtor company’s central administration. This place must be identified by reference to criteria that are both objective and ascertainable by third parties, in particular by the company’s creditors. Importantly, the court held that if the bodies responsible for the company’s management and supervision are in the same place as its registered office, the presumption in section 3(1) cannot be rebutted.

However, where a company’s central administration is not in the same place as its registered office, the presence of company assets in a different EU member state could suffice to rebut the Section 3(1) presumption. The ECJ reiterated the need to conduct a comprehensive assessment of all the facts in order to “establish, in a manner that is ascertainable by third parties, that the company’s actual centre of management” is located elsewhere. For example, the location in another member state of immovable property and the existence in that state of lease agreements and contracts with financial institutions could be regarded as objective factors. According to the court, however, such facts alone would not be sufficient to rebut the Section 3(1) presumption unless a comprehensive assessment of all factors led to the same conclusion.

The court held that the term “establishment” must also be determined on the basis of objective factors ascertainable by third parties. In the court’s opinion, an “establishment” requires the “presence of a structure consisting of a minimum level of organisation and a degree of stability necessary for the purpose of pursuing an economic activity.”  It held that “the presence alone of goods in isolation or bank accounts does not, in principle, meet that definition.”  Finally, the court confirmed that the relevant date for the purposes of determining the COMI is the date on which the request to open insolvency proceedings is filed. In this particular case, Interedil had already ceased activities, so it was the location of its last centre of main interests which was relevant.

The principal aim of the Insolvency Regulation is to facilitate cross-border insolvency proceedings and to set out provisions which are binding and directly applicable in all EU member states. The Interedil judgment reiterates the importance of carrying out a comprehensive assessment of all relevant factors in determining the right jurisdiction in which to issue insolvency proceedings and to focus not solely on the place of registration of the debtor company concerned.

European Court of Justice, decision dated 20 October 2011 – Interedil Srl (in liquidation) v Fallimento Interedil Srl, Intesa Gestione Crediti SpA (C-396/09)

Graf von Westphalen

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