The EU IR: Rules on Jurisdiction. Francisco Garcimartín

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1 The EU IR: Rules on Jurisdiction Francisco Garcimartín

2 Normative Model of the Regulation: Mitigated universalism Formula: One debtor One Insolvency Proceeding Universal scope, but Territorial proceedings where the debtor has an establishment

3 Mitigated Universalism MAIN PROCEEDINGS (=Universal) EU Creditors Spanish Firm Territorial proceedings EU Assets Branch

4 SUMMARY MAIN PROCEEDINGS Connecting Factor: the COMI Migration of the COMI Substantive scope Examination as to jurisdiction Conflict of jurisdictions TERRITORIAL PROCEEDINGS Connecting factor Rules on location of assets

5 Connecting factor: the COMI MAIN PROCEEDINGS (I) The Jurisdiction corresponds to the courts of the Member State within the territory of which the centre of a debtor s main interests is situated (art. 3.1) COMI: definition and presumption Definition: the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties (Recital 13) Internal element: central administration (=head office functions) the EU legislature s intention [is] to attach greater importance to the place in which the company has its central administration as the criterion for jurisdiction (ECJ, Case Interedil at 48) External element the centre of debtor s main interest must be identified by reference to criteria that are both objective and ascertaianable by third parties, in order to ensure legal certainty and foreseeability (ECJ, Case Rastelli at 33)

6 MAIN PROCEEDINGS (II) Connecting factor: the COMI Definition: Presumption: In the case of a company or legal person, the place of the registered office shall be presume to be the centre of its main interest in the absence of proof to the contrary (art. 3.1 in fine) Iuris tantum The presumption may be rebutted where, from the viewpoint of third parties, the place in which a company s central administration is located in not the same as that of its registered office (ECJ, Case Interedil at 34) Example: Enron Directo S.L., Spanish Company, with registered office in Madrid, the English court concluded that the COMI was in England since the principal executive, strategic and administrative decisions were conducted in London and, therefore, there were sufficient factors to rebut the presumption.

7 MAIN PROCEEDINGS (IV) Particular problem: Groups of companies Principle: Debtor as independent legal entity The principle, therefore, is that each debtor constituting a legal entity is subject to its own court jurisdiction (ECJ, Case Eurofood at 30) First consequence: entity-by-entity approach Example. Eurofood. The parent company was incorporated in Italy, and had a wholly owned subsidiary in Ireland (Eurofood IFSC Ltd), with its registered office in Dublin. The Irish courts concluded that Eurofood had its COMI in Ireland. The key element is the place from which the subsidiary regularly administers its interest. The mere fact that the economic choices were or could be controlled by a parent company in another Member State was not enough to rebut the presumption. Parmalat SpA Eurofood IFSC Ltd Second consequence: no cross-border consolidation Example. In the Rastelli case, a French company, with its COMI in Marseille, was put into liquidation. The liquidator brought proceedings against an Italian company, with its COMI in Italy. It requested that the latter be joined to the insolvency proceedings that had been opened against the French company on the ground that the property of the two companies was intermixed. The ECJ rejected that approach and concluded that an accumulation of two insolvency proceedings under national law is only possible if both debtors have their COMIs in the same Member State. Mediasucre Rastelli

8 COMMISSION S PROPOSAL Definition The COMI shall be the place where the debtor conducts the administration of his interests on a regular basis and which is ascertainable by third parties. Specific rule for natural persons In the case of an individual exercising an independent business or professional activity, the center of main interest shall be that individual s principal place of business; in the case of any other individual the centre of main interests shall be the place of the individual s habitual residence. Recital clarifying the nature of the presumption It should be possible to rebut this presumption if the company's central administration is located in another Member State than its registered office and a comprehensive assessment of all the relevant factors establishes, in a manner that is ascertainable by third parties, that the company s actual centre of management and supervision and of the management of its interests is located in that other Member State.

9 RELEVANT TIME 1 st Scenario: Staubitz-Schreiber case the court of the Member State within the territory of which the centre of the debtor s main interests is situated at the time when the debtor lodges the request to open insolvency proceedings retains jurisdiction to open those proceedings if the debtor moves the centre of his main interests to the territory of another Member State after lodging the request but before the proceedings are opened. Registration office (Interedil Cse at 56) Last place (Interedil case at 54).

10 RELEVANT TIME 2 nd Scenario: Forum shopping Possible solutions: minimum period/abuse of right But Practical problems Problems with the new creditors Problems of compatibility with the freedom of establishment And, last but not least, definition of COMI Control ex officio and right of appeal to foreign creditors

11 EXAMINATION AS TO JURISDICTION AND POSITIVE CONFLICTS Current text: lacuna Commission s Proposal Control ex officio Right to challenge Positive conflict: priority rule, based on a chronological criterion: the decision handed down first prevails (ECJ Eurofood case).

12 SUBSTANTIVE SCOPE Current text: Principle. Double test Recital 6, article 25 ECJ case law (Gourdain, Seagon, F-Tex). Any action which derives directly from the insolvency proceedings and are closely linked with them (e.g. actions to set aside or director s insolvency liability) Commission s Proposal Codification of the case law Special rule on related actions

13 Mitigated Universalism MAIN PROCEEDINGS (=Universal) EU Creditors Spanish Firm Territorial proceedings EU Assets Branch

14 TERRITORIAL PROCEEDINGS Connecting factor: establishment Article 2 (h) any place of operations where the debtor carries out a nontransitory economic activity with human means and goods Location of assets Article 2 (g) - tangible property, the Member State within the territory of which the property is situated. - property and rights ownership of or entitlement to which must be entered in a public register, the Member State under the authority of which the register is kept, - claims, the Member State within the territory of which the third party required to meet them has the centre of his main interests; Commission s proposal