Conundrum of Center of main interest in Cross-Border Insolvency
Table of Contents
Cross border insolvency occurs when a financially distressed company has assets, creditors, or legal proceedings in multiple countries, complicating the resolution process due to differing legal frameworks. As globalization drives businesses to operate internationally, such cases have become increasingly common, necessitating coordinated international mechanisms to ensure fair asset distribution and creditor protection. A key concept of this framework is the Centre of Main Interest (COMI). The determination of COMI is contentious, as different jurisdictions apply varying criteria, such as the location of the registered office, central administration, or operational “nerve centre” – leading to inconsistent interpretations and potential forum shopping. This lack of universally agreed definition and the temporal challenges in establishing COMI, especially for digital enterprises, create significant legal uncertainty and hinder the harmonization of interest in Cross-Border Insolvency
Understanding COMI in Cross-Border Insolvency
COMI under the UNCITRAL Model Law on interest in Cross-Border Insolvency is the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties. A rebuttable presumption exists that the debtor’s registered office is the COMI, unless evidence to the contrary is provided. This presumption serves as the mandatory starting point for determining the COMI is at the registered office. The burden of rebutting this lies with the party challenging it, requiring them to demonstrate a stronger connection to another jurisdiction through sufficient contrary evidence of objective factors. The concept of COMI is crucial for identifying the principal jurisdiction for insolvency proceedings and ensuring the recognition of foreign main proceedings.
Read more : What is Form G in IBC – Invitation for Expression of Interest
Why does COMI Matter?
- COMI determines which jurisdiction will have main insolvency proceedings.
- It provides clarity and predictability to creditors, debtors, and courts by identifying the place where the debtor conducts the administration of its interests on a regular basis.
- It prevents multiple conflicting insolvency proceedings in different jurisdictions by establishing a single, primary forum for the administration of the debtor’s affairs.
Challenges in Determining COMI
The conundrum in determining COMI is mainly due to the lack of a universally agreed-upon definition, leading to divergent interpretations by national courts:
- Companies may engage in “forum shopping” by shifting their registered office to a jurisdiction with more favourable insolvency laws shortly before insolvency, attempting to influence the determination of COMI.
- The complexity of multinational corporate group structures, with subsidiaries operating across multiple countries, further complicates the identification of a single COMI, as assets and operations are often dispersed and interlinked.
- There is a significant conflict between the perception of creditors and third parties who rely on objective evidence to determine COMI, and the actual operational reality of the debtor, which may not align with the registered office or legal domicile.
Judicial Interpretations and Case Laws
- Eurofood IFSC Ltd. (ECJ, 2006) – Registered office presumption strong unless objective factors suggest otherwise.
- Interedil Srl (ECJ, 2011) – COMI linked to the place where debtor administers its interests on a regular basis.
- Indian context – India has not yet adopted the UNCITRAL Model Law, but discussions are ongoing (Insolvency Law Committee Reports).
- Illustrative NCLT/NCLAT cases touching upon cross-border elements (e.g., Jet Airways case involving Indian and Dutch proceedings).
Indian Context – Need for Clear COMI Rules
India’s Insolvency and Bankruptcy Code, 2016 (IBC) currently lacks a fully functional interest in Cross-Border Insolvency framework, as sections 2334 and 235, though enabling cooperation through bilateral agreements, are not yet notified and remain inoperable. The proposed adoption of the UNCITRAL Model Law on interest in Cross-Border Insolvency would establish the COMI as the central factor for determining jurisdiction in cases involving foreign assets or creditors. The landmark Jet Airways case highlighted significant coordination challenges, where parallel insolvency proceedings India and the Netherlands could not be harmonised due to the absence of a legal mechanism for mutual recognition and cooperation. As a result, the Indian courts were unable to recognize the Dutch proceedings, leading to a reliance on a private “Cross Border Insolvency Protocol” rather than a formal legal framework.
Global Perspectives and Best Practices
The concept of COMI is central to determining the principal jurisdiction for insolvency proceedings, and its definition must be transparent and based on readily ascertainable factors like the location of central administration to ensure fairness and predictability for creditors. This transparency in defining COMI is crucial for managing creditor expectations and preventing forum shopping, thereby upholding the integrity of the interest in Cross-Border Insolvency process. The UNCITRAL Model Law on interest in Cross-Border Insolvency promotes harmonization by establishing a framework for cooperation, recognition, relief, and access, aiming to protect the value of debtor assets and facilitate corporate rescue across jurisdictions. It has been adopted by the European Union (EU) through the Insolvency Regulation, which provides a binding legal framework for cooperation among member states. The United Kingdom, United States, and Singapore have implemented the Model Law through national legislation, enabling recognition of foreign main and non-main proceedings. In these jurisdictions, court-to-court communication is facilitated through mechanisms like the Judicial Insolvency Network Guidelines, which support direct coordination and information sharing between insolvency courts to ensure efficient administration.
Conclusion
COMI is crucial for determining the primary jurisdiction in cross-border insolvency, yet its determination remains complex due to diverse international interpretations regarding the relevant date and factors. India’s pending adoption of the UNCITRAL Model Law offers a pathway to legal clarity and harmonization, but challenges like forum shopping and the complexities of group insolvency persist. The lack of uniform approach risks inconsistent rulings, increased costs and delays, undermining creditor protection and the efficiency of insolvency proceedings. A balanced approach is essential, one that establishes a clear statutory criteria for COMI while accommodating the practical realities of multinational corporate structures and ensuring judicial cooperation.
FAQ Section
Q1. What is COMI in cross-border insolvency?
COMI is the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties.
Q2. Why is COMI important?
COMI is important because it determines the jurisdiction for cross-border insolvency proceedings, ensuring they are administered in the place most closely connected to the debtor’s main interests, which facilitates efficient coordination, protects creditors’ rights, and prevents forum shopping.
Q3. Does India follow COMI rules?
India does not follow COMI rules.
Q4. Can companies manipulate COMI?
Yes, companies can potentially manipulate their COMI to seek a more favourable jurisdiction for insolvency proceedings, although courts may scrutinize such actions to prevent opportunistic behavior and ensure the COMI is determined based on objective criteria ascertainable by third parties.
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