After ten years of operation the European Insolvency Regulation (Regulation (EC) No. 1346/2000) has been extensively reviewed by the European Commission, European Parliament and Council. On 20 May 2015, the European Parliament approved the result of that review: the recast Insolvency Regulation (Regulation (EU) No. 2015/848) (the "Regulation"), which applies to insolvency proceedings commencing from 26 June 2017. The Regulation clarifies several key concepts and brings into force several key changes, one of particular interest to creditors of European entities and Insolvency Practitioners alike is the clarification of 'centre of main interests', or "COMI" and the enhancement of creditor' rights in relation to the question of main jurisdiction.
Council Regulation 2015/848/EU (the "Regulation"), which recasts the European Council Regulation on insolvency proceedings (1346/2000/EC), came into force on 26 June 2017. The Regulation affects only insolvencies commencing on or after this date, which aims to expand and clarify insolvency proceedings, as well as enhance cooperation and coordination between Member States. Although Brexit is on the horizon, the Regulation will affect UK businesses dealing with companies registered or operating within Europe and practice - at least - until the outcome of negotiations.
One of the areas which the Regulation clarifies is the concept of 'centre of main interests', or "COMI", which dictates the most appropriate jurisdiction for commencing 'main' (primary) insolvency proceedings against a company operating across European borders. As under the 2000 regulation, the Regulation creates a rebuttable presumption in the case of a company that its COMI is the location of its registered office.
The Regulation's registered office presumption is not available where a company has moved its registered office between Member States within three months of requesting to open insolvency proceedings. Unlike some other European Member States, the UK does not allow a UK company to move its registered office from one jurisdiction to another and so renders the Regulation's three month 'look back' period (reduced from six months as under the 2000 regulation) irrelevant for UK companies themselves.
From a UK perspective, COMI will continue to concern UK companies who are creditors (the "Creditor") of entities registered elsewhere in Europe. The Creditor will require to maintain visibility over the COMI of a European company in order that any insolvency proceedings that require to be raised are raised in the correct jurisdiction.
The Regulation allows the registered office presumption to be rebutted where an applicant or petitioner can demonstrate that the company's central administration is conducted in a Member State other than where it has its registered office, and where a comprehensive assessment of all relevant factors establishes that the actual centre of management and supervision and of the management of its interest is located in that other Member State. In addition, the debtor or, perhaps more likely, a creditor may challenge proceedings on the basis of inappropriate jurisdiction.
Consideration should be had, and advice sought, as to whether and how visibility is able to be documented in relevant contract(s). From a banking perspective we expect the location of COMI will continue to be a representation in documentation as a means of providing lenders with visibility - and some comfort - over the location of COMI.
In this pre-Brexit period, the Regulation has not looked to capture UK processes - i.e. receiverships, members' voluntary liquidations and schemes of arrangement - absent in the 2000 regulation. In a significant change for practitioners, however, the Regulation requires both UK Courts and insolvency practitioners to examine whether the UK has jurisdiction to commence insolvency proceedings and to specify the grounds for that jurisdiction. In the short term, we expect greater consideration of and focus on questions of COMI in the context of potential enforcement, as well as fuller diligence being carried out in that area prior to appointment.
For thoughts on the post-Brexit era and implications, my colleague, Lucy McCann's article (UK insolvency: can COMI survive Brexit?), can be found here.