The COMI (Center Of Main Interest) in insolvency law in France

The first decision was rendered by the Commercial Court of Nanterre, the issue concerned the COMI of different European subsidiaries and the governing law of the proceedings initiated against these subsidiaries [Commercial Court of Nanterre, 15 February 2006, Dalloz 2006, jer. 793]. The Redressement judiciaire proceedings of three parent companies of EMTEC Group were opened by the Commercial Court of Nanterre. Then the same Court opened a redressement judiciaire proceedings against several subsidiaries established in Germany, Belgium and Poland.

The court ruled that several facts should be taken into account, such as:

• Place where the meetings of the Board were held;
• Law governing the major contracts;
• Location of business relationships with customers;
• Place where the organisation’s business policy was defined;
• Requirement of prior authorisation of the parent
• company to enter into certain financial commitments;
• Location of creditor banks;
• Centralized management of the purchasing policy, accounting staff and computer system.

Furthermore, the court referred to the Council Regulation No. 1346 2000 of 29 May 2000 and Court of Justice of the European Union precedents and restated that to determine the COMI of a company, a judge should refer to the concept of registered office functions and to facts establishing an intensive level of control visible to third parties, who were not necessarily linked to the ownership of the share capital.

Consequently, the court ruled that it followed from the aforementioned facts that there was a body of evidence that the COMI of EMTEC Benelux within the meaning of Art. 3 paragraph 1 of the Council Regulation No. 1346 / 2000 of 29 May 2000, was located in France.

By this ruling, the Commercial Court of Nanterre has applied the Council Regulation No. 1346 / 2000 of 29 May 2000 to a group of companies and ruled that the notion of COMI of the debtor does not necessarily correspond to the place where the debtor has its registered office or place where it pursues its economic activity.

In another case, before the Douai Court of Appeal of 2 May 2006, the main question concerned the location of the COMI of the company [Douai Court of Appeal 2 May 2006, CT0039]. The French taxes administration requested the opening of a liquidation judiciaire against a company incorporated in the UK: TLMI. 

Given the facts of the case the court ruled that the COMI of TLMI was located in France:

• Mr. Y, the sole manager and owner of TLMI, lived in France;
• A lot of commercial documents, such as confidential contracts, technical descriptions of products etc., were found in the home of Mr. Y and in the office of SCA, which was another French company;
• Mr. Y was an employee of SCA;
• The manager of SCA was Mrs. Y, the wife of Mr. Y;
• There were no expenses relating to travel between France and the UK appearing in the bank accounts of Mr. Y or Mrs. Y.

The Douai Court of Appeal applied the Council Regulation No. 1346 / 2000 of 29 May 2000 and ruled that the COMI of the debtor does not necessarily merge with the place where the debtor has its registered office.

The next case concerned the Eurotunnel group [Commercial Court of Paris, 2 August 2006, Dalloz 2006, jur. 2329; bulletin Joly 2007 / 1, page 37, nr. 3]. A member of the owning group, Eurotunnel PLC, was the guarantor of the entire financial debt carried by France-Manche and the Eurotunnel Finance Ltd. Like all the entities of Eurotunnel group, it faced financial difficulties: the debt exceeded their ability to repay.

The concept of COMI has an autonomous meaning and must be interpreted uniformly and independently of national legislation based on objective and ascertainable elements by third parties to prove the existence of a real situation different from the location that the registered office is supposed to reflect. A concordant body of evidence showed (ascertainable by third parties) that the COMI of the various entities of Eurotunnel was in France and especially in Paris.

The court referred in particular to the notion of strategic and operational management of the entity. This concept of “headquarters functions” had been previously employed with approval by English courts (Mr Justice Lewison in Re Lennox, a concept he later moved away from in a subsequent case – see UK submission below). The Commercial Court of Nanterre had likewise referred to it in its EMTEC judgment above. In accordance with Eurofood, this criterion alone could not, however, itself, be sufficient to justify overturning the presumption existing in favour of the registered office.

One of the most interesting and innovative issues in the case was the reference to the discussions concerning the restructuring of the group’s debt, which were mostly held in Paris, under the direct responsibility of the French president of most of the group entities. Consequently, the court concluded that the group companies’ COMI was in France. This ruling follows the Eurofood case in which the CJEU emphasized the importance of legal certainty.

In a case before the French Supreme Court, the question arose as to the COMI of an individual facing financial difficulties [French Supreme Court (commercial chamber) 15 February 2011, No. 10-13.832]. A German citizen, Mrs Schmitt risked engaging her liability as a result of a tax adjustment incurred in Germany. She tried to move into France to benefit from a liquidation procedure under the law of a specific French department (in this file Alsace-Moselle). This procedure was favourable to the debtor because under French law, she would be freed from the liability, whereas such an outcome would not be possible under German law. However, Mrs Schmitt’s relocation was found to be artificial and her actual residence remained in Germany.

From international jurisprudence it is clear that the French Court does not assume that the COMI of an individual is situated at his home or his residence, but at the place where the debtor manages his interests and is, therefore, ascertainable by third parties. Therefore, the Court of Appeal legally justified its decision by acknowledging that the debtor had accumulated a substantial liability in Germany where she operated. Mrs. Schmitt had rented an apartment in Alsace-Moselle together with her sister, who was involved in the same difficulties. She was leaving the rest of her family behind in Germany, did not speak the French language and her expenses for non-food needs were abnormally low. The French Supreme Court approved the Court of Appeal’s decision that the debtor did not have her COMI in France at the date of lodging her application.

The (rebuttable) presumption for companies (that COMI is located in the same place as its registered office) cannot be applied to individuals. Previously, the French Supreme Court had already decided that the COMI of a German individual was not in France given the facts that the debtor rented a room in France but worked in Germany and was a Swiss national but only had German creditors.

The British company MG Rover Group Limited owned all the shares of the British company MG Rover Overseas Limited, which in turn owned all the shares of the French company Rover France SAS. On April 8th 2005, the High Court of Birmingham (UK) opened insolvency proceedings against the MG Rover Group Limited. Rover France SAS and its main creditor, MG Rover Exports Ltd, had requested the opening of main insolvency proceedings against France SAS by joint petition. The proceedings were opened by the High Court of Birmingham on 10 April 2005. The High Court in Birmingham ruled that it had jurisdiction, relying on the judgment delivered on 18 April 2005 by Mr Justice Norris who ruled it was shown that the COMI of Rover France SAS was at Longbridge (UK) and he accordingly opened an insolvency proceeding under English law [Versailles Court of Appeal 15 December 2005, Dalloz 2006, 379].

The Commercial Court of Nanterre confirmed the opening of insolvency proceedings under English law against the French subsidiary of the group, Rover France SAS. The Prosecutor of Nanterre lodged an appeal against the judgment of the Commercial Court of Nanterre, denouncing the improper use of Article 3 of the Council Regulation No. 1346 / 2000 for purposes of “judicial expansionism”. It held that the Court should have refused the recognition of the English judgment because:

• The Commercial Court of Nanterre should have checked the proper enforcement by the High Court of Birmingham;
• The English judgment was contrary to public policy under Article 26 Council Regulation No. 1346 / 2000.

If the Court approved the opening of the main proceeding in the UK, the prosecutor requested the opening of secondary French proceedings in favour of Rover France SAS.

The Court of Appeal confirmed the judgment that held that neither the recognition nor the execution of the insolvency proceedings opened by the High Court of Birmingham, were manifestly contrary to French public policy, and that therefore the recognition of the main proceedings could not be denied. The opening of secondary insolvency proceedings was desirable only if it had a utility that the claimant must demonstrate. In this case, it was not shown that the opening of secondary insolvency proceedings had any particular advantages, such as improving the protection of local interests or the realization of assets.

The judgment of the Court of Appeal of Versailles brings an important contribution to the interpretation of the Council Regulation No. 1346 / 2000 and its application to groups of companies. While showing a remarkable pragmatism, the court met both the letter and spirit of the Council Regulation No. 1346 / 2000.

An insolvency proceeding of a British company, Isa Daisytek, (in this instance an administration order) was opened by the Leeds’ High Court in England. The company had several subsidiaries, including a French company [French Supreme Court (commercial chamber) 27 June 2006, No. 03-19.863]. The High Court ruled that it had jurisdiction to open main insolvency proceedings for the parent company, and also for its various subsidiaries. Indeed, the court considered that the COMI of the French subsidiary was situated in the UK given the fact that the subsidiary was directly managed by the parent company located in Bradford (UK).

Less than two months later, the Commercial Court of Pontoise (France) opened redressement judiciaire proceedings against the French subsidiary as a main insolvency proceedings based on the head office criterion, as it was located in France. The British administrators appointed by the Leeds’ High Court lodged an opposition to this judgment, arguing that according to the Council Regulation No. 1346 / 2000, the proceedings opened in England forbade the opening of other main insolvency proceedings in France. The Commercial Court rejected the argument. An appeal was lodged against this decision and the Court of Appeal confirmed that despite of the opening of the British insolvency proceedings, any French main insolvency proceedings could also be opened. An appeal in cassation was formed by the French public prosecutor. The French Supreme Court considered the decision of the Court of Appeal.

The Supreme Court noted that the Leeds’ High Court of Justice had found that:

• the COMI of the company was located in Bradford (UK);
• it had jurisdiction for this case, having examined the basis for its assumption of jurisdiction under Art. 3 paragraph 1 of the Council Regulation No. 1346 / 2000.

Accordingly, the French Supreme Court ruled that:

• the French Court of Appeal did not have to check the reasons that enabled the Leeds’ Court to reverse the presumption of Art. 3 of the Council Regulation No. 1346 / 2000;
• could not open main insolvency proceedings after main proceedings had been opened by the High Court in the UK.

This decision recognised validity of the foreign decision relating to the opening of a main procedure in accordance with the criteria of the Council Regulation No. 1346 / 2000 and prevented the French courts from opening a different set of main proceeding in opposition to the purpose for which the Council Regulation No. 1346 / 2000 was created.

A decision of the French Supreme Court dated 10 May 2012 has confirmed the decision of the ECJ in the Rastelli case dated 15 December 2011 in relation to the use of the criterion of COMI in the French extension of a company’s insolvency proceedings to another company having its registered office in another Member-State of the EU.

In the Rastelli case the French Court of Appeal of Aix-en-Provence has approved the decision of the judges of the Commercial Court of Marseille relating to the extension of the French judicial liquidation procedure of the company Mediasurcre International to the Italian company Rastelli on the grounds of the insolvency proceedings universality principle. However, the Council Regulation No. 1346 / 2000 of 29 May 2000 ignores such a rule of the extension, and provides only the criteria relating to the jurisdiction’s competence: COMI and establishment. The ECJ was to respond to two questions:

• whether a jurisdiction of one Member-State that has opened the main insolvency proceedings of a company deciding that the COMI of this company is located on the territory of this State may extend the proceedings, upon its national rules, to another company which registered office is located in another Member-State, on the unique ground of the confusion of their assets;
• whether it is possible to apply the Council Regulation No. 1346 / 2000 of 29 May 2000 in order to extend the insolvency proceedings to another company having its registered office in another Member-State by saying that as the companies’ assets were confused the COMI of the foreign company is located in the place of the opening of the first insolvency proceeding.

Firstly, the ECJ judges that on the grounds of national rules a jurisdiction of a one Member-State cannot extend the insolvency proceedings of a company having its COMI in this Member-State to another company which has its registered office in another Member-State, except if it is demonstrated that the second company’s COMI is located in the Member-State that opened the insolvency proceedings.

Secondly, a simple fact of assets confusion between the companies located in different Member-States is not sufficient to establish that the COMI of the second company is located in the first Member-State.

The French Supreme Court has ruled that the mere fact of the assets confusion between two companies having their register offices in different Member-States was not sufficient to fix the COMI of the Italian company in France.