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

A Cologne case dealt with the insolvent PIN-Group AG S.A., a company whose registered office was in Luxembourg [Local Court in Cologne 19 February 2008 (file number 73 IE 1 / 08), NZI 2008, 257 ff]. The PIN-Group AG S.A. was the holding company of over one hundred subsidiary entities. Most of them operated in connection with the business of postal delivery services in Germany. The holding company had the purpose of steering the group. In December 2007 the executive board of the holding company was transferred from Luxembourg to Cologne. During this process the members of the board were replaced by individuals also located in Germany. In the same month the entire business documentation process was to be transferred from Luxembourg to Cologne. From the beginning of 2008, the holding company also leased offices in Cologne with the intention of establishing the management of the whole group in Cologne. For this reason the new executive board appointed an executive committee consisting of people who controlled the business of the affiliates. Once a week this executive committee met in the new (German) offices. In January 2008 the holding company also opened an account with a bank in Cologne. In addition the new executive board conducted negotiations with the main creditors, service providers and potential investors in the new offices. In contrast the holding company only carried out minor peripheral activities such as forwarding incoming post from Luxembourg to Cologne from December 2007 onwards.

The Court ruled that the presumption (as to COMI being where the registered office was located) in Art. 3 para 1 of the EIR was rebutted if the company only carried on marginal activities at the place of its registered office. The Local Court in Cologne affirmed its ability to open insolvency proceedings (assuming it was satisfied on COMI). As regards the COMI registered office presumption, the Local Court supported the jurisprudence of the European Court of Justice. In its Eurofood-judgement the European Court of Justice ruled that the presumption in Art. 3 para 1 is rebutted particularly if the company has no business at its registered office. The Local Court decided that whilst this factor was not definitive, in the present case the presumption in Art. 3 para 1 was rebutted, because the holding company only carried on peripheral activities at its registered office. Furthermore, the Local Court assumed that the COMI of the holding was in Cologne no later than January 2008. From that moment on the holding company conducted its main activities like group management, purchasing, marketing and restructuring in Cologne. These circumstances were also clear and ascertainable by third parties, because the new executive board conducted negotiations with creditors, service providers and investors in their offices in Cologne.

In addition, the Local Court determined that the transfer of the COMI from Luxembourg was not an abuse. The intention of the transfer was to restructure the whole group, where most affiliates were located in Germany. The basic principle was to acknowledge that forum-shopping is legal and part of the freedom of establishment under European law.

The Local Court in Cologne supported the view of the European Court of Justice. The Local Court ruled that it was not necessary to show that the company had no business at all at the place of the registered office to rebut the presumption in Art. 3 para 1. Furthermore, the Local Court affirmed the COMI at the place where the essential decisions concerning the general management were taken and that these circumstances are clear and ascertainable to the company’s main creditors and contractual partners. Thereby the Local Court followed the judgment of the European Court of Justice, which also determined the COMI by reference to objective criteria ascertainable by third parties. Furthermore, the Local Court ruled that forum-shopping is legal in general and part of the freedom of establishment.

The Federal Court of Justice was required to decide on an insolvency petition by a company with its registered office in the Netherlands [Federal Court of Justice 1 December 2008 (file number IX ZB 232 / 10), NZI 2012, 151 ff]. In 2007 the Dutch company acquired the shares of a German limited liability company and converted it into a German private limited partnership. The Dutch company became the general partner, and a further Dutch company the sole limited partner of the German private limited partnership. These Dutch shareholders never developed any business activities, either in Germany or in the Netherlands. Only the German private limited partnership carried on business in Germany. The shareholder of the Dutch companies was a German national with sole residence in Germany. In May 2008 the sole limited partner left the German private limited partnership with the legal effect of dissolving the German partnership and transferring its registered office from Germany to the Netherlands. The dissolving without liquidation was noted in the commercial register in Germany. The share of the sole limited partner was automatically transferred to the general partner in the Netherlands. In 2010 the insolvency administrator of a creditor of the German private limited partnership filed for insolvency over the assets of the Dutch shareholder at the Local Court in Düsseldorf. The Local Court refused to assume jurisdiction. The court of higher instance confirmed the judgment of the Local Court. The Federal Court of Justice overturned these judgments.

The Court decided that the international jurisdiction concerning the opening of insolvency proceedings over the assets of a company with its registered office abroad and which had discontinued business activities without liquidation depended on the company’s COMI at the date of the termination of business activities. The judgment of the Local Court was based on the presumption in Art. 3 para 1 of the EIR. The Local Court in Düsseldorf based its ruling concerning the place of a registered office on the date of the filing for insolvency. In addition there was no objective indication that the COMI of the Dutch company was in Germany. The Regional Court in Düsseldorf confirmed this judgment. The Regional Court held that no indications objective and ascertainable by third parties were argued by the creditor’s insolvency administrator. The Federal Court of Justice disagreed with these decisions on two points: Firstly, the Federal Court of Justice decided that the Local Court had to determine ex officio the relevant facts concerning the COMI. The presumption in Art. 3 para 1 only applied if the court’s investigations had not arrived at a different conclusion. Secondly, the Federal Court of Justice ruled that in the present case the relevant date to determine the COMI is not the date of the insolvency petition but the date of the termination of business activities. The Federal Court of Justice referred to the Interedil-judgement of the European Court of Justice. Pursuant to this judgment, the relevant date to determine the COMI is the date of deregistration and termination of business activities, if the company has ceased to function and has terminated its business activities. The European Court of Justice tried to ensure that insolvency proceedings are opened in the jurisdiction where the debtor developed its last and most recent business activities ascertainable by third parties.

According to the opinion of the Federal Court of Justice it was not relevant in the present case that the company was still registered. To protect the creditors it was necessary to focus on the place of the final business activities. This was also obvious from the fact that the sole shareholder of the sole general partner in the Netherlands was a German national with his sole residence in Germany.

The Federal Court of Justice referred to the Interedil-judgment of the European Court of Justice although the facts of the case are different. In the ECJ a company was dissolved in England and liquidated in Italy; whereas in the German case the private limited partnership was automatically dissolved in Germany and the shareholder of the sole limited partner was transferred to the general partner in the Netherlands. The legal effect of the dissolving of the partnership was that the Dutch general partner became the legal successor to the German private limited partnership. The Dutch company was still registered in the commercial register in the Netherlands. Therefore, the judgment of the European Court of Justice was not applicable to the present case. However, the Federal Court of Justice does seek to limit abuses arising from forum shopping.

In a further German case [Federal Court of Justice 6 October 2011 (file number IX ZB 249 / 10), BeckRS 2011, 23914], the debtor operated three drugstores. In May 2010 he rented a flat in England. In June 2010 he discontinued his business activities in Germany by closing the doors of the three drugstores and moving to England. The debtor did not liquidate the drugstores; the employment and lease contracts were also not terminated and the goods stayed in the stores. Subsequently, only one drugstore had a successor operator. Owing to their stocks of remaining drugs the two other stores were sealed by the public authorities. In June 2010 a creditor filed for insolvency. The Local (and the Regional) Court in Aix-la-Chapelle affirmed its international jurisdiction.

The Federal Court of Justice approved the judgments of the lower courts. The debtor’s forum-shopping was deemed to be an abuse. The debtor discontinued his business and moved to England with the sole intention of escaping from the impending insolvency petition. If a businessman discontinues his activities it is difficult to define the COMI by reference to the former place of business. But even in the case of businessmen, merchants and freelancers it is appropriate to establish the COMI by reference to any outstanding legal requirements of the pending liquidation in Germany. In the present case the debtor still had to comply with such requirements; the drugs were not stored safely nor were the employment and rental contracts being observed by anyone. The judgment indicates that the Federal Court of Justice will try to contain abuses of forum-shopping by a natural person as well as by corporate entities.

There are a number of other German cases concerning the application of COMI. Secondary insolvency proceedings may only be opened if the debtor has an establishment in the respective Member State, irrespective of where the COMI is located [BGH 8 March 2012, NZI 2012, 377]. Individual assets are not sufficient to justify an establishment [BGH 21 June 2012, NZI 2012, 725]. Furthermore, if the court cannot locate the actual COMI of the debtor, the burden of proof that the debtor has established a place of residence abroad prior to the insolvency application lies with the debtor [AG Köln 19 January 2012, NZI 2012, 379].

In one case, the debtor had been granted a release of his debts in English insolvency proceedings [LG Köln 14 October 2011, NZI 2011, 957]. A creditor demanded payment of debts which were covered by the (English) debt release. If the debtor had moved his COMI to England only to avoid such debt claims, it is possible that the debt release granted under English law could be disregarded as a violation of the German ordre public under Art. 26 of the EIR. It is doubtful whether a decision taken by a court of a member state may be disregarded based on art. 26 EIR and arguably the German court had no jurisdiction as the question of jurisdiction is addressed by Art. 16 EIR [See Mankowski, NZI 2011, 958 f].

Another case shows clearly that if the COMI of the debtor is in Germany, German law is applicable to the insolvency proceedings, but assets located in other countries may be part of the insolvency estate. Which law is applicable on a claim belonging to the insolvency estate is a question of private international law [OLG Hamm 15 September 2011, BeckRS 2011, 25081].

In the final case to be discussed, main insolvency proceedings were opened in Poland and secondary proceedings with regard to an establishment were opened in Germany [KG Berlin 21 July 2011, NZI 2011, 729]. The administrator in the German secondary proceedings raised claims against the debtor company as “quasi – shareholder” of the establishment company. Neither Art. 32 of the EIR nor § 93 of the German Insolvency Act entitles the secondary insolvency administrator to raise claims against the debtor company in the state where the secondary proceedings are opened.