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

A company was set up in the United Kingdom in 2008 in order to create a new owner for the registered establishment in Hungary, because the earlier owner became insolvent [Metropolitan Court of Budapest 14 January 2009, Fővárosi Bíróság 9.Fpk. 01-08-006081 / 6]. The company did not carry out any business activities in the UK and the assets of the company were all situated in Hungary. The owner filed a petition in Hungary to open main proceedings of the UK registered company. The court ordered the opening of main proceedings of the company in Hungary on the basis that it was established that the company did not carry out business activities in the UK. All of the business assets were in Hungary and all of its business activities were related to the Hungarian registered establishment and this was ascertainable by third parties. The court ruled that the presumption that the COMI of a company is where its registered office is situated can be rebutted only if factors which are both objective and ascertainable by third parties enable it to be established and that an actual situation exists which is different from the location that the registered office is deemed to reflect.

The tax authority as a creditor filed a petition to open main insolvency proceedings in Hungary against a Slovakian company [Metropolitan Court of Budapest 14 October 2008, Fővárosi Bíróság 9.Fpk. 01-08-003390 / 6]. The director of the company had Hungarian nationality, lived in Hungary and the main activity of the company was performed in Hungary, though the registered office of the company was in Slovakia. The court considered the evidence given by the creditor (the debtor did not make any statements in the proceedings) and drew the conclusion that the director’s address, the place of a formal judicial enforcement against the company and the taxation documents all showed unambiguously that the COMI of the company was in Hungary. The case concentrated on the relevant factors to rebut the presumption that the COMI is located in the place of the registered office. Rebutting the COMI presumption can be very difficult for a creditor. Tax authorities typically have more tools available to evidence where the COMI may be located.

Main proceedings against an Austrian company were opened by a court in Graz (Austria) [Metropolitan Court of Budapest 17 September 2008, Fővárosi Bíróság 9.Fpk. 01-08-001806 / 9]. The main liquidator filed a petition with the Austrian court to open main insolvency proceedings of the Austrian company’s subsidiary, a Hungarian company, on the basis that all of the important business decisions of the Hungarian company were made in Austria. The Austrian court opened main proceedings against the Hungarian company on 1 August 2008 and appointed the main liquidator. The main liquidator subsequently asked the Metropolitan Court in Budapest to publish the opening of the main proceedings in the Hungarian Official Gazette. The Hungarian company had creditors in Hungary, who had filed a petition against the Hungarian company at the Metropolitan Court. One of the creditors became aware of the information in the Official Gazette concerning the opening of main insolvency proceedings in Graz, and filed a petition to open secondary proceedings in Hungary. The Hungarian company did not have any activities outside of Hungary.

The court ordered the opening of secondary proceedings of the Hungarian company, after determining ex officio that the company had its establishment in Hungary. The court found that the company was not only registered in Hungary, but all of its business activities were connected to Hungary.

The Austrian court terminated the main insolvency proceedings because there were no assets in the main procedure, while the secondary proceedings were still pending. According to the Hungarian national insolvency law, the court has to terminate the debtor company at the end of the proceedings. The Austrian court did not order the termination of the company in the main insolvency proceedings, thus the secondary proceedings continued in Hungary.

The tax authority as a creditor filed insolvency proceedings against a company whose registered office was in the USA, but whose alleged COMI was in Hungary [Metropolitan Court of Budapest 24 September 2007, Fővárosi Bíróság 9.Fpk. 01-06-006017 / 13]. The creditor proved that the debtor had its business address in Hungary, and it had moved its business activity to Hungary. It could not be proved, however, that the debtor still existed under the laws of the USA at the time the request was received by the court. The court stated that it is not important where the registered office is located and that only the place of the COMI has to be taken into consideration when the court establishes its jurisdiction. The court would have had jurisdiction if the debtor still existed, but according to the USA registration rules the company did not exist anymore. The Hungarian Bankruptcy Act does not allow the opening of insolvency proceedings against a company which does not exist; and so the court refused the petition.

The case can serve an example in proceedings against off-shore companies whose registered offices are in tax havens but whose activities are within the EU. The decision followed the judgment of the High Court of Justice (BRAC Budget Rent-A-Cart, High Court of Justice Chancery Division Companies Court (England) 07.02.2003 EWHC / Ch / 128-0042 / 2003)

The German owners of a Hungarian textile company applied to the Amstgericht Hechingen to open main insolvency proceedings against the Hungarian company [Komárom-Esztergom County Court 5 June 2005, Komárom-Esztergom Megyei Bíróság 3.Fpk.11-05-070162 / 9]. They stated that the COMI was in Germany. The German court opened main insolvency proceedings on 31 March 2005 and appointed a main liquidator. The main liquidator terminated employment contracts on the date when the main proceedings were opened in Germany and without taking into account the rules of Hungarian labour law. The employees filed an objection against the liquidator in the Hungarian court, which considered this as a petition for opening secondary proceedings and appointed the secondary liquidator to oversee the secondary proceedings. The Hungarian court opened secondary proceedings to resolve the claims of the employees and to liquidate the company.

Insolvency proceedings were opened against a German natural person in a court in Germany [Metropolitan Court of Budapest 13 September 2004, Fővárosi Bíróság 9. Eufpk.01-04-000001 / 6, Fővárosi Bíróság 9. Eufpk.01-04-000001 / 9]. The insolvent German debtor owned real estate in Hungary. The provisional liquidator applied to register the opening of the insolvency proceedings in the Hungarian land register. The court stated that the EIR in a cross-border situation extends the personal jurisdiction of the national law. The legal consequences of the opening of main proceedings as laid down in the EIR have to be taken into consideration by all other Member States. The court therefore ordered registration of the insolvency proceedings in respect of the real estate in the land register in Hungary.

Due to the lack of domestic Hungarian rules relating to a consumer insolvency situation, the liquidator asked for guidance on what such a registration meant for real estate (for example who would be entitled to sell it). The court held that, in this case, the Hungarian land registration rules should be applied in accordance with the German judgment. The court also noted that decisions of the German court should be considered as bearing the same consequences as opening main insolvency proceedings against a Hungarian company in Hungary. This decision extended the personal jurisdiction of the national insolvency acts and referred to the importance of a well drafted judicial decision when different jurisdictions have a role in the matter and especially when domestic legislation is silent on a matter.