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The EC Regulation on Insolvency Proceedings (Council Regulations (EC)
1346/2000) sought to develop a unified European approach to insolvency
proceedings. The Regulation determines that where a company operating in more
than one jurisdiction becomes insolvent, main insolvency proceedings must be
brought in the member state where the company’s centre of main interests (COMI)
is located.
The Regulation provides that once a court has found that a company’s COMI is
within its jurisdiction, that finding is binding throughout the remainder of the
European Union.
A company’s COMI is described in the preamble to the Regulation as:
“the place where the debtor conducts the administration of his interests on a
regular basis and
is therefore ascertainable by third parties”.
Article 3(1) of the Regulation states that in the case of a company or legal
person, the place of the registered office shall be presumed to be the centre of
its main interests in the absence of proof to the contrary. However, the
Regulation provides no further guidance as to what
constitutes a company’s COMI. Consequently, there remains a great deal of
uncertainty over the issue.
The current decision
Eurofood IFSC Limited (Eurofood) was a wholly owned subsidiary of an Italian
company, Parmalat SpA (Parmalat) and it was a “matter of notorious fact that the
[Parmalat] group [was] in deep financial crisis which … led to the insolvency of
many of its key companies”.
In December 2003, Signor Enrico Bondi was appointed extraordinary
administrator, in Italy, of Parmalat and another key Parmalat company.
Eurofood was incorporated in Ireland and had its registered office in Dublin. It
operated under a certificate issued by the Irish Minister for Finance which
required it to commence and continue to carry on its trading operations within a
specified area in Ireland, and any material
change of the company (including its shareholding) had to be cleared with the
Department of Finance in Ireland.
On 27 January 2004, when Parmalat’s financial problems became apparent, one of
Eurofood’s creditors presented a petition to the Irish High Court to wind up
Eurofood.
A provisional liquidator was appointed. On 10 February 2004, Eurofood’s
provisional liquidator was notified of a hearing in Italy to declare Eurofood
insolvent and admit it to the Italian extraordinary administration. The
company’s petitioning and other major creditors were not notified of this
hearing.
As a result, they did not attend the hearing, nor were they able to make
representations to the court. At the hearing, the Italian court declared
Eurofood insolvent and that its COMI was in Italy, which meant that the Italian
insolvency proceedings would ostensibly be main insolvency proceedings under the
Regulation.
On receiving notification of the decision, Eurofood’s creditors appealed to the
Irish High Court. The court found that the presentation of the winding up
petition of Eurofood in Ireland and the appointment of a provisional liquidator
brought about the opening of main insolvency proceedings in Ireland under the
Regulation, and refused to recognise the Italian court’s
decision.
Centre of main interests
The Irish High Court cast doubt on the merits of the Italian court’s decision
that Eurofood’s COMI was in Italy. In doing so the Judge referred to the English
cases of Daisytek and BRACII as authorities for how to locate a company’s COMI.
Particular emphasis was placed on the reasoning in Daisytek that it is the
perceptions of third parties (namely creditors) who have had dealings with a
company that is important, and that in an insolvency a company’s creditors need
to know the whereabouts of a company’s COMI so that they can contact the
company.
The fact that the creditors in this case clearly perceived that they were
dealing with an Irish company, combined with other factors (outlined above), was
conclusive of Eurofood’s COMI being in Ireland.
Clash of Jurisdictions
It seems that Signor Bondi’s rationale in applying to the Italian courts to
declare that Eurofood’s COMI was in Italy was to subject Eurofood to the
same jurisdiction and procedure as other Parmalat companies, and therefore to
bring the administration of Parmalat group companies
under his sole control.
Although Signor Bondi’s reasoning may be understandable, it appears that he was
indulging in forum shopping – an activity the Regulation was intended to
prevent. As there are now two conflicting decisions made by two different courts
in two different Member States, Eurofood also
raises the anathema of jurisdictional conflict (which was raised in Daisytek),
another matter the Regulation was designed to avoid.
Ultimately, only the European Court of Justice (ECJ) can resolve which of the
Irish or the Italian verdicts is the “correct” decision. Cases can only be
referred to the ECJ by a Member State’s highest court of appeal.
Signor Bondi, the extraordinary administrator, has appealed against the
decision to the Irish Supreme Court (the hearing was due on 27 May 2004). At
that hearing, the Irish Supreme Court apparently indicated that it will refer
some questions to the ECJ for consideration, but the questions have not yet been
formulated.
Victoria Thompson
is a solicitor in the Banking Group of CMS Cameron McKenna.
Source:
Credit Control Journal
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