Vol 7 (2010) - Issue 6

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US Courts Grapple with COMI: Are Their Dealings with the Presumption What Was Intended by the Model Law?

Introduction

Those involved with international insolvencies are all too familiar with the evolving, and sometimes it seems contradicting, interpretations of the concept of a debtor's 'centre of main interests' or 'COMI'. This elusive concept is included in most international insolvency laws, yet it is undefined in those laws and has been left to the courts to develop and clarify. COMI has been described as the debtor's registered office in the absence of proof or evidence to the contrary, the place where the debtor conducts the administration of his interests on a regular basis, a place that is ascertainable by third parties, and a place where the debtor has its principle place of business. It is this development and clarification of COMI that has caused some courts and commentators to declare that the interpretation by US courts is diverging from what was intended under the Model Law on Cross-Border Insolvency (Model Law).
Part I of this article provides background on the creation of the Model Law and the COMI concept. Specifically, section A discusses the Model Law and Chapter 15 of the US Bankruptcy Code. Section B discusses the European interpretation of COMI through the EU Regulation on Insolvency Proceedings (the Regulation) and the Eurofood and Stanford cases. Part II walks through several cases decided by US courts to provide a flavour for how US courts are grappling with the COMI concept. Finally, Part III specifically analyses whether US courts have failed to follow the lead of European courts in placing appropriate strength in the presumption in favour of the debtor’s COMI being the place of a company's registered office and placing the burden on the party seeking to disprove COMI.
This article concludes that the COMI presumption, which is a rebuttable presumption, allows courts, under both the Model Law and Chapter 15, to question the evidence and proof presented to establish COMI even when there is no controversy with respect to recognition. That is, while there is a presumption, it is not bullet proof and US courts are not relaxing the presumption, but are simply ensuring that the recognition process is being utilised properly. This article further concludes that US courts are applying the burden of proof as enacted in Chapter 15 and as explained in its legislative history and, therefore, are not diverging in the placement of the burden of proof.

I. Background: Creation of a Model Law and the COMI concept

A. The Model Law and Chapter 15 of the Bankruptcy Code
The Model Law was adopted by UNCITRAL in 1997. National insolvency laws generally are not designed to deal with cross-border insolvencies, which makes it difficult to administer these insolvencies both quickly and effectively. Recognising this, UNCITRAL designed the Model Law to assist states in managing transnational insolvency cases in an efficient, fair and cost-effective manner. The Model Law does not attempt to harmonise local insolvency law, but instead expressly empowers courts to extend cooperation in the areas covered by the Model Law. Specifically, it addresses issues of recognition of foreign proceedings, coordination of proceedings concerning the same debtor, rights of foreign creditors, rights and duties of foreign insolvency representatives, and cooperation between authorities in different states. The Model Law is not binding on any country and, therefore, must be enacted locally.