Vol 10 (2013) - Issue 3

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COMI Determinations: The Point in Time is Certain, but Factors are Limitless

In In re Fairfield Sentry Ltd.,1 the United States Court of Appeals for the Second Circuit ('Second Circuit') clarified the relevant time for determination of chapter 15’s concept of centre of main interest ('COMI'), and resolved a split among decisions. The Second Circuit ruled that for purposes of recognition under chapter 15, the time of filing of the chapter 15 petition is the relevant period for COMI consideration. The time between the commencement of foreign insolvency proceedings and the chapter 15 filing can be considered if COMI may have been subject to manipulation. In addition, the Second Circuit held that the relevant principle for determining COMI is that it lies where the debtor conducts its regular business, so that COMI is ascertainable by third parties. Rather than limiting the scope of COMI determination to any exclusive list of factors, the Second Circuit held that any relevant activities of the debtor could be considered. The decision facilitates COMI determinations by limiting them to a certain point in time, but it also seems to add more uncertainty by inviting unrestricted considerations of circumstances defining COMI.

Background
In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act ('BAPCPA') added chapter 15 to the Bankruptcy Code, and repealed Bankruptcy Code section 304, which was, until then, the gateway for U.S. bankruptcy courts to assist in foreign insolvency proceedings. Chapter 15, which incorporates the Model Law on Cross-Border Insolvency ('Model Law'), provides a simple process of recognising a foreign proceeding as either main or nonmain, depending on whether the foreign proceeding is pending in the location of the debtor’s COMI or establishment. The distinction is material, because certain relief, including the imposition of the automatic stay of all proceedings against the debtor in the US, is granted automatically upon recognition of a foreign main proceeding.
There is no definition of COMI in either chapter 15 or the Model Law, other than a presumption that absent evidence to the contrary, COMI is presumed to be in the location of the debtor’s registered office. While there is no statutory guidance on what type of evidence is required to overcome this presumption, relevant factors could include the location of the debtor’s headquarters; the location from which the managing decisions are made (i.e., the holding company’s headquarters); the location of the debtor’s main assets, the location of the majority of the debtor’s creditors or of a majority of the creditors who would be affected by the case; and/or the jurisdiction whose law would apply to most disputes.