Insolvency forum shopping – what could be learned from the ECJ case law on international company law and the US Supreme Court?

 

The European Commission has identified insolvency and restructuring proceedings as an important factor and one of its top priorities for creating a strong capital market. As the Brussels conference on convergence of insolvency frameworks within the European Union proved, there is a room for increasing harmonization of not only company law but also insolvency law.

The recast of the European Insolvency Regulation that will be applicable from June 26, 2017, implements a philosophy of Euro universalism. According to that, insolvency proceedings opened in one Member State where the debtor has its center of main interests (COMI) are supposed to have universal scope and aim at encompassing all the debtor’s assets wherever they are situated throughout the EU.

This may clearly encourage the insolvency forum shopping. A debtor might seek to change the COMI because a transaction that might come under the scrutiny of a liquidator benefits a person connected with the debtor, such as the relative of a director of a corporate debtor. But also directors of the company involved in the insolvency proceedings may find it beneficial to change in advance the company’s COMI in order to benefit from more lenient insolvency rules. Without any doubt, the wording of the Recast Insolvency Regulation intends to comply with the ECJ case law concerning COMI such as Interdil, Eurofood, Bank Handlowy or Mediasucre judgments. Nevertheless, it is now questioned whether the Recast Regulation strengthens or rather weakens the COMI/registered office rebuttable presumption.

As far as international company law is concerned, the issue of transfer of seat as well as forum shopping has been widely discussed. Over the past three decades –from the ‘Avoir fiscal’- and Segers-judgments of 1986 until the VALE-judgment of 2012- the ECJ has issued a series of judgments in which it has explained the European freedom of establishment. Due to the lack of a uniform European choice-of-law rule for companies, this case-law sheds light on the impact of the EU law on the right of establishment on the cross-border activities of companies in the internal market.

Similarly, the US Supreme Court has already issued several significant decisions (CTP Corp. v. Dynamics Corp. of America, 481 U.S. 69 (1987), Edgar v. MITE Corp. 457 U.S. 624 (1982), International Shoe Co. v. State of Washington, 326 U. S. 310 (1945)) based on which the limits of acceptable forum shopping are (at least) a little bit better marked.

Based on the aforementioned, European harmonization measures facilitating cross-border mobility should additionally assist in achieving predictability and efficiency as well as the economic viability and the security of the operations under consideration. The contribution intends to verify what lessons could be learned both from the ECJ case law as well as US Supreme Court on international company law as well as insolvency forum shopping. There is no doubt that, if successful, harmonized legislation on these matters would be a great asset for the internal market.

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