International Journal of Law and ManagementEmerald Article: Center of main interest (COMI) and jurisdiction of national courts in insolvency matters (insolvency status)Alexander J. Belohlávek

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To cite this document: Alexander J. Belohlávek, (2008),"Center of main interest (COMI) and jurisdiction of national courts in insolvency matters (insolvency status)", International Journal of Law and Management, Vol. 50 Iss: 2 pp. 53 - 86

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Insolvencymatters

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International Journal of Law andManagement

Vol. 50 No. 2, 2008pp. 53-86

# Emerald Group Publishing Limited1754-243X

DOI 10.1108/17542430810862333

Center of main interest (COMI)and jurisdiction of nationalcourts in insolvency matters

(insolvency status)Alexander J. B�eelohlavek

Department of Law, Faculty of Economics,VSB Technical University of Ostrava, Ostrava, Czech Republic

Abstract

Purpose – The applicable jurisdiction for insolvency proceedings, as provided by the Regulation(EC) No 1346/2000 on insolvency proceedings, is the court of the Member State where the debtor’scenter of main interest (COMI) is located (Article 3(1)). The Regulation, however, does not provide acomprehensive definition of the COMI. This paper seeks to explore the meaning and developmentsbehind the meaning of COMI as influenced by judicial reasoning and conflicts across Member States.Design/methodology/approach – The study centres around the emerging jurisprudence andanalyses case law across Member States in order to draw conclusions on the meaning of COMI andthe emerging concepts. Extensive consideration of statutory interpretation, case reports and judicialcomment is present in order to inform and develop conclusions.Findings – In the absence of a definition it appears that the only relevant European guidanceemerges from recital 13 and Article 3 (1). With little guidance in the Regulation, it has therefore beenleft to national courts to decide how the notion of COMI should be interpreted. Determining the COMIhas emerged as one of the most controversial aspect and the principle point of legal conflict, withsome highly debated cases within member states’ courts. On the basis of the case law, it is suggestedthat the interpretation of COMI is more flexible in UK and Italian courts. The approach adopted incontinental Europe is referred to as the ‘‘centre of operations approach’’, i.e. the debtor’s COMI has tobe determined by the place where he is ‘‘ascertainable by third parties’’. The Anglo Saxon approach,on the other hand, is known as the ‘‘mind of management approach’’, i.e. the debtor’s COMI must besituated where decisions are actually made. The latter seems to enjoy a more practical and accessibleapproach.Originality/value – Not only will the findings assist those seeking to understand the process andCOMI requirements across member states but it will also assist those researchers seeking tounderstanding the comparative and conflict of law barriers to pan-European insolvency proceedings.

Keywords European union, European law, Property, Regulation, Bankruptcy

Paper type General review

The place of the main interest and jurisdiction of national courts in international matters

1. Insolvency proceedings in the European contextIssues concerning the so-called international bankruptcy and insolvency proceedings(for terminology, see Mrazek, 2004) have been in the center of interest of internationallegal practice for much longer than the recent years or decades; from the historicalviewpoint, attempts to instate international legal regulation for bankruptcy-relatedmatters could be traced as far back as the 17th century. In the European (supra-national) context, the most important directive is Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Proceedings (referred to as the Regulationthroughout this document), which came into effect on 31 May 2002 and which isdirectly applicable in all European Union Member States with the exception ofDenmark. In the case of insolvency proceedings with an international (foreign) element

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(Belohlavek, 2006), the Regulation is – with regard to the said international (foreign andin this case Community-related) element – a document whose application takesprecedence over regulations of national origin and which represents a fundamentalstandard in the area of international insolvency proceedings; starting on 1 May 2004,the Regulation applies to the ten new Member States who joined the EU on that date(the document also applies to Bulgaria and Romania as of the beginning of 2007). It isunquestionably one of the most important documents of the Community law in theeconomic area. In light of the importance of the Regulation and considering thesignificance of insolvency proceedings and their definition in economic activities,analyzing and commenting on the Regulation accounts for the better part of thepresent review. The Regulation mainly relies on Article 61(c) and Article 67(1) of theTreaty Establishing the European Community (TEEC).

It is somewhat arguable whether the cited provisions of the TEEC provide asufficient basis and authority for harmonization in the area under discussion in thesaid manner. From the author’s viewpoint, the Regulation should have been issuedtogether with the European Parliament as opposed to being a Council Regulation only,even though it can be assumed that if the Regulation were to be approved by theEuropean Parliament, fundamental problems may have arisen concerning its adoptionsince the Regulation’s political aspects cannot be overlooked. Conversely, it isunquestionable that for the functioning of a single market a regulation of this kind, as aminimum, is necessary (Sprecher, 2003, p. 29, marg. 29).

However, the purpose of the Regulation is not harmonizing or unifying theinsolvency law (as it is the case with other regulations that apply to the European civilprocedure and the European private law in general), but harmonizing and unifying theeffect of decisions under which insolvency proceedings are opened as well as defininguniform rules for determining international jurisdiction and the law that is applicableto such proceedings.

2. Basic principles of the European insolvency law according to theregulationAs defined under the Regulation, the European insolvency law relies onthe following principles: universality, territoriality, unity, and plurality, wherethese concepts are mutually intertwined. Considered most important is the principleof universality, which consists of the automatic recognition of the foreign effectof insolvency proceedings without any formal recognition act (without anyexequatur decision). Universality is modified by the other principles, theterritoriality principle in particular. This issue is sometimes referred to as theprinciple of the so-called controlled universality (Buchberger, 2002). The reasonbehind this combined approach is the fact that the original ideas about a singlesystem of insolvency proceedings and unlimited effectiveness of insolvencydecisions for the entire Community proved unrealistic due to fundamentaldifferences between the legal systems of individual nations. Universality istherefore to a substantial extent lessened by the possibility to initiate and pursuenational insolvency proceedings that are limited solely to assets located in thejurisdiction of individual Member States (Taupitz, 1998), provided that a debtor’sestablishment is located in such countries, as this term is defined for the purposesof the Regulation in Article 2(h) of the Regulation. Another infringement on theuniversality principle is the issue of applicable law. In principle, under theCommunity law, insolvency proceedings and their effects are subject to the law of

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the country in which proceedings were opened (Article 4 of the Regulation), wherespecial restrictions apply in individual areas (see Articles 5-15 of the Regulation)(Huber, 2001).

3. International jurisdiction and Article 3 of the regulation3.1 Importance of Article 3 of the regulationArticle 3 of the regulation contains the basic jurisdictional provisions of the documentunder discussion, mainly in conjunction with Article 4, which defines the lawapplicable to insolvency proceedings. In accordance with the Community law, openingand pursuing insolvency proceedings in their entirety may not be in the jurisdiction ofa court of law determined according to the debtor’s head office, habitual residence, orplace of business. Realizing this fact is essential and decisive for understanding notonly the principles of the European insolvency law, but also the insolvency laws ofevery individual EU Member State (with the exception of Denmark).

Article 3 of the Regulation reads as follows (cit.): Article 3 - [Internationaljurisdiction] - 1. The courts of the Member State within the territory of which the centreof a debtor’s main interests is situated shall have jurisdiction to open insolvencyproceedings. In the case of a company or legal person, the place of the registered officeshall be presumed to be the centre of its main interests in the absence of proof to thecontrary. 2. Where the centre of a debtor’s main interests is situated within the territoryof a Member State, the courts of another Member State shall have jurisdiction to openinsolvency proceedings against that debtor only if he possesses an establishmentwithin the territory of that other Member State. The effects of those proceedings shallbe restricted to the assets of the debtor situated in the territory of the latter MemberState. 3. Where insolvency proceedings have been opened under paragraph 1, anyproceedings opened subsequently under paragraph 2 shall be secondary proceedings.These latter proceedings must be winding-up proceedings. 4. Territorial insolvencyproceedings referred to in paragraph 2 may be opened prior to the opening of maininsolvency proceedings in accordance with paragraph 1 only: (a) where insolvencyproceedings under paragraph 1 cannot be opened because of the conditions laid downby the law of the Member State within the territory of which the centre of the debtor’smain interests is situated; or (b) where the opening of territorial insolvency proceedingsis requested by a creditor who has his domicile, habitual residence or registered officein the Member State within the territory of which the establishment is situated, orwhose claim arises from the operation of that establishment.

3.2 Authority vs jurisdictionThe boundaries for recognizing bankruptcy declaration decisions correspond to theborders of a state and the limits of its territorial jurisdiction, i.e. the impacts and effectsof the authority of its courts. Article 3 of the Regulation defines the extent ofjurisdiction (the state’s judiciary power), which has the authority to open the maininsolvency proceedings. From the terminological viewpoint, this matter should beviewed in light of problems related to the terms authority and jurisdiction, which arestrictly differentiated for example in the international private and procedural laws ofCentral and Eastern European countries. While the term authority is understood asjudiciary power in general, i.e. the power of courts as bodies of the state to handle andresolve disputes, the term jurisdiction is usually construed as the entitlement to makesuch decisions from the viewpoint of a specific court, i.e. a specific judiciary body(Pauknerova, 2004). In the sense of the terminology employed in the Regulation, this

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concept is designated as jurisdiction, which is the authority of courts of law in generalin the sense of the terminology employed in Central and Eastern European countries.The issue therefore concerns international jurisdiction, i.e. the authority of courts in aparticular country. In addition, the Regulation does not deal with the issue of factual,functional, or local jurisdiction of courts within the framework of the legal system of aparticular country.

In this case, defining the international jurisdiction has a fundamental effect ondetermining and using the governing law, in this case lex fori concursus. On the otherhand, it should be emphasized that as a rule, the Regulation observes (save forsubstantiated exceptions, as defined under Articles 5-15 of the Regulation) theapplication of legis fori regulations, in this case legis fori concursus. Determiningthe international jurisdiction therefore has a fundamental importance for ascertainingthe law governing insolvency proceedings per se and, therefore, for determining theeffect of insolvency rulings. Without determining the jurisdiction of a court in aparticular country to open proceedings in the sense of Article 3 of the Regulation, thegoverning law cannot be ascertained.

3.3 Principle of universality in the context of international jurisdiction to openinsolvency proceedingsThe Regulation is based on the principle of universality, but it presents a pluralistmodel as opposed to a model of uniform insolvency proceedings due to the fact thatindividual Member States and their territories have uniform universally effectivesystems of insolvency (bankruptcy) law, which establish the universal effect of nationalinsolvency proceedings opened in a specific country (Smid, 2002, p. 39, marg. 30).

Both the international jurisdiction to open the main insolvency proceedings in thesense of the Regulation and the local and factual jurisdiction determined based onnational regulations need to be understood as an exclusive jurisdiction.

The provisions of Article 3 of the Regulation define exclusively the authority tomake a decision to open proceedings and to appoint a liquidator. However, neitherArticle 3 nor any other provision of the Regulation determines internationaljurisdiction to make decisions about other issues directly related to the pursuing ofinsolvency proceedings (Virgos-Schmit-Report, 1995, Point 77). Such internationaljurisdiction always needs to be viewed in light of the decision in question, where theissue must be construed in close correlation with the application and interpretationof Article 25 of the Regulation, especially in light of whether the decision is to bemade pursuant to Article 25(1) or Article 25(2) of the Regulation. Only then, it ispossible to determine the international jurisdiction of a specific court of lawauthorized to issue the applicable specific decision. Article 25 of the Regulationstates (cit.): 1. Judgments handed down by a court whose judgment concerning theopening of proceedings is recognized in accordance with Article 16 and whichconcern the course and closure of insolvency proceedings, and compositionsapproved by that court shall also be recognized with no further formalities. Suchjudgments shall be enforced in accordance with Articles 31 to 51 (author’s note: atthe present time, it is necessary to apply Articles 38-52 of the Regulation 44/2001),with the exception of Article 34(2) (author’s note: at the present time, it is necessaryto apply Article 45[1] of Council Regulation EC No. 44/2001), of the BrusselsConvention on Jurisdiction and the Enforcement of Judgments in Civil andCommercial Matters, as amended by the Conventions of Accession to thisConvention. The first subparagraph shall also apply to judgments deriving directly

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from the insolvency proceedings and which are closely linked with them, even ifthey were handed down by another court. The first subparagraph shall also applyto judgments relating to preservation measures taken after the request for theopening of insolvency proceedings. 2. The recognition and enforcement ofjudgments other than those referred to in paragraph 1 shall be governed by theConvention referred to in paragraph 1, provided that Convention is applicable. 3.The Member States shall not be obliged to recognize or enforce a judgment referredto in paragraph 1 which might result in a limitation of personal freedom or postalsecrecy.

Hence, the provisions of Article 25 of the Regulation are an important addition toArticle 3 of the Regulation despite the fact that they do not specify – and the cannotspecify due to the varied nature of insolvency laws in individual Member States –which actual courts have the authority to hand down judgments in specific cases.Finally, as follows from Paragraph 6 of the Preamble to the Regulation, it is not thepurpose of the Regulation to define international jurisdiction (authority) in respect ofall bankruptcy-related rulings delivered by courts; the sole purpose is to determine acourt’s authority in connection with opening (or closing) proceedings and the actualpursue of the same in respect of the main purpose of the Regulation, that is to ensurethe universal effect of judgments, where the precondition is setting rules fordetermining international jurisdiction (authority) of courts (judiciary) of a specificcountry with regard to the opening of such proceedings. The local jurisdiction or thejurisdiction of a specific court of law in the framework of the international jurisdiction(authority) of courts of a specific country is defined by the procedural andjurisdictional regulations of thus determined country.

The universality principle means that a decision to open the so-called maininsolvency proceedings in a country where a debtor’s center of main interest (COMI) issituated takes effect in all states of the Community without any special recognitionproceedings, regardless of the debtor’s head office, habitual residence, or place ofbusiness. Further, it is not necessary to initiate any separate proceedings in othercountries (it is possible under certain circumstances – see below), and a liquidatorappointed in the main proceedings in the locality of the COMI exercises his powersautomatically in all such states that are subject to the Regulation. For example, if themain insolvency proceedings are opened against a Dutch legal person in Spain becausea Spanish court finds that the debtor’s COMI is located in Spain, such a decision willalso be effective and binding in the Netherlands without the need for any specialrecognition proceedings, and the Spanish liquidator will exercise his powers to the fullextent thereof in the Netherlands as well as in other countries of the Community. At thesame time, it is irrelevant in what country and under what statute such a debtor isdomiciled, i.e. where its registered or actual head office is located, where the debtor isincorporated in a public register, and where is the permanent residence of the membersof its bodies (if it is a legal person).

4. Main insolvency proceedings and territorially limited proceedings/importance of defining an establishmentThe Regulation differentiates between the main insolvency proceedings with universaleffect within the Community (within the territorial effectiveness of the Regulation) onthe one hand, and territorially limited proceedings on the other hand, where the lattertype includes secondary proceedings, which are dependent on the main proceedingseven though they are subject to their own regime in the framework of an independently

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applicable governing law, and particular proceedings, which are opened in a certaincountry where a debtor does not have the center of his main interest prior to openingthe main proceedings, and which become – upon the opening of the main insolvencyproceedings – particular, territorially limited proceedings, but they are neverthelessindependent of the main insolvency proceedings or significantly less dependent thansecondary proceedings derived from the main insolvency proceedings opened based onthe universal effect of insolvency proceedings in the country where the debtor’sestablishment is located.

After the opening of the main insolvency proceedings in the country where theCOMI is located, local secondary proceedings can be initiated in other countries oncondition that a debtor has an establishment in such other countries. The termestablishment is defined in Article 2(h) of the Regulation and does not necessarily meanan establishment in the sense of national laws in effect in the area where such anestablishment is situated (Bartosikova, 1993; Bartosikova, 1995; Fischer, 1998; Ruzicka,1992; Schelleova, 1997; Tuma and Baca, 1994). An establishment must entail anensemble of assets and personal factors, i.e. there must be assets used by the debtor forthe purposes of conducting its activities, using the human (personnel) factor with acertain degree of organization. Such secondary proceedings must always have awinding-up character, where the objective is the maximum utilization of the debtor’sassets in the applicable country, but always through winding up such anestablishment; the proceedings must be one of the types listed in Annex B to theRegulation. Unlike secondary proceedings, the main proceedings can have variousforms based on how insolvency proceedings are defined in the law applicable in theplace where such main proceedings are opened; for instance, the main proceedings canhave the form of restructuring proceedings. The individual types of main proceedingsare listed in Annex A to the Regulation. However, the existence of bankruptcy is not aprerequisite for opening secondary proceedings in the place (country) of the debtor’sestablishment, which is subject to regulations pertaining to insolvency proceedings ineffect in the country where the establishment is located; to some extent, the opening ofthe main proceedings in a debtor’s COMI in any Member State represents the fiction ofthe debtor’s bankruptcy in any other country, i.e. including countries where the debtor’sestablishments are located and where secondary insolvency proceedings can be openedand pursued.

As regards the above example of a Dutch legal person with its COMI in Spain, thesituation under discussion can have the following form. For example, the Dutch legalperson (a legal person established according to domestic regulations and incorporatedin one of the public registers in the Czech Republic) conducts its production or tradingactivity in the Netherlands, where it has all its resources, including assets, employees,and the like. However, it is established that its COMI is situated in the Netherlands(see below regarding a debtor’s COMI). The main insolvency proceedings will beopened in Spain, and they will automatically have a universal effect on all the debtor’sassets (activities) in all countries of the Community (with the exception of Denmark),including activities in the Netherlands. Starting at the time the main insolvencyproceedings are initiated in Spain, the said Dutch debtor needs to be regarded as adebtor in bankruptcy, a person whose assets are subject to opened insolvencyproceedings, despite the fact that such a debtor would not be bankrupt in theNetherlands exclusively in connection with its activities in the Netherlands and despitethe fact that the prerequisites for opening insolvency proceedings in the Netherlandshave not been fulfilled under the Dutch insolvency regulations. Starting at the time the

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main insolvency proceedings are opened in Spain, the operations of such a Czechdebtor (a Dutch legal person) are subject to Spanish insolvency regulations, includingthe right to act on behalf of the debtor (the debtor’s assets), which passes to a Spanishliquidator. Considering the fact that the debtor has all business resources in theNetherlands, i.e. all assets used for business as well as human and other resources, thedebtor’s establishment is indisputably located in the Netherlands; however, it is not anestablishment in the sense of Dutch regulations of national origin, but an establishmentin the sense defined in Article 2(h) of the Regulation. The so-called secondaryinsolvency proceedings can therefore be opened in the Netherlands. These proceedingswill be opened by a Dutch court, where a petition may be filed either by the Spanishliquidator appointed for the main insolvency proceedings, who has the right to filesuch a petition already on the basis of the Regulation, or by any person who isauthorized to make a request for the opening of insolvency proceedings in theNetherlands, i.e. the country where the debtor’s establishment is located in the sense ofthe applicable Community regulation (in the model case, the Dutch legal person inquestion represents an establishment only). However, this Dutch debtor does not haveto be bankrupt from the viewpoint of Dutch insolvency regulations. As regards theNetherlands, it is therefore more important that the reason for bankruptcy in theNetherlands is not excessive indebtedness but solely insolvency, i.e. the inability to payoutstanding obligations. The fiction of bankruptcy is already the opening of the maininsolvency proceedings in Spain, and it is therefore possible to initiate secondaryinsolvency proceedings and to appoint a Dutch liquidator. From the time a decision ismade to open domestic secondary insolvency proceedings, such a liquidator assumesthe powers of the Spanish liquidator, but only to the extent of assets located in theterritory of the Netherlands, while the main Spanish liquidator continues to exercise hispowers in both Spain and all other Community countries, including those where nosecondary insolvency proceedings have not been opened. Further, the Regulationdefines some powers of the main liquidator with regard to secondary insolvencyproceedings (for example, the possibility to propose a suspension of the sale of assetsunder secondary proceedings, etc.) and at the same time outlines the information dutiesof individual liquidators.

5. Center of main interest5.1 Importance of COMI in the context of the regulation and the content of COMIOne of the essential notions of the European insolvency law is the COMI (theGerman equivalent is Mittelpunkt der Interessen des Schuldners). Such a placeestablishes the jurisdiction for opening the main insolvency proceedings, where theCOMI includes business (trading, industrial) and other economic activities (gainfulactivities) (Fritz and Bahr, 2001, p. 224). It is therefore the place of the maineconomic interest in the gainful sense, unlike the habitual residence, which isrelated to the territory to which a specific person has the closest relationship. Inthe meantime, the term domicile has become commonplace, and it is gaining infactual importance in legal practice instead of the term habitual residence or theplace where a party to a legal relationship habitually resides, including in countrieswhere the term domicile was formerly not used (for example, Central and EasternEuropean countries where the law until today relies almost exclusively on the termpermanent address in the sense of an administrative registered address). However,the term domicile cannot be construed solely in the sense of a residence, but alsoas the place to which a certain person can be assumed to have a close and stable

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relationship, which can be inferred from the applicable circumstances. In this sense,the term permanent address or residence is most often understood as the habitualresidence, i.e. a place where a person resides most often during a reference periodand to which such a person has the closest relationship due to the fact that such alocality is regarded as a place of the person’s stable personal relations other thanthose related to his profession or employment. It does not necessarily have to bethe official residency, which is important for communication with central and localgovernment administration because residency registration due to securingadministrative matters does not necessarily reflect an actual interest to reside insuch a locality. While the term permanent address has until recently been usuallydefined in the applicable legal regulation as the place of single registration foradministrative purposes, the term residency (derived from the verb reside) is anexpression of the actual desire to stay at a certain place (Kegel and Schurig, 2000,pp. 412-3). According to the general international practice, cases of doubts aredecided based on where a person rests during time off work (Spickhoff, 1995,pp. 185-9; Mann, 1956, pp. 466-70; Smart, 1989, pp. 175-85). Considering that it isnot always possible to demonstrate the intention to stay at a certain place during aprotracted period for the purposes of establishing and maintaining permanentpersonal ties, the international practice also relies on a substitute method, whichexamines the long-term nature (i.e. not the temporary nature) of such a residency,where the long-term nature must always be evaluated in the light of the person’spast comportment and his personal migration history. It should be noted, however,that a different understanding of the term residency needs to be used for the needsof social insurance, a clearly administrative area where the term residency mustalways be interpreted only as the administrative residence (Belohlavek, 2005a,pp. 2-11).

In the case of corporations and legal persons, the Regulation contains thedisprovable assumption that a debtor’s COMI coincides with its registered office. It canbe therefore assumed that in most cases the debtor’s COMI will correspond to itsregistered office, but this does not always have to be the case, and existing practiceshows that in reality the COMI does not always coincide with the registered office. Inparticular, in the case of entities with financial, economic, and general businessinterests abroad, it is always necessary to examine whether a debtor’s COMI is locatedin a place other than its registered office. Such a possibility exists (at least theoretically)always when a person who exercises a certain controlling influence over a debtor isdomiciled or operates in the territory of a different country. Moreover, this possibilityexists always at least in theory if a legal person has a foreign owner, i.e. usually incompanies that are a member of a group with international ties. The most importantfactor is how the COMI is understood by a debtor’s creditors. In the example involvinga Dutch legal person in respect of whose assets insolvency proceedings have beenopened in Spain, the Dutch legal person can conduct all its business activities in theNetherlands but it can have Spanish owners (members, shareholders) who arrange forthe Dutch legal person in question financing from external sources (for exampleSpanish banks) and at the same time secure some other activities for the Dutch entityat their head office. From the viewpoint of large creditors (banks), the debtor is acompany that is a member of a Spanish group since for these creditors the main contactpoint is a place in Spain, and such a place in Spain can be easily ascertained by suchcreditors. Hypothetically, it can be concluded that strategic business and financialprocesses and the strategic flow of funds take place in Spain, even though actual

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business activities are conducted in the Netherlands. Therefore, if the place can beascertained by third parties, the COMI of the Dutch debtor can be considered to belocated in Spain based on said facts, and the main insolvency proceedings canconsequently be opened in Spain as well. The example, however, depicts only one ofseveral possibilities for determining a debtor’s COMI, which is regrettably notexplicitly defined in the Regulation despite the fact that it is a term of a fundamentalimportance.

5.2 Registered office vs COMIAs regards this issue, the question offers itself whether and to what extent a debtor’sstatutory registered office in conjunction with the term main interest would be affectedby a situation, where the statutory registered office is located in one country but theadministration or management of the debtor is carried out in a different country. TheRegulation does not rule out the possibility of different view of the issue concerning theregistered office determined according to the place where actual management andcontrol takes place, and it puts forward the question whether and to what extent ajudge deciding the opening of the main insolvency proceedings must consider the issueof the registered office in conjunction with the place where control and/or actualmanagement of a debtor takes place and in connection with the debtor’s COMI (it is notaccidental that this is due to the substantial influence exerted by Great Britain, whichexhibited a decisive stance in shaping the final form of the Regulation, where the GreatBritain’s opinions and interests were among the most significant throughout thepreparation of the Regulation) in light of the principle of the statutory registered officeof a legal person, i.e. the registered office specified in the founding or statutorydocuments and registered in the applicable public register. In the future, this viewpointwill likely be the basis for the prevalent decision-making practice of insolvency(bankruptcy) courts in Community countries, and this approach will be correct inconsideration of the concept on which the corporate law of most European countries isbased. Even though from the viewpoint of corporate and economic law of suchcountries as the states in Central and Eastern Europe (new Member States) theprinciple of actual management or factual control is not recognized with regard todetermining the head office of a legal person and these principles are attributed aneffect in exceptional cases only (the effect is usually of marginal importance), a certainroom for interpretation is provided to judges of insolvency courts in connection withthe issue of a debtor’s main interest. For example, if the statutory registered office issituated in the Czech Republic, where some business interests of a legal person arelocated in another EU Member State and the main part of the debtor’s assets (or all thedebtor’s assets) are situated outside the Czech Republic, a Czech judge may refuse hisauthority (jurisdiction) not only to open the main insolvency proceedings, but also, inthe case of the absence of any of the debtor’s assets in the Czech Republic, parallel(secondary, particular, local) insolvency proceedings in the Czech Republic despite thefact that the statutory registered office stated in the Commercial Register or anotherpublic register is situated in the Czech Republic.

However, the Regulation does not apply if a debtor’s (statutory) registered office islocated in the territory of a Member State, but the debtor’s center of main (economic)interest (COMI) does not lie within such a Member State. Nevertheless, this principlemust not provide debtors with room for transferring assets in a contrived fashion so asto suggest that a debtor’s center of main economic interest is located outside theterritorial effectiveness of the Regulation (the so-called forum shopping, where this

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activity would be one of its forms). Consequently, the court to which a request to openinsolvency proceedings is made must examine the center of main economic interest andits actual existence in an ex officio manner, and use all legal means to cast doubt on asituation, where the center of main economic interest is established artificially outsidethe territorial jurisdiction of the Regulation.

5.3 COMI in non-Member States and territorial applicability of the regulationIf a debtor’s center (place) of main interest is not located in a Member State, theRegulation does not apply, and international jurisdiction is determined and the effectsof foreign rulings in insolvency matters are viewed exclusively in accordance withinternational private and procedural law in the framework of the legislation ofparticular national legal systems (Virgos-Schmit-Report, 1995, Section 82) (regulationsof national origin or non-Community origin from the viewpoint of the EU law, wherethe use of some bilateral agreements is possible).

In contrast, it is necessary to proceed in accordance with the Regulation and casesare subject to European insolvency proceedings when a debtor’s COMI is located in theterritory of a Member State, while the debtor’s statutory registered office or the headoffice is situated outside the Community. As regards this issue, it is necessary to referto the wording of Paragraph 14 of the Preamble to the Regulation. This approach hasbeen used in a ruling delivered by an British court in a matter concerning BRAC Rent-A-Car International Inc. (2003) EWHC (Ch) 128 on 7 February 2003 and a similarmatter concerning Ci4net.com Inc. under a ruling handed down by the High Court ofJustice (England) on 27 May 2004 (noted for example in Entscheidungen zumWirtschaftsrecht, 2004, p. 847).

The territorial applicability of the Regulation (in this case its local impact) istherefore determined by the countries that are bound by the Regulation (all EUMember States with the exception of Denmark) on the one hand, and a debtor’s COMI,which must be located in the territory of a Member State, i.e. a country subject to theRegulation, on the other hand.

It is of a fundamental importance to realize that the provisions of Article 3 of theRegulation conceive the authority and international jurisdiction in a manner thatdiffers from the private international law of most countries. For instance, while Article3(1) of the Regulation employs a debtor’s COMI as the factor determining internationaljurisdiction, the Czech regulation of national origin, which is used in proceedingsbefore Czech courts when there is no room for the application of the Regulation, i.e. ActNo. 97/1963 on Private and Procedural International Law, as amended, contains areference to local jurisdiction in Section 37(1), where ascertaining the same determinesthe existence or absence of international jurisdiction. Section 37(1) of the said CzechAct on Private and Procedural International Law therefore makes ascertaining anddetermining international jurisdiction conditional on ascertaining and determininglocal jurisdiction in the Czech Republic (in fact, it refers to the provisions of Sections 84and following of the Czech Civil Procedure Code, the basic law that regulates civilproceedings before courts of law, which defines local jurisdiction in the citedprovisions). It is therefore possible that while under Czech regulations (of nationalorigin) international jurisdiction is not ascertained due to the non-existence of a courtwith local jurisdiction in the Czech Republic, Czech courts can have jurisdiction basedon Article 3(1) of the Regulation. A similar conclusion can also be reached based on anumber of regulations pertaining to private and procedural international law in effectin other EU Member States. It is therefore possible that doubts may exist regarding

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what domestic court has local jurisdiction. There is no unambiguous reply to thisquestion in the Czech law and the legal systems of a number of other countries – whereGermany is one exception. Even though cases of this kind are not frequent – i.e.situations where international jurisdiction exists despite the fact that a debtor does nothave a domestic head office as a fictitious center of its main interest – such cases are, asdemonstrated by existing practice, very important, discussed, and very clearly suitablefor dealing with the preliminary reference in the sense of Article 234 of the TreatyEstablishing the European Community by the ECJ.

5.4 Substantial content of COMIIf a debtor’s COMI is determined, it is entirely logical that such a center is definedas a specific place, a starting point from which, for example, the debtor’s certainactivities, financial flows, or decision-making and strategic business activities arecoordinated. Such a place cannot exist virtually if it is ascertained that it is locatedin the territory of a particular country. If it is established that such a place, as aspecific starting point, is situated in a particular country, such a point can establishthe fictitious existence of the debtor’s assets at such a place in the same way theexistence of such assets is assumed by regulations of national origin as aprecondition for the existence of the local jurisdiction of a specific court in theapplicable country, provided that local jurisdiction cannot be determined in anotherway, according to determining factors other than localizing assets at a specificplace. In addition, the material standpoint that represents the main economicinterest and what can be envisaged under this term in the sense of the Europeaninsolvency law constitutes a certain material value (Belohlavek, 2005b, pp. 2-8),which is often significant in its scope. In reality, such an interest thereforecorresponds to assets, and the possibility to apply regulations prescribing theexistence of assets as the factor for determining the court with local jurisdictionmay not be entirely unsuitable. In the context of international private and, moreimportantly, procedural law, i.e. the procedural part of the international andEuropean private law, a debtor’s center of main economic interest (main interest)(COMI) represents a new and entirely specific type of determining factor fordefining international jurisdiction. If, in the framework of international jurisdiction,it is impossible to determine a court with local jurisdiction, the location of the maineconomic interest must constitute a sufficient determining factor for defining localjurisdiction, if a procedural (jurisdictional) regulation of national origin does notprovide adequate room for determining local jurisdiction within a country that hasthe international jurisdiction (its courts have the authority) to open insolvencyproceedings (in this case the main insolvency proceedings). In like manner, thecenter of the main insolvency interest must be a specific place in the territory of aparticular country, and it is unsatisfactory to state, for example, that a debtor’sCOMI is somewhere in a particular country. While the insolvency (bankruptcy)regulations of some countries, despite being approved (amended) at a time when theRegulation already existed or was binding for such countries (for example thelegislation of the Czech Republic), in many regards try to adapt to the provisions ofthe Regulation, the legislators of these countries have evidently overlooked that oneof the fundamental principles of the European insolvency law is the definition ofinternational jurisdiction, where the determining factor is a debtor’s COMI, i.e. aconcept that has not only been absent in the corporate and domicile laws of mostcountries, with the exception of some newer national insolvency regulations in

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certain countries, where the debtor’s main interest as a determining factor is close tothe theory of the registered office in corporate law (from the viewpoint of the placeof control and management that determines the actual head office of a legal person)than the incorporation theory, which is the basis (mostly) for the domestic corporatelaw in respect of legal persons. The concept of determining international jurisdictionaccording to the Regulation based on the application of the COMI as thedetermining factor is more suitable for highly vague and rigid, and, in the author’sopinion, very impractical theory of the registered office, as employed for example inthe German law, and it does not provide a clear and unambiguous rule in the sensethat would be expected in view of the interest to ensure maximum legal assurance.During the study and application of the Regulation and its provisions, it is thereforenecessary to realize that a debtor’s registered office establishes internationaljurisdiction to open the main insolvency proceedings (with universal effect) only if itcoincides with a debtor’s COMI, as this term is defined below. The registered office(in the sense of the incorporation theory) only represents a disprovable assumptionof the existence of the debtor’s COMI at the location of such a registered office.Hence, the Regulation not only admits, but also accepts that, for instance, the maininsolvency proceedings against a legal person that is considered a legal person in aparticular country may be with no further notice opened abroad, and suchinsolvency proceedings are subject to foreign regulations. However, the same appliesvice versa.

5.5 Absence of correlation in domestic regulations pertaining to the jurisdiction ofnational courtsAs regards the absence of adequate correlation regarding local jurisdiction in thedomestic laws of certain countries, as analyzed above, it is necessary to realizethe fundamental fact that the non-existence of a court with local jurisdiction or theimpossibility to determine a court with local jurisdiction in a country, despite the factthat a debtor’s COMI is unquestionably located in such a country, does not denote theabsence of international jurisdiction per se (Liersch et al., 2004, p. 6). While the authorof this document considers for example the German domicile theory of registered officea fundamental risk for legal assurance due to its rigidity and instability, where legalassurance should be a matter of fact under the rule of law in a society where the rule oflaw applies, the approach of the German law can be regarded very positively in respectof implementing the COMI into regulations of national origin thanks to the fact thatGermany has adopted the Act on New Definition of the International Insolvency Law(Gesetz zur Neuregelung des Internationalen Insolvenzrechts) of 14 March 2003, whichis, regarding the international element in insolvency matters, in particular therequirement to apply the Regulation, a legis specialis regulation in respect of legisgeneralis insolvency regulations of domestic origin, namely the German InsolvencyCode of 5 October 1994, where under Article 102, Section 1(1) of the first of the citedlaws, it applies by way of derogation from the provisions of Section 3(1) of the secondaforementioned law (insolvency code) that as a rule, insolvency matters are in the localjurisdiction of the court in whose territory the debtor’s COMI is located. As regards thisissue, it is evident that the concept of the Regulation to a significant extent caters to theGerman law and approach, i.e. the approach and concept of a state whose population(natural and legal persons) have been among the principal investors on the Europeanscale for a protracted period, particularly during the 1980s and 1990s. The concept ofinternational jurisdiction under discussion provides room for opening the main

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insolvency proceedings in Germany against a corporation that does not have itsregistered office in Germany according to German legis fori insolvency regulations (forthe applicable law, see Article 4 of the Regulation) despite the fact that the Regulationby itself is not a document defining group insolvency in the sense of some attemptsthat have been made. The approach that stems from the concept of the Regulation istherefore highly protectionist, especially with regard to countries with a highconcentration of investors (countries that export or have exported capital in the past)and creditors domiciled in such territories, as the term a debtor’s COMI and defining itscontent or the absence of such a definition in the Regulation provides room for theinterpretation that such a place may be located in the territory from which the debtor’sactivities are managed, the place via which the debtor makes and receives payments,etc. This approach demonstrates the highly political and, as mentioned above,protectionist nature of the Regulation, which for example Germany as well as Germancourts and German managers (this does not apply to Germany only) to a large extentexploit. In addition, this concept was taken into account in the drafting of domesticregulations pertaining to insolvency proceedings. On the other hand, it appears thatthe legislators in a number of other countries (for example, the Czech Republic andsome other new EU Member States) have entirely overlooked this fundamental aspectof the Regulation and have more or less failed to take it into consideration in draftingnew national insolvency laws. Even though the Regulation is a directly applicable lawin all EU Member States (with the exception of Denmark) and its application takesprecedence over regulations of national origin, the relevant national correlation to theCommunity law is usually essential, particularly in connection with determining thelocal jurisdiction of national courts in a country where a debtor’s COMI is located.Although the law should be able to adapt itself, as regards its interpretation andapplication, to new conditions, it cannot, a priori and as a rule, rely on the fact that theinterpretation practice will be able to adapt to such new conditions. Legal regulationsand consequently also legislators should foresee such situations to the maximumpossible extent.

According to the concept of the Regulation, the notion of a debtor’s COMI excludesthe use of other factors in determining international jurisdiction, i.e. for example thedetermining factor consisting of the place where the debtor’s assets are located (forcomparison, see also for example Uncitral Model Law/Cross-Border Insolvency),Article 17 Subsection 2(a), UNCITRAL-Guide No. 126, etc.). However, the place where adebtor’s assets are located may be the determining factor for opening parallelproceedings (secondary proceedings or particular proceedings, i.e. territorially limitedproceedings) (Luer, 1992, p. 130).

If a bankrupt debtor is a natural person, the debtor’s COMI may be defined with theaid of the jurisdictional provisions of Article 2 of Regulation (EC) No. 44/2001 (forcomparison purposes only since Council Regulation [EC] No. 44/2001 cannot be appliedto insolvency proceedings). The basic determining factor for natural persons is, aboveall, residency, where in respect of natural persons more than in the case of legalpersons, which are subject to the interpretation rule set out in the second sentence ofArticle 3(1) of the Regulation, the COMI should be defined in connection with the placewhere the bulk of the debtor’s assets are located. Taking into account the maineconomic interest, the COMI of a debtor who is a natural person is therefore the place ofbusiness, i.e. the place from which the debtor actually manages its gainful activity(Taupitz, 1998, p. 327). As to self-employed persons, the place of business can be givenpreference over the residence in accordance with Article 3 of the Regulation, while

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persons who are not entrepreneurs can be declared bankrupt, provided that such acourse of action is allowable under the governing law (Vogler, 2001, p. 290). However,this point of view is not embraced by all comments and published opinions.Nevertheless, contradicting standpoints (Leipold, 2001, p. 221), which are exhibited bya minority at the present time, can become more important in the future in the contextof understanding jurisdiction in the sense of the concept of so-called general court. Theauthor of this document believes that as regards jurisdiction to declare bankruptcy theconcept of a general court with jurisdiction over a debtor needs to be fundamentallyreviewed in the context of Article 3 of the Regulation, where the author supports thepredominant interest to determine jurisdiction according to the debtor’s main economicinterest. Finally, this approach also makes proceedings more economical andconsequently faster. It should be noted that similar differences in opinion exist in othercountries (Leipold, 1990, p. 289).

If a debtor is a citizen of another Member State and only some of its assets orproperty of non-negligible value (Belohlavek, 2005b, pp. 2-8) are located for example inthe Czech Republic (or other countries where the concept of private international law issimilar to the laws in effect in the Czech Republic, which is the case with most Centraland Eastern European countries), it is more appropriate to determine jurisdictionaccording to the location of such assets for parallel (secondary, territorially limited,particular) insolvency proceedings. According to the author of this document, the termassets needs to be defined in a very broad manner as an ensemble of movable andimmovable property, rights, and other material values possessed by a certain entity.Objects (Knapp and Luby, 1973, p. 144; Sokolowski, 1902, p. 390; Enneccerus, 1913,p. 286; Holthofer, 1972) include controllable material items or controllable naturalenergy, which serve for people’s needs. Receivables include mainly savings in bank andother accounts, the right to the payment of dividends, and the right to receivepayments under contractual agreements. Some problems may be posed by theinterpretation of the term ‘‘other material values’’. Such values are not tangible, as theyare not material objects; they can only be imagined, where such values are appraisable,and they are not receivables. It is possible to determine their value or to set their price,and they have a certain economic importance. This category includes for example anauthor’s right to use copyright and receive royalties from repeated sales of acopyrighted work, contributions to corporations and cooperatives, know-how,contributions of a silent partner made in accordance with the Commercial Code, etc.According to this description, assets are an ensemble of assets a certain person owns orhas at disposal. In connection with natural persons, however, it needs to be pointed outthat Article 3(1) of the Regulation only defines international jurisdiction, while localjurisdiction is exclusively regulated by the procedural regulations of the country whereinsolvency proceedings are opened, i.e. legis fori regulations.

Another rather important issue is the question whether international jurisdiction inthe sense of Article 3(1) of the Regulation determined according to the debtor’s COMIcan also be applied in respect of non-Member States, i.e. in cases where despite the factthat the (statutory) registered office is situated in a non-Member State, it is establishedthat the COMI is located in a Member State. There are opinions, especially in Germanliterature (Sprecher, 2003, p. 34, marg. 42), which support this possibility. However, theauthor of this document holds the opposite opinion, where it comes as no surprise thatopinions supporting such a possibility, as mentioned above, tend to appear inspecialized German literature, since the German theory of the corporate entity of legalpersons and the German corporate law that concerns legal persons have their roots in

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the principle of a head office that derives from the place where actual control isexercised. The reasons for this approach are mainly fiscal. In contrast, it needs to bementioned that with regard to this issue, Germany’s approach deviates significantlyfrom the international standard, where, for example, the principle of determining thehead office based on the place where management actually takes place is relativelycommon; however, not actual control, at least not in the sense that is the case of theGerman law and judicature. At any rate, there have been cases in connection withwhich this issue was dealt with, as a minimum with regard to the possibility to openproceedings that would be quasi-secondary proceedings based on the principles set outin the provisions of the Regulation. Probably the most significant case that has beendealt with in connection with this issue was the insolvency of the Swiss airline SwissAir. On the other hand, it would probably be more than delicate (considering therelationship to third countries) to assume a clear stance regarding this issue, even moreso at the Community level, and cases of this type will most likely have to be dealt within an ad hoc manner. A clear conclusion with regard to this issue could result in aninfringement on the authority of national courts, that is intrusions into the sovereigntyof non-Member States, which could be regarded as being contrary to the basicprinciples of international law. This applies, for example (in the case of the potentialopening of quasi-secondary proceedings concerning the assets of a debtor who has itsregistered office in a non-Member State), also to the principles of the law of the countryin which insolvency proceedings are opened, i.e. the main insolvency proceedingsaccording to the terminology employed in the Regulation, etc.

Hence, applying, for example, Article 33 of the Regulation to similar cases would behighly problematic and most likely also impossible. From this viewpoint, it is morethan necessary that individual Member States have an autonomous definition ofinternational insolvency law; however, the pertinent regulations continue to beinadequate in a number of Member States, and they can be considered nonexistent forassessing the approach to the international aspect of such insolvency proceedings.A special regulation is also necessary in connection with enforcing rulings delivered inaccession proceedings (incidental disputes, etc.), which are within Member Statessubject to the provisions of Council Regulation (EC) No. 44/2001, even though thisregulation does not otherwise deal with the issue of international (European) aspects ofinsolvency proceedings and does not apply to insolvency proceedings in accordancewith its negative definition of the factual scope of applicability. In the opinion of theauthor of this document, the application of the Regulation in respect of other (i.e. non-Member States) countries would have to rely on treaties signed with such countries,similarly as is the case of the Lugano Treaty (Belohlavek, 1999; Rozehnalova et al.,2000). With the exception of Denmark, however, no such treaties are being prepared,and they do not represent any special priority from the viewpoint of other countries(i.e. non-Member State). The most probable non-Member State that can be expected toexpress such an interest is Switzerland, where signing the relevant treaty would bestrongly in the interest of Swiss bankruptcy trustees in the sense of Article 197 of theSwiss Bankruptcy Act. Nevertheless, like other countries, Switzerland is not expectedto conduct any activity in this regard in the near future.

5.6 Group relations and jurisdictionAn important question and the subject of numerous discussions related to thejurisdiction to open the main insolvency proceedings in connection with thejurisdiction to open auxiliary (secondary or other territorially limited insolvency

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proceedings) is the relationship between a debtor that is a parent company and such adebtor’s subsidiaries. It is evident that for example the British judicature tries toinclude relations within groups under the Regulation; however, Great Britain issomewhat alone in these efforts, which are mainly related to the Anglo-Saxon approachand the approach of most common law countries to relations between parent andsubsidiary companies. In accordance with the Regulation, the relationship of a parentcompany and a subsidiary, i.e. relations within a group (not only relations betweencontrolled and controlling entities), need to be regarded, as a rule, in the mannercorresponding to the European continental understanding of separate legal entities. Itis certain, however, that in the future this issue will pose problems, which will be thesubject of various interpretations and discussions. On the other hand, this situationmust be differentiated from cases where it is possible to reach the conclusion that asubsidiary has its center of main economic interest (see Article 3[1] of the Regulation)at the registered office of its parent company (the parent company actually managesthe subsidiary – for instance from the commercial, financial, etc. viewpoint). This isbecause it is impossible to rule out cases where a subsidiary’s center of main economicinterest, albeit established and incorporated in the applicable public register in anotherMember State, coincides with the registered office and is therefore also the center of themain economic interest of the parent company. In contrast, the currently prevalentopinion of the ECJ (see the case of Eurofood IFSC Ltd. ca Parmalat, Ref. No. C-341/04 of2 May 2006) does not preclude the contrary situation, where the registered office of asubsidiary is the same as the center of the main economic interest of the parentcompany. As regards this issue, it is necessary to mention the opinions expressed bycourts in some Member States (this issue has been dealt with in detail for example byBelgian courts) (Watte and Marquette, 2001, p. 565). The Regulation assumes that thecountry where the statutory registered office of a company is located coincides with thedebtor’s COMI (the debtor’s company), where this is merely a disprovable assumption,as described above. The reason behind this approach is entirely logical, and it stems forinstance from Paragraph 13 of the Preamble to the Regulation, as it is a place that canusually be ascertained by third parties with no need for a further action, creditors inparticular (see for example Section 24[3] of the ECJ ruling in the matter of EurofoodIFSC Ltd., Ref. No. C – 341/04 of 2 May 2006). This approach to a large extent increasesthe assurance of creditors because they can predict with a sufficient degree ofprobability that in the event a debtor goes bankrupt, the main proceedings will takeplace in the country of the debtor’s statutory registered office. Evidence needs to beprovided in the contrary case; if it is alleged that a debtor’s COMI does not coincidewith its statutory registered office, the person who presents this claim must proposeand submit adequate evidence. Such a contrary situation has been proven for exampleto Belgian courts, which have opened the main proceedings despite the fact that adebtor’s registered office was not located in the territory of the Kingdom of Belgium, bythe following facts: a company had and operated an enterprise in Belgium while itconducted no economic activity in the country where its statutory registered office waslocated, a company was established in accordance with the Belgian law andsubsequently transferred its statutory registered office to France; however, the debtorcould not be found at its statutory registered office, it was impossible to ascertain anyof the debtor’s staff, and it was difficult to deliver correspondence to the debtor at itsstatutory registered office, a debtor’s statutory registered office in a different countrycould be considered clearly fictitious due to other reasons and based on othercircumstances (the possibility to deliver correspondence only), etc. Finally, Belgium,

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the Belgian judiciary, and consequently the Belgian theory dealt with the issue of themain and secondary insolvency proceedings as well as the COMI of a debtor withregard to assets located abroad and issues concerning the so-called group insolvency inconnection with the insolvency of Sabena, the Belgian flagship air carrier. Sabena was asubsidiary of SAirGroup, where Sabena itself had receivables from its parent companyin the amount of approximately EUR 2.4 billion (Henry, 2000, p. 221).

On the other hand, it needs to be emphasized that despite the abovementioneddisprovable assumption (concerning legal persons) and despite the fact that it canbe usually expected that a creditor (petitioner) will try to disprove such anassumption, a court, as an official authority, must examine a debtor’s COMI(Sprecher, 2003, p. 42, marg. 73). Finally, even a court, as a body of the state, mustexamine the existence of authority and jurisdiction. The intensity of suchexamination is not clearly defined; however, it stems from the principle of mutualtrust of the Member States in their judicial systems, and this issue is thereforedefined in regulations of national origin in individual Member States. Conversely, acertain quasi-interpretation rule can be derived from Section 41 of the ECJ rulingin the matter of Eurofood IFSC Ltd. (Parmalat), according to which the principlesof fair trial must be observed in the process of such an examination. As regardsthis issue, however, it is very surprising that it is German courts (in the opinion ofthe author of this document), more than courts in any other country that entirelyerroneously omit the necessity to substantiate their opinion (not in a detailedmanner, but at least to a sufficiently convincing extent), and it is rulings deliveredby German insolvency courts, which often contain no substantiation (description ofactual and reviewable reasons) in many cases where insolvency proceedings areopened against a debtor with a registered office in a country other than Germany.In contrast, the British approach, for instance, is exemplary with regard to thisissue, as British insolvency rulings contain statements of reasons that in detailedmanner outline the reasoning of courts and provide a very important guideline forfuture judicial practice. Worth mentioning in this regard is for example Ruling ofthe Royal Court of London regarding the bankrupt Vlieland Body, Ref. No. A2/2004/2614a Ref. No. 1948 from the year 2004 dated 27 July 2006 ([2005] EWCACiv. 974). As regards this issue, the approach of British insolvency courts canserve as an example for the judicial practice in a number of other countriesbesides Germany, even though the German approach deserves the highest degreeof criticism.

5.7 Absence of definition of COMI as a serious deficiency of the regulationCounter to the original legislative intention, the Regulation does not contain anydefinition of a debtor’s COMI. The only basis for defining the meaning of the notion of adebtor’s COMI can be found in Paragraph 13 of the Preamble to the Regulation andArticle 3(1) of the Regulation, where it is apparent that the broad possibilities ofinterpreting this term are not only the result of a purely political compromise in thedrafting of the Regulation, but it also establishes a significant uncertainty in practice,which is all the more serious in light of the fact that cross-border insolvency is one ofthe most important issues in the framework of the Community law. The Regulation isthe result of a compromise in the struggle between the concept of group insolvencyproceedings, as exhibited mainly in the British approach on the one hand (this concepthas lost the fight, at least in the formal sense), and the continental concept of separatelegal existence of independent entities in the framework of group structures, on the

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other hand. Whatever the case may be, the broad possibilities of interpreting a debtor’smain interest provides room for very indefinite or even speculative understanding ofthis term in the sense of the necessity to take into account all economic interests of adebtor, and it therefore provides significant room for individual subjectiveconsideration on the part of judges, since a judge of the insolvency court where apetition to open proceedings is filed must in a prejudicial manner consider theexistence of a debtor’s COMI in the territory of the court. Both the Regulation and allpublished opinions try to present a debtor’s COMI as an objectively existing realitythat only needs to be established based on a review of all relevant circumstances.However, this is only a case of wishful thinking or a political argument, which is oftenobscured by academic opinions, and certainly not a professional or correct approach.The academic world, which is willing to accept the standpoint that the COMI issufficiently defined in the Regulation and entirely overlooks the fundamental politicalreasons why the Regulation does not define this essential term at all, is eitherabsolutely separated from practice and incapable of conceiving practical application ofthe law, or it neglects this fact deliberately, which would be even worse.

The opinion that the Regulation in fact adequately defines the COMI would becorrect, at least from the academic from-reality-detached viewpoint, if we fail to realizethat a prerequisite for ascertaining such a center based on all available facts is asizeable quantity of information on the one hand, and, on the other hand, a substantialamount of practical, professional, economic, and general knowledge on the part of thejudge who must evaluate the existence of the COMI with maximum economic andinternational expertise and objectiveness. In the opinion of the author of this document,the concept of the Regulation provides – contrary to its main objective, which was to beprotecting the interests of (all) creditors and preventing the so-called forum shopping –room for protecting the interests of debtors because it is debtors who usually possesthe highest amount of and in many cases all information that may be important fordetermining the COMI, unlike creditors who usually possess very limited andparticular information on the economic interests of debtors (with the exception of somecategories of potential creditors, such as banks). A judge who considers the issue of adebtor’s COMI should base his deliberations on an as objective as possible review offacts presented as part of the request for opening proceedings, and proceed withmaximum cautiousness in respect of insolvency proceedings with internationalelements, which in the case of some debtors may be concealed (Belohlavek, 2006, pp.568-78; Lorenz, 1977, p. 307; De Nova, 1978, p. 307). According to the privateinternational law of most countries and almost all EU Member States, a specific legalrelationship can be considered a private relationship with an international element, if itis obvious that the relationship to a foreign country is non-negligible (Kucera, 2004,p. 18). This finding is acceptable in commonplace private-law relations. However, in thecase of insolvency proceedings, a much more profound examination is necessary,where the international (European/cross-border) character of a matter may often stemfrom the existence of only one factor (relationship) concerning objective conditionslocated in the territory of another country. Such conditions usually include theexistence of a foreign creditor and/or the existence of a debtor’s assets in anothercountry. However, judges who evaluate an insolvency petition must approach a priorievery petition bearing in mind that such a European/cross-border element may existin the given case and assess the location of a debtor’s COMI regardless of whether theexistence of such a cross-border (international elements) is demonstrated at later stagesor not. Finally, it is relatively common that such a crossborder (European,

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international) element is only demonstrated after the opening, i.e. in the progress ofinsolvency proceedings.

Due to the fact that the term COMI is not defined in the Regulation at all, theRegulation not only fails to provide sufficient protection against forum shopping,which needs to be rejected (unlike in civil contractual agreements, where this approachcan certainly be accepted in light of the principle of contractual freedom) from theviewpoint of insolvency proceedings, but it also often constitutes a legal basis forspeculations regarding international jurisdiction and opportunities for such forumshopping (Belohlavek, 2007, II). From the viewpoint of the European single market, apan-European definition of insolvency proceedings is necessary. On the other hand,efforts to find any politically acceptable compromise, as is the case of Europeaninsolvency regulation, are a very negative phenomenon from the viewpoint of law andlegal principles, i.e. the principles of the rule of law. Hence, this occurrence exhibits theEU’s highly negative bureaucratic approaches, which are present in the Communitymore than necessary and more than acceptable from the legal viewpoint. The opinionthat the future judicature, the ECJ in particular, will bring certain evaluation criteria fordetermining COMI is certainly correct. On the other hand, such a course of action maybe too protracted, and the period of uncertainty whose duration cannot be determinedin advance represents a substantial risk in connection with the potential misuse of theEuropean insolvency regulation, as outlined above, namely the fact that the Regulationprovides relatively large room for speculations about the meaning of COMI andconsequently for forum shopping in the settlement of bankruptcies, i.e. insolvencyproceedings with cross-border elements.

Determining a debtor’s COMI must therefore be based on ascertaining objectivefacts in the following order: (i) a debtor’s COMI usually coincides with its registeredoffice; (ii) the center where main interests are concentrated should correspond to theplace from which a debtor usually manages its interests and which can be objectivelydetermined by third parties. Even though this approach, which is expressly formulatedin Paragraph 13 of the Preamble to the Regulation, is consistent with the theory of theregistered office (Sitztheorie, as this theory is implemented to its full extent especiallyby the German law), it is necessary to depart to the maximum possible extent from thecorporate laws of the countries that advocate (define) the theory of the registered officeover the incorporation theory. One cannot but notice that it is the countries, whichsupport the theory of the registered office, that overlook the necessity for such aviewpoint and entirely specific approach especially in judicial practice, and that theytry to interpret the concept of the COMI from the viewpoint of the theory of theregistered office, i.e. the place of control, management, etc.; (iii) a place with aconcentration of a debtor’s economic and other interests that is so intensive that suchinterests cannot be only temporary and are objectively ascertainable, and which isother than the registered office and/or the place from which the debtor manages andadministers its dealings.

5.8 COMI from the time viewpointFrom the viewpoint of time, a debtor’s COMI at the time an insolvency petition is filedis of a fundamental importance. As regards a change of a debtor’s COMI after aninsolvency petition is filed, this issue was commented by the ECJ in its rulingconcerning Susanne Staubitz-Schreiber. Moreover, this principle is expressly defined insome laws regulating insolvency proceedings of national origin, such as the laws ofFrance (Instruction of the French Minister of Justice – Circulaire relative a l’entree

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en vigueur du reglement no 1346/2000 du 29 mai 2000 relatif aux proceduresd’insolvabilite, Ref. No. CIV 2003-05 D4/17-03-2003, l 2.1., sub http://www.justice.gouv.fr/actual/bo/dacs89c.thm) and Luxembourg. In fact, in most cases, a real conflictcaused by a change of a debtor’s COMI is exceptional. The usual scenario involveseither a deliberate change of the COMI after a request to open proceedings is made orshortly afterwards, or only a hidden (fictitious, artificial) change of the COMI, which,however, is not a real change and cannot be ascribed any consequences; alternatively,there are situations where the COMI is changed solely for the purpose of forumshopping immediately prior to filing a petition, where such cases are obvious attemptsto circumvent the law. The effect of such changes of a debtor’s COMI on internationaljurisdiction must be rejected. A real change of the COMI not affected by seeking adifferent, more suitable international jurisdiction can in most cases be accepted only(i.e. in most cases that would correspond to this scenario) in respect of natural personsthat possess assets of very low value (Gebauer and Wiedmann, 2005, marg. 52, p. 1450),where simple and fast migration can result in severing all ties to a past domicile.However, even in such cases, it is necessary to examine whether the reason for suchmigration was not the exclusive interest in changing the international jurisdiction forsettling a bankruptcy and opening insolvency proceedings.

Most published opinions (Gebauer and Wiedmann, 2005, marg. 47, p. 1448, etc.),which the author of this document endorses, suggest that if a debtor terminates allactivities, the statutory registered office is of decisive importance for determininginternational jurisdiction, i.e. the registered office from the viewpoint of theincorporation theory. However, this approach cannot be applied to bankruptciesstemming solely from the fact (depending on the governing law) that a debtor stopsmaking all payments, i.e. fulfilling its obligations, as a result of its bankruptcy.

5.9 Competence conflicts concerning international jurisdiction for opening the maininsolvency proceedingsThere could be both positive and negative competence conflicts, even though pastpractice and judicature describes only positive competence conflicts, i.e. cases wherethe courts of two or more countries insist on their international jurisdiction to open themain insolvency proceedings (Paulus, 2003, p. 1725 and following). Particularlyimportant is, for example, the case of Daisytek, and in the practice of the ECJ the matterof Eurofood Ltd ca Parmalat S.p.a. Although from the viewpoint of the past judicialpractice negative competence conflicts seem to be rather theoretical, the possibility thatthey may occur is very realistic, and this problem needs to be resolved.

The Regulation contains no explicit provisions for dealing with competencyconflicts. Unlike Regulation No. 44/2001, which contains definite provisions concerningcompetency conflicts (conflict concerning international jurisdiction) in connection withobstacles posed by litispendence and related proceedings (Articles 27 to 29 ofRegulation No. 44/2001). The Regulation does not deal with this issue at all. Somepurport that regulating this area is not necessary because international jurisdiction isdefined in a sufficiently clear manner. However, this opinion can in no way beendorsed, as it only disguises the essence of this problem, namely the highly politicaland politicized character of defining a debtor’s COMI in a detailed manner, which wasdiscussed during the preparation of the Regulation in connection with the concept ofEuropean insolvency proceedings, i.e. the question whether the concept should bebased on group insolvency or insolvency understood in the framework of the separatelegal existence of individual legal persons associated in a group. A detailed definition

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of a debtor’s COMI would probably result in a collapse of the negotiations about thecontent and character of the Regulation. The supposition that the rules for determininginternational jurisdiction are sufficiently clear and that they practically prevent bothpositive and negative competency conflicts cannot be accepted as true. On the contrary,the highly politicized circumstances under which the Regulation, which can beconsidered one of the most important Community laws, was drafted and thecompromises made in dealing with questions of a fundamental importance result – inthe opinion of the author of this document – in vagueness and ambiguousness of thisproblem and its potential solutions. Pretending that this issue is not in fact a problemcan at times be comical and demonstrates the known fact that a problem cannot beresolved by denying its existence. It is because determining a debtor’s COMI dependson assessing a number of factors that can be attributed different importance bydifferent judges (judges of insolvency courts in different Member States). Thus, theproblem lies in the fact that assessing a collision problem is to a large extent affected bythe subjective deliberations and evaluations of a judge. This fact has already resultedin major competency conflicts and will continue to do so in the future. On the otherhand, it is likely that the future judicial practice of the ECJ will formulate collisioncriteria, which will help resolve these problems. However, it is necessary to realize thatfinding such clear collision criteria and defining them in a generally usable manner willtake a relatively protracted period, and judicial practice will have to deal with this issuein the meantime.

The typical model situation of such jurisdiction conflicts will be, and in many casesalready is, a situation, where courts in two Member States open proceedings and claimthat such proceedings are the main insolvency proceedings because they havedetermined that the debtor’s COMI is located in the territory of their respectivecountries. As regards the entire system of standards contained in the Regulation, it canbe clearly concluded that only single proceedings may be considered the maininsolvency proceedings, and there cannot exist more than one debtor’s COMI. Thisconclusion can be reached based on, for example, the provisions of Article 16 of theRegulation. The provisions of Article 16 of the Regulation could lead to the conclusionthat courts of another Member State are entitled to verify (in connection withrecognizing effectiveness) the authority of a court that opened the main insolvencyproceedings. However, such a postulation is fully contrary to such provisions asParagraph 22 of the Preamble to the Regulation. As a rule, it is therefore assumed thatauthority lies with the country that opens proceedings at an earlier date (priorityprinciple), and other courts examine their international jurisdiction after the opening ofthe main insolvency proceedings only when the court to which a request is madeearlier refuses its international jurisdiction and ascertains that the debtor’s COMI is notlocated within the territory under its authority (in its country). This approach is highlyrisky because in itself, in conjunction with the very unclear or absent definition of adebtor’s COMI, almost encourages forum shopping, which is a hazardous course ofaction in insolvency matters (unlike, for example, civilian matters), where the aim ofthe Regulation is to prevent such comportment. Therefore, the question is how fastboth creditors and insolvency courts will be able to respond to a situation where adebtor goes bankrupt. It is because this aspect is the most important risk anddeficiency of the Regulation, which – obviously due to political reasons – could not goso far as to set out very precise criteria for determining a debtor’s COMI. Proceeding insuch a manner was impeded by resistance on the part of countries that promote theincorporation theory vs countries that apply the theory of the registered office as well

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as countries that lean toward group insolvency, etc. Even though it is impossible toembrace the idea that matters should be up to the potentially subjective judgment ofany national judge and the consequences of the fact that the main insolvencyproceedings are opened in a country to which a debtor and its activities have a certainrelationship, which the judge in question determines to be the main interest that isprevalent and ascertainable by creditors regardless of whether the registered office orthe actual head office is located in such a country, provided that courts in such acountry act, as a minimum, in a sufficiently rapid and flexible manner. It is because insome Member States, opening insolvency proceedings is often a matter of severalhours. In this sense, the reference to the judgment of a judge in a certain country doesnot mean the judge’s arbitrariness, but the very fact that every judge is subject to thenational approaches and the concepts of national legal systems. This fact will mostlikely result in a situation where, for example, a Czech judge will – owing to theincorporation theory that is the natural basis for his deliberations – be inclined to use adebtor’s statutory registered office to determine the COMI, while German and oftenalso French judges will be clearly under the influence of the theory of the actual headoffice. For instance in Germany, this concept is at times applied in an ad absurdummanner, which has been recently criticized with the aim to prevent efforts to seek adebtor’s COMI in the country where some important business decisions are made.Unfortunately, the European practice leans toward an interpretation according towhich priority is given to proceedings that are opened at an earlier date (Smid, 2003,p. 400), despite the fact that it may be somewhat disputable whether the COMI isactually located in the country in question, but such a conclusion can be reached atleast based on certain non-negligible indications. The author of this documentconsiders the finding, which must be accepted as the existing state of affairs based onan examination of the opinions and practice of all large Member States, highlyalarming. The only possible protection is the high flexibility of creditors (and often alsodebtors) and insolvency courts and the ability of courts to evaluate all internationalaspects of individual cases and to rule on requests for opening proceedings as fast aspossible, taking into account all the potential international implications. Such anability must also stem from the actions of creditors and, if applicable also debtors,where it is apparent that in the domestic conditions, one often encounters insufficientfamiliarity with international laws, so that all persons involved can rapidly analyze allpossible international implications of any insolvency case. Another possibility is(under certain conditions) proceeding according to Article 234 of the EC Treaty, wheresuch a course of action would result in a ruling of the ECJ regarding the preliminaryreference. However, the essence of the matter is determining whether and to whatextent judges, creditors, and parties to proceedings will be willing to use this approach,as it is highly demanding from the professional and time viewpoints. In the event thatcourts or other parties to proceedings (persons taking part in proceedings) do not wantto undergo this very demanding and complicated process, they must usually acceptthat positive competency conflicts are resolved on the basis of their priority; in otherwords, no other main insolvency proceedings can be opened if the main insolvencyproceedings have already been opened in another Member State (Weller, 2005).

5.10 Importance of the time of opening proceedings for international jurisdiction anddetermining COMIAs a rule, the Regulation only applies starting at the time when insolvency proceedingsare opened (particularly the main insolvency proceedings, although the same may

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apply to local proceedings pursuant to Article 3[4] of the Regulation). However, there isthe question whether and what importance can be attributed to the time of filing apetition to open proceedings from the viewpoint of the abovementioned priorityprinciple, especially in light of the fact that national regulations (insolvency laws ofnational origin), such as the laws of the Czech Republic or a number of other MemberStates, associate such a time with the effects of opened proceedings under suchnational regulations. However, the guide for resolving potential conflicts ofinternational jurisdiction can in no way be found in national regulations of a MemberState, at least not in those that deal with the question of the opening of proceedings. Allsolutions to competency conflicts must be based on arguments proposed by theRegulation. Competency conflicts, as discussed in this documents, cannot be resolvedusing the perpetuatio fori principle because the matter does not involve cases whereconditions for opening proceedings would change prior to filing a petition (Gebauerand Wiedmann, 2005, marg. 76, p. 1456) (after all, this issue has been expressly dealtwith in the ECJ’s ruling in the case of Staubitz – Schreiber). It is because interpretingArticle 16(1) of the Regulation in conjunction with Article 2(f) of the Regulation maylead to the obvious conclusion that regardless of when individual petitions for theopening of proceedings are filed, decisive are the proceedings where a decision to openthe same is made earlier, and such proceedings are subject to recognition based on theuniversality principle in other countries. Although this concept, as proposed by theRegulation, is to a large extent unacceptable for the author of this document and oftenleads to fatal consequences for some debtors and creditors from certain countries, itneeds to be acknowledged that this understanding is evidently correct as regards theinterpretation of the Regulation itself and the concept on which it is based. It is becausethe Regulation needs to be construed so that there do not exist two mutually competingdebtor’s COMI, but always only one such center, and the essence of the problem isfinding where it is. In conjunction with the unclear issues regarding the defining of adebtor’s COMI, the absurdity of the Regulation therefore lies in the fact that in practiceit often does not matter where the COMI is located, but who finds such a center andsubstantiates its existence first.

Another questionable issue is the course of action that offers itself and is sometimesmentioned in literature (Gebauer and Wiedmann, 2005, marg. 76, p. 1457), i.e. a courseof action that is analogical to the procedure proposed by Article 27 of RegulationNo. 44/2001 (see the final part of this commentary regarding Article 3 of theRegulation). According to this concept, the order of requests for opening proceedingswould be decisive, where the second and subsequent approached courts could rule ontheir authority (jurisdiction) only at a time when courts approached earlier would rejecttheir authority (international jurisdiction), and such subsequently approached courtswould in the interim be only authorized to impose preliminary injunctions to secure adebtor’s assets and status. However, the author of this document strictly rejects suchan approach, although it may appear logical at first sight. If the Regulation stemsfrom the principle that within the territorial applicability of the Regulation only singlemain insolvency proceedings may take place and according to this concept theRegulation there may exist only one COMI, which every debtor has, such an approachis unacceptable. This approach can be used within the factual applicability ofRegulation No. 44/2001 and in a system of discretionary jurisdiction, that is insituations involving commonplace civil relations where contractual freedom ispermitted to a significant extent as to procedural agreements, prorogatory agreementsin particular. Nevertheless, such a concept cannot be accepted in a situation involving

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the protection of a superior interest, i.e. the protection of all creditors of a debtor with asignificant involvement of state power. According to the author of this document, theseare two entirely different approaches, and for this reason a course of action analogicalto what is presented by Article 27 of Regulation No. 44/2001 can in no way be accepted.It is because such an approach would only result in a situation referred to as race of thecourts; in other words, it would provide additional support for the concept under whichthe actual circumstances often do not matter, and what matters is who is faster andbetter familiar with international dealings. This approach would be contrary to thefundamental principles based on which the Regulation was conceived.

The Regulation contains no provisions pertaining to cases where several mainproceedings are opened despite the fact that it should not be possible to open more thansingle main insolvency proceedings regarding the assets of any debtor, for example, ina case where courts are not aware of petitions filed with other courts and in otherpotential scenarios. In such a case, one of the proceedings should be stopped or itsnature changed either to local proceedings or to secondary insolvency proceedings, inthe sense in which these proceedings and procedures are discussed below as part of thecomments on Article 3 of the Regulation and other parts of this publication. In themeantime, however, such a court, its lack of jurisdiction to open the main insolvencyproceedings notwithstanding, can make important steps whose consequences must bedealt with. According to the author of this document, it must be assumed that haltingthe main insolvency proceedings or transforming them into a different type ofproceedings (territorially limited proceedings) if priority has to be given to otherparallel proceedings as the main insolvency proceedings, always and fundamentallyhas the effect of ex nunc. However, this will apply solely to some actions that only havenational impact, i.e. impact on domestic assets, if domestic proceedings aretransformed into territorially limited proceedings due to other proceedings openedabroad, and if actions pertaining to such assets abroad (securing tasks in particular)have not been completed by a foreign trustee. On the other hand, the effect of the actualopened main insolvency proceedings (for example in connection with Article 16 of theRegulation) cannot compete with the effect of other proceedings. As to this generaleffect of the opening of insolvency proceedings or bankruptcy decisions, the potentialhalting of proceedings due to the fact that the main insolvency proceedings have beenopened in another country and such proceedings must be given priority, has the effectof ex tunc. However, considering the absence of specific provisions in the Regulation,the effect of ex tunc vs ex nunc in such cases will have to be regarded according to thegoverning law in a lex concursus primariae manner on the one hand, and it will have tobe understood in the context of the general interest to protect creditors and assets onthe other hand. It is perhaps for this reason that the fact that the Regulation does notset out a specific procedure can be considered positive, since the Regulation contains nomechanism for dealing with competency disputes.

Although it is likely that negative competency conflicts will not be very frequent (nosuch case has been described in literature up to now), such a situation cannot be ruledout. If a court decides that a debtor’s COMI is not located within its jurisdiction, thecourt must also ascertain where such a COMI is situated. In addition, the author of thisdocument opines that negative rulings that reject the opening of proceedings (rulingsrejecting a petition) have a universal effect, which is subject to Article 16 of theRegulation. In contrast, it is unacceptable that under such a decision, a court in oneMember State should force a court of another country to accept internationaljurisdiction. In doing so, the court would significantly overstep the powers of the EC

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and consequently the powers bestowed on the EC legislation, as part of which theRegulation was adopted. In the opinion of the author of this document, it is thereforenecessary to split the effect of a negative ruling delivered due to a lack of internationaljurisdiction (not based on the non-existence of other formal or substantive grounds foropening proceedings) into the part that ascertains a lack of international jurisdictionthat will have a universal effect and into the part that determines a debtor’s COMI inanother country and will have a universal effect with the possibility to suspend anegative ruling of a court in such other Member State, in which the first of the saidcourts finds the debtor’s COMI. It needs to be pointed out, however, that some MemberStates harbor the opposite opinion and believe that if courts of a Member State rejecttheir authority (or international jurisdiction) to open the main insolvency proceedingsdue to the absence of a debtor’s COMI and designate another country as the state wheresuch a COMI is situated, such a court of such other Member State cannot refuse itsinternational jurisdiction by stating that the debtor’s COMI cannot be found in such acountry. Even though the author of this document does not endorse this interpretation,as it involves an intrusion into the sovereignty of another country, i.e. a violation of onethe essential principles of international law, such opinions can be encountered in actualpractice. According to the author of this document, such cases tend to provide room fora course of action, where territorially limited particular proceedings are opened inindividual countries, i.e. local proceedings in the sense of the terminology used in thispublication. According to the author, under certain circumstances, such a situation canbe viewed in accordance with the provisions of Article 3(4)(a) of the Regulation, asdescribed below.

6. Insolvency status and the law governing proceedings in insolvencymatters6.1 Insolvency status and lex fori concursusInsolvency proceedings are subject to the law of the country where such proceedingsare opened (lex fori concursus), where this conflict rule applies to both the main andauxiliary proceedings (secondary insolvency proceedings and local proceedings).Fundamentally important in this sense are the provisions of Article 4 of the Regulation,and it is no accident that they are tied to provisions defining international jurisdiction.Article 4(1) of the Regulation reads as follows (cit.): ‘‘Save as otherwise provided in thisRegulation, the law applicable to insolvency proceedings and their effects shall be thatof the Member State within the territory of which such proceedings are opened,hereafter referred to as the ‘‘State of the opening of proceedings’’. This guarantees theuniformity of international jurisdiction and insolvency status, i.e. the fact that courtsthat have international jurisdiction to open and pursue the main insolvencyproceedings proceed in accordance with the law of their respective countries.Paragraph (2) of the same provisions of Article 4 proposes, in an exemplary manner forthe purpose of emphasizing the issue, some questions thus defined right sets out: ‘‘Thelaw of the State of the opening of proceedings shall determine the conditions for theopening of those proceedings, their conduct and their closure’’. It shall determine inparticular (author’s note – the following are examples, not an exhaustive list of allcases):

. against which debtors insolvency proceedings may be brought on account oftheir capacity;

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. the assets which form part of the estate and the treatment of assets acquired byor devolving on the debtor after the opening of the insolvency proceedings;

. the respective powers of the debtor and the liquidator;

. the conditions under which set-offs may be invoked;

. the effects of insolvency proceedings on current contracts to which the debtor isparty;

. the effects of the insolvency proceedings on proceedings brought by individualcreditors, with the exception of lawsuits pending;

. the claims which are to be lodged against the debtor’s estate and the treatment ofclaims arising after the opening of insolvency proceedings;

. the rules governing the lodging, verification and admission of claims;

. the rules governing the distribution of proceeds from the realization of assets, theranking of claims and the rights of creditors who have obtained partialsatisfaction after the opening of insolvency proceedings by virtue of a right inrem or through a set-off;

. the conditions for and the effects of closure of insolvency proceedings, inparticular by composition;

. creditors’ rights after the closure of insolvency proceedings;

. who is to bear the costs and expenses incurred in the insolvency proceedings;

. the rules relating to the voidness, voidability or unenforceability of legal actsdetrimental to all the creditors.

As regards this issue, it can be concluded that the provisions of Article 28 of theRegulation concerning the law applicable to secondary insolvency proceedings (cit.):Save as otherwise provided in this Regulation, the law applicable to secondaryproceedings shall be that of the Member State within the territory of which thesecondary proceedings are opened.), essentially corroborate the general provisionscontained in Article 4 of the Regulation. Article 4 of the Regulation defines in a generalmanner the use of lex fori, similarly as the provisions of Article 3 determineinternational jurisdiction to open the main insolvency proceedings and, in connectiontherewith, also the jurisdiction to open territorially limited insolvency proceedingshaving the form of secondary insolvency proceedings or local proceedings. Theapplicability of Article 4 to local proceedings can be inferred for example fromParagraph 23 Preamble to the Regulation (cit.): This Regulation should set out, for thematters covered by it, uniform rules on conflict of laws which replace, within theirscope of application, national rules of private international law. Unless otherwisestated, the law of the Member State of the opening of the proceedings should beapplicable (lex concursus). This rule on conflict of laws should be valid both for themain proceedings and for local proceedings; the lex concursus determines all theeffects of the insolvency proceedings, both procedural and substantive, on the personsand legal relations concerned. It governs all the conditions for the opening, conduct,and closure of the insolvency proceedings. The lex fori concursus conflict rule as aguideline for a uniform insolvency status defines both the substantive and proceduraleffects of insolvency proceedings (Virgos-Schmit-Report, 1995, Item 90), but it does notset out procedural rules, the definition of which the Regulation leaves up to the

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legislatures of individual Member States. By way of derogation from lex fori concursus,defined are for instance the material rights of creditors or third parties, which remainunaffected by the opening of insolvency proceedings if they concern tangible andintangible assets possessed by a debtor and located in the territory of another MemberState at the time of opening insolvency proceedings. Thanks to a uniform insolvencystatus for both procedural- and substantive-law issues, it is not necessary todifferentiate between the substantive and procedural aspects of the applicable law,since the rule for determining the governing law in the sense of Article 4 of theRegulation leads to the same result (Duursma-Kepplinger et al., 2002, Comments onArticle 4, marg. 9).

6.2 Exemptions from the uniform insolvency statusThe provisions of legis fori concursus regulations apply to insolvency proceedingsper se as well as to the effects thereof. In general, it can be said that insolvency status inthis regard includes the conditions for opening proceedings, the definition of themethod and conditions for pursuing and conducting proceedings, the termination ofproceedings, where some special issues that fall under insolvency status in the sense ofArticle 4 of the Regulation are dealt with in Article 4(2) of the Regulation, whichcontains a list of examples (Duursma-Kepplinger et al., 2002, Comments on Article 4,marg. 9), as cited above.

Exceptions are set out mainly in Articles 5-15 of the Regulation, where theprovisions of these articles lessen the universal effect of the Regulation and decisions toopen insolvency proceedings. The provisions of Articles 5-15 have in part an immunitycharacter and in part they define special conflict rules regarding the conflict rule setout in Article 4 of the Regulation. These are cases that are so closely related to anothersubstantive-law statute that subordinating them to legis fori concursus regulationswould be significantly detrimental to third-party rights or interests, which must beguaranteed even after the opening of insolvency proceedings (Wimmer, 2002, p. 2429).Applying the lex fori concursus concept to such situations would often result in theopposite or at least substantially different effect than what is intended by theRegulation and the principles on which the Regulation is based (Kemper, 2001, p. 1615).These immunities and exemptions, as defined under Articles 5-15, apply both to thelaw governing the main proceedings and to the law governing secondary and anyterritorially limited proceedings in all cases where there is room for the application ofthe Regulation in the framework of its factual, local, and chronological applicability. Incontrast, it is evident that the special cases referred to in Articles 5-15 (for example theeffect on property rights, transfer of property to monetary and other markets andsystems, labor-law relations, etc.) do not always represent cases (situations) caused bybankruptcy/insolvency proceedings. On the contrary, they are frequently generalsituations that must be taken into account in the framework of insolvency proceedingsin light of their special character. Such situations (as referred to in Articles 5-15 of theRegulation) will in most cases have to be regarded in accordance with the generalconflict rule, i.e. private international law, depending on the character, using either theconflict rule of the state of the opening of proceedings (i.e. legis fori concursus conflictrules) or the conflict rule of the country where some effects of such situations originateor to which refer some other correlations in the sense of such regulations (Duursma-Kepplinger et al., 2002, Comments onArticle 4, marg. 15).

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6.3 Extensive interpretation of the insolvency statusHence, some published opinions recommend an extensive interpretation of the terminsolvency status or an extensive interpretation of the factual scope of Article 4 of theRegulation (Duursma-Kepplinger et al., 2002, Comments on Article 4, Haß et al., 2005,Comments on Article 4, marg. 11, pp. 550-90). The author of this documentrecommends a certain restraint in whether and to what extent the factual extent ofinsolvency status referred to in Article 4 of the Regulation may be construed in anextensive manner, where individual specific situations will have to be based mainly onthe purpose of the Regulation and where standardizing the interpretation of the factualscope of the Regulation may be very harmful, particularly in view of Article 4 of theRegulation. As an example, it is possible to cite the interpretation of the term disputecaused by bankruptcy or dispute caused by bankruptcy/insolvency proceedings,where the interpretation is not entirely unequivocal (Habscheid, 1999, p. 1113 andfollowing; Hannisch, 1990, pp. 1241-51; Hart, 1999, p. 407 and following; Pielorz, 1977;Pohl, 1999, p. 7; Rozehnalova, 1985, p. 344 and following, 1994, p. 37/p. 36; Ruzicka,1996, p. 11; Schelleova, 1999, p. 57; Schmidt, 1987, pp. 1905-9; Tyc, 1997, p. 187; Weller,2005; Winkler von Mohrensfels, 1987, p. 20; Winterova, 1967, p. 93).

Nevertheless, the factual scope of Article 4 of the Regulation evidently does notinclude the everyday administration of a debtor’s assets (Duursma-Kepplinger et al.,2002, Comments on Article 4, marg. 7), which should be subject to legis rei sitaeregulations, particularly in cases involving the application of imperative standards, butnot exclusively in the framework of the same. The potential transfer of a debtor’s assetsto another country is described, for example, in Article 18 of the Regulation. Thisconclusion is entirely logical. It is because the opposite approach would mean that theRegulation in itself would have significantly greater impact than intended by itscreators, and it would considerably exceed the scope of the First Pillar of theCommunity in the framework of which the Regulation was approved and promulgated.Such an approach would constitute an excess in the framework of the fundamentals ofthe Community law. Expanding the powers of the Community in excess of theCommunity’s expresis verbis primary laws is in no way acceptable.

6.4 Article 4 of the regulation and the liability of governing bodies and provisions ofcorporate lawsThe scope of insolvency status and its definition in Article 4 of the Regulation has asignificant importance in view of some issues of corporate law, in particular, thepotential liability of governing and other bodies for bankruptcy, as this issue isregarded in the case (for example) of Czech legal persons that have their COMI abroadin reference to regulations defining a debtor’s COMI, i.e. the place where the maininsolvency proceedings should (can) be opened. It is because the regulations of someMember States stipulate relatively strict assessment requirements and consequences inthe event correlation is established between a debtor’s bankruptcy on the one hand,and, on the other hand, the actions of its governing and other bodies (in the case of legalpersons) or the actions representing the debtor in general. The principles and intensityof this liability differ. Worth mentioning are for example the provisions of Articles 213and 214 of the British Insolvency Act (Insolvency Act 1986) defining fraudulenttrading or wrongful trading, respectively, the liability of business management set outin Section 64 and Sections 30-32b of the German law defining limited liabilitycompanies (GmbHG) and other German regulations, or the so-called action encomblement du passif defined in Article L624-3 of the French Code de commerce as

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well as the regulations of other Member States; noted in this regard should be forexample the relatively strict definition of the liability of governing bodies for causingbankruptcy under the Austrian law (Haß et al., 2005, Comments on Article 4 of theRegulation, marg. 12, pp. 550-91).

In the event a debtor’s COMI coincides with the debtor’s (statutory) registered officeor the debtor’s COMI coincides with the place where decisions are made by governingbodies that may be responsible for the debtor’s bankruptcy (including and especiallycases involving civil-law liability to creditors), the situation is relatively simple, and theapplication of legis fori concursus does not pose any problems. However, the issuegains a completely different dimension in a scenario, where it is ascertained that adebtor’s COMI differs from the debtor’s statutory registered office and/or the placewhere important business decisions are made by the debtor’s management or othercorporate bodies, i.e. the place where the members of such bodies can be held liable fortheir actions.

The use of insolvency status certainly does not substitute the general personalstatus of a bankrupt person. On the contrary, the personal status of a bankrupt debtormust be used primarily, and only beyond this framework it is possible to employ theinsolvency status defined in Article 4 of the Regulation in conjunction with Article 3 ofthe Regulation, where the provisions of Article 4 of the Regulation can essentially beemployed only in insolvency cases as an addition or modification of liability issues inconnection with the settlement freedom guaranteed by the Community law (Haß et al.,2005, Comments on Article 4 of the Regulation, marg. 14, p. 550-92, including FootnoteNo. 24, which contains references to differing opinions). The boundary between thesetwo statuses is very often represented by deliberations about the potential abuse of thelaw. Nonetheless, members of the governing bodes of legal persons and personscompleting legal acts on behalf of any entrepreneur must always consider liability notonly according to the personal status of such an entrepreneur in the sense of thegeneral provisions of the law applicable to such personal status (usually the registeredoffice or place of business and in the case of natural persons the entrepreneur’s habitualresidence), but also according to regulations pertaining to the personal liability of suchpersons regarded in view of the potential insolvency status in the event of bankruptcy.Such deliberations will be necessary always when activities conducted by a specificperson (potential debtor) involve an international element.

6.5 Related proceedings and the so-called_vis attractiva concursusAs was mentioned in connection with the issue of international jurisdiction to open themain insolvency proceedings, i.e. in connection with the above passage that analyzesArticle 3 of the Regulation, there have been debates about whether and to what extentthe opening of insolvency proceedings (particularly but evidently not only the maininsolvency proceedings) affects the jurisdiction to handle related and ensuing deputesrelating to a debtor’s assets, including disputes where trustees have active rights anddisputes where trustees have passive rights (exclusion actions, declaratory actions,actions concerning performance relating to bankrupt’s assets, etc.). According to thelaws of some countries, such as Italy, Austria, and France (in contrast to Germany forexample), opening insolvency proceedings changes the jurisdiction on favor of thecourts authorized to open and pursue insolvency proceedings also in related andensuing disputes, including, but not limited to, incidental disputes, disputes related tothe collection of payments in favor of the bankrupt’s assets, etc. In the opinion of theauthor of this document, it is necessary to reject vis attracativa concursus in the

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supra-national sense, i.e. in the sense of both European and international insolvencyproceedings, and, regardless of the definition of this issue (i.e. the jurisdiction to handlerelated disputes) in accordance with legis fori concursus regulations, to preserve thejurisdiction as if no change has occurred in this sense and to evaluate jurisdiction inthese matters, where an element other than a purely national element exists inconnection therewith (Belohlavek, 2006, pp. 568-78; Belohlavek, 2005a, pp. 2-11)(regardless of whether it is an element international or related to European insolvency,i.e. any supra-national element), since regulations setting out the concentration ofjurisdiction for related and ensuing disputes in cases insolvency proceedings areopened usually do not take such an element and, more importantly, the application ofthe Regulation into consideration. This issue is likely to be regarded individuallyaccording to what courts of what Member State will have international jurisdiction toopen and pursue the main insolvency proceedings, and it can be expected with acertain degree of certainty that this issue will in the future be dealt with by the ECJ, asit involves questions that are certain to cause considerable doubts and problems. Thiscase, however, clearly involves the primary problem of jurisdiction. From the viewpoint ofthe law decisive for assessing claims in related disputes, however, the author of thisdocument opines that no changes take place as a result of opening insolvencyproceedings, and there is therefore no change in the contractual or other status of claimsthat could be subject to review under such related proceedings. In any case, this question,as a polemic issue, can only concern claims made under proceedings opened after theopening of the main insolvency proceedings in the sense of Article 4(2)(f) of theRegulation, even though the list included under Article 4(2) of the Regulation is notexhaustive. From the viewpoint of Article 4 of the Regulation, however, it is significantthat Article 4 of the Regulation and its provisions cannot change the contractual orfactual status of claims dealt with under such related or ensuing proceedings (Habscheid,1999, p. 1113).

6.6 ReferenceArticle 4(1) of the Regulation contains provisions defining insolvency status andspecial provision determining the law that is decisive for such insolvency status.Article 4 of the Regulation is directly tied to the provisions of Article 3 of theRegulation concerning international jurisdiction to open and pursue insolvencyproceedings. As regards this issue, there exists the question whether and to whatextent it is possible to take into effect another factor, namely the reference to anotherlaw (Kucera, 2004, Chapter 12.2, pp. 158-166), if a law defined according to Article 4 ofthe Regulation does not contain such a reference in its definition of national origin. Inthe opinion of the author of this document, which coincides with other publishedstandpoints, such a reference cannot be accepted because it would be fundamentallyopposing to the concept introduced by the Regulation, i.e. the concept of unity betweeninternational jurisdiction and insolvency status and the mutual interaction of Article 3and Article 4 of the Regulation. In fact, such other reference could not be acceptedunder the Czech national regulations pertaining to the private and proceduralinternational law, since accepting another reference would unquestionably go againstthe concept of reasonable and just arrangement of the pertinent relationship (comparewith Section 35 of the Czech Act No. 97/1963 Coll. on Private and ProceduralInternational Law, as amended, as well as the private international law regulations of anumber of other countries). Finally, such a reference could not even be applied in thecase of Article 3 of the Regulation, and no other reference can be employed, for

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example, in the case of the application of Article 25 of Regulation No. 44/2001 (Geimeret al., 2004, marg. 1-26/11, p. 436).

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Further reading

Faldyna, F. (1996), ‘‘Pravnı postavenı odstpneho zavodu statnıho podniku’’, Pravo a podnikanı,Orac, Praha (Prague), Vol. IV No. 6, pp. 17-24.

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Kral, R. and Zemanek, J. (2000), ‘‘Ustavnepravnı aspekty vstupu Ceske republiky do Evropskeunie’’ (title translated – ‘‘Constitutional aspects of the Czech Republic’s accession to theEuropean Union’’), Rocenka evropskeho prava (Yearbook of the European Law),Masarykova univerzita Brno (Universitatis Masarykiensis Brunensis), pp. 41-90.

Valdhans, J. and Pavlova, B. (2005), ‘‘Evropsk�yy justicnı prostor ve vecech civilnıch’’ (titletranslated – ‘‘European justice in civil matters’’), Pravnı forum, ASPI, Praha (Prague), Vol.2 No. 5, pp. 161-7.

Valdhans, J. and Pavlova, B. (2007), ‘‘Evropsk�yy justicnı prostor ve vecech civilnıch – Cast VII’’(title translated – ‘‘European justice in civil matters – Part VII’’), Pravni forum, ASPI,Praha (Prague) Vol. 4 No. 8, pp. 269-78.

Corresponding author

Alexander J. Belohlavek can be contacted at: a.belohlavek@ablegal.cz

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