CHAPTER 3: THE CONCEPT OF COM
3.1 The principle of comity
As there is no uniform definition of COMI, the Virgos-Schmit report is used as an unofficial guide in the interpretation of COMI in literature and court decisions in the EU. The report was issued to serve as an interpretive guide to the EU 1995 Insolvency Convention. After five years, the 1995 Insolvency Convention was amended to become the Insolvency Regulation.183 The report states that COMI normally corresponds to the head office, or to the place where the debtor conducts the business' administration and has centralized the management of its affairs (i.e., the location from which it contracts with third parties), and does not correspond to the place where the assets of the debtor, whatever the value, are located, nor to the place where goods are manufactured. The EU Insolvency Regulation defines COMI as “the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties.”184
Chapter 15 of the US Bankruptcy Code follows the Model Law definition of COMI as “the debtor’s registered office, or habitual residence in the case of an individual, is presumed to be the centre of the debtor’s main interests.”185 Despite this widespread use, the lack of agreement on the factors underlying COMI and the considerable uncertainty surrounding its operations has rendered the concept too undeveloped 186 to extend the concept specifically to banks.
Therefore, the principle of comity is used as the guiding principle in the development of the current interpretation of COMI.187 The principle of comity is the recognition that one nation
183
Wessels, above n43, 258.
184European Union Insolvency Regulation No. 1346/2000 of 19 May 2000 on Insolvency Proceedings, (entered
into force on 31 May 2002); hereafter EU Insolvency Regulation/Insolvency Regulation, Recital 13.
185 11 USC Chapter 15, §1516(c) (2006). 186
Wessels, above n43, 335.
187 Scott A. Bomhof and Adam M. Slavens, ‘Shifting Gears in Cross-border Insolvencies: From Comity to
COMI’, (2008) 24 Banking and Finance Law Review 31. The concept of COMI was first noted in the European Convention on Certain International Aspects of Bankruptcy, May 5, 1990 (also referred to as the “Istanbul Convention”.) Under Article 4, the convention states that: (1) The courts or other authorities of the Party in which the debtor has the centre of his main interests shall be considered as being competent for opening the bankruptcy. For companies and legal persons, unless the contrary is proved, the place of the registered office shall be presumed to be the centre of their main interests.
(2)The courts or other authorities of the Party in whose territory the debtor has an establishment shall also be considered as being competent:
(a) if the centre of the debtor's main interests is not located in the territory of any Party; or
(b) if the bankruptcy cannot be opened by a court or other authority of the Party competent under paragraph 1 because of the provisions of its national law and of the capacity of the debtor. In this event, that Party shall not be obliged to apply this Convention.
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gives within its territory to the legislative, or judicial acts of another nation with due regard to international obligations and convenience.188
The principle of comity is distinguished from the principle of COMI in that the former was developed to assist international cooperation. Courts apply the principle of comity to cooperate in conducting an orderly resolution of a firm’s financial distress.189 The doctrine of comity originated in the 17th century with attempts to reconcile the emerging concept of national sovereignty with the ongoing practice of applying foreign law in applicable cases.190 It expresses the principle that in international practice, the laws of each nation exercised within its territory are effective everywhere in so far as the interests of another state and its citizens are not prejudiced.191 It was an attempt to resolve the basic dilemma between territorial sovereignty and the needs of international commerce192 where there were conflicting laws.193 This is significant in the context of international bank insolvency. In a bankruptcy proceeding, the use of comity may enable the assets of the debtor to be dispersed in an equitable, orderly, and systematic manner. In the United Kingdom, the courts have discretion to refuse recognition if this is contrary to public policy, and under s426 of the Insolvency Act, the courts are required to give assistance, at the request of the relevant court, if it is designated as being in a ‘relevant’ territory.194 Similarly to British courts, US courts have discretion but have to consider more specific factors including the protection of creditors and whether a broadly similar legal framework exists in the other jurisdiction before applying the principle of comity to assist a foreign court.195 US courts have consistently recognised the interests of foreign courts when winding up the affairs of foreign domestic
However, when the bankruptcy of a debtor is opened under paragraph a or by courts or other authorities in various Parties in which he has an establishment, the court or authority which first gave judgment shall be considered competent.
188Morguard Investments Ltd v De Savoye,3 SCR 1077 (1990), paragraph 31. 189 Bomhof & Slavens, above n 186, 31.
190 Brian Pearce, ‘The Comity Doctrine as a Barrier to Judicial Jurisdiction’, (1994) 30 Stanford Journal of
International Law 525, 526.
191 Hessel E. Yntema, ‘The Comity Doctrine’, (1966) 65(1) Michigan Law Review 9, 26. 192 Ibid, 9.
193 ‘Cross-border Insolvency Challenges’ viewed at <www.oecd.org/dataoecd/1/35/44071421.pef>> on May 22,
2011.
194United Kingdom Insolvency Act 1986, (UK), s426.
195 Andrew Campbell, ‘Issues in Cross-border Bank Insolvency: The European Community Directive on the
Reorganization and Winding Up of Credit Institutions’, (International Monetary Fund Seminar on Current Developments in Monetary and Financial Law May 7-17, 2002) viewed at
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business entities.196 However, COMI in cross-border insolvency is still subject to different and competing interpretations between legal regimes.