CJEU Rules on COMI of Individuals
This post is authored by Antonio Leandro, Professor of Public and Private International Law at the University of Bari.
On 19 September 2024, the Court of Justice delivered its judgment in case C-501/23 DL v Land Berlin, which deals with the functioning of the COMI in Regulation (EU) 2015/848 on insolvency proceedings (‘EIR’). The Court was requested by the Bundesgerichtshof (Germany) to interpret Article 3(1) in conjunction with Article 2(10) of the EIR on the occasion of a petition to open main insolvency proceedings in Germany against an individual.
Legal Background
Article 3(1) states that the courts of the Member State in which the center of the debtor’s main interests (COMI) is situated shall have jurisdiction to open the main insolvency proceedings, i.e., the proceedings that have universal effects. The COMI is ‘the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties’. Article 3(1) further establishes that the COMI presumptively coincides (i) with the place of the registered office in the case of companies, (ii) with the ‘principal place of business’ in the case of individuals exercising an independent business or professional activity, (iii) with the habitual residence for other individuals.
Article 2(10) defines the ‘establishment’ as ‘any place of operations where a debtor carries out or has carried out in the 3-month period prior to the request to open main insolvency proceedings a non-transitory economic activity with human means and assets’. This definition applies to any debtor irrespective of its nature and structure. The ‘establishment’ works as a ground of jurisdiction over the petitions to open secondary proceedings vis-à-vis debtors that have the COMI in another Member State. Secondary proceedings have territorial effects.
Factual Background
In Land Berlin, the debtor was in charge of the supervisory board of a public limited company incorporated under German law. He had residences in Berlin, Monaco, Los Angeles and on the French Caribbean island of Saint-Barthélemy. His assets consisted of a bank balance in Monaco, holdings in companies incorporated under Monegasque law with other equity and financial assets in Germany. He performed as a supervisory board chairman without human means or assets designed for such activity.
Initially seized to open the main insolvency proceedings against that debtor, the Amtsgericht of Charlottenburg rejected the application on the ground that it lacked jurisdiction. On subsequent appeal by a public creditor, the Landgericht of Berlin reversed that decision and referred the case back to the Amtsgericht after ruling that the COMI was located in Germany because the debtor carried out the activity of chairman of the supervisory board there. The debtor submitted an appeal before the Bundesgerichtshof, claiming, on the contrary, that German courts lacked international jurisdiction.
Preliminary Questions in Short
The Bundesgerichtshof was requested to evaluate how to find the COMI of an individual exercising an independent business or professional activity that did not require human means or assets, and deemed it necessary to refer the question to the CJEU.
The German court proposed a joint reading of the presumptions encapsulated in Article 3(1) and the definition of ‘establishment’ in Article 2(10). The resulting assumption is that the ‘place of business’ of individuals under Article 3(1) may entail the same elements as those that characterise an ‘establishment’. Lacking such elements, the jurisdiction ought to be examined in accordance with the general parameters of the COMI only if the conditions to find the presumptions for any other individual are not met. In a nutshell, the CJEU was asked to assess the correctness of this interpretation.
The Court’s Ruling
Unsurprisingly, the CJEU keeps well separated the notion of ‘principal place of business’ from that of ‘establishment’ after noting that the German courts might have been biased by the linguistic proximity between Hauptniederlassung (that is, the principal place of business) and Niederlassung (that is, the establishment). Other linguistic versions of the EIR do not carry the same risk of overlapping.
However, it is the demand for uniform interpretation in accordance with the purposes and context of the EIR that leads the Court to distinguish those concepts neatly. To this end, the Court recalls that the ‘establishment’ only works in view of the opening of secondary proceedings. It bears no relevance when it comes to determining the COMI, even in the case of individuals. Otherwise, legal certainty and predictability, to which the grounds of jurisdiction of the EIR are inspired, would be undermined.
Place of a Business Conducted Without Human Means or Assets
As noted above, the COMI of ‘individuals exercising an independent business or professional activity’ presumptively corresponds to their principal place of business.
The Court clarifies that the general criteria to find a COMI apply irrespective of the debtor’s nature. Domestic courts are called, in fact, to run a comprehensive assessment of all factual and objective elements concerning the debtor’s economic activity that are verifiable by third parties, especially creditors, whether the debtor be a company, a professional or a non-professional.
In this respect, professionals and businesspeople are put on equal footing in terms of interests compared with the economic activity. Article 3, in fact, gives prominence to the principal place of their economic activity (i.e., the business) as the place in which they presumptively conduct the administration of their interests on a regular basis.
Since any presumptions of Article 3 are rebuttable, the question arises as to whether the COMI of an activity that does not require human means and assets may still correspond to the principal place of business. The Court holds that the lack of human means and assets is not per se determinative to rebut the presumption. The presence or absence of such elements should always be considered under the comprehensive assessment of any other element concerning the debtor’s activity.
Moreover, should the presence of human means and assets be determinative, many individuals who do not resort to them would be unreasonably excluded from the scope of the presumption of Article 3 that pertains to independent professionals.
Concluding Remarks
The judgment is welcomed as it sheds light on the COMI’s functioning in the case of individuals. The ‘comprehensive assessment’ remains at the core of any inquiry concerning the COMI (see recently Leandro ‘Article 3’, in Cuniberti and Leandro (eds), The European Insolvency Regulation and Implementing Legislations). As a result, if the presence and absence of human means and assets are not determinative, they may nonetheless combine with other elements to confirm or rebut the presumption based on the principal place of business. Courts are called to run a factual inquiry on a case-by-case basis, including through the assessment of elements that are connected with the economic situation of any individual, such as the place in which the majority of revenue is earned and spent (Land Berlin, para 53, and Novo Banco, para 30, concerning non-professionals).
It remains to be seen how to determine the ‘establishment’ of individuals who do not avail of human means and assets, given that human means and assets account for basic requirements under Article 2(10). Overall, the establishment of individuals may be conceived of as a small-scale COMI. It may correspond to the ‘not-principal’ place of business, provided that it meets the factual requirements depicted in Article 2(10).
Since the CJEU has stressed the conceptual distinction between establishment and principal place of business, professionals whose activity lacks human means or assets in any Member State may be said to have the COMI but not an establishment under the EIR. This means that no local creditors, no secondary proceedings, and no ‘modified universalism’ are in sight for insolvency proceedings concerning that activity. It may happen.