By Yves BRULARD
Regulation 1346/2000 has rightly opted for jurisdictional criteria based on the location of the company’s center of main interests (COMI) rather than the location of its registered office. This choice may affect creditors’ rights due to differences in national legal regimes. Transfers of COMI or registered offices seem to raise the same issue: the consequences of these transfers on the rights of creditors having lodged claims under a specific legal regime and finding themselves subject to different laws due to such jurisdictional transfers.
In fact, Member States usually provide creditors with minimal protection in case of registered offices transfers. In Belgium, these transfers must be published in the Belgian Official Journal and must be indicated on the company’s official documents (invoices, letters). Some legal regimes provide for a judge to retain jurisdiction during a certain period following the transfer (a sort of exit clause). This form of protection can be considered as minimal in the sense that creditors having lodged claims under the legal regime applicable to the company’s registered office suddenly find themselves subject to the law of the state where the new registered office is located. Moreover, laws sometimes condition the removal of some rights to a simple publication.
The rights of creditors would appear to be more affected by COMI transfers than registered offices transfers, notably due to the secretive nature of COMI transfers.
Yet, this argument does not seem relevant. Indeed, Regulation 1346/2000 (especially in its new form as proposed by the Commission) compels a judge to examine whether the debtor’s center of main interests is located within its jurisdiction, in a manner ascertainable by third parties. Creditors must be given the right to challenge the opening decision. In this respect, COMI transfers could not be considered as being less protective towards creditors than registered office transfers, as a judge would not have jurisdiction to hear cases involving a company the COMI or registered office of which is actually not located within the territory under his jurisdiction.
What could actually make the difference between COMI transfers and registered offices transfers is the issue of the notification of such transfers to creditors. And yet, the very definition of the center of main interests implies that this COMI should be ascertainable by third parties. Everything will then depend on the court’s identification of creditors and its interpretation of which facts could be ascertainable by them. If this court demands that all creditors be sufficiently informed, then no difference between these two transfers could be established as to the treatment of creditors. However, a judge declaring that all facts were ascertainable despite creditors’ alleged lack of information could make all the difference, as their rights to challenge the decision would then not be respected anymore.
COMI and registered office transfers often give rise to suspicion of fraud, in particular when accomplished shortly after the opening of restructuring or liquidation proceedings and when resulting in the restriction of creditors or other third parties’ rights. Some would argue that the transfer was necessary to save the company and protect the rights of creditors while others would consider it as being ‘fraudulent.’
In fact, the very notion of fraud itself is difficult to define. There exists no broad definition covering all kind of situations involving creditors and other parties concerned, as the very aim of restructuring proceedings is to arbitrate conflicting interests. A reasonable approach would be for the judge to find a balance between the interests at stake (the debtor, the economic activity or workers) and negative effects. Only a judge could establish whether or not fraud was committed. Judging from the European jurisprudence which followed the Interedil case, most jurisdictions tend to consider COMI transfers as being fraudulent. However, there exist some cases of individual persons attempting to benefit from legal regimes applying more favorable provisions for debt discharges.
Regulation 1346/2000, in its current form and future form as amended by the Commission, seems to give judges and creditors broad powers. Courts should examine ex officio whether the debtor’s center of main interests or establishment is actually located within its jurisdiction; creditors have the right to challenge the opening decision. However, the text states that the judge’s decision must be based on facts ‘ascertainable by third parties.’ There is the rub: this statement may result in unfair treatment for creditors claiming that fraud has been committed. Two situations have to be distinguished: some creditors can, or could exercise their right to challenge the decision and ascertain the facts underlying their request at the time of the opening decision. Others did not have such capacity and will experience the effects of the transfer. The rights of this second category of creditors might not be upheld as a judge would be reluctant to modify the opening decision after a certain period of time has passed, for fear of complicating proceedings and creating legal uncertainty.
In case of insolvency proceedings, the individual notification of the transfer to all creditors registered in the accounts, creditors who should have been registered in these accounts, and creditors who should be notified in accordance with the legal regime applicable, should be sufficient to prevent such issues. When being notified, or when understanding the potential consequences of such transfers, a creditor could appear before the court having jurisdiction in order to claim that the transfer is fraudulent. This creditor must nevertheless exercise his right to challenge the opening decision within a certain deadline when intending to claim that he has been ‘deceived’ by the secret nature of the transfer.
The Regulation might impose these notifications.
Such rules do not seem to be excessive. Nor do they seem to constitute a restriction of freedom of movement which could appear prima facie unjustified.
The case where a creditor claims that he has not been notified remains to consider. This creditor must demonstrate that the provisions of the Regulation have not been respected. A judge or legislator could also consider such notifications as being restrictive towards the freedom of movement.
In cases where a creditor, even though not notified, is aware of the opening of insolvency proceedings within the territory where the company’s COMI has been transferred (notably due to national legal rules providing for the individual notification of such transfers to all creditors), it would seem normal to impose deadlines to challenge the opening decision, as this creditor knows, or should know, that such transfers can have consequences.
In cases where national laws do not provide for such individual notifications, where such notifications have not been accomplished, or where no means of communication easily accessible by creditors in the European union have been established (computerized publication, for instance), challenging the opening decision several months after the opening of insolvency proceedings could appear as excessive as it would prevent the effective administration of proceedings and would create a legal uncertainty preventing effective restructurings.
For this very reason, it would be necessary to distinguish between cases where secondary proceedings could be useful and where such proceedings would be useless.
When secondary proceedings are justified by the existence of a significant amount of assets in the initial state, these assets could compensate creditor’s losses allegedly caused by the transfer of the COMI. These assets will be administered as liabilities and will be subject to the initial state’s legal regime. The main trustee should not be granted capacity to oppose the opening of secondary proceedings when the judge in the secondary proceedings has established a case of fraud.
When no assets can be found in the initial state, one might reasonably consider the transfer of the company’s COMI as being fraudulent. Member States should be able to provide for civil and criminal rules applicable to debtors who, without warning creditors, transfer a significant part or the totality of the company’s assets to another state, with significant financial consequences for these creditors.
Any transfer accomplished without notifying creditors could be considered as criminal fraud justifying the awarding of damages. These measures could act as deterrents.
In the absence of such criminal rules, an unenforceability rule could be introduced. Creditors would then be granted rights similar to those they would have benefited from if the proceedings had been opened in the initial Member State. Such a principle would not be contrary to the other provisions of the Regulation, as it would also give creditors in the secondary proceedings the possibility to be treated in accordance with their own legal regime in the main proceedings.