In a technical analysis of the difference between the Center of Main Interests (COMI) of a Luxembourg company and the application of the Real Seat, considering the facts of a 2019 judgement of the Luxembourg district court, Loyens & Loeff restructuring partner Michael Scott argues that it remains possible to shift COMI under the Insolvency Regulation without necessarily shifting the Real Seat of the company under Luxembourg corporate law and that the decision of the Luxembourg Court should be read in limited scope to apply to factors relevant only to shifting COMI.
With respect to Luxembourg commercial companies, it remains important to make a distinction between: (i) the application of the Real Seat Theory as a matter of corporate law, and (ii) the determination of the Center of Main Interests (COMI) for the purposes of the application of EU insolvency law.
The importance of this distinction arises from the fact that the application of the Real Seat Theory: is a matter of Luxembourg domestic corporate law; relates to the nationality of a company (no matter the other jurisdiction involved in the affairs of the company, i.e. EU or not); and determines the company law applicable to the entity. This as opposed to the concept of COMI under EU Law which is one of application of EU Insolvency Law, limited in scope to Member States, and applicable only in insolvency matters.
The Luxembourg District Court has in 2019 issued a judgement1 (the Judgement) - which although not specifically dealing with an analysis of these two concepts separately - would appear to require the wider criteria needed to rebut the presumption in application of the Real Seat Theory to be applied to the factors needed to rebut the presumption for the determination of COMI. The interpretation of the Judgement in this manner is in the view of the Author incorrect. The Judgement does give scope for a different more correct interpretation as reflected in this Article.
It is the absolute view of the Author that the Real Seat of a commercial company and the COMI of a company must remain distinct and separate concepts and the factors to be applied for rebuttal of the presumptions, even where they overlap in certain circumstances, must be applied differently. In other words, it must be possible for a commercial company to shift its COMI under EU Insolvency Law, without changing its Real Seat under Luxembourg domestic law.
For the purposes of this Article any reference to a Luxembourg commercial company shall be reference to a private limited liability company or a public limited liability company for the sake of simplification of arguments, but may equally apply to other forms apart from the European Company. All companies shall also be holding companies or finance companies and not operating companies.
Real Seat Theory as a domestic company law concept – applicable to all jurisdictions
As a matter of Luxembourg company law the domicile of a commercial company is located at the seat of its central administration (head office)2. Unless proven otherwise, the central administration of a company is deemed to coincide with the place of its registered office. This is application of the so called "Real Seat Theory" meaning that the place of central administration determines the governing law of the company3.
Consequently Luxembourg domestic company law applies the Real Seat Theory with a rebuttable presumption that its central administration is at its registered office. The registered office a Luxembourg Company is reflected on the company extract obtained from the Register of Commerce and Companies (RCS) and as such is a matter of general public knowledge.
Since the grounds for declaring a commercial company null and void are limited4 it can be stated, prima facie, that Luxembourg Law would be applicable to any commercial company properly constituted by notarial deed with its registered office in Luxembourg. It is noted that in the absence of a known domicile of a company, a Luxembourg Court can order the dissolution of a Company5. As such a Luxembourg company must have a known domicile, which unless the presumption is rebutted, will be at its registered office.
The application of Luxembourg company law is a matter of domestic legislation and is applicable whether a company is solvent or insolvent. As such, it is a matter of company law apart from EU legislation on insolvency6.
Additionally Luxembourg company law applies to all Luxembourg companies whether such companies have operations in Member States or in jurisdictions outside the EU.
In the view of the author: (i) the Real Seat Theory concept is of wider application and is applied as a matter of company law to all Luxembourg commercial companies, whether solvent or insolvent, whether having dealings in a Member State or outside of the EU, (ii) the Real Seat of a Company is deemed to be at the place of the registered office of a company unless proven otherwise, i.e. requiring a challenge to be made by an interested party to rebut the presumption.
COMI as an insolvency concept – applicable to EU Member States
The concept of COMI arises from the European Union insolvency legislation, in particular Regulation 2015/848 on insolvency proceedings7 (the Insolvency Regulation or the Regulation). Pursuant to the Insolvency Regulation COMI is one of the central unified and autonomous concepts8 of the insolvent debtor, i.e. the basis of COMI and the Regulation is that it is an insolvency concept and not a corporate law concept.
COMI forms the basis for the jurisdiction of an EU court to open main insolvency proceedings according to Article 3 of the Regulation. The law applicable to insolvency proceedings of a company is in principle the law of the forum where main proceedings are opened9, this despite the country of incorporation of the company.
The recast Insolvency Regulation, following various decisions of the ECJ, defined COMI as "the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties".10 This definition is read together with the presumptions contained in the Regulation, the most relevant of which for commercial companies is that the COMI is presumed to be at the registered address of the company (a rebuttable presumption)11, unless this address was changed 3 months prior to the opening of insolvency proceedings).12
From the above it can be concluded that: (i) COMI is a concept determined by EU Law, (ii) it is only relevant in application of the Regulation between EU countries (the Regulation not being applicable to non-EU countries); (iii) COMI is an insolvency concept and is not a matter of Luxembourg domestic corporate law; (iv) COMI is an autonomous concept of the insolvent party, and (v) COMI is presumed to be at the registered office of the company unless proven otherwise.
From the above the Author concludes that: (i) COMI is a narrower autonomous concept with its own set of determining factors to rebut the presumption that COMI is at the registered office, and (ii) it must be possible to have a Luxembourg company with its Real Seat in Luxembourg but its COMI in another EU Member State.
Interplay between Real Seat and COMI
The Real Seat theory relies on the concept of "central administration" and COMI relies on a seemingly overlapping concept of "administration of interests" – both contain rebuttable presumptions that these are located at the registered office. These concepts are further analysed separately.
However, as a matter of practical application, as the presumptions are rebuttable it would be necessary for a party to challenge the presumptions. In all Luxembourg cases and ECJ cases (involving Luxembourg companies) of which the Author is aware, where COMI of a Luxembourg company was disputed, the nationality of the company being a Luxembourg company under the Luxembourg corporate law was not argued or considered. In fact, in the Judgement the Luxembourg Court heard the matter based on the fact that the company in question was a Luxembourg registered company. This could be interpreted as a confirmation that different factors apply to the rebuttal of the presumption in each case and that these factors are distinct.
As such, the Author draws a preliminary conclusion from case law that the Luxembourg Courts consider that COMI of a Luxembourg company can be in another EU Member State without that company ceasing to be a Luxembourg company under the Real Seat theory (implying a separation of the concept of COMI and Real Seat). This statement is of course qualified by a determination of the applicable facts, both determination of COMI and the Real Seat of a company being a factual matter.
Factors relating to rebutting the presumption – Real Seat Theory
The view of the Author is that the application of the Real Seat Theory is of wider scope that the test for COMI.
There is no statutory definition of central administration. In fact the term "central administration" was inserted into an amendment to the Luxembourg company law to replace the term "principal establishment" in order to have a uniform term in relation to the newly inserted European Companies13.
In general doctrine14 the elements considered to determine the place of the principal establishment were: (i) the place where the board meetings were held, (ii) the place where the shareholders meetings were held, (iii) the place where the accounts of the company are created and files of the company are kept, and (iv) the place where the company was created, registered and files its accounts.
The factors for determining the principal establishment and therefore the place of central administration focus on company law matters relating to organs of the company and administrative matters of a company. Creditors or the position of creditors do not feature in any manner in the determination of the Real Seat of a company.
It would appear further that the Luxembourg cour de cassation itself would apply a simple approach to determination of central administration as the court has previously held that the fact that the company held an extraordinary board meeting in Luxembourg was sufficient to hold its central administration in Luxembourg irrespective of the fact that its administration activities have taken place in another jurisdiction15.
Consequently it is the view of the Author that: (i) central administration relates more to formal company matters (such as registration, registered office, place of accounting records etc), (ii) is wider in scope of application of factors to determine same, and (iii) will be determined more easily by a court and found to be in Luxembourg based on presentation of limited facts.
Factors relating to rebutting the presumption – COMI
The view of the Author is that the test for COMI is of narrower scope and based on different determining factors.
At the date of determining the test for COMI, the company is either in financial difficulties or is expected to be in financial difficulties and as such the position of the company and its relationship with its creditors becomes critical. Creditors take on a significantly greater role in the upcoming proceedings as a consequence of any insolvency / bankruptcy.
In the Eurofood case16 the ECJ held that in order to determine where the COMI of a debtor was located, the court needs to look at objective criteria which could be ascertained by third parties.17 This view was confirmed in the Interedil case18. The ECJ put emphasis on the place where the debtor "conducts the administration of its interests on a regular basis" insofar as such place was sufficiently known to third parties "in particular the company's creditors"19. Significantly, the ECJ stated that the existence of assets or contracts located in a Member State other than the Member State in which the registered office is located was not enough to rebut the presumption that the COMI of a company is at the registered office of that company.20
Certain factual elements have been considered by courts across the EU21 as being factors showing the place where the company conducts the administration of its interests for the purposes of determining COMI, some of which are:
- the place where the board of directors (or managers) meets;
- the place of residence of the directors (or managers);
- the place of the supervision or the general oversight and the strategic oversight of the group;
- the location of the main commercial transactions;
- the location of the lenders;
- the location that the creditors reasonably believe to be the place of business of the company;
- the location of the bank accounts;
- the location of the employees and of the human resources functions; and
- the location of restructuring negotiations with creditors.22
The factors determining the place of administration of interests for the purposes of determining COMI relate more to the business operations and business decisions of the company as well as the position of creditors and commercial transactions of the company. As such the test for COMI appears more financial in nature and creditor focused with the position of creditors featuring more prominently in the considerations. Additionally the Luxembourg courts appear to have taken a stricter approach to the interpretation of the factors affecting COMI (especially the knowledge of 3rd parties aspect23) than they appear to have taken in determining central administration.
Conclusion on COMI and Real Seat
As a result, the Author draws the conclusions that: (i) the COMI of a Company must be determined separately from the Real Seat of a company; (ii) it is clearly possible to have the COMI of a company in one Member State with the Real Seat in another, and (iii) the factors for determining the Real Seat are company law matters interpreted widely and more easily granted by a Luxembourg Court, whilst factors for determining COMI are more commercial, financial or insolvency matters with narrower interpretation and more scrutiny by a Luxembourg Court.
The shift of COMI alone to another Member State should therefore not automatically result in a conclusion that the Real Seat of that company has shifted, and consequently a shift of COMI can be conducted without threat of a potential liquidation of the company under company law.
On the facts of the Judgement, junior creditors filed an insolvency application against a group company in Luxembourg. In defending that application, the group company argued it had shifted its COMI from Luxembourg to the UK and therefore the Luxembourg Courts did not have jurisdiction to open main insolvency proceedings.
The group company had opted for an extensive approach to the COMI shift and had rented office space in the UK, appointed UK based directors, had employed an employee in the UK, changed its letterhead and signature blocks to reflect the new address in the UK, made a public announcement on the Luxembourg stock exchange that it had transferred the COMI to the UK and had led the negotiations with creditors from the UK. The extensive approach being accepted in Wind Hellas24 by the UK courts appeared to be sufficient for them to find jurisdiction in that matter. The registered office of the Company and the accounting records of the company remained in Luxembourg for statutory purposes.
The Luxembourg District Court held in its decision that its jurisdiction first of all derived from the presumption that the COMI was located at the registered office of the company in Luxembourg. It then summarised relevant case law and insisted on the fact that to transfer the COMI, the "bridges" to the past (i.e. the old COMI location) should be "burned".25 The Luxembourg court held that the very definition of COMI contained an element of durability of the COMI location26 and that a "detailed and cautious analysis" was required, especially if the COMI was transferred shortly before an insolvency application was made.27
In its reasoning, the Luxembourg District Court insisted on the fact that because the articles of association of the company stated that board meetings were in principle to be held in Luxembourg, and that meetings held by any form of telecommunication were deemed to be held at the registered office of the company, it considered that, despite all the other steps taken to shift COMI, third parties were able to rely on this provision to consider that the board meetings should have continued to take place in Luxembourg or should at least have been deemed to take place there.28 Finally, the Luxembourg District Court held that, on balance, the purported central administration of the company in the UK did not have more substance than the administration taking place at the registered office and that therefore the presumption could not be rebutted.29
Critique of aspects of the Judgement
The Author focuses on two aspects of the Judgement being: (i) that the Luxembourg Court insisted that in order to transfer COMI all bridges to the past must be burned, and (ii) a company law aspect as to the terms of the articles deeming board meetings to be held in Luxembourg.
It is the view of the Author that an interpretation of burning of all bridges in the wider sense (to include for example change of registered office, change of place of accounting records, etc) is incorrect. If a burning of all bridges would result in a shift of a Real Seat of the company, something which was clearly not intended by the Luxembourg Court, the Luxembourg court would not likely itself have jurisdiction. It may be argued that the court found jurisdiction based only on the presumption that the COMI is at the registered office, but in order to do so it would need to consider practically that the Real Seat was consequently at the registered office. It is notable that the Court did not consider a liquidation of the company for breach of law under the Real Seat theory to found jurisdiction and open liquidation proceedings.
The view of the Author is therefore that burning of all bridges as referenced by the Court, must reasonably be interpreted to relate only to all bridges which form the basis of COMI determination (being factors relevant to COMI shift). The Judgement can therefore only be correctly interpreted if burning all bridges is linked directly to (and limited to) the second comment of the Court with respect to the presumption in the articles of association. As this term in the articles of association was the only link left to decision making of the company and was a matter known to third party (a point which was emphasized by the court), the Judgement must be read narrowly to refer to this as factor as being the last bridge to be burned.
The Author determines from the Judgement and analysis above that:
- a commercial company properly formed by notarial deed and registered with the Register of Commerce and Companies in Luxembourg, which retains its shareholder meetings, registered office and accounting and company records in Luxembourg should be regarded as maintaining its Real Seat in Luxembourg without threat of liquidation for breach of law (in the case where the COMI has been shifted to another Member State);
- a commercial company which has shifted its COMI or has its COMI in another Member State, where the bridges have been burned with Luxembourg (by applying the factors for determining COMI only), has conducted a COMI shift without a shift of its Real Seat.
Consequently COMI can be shifted independently of application of the Real Seat theory on application of different factors. A burning of all bridges must be read narrowly to refer only to factors referenced for COMI shift and not factors referenced for Real Seat determination. COMI is a narrow concept to be analysed in great detail by a court, whereas Real Seat is a wider concept determined more easily by a court based on simpler factors.
1. Judgement 2019TALCH02/01728 of 15 November 2019
2. Law of 10th August 1915 on Commercial Companies Title I General Provisions
3. At least as a matter of Luxembourg law, since the criterion for the application of Luxembourg law to a commercial company is its real seat (Article 1300-2 of the Law of 10 August 1915 on commercial companies). However due to the application of the general conflict of law rules, a renvoi is arguably possible. Thus, if a Luxembourg company transfers its real seat to another jurisdiction which applies a statutory seat criterion to determine the applicable law, Luxembourg law should continue to apply to the company (the conflict of law rules of the country of the real seat lead to the application of the law of the statutory seat, i.e. Luxembourg, which accepts its own application).
4. Art. 100-18 Law of 10th August 1915 on Commercial Companies
5. Article 1300-2 Law of 10th August 1915 on Commercial Companies
6. Although reference is made to the decision of the European Court of Justice of 5 November 2002 in Ueberseering where the concept of the Real Seat theory was further analysed from a European perspective
7. Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)
8. European Court of Justice (ECJ), 2 May 2006 (Grand Chamber), C-341/04, Eurofood IFSC Ltd., §31; 20 October 2011, C-396/09, Interedil, §43; 16 July 2020, C-253/19, §18
9. Article 7 Insolvency Regulation
10. Article 3 (1)
11. Article 3 (1) Insolvency Regulation: "In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in absence of proof to the contrary."
12. Article 3 (1) Insolvency Regulation.
13. See preparatory works to the 2006 amendment to the Law of 10th August 1915
14. Amongst others, See MARTINS COSAT C, RICHTER D, GERBER-LEMAIRE M & MARCHAND A, Regulation 1364/2000 on insolvency proceedings: The difficult COMI determination, the treatment of groups of companies and forum shopping in the light of the CJEU's and domestic case law, and the modernization of the Regulation in: Droit bancaire et financier au Luxembourg, 2014, Vol. 6, p.3324
15. See MARTINS COSAT C, RICHTER D, GERBER-LEMAIRE M & MARCHAND A, Regulation 1364/2000 on insolvency proceedings: The difficult COMI determination, the treatment of groups of companies and forum shopping in the light of the CJEU's and domestic case law, and the modernization of the Regulation in: Droit bancaire et financier au Luxembourg, 2014, Vol. 6, p.3326
16. 2 May 2006 (Grand Chamber), Eurofood IFSC Ltd., C-341/04
18. 20 October 2011, Interedil, C-396/09
21. Various EU Case Law see RIES, SCOTT COMI – Luxembourg technical analysis & Case Law critique, 2021
22. See MARTINS COSAT C, RICHTER D, GERBER-LEMAIRE M & MARCHAND A, Regulation 1364/2000 on insolvency proceedings: The difficult COMI determination, the treatment of groups of companies and forum shopping in the light of the CJEU's and domestic case law, and the modernization of the Regulation in: Droit bancaire et financier au Luxembourg, 2014, Vol. 6, p.3281ff, §76
23. The Judgement
24. 29 November 2009  EWHC 3199 (Ch) ;  BCC 295 (Re Hellas II)
25. Judgement 2019TALCH02/01728 of 15 November 2019, number TAL-2019-06530 of the docket, p.10
26. Article 3 (1) of the Regulation speaks indeed of the "regular basis" on which the interests of the debtor must be conducted.
27. 2019TALCH02/01728, loc. cit.
28. Ibid., p. 12
29. The bankruptcy application was nonetheless declared inadmissible, due to lack of standing of the junior creditors, who only held beneficial interests in global notes issued under a New York law governed indenture.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.