09 Jan The Stanford Saga – Chapter 15: Some Further Thoughts on COMI.
When a foreign business entity commences a bankruptcy proceeding, US courts’ recognition of that proceeding depends on whether or not it is a “foreign main proceeding” under the meaning of US Bankruptcy Code. Whether or not a foreign bankruptcy is a recognized “foreign main proceeding” depends on the location of the debtor’s “center of main interests” (or “COMI”).
The concept of a debtor’s “COMI” has become a critical one – not only in the US, but in a number of foreign jurisdictions including the UK. Because the same legal concept arises in multiple jurisdictions, the manner in which the “COMI” concept is applied across international boundaries carries with it the potential for the same sort of duplication, jurisdictional confusion, and mischief that led to the development and implementation of UNCITRAL’s model cross-border insolvency law in the first place. Consequently, getting COMI right – and getting it consistent across jurisdictional borders – has become a matter of international concern.
The importance of COMI has come to light most recently in the Stanford matter (see prior posts here), where multiple courts have been asked to determine COMI for Stanford International Bank, Ltd. (SIB). In Texas, Judge David Godbey has taken extensive briefing from the parties in advance of a decision on recognition. In London, Mr. Justice Lewison’s original decision finding SIB’s COMI to be Antigua – rendered last July – saw approximately 5 days of appellate argument at the end of last year. The parties presently await a decision from the English Court of Appeal.
The Stanford matter highlights a fundamental question about COMI: Should it be a flexible concept, susceptible to broad judicial discretion? Or should COMI be based purely on objective factors, precisely and mechanically applied?
Mr. Justice Lewison’s prior decision in London (summarized and avaialable here) took an essentially mechanistic approach to determining COMI, focusing primarily – as the UK Regulation requires – on what creditors objectively perceived about the debtor. US law – which, like England’s, is based on the UNCITRAL model – likewise places similar emphasis on creditors’ perceptions in dealing with the debtor.
But did legislators in the UK or the US intend that the analysis should stop with what creditors knew or likely would have known about the debtor?
After all, Stanford’s operation was a sham. And where creditors’ perceptions of SIB were based on a sham, is it appropriate to perpetuate the sham in determining COMI?
While the English Court of Appeal deliberates Lewison J’s decision, Judge Godbey appears headed in a slightly different analytical direction. Specifically, the questions on which he’s requested briefing in the Texas proceeding appear to focus more specifically on the similarity of COMI to a debtor’s “principal place of business” as that concept is recognized under US law. Though not inconsistent with what creditors would have perceived about the debtor, it tends to focus more broadly on factors which, though objective, are not tied as closely to what the debtor held out to specific parties. Instead, the debtor’s “principal place of business” views the totality of the debtor’s operations – whether or not such operations were completely visible to creditors or other third parties – and, on the basis of these specific facts, determines the debtor’s principal place of business.
Whether a possible change in COMI analysis means a change in SIB’s COMI remains to be seen.