Forum shopping can be arranged by relocation of the registered office or the transfer of assets and parts of the top management from one member state to another, in order to obtain a more favourable legal position to the detriment of the general body of creditors. In this chapter we will examine this in relation to a specific case, the Niki Luftfahrt GmbH insolvency proceedings. What makes this case notable is that the German preliminary administrator tried to change the centre of main interest (COMI) by only argumentation and interpretations of facts, so without relocation of the registered office or the transfer of assets.
Facts of the case
By order of the local court of Berlin-Charlottenburg of 13 December 2017,1 preliminary insolvency proceedings (Az 36n IN 6433/17) were initiated for Niki Luftfahrt GmbH (Niki), an Austrian limited liability company established and registered under Austrian law. The local court decided that even if the company were registered in Austria, the COMI of Niki would be located in Berlin, and the local court of Berlin had international jurisdiction after article 3 of the European Insolvency Regulation 2015/848 of the European Parliament and of the council of 20 May 2015 (EIR 2015).2 This decision was justified, among other things, as follows:
Niki Luftfahrt GmbH company, founded in accordance with Austrian law, has its COMI in Berlin, because it was objectively and recognisable for third parties that it
• was incorporated into the German Airberlin Group airline company,
• was operatively acting as part of this group of companies and,
• was centrally controlled from the administrative building of the Airline group in Berlin,
• its significant strategic decisions were taken from Berlin and
• the majority of the aircraft were leased via Germany
• and that the majority of the flights were handled in Germany.
In an order of 27 December 2017, the same Berlin local court additionally imposed a general prohibition on making dispositions on the debtor.
On 2 January 2018, an Austrian creditor (airline passenger rights portal FairPlane) lodged an immediate appeal pertaining to article 5 EIR 2015 and the German article 102c section 4 EGInsO, which went against the above-mentioned decision of the local court of Berlin-Charlottenburg.
The creditor had the opinion that the COMI of Niki is located in Schwechat in Austria and not in Berlin. It also argued that the appointed preliminary administrator had a conflict of interest because he was also the custodian of Air Berlin.
The local court of Berlin-Charlottenburg did not remedy this immediate appeal. The negative decision of the local court was passed to the next higher instance, the district court of Berlin.
The district court of Berlin overturned with immediate effect the decision of the local court of Berlin-Charlottenburg from 8 January 2018 because of violation of the international jurisdiction. The district court decreed the decision,3 using the argumentation that the COMI is located in Schwechat in Austria and not in Berlin.4 In addition, the district court of Berlin decided that for the immediate appeal the laws of article 102c German EGInsO and sections 575, 570 Abs 3 ZPO apply. This led to immediate effectiveness of the decision. Therefore, the possible appeal of the German preliminary administrator to the German Federal Supreme Court against the decision of the district court of Berlin would have no suspensive effect.
This decision was justified, among other things, as follows:
- For companies, it is presumed, unless proven otherwise, that the COMI is the place of their registered office.
- High demands are placed on the refutability of the presumption for the sake of legal certainty and predictability for the creditors.
- Moreover, there are no clear prevailing facts that speak for the COMI in Germany.
- The incorporation of the Niki company into the Air Berlin Group and that the fact Air Berlin is controlling the majority of its operational activities and is making the strategic decisions of Niki cannot be a decisive criterion.
- Also, the place of greatest turnover is not relevant to the determination of the COMI.
- The court rather concentrates on the public perception. Niki is perceived as an Austrian airline.
- Another argument for the COMI in Austria is that Niki holds an Austrian operational licence and an air traffic testimony from Austro Control.
The German preliminary administrator applied for an appeal to the German Federal Supreme Court.5
The same Austrian creditor that applied for the immediate appeal in Germany against the German proceedings filed an application in the Austrian district court of Korneuburg for opening a main insolvency proceeding against Niki after article 3 EIR 2015 on 2 January 2018. The creditor argued that the COMI of the company was located in Austria.
In addition, the German preliminary administrator applied to the same district court on 10 January 2018 to open a secondary proceeding about Niki in Austria after article 3(3) EIR 2015.
The district court of Korneuburg was convinced in its decision on 12 January 2018 that the decision of the district court of Berlin annulled the decision of the local court of Berlin-Charlottenburg because of the violation of international jurisdiction according to article 3(1) EIR (2015) with immediate effect appropriate of article 102c German EGInsO and sections 575, 570 Abs 3 ZPO, and has longer legal validity.6 The district court of Korneuburg had the opinion that no main insolvency proceeding was still pending in Germany. It also held that the German section 6 InsO is not applicable and the COMI is in Austria because:
- the majority shareholder of Niki is an Austrian shareholder;
- Niki holds an Austrian operational approval (in the case of a COMI in Germany Niki would lose the operating licence) and an air traffic testimony;
- the company is taxable under Austrian law; and
- all 850 employee contracts are governed under Austrian law and there are no employees in Germany.
The concept of COMI
The international jurisdiction of this case is governed by EIR 2015, especially in its articles 3(1) and 5.
The concept of COMI is governed essentially in article 3 EIR 2015.7 The article has been redesigned but retains core elements of the old article 3 of the European Insolvency Regulation No. 1346/2000 from 29 May 2000.
Article 3 EIR 2015: International jurisdiction
Article 3 EIR 2015 reads as follows:
1. The courts of the Member State within the territory of which the centre of the debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings (‘main insolvency proceedings’). The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties.
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 the absence of proof to the contrary. That presumption shall only apply if the registered office has not been moved to another Member State within the 3-month period prior to the request for the opening of insolvency proceedings.
In the case of an individual exercising an independent business or professional activity, the centre of main interests shall be presumed to be that individual’s principal place of business in the absence of proof to the contrary. That presumption shall only apply if the individual’s principal place of business has not been moved to another Member State within the 3-month period prior to the request for the opening of insolvency proceedings.
In the case of any other individual, the centre of main interests shall be presumed to be the place of the individual’s habitual residence in the absence of proof to the contrary. This presumption shall only apply if the habitual residence has not been moved to another Member State within the 6-month period prior to the request for the opening of insolvency proceedings.
2. Where the centre of the debtor’s main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if it possesses an establishment within the territory of that other Member State. The effects of those proceedings shall be restricted to the assets of the debtor situated in the territory of the latter Member State.
3. Where insolvency proceedings have been opened in accordance with paragraph 1, any proceedings opened subsequently in accordance with paragraph 2 shall be secondary insolvency proceedings.
4. The territorial insolvency proceedings referred to in paragraph 2 may only be opened prior to the opening of main insolvency proceedings in accordance with paragraph 1 where
(a) insolvency proceedings under paragraph 1 cannot be opened because of the conditions laid down by the law of the Member State within the territory of which the centre of the debtor’s main interests is situated; or
(b) the opening of territorial insolvency proceedings is requested by:
(i) a creditor whose claim arises from or is in connection with the operation of an establishment situated within the territory of the Member State where the opening of territorial proceedings is requested; or
(ii) a public authority which, under the law of the Member State within the territory of which the establishment is situated, has the right to request the opening of insolvency proceedings.
When main insolvency proceedings are opened, the territorial insolvency proceedings shall become secondary insolvency proceedings.
Article 3 EIR 2015 regulates the international jurisdiction of cross-border insolvency proceedings within the EU and determines which court of the member states has jurisdiction for the main insolvency proceeding.
In addition, article 3 EIR 2015 should prevent forum shopping.
According to the wording of article 3 EIR 2015, international jurisdiction is an exclusive competence for main insolvency proceedings.
Only territorial jurisdiction within that member state should be established by the national law of the member state concerned (see recital 27 of EIR 2015).
The international jurisdiction also determines the applicable law. Article 7 EIR 2015 provides that the law applicable to insolvency proceedings and their effects shall be that of the member state within the territory of which such proceedings are opened (the ‘state of the opening of proceedings’), or as otherwise provided in the EIR 2015.
An opened main insolvency procedure after article 3(1) EIR 2015 has to be recognised in the respective member states of the EU.
This is also valid for an opened secondary proceeding after article 3(2) EIR 2015.
The recognition of insolvency proceedings is ruled in article 19 EIR 2015.
Article 19 EIR 2015: Principle
The aim of article 3(1) EIR 2015 is to ensure that there is only one main insolvency procedure over the asset from the debtor and it has to be at the place where the debtor has his or her COMI.
The new sentence 2 of article 3(1) EIR 2015 contains a legacy definition of the COMI: it is the place of administration of the interests that can be recognised by third parties.
Jurisdiction to open main insolvency proceedings shall belong to the courts of the member state within the territory where the COMI is situated.
The decisive time for the court assessment is therefore the receipt of the petition for the opening of insolvency proceedings before the court, which in its view has jurisdiction. This does not mean, however, that this court must inevitably come to the same conclusion as the debtor.
In most cases about COMI from a company, the court can fall back on the old presumption rule, which is now regulated in sentence 1 of article 3(2) EIR 2015. In the case of a company or legal person, the place of the registered office shall be presumed to be its COMI in the absence of proof of the contrary.
However, this presumption rule should only apply if the place of administration of the debtor’s interests on a regular basis and his or her seat are located in the same member state.8
That is also the ECJ’s opinion. Thus, primarily, it must be determined whether the main administration of the debtor is actually from the perspective of the relevant creditors in the state of the registered office. If so, it remains at the presumption of sentence 1 of article 3 (2) EIR 2015. If the member state of the main administration of the debtor and the member state where the place of the registered office is located are different, the COMI is critical.9 If the main administration is located at the registered office of the company and also their board of directors is recognisably leading the company from this office (the operational management, rather than the strategic management, is essential for this), it does not matter if assets or establishments are located in different member states.
Assets or establishments in different member states are of importance only if the majority of the creditors have the impression that the main administration is not located at the registered office. Only in such a situation will additional objective factors, also from a creditor perspective, be required to clarify the jurisdiction for the insolvency proceedings.
This means that the COMI must be determined on the basis of criteria that are objective and at the same time ascertainable to third parties. These two criteria must be cumulative and examined individually. The interests are objective when they appear externally and can thus be detected by third parties.10 This determination must be made by the national local court where the debtor filed his or her petition for insolvency.
When determining whether the debtor’s COMI is ascertainable by third parties, special consideration should be given to the creditors and to their perception as to where a debtor conducts the administration of its interests. This may require, in the event of a shift of COMI, information of the new location from which the debtor is carrying out its activities being passed on to the creditors in due course; for example, by drawing attention to the change of address in a commercial correspondence, or by making the new location public through other appropriate means.11 This is especially important if the perception of the general legal relations and those of the creditors fall apart. In this case, the perception of creditors is crucial, even if the objective criteria and the perception of the creditors differ. It should also be noted that no group of creditors may be privileged.
The competent court should examine its own motion before opening insolvency proceedings whether or not the debtor’s COMI or establishment is actually located within its jurisdiction.
How far this examination should go is a controversial topic. It is argued that the court has a substantial obligation to investigate; however, it is also argued that the court only has a duty to examine (that is, check in less detail).
Article 4 EIR 2015: Examination as to jurisdiction
Article 4 EIR 2015 states: ‘A court seized of a request to open insolvency proceedings shall of its own motion examine whether it has jurisdiction pursuant to Article 3.’ The English version of the article does not really help to clarify the extent of the examination that is expected, because the word ‘examine’ can mean the same as ‘investigate’. But the preamble of the EIR 2015, which has to be considered in the interpretation of article 4, states:
In all cases, where the circumstances of the matter give rise to doubts about the court’s jurisdiction, the court should require the debtor to submit additional evidence to support its assertions and, where the law applicable to the insolvency proceedings so allows, give the debtor’s creditors the opportunity to present their views on the question of jurisdiction.
This means that the court that has to decide on the opening of main proceedings has a substantial obligation to investigate. If the creditor perspective is not adequately included in the decision, the court will violate a procedural order of the EIR and the preamble.12 In general, the court will only demand further examinations and investigations if the case reveals recognisable cross-border relations. Then it is at least reasonable for the court to carry out the above-mentioned inquiries of the creditors and request further proof.
Application to the case and result
It was certainly not the European legislator’s intention in introducing articles 3 and 5 EIR 2015 that a local member state court would have to decide if the suspensive effect of a German immediate appeal had to be handled after the German article 102c EGInsO and section 6 InsO (suspensive effect), or article 102c German EGInsO and sections 575, 570 Abs 3 ZPO (no suspensive effect).
In this case, this was only possible because everyone involved spoke the same language and the national legal systems were in some points similar. I would also like to point out that I do not share the view of the district court of Korneuburg. Regarding the applicability of section 6 InsO and its effects to the case, I refer to the essay from Mr Prof Christoph Thole.13
The intention of the European legislator was that the seized court of a request to open insolvency proceedings shall of its own motion examine whether it has jurisdiction pursuant to article 3 EIR 2015. As explained above, the court must first determine whether the main administration of the debtor is actually in the state of the registered office by the perspective of the main and relevant creditors. The decision of local court of Berlin-Charlottenburg does not do that. In its comments the court only considered the perception of third parties. It gave no special consideration to the creditors of Niki and their perception. The local court of Berlin-Charlottenburg should have asked the applicant and in case of doubt would have had to ask the major creditors’ groups.
But also the German district court of Berlin did not determine whether the main administration of the debtor is actually in the state of the registered office by the perspective of the main and relevant creditors and it also gave no special consideration to the creditors of Niki and to their perception. It only considered third parties and public opinion, about which it was wrong.
The Austrian district court Korneuburg made this mistake as well.
But it should be pointed out that at least the Austrian court seemed to be the only one that indirectly took into consideration the perspectives of some possible main and relevant creditors. Normally in such cases the tax authorities and the employees represent parts of the creditors. The court explained that the company was taxable by Austrian law, and that all 850 employee contracts were governed after Austrian law and there were no employees in Germany. So, indirectly, the court had taken into consideration the perspective of these possible relevant creditors.
In my opinion all three courts did not make the necessary inquiries and violated their substantial obligation to investigate.
But it is questionable whether the courts can be criticised. The objective of article 3 EIR 2015 is to avoid COMI shifting. Each court that receives a request to open insolvency proceedings must be aware that the applicant usually only highlights the arguments that support his or her view, especially if the COMI should be not in the country where the debtor is registered and has perceptible business. This is especially relevant in big and important cases with potentially high fees for the parties involved.
A court seized by a request to open insolvency proceedings shall of its own motion examine whether it falls under its jurisdiction pursuant to article 3. This means that the court is obliged to examine carefully and impartially all relevant aspects of the individual case and must give sufficient reason for its decision. If necessary, it has to give special consideration to the creditors of Niki and to their perception.
A possible solution would be that the involved or possibly involved national courts (judges) discuss their arguments and positions with each other. The case presented should have been prevented by the introduction of article 42 EIR 2015, which is set out below.
Article 42 EIR 2015: Cooperation and communication between courts
1. In order to facilitate the coordination of main, territorial and secondary insolvency proceedings concerning the same debtor, a court before which a request to open insolvency proceedings is pending, or which has opened such proceedings, shall cooperate with any other court before which a request to open insolvency proceedings is pending, or which has opened such proceedings, to the extent that such cooperation is not incompatible with the rules applicable to each of the proceedings. For that purpose, the courts may, where appropriate, appoint an independent person or body acting on its instructions, provided that it is not incompatible with the rules applicable to them.
2. In implementing the cooperation set out in paragraph 1, the courts, or any appointed person or body acting on their behalf, as referred to in paragraph 1, may communicate directly with, or request information or assistance directly from, each other provided that such communication respects the procedural rights of the parties to the proceedings and the confidentiality of information.
It would have been better if the national courts had coordinated their decisions. Such coordinated decisions could prevent difficulties and delays arising, as well as forum shopping by argumentation.
1 ZIP 1/2018, page 41 ff.
3 ZIP 2018, page 401 ff.
4 LG Berlin, Beschl. from the 08.01.2018 – 84 T 2/18; ZIP 2018 41 and 140.
5 Az IX ZB 1/18.
6 Landgericht Kroneuburg (Österreich), Beschl. v. 12.01.2018 – 36 S 5/18d-3, ZIP 2018, 393.
8 ECJ, Decision 20 October 2011 – Rs C-396/09 (Interedil), Rz 49.
9 ECJ, Decision 20 October 2011 – Rs C-396/09 (Interedil).
10 Vallender/Zippert EuInsVO Kommentar 2017, Artikel 3, RN 14.
11 ECJ (GA Jacobs), Decision 27 September 2005 – Rs. C-341/04 (eurofood/Parmalat, Rz 122; ECJ, Decision 20 October 2011 – Rs C-396/09 (Interedil), Rz 49.
12 Christoph Thole ZIP 2018, pages 401, 405.
13 Lehren aus dem Fall Niki, Zip 2018, pages 401, 406.
Since PLUTA Rechtsanwalts GmbH was founded in 1982 by Michael Pluta, PLUTA has constantly grown, and today has a staff of more than 400 employees in more than 40 branch offices, which are operated by six legal entities active in Germany, Spain, Italy and Poland. More than 40 court-appointed insolvency administrators are working in Europe for PLUTA and more than 90 lawyers and 40 business experts, including many attorneys and tax consultants with multiple qualifications as public auditors, graduates in business administration or accountants ensure sustainable, forward-looking solutions thanks to their qualifications and know-how gained in the more than 30 years of PLUTA’s existence.
PLUTA’s services are bundled in three businesses:
Our core area of expertise includes drafting legally sound contracts with reference to company law, labour law, tax law, insolvency law, and bank and capital market law. Furthermore, we provide protection against third-party claims by means of representation, both in court and out of court, or in a court of arbitration. We also specialise in legal consulting in German–Spanish and German–Italian proceedings. In this way, we ensure the economic success of a company.
In addition to consultation on issues involving labour or company law during restructuring measures and the creation of integrated corporate plans, distressed due diligence reviews and restructuring concepts in accordance with the IDW S6 standard, we also provide support during M&A processes. Moreover, we also ensure comprehensive controlling and provide experienced interim managers in order to guarantee success. In other words, we help companies to overcome crises.
Value preservation by means of continuing business operations, increasing insolvency estate by means of comprehensive analysis and assertion of claims pursuant to insolvency law – these are our principles. Regardless of the sector, the main product focus or the size of the company, we implement insolvency plans expertly and methodically. This is how we lead companies safely through the crisis.