¹ See I Mevorach, ‘The road to a suitable and comprehensive global approach to insolvencies within multinational corporate groups’ [2006] 15 JBLP 455, 463–64 and 466–530.

² ibid 466–530. See also I Mevorach, ‘Centralizing insolvencies of pan-European corporate groups: a creditor's dream or nightmare?’ [2006] JBL 468.

³ Combining the assets and liabilities of the affiliates in the course of insolvency.

⁴ This tool is available in several national laws. In Canada and the US, for example, it is counted as essential that corporate groups will be subjected to a joint administration (procedural consolidation) when a financially distressed group seeks to reorganize itself (see DG. Baird, ‘Substantive Consolidation Today’ (2005) 1 Bost Col L Rev 5, 6. (on procedural consolidation in the United States); JS Ziegel, ‘Corporate Groups and Crossborder Insolvencies: A Canada–United States Perspective’ [2002] 7 Fordham J Corprate & Financial L 367, 376 (explaining that procedural consolidation ‘is almost de rigueur’ in Canada and US corporate groups' reorganizations). In the UK, as a matter of practice, coordination of group insolvency may be achieved via the appointment of an insolvency representative to two or more members of the same group.

⁵ See LM LoPucki, ‘Cooperation in International Bankruptcy: A Post-Universalist Approach’ [1999] 84 Cornell L Rev 696 [hereinafter: LoPucki, Cooperation]; LM LoPucki, ‘Universalism Unravels’ [2005] 79 American Bankruptcy L J 143.

⁶ LoPucki, Cooperation (n 5) 716.

⁷ Council Regulation 1346/2000 on Insolvency Proceedings (<http://www.europa.eu.int/eur-lex>) [hereinafter: EU Regulation].

⁸ UN Commission on International Trade Law (UNCITRAL), UNCITRAL Model Law on Cross-Border Insolvency with Guide to enactment, UN Sales No E.99.V.3 (<http://www.uncitral.org/pdf/english/texts/insolven/insolvency-e.pdf>) [hereinafter: UNCITRAL Model Law].

⁹ However, the topic of enterprise groups in insolvency is currently under consideration by UNCITRAL working group V (insolvency law) (see documents and reports of 31st–39th sessions of working group V, available at <http://www.uncitral.org/uncitral/en/commission/working_groups/5Insolvency.html>).

¹⁰ The American Law Institute, Transnational Insolvency: Cooperation among the NAFTA Countries (2003) [hereinafter: ALI Principles].

¹¹ ALI Principles, Procedural Principle 23.

¹² Developed in Japan (see PT Muchlinski, Multinational Enterprises and the Law (Blackwell, Oxford, 2007) 63–65).

¹³ As such associations were described by Teubner (see eg G Teubner, ‘The many-headed Hydra: networks as higher order collective actors’ in J McCahery and S Picciotto and C Scott (eds), Corporate Control and Accountability (OUP, Oxford, 1993) 41).

¹⁴ Muchlinski (n 12) 53–54.

¹⁵ See the initiatives within the EC: the Statute for a European company (SE) (Council Regulation (EC) No 2157/2001, OJ L 294/1, 10.11.2001) and Council Regulation (EEC) 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG)//[1985] OJ L 199/1.

¹⁶ Muchlinski (n 12) 152–153.

¹⁷ See eg, JH Dunning, Multinational Enterprises and the Global Economy (Edward Elgar, Cheltenham, 1993) 3.

¹⁸ See eg, English Companies Act which offers no formal definition of a group, though it seeks to define the key players within a group. For certain purposes the definition refers to group of undertakings embracing an elaborated list of optional connecting factors that can establish a parent undertaking (including the power to exercise dominant influence or the fact that the parent and subsidiary are managed on a unified basis (Companies Act 1985 (UK) s 258, replaced by s 1162 of the Companies Act 2006 (UK)). For other purposes the definitions is narrower and refers only to body corporate (Companies Act 1985 (UK) s 736, replaced by s 1159 of the Companies Act 2006 (UK)).

¹⁹ OECD Guidelines for Multinational Enterprises 27 June 2000 (<http://www.oecd.org/dataoecd/56/36/1922428.pdf>).

²⁰ ibid, ‘Concepts and Principles’, 3.

²¹ The multinational group may comprise of companies or other forms of undertakings. The typical scenario though is the group of companies, on which the paper is mainly focused.

²² We may need though to look at other parts of the MEG (that were not necessarily integrated with the rest and not under insolvency) for other issues pertaining to its insolvency, such as the issue of group liability—where the question is whether one member should be responsible for the debts of another (see Mevorach (n 1) 515–19). However, this is outside the scope of this paper.

²³ In conglomerate groups that operate diversified businesses the group structure may be used for various reasons other than the imposition of a single business strategy; however this sort of enterprises may in fact operate in an integrated way through financial and administrative interdependence. (see PI Blumberg, The Multinational Challenge to Corporation Law: the search for a new corporate personality (OUP, Oxford, 1993) 144–45).

²⁴ See Dunning (n 17) 223.

²⁵ See Muchlinski (n 12) 48.

²⁶ I refer here to ex post efficiency. That is, the ability of the system to maximize the values of insolvency estates in liquidations and facilitate reorganizations, while minimizing expenses and delays. Ex ante aspects will be discussed below under the ‘predictability’ goal.

²⁷ That is, the centre of main interests of the debtor company, which is the test adopted in the Regulation for ascertaining international jurisdiction (Article 3(1) of the EU Regulation).

²⁸ Most pronouncly when dealing with enterprises comprising of companies which are linked by limited liability share holding. But, an equivalent problem in regard to ‘network’ enterprises for instance (linked via contracts) could be the interference with the ‘contractual veil’ (on network organizations see in Teubner (n 13)).

²⁹ See n 4 and accompanying text.

³⁰ See eg PT Muchlinski, ‘Corporations in International Litigation: Problems of Jurisdiction and the United Kingdom Asbestos Cases’ (2001) 50 ICLQ 1; LP Kessel ‘Trends in the Approach to the Corporate Entity Problem in Civil Litigation’ (1953) 41 Georgetown L J 525, 526–32; JJ Fawcett, ‘Jurisdiction and Subsidiaries’ [1985] JBL 16; JK Rothpletz, ‘Ownership of a Subsidiary as a basis for jurisdiction’ (1965) 20 New York University Intramural Law Review 127.

³¹ Thus, treating he creditors as equals (applying ‘real equality’), in the context of ascertaining the group home country and evaluating creditors' expectations (see R Dworkin, Sovereign Virtue: The Theory and Practice of Equality (Harvard University Press, Cambridge, MA, 2000) for the distinction between formal and real equality).

³² In the EU context, the EU Regulation stresses that a major factor in determining where the main proceedings of a debtor should be taking place is third party expectations (see Recital (13) of the EU Regulation). The importance of meeting third parties' legitimate expectations with regard to jurisdiction to open insolvency proceeding was also expressed in numerous EU Regulation cases, see eg Geveran Trading Co Ltd v Skjevesland [2003] BCC 209; Re Daisytek-ISA Ltd [2003] BCC 562 (Ch D); Re Parmalat Hungary/Slovakia, Municipality Court of Fejer, 14 June 2004; Ci4Net.com Inc [2005] BCC 277 (Ch D); Eurofood IFSC Ltd (ECJ) [2006] BCC 397, paras 33–37.

³³ If we will subject the subsidiary to the law of the forum, and since presently there is no prospect of achieving unification of domestic insolvency laws.

³⁴ See DA Skeel, ‘European Implication of Bankruptcy Venue Shopping in the U.S.’ (2006–7) 54 Buff L Rev 439, 463, suggesting that if managers are permitted to make a venue choice at the last minute (anticipating insolvency) they may not face the same market discipline they may face if the filing location is determined in advance.

³⁵ The latter term is used in the EU Regulation (Article 3(1)) and in UNCITRAL Model Law (Article 16(3)).

³⁶ See n 27.

³⁷ The concept originated in the Council of Europe: Convention on Certain International Aspects of Bankruptcy (the Istanbul Convention 1990 Art 4(1)) that never entered into force, but it was subsequently adopted by the working party on the EC Bankruptcy Convention, and then carried through into the EU Regulation as the test for ascertaining international jurisdiction (see IF Fletcher, Insolvency in Private International Law (2nd edn, OUP, Oxford, 2005) 321). The UNCITRAL Model Law and the ALI Principles followed and adopted this concept. This already means a widespread use of the COMI concept, within and outside Europe, as the UNCITRAL Model Law has already been recognised and adopted by a substantial number of countries around the world (including recently the US and the UK).

³⁸ L Perkins, ‘A Defence of Pure Universalism in Cross-Border Corporate Insolvencies’ (2000) 32 NYU J Intl L & Policy 787, 815. See also Skeel (n 35) 463 (arguing that a rule that will require companies to file for bankruptcy in their place of incorporation can resolve distortions that may occur as a result of the mismatch between company and insolvency law, and it will also make the venue more certain and less manipulable).

³⁹ See also Westbrook, ‘locating the Eye of the Financial Storm’ (2006–2007) 32 Brook J Int'l L 1019, 1032 persuasively arguing that incorporation as a strong factor for ascertaining jurisdiction may have the effect of permitting bankruptcy havens to serve as the chosen jurisdiction, which may lack sufficient transparency and acceptable outcomes.

⁴⁰ Article 3(1) and Article 3(2) of the EU Regulation.

⁴¹ See the definitions of ‘foreign main proceeding’ and ‘foreign non-main proceeding’ in Article 2 of the UNCITRAL Model Law.

⁴² Article 3(1) and Article 3(2) of the EU Regulation.

⁴³ Under the EU Regulation and the UNCITRAL Model Law incorporation is also not a relevant link for the purpose of opening a secondary or ‘non main’ proceedings. Westbrook has commented that it makes little sense to subject an insolvency process to the laws of a particular country merely because the company registered there even though the actual commercial life of the company was centred elsewhere (JL Westbrook, ‘Theory and Pragmatism in Global Insolvencies: Choice of Law and Choice of Forum’ (1991) 65 American Bankruptcy L J 457, 486). Within the domestic arena it is interesting to note the American National Bankruptcy Review Commission recommendation to delete place of incorporation as a sufficient basis for venue in domestic bankruptcy cases (National Bankruptcy Review Commission, Bankruptcy: The Next Twenty Years (1997) 770, 783). However, the American Bankruptcy Abuse Prevention and Consumer Protection Act 2005 omitted any amendments to the bankruptcy venue statute (see CJ Tabb, ‘Courting Failure—The Effects of Venue Choice on Big Bankruptcies’ (2006 National Bankruptcy Review Commission 2007) 54 Buff L Rev 467, 478 indicating that the senator of Delaware ‘killed’ any venue amendments).

⁴⁴ Ci4Net.com. Inc [2005] BCC 277 (Ch D).

⁴⁵ See also R Tett and N Spence, ‘COMI: PRESUMPTION, WHAT PRESUMPTION’ (2004) 17 Insolvency Int.

⁴⁶ Eurofood IFSC Ltd (ECJ) [2006] BCC 397.

⁴⁷ The exemplifying scenario given is that of a ‘letterbox’ company not carrying out any business in the country of the registered office (ibid paras 34–35).

⁴⁸ LM LoPucki, Courting Failure How Competition for Big Cases Is Corrupting the Bankruptcy Courts (University of Michigan Press, Ann Arbor, MI, 2005) 193–200.

⁴⁹ In the case of ICO Global Communications, for instance, the English court recognized a US reorganization plan of an essentially English corporation although it had little presence in the US, mainly because the plan was also approved by the Cayman Islands and Bermudan courts in which several companies of the ICO group were incorporated (ibid 197–99). In the SphinX case, a US chapter 15 case (chapter 15 replaced s 304 to the US Bankruptcy Code and is based on the UNCITRAL Model law), the US court recognized Cayman Islands liquidations as non-main proceedings, although there was no economic activity there (necessary in order to show there was an ‘establishment’ as the basis for identifying non main proceedings) (In re SPhinX 351 B.R. 103 (Bankr SDNY 2006)) (D (US))). But, see the decision in the case of Bear Stearns, where the court refused recognition of insolvency proceedings opened against two Cayman Islands' hedge funds incorporated there since no operation has taken place in that jurisdiction (In re Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd 374 BR 122 (Bankr SDNY 2007)). The decision is under appeal.

⁵⁰ See LoPucki, Cooperation (n 5) 716 (giving the example of assets which were leases in satellites orbiting the earth).

⁵¹ See IF Fletcher, ‘The European Union Regulation on Insolvency Proceedings’ [2003] INSOL INTERNATIONAL, Cross-Border Insolvency, 15, 25–26.

⁵² It is also not enough in order to open a secondary process (see Report Vigros/Schmit (1996) [hereinafter: Report Vigros/Schmit], which indicates that an ‘establishment’ requires a certain amount of organisation and stability. Hence, few assets in the country will not suffice for an international jurisdiction).

⁵³ The two main instruments for interpreting the EU Regulation.

⁵⁴ Report Virgos/Schmit; Recital 13 of the EU Regulation. See also Virgos, The 1995 European Community Convention on Insolvency Proceedings: an Insider's View, in: Forum International, No 25, March 1998, 13, noting with regard to the need that the place will be ascertainable to third parties that ‘the place where the debtor conducts the administration of his business and centralizes the management of his affairs (eg contractual and economic activities with third parties) satisfies this requirement; not the place where the assets, whatever their value, are located, not the place where the goods are manufactured (eg the place of industrial establishment, etc)’. See also G Moss and Christoph G Paulus, ‘The european insolvency regulation—the case for urgent reform’ (2006) 19 Insolvency Int 2 (suggesting optional definitions to COMI that focus on head office functions).

⁵⁵ See Memorandum from Jay L Westbrook to the National Bankruptcy Review Commission (29 July 1997, in National Bankruptcy Review Commission, Bankruptcy: The Next Twenty Years (1997), app E-1 at 7.

⁵⁶ See Report Virgos/Schmit.

⁵⁷ This interpretation of a ‘company's place of business’ (in the EC 13th Directive) has been recently used by the ECJ (Planzer Luxemburg sarl [2007] ECJ, C–73/06, para 63). The court stressed that a ‘company's place of business’ should mean the ‘place where the essential decisions concerning its general management are taken place and where the functions of its central administration is exercised’.

⁵⁸ Subject to certain limitations, as will be elaborated in section VI. This concept has been also mentioned elsewhere, see eg Mevorach (n 1) 471–478; G Moss, ‘Group Insolvency – Choice of Forum and Law: the European Experience under the Influence of English Pragmatism’ (2007) 32 Brook. J. Inl'l L. 1005.

⁵⁹ See C Tugendhat, The Multinationals (Eyre and Spottiswoode, London, 1971) 22–23.

⁶⁰ Re Bank of Credit & Commerce International SA (No 10) [1997] 2 WLR 172 (Ch 1996).

⁶¹ Indeed, commentators expressed the opinion that England was the actual centre of interests of the BCCI group although the main proceedings against the group took place in Luxembourg (see eg Fletcher (n 51) 37).

⁶² An opinion expressed in LoPucki, Cooperation (n 5) 713–15.

⁶³ In the case of Crisscross for instance, the actual headquarters of the group were in London at the place of incorporation of one of the group's subsidiaries but not of the parent company (Crisscross Telecommunications Group, Re (unreported, 20 May 2003) (Ch D)). In the case of BCCI the parent company was incorporated in Luxemburg whereas the actual headquarters were apparently in London (see Re Bank of Credit & Commerce International SA (No 10) [1997] 2 WLR 172 (Ch 1996)).

⁶⁴ See, for instance, the case of Brac (Re Brac Rent-A-Car Inc [2003] BCC 248) where the European operations were in a virtually independent cluster. See also Collins & Aikman corporation group [2005] EWHC 1754 (Ch D) in which after the filing of chapter 11 proceedings against the ultimate parent located in the US, the European operations were controlled via headquarters in the UK.

⁶⁵ See also Mevorach (n 2) 484.

⁶⁶ See n 31 and accompanying text.

⁶⁷ And accompanied by suitable sanctions (aimed at compensating the creditors) in case of false representation of the COMI against those responsiple for enabling the company to perpetrate such a deception.

⁶⁸ Eurofood IFSC Ltd (ECJ) [2006] BCC 397.

⁶⁹ ibid paras 26–37.

⁷⁰ BenQ Mobile GmbH & Co OHG [a trading partnership] and BenQ Mobile Holding BV, Docket No 1503 IE 4371/05 Munich, 5 February 2007.

⁷¹ The decision is somewhat mitigated in this respect by the subsequent decision of the ECJ in Planzer Luxemburg Sarl ([2007] ECJ, C–73/06). In interpreting the meaning of place of company's business (in the 13th EC Directive) the court explained that primary factors are the registered office but also the place of the company's central administration and other factors (and it refers by analogy to the decision in Eurofood). The case was not concerned though with the corporate group complications.

⁷² Re Crisscross Telecommunications Group (unreported, 20 May 2003), Ch D.

⁷³ Re Parmalat Hungary/Slovakia, Municipality Court of Fejer, 14 June 2004.

⁷⁴ It also examined whether the designated forum was ascertainable by third parties.

⁷⁵ An unreported case in the Ontario Court of Justice (for a description and discussion of the case see R Gordon Marantz, ‘The Reorganization of a Complex Corporate Entity: The Bramalea Story’ in JS Ziegel (ed), Case Studies in Recent Canadian Insolvency Reorganizations (Carswell, Toronto, 1997)).

⁷⁶ ibid 17–18.

⁷⁷ Energotech SARL [2007] BCC 123.

⁷⁸ Proceedings of affiliated companies were also placed at the location of main decision making in other EU Regulation cases, such as Daisytek (Re Daisytek–ISA Ltd [2003] BCC 562 (Ch D)); Cirio Del Monte (Cirio del Monte (Italian court of Rome, August, 2003) (unreported)); Hettlage-Austraia (Amtsgericht (Munich) (Hettlage-Austria) (unreported, 4 May 2004) (Germany)); Collins & Aikman corporation group [2005] EWHC 1754 (Ch); Eurotunnel Finance Ltd (Tribunal de Commerce de Paris, 2 Aug 2006) (unreported); MPOTEC GMBH (Tribunal de Grande Instance, Nanterre [2006] BCC. 681 (Fr.). See also, G Moss and M Haravon, ‘Building Europe — the French Case Law on COMI’ (2007) Insolvency Intelligence; Moss (n 58) (demonstrating the wide adoption in Europe of ‘English Pragmatism)’, i.e. placing proceedings of related companies in the place of the head-office to facilitate centralization of group insolvency proceedings).

⁷⁹ Maxwell Communication Corp 170 BR 800 (Bankruptcy SDNY 1994); Maxwell Communication Corp (1993) 1 WLR 1402 (Ch 1993).

⁸⁰ See also Ziegel (n 4) 379.

⁸¹ See JL Westbrook, ‘The Lessons of Maxwell Communication’ (1996) 64 Fordham L Rev 2531, 2538.

⁸² See Ziegel (n 4) 379.

⁸³ See eg the use of such tool in the case of Cenargo (Re Cenargo International plc 294 BR 571 (Bankr SDNY 2003); Cenargo (Re Norse Irish Ferries & Cenargo Navigtion Limited (unreported, 20 February 2003)). There, the ‘battle’ over jurisdiction has been solved by the respective judges (from the US and the UK) holding a conference call in which they agreed a number of key jurisdictional differences. See also court-to-court communication that took place recently between Dutch and German courts in the case of BenQ (BenQ Mobile GmbH & Co OHG [a trading partnership] and BenQ Mobile Holding BV, Docket No 1503 IE 4371/05 Munich, 5 February 2007).

⁸⁴ See Muchlinski (n 12) 59–60.

⁸⁵ See, for instance, the case of the Unilever group in J Keir, ‘Legal Problems in the Management of a Group of Companies’ in CM Schmitthoff and F Wooldridge (eds), Groups of Companies (Sweet and Maxwell, London, 1991).