The European Union goes Comi-tose: hazards of harmonizing corporate insolvency laws in the global economy.

I. TRAUMA: THE SCANDAL

A. Parmalat Becomes the Enron of Europe

B. Eurofood Fight II. SLIPPING INTO THE COMI: ATTEMPTS TO HARMONIZE

A. The European Union Sings a Note

B. America Sings Along

C. Behind the Music: Common Theories

1. Territorialists Sing Alone

2. Universalists Sing in Harmony III. A LOOK AT THE PATIENT'S CHART: FAMILY HISTORY

A. Uncle Italy

B. Aunt England and Cousin Ireland

C. The American Step-Child IV. DIAGNOSIS: MODERN LAWS

A. The Pro-Debtor America

B. Uncle Italy's Governmental Interests

C. Cousin Ireland Looking Out for Creditors

D. No Family Reunion in Sight

V. PROGNOSIS: GUIDELINES AND PANELS

A. Providing Guidelines

B. Appointing a Panel VI. CONCLUSION: SLIPPING OUT OF THE COMI

Parmalat, at its peak, was one of the largest global food and dairy conglomerates in the world. (1) Its insolvency in 2003 eclipsed the Enron and WorldCom cases because Parmalat executives allegedly created fraudulent bank records that drove the company to its demise. (2) Parmalat also had many subsidiary companies spanning the globe, including enterprises in North America, South America, and Europe. (3) During the insolvency cases, creditors from around the world tried in many different ways to collect as much money as possible from the billions of dollars Parmalat and its subsidiaries owed them. (4) The need to satisfy local creditors sparked jurisdictional battles, such as the one between Italy--the country where Parmalat was incorporated--and Ireland--the country where one of Parmalat's subsidiaries was incorporated. (5) However, the various insolvency regulations in effect throughout Europe at the time of the jurisdictional battles did little to discourage such battles. (6) To further complicate matters, many European states, including Italy, have undergone substantial insolvency law reform. (7)

This Comment discusses the great Parmalat scandal as an illustration of jurisdictional battles that await future insolvencies of multinational corporations, especially within member states of the European Union. Part I of this Comment will traverse the Parmalat scandal and the economic fallout leading to the insolvency of Eurofood IFSC Limited (Eurofood), one of Parmalat's foreign subsidiaries incorporated in Ireland. The Eurofood case demonstrates the existence of competition between countries over jurisdiction of large insolvency proceedings. Part II will discuss the recent attempts to harmonize the transnational corporate insolvency proceedings to avoid such competition along with the relevant theories used to develop such harmonization. (8)

To properly discuss the jurisdictional battles, Parts III and IV will trace the ancestry of insolvency laws and the histories of a few relevant countries. In so tracing, this Comment will compare the development of laws and policies to demonstrate that, while modern insolvency laws are approaching the same procedures, the policies behind such new procedures have developed independently and differently in each country. Finally, Parts V and VI will discuss why such battles occur and suggest some solutions to avoid future conflicts.

I. TRAUMA: THE SCANDAL

A. Parmalat Becomes the Enron of Europe (9)

Only a short time after the falls of Enron and WorldCom in the United States, the Parmalat scandal erupted in Europe. (10) On December 19, 2003, Parmalat S.p.A. (Parmalat) announced that the company had overstated its assets by about five billion dollars (USD). (11) Immediately, "top executives ... resigned and were arrested, and the company was declared insolvent." (12) As many as sixteen top executives were held accountable for securities violations related to "Europe's biggest corporate scandal." (13)

There were many theories as to how Parmalat's balance sheet developed this five billion dollar hole. (14) Nevertheless, Parmalat was linked to the word "fraud," (15) and some commentators have even dubbed the scandal the "Enron of Europe." (16) Before the scandal, Parmalat was the eighth largest corporation in Italy with over 36,000 employees. (17) Parmalat had also maintained a substantial presence in the global economy, owning subsidiaries in countries throughout the world. (18)

B. Eurofood Fight (19)

When Parmalat became insolvent, so did a number of its foreign subsidiaries, including Eurofood. (20) The Eurofood cases play an important role in the fallout resulting from Parmalat's insolvency. Because Eurofood was incorporated in Ireland, (21) its main creditor, Bank of America, North America (Bank of America), presented an Irish winding up petition (22) against Eurofood on January 24, 2004. (23) This petition was presented to the High Courts in Ireland one month after an Italian court determined that Parmalat was insolvent and placed the company into extraordinary administration under Italian law. (24) However, the Italian court waited until February 20, 2004, to rule that Eurofood was also insolvent and that the center of its main interests (COMI) was Italy. (25)

The proper forum for Eurofood's insolvency proceeding became a hard-fought issue between both the Italian court and the Irish courts. (26) The Irish Supreme Court ultimately heard the case and discussed the various issues of Irish law. (27) The court noted that, under Irish law, the Companies Act of 1963 governed the appointments of liquidators in Irish winding up proceedings. (28) The key issue before the Irish Supreme Court was whether Irish courts should recognize Ireland or Italy as the COMI, (29) and as a consequence of such a recognition or nonrecognition, which country's courts would have jurisdiction over Eurofood's assets for purposes of Eurofood's insolvency proceeding. (30)

The Irish Supreme Court, in analyzing Eurofood's COMI, noted that Eurofood "has at all times conducted its business lawfully and regularly in Ireland." (31) Furthermore, the Irish Supreme Court focused its discussion on the ability of third parties to ascertain Eurofood's COMI, noting that Eurofood's creditors would have believed they were dealing with a company whose COMI was not Italy. (32) The Court ultimately held that it should not recognize the Italian court's decision (33) and held, to the contrary, that Eurofood's COMI was Ireland. (34)

Dr. Enrico Bondi, the Italian court-appointed administrator for the Parmalat and Eurofood proceedings in Italy, appealed this decision. (35) In response to Dr. Bondi's appeal, the Irish Supreme Court stayed the proceedings and submitted questions to the European Court of Justice (ECJ) asking how to proceed. On September 27, 2005, the ECJ issued an opinion answering the Irish Supreme Court's questions and handed down a final judgment on May 2, 2006. (36) In its opinion, the ECJ seemingly agreed with the Irish Supreme Court's findings. (37) The ECJ held that the presentation of a winding up petition in the Irish court, coupled with the appointment of a provisional liquidator, was an act sufficient to constitute the opening of a main insolvency proceeding pursuant to the E.U. Insolvency Regulation. (38) More specifically, the ECJ held that:

[A] decision to open insolvency proceedings for the

purposes of the [E.U. Insolvency Regulation] must be

regarded as including not only a decision which is

formally described as an opening decision by the

legislation of the Member State of the court that

handed it down, but also [1] a decision handed down

following an application, [2] based on the debtor's

insolvency, seeking [3] the opening of proceeding

referred to in Annex A to the [E.U. Insovency

Regulation], where [4] that decision involves

divestment of the debtor and the appointment of a

liquidator referred to in Annex C to the [E.U.

Insolvency Regulation]. (39)

Accordingly, the Irish proceeding for Eurofood's insolvency was deemed a main proceeding and the Italian proceeding a secondary proceeding. (40) As a result, the Italian courts could only distribute Eurofood's assets subject to the Irish court's decisions. (41) Thus, the Irish winding up proceedings continued in Ireland as the main proceeding, while a secondary proceeding continued in Italy. (42)

II. SLIPPING INTO THE COMI: ATTEMPTS TO HARMONIZE

A. The European Union Sings a Note

Because E.U. member states continue to have conflicting laws with regard to insolvency procedures and proceedings, the European Union put into operation the E.U. Insolvency Regulation, effective in 2002. (43) The E.U. Insolvency Regulation was designed to govern insolvency proceedings (44) initiated in member states. (45) Furthermore, the E.U. Insolvency Regulation only governs conflicts or disputes arising between member states. (46) The European Union also enumerates what it means to be a liquidator under the E.U. Insolvency Regulation, (47) and further defines other important terminology. (48)