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

One peculiarity of the E.U. Insolvency Regulation is its reliance on the COMI, as defined in Recital 13. (49) The definition of COMI becomes extremely important when determining the correct forum for a main insolvency proceeding under Article 3(1). (50) Such a definition provides for a great deal of flexibility. (51) Its "open character" allows the E.U. Insolvency Regulation to do two things: (1) provide a legal definition of COMI; and (2) create a presumption that a COMI shall be the place of incorporation. (52) Nevertheless, this "legal definition" and test for determining the COMI has become the epicenter of recent jurisdictional battles, such as the one in the Eurofood cases. What the E.U. Insolvency Regulation does not do, and what this Comment suggests it should, is provide member states with more formal and uniform guidelines by which courts may abide in making a determination of which country is the true COMI.

Because the COMI provides such flexibility, the E.U. Insolvency Regulation is subject to jurisdictional conflict, or, more specifically, forum conflicts. (53) Recital 22 calls for the immediate and automatic recognition of judgments when a proceeding is opened in a member state. (54) Where concurrent proceedings are opened in different countries, as in the Eurofood cases, the ECJ will recognize only one of those member states as the proper forum for the main insolvency proceeding. (55) Thus, where one member state is the place of incorporation and another member state is able to rebut the presumption that the place of incorporation is the COMI using contrary evidence, the ECJ will hold that the country where a proceeding was filed first is the COMI and proper forum for the main insolvency proceeding. (56) Once the "first to file" insolvency proceeding is opened in a member state, all competing member states will have few, if any, grounds to disregard that proceeding as the main proceeding. (57) All proceedings that are not deemed the main proceeding are deemed secondary proceedings, and parties involved in the secondary proceedings are encouraged to cooperate with the court adjudicating the main proceeding. (58) Thus, the ECJ held that Ireland's winding up proceeding would be the main proceeding under the E.U. Insolvency Regulation, and any subsequent proceeding opened with regard to Eurofood in Italy would be a secondary proceeding. (59)

B. America Sings Along

In 2005, the United States embraced the United Nations Commission on International Trade Law's (UNCITRAL) Model Insolvency Act (the Model Act) by enacting Chapter 15 of the U.S. Bankruptcy Code (Chapter 15). (60) The purposes of Chapter 15 are to maintain cooperation between American and foreign courts, to promote greater legal certainty for trade and investment, to administer cross-border insolvencies fairly and efficiently, to protect and maximize the value of the debtor's assets, and to rescue troubled businesses. (61)

Chapter 15 contains mechanisms to open insolvency proceedings concurrently in the United States while there are ongoing insolvency proceedings in foreign countries. (62) The new provisions were designed to use these mechanisms when a foreign court requires assistance from a U.S. bankruptcy court, when concurrent cases are filed in the United States and in a foreign country, or when creditors in foreign countries may have an interest in requesting that a case be filed under Chapter 15. (63) Thus, U.S. courts are now able to open bankruptcy cases for subsidiaries of foreign corporations owning assets in the United States, such as Parmalat's American subsidiaries. (64)

Chapter 15 is relevant to the jurisdictional battles discussion, because it also uses the term "center of its main interests." (65) While U.S. law generally uses the term "principle place of business" to refer to the nerve center of a corporation, Chapter 15 maintains its commitment to the Model Act by using the COMI language, possibly as an expectation of future conflicts with E.U. member states. (66) Should a conflict arise between American courts and European courts, how will an American court define COMI? Chapter 15 presumes that, absent contrary evidence, the country of the debtor's registered office is the COMI. (67) While this presumption is similar to the E.U. Insolvency Regulation's presumption, (68) America's different policy regarding the treatment of debtors may result in a different interpretation of a debtor's COMI. (69)

Since the May 2, 2006 ECJ opinion, several U.S. courts have begun to interpret the Chapter 15 definition of COMI, and critics have weighed in on some of these opinions. An example of such interpretation came about in In re SPhinX, Ltd. (70) In that case, several hedge funds were registered and incorporated in the Cayman Islands. (71) However, these funds did not conduct a trade or business in the Cayman Islands, nor did they have any employees, physical offices, or any significant assets in the Cayman Islands. (72) Rather, the business for the hedge funds was conducted by PlusFunds, an American company located in New York and incorporated in Delaware. (73) Furthermore, PlusFunds was the debtor in a separate Chapter 11 case before the Southern District of New York. (74) The conflict arose when SPhinX was forced to settle a $312 million preference paid on its behalf in the PlusFunds proceeding. (75) To stymie the payment of the settlement, investors in the SPhinX funds opened insolvency proceedings in the Cayman Islands and then filed petitions under Chapter 15 in the U.S. court to have the Cayman Islands proceedings recognized as foreign main proceedings. (76)

In deciding whether to recognize the Cayman Islands proceedings, the U.S. bankruptcy court underwent an overly complicated analysis, first noting that the proceedings were "entitled to recognition," but then bifurcating the discussion into a separate analysis as to whether the proceeding was a foreign main or foreign non-main proceeding. (77) The Court ultimately held that because the purpose for opening proceedings in the Cayman Islands was to prevent the approval of the settlement in the PlusFunds case, the Cayman Islands were not the COMI for the SPhinX funds and, therefore, not a main proceeding. (78)

While the SPhinX court's opinion seemed well-reasoned and logically based on the ECJ's interpretation of COMI, critics of the SPhinX opinion have stated that such reasoning "tortured" the purposes for enacting Chapter 15. (79) Rather than severing the analysis of whether to recognize a foreign proceeding and whether a proceeding is main or non-main, Glosband argues that because SPhinX did not have any establishment in the Cayman Islands and could not prove that its COMI was in the Cayman Islands, the Cayman proceedings should not have been recognized as either foreign main or non-main proceedings. (80) That is, the proceedings should not have been recognized in the American proceedings at all. (81) Glosband further argues that the SPhinX opinion "creates a wholly unnecessary, serious and regrettable breach with European case law on the meaning of key concepts taken from a European statute." (82) Opinions such as the SPhinX opinion demonstrate how countries may pass laws with every intention of harmonizing their laws and policies, but when it comes time to interpret common language, different policies and backgrounds will undoubtedly lead to differing interpretations.

C. Behind the Music: Common Theories

In deciding how to conduct insolvency proceedings, courts often adhere to one of two commonly used principles: territorialism and universalism. (83) Whichever theory a court favors often determines how that court will treat foreign creditors and foreign assets of local debtors. (84) Furthermore, these theories have assisted UNCITRAL, the European Union, and the United States in drafting the Model Act, the E.U. Insolvency Regulation, and Chapter 15, respectively. (85) Because many well-written legal articles have greatly documented the advantages and disadvantages of these theories, this section will only briefly articulate key points of the two theories. (86)

1. Territorialists Sing Alone

Territorialism--commonly known as the "grab rule"--focuses on dealing with local assets for the benefit of local creditors. (87) The traditional approach for territorialism consists of the courts in each jurisdiction physically seizing the property and distributing it according to local rules. (88) This approach dominated the United States until the 1970s. (89) Participation in insolvency proceedings is subject to the availability of knowledge, information, and in some instances, the ability of foreign creditors to overcome procedural hurdles. (90) While this particular view of territorialism has developed a bad connotation for some attorneys and practitioners, in the modern context this theory requires cooperation among states and results in something less than pure territorialism. (91)