COMI Chameleon: Is ‘COMI Manipulation’ in Chapter 15 a Ballooning Problem?

Steven W. Golden and Brooke E. Wilson recently authored a piece in the Special International Issue of the American Bankruptcy Institute Journal analyzing the role that foreign debtors’ center of main interests (COMI) play in chapter 15 bankruptcy cases.

In the article, entitled “COMI Chameleon: Is ‘COMI Manipulation’ in Chapter 15 a Ballooning Problem?” Steve and Brooke delve into the origins of chapter 15 of the Bankruptcy Code, explaining that it was adopted in 2005 and implemented by the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency in the U.S. Under chapter 15, a bankruptcy court must recognize a “foreign main proceeding” in the country where the foreign debtor has its center of main interests (COMI).

Steve and Brooke write that courts and commentators have both expressed “increasing concern that a company could manipulate its COMI to manufacture a foreign main proceeding in a specific country, thereby availing itself of the unique tools of a specific country’s insolvency regime and circumventing perceived restrictions of the Bankruptcy Code,” evidenced by a recent case of COMI manipulation faced by the U.S. Bankruptcy Court for the Southern District of New York.

They continue to analyze the role of COMI manipulation across various countries, concluding that while “there are persistent challenges surrounding the recognition of restructuring plans across jurisdictions, particularly where local laws are tied to COMI requirements for recognition,” new tools used by systems in European countries can allow for “the strategic exclusion of certain creditors and the pragmatic use of soft recognition” to deliver successful outcomes.

Read the full article in the ABI Journal below (subscription required).