When a declaration on COMI comes in handy

When a declaration on COMI comes in handy

What are the relevant factors the court will assess when making a declaration on the centre of main interests (COMI) for shipping companies, and what will this mean in practice?

Original news

Re Northsea Base Investment [2015] EWHC 121 (Ch), [2015] All ER (D) 202 (Jan)

The proceedings concerned an application, on behalf of the administrators for each of the applicant companies, for a declaration in relation to each company that the COMI was England and Wales, within the meaning of Council Regulation (EC) 1346/2000 (on insolvency proceedings). The Companies Court held that the legislation made it clear that the presumption was that the COMI of the company would be the state of its registered office, which was Cyprus. However, there was sufficient evidence to rebut that presumption and the declarations sought would be granted.

What were the jurisdictional factors?

Six ship companies were special purpose vehicles, each owning a single ship in the fleet. These six ship companies were themselves all 100% owned by the second applicant, Baltic Tankers Holding Limited (Baltic Tankers), which in turn was 100% owned by the first applicant, Northsea Base Investment Limited (NSBI). The sole shareholder of NSBI was Hamilton Corporation, incorporated in Nevis. The corporation was owned in broadly equal shares by three Nevis family trusts, each family trust settled by different individuals. All three of the settlors of these trusts were also directors of the shipping agent, Marine Cross Services Limited (Marine Cross).

There were connections to various jurisdictions, including:

England & Wales: The ship companies used a shipping agent (Marine Cross) incorporated in England to conduct their operations and management. The commercial management was subcontracted out (to Scorpio) and carried out in the UK.  All payments demanded by trade creditors were paid by Marine Cross as agents; the agents directed payments to be made in England Invoices were raised by trade creditors to Scorpio India. Charterparties were dealt with both through Scorpio UK and Marine Cross in the UK. External queries raised with Scorpio India were answered by Marine Cross from London and enquiries from third parties were addressed ultimately to London. Loan facilities were governed by English law and contained exclusive English jurisdiction clauses. The interest payments were always arranged by Marine Cross from the companies' bank accounts. The two loan agreements also used Marine Cross's UK address for notices and irrevocably appointed Marine Cross as agent for service of process. The bank mainly dealt with individuals based in London

Cyprus: Place of incorporation of all the companies.  Freight invoices were made out to Scorpio (as agent for the relevant Ship Company) using the company's addresses in Cyprus

India: Commercial operations were subcontracted out (to Scorpio) and were carried out in India. Charterparties were drawn up by Scorpio India

Why was a declaration on COMI sought?

The administrators were appointed over all eight companies in an out of court procedure (under the Insolvency Act 1986, Sch B1, para 22 (IA 1986)) rather than pursuant to an application to the court. Particular urgency arose from the fact that a ship was moving imminently into waters in and around the US, justifying the out of court application. Accordingly, there was no pre-existing court decision on COMI.

The English administrators of the companies sought a declaration on COMI for each of the companies under IA 1986, Sch B1, para 68(2). The declaration was sought to assist in the exporting of the administration to other jurisdictions and was urgent because the companies were operating vessels in international waters and it was likely that applications in other jurisdictions may be needed in the near future.

What did the court decide on COMI?

The court applied Eurofood C-341/04 [2006] All ER (EC) 1078, [2007] 2 BCLC 151 and Interedil C-396/09 [2011] All ER (D) 195 (Oct) and noted that the Court of Justice of the European Union had emphasised the importance of considering each debtor (ie each member of a group of companies) as a distinct legal entity subject to its own court jurisdiction and also emphasised the importance of considering the COMI as being something identified by reference to criteria that are both objective and ascertainable by third parties.

Considering the matter overall, the court noted that there were are a number of jurisdictions with which the operation of these companies was linked, which was unsurprising given the international nature of their business.

The court said that as the companies were all incorporated in Cyprus and had registered offices in Cyprus, there was a presumption that COMI was in Cyprus. Although none of the directors were based in England and board meetings were not held in England, from the point of view of facts ascertainable by a third party, there was no reason why a third party would have any knowledge of the location where directors meetings were held, nor, on the unusual facts of this case, would they regard the directors as being individuals of great significance. The only active director acted from either Nevis or Jersey but his actions were performed under the direction of the settlors, two of whom were based in London and all of whom were closely linked to Marine Cross.

As regards the COMI of the ship companies, the only realistic possible states were Cyprus or England. Although India was a possible candidate, no third party would seriously think the centre of administration of any of these companies was in India. The court concluded there was sufficient evidence relating to the administration of the ship companies to rebut the presumption in favour of Cyprus and establish that the COMI of the ship companies was England and Wales.

The COMI of NSBI and Baltic Tankers was less clear cut given that these companies carried out many fewer operational tasks than the ship companies. There were not the same links between Marine Cross in London and third parties trading with NSBI or Baltic Tankers. Since neither NSBI nor Baltic Tankers had any operational function as such, the only relevant COMI factors relating to those companies were those relating to the banks. Looked at in that way, the registered office presumption was rebutted and the COMI of NSBI and Baltic Tankers was also England and Wales.

What are the practical effects of this case?

While not ground-breaking as this was a standard application of Eurofood and Interedil to decide COMI, this case shows the practical benefits of getting a subsequent declaration on COMI where administrators are appointed out of court and the insolvency process/administrators may need to be recognised in other countries at a later date.

Further reading

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Establishing COMI under the EC Regulation (Subscriber access only)

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First published on LexisPSL Restructuring and Insolvency

Kathy Stones, solicitor in the Lexis®PSL Restructuring & Insolvency team.

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.