of Eurofood from the CJEU and the Daisytek case from the Chancery Division of the High Court of England (Leeds District) to demonstrate how the ambiguity of the definition of COMI in Art 3(1) has led to different interpretation by the courts.57

Whilst there are several cases in which the COMI has been interpreted, these two cases have been selected for discussion for two reasons. First, the Eurofood and the Daisytek cases are regarded as the locus classicuss cases regarding the application of the COMI in MCG situations by both the CJEU and the courts in England.58 Second, the two cases hold two opposing views on how the COMI should be interpreted and applied. While the CJEU in the

Eurofood case adopted the registered office approach, the Leeds Court in England followed the ‘head office function’ approach in the Daisytek case. Furthermore, the treatment of insolvency for a group of companies differs in those two cases, as will be explained below.59

The critical evaluation of the approaches adopted in both cases will help to determine which approach is more effective in achieving a consistent interpretation and application of the COMI in cases of MCGs.

(A) Analysis of the Case of Daisytek ISA Limited: The ‘Head Office Function’ Approach

One of the landmark cases related to the issue of determining the place of a company’s COMI as it concerns MCGs is the Daisytek case.60 The Daisytek corporate group’s main function was to distribute computer supplies and professional tape products. There was a parent company in the USA, and it had several subsidiaries in Europe as resellers for those products. In early 2003, Daisytek the parent company defaulted on financial covenants, and this default

57See more cases regarding how the presumption in Article 3(1) has been interpreted for example Stanford international Bank Ltd case [2009] EWHC 1441 (Ch).

58Samuel Bufford, ‘International Insolvency Case Venue in the European Union: The Parmalat and Daisytek Controversies’ (2006) 12 Columbia Journal of European Law 429.

59The treatment of group of companies in company laws in Europe is controversial as to whether they should be recognised as one entity or not. This issue has a direct impact on how Private International law will treat corporate groups.

60ReDaisytek-ISA Ltd [2003] BCC 562.

81

caused financial problems for the subsidiaries in Europe. Consequently, insolvency proceedings were filed in the US,61 England, 62 Germany,63 and France.64 Out of the sixteen European subsidiaries, one had been incorporated in France, three in Germany, and the rest in England. Accordingly, there was a dispute between the English and the French courts about where the main insolvency proceedings should be conducted for Daisytek – France or England - and the same dispute arose between the English and the German courts regarding two of the German subsidiaries.

In light of the case, the English court was satisfied that the COMI of each company in the group was situated in England, specifically in Bradford. The English High Court argued that the head office in Bradford was the coordinator and the performer of the European group, which included, for example, the negotiation of supply contracts.65 In fact, there was no problem with the English Court opening the main proceedings for the Ten English Companies based on the presumption in Article 3(1) of the EIR 2000. However, the challenge for the English court was how to overcome the presumption in order to have the jurisdiction to open the main proceedings for the German and French companies.66 The Court provided a detailed analysis of the evidences and factors which affected its final decision to adopt the head office function approach.67 The English High Court was satisfied that the German and French subsidiaries conducted the administration of their businesses from the Bradford head

61See Daisytek –US, 2004 WL 1698284.

62See Daisytek- Leeds 2003 WL 21353254.

63Re Daisytek – ISA Ltd., [2003] B.C.C. 562 (Ch).

64Klempka v ISA Daisytek SAS, 2004 WL 22936778, [2004] ILPr (C d/ A 2003) (France).

65See Daisytek- Leeds 2003 WL 21353254.

66Bufford (n 58) 456.

67Gabriel Moss, ‘Head Office Functions as a Decisive Factor to Determine International Jurisdiction’ (Honours

Class 'Comparative and International Insolvency Law', Leiden, March-June 2009) <http://www.iiiglobal.org/component/jdownloads/viewdownload/362/4009.html> accessed 29 May 2016.

82

office.68 The Court placed particular emphasis on the claim that the centre of the debtor’s main interests was “ascertainable by third parties”.69

From the point of view of the English Court, the third parties are the creditors, so in the case of a trading company, these creditors are most likely to be its trade suppliers and its financiers.70 The court found that most funding was provided through English financial institutions. Furthermore, the Court found that most of the factual evidence indicated that a head office in Bradford was managing and controlling all of the companies in the group. For instance, the Court found that the German subsidiary could not purchase goods worth more than 5000 Euros without the approval of the head office in England.71 Additionally, negotiations for 70% of the supply contracts took place in England.72 Thus, the Court in Leeds found sufficient evidence to rebut the presumption that both the German and French subsidiaries were located in the place of their registered office.73

The French and German courts initially rejected this judgment in the Daisytek case because it was against the spirit of the Insolvency Regulation. For example, the Pontoise court in France found the opening of main insolvency proceedings by the court in Leeds to be contrary to the Regulation for two main reasons.74 First, there is no provision in the EIR 2000 for corporate groups, so each of the group’s companies has a separate legal personality and should be treated separately. The location of the establishment in England did not support the English court's decision to open main proceedings because under the EU Regulation, an establishment

68EIR 2000 recital 13.

69See Daisytek- Leeds, 2003 WL 21353254 para 2.

70ibid; Gabriel Moss, ‘The Triumph of “Fraternite”: ISA Daisytek SAS’ (International Insolvency Institute, December 2002) <http://www.iiiglobal.org/component/jdownloads/finish/104/798.html> accessed 29 May 2016.

71Daisytek (n 65).

72ibid.

73Bufford (n 58) 458.

74Klempka v ISA Daisytek SAS, 2004 WL 22936778, [2004] ILPr (C d/ A 2003) (France).

83

gives a court the right only to open secondary proceedings not main proceedings.75 However, this judgment was not recognised by the Versailles Court of Appeal in France on the grounds that all Member States should automatically recognise the judgment of the court where the main insolvency proceedings are opened without challenges or further investigation regarding the judgment, as stated in Art16 EIR 2000.76

Following the important decision in the Daisytek case, the same principle was applied in the case MG Rover,77 where the English court rebutted the presumption in Art 3(1) that COMI is where the registered office of the company is located, applying instead the head office function approach. In this case, the English court was satisfied that all factual evidence proved that the management and operation of the French subsidiary was in England.78

Despite the relative solidity of the court’s judgment, it is argued that the head office function approach might serve as an incentive for forum shopping when the group’s management decides to move its place of control to a different location.79 However, the New Recast EIR 2015 has, to some extent, ameliorated this potential difficulty by providing a cut-off period of three months prior to the commencement of insolvency proceedings.

Thus, from the above analysis of how the English courts have interpreted the COMI of individual companies and groups, the following conclusion can be drawn. In general, two different approaches have been applied: the registered office approach and the head office function approach. The registered office approach is more ascertainable for third parties,

75Bufford (n 58) 460; EIR 2000 art 3 (2).

76See Daisytek – Versailles, 2003 WL 22936778 paragraph Article 16 of the EIR also states that ‘Any judgment opening insolvency proceedings handed down by a court of a Member State which has jurisdiction pursuant to Article 3 shall be recognised in all the other Member States from the that time it becomes effective in the State of the opening of proceedings’. See also Recital 22.

77MG Rover Espana and other Subsidiaries [2005] BPIR 1162, [2006] BCC579.

78MG Rover Espana (n 77) para 116; Michael Haravon, ‘Recent Developments in France under EU Regulation 1346/2000’ (2005) Insolvency Intelligence 118.

79Wessels (n 23) 523.

84