Determining a Debtor’s Center of Main Interest in a Highly Integrated Enterprise

By: Loredana Miranda

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff

Under Chapter 15 of title 11 of the United States Code (the “Bankruptcy Code”), a court may grant recognition to a debtor’s foreign proceeding as a foreign main or nonmain proceeding depending on the location of a debtor’s center of main interest (“COMI”) or establishment.[1]  In a case involving affiliates, the United States Bankruptcy Court for the Southern District of New York determined the COMI of each debtor and not of the group as a whole.  Accordingly, it granted recognition to the Brazilian proceedings of certain debtors as foreign main proceedings.[2][3]

On December 7, 2018, a group of ten foreign debtors known as the Constellation Group sought recognition of their Brazilian insolvency proceedings under Chapter 15 of the Bankruptcy Code.[4] The group’s key assets were onshore/offshore drilling rigs and different investment ventures, primarily located in Brazil.[5] A creditor filed a limited objection to the Chapter 15 petition arguing that because the parent company’s COMI was Luxembourg, the affiliate’s COMI should also be Luxembourg rather than Brazil. In the alternative, if the court granted the  recognition, it should be as a foreign nonmain proceeding.[6] Under section 1517 of the Bankruptcy Code, a court must generally recognize a proceeding if it is either a foreign main or foreign nonmain proceeding; the former requires the proceeding to be pending in the debtor’s COMI, and the latter requires the debtor to have an establishment in the foreign country. [7]  A debtor’s COMI is presumed to be the place of its registration. That presumption may be rebutted by “particular factors that may be relevant.”[8] Consequently, an issue arises when courts have to determine the “real seat” of a debtor in a “highly integrated enterprise” that could have different COMI’s for each of its subsidiaries within the parent company. [9]

Here, the New York bankruptcy court evaluated the question of recognition on a “debtor by debtor basis,” notwithstanding that the debtors were all part of an integrated enterprise group, whose parent company’s registered office was in Luxembourg. [10] The court agreed that the parent’s COMI was in Luxembourg, where it was registered. [11] Moreover, the facts did not rebut the presumption.[12] Instead, the facts supported a finding that the parent had an establishment in Brazil as a result of it overseeing the administration of the other debtors’ operations in Brazil. [13] Accordingly, the court recognized the parent’s proceeding as a foreign nonmain proceeding.[14] On the other hand, the court granted recognition to the other non-Brazilian debtors as foreign main proceeding and held that their COMI was Brazil. [15] In doing so, the court concluded that the statutory presumption that a debtor’s COMI is where their registered office is was rebutted by the evidence presented, including the objective expectations of creditors and parties interest.[16]

A bankruptcy court’s determination of a debtor’s COMI may not be premised on the attributes of its affiliates.  Instead, a court will analyze a debtor’s COMI on a debtor by debtor basis.  As the court noted, the difference between recognition as a foreign main proceeding and a foreign nonmain proceeding may not be significant because the ultimate relief itself could still be the same.[17]