Comi-migration: Use or Abuse of European Insolvency Law?

Abstract

Although the European Insolvency Regulation does not provide limitations on comi-migration, comi-migration can lead to the application of the principle of abuse of Union law. This article provides a theoretical framework to distinguish between abusive and non-abusive comi-migration. Comi-migration which seeks to overcome common pool problems and their related tragedy of the commons is in principle allowed, as is comi-migration aimed at dealing with anticommons problems and their related hold-out behaviour. Comi-migration aimed at a different ranking is, however, not allowed. If this framework is applied to failing companies migrating to England, this leads to the following. Comi-migration aimed at benefitting from the English rules on reorganisation, such as the CVA and the Scheme of Arrangements are allowed since they deal with anticommons problems and their related hold-out behaviour. Also comi-migration aimed at benefitting from a prepack and preference law is in principle allowed as these rules deal with overcoming common pool problems and their related tragedy of the commons. Comi-migration aimed at a different ranking, e.g. German, Spanish and Italian companies migrating to England in order to prevent shareholder loans from being subordinated, is not allowed. Such a comi-migration will qualify as abuse of Union law to be established by the judge of the incoming jurisdiction. Such comi-migration could therefore remain without effect, even if the comi has factually been moved. A more subtle sanction could also be applying English preference law against any upgrade of a creditor’s claim, most notably an upgrade from a subordinated shareholder claim to an ordinary claim.