The EU Regulation on Cross-border Insolvency Puts Delaware Corpor...

In Re BRAC Rent-A-Car International Inc., Mr. Justice Lloyd, sitting in the High Court Chancery Division in London appears to have extended the scope of Article 3 of the Regulation.

Article 3 would enable the English court to make an administration order against a company that was incorporated in another member state but had its “centre of main interests” (COMI) in England. The article was silent as to whether the court’s jurisdiction extended to a company incorporated outside the EU, but which otherwise satisfied that condition. The judge held that Article 3 did give jurisdiction to the courts of a member state to open insolvency proceedings in such a case because it defined the scope of its application only in terms of the location of the debtor’s COMI. Even though the company was incorporated in Delaware, its COMI was located in England and the court therefore had jurisdiction to make the administration order.

This is a significant development, particularly insofar as U.S./U.K. cross-border insolvencies are concerned, as it would enable U.S. companies with interests in Europe to seek to elect to adopt U.K. law throughout Europe for such international insolvencies. The founding of a “main proceeding” in the United Kingdom would mean that U.K. law would govern insolvency proceedings throughout the EU (excluding Denmark).