In this article, we explore the recent ruling of DL v Land Berlin ECLI-EU-C-2024-776 relating to a debtor's centre of main interests and the connected concepts of a 'principal place of business' and 'establishment' under Regulation (EU) 2015/848 on insolvency proceedings.
Regulation (EU) 2015/848 on insolvency proceedings (the Regulation) seeks to resolve conflicts of law and jurisdiction for insolvency proceedings where debtors have a "centre of main interests" (COMI) in an EU member state and operations or assets in more than one EU member state. Courts of the member state where a debtors' COMI is situated shall have jurisdiction to open insolvency proceedings.
For the purpose of Article 3(1) of the Regulation, there is a presumption that an individual's COMI is the place of the individual's principal place of business or habitual residence, in the absence of proof to the contrary (the Presumption). The presumption shall only apply, however, if if the individual's principal place of business has not been moved to another Member State within the 3-month period prior to the request for the opening of insolvency proceedings.
In DL v Land Berlin, Land Berlin sought to open insolvency proceedings in Germany against DL (the Debtor). At the date of the application, the Debtor was domiciled in Berlin, Monaco, Los Angeles and on the island of Saint-Barthélemy. He was the chairman of the supervisory board of a public limited company incorporated under German Law with its registered office in Mainz. The Debtor's assets consisted of a bank balance in Monaco and holdings in companies incorporated under Monegasque law which held assets in Germany.
In the first instance, the Regional Court in Berlin found that the German courts did have international jurisdiction to open insolvency proceedings against the Debtor. In particular, the Regional Court decided that it was not appropriate to apply the Presumption that the centre of the main interests of an individual who exercised an “independent business or professional activity” was their “principal place of business” due to the fact that the debtor did not use “human means and assets” in the course of his activities. The Regional Court thereby equated the definition of “establishment” in Article 2(10) of the Regulation, as a place where the Debtor carried out an economic activity with human means and assets, with the concept of “principal place of business” in Article 3(1).
The Debtor challenged the international jurisdiction of the German courts by filing an appeal before Germany's Federal Court of Justice. The Federal Court then referred the matter to the European Court of Justice (the ECJ) for clarification on the interpretation of "principal place of business" and "establishment", requesting a preliminary ruling on the following questions:
- Whether it is correct that the concept of “principal place of business” of a debtor exercising an “independent business or professional activity” under article 3(1) of the Regulation should be interpreted in conjunction with the concept of “establishment” defined in article 2(10);
- If question 1 is answered in the negative, whether it could be presumed under Article 3(1) of the Regulation, in the absence of proof to the contrary, that an individual's COMI is situated in the principal place of business of that individual, even if the independent business or professional activity does not require any human means or any assets in that territory.
The Ruling
The answer to the first question turned on the interpretation of the specific German-language version of the Regulation, whereby there is a linguistic proximity between the terms "establishment" ("niederlassung") and "principal place of business" (hauptniederlassung).
The ECJ made clear that Article 3(1) should be interpreted by reference to the context and purpose of the rules of which it formed a part. Therefore, the concept of "principal place of business" of an individual exercising an independent business or professional activity within the meaning of that provision does not correspond to the concept of "establishment" as defined in Article 2(10) of the Regulation.
The ECJ reiterated that the concept of "establishment" in the Regulation is relevant only where a member state other than that in which a debtor's COMI is situated seeks to bring secondary or territorial insolvency proceedings.
On the second question, the ECJ found that it is to be presumed, in the absence of proof to the contrary, that the individual's COMI is situated in the principal place of business of that individual, even where the activity does not require any human means or any assets. The ECJ noted that, by its very nature, independent business or professional activity is capable of being exercised in the absence of assets or human means, otherwise the Presumption would be ineffective. In the case of DL v Land Berlin, the ECJ noted that the German courts found that the Debtor did not use any human means or any assets in the course of his independent business activity as chairman of the supervisory board of a German company, either in Germany or elsewhere.
Key takeaways
The ECJ judgment is a timely reminder that in cases involving companies and persons in the EU, COMI should be determined by taking into consideration all objective factors ascertainable by third parties, which are connected with the debtor's economic situation, such as those which allow the location of the place where the person conducts the administration of their economic interests and where the majority of their revenue is earned and spent.
Ultimately, the absence of assets or human means in a debtor's independent business or professional activity is not a barrier to main insolvency proceedings being brought in a member state to which it is found that a debtor has its COMI.
