Cristina Weidner May 25 2018 Berlin to Korneuburg: NIKI's insolvency proceedings Clifford Chance | Insolvency & Restructuring - Germany Cristina Weidner Insolvency & Restructuring IntroductionBackgroundDecisionCommentIntroductionOn December 14 2017 the Local Court of Charlottenburg in Berlin ordered the opening of preliminary insolvency proceedings and other interim measures for the safeguarding of the business of NIKI Luftfahrt GmbH, a company incorporated under Austrian law with its registered office in Vienna. At the time, its indirect shareholder, Air Berlin Plc & Co KG (with its registered office in Berlin), had already commenced with main insolvency proceedings in Germany – NIKI was a subsidiary in the Air Berlin group. While the Local Court of Charlottenburg was satisfied that NIKI's centre of main interest (COMI) was located in Berlin and that it had jurisdiction to initiate the main insolvency proceedings in Germany, the Berlin Court of Appeal subsequently decided that the first-instance local court had been wrong to assume jurisdiction and that the facts presented were insufficient to rebut the presumption that NIKI's COMI was not in Vienna. Following the appeal court's decision, main insolvency proceedings were opened over NIKI's assets on January 12 2018 in Vienna. Against the background of this decision, secondary proceedings were subsequently opened in Germany.BackgroundAccording to the EU Regulation on Insolvency Proceedings (2015/848/EU), the court of a member state will have jurisdiction to open main insolvency proceedings only where such a court is local to the debtor's COMI. 'COMI' is not defined in the regulation but, in the case of a company, there is a rebuttable presumption that it is the place of the company's registered office. Guidance is also given regarding the meaning of COMI in the regulation's recitals, which provide that the debtor's COMI should correspond to the place where the debtor conducts the administration of its interests on a regular basis and is therefore ascertainable by third parties. Once main insolvency proceedings have commenced in an EU member state, no other main insolvency proceedings in respect of the same debtor can be opened in the European Union. However, secondary proceedings can be opened in any other jurisdiction in which the debtor has an establishment. 'Establishment' is defined in the regulation as "any place of operations where the debtor carries out a non-transitory economic activity with human means and goods".In Eurofood, the European Court of Justice (ECJ) provided guidelines for defining a COMI and commented on the strength of the registered office presumption. The ECJ held that the presumption that a debtor's COMI is the location of its registered office can be rebutted only if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which can be used to determine that the debtor's COMI is located somewhere other than where its registered office is located. It was also held that where a company carries on its business in the territory of the member state in which its registered office is situated, the mere fact that its economic choices are, or can be, controlled by a parent in another member state is not enough to rebut the registered office presumption (ECJ C-341/04, Eurofood IFSC Limited). Further, a debtor's COMI is to be assessed on the date that the application to open insolvency proceedings is filed.DecisionInitially, Local Court of Charlottenburg reiterated that it is possible to rebut the presumption that a company's COMI is the place of its registered office where, in a manner that is recognisable for third parties, there has been a comprehensive assessment of all relevant factors establishing that the actual centre of the company's management, supervision and administration of interests is in another member state. The court took the view that it is important to consider the following:the fact that NIKI is part of the Air Berlin group and is, therefore, indirectly controlled by Air Berlin;the fact that NIKI is part of Air Berlin's operations, the future of which will be determined centrally from Berlin; andthe fact that of all the aircraft operated by NIKI, only a few are stationed in Austria, meaning that the vast majority of the weekly flights depart from Germany and only a few depart from Austria.The Berlin Court of Appeal heard an appeal from an Austrian creditor and believed that the factors considered by the Local Court of Charlottenburg were insufficient to rebut the presumption that its COMI is the place of its registered office in Vienna. It held that the facts presented to the court would in fact demonstrate a COMI in both Vienna and Berlin. In particular, the Berlin Court of Appeal took into account the fact that:80% of NIKI's employment contracts are subject to Austrian law;NIKI has an Austrian company licence and an Austrian issued aircraft operating certificate; andNIKI has offices in both Berlin and Vienna (the fact that almost 100 people were employed in the Vienna office was undisputed).Further factors considered to be relevant included:intra-group agreements;the location of the management;the company's registration in the public register for traffic;the 'fit for flying' tests venue;the place where annual accounts were signed; andthe general perception on social media.CommentIn most cases of international jurisdiction, the location of the company's COMI is determined based on a comprehensive assessment of the facts relevant to the case at the time of the insolvency filing. NIKI is one of the few cases where the underlying facts can be interpreted to argue in favour of both jurisdictions and the courts in both member states have opted to assume their own jurisdiction. Ultimately, it was concluded that recognisability for third parties (particularly creditors) regarding the determination of a COMI cannot be overestimated. From a practical perspective, this case clearly demonstrates how, contrary to pure holding companies (which do not avail of an operative business with employees and assets), rebutting the presumption that a company's COMI is the same as its registered office is very difficult and susceptible to challenges. Moreover, it highlights the fact that conflicting insolvency proceedings initiated by the courts of various member states may seriously hinder ongoing restructuring efforts. This risk should be considered in any transaction working on the presumption that the COMI of the company in question is not the same as its registered office.Procedurally, the case is interesting, as the Austrian court had to decide on the effect of the German appeal court's decision –namely, whether the successful appeal meant that the original decision to initiate main insolvency proceedings had immediately become void or whether it was still valid, thereby allowing for the continuation of insolvency proceedings until the resolution of the final appeal at the German Federal Court of Justice. This question has yet to be decided by the German courts and it appears that once again German legal literature has provided well-founded arguments in support of both interpretations. It was the Austrian court that deemed the Berlin Court of Appeal's decision to be immediately valid. In doing so, the German main insolvency proceedings were immediately suspended and the Austrian court was able to assume jurisdiction and open main insolvency proceedings in Austria. Setting aside the issue of whether it is the place of an Austrian court to decide on this German law-governed question, and not considering the sound reasoning supporting the interpretation that (notwithstanding the Berlin Court of Appeal's decision) NIKI's COMI was actually Austria and not Germany, there is something strange about the practice of (temporarily) halting ongoing insolvency proceedings, only to restart them once the German Federal Court of Justice has rendered a decision. Such a practice creates extreme legal uncertainty and an interim vacuum which counters the general desire to establish a stable basis upon which insolvency proceedings can be successfully carried out.For further information on this topic please contact Cristina Weidner or Stefan Sax at Clifford Chance LLP by telephone (+49 69 7199 01) or email ([email protected] or [email protected]). The Clifford Chance website can be accessed at www.cliffordchance.com.