The Failure of COMI and the Case for Revisiting the Model Law on Cross-Border Insolvency: Lessons from the Airline Industry

The center of main interests (COMI) is an organizing principle and one of the central pillars of the Model Law on Cross-Border Insolvency enacted by the United Nations Commission on International Trade Law (UNCITRAL) and adopted by more than 60 jurisdictions around the world. By incentivizing the initiation of insolvency proceedings in the debtor's economic "center of gravity" under the threat that proceedings commenced elsewhere may not be recognized, or at least not as foreign main proceedings, COMI seeks to promote predictability and the fair and efficient administration of cross-border insolvencies while limiting forum shopping. Relative to these goals, we show, COMI is a failure. Litigation is common because a firm's COMI is often unclear; forum shopping is rampant, with large corporations viewing COMI as simply a tax that must be paid to local creditors; and the fair and efficient administration of cross-border insolvencies is stymied by COMI, which prevents medium-sized enterprises from selecting the insolvency system that can best maximize creditor recoveries. The trouble with COMI, we argue, is that it confuses value maximization with distributional fairness. Fairness may require honoring the priority rules of the debtor's COMI, but value maximization may require the use of a more efficient insolvency system. We show how to fix this problem.