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Recently, several companies have pursued a tactical transfer of their registered offices abroad solely to avoid being declared bankrupt under the Italian legal system.
This practice, although it created many problems and uncertainties over the possibility of declaring bankruptcy, has been clarified by the Court of Cassation.
In cases involving the transfer of a registered office abroad, the Supreme Court of Cassation has ruled in favour of the jurisdiction of the Italian courts.
The proceedings originated in a bankruptcy petition filed by several creditors against a company based in Italy which had registered with Bulgaria's Companies Register only a few days before the petition was filed.
The Court of Cassation found the Italian court competent to declare bankruptcy for the following reasons: 1) the company's registered office had been moved abroad less than a year before the first bankruptcy petition; 2) the foreign company's director had granted a general power of attorney to the partner of the bankrupt company's director, authorising her to act in Italy and abroad in the name and on behalf of the foreign company; 3) there was no actual, effective business activity abroad.
On these three grounds, the Supreme Court held that the company facing bankruptcy had transferred its registered office abroad—in this case to Bulgaria—fictitiously, since the centre of its interests remained in Italy rather than Bulgaria.
The matter was also referred to the Court of Justice of the European Union, which upheld the Supreme Court of Cassation's decision, albeit on different grounds.
The CJEU likewise considers that transferring the registered office to another Member State, such as Bulgaria, while the centre of the business’s main interests remains in Italy, does not prevent insolvency proceedings or remove the jurisdiction of the Italian courts.
The CJEU states and recalls that Article 3 of Council Regulation 1346/200 of 29 May 2000 on insolvency proceedings lays down the rules for determining the court with jurisdiction.
The rule with which both Italian and Bulgarian courts must comply is as follows:
Article 3.1. The courts of the Member State within whose territory the centre of the debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of companies and legal persons, the place of the registered office shall be presumed to be the centre of main interests in the absence of proof to the contrary.
Article 3(2). Where the centre of the debtor's main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if the debtor possesses an establishment within that other Member State's territory. The effects of those proceedings shall be restricted to the debtor's assets situated in that territory.
The European judges upheld the jurisdiction of the Italian courts in bankruptcy proceedings, on the basis of the location of the centre of main interests, which in the case at hand remained in Italy rather than Bulgaria.
The centre of main interests essentially corresponds to the place where the company is administered, as determined by objective factors ascertainable by third parties.
In essence, account must be taken of the places where the debtor company conducts its business, where it holds assets and whether financial management agreements are administered in a Member State other than that of its registered office.
An overall assessment of the relevant factors described above makes it possible to establish the jurisdiction of the courts of the state of origin, thereby rebutting the presumption that jurisdiction lies with the courts of the Member State in which the registered office was established.
Consequently, the fictitious transfer of a registered office from Italy to Bulgaria used by some did not withstand judicial scrutiny, either in Italy, where the Court of Cassation ruled on the basis of national law, or before the Court of Justice of the European Union, which clearly defined the applicable jurisdiction.