The Jurisdiction Of Corporate Group In The Case Of Insolvency -A Comparative Study On German Law And European Law

When two or more companies in the corporate group fall into insolvency at the same time or in succession, which court has the jurisdiction for the series of bankrupt companies? In Germany and EU it has long been recognized that a corporate group itself is not qualified to fall into insolvency. Only the respective company of this corporate group is the eligible subject to be bankrupt. According to this theory, the insolvency proceedings shall be conducted separately. But the separate insolvency proceedings will result in many problems. On the one hand, the overall interests of the corporate group are hard to maintain. On the other hand, the insolvency of some companies in the corporate group can cause a domino effect across the corporate group. When it comes to a multinational corporate group, this issue can become even tougher because of the application of law.The legislators of Germany and the European Union did not make any special provision for the jurisdiction of corporate groups in the case of insolvency. The absence of legislative doctrine triggered diverse theories. The judges are also actively exploring possible solutions. In Germany, a number of theories are established to build a connection point for the consolidation of jurisdiction. There are two popular theories in regard to this problem. One of them is subjected to "the court of parent company", the other depends on which company is the earliest to submits application to conduct an insolvency proceeding. In the judicial field, the judges try to consolidate all the proceedings at the court of the parent company by means of teleological explanation. Although most of these attempts proved to be successful or efficient, because of deficiency of sufficient legal basis, it can never be convincing. This situation has been gradually changed with the development of the legislation. The German legislator has just issued a legislation draft on the insolvency of corporate groups. The draft introduces the institution of group jurisdiction and transfer of jurisdiction innovatively and adopts the principle of "time priority" in determination of the jurisdiction. Although the consolidated jurisdictional system in the draft is not mandatory, the legislator has provided some guidelines for the judicial practice, which will avoid the conventional embarrassing situation in judicial practice because of "no legal basis". In the EU, prior to the introduction of new insolvency rules, theorists tried to explain the "center of main interests" to justify the consolidation of jurisdiction. There are two popular ways to explain "center of main interests", namely "central management theory" and "business activity center theory". In the judicial field, the judges continue to adhere to the article 3 of the Insolvency Regulation of EU. As stipulated in this article, the domicile of the company is presumed to be the center of main interests, if and only if there are objective factors that indicate the location of the company’s center of main interests is not in the company’s registration ground, can the presumption be overturned. In determination of the "center of main interests", the judges of European Court of Justice have gradually abandoned the original "management center theory" and adopt a more objective "business activity theory" explicitly instead. The standard of "center of main interests" standard has been perfected by the judges, but many people argue there is still too large room of discretion left for the judges. After the introduction of the new EU insolvency regulation, the standard of "center of main interests" is further perfected. Many defensive measures are taken to cope with malicious "forum shopping" phenomenon. In addition, the EU legislators introduce a specific chapter of insolvency for corporate groups. This chapter focuses on internal cooperation within the corporate groups. Neither the German legislators nor the European legislators have adopted the substantive consolidation. In light of so many problems and systematical conflict it will trigger, maybe an elastic and resilient solution is better and more appropriate.