COMI Beyond the Registered Office: Rethinking Jurisdictional Flexibility in Cross-Border Airline Insolvency

C A P Sai Srinivas*

Introduction

The determination of the centre of main interest (“COMI”) under the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency (“MLCBI”) is conceived as a curative and facilitative mechanism rather than a definitive rule in ascertaining the debtor’s main interests. Notably, the MLCBI does not adhere to a rigid codification of the debtor’s COMI; instead, it relies on interpretative aids, including evolving judicial perspectives, particularly the European Insolvency Regulation. In particular, the emphasis on the principles articulated in the Virgos-Schmit report has reshaped the doctrinal approach towards COMI.

In the process of recognising foreign proceedings, Article 16(3) of MLCBI opens a rebuttable presumption that the debtor’s registered office is the COMI as a predictable baseline. The presumption in favour of registered office relies on the premise of formal attachment and legal convenience, particularly (i) ascertainability of the debtor’s place of administration, (ii) preservation of asset value that necessitates avoidance of any delay caused by jurisdictional uncertainty. A formal adherence to the registered office anchors as a default jurisdiction, due to various reasons; in any other case, the place of incorporation retains an institutional position to administer and cater to the affairs of the debtor. The issue in determining the COMI is whether the jurisdictions where the registered office or the place of central administration is situated are better equipped to assess the prospects of corporate revival.

The discussion that led to the doctrinal justification of the registered office as the COMI has become a perennial subject of debate within the judicial fraternity. In East West Logistics v Melars Group Ltd, the English Court of Appeal observed that the starting point for determining COMI under MLCBI is the presumption that it is based on the registered office itself. A discernible trend in international jurisprudence indicates that most of the judicial precedents support the notion of registered office as the headquarters with direct control and coordination by the directors; in effect, it acts as a nerve centre for the COMI. Subsequently, the interpretative framework for COMI has evolved around the presumption of the registered office.

The blog refers to the reorganisation of Avianca Airlines as a model in which the economic and business realities have taken precedence over the formal determination of COMI. In the process of determination, it underscores a degree of jurisdictional flexibility in line with the tendency of the local forums to validate such an approach, and a notable policy significance in the context of the airline’s insolvency. It assumes a normative insight as India advances towards the adoption of the cross-border framework; a nuanced and sector-responsive approach aligns with global practices in cross-border insolvency jurisprudence.    

Choosing the Right Runway: Determining COMI in Airline Insolvency

In the context of airline insolvency, the determination of COMI becomes an objective consideration, as the subject matter is intrinsically cross-border, necessitating an inquiry into the applicable jurisdiction. The factors associated with the determination of COMI for an airline enterprise are often polycentric. The operations of an airline entity are intertwined with multiple factors, including asset mobility governed by the leasing arrangements, a diversified creditors’ base due to its high capital intensity, airport slots as a central asset for operational purposes, and the regulatory framework.

The tension arises for an airline enterprise when the jurisdiction that is designated as COMI by virtue of its registered office neither facilitates interim financing nor enables a restructuring framework; instead, prioritising the repayment to domestic creditors might turn out to be a riskier approach. Given that one of the objective goals of MLCBI is the revival of corporate enterprise, but the jurisdiction that has assumed COMI does not align with the same, it becomes evident to reconsider the possibilities beyond the limitations that have evolved on the registered office presumption under Article 16(3) of MLCBI.

In a similar vein, it is pragmatic to examine how a distressed airline, having been incorporated in Colombia, can invoke Chapter 11 of the US Bankruptcy Code to turn around the situation by circumventing the structural gaps in the Colombian insolvency legislation. It is demonstrated that by moving beyond the confines of the registered office in the determination of COMI, it managed to escape from the turbulence of being liquidated. Also, from a strategic view, by maintaining the jurisdictional flexibility, it has regained access to distress financing and the ability to renegotiate with the creditors. Collectively, the benefits accrued from non-domestic jurisdiction had laid down the groundwork and paved the way for the structural take-off for sustained operations. 

Avianca’s Chapter 11 Filing: A Colombian Airline in a US Insolvency Forum

Avianca SA, a wholly owned subsidiary of Avianca Holdings, incorporated in Colombia, traces its origin to 1919 and has developed into one of the largest Latin American budget carriers with its current fleet size of ≈160. Avianca has a network of operations spread over Latin America, North America and European countries, with Bogotá (the capital of Colombia) serving as a “central hub”. Although the operations were rooted in Colombia, its significant market share, coupled with financing instruments, positioned the United States of America as an inalienable nexus to its operations.

Long story short, despite operating at a viable scale, Avianca was unable to withstand the mayday call during the COVID-19 pandemic. In addition, it had experienced early financial distress, with a liquidity crunch driven by aspirations of over-expansion that affected its operational efficiency. With a nearly 80% decline in operations, its debt obligations amounted to approximately  USD 7.3 billion, before the filing of Chapter 11 proceedings.

It is pertinent to note that out of the debt obligations owed by Avianca, a significant portion of the secured debt was owed to the creditors based in the USA, primarily the banks, financial institutions, and outstanding repayments to the bondholders. On the operational side, the claims owed to the engine manufacturers, aircraft lessors, and employees constituted an unsecured part of the total debt.

The factual holdings present two competing presumptions for the determination of COMI. On one scale, the formalistic endeavour of a registered office favours Colombia as a de jure jurisdiction for the initiation of main proceedings, considering the fact that it is easily ascertainable by third parties. On the other side of the scale, a substantial inquiry by lifting the essential corporate veil reveals a contrasting picture that its principal financing institutions, secured lenders, and aircraft lessors were predominantly concentrated in the United States of America.

Although the registered office remained to serve as a presumptive anchor for the COMI, the economic reality diverges from the same in the case of Avianca. It is undisputable that the registered office serves as a starting point of analysis for COMI. It becomes equally important not to leave behind the significant factors emerging from foreign jurisdiction (here in the USA) that depict a real sense of economic control in the present case of Avianca.

Repositioning COMI Beyond Incorporation: Avianca’s Path to Reorganisation

It becomes ideal to analyse the structural underpinnings of Avianca’s reorganisation under Chapter 11 US Bankruptcy proceedings. By analysing the same, it essentially reveals that the manner of determination of COMI is not only a question of mere jurisdictional threshold inquiry but a factor fundamentally influencing the course, viability, and outcome of the restructuring process. In view of the restructuring framework of Colombia, Ley 1116 de 2006 (Law 1116 of 2006) is the principal Insolvency legislation that encompasses the provisions governing the judicial reorganisation and liquidation applicable to the distressed companies incorporated in Colombia.

Article 17 of Law 1116 provides for the continuity of the business operations by permitting the existing management to remain in control of the business in the course of judicial reorganisation. The framework essentially lacks a statutory hold on the extension of rescue financing. Considering that the COMI is centred in Colombia, the absence of a rescue financing mechanism under the Colombian Insolvency regime would have a significant impact on the operational survival and continued existence of Avianca or any airline enterprise within its industry-specific operations.

Given that its sectoral dependence on continuous external financing becomes a sine qua non consideration, it becomes contentious when the jurisdiction that assumes COMI lacks statutory safeguards for the rescue lenders under the Colombian Law 1116 of 2006. Such limitation renders an Insolvency regime commercially inviable for the rescue financers and also impracticable for the airline enterprise to honour the operational expenses of aircraft leases, fuel supply contracts, employee wages and debt servicing obligations.

Upon filing for reorganisation, under Chapter 11 of the US Bankruptcy Code, Avianca sought and obtained, in principle, court approval from the Southern District of New York for the authorised debtor-in-possession (“DIP”) financing. Section 364 of Chapter 11 of the US Bankruptcy Code expressly provides for the provisions on obtaining credit post- admission of proceedings. From a restructuring perspective, it enabled Avianca to acquire a fresh line of credit post-admission worth US$2 billion from rescue lenders. Of the US$2 billion DIP facility, the Colombian Government has extended US$370 million in the form of a loan guarantee to Avianca.  

From the lender’s standpoint, the DIP financing enabled the rescue lenders of Avianca to claim statutory super priority over all and any administrative expenses as detailed under Section 364(c)(1). The procedural priority, as assured under the provision, elevates the repayment position of the lenders by mitigating the risk of non-repayment. In this interregnum, Section 364 of Chapter 11 DIP financing facility operated as a win-win scenario for rescue lenders in terms of their claim’s prioritisation and for the continuation of operations for Avianca in the context of reorganisation.

It is pertinent to observe that the determination of COMI in the USA is not in itself a panacea for all the challenges encountered in the reorganisation of Avianca. While Chapter 11 has been regarded as a proven model for the effective revival and reorganisation of the distressed entities. To operationalise the advantages of Chapter 11, it becomes equally significant to acknowledge the preparatory efforts undertaken by Avianca, where the proactive negotiations before and after the filing of Chapter 11 proceedings with the Colombian and Brazilian pre-petition lenders led to coordinated creditor consent with the repayment assurances. Taken together, these factors have culminated in the determination of functionally effective COMI.

Conclusion

The registered office presumption ascribed under the MLCBI is made to provide a publicly verifiable and predictable jurisdictional anchor; however, it fails to account for the fact that survival in distress for certain companies requires special considerations for a jurisdictional flexibility in the determination of COMI. Assuming that all other jurisdictions maintain equally robust and restructuring-oriented insolvency regimes, the debate over the jurisdictional flexibility has no relevance. In practice, there are many factors that range from procedural to institutional, which may undermine the efficiency of an insolvency regime. If such inefficiencies as identified are inherent in the jurisdiction that was designated as COMI, then the objectives of debtor’s rescue, asset preservation and value maximisation would be significantly compromised.  

The real sense of jurisdictional flexibility must not be equated with or translated into a risk of forum shopping. The inclusion of flexibility shall bring certainty and supplement the test of reasonable ascertainability by third parties in insolvency proceedings. From a systemic view, the recognition of jurisdictional flexibility could incentivise other jurisdictions to strengthen and harmonise their insolvency frameworks to remain competitive and effective, while also compelling them to address the gaps that persist in their regimes. On a similar note, the Colombian Government, later through the Law 2437 of 2024, introduced Article 4, a provision for the restructuring phase financing incentives that is conceptually aligned with the DIP financing model as it exists in  Chapter 11 proceedings.

From an Indian perspective, the Avianca model assumes added relevance as the cross-border framework under the Insolvency and Bankruptcy Code, 2016, continues to evolve, with the adoption of the MLCBI in progress. The Jet Airways Insolvency reflects a valuable insight into the jurisdictional flexibility, albeit in a qualified sense. Despite the COMI being retained in India, the adoption of the Cross-Border Insolvency Protocol translated into coordinated proceedings with the Dutch forums. It also signifies a procedural norm of jurisdictional flexibility, harmonising the judicial process with its commercial nexus to the Netherlands.

It is earmarked that the jurisdictional flexibility as realised in Jet Airways came into force in the absence of any legislative backdrop. At this juncture of the transitional phase of the cross-border Insolvency framework in India, the determination of COMI as reflected in Avianca serves as a future benchmark in the cross-border regime, emphasising a cautious approach, taking into account economic realities and avoiding the threat of forum shopping.

*The author is a First-year LL.M.-I.B.L. student at the National Academy of Legal Studies and Research, Hyderabad.