Which jurisdiction is competent to regulate corporate law affairs? And which court is competent, in the international arena, to address cases involving corporations? My purpose is not to clarify all these issues, but more simply to ask the right questions regarding choice of law and jurisdiction criteria.
The most important question is to establish what “corporate law matters” are. Corporations, indeed, can be involved in litigations on different kinds of issues, not only typical “internal affairs matters”, such as derivative actions or actions on the validity of corporate’s decisions. To such legal issues apply different choice-of-law criteria, which vary from jurisdiction to jurisdiction. For instance, the scope of the U.S. “Internal Affairs Doctrine” is narrower than the area covered by the corporate “personal statute” in Europe. Similarly, in jurisdictions where there is employees codetermination in place corporate law regulate an issue that in other countries belong exlusively to the province of labor law.
In the realm of typical “corporate law” matters, as is well known, a fierce debate oppose “incorporation theory” countries and “real seat” country. According to the former, the law of the country of incorporation applies, while for the latter the country of the administrative seat is competent to regulate corporate affairs. Of course, several different versions of these “theories” exist. The “real seat theory” is based upon a spatially-oriented criterion and the main legal issue is to establish where the administrative (or “real”) seat of the corporation is. Originally, the idea to attach the applicable law to the “real” or the “administrative” seat was aimed at attaining legal certainty. However, this goal seems to be uncertain now, since modern telecomunications make possible for the board to meet “virtually”, independently from the physical location of their members, and cheap flights make possible for the board to meet in countries different from such where corporate main activities are. [Luca Enriques, Silence is Golden: the European company as a catalyst for company law arbitrage, J. Corp. L. Stud., 82, 78 (2004)]. Therefore, to make the real seat theory workable, the concept of administratve seat can not coincide simply with the place of boards’ meetings. To resolve this problem, German scholars and case law have developed a more sofisticated concept, that rely upon the place where business decisions are conducted on a day by-day basis. By contrast, the “incorporation theory” – at least in the English, U.S. or Swiss versions – is not properly based upon a territorially-oriented conflict of law rules, but on the mere fact of the incorporation under the law of a certain state.
The second relevant issue is related to corporate litigation. The question is: Where are corporate matters litigated? This is issue is often negleted in the scholar debate on regulatory competition for corporate law, yet it is highly relevant, since to attain legal coherence and predictability substantive law should not be detached from the competent forum. A good example is Delaware law, which is fundamentally judge-made [see: Marcel Kahan & Rock Edward, Symbiotic Federalism and the Structure of Corporate Law, 58 Vand. L. Rev., 1573, 1591 – 1597 (2005)]. Nonetheless, corporate choice-of-law and choice-of-forum criteria diverge, so that Delaware law may be litigated outside of Delaware court [see: John Armour, Bernard Black & Brian Cheffins, Is Delaware Losing its Cases?, www.ssrn.com]. Differently from U.S. law, EU law has addressed this issue, yet only partially and with uncertain results. According to the Regulation on jurisdiction [EC Regulation 44/2001, art. 22(2)] part of the internal affairs matters (i.e.: the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or of the validity of the decisions of their organs) should be litigated in the member state of the “seat”. However, the concept of “seat” is to be established according to each member states’ own private international law, so that conflict of jurisdiction can still arise; in addition, other “internal affairs” matters, such as derivative suits, are not comprised in this list and can be litigated alternatively either in the state of the registered office, or of the central administration or of the principal place of business [EC Regulation 44/2001, art. 60(1)], so that the competent court can diverge from the applicable substantial law.
Another set of rules and procedures that are relevant for corporations is insolvency law, whose choice-of-law and forum criteria often diverge from those to be applied to corporate law matters. For instance, according to the Uncitral model law on cross-border insolvencies of 1997 as well as for the EU regulation on cross-border insolvencies [EC Regulation 1346/2000] the fundamental choice of forum criterion is the Centre of the Main Interests (“COMI”) of the insolvent debtor. If the debtor is a corporation, unless the contrary is proven, the COMI coincides with the country of the registered office (i.e. the country of incorporation). The COMI criterion should make the applicable insolvency law more predictable in the eyes of third parties and should avoid forum shopping. However, it does not seem to be always the case and the COMI concept has revealed to be fuzzy and that it can be manipulated. According to the European Court of Justice the COMI diverges from the state of incorporation only if evidence is given that third parties could recognize that corporate activities are managed from a certain coutry different from the registered office (European Court of Justice, C-341/04, Eurofood IFSC Ltd  ECR I-3813). The COMI, therefore, is neither the “administrative seat” of the real set theory, nor the “central administration” or the “central place of business”, which are possible location of corporate domicile according to the EC Regulation on jurisdiction.
Federico M. Mucciarelli
Professor Federico M. Mucciarelli is Associate Professor of Business Law at the University of Modena and Reggio Emilia Business School. He is also Global Fellow at NYU School of Law