Recently the Courts have been forced to approach cases of debtors whose debts were incurred abroad with increased scrutiny. Bankruptcy tourism is on the increase in the UK. Our comparatively debtor friendly regime is looked on favourably among European debtors. In particular, residents of Germany and the Republic of Ireland (such as Westlife’s lead singer Shane Filan), cannot resist trying to avoid the three year (in Ireland) or the harsh six year (minimum in Germany) period before they are freed from their debts. Instead, they have been filing for bankruptcy in England and Wales where bankrupt Brits leave behind debts after just one single year. One recent ‘successful’ debtor described the British bankruptcy route, ‘like winning the lottery’!
To be declared bankrupt within the UK, the debtor must prove the centre of his main interests (his COMI), is the UK. Article 3 of the EC Regulation on Insolvency Proceedings provides no definition of a COMI. However, paragraph 13 of the preamble points out that it “should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties”. A debtor must provide to the UK Courts evidence that his COMI has been in the UK for at least the previous six months – producing a tenancy agreement, utility bills or bank statements supporting this.
A recent case* involved a debtor, Mr Benk, who petitioned for his own bankruptcy. He claimed to have moved his COMI from Germany to England two years earlier. He stopped work and no longer lived or owned any property in Germany. He claimed to be a sports photographer, rent a flat, insure a car, have a bank account and carry out his daily activities all in England. Despite opposition from the Official Receiver, the Court made the bankruptcy order. However, one of Mr Benk’s creditors appealed to have the bankruptcy order quashed. The Judge found not only that was Mr Benk’s COMI, at all material times, in Germany; but that he did not even own a camera – making a photography career implausible!
In Our Talking Finance blog, we discussed the case of another German national, Mr Joern Brossmann** who claimed to have moved his COMI to England because he was looking for a job here. He gave as his address a flat in London Docklands which he may or may not have rented for a temporary period of time. He opened bank accounts with HSBC and Barclays Bank and obtained debit cards. He may well, at the very least, have been in the UK for temporary periods and have driven his car here (despite it being registered in Germany) because at least once he fell victim to the Congestion Charge in London. The nail in the coffin came when on cross-examination he admitted that his ex-girlfriend (who had given a witness statement to help demonstrate the COMI move) was a bankruptcy tourist herself – trying to abandon her own £1 million debts.
In examples like these, debtors have handed the keys of their properties back to the banks before emigrating to the UK, where they only have to live six months in the hope the banks or other creditors do not start local proceedings in the meantime. The UK regime even allows bankrupts to put aside £70 a month to spend on holidays, allowing them to visit ‘home’ while still being classed as living in England.
However, for savvy individuals and bankruptcy travel agencies, the temptation must be met with caution. Cases like Mr Benk’s and Mr Brossmann’s prove the need for the court to examine whether the recent change of COMI is genuine or just a convenient fiction.
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**Re Brossmann – unreported, 19 May 2013