In our recent ‘Pinning down the jurisdiction’ blog post, we examined aspects surrounding COMI (Centre of Main Interest) – a term used to describe the jurisdiction with which a person or company is most closely associated for the purposes of cross-border insolvency proceedings. We talked about how some borrowers understand that some jurisdictions are more borrower friendly than others when it comes to insolvency proceedings and so have tried to change their COMI to take advantage of this – a practice known as ‘forum shopping’.

This blog post gives a working example of forum shopping using a case study involving a German “Insolvency Tourist” who was caught up in a dispute with the Tax Authority for the State of Lower Saxony in Germany over his COMI.

Background to the case

Joern Brossmann, a German National, presented his own bankruptcy petition in the High Court in London and was made bankrupt on 21 July 2009.  Mr Brossmann at all material times was a marine shipping pilot manoeuvring large vessels from the North Sea into the German port of Bremerhaven.  Mr Brossmann had substantial liabilities, all in Germany; none in the UK.  He also had a substantial income earning capacity, in the region of €150,000 per annum.

Mr Brossmann at the time of presenting his petition claimed that his “Centre of Main Interests” (“COMI”) had moved from Germany to the UK because he had left Germany and was seeking employment in the UK.  Mr Brossmann gave as his address a flat in London Docklands which he may or may not have rented for a temporary period of time.  Mr Brossmann opened bank accounts with HSBC and Barclays Bank and obtained debit cards.  It was accepted that he may well have been in the UK for temporary periods and that he drove his car here (a Jaguar registered in Germany) because on at least one occasion he fell victim to the Congestion Charge in London.  He also secured a National Insurance number in the UK.  At no point however did he ever work in the UK.

Suspicions surrounding the COMI…

One of Mr Brossmann’s creditors is the Finanzamt Nordenham, a Tax Authority for the State of Lower Saxony in Germany.  The Tax Authority took exception to Mr Brossmann’s contention that he had moved his COMI to the UK and in 2012 instructed us to apply to annul the Bankruptcy Order.  Mr Brossmann thought that he had got away with it because by then he had long since had his automatic discharge from his bankruptcy.  The Official Receiver’s office had taken no steps to attach Mr Brossmann’s income in Germany in any way.  There was no trustee in bankruptcy.

The determination of an individual’s COMI involves a wide ranging enquiry and analysis of the substantive evidence produced by the parties; often this can only be determined by means of a close examination of all of the facts.  The EC Regulation on Insolvency Proceedings 2000 in effect provides that if the location of an individual’s COMI is in the UK then proceedings may be opened in the UK.  If the COMI is not however in the UK then any insolvency proceedings must be opened in the country where it is.  In essence COMI can be defined as follows:

The Centre of Main Interests 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”.

Taking the case to the High Court

Our application to annul the Bankruptcy Order ultimately came before Chief Registrar Baister in the High Court in London on 7 May 2013 listed for a two day hearing.  On cross examination, Mr Brossmann revealed that his ex-girlfriend (who had filed a witness statement in support of Mr Brossmann’s contention that he had regularly been in the UK, had intended to find a job here and had other connections here) turned out to be an ‘Insolvency Tourist’ herself with over £1m worth of liabilities to German creditors.  The premises at one stage rented by Mr Brossmann in the Docklands turned out to be, effectively, an accommodation address regularly used at the time by other insolvency tourists.  Mr Brossmann had no creditors in the UK.  He never informed any of his German creditors that he had moved to the UK.  They were instead left to trace him through the Official Receiver’s office once he had been made bankrupt in the UK.

Chief Registrar Baister found that as a matter of fact, Mr Brossmann’s COMI had not moved from Germany to the UK and that he was an “Insolvency Tourist”.  On balancing Mr Brossmann’s connections with Germany and the UK, Chief Registrar Baister found that the majority of his interests were in Germany with him having very few in the UK.  The Bankruptcy Order was annulled on 9 May 2013.  This will enable the Tax Authority to commence bankruptcy proceedings against Mr Brossmann in Germany, to attach his income in the meantime and to pursue his employer under a security pledge previously given to the Tax Authority by the Court.  As anyone who with any knowledge of these matters will know, personal insolvency, i.e. bankruptcy in Germany, unlike the UK, is no laughing matter.  If made bankrupt in Germany, Mr Brossmann will find his personal circumstances severely curtailed for at least four years under new German legislation (formerly six/seven years) and the Tax Authority should recover most, if not all, of Mr Brossmann’s outstanding tax.

Current approach to dealing with disputed COMI’s

The Courts do now scrutinise applications with much more detail and are prepared to reject a debtor’s own bankruptcy petition if they do not believe that the debtor’s COMI has moved to the UK. Though it is believed that there could be dozens more German Insolvency Tourists having improperly availed themselves of the Courts’ previously slack attitude towards foreign nationals claiming that their COMI had moved to the UK.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.