The UK has historically had, at best, an ambivalent attitude to its partners in the European Union (EU). It would be fair to say that during and indeed since the Thatcher era no love was lost between the UK and at least some of the other now twenty six members. This animosity however is not always reciprocated. Europe loves some of the things that the UK does. One of those areas where the UK has shown the way is in the area of personal insolvency legislation. Although there are some small regional differences within the UK – for example, Scotland’s legislation differs somewhat from that which governs England, Scotland and Wales – generally other member states of the EU admire the UK way of dealing with the personal debt of its citizens. The laws relating to bankruptcy and Individual Voluntary Arrangements in the UK are attractive to many citizens of other EU member states, which historically have tended to punish rather than rehabilitate the errant debtor. Now EU citizens can benefit from the favourable personal insolvency regime in the UK.
Subject to certain provisos, an insolvent EU citizen may now, under EU regulations apply to implement a financial solution in any other member state. The UK stands out as the best place to do this. However, the debtor needs to be able to show, to the satisfaction of the court, that his or her “centre of main interests” or COMI is in the UK. Such an assertion may be challenged by his or her creditors. What does COMI mean in practice? The phrase which comes closest to defining COMI appears in the relevant EU regulations where it states that “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”. The insolvency industry and creditors generally seem to have reached consensus as to how this particular phrase is to be interpreted but of course it is for the courts to decide in any particular case whether the debtor’s circumstances meet this criterion adequately.
A debtor’s COMI is in the first instance deemed to be the country where he or she mainly carries out his or her profession, trade or self-employment. In the absence of a trade or profession, then the country in which the debtor lives is usually accepted as their COMI. A debtor, residing in one member state and working on a non self-employed basis in another, will be deemed to have their COMI in the state where they pay their bills, purchase goods and hold a bank account – which will usually be their country of residence. Debtors who trade in one member state but live in another will have their COMI in the member state where they trade.
Why is the COMI of a debtor important? In the context of a debtor who comes to the UK to work and live but who is insolvent in their EU country of origin, the date of presentation of any petition for bankruptcy is the date when the COMI is determined. That COMI need not be where the relevant activity was carried out i.e. where the indebtedness was incurred and where the debtor became insolvent. The location of creditors is practically irrelevant. Since the EU treaties guarantee the principle of the free movement of labour, citizens can change their COMI at any time. Citizen of EU member states may go to the UK for work and live there, thus establishing their COMI in the UK regardless of what level of debt they may have left behind them in their home country.
The laws relating to Debt Relief Orders and IVAs also use the COMI principle. If an insolvent debtor from another EU member state offers proposals for an IVA to his or her creditors, whether such creditors are exclusively foreign or a mix of foreign and domestic, then provided that debtor meets the COMI requirements, to the satisfaction of the court, the decision taken at the meeting of creditors will be binding on all creditors, whether they chose to vote or not on the proposals. Since at least 75% by value of voting creditors have to accept the proposal for it to become an approved IVA, creditors have a great deal of protection and indeed power over the debtor. Since an IVA usually offers creditors a better return than bankruptcy, debtors can hope to be able to persuade them to accept their IVA proposals and so successfully manage their insolvency.