Did you know that there are now twenty seven countries in the European Union (EU) all with their own personal insolvency legislation? The mind boggles at the volume, variety and complexities of laws and regulations which this must entail. The EU of course seeks the harmonize laws including insolvency laws in member states as one of its objectives. Until such harmonization is achieved, citizens of member states of the EU may legally seek to address their own personal insolvency and seek to apply a solution in the member state which is most favourable to their situation. In the area of personal insolvency, bankruptcy tourism has sprung up as citizens have become aware that they can seek to deal with their financial problems in a jurisdiction other than that in which their debt was incurred. Bankruptcy tourism could perhaps be humorously defined as the free movement of financial solutions (or problems), going hand in hand with the free movement of labour.
The UK in particular stands out as a jurisdiction where there is what may be described as an entrepreneurial attitude to those who encounter financial difficulty. Bankruptcy and Individual Voluntary Arrangements (IVAs) in particular offer insolvent debtors a second chance and an opportunity to rehabilitate themselves financially, compared to the culture and laws in certain other EU member states which may seek to punish those who have transgressed financially.
Any insolvent debtor in any EU member state may want to consider whether they may legally pursue a solution to their indebtedness under the laws of a jurisdiction other than their own. And they have the right to do so legally under European regulations, subject to certain provisos. Currently, the most obvious forum to choose is the UK since that is the jurisdiction considered to be the most enlightened and, as far as the insolvent debtor is concerned, generally offers the cheapest, fastest and most satisfying financial solutions, chief among them being Bankruptcy and IVAs.
Before proceeding however, the insolvent debtor must consider whether his or her circumstances satisfy a number of provisos. The most important criterion to meet is to be able to show that the debtor’s “centre of main interests” or COMI is in the UK, bearing in mind that this can be challenged by among others, creditors. According to EU Regulations “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”. This is of course open to interpretation or challenge although a consensus is beginning to emerge as to what this is intended to be. Ultimately, the courts decide whether a debtor’s COMI has been correctly established.
The country where an EU citizen mainly carries out his or her profession, trade or self-employment will be considered their COMI. If the citizen has no trade or profession, then their country of residence is normally deemed to be their COMI. If the debtor trades in one member state but lives in another, the COMI is usually considered to be the member state where they trade. If a citizen lives in one member state (where they pay their bills, hold a bank account, purchase goods and so on) and commutes to another member state where they work on a non self- employed basis, then their COMI will usually be the country in which they live.
The date on which a bankruptcy petition is presented is when the COMI is determined. It may be completely different to where the COMI was when the relevant activity was carried out – i.e. when the indebtedness leading to insolvency was incurred. Therefore the location of creditors and the country in which debts were incurred are not material issues in determining a COMI. Can a debtor change his or her COMI? Of course they can and while it may be difficult it is perfectly legal to do so. The free movement of labour within the EU which is a cornerstone of the EU treaties ensures this. Any citizen of any EU member state may travel to the UK, take up work, and live there. Their COMI is undoubtedly now in the UK, regardless of what indebtedness they may have incurred in their home country and they are entirely within their rights to petition for their own bankruptcy in the UK or to seek an alternative legal solution to their insolvency such as offering an IVA to their creditors. However, it should be remembered that creditors in the debtor’s “home” country may reject proposals for an IVA, since approval requires acceptance by at least 75% of (voting) creditors. However, there is no logical reason why creditors in a foreign jurisdiction should reject a well constructed IVA, particularly if it is the best offer the debtor can make and the best return that creditors can achieve.