Establishing your COMI in the UK

EC Council Regulation 1346/2000 was enacted to achieve efficiency and effectiveness in cross-border insolvency proceedings in the EU. The Regulation also recited that countries should act to prevent “forum shopping” for the best state in which to undertake insolvency, as it would have been impossible and undesirable to enact comparative EU insolvency practices.
The divergence of Insolvency practice across the EU caused many to look at England and Wales with interest as a jurisdiction which had a debtor friendly bankruptcy regime.
The contrast with the bankruptcy laws in Ireland couldn’t have been more extreme. The rational behind the introduction of the Enterprise Act 2002 was that , entrepreneurs and consumers in debt should be encouraged to participate again in the economics of society as soon as possible by acknowledging quick release from debt. The converse appears to be in place in Ireland with the Bankruptcy Act 1988 acting more as a debt collection service for creditors, than a release from debt.
So, in order that “forum shopping” for bankruptcy between the two very close neighbours does not take place, a series of checks has been put in place by the Official Receiver here to make sure that anybody who presents their bankruptcy petition to a court in England and Wales is entitled to do so by virtue of having established their COMI, or centre of main interest here.
CENTRE OF MAIN INTERESTS AND BANKRUPTCY PETITIONS PRESENTED BY CITIZENS OF OTHER EUROPEAN UNION NATIONS
The official internal guidance from the Insolvency Service is that a debtor may change their COMI at almost any time and for self-serving reasons– for example, to take advantage of a more favourable insolvency regime but, crucially, the re-location must be real, and must be effected prior to the presentation of the petition.
Official Receivers have been guided to note that the majority of EU citizens who seek the protection of the bankruptcy court will have genuinely relocated to the UK. They may have decided to move simply to take advantage of more favourable insolvency legislation but, crucially, so long as the re-location is real then the bankruptcy order would be correctly made in the UK. I
In summary, it is the fact of the relocation, rather than the intention behind, the re-location which is the decisive factor.
JUDICIAL SCRUTINY
Establishing a Centre of Main Interest has attracted judicial scrutiny in the last couple of years in a few cases predominantly involving Austrian and German citizens. These cases decided whether or not a person had truly settled their COMI here. General guidance came out of these cases which help to formulate some guidance which the Insolvency Service will apply
Stephen Baister, a senior UK bankruptcy judge, thinks that it may be easier for the Irish to establish their COMI here than say the Austrians or Germans. "If an O'Neill or a Joyce turns up and gives an address in the UK, you think no more of it.". There is nothing wrong at all with establishing your COMI here. It matters not how and where you built up your debt, your COMI is decided on what you do when you declare bankruptcy. "If you prove you have a genuine tenancy agreement or if you have gainful employment and prove you are settled here, you can fill in the forms and say you can't pay your debts and we will make you bankrupt," he said.
Other good news as set out by the Insolvency service says, "Official receivers should note that the majority of EU citizens who seek the protection of the bankruptcy court will have genuinely relocated to the UK. They may have decided to move simply to take advantage of more favourable insolvency legislation but, crucially, so long as the re-location is real then the bankruptcy order would be correctly made in the UK. In summary, it is the fact of the relocation, rather than the intention behind, the re-location which is the decisive factor."
So in order to be sure of your COMI you need to be able to show that at the date the petition is submitted you are habitually resident here in England. You may keep a property overseas habited by your wife, but you need to be genuinely resident here. It doesn't matter if you choose to be here just because you choose to, but be prepared to show evidence of your life here.

Official Receiver v Eichler [2007]
Facts
In this case, the Chief Registrar was faced with an application by the Official Receiver for directions as to whether or not a bankruptcy order, which was made upon the debtor’s self petition, should have been made in the UK, on the basis that the debtor’s COMI was actually in Germany.
In his self petition the debtor disclosed that his COMI was within England and Wales and that for the greater part of the preceding six months he had been residing in Hertfordshire. However, the evidence disclosed by the Official Receiver illustrated that the debtor was German by birth, and worked as a locum consultant in the area of radiology and nuclear medicine. His Statement of Affairs disclosed no assets. He had three German creditors, to whom he owed £206,700 (two of whom were owed £200,000 under a judgment obtained in Germany), and no UK creditors.
The Official Receiver, in support of his application to have the bankruptcy over turned, advised that the debtor’s debts were incurred entirely in Germany, and that the debtor had moved to England approximately five months before presenting his petition. During this period, he lived in temporary accommodation provided in connection with his employment and his wife continued to live in Germany. The Official Receiver also submitted that as the debtor had owned a property in Germany which had been recently transferred into his wife’s name, proceedings to undo this transaction could more conveniently be pursued in Germany through a German bankruptcy.
The debtor argued that he had genuinely moved to the UK for work purposes, and whilst his wife remained in Germany, he spent more time in the UK in connection with his work than in Germany. He denied that there was any impropriety in connection with the transfer of the property to his wife, and that he had initiated bankruptcy proceedings in this jurisdiction after taking advice from a Solicitor in Germany.
The Court’s Ruling
The Chief Registrar ruled that the debtor was at liberty to change his COMI, and that the country in which the debtor’s debts were incurred was not a relevant consideration in establishing his COMI. The true inquiry was to the debtor’s habitual residence. It was ruled that at the date the proceedings were opened, the debtor’s COMI was in the UK, and even where the debtor’s residence was temporary, that would not necessarily change the position. The Chief Registrar stated that he was not aware of any authority establishing any minimum period of time which a person must spend in a Member State before it could be said to have become his COMI. It was declared that the bankruptcy order was properly made and the declaration as to the applicability of the EC Regulation and the nature of the proceedings was also properly made.
IMPLICATIONS FOR IRISH CITIZENS
According to a senior UK bankruptcy Judge, little thought would be given to anyone Irish declaring bankruptcy here.
It matters not that you move to England just for the purposes of going bankrupt.
It is the fact of moving here and establishing yourself that is key.
There are no rules on how long you need to be here to establish your COMI. ( I would suggest at least three months).
It doesn’t matter that all your debts are in Ireland.
It doesn’t matter of your spouse remains in Ireland.
WHY IT IS IMPORTANT TO ESTABLISH YOUR COMI
If the Official Receiver believes that you are “forum shopping” which is where this article opened, he can ask the court to undo the bankruptcy order.
In order to check your COMI is here:-
A check can be made on the address given to see that it is occupied by the petitioner and not merely an agents address.
Evidence of settlement in the UK can be obtained such as telephone bills hosing UK calls, credit card statement showing UK purchases, shopping receipts and cash point withdrawal slips.
Details of the bankrupts NI number and of his employment contract plus UK tax reference can be sought.
He might ask if the Petitioner has informed his creditors of his move to the UK
He could ask whether the command of the language is commensurate with the employment being undertaken. This helps verify whether the employment is genuine or not.

www.helpwithdebtuk.com

Some case law on establishing COMI

Questions are being asked of me about establishing COMI on a regular basis, I think that the Judgements from these two cases may help to clarify a couple of points raised most often.

The UK has become a destination for financially beleaguered bankruptcy tourists because of its comparatively lenient approach to bankruptcy. Recently, Irish and, in particular, German debtors have utilised the UK bankruptcy process, as evidenced by recent UK case law. The Court of Appeal case of Shierson v Vlieland Boddy established that the regulation permits the migration of an individual's COMI, even for self-serving purposes. This conclusion respects the fundamental right of free movement of persons which is enshrined in Article 45 Treaty on the Functioning of the European Union (ex Article 39 EC).

In the UK case of Official Receiver v Eichler, it was suggested, albeit obiter, that even a temporary move to another member state is sufficient to ground insolvency proceedings in that member state on the basis that there is no authority stating that the debtor must reside for a minimum period of time in a state before the debtor's COMI is considered to have moved.

Steve Thatcher said:

WHY IT IS IMPORTANT TO ESTABLISH YOUR COMI
If the Official Receiver believes that you are “forum shopping” which is where this article opened, he can ask the court to undo the bankruptcy order.
In order to check your COMI is here:-
A check can be made on the address given to see that it is occupied by the petitioner and not merely an agents address.
Evidence of settlement in the UK can be obtained such as telephone bills hosing UK calls, credit card statement showing UK purchases, shopping receipts and cash point withdrawal slips.
Details of the bankrupts NI number and of his employment contract plus UK tax reference can be sought.
He might ask if the Petitioner has informed his creditors of his move to the UK
He could ask whether the command of the language is commensurate with the employment being undertaken. This helps verify whether the employment is genuine or not.

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I thought it would be good to update this advice from July last year in light of Sean Quinn's verdict.

I did set out in my advice that the Official Receiver could make enquiries as to whether creditors had been informed of the move.

The Judge in the Quinn case has spelt out in no uncertain terms that a person's whereabouts must be reasonably ascertainable by a creditor making reasonable enquiries.

Unhelpfully the Judge doesn't really expand on this. He does say that it is not necessary for a debtor to tell a creditor that he has moved or where he lives, but then he goes on to say that it is not reasonable to expect the creditor to have to employ tracing agents to attempt to track down a debtor.

The Judge also made a very good point I feel, in that he made it clear that as the Bankruptcy Petiton was ex parte, ie without notice to any other interested party, full disclosure needed to be made so the court could make an informed decision. His leaning I think, was that if you expected the courts to process your bankruptcy, the court had a right to expect that you had at least communicated your whereabouts to a creditor, so that they could if they so wished take steps to be present at the hearing.

I think my advice going forward to my clients will be that we be open and honest with creditors. When the time is right, we will tell them that you have moved. We will also inform the court that they have been told. We will give them enough time to consider their position but perhaps not enough time to scupper the process.

As many have said here anyway, the banks are not in the game of making people bankrupt (Sean Quinn aside), and so this may not be too much of an issue.

All the best
Steve

southdublin said:

Hi Mr Thatcher,
my very simple question is that do you think that the now "famous" Sean Quinn case made UK bankruptcy difficult for Irish? Thanks

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Hello Southdublin, in short no I don't.

Can I suugest that you have a look at the opinion piece I posted up here on the site.
Mt Quinn made a bit of a pigs ear with his run north. He failed to prepare his centre of mainj interest and indeed accepted that he was habitually resident in the Republic. His plan was to try to convince the court that he conducted his affairs out of the North.
The Judge found against that.

The one point that really needs to be taken on board is to make your move ascertainable by the creditors. You need not advertise your move but they will need to be able to find out where you are. My suggestion is to let them know where you are living just prior to going bankrupt, unless you can be pretty sure that your lender will not bankrupt you.
I think that in the vast majority of cases there will be no danger of a creditor taking this course of action, and so telling a normal creditor where you have moved to shouldn't be too much of an issue.

Steve

southdublin said:

,
my very simple question is that do you think that the now "famous" Sean Quinn case made UK bankruptcy difficult for Irish?

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I read the judgment and the main issue seemed to be that Quinn when he ran his empire was based in the North but when he was 'fired' from that his COMI was no longer in the North. He also hid from view (to avoid the press he said) his new office in the North which the judge didn't like and the judge quite simply did not believe the lease was valid etc. He also had no correspondance going to the new address and on the balance of probablities the judge reckoned his COMI was at his home. The fact that he resided in the south did not really come into it. From my reading, you can live in the South but have a COMI in the North if most of your commercial business is conducted in the North.

For ordinary people, the fact of moving to the UK, renting and getting a lease, utility bills, moving bank accounts, etc to prove they have changed their COMI is important. But following the Quinn judgment, one should also notify in writing, by registered post, all one's creditors and other officialdom (revenue etc) . In addition cancelling one's right to vote in Irealand and registering to vote in the UK could be helpful.

bump for admin purposes

So, from reading from the above, one could go to the North, set up a residency, bank a/c, job, be it part time or full time, set up utility bills, and go South regularly, appy for UK bankruptcy, while doing all this? Is this correct??

Certainly. No reason why you couldn't.