UK: Interesting Bits And Trends In Personal Insolvency - The Rise Of Bankruptcy Tourism In Recent Years

Last Updated: 11 April 2013
Article by Neil Hickling

An interesting development over the last four years has been the growth of bankruptcy tourism with a number of people, often with a high profile, filing their petitions in England where there is a one year automatic discharge period compared to currently five to 12 years in Ireland and seven years in Germany. These countries are where we are seeing the most growth in bankruptcy tourism. The deciding factor is the COMI (Centre of Main Interest) of the individual and should correspond to "the place where the debtor conducts the administration of his or her interests on a regular basis and is therefore ascertainable by third parties". Four years ago, it was relatively easy for insolvent individuals to come over from Ireland or the continent and satisfy the court that his or her COMI was in England, file their petition and take advantage of the perceived more lenient process. However that has all changed with various high profile Bankruptcy Orders being annulled (Sean Quinn, Dr Eichler, etc) and the court's view such similar applications with a more critical eye. One of the most recent cases to go through the courts, that of Sparkasse Holden Velbert v Benk (yes that old favourite) has resulted in various tests which are applied in establishing the debtor's COMI as follows.

  • Where is his or her normal permanent home where contact can be made?
  • Where is the professional address (if applicable) and from which address does the individual administer their affairs?

The court will also require the COMI to have an element of permanence and the debtor can have only one COMI even though it can be relocated at any time prior to them filing their own petition.

In the Benk case referred to above, the court considered that a lot of the evidence produced by the debtor amounted to window dressing and ultimately annulled the bankruptcy order made earlier. As a result of the Benk case, it is likely that the pipeline of bankruptcy tourists from the Continent and Ireland is likely to decrease. In addition, Ireland has a new Personal Insolvency Bill introduced earlier in the year which will be enacted in April 2013. The legislation is radically designed to overhaul the law on bankruptcy and personal insolvency. Among other things, it will reduce the length of bankruptcies to three years.

Again this new law is likely to have the effect of reducing Irish bankruptcy tourism. As a matter of interest, I have always believed that the English discharge period was too short. I remember the time of the Bankruptcy Act 1914 (some people might think I was around to help frame the legislation but no, it's not true) when there was no such thing as automatic discharge and the onus was on the bankrupt himself to apply to the court; a relatively rare experience! Interestingly a recent survey by our professional body R3 established that 58% of the population believed that bankruptcy should last longer than a year. My view is that reform will take place and we are likely to revert to a three year discharge period within the next five years.

I think that is enough from me. I suppose my last point is how life has changed for an insolvency practitioner out in the leafy shires over the last 30 years or so. In the 1980s, the only international bankruptcy I dealt with was the odd Welsh sheep farmer with the odd Welsh sheep. Nowadays, I am regularly realising properties in Bulgaria, South Africa and the United States, yachts in Majorca and vehicles in Spain. Next month I am off to court in Cyprus as a witness where hopefully I will be successful and repatriate funds for creditors in one of the bankruptcies I am administering as trustee.

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