Intra Jurisdictional Bankruptcy And IBRC v Quinn

The article below was written by Una Leavy, Solicitor in Mason Hayes & Curran's Debt Recovery department for publication in the IICM Credit Focus, Summer 2012 Edition. © Copyright IICM. All rights reserved

The adjudication of bankruptcy made in The High Court of Justice in Northern Ireland in November 2011 against Sean Quinn former Chief Executive of the Quinn Group, following the presentation of his own petition, was successfully set aside through a subsequent application brought by The Irish Bank Resolution Corporation (formerly Anglo Irish Bank Plc) in December 2011. This was an important and encouraging decision for financial institutions across Ireland, who have been left to deal with the bad loans of some of Ireland's most well-known and formerly very high net worth individuals, many of whom have begun to make their way outside of this jurisdiction to present bankruptcy petitions elsewhere.

The incentive lies in the fact that Bankruptcy Law in this country in its present state is generally viewed as oppressive and archaic. The governing legislation in this area has remained relatively unchanged since it was enacted in 1988, and the eventual possibility of discharge is far less optimistic here than in the UK. In Ireland, a bankrupt cannot apply for automatic discharge until a period of 12 years has elapsed since the date of adjudication under Section 85(1) of the Bankruptcy Act 1988. This is a recent provision introduced by Part 7 of the Civil Law (Miscellaneous Provisions) Act 2011, which at least permits the possibility of discharge for unsatisfied bankrupts (which had not been present before then). The same 2011 Act also provided for the possibility of discharge after 5 years at the discretion of the High Court in the event that all preferential creditors have been paid along with the Official Assignee's Expenses¹.

In the UK automatic discharge from bankruptcy is possible after just 12 months, and while it often takes longer, this is usually the result of non-cooperation by the debtor. Bankruptcy administration is also far better resourced and staffed in the UK, which is an incentive for a debtor as the prospects of rebuilding a life financially are far better if the process takes less time to complete.

IBRC v Quinn: Case background

Sean Quinn filed a debtor's petition before the High Court of Justice in Northern Ireland on the 10th November 2011 seeking that he be declared a bankrupt pursuant to the UK Insolvency Order 1989. Around this time Mr Quinn was also the subject of Commercial Court applications for judgments by the Irish Bank Resolution Corporation Limited (IBRC) in the Republic of Ireland.

The law relating to Intra Jurisdictional Bankruptcy is governed by EC Regulation 1346/2000 of 29th May 2000 which contains a direct reference in recital 4 of the preamble to the need for incentives for legal forum hopping within the EU to be avoided, for the proper function of the internal market. Notwithstanding this, the Master in Bankruptcy accepted that despite Quinn's habitual residence in the Republic, his 'centre of his interest', (often referred to as 'COMI,') being the place where he carried out economic activity on a regular basis, was in Northern Ireland, when the principles of the Regulation were applied.

As anticipated on the 17th November 2011, the IBRC filed an application to annul the order pursuant to Article 256(1) (a) of the 1989 Insolvency Order on the basis that, inter alia, the court in Northern Ireland lacked jurisdiction to open the proceedings under Article 3(1) of the EC Regulation 1346/2000 as Mr Quinn's COMI was actually in the Republic.

IBRC v Quinn: The Legal Challenge

The matter of The Irish Bank Resolution Corporation [Limited] v John Ignatius Quinn (DEE 8396 2011 No.133303) came before Mr. Justice Deeny in the High Court in Northern Ireland for hearing on 24th November 2011. Mr. Justice Deeny stated that in determining the matter of jurisdiction, he would be applying the criteria set out in the EC Insolvency Regulation which states that proceedings against a person or company can only be brought in the jurisdiction where the person or company has their COMI², and that this place must be ascertainable by third parties³ at the time of the presentation of the petition.

There is no definition of COMI in the Regulation; however the concept has been examined in the courts across Europe and before the European Court of Justice on a number of occasions. In arriving at his decision, Mr. Justice Deeny also had regard to an explanatory report written by Professors Miguel Virgos and Etienne Schmit ("The Virgos-Schmit Report^"4) often referred to in the cases before the ECJ.

In 2004 The Irish Supreme Court made a preliminary reference to the European Court of Justice regarding the definition of COMI In re Euro foods IRSC Limited⁵, a case involving a corporate insolvency. It was held that the concept of COMI must be interpreted in a uniform way under the Regulation and therefore outside of interpretation under national laws, and that COMI must be identified in a way that is certain and foreseeable and objectively ascertainable by creditors. In other words the business activity should be continuous and there should be a large degree of stability and certainty as to the location of the trade for potential creditors and others.

In the case of Susanne Staubitz-Schreiber⁶ involving a German Debtor who moved to Spain in 2002 leaving substantial liabilities in Germany, the European Court of Justice ultimately decided that whilst the debtor had lived and worked and mounted debts in Germany for a number of years, it was not until after she moved to Spain to live and work, that there was a second attempt to open main insolvency proceedings in Germany. The ECJ stated that historical events did not necessarily influence COMI and the fact was that the debtor now resided in Spain and thus the main proceedings would have to be brought there. This was a direct interpretation of Recital 13 of the Regulation, which states that COMI must be established at the time of the presentation of the petition. Timing was also a key factor in preventing Mr Quinn establishing COMI in the UK; his circumstances at the time of seeking a declaration of bankruptcy were paramount, whereas his history of business in Northern Ireland was only partially taken into consideration.

Sean Quinn claimed in his petition that the place where he conducted his business was Gortmullen, Derrylin, County Fermanagh, Northern Ireland being the registered place of business of the Quinn Group. His case was that he had business interests in Northern Ireland and could prove that his COMI was there. However Mr. Justice Deeny in examining the written evidence pointed out that despite Mr. Quinn previously holding a senior office and shareholding in the Quinn Group which had offices in Northern Ireland, he lost this position and was induced to resign from The Group in April 2010.

Further into the proceedings, Mr Quinn swore an affidavit on 7th December 2011 in which he made reference to another office in Northern Ireland in use since 2nd May 2011 at Unit 1 Derrylin Enterprise Park, where he claimed to be carrying out the administration of his various business interests. Although the lease was exhibited, Mr. Justice Deeny had issues with its format and drafting. Mr Quinn also exhibited an invoice from a print company in Tallaght, Co Dublin purportedly requesting payment for letterheads and business cards bearing the address of the Derrylin Enterprise Park Unit which were also exhibited. However Mr. Justice Deeny questioned why no actual correspondence to or from the office had been exhibited, and why in his petition of 10th November, Mr Quinn had failed to mention the office in the Enterprise Park. He concluded that on the balance of probabilities, the office was not in use on a regular basis in the months prior to 10th November 2011.

In addition the Judge questioned whether Mr Quinn had any business activity at all in Northern Ireland in the months before he filed his petition, as he was primarily involved in proceedings taken against him by the IBRC, involving sums of money specified in dollars and Euros, and no lawyer in the UK had been instructed in relation to any of these matters.

Mr Quinn also claimed that he had an interest in some forestry land in County Fermanagh which he was considering thinning and he said that this project would be financed by his children who were leasing the lands, but Mr. Justice Deeny felt this was insufficient to establish general economic activity.

Taking everything into consideration, Mr. Justice Deeny found that the centre of Mr Quinn's main interests was not in Northern Ireland. This decided, there was little need to address the question as to whether Mr Quinn's COMI was ascertainable by third parties pursuant to the EC Regulation. Notwithstanding it was noted that the address and telephone number of the Enterprise Park Office had not appeared on the Internet or in any phone book or trade directory.

Conclusion

Accordingly, the High Court of Justice in Northern Ireland set aside its previous order , declaring Sean Quinn bankrupt and he faced bankruptcy proceedings in the Republic once again. On 16th January 2012, he was declared bankrupt by the High Court in Dublin following a petition brought by the IBRC. European Law has always stated the importance of Freedom of Movement within the EU. However, arguably, the focus of the case involving Sean Quinn and the IBRC was to balance this right against the need to prevent the practice of legal forum shopping, specifically referred to by the EC Insolvency Regulation. It will be interesting to see if other Irish creditors seek to rely upon Mr. Justice Deeny's judgment in similar cases and the extent to which they are permitted to do so.

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