'Bankruptcy Tourism' Under the EC Regulation on Insolvency Proceedings - A View From England and Wales

8/13/2019 'Bankruptcy Tourism' Under the EC Regulation on Insolvency Proceedings - A View From England and Wales

1/49Electronic copy available at: http://ssrn.com/abstract=1630890

Bankruptcy Tourism under the EC Regulation on Insolvency

Proceedings: A View from England and Wales

This article provides an account of the emergent phenomenon of bankruptcy tourism

forum shopping by debtors for favourable personal insolvency law within the EU and

with particular reference to England and Wales. After outlining the structural features of

the European legal framework that make forum shopping for personal insolvency law

possible, including the EC Regulation on Insolvency Proceedings, and explaining whyEngland and Wales in particular has proved to be an attractive tourist destination, thearticle charts how the official receivers and the courts in England and Wales have sought

to manage the influx of foreign bankruptcies in terms of legal principle and process

drawing on two reported cases, Eichler and Mitterfellner. It will be seen that the

institutional response in England and Wales has been twofold. First, the problem of

forum shopping debtors has been framed as a problem of policing the line between

genuine and fictional relocations. Secondly, there are signs that the procedural onus on

debtors to evidence their claim to English jurisdiction before a bankruptcy order is madehas been increased, a move that can be interpreted as a form of institutional resistance

designed to raise the barrier to entry. Having sought to illuminate the problems, costs

and inconvenience associated with forum shopping from a practitioner standpoint, we

explore the good versus bad forum shopping question and consider the scope for

reform of the EC Regulation. Adopting a creditor perspective, we conclude provisionally

that the Regulation could usefully be reformed to limit the scope for insolvent debtors to

switch their COMI in anticipation of filing for bankruptcy.

Author contact details:

Adrian Walters Anton Smith

Geldards LLP Senior Associate Solicitor

Professor of Corporate and Insolvency Law Business Recovery and Insolvency

Insolvency and Corporate Law Research Group Geldards LLP

Nottingham Law School The Arc

Nottingham Trent University NG2 Enterprise Park

Burton Street Enterprise WayNottingham NG1 4BU, UK Nottingham NG2 1EN, UK

Tel: +44 (0)115 8482771 Tel: +44 (0)115 9833742

Fax: +44 (0)115 8486489 Fax: +44 (0)115 9833771

Email: [email protected] Email: [email protected]

ICLRG Working Paper Series


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enterprises.2 Forum shops orchestrated by senior creditors seeking a restructuring in their

venue of choice, usually London, remain contentious.3

In the context of personal insolvency, the ECIR has attracted less attention. This

is not surprising as most personal insolvencies in Europe are local and have no cross-

border element. With less at stake compared to corporate cases in terms of assets and

fees, creditors and trustees have little incentive to embark on ground breaking litigation

even where there is a cross-border element. However, one emerging issue of cross-

border personal insolvency stimulating debate in the UK is the phenomenon known as

bankruptcy tourism: essentially, forum shopping for favourable bankruptcy law.4

Having contracted their debts and become insolvent in one Member State tourists look

to move their COMI or create the impression of having moved their COMI to

another Member State with a view to opening main proceedings and discharging their

debts under that states bankruptcy law. Moreover, tourists can shop for a debtor

friendly bankruptcy law the effects of which will apply throughout the EU, including in

the home country where the debts were contracted, by virtue of Articles 4, 16, 17 and

25 of the ECIR.

2Re Daisytek-ISA Ltd [2003] BCC 562;Klempka v ISA Daisytek SA [2006] BCC 841. See also Case C-

341/04Re Eurofood IFSC Ltd [2006] ECR I-3813.3Witness the furious response of junior creditors to the Wind Hellas restructuring begun during 2009: see

Re Hellas Telecommunications (Luxembourg) II SCA [2009] EWHC 3199 (Ch); M Herman, Abuse of pre-

pack deals could turn Britain into an insolvency brothel The Times (London 18 January 2010); E Moya,

London risks becoming brothel for bankruptcy tourists The Observer(London 31 January 2010); R Watts

and C Newell, Firms flock to bankruptcy brothel UK The Sunday Times (London 7 March 2010).

4See e.g. A OSullivan, UK could face wave of bankruptcy tourism (15 August 2009)

; R Singh

Bankruptcy tourists exploit UKs lenient insolvency lawsAccountancy Age (20 August 2009).


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There is reliable evidence that England and Wales has become the bankruptcy

venue of choice. According to information obtained from the Insolvency Service, the

government agency which has operational responsibility for the network of official

receivers who act as trustees of first and last resort in bankruptcy cases, there has been a

quiet invasion of German nationals petitioning for their own bankruptcy in England and

Wales. The Insolvency Service does not record a debtors nationality and therefore has

no firm statistical data identifying bankruptcy orders made on the petition of non-UK

Nationals. However, recent surveys of official receivers suggest that up to 200

bankruptcy orders were made on the petition of foreign nationals in the two years ended

31 March 2010, the majority of whom were German. In less than half these cases there

was information to suggest that there may have been no real relocation to the UK. To

date, 14 orders have been annulled with further applications in the pipeline.5

Although the number of cases involving foreign nationals is tiny relative to the

total number of bankruptcies in England and Wales,6 these cases highlight a tension

arising from the interplay of different norms. On the one hand, the Treaty on the

Functioning of the European Union7privileges freedom of movement and establishment

5Email from Alison Dennis, Senior Policy Advisor at the Insolvency Service on file with authors. See also

the Insolvency Services Technical Manual, an internal best practice guide for official receivers,

Ch 41(Cross-Border Insolvency European Union) at para 41.65 (Change of COMI) and Official Receiver v

Mitterfellner [2009] BPIR 1075 [53]. One of the Deputy Registrars in Bankruptcy has reported that in his

experience at least one in the 20-25 debtor petitions filed each day in the High Court relates to a debtor

with substantial foreign connections: see J Briggs, Debtor forum shopping (2010) 23(2) Insolvency

Intelligence 28, 30.

6See Insolvency Service, Statistics Release: Insolvencies in the Fourth Quarter 2009 (5 February 2010)

.

7Prior to the Treaty of Lisbon coming into force, the EC Treaty.


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within an internal market crossing the national boundaries of sovereign states which

retain legislative competence in their own territories. Insofar as areas of substantive law

remain unharmonised, the possibility of regulatory competition is always present and

relocation to take advantage of more favourable law is facilitated. On the other hand,

where debtors relocate with a view to discharging their debts under a foreign bankruptcy

law, creditor expectations are frustrated, additional burdens are imposed on host

institutions, such as the courts and, in England and Wales, the official receivers, and

effective administration of bankruptcies in terms of identification and realisation of assets

may be rendered more cumbersome and costly to the further detriment of creditors. As

the freedom of EU citizens to relocate from one Member State to another is enshrined

within the European legal order, the question begged is whether anyrelocation involving

a forum shop, be it temporary or permanent, should be regarded as an undesirable abuse

of EU law freedoms or whether this is only so where the relocation is an outright fiction

designed to manufacture jurisdiction. Accordingly, the tension between EU law

freedoms and creditor protection resolves into normative questions of whether, and in

what circumstances, forum shopping for bankruptcy law is good or bad within the

parallel discourses of EU and national policy making.

With these questions in mind, this article provides an account of the bankruptcy

tourism phenomenon from an English perspective. The article divides into four further

sections. In Section II, we consider those structural features of the EU legal framework

that make forum shopping for personal insolvency law possible in the first place,


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including the ECIR itself, and explain why England and Wales8 has proved to be an

attractive tourist destination. This section also attempts briefly to explain why, hitherto,

the rising numbers of foreign nationals petitioning for bankruptcy in England and Wales

have tended to be German debtors with a professional background. In Section III, we

chart how the official receivers and the courts in England and Wales have sought to

manage the influx of foreign debtors in terms of legal principle and process drawing on

two reported cases, Official Receiver v Eichler9and Official Receiver v Mitterfellner.

10 It

will be seen that the institutional response in England and Wales has been twofold. First,

the problem of forum shopping debtors has been framed as a problem of distinguishing

and policing the line between genuine and fictional relocations. It is thus acknowledged

that the genuine are entitled to use English law to release pre-existing debts wherever

incurred. Secondly, the courts have shown some signs of institutional resistance by

increasing the procedural onus on debtors to evidence their claim to English jurisdiction

before a bankruptcy order is made thus raising the barrier to entry. Section IV

illuminates the practical problems, costs and inconvenience associated with forum

shopping from a practitioner standpoint with particular reference to theHagemeister case

in which the second-named author acted for a German creditor. In the final section, we

explore the good versus bad forum shopping question and consider the scope for

8Scotland and Northern Ireland, the other two law districts which, together with England and Wales,

make up the United Kingdom, have their own separate personal insolvency regimes albeit there is

considerable convergence. The English and Northern Ireland systems are identical in all material respects

and, although Scots bankruptcy law retains its distinctive character, reforms of the Bankruptcy (Scotland)

Act 1985 brought in by the Bankruptcy and Diligence etc (Scotland) Act 2007 have aligned Scots law with

English law on core matters such as the period to discharge.

9[2007] BPIR 1636.

10[2009] BPIR 1075.


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reform of the ECIR. Adopting a creditor perspective, we conclude that the ECIR could

usefully be reformed to limit the scope for insolvent debtors to switch their COMI in

anticipation of filing for bankruptcy. Pending such reform, we think it conceivable that

the tourism phenomenon could accelerate moves towards greater convergence of

bankruptcy law within the domestic legal orders of the EU Member States. For the

avoidance of doubt, the term bankruptcy is used throughout the article in its English

sense to refer exclusively to the insolvency of, and insolvency proceedings relating to,

individuals (natural persons) rather than corporations (legal persons).

II. FORUM SHOPPING FOR FAVOURABLE BANKRUPTCY LAW

WITHIN THE EUROPEAN UNION

A. Structural factors that facilitate forum shopping

EU law freedoms

The scope for forum shopping is inherent within the supra-national and domestic legal

orders that subsist within the European Union. At the supra-national level, the Treaty on

the Functioning of the European Union (formerly the EC Treaty) guarantees freedom of

movement, freedom of establishment and freedom to supply services throughout a

theoretically borderless Europe without discrimination on grounds of nationality. The

rationale of these freedoms in their original guise under the Treaty of Rome was

predominantly economic in character. They formed part of the legal apparatus devised to

overcome domestic obstacles to the establishment of the single market. So, for example,

free movement, as originally conceived, was concerned specifically with the free


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movement of workers and the promotion of labour market mobility.11 The introduction

of the concept of European Union citizenship by the Maastricht Treaty in 1992 has led to

the development of a wider right of EU citizens to move and reside freely within the

territory of the Member States. Moreover, under EU law, this citizenship right, which

encompasses the right of non-nationals to vote in the host Member State, is not

confined to those who are economically active, and has taken on a broader socio-political

character that assures equal treatment to all EU citizens on matters falling within the

scope of the EC Treaty.12 Thus, the EU law freedoms facilitate mobility between

Member States for economic and non-economic purposes and, in consequence, the

exploitation of differences in domestic legal rules and systems.

Divergent insolvency law

The ECIR is a coordinating measure adopted originally under Title IV of the

Consolidated EC Treaty with a view to the progressive establishment of an area of

freedom, security and justice.13

As such, it is a measure for developing judicial

cooperation in civil matters having cross border implications which aims to ensure the

compatibility of the rules applicable in the Member States concerning the conflict of laws

and of jurisdiction. It does not harmonise the domestic insolvency laws of the Member

States save in respect of certain procedural matters concerning the provision of

11Art 45 of the Treaty on the Functioning of the EU (TFEU). For freedom of establishment and freedom

to supply services see TFEU arts 49 and 56.

12TFEU art 21; Council Directive (EC) 2004/38 of 29 April 2004 on the right of citizens of the European

Union and their family members to move and reside freely within the territory of the EU [2004] OJ

L158/77. See further RCA White, Free movement, equal treatment and citizenship of the Union (2005)

54(4) International and Comparative LQ 885.

13See now TFEU art 81.


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information to creditors and the lodging of claims.14 It merely establishes uniform

private international law rules in relation to insolvency proceedings as regards allocation

of jurisdiction, applicable law, recognition of foreign insolvency proceedings and co-

ordination of concurrent proceedings. Given the divergence between the substantive laws

of Member States, especially on such matters as security rights and statutory priorities,

the framers of the ECIR concluded that it was impractical to introduce a scheme whereby

a single insolvency proceeding could be opened having universal scope and effect under

its applicable law throughout the EU.15 It follows from this general approach that the

ECIR does nothing to mitigate the diversity of domestic bankruptcy laws in relation to

matters such as eligibility for bankruptcy relief, estate exemptions, provable debts,

contributions by the debtor out of ongoing income and the length of time to discharge.

Moreover, local variations in these aspects of bankruptcy law can be expected to be

enduring as bankruptcy laws are prone to be culturally specific and path dependent

reflecting hitherto deeply held societal views about the moral character of debt

accumulation, repayment and forgiveness and the appropriate balance to be struck

between debtors and creditors.16

Thus, several jurisdictions including Italy and Greece

14ECIR arts 39-41. In any event, the EC lacks the legislative competence to effect substantive

harmonisation of Member States substantive insolvency laws via EU level measures.

15

ECIR recitals (11)-(12). See also The Report on the Convention on Insolvency Proceedings, prepared byProfessor M Virgos and ME Schmit (hereafter Virgos-Schmit), EU Council Doc 6500/96, DRS 8 (CFC),

3 May 1996, paras 12-13. On the status of Virgos-Schmit as an authoritative guide to the interpretation of

the ECIR see the opinion of Advocate General Jacobs in Case C-341/04 Re Eurofood IFSC Ltd [2006] ECR

I-3813 [2].

16See e.g. R Efrat, Global Trends in Personal Bankruptcy (2002) 76 American Bankruptcy LJ 81; N

Martin, The Role of History and Culture in Developing Bankruptcy and Insolvency Systems (2005) 28

Boston College International and Comparative LR 1. For differences in legal response to consumer

bankruptcy between Commonwealth jurisdictions such as Australia, Canada and England and Wales on the


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still restrict eligibility for bankruptcy relief to traders and there is considerable divergence

in the timing of, and modus operandi for, granting discharge. Forum shopping is

therefore acutely possible in the personal insolvency context for those debtors who have

access to sufficient financial and informational resources to be able to engage in

systematic pre-bankruptcy planning.17

The effect of main bankruptcy proceedings under the ECIR

While the availability of different legal treatments clearly creates scope for arbitrage, it is

not sufficient of itself to guarantee that a debtor who has incurred all his debts in Country

X will successfully be able to discharge those debts by having recourse to the bankruptcy

law of Country Y. Ordinarily, it would be a question for Country Ys private

international law whether or not a debtor from Country X is eligible to file in Country Y

and a question for Country Xs private international law whether Country X will

recognise the effects of Country Ys bankruptcy law. Within a system of unharmonised

private international law, Country X may conceivably object to the effects of Country Ys

law on public policy grounds and refuse recognition. The ECIR, however, creates

one hand and Scandinavian and continental European jurisdictions on the other hand see JS Ziegel,

Comparative Consumer Insolvency Regimes A Canadian Perspective (Hart Publishing, Oxford and

Portland, Oregon 2003). See also JJ Kilborn, Comparative Consumer Bankruptcy (Carolina AcademicPress, Durham NC 2007). The effects of globalisation and international lawmaking initiatives may have

led to greater global convergence of law and policy in the field of corporate insolvency. On the role of

UNCITRAL in this respect see S Block-Lieb and T Halliday, Harmonization and Modernization in

UNCITRALs Legislative Guide on Insolvency Law (2007) 42 Texas Intl LJ 475.

17For an attempt by a debtor whose domicile of origin was England and Wales to avoid bankruptcy by

sheltering in a jurisdiction (Mauritius) where only traders can be made bankrupt seeHenwood v Barlow

Clowes[2007] EWHC 1579 (Ch), [2007] BPIR 1329 (especially [56]-[57]), revd [2008] EWCA Civ 577,

[2008] BPIR 778.


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uniform rules on the allocation of jurisdiction, applicable law and inter-state recognition

which, in practice, improve the prospects for successful shopping. This is so even

though the intention of the framers, stated in the preamble at recital (4), was to avoid

incentives for the parties to transfer assets or judicial proceedings from one Member State

to another, seeking to obtain a more favourable legal position.18

The point can be illustrated by a brief consideration of the scheme of the ECIR.

The ECIR applies to debtors whose COMI is situated in the EU and encompasses

specified forms of collective insolvency proceeding which are defined in articles 1-2 and

listed in Annex A and include the principal personal insolvency regimes of the Member

States, Denmark excepted. By virtue of articles 3, 4, 16 and 17, the courts of the Member

State within which the debtor has his COMI have jurisdiction to open a main insolvency

proceeding governed by that Member States law (lex fori concursus) which must be

recognised and given full effect without further formality in the other Member States in

accordance with the principle of mutual trust.19 This means that if a debtor moves his

COMI from one Member State (Country X) to another (Country Y) and he is otherwise

eligible under the second states law20

to apply for bankruptcy, the bankruptcy will have

18See also Virgos-Schmit (n 15) para 7. Cf. R Hnel, Take the Debt Drain Discharge-tourism Coming

Up Roses?INSOL World (First Quarter 2010) 30-31 arguing that the transfer of an individuals COMI

with a view to a more favourable bankruptcy regime does not involve a transfer of assets or judicialproceedings and so does not conflict with recital (4). Similarly, Chadwick LJ in Shierson v Vlieland-

Boddy [2005] EWCA Civ 974, [2005] 1 WLR 3966 at [46] suggested that recital (4) cannot be read as

restricting the ability of the debtor to choose where he carries on the administration of his interests.

19ECIR recital (22) and see the preliminary ruling of the European Court of Justice in Eurofood (n 15)

[38]-[44]. ECIR art 25 also requires other Member States to recognise judgments concerning the course

and closure of insolvency proceedings without further formality.

20ECIR art 4(2): The law of the State of the opening of proceedings shall determine the conditions for the

opening of those proceedings


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universal effect and impact on the rights of creditors wherever they are situated. The

practical consequence is that Country Xs law on such matters as the composition of the

bankruptcy estate, claims that can be lodged in the bankruptcy and the timing and scope

of discharge are exported to, and apply throughout, the other Member States including

Country Y.21

The universal effect of main proceedings is tempered by a series of schematic

features:22

provision for the opening of parallel territorial or secondary winding-up

proceedings in countries where the debtor has an establishment restricted to the debtors

assets within those countries;23carve-outs excluding or modifying the effects of the lex

fori concursus on specified matters such as security or quasi-security rights, payment

systems, financial markets contracts, employment contracts and rights in immoveable

property subject to public registration;24

and a limited ground for Member States to refuse

to recognise foreign insolvency proceedings where the effects of such recognition would

be manifestly contrary to their public policy.25 In seeking to protect local interests,

expectations and transactions, these aspects of the ECIR reflect realpolitik and allow

residual scope for Member States to resist wholesale importation of bankruptcy norms

from other countries and systems.

21ECIR art 4(2). Note, in particular, arts 4(2)(b), (g), (h), (j), (k). Article 25 can also be prayed in aid to

export the effect of a court order discharging the debtor or the declaratory effect of a certificate of the type

issued by the English court confirming the bankrupts automatic discharge.

22The model is one of modified universalism: see I Mevorach, Insolvency Within Multinational

Enterprise Groups (OUP, Oxford 2009) 65-81, 89-93.

23ECIR arts 3(2), (3), 27-29.

24ECIR arts 5-15.

25ECIR art 26.


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However, given that a natural persons COMI is mobile, the ECIR has made it

easier for debtors to shop for a favourable bankruptcy regime. A main proceeding

opened in the host country (broadly speaking) has universal effect and, because of the

principle of mutual trust, it is difficult for creditors in the debtors country of origin to

object without incurring the cost and inconvenience of challenging the host countrys

jurisdiction. Furthermore, the tempering provisions of the ECIR may be of little comfort

to creditors left behind if the debtor has no establishment26

in the country of origin to

support secondary proceedings and, in any event, the debtor may have no assets there (or

have arranged his affairs so that there are no assets there). The ECIR also contains no

carve out mitigating the effects of discharge under the lex fori concursus on debts

contracted and incurred under some other applicable law.

COMI and COMI mobility

Apart from the presumption that the COMI of a corporate debtor is in the place of its

registered office in the absence of proof to the contrary, article 3 neither defines COMI

nor prescribes a list of indicative factors. COMI is an autonomous concept of EU law

that should be interpreted in a uniform manner independently of national legislation.27

However, the only textual clue is the statement in the preamble at recital (13), deriving

from Virgos-Schmit, that COMI 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. According to the European Court of Justice, COMI must

26Defined in ECIR art 2(h) as any place of operations where the debtor carries out a non-transitory

economic activity with human means and goods.

27Eurofood (n 15) [31].


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be identified by reference to criteria that are both objective and ascertainable by third

parties in order to ensure legal certainty and foreseeability concerning the determination

of the court with jurisdiction to open main insolvency proceedings and, by virtue of

article 4, the insolvency law which is to apply.28

Virgos-Schmit contains only limited

guidance as regards the COMI of individuals stating that COMI will in the case of

professionals be the place of their professional domicile and for natural persons in

general, the place of their habitual residence.29

It is clear within the scheme of the ECIR that a debtor can only have one COMI at

any one time30as the identification of a single jurisdiction as the appropriate forum for

main proceedings depends on COMI being exclusively in one place. Thus, allocation of

jurisdiction under the ECIR is modelled on the assumption that the lives and activities of

transnational debtors will have an identifiable core and periphery. As with multi-branch

companies, while the geographical centre of gravity may often be clear, there will always

be cases at the margins involving individual debtors in which more than one country has

a good claim to being the place of the COMI at a given point in time. One problem is

that some transnational debtors maintain a permanent family residence in one country

(where they might be said to be habitually resident) but pursue their profession or

business activities elsewhere (where they might be said to be professionally domiciled).

It will not always be easy to determine whether the COMI is in the country of principal

residence or in the country where the debtors profession or business is ordinarily

28Eurofood (n 15) [33]. For further elucidation seeRe Stanford International Bank Ltd [2009] EWHC

1441 (Ch), [2009] BPIR 1157 [59]-[70], affd [2010] EWCA Civ 137.

29Virgos-Schmit (n 15) para 75.

30Stojevic v Official Receiver [2006] EWHC 3447 (Ch), [2007] BPIR 141 [6].


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transacted.31 Other debtors may conceivably have residences in several jurisdictions and

create the impression of being simultaneously everywhere and nowhere.32 Much may

depend on the composition of the debts and any evidence from major creditors

concerning their perceptions of the debtors home base.33

As well as raising inevitable interpretive difficulties at the margins, a

transnational debtors COMI can change. Thus, the English courts have ruled that the

mere fact that the debtors debts were incurred entirely in Country X where the creditors

are located will not of itself preclude a court in Country Y from opening main insolvency

proceedings if the debtor has demonstrably moved his COMI to Country Y.34 Consistent

with the EU law freedoms outlined earlier, debtors are, in principle, free to choose where

they carry on the administration of their interests. Accordingly, there is no outright

prohibition in EU law on a debtor switching his COMI from Country X to Country Y

having already incurred debts in Country X and it seems that the debtor is free to switch

COMI for what may be a self-serving purpose.35

31See e.g. Stojevic (n 30) in which the COMI of a Croatian citizen who had no permanent right of residence

in the UK but spent over 40% of his time in the UK running the business of an English registered company

as a shadow director was held to be in Austria where he did have residence rights and maintained a family

home. CfEichlerOfficial Receiver v Eichler [2007] BPIR 1636.

32See e.g. Skjevesland v Geveran Trading Co Ltd[2002] EWHC 2898 (Ch), [2003] BCC 391.

33

See e.g. the inference drawn in Stojevic (n 30) [72] about the debtors dealings with his principal creditor,an Austrian bank. Note, however, there is no scope for evidence to be adduced from creditors in

connection with a debtors petition given existing practice and procedure: see Sections IIB and IIIC.

34Shierson v Vlieland-Boddy (n 18) [41];Eichler (n 31) [15], [20].

35Shierson v Vlieland-Boddy (n 18) [42], [48]-[50], [55]. Note in particular at [49]: [T]here is nothing in

[Virgos-Schmit] to suggest that the centre of main interests, once established in state A, remains in state A

notwithstanding the debtors relocation to state B, until, say, all his debts in state A have been paid.

This view of the ECIR is not necessarily shared in other jurisdictions where courts have been prepared to

restrict pre-bankruptcy COMI moves by reference to the anti-forum shopping sentiment in recital (4): see J


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A COMI switch must nevertheless have some quality of permanence in order to

satisfy the EU law principle of third party ascertainability and, according to the English

Court of Appeal in Shierson v Vlieland-Boddy, where there are grounds for suspecting

that a debtor has deliberately sought to change his COMI at a time when he is insolvent,

or threatened with insolvency, so as to change the insolvency law that will apply to him

in respect of his existing debts, this will trigger heightened scrutiny of the facts said to

give rise to the change in order that the court can be satisfied that the change is based on

substance and not an illusion.36 However, there is no authority specifying a minimum

period of time for the purposes of establishing COMI and the fact that the debtors

residence is only temporary is not necessarily decisive.37

It is also clear from the European Court of Justices decision in Re Staubitz-

Schreiber38

that the cut-off point for switching COMI is the date on which the request to

open the insolvency proceedings is received by the relevant insolvency court. In

Staubitz-Schreiber, a German debtor applied to open voluntary insolvency proceedings at

her local court in Germany. Before the application was determined, she moved to live

and work in Spain. The German courts refused to grant the application for want of

jurisdiction because, by the time the application was considered, the debtors COMI was

in Spain. On a reference by the German Bundesgericht for a preliminary ruling, the

European Court of Justice held that the German court retained jurisdiction under the

ECIR in relation to her bankruptcy notwithstanding that her COMI had moved to another

D Weber, The rise of insolvency tourism (LLM thesis, University of Leiden)

.

36Shierson v Vlieland-Boddy(n 18) [55]. See also at [46].

37Eichler (n 31) [19].

38Case C-1/04 [2006] ECR I-701.


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Member State in the period between the filing of the request and the opening of

proceedings.39 The Courts grounds for concluding that the court first seised should

retain jurisdiction were that: (i) otherwise the debtor could change bankruptcy

jurisdiction and applicable law in defiance of the anti-forum sentiments expressed in

recital (4) of the preamble; (ii) such a transfer of jurisdiction would be contrary to the

objective, also stated in the preamble, of efficient and effective cross-border insolvency

proceedings as it would force creditors to be in continual pursuit of the debtor wherever

she chose to establish herself and tend to prolong the proceedings; and (iii) it would

ensure greater judicial certainty for creditors who have assessed insolvency risk with

regard to the place where the COMI was situated when they entered into a legal

relationship with her. However, Staubitz Schreiber only rules out forum shopping after a

request to open main proceedings has been filed. Although the reasoning could form the

basis of a broader anti-avoidance rule, the question referred to the Court was narrow and

the decision does not rule out COMI switching before the filing of a request as part of a

pre-bankruptcy planning strategy. Thus, as is the case in the corporate context,40

the

39In the earlier English ruling in Shierson v Vlieland-Boddy (n 18) [39], [55], Chadwick LJ held that the

COMI fell to be determined at the time that the court is required to decide whether to open insolvency

proceedings rather than when the request was filed. It is clear under the doctrine of EU law supremacy that

this decision on timing cannot stand with Staubitz-Schreiber in cases where the debtor moves COMI after

filing the request but before the decision opening proceedings is made. The correctness of Staubitz-Schreiber appears to have been accepted by the English High Court: seeEichler (n 31) [16].

40J Armour, Who Should Make Corporate Law? EC Legislation versus Regulatory Competition (2005) 58

Current Legal Problems 369; G McCormack, Jurisdictional Competition and Forum Shopping in

Insolvency Proceedings [2009] Cambridge LJ 169, 179-180, 191-192; G McCormack, Reconstructing

European insolvency law putting in place a new paradigm (2010) 30 Legal Studies 126; WG Ringe,

Forum Shopping under the EU Insolvency Regulation (2008) 9 European Business Organization LR 579;

S Moore, COMI migration: the future (2009) 22(2) Insolvency Intelligence 25. See also the controversy

surrounding the Wind Hellas restructuring in which the Luxembourg vehicle that operated a Greek


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ECIR has been a driver of forum shopping for favourable insolvency law because debtors

are ostensibly free under EU law to move their COMI before filing for bankruptcy.

B. The relative attractiveness of England and Wales as a tourist destination

England and Wales has proved to be an attractive destination for bankruptcy tourists

because our bankruptcy law and process is perceived to be significantly more debtor

friendly in comparison to that in other Member States. There are three main aspects to

this debtor friendliness:

1. An automatic and generous discharge of bankruptcy debts. Provision for automaticdischarge was introduced in England and Wales in 1976 and, since 1 April 2004,

debtors have ordinarily been entitled to automatic discharge no later than one year

from the bankruptcy order.41 The scope of the discharge is generous, extends to tax

debts and is subject to few exceptions.42 The quid quo pro is that debtors non-

exempt assets fall into the bankruptcy estate43

and they can be required to make

payments to the estate out of ongoing discretionary income exceeding what is

telecoms business relocated to England and Wales with a view to a pre-pack administration (references in

n 3).

41

Insolvency Act 1986 (IA 1986) ss 279(1), (2). For further background see A Walters, PersonalInsolvency Law After the Enterprise Act: An Appraisal (2005) 5 Journal of Corporate Law Studies65.

42IA 1986 ss 281, 382; Insolvency Rules 1986 SI 1986/1925 (IR 1986) r 12.3. As a matter of English

private international law the discharge is regarded as encompassing debts owed to foreign creditors even

where the debt is governed by foreign law or was payable abroad: see Fletcher(n 1) 108. The debtor can

apply to the court for a certificate confirming automatic discharge under IR 1986 r 6.220(1) which,

although merely having declaratory or confirmatory effect, is useful for purposes of international

recognition.

43IA 1986 ss 283, 283A, 306-309.


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necessary for meeting their and their families reasonable domestic needs for up to

three years.44 By way of contrast, in Germany, debtors must surrender their non-

exempt assets and, for six years, formally assign a portion of income, determined by

reference to a statutory income scale, to a court-appointed trustee. It is only at the

end of this six-year so-called good behaviour period that debtors are eligible to

apply to court for discharge of their remaining debts and even then there is scope for

creditors to object.45

The conditioning of discharge on long term compliance with

mandatory payment plans is also a pronounced feature of other continental European

and Scandinavian jurisdictions.46 Elsewhere, in Ireland, debtors must wait 12 years

before they can apply to court for discharge unless, in the meantime, they are able to

procure payment of their bankruptcy debts and expenses in full or obtain the consent

of all their creditors or, in cases where estate assets have been fully realised, the

creditors have received 50 per cent of their claims.47

2. Broad eligibility. The only substantive eligibility requirement that debtors mustsatisfy before petitioning for bankruptcy in England and Wales is that they are unable

to pay their debts.48

The regime is open to traders and consumers. This contrasts

44IA 1986 ss 310-310A. Note also that discharge is not conditional on full compliance with mandatory

income payments as is the case in other jurisdictions.

45

Kilborn(n 16) 77-81. See also S Braun, German Insolvency Act: Special Provisions of ConsumerInsolvency Proceedings and the Discharge of Residual Debts (2005) 7 German LJ 59; A Tashiro,

Bankruptcy tourismRecovery(Winter 2009) 23; and, for the origins of the current German law, CG

Paulus, The New German Insolvency Code (1998) 33 Texas Intl LJ 141.

46Kilborn(n 16) 63-95;Ziegel(n 16) 133-143.

47Bankruptcy Act, 1988 (Ireland) s 85. It is no wonder then that the Irish bankruptcy procedure, a throw

back to the English Bankruptcy Acts of 1883 and 1914, is seldom used. See further B Holohan, Major

Shake up of Bankruptcy Law in the Offing?INSOL World (First Quarter 2010) 36-37.

48IA 1986 s 272.


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with jurisdictions that restrict access to bankruptcy relief to traders only such as

Greece and Italy.

3. Ease of process. The voluntary bankruptcy procedure in England and Wales hashitherto been extremely process friendly compared to other jurisdictions. The only

procedural requirements that have to be met are the filing of the petition and

statement of affairs49

together with the payment of the court fee and the mandatory

non-refundable deposit (which covers the administrative costs of the official

receivers initial processing of the case).50 It is common for debtors to make an

appointment to attend court, complete and file the paperwork and obtain a bankruptcy

order all on the same day.51 Debtors are not required to give creditors advance notice.

There are no mandatory pre-petition process hurdles of the type that have to be

cleared in other jurisdictions such as requirements to access debt counselling services

or renegotiate with creditors.52 Furthermore, the adversarial nature of English court

process means that our courts generally accept material in the petition and statement

of affairs as beingprima facie true unless challenged by a party to the proceedings or,

49IA 1986 s 272; IR 1986 rr 6.37-6.42, 6.67-6.72. The statement of affairs must be verified by affidavit.

50The Insolvency Service increased its fees for cases arising from bankruptcy petitions presented on or

after 6 April 2010. For a debtors petition the deposit increased from 360 to 450 making it relatively

expensive to go bankrupt unless the debtor is financially eligible for a debt relief order which is much

cheaper to access.51IR 1986 r 6.42(2) contemplates same day orders. In practice, as bankruptcy volumes have increased

debtors have experienced delays in obtaining appointments to file their paperwork at some courts. This has

led the government to propose the replacement of court initiated voluntary bankruptcy with an

administrative process operated by the official receivers. See Insolvency Service, Consultation on

Reforming Debtor Petition Bankruptcy and Early Discharge from Bankruptcy (November 2009)

10-11.

52Kilborn(n 16) 19-48.


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in the case of bankruptcy, some other interested party such as a creditor or the official

receiver. Thus, the practice has been for statements that the debtors COMI is in

England and Wales, which the debtor is required to make in the pro formadebtors

bankruptcy petition,53

to be accepted at face value54

even though the debtor can

petition without having to give notice to other interested parties, such as creditors,

who will only learn of the bankruptcy once the order has been made. From the

standpoint of many continental jurists, these features of British process may be

considered somewhat casual or cavalier, especially given the legal significance

accorded to main insolvency proceedings by the ECIR. Similar concerns have been

voiced from the continental perspective periodically about the English tendency for

orders opening insolvency proceedings to be made without accompanying reasons in

the order.55

Be that as it may, it has been relatively straightforward for debtors to

access bankruptcy relief in England and Wales and, despite cries of foul from

distinguished continental commentators such as Professor Dr Christoph Paulus,56the

53See .

54See e.g.Eichler(n 31) [12].

55G Moss, Group Insolvency Choice of Forum and Law: The European Experience under the Influence

of English Pragmatism (2007) 32 Brooklyn J Intl L 1005, 1010-1011. See also the criticisms levelled at

English bankruptcy process by the Higher Regional Court in Vienna addressed by Registrar Jacques in

Stojevic (n 30).

56Stojevic (n 30) [17]. Professor Dr Pauluss objection to the bankruptcy order in Stojevicon procedural

public policy grounds seems misplaced bearing in mind the case arose from a hostile creditors petition and

the debtor had been given a full opportunity to contest jurisdiction before he eventually, and successfully,

applied for annulment of his English bankruptcy on jurisdictional grounds. That said, in fairness to Paulus,

he would argue that the principle of mutual trust requires more than a cursory and transparent assessment

ex anteof the courts claim to international jurisdiction under ECIR art 3: see the European Court of

Justices preliminary ruling inEurofood (n 15) [41]. For signs that the English courts may be adapting

their processes to introduce greater ex ante scrutiny see Section IIIC.


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scope for other Member States to refuse recognition of an English bankruptcy order

under article 26 on grounds of procedural public policy are restricted by the principle

of mutual trust.57 Furthermore, it seems unlikely that foreign courts would refuse to

recognise the effects of an English discharge where their own bankruptcy system

allows for debt forgiveness in principle even if apparently on less favourable terms.58

In sum, England and Wales offers a combination of substantive and procedural selling

points that have made it attractive to inbound shoppers.

C. The profile of foreign nationals petitioning for bankruptcy in England and Wales

Information gleaned from the Insolvency Service to which we referred at the outset

suggests that foreign nationals petitioning for bankruptcy in England and Wales have

tended to be of German nationality. There has been some speculation that the Irish

Republic could become a source of inbound tourists given its punitive bankruptcy law

and geographical proximity to the UK, but there is no hard evidence of such a trend.59

57ECIR recital (22). The principle requires the courts of other Member States to recognise the decision to

open main proceedings without conducting a review or reassessment of the merits of that decision and

assumption of jurisdiction. See further the preliminary ruling of the European Court of Justice inEurofood

(n 17) [38]-[44].

58

See reference to the German Bundesgerichts ruling of 18 September 2001 (IX ZB 51/00) in Tashiro (n46). In that ruling the German court recognised the effect in Germany of a discharge obtained by a German

debtor under French law even though, as a result, debts incurred in Germany were discharged significantly

more quickly than would have been the case under German law.

59See e.g. __ Bankruptcy tourism could be next big thing In theory, it would be possible for debtors in the Irish

Republic to relocate to Northern Ireland, which forms part of the United Kingdom, in order to take

advantage of a bankruptcy regime which is identical in all major respects with that in England and Wales.

In practice, however, it appears that debtors and creditors have persistently avoided the bankruptcy law


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Again, while there is no conclusive evidence, there are reasons to suppose that these

foreign nationals tend characteristically to be middle class professionals or business

people as it is debtors fitting this profile who will generally have the resources

(informational and financial) and sophistication needed to engage in legal arbitrage.

Furthermore, professionally qualified debtors may well have qualifications in their

home country that will be recognised in other Member States under the passport

regime which springs from the fundamental freedom to supply services throughout the

EU.60

It may be thought curious that the shopping that has occurred to date has been

primarily a German pursuit. One explanatory variable is the growing number of fee

charging intermediaries based in Germany who actively market the benefits of English

bankruptcy as a debt solution for German citizens and offer relocation services that

include arranging accommodation, opening bank accounts, obtaining credit cards and

assisting debtors in applying for National Insurance numbers.61 As yet, this supply side

development does not seem to have been matched in other Member States to anything

like the same extent. It is conceivable that the numbers of non-German foreign nationals

resorting instead to non-bankruptcy law and other mechanisms such as schemes of arrangement. Irish

bankruptcy law is currently under review: seeHolohan(n 47). See also T Harding, Bankruptcy Tourism

(2010) 15(1) Bar Review 6.

60

For example, the debtor inEichler (n 30) was a qualified doctor. In the course of his practice the second-named author has encounteredmedical practitioners, dentists, accountants and other white collar

professionals, who take on part time or locum work in England assisted by the services of intermediaries

described in the text to n 61.

61The following websites illustrate that the advisory market in Germany has reached cottage industry

proportions: ; ; ; ; ;

. Fees start from around 250 for an initial consultation but may be as

much as 8,000-15,000 for a full relocation service and assistance with the English court process.


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relocating to England and Wales could expand as a result of network effects which may

raise the profile of English bankruptcy and increase the provision of advisory services to

meet demand among relatively sophisticated debtors in other jurisdictions.

III. MANAGING BANKRUPTCY TOURISM IN ENGLAND AND WALES:

EMERGING PRINCIPLE AND PRACTICE

A. Challenging the English courts jurisdiction over foreign debtors

English bankruptcy procedure has proved conducive to inbound forum shopping. The

pro formadebtors petition is ill equipped to filter out questionable cases. The debtor is

required to state where his COMI has been located, the notes to the form recording that

COMI should correspond to the place where the debtor conducts the administration of

his interest on a regular basis. Debtors are also required to provide their home address,

occupation, any former address at which they may have incurred debts or liabilities still

unpaid or unsatisfied, to confirm that they have resided or carried on business for the

greater part of six months immediately preceding the presentation of [the] petition in the

local court district, and to admit insolvency giving particulars of any bankruptcy

adjudication in the five years ending with the date of the petition.62 However, these

statements are not sworn it is only the supporting statement of affairs that has to be

verified by affidavit and same day bankruptcy orders have been the norm.63

As there

is no requirement for creditors to be notified of a debtors petition, jurisdiction can only

62These requirements reflect IR 1986 rr 6.37-6.40A.

63The bankruptcy order is made by a District Judge or Master. In theHagemeister case (considered further

in Section IV below), the same day procedure was followed.


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be challenged ex ante if the court decides of its own motion to conduct a full enquiry into

the debtors circumstances. For these reasons, the majority of challenges to date have

been pursued by the official receiver or creditors as applications to annul the bankruptcy

on the ground that the order should not have been made for want of jurisdiction.64

B.Eichler andMitterfellner

In the two leading reported cases, Eichler and Mitterfellner, applications for annulment

were made by the official receiver.65 Before we consider these cases further, we need to

say a word about the Insolvency Services approach to tourism cases as the exercise of

the official receivers regulatory discretion has naturally shaped the courts frame of

reference.

The official response to debtor forum shopping has been unenthusiastic. On the

whole, cases involving foreign debtors are more costly to administer because of the cross-

border dimension and language differences may make it difficult to elicit information

even from debtors who co-operate. There is no differential between the fees charged by

the official receiver for administering the affairs of a foreign bankrupt and a home

bankrupt. The fall out from foreign bankruptcies has also added to the burden on the

courts.66 TheHagemeister case considered further below provides a graphic illustration

of this. However, the Insolvency Services policy, influenced we suggest by the

64IA 1986 s 282(2). Under the principle of mutual trust, aggrieved creditors in the original home country

are compelled to incur the costs of challenging the bankruptcy order in the English court. Hence, creditors

are usually keen to persuade the official receiver to make the annulment application.

65See Official Receiver v Eichler (n 31); Official Receiver v Mitterfellner(n 5).

66For an insight into the implications of rising bankruptcy numbers for the workload of the Bankruptcy

Registrars see Stojevic (n 30) [22].


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Vlieland-Boddy decision,67 is to take action only in cases where it is demonstrable that

the debtors relocation is a fiction or sham. Implicit in this approach is the view that

genuine relocation in exercise of EU law freedoms which, in line with Staubitz-Schreiber

occurs before the filing of any request to open main proceedings in the country from

which the debtor has migrated, cannot safely be restricted by UK domestic law even

where the debtors principal motivation for moving COMI is to take advantage of a more

favourable bankruptcy law.68

Thus, in both Eichler and Mitterfellner the official

receivers case was that the debtors English COMI was false and his real COMI was

in Germany.

Eichler

The debtor moved to England from Germany in October 2006 and was living in

temporary accommodation provided by an English company that employed him as a

locum radiologist. Less than four months after moving to England he filed for

bankruptcy on the basis of an English COMI. His statement of affairs disclosed no

assets. All three of his creditors were in Germany. Of these, it appears that two were

former business partners who had obtained a judgment in Germany against him for

200,000. The official receivers case was that the debtors presence in England was

merely temporary and that his COMI was in Germany. His wife still lived in Germany

67See text at nn 33-37.

68N Howard, Overview of personal insolvencyRecovery(Winter 2009) 20. Consistent with this policy

the UK government has pursued successful public interest winding-up proceedings against a number of

companies found to have assisted foreign debtors in manufacturing false COMIs (email from Alison

Dennis, Senior Policy Advisor at the Insolvency Service on file with authors). See also

.


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and his business affairs and creditors were in Germany. The debtors case was that he

had moved to England to work as an EU qualified doctor, as he was entitled to do, and

was working here permanently.

Chief Registrar Baister held that the debtor had been free to change his COMI and

that he had done so. There was no evidence to refute his claim that he was working

permanently in England and therefore no basis on which the court could conclude that his

presence was merely temporary or that he was conducting the administration of his

interests on a regular basis anywhere other than in England.69 The fact that the debts

were incurred in Germany and that there might be practical difficulties in investigating

the debtors affairs and administering his estate were not legally relevant.70

The Chief Registrar remarked in his judgment that the general practice of the

court is to accept at face value the evidence sworn in support of such petitions but to

make inquiries of the debtor if it appears that there is no justification for invoking the

jurisdiction adding that:

[i]t is unfortunate therefore that I find myself having to decide this case on the

basis of very thin evidence and very limited submissions as to the law.71

69Eichler (n 31) [18]. The Chief Registrar added obiterthat even were the debtors presence temporary that

would not necessarily prevent his COMI from being in the UK though [c]ommon sense would seem to

indicate that a few days (or even a few weeks) would be unlikely to suffice because that would be at odds

with conducting the administration of ones interests in a place on a regular basis (as well as being at odds

with the idea of an habitual residence).

70Eichler (n 31) [15], [21].

71Eichler (n 31) [12].


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From this it can be inferred that the manner in which the application was presented 72and

the lack of evidence to undermine the debtors claim to an English COMI may have

affected the outcome.

Notwithstanding the evidential difficulties that faced the Chief Registrar,Eichler

was disappointing from the standpoint of practitioners, creditors and the official receiver.

There was an allegation that the debtor had transferred a property in Germany into his

wifes name before the bankruptcy and the official receivers view that it would have

been more practically convenient and less costly to challenge this transaction in German

proceedings is difficult to contest. As already indicated, however, the Chief Registrar

was not swayed by questions of practical convenience. Thus, despite being a marginal

case, Eichler suggested that the courts would not look behind evidence suggesting that

the debtor had genuinely moved to England and Wales in the exercise of EU law

freedoms in the absence of evidence to the contrary.73 Furthermore, it made clear that

forum conveniens arguments were simply off point.74 The only relevant question was

whether the debtor had made a genuine COMI switch.

Mitterfellner

The debtor owned and ran a caf in Germany but the business failed and he was

substantially indebted to his business creditors. His evidence was that he had moved to

72The debtor appeared in person and the official receiver was self-represented so the case was not

presented and argued by counsel.

73Which is unlikely to be available to the official receiver without troublesome investigation.

74See, by analogy, Case C-281/02 Owusu v Jackson[2005] ECR I-1383 restricting the scope offorum non

conveniensin the context of transnational civil litigation falling within what is now Council Regulation

(EC) 44/2001 [2001] OJ L12/1.


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live in Hastings in the south of England in the summer of 2007 to pursue a training

opportunity with the English affiliate of an Austrian company. Six months later, in

January 2008, he filed for bankruptcy in the Hastings County Court having de-registered

as a resident of the German town of Rosenheim where he had previously carried on his

business.75 The official receivers subsequent application for an annulment on the basis

that the debtor had falsely claimed that his COMI was in the UK was fully argued with

both parties represented by counsel. The debtor was cross-examined on his evidence

through an interpreter.

The application was again heard by Chief Registrar Baister. The legal principles

were largely common ground between the parties both counsel drawing primarily on the

Vlieland-Boddy decision in their skeleton arguments.76 The issue for decision was

therefore framed in much the same way as Eichler: taking into account all the evidence

had the debtor genuinely moved his COMI to the UK? The Chief Registrar ruled that at

the relevant time the debtors COMI had not been in Hastings or anywhere else in the

UK. The Hastings County Court therefore had no jurisdiction and the bankruptcy was

annulled. The debtors credibility was undermined by inconsistencies between his

written evidence and oral testimony given under cross-examination. In his favour, there

75

Under German law individuals are obliged to register with their local town hall. Registration fixes theirlegal domicile for the purposes of service of legal process, regardless of physical location, until they de-

register. There are criminal penalties for failing to register or de-register and individuals risk being deemed

served with legal process if they move elsewhere without de-registering.

76See text at nn 33-37. Thus, it was common ground that the date on which the COMI is to be established

is the date when insolvency proceedings were opened. This cannot stand with Staubitz-Schreiber (n 38) in

cases where there is a gap between request and opening and the debtor moves in the gap. The point was

not material inMitterfellneras the petition was presented and the order made on the same day.


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was third party evidence supporting his claim to have resided at various addresses in

Hastings. However, the court placed greater weight on evidence relating to the debtors

employment prospects, the opening of UK bank accounts months after he claimed to have

moved to Hastings, three documented return trips from Germany to the UK at times when

the debtor claimed to be living permanently in England and his de-registration in

Rosenheim the day before he presented his bankruptcy petition claiming to have resided

in Hastings for the greater part of the preceding six months. The inference drawn was

that the debtor had sought to create the impression of a greater connection with the UK

than was in fact the case.

Aside from the jurisdictional question, the standard of disclosure to be expected

from debtors petitioning for bankruptcy was considered, the Chief Registrar concluding

in the alternative that there [was] ample reason to annul [the] bankruptcy order based on

the false or misleading information which [the debtor] gave to the court when applying

for it.77 This alternative ground offers a wider, more discretionary route to annulment in

cases involving foreign debtors than lack of jurisdiction. It rests on the principle that a

party seeking ex parte relief may be deprived of the relief obtained if it was procured on

the basis of false information or non-disclosure. In applying this principle in

Mitterfellner, the Chief Registrar held that the standard of disclosure expected by a debtor

petitioning for bankruptcy relief was at the same high level as that demanded of an

applicant for interim injunctive relief such as a freezing order.78

77Mitterfellner(n 5) [65]. The official receiver had not relied on this ground in the application but it had

emerged during cross-examination: see paras [3], [68].

78Mitterfellner(n 5) [65]-[69]. Substantial reliance was placed on the Court of Appeal decision inBrinks

Mat Ltd v Elcombe [1988] 1 WLR 1350.


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Taking into account contextual factors, we doubt whether interim injunctions and

debtor bankruptcy petitions can be treated as equivalents. The only formal evidence

given by a debtor is in the pro forma affidavit verifying his statement of affairs. The

facts in a debtors bankruptcy petition are not required to be verified by affidavit or

witness statement, merely by signature. The only material statements the petitioner is

required to make are my centre of main interests has been at [address] and I have for

the greater part of six months immediately preceding the presentation of this petition

[resided at] [carried on business at] [address] within the district of [court].79 The only

guidance given on the form is the statement: centre of main interest should correspond to

the place where the debtor conducts the administration of his interests on a regular basis.

Debtors invariably complete the paperwork themselves with limited guidance from court

staff. Contrast this with an application for an interim injunction where the applicant will

be legally advised, all the evidence verified by statement of truth or affidavit (the

implications having been carefully explained to the deponents) and the obligation to

make full and frank disclosure of all material points weighing for and against the

applicant are well understood. We suggest then that the preparation and presentation of a

pro formadebtors petition and an application for a freezing order are at opposite ends of

a wide spectrum. That said, in mandating full disclosure, theMitterfellner duty can be

viewed as an appropriate device designed to raise the barrier to access and to flush out

issues ex anteat the petition stage rather than ex post on an annulment application. In

this respect, it reflects the increasing tendency of the English courts to scrutinise

79There are some other minor requirements, e.g. to state occupation (if any) and the nature of any business:

IR 1986 r 6.38(1).


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bankruptcy petitions by foreign nationals more closely before an order is made, a point to

which we now turn.

C. Current court practice and procedure

In Shierson v Vlieland Boddy the Court of Appeal indicated that, while debtors may

choose to move COMI, if there are grounds for suspecting that they have done so

deliberately when already insolvent, or threatened with insolvency, the court will need to

scrutinise the facts said to give rise to the change to be satisfied that the change is not

illusory and has the necessary element of permanence.80 It seems that, in the light of

cases likeEichler andMitterfellner, the courts have begun to adjust their procedure at the

petition stage adopting what may be described as a more quasi-inquisitorial approach.

The practice currently in the High Court is for the petition to be adjourned pending

production by the debtor of further evidence on such matters as accommodation,

employment and transactions on bank accounts with a view to establishing at the outset

the genuineness of the COMI switch. It is not uncommon for the Registrar to question

debtors about their circumstances having considered the paperwork and additional

evidence furnished in support of the claim to a UK COMI.81

This practice has started to spread from London to the regions. The second-

named authors firm has been involved in one such case during 2010 involving a German

national, Re Stbing-Exner (unreported) in the Leicester County Court. Frau Stbing-

80Shierson v Vlieland-Boddy (n 18) [46], [55].

81Briggs (n 5) 30. In another move to increase scrutiny at the petition stage, David Richards J, the

presiding Chancery judge on the northern circuit, instructed the Manchester courts (in a letter in June 2010

referred to in a court newsletter of which the authors have had sight) to refer any bankruptcy case which

appears to raise a COMI issue to the High Court.


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Exners petition was listed for a hearing to which the official receiver was invited the

purpose of which was for the court to satisfy itself that her COMI was in the UK and

within the territorial jurisdiction of Leicester County Court. Upon being so satisfied on

the evidence provided a bankruptcy order was made. This practice of testing the

evidence ex ante has the advantage that it avoids the costs of an ex post challenge to

bankruptcy jurisdiction via the annulment route. It may also enhance the credibility of

English bankruptcy process in other countries as, consistent with the European Court of

Justices ruling in Eurofood, there is some proactive check on whether the court has

jurisdiction to open main proceedings having potentially far reaching effects.82 It

remains to be seen how far this process of ex ante scrutiny will be affected by

implementation of government proposals to remove debtor bankruptcy petitions from the

court and institute an administrative system under the auspices of the official receiver.83

IV. PRACTICAL PROBLEMS

This section highlights some of the practical problems, costs and inconvenience that arise

from debtor forum shopping. First, we consider the (as yet) unreportedHagemeister case

in which the second-named author acted for a German creditor. Hagemeister, a variant of

Staubitz-Schreiber,84 illustrates how forum shopping can create wasteful jurisdictional

confusion and delay indefinitely the effective administration of the debtors affairs.

82Eurofood (n 15) [41].

83Insolvency Service(n 51). The government may need to consider a dual system in which domestic

debtor petitions are administered by the official receiver but petitions by foreign nationals are automatically

referred to the court.

84Text to nn 38-40.


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Second, and more generally, we discuss briefly the difficulties of administering a

bankruptcy in the host country where the debtors affairs have largely been conducted

in the home country.

A.HagemeisterHagemeister concerned two German brothers who had guaranteed the liabilities of their

German company. The company failed and the German bank applied to the Amtsgericht

Paderborn to open main insolvency proceedings in December 2008, based on the

guarantee. Unaware of this application, the Hagemeisters relocated first within Germany

(from Paderborn to Berlin) and then (apparently) to Manchester. In March 2009, the

Amtsgericht Paderborn opened interim insolvency proceedings in relation to both

brothers and appointed an interim insolvency administrator. Interim insolvency

proceedings (insolvenzverfahren) are main proceedings listed in Annex B of the ECIR

and an interim insolvency administrator (vorlufiger insolvenzverwalter) is a liquidator

listed in Annex C.

In April 2009 the brothers presented debtors petitions to the Manchester County

Court, being the local court having insolvency jurisdiction based on their alleged COMI.

None of the paperwork filed mentioned the proceedings in the Amtsgericht Paderborn

although it was acknowledged that they had become aware of those proceedings shortly

after they had been opened. Oblique reference was made to enforcement proceedings

affecting their property. English bankruptcy orders were made the same day. Unaware

of the main proceedings in Paderborn, the Manchester County Court made bankruptcy

orders expressly recording that the bankruptcies were main proceedings for the purposes


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of the ECIR. At this point, there were two conflicting main proceedings. Shortly

afterwards, the debtors met the interim insolvency administrator in Germany and advised

him of the English bankruptcy orders. He then wrote to the Amtsgericht Paderborn

indicating that the debtors were already bankrupt in England. In May 2009, in the light

of this information, the Amtsgericht Paderborn rescinded security measures that had been

ordered within the German proceedings.

By two separate orders in June and July 2009, the Amtsgericht Paderborn then

purported to dismiss the German insolvency proceedings on the basis that the English

bankruptcies had effect under Article 17 of the ECIR and the banks applications were

therefore inadmissible. A flurry of appellate decisions followed culminating in the

decision of the Landgericht Paderborn in September 2009 to the effect that the original

order opening the interim insolvency proceedings in March 2009 represented the opening

of main insolvency proceedings which had priority over the bankruptcy orders

subsequently made in Manchester. However, in December 2009 the Landgericht

Paderborn reversed its earlier decision holding that, while the German insolvency

proceedings did have priority over the English bankruptcies, this priority was removed

with the cancellation of the security measures in May 2009. From that point, only the

English insolvency proceedings were effective and their existence and recognition in

Germany under the ECIR prevented the German proceedings from being subsequently

reinstated. At the time of writing, this decision is subject to an appeal by the bank to the

German Bundesgericht.

In the meantime, the bank applied to annul the English bankruptcy orders on the

basis that the Manchester County Court lacked jurisdiction to open main proceedings


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when main proceedings had already been opened in Paderborn.85 In an unreported

judgment Mr Recorder Cadwallader ruled that: (i) at the time the Manchester court

opened main proceedings it had no jurisdiction to do so because of the prior existence of

the German proceedings; and/or (ii) the debtors failure to disclose the existence of the

German proceedings (of which they were aware by March 2009) was material non-

disclosure of itself justifying annulment as per Mitterfellner. Assuming that the

Bundesgericht restores the German proceedings the matter will finally be resolved.86

The jurisdictional issue arising from the debtors attempts to switch COMI has put

the administration of the bankruptcies on hold and left their creditors in limbo. Currently

there are no insolvency proceedings in the UK or Germany and the assets are

unprotected. Substantial costs have been incurred in both jurisdictions. The debtors

assets and creditors are all in Germany. It can readily be inferred that the debtors were

anxious to maintain their English bankruptcies to take advantage of the attractive features

of English law considered in Section IIB above.

B. Forum conveniens?The jurisdictional uncertainty in Hagemeister illustrates the problems associated with

debtor forum shopping writ large. More generally, any bankruptcy case involving a

foreign national whose affairs have been conducted in another jurisdiction raises practical

85Before making the application the bank asked the official receiver in Manchester if he would be prepared

to seek the annulments as had been the case inEichlerandMitterfellner. The official receiver was

reluctant to proceed pending clarification of position in Germany.

86The debtors were automatically discharged under English law in April 2010. However, discharge is

reversed where a bankruptcy is subsequently annulled: see Owo-Samson v Barclays Bank (No 1)[2003]

BPIR 1373.


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difficulties and additional costs for creditors and for institutions such as the courts,

official receivers and bankruptcy trustees.87 By definition, it is more difficult and costly

to collect assets, investigate possible causes of action and identify creditors where the

centre of gravity of the bankruptcy estate remains decisively in the home country.

Some of these difficulties are an inevitable consequence of cross-border insolvency.

However, they are accentuated in the paradigmatic debtor forum shopping case where the

debtors past affairs in the home country fall to be administered in a host jurisdiction

with which he or she may have no previous connection. In such cases, the host

jurisdiction is not obviouslyforum conveniens. The costs of pursuing avoidance actions

where the subject matter is in the home country or income payments orders where,

having obtained a discharge in the host country the debtor returns to the home

country, may well be prohibitive for trustees already burdened with realising assets in a

foreign jurisdiction. However, as we saw in Section IIIB, Eichler makes clear that

questions of practical convenience are irrelevant to the allocation of jurisdiction under the

ECIR.

V. CONCLUSION

A. Good and bad forum shopping

In a supranational system that privileges geographical and legal mobility, it may be

thought that relocation motivated in whole or part by a desire to shop for benefits

87On the increased burden on the courts seeBriggs(n 8) 30; Stojevic (n 31) [22]. It is arguable that

inbound forum shoppers enjoy benefits in the host country (bankruptcy relief) without bearing the full

additional costs imposed on host country institutions.


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available in another domestic legal system is an inevitable and acceptable by-product of

EU law freedoms. The entire EU project is premised on the idea of a single market

which EU citizens are free to move around in order to improve their economic welfare.

There may then be a case for saying that individuals such as Dr Eichler who exercise

these freedoms to pursue their employment or profession should be allowed to benefit

from host country bankruptcy law.

The official English line appears to be that debtors who relocate to the UK are

free to access the English bankruptcy system under current EU law. The implication is

that EU law freedoms override creditor expectations. Accordingly, the role of the court is

merely to police the boundary between genuine and sham relocations and debtor forum

shopping where there is a real COMI switch having an element of permanence is tacitly

accepted.88

This is not to say that the official receiver and the courts have embraced

forum shopping enthusiastically. It seems that they simply consider themselves

precluded by current EU law from resisting inbound forum shopping on any broader

footing.

Normative questions lurk beneath the surface. In what circumstances and

according to what criteria should debtor forum shopping within the EU be regarded as

good or bad? Should any COMI switch involving a deliberate forum shop, whether

88Although there is no authority which establishes or considers any minimum period of time which a

person must spend in a Member State before it can be said to become his or her COMI, the idea that COMI

should correspond to the place where the debtor conducts the administration of his interests on a regular

basis and in a manner ascertainable by third parties underpins this point without necessarily preventing a

debtor from acquiring a new COMI based on a temporary move of sufficient substance and duration to

satisfy the regularity/ascertainability test: seeEichler (n 31) [19]. Local jurisdiction within the UK is based

on residence for the greater part of six months (i.e. just over three months) in the relevant court district.


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manufactured or real, be regarded as an undesirable abuse of EU law freedoms? 89 Is

forum shopping only bad where the COMI switch is an outright fiction designed to

manufacture jurisdiction?

Moss, Fletcher and Isaacs posit the following distinction

between good forum shopping which occurs where a debtor moves COMI to

benefit creditors and bad forum shopping (usually by a natural person) where

the debtor moves COMI to escape creditors90

These distinguished commentators suggest further that it is only opportunistic and

fraudulent choices of jurisdiction that are objectionable under EU law and not forum

shopping per se. The distinction turns on creditor welfare but it is not free from

difficulty. Corporate restructurings involving a pre-planned COMI migration may not

benefit all creditors. It can be objected that while such restructurings benefit the

powerful creditor and practitioner constituencies that sponsor them, other constituencies,

such as trade creditors and employees, do not benefit and may be disenfranchised where

insolvency proceedings are opened in an unfamiliar jurisdiction with which the enterprise

has no historic connection.91 Londons current status as the restructuring capital of

Europe rests on the perception that the English insolvency system facilitates efficient

89For development of the idea that COMI switches by insolvent debtors are an abuse of EU law freedoms

see H Eidenmller, Abuse of Law in the Context of European Insolvency Law (2009) 6(1) European

Company and Financial LR 1; Weber(n 35).

90G Moss, IF Fletcher and S Isaacs, The EC Regulation on Insolvency Proceedings (2ndedn OUP, Oxford

2009) 262.

91The Wind Hellas restructuring (references in n 3) is an obvious case in point.


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outcomes.92 As it is in the economic interests of our restructuring profession to reinforce

this perception, the claim that all creditors benefit from corporate COMI migration is

more contentious than Moss, Fletcher and Isaacs would have us believe.93 That said, we

are happy to concede for the purposes of the present discussion that corporate COMI

migrations are more likely than not to enhance aggregate creditor welfare.

Conversely, are COMI migrations by individual debtors necessarily bad even

where tinged with opportunism? What about debtors whoprima faciemove to escape

creditors at a time when they are unable to pay their debts but ultimately remain in the

host country on a permanent basis, taking up employment, paying taxes and becoming

socially integrated? Should debtors who relocate credibly and permanently not be

entitled to discharge their debts by recourse to the legal system of their country of

permanent residence regardless of where those debts were incurred and even where they

were facing insolvency or already insolvent at the time of relocation? If so, on what

indicators and after what period of time can a debtor be judged to have credibly and

permanently relocated?

Within the EU legal order the question of entitlement to access the host

countrys bankruptcy system boils down to a question about the extent to which EU law

92

McCormack, Reconstructing European insolvency law (n 40) 143.

93There is an extensive literature from the United States on the merits or otherwise of bankruptcy venue

shopping which we do not have the space to review here. Advocates of shopping into jurisdictions such

as Delaware and New York point to efficiency factors and incentives for restructuring professionals in

other jurisdictions to seek the introduction of more efficient insolvency laws thus promoting a race to the

top. Detractors argue that shopping encourages rent-

'Bankruptcy Tourism' Under the EC Regulation on Insolvency Proceedings - A View From England and Wales

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