Are you aware that currently there are 27 countries in the European Union (EU) just about every one with their own individual individual insolvency laws? The head boggles at the volume, assortment and complexities of laws and regulations which this situation must encompass. The EU not surprisingly seeks to harmonize legislation such as bankruptcy laws and regulations in member states as one of its goals. Until finally this harmonization is achieved, citizens of member countries of the EU may legitimately try to overcome their particular personal insolvency and seek to utilize a resolution inside a member country that is most favourable to their situation. In the area of personal insolvency, bankruptcy tourism has sprung up as individuals are becoming aware that they might look to solve their financial problems in a legal system other than that in which their debt was accrued. Bankruptcy tourism could very well be humorously thought as the free movement of financial solutions (or problems), going hand in hand with the free movement of labour.
The UK in particular stands out as a jurisdiction where there is what may be described as an entrepreneurial attitude to those who encounter financial difficulty. Bankruptcy and Individual Voluntary Arrangements (IVAs) in particular offer insolvent debtors a second chance and an opportunity to rehabilitate themselves financially, compared to the culture and laws in certain other EU member states which may seek to punish those who have transgressed financially. Any insolvent debtor in any EU member state may want to consider whether they may legally pursue a solution to their indebtedness under the laws of a jurisdiction other than their own. And they have the right to do so legally under European regulations, subject to certain provisos. Currently, the most obvious forum to choose is the UK since that is the jurisdiction considered to be the most enlightened and, as far as the insolvent debtor is concerned, generally offers the cheapest, fastest and most satisfying financial solutions, chief among them being Bankruptcy and IVAs.
Before proceeding however, the insolvent debtor must consider whether his or her circumstances satisfy a number of provisos. The most important criterion to meet is to be able to show that the debtor’s “centre of main interests” or COMI is in the UK, bearing in mind that this can be challenged by among others, creditors. According to EU Regulations “the centre of main interests should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties”. This is of course open to interpretation or challenge although a consensus is beginning to emerge as to what this is intended to be. Ultimately, the courts decide whether a debtor’s COMI has been correctly established.
The country where an EU citizen primarily performs his or her work, trade or self-employment will be regarded as their COMI. When the citizen has no trade or profession, then their country of residence is normally considered to be their COMI. If the consumer trades in one member state but dwells in another, the COMI is typically considered to be the member state where they trade. If a citizen lives in one member state (where they pay their bills, hold a bank account, purchase goods and so on) and commutes to another member state where they work on a non self- employed basis, then their COMI will usually be the country in which they live.
Typically the date on which a bankruptcy petition is presented is when the COMI is determined. It can be very different to the location where the COMI was when the relevant activity was carried out – i.e. when the indebtedness resulting in insolvency was incurred. And so the location of lenders and the state where debts were sustained are not material factors in determining a COMI. Can a borrower change his or her COMI? Needless to say they can although it could be hard it is perfectly lawful to do so. The free movement of labour within the Eu that is a building block of the Eu treaties guarantees this. Any citizen of any EU member state may go to the uk, take on work, and reside there. Their COMI is definitely now in the UK, no matter what indebtedness they might have sustained in their home state and they are entirely within their legal rights to petition for their own bankruptcy in the United kingdom or to try to get an alternative legal solution to their insolvency such as offering an IVA to their creditors. Nevertheless, it must be remembered that creditors in the debtor’s “home” country could possibly reject proposals for an IVA, considering that approval requires acceptance by at least 75% of (voting) lenders. However, there is no logical reason why creditors in a foreign jurisdiction should reject a well constructed IVA, in particular when it is the best offer the debtor can make and the best yield that creditors can achieve.
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