UK attracts bankruptcy tourists

European visitors to the UK aren’t just packing their buckets and spades, they’re bringing their credit card debts too – and then leaving them behind!

Thanks to the UK’s relatively ‘lax’ personal insolvency regulations, we are now a net importer of bankruptcy and recent press reports have highlighted an influx of EU nationals entering the UK to avail themselves our debtor-friendly laws.

The extent of the “migration” has almost certainly been exaggerated but there is little doubt that a number of our more canny EU cousins have crossed the Channel with the sole purpose of availing themselves of our benevolent bankruptcy regime.

Under EU regulations bankruptcy and other insolvency proceedings are recognised across all the EU jurisdictions. Consequently, a UK bankruptcy order will extinguish a Spanish debt in just the same way as it clears a UK debt. What’s more, the length of time that an individual remains bankrupt depends on the rules that apply in the country in which the bankruptcy order is made and not the country in which he has most of his debts.

Thanks to the free movement of European Citizens within the EU it is relatively easy for individuals and businesses to choose which EU country they want to deal with their insolvency.

So why are so many choosing to go bust in the UK? Under UK bankruptcy legislation, an individual is discharged (released from his debts) within a period of no more than 12 months.

This can be compared with a corresponding period in Germany and Ireland which could be as long as nine or 12 years respectively, so it is clear to see why it is worth shopping around for a friendly jurisdiction.

However, it is not as simple as driving off the ferry at Dover, finding the nearest County Court and submitting a bankruptcy petition. For a company or an individual to commence its proceedings here it needs to show that its Centre Of Main Interest (“COMI”) is in the UK.

Unfortunately, the European legislation does not provide clear guidance as to how the courts should determine an entity’s COMI.

In practice, the courts have generally accepted that an individual will have a COMI in the UK if he can show that he has been “settled” in the area for at least six months. In some cases judges appear to have accepted a copy of a standard six month assured shorthold tenancy agreement and little else as sufficient evidence of UK residence for COMI purposes.

More recently, the courts have started to take a much closer look at debtors’ circumstances in an attempt to avoid this apparent abuse of process.

Another attraction of jurisdiction shopping for unscrupulous debtors is that it can make it harder for their assets to be identified and realised for the benefit of creditors. In theory, a bankrupt is obliged to disclose his worldwide assets to his trustee in bankruptcy but, in practice, if they are not voluntarily disclosed, it can be difficult for a UK trustee to discover the existence of foreign property.

That said, trustees are getting ever more experienced in this area. Indeed, membership of MGI means that member firms in the UK have access to invaluable local knowledge of and expertise in foreign jurisdictions which vastly improves the prospects of successful tracing and recovery of undisclosed overseas assets.

Roger Isaacs
Milsted Langdon
Part of the MGI alliance
www.mgi-uk.com