PART 5
February 2010
CENTRE OF MAIN INTERESTS (amended February 2010)
One of the features of cross-border insolvency is that debtors may seek to open proceedings in a state having insolvency legislation more favourable to their particular circumstances. This is referred to as “forum shopping”.
Prior to the implementation of the Regulation a person with affairs in another state of the EU may have presented a petition to the High Court simply on the basis that he/she was personally present in England and Wales on the day that the petition was presented [note 1]. However, as the foreign jurisdiction where the debtor was resident did not automatically recognise the English bankruptcy only debtors with creditors in the UK tended to use this facility. What has changed is that the insolvency proceeding opened in the UK would now, courtesy of the Regulation, be recognised in those other EU states in which the insolvent has interests.
The Regulation attempts to control forum shopping by requiring that the main proceeding (see paragraph 41.25) be opened in the Member State where the debtor’s “centre of main interests” (COMI) (see paragraph 41.62) is situated [note 2].
Where the debtor’s COMI is outside of the EU, or in Denmark, reference should be made to Chapter 42.
41.61 Official receiver to make initial enquiries into the COMI
In cases where the official receiver has reason to doubt the legitimacy of the COMI, he/she should consider the information in this Part to decide whether investigation of the COMI should be carried out to establish that the order has been correctly been made in the UK. This will most likely need to be done where the official receiver is dealing with bankruptcy proceedings commenced by a debtor in England and Wales as main proceedings (see paragraph 41.25) under the EC Regulation, andFor further information on investigating the COMI of a bankrupt, and action to be taken where it is established to be outside the UK, please see Part 2 of Chapter 43.0.
41.62 Definition of centre of main interests (COMI)
Currently, there is no definition of COMI except in the recitals (see paragraph 41.19) [note 3] to the Regulation which state:
“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”.
In broad terms this will be the country in which the debtor mainly carries out their trade, profession or self employment. Where the debtor does not trade or carry on a profession, the state in which he/she habitually resides is considered to be the COMI [note 4]. Where the debtor resides in one country but trades in another, it is the country in which the trade is carried out that is considered to be the COMI [note 5]. This may be particularly applicable to doctors or dentists regularly carrying out locum work in the UK [note 6].
Where a person’s only connection with a country is that they work there on a non self-employed basis (perhaps, commuting from a neighbouring country), then the COMI is will generally be in the country in which they live and consequently pay bills, operate a bank account and buy items, etc.
The COMI is determined at the date the petition is presented and not where, historically, the relevant activity was carried out [note 7]. Therefore, the location of creditors and the country in which debts were incurred are not material issues in determining a COMI.
41.63 Presumption regarding COMI of a company
In the case of a company, the place of the registered office is presumed to be the centre of main interests in the absence of proof to the contrary [note 8].
See paragraph 41.21 for more information regarding the opening of proceedings and the COMI of companies.
41.64 Where the COMI is not in a member state
As outlined in paragraph 41.22 any person who has a centre of main interests in a state in the EU may be subject to proceedings under the Regulation, regardless of their nationality. Conversely, a national of a state within the EU may not be subject to main proceedings under the EC Regulation if their centre of main interests is in a state outside the EU, but may be subject to proceedings outside the Regulation.
For example, in a case [note 9] concerning a bankruptcy petition presented to an English court in relation to a Norwegian born debtor; the debtor had a complex and international nature to both his private and professional life, though he had resided in England for some part of the three years prior to the presentation of the petition. The debtor’s COMI was found not to be in England and, eventually, it was decided that the COMI was in Switzerland. As this country is not in the EU, the court was able to make a bankruptcy order against the debtor under the Insolvency Act 1986 [note 10] which states that a petition can be presented against a debtor if he or she “at any time in the period of 3 years ending with [the day of the presentation of the petition] has been ordinarily resident, or has had a place of residence in England and Wales”.
Where the debtor’s COMI is outside of the EU, or in Denmark, reference should be made to Chapter 42.
41.65 EU-based UK national seeking protection of courts in England and Wales
There are circumstances where a UK national may attempt to seek the protection of the courts of England and Wales despite their COMI being, on the face of it, in another EU state (see paragraph 41.62). An example of this may be a member, or relation of a member, of the UK armed forces or employee of the UK government (for example, the diplomatic service) based overseas.
In these circumstances it may be open to the individual to present a petition for bankruptcy on the basis that their COMI is still in the UK although they are resident and employed abroad. The petition would most likely be presented in the High Court based on the condition that they are personally present in England and Wales on the day of the presentation of the petition [note 11] though, ultimately, it will be for the court to decide on the location of the debtor’s COMI and where, therefore, the proceedings should be opened.
Matters that the court might take into consideration would include the location of the debtor’s banking arrangements, the tax regime to which they are subject, whether they have retained a home in the UK to which they intend to return at the end of the posting and the terms and length of their contract or posting.
Where the official receiver is concerned that proceedings opened in England and Wales under these circumstances ought to have been opened in another member state of the EU, he/she may follow the guidance outlined in paragraph 43.0.17 and seek a review of the bankruptcy order.
A debtor may change their COMI at almost any time and for self-serving reasons [note 12] – for example, to take advantage of a more favourable insolvency regime but, crucially, the re-location must be real, and must be effected prior to the presentation of the petition.
Official receivers should note that the majority of EU citizens who seek the protection of the bankruptcy court will have genuinely relocated to the UK. They may have decided to move simply to take advantage of more favourable insolvency legislation but, crucially, so long as the re-location is real then the bankruptcy order would be correctly made in the UK. In summary, it is the fact of the relocation, rather than the intention behind, the re-location which is the decisive factor.
[Back to Part 4 – Recognition of insolvency proceedings throughout member states and the effects of such recognition]