One of the anticipated benefits of membership of the European Union (EU) is the expectation that Europe-wide legislation will in due course be harmonised so that all twenty seven states will have compatible legislation particularly where it affects the rights of citizens.
One area of legislation crying out to be harmonised is in the area of personal insolvency. Although member states have their own sets of laws and regulations, insolvent citizens of the EU can even now shop around for the jurisdiction which will treat them most favourably, as they try to improve their financial circumstances. This practice gives rise to the phrase ‘bankruptcy tourism’.
One of the most favourable environments for dealing with personal insolvency is the regime that prevails in the UK. There are some minor differences in the laws relating to Scotland, but in England, Wales and Northern Ireland the laws relating to Bankruptcy and Individual Voluntary Arrangements (IVAs) are seen as particularly pro consumer and offer real hope to citizens who find that they have become insolvent. While some member states such as the Republic of Ireland imprisoned debtors up until recently under draconian legislation, the UK offers the prospect of financial rehabilitation with credit worthiness restored within a relatively short time frame. Some other EU jurisdictions seek to punish the errant debtor instead although there is considerable variation in law and in practice between one jurisdiction and another.
European regulations, subject to certain provisos, now allow an insolvent citizen, to seek a financial solution in the jurisdiction of any other member state. The most important criterion to be met is to be able to show to the satisfaction of the courts that the insolvent debtor’s “centre of main interests” or COMI is in the member state chosen. Let us for the sake of argument say the debtor’s COMI is in the UK, bearing in mind that creditors, among others, may challenge this assertion. No precise definition of COMI exists but 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”. It is for the courts to interpret this but it is becoming clearer what is generally acceptable in the insolvency industry.