Many citizens of member states of the European Union (EU) are blissfully unaware of certain unexpected benefits that EU membership conveys in relation to personal insolvency. These benefits are rooted in the principle of the free movement of labour for EU citizens within the EU and are particularly relevant for those who find themselves overburdened by debt and threatened with aggressive insolvency proceedings in certain member states of the EU.
It is well known that there are huge differences in insolvency legislation between different member countries. The UK is often held up as a shining beacon of enlightenment insofar as it has evolved a comprehensive body of personal insolvency law providing the insolvent citizen with a variety of options and solutions which are neither draconian nor punitive but which recognize the citizen’s right to a second chance – a fresh start in fact. Compared to some other member states the UK system is particularly attractive. In the UK insolvent debtors can get the opportunity to rehabilitate themselves, whereas in certain other EU member states the prevailing legislative and social culture tends to seek to punish the insolvent debtor. What are these unexpected benefits?
European regulations permit the insolvency legislation of one member state to apply in another subject to certain provisos. One of the features of cross-border insolvency is that debtors may seek to open proceedings in another state of the EU which has insolvency legislation more favourable to their particular circumstances than they could hope to attain in their own ‘home’ jurisdiction. This phenomenon is sometimes referred to as “forum shopping”. The result is that a debtor who lives in any member state may be able to put forward an Individual Voluntary Arrangement (IVA) or petition for bankruptcy or indeed pursue some other legal solution to their debt problems in the UK – provided that the UK is their “centre of main interests”. The definition of the term “centre of main interests” or COMI is of course key to the matter. There is no definition of COMI except that the relevant EU Regulation states that “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”.
The usual interpretation of this is that the COMI will be the country where the debtor mainly carries out their trade, profession or self-employment. Where the debtor does not trade or carry on a profession, the COMI is usually considered to be the country where he or she resides. If the debtor resides in one country and trades in another, the COMI is the country where the debtor trades. Where the 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 will generally be in the country in which they live and consequently pay bills, operate a bank account, purchase goods and so on.
In the event of bankruptcy proceedings, the COMI is determined at the date the petition is presented and not where, historically, the relevant activity was carried out. Therefore the location of creditors and the country in which debts were incurred are not material issues in determining a COMI. Interestingly, although not relevant to personal insolvency is that in the case of a company, the COMI is the registered office, in the absence of proof to the contrary.
What about an IVA? To take an example: a serving member of the Armed Forces who is serving abroad and who may be stationed abroad for long periods may enter into an IVA in the UK. The same may apply to anybody who is for example working in an EU member state but whose assets are located in the UK. Similarly, anybody who works in the merchant navy may enter into an IVA, even though they may be abroad for much of their working lives, provided their “centre of main interests” is in the UK. Obviously there are many different scenarios which may impact on the debtor’s capacity to comply with the terms of an IVA. These could include assets held or acquired abroad or the likelihood of incurring debts abroad during or just prior to the term of the proposed IVA. Nevertheless, creditors will generally approve such an IVA provided they are satisfied with the debtor’s capacity to comply with the terms. It should be noted that an IVA in the UK is limited to England, Wales and Northern Ireland. For Scotland the broadly equivalent insolvency solution is a Trust Deed.