Curing Particular Financial debt Problems with Guidance from The EU
Most citizens of member states of the European Union (EU) are 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 which EU citizens enjoy 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.
There are big differences in bankruptcy regulations in a number of member countries of the EU. The UK is oftentimes praised as being a glowing beacon of enlightenment insofar as it has developed over time a considerable body of personal bankruptcy legislation. This provides any financially troubled citizen with a variety of approaches to their situation. The wide array of solutions and choices on offer are neither draconian nor punitive. What they offer is acknowledgement of every citizen’s right to a second opportunity – a new start in fact. The underpinning idea could be termed pro-entrepreneurial similar to the entrepreneurial business environment in the USA. When compared to several other member states of the European Union, British system is particularly appealing. In the UK financially troubled borrowers can get the chance to rehabilitate themselves, whereas in certain other EU member states the relevant legal and national culture is likely to seek to discipline the insolvent person. So how might the insolvency system in the United Kingdom offer unexpected benefits for European Union citizens who are not UK citizens?
European Union regulations permit the insolvency legislation of one EU 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 insolvency proceedings in a state of the EU, other than the state in which they reside and work. Furthermore, they may choose any member state in which to exercise this right and it is only to be expected that they would choose a state which has enacted insolvency legislation more favourable to their particular circumstances than that which prevails in their own ‘home’ jurisdiction. This phenomenon is sometimes referred to as “forum shopping”. As a result of this right, an insolvent 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. 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 statement 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 case of bankruptcy proceedings, the COMI is set at the date the petition is presented and not where, historically, the pertinent activity was undertaken. Therefore the address of creditors and the state in which debts were sustained are not pertinent considerations in defining a COMI. Curiously, while not relevant to individual insolvency is the fact that with regards to a company, the COMI is the registered office, in the absence of verification to the contrary.
What about an IVA? To look at an illustration: a serving member of the Armed Forces who is serving abroad and who may perhaps be stationed abroad for prolonged periods may go into an IVA in the UK. The same might apply to anyone who is for example working in an EU member nation but whose resources are located in the UK. In the same way, anybody who works in the merchant navy may go into an IVA, even though they can be abroad for most of their working lives, as long as their “centre of main interests” is in the UK. Of course there are many different situations which could affect the debtor’s capacity to comply with the conditions of an IVA. These could include properties and assets possessed or procured overseas or the possibility of taking on liabilities abroad during or just prior to the term of the proposed IVA. Still, lenders will generally approve such an IVA as long as they are satisfied with the debtor’s capacity to stick to the terms. It should be noted that an IVA in the UK is restricted to England, Wales and Northern Ireland. For Scotland the generally similar insolvency option is a Trust Deed.
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