Changes in the Bankruptcy Regime in Ireland do not Prevent Forum Shopping | Fieldfisher
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Changes in the Bankruptcy Regime in Ireland do not Prevent Forum Shopping

01/12/2015

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Ireland

IntroductionIreland now has new Bankruptcy legislation which reduces the period of bankruptcy from twelve years to only three years. However, this is still considered a lengthy bankruptcy period by debtors and so many have looked to other jurisdictions with more favorable bankruptcy regimes for a solution to their financial woes. For example, in the USA and the UK, the period for discharge from bankruptcy is twelve months and in some countries such as Switzerland, the bank...

Introduction

Ireland now has new Bankruptcy legislation which reduces the period of bankruptcy from twelve years to only three years. However, this is still considered a lengthy bankruptcy period by debtors and so many have looked to other jurisdictions with more favorable bankruptcy regimes for a solution to their financial woes. For example, in the USA and the UK, the period for discharge from bankruptcy is twelve months and in some countries such as Switzerland, the bankruptcy regime is not as restrictive as it is in common law jurisdictions. Mark Woodcock, Partner in the Insolvency and Restructuring Department, explores how utilizing these bankruptcy regimes can provide an attractive alternative (also known as forum shopping) to a debtor’s position in this jurisdiction where he may face multiple legal actions and a possible bankruptcy application.

The Law

The law in Ireland is currently governed by the Bankruptcy Act of 1987 and recently amended by the Personal Insolvency Act 2012 which provides that a creditor can apply to the High Court for an order of bankruptcy against a debtor which remains in place for three years.

The law as it is in respect of different jurisdictions in the European Union is governed by the Council Regulation (EC) No 1346/2000 (also known as the Insolvency Regulation) which provides that there should be limitations on the ability of debtors to transfer assets or judicial proceedings from one member state to another seeking to obtain the most favorable position. The reason for this is that if debtors can enter and exit bankruptcy in a short period in one jurisdiction it becomes an attractive alternative to remaining in a jurisdiction where they will remain insolvent indefinitely or be forced into bankruptcy for many years.

In order for a debtor to demonstrate that they should be entitled to the benefit of an insolvency regime in a particular jurisdiction he must satisfy a court that his “centre of main interest” or “COMI” is in that jurisdiction. The Insolvency Regulation provides that a debtor's COMI should be the place where:

  1. the debtor conducts the administration of his interest on a regular basis, and
  2. is therefore ascertainable by third parties

In a clear attempt to encourage enterprise, the law in this area in the UK was amended by the Insolvency Act 1986 and provides for a period of bankruptcy of twelve months. This means that a debtor (and of course a creditor) can apply for bankruptcy, wherein all the debtor’s assets vest with an Official Receiver, a civil servant and officer of the court who will realize the assets and distribute them among creditors in accordance with the normal priority of payments. The debtor can then emerge from bankruptcy twelve months later having cleared his debts.

This process in the UK has traditionally been a simple one costing the applicant less than Stg £1,000 in legal fees and court duties. There is no authority specifying a minimum period of residence, but a period of six months is regularly accepted by the UK courts as being sufficient. The courts have held that a debtor is at liberty to change his COMI and that the country in which the debts were incurred is not a relevant consideration. Neither is the fact that the debtor’s residence appears temporary or rented. The applicant must file a petition and a statement of affairs setting out all assets and debts with the names and addresses of creditors. Although the debtor should notify creditors of his move to the UK they are not notice parties to the application for bankruptcy.

Recent judgment

The well known businessman Sean Quinn recently applied for bankruptcy in Northern Ireland (NI). The High Court considered the competing arguments for and against the proposition that Mr Quinn’s COMI was in NI. Case law and commentators have confirmed the general principle that the COMI for a company is the registered address, for a professional is his professional address and for an individual his habitual/residential address.

Mr Quinn argued that although he resided in this jurisdiction, his COMI was in NI on the basis that he carried out the majority of the administration of his affairs from an address in NI. In addition he argued that he had been born in NI, began his working life there, kept the headquarters of his group there and indeed paid tax there.

Against this argument the Court found that he had resided in this jurisdiction for 32 years, had an Irish passport and voted here. Interestingly, one of the more persuasive factors considered by the Court was the fact that Mr Quinn had no sterling loans with Anglo Irish Bank (which was contesting the bankruptcy) and that the main interest of Mr Quinn in the months preceding the application for bankruptcy was in litigation with Anglo in which he was embroiled in salvaging what he could from his circumstances in the Republic of Ireland. The Court also found that Mr Quinn had made no attempt to make the office in NI from where he was claiming to conduct his business affairs a matter of public knowledge and so it was not possible for him to argue that his COMI was ascertainable by third parties. In actual fact, the Court was satisfied from evidence provided by witnesses, that Mr Quinn was conducting a considerable amount of his business affairs from an office in Belturbet, County Cavan.

Conclusion

The Quinn Bankruptcy judgment is important because it at least demonstrates awareness in the UK Courts of what may be a growing trend by Irish debtors to forum shop. It is arguable that Mr Quinn made a rather speculative attempt for bankruptcy and that if he had moved to NI for a reasonable period and notified creditors of the move he would have made it more difficult for the Court to refuse the application.

Note: This article was published in the Q4 2015 issue of INSOL World 

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