English Court dismisses the bankruptcy petition of a German national after finding that his Centre of Main Interest did not transfer when he had moved to England : Cross Border Restructuring and Insolvency Update - February 2014

Schmid v Hertel [2014] All ER (D) 221

The Court of Justice of the European Union held that Article 3(1) Insolvency Regulation must be interpreted as meaning that the courts of a Member State in which insolvency proceedings have been opened have jurisdiction to determine actions to set aside transactions against individuals whose place of residence is within countries which are not Member States.

Main Insolvency Proceedings were opened against an individual in Germany and a Liquidator was appointed. The Liquidator applied to set aside a transaction to a third party who resided in Switzerland, which is not a Member State. The court at first instance refused to hear the claim for lack of jurisdiction and an appeal was also dismissed. The Liquidator appealed on a point of law to the German Federal Court of Justice.

The Federal Court referred the following question to the Court of Justice of the European Union (the "Court") for a preliminary ruling: "Do the courts of the Member State within the territory of which insolvency proceedings regarding the debtor's assets have been opened have jurisdiction to decide an action to set aside by virtue of insolvency that is brought against a person whose place of residence or registered office is not within the territory of a Member State?"

The Court considered the case of Seagon v Deko Marty Belgium NV in which the First Chamber concluded that Regulation 3(1) must be interpreted as conferring on the courts of the Member State where the Main Proceedings are opened an international jurisdiction to hear and determine actions which derive directly from the insolvency proceedings and which are closely connected with them.

Although the decision in Seagon related to an action against individuals in another Member State it did not mean claims could be ruled out where the defendant is in a non-Member State.

Furthermore, the Court looked to the objectives of Article 3(1), namely the promotion of forseeability as regards bankruptcy and liquidation jurisdiction, and therefore of legal certainty. It held the objectives support jurisdiction to decide claims whether an individual is resident in a Member State or a non-Member State.

Schrade v Sparkasse ChD [2014] (Unreported)

English Court dismisses the bankruptcy petition of a German national after finding that his Centre of Main Interest ("COMI") did not transfer when he had moved to England.

The case centred around an appeal by a German national ("S") against the decision by an English court to dismiss his own bankruptcy petition.

S had lived in Germany for the all of his working life; however he moved to England in 2012 after encountering financial difficulties and the alleged break up of his marriage. Following his move to London in May 2012, he incorporated a company in England. Shortly following this, in January 2013, he petitioned in the English High Court for his bankruptcy.

At first instance, the Registrar noted the current trend of bankruptcy tourism and decided that the following were relevant facts in determining his COMI was in Germany, and not England: S had family ties in Germany; continued to operate at least one bank account there; was involved in litigation in Germany; and continued to hold stocks and shares in Germany.

S appealed on the basis the Registrar had erred in deciding his COMI had remained in Germany, as well as the fact that he had not been given a chance to explain his Statement of Affairs.

The Judge considered the appeal and in doing so examined the factual situation surrounding S's bankruptcy petition in more detail. During this it transpired that, as suspected, S had not in fact separated from his wife, and there had been sufficient evidence for the Registrar to conclude S's COMI had remained in Germany. The appeal was therefore dismissed.

The case is important as it provides a reminder of the factors that the court will consider when determining COMI. It also demonstrates the rigorous scrutiny the English Courts adopt when considering petitions presented by foreign nationals in England.

Around the World

England and Wales
Lovell Hill & Co LLP, a law firm offering bankruptcy tourism services, has been wound up by the High Court. The Insolvency Service discovered that the law firm had been advertising services to German nationals who wished to falsely claim that their Centre of Main Interests were in the UK in order to take advantage of the shorter bankruptcy terms that exist in England and Wales.

The High Court in Ireland has issued its first Certificate of Protection under the new Personal Insolvency Regime. The individual to whom the certificate was granted had debts of €2.5m, which she was unable to repay. A Certificate of Protection gives a 70 day period in which debtors aim to negotiate payment terms with creditors. Although certificates have already been granted by Circuit Courts, this is the first one the High Court has granted.

The European Parliament has stated that the cross-border insolvency regime is to be reformed. Legislators will now produce a draft of the legislation for review. It is thought that the new proposals will include a European-wide register of insolvent businesses, as well as set out a more streamlined process for bringing multi-jurisdictional claims.

South Africa
Julius Malema, the leader of a South African political party, has been declared 'provisionally insolvent' by the courts. He will have the opportunity to contest the decision before the order is made final at the end of May. The proceedings were instituted by the Revenue last year after he failed to pay more than $1.44 million in tax and does not have assets to cover the liabilities. If the order is made final in May, Malema will not be eligible to be elected to parliament.

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