Vol 2 (2005) - Issue 5

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EC Regulation: COMI Moves to Spain

In Shierson Vlieland-Boddy [2005] EWCA Civ 974, the Court of Appeal provided useful guidance on the extent to which a debtor can change the location of their centre of main interest within Article 3.1 of the EC Regulation on Insolvency Proceedings 1346/2000 (‘the Regulation’).
The facts involved an individual, M, who was an insolvency practitioner that fell into financial difficulty and made proposals to enter an individual voluntary arrangement (‘IVA’) with his creditors in which he claimed his centre of main interest was located within England and Wales. The IVA proceedings were successfully opposed by an individual, S, who petitioned for M’s bankruptcy on the basis of costs orders made in the proceedings.
By the time S presented the bankruptcy petition M claimed that he had moved full-time to Spain where he worked as an accountant. M also claimed that an interest he owned in commercial premises had been transferred to an off-shore company and that all his other property interests were now vested in his estranged wife pursuant to a formal deed of separation. On this basis M argued that his centre of main interest was located in Spain and that he did not possess an establishment in England or Wales sufficient to found the Court’s jurisdiction under either Article 3.1 or 3.2 of the Regulation.
As the dispute concerning the Court’s jurisdiction made its way to the Court of Appeal it gave rise to starkly contrasting judgments by Registrar Rawson, at first instance, and Mann J, on first appeal. One common element of both judgments was a serious concern that M had deliberately sought to change his personal and professional circumstances in order to escape the jurisdiction of the English Court.
In the Court of Appeal, Chadwick LJ outlined general guidance on determining a debtor’s centre of main interest:

(a) It is to be determined at the time the Court is asked to open insolvency proceedings, which will usually be the hearing of the petition or earlier if permission is required to serve the petition out of the jurisdiction or there is an application for interim relief;

(b) It is to be determined in view of the factual position that exists at the time of the Court’s decision, although reference can be made to historical facts which led to that position;

(c) A debtor is free to move his home or business and the Court must recognize changes to the ‘administration of his interests’ by accepting, as appropriate, that the debtor’s centre of main interest has moved from one jurisdiction to another;

(d) The Court must consider the need for the centre of main interest to be ascertainable by third parties, particularly creditors and potential creditors. As a result temporary or transitory changes will not affect a debtor’s centre of main interest;

(e) Where the circumstances give rise to suspicion that the debtor is deliberately attempting to escape the Court’s jurisdiction, it is important to carefully scrutinize whether the changes are based on substance rather than illusion, and that the changes have the necessary element of permanence.

On the facts, the Court of Appeal upheld Mann J’s finding that M’s centre of main interest had relocated to Spain because his evidence, although open to doubt, had not been challenged in cross-examination. The decision not to cross-examine M was unfortunate in the circumstances.
Chadwick LJ went on to consider whether M possessed an establishment and held that: (a) M’s unintended failure to resign a directorship of an English company would not suffice; but (b) M’s use of an off-shore company to carry out economic activity in England would constitute possession of an establishment because the company was acting as a front or nominee for M. Sir Martin Nourse went further and considered (albeit obiter) that mere beneficial ownership of a company carrying out economic activity in England can amount to possession of an establishment irrespective of whether the company was acting as a front or nominee.