Vol 10 (2013) - Issue 3

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Sparkasse Hilden Ratingen Velbert v Benk [2012] EWHC 2432 (Ch)

Introduction
With automatic discharge after 12 months, bankruptcy in England is perceived, at least from the debtor’s point of view, as having certain advantages as compared with procedures in certain other jurisdictions. It is therefore not surprising that so-called 'bankruptcy tourists' come to England from other jurisdictions, with a view to obtaining a bankruptcy order from the England Court.
Of course, in order for a debtor to obtain a bankruptcy order in England, it is necessary for the debtor to demonstrate that his centre of main interest ('COMI') is in the jurisdiction, Article 3 of the EC Regulation on Insolvency Proceedings ('the EC Regulation') providing that 'the courts of the Member State within the territory of which the centre of a debtor’s main interest is situated shall have jurisdiction to open insolvency proceedings'.
Whilst it is clear that the motive for shifting one’s COMI to England being to take advantage of the English bankruptcy procedure does invalidate subsequent bankruptcy proceedings in this jurisdiction, the COMI shift must be a genuine one. That being the case, the Court, in light of the potential for abuse, will scrutinise evidence on this point with particular care, as indeed it did in Sparkasse Hilden Ratingen Velbert v Benk.

The decision
One jurisdiction where the bankruptcy procedure might, from the point of view of the debtor, be said to be less advantageous than the procedure in England is Germany and Mr Benk, the debtor with whom this case was concerned, claimed that he had moved his COMI from Germany to England. He claimed to have shifted his COMI, such that at the relevant date (being the date of presentation of the bankruptcy petition) his COMI was in England and he obtained a bankruptcy order on that basis. An application was, however, subsequently made by Sparkasse Hilden Ratingen Velbert ('the Bank') to annul that bankruptcy order, on the grounds that Mr Benk’s COMI in fact remained in Germany at the material time, such that the English Court had no jurisdiction to make the bankruptcy order.
Whilst the EC Regulation does not define COMI, recital 13 thereto provides that a debtor’s COMI 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. There is also an extensive body of case law on the COMI concept, such that the relevant legal principles were not in dispute before the Court hearing the Bank’s application. In summary, the Court derived from the authorities and applied the following legal principles: (i) a debtor can only have one COMI; (ii) a debtor’s COMI is, in the case of professionals, the place of their professional domicile and for natural persons in general the place of their habitual residence; (iii) 'regular administration' of a debtor’s interests means that the court must look for the place from which the debtor exercises the management, organisation and control of his interests; (iv) ‘on a regular basis’ suggests a quality of presence and a degree of continuity or permanence; (v) particular regard must be had for the COMI to be ascertainable by third parties; and (vi) as noted above, if a debtor relocates in the face of potential insolvency, the court must scrutinise the facts in order to determine whether the purported change is based on substance or is an illusion.
In support of his contention that his COMI had shifted to England, Mr Benk produced tenancy agreements for flats in Birmingham, bank statements showing purchases made in England, as well as receipts from English shops, details of the purchase and insurance of cars in England and evidence of utility and council tax payments and national insurance contributions. Mr Benk also pointed to his photography business in England, including receipts from business trips. On the other hand, the Bank argued that the supposed shift in Mr Benk’s COMI was a mere illusion and that his move to England was temporary and contrived in order to enable him to take advantage of the English bankruptcy procedure.