Centre of Main Interests “COMI”- NI Case Law Update

September 21, 2016

Pursuant to EC Regulation 1346/2000 a Court has jurisdiction to grant a Bankruptcy Order on foot of a Debtor’s petition if it is satisfied that the jurisdiction represents the Debtor’s Centre of Main Interests (“COMI”). A Debtor’s COMI will be determined at the date of presentation of the petition.

The Bankruptcy regime in Northern Ireland (NI) is often seen as being a more favourable bankruptcy regime than those that apply in other EU Member States. For example, until a few years ago the period of automatic discharge in Northern Ireland was 1 year compared to 12 years in the Republic of Ireland (ROI). The huge disparity in bankruptcy regimes brought the issue of cross border insolvency into focus and promoted the increase in what is now known as “bankruptcy tourism” and “forum shopping”, whereby insolvent debtors have sought to relocate their COMI prior to commencing insolvency proceedings.

The most recent judgment handed down by Master Kelly in the High Court of Justice in Northern Ireland in May 2016 was In the Matter of Maurice Muldoon-the Petitioning Debtor [2016] NI Master5. Mr Muldoon (the Debtor) presented a Debtor’s petition in January 2015. He stated that he had unsecured creditors in the sum of circa €2.6 million. The Debtor claimed that his COMI was NI as he had moved his habitual residence to NI from ROI. The Court required the Debtor to submit further affidavit evidence to support his COMI position.

The Bankruptcy Master dismissed the bankruptcy petition and concluded that the Debtor’s COMI was not NI. Some of the reasons given in the Master’s judgment are set out below and make for interesting reading:-

  • The Court suspected forum shopping as the Debtor allegedly moved his COMI to NI some 18 months after he became aware he was insolvent;
  • The Debtor had consulted advisors in ROI about his personal insolvency approximately one year after he had allegedly moved his COMI to NI. His advisors contacted one of the Debtor’s main creditors to see what their position would be if the Debtor entered into a Debt Settlement Agreement-a statutory remedy provided for in the ROI insolvency legislation;
  • Master Kelly referred to Chadwick LJ’s judgment from Shierson v Vlieland-Boddy [2005] EWCA Civ 974 which specially referred to the fact that where there was a suspicion that a debtor had sought to deliberately change his COMI, the court had to be satisfied that the change that had occurred “was a change based on substance and not an illusion; and that that change has the necessary element of permanence”. In the Debtor’s case the Court concluded that there was “no apparent, logical or practical reason for the petitioner to have allegedly moved his habitual residence to NI”. The Court acknowledge that whilst he was divorced from his wife, his 4 children lived in ROI and it was clear that “he maintains continuing and regular involvement in family life and routine there”;
  • The Court struggled to see how the Debtor had moved his business interests to NI and was conduction his main economic activities in NI; and
  • The Court held that even if the Debtor was able to prove that he had moved his business interests to NI, he possessed “no establishment” in NI that would make him ascertainable by third parties; a requirement of Recital 13 of the EC Regulation.

This case makes it clear that the Courts will continue to properly scrutinise debtor petitions when there is a suspicion of forum shopping. There have been a number of changes to the ROI insolvency legislation in recent years which may ultimately result in a reduction in the number of cross border insolvency cases being dealt with in the NI Courts. It will also be interesting to see what impact Brexit will have on the application of the EC Regulation moving forward.

This Article was prepared by Caitriona Morgan, Associate.

Please note that this article is for information purposes only. Should you require any specific legal advice please contact Caitriona Morgan c.morgan@cfrlaw.co.uk or any member of our insolvency team T. 028 9024 3141