Managing Consumer Debt Complications with Help out of The European Union
Most citizens of member states of the European Union (EU) are unaware of certain unexpected benefits that EU membership conveys in relation to personal insolvency. These benefits are rooted in the principle of the free movement of labour which EU citizens enjoy within the EU and are particularly relevant for those who find themselves overburdened by debt and threatened with aggressive insolvency proceedings in certain member states of the EU.
There are huge differences in insolvency legislation between different member countries of the EU. The UK is often held up as a shining beacon of enlightenment insofar as it has evolved a comprehensive body of personal insolvency law. This provides any insolvent citizen with a variety of solutions to their predicament. The wide variety of remedies and options available are neither draconian nor punitive. What they do offer however is recognition of every citizen’s right to a second chance – a fresh start in fact. The underlying philosophy could be described as pro-entrepreneurial akin to the economic environment in the USA and when compared to some other member states of the EU, the UK system is particularly attractive. In the UK insolvent debtors can get the opportunity to rehabilitate themselves, whereas in certain other EU member states the prevailing legislative and social culture tends to seek to punish the insolvent debtor. So how can the insolvency culture in the UK provide unexpected benefits for European Union citizens who are not UK citizens?
European Union regulations permit the insolvency laws of one European Union member state to apply in another, subject to certain provisos. One of the attributes of cross-border insolvency is that consumers may look to start up insolvency proceedings in a nation of the EU, instead of the state in which they reside and work. Furthermore, they may pick any member state in which to exercise this privilege and it is only to be expected that they would choose a state that has enacted insolvency legislation more beneficial to their particular circumstances than that which prevails in their own ‘home’ jurisdiction. This exercise of these rights is sometimes called “forum shopping”. As a result of this privilege, an insolvent consumer who lives in any member state may be able to put forward an Individual Voluntary Arrangement (IVA) or petition for bankruptcy or indeed pursue some other legal remedy for their debt difficulties in the UK – so long as the UK is their “centre of main interests”. The definition of the term “centre of main interests” or COMI is certainly key to the subject. The applicable EU Regulation declares that “the centre of main interests should correspond to the place where the borrower conducts the management of his interests on a regular basis and is for that reason ascertainable by third parties”.
The most common interpretation of this statement is that the COMI will be the country where the person in debt generally performs their business, occupation or self-employment. Where the person in debt does not trade or maintain an occupation, the COMI will likely be reckoned to be the country where he or she lives. If the person in debt lives in one state and trades in another, the COMI is the country where the person in debt trades. Where the person’s only link with a nation is that they work in that location on a non self-employed basis (possibly travelling from a neighbouring country), then the COMI will normally be in the state in which they reside and consequently pay bills, operate a bank account, purchase merchandise and so on.
In the eventuality of bankruptcy proceedings, the COMI is determined at the date the petition is presented and not where, in the past, the relevant activity was carried out. Therefore the locale of creditors and the country where debts were incurred aren’t pertinent matters in ascertaining a COMI. Apparently, although not relevant to individual insolvency is that with regards to a company, the COMI is the registered office, without substantiation to the contrary.
What about an IVA? To take an example: a serving member of the Armed Forces who is serving abroad and who may be stationed abroad for long periods may enter into an IVA in the UK. The same may apply to anybody who is for example working in an EU member state but whose assets are located in the UK. Similarly, anybody who works in the merchant navy may enter into an IVA, even though they may be abroad for much of their working lives, provided their “centre of main interests” is in the UK. Obviously there are many different scenarios which may impact on the debtor’s capacity to comply with the terms of an IVA. These could include assets held or acquired abroad or the likelihood of incurring debts abroad during or just prior to the term of the proposed IVA. Nevertheless, creditors will generally approve such an IVA provided they are satisfied with the debtor’s capacity to comply with the terms. It should be noted that an IVA in the UK is limited to England, Wales and Northern Ireland. For Scotland the broadly equivalent insolvency solution is a Trust Deed.
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