You may have heard of the phrase ‘bankruptcy tourism’ or ‘forum shopping’ in the news recently – but what does the term mean?

Consider this scenario:  You are Irish, live in Dublin and are a failed property developer.  prior to the credit crunch, you took advantage of the generous credit offered to you and despite only having a modest salary of say €30,000.00 a year, you managed to obtain secure lending of say €400,000.00 to purchase four buy to let properties.  The credit crunch hits and property prices collapse.  Suddenly your property portfolio is showing £200,000.00 to £300,000.00 in negative equity.  You are still liable for those debts and by this time they have become unsecured debts as the houses have been repossessed and sold at auction.

What do you do?  There is no chance of you paying back your debts over your lifetime.  You are insolvent with no prospect of becoming solvent within the next 100 years or so.  You look to your country’s Bankruptcy regime and find that once you have been made Bankrupt, you remain so for 12 years.  Are there any other options?

Jumping on a plane and relocating to Manchester or London for 12 months in order to present your Bankruptcy Petition under England and Wales’ more ‘lenient’ Bankruptcy laws may seem like an extreme solution, but this is exactly what we are starting to see happening.  The EC Regulations on Insolvency Proceedings 2002 applies to all EU States except Denmark.  This stipulates that any EU national can present a petition in another EU country as long as certain conditions are met.  Crucially, it is permitted to come to the UK for the purpose of making yourself Bankrupt.  Once Bankrupt under UK law you are automatically discharged after 12 months.  Somewhat more attractive to the 12 years in the Irish jurisdiction.

So if the fictional Irish property developer relocates to Manchester and presents his petition at a local County Court, the Court will look to see not if he came to the UK for the purpose of presenting his petition that is permitted.  Rather the Court will be interested in whether he has his centre of main interest in the UK.   The Courts will look at several factors when evaluating whether the centre of main interest is in the UK or Ireland, including whether the debtor is resident in the UK and whether he has permanent employment here.  If the debtor satisfies these two conditions, there is every likelihood that the Bankruptcy will be ordered.

So coming back to the best debt advice for the Irish property developer,  or indeed any Irish debtor with significant unsecured debt and no assets.  It could well be that financially, their best option may well be to buy an Easy Jet ticket to Manchester Airport and relocate to take advantage of the UK’s more permissive Bankruptcy regime.   This in a nutshell is what is commonly termed ‘bankruptcy tourism’ or ‘forum shopping’.  We may well be hearing a lot more of it in the months/years ahead as the recession continues to bite.

For more information about bankruptcy for EU nationals, don’t hesitate to get in touch.