Tanya Seevaratnam

Published 20 October 2021

Bankruptcy Tourism and What Amounts to a Place of Residence

You may have come across the term “bankruptcy tourism” which describes the situation where someone from overseas files for bankruptcy in England or Wales. Why? Because the bankruptcy laws of England and Wales are seen as easier and softer than other jurisdictions. For example, in Germany it can take up to 7 years to be discharged, compared to the one year automatic discharge granted in England and Wales. And often, eligibility to file for bankruptcy in England or Wales depends on the individual’s place of residence.  

Who can be made bankrupt in England and Wales?

Section 263I(2)(b) of the Insolvency Act 1986, provides that:

An adjudicator has jurisdiction to determine a bankruptcy application only if—

  • the centre of the debtor’s main interests is in England and Wales, or
  • the centre of the debtor’s main interests is in an EU member state and the debtor has an establishment in England and Wales, or
  • the debtor is domiciled in England and Wales, or
  • at any time in the period of three years ending with the day on which the application is made to the adjudicator, the debtor—
  • has been ordinarily resident, or has had a place of residence, in England and Wales, or
  • has carried on business in England and Wales.

What counts as a place of residence?

The criteria above raises the question, what comes within the definition of “place of residence”? In July this year (2021) the courts reconsidered this issue in the case of Lakatamia Shipping Co Ltd v Su [2021] EWHC 1866 (Ch).

The facts

The debtor in this case was a dual citizen of Japan and Taiwan. The creditor had obtained two judgments against him for $120 million which the debtor had not paid. In 2019, whilst visiting the UK, the debtor was committed to prison for 21 months.   He was released in 2020 but prevented from leaving the jurisdiction until he had given evidence regarding his assets. The debtor then spent time staying with friends or in properties belonging to friends.

In July 2020, the debtor successfully applied for his own bankruptcy, following which the creditor applied for an annulment on the basis that the adjudicator had no jurisdiction to make the bankruptcy order because: the debtor was not in the UK on a voluntary basis, prison was not a place of residence and the occupation of properties belonging to others did not constitute a place of residence.

The findings

On appeal, Bacon J rejected the debtor’s case for jurisdiction and held that the debtor’s presence at each of the locations had been temporary and transient with no degree of permanence or expectation of continuity and that “the residence must be that of the debtor not someone else.”

The judge went on to make the point that “The conditions of domicile, ordinary residence and carrying on business all connote a degree of substantiality and continuity of the connection of the debtor with the jurisdiction.” The judge then outlined what she felt is the correct approach, namely:

(1) There is a difference between the concept of “ordinarily resident” and the alternative test of having a place of residence under s 263I, and although there may be similar factors relevant to both tests, not all of the factors necessary in order to be “ordinarily resident” will be relevant to whether the debtor has a place of residence here in the UK.

(2) The starting point should be to give the phrase “has had a place of residence” its natural meaning. In other words, it means “to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place” (Oxford Dictionary) and “connotes some degree of permanence, some degree of continuity or some expectation of continuity.”

(3) The nature of someone’s presence is a relevant factor in determining residence, and whether the debtor’s presence is voluntary or not should be taken into account. Beyond that, however, the assessment will turn on the facts of the particular case.

The point was also made that this is not an exhaustive test but that the criteria above will be equally relevant when deciding aces under s 265 applies (jurisdiction to present a creditor’s petition).

If you are concerned about any issues arising from the above, we urge you to get in touch as quickly as possible.

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