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The Phenomenon of “Consumer Insolvency Tourism” and its Challenges to European Legislation

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Abstract

Consumer insolvency tourism, i.e., the relocation of over-indebted natural persons into a Member State granting a more favourable discharge regime from personal debt than the home country, has been focused by media as well as by legal practitioners quite intensively lately. Conflicts arise not only in distinguishing genuine and fictional relocations of the centre of main interest (COMI), but also between the effect of discharge and creditor's perspectives who did not take into account the possibility of considerably more debtor-friendly discharge facilities abroad when issuing the credit. While relocating a corporate COMI to another Member State providing better restructuring conditions will generally benefit both creditor and debtor, the effect of discharge in consumer insolvency procedures leads to less balanced results. It is not controversial that the current practice is in accordance with the wording of the European Insolvency Regulation (EIR). However, little research has been done so far on the question whether the phenomenon itself has been endorsed by the EIR. Even if consumer insolvency tourism is generally not regarded as an abuse of the EIR or of European freedoms, it may still not respect the interests of both debtors and creditors appropriately. With regard to the prospective revision of the EIR, this paper proposes different approaches to balance the interests of debtors and creditors by normative means.

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Notes

  1. British Department for Business, Innovation and Skills (2007), p. 4.

  2. British Department for Business, Innovation and Skills (2010), p. 25.

  3. Association for Payment Clearing Services (APACS), British Bankers’ Association (BBA), Consumer Credit Association (CCA) & Finance & Leasing Association (FLA). Report on consumer debt, p.i.

  4. In the context of this paper, the notion consumer insolvency tourism must not be misunderstood; this commonly used term merely stresses that this is not corporate insolvency. Today, most cross-border personal insolvencies proceedings are applied for by debtors of a professional background, while nationally, the majority of all debtors applying for discharge are consumers. “Discharge tourism” may be a more suitable notion.

  5. This citation is taken from an e-mail on 26 April 2012 from Dean Beale, Assistant Director of Policy at the Insolvency Service (and former Official Receiver (2003–2010) attached to the Exeter, Torquay, Barnstaple, and Yeovil County Courts, UK), which is on file with author. Beale points out that “these are not official statistics, and the figures have been obtained from information provided by Official Receivers who monitor COMI bankruptcy cases.”

  6. Anyhow, there may be again an increase in near future because as of 1 May 2011, complete freedom of movement is granted to all former EU-accession states, most of them not being equipped yet with ground and “successful” discharge mechanisms.

  7. BGH, decision from 15 November 2010, NotZ 6/10, DNotZ 2011, 394.

  8. e.g., in Eichler case (Official Receiver vs Eichler [2007], BPIR 1636), the debts amounted to £ 200,000.

  9. For a comprehensive overview see, the paper by Ehricke (2005) and the papers by Schönen (2009, 2010).

  10. For information on Greece, see Kourouvani (2010), p. 96 f.

  11. For information on Lithuania, see Gruodyte and Kirsiene (2010), p. 263.

  12. On the Irish system and an eventual need for reforms, see Spooner (2010), p. 3–10.

  13. For information on the Polish debt discharge system, see Włodarczyk-Śpiewak (2009), p. 77–78.

  14. For information on Austria, see Schönen (2010), p. 84 f.

  15. For an official summary of the Czech's discharge mechanism, see businessinfo.cz (2009).

  16. For more details, see Backert et al. (2009), pp. 273–288.

  17. German Federal Minister of Justice S. Leutheusser-Schnarrenberger on 17 March 2010 in Berlin.

  18. For information on the Dutch discharge system, see Hergenröder and Alsmann (2009), pp. 184–187.

  19. It is incorporated in sec. 1675/2–1675/19 GGB (“collectieve schuldenregeling”). For details, see Belgian Federal Government (2010) and Hergenröder and Alsmann (2009), pp. 178–182.

  20. This instrument is based on the deed of arrangement act which dates back as far as 1914.

  21. Generally on the French consumer insolvency system, see Köhler (2003) “Entschuldung und Rehabilitierung vermögensloser Personen im Verbraucherinsolvenzverfahren: Ein Vergleich der Verfahrensreformen in Frankreich und Deutschland” as well as “Reform des Verbrauchersanierungsverfahrens in Frankreich–der lange Weg zur Restschuldbefreiung.”

  22. In fact, the term discharge is slightly inappropriate, as the debts become merely unenforceable.

  23. Pannen (2007), art. 25 marg. 20; Chalupsky et al. (2002), art. 25 marg. 15.

  24. For the current discussion, see Hergenröder (2009), p. 133.

  25. Art. 13 EIR, 1346/2000/EC.

  26. European Council (1996).

  27. The European Convention on Insolvency of 1995 was never ratified, but is in large parts identical to the EIR which Miguel Virgos and Etienne Schmit explained within their report.

  28. C-341/04, Eurofood [2006] ECR I-3813, para 33.

  29. ECJ, case Interedil Srl (in liquidation) v Fallimento Interedil Srl, C-396/09; [2011].

  30. ECJ, Interedil C-396/09; [2011], operative part of the judgement, III.

  31. The Insolvency Institute states: “Where an abuse is proved to have taken place, an application to annul any bankruptcy order will be made. (…) The Statement of Affairs asks for their place of birth, but not nationality, and neither place of birth or nationality has any bearing on whether someone is eligible to apply for bankruptcy.” (e-mail from the author received on 26 April 2012 from Dean Beale, see footnote 8).

  32. “Kent attracts new type of tourist: Europeans seeking easy bankruptcy,” Sunday Times online (2009), 23 Sept 2009, or “Auf der Flucht vor dem Gläubiger” (“On the flight from the creditor”), Frankfurter Allgemeine Zeitung online (FAZNet), 22 July 2009 (FAZ 2009).

  33. “Flucht ins Pleiten-Paradies” (“Flight to Bankruptcy Paradise”), Focus Magazin (2005).

  34. See, e.g., “Firms flock to Bankruptcy Brothel UK,” Times online, or “London risks becoming ‘brothel’ for bankruptcy tourists,” The Guardian, 31 Jan 2010.

  35. ECJ, case Emsland-Stärke, C-110/99 [2000], ECR 1-11569, par. 39.

  36. Disagreeing D’Avoine (2011), p. 312, who assumes an abuse of the EIR in cases of obvious “return option” of the debtor.

  37. While personal bankruptcy is, e.g., socially widely established in the UK, its treatment by Irish legislation includes elements usually implied in criminal law: Irish debtors who declared bankruptcy cannot be elected in representative office, in local authorities, in the Dáil or the Seanad, and their discharge is permanently kept in a publically accessible register.

  38. For details, see ECJ, Opinion of Advocate General Kokott on Interedil case, C-396/09 [2011] delivered on 10 March 2011, margin number 47.

  39. Regulation (EC) 593/2008 of 17 June 2008 on the law applicable to contractual obligations, OJ L177/6.

  40. German Federal Minister of Justice S. Leutheusser-Schnarrenberger on 17 March 2010 in Berlin.

  41. For further information concerning firms acting in Germany, see Hergenröder (2009), p. 310.

  42. The scope of services is not always listed in detail, see, e.g., the website http://www.insolvenzfrankreich.de/unser_service.html.

  43. See, e.g., provider englandinsolvenz24.de (2002).

  44. Costs may differ considerably in every case, but a complete COMI shift will hardly be achievable for less than 10,000 EUR; for a sample calculation, see, e.g., the provider Insolvenzinengland (2012). See also Walters and Smith (2009), p. 194.

  45. European Council (2005). Report in legal solutions to debt problems in credit societies, p. 39.

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    Thomas Hoffmann

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Hoffmann, T. The Phenomenon of “Consumer Insolvency Tourism” and its Challenges to European Legislation. J Consum Policy 35, 461–475 (2012). https://doi.org/10.1007/s10603-012-9207-8

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