Schrade v Sparkasse Ludenscheid
| Jurisdiction | England & Wales |
| Judge | Mr A Steinfeld |
| Judgment Date | 06 February 2014 |
| Neutral Citation | [2014] EWHC 1049 (Ch) |
| Docket Number | Claim No: CH/2013/460 |
| Court | Chancery Division |
| Date | 06 February 2014 |
[2014] EWHC 1049 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building,
110 Fetter Lane,
London EC4 1NL
Mr A Steinfeld QC
(Sitting as a Judge of the High Court)
Claim No: CH/2013/460
Mr R Arumugam (instructed by Simons Rodkin) appeared on behalf of the Claimant.
Mr M Brown (instructed by Wilkes Partnership) appeared on behalf of the Defendant.
Thursday, 6 February 2014
THE JUDGE:
This is an appeal by Mr Peter Schrade, a German national, represented, for the purposes of the appeal, by Mr Arumugam, against the judgment of Chief Registrar Baister ("the Registrar"), delivered on 26 July 2013, whereby he dismissed Mr Schrade's petition in his own bankruptcy on two grounds. First, on the ground that, for the purposes of article 3(1) of the EC Regulation on Insolvency Proceedings, the Centre of Mr Schrade's Main Interest (which I shall refer to, for short, as it has been referred to in argument, as "COMI") was not in the jurisdiction of this court, but was in Germany. The second ground was that, even if the Registrar had been satisfied that Mr Schrade's COMI was in England, because of a number of errors and deficiencies in the statement of affairs which was exhibited to the petition, he would, in any event, in his discretion, have dismissed the petition. The appeal is brought by permission of Arnold J, which was granted on 29 October 2013.
The circumstances which have given rise to Mr Schrade's petition in bankruptcy are set out in full in the introductory section of an extensive and, if I might say so, well crafted and careful judgment of the Registrar and I do not need, for the purposes of this judgment, to repeat them in full. In substance, the circumstances that gave rise to the petition in this country are that Mr Schrade, although a German national who had spent all his working life in Germany, where he had a wife and two young children, got into financial difficulties at the beginning of 2012, and as a result of what was said to be financial pressure, coupled allegedly with the breakdown of the relationship with his wife, according to him decided to move to England "to start a new life and to follow a new career path". He moved to London on 2 May 2012, first to stay at one address for a short period of time, until November 2012, and then at another address consisting of a flat, from which he also operates the business of the company that now employs him. That was a company which was incorporated in June 2012, and, although Mr Schrade was originally a director of it, he resigned his directorship on 1 January 2013, when a Mr Langbalt was appointed in his place. The whole of the issued share capital of that company was owned by a company called IFM, which, as I understand it, is a German company which had previously been a company through which Mr Schrade conducted his business. However, in about June 2012 he had transferred the whole of the issued share capital in that company to his wife, from whom he claims to have separated. On 31 January 2013, Mr Schrade presented to this court a petition in his own bankruptcy. The petition was thus presented very shortly after Mr Schrade had got into financial difficulties in Germany.
The question of which court has jurisdiction to make a bankruptcy order against a person has been the subject of an EC Regulation on Insolvency Proceedings. That Regulation was specifically aimed (see recital 4) at preventing persons from indulging in what is referred to in that recital as "forum shopping". Article 3(1) provides:
"The courts of the Member State within the territory of which the centre of a debtor's main interests [COMI] is situated shall have jurisdiction to open insolvency proceedings."
The Registrar pointed out in paragraph 20 of his judgment that:
"In principle, a debtor's centre of main interests will, in the case of professional people, be the place of their professional domicile, and in the case of natural persons, in general, be the place of their habitual residence."
For that proposition, the Registrar relied upon the so-called Virgos-Schmidt Report, which has generally been accepted as a proper aid to the interpretation of the Regulation. Mr Arumugam has taken me to passages in that report which have been cited in England in the Court of Appeal. I do not think I need to deal with that for the purposes of this appeal, since Mr Arumugam accepted that, in general (although he had one criticism, which I will come to), the Registrar had correctly stated the test that he ought to apply in order to determine where was an individual's COMI for the purposes of the Regulation.
One matter where Mr Arumugam criticised the Registrar (although it is not a matter which I think figures in either the notice of appeal or in his skeleton argument), is his placing (as we shall see in a moment he did) significant importance on where the individual's habitual residence was for the purpose of indicating where his COMI was. The passage in the report is somewhat ambiguous, as it purports potentially to distinguish between professionals, where it is said that the COMI would normally be their "professional domicile", and what it refers to as "natural persons", where the COMI in general would be their place of habitual residence.
It was submitted to me by Mr Arumugam that Mr Schrade should be regarded, for the purposes of the report, as a "professional", and therefore the court should have looked at his professional domicile being the place where, at the relevant time, he was carrying on business, which it was submitted to me could only be in his flat in England at the time when the petition was presented. That does not appear to have been a matter specifically dealt with by the Registrar, nor, as I said, is it a matter specifically dealt with, so far as I can see, either in the grounds of appeal or in the skeleton argument. I am not sure that it necessarily matters for the purposes of this appeal, but, in my judgment, it is doubtful whether Mr Schrade can, for the purposes of the report on the Regulation, be regarded as a "professional", so that it would be his "professional domicile", which would normally be taken to be his COMI. The problem for Mr Schrade is that, no doubt intentionally, he arranged his affairs when he came to England, on the basis that he was not carrying on business in his own name or in his own right, but became an employee of the company, which, as I have already mentioned, was owned by a company that came to be owned by his wife. So his status here was simply an employee of a company, not a "professional", even if that expression can be regarded as extending to a "businessman", in the normal sense of that word. That being the case, I am not at all sure that it would be his professional domicile, as opposed to his habitual residence, which would be important even to the extent that the authors of the report were intending to make a difference between the two, which is by no means clear.
The Registrar commenced his judgment by observing that:
"The phenomenon of bankruptcy tourism, taking the form (most commonly) of debtors from Germany and Ireland coming to this country or Northern Ireland to take advantage of our relatively liberal bankruptcy regime, is well known."
Although the Registrar did not give his authority for that proposition, it was not a statement which Mr Arumugam, on Mr Schrade's behalf, challenged. The Registrar then went on to say that there were features of Mr Schrade's petition and supporting documentation of such bankruptcy tourism, and he mentioned, in that connection, the fact of (a) his move to this country with which the debtor had no previous connection and for no immediately apparent reason; (b) his residence for a relatively short period before the presentation of the petition; (c) his renting modest accommodation, inferior to that available in his own country; (d) the recent establishment of a UK company from which the debtor derived modest earnings; and (e) his supposed separation and/or imminent divorce. He mentioned that those were matters that aroused his suspicion about the bona fides of the debtor's purported move of his COMI from Germany to this country. He went on to say that it was in accordance with (as he put it) what had become increasingly the practice of the court that he made an order, which was, in effect, an order for substantial disclosure of documentation by Mr Schrade and for there to be a trial, in effect, of the question of what was Mr Schrade's COMI after notice of the petition had been given to other interested parties. It was as a result of that notice being given that the opposing creditors, namely a German company called Sparkasse Ludenscheid, represented before me, as it was before the Registrar, by Mr Brown, came to be involved in these proceedings for the purposes of opposing the petition.
The notice of appeal gives two grounds of appeal. The first ground is that it is said that the Registrar's decision to dismiss the petition was wrong, because the Registrar erred in fact by concluding that Mr Schrade's COMI for the purposes of article 3(1) of the Regulation was in Germany. Pausing there, it is clear therefore that that is an attack on the Registrar's decision purely on a question of fact. The Notice goes on to state what are the particular findings of fact, which are criticised. I will come on to those particular matters when I deal with the findings that were actually made by the Registrar.
The second ground of appeal, and one that only arises...
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