The term ‘bankruptcy’, defined as a procedure by which debtors obtain
financial relief and undergo a judicially supervised liquidation of the
debtor's assets for the benefit of creditors. It is also known as a state of a
person who has been adjudged by a court to be insolvent. Then the court orders
the compulsory administration of a bankrupt’s affair so that his assets can be
fairly distributed among his creditors. Whereas, the
term ‘Bankruptcy Tourism’ refers to a process by which both, corporation and
individuals (more oftenly foreign) publicize their insolvency in the jurisdiction
of their choice.[1] Alternatively, the terminology
is also known as ‘forum shopping’.[2]
The law of insolvency varies country wise. Because of
that the debtors wish to choose the place of their choice to declare their bankruptcy
aiming to take advantage of the most lenient law of insolvency. By doing so
they abuse the legal system of that country and get rid of the creditors.
In particular, the law of the United Kingdom (UK), with
respect to insolvency is more attractive as compare to other European
countries. Therefore, the foreign bankrupt entities choose the English territory and its
legal system as their preferred destination to avoid creditors.
Famously, the legislation and also the interpretation of the Courts
in the UK has made a soft impact on the foreign debtors to allow them to go
debt free in a short period of time. It is claimed that in term of jurisdiction,
the English legal system is of ‘acquisitive nature’.[3] The nature of the English insolvency law is so liberal that
it provides discharge of debtors in a very short period of time as compare to other
countries.
In practice, it is no surprise to see the English courts to form verdicts
in favour of debtors who come from abroad. Consequently, the bankrupts make long
queues to knock the door of English Court, thus, it has made the English courts
quite busy to resolve those matters. The situation is described as ‘flooding’
the English Courts by the foreign debtors; at the same time distressing the creditors.[4]
Therefore by contrast, the English legal system for
bankruptcy faces criticism for attracting bankrupt companies and individuals. Also,
it is alarming for courts and insolvency services providers that the abuse of this
mechanism must be addressed. At the same time there is also a need to review the
law relevant to bankruptcy as well as the practice of the Courts, as how the
decisions in those matters tends to favour the bankrupts.
[1] Bryan
A. Garner, Black’s Law Dictionary (9th edn. West 2009) 166A
Dictionary of Law (7th edn, Iphone version 2.1.477, OUP 2009)
[2] Amy
Coburn, ‘The growth of bankruptcy tourism in the United Kingdom’ [2012] II 8
[3] Irene Lynch Fannon, ‘Bankruptcy tourism – why and how?’ (2006) II
26(6) 85
[4] David Milman, ‘Corporate insolvency law: the drivers for
litigation and reform’ (2011) CLN 292 1
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