04 March 2013

Bankruptcy Tourism

Long ago Jeremy sent me this link about mega-debtors in Ireland crossing the Irish Sea to take advantage of England's more liberal bankruptcy laws. As this more recent link from The Guardian shows, matters have tightened up only a bit. It now seems that the courts in London are scrutinizing the jurisdictional requisite "centre of main interest" of  a bit more closely. On the other hand, the article also cites an English bankruptcy lawyer for the proposition that "it is now younger families [from Ireland] who are looking for his services."

Conflicting regimes of States insolvency law under America's initial Articles of Confederation were the reason that the Constitution places the bankruptcy power squarely in Art. I of the Constitution (and takes away any power of the States to "impair" contracts). Since the same phenomenon seems now to be plaguing the member States of European Union, one wonders if the European Commission might issue a Directive on the subject.

But what about coming to the other side of the pond? Might Irish (and other nations') debtors try to discharge their debts under the even more liberal U.S. Bankruptcy Code? Well, even here there are substantive (albeit minimal) residency requirement before one can become a "debtor." Bankr. Code § 109(a) ("resides or has a domicile or place of business, or property in the United States"). More important, however, is the question of whether the nation from which the debtor hails (and presumably to which he or she returns) and the creditors of that nation will recognize the American bankruptcy discharge. The answer to this question is complex. It is relatively straightforward if both nation states have adopted the United Nations Model Law on Cross-Border Insolvency (it's Chap.15 of the Bankruptcy Code); otherwise, it's a mess.

So, for the time being, bankruptcy tourism doesn't look to be a growth practice are for American lawyers.

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