Law firm wound-up for offering dubious personal COMI shift advice

04 Feb 2014

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A legal firm in Hull, Lovell Hill & Co LLP (LHC), was wound up by the High Court, following an investigation by the Insolvency Service. The investigation showed that Lovell Hill & Co had been offering relocation services to Germans seeking to take advantage of the shorter bankruptcy discharge periods in the UK. Parts of the services provided were unlawful in that they sought to give the false impression that the German citizen's COMI was in the UK, when in fact it was in Germany.

What happened in the case?

LHC was wound-up on 20 January 2014, following an investigation by the Insolvency Service.LHC had acted as bankruptcy relocation advisers to German nationals who wished to wrongly claim their COMI was in England and Wales for bankruptcy purposes.During its investigation into the conduct of LHC, the Insolvency Service found a number of things that gave rise to LHC's misconduct. LHC enabled bankrupts living outside the UK to mislead the bankruptcy court in England and Wales by claiming they were UK residents. The investigation found that:

bankrupts had never occupied properties in Hull given to the court the main residence but instead had flown in for appointments, staying in a local hotel
properties connected to LHC were also supposedly occupied by several German-speaking bankrupts at the same time—the occupants were rarely on the voters’ roll and did not normally pay any bills
the occupants were also allegedly employed by companies that turned out to be dormant and which were also controlled by the same people as LHC—the jobs themselves were terminated as soon as the bankrupts were required to make payments towards their creditors
LHC arranged for post delivered to the bankrupts at the Hull addresses to be collected, scanned and forwarded to them abroad, as well as arranging to open English bank accounts for them, which were largely used for foreign transactions

Why do citizens from other EU member states come to England and Wales to open bankruptcy?

Bankruptcy tourism has been on the increase. In England and Wales, in recent years it has been common to see both German and Irish citizens attempt to shift their COMI to England and Wales prior to opening bankruptcy proceedings. This is because the bankruptcy regime in this jurisdiction in much more favourable than both Germany and Ireland for the debtor.

For further reading on personal insolvency, COMI and bankruptcy tourism, please see the practice note: Forum shopping and practical ways to move COMI

What does this case tell us?

The case tells us the Insolvency Service take the issue of improper bankruptcy tourism cases very seriously and will not tolerate any firm providing services to debtors to enable them to mislead the court.

Benn Richards, solicitor in the Lexis®PSL Restructuring & Insolvency team.

Filed Under: Case analysis , Cross-border insolvency , Insolvency