Cross border insolvency - Jurisdiction in Bankruptcy

INTRODUCTION

When international elements arise in a case of insolvency, it is of vital importance to determine which of those Courts may be likely to have jurisdiction over some, or all, of the matters in dispute. It is equally important to ascertain whether the English Courts have jurisdiction. However, as regards reference to personal insolvency section 264(1) of the Insolvency Act 1986 specifies as to who can present a Bankruptcy Petition.

'(1) A Petition for a bankruptcy order to be made against an individual may be presented to the court in accordance with the following provisions of this Part 

• by one of the individual's creditors or jointly by more than one of them,
• by the individual himself,
• by the supervisor of, or any person (other than the individual) who is for the time being bound by, a voluntary arrangement proposed by the individual and approved under Part VIII'.

Section 265 of the Insolvency Act, 1986 lays down the jurisdiction requirements in the form of forensic connections to England and Wales, where either the creditors or the debtor himself are seeking the bankruptcy order, inter alia as follows:-

'A bankruptcy petition shall not be presented to the court under section 264(1)(a) or (b) unless the debtor

• is domiciled in England and Wales,
• is personally present in England and Wales on the day on which the petition is presented, or
• at any time in the period of 3 years ending with that day
• has been ordinarily resident, or has had a place of residence in England and Wales, or
• has carried on business in England and Wales.'

Thus, from a bare perusal of the contents of the aforesaid provisions of law it can be readily visualized that five criteria are laid down for instituting a bankruptcy Petition.

These are: 

• Domicile;
• Presence;
• Ordinary residence;
• Place of residence and
• Carrying on of Business.

If none of these criteria is satisfied an English Court will have no jurisdiction to hear a bankruptcy petition presented by either the creditors or the debtor.

It is of vital importance, to note that the presence of assets in England and Wales is not the basis of jurisdiction in bankruptcy

Having regard to the exhaustive range of jurisdiction criteria under section 256, the English Court will be careful not to place a wider interpretation on the section then the context justifies. It is for the petitioner to establish that the debtor falls within the section.

Sections 264 and 265 do not deal with all questions of jurisdiction. The sections relate only to the presentation of the bankruptcy petition and do not, for example, govern the jurisdiction of the English Courts to lend assistance to foreign insolvency proceedings or, where an English bankruptcy case is already under way, to set aside a transaction entered into by a debtor abroad.

Similarly, the five jurisdictional bases in section 265 of the Insolvency Act 1986, lays emphasis upon the discretionary nature of the Court's power, in that a petition having validly been presented, the Court may make a bankruptcy order.

Thus, the conditions in section 265 determine whether the English Court is capable of making an order. Where section 265 is satisfied, than the Court has a discretion not to make an order, or, even, if an order is already been made, the English Court may not stay its own proceedings.

As laid down, in the judgment, Re Chan Yue Shan (1908)4 H.K.L.R. 128 at 129 per Piggott CJ, the author of foreign judgments (2nd edition, 1908).

'Theoretically at least, the idea of the bankruptcy law is that it should not be localised; but there are innumerable difficulties in the way of making a bankruptcy effective generally. It is obviously therefore of first importance that the court should exercise the jurisdiction with extreme caution, in order not to precipitate the confusion which a conflict of jurisdiction and of law inevitably produces in commerce.'

Thus, when the court will exercise its discretion to stay the proceedings, is plainly dependent upon the facts of each case.

The jurisdiction criteria in section 265- domicile, presence, ordinary residence, place of residence and carrying on the business are not laid down in any hierarchy. The fact that domicile is mentioned first has no especial significance, indeed, it is evident that far more cases would fall under section 265(1) (c) then under 265(1) (a).

Domicile is exceptional, however, in that the concept is very much an idea of law, whereas, the other criteria have no strictly defined legal meaning and are very much dependent on issues of fact, even though border line cases may inevitably arise.

Section 265 (1) (b) is of particular, but not exclusive, use to a debtor, since it is likely that the debtor, when he himself petitions, may arrange to be present personally in England on the day on which the petition is presented.

The scope of section 265(1) (c) is undoubtedly the widest, for not only are three jurisdictional bases contained therein, but it is enough that the debtor has been ordinarily resident, or has had a place of residence or has carried on business in England at anytime in the period of 3 years ending on the day the petition is presented.

Yet, it is, perhaps, domicile which looks the furthest back in time. The nature of the rules of domicile in English law are such that as a forensic connection domicile has the most tenacious character; and many cases can be found in which a domicile once obtained has continued despite several years of absence from the country of domicile.

In short, if a debtor is actually in England on the day the petition is presented, section 265(1) (b) of the Insolvency Act 1986, will be satisfied.

Where the debtor, at anytime during the period of 3 years ending with that day, has been ordinarily resident, has had a place of residence, or has carried on business in England, the English Court will also have jurisdiction.

Even if the debtor has not had any significant factual connection to England for greater than 3 years, it may yet be possible to establish jurisdiction under sections 265(1) (a) of the Insolvency Act, 1986.

Domicile

Domicile is a notion of English law by which an individual is connected to a particular legal system. It may be fairly be said that at one time domicile meant little more than, 'home, the permanent home' as put by Lord Cranworth in Whicker v. Hume (1858) 7 HL Cas 124 at 160.

In modern jurisprudence, however, the concept of domicile has been so keenly refined by technical legal rules that in many given instances an individual's domicile may bear no relationship to that person's home, permanent or otherwise. At the centre of modern domicile is the rule that at birth everyone is given a domicile and such domicile continues unless and until a subsequent domicile is acquired. Accordingly, if the English court is called upon to determine whether a debtor is domiciled in England under section 265 (1) (a) of the Insolvency Act, 1986, it will generally be necessary to ascertain, first, the debtor's domicile at birth ('domicile of origin') and, secondly, whether the debtor has subsequently acquired a different domicile in particular by way of a 'domicile of choice', such being obtained by residing in a country with the intention of staying there permanently. This search for the initial domicile of origin, and any later domicile of choice, frequently necessities extensive research into an individual's past history as well as present circumstances. The need for such research, not to mention the costs incurred, has regularly provoked criticism of the use of domicile as a connecting factor.

Under the old bankruptcy legislation that is Bankruptcy Act 1883, section 6(1) (d) illustrates the nature of inquiry, the English Court were required to undertake with reference to section 265 (1) (a) of Insolvency Act, 1986.

In Re Duleep Singh the debtor was the son of the Maharajah of the Punjab. The Maharajah had his domicile of origin in the Punjab but, in 1849 by the Treaty of Lahore, was obliged to renounce his sovereignty, leave the Punjab and live in England. The Maharajah resided in England until 1886, when he attempted unsuccessfully to return to the Punjab as ruler. Thereafter, the Maharajah resided in France and Russia. The debtor was born in England in 1886 and, even after his father's unsuccessful attempt to return to the Punjab, the debtor resided in England. In 1888 the debtor joined the British Army and went with his regiment to Canada. The question of the debtor's domicile arose for the purpose of bankruptcy jurisdiction in 1890 (a time when the debtor was no longer ordinarily resident in England). It was held that the debtor was not domiciled in England and that, therefore, the court had no jurisdiction, for the Maharajah, the debtor's father, never intended to settle permanently in England and had remained domiciled in the Punjab. When the debtor was born he took his father's domicile, that being in the Punjab. Although the debtor had thereafter lived in England and joined the British Army, such evidence was, as Lord Esher remarked, 'wholly insufficient' to establish the acquisition of an English domicile of choice.

The somewhat artificial nature of domicile is well brought out by the decision in Re Duleep Singh. In order to determine the debtor's domicile, the Court of Appeal had to consider events that had taken place some 30 years previously. Moreover, it may be noted that although domiciled in the Punjab, the debtor had never set foot in the country of his domicile. 

Domicile of Origin

At birth a child acquires the domicile of its father or mother as a domicile of origin. If legitimate and born in the lifetime of the father, the child's domicile of origin will be the domicile of the father at the time the child was born. (Hence in Re Duleep Singh the court sought to determine the Maharajah's domicile at the date of the debtor's birth.) If a child is posthumous, or is illegitimate, the domicile or origin will be that of the mother at the time of birth. It must be stressed that once a domicile of origin is obtained (that is at birth) it is fixed; no new domicile of origin can be acquired. However, a domicile of origin can be superseded by the acquisition of a domicile of choice. A domicile of choice can be acquired, by a person of full age, through a combination of residence in a country and an intention to remain there permanently or indefinitely. 

The residence element involved in a domicile of choice is in most cases easily satisfied and entails physical presence other than as a casual visitor. Even a single day's residence may suffice. On the other hand, the relevant intention, an intention to remain permanently or indefinitely, is difficult to establish and will not lightly be inferred by the courts. The cases of Winans v. A-G and Ramsay v. Liverpool Royal Infirmary are well-known. In the former, the deceased had resided principally in England for the last 37 years of his life; but it was held that, in the absence of the relevant intention, no domicile of choice in England had been established. In the latter the deceased, a native scot, had spent the last 36 years of his life in England; but again the House of Lords held that, there being no clear evidence of an intention to stay permanently in England, the deceased had remained throughout domiciled in Scotland.

The strength of the presumption in favour of the continuation of the domicile of origin is clearly shown in Winans v. A-G and Ramsay v. Liverpool Royal Infirmary. Additionally, in each of the reported cases on domicile that arose under the Bankruptcy Act 1883 the English court concluded that the domicile of origin had not been displaced. In Re Barne the debtor, a domiciled Englishman, was a retired army officer who had taken his family to live in Belgium, but he had done so 'solely for educational and business purposes'. The court of appeal held that the debtor remained domiciled in England. In Re Langworthy the debtor, having an English domicile of origin, and deserted his wife and gone to reside in the Argentine Republic where he owned property. No evidence was led to whether the debtor intended to settle permanently in the Argentine Republic. Cotton LJ stated:

'His domicile of origin was English, and such it remained until new domicile by choice was shown. No such domicile was established by the evidence.'

In Re Duleep Singh, as we have seen, the debtor had a domicile of origin in the Punjab and, although he had lived only in England until joining his regiment in Canada, such residence was by itself 'wholly insufficient' to establish a domicile of choice in England, whilst in Re Mitchell the domicile of origin in (semble) Ireland. The only evidence as to a domicile of choice in England was that the headquarters of the debtor's regiment were in England. Once again the Court of Appeal concluded that such circumstances did not give rise to a domicile of choice in England.

Thus the cases under the Bankruptcy Act 1883 give important practical guidance to a creditor seeking to petition relying on section 265(1) (a) of the Insolvency Act 1986. For whilst a domicile of choice may be acquired, if it can be established that the debtor's domicile of origin is English the creditor's case will be greatly advanced. Accordingly, one should not merely assume that the court will infer that the debtor's domicile of origin is English. Rather, specific evidence to establish the domicile of origin should be available.