November 14, 2011
By: Chris Kramer
The phenomenon of "bankruptcy tourism" in the United Kingdom has begun to raise questions about the U.K.'s bankruptcy laws.
Apparently, because the U.K. has more lenient business bankruptcy laws than many other European countries, some firms have taken to relocating to Britain in order to file for bankruptcy protection there.
British bankruptcy law permits filers to eliminate many creditors and reemerge as debt-free business organizations. The phenomenon of bankruptcy tourism made headlines in 2009 when a Greek telecommunications group moved itself to Britain and filed for bankruptcy after three months there.
Now, a new case has brought the problem of bankruptcy tourism back into the spotlight. According to reports, British bankruptcy authorities with the Insolvency Service recently shut down 61 companies that had been established in the U.K. specifically to profit from the country's bankruptcy laws.
It seems the companies were run by a German couple, both of whom have been charged with filing false information about the companies and failing to cooperate with investigators. The companies, it seems, were designed to encourage German businesses facing financial trouble to relocate to the U.K., file for bankruptcy, and then continue doing business without debt.
Earlier this year, Ireland overhauled its bankruptcy laws to make them slightly less damaging to individuals. Prior to the introduction of new laws, Irish debtors who sought bankruptcy protection might be stuck with "bankrupt" status for their entire lives.
Because British personal bankruptcy laws were less rigid, some individuals reportedly traveled to the U.K. to establish residency and then file for bankruptcy protection under the more forgiving laws.
Recently, Irish real Estate tycoon Sean Quinn, once named the richest man in Ireland, filed for bankruptcy in Belfast, Northern Ireland, which is part of the U.K. Thanks to the U.K.'s bankruptcy laws, Quinn will be able to start another business after only one year, compared to a 12-year wait required by Ireland's laws, according to the New York Times.
In the United States, the bankruptcy law can vary in each state , due to median income filing requirements, property exemptions and other details. The law prohibits similar "forum shopping" for individuals and requires filers to be a resident of the state in which they intend to file for at least 90 days.
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