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Has your German debtor moved to the UK and declared himself or herself bankrupt under the UK / British insolvency rules?

Since we specialise in British-German legal matters, our firm very often gets enquiries from German individuals, companies or banks regarding a situation whereby a German individual has moved to the United Kingdom and declared bankruptcy in order to avoid paying their debts and liabilities back in Germany. Even further, it is quite common that civil proceedings will have been commenced in Germany, but particular the individual pleads that they do not need to repay the debt in Germany in light of their bankruptcy back in the UK.

The way individuals are able to declare bankruptcy in the UK is now much much easier than before (yes, a bit shocking considering it was not that difficult before). Previously, one would have to petition to the Court, however, as of 6 April 2016, the individual debtor no longer has to. Instead, they must make an online application to an adjudicator (not a judge anymore). If a debtor’s application provides all the prescribed information, and is considered appropriate, the adjudicator will automatically (this is indeed what makes the new system scary) make a bankruptcy order pursuant to its statutory jurisdiction under the Insolvency Act 1986 (IA 1986). The adjudicator is an official appointed by the Secretary of State for the Department for Business, Energy and Industrial Strategy (again – this adjudicator no longer has to be legally qualified).

The adjudicator has no inherent discretion over whether to make an order (again this probably concerns you if you believe that the individual is not telling the truth). If the statutory requirements for an order are met, the adjudicator must make it; if they are not met, the adjudicator cannot make the order.

The statutory requirements are:

  • The adjudicator had jurisdiction under section 263Iof the IA 1986 to determine the application on the date the application was made.
  • The debtor is unable to pay his or her debts at the date of the determination.
  • No bankruptcy petition is pending in relation to the debtor at the date of the determination.
  • No bankruptcy order has been made in respect of any of the debts which are the subject of the application at the date of the determination.

The adjudicator must make a bankruptcy order against the debtor, or refuse to make such an order, before the end of 28 days from the date of the bankruptcy application, unless the adjudicator requests further information from the debtor. If the adjudicator requests further information the adjudicator has 42 days from the date of the application to make an order. If the adjudicator does not respond to the debtor before the end of this period, the application is deemed refused.

What do you do in such a situation? Well, the process is not easy, but it is possible to overturn such a bankruptcy order, referred to a lot of time as a „sham bankruptcy in order to avoid paying debts“. The courts have retained their general jurisdiction over all bankruptcy proceedings commenced following the adjudicator’s bankruptcy order (including a rescission or annulment application), and will also hear any appeal from the adjudicator’s decision to refuse to make a bankruptcy order.  Moreover, it is an offence if the individual knowingly or recklessly to make any false representation or omission in making a bankruptcy application to the adjudicator or providing any information to the adjudicator in connection with a bankruptcy application.

It is also an offence knowingly or recklessly to fail to notify the adjudicator of a matter in accordance with a requirement imposed by the legislation. It does not matter whether or not a bankruptcy order is made as a result of the relevant application, and it will be no defence that any part of the offence was committed outside England and Wales.

So, if you are owed money in Germany and believe that your German debtor has run to the UK to declare themselves bankrupt, and in fact, it is a sham, you should contact the local bankruptcy department as soon as possible so that it can be overturned.

For more information about German law, in particular civil litigation and debt collection in Germany see these posts:

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The law firm Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters.The Anglo-German litigation lawyer team of GP Chambers is well equipped to advise and represent clients from the UK and other English speaking countries. If you wish us to advise or represent you in a German or cross border case, or if you need an expert report on German law, please call +49 941 463 7070. To contact English solicitor Elissa Jelowicki in Munich please write an e-mail to elissa(AT)grafpartner.com.