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England and Wales High Court (Chancery Division) Decisions
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Cite as:  EWHC 3749 (Ch)
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RE BRIAN AND MARY PATRICIA O'DONNELL
IN THE MATTER OF THE INSOLVENCY ACT 1986
7 Rolls Buildings, Fetter Lane,
London EC4A 1 NL
B e f o r e :
| BRIAN O'DONNELL
& MARY PATRICIA O'DONNELL
|- and -
|THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
Mr Gabriel Moss QC and Miss Hannah Thornley (instructed by Berwin Leighton Paisner LLP) for the Respondent
Hearing dates: 27-30 November and 3, 4 & 6 December 2012
Crown Copyright ©
Mr Justice Newey :
"The courts of the Member State within the territory of which the centre of a debtor's main interests is situated shall have jurisdiction to open insolvency proceedings".
"The 'centre of main interests' should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties".
"The concept of 'main interests' must be interpreted as the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties.
The rationale of this rule is not difficult to explain. Insolvency is a foreseeable risk. It is therefore important that international jurisdiction (which, as we shall see, entails the application of the insolvency laws of that Contracting State) be based on a place known to the debtor's potential creditors. This enables the legal risks which would have to be assumed in the case of insolvency to be calculated.
By using the term 'interests', the intention was to encompass not only commercial, industrial or professional activities, but also general economic activities, so as to include the activities of private individuals (eg consumers). The expression 'main' serves as a criterion for the cases where these interests include activities of different types which are run from different centres.
In principle, the centre of main interests will in the case of professionals be the place of their professional domicile and for natural persons in general, the place of their habitual residence".
"the 'administrative connection' (which is established in the place of management and control) must take precedence over both the 'operational connection' (which is established in the place of business or operations) and the 'asset connection' (which is established in the place where the property is located)".
"That definition [i.e. recital (13) to the Regulation] shows that the centre of main interests must be identified by reference to criteria that are both objective and ascertainable by third parties. That objectivity and that possibility of ascertainment by third parties are necessary in order to ensure legal certainty and foreseeability concerning the determination of the court with jurisdiction to open main insolvency proceedings. That legal certainty and that foreseeability are all the more important in that, in accordance with article 4(1) of the Regulation, determination of the court with jurisdiction entails determination of the law which is to apply".
In Interedil, the ECJ said (at paragraph 49):
"That requirement for objectivity and that possibility of ascertainment by third parties may be considered to be met where the material factors taken into account for the purpose of establishing the place in which the debtor company conducts the administration of its interests on a regular basis have been made public or, at the very least, made sufficiently accessible to enable third parties, that is to say in particular the company's creditors, to be aware of them".
"In making its determination the court must have regard to the need for the centre of main interests to be ascertainable by third parties; in particular, creditors and potential creditors. It is important, therefore, to have regard not only to what the debtor is doing but also to what he would be perceived to be doing by an objective observer. And it is important, also, to have regard to the need, if the centre of main interests is to be ascertainable by third parties, for an element of permanence. The court should be slow to accept that an established centre of main interests has been changed by activities which may turn out to be temporary or transitory".
"It seems to me therefore that a debtor does not appear to be obliged to advertise his centre of main interest but nor may he hide it. It should be reasonably or sufficiently ascertainable or ascertainable by a reasonably diligent creditor. To make the COMI available on the internet or through telephone directories or trade directories or otherwise generally available in the Member State in which he has established his centre of main interest would make it public. Something less than that may be enough if it is in the Member State where the debtor incurred the debts. Any finding will inevitably be fact sensitive. If, for example, he has moved his centre of main interest from one Member State to another that will inevitably make the task of a third party more difficult. The debtor's new COMI will have to be reasonably ascertainable to such third parties. If he chose to move from these islands to a Balkan member of the European Union or from Finland to the south of Spain, for example, it may be necessary for him to give notice to actual or potential creditors to render his COMI 'ascertainable to third parties'. A creditor could not be expected to search every 'phone book in Europe. The legal principle of interpretation must be applicable across the Member States. Given the considerable geographical spread involved across a large part of the continent it seems to me that a centre of main interest is not 'ascertainable' within the meaning of recital 13 of the EC Regulation if can only be ascertained by a third party employing private detectives to follow the debtor or otherwise investigate his whereabouts. Prima facie the debtor is under a legal obligation to repay his debts or, in the event of his insolvency, as much of them as can be payable from his remaining assets. It would be contrary to the purpose of the Insolvency Regulation to impose on actual or potential creditors the burden of expensive investigation procedures to establish a debt or a centre of main interest before themselves commencing insolvency proceedings in a Member State which might prove entirely futile if in the interval the debtor or another creditor had opened such proceedings in a Member State which in truth held his centre of main interest".
"if Stone & Rolls Ltd was a separate legal entity, as it undoubtedly was, the business that was being carried on at 32 Hans Road belonged to it and not to the debtor. If that is right, it follows, in my judgment, that what the debtor was doing, when he was conducting the company's business in the way that I have outlined, was carrying on the company's business and not his business".
It seems to me that activities of a debtor as a trustee of a trust in which he has no beneficial interest must similarly be unimportant as such.
"There is no principle of immutability. A debtor must be free to choose where he carries on those activities which fall within the concept of 'administration of his interests'. He must be free to relocate his home and his business. And, if he has altered the place at which he conducts the administration of his interests on a regular basis, by choosing to carry on the relevant activities (in a way which is ascertainable by third parties) at another place, the court must recognise and give effect to that".
"A debtor's centre of main interests is to be determined at the time that the court is required to decide whether to open insolvency proceedings. In a case where those proceedings are commenced by the presentation of a bankruptcy petition, that time will normally be the hearing of the petition. But, in a case such as the present, where the issue arises in the context of an application for permission to serve the petition out of the jurisdiction, the time at which the centre of the debtor's main interests falls to be determined will be at the hearing of that application. Similar considerations would apply if the court were faced with an application for interim relief in advance of the hearing of the petition".
"Art.3(1) of the Regulation must be interpreted as meaning that the court of the Member State within the territory of which the centre of the debtor's main interests is situated at the time when the debtor lodges the request to open insolvency proceedings retains jurisdiction to open those proceedings if the debtor moves the centre of his main interests to the territory of another Member State after lodging the request but before the proceedings are opened".
The ECJ's reasoning is to be found in the preceding paragraphs:
"25 In the fourth recital in the preamble to the Regulation, the Community legislature records its intention to avoid incentives for the parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position. That objective would not be achieved if the debtor could move the centre of his main interests to another Member State between the time when the request to open insolvency proceedings was lodged and the time when the judgment opening the proceedings was delivered and thus determine the court having jurisdiction and the applicable law.
26 Such a transfer of jurisdiction would also be contrary to the objective, stated in the second and eighth recitals in the preamble to the Regulation, of efficient and effective crossborder proceedings, as it would oblige creditors to be in continual pursuit of the debtor wherever he chose to establish himself more or less permanently and would often mean in practice that the proceedings would be prolonged.
27 Furthermore, retaining the jurisdiction of the first court seised ensures greater judicial certainty for creditors who have assessed the risks to be assumed in the event of the debtor's insolvency with regard to the place where the centre of his main interests was situated when they entered into a legal relationship with him.
28 The universal scope of the main insolvency proceedings, the opening, where appropriate, of secondary proceedings and the possibility for the temporary administrator appointed by the court first seised to request measures to secure and preserve any of the debtor's assets situated in another Member State constitute, moreover, important guarantees for creditors, which ensure the widest possible coverage of the debtor's assets, particularly where he has moved the centre of his main interests after the request to open proceedings but before the proceedings are opened".
In the Interedil case, the ECJ referred to Staubitz-Schreiber and continued (in paragraph 55):
"It must be inferred from this that, in principle, it is the location of the debtor's main centre of interests at the date on which the request to open insolvency proceedings was lodged that is relevant for the purpose of determining the court having jurisdiction".
The parties' positions
i) The Land Registry entries for 8 Barton Street refer to a 1997 restrictive covenant prohibiting use for any purpose except as a single private dwelling house. Asked about this in cross-examination, Mr O'Donnell was evasive, and he claimed that he could not say for certain whether he knew of the covenant and that he could not recall the solicitors instructed on the purchase informing him of the covenant. I find it inconceivable that Mr O'Donnell was not told of the covenant. That he was aware of it is further indicated by the fact that a letting agreement dated 18 February 2008 which Mr O'Donnell appears to have drafted (although he claimed not to recollect whether he had done so) included a covenant providing for use of 8 Barton Street as a residence only. The chances are, I think, that Mr O'Donnell inserted the covenant because he knew of the restrictive covenant affecting the property;
ii) The statement of affairs filed with Mr O'Donnell's bankruptcy petition included questions relating to income. No income was disclosed. In response to the question, "Do you receive any other income, including state benefits or tax credits?", Mr O'Donnell said "No" even though he is paid some £120,000 a year as a consultancy fee by the company with responsibility for the management of 17 Columbus Courtyard. In cross-examination, Mr O'Donnell said that he misread the form or did not know how to answer the question correctly. I cannot regard either explanation as convincing, especially coming from an experienced solicitor;
iii) Various statements showing the O'Donnells' assets were presented to the Bank between 2005 and 2011. The earliest, dated 13 February 2005, attributed a value of about 7.5 million to "Art Collection, Antiques, etc"; the statement was prepared by Deloitte, but Mr O'Donnell is likely to have been the source of the figure. Several statements prepared in the following year by another chartered accountant, Mr Rory O'Beirn, put a figure of 5 million on "Art Collection, Antiques Collection"; the documents record their approval by Mr O'Donnell. By 2007, no specific figure was placed on the O'Donnells' art and antiques, but there was still reference to a "substantial art collection". In contrast, a statement as at 18 March 2011 valued "Personal Chattels" at just 150,000, and Dr O'Donnell described the 7.5 million figure as "absolutely out of touch with reality and completely wrong". The evidence thus suggests two possibilities: either that valuable items have been disposed of (which Mr O'Donnell denies) or that Mr O'Donnell was prepared to put forward misleadingly high figures to the Bank. Neither would reflect well on him;
iv) The position is comparable in relation to the values attributed in the statements to property investments. By way of example, the "Statement of Affairs of Mr Brian O'Donnell and Dr M P O'Donnell as at 30th November 2007" valued 17 Columbus Courtyard at £142 million, 15 Westferry Circus at £182 million and "UK Residential" (i.e. the Barton Street house) at £13 million. It is Mr O'Donnell's evidence, however, that he and his wife have no beneficial interest in these properties: trusts were declared in favour of their children in 2005 and 2007. The Bank challenges the relevant declarations of trust, but I am in no position to form any view on them. What I can say is that there once again appear to be two possibilities: either the trusts did not exist or Mr O'Donnell was willing to supply the Bank with misleading information;
v) A similar point can be made in relation to documents which Mr O'Donnell executed in connection with Hibernia in 2006. He confirmed in a charge that he and his wife were the "sole legal and beneficial owners" of the share in Hibernia. He also certified that a document naming himself and his wife as Hibernia's shareholders was "a true, complete and accurate list of the shareholders of the Company and of their shareholdings in the Company and where held as nominee details of the beneficial owner thereof is listed therewith". On Mr O'Donnell's case, however, the share in Hibernia was held on trust for his elder son, Blake;
vi) During his oral evidence, Mr O'Donnell said that he thought that the Bank had been aware of the trusts he alleges. That cannot be true. Mr O'Donnell has himself given evidence to the contrary. In a witness statement of 6 March 2012, Mr O'Donnell said of the share in Hibernia which is allegedly held on trust:
"The beneficial ownership of the Share has not previously been disclosed to the [Bank]. It is not apparent from [Hibernia's] books or records which only disclose [Hibernia's] registered shareholders".
Mr O'Donnell attributed his changed evidence to having "heard from an accountant who dealt with the bank that they were aware". It seems to me, however, that Mr O'Donnell must know that the Bank was ignorant of the trusts;
vii) Mr O'Donnell said in cross-examination that he had "no idea" whether IVAs exist under Irish law. That seems most unlikely to me;
viii) Mr O'Donnell claimed in cross-examination that all his and his wife's creditors (and not merely the Bank and Allied Irish Bank) had been informed by letter of their move to the United Kingdom. For example, he said:
"we wrote to our creditors and provided them with the information and asked them to redirect or to send or contact or phone us at all times in Barton Street".
I cannot accept this. Had it been the truth, the O'Donnells would have copies of the letters and would have exhibited them. Further, Mr Byrne of Shale Construction Limited confirmed that his company had not received such a letter;
ix) Early this year, an application for a practising certificate for 2012 was submitted to the Law Society of Ireland. Mr O'Donnell disavowed responsibility for the application even though it was signed by him. He said that it was pre-signed and explained:
"the practice was that once these forms came to the office, they were signed and then put on file in case people were sick or away or not available or whatever, and the person who dealt with that as part of their function dealt with it in the normal way every year as part of the administration".
I do not find that account of events plausible. I find it very difficult to believe that the application was submitted without Mr O'Donnell's knowledge.
The O'Donnells' COMI up to 2011
i) Some materials relating to Vico Capital make reference to Ireland. Mr O'Donnell is described in items from the press quoted on the Vico Capital website as a "Dublin lawyer", "Dublin solicitor", "Dublin-based solicitor" and "Irish solicitor". The "Legal Notice" to be found on the website explained that the material on it "resides on a server in the Republic of Ireland" and that the law applicable to use of the material and disputes "is law of the Republic of Ireland". Further, although some headed paper for Vico Capital gives its address as 8 Barton Street, I have also seen such paper referring to 62 Merrion Square or 66 Lower Baggot Street in Dublin. A deed executed as of 20 December 2011 gave Vico 2099's address as "c/o Vico Capital, 66 Lower Baggot Street, Dublin 2";
ii) Vico Capital shared office premises in Dublin with Brian O'Donnell Solicitors. Mr O'Donnell spoke of the building as "the back office of Vico Capital", but there were no permanent staff anywhere else. Employees would come to London as needed, but no one was based there;
iii) Although several properties were acquired in London, they were not the only non-Irish investments. There were also properties in Stockholm, Washington and France;
iv) Mr O'Donnell maintained in evidence that he and his wife directed their business from London. I do not accept that. Mr O'Donnell himself said that he would conduct dealings from wherever he was at the time, and, as I have already said, he spent much more time in Ireland than in London. The majority of decisions are likely to have been made in Ireland;
v) Mr O'Donnell referred to having major business interests in London. All the London properties are, however, vested in companies, and work done as a company director essentially involves administration of the company's interests rather than the director's (paragraph 32 above). Further, the O'Donnells are said to have no beneficial interest at all in either 15 Westferry Circus or 17 Columbus Courtyard (see paragraph 40(iv) above). On this basis, it is hard to see how any activities in connection with those properties, subsequent to the dates of the declarations of trust, can matter to the O'Donnells' COMI. Take, for instance, Mr O'Donnell's role in relation to a refinancing of 17 Columbus Courtyard. On Mr O'Donnell's own case, he himself had no personal stake in that property. That implies that he cannot have been administering his interests;
vi) Brian O'Donnell Solicitors was a firm of Irish solicitors and had its offices in Dublin. Mr O'Donnell said that the firm was "very much secondary in [his] interests" from about 2005, but he remained the managing partner, as the firm's website confirmed;
vii) The O'Donnells were directors of a large number of Irish companies. A Dublin address (generally Gorse Hill) was given for the O'Donnells in each case;
viii) While the United Kingdom's Companies House records the O'Donnells' address as 8 Barton Street, it also states their country of residence as "Ireland";
ix) Dublin addresses (in particular, Gorse Hill) were given for the O'Donnells in numerous transactional documents. To take just a few examples, the February 2008 articles of agreement in respect of Shale Construction Limited's work at Merchants Arch specified Mr O'Donnell's address as 62 Merrion Square, an August 2009 facility letter stated the O'Donnells' address as Gorse Hill, the O'Donnells' address was given as 62 Merrion Square in a declaration of trust in respect of shares in what was then Fourteen Ninety Two Management Limited bearing a December 2010 date, and a bank mandate signed by Mr O'Donnell in July 2011 gave his address as Gorse Hill;
x) The various statements of assets prepared in respect of the O'Donnells in 2006 (as to which, see paragraph 40(iii) above) gave Gorse Hill as the O'Donnells' address;
xi) I do not accept the O'Donnells' evidence that they felt that their COMI was in England. They are most unlikely to have given any thought to where their COMI was until relatively recently, when addressing their financial difficulties;
xii) Mr Geoghegan, who was involved with the O'Donnells from April 2006 to early 2008, said that he "always understood [the O'Donnells] to be resident in Ireland and operating their property business from Ireland". Mr O'Beirne, who was the O'Donnells' main connection point with the Bank between mid-2008 and May 2010, said that "the Bank always viewed the O'Donnells as Irish borrowers, resident in and operating their affairs from Ireland". Mr Fitzpatrick, who had dealings with Mr O'Donnell between November 2007 and February 2010, said that he had not been made aware that the O'Donnells had been conducting their real estate business from London. He also said:
"What I can say is it is the reasonable conclusions that I formed based on my interactions with [Mr O'Donnell] at the time, and that was conclusively that Mr and Mrs O'Donnell were Irish residents and spent substantially all of their time in Ireland and substantially all of the commercial substance of the transactions were undertaken in Ireland".
"I was not suggesting that my COMI was in London from the time that 8 Barton Street was acquired, but that it was my home address from the time that London became my COMI at the end of 2011/beginning of 2012".
The O'Donnells' COMI since December 2011
"we felt probably that there was nothing further that could be done in Ireland and that the pressure was intolerable".
For her part, Dr O'Donnell said that she and her husband have "decided to come and live in England and try and continue our lives here". "[G]iven," she went on, "the treatment that we've got in Ireland, it would be very uncomfortable for us living in Ireland any longer". According to Dr O'Donnell:
"the onslaught and the negative publicity, et cetera, that the Bank of Ireland have generated against us in the media has created such an atmosphere of hate and nastiness that I think we no longer wish to live in Ireland".
Dr O'Donnell also said that she did not wish to live in a "bankocracy". The O'Donnells recognised that they will shortly have to move out of the Barton Street house (over which receivers have been appointed), but said that they would find alternative accommodation elsewhere in London.
Abuse of European Union law