England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS IN MANCHESTER
INSOLVENCY & COMPANIES LIST (ChD)

		Manchester Civil Justice Centre 1 Bridge Street West Manchester M60 9DJ
		30th May 2018

JUDGE HODGE QC:

1. This is my extemporary judgment on the hearing of an application by a German bank, Deutsche Apotheker-Und Arztebank EG, against Dr Rainer Leitzbach seeking an order pursuant to Section 282(1)(a) of the Insolvency Act 1986 for the annulment of a bankruptcy order that was made in the Manchester District Registry of the Chancery Division by His Honour Judge Bird (sitting as a Judge of the High Court) as long ago as 17 March 2014. That bankruptcy order was made on the debtor's bankruptcy petition presented to this court on 9 January 2014. That bankruptcy petition had been presented by the debtor at a time when he claims to have been residing at an address in Cheshire, 63 The Mount, Altrincham.
2. The debtor's bankruptcy petition was supported by a statement of affairs also dated 9 January 2014. The petition came before District Judge Moss, sitting in the County Court at Manchester, on paper on 9 January 2014, the day it was presented. District Judge Moss transferred the petition to the High Court and directed that it should be listed for hearing before one of the Specialist Chancery Judges on 17 March 2014. The petitioner was directed to file a statement in support of his contention that his centre of main interests was in England and Wales, to which were to be attached such documentation in support as tended to show that the debtor's centre of main interests was in that jurisdiction. Such documentation was to include, so far as possible, copies of any tenancy agreement, council tax bills, utility bills, employment contract, and bank account details.
3. In accordance with its usual practice in cases where an issue arose as to a petitioning debtor's centre of main interests, paragraph 6 of District Judge Moss's order provided that the court was to serve a copy of the petition, statement of affairs, and the order by pre-paid airmail post on all of the creditors referred to in the statement of affairs. That was duly done, the letters being dispatched on or about 6 February 2014. In response, this court received a letter from the applicant dated 17 February 2014. That letter did no more than state that the debtor was indebted to the present applicant in a sum of some €525,000. No point was taken as to the debtor's asserted centre of main interests being in England and Wales.
4. The matter came on for hearing before Judge Bird on 17 March 2014 when he made a bankruptcy order following a hearing which was apparently attended by the debtor in person.
5. The bankruptcy file contains the Official Receiver's Report to Creditors dated 12 May 2014. The Official Receiver indicated that he had decided under Section 293 of the Insolvency Act 1986 not to summon a meeting of creditors. His report to creditors indicated total assets with an estimated realisable value of nil pounds against total liabilities of some £829,000, resulting in an estimated deficiency in the same sum. The Official Receiver's Report to Creditors stated that, at the date the bankruptcy order was made, the bankrupt was living in rented accommodation and that, on the basis of the information provided to the Official Receiver, there appeared to be no prospect of any distribution to creditors. The debtor received his automatic discharge from bankruptcy on 17 March 2015.
6. The debtor, a German national, Dr Rainer Leitzbach, had previously petitioned for his own bankruptcy, again in this court, on 12 November 2012 under petition number 5001 of 2012. That petition had been dismissed following a hearing before His Honour Judge Pelling QC (sitting as a Judge of the High Court) on 29 January 2013. Judge Pelling was apparently not satisfied that the debtor's centre of main interests at the date of presentation of the petition - on that occasion 12 November 2012 - was England and Wales. Neither the applicant nor the respondent to the present application have obtained copies of transcripts of either of the extemporary judgments of Judge Pelling dismissing the first bankruptcy petition or Judge Bird making a bankruptcy order on the second bankruptcy petition.
7. It is clear - and in the course of his cross-examination Dr Leitzbach accepted - that he had received some advice from a firm of solicitors, Farleys, in relation to the presentation of both bankruptcy petitions. There is an entry in the debtor's bank statements showing a payment out of the debtor's bank account in the sum of £600 to Farleys on 19 July 2012, which must have been for work in connection with the first of the two bankruptcy petitions.
8. Having obtained his discharge from bankruptcy on 17 March 2015, it is common ground that the debtor worked as a dentist for a practice in Luxembourg for a number of months from May 2015 until in or about November 2015. Thereafter, the debtor acquired an interest in a dental practice of his own in Germany. He has apparently practiced as a dentist in Germany from that time forwards.
9. The discovery by the applicant of the debtor's acquisition of that interest in a dental practice led the applicant to cause an email to be sent to this court on 28 January 2016 from the applicant's German lawyers. That email sought information from the court about the information supplied to the court at the time the bankruptcy petition was presented about the debtor's centre of main interests. It was said that the applicant was then contemplating an annulment application.
10. On or about 16 November 2016, the applicant apparently instructed a private investigator and former German police officer, Herr Karl Heinz Wallmeier to investigate the debtor's centre of main interests. As a result of Herr Wallmeier's inquiries, an application to annul the bankruptcy was issued in this court on 10 January of this year. That application was made under Section 282(1)(a) of the Insolvency Act, which provides that the court may annul a bankruptcy order if at any time it appears to the court '(a) that, on any grounds existing at the time the order was made, the order ought not to have been made'.
11. Although, at the time the application was originally made, the evidence in support was in a slightly different form not complying with the Civil Procedure Rules 1999 or the Insolvency Rules, the evidence now relied upon in support of the application to annul is to be found in the witness statements of Herr Mike Stammler, an employee of the applicant, dated 11 January 2018, together with exhibit MS1, and of Herr Karl Heinz Wallmeier dated 5 January 2018 and exhibiting no documents.
12. The respondent, Dr Ralph Rainer Leitzbach, had put in evidence in answer to the original supporting evidence by way of a witness statement dated 20 February 2017 exhibiting various documents as exhibit RRL1. Herr Stammler responded to that evidence by further witness statement dated 18 January 2018 and exhibiting further documents as exhibit MS2. Dr Leitzbach was permitted to file evidence in response by way of a further witness statement dated 1 March 2018 exhibiting further documents as exhibits RRL2.
13. The application was set down for a hearing of two days. The applicant bank is represented by Miss Jennifer Meech (of counsel) and Dr Leitzbach, the respondent, is represented by Mr Tiran Nersessian (also of counsel). Strictly, the Official Receiver is the second respondent to the annulment application but the Official Receiver has taken no part in these proceedings.
14. Both counsel had submitted detailed written skeleton arguments dated 16 May 2018 which I had had an opportunity of pre-reading before the hearing of the application commenced at 11.30 on Thursday 24 May 2018.
15. The court heard from the makers of all three witness statements. Herr Stammler gave evidence for about an hour and a half either side of the luncheon adjournment on day 1 of the hearing. Herr Wallmeier gave evidence for about 40 minutes thereafter. The court then heard from the respondent, Dr Leitzbach, for about an hour and a half on the afternoon of day 1 and, for about a similar period of time on the morning of day 2 of the hearing.
16. After a short break to enable Mr Nersessian to take instructions from his client after his departure from the witness box, the court heard oral submissions from Miss Meech for the applicant for about an hour and three-quarters on either side of the short adjournment on day 2, and then from Mr Nersessian for about an hour and 40 minutes on the afternoon of day 2. Miss Meech replied for about 10 minutes. The hearing concluded at about 4.10pm on the afternoon of Friday 25 May.
17. Since it would, by then, have been too late for me to deliver an oral extemporary judgment that evening, I reserved judgment until today, Wednesday 30 May, at 11.00am. I was unable to deliver judgment yesterday as I was listed to be sitting in Liverpool. Unfortunately, because of the Trinity Vacation, neither counsel was able to be present at the delivery of this judgment today. Solicitors are present for both parties, and Dr Leitzbach is present in court as well.
18. As indicated on Friday afternoon, I will confine myself to delivering judgment and will leave over argument on consequential matters to a future date when counsel can attend unless they are able to agree matters so that I can make an order without the need for any attendance.
19. Subject to two matters, there was little real dispute about the law governing the present application. The annulment application centres on the application to the evidence in this case of the centre of main interests requirement in the original European Council Regulation on Insolvency Proceedings (No 1346/2000). Although that Regulation has since been recast, the recast version only came into force on 26 June 2017 so that, as at the date of the bankruptcy, the relevant legislation in force was the original EC Regulation.
20. Article 3.1 of that Regulation provides, so far as material, that 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 concept of a person's centre of main interests (or COMI) was not specifically defined in the EC Regulation; but recital (13) provided that "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".
21. Judicial analysis and exegesis of the meaning of COMI, and of how a court should go about determining the location of a person's COMI, is legion. Probably the leading modern authority is the decision of His Honour Judge Purle QC (sitting as a Judge of the High Court in the Birmingham District Registry) in the case of Sparkasse Hilden Ratingen Velbert v Benk [2012] EWHC 2432 (Ch), reported at [2012] BPIR 1258.
22. The relevant principles for determining an individual's COMI were set out at paragraphs 19 and 22 of Judge Purle's judgment. I will set them out, omitting reference to case law authority referred to by Judge Purle. At paragraph 19, Judge Purle identified the following principles:

'(a) an individual's COMI is where he can be contacted; this will normally be his habitual place of residence…

(b) a person's COMI must have an element of permanence…

(c) the COMI must be ascertainable by third parties…

(d) an individual is free to re-locate his COMI, even on the eve of insolvency; what a court must determine on the facts is whether the change in COMI is one of substance or a mere illusion…'

23. At paragraph 22, Judge Purle identified the following further propositions:

'(a) A debtor can only have one COMI.

(b) A debtor's COMI is, in the case of professionals, the place of their professional domicile and for natural persons in general, the place of their habitual residence…

(c) A man's habitual residence is his settled, permanent home, the place where he lives with his wife and family, … the place to which he returns from business trips elsewhere or abroad…

(d) While a debtor's choice as to where conducts the administration of his affairs may be subjective, where he actually carries on the administration of his affairs on a regular basis such that it is ascertainable by third parties and by the court is an objective question…

(e) 'Regular administration' of a debtor's interests means that the court must look for the place from which the debtor exercises the management, organisation and control of his interests…

(f) The term, 'on a regular basis' indicates 'a quality of presence', 'a degree of continuity', 'an idea of normality', 'a stable link with the forum', and 'a degree of permanence'...

(g) Particular regard must be had for the COMI to be ascertainable by third parties, in particular creditors and potential creditors…

(h) Whilst the date on which the COMI is to be established is the date of presentation of the petition, evidence as to [the debtor's] activities and actions at other times may be significant in that they cast light on the truth or otherwise of his claim to have had his COMI in England at the relevant time…

(i) If the debtor relocates in the face of potential insolvency, the court must scrutinise the facts and determine whether the change in the place of the administration of interests is based on substance or is an illusion…

(j) The change must also have an element of permanence…'

24. In the later case of Commerzbank AG v Brehm [2014] BPIR 359 at paragraph 25, Chief Registrar Baister cited and endorsed the considerations set out in Sparkasse; but he went on to add the following (at paragraphs 25 and 26): 'To those matters I would add: '[A] debtor does not appear to be obliged to advertise his centre of main interests but nor may he hide it. It should be reasonably or sufficiently ascertainable or ascertainable by a reasonably diligent creditor'. The Chief Registrar went on to note that ascertaining a debtor's centre of main interests involved a mixed question of law and fact
25. At paragraph 41 of his judgment in that case, the Chief Registrar noted that it would be a rare case where shifting one's centre of main interests from one place to another did not leave loose ends that needed to be tied up. What would make the COMI reasonably ascertainable to creditors would inevitably depend on the individual facts of each case. The location where a professional person conducted his professional activities was a material factor and a pointer to be taken into account in ascertaining COMI.
26. There is a difference of emphasis on this particular issue between Miss Meech and Mr Nersessian. Mr Nersessian emphasises that the location where a professional person conducts his professional activities should not be taken as determinative. In the present case, the debtor's evidence is that he was not engaging in professional work at the material time, and therefore Mr Nersessian submits that he had no place of professional activity at the relevant time (which was the date of presentation of the relevant bankruptcy petition). Miss Meech attaches rather more importance to the place where the debtor conducted his professional activities and its ascertainability by third parties.
27. In the present case, the question before the court requires the objective determination of the debtor's centre of main interests. The difference between the bankruptcy regimes of different EU jurisdictions, notably England and Wales on the one hand and Germany and Luxembourg on the other, and also the debtor's individual motivations and objectives in seeking to alter his COMI, are irrelevant. At paragraph 7 of his judgment in Sparkasse, Judge Purle observed that he was only concerned with where the relevant debtor's COMI was at the relevant time. Whenever there were differences between one bankruptcy system and another, the less harsh system would inevitably attract the attention of those wishing to avoid the stricter system, but there was said to be nothing necessarily wrong with that. It was common ground before Judge Purle that the motive in acquiring an English COMI did not invalidate the resulting bankruptcy process so long as the new COMI was a genuine one. Nevertheless, the potential for abuse required the court to scrutinise the evidence with some care.
28. Apart from a difference of emphasis on the relevance of the place where professional activities were conducted, the other difference between counsel was as to the power to annul under Section 282(1)(a) of the 1986 Act. Mr Nersessian points out that the discretionary nature of the remedy under Section 282(1)(a) is well-established. He refers to a number of authorities to that effect, notably Owo-Samson v Barclays Bank Plc & Boyden (No.1) [2003] EWCA Civ 714, reported at [2003] BP1R 1373, and the decision of Morgan J in JSC Bank of Moscow v Kekhman [2015] EWHC 396 (Ch), reported at [2015] 1 WLR 3737 at paragraphs 71 to 76.
29. Mr Nersessian submits that, even if the court finds that a bankruptcy order ought not to have been made, it nevertheless retains a discretion not to annul that order. This is said to be for the good reason that the bankruptcy procedure is a collective insolvency process; it should not be used as a forum for litigating bilateral disputes. Delayed prejudice to creditors and to the bankrupt, and the pointlessness of an annulment, are said to be just some of the many potential factors which the court is obliged to take into account.
30. Although a decision to refuse permission to appeal in which permission to cite the decision as an authority would not appear to have been given, Mr Nersessian relies upon observations of Kitchin LJ in the case of Taylor v The MacDonald Partnership [2015] EWCA Civ 921 at paragraph 22 to the effect that the discretion to annul must be exercised so as to achieve a just and proportionate result. That decision, refusing permission to appeal from a decision of my own, was not, it should be noted, a decision where there had been no jurisdiction to make the original bankruptcy order.
31. Mr Nersessian submits that there is an established line of authority which expressly recognises the court's discretion under Section 282(1)(a), even in cases where the court finds that the location of the debtor's COMI was such that the court should not have had jurisdiction to make the original bankruptcy order. A finding that there was no jurisdiction to make the bankruptcy order will militate heavily in favour of annulment; but Mr Nersessian submits that the court retains a discretion in principle not to annul, as appears from the decision of Chief Registrar Baister in the case of Re Eichler (No. 2) [2011] BPIR 1293 at paragraphs 168 to 171. It is worthy of note that in that case (at paragraph 168), the Chief Registrar observed that the court ought to be slow to assist a bankrupt who has obtained his bankruptcy order on the basis of a manifestly, and substantially, false statement of affairs. At paragraph 170, the Chief Registrar observed that the jurisdictional point ought, in any event, to outweigh the exercise of the discretion, save in exceptional circumstances.
32. The Sparkasse v Benk case is said to have identified a presumption that the discretion should be exercised in favour of annulment in situations where there is found to have been no jurisdiction. However, the court is said to have declined to decide the point in the later case of Die Sparkasse Bremen AG v Armutcu [2012] EWHC 4026 (Ch), reported at [2013] BPIR 210. At paragraphs 7 and 8, Proudman J did not consider it necessary in that case to decide the issue whether a discretion applied at all where the question was one of jurisdiction in the light of the COMI requirement, merely flagging up the point for future decision. Mr Nersessian also acknowledges that in Commerzbank v Brehm (previously cited) Chief Registrar Baister held that, whilst the discretion remained, the Court would almost invariably exercise the discretion to annul where a bankruptcy order was made without jurisdiction: see paragraph 17.
33. In Finanzamt Braunschweig-Wilhelmstrasse v Riemann [2015] BPIR 1405, Mr Registrar Briggs determined that the debtor's COMI was in this jurisdiction; but he nevertheless went on to observe (obiter at paragraph 28) that, even if he were wrong on that, he would exercise his discretion against annulling the bankruptcy for a number of reasons which he proceeded to identify.
34. Mr Nersessian acknowledges that there is one decision going the other way, that of Nugee J in the case of Raiffeisenlandesbank Oberosterreich AG v Meyden [2016] EWHC 414 (Ch) reported at [2016] BPIR 697. There, Nugee J held that, where it was determined on the evidence that the debtor's COMI was not in this jurisdiction, the court was compelled to annul the bankruptcy, and the discretion under Section 282 was rendered inoperative, because the court would not have had jurisdiction to make a bankruptcy order in the first place. This decision is said to be in direct conflict with the line of cases previously cited, and in particular with Morgan J's decision in the JSC Bank case where, in confirming the discretionary nature of Section 282, Morgan J had expressly taken into account (at paragraph 71) a situation where the court later found that there was no jurisdiction to make the bankruptcy order.
35. Mr Nersessian submits that Meyden was wrongly decided on this point and that this court, to the extent that it has to decide the matter, should follow the dicta in the previous line of authority. Mr Nersessian submits, first, that unlike the opposing line of authority, Nugee J did not have the benefit of adversarial argument on the point, the debtor being a litigant in person. (By coincidence, Miss Meech appeared for the creditor and applicant in the Meyden case.) Secondly, Nugee J is said to have given insufficient credence to the point that the statutory test expressly provides for the discretion, even in circumstances where the order ought not to have been made. Thirdly, Mr Nersessian submits that the conflation of the principles for setting aside an order and the annulment of a bankruptcy order is misconceived. The difference is said not just to be one of nomenclature; the entire purpose of the bankruptcy regime is to provide a formal process for a debtor to draw a line under his debts and to move on with his affairs. The annulment is necessarily discretionary because it is open for an applicant to come to court many years after the discharge of the bankrupt and effectively expunge that entire process, which may have involved the appointment of a trustee, assessment of proof of debts, the allocation and distribution of assets, and interviews with the debtor. Mr Nersessian submits that both the discharged bankrupt and his creditors should have been entitled to arrange their affairs on the basis of the bankruptcy, and it may be both undesirable and practically impossible to expect them to reverse those affairs. Fourthly, and finally, it is said that the court should have given more credence to the notion that bankruptcy is a collective insolvency procedure and that the court must quite rightly act as a gatekeeper in deciding whether to admit one party to a process that is intended to be in the interests of all creditors, as well as the debtor.
36. Nugee J himself is said to have acknowledged in Meyden (at paragraph 39) that it was a matter of concern that there was no limitation period for an application for annulment and that, in principle, such an application on the grounds of lack of jurisdiction could be made at any time, however remote from the making of the original bankruptcy order. The ability of the parties to apply years after the event, in circumstances where the court would have no jurisdiction to refuse an annulment if the case turned on jurisdiction, is said to militate against the approach adopted by Nugee J. Nugee J had rationalised the position by holding that, in situations of lengthy delay, the applicant would be unlikely to be a person affected by the order, and so would not be entitled to apply to set aside the bankruptcy. Mr Nersessian submits that that analysis does not address the concern at all because there is said to be no such requirement that applies in the case of a Section 282 application since such an application is not one to set aside a court order under the court's inherent powers; and, in any event, Mr Nersessian says that a creditor, by definition, will satisfy the test because it would have been a party affected by the bankruptcy order at the time it was made. If any other timeframe were to be selected, it is said not to be clear why an applicant who had applied after discharge without culpable delay should be deprived of an annulment that might otherwise have been given.
37. For all of these reasons, Mr Nersessian submits that the only sensible rationalisation is for a court to weigh up all the competing considerations in determining which way to exercise its discretion under Section 282. That approach is said to derive support from the decision of the Privy Council in PricewaterhouseCoopers v Saad Investments Company [2014] UKPC 35, reported at [2014] 1 WLR 4482. That case, which was not cited in Meyden, held that in circumstances where there had been no jurisdiction to make a winding up order, the court nevertheless retained its discretionary power to order a general stay under Section 184 of the applicable Bermudan Companies Act 1981. The court identified circumstances that might cause a stay not to be granted, notwithstanding an absence of jurisdiction, at paragraph 44:

'In many cases, it may be that a court could be persuaded that it was too late for a winding up to be stayed even if it was plainly granted without jurisdiction. The liquidation will very often have proceeded far too far for matters to be satisfactorily capable of being restored or otherwise reorganised, as would be required if there was to be a stay, or third party rights may have been created or varied in such a way as would render it unjust to stay the winding up (or more unjust to stay than not to stay)'.

38. For the applicant, Miss Meech submits that when a debtor's COMI is not in England and Wales, the court had no jurisdiction to make a bankruptcy order in the first place. As Nugee J said in the Meyden case (at paragraph 13):

'It follows, as night follows day, that the effect of Article 3 of the Insolvency Regulation, and section 265(3) of the Insolvency Act is that the English court did not have jurisdiction to open insolvency proceedings, and therefore the bankruptcy order was made without jurisdiction'.

39. Nugee J considered the general law regarding orders made without jurisdiction, including the decision of the Court of Appeal in a family case, Munks v Munks [1985] FLR 576. As a result, at paragraph 17 he proceeded:

'… on the basis that the authorities put before me do establish that the general position is that, once it becomes apparent to the court that an order has been made without jurisdiction, a party or any person who might be affected by such an order is entitled as of right to have it set aside'.

40. The Judge went on to consider whether the use of the word 'may' in Section 282(1) ousted the general law and (at paragraph 37), after a full consideration of the authorities, he concluded that it did not. He confessed to having been persuaded by Miss Meech that, although in other circumstances, Section 282 conferred a true discretion, in a case in which the bankruptcy order was made without any jurisdiction at all, the logic of Munks v Munks dictated that the court had no choice but to set the order aside.
41. Miss Meech therefore submits before me, as she did before Nugee J, that if the court is satisfied that the respondent debtor's COMI was not in England and Wales when the bankruptcy order was made, that order must be annulled.
42. In her oral submissions, Miss Meech pointed out that Nugee J's decision in Meyden was the only decision in the bankruptcy context where the point founded upon Munks v Munks had been raised and considered. She points out that, in earlier cases, that point had not been raised, and was not in issue. She submitted that there was no reason for this court to refuse to follow Nugee J's approach. His decision was said to be exactly in point. The Riemann case was said to be obiter because there had been no objection to jurisdiction on the grounds of COMI, and the Munks v Munks point had not been raised. The same applied to Morgan J's decision in the Kekhman case. The Privy Council decision in the PricewaterhouseCoopers case was, if anything, said to assist Miss Meech's submissions rather than those of the respondent. Miss Meech submitted, by reference to paragraphs 37, 43, and 46 of the judgment of Lord Neuberger in that case, that the fact that a winding up order had been made without jurisdiction was so serious that a court would set aside an order made without jurisdiction. She pointed out that the availability of a stay of the winding up had not been before any of the lower courts and had only emerged in argument before the Privy Council. She submitted that this court should follow Nugee J's decision in the Meyden case; but she submitted that if that were wrong, and the discretion was at large, then the lack of any jurisdiction on COMI grounds should outweigh everything else unless the circumstances of the case were exceptional, which she submitted was not so in the present case, where the delay since the making of the winding up order should not be enough to amount to exceptional circumstances. She pointed to the fact that this was a case where there had been nothing distributed to creditors in the bankruptcy, and where no trustee in bankruptcy had been appointed in reliance on the bankruptcy order.
43. In his oral submissions Mr Nersessian submitted that I should decide that Nugee J had wrongly stated the law; the annulment of the bankruptcy order was said to be entirely a creation of statute and not a matter of general law. Nugee J's decision was said to create clear difficulties in relation to the lack of any applicable limitation period. He submitted that Nugee J's suggested solution to that difficulty would not work because the real issue was whether a person was affected by the making of the bankruptcy order at the time it was made. A person who was a creditor would always be so affected, by definition. Nugee J was said to have fallen into error.
44. In her brief reply, Miss Meech submitted that an applicant for annulment should not be in any worse position because he had a statutory right to apply to annul a bankruptcy order rather than relying upon the general law stated in Munks v Munks; either a creditor had the necessary standing to apply for an annulment or he did not. The general position was said not to be similar to that before the Privy Council in the PricewaterhouseCoopers case. The stay argument had only arisen during the course of submissions. As a result, the general law, as established by the Munks v Munks line of authority, had not been cited; no reference to that authority was made, either in the judgments or in argument.
45. In my judgement, I should follow the approach of Nugee J in the Meyden case and should hold that if a bankruptcy order is made without jurisdiction, then it should be set aside, without consideration of discretionary matters.
46. In my judgement, the answer to the limitation problem is that supplied by Nugee J at paragraph 39 of his judgment: whether under the general law established in Munks v Munks, or under Section 282(1)(a) of the 1986 Act, before a person can apply to annul a bankruptcy order, he must show a sufficient interest to have it set aside, in the sense that he is a person who may be affected by the order. That question is, in my judgement, to be determined not by reference to the facts as they existed at the time the bankruptcy order was originally made, but by reference to the facts as they exist at the time of the application to set it aside. The question is whether, at the date of the application to annul, the applicant can be said to be a person affected by the bankruptcy order so as to have the necessary standing to apply to have it annulled. Thus, for example, a person who was a creditor at the time the bankruptcy order was made, but whose debt has since become statute-barred, would, in my judgement, not have the necessary standing to apply for an annulment of the bankruptcy order. In my judgement, that is a sufficient answer to the concern that a bankruptcy order could be annulled very many years after it had been made.
47. If, however, I am wrong in that, and there does remain a residual discretion, the fact that the order was made without jurisdiction is a very powerful factor to weigh in the balance in deciding whether the original bankruptcy order should be set aside, consistently with the pre-Meyden authorities. If the matter is one of discretion, the court will almost invariably exercise the discretion to annul where a bankruptcy order has been made without jurisdiction, particularly if the debtor has in any way contributed to the making of a bankruptcy order without the necessary jurisdiction in the court to do so.
48. Against that general legal background, I turn to consider the evidence, and the facts, in the present case.
49. In opening, Miss Meech, for the applicant, accepted that she was not able to mount any challenge to the authenticity of any of the documents relied upon by the respondent debtor. However, she disputed that the consultancy agreement reflected the underlying realities of the position between the debtor and the other party to the consultancy agreement, Mark Abadi. She also disputed that the various receipts produced by the debtor in support of his bankruptcy petition had had any real connection to him and supported his case as to his COMI. She made it clear that the applicant's case was that the respondent had deliberately asserted his COMI to be in England and Wales when he was actually living, and practising, at the relevant time, in Luxembourg. Miss Meech pointed to the fact that in the present case, there were no pleadings defining the issues before the court. During the course of the hearing, Mr Nersessian had produced a copy of the recent decision of Bryan J in the case of JSC BM Bank v Kekhman & Ors [2018] EWHC 791 (Comm). Miss Meech contented herself with reference to a passage from paragraph 44 of the judgment in that case. Mr Nersessian invited the court to consider the whole of the section of the judgment relating to the pleading and proof of fraud, beginning at paragraph 41 and extending, I think, to paragraph 92. I was invited to read various paragraphs of that judgment.
50. In my judgement, the nature of the applicant's case is, and has been, clear to the respondent debtor throughout the course of the present litigation. At paragraph 36 of his second witness statement, and addressing what is said to have been an admission by Dr Leitzbach that he had misled the readers of his article in a dental magazine as to the history of his professional practice, Herr Stammler asserts that the debtor had deliberately manipulated the facts to present an untrue picture of his situation. That clear deception was said to cast huge doubt on the truth of all of the statements made by him.
51. In my judgement, Dr Leitzbach was under no illusions as to the nature of the challenge that was being mounted to his honesty generally when asserting that his centre of main interests had been in England and Wales at the time of the presentation of his bankruptcy petition at the beginning of 2014.
52. I turn to consider the evidence of the various witnesses. The applicant's principal witness was Herr Stammler; he had made two witness statements, and he gave evidence orally for a little under two hours. There was no challenge to his honesty; but, in closing, Mr Nersessian stigmatised his evidence as, 'virtually worthless'.
53. I found Herr Stammler's evidence to be of little real assistance to the court in determining the issue of the debtor's COMI. In answer to questions from the Bench at the end of his evidence, Herr Stammler made it clear that he had first met the debtor in court that day and that he had never spoken to him. Herr Stammler was entirely reliant on information provided by others and by the documents.
54. Although his witness statement was not in a form appropriate to someone whose knowledge of English is limited and who felt it necessary to give evidence through a German interpreter, I nevertheless accept that Herr Stammler knew and understood the contents of his two witness statements. However, his first witness statement was not his own document; it had been based on information apparently provided by his boss, Mr Kokol, and by another colleague, Mrs Vellock. Herr Stammler had not been involved in the present application from the beginning. He had no direct knowledge that the debtor had been living and working in Luxembourg at the material time. He seemed to me simply to assume that the debtor had been practising there as a dentist because he had been registered as such. I formed the view that Herr Stammler had convinced himself of the validity of the applicant's case, and that he was prepared to reject any evidence to the contrary. He was prepared to venture his non-expert opinion on clinical and psychological matters, even where such opinion was contradicted by contemporaneous expressions of opinion of those actually qualified in the field. He was ready to assume that the respondent's brother, who had originally been a partner with him in his dental practice in Germany, had been lying about the date that the respondent had left that dental practice.
55. In my judgement, Herr Stammler's approach to the evidence was entirely one-sided and partisan until its limitations were pointed out to him. Even then, Herr Stammler was only prepared to make limited concessions in cross-examination, such as his acceptance that the applicant had no evidence to show that the debtor had not been living in England between 2011 and 2013 beyond the fact that he had been undertaking a course of postgraduate dental studies in Germany and Austria. Herr Stammler was content to accept that the debtor had been living and working in Luxembourg even though he had produced no documentary evidence that he had been receiving any salary, or paying any taxes, in Luxembourg at the relevant time.
56. I do not consider that the evidence of Herr Wallmeier was any more cogent. He had produced one witness statement; but he exhibited no documentary evidence to support anything that he said. Herr Wallmeier was in the witness box for about 40 minutes. His difficulties in giving evidence may have been exacerbated by the fact that he was doing so through a German interpreter but I nevertheless found him to be unnecessarily hesitant in his evidence. I found parts of it difficult to understand and to follow. He acknowledged that he had made a mistake in his witness statement as to the date when it was said that the debtor had moved out from the dental practice in Luxembourg, but it was not entirely clear to me how Herr Wallmeier wished to correct that mistake. Herr Wallmeier told the court that he had taken contemporaneous notes, and that he had presented a written report to the bank; but no such documents were produced.
57. It seemed to me that the applicant had been selective in the evidence which it had chosen to produce from Herr Wallmeier to the court. Certain parts of Herr Wallmeier's evidence seemed to me to be impossible to reconcile with other evidence I found to be reliable. For example, paragraph 3 stated that the Mayor of the township in Luxembourg (Canach), where the debtor was said to be living and working, had told Herr Wallmeier that Dr Leitzbach had worked as a dentist with Dr Streubel & Partners from 1 August 2013 onwards at the latest; and that he had lived in a small flat there which was designed as a caretaker apartment. Herr Wallmeier also recorded (at paragraph 4) that on 1 August, Dr Leitzbach had registered with the local council, giving 10 Rue de Scheuerhof, Canach to be his residential address. That I find impossible to reconcile with the document produced by the debtor at page 195 of bundle 2 (and forming part of exhibit RL1 to his first witness statement), which is a certificate of residency recording that the debtor had arrived in Canach on 26 May 2015 from the address in Cheshire (63 The Mount, Hale Barns) where the debtor claims to have been living until he had moved from 63 The Mount to another address in Altrincham in September 2014. In his witness statement, the debtor had explained that he had given that former address on registration as a resident of Canach because he had had no documentation to prove that he had moved from that address in September 2014, and because it was the address in England and Wales with which he had had the longest connection. Certainly, the residency certificate contradicts the evidence given by Herr Wallmeier. The dates for registration and the start of lectures for the master's degree in science for oral surgery, identified by Herr Wallmeier in paragraph 6, are also impossible to reconcile with the dates provided by the debtor for that course at pages 206 to 208 (in the original German version) and pages 209 to 212 (in English translation) of volume 2 (again forming part of exhibit RL1).
58. For those reasons, I find that, as long as I could accept the debtor as a reliable, accurate, and honest witness, then I would not regard the evidence of either Herr Stammler or of Herr Wallmeier as being of sufficient quality to enable me to reject the evidence of Dr Leitzbach where those two streams of evidence were in conflict. In my judgement, this application stands or falls on my assessment of the evidence of Dr Leitzbach.
59. In his second witness statement, Herr Stammler had made a number of criticisms of Dr Leitzbach's written evidence. He points out that Dr Leitzbach has admitted to misleading readers of his article on dentistry as to his professional history and career. He also points to the fact that Dr Leitzbach has admitted so arranging his financial affairs in England as to seek deliberately to defeat the legitimate claims of the German tax authorities to recover monies from him. In paragraph 15 of his first witness statement, Dr Leitzbach accepts that he was aware of the importance of COMI. He had consulted Farleys, not only in relation to his second, but also in relation to his first (unsuccessful), bankruptcy petition. He told the court that the reason why his original tenancy agreement had been converted from a tenancy from month to month to a tenancy from year to year was expressly because Judge Pelling, at the hearing of the first bankruptcy petition, had indicated that a monthly tenancy did not connote a sufficient connection to this jurisdiction.
60. Dr Leitzbach made two witness statements in opposition to the annulment application; and he gave evidence over some three hours, spread equally between the first and second days of the hearing. I am satisfied that Miss Meech established, during a skilful cross-examination, that Dr Leitzbach has told lies in support of his case that his centre of main interests was in this jurisdiction. Miss Meech cross-examined effectively as to the receipts, copies of which the debtor has attached to his statement in support of his contention that his COMI was in England and Wales for the purposes of his second bankruptcy petition. Those receipts can be found at pages 123 through to 160 of divider 17 of bundle 2.
61. Dr Leitzbach had acknowledged (under cross-examination) that not all of the receipts reflected expenditure of his own; but he insisted, on more than one occasion, that he had been present when those receipts had been issued. I cannot accept that evidence. For example, he had produced (at pages 130 and 140) what proved to be a single Odeon cinema ticket for 28 January 2013. Miss Meech established that receipts had been generated using no less than 10 different Tesco Clubcards, having previously established that the debtor had had no Tesco Clubcard himself. I find it incredible that Mr Abadi should have had 10 different Tesco Clubcards during the period covered by the receipts. Clearly, the receipts related to expenditure by persons other than the debtor and Mr Abadi. One of the receipts related to a bowling session with one adult and one child; Dr Leitzbach suggested that he had taken Mark Abadi's son out bowling. I reject that explanation.
62. Miss Meech had succeeded in identifying four different items of expenditure on the same day, 27 March 2013. At page 126 there was a Post Office receipt for expenditure at Portland Street in Manchester at 1.12pm. At page 123 there was a train ticket from Heaton Chapel to Manchester issued at 1.57pm on that day. At page 135 there was a receipt for expenditure on a meal at the Bull's Head in Mobberley at 2.36pm, the receipt being for Mark's tab. At page 125 there was a receipt from Burger King in the Euston Road, London at 4.01pm. It is inconceivable that all of those receipts were either paid for by the same person, or that they were all paid for in the presence of the debtor.
63. At page 138 there was a receipt from Fat Face store in Knutsford dated 15 March 2013. It was pointed out to the debtor that this receipt was issued on a date when, according to his course timetable, he should have been attending his dental course in Germany. The response was that he had probably missed that course. The difficulty with that is that, at page 151, there was a receipt for expenditure at Sainsbury's in Hale on 7 June 2013 which was also whilst the debtor should have been attending his dental course in Germany. I cannot accept that the debtor was present when both of those receipts were issued. To do so would mean that he would have missed 8 of the 20 course sessions during the course year 2013. As the debtor himself pointed out, he was only required to obtain 80% attendance. On that basis, however, he would have achieved at most 60% attendance. Moreover, the receipt issued on 15 March 2013 was issued only three days before the debtor accepts that he had been in Luxembourg being interviewed with a view to registration with the dental authorities there. At paragraph 28 of his first witness statement, the debtor had indicated that he was in Luxembourg on that date. I am satisfied that he had been present at the course on 15 March 2013, and that he had travelled directly from there to Luxembourg for that interview.
64. Miss Meech also relied upon large cash withdrawals made from his bank account by the debtor, the purpose of which was unexplained. In his first witness statement (at paragraph 36), the debtor had explained that he had been concerned not to have too much money in his bank account because he was fearful that the German tax authorities would seek to attach it. The difficulty with that is that the cash withdrawals relate to the summer of 2012, and the threat to attach monies, by Revenue & Customs on behalf of the German tax authorities, only surfaced in March 2013: see the letter at pages 106 to 107 of bundle 2, annexing the instrument permitting enforcement of claims by the German tax authorities dated 25 March 2013 (at pages 108 to 110). Therefore, again, I am satisfied that the explanation given by the debtor is simply not correct.
65. I have to ask myself whether the debtor's reliance upon false receipts was done to bolster a genuine case that his COMI was in England and Wales at the relevant time, or whether it was done to support a case which he knew to be false. Having observed the debtor during the course of 3 hours in the witness box, I am satisfied that I cannot accept the explanations that he has given, and that he has deliberately manufactured documents in support of what is a false case that his COMI was in England and Wales at the relevant time. I find that I cannot accept as reliable the evidence of the respondent in support of his case that he was genuinely living in England and Wales during the period 2011 through to 2015.
66. Miss Meech did not seek to challenge the tenancy agreement which the respondent had entered into with Mark Abadi in April 2012; but she did challenge the genuineness of the consultancy agreement that was later entered into in June 2012.
67. I am satisfied that that consultancy agreement was indeed a sham document. I accept the points made by the applicant, and also by Miss Meech. Clause 4 (headed 'Reporting') required Dr Leitzbach to report to Mr Abadi the status and the results of his activities once a month, such report to be in writing by email or short memo. No such reports were ever produced.
68. I am not satisfied that the invoices for consultancy fees were genuine. As Miss Meech pointed out in cross-examination, the first of the invoices post-dated the actual transfer of the sum of £400 covered by the invoice into the respondent's bank account. The first payment was credited to that bank account on 25 June 2012, which was before the invoice was actually created on 30 June. The nature of the services contracted to be provided - namely supporting Mr Abadi regarding assistance in the planning, organisation, and realisation of workshops, seminars, lectures, and coaching - does not seem to me to merit either the skills possessed by Dr Leitzbach or the needs of Mr Abadi, particularly since his self-published work was apparently completed at the end of 2012, before the consultancy fee payment increased. I am satisfied that the consultancy agreement was produced expressly with a view to assisting Dr Leitzbach to establish a centre of main interests in England and Wales.
69. In closing, Mr Nersessian made the point that it had not been put to Dr Leitzbach that his evidence was a contrivance. It was however, expressly put that the consultancy agreement was a sham. In addition, it was also clear to Dr Leitzbach, from the passage in the evidence of Herr Stammler that I have identified, and also from Miss Meech's opening, what the nature of the applicant's case was on COMI.
70. Therefore, whilst if I had accepted Dr Leitzbach's evidence as reliable, accurate, and honest, I would not have considered that it was outweighed by the evidence produced by the applicant, in the event I do not find that it is so honest, reliable, or accurate that I can accept it at face value.
71. In my judgement, the respondent's COMI was not in England and Wales at the time of the second bankruptcy petition or the making of the bankruptcy order. I arrive at that conclusion for two quite separate reasons. The first is that, for the reasons I have given, I simply cannot accept the evidence of Dr Leitzbach as to the fact that he was living and working for Mr Abadi as a consultant in England and Wales at the relevant time. I simply do not accept his evidence to that effect. Secondly, however, I would in, any event, have found that, as a professional dentist who had been practising as such in Germany, Dr Leitzbach had never acquired a COMI in England and Wales.
72. It is Dr Leitzbach's case that he had ceased to practise as a dentist in partnership with his brother in August of 2011 and that he moved to a temporary address in Twickenham on 15 October 2011. Dr Leitzbach has produced evidence in support to show that he had separated from his wife, who had moved to Hamburg in April 2011 He has produced evidence that he had left Wiesbaden on 13 October 2011. He has, however, produced no documentary evidence to show that he moved to an address in Twickenham, where he resided from mid-October 2011 to 1 April 2012. The only documentary evidence is a letter from a creditor to the Twickenham address which, in fact, postdates his move to The Mount, Cheshire.
73. Dr Leitzbach says that he was not practising with his brother after August 2011. That is supported by a letter from his brother, and I am prepared to accept what is said in that letter (which appears at page 239 of bundle 3) to the effect that Dr Ralph Rainer Leitzbach left the dental practice with his brother in Hochheim the previous August 2011.
74. However, so far as his visibility as a dentist is concerned, third parties would clearly have formed the view that he was continuing to practise with his brother in Germany until the end of 2012. He remained on the appropriate public dental register until the end of 2012. He secured a certificate that he was unfit for dental work at the end of 2011; but even that document was addressed to the former practice address in Hochheim, and it operated simply to relieve the debtor from making contributions to his official German dental pension scheme only until 30 June 2012. In evidence, Dr Leitzbach accepted that he did not have any evidence of any later, similar release. He accepted that he was representing to third parties that he remained in practice as a dentist in the Hessen dental register until the end of December 2012. It was that dental practice address that was used by Dr Leitzbach to register himself on the postgraduate dental course that he undertook. He accepted that others on the course would all have assumed that he was continuing to practise as a dentist in Germany. His CV, written for the purpose of a published article in a dental journal, gave the impression that he had worked as a dentist in Germany until the end of 2012, and that, thereafter, his only professional activity was attending the postgraduate dental course.
75. Dr Leitzbach did register as entitled to practise with the General Dental Council of England and Wales. The date of first registration was 8 August 2011, some two months before, on his case, he even moved to Twickenham. The address that was given for him was care of his girlfriend at the Twickenham address. The registration entitled him to practise dentistry in England and Wales for the period from January to 31 December 2012. Dr Leitzbach obtained a similar certificate of registration for the following calendar year, giving the address 63 The Mount.
76. It is, however, quite clear on Dr Leitzbach's evidence and case that he never practised, and never even intended to practise, during those periods in England and Wales. As I have said, the first registration was effected on 8 August 2011, some two months before, even on his own case, he moved to this country.
77. Insofar as third parties are concerned, the debtor would have appeared to have had a professional domicile in Germany until the end of 2012. He continued to receive rents from four flats in Potsdam in Germany until that district court repossessed those properties. The order of the District Court of Potsdam authorising the sale by public auction of those properties by the court is dated 5 September 2013. In evidence, Dr Leitzbach made it clear that he continued to receive rent from those properties until they were sold. The loss of that rent had had a considerable effect upon his finances. Thus, even after the end of December 2012, so far as receipt of rental income is concerned, the debtor retained a substantial stake in properties in Germany.
78. Although he was not registered as a resident of Cannach until 26 May 2015, in March 2013 he had been registered with the Luxembourg dental regulatory authority in Canach. The applicant has produced email evidence of the requirements of registration at page 282 of bundle 3. The email of 8 January 2018 makes it clear that a candidate for registration must present himself at the Medical College, and that the interview normally takes place before the approval is issued. The debtor accepts that he was interviewed on 18 March 2013. An annual subscription is payable to the Medical College; the debtor accepts that this was paid, he says, by the dental practice with which he was registered in Luxembourg. The email also makes it clear that if a doctor is not, or is no longer, working in Luxembourg, he should inform the authorities of this. The debtor accepts that he never did that, and that he has remained registered from March 2013 onwards.
79. There is simply no explanation as to why, having registered in March 2013, the debtor should have delayed setting off to work in Luxembourg until May 2015. I cannot accept Dr Leitzbach's explanation that he was not working at the dental practice in Canach before May of 2015. Nowhere in his evidence does he explain why it was only at that point in time that he chose to move to work in Luxembourg. In my judgement, the true explanation is that he had, two months earlier, secured his automatic discharge from bankruptcy in England and Wales.
80. There are inconsistencies riddling Dr Leitzbach's evidence about the course of dental study. He says that he wished to give everyone the impression that he was a practising dentist in Germany. He did not want them to know about the stigma of his psychological breakdown and his bankruptcy. Yet he says that the Luxembourg dentist on the course from the practice in Canach in fact knew, and was prepared to assist in securing his registration and paying his fees. He has given hearsay evidence of what she has told him, just as the applicant gave hearsay evidence through Herr Wallmeier of what she is said to have told that gentleman. The fact is that there is no evidence whatsoever from that dentist as to what actually was happening.
81. I am satisfied, having observed Dr Leitzbach in the witness box, that he has not told the full, or the true, story of all of this. He has produced a considerable volume of documentation indicating that he was resident at the address in Cheshire from April 2014; but it is all evidence that is very easy to assemble. He has produced no evidence of payment of tax in this jurisdiction under the consultancy agreement; nor has he produced any evidence of when he started paying tax in Luxembourg, which, on his case, should have followed in May 2015.
82. Insofar as third parties are concerned, I am satisfied that Dr Leitzbach gave the impression that he was a practising dentist, first in Germany until the end of 2012, and thereafter in Luxembourg from March 2013. That itself is, in my judgement, sufficient to negate a COMI in England and Wales. But quite independently of that, I am not satisfied that there was any genuine permanent relocation of Dr Leitzbach's centre of main interests from Germany to England and Wales. I am satisfied that Dr Leitzbach's professional domicile was first Germany and then Luxembourg, and that at no time has his habitual place of residence been in England and Wales.
83. In August 2011, Dr Leitzbach was facing personal insolvency. In those circumstances, the court must scrutinise the facts closely, and determine whether his asserted change in the place of the administration of his main interests is based on substance or an illusion. In the present case, I am satisfied that that apparent change was illusory.
84. In those circumstances, I find that the bankruptcy order was made without jurisdiction because Dr Leitzbach's centre of main interests was not in England and Wales. Following the approach of Nugee J in the Meyden case, the court should annul the bankruptcy order. Insofar as there is any discretion, however, I would unhesitatingly exercise that discretion in favour of annulment. I am satisfied that Dr Leitzbach has not presented a true picture to the court, either now or in 2014; even on his own case, he did not tell the court that he was registered as a dentist in Luxembourg, or that he was undertaking a course of dental study in Germany and Austria. However, in addition, he produced receipts intended to give a false impression as to his presence in England and Wales at times when I am satisfied that he was not present here but was in Germany and Luxembourg, attending his course and attending an interview to be registered as a dentist in Luxembourg. None of that was disclosed to the court on the hearing of his bankruptcy petition. Indeed, on his second petition, he did not even disclose the existence of his first petition.
85. I bear in mind the fact that the applicant had written to the court in response to its letter notifying it of the hearing of the bankruptcy petition, and had taken no issue with the debtor's COMI. I also bear firmly in mind that the applicant already appears to have had suspicions as to the genuineness of the debtor's asserted COMI as long ago as 28 January 2016 yet it did not issue the present annulment application until 10 November 2017. I bear that delay in mind.
86. As against that, however, this is a case where I find that the bankruptcy order was obtained on the basis of false information, known to be such by the debtor, and that his bankruptcy generated no return whatsoever for creditors. It was a bankruptcy in name and form only; there was no administration of any assets in the bankruptcy.
87. In those circumstances, whilst I appreciate that Dr Leitzbach has tried to rebuild his life, and has taken out two loans in Germany in association with the acquisition of his dental practice, nevertheless he has brought the present situation upon himself; and, in those circumstances, even if it were a matter of discretion, I would, as I say, unhesitatingly exercise the discretion in favour of annulling the bankruptcy.
88. For all of those reasons, I would accede to the present application and make an order annulling the bankruptcy.
End of Judgment Transcript from a recording by Ubiqus 291-299 Borough High Street, London SE1 1JG Tel: 020 7269 0370 legal@ubiqus.com