Insolvency tourism, jurisdiction and the power to annul

The recent decision in Nilsson and another v Jones [2025] EWHC 2652 (Ch) provides important clarification on the circumstances in which a bankruptcy order may be annulled by a Trustee in Bankruptcy, specifically where the bankruptcy was initiated by the debtor.

The judgment reinforces the limits of the UK insolvency regime as a forum of convenience and will be of particular interest to insolvency practitioners, lawyers and advisers dealing with internationally mobile individuals.

Statutory framework and background

The court’s jurisdiction to make a bankruptcy order is governed by Section 265 of the Insolvency Act 1986, together with retained EU law and common law principles applicable following Brexit. In broad terms, jurisdiction may be exercised where the debtor lives in England and Wales, has had a place of residence or carried on business in England and Wales within the preceding three years.

Long‑established authority confirms that the court must be satisfied that England and Wales is the appropriate jurisdiction for the debtor, and that there is a genuine and substantive connection between the debtor and the jurisdiction.

In this case, the debtor presented his own bankruptcy petition relying on asserted connections with England and Wales. A bankruptcy order was made. Subsequently, the Trustee in Bankruptcy applied for an annulment on the basis that the court should not have exercised its jurisdiction, contending that the debtor’s connection with the UK was artificial and insufficient.

Annulment of a debtor‑initiated bankruptcy

A central issue addressed by the court was whether a Trustee in Bankruptcy has standing to seek an annulment where the bankruptcy was initiated by the debtor. The court confirmed that there was no restriction on a Trustee in Bankruptcy applying for the annulment of a debtor-initiated bankruptcy.

Section 282(1)(a) of the Insolvency Act 1986 provides that the court may annul a bankruptcy order if it “ought not to have been made”. The court held that this wording was sufficiently broad to encompass cases where it later becomes apparent that jurisdiction was lacking or should not have been exercised.

The Trustee’s role is not confined to asset realisation for the benefit of creditors. It also includes ensuring that the bankruptcy itself is properly constituted. Where the jurisdictional foundation is flawed, annulment may be both permissible and necessary.

Assessing the debtor’s connection to the UK

The case turned on whether the debtor had a real and substantive connection with England and Wales. The court rejected a formalistic approach and instead examined the substance of the debtor’s circumstances.

Factors considered included where the debtor ordinarily lived, where business and economic activities were primarily conducted, the location of assets and liabilities, and whether any presence in the UK was stable and enduring or merely transient.

The court concluded that the debtor’s connection to the UK was insufficient and had been constructed to take advantage of the UK bankruptcy regime. In particular, the court noted the comparative generosity of the UK system, including automatic discharge after 12 months, when contrasted with less favourable regimes elsewhere. In this case Mr Jones’ centre of main interests was thought to be in Austria where there is no automatic short-term discharge period.

Insolvency tourism and discharge

While the court did not criticise the UK insolvency framework itself, it recognised the ongoing issue of insolvency tourism. The availability of early discharge remains an attractive feature for debtors seeking relief from financial difficulty. However, the court made clear that the desire to benefit from a more favourable regime cannot justify the exercise of jurisdiction in the absence of a genuine connection.

Where the UK is selected primarily for outcome rather than substance, the court will be prepared to intervene.

Practical implications

This decision has significant practical implications.

For those advising debtors jurisdiction should be analysed carefully at the outset. Advising a client to petition in England and Wales without a defensible connection carries the risk that his bankruptcy may later be annulled, potentially with dire consequences.

For trustees in bankruptcy, this case confirms that jurisdictional issues do not end with the making of the bankruptcy order. Trustees should consider whether the jurisdictional basis is sound and take action where it is not.

For creditors, this decision highlights the importance of scrutinising debtor‑initiated bankruptcies, particularly where the debtor’s assets, business interests and personal life are clearly centred overseas.

Finally, for internationally mobile individuals, the case serves as a reminder that legal reality will prevail over form. Short‑term residence or administrative arrangements will not be sufficient to establish jurisdiction.

What does this mean for you?

This case is a solid reminder that the courts in England & Wales will not act as a default forum for bankruptcy where jurisdiction is founded on convenience rather than connection.

The decision strengthens the integrity of the jurisdictional framework and provides welcome clarity for trustees and practitioners.

Lauren Hartigan-Pritchard, Partner and Head of Restructuring and Insolvency at Higgs LLP.