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Brexit – Impact of a 'no deal' scenario on EU cross-border insolvencies

On 13 September 2018, the UK Government published a guidance notice (Guidance) on handling civil disputes, including cross-border insolvencies, in the event that the UK exits the EU without having first agreed a framework for ongoing civil judicial cooperation, and from which time and date (11 pm on 29 March 2019) the UK will not benefit from the EU rules to replace the current arrangements.

If the UK exits the EU on a "no deal" basis, the transition arrangements keeping the status quo until at least December 2020 will not apply. The Guidance is entitled Handling civil legal cases that involve EU countries if there's no Brexit deal and can be read here.

We have recently written on the civil disputes impact of the Guidance, please see here.

This article is an update on our article Brexit Considerations: Insolvency, available here.

Background

As mentioned in our earlier article, cross-border insolvencies are principally governed by four sources of law in England and Wales, namely:

  • the EU Insolvency Regulation (EUIR);
  • Cross Border Insolvency Regulations (CBIR);
  • section 426 of the Insolvency Act 1986 (IA 1986); and
  • the common law.

In our previous article, we set out the strengths and limitations of each of these regimes.

What are the impacts for cross-border insolvencies in the event of a 'no deal' Brexit?

The Government has stated that in the event there is 'no deal', the "majority of the Insolvency Regulation, which covers the jurisdictional rules, applicable law and recognition of cross-border insolvency proceedings, would be repealed in all parts of the UK". Notwithstanding this, the Government intends to "retain EU rules that provide for the UK courts to have jurisdiction where a company or individual is based in the UK, and the law will ensure that insolvency proceedings can continue to be opened in those circumstances". The Guidance also notes that after 29 March 2019, the EU Insolvency Regulation tests will no longer restrict the commencement of proceedings. As such, insolvencies could be commenced under any of the existing tests under UK law, regardless of the debtor's location.

Implications

If there is a "no deal" exit, resolving pan-European insolvency proceedings and restructurings may become more complex and costly. At present, the EU regulations provide that insolvency and restructuring procedures are automatically recognised across the EU. As noted in the Guidance, after 29 March 2019, UK insolvency practitioners may need to make applications under the relevant EU country's domestic laws in order to have UK orders recognised there (and that in some circumstances EU countries may not recognise UK insolvency proceedings). 

It should be noted that EU insolvency practitioners may need to apply for EU proceedings to be recognised within the UK as well. As we noted in our previous article, there number of options under the UK's domestic laws, including:

  • recognition under the UNCITRAL Model Law
  • CBIR
  • s. 426 IA 1986
  • the common law

It remains to be seen what policies (if any) will be implemented following the UK's departure from the EU. On one view, this represents an opportunity for the UK Government to be innovative and to introduce new regulations to make England and Wales an even more attractive jurisdiction for insolvency proceedings and restructurings.

In our view, should the UK and the EU fail to agree a deal on, amongst other things, civil judicial cooperation, the UK Government is likely to seek to ensure that the country's insolvency laws remain attractive and that England maintains its position as a leading jurisdiction for cross-border insolvency proceedings and restructurings. To that end, it is hoped that appropriate measures will be put in place to assist insolvency practitioners in the event of a no-deal.

For further information please contact the author of this briefing:

Rick Brown
Partner, London
T +44 (0)20 7264 8461
rick.brown@hfw.com

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