On 23 June 2016, a 52% majority of the British people voted in favour of leaving the European Union. It is unclear the extent of the effect this will have, but restructuring and insolvency professionals face an uncertain future if the EC Regulation on Insolvency Proceedings 2000 and the Recast Insolvency Regulation, which replaces it in 2017, cease to apply to cross border restructurings in the UK.
Due to the direct effect of the Insolvency Regulation, this law will cease to apply in the UK following Brexit. For UK insolvency proceedings, this may result in creditors being required to bring new insolvency proceedings against a debtor in each country where assets have been located. Alternatively, creditors may need to apply to the relevant Member State for recognition of the UK proceedings on a case by case basis. Such requirements would clearly be complex, resulting in additional time and costs being incurred by the parties involved.
With this is mind, the UK should consider early negotiations with the EU in order to remain a party to the Insolvency Regulation. There is no precedent for such a bespoke agreement, therefore it is difficult to predict whether this would be accepted by all the remaining Member States. However one important consideration would be that, whilst the EU may allow the UK to continue to be a party to the Insolvency Regulation, as a non-Member State, the UK would have limited say in any amendments to the Insolvency Regulation itself in the future.
Are there any alternatives to the Insolvency Regulation?
The UNICITRAL Model Law on Cross Border Insolvency ("UNCITRAL") provides a cross border structure totally independent of the Insolvency Regulation and EU law. However there are some overlaps with the EU framework, in particular the requirement to recognise insolvency proceedings in other jurisdictions. Crucially, only 41 countries in total have signed up to UNCITRAL, with the UK, Greece, Poland, Romania and Slovenia being the only current Member States to have done so. Due to the minimal European reach of UNCITRAL, it is therefore not likely to be an all embracing replacement when compared to the Insolvency Regulation.
Another alternative would be the application of s426 of the UK Insolvency Act 1986 ("Section 426"). Similarly to the Insolvency Regulation, Section 426 provides for the co-operation between courts exercising insolvency jurisdiction in relation to cross border cases. Again however, there are only approximately 20 designated countries, mainly Commonwealth Countries, in relation to Section 426, making it a poor substitute for the Insolvency Regulation for insolvencies in Europe.
A final possible consideration is that of a common law substitute. The main principle of the common law in this area is 'universalism'. This concept is the idea that insolvency proceedings should apply worldwide, rather than various unconnected proceedings taking place in multiple jurisdictions against the same debtor. However without a formal treaty, it is up to each country to balance their own domestic insolvency law with this concept. In the event of a conflict, it will be up to the relevant court to decide how to apply these principles, resulting in uncertainty for cross border insolvency proceedings. However, it should be noted that whilst a common law alternative may be uncertain, this sort of arrangement is not without precedent. In particular Denmark, whilst being part of the EU, is not a party to the Insolvency Regulation. Denmark has therefore negotiated a separate convention with several other Nordic countries to ensure the recognition of cross border insolvency proceedings.