Immediately following the results of the UK referendum on exiting the EU in June 2016, we wrote about the potential impact of Brexit on cross-border restructuring and insolvency work. As we identified then, the key issue in this area is the potentially significant implications of losing the reciprocal effect of the EU Regulation on insolvency proceedings and the Brussels Regulation (recast). In this article we focus on the impact of the loss of recognition under the Insolvency Regulation.
As at the date of writing (March 26, 2019) uncertainty abounds: When will exit day arrive? Will the current withdrawal agreement be approved? Will there be a different withdrawal agreement? Will the UK leave with no deal at all? What we do know is that, as yet, no arrangements have been agreed which would allow the UK to retain the benefit of reciprocal recognition of its insolvency procedures throughout the EU. It may be that the current deal, or another deal, is approved which provides for a transitional period in which arrangements can be made in these areas, but the possibility that time may run out – sooner in the case of a no-deal Brexit, or later if there is a transitional period – must be considered.
The loss of automatic reciprocal recognition of insolvency proceedings between the UK and the other EU member states (except Denmark, which has opted out of participation in the Insolvency Regulation), would have a much greater impact on outgoing recognition needs (i.e. the need for UK insolvency processes to be recognized in the remaining EU member states) than incoming recognition needs. This is because recognition requests from EU member states coming into Britain would be dealt with under the Cross-Border Insolvency Regulations 2006 (CBIR) (Northern Ireland also has similar legislation), which implement the UNCITRAL model law on cross-border insolvency.
Those seeking recognition under the CBIR have a slightly more onerous task than would have been the case under the European Insolvency Regulation, as recognition under the CBIR requires an application to court rather than being automatic, and much of the assistance given to office holders is discretionary. However, the path to recognition under the CBIR is well trodden. Only four of the remaining EU member states have adopted the UNCITRAL model law on cross-border insolvency: Greece, Poland, Romania and Slovenia. In the other member states recognition would need to be sought under local law provisions, where available. This would make recognition of UK insolvency proceedings within Europe significantly more complex than it is today.
There are of course forum shopping alternatives to commencing UK insolvency proceedings and seeking to have them recognized within individual EU member states, including center of main interests (COMI) shifts into an EU member state (some Irish practitioners have noted the opportunity this may provide for that jurisdiction), but these alternatives will not be appropriate for all cases.
There has been a small measure of no-deal planning for insolvency in the form of the Insolvency (Amendment) (EU Exit) Regulations 2019, which were made in January 2019. This, perhaps understandably given the weight of other issues to be dealt with prior to exit day, has not dealt with the key issue of reciprocal recognition. We therefore remain hopeful that a deal can be agreed which allows for a transitional period in which this issue can be addressed. If it cannot, at DLA Piper we will be more grateful than ever for our global colleagues assisting our clients in obtaining recognition where it is needed.