Situation before Brexit

Currently, a UK court’s decision to open insolvency proceedings, and the subsequent proceedings, are automatically recognised under Articles 16 and 17 of the European Insolvency Regulation.

Recognition of insolvency proceedings

After Brexit, it is most likely that the UK will be treated as a non-Member State (unless the UK reaches any special agreement with the EU).

Recognition of proceedings opened in non-Member States is governed by para 343 German Insolvency Code (InsO). Para. 343 InsO stipulates that non-Member State proceedings are recognised if (i) the foreign court that opened proceedings was competent under German law and (ii) no public policy reasons militate against the recognition of such proceedings. Whether the foreign court is competent will be determined by Article 3 European Insolvency Regulation, which determines competence based on the Centre of Main Interest (COMI) of the entity in question.

Implications for British proceedings after Brexit

The aforementioned German law criteria for recognition of British insolvency proceedings mean that British proceedings will be recognised if British courts are held competent under Article 3 European Insolvency Regulation. The biggest difference post-Brexit is that German courts will determine whether COMI is indeed in the UK, since the aforementioned automatic recognition is no longer in effect.

As regards (i) above, in the past, British courts have been rather quick to assume that the COMI of an entity lies in Britain. It is unclear whether German courts will, after Brexit, always fall in line with the thinking of the British courts.

As regards (ii) above, it is currently unlikely that British proceedings will fail a public policy test, since, under general EU law principles, it is already (pre-Brexit) possible to claim a violation of public policy even when considering proceedings in a Member State. The general view has been that British proceedings do not violate public policy.

If, however, after Brexit, UK insolvency law changes substantially and the scope for initiating proceedings is widened, it may well be the case that any such proceedings will fail a German public policy test.

Conclusion

After Brexit, uncertainty regarding recognition of British proceedings in Germany will be the order of the day.

The basic principle for determining the competent court via COMI is a principle of German law which is relevant to non-Member State proceedings. However, it remains to be seen whether German courts will always agree with a British court’s assumption of COMI.

Also, any future changes in British insolvency law may be subject to a public policy test.