On 31 January 2020 the United Kingdom (‘UK’) left the European Union (‘EU’) and entered into a transition period with the EU under the Withdrawal Agreement (‘WA’). The WA confirmed that EU regulations would continue to apply until 11pm on 31 December 2020, at which point the continued effect of such regulations would be determined by a separate agreement on the future commercial and legal relationship between both parties. As things stand with no such agreement in sight, the automatic recognition of insolvency proceedings between the UK and EU stands to become a thing of the past.
A reminder of the EU regulations
The current EU regulations allow automatic recognition of UK insolvency procedures across the EU, and vice versa, and form a vital part of the UK’s insolvency and restructuring environment. The benefits of the Recast Insolvency Regulation (Regulation (EU) 2015/848) which provides for such recognition will continue to apply to all insolvency proceedings commenced before 11 pm on 31 December 2020.
Post-31 December 2020
Even if a trade deal is agreed upon between the UK and the EU it is unlikely to incorporate provisions on cross-border insolvency law. As a result, any UK insolvency proceedings commenced after 11 pm on 31 December will no longer be recognised automatically by the remaining EU member states. It will be possible for separate proceedings to be commenced in relation to the same debtor/assets in the UK and EU Member States, but with limited rules on how to cooperate or determine any disputes in relation to those proceedings. It will also be possible for formal application to be made to individual member states for the recognition of UK insolvency proceedings (see further below).
Recognition of professional qualifications in practice
Directives 2005/36/EC and 2006/123/EC will no longer apply to UK insolvency practitioners. Recognition may no longer be available and insolvency professionals who have relied on these provisions, or wish to rely on their UK qualification, should seek advice from the appropriate authorities in the member state where they wish to practice. As mentioned above, this should not affect pre 31 December 2020 insolvency appointments where the proceedings will benefit from the automatic recognition and effects provided by the Recast Insolvency Regulation.
What options are available for insolvency professionals?
As mentioned above, there are still some routes to recognition for UK and EU practitioners.
With regards to ‘incoming’ recognition requests from the EU (and other jurisdictions) to the UK courts, the Cross-Border Insolvency Regulations 2006 (‘CBIR’) which incorporate the UNCITRAL Model Law on cross border insolvency proceedings (Model Law) already provides a gateway to recognition and assistance for foreign proceedings. However, a formal application for recognition via the CBIR is required and will add time, cost and complexity to the recognition process,. Other mechanisms for assistance pursuant to s426 IA86 (limited to a defined list of countries, largely former commonwealth countries, but including Ireland) or based on common law principles may also be available in the UK for foreign representatives seeking assistance.
It may also be worth noting that the English courts will in theory have a wider jurisdiction to commence insolvency proceedings in relation to EEA debtors, as there will be no longer be a requirement for the centre of main interests (COMI) or and establishment to be located here.
In relation to, ‘outgoing’ recognition and assistance, this may be sought by UK insolvency office holders from the courts of a foreign state in relation to a UK insolvency proceeding where that foreign state has adopted the Model Law. Unfortunately, the Model Law has not been adopted by the UK’s main EU trading partners and so will not be available to UK office holders when asking courts in those non-adopting states for recognition and assistance. Those EU states which have adopted the Model Law are Greece; Poland; Romania; and Slovenia.
In most of the EU member states where the Model Law is not available, UK insolvency office holders would instead need to apply to the courts of each member state for recognition of their appointment and to seek the appropriate assistance as required in each case.. The consequences of seeking recognition and assistance would be additional time, costs and complexity which has historically been unpredictable and is subject to a patchwork of local law rules. Practitioners will need to factor in these additional steps, and make contingency arrangements not least to address the uncertainties that will arise from the lack of automatic recognition and potential for strategic jurisdictional challenges. In certain cases, for example, where creditors from elsewhere have participated in the UK insolvency processes by either voting or proving, recognition elsewhere may not be as crucial. But where assets need to be recovered and realised, there may be little option other than to seek formal recognition in the local court, and this may have implications for the timing and ability of the insolvency practitioner to effect any realisations . In cases where there are significant assets in the EU it may be worth insolvency practitioners considering whether to open a separate EU process in addition to the UK proceedings, any EU process would then benefit from automatic recognition elsewhere within the EU.
Recognition within the EU of insolvency proceedings commenced outside the EU Member States (i.e. commenced in third party states)
A table is available for download below and provides an overview for a number of key EU Member States. Other countries are available on Lexis®PSL Restructuring & Insolvency (subscription required) here: How EU Member States recognise insolvency proceedings of a third-party state.
Restructuring
In the context of restructurings too, different considerations apply after 31 December 2020. For example, whilst the English court’s jurisdiction to approve a scheme of arrangement, or a restructuring plan under the Companies Act 2006 is not dependent upon the European Insolvency Regulation, before sanctioning a scheme or plan in relation to international debtors, the English court requires evidence that it is likely to be recognised and given substantial effect in the relevant jurisdictions. At present, the English courts have adopted a practice of assuming that the Recast EU Judgments Regulation (Regulation (EU) No 1215/2012) applies to schemes and expert opinions provided to the English court have placed emphasis on the Recast EU Judgments Regulation as a basis for recognition. Come January 2021, the Recast EU Judgments Regulation will no longer be applicable to the UK and therefore, there will be greater reliance on the application of private international law for the recognition of schemes and restructuring plans.
Helpful links
- Europa.eu, Insolvency – The webpage provides an overview of Cross-border insolvency (EU rules) and links to detailed information on a number of EU State’s insolvency procedures (Link)
- Europa.eu, Summary of insolvency processes in each member state (Link)
- Europa.eu, Insolvency registers (Link)
- Europa.eu, List of local lawyers (Link)
- INSOL Europe (Link)
- INSOL Europe, Insolvency content- Technical content available to non-INSOL Europe members (Link)