The impact of Brexit ‘no deal’ on UK insolvency framework
In a technical note issued on the subject of civil legal cases, the government states that the bulk of the current shared insolvency regulation will be repealed, but that the EU rules ‘that provide for the UK courts to have jurisdiction where a company or individual is based in the UK’ will be preserved. However, the existing EU insolvency regulation will no longer restrict action, allowing proceedings to be opened under the tests set out in UK domestic law, regardless of the location of the debtor.
In the future, UK insolvency practitioners will need to apply under an EU country’s domestic law to have UK regulations recognised there. In cases where UK insolvency laws are not recognised, cases will take on additional complexity, and the paper advises insolvency practitioners to ‘take professional advice on the prospects of successfully obtaining recognition for a UK insolvency order in an EU country’. EU insolvency proceedings will likewise no longer be recognised unless they adhere to United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (1997).
Commenting on the lack of a UK-EU insolvency framework Stuart Frith, president of R3, the trade association for the UK’s insolvency, restructuring, advisory, and turnaround professionals, has said:
‘We would be deeply concerned about the impact of a “no deal” on the UK’s insolvency and restructuring framework. The strength of the UK’s insolvency and restructuring framework partially depends on its pan-European reach. At the moment, EU regulations mean UK insolvency and restructuring procedures and judgments are automatically recognised across the EU – and vice versa. A loss of this recognition, as would happen in a “no deal” situation, would be bad news for UK businesses and creditors.
‘If the current EU-UK insolvency framework is not preserved post-Brexit then it will become much more expensive and difficult to resolve UK and EU insolvency cases where UK-EU cross-border work is required. This will jeopardise creditor returns, business and job rescue, lending and investment, and it will damage the UK’s reputation as a place to do business.
‘The insolvency and restructuring framework is there to provide businesses, lenders, and investors with the confidence that, in the event of an insolvency, they will see at least some of their money back. Adding barriers to this process where a UK company has a presence in the EU would damage confidence in trading with, lending to, and investing in that company.
‘In the event of a “no deal”, it is important that the government takes steps to improve the domestic insolvency framework in order to maintain its international competitiveness. The government has just published plans to deliver a package of major insolvency reforms first proposed in 2016, but the timetable for introducing them is not clear. Introducing the reforms would be a good step towards mitigating some of the problems which the loss of automatic recognition might cause.’
Article © www.accountancydaily.co