Dechert’s financial restructuring group has across-the-board experience representing creditors, investors and troubled companies in all types of in-court and out-of-court restructuring matters around the world.
Brexit will significantly impact the framework for cross-border restructurings and insolvencies in the UK and the EU.
There is still no certainty of the basis upon which the UK will exit the EU. The current Withdrawal Agreement has been rejected by the UK Parliament three times in record numbers.
In the scenario where the UK leaves the EU as contemplated under the current Withdrawal Agreement, the EU Insolvency Regulation and the Brussels Regulation (often called the Judgments Regulation) will continue to apply for a transitional period until at least December 2020 (although the Government may decide to repeal them sooner).
In a no-deal Brexit, the EU Insolvency Regulation and the Judgments Regulation will cease to have supremacy under UK Law, but will still be applicable when interpreting the concept of COMI.
Imminent Brexit issues to consider:
Recognition in EU member states of UK insolvency procedures. If the EU Insolvency Regulation is repealed, UK insolvency procedures will no longer benefit from automatic recognition in EU member states. Instead, it may be that UK officeholders have to apply to each EU member state for recognition relying on its domestic laws. UK officeholders may also be able to make an application for recognition under the UNCITRAL Model Law in the EU member states that have adopted it (Greece, Poland, Romania and Slovenia).
Recognition of schemes of arrangement. UK schemes of arrangement are currently recognised in EU member states by virtue of the Judgments Regulation. If the Judgments Regulation is repealed schemes of arrangement will no longer be automatically recognised in EU member states and companies proposing schemes will have to seek recognition in EU member states by relying on their domestic laws. In a ‘no-deal Brexit’ if agreements governed by English law are the subject of a scheme in an EU member state, the recent case of OJSC International Bank of Azerbaijan suggests the rule in Gibbs would require a parallel scheme in the UK for absolute certainty that the restructuring is enforceable.
Recognition in the UK of EU member state insolvency procedures. If the EU Insolvency Regulation is repealed, insolvency procedures in EU member states will continue to be recognised in the UK but will be recognised by virtue of the Cross Border Insolvency Regulations (CBIR) (which adopt the UNCITRAL Model Law in UK domestic legislation) rather than the EU Insolvency Regulation. The key differences between recognition in the UK under the EU Insolvency Regulation and the CBIR are (i) EU member state officeholders will have to make an application in the UK courts for recognition under the CBIR (rather than being recognised automatically under the EU Insolvency Regulation) and (ii) recognition under the CBIR is procedural rather than substantive in nature.
Impact outside of the EU. For completeness, it is important to note that Brexit will not have any impact on the recognition of UK insolvency procedures or schemes of arrangement in states outside of the EU (such as the US) which will continue to operate in the same manner.