Cross Border Insolvency: What Happens after Brexit?

EU Regulation

The recent result of EU Referendum, on 23rd June, raised many hidden issues and brought us to the situation where we need to deal with the ramifications. There is a legal solution for dealing with cross border insolvency that is currently covered by the EC Insolvency Regulation. Below is a number of important components:

  • It determines which jurisdiction is right and proper for insolvency proceedings relating to a particular debtor.
  • It outlines the law that can be applied in these proceedings.
  • It provides mandatory recognition of proceedings such as these across other EU states.

What exactly is EU Insolvency Regulation?

EU Insolvency legislation enables taking action in insolvency cases and is uniform across the EU making it easier to get a result. If a debtor is operating mainly within a particular EU state then the regulations recognise that particular state as the main place where any insolvency proceedings should take place. It is a legal agreement that the UK is party to and means that any decision reached in a particular state is recognised by our courts in the UK and vice versa. This agreement takes priority and any other proceedings come secondary to the primary proceedings. It is a piece of legislation that has worked well to date and has enabled cross border insolvencies to be settled in a singular manner. With the UK leaving the EU, however, the potential withdrawal of the EU Insolvency Regulation could cause future problems, particularly where you have a debtor operating in several EU states.

The Cross-Border Insolvency Regulations 2006

If we are no longer party to the EU Insolvency Regulation, the solution might be to rely on other laws that are in place within the UK. Fortunately, the EU Insolvency Regulation is not the only tool that creditors here in the UK can draw on. The Cross-Border Insolvency Regulations 2006 which include provision under the UNCITRAL Model Law. If another EU state uses the same model, then it provides the framework whereby English courts can recognise proceedings started in that country.

Outside of this particular model though, much will depend on the legislation that is in place in particular state. English law insolvency decisions will only be recognised if there is cross border agreement or recognition, a framework which could complicate legal arguments and add to the difficulty of settling cases.

Cross border insolvency can be an incredibly complex area of law, especially when it comes to jurisdictional issues. The current EU Insolvency Regulation has worked well and has benefited many creditors looking to recoup their money. With the decision to Brexit, there’s no doubt that the rules are going to have to be looked at carefully. It may involve creditors having to bring new proceedings in states where there are assets. It could also mean that member states would need to be approached case by case with a view to recognising proceedings in the UK.

It might occur that part of the Brexit agreement is going to be a negotiated settlement that allows the UK to remain part of the EU Insolvency Regulation which is beneficial for may creditors. It would make sense to keep this in place as a legal framework that works both ways. However, as with so much in the brave new world of Brexit, we are in unchartered territory.