Insolvency and restructuring law is dominated by EU Regulations, and the whole process is intrinsically bound together by various international treaties, allowing for collaboration between member states to ensure an efficient and workable solution where companies are requiring these operations. There is still a great deal of uncertainty surrounding the outcome of the UK exiting the EU, and this means companies need to prepare themselves for a broad range of possibilities. One of the possibilities that companies need to prepare for is a no-deal Brexit where the UK leaves without a withdrawal agreement in place. The impact on companies will be far-reaching in all areas including in relation to restructuring and insolvency transactions. Here we consider some of the issues that could arise.
What Are the Main Issues in The Case of No-Deal Brexit?
There are two essential pieces of EU legislation that are very important to insolvency and restructuring proceedings:
- The council regulation no. 2015/848 on insolvency proceedings.
- Regulation (EU) no 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
The UK is recognised across the world as a leader in restructuring practices. Since countries within the EU recognise proceedings across other member states, this has meant that the UK has often been used as the central point for dealing with businesses with operations across Europe that are in difficulty. Any assets that are dispersed through Europe can be realised in the situation of insolvency due to each EU member state recognising the insolvency proceedings in another member state.
In the event of a no-deal Brexit, companies would need to bear in mind that UK insolvency proceedings would no longer be automatically recognised in EU countries under the regulations on insolvency proceedings. The lack of automatic recognition would increase both time and costs and also make the whole process a lot more complicated. This would mean that all insolvency office holders (including administrators and liquidators) would need to apply to the relevant courts of each member state where any assets are held for their appointment to be recognised. The office holders would also need to apply to the member state to assist them in recovering the assets. Depending on the member state, this may not just be time-consuming and expensive but could also be very difficult depending on how willing they are to cooperate (which will vary from state to state). Similarly, the UK would not automatically recognise any office holders from other EU member states, and again they would have to apply to have their position recognised in the UK. This would, therefore, increase the costs, complexity and timings of cases.
Another area of change would be concerning how debts can be collected from insolvent companies based in Europe. Under the EU Jurisdiction Regulation, companies are helped with the collection of debts in cross-border situations by recognising the UK scheme of arrangements in other member states. This has been a vital tool for corporate restructuring. In the case of a no-deal Brexit, this would no longer automatically apply, and the UK would need to use other avenues that would need to be agreed with the member states.
There is also legislation in place that is designed to reduce the problems that arise when a financial institution or insurance company becomes insolvent meaning that any proceedings are recognised across EU member states. If the UK were to leave the EU without a deal, then this recognition would end, meaning that the UK would have to make separate arrangements with member states which would make the whole process a lot more difficult.
What Should We Expect?
The UK cannot replicate these Regulations automatically with their own legislation to ensure recognition across EU member states. There is a need for the other member states to ratify or agree to the UK insolvency and restructuring proceedings. In the case of an agreed withdrawal deal, it is possible that the relevant insolvency and restructuring legislation would become part of UK domestic law. However, this would lead to EU office holders being automatically recognised in the UK and is something that is therefore unlikely to be agreed since the other member states would not have to automatically recognise UK insolvency office holders in return.
As with most issues concerning Brexit- no one really knows what to expect. There are some issues that have clarity- any cases that were decided before the final withdrawal date will be recognised under the EU regulations, as well as any cases that are currently ongoing but started before the withdrawal.
The issues that need confirming are in relation to any cases that arise once the withdrawal date has passed. The UK Government has stated that they will be negotiating an agreement with the EU about cross border cases and the need for reciprocal cooperation. The difficulty here is that the Government is taking a tough stance in relation to how much influence the European Court of Justice would have in the UK after the withdrawal date and this would significantly affect such an agreement being accepted. The UK will no longer be able to influence any of the EU legislation that will govern the other member states and affect cross-border processes.
The UK's actual exit agreement from the EU remains completely uncertain, and so the effect it will have on companies is not clear. Even post-Brexit, UK businesses will still wish to have business relationships with companies across Europe, and so it is hoped the UK model will maintain the situation under the current regime as much as possible.
Contact Our Restructuring and Insolvency Solicitors Mayfair and Throughout London
Where company directors anticipate insolvency, it is highly advisable to seek the advice of an experienced Insolvency Solicitor for advice on debt restructuring and how best to negotiate with creditors. It is also paramount to have an understanding of how directors must conduct themselves when their company does enter insolvency.
The Restructuring and Insolvency Solicitors at Lewis Nedas have served a wide range of clients with their financial affairs during difficult times, including directors in insolvency and stakeholders such as banks, sponsors and landlords. We have provided expert advice on salvaging company prospects, including reorganising and restructuring of debts.
For further information or to speak to our expert Restructuring and Insolvency Lawyers, please contact us on 020 7387 2032 or complete our online enquiry form.
