Cross Border Insolvency: What Happens After Brexit?

Cross Border Insolvency: What Happens After Brexit?

Cross Border Insolvency: What Happens After Brexit?

While many people were surprised by the EU Referendum result on 23rd June, we are now in the situation where we have to deal with the ramifications. One important area that is going to need addressing is the legal solution for dealing with cross boarder insolvency.

This is currently covered under the EC Insolvency Regulation which has 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.

Essentially, it means legislation for taking action in insolvency cases is uniform across the EU and makes 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.

If we are no longer party to the EUU 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.

There are companies that can help with Cross border insolvency. It 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.

Hopefully, for many creditors, part of the Brexit agreement is going to be a negotiated settlement that allows the UK to remain part of the EU Insolvency Regulation. As a legal framework that works both ways it would make sense to keep this in place but, as with so much in the brave new world of Brexit, we are in unchartered territory.