Regulatory framework: insolvency
The EU regulatory framework enables more efficient cross-border insolvency proceedings.
Why and for whom is it important?
Insolvency and the related areas of restructuring law and practice play key roles in successful economies. When operating well, they can help preserve employment and maximise returns to creditors when businesses fail. Brexit may have a number of adverse consequences for both insolvency and restructuring.
The current EU framework, through the recently recast EU Insolvency Regulation, provides the basis for cross-border insolvency procedures. It ensures that a court in one jurisdiction will recognise the appointment of an insolvency practitioner in another jurisdiction. It also makes clear that the insolvency regime of that other jurisdiction generally applies in both jurisdictions. In addition, the recast Brussels I Regulation, assists efficient cross-border restructuring processes in the EU by ensuring the mutual recognition of judgments.
What are our key concerns?
We see the potential for risks, uncertainty, and the occurrence of duplicative burdens and legal complexity for corporate entities, investors and creditors. These could arise in particular through conflicts of law delaying or reducing distributions to creditors. In particular, we note that tax authorities are often significant creditors.
In the absence of a EU27-UK agreement, where an insolvency practitioner is appointed in the UK to act in the case of a corporate insolvency with assets and creditors across the UK and EU27, it would be necessary for the insolvency practitioner to apply to courts in each of the relevant EU27 jurisdictions to seek to be recognised as the appropriate authority having jurisdiction over the assets in the EU27. This additional procedure in itself will necessarily involve additional costs and complexity. There is also a risk of preference being accorded to creditors in the specific jurisdiction where assets are located, to the prejudice of creditors elsewhere.
It is also important to consider the potential impact of Brexit on corporate restructurings which often entail insolvency processes and which may be damaging for the EU27 economy.
What needs to be done?
We call for a UK-EU27 future agreement to include provisions enabling the mutual recognition of insolvency appointments and of judgments based, if possible, on the EU recast Insolvency Regulation or through the adoption of the Model Law established through the United Nations’ Commission on International Trade Law (UNCITRAL). We also call for the establishment of regular channels of liaison on regulatory developments.