Brexit is now a reality; what lies ahead for restructuring and
insolvency law? These views are limited to English law and do not
apply to credit institutions and insurance undertakings, which are
subject to their own regimes in the UK and across the EU.
What, when, how? No change in the short term
It currently appears that 'Article 50' (the mechanism by
which Brexit is formally started) will not be invoked until October
2016 at the earliest, following election of a new Conservative
Party leader (and Prime Minister). The two year time period for the
exit negotiations can be increased by agreement, but is unlikely to
be shortened given the complexity of the issues. Therefore, the
status quo will probably be maintained, and probably at least for
What is the impact on restructuring and insolvency law?
Domestic restructurings and insolvencies will
remain largely untouched unless UK legislation enacted to give
effect to EU legislation is repealed e.g. the Financial Collateral
Arrangements (No 2) Regulations 2003, which allow the enforcement
of security taken over a financial collateral arrangement (such as
cash and shares) to be enforced in spite of any statutory
moratorium. We note in passing that the market believes these
Regulations are likely to remain in place.
Cross-border cases will be affected as the
European Insolvency Regulation (EIR) will no
longer apply and UK cases will not receive automatic recognition
and other benefits of the EIR from EU Member States, unless
bilateral treaties are now agreed with each State.
On the other hand, foreign insolvency procedures seeking
recognition in the UK would be able to rely on s 426 of the
Insolvency Act 1986 (for Ireland) and the Cross Border Insolvency
Regulations 2006 (which enacted the UNCITRAL Model Law into English
legislation) and the common law to seek the recognition and
assistance of the English court. However, the breadth of matters
dealt with under these heads of law is narrower than those covered
by the EIR.
Schemes of Arrangement under the Companies Act
2006 (Schemes) are unlikely to be affected as Schemes are not
covered by the EIR or recast EIR.
The laws on enforcement of judgments across borders may,
however, have an impact. As the European Judgments Regulation
applies to the UK, current thinking is that in order to sanction a
Scheme, the English court must not only be satisfied that it has
jurisdiction over the company proposing the Scheme, but also over
scheme creditors. Once the Judgments Regulation no longer has
effect, it could be argued that the English court has a wider
discretion to accept jurisdiction in relation to Schemes, because
only the English law test would continue to apply – the
debtor must have sufficient connection to the jurisdiction.
However, the English court would want to be satisfied that any
order it makes will have effect in any relevant foreign
jurisdictions. Without the use of the Judgments Regulation or other
arrangements being made (for example, the UK could remain a party
to the Lugano Convention on jurisdiction and the enforcement of
judgments in its own right (it is currently a party as a member of
the EU)), this could prove more difficult, though not
Should I be taking any action now?
Keep a watching brief. The analysis may change dependent on the
exit negotiations and models adopted by the UK for business and
legal interaction across borders
In addition, the European Commission intends to issue a
consultation document later this year seeking views on
harmonisation of restructuring legislation across Member
Other Member States are also reviewing their insolvency and
All these changes may mean that forum shopping to make use of
English restructuring and insolvency processes, particularly in
cross-border cases, may dwindle. However, if adequate mirroring
provisions are put in place, the impact could be minimal.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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