Restructuring Alert | June.27.2017
Yesterday, on 26 June 2017, the Recast EU Insolvency Regulation (Council Regulation (EC) No. 2015/848) came into force. It will apply to all relevant insolvency proceedings (although existing and ongoing proceedings will continue to be bound by the EU Insolvency Regulation (Council Regulation (EC) No. 1346/2000) (the “EIR”)). The Recast EU Insolvency Regulation will have direct effect in all EU member states (except Denmark).”
The Recast EU Insolvency Regulation is an update of the EIR following ten years of insolvency practice and experience since the EIR’s implementation. Largely, it represents a codification of well-established insolvency practice developed across the EU under the EIR however, it also introduces new innovative steps which, it is hoped, mark a step forward in light of learnings under the EIR to address perceived issues or “gaps” in existing legislation.
A summary of the key features of the Recast EU Insolvency Regulation was circulated by Orrick, Herrington, & Sutcliffe, LLP on 2 September 2015 and can be found here.
One issue which is not considered in this summary is the impact of Brexit on the insolvency regime in England and Wales.
As with all European law, upon the UK’s exit from the EU, the Recast EU Insolvency Regulation will remain English law subject to any subsequent review and repeal. We expect that the Recast EU Insolvency Regulation will continue to have effect in England and Wales (provided the approach of the UK government does not change radically). However, whether EU member states continue to recognise English law insolvency proceedings (under the Recast EU Insolvency Regulation or otherwise) remains to be seen.
There may be issues in EU member states recognising UK proceedings as a result of the drafting of the Recast EU Insolvency Regulation which refers to “Member States” and the “court of the Member States”. Upon leaving the EU, the UK and UK proceedings will not be captured by this language and there will thus be no obligation on EU member states to recognise decisions from the UK courts or insolvency proceedings initiated in the UK. It may instead be necessary for officeholders appointed in UK insolvency proceedings to seek recognition in EU member states under local law in each member state – this will be a huge step backwards in insolvency proceedings which have been made far more efficient under automatic recognition provisions (amongst other things) of the EIR.
UK officeholders could still seek some comfort under other laws (e.g. UNCITRAL), however this is of limited comfort as it achieves far less certainty of outcome. For example, in the case of UNCITRAL, this has not been enacted in all member states (in fact, to date, only Greece, Poland, Romania and Slovenia have adopted UNCITRAL) and relates largely to co-ordination and assistance between courts rather than recognition and enforcement of foreign insolvency processes.
As part of negotiations with EU member states relating to Brexit, UK authorities could seek to be the only non-Member State subject to the Recast EU Insolvency Regulation (with EU Member States recognising and enforcing UK procedures and vice versa). Certainly this would have benefits to officeholders appointed in the UK and across the EU however, given the fractious state of relations between UK and EU authorities regarding Brexit to date it is unlikely that the UK will be granted any “favours”. In the absence of some arrangement regarding recognition across the EU, the UK will present a less attractive jurisdiction for debtors or creditors in which to commence insolvency proceedings than it has been to date. We will provide further updates on this issue as Brexit negotiations continue.