Stephen Phillips, Co-head of Orrick's European Restructuring team, recently spoke with IFLR regarding the effect that Brexit could have on a century-old insolvency rule in the UK. According to the Gibbs rule, which has been reaffirmed in a recent case, debt governed by English law cannot be discharged or compromised by foreign insolvency proceedings. Many have said that the rule is outdated in our modern, globalized world.
Stephen agreed, noting, “When a group has a meaningful presence in multiple jurisdictions it seems appropriate to abandon the rule, subject to the ability of the UK courts not to recognize insolvencies where there are public policy reasons to do so.”
Currently the UK and EU Member States recognize each other’s insolvencies, but as they negotiate withdrawal of the UK from the EU, the UK needs to rethink how it views recognition both for EU Member States and the rest of the world. Stephen said he hoped that the EU and the Member States would negotiate mutual recognition of insolvency processes for Brexit.
“What would help is if there was a pre-agreed list of jurisdictions which have high standards of judicial processes where there would be a presumption that UK courts would grant full recognition to foreign processes – top of the list would be the US and Commonwealth countries which have a common law tradition," he said.
One options is for the UK to adopt a process similar to Chapter 15 of the U.S. Bankruptcy Code, which allows for the management of insolvency cases involving debtors, assets, and claimants involving multiple countries. Stephen noted, "I can imagine that if the UK adopted a U.S. Chapter 15 type recognition it would be frequently used given that many corporates hold assets or flow monies through the UK and they would want to know the UK courts would respect a foreign insolvency proceeding.”