Recognition – familiar but not the same

Insolvency Bitesize - November 2018

The UK Government announced earlier this autumn – as part of its series of no-deal Brexit papers -that in the event of a no-deal Brexit, the majority of the EU Insolvency Regulation would be repealed in all parts of the UK, an approach which would require consequential changes to domestic law.

The Government has said that in the event of a no-deal Brexit it would:
 
  • retain the EU rules that provide for the UK courts to have jurisdiction where a company or individual is based in the UK, and the law will ensure that insolvency proceedings can continue to be opened in those circumstances; and
  • remove the EU Insolvency Regulation tests on the opening of proceedings, so that it would be possible to open insolvency proceedings under any of the tests set out in our domestic UK law, regardless of whether (or where) the debtor is based elsewhere in Europe.
Without the EU Insolvency Regulation (and unless and until a bespoke agreement is made between the UK and EU27), UK insolvency practitioners would need to apply under each EU27 member state’s domestic law for UK insolvency proceedings and judgments to be recognised.

Looking at things from the perspective of the EU27, abandoning the EU Insolvency Regulation would place the focus squarely on the existing Cross-Border Insolvency Regulations 2006. While not as extensive as the EU Insolvency Regulation, they provide a tried-and-tested route for the recognition of non-UK insolvency proceedings.

For insolvency-related judgments (e.g. an insolvency claw-back judgment), recognition in the UK of EU27 judgments would be a question of English national law. The Supreme Court has previously held that there are no special rules under English common law which apply to the recognition and enforcement of insolvency-related judgments, so they should be treated in the same way as non-insolvency related judgments. The continuing relevance of the Gibbs principle is clearly highly significant in this situation (e.g. for an EU27 restructuring plan looking to deal with English law debt). While UNCITRAL has recently approved and adopted the text of a new Model Law on the Recognition and Enforcement of Insolvency-Related Judgments, together with a guide to enactment, it remains to be seen which countries will look to adopt it. The position for the UK is uncertain and will be influenced by its final Brexit position. In a no-deal Brexit, it would be unlikely that the UK would unilaterally implement the new UNCITRAL model law.