Brexit, Nortel and extending administrations
Insolvency Bitesize - April 2018
A recent application to extend the administrations of the Nortel group of companies suggests that uncertainty surrounding the impact of Brexit on cross-border recognition may lead to shorter than planned extensions in some cases.
Nortel Networks UK and 18 other EMEA group companies have each been in administration since 2009. The administration proceedings are main proceedings under the EU Insolvency Regulation and, except for a French group company, no secondary proceedings have been opened in respect of any of them elsewhere in the EU.
The administrators are in the process of making distributions following a global settlement reached in May 2017 allocating the monies from the global sale of the group’s business and assets. The distribution process includes 15 of the EMEA group companies entering into a company voluntary arrangement with their creditors for which the administrators are supervisors (and the administrators anticipate proposing a CVA for the French Nortel company).
Ordinarily, administration appointments terminate after one year, but the court has the power to extend the term for a specified period, if requested. There have been four previous extensions of the Nortel administrations, the last for 24 months until 13 January 2018. The administrators recently sought to extend their term again to allow for the distribution process to be completed and to avoid the unnecessary time and cost of a liquidation. They applied for, and were granted, an extension of just one year to 13 January 2019.
The administrators did not seek a longer extension because of the uncertainty caused by Brexit on the continued application of the EU Insolvency Regulation to the administrations and CVAs. It is not yet clear if, or how, the Regulation will apply - and whether the administrations and CVAs will continue to be recognised by the courts of the EU Member States - on or after 29 March 2019 when the UK’s withdrawal from the EU is expected to take effect. The High Court agreed that it would not be “prudent” to extend the administrations beyond that date at this stage.
The decision suggests that:
- for more domestic administrations, the Nortel concerns should not apply;
- securing an extension of an administration beyond 29 March 2019 will likely be an issue where continued cross-border recognition is important. This might give rise to shorter than planned extensions, raising difficulties of its own; and
- administrators looking to extend will need to consider if it is likely they can achieve the administration purpose before 29 March 2019 – if not, they will need to rethink their strategy. In Nortel, the administrators considered that it should be possible to complete the administrations of most of the companies within the one-year extension, but that they would seek further directions in late 2018 for any company administration likely to continue beyond 13 January 2019, when the position on recognition should be clearer.
The EU’s draft Withdrawal Agreement indicates that the EU Insolvency Regulation will continue to apply in the UK - and in Member States in situations involving the UK – provided that the main insolvency proceedings are opened before 31 December 2020. If implemented, it would appear to deal with the concerns raised in this case about extending administration proceedings, at least for proceedings opened before the end of the transition period. But it is not a solution to the issue of the continued recognition for proceedings opened after that date. That remains one of the many uncertainties caused by Brexit.