Brexit no deal—impact on insolvency

19 Sep 2018 | 4 min read

One of the second batch of ‘no deal’ technical notes’ published by the government on 13 September 2018 is a guidance note ‘Handling civil legal cases that involve EU countries if there’s no Brexit Deal’. The government has issued its guidance on its stance should the UK leave the EU without agreement (a ‘no deal’ scenario), including that the Recast Regulation on Insolvency, Regulation (EU) 2015/848 would be repealed.

Original news

On 13 September 2018, the government issued guidance on its stance should the UK leave the EU without agreement (a ‘no deal’ scenario). While stressing that a no deal scenario remained unlikely, they have issued a series of technical notices setting out information to allow businesses and citizens to understand what they would need to do in a no deal scenario, so they can make informed plans and preparations.

Cross-border insolvency cooperation

Importantly for R&I lawyers, the guidance says that the majority of the Recast Regulation on Insolvency, Regulation (EU) 2015/848 would be repealed in all parts of the UK. The UK 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. But after exit, the Recast Regulation on Insolvency tests would no longer restrict the opening of proceedings, and it would also 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.’

In practice, UK insolvency practitioners would need to make applications under an EU country’s domestic law in order to have UK orders recognised there (ie outbound proceedings). In certain circumstances, some EU countries may not recognise UK insolvency proceedings, for example if that would prevent creditors from taking action against the assets held in that country.

EU insolvency proceedings and judgments (ie inbound proceedings) would no longer be recognisable in the UK under the Recast Regulation on Insolvency, but may be recognised under the UNCITRAL Model Law on Cross-Border Insolvency, which already forms part of the UK’s domestic rules on recognising foreign insolvencies (under the Cross Border Insolvency Regulations 2006, SI 2006/1030).

Civil and commercial judicial cooperation

The government has also stated that the following rules would be repealed for all parts of the UK:

  • Brussels I (recast), Regulation (EU) 1215/2012: which provides rules to decide where a case should be heard when it raises cross-border issues between the UK and other EU countries, and the recognition and enforcement of civil and commercial judgments between EU countries
  • The Enforcement Order, Order for Payment and Small Claims Regulations: which establish EU procedures for dealing with, respectively, uncontested debts and claims worth less than EUR 5,000
  • The EU/Denmark Agreement: which provides rules to decide where a case would be heard when it raises cross-border issues between Denmark and EU countries, and the recognition and enforcement of civil and commercial judgments between the EU and Denmark
  • The Lugano Convention: which is the basis of our civil judicial relationship with Norway, Iceland and Switzerland: This would not prevent the UK applying to re-join the Lugano Convention in its own right at a later date

For rules in these areas, the UK would instead revert to the existing domestic common law and statutory rules, which currently apply in cross border cases concerning the rest of the world, to govern the UK’s relationship with the remaining EU countries (and Iceland, Norway and Switzerland). The UK would retain Rome I and Rome II rules, which generally do not rely on reciprocity to operate. Further, in the event of no deal, the UK would take the necessary steps to formally re-join the 2005 Hague Convention on Choice of Court Agreements in its own right (pre-Brexit, the UK participates because of its EU membership). It is anticipated that the Hague Convention would come in to force across the UK by 1 April 2019.

Further Reading

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Filed Under: Brexit

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