How is Brexit going to impact Insolvency Restructuring?


Insolvency Restructuring (assuming Theresa May gets a deal in mid-January and Brexit happens) is certainly going to affect UK’s current legislation on insolvency and proceedings that directly affect cross-border insolvency. In 2017, recast EIR replaced EIR as the overseer of cross-border insolvency. EIR is considered by many to be a success (with aid from European Court of Justice in clarifying its concepts).

However, its scope was small, consequently leading to creation of recast EIR in June last year. Recast EIR brought new provisions with regards to cross-border insolvency. The intention behind recast EIR emergence is to encourage a rescue culture instead of liquidating viable businesses without exploring and exhausting other options. The original regulation under EIR was enlarged into pre-insolvency proceedings when recast EIR came into effect. Recast EIR also removed restrictions on secondary proceedings, which is of note to insolvency practitioners Manchester and others in the UK.

Recast EIR provides for automatic recognition of insolvency proceedings as long as they are commenced in European Union (it is where the debtor’s main interests are found.) This legislation affects all EU members with Denmark as an exception. However, after Brexit, this regulation will not have a direct effect on United Kingdom unless arrangements are made before UK exits. When it comes to how cross-border insolvency is likely to work post-Brexit, insolvency proceedings will be automatically recognized. EU’s withdraw agreement revealed that for outbound and inbound insolvencies. the new provisions would apply if insolvency proceedings had started prior to transition period. Therefore, the provisions would not apply after the transition period has ended. Assuming this was the case, UK would have to refer to domestic legislation on matters that touch on EU legislation.

Whether United Kingdom would agree with EU that EIR provisions to still remain effective Post- Brexit, thereby sign bilateral treaties and continue automatic recognition, remains to be seen. Business Recovery Professionals association, R3, has previously called on the State to protect the interests of EIR in order to maximize creditors’ wealth as well as reduce costs associated with insolvency proceedings.

Commercial and cross-border civil judgments are recognized by Recast Brussels Regulation, which enables insolvency/restructuring sector to deal with cross-border fraudulence and to collect debts from parties that are insolvent. R3 has time and again warned that without this provision, the UK would be forced to rely on principles and law opinions of international law to determine whether they are entitled to recover debts that may be owed by other member States of EU. This agreement is set up when a company wants to restructure its debt in order to support it when financial pressure arises. The scheme is used internationally to restructure the UK and companies abroad. However, the scheme has not been included in recast EIR’s list of procedures. Without Recast Brussels Regulation, the Scheme of Arrangement becomes a less attractive tool for restructuring. Brexit will certainly diminish UK as a centre for restructuring international work.

Applying insolvency regulations after Brexit happens cannot be guaranteed until the UK government agrees on the terms of agreement for its withdrawal from the European Union. A case has been made recently on the advantage of applying for the legislation. However, the question is whether EU and the UK government can come to agreement on exit terms of UK. Nevertheless, the case for maintaining regulations is still strong and if it is beneficial to both parties, the insolvency and restructuring sector of UK can protect itself and also stave off competition from other cities in Europe as a leader in International Restructuring.