If the UK were to leave the EU under a no-deal Brexit, what would it mean for the UK insolvency profession?
The UK’s insolvency and restructuring framework provide businesses and investors with the confidence that in the event of an insolvency, they will see at least some of their money back. Our strength and responsiveness are recognised globally, and the UK is listed by the World Bank as 14th in resolving insolvency. An effective, efficient and respected insolvency regime is crucial in attracting inward investment to the UK.
London is an internationally recognised centre of excellence in restructuring, with multinational companies choosing our capital as the best place to reorganise themselves. This is due to the quality of insolvency expertise available, access to funding, and fairness and the UK court justice system.
Insolvency and re-structuring across borders within the EU are underpinned by two key directives:
1. EUROPEAN INSOLVENCY REGULATION
This rules that the appointment of an insolvency practitioner – be it an Administrator, Liquidator or Trustee – in one EU state is automatically recognised by other EU members.
2. RECAST BRUSSELS REGULATION
This stipulates that court judgements made in any EU country are recognised and enforceable in other parts of the EU.
These two directives mean that a UK insolvency practitioner can take control of assets spread across the EU and dispose of business units en masse for the benefit of creditors, also stopping insolvency practitioners from other EU countries competing for the same assets on behalf of local creditors.
A NO-DEAL BREXIT
If we experience a no-deal Brexit without specific agreement, then the reality is the reverse. Any UK based insolvency practitioner handling instructions with cross-border assets will have to initiate insolvency proceedings in the EU countries where the petitioner has operations. This will add administrative cost, reduce funds available to be returned to creditors and reduce an insolvency practitioner’s ability to investigate suspected fraud.
UK practitioners will also be worse off compared to their EU counterparts. While the Government has taken steps to ensure the UK won’t continue to automatically recognise EU appointments and judgments in the absence of reciprocal automatic recognition for UK appointments and judgments, EU-based insolvency professionals will have a pathway to recognition thanks to the UK’s adoption of the UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments, and the Model Law on Cross-Border Insolvency.
However, the UK is one of a few member states who has adopted these laws. Greece, Poland, Romania and Slovenia are the others. Although these countries are important trading partners, they aren’t as important as Germany, France, Italy or Spain.
THE GOVERNMENT’S POSITION
So where does the Government stand on this?
Lobbying on behalf of the Insolvency Profession is R3, the association of business recovery professionals, Caroline Sumner, the association’s technical and education director, outlines their endeavours.
“We’ve been working hard to make sure that the insolvency and restructuring profession’s concerns are clearly spelt out to the Government, and we’ve had some success. It is now the Government’s stated policy to seek a post-Brexit agreement which closely reflects the existing framework of mutual recognition and cooperation on civil judicial matters, including, specifically, insolvency. While this is positive, it takes two – or 27 – to tango, and the shape of the future relationship remains to be decided. R3 will continue to argue for reciprocal automatic recognition, as it presents the best outcomes for all stakeholders in cross-border insolvency and restructuring cases, and for the economy overall.”
With little time to go before Brexit, it’s anybody’s guess under what terms the UK will leave. However, if the final position is that of no-deal, then it’s encouraging that the insolvency profession is not being forgotten.