Changes to UK insolvency laws on “no deal” exit
Posted in Financial restructuring and insolvency
The Insolvency (Amendment) (EU Exit) Regulations 2018 (the Insolvency Amendment Regulations) published 19th November 2018 seek to deal with necessary amendments to EU insolvency legislation currently having direct effect in the UK. They will come into force on 29th March, 2019, Brexitt day, and set out how the EU Insolvency Regulation (EU) 2015/848 (the EIR) will operate on a “no deal” exit. Broadly, the effect of the draft Insolvency Amendment Regulations is to give jurisdiction to UK courts to open insolvency proceedings following the Brexit date, where the proceedings are opened for the purposes of rescue, adjustment of debt, reorganisation or liquidation and—
(a) the centre of the debtor’s main interests is in the United Kingdom; or
(b) the centre of the debtor’s main interests is in a Member State and there is an establishment in the United Kingdom.
These tests are consistent with the EIR for determining the proper jurisdiction for a debtor's insolvency proceedings and the applicable law to be used in those proceedings. However, the Insolvency Amendment Regulations go on to say this jurisdiction will be in addition to any grounds for jurisdiction to open such proceedings which apply in the laws of any part of the United Kingdom. This effectively extends the UK court’s jurisdiction (i) to wind up any foreign company which might be wound up as an unregistered company under UK insolvency laws regardless of whether the centre of main interests is in a Member State, provided the court considers there to be sufficient connection to warrant this; and (ii) to place a company incorporated in an EEA state, or having its centre of main interests in an EEA state, into administration in the UK. This will leave the way open to races to open proceedings in competing states.
For proceedings opened under the EIR prior to Brexit day, transitional provisions provide that the UK court will continue to apply the terms of the EIR unless the court considers the interests of a creditor, the debtor, or shareholders of a corporate debtor, would be materially prejudiced; or if the court considers it would be manifestly contrary to public policy. The UK courts would then have authority to apply relevant UK law and make any other order thought fit. Insolvency Service guidance explains this is necessary since Member States will no longer afford UK insolvency proceedings recognition on a “no deal” exit.