What happens to insolvency proceedings if the UK leaves the UK without a deal?
With "Brexit Day", 29 March 2019, drawing immediately close without any sign of deal, we take a look at what a no-deal Brexit would mean for insolvency practitioners.
The EU are willing to extend this date to 22 May 2019 if the Prime Minister can get her deal approved by Parliament, if not, Mrs May needs to go back to the EU by 12 April 2019 with a new way forward.
As it stands, the legislative position has not yet changed so that without further amendment, "Brexit Day" remains as 29 March 2019, although it looks likely secondary legislation will be put before the House of Commons this week to amend this.
Clearly, by the time this article is published things may well have changed further.
On 30 January 2019, the Insolvency (Amendment) (EU exit) Regulations 2019 ("the Exit Regulations") were made pursuant to the European Union (Withdrawal) Act 2018 ("the Act").
In effect the Act makes both the Insolvency Regulation 2000 (EU 1346/2000) ("EU Insolvency Regulations") and the Recast Insolvency Regulation (EU 2015/848) ("the Recast Regulations") part of English Law immediately upon exit day, 29 March 2019.
The Exit Regulations are designed to remedy any deficiencies or other defects in the EU Insolvency Regulations or the Recast Regulations. In the event of a no-deal situation, they will come into effect on exit day, which is 29 March 2019.
The Exit Regulations will not apply to:-
- Existing insolvency proceedings within the ambit of the EU Insolvency Regulations ;
- Main insolvency proceedings under the Recast Regulation that were opened before 29 March 2019;
- Secondary proceedings where main proceedings have been opened in another EU Member State under the Recast Regulation before 29 March 2019;
- Any proceedings for an action that derives directly from insolvency proceedings and are closely linked to them, falling within Article 6 of the Recast Regulation.
In these cases, the EU Insolvency Regulations and Recast Regulations will continue to apply, any consequential changes by the Exit Regulations will not apply, and the EU Insolvency Regulations and Recast Regulations will be read as if the UK were still an EU Member State.
However, Regulation 5 of the Exit Regulations will allow the English Courts to apply other relevant laws or make any other order it thinks fit, in certain circumstances, which we will deal with below.
On or after 29 March 2019, the Recast Insolvency Regulations will apply by virtue of the Act but as amended by the Exit Regulations.
Overall this mean a debtor can be placed into insolvency proceedings in the UK if the debtor as its centre of main interests in the UK, or has its centre of main interests in another EU Member State and an establishment in the UK.
For insolvencies commencing after 29 March 2019, where no main proceedings have already been opened, the effects of Recast Insolvency Regulation in the UK are limited to:-
- Article 1 of the Recast Regulations- jurisdiction to open insolvency proceedings;
- Article 3- centre of main interests;
- Article 4- grounds on which a decision to open insolvency proceedings can be made; and
- Article 5- an ability to challenge a decision to open insolvency proceedings.
As mentioned above, Regulation 5 of the Exit Regulations allows a Court in England and Wales to apply any other part of English Law or make any other it thinks fit, where the insolvency proceedings were opened before exit day, and are therefore subject to the EU Insolvency Regulation or the Recast Regulations.
The Court may only do in circumstances where it considers that the effect of the EU Insolvency Regulation or the Recast Insolvency Regulation is or would be different to what would be the effect had the EU Member State treated the UK as a Member State under those regulations, and the Court considers that the following be materially prejudiced:
- Interests of creditors;
- Interests of the debtor;
- Interests of the members of a body corporate debtor
Or the Court considers it manifestly contrary to public policy to apply the relevant regulation of the EU Insolvency Regulations or the Recast Regulations.
The Exit Regulations also amend the Insolvency 1986 and the Insolvency Rules 2016, mostly to amend language and references to the EU Insolvency Regulations and Recast Regulations. However, one amendment is particularly substantive and that is relation to the jurisdiction of the English Courts.
In particular, these changes allow a company to go into a CVA or an administration where it has its centre of main interest in an EU Member State, even if it has no establishment in the UK.
In respect of bankruptcies, the English Courts are given jurisdiction where the debtor has their centre of main interest in England and Wales, or in an EU Member State but where they also have an established in England and Wales.
Finally, there is no change in the jurisdiction of the English Courts in respect of liquidations.
In terms of the Insolvency Rules 2016, definitions of "main proceedings", "secondary proceedings", "territorial proceedings" and "non-EU proceedings" have been removed. Instead new definitions of "COMI proceedings" and "establishment proceedings" have been introduced.
The practical effect of this, is that for insolvencies commencing after 29 March 2019, the certification requirements will change so that it will necessary for notices of intention to appoint administrators, notices of appointment of administrators and petitions, to state whether those proceedings will be
"COMI proceedings, Establishment proceedings or proceedings to which the EU Regulation as it has effect in the law of UK does not apply".
Finally, under the European (Recognition of Professional Qualifications) Regulations 2015, Insolvency Practitioners are regulated professionals and therefore benefitted from mutual recognition. However, the Recognition of Professional Qualifications (Amendment etc) (EU Exit) Regulations 2019, made on 19 February 2019, amend UK legislation to reflect the fact that this will cease to apply after exit day and therefore insolvency practitioners will no longer benefit from mutual recognition.
Clearly, Brexit is a moving feast, but without further legislative amendment, the Exit Regulations will come into force on 29 March 2019.