Status Quo

The implications of Brexit on the procedure of insolvency across borders is a substantial subject that ought to be addressed because of the ambiguity and uncertainty that surrounds it. The procedure for insolvency entails the commercial operation of a business in an EU state, after they have established their Centre of Main Interests (COMIs) in any EU location (except for Denmark). The applicable rules that regulate this operation are those of the EU Regulation 2015/848 on Insolvency Proceedings (Recast EIR), which succeeded and replaced the previous Regulation (EC) 1346/2000 on Insolvency Proceedings (EIR 2000), starting from 26 June 2017. 

Within the Recast EIR, however, the goal is not to achieve harmony of the national laws of insolvency among the EU states; what is rather aimed at is to establish rules on the jurisdiction to commence insolvency proceedings and the law that applies to such proceedings. In the UK jurisdiction, if a business mainly operates within the UK territory, insolvency proceedings such as administration and liquidation can only be commenced by the UK authorities. 

The ‘COMI’ constitutes a central notion for a company’s operation. However, it still remains an elusive theme. It can be perceived as the hybrid version of the common, English law doctrine of  the ‘state of incorporation’ combined with the concept of ‘Siège Réel’ in the civil law jurisdictions. The ‘state of incorporation’ in the UK indicates the enforceability of a specific insolvency law to a company.  The definition of the COMI for each business enables the application of a specific jurisdictional set of rules. Thanks to the Recast EIR, there is a significant effort with regards to defining the ‘grounds’ of COMI; it is located where all the operational and administrative engagements of the indebted business facing insolvency are. Knowledge of the ‘real seat’ and operational activities of the business by the creditor is also underlined in the Regulation. 

The effectiveness of the current Recast EIR 

Under the prism of the current EU regulatory framework, the UK is bound to comply with any insolvency proceedings that initiated in another EU state; this recognition takes effect automatically, as well as reciprocally for all EU27 Members. 

The Recast EIR’s function can be better illustrated with the following example: imagine a company operating in the UK and its COMI in the UK as well; the company has entered the phase of administration and an administrator is designated. Under the current legislation, this assignment of powers, as conferred upon the administrator by the Insolvency Act 1986, will be acknowledged without bureaucratic obstacles among the EU27. The automatic recognition of the powers of the administrator, acting for the interest of the company, enables the viability of the business’s operation and the maintenance of the corporate possessions. What is more, it offers a valuable asset to the UK-operated company, the “pre-packaged administration”, which entails the company’s operation with another proprietorship. This has led to an increase in the number of foreign-based businesses that sought to switch their centre of main interests in the UK, in order to benefit from this advantageous feature, since its effects would be immediately acknowledged by all EU Members States

The stance of the UK Government  is consistent with its desire to build ‘a new, deep and special partnership with the European Union’; for this reason a considerable number of papers addressing the partnership with the EU possibilities have seen the light of publication. It is of outmost importance that mutual cooperation in cross-border insolvency proceedings is pursued, nonetheless, it is not extensively discussed. What is rather preferred by the UK side is to keep the advantageous policies, but avoid being subject to the jurisdictional power and the influential law shaping of the Court of Justice of the European Union (CJEU). Unavoidably, the investments cannot take place in a dubious environment; the business owners can only be assured, if there is jurisdictional clarity in the procedural matters of cross border insolvency; ‘[b] usinesses and creditors value the certainty of predictable and efficient cross-border insolvency rules.’

There are problems further posed, however. There is no finalised resolution on the internal Irish border; simultaneously, the jurisdictional role of the  CJEU has not been adequately addressed. It may be feasible to “cherry-pick” a measure to recognise a procedure, as laid out in the Section 8 of the Withdrawal Act (Henry VIII powers); beyond this, however, no direct reference is made for proceedings on insolvency across the UK border. 

Is there an alternative way?

It is evident that there needs to be examined, in the scenario where the Recast EIR cannot be maintained for cross-border insolvency proceedings, if other international agreements can be applied au lieu of the EIR. International framework that can be implemented already exists for the recognition of proceedings initiated in the UK post-Brexit; one of them is the UNCITRAL Model Law on CrossBorder Insolvency (Model Law). It was incorporated into the UK legal order with the CrossBorder Insolvency Regulations 2006, which enables the Member States to achieve the recognition of cross border insolvency proceedings. However, it is not a quite successful model to this date, as its advantageous provisions are not widely adopted and enforced yet. This specific model has only been set into force by four participant countries, Slovenia, Poland, Romania and Greece; the problem lies to the fact that the above-mentioned countries rank 10th (Poland), 17th (Greece), 18th (Romania) and 24th (Slovenia) in terms of value of trade of the UK with EU Member States (in 2016). 

This Model may provide a cross border recognition of foreign insolvency proceedings, but this is not as easy as the Recast EIR and entails the involvement of the judicial authorities, by “..affirming the existence of the foreign proceeding and of the appointment of the foreign representative.”This Model cannot be deemed as successful without the contribution of more participating states that potentially will opt in. Ever since the day the Model was envisioned and introduced in 1997, 44 countries have implemented it; nonetheless, its scope of applicability is rather integrated into national law. 

It is a remarkable characteristic of the Recast EIR in terms of cross-border insolvency proceedings that it enables quite feasibly, without complicated bureaucratic procedures, the insolvency procedures that were initiated in another Member State. Unavoidably, with the UK’s departure from the EU, without the achievement of an agreement that will adequately reflect the legal spirit of the Recast EIR, it appears that there will be a significant regulatory, legal chasm. This will lead to the subsequent implementation of private international law principles by each Member State separately for the initiation and mutual recognition of insolvency proceedings. Such practice will perplex the procedure even further; either auxiliary proceedings will be initiated or the UK insolvency ‘s procedure will need to comply with each Member State’s national law. It remains a question if the other EU states will have a unified approach on insolvency proceedings, after the end of the transition period and the failure of an agreement, or any other treaty-styled consensus attained.

In a recent  interview, Gregory A. Campbell, partner in the law firm Gibson Dunn, provided with further insightful information on the implications of Brexit on the procedural operations of insolvency cross borders. He reassured that, for as long as the transition period is ongoing, every new case of corporate insolvency initiated on the UK and EU jurisdiction, will be subject to the implementation of the EU Insolvency provisions, as stipulated in the Regulation. Nonetheless, he stressed out one crucially important fact: the negotiations so far between the UK and EU have not resulted in a conclusive outcome; subsequently, this is still a matter of uncertainty that hovers like an ominous cloud above the fate of the future cross border insolvency proceedings. 

Maria Apostolidou

Maria is a trainee advocate, expected to become a Greek licensed barrister in spring ’21. She completed her LLB at the Aristotle University of Thessaloniki (with an Erasmus+ year at the Université Libre de Bruxelles), and continued her LLM in International Commercial Law at the University of Strathclyde. She is interested in commercial law, with an emphasis on e-commerce, intellectual property, international business law, and EU legislation affairs.