Brexit: cross border restructuring and insolvency update

On 31 January 2019 (“Exit Day”), the UK ceased to be a member of the EU.

However, during a transition period ending on 31 December 2020, EU law has, subject to certain limited exceptions, continued to apply to the UK as it did before Exit Day. In effect, during the transition period the EU, its Member States, and the UK have continued to act as if the UK were still in the EU.

During the transition period, the UK has not participated in EU institutions and decision-making, but the Court of Justice of the European Union’s (CJEU) jurisdiction relating to the UK has continued. As the UK is no longer a Member State, international agreements between the EU and third countries no longer apply to the UK. However, the EU notified third countries that during the transition period the UK should be treated as a Member State for the purposes of the relevant agreements.

What happens after the transition period generally depends on what is agreed between the EU and the UK over the next few weeks.

In relation to UK-EU cross-border restructuring and insolvency, the status quo has been preserved during the transition period. Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (the “Recast European Insolvency Regulation”) continues to apply to the UK (see Article 67(3) of the Withdrawal Agreement), as do other related laws such as Brussels I (recast) on jurisdiction, the Rome Regulations on governing law, and the Lugano Convention.

The effect of the end of the transition period on the Recast European Insolvency Regulation is also set out in the Withdrawal Agreement. Importantly, these arrangements will not be affected by the UK and the EU failing to agree a deal on their future relationship after the end of the transition period – the “no-deal” scenario. Further, there is no indication that the UK and the EU are negotiating anything that supersedes these arrangements;  indeed they appear not to be including those arrangements in their negotiations.

The principal effect of these arrangements is that where main (as opposed to secondary or territorial) insolvency proceedings have been opened on or before 31 December 2020, the Recast European Insolvency Regulation will continue to apply. This means that where an entity has gone into main insolvency proceedings in the UK before the end of 2020, an EU establishment can go into secondary proceedings during 2021 or beyond. The same applies to main EU proceedings and a UK establishment. It also means that existing UK-EU cross-border insolvency proceedings will continue after the end of 2020, without interruption, as a result of the transition period coming to an end. Communication and cooperation between UK and EU insolvency practitioners, and courts will continue, and the CJEU will still have jurisdiction over those insolvency proceedings.

We at Mercer & Hole will continue to involve our EU professional friends in UK-originated cross-border restructuring and insolvency matters relating to their jurisdictions and we look forward likewise to helping them with any UK cross-border restructuring and insolvency matters they encounter.

If you want to discuss Brexit and European cross-border restructuring and insolvency in more detail please contact me.