Does any of the European Insolvency Regulation still apply in the UK?
Without getting too technical, there are two ways in which all or part of the European Insolvency Regulation applies in the UK.
Firstly, it continues to apply where main proceedings had been opened (either in the UK or in an EU Member State except Denmark) before the transition period ended on 31 December 2020.
Secondly, the concept of Centre of Main Interests (COMI) has been retained in the UK, extending UK courts’ jurisdiction to open certain types of insolvency proceedings. The retained EU Insolvency Regulation only applies to compulsory liquidation, administration, voluntary arrangements and bankruptcy. It does not apply to voluntary liquidation.
What are the consequences of this extended jurisdiction?
There are essentially two. Firstly, under UK law, the types of insolvency proceedings listed above can now be opened on grounds that the COMI of the debtor is in the UK, or that the COMI is in an EU Member State except Denmark and the debtor has an establishment in the UK.
Secondly, any insolvency proceedings of the listed types must be stated to be COMI proceedings, establishment proceedings or proceedings to which the EU Regulation as it has effect in the law of the United Kingdom does not apply. The latter means proceedings where the debtor has neither its COMI nor an establishment in the UK.
Why is this important?
Transitional arrangements were necessary when insolvency proceedings were open at the end of the Brexit transition period and the arrangements in place have the benefit of simplicity.
Extending the UK’s jurisdiction could be seen as a political move in the guise of adopting a well-recognised international concept. Since, arguably, debtors with their COMI or an establishment in the UK would pass the existing test of having a “sufficient connection” with the UK, the extension of jurisdiction may be more about perception than bringing a dramatic change to cross-border insolvency practice.
Chris Laughton is Mercer & Hole’s Corporate Senior Restructuring Partner and leads the firm’s international restructuring practice. With particular knowledge and experience of European insolvency regimes, including the European Insolvency Regulation, he is one of the few UK officeholders well-positioned to bridge the gulf between understanding and expectations between stakeholders in cross-border restructurings. For help and advice on these or indeed on a wealth of Corporate Advisory issues, please contact Chris here.