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Recast European Insolvency Regulation

On 26 June 2017, a week after the start of Brexit negotiations, a new piece of European legislation took effect in the UK and throughout the 28 member states (with the exception of Denmark, which had opted out). The recast European Insolvency Regulation (Regulation (EU) 2015/848) replaces the original European Insolvency Regulation (Regulation (EC) No. 1346/2000).

What does this mean for UK businesses? Firstly, the purpose of the regulation is unchanged. Insolvencies with cross-border elements, i.e. those with assets or liabilities located in different member states, are recognised and effective throughout the EU. The regulation is the mechanism for achieving this.

The concept of Centre of Main Interests (COMI), which determines which member state’s insolvency laws predominate, is changed only in minor detail through setting in statute a definition developed through case law.

Usefully, secondary proceedings (those over foreign branches) no longer have to be winding-up proceedings, making it much easier to use administration in the UK in cross-border restructuring. So-called synthetic secondary proceedings, where creditors whose claims would be preferential in local proceedings have those priority rights recognised in the foreign main proceedings, are now universally feasible, rather than only in UK main proceedings. This might help UK-based employees of foreign companies.

More significant changes come in the area of group insolvencies, a concept previously unknown in English law. Courts and insolvency practitioners are now required by the regulation to communicate and cooperate in relation to insolvencies of group companies. In addition, the regulation introduces group co-ordination proceedings, where an independent insolvency practitioner is appointed to coordinate the insolvencies of the group companies.

Finally, by 26 June 2018, member states (including the UK) will have to establish and maintain national registers of insolvency proceedings. Brexit seems likely to mean that the UK won’t have to connect to the other member states’ registers by 26 June 2019!

If you would like to discuss anything related to European insolvency regimes, please do get in touch.

 

 

Date: 20th July, 2017
Author: Chris Laughton

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