At the time of writing, the UK has 2 days before it leaves the EU on 29 March 2019.  Of course, that is looking fairly unlikely at the moment, but by the time I’ve finished drafting this, it could have all changed again!

In the meantime, plans are being made to assess the impact of Brexit on English insolvency law, and indeed all other aspects of law in this country.  The effect of Brexit is of critical importance to the cross-border recognition of insolvency proceedings throughout the EU, as set out in various EU Regulations which currently apply in the UK.  What does a no deal Brexit mean for these?

A statutory instrument was drafted at the end of last year to make some plans for insolvency law in the event of a no deal Brexit, published on 30 January 2019 as the Insolvency (Amendment) (EU Exit) Regulations SI 2019/146 (Insolvency Brexit Regulations), which is part of the legislative suite of the European Union (Withdrawal) Act 2018 (the Withdrawal Act).  These will only come into effect should we leave without a deal so they presently have no impact on English insolvency law and its relationship with the Regulation (EU) 2015/848 (the Recast Insolvency Regulation).  The Recast Regulation provides for the automatic mutual recognition of insolvency proceedings in member states throughout the EU, thereby avoiding competing simultaneous insolvency proceedings.

Theoretically, once the UK leaves the EU in an orderly fashion, all EU regulations no longer apply.   However, section 3 of the Withdrawal Act provides that a “screenshot” as it were is taken on the day we leave and all EU law currently in effect will be subsumed into English law (unless ministers need to make adjustments for our exit) until the end of 2020 and then would be subject to further negotiation. Conversely, In the event of a no deal Brexit the Insolvency Brexit Regulations state that the majority of EU insolvency law as set out in the Recast Insolvency Regulation would no longer apply (save for some specific retentions) from the exit date.

Some parties have criticised the current no deal plans.  By way of brief summary – and to avoid a technical analysis of the many differing scenarios, the key points to note from the Insolvency Brexit Regulations are:

-        UK insolvency proceedings would no longer have mutual automatic recognition in the other EU member states.  This could mean that insolvency practitioners would have to open proceedings in all other member states to protect assets for creditors.  This clearly increases the administrative burden and therefore the costs involved in an insolvency proceeding with a company who has interests in other countries or whose centre of main interest is located outside the UK;

-        HMRC could also be prejudiced – other member states tax authorities could be allowed to prove any outstanding debts in a UK insolvency proceeding but reciprocity may not be afforded to HMRC in a European proceeding which involves a UK based company;

-        The Recast Insolvency Regulation avoids the opening of secondary proceedings in other countries and so provides for a more orderly restructuring or wind down. It means that creditors could act in good faith when submitting their proofs in one jurisdiction only to find that they should also be submitting in other jurisdictions, increasing uncertainty and the potential for creditors to lose out.

Obviously, the news from Parliament changes on a daily, if not hourly, basis and so these Insolvency Brexit Regulations may never see the light of day. What is clear is that there are many scenarios where the Recast Insolvency Regulations and amended UK law will come into conflict and no one really knows how to ensure the smooth running of cross border insolvency proceedings going forward.