With uncertainty still surrounding Brexit, it is increasingly difficult to escape at least one related headline a day. A crucial sector that Brexit could have a significant impact upon is insolvency, with a no-deal situation meaning that it would become much more difficult to resolve cross-border cases from the UK.
The importance of insolvency has been kept in the mind of our Government throughout Brexit negotiations by trade body: R3. The current framework that the UK has in place allows businesses, lenders and investors the confidence that in the event of an insolvency, they will see some of their money returned to them. This has meant that the World Bank lists the UK as 14th for resolving insolvency, which is said to attract further investment to the UK.
With London being regarded internationally as a centre of excellence in restructuring, many multinational companies choose the capital as the place to reorganise themselves; thanks, largely in part to the strong mix of expertise, access to funding and robust court judgments it offers.
Current Insolvency Processes:
As previously alluded to we, the UK, currently have a good cross-border insolvency and restructuring system within the UK. This is due to two factors, that come together to reduce the costs and time taken to resolve insolvency situations. The first of these being the European Insolvency Regulation, which ensures that the appointment of an administrator, liquidator or trustee in bankruptcy in one EU member state is automatically recognised in other EU jurisdictions. Whilst the second factor, the Recast Brussels Regulation, allows for court judgements made in one EU country to be automatically recognised and therefore enforceable, in other parts of the European Union.
The outlined framework factors above currently allow for cross-border insolvencies to be dealt with as if they were taking place within one jurisdiction. A UK insolvency practitioner can take control of assets spread across the EU in one go, or they can sell business units in one piece, while this set-up stops insolvency procedures in different countries competing for the same assets on behalf of local creditors.
The same benefits apply to somebody from the UK with a holiday home in an EU country, if they become bankrupt, the property which forms part of their estate can be realised by a UK-based trustee in bankruptcy. This also means that it is harder for fraudsters to try and hide assets in other countries.
Potential Post-Brexit Insolvency Processes:
Leaving the EU without a deal will mean that the above processes will no longer apply. A UK based insolvency practitioner who is appointed as the administrator of a company with cross-border operations will have to initiate insolvency proceedings in all of the other countries where the company has staff, subsidiaries or other assets. Meaning that a lot of extra time and expense will be added to the process. Leading to a reduction in returns available to creditors and make it more difficult to investigate suspected wrongdoing or fraud.
The Government’s Actions:
The R3 have been working hard to ensure that post-Brexit insolvency processes are still viable and effective. With the Government stating that they now have a policy to seek an agreement within Brexit which closely reflects the existing framework of mutual recognition and cooperation on civil judicial matters, including insolvency. However, what remains to be seen is the success of this policy and if in fact any form of deal is reached at all.
We are a licensed insolvency practitioner based in Plymouth, St. Austell, Truro and Penzance. If you need any advice regarding insolvency or related issues please get in contact with us.