Financial Restructuring

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  • As matters stand, we do not foresee that Brexit will lead to significant changes in the U.K.’s restructuring and insolvency landscape. The most significant impact is likely to flow from the disapplication of the Council Regulation (EC) 1346/2000 on insolvency proceedings (the “Insolvency Regulation”) and the Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Judgments Regulation”). As explained below, it is very possible that the recognition within the EU of U.K. insolvency proceedings and U.K. schemes of arrangement—and therefore the feasibility of using those processes in respect of companies incorporated in other EU member states—may become harder to establish as a result.
  • The Insolvency Regulation provides EU-wide recognition for insolvency proceedings. It requires the courts of the EU member states (other than Denmark) to recognize insolvency proceedings that are opened in respect of a company in the member state where it has its center of main interests. A number of companies have elected in recent years to move their center of main interests to the United Kingdom to take advantage of the U.K.’s flexible and well-established insolvency proceedings. Unless alternative arrangements are put in place, the Insolvency Regulation will no longer apply to the U.K. when it leaves the EU. As a result, the EU-wide automatic recognition currently provided to U.K. insolvency proceedings would cease to apply. Likewise, the automatic recognition afforded by the U.K. courts to insolvency proceedings opened in another member state would no longer be available.
  • The UNCITRAL Model Law on Insolvency does provide cross-border recognition of insolvency proceedings in a number of countries. However, it has, to date, been implemented in only five EU member states (U.K., Greece, Poland, Romania and Slovenia). The U.K. will want to establish bilateral recognition agreements with each of the other EU member states in the absence of some agreement to extend the Insolvency Regulation to the United Kingdom after it leaves the EU. Putting multiple bilateral arrangements in place is likely to take some time and may result in a complex and variable recognition process.
  • U.K. schemes of arrangement have also been used in recent years to restructure the financial indebtedness of a significant number of companies incorporated in other EU member states. In sanctioning such a scheme, the English courts need to be satisfied that it will be recognized in the jurisdiction of incorporation of the companies whose liabilities are subject to the scheme. In determining whether such recognition will be available, reliance is often placed on the Judgments Regulation. When the U.K. leaves the EU, the Judgments Regulation will cease to apply to it. The English courts will then need to be satisfied that the scheme will be recognized in the other relevant EU jurisdictions on the basis of private international law, which may be much more difficult to establish. This change may lead to the cram-down processes of other EU member states being used in a greater number of cross-border restructurings.
  • The European Commission is in the process of considering proposals to harmonize some aspects of the various insolvency laws in the EU member states. If introduced, those harmonization rules will not apply to the U.K. after it leaves the EU.

Contact Information

If you have any questions regarding this content, please contact the Akin Gump lawyer with whom you usually work or

James Roome
james.roome@akingump.com
+44 20.7661.5317
London

Barry G. Russell
barry.russell@akingump.com
+44 20.7661.5316
London

Emma Simmonds
emma.simmonds@akingump.com
+44 20.7661.5420
London

 

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