The UK-EU Trade Deal left lots of questions unanswered for many law experts and corporations. One of the main concerns was recognising and enforcing foreign insolvency proceedings when there is a cross-border element.
Since EU Insolvency Regulations (EIR) does not apply to these cases, we need to look at other regulations to deal with these situations. Presently, insolvency-related domestic laws of each EU member state will apply to conduct the proceedings further. These change requires additional steps and formal applications to ensure that both countries are on the same page.
Here are a few things you should know:
Recognition of EU Insolvency Proceedings in the UK
The end of the transition period marks the beginning of cross-border insolvency post-Brexit. Any new EU insolvency proceedings seeking recognition and enforcement in the UK will have to adhere to British Cross-Border Insolvency Regulations. That includes adopting the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.
At present, only four out of twenty-seven EU member states have agreed to use the UNCITRAL Model Law. These members include Poland, Greece, Romania, and Slovenia. Their acceptance simplifies the rules surrounding recognition and enforcement of cross-border insolvency laws.
Before Brexit, these rules applied to all non-EU insolvency cases that originated outside the UK. The proceedings require a formal court application by foreign officeholders who deal with financial assets in the UK. The request gets thoroughly reviewed to evaluate the ‘insolvent’s main interests’.
After that, the court will provide relevant assistance to support the foreign officeholder. If the foreign insolvency proceedings get recognised as the primary proceeding, the English court will hold their civil proceedings against the debtor. In these situations, the English court grants complete authority to foreign officeholders. That means the insolvency practitioners can freely manage assets present in the UK unless stated otherwise.
Recognition of English Insolvency Proceedings in the EU
The European Regulation on Insolvency Proceedings (the EIR) no longer applies to the UK. That means the EU will not recognise any English insolvency proceedings by default. The UK officeholder must provide relevant evidence to support their case.
There are multiple ways to acquire recognition:
- The EU court can initiate a parallel proceeding to verify the evidence and facts of the case.
- Or, the UK officeholder can send an official request to the EU court to recognise the cross-border insolvency proceedings taking place in their country.
- Other EU member states can adopt the UNCITRAL to streamline the process.
The final decision depends on local authorities and laws surrounding insolvency in each EU member state. For instance, Belgium will give you a different verdict than Poland and vice versa.
Cross-border insolvency proceedings presents several new challenges for practitioners. The lack of automatic recognition in EU states can inhibit the process. The presence of non-EU insolvency regulations that were used for other countries streamlines the process. These rules and the English court’s eagerness to assist distressed debtors can guarantee a fair resolution.
You can gain more clarity on the legal proceedings revolving cross-border insolvency post-Brexit with strategic alterations in your contracts and claims.
Are you looking for legal advice on cross-border insolvency? Contact us today to schedule a free consultation.