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Welcome /  Blog /  2018-02-doc6 Brexit and the future of cross-border insolvency

2018-02-doc6 Brexit and the future of cross-border insolvency

CIGI (Centre for International Governance Innovation) and BIICL (British Institute of International and Comparative Law) recently published a paper in the series Brexit: The International Legal Implications | Paper No. 17 — February 2018, under the title 'Cross-border Insolvencies after Brexit: Views from the United Kingdom and Continental Europe'. The paper addresses the main problems arising from the UK's decision to leave the European Union with regard to insolvency proceedings. Issues discussed are the modes of recognition of foreign insolvency proceedings under British law (Section 426 of the Insolvency Act 1986, the UNCITRAL Model Law and the UK variant of the CBIR, covering not fully consistent case law and the British 'joker card' of Common Law) and the likely effect of Brexit (based on 5 variables in the relation UK-EU), the impact of Brexit on forum and law shopping, the reform proposal for British workout procedures and the use of British workout procedures by EU companies. Its authors are Howard P. Morris, Gabriel Moss, Federico M. Mucciarelli and Christoph G. Paulus. The views presented are based on talks the authors gave during a conference held in May 2017.

Brexit is around the corner and it is time to discuss and decide on the best way forward, including the alternatives available for a legal institutional instrument and options for insolvency related procedural and substantial solutions. One hears several times that such a solution should be that the EU would adopt the UNCITRAL Model Law.

Six years ago INSOL Europe has advocated to start with leveling up the Model Law to a Regulation to be adopted by the EU. In a report presented in 2012 Ian Fletcher and I have rejected that idea. Both the nature and the original effect of the Model Law (a template for individual countries, not economic regions), as well as the fact that certain matters already have been included in national legislation of Member States (be they followers of the Model Law or having drafted their own systems) in our opinion would only justify the use of a Directive as the medium for bringing about harmonisation of the laws of the Member States in relation to insolvency proceedings originating in non-EU states (as the situation is post-Brexit). See, para. 183ff.
A 'Model Law' solution - if preferred - must, first, be tested against the present Insolvency Regulation (Recast) (EIR 2015), and, second, take into account new concepts that have not found a place in the Model Law, the text of which now is over 20 years old.
Matters to take care of relate to (i) inconsistency with the EIR 2015 (e.g. non-equal treatment of tax claims), (ii) the uncertain exclusion of certain proceedings relating to financial institutions (reference is made to a CIGI-BIICL paper (nr. 11 in the same series, written by Dorothy Livingston), (iii) a well-thought through provision regarding the relation between the EIR, the 'Model Law' and existing international treaties and agreements, and (iv) the inclusion of an interpretation provision which is not unproblematic in its application, given the purposive, sometimes autonomous interpretation which has to be given to EU-matters, as well as the fact that the originally intended 'unity' of terms (such as the bothersome 'COMI') only a few years after enactments have resulted in 'diversity' in several jurisdictions all over the world (note that the Cross-border paper signals aligning apporaches in this matter).
A 'Model Law' must be modernised. I have addressed this issue a few monthe ago, suggesting that a 'Model Law' also should include rules on applicable law (the ones contained in the Legislative Guide are not nuanced enough), provisions on data protection, group insolvency provisions, registration of insolvency decisions, the main insolvency practitioner’s power to give a unilateral undertaking (in order to prevent opening of proceedings in another state), professional and ethical rules for insolvency practitioners or rules for recognition of for instance decisions on director’s disqualification. See
Let's not confuse the dress rehearsal for the real thing. Put in place the institutional instrument first, with a framework of some bare key provisions. The hot potato (jurisdiction of the CJEU) should in this tier 1 instrument be a given. This part also could also cover other third countries. Then work jointly further in a EU-UK context to fill the topics mentioned. In addition, one of these could be the creation of a specific EU-UK court.