With the mood music emanating from the Bank of England, the credit reference agencies and the main commercial banks being negative in outlook, Simeon Gilchrist considers what might be the legislative changes in store for the restructuring and insolvency market when, or even if, we reach the end of the two year negotiation period triggered by the newly important Article 50 of the Lisbon Treaty.
The primary legislative framework is the Insolvency Act 1986. This venerable workhorse is supported by the Insolvency Rules 1986 and, over the years, both the Act and the Rules have undergone significant change, not least of which occurred on the implementation on 31 May 2002 of the European Insolvency Regulation – EC1346/2000. Being a regulation, the measure has direct effect, a principle that was already settled law on the UK’s accession to the then EEC in 1973. Nonetheless, a raft of statutory instruments also came into force with the Insolvency Regulation, and we should also not forget the Judgments Regulation, EC 44/2001, which makes recognition provisions in relation to solvent liquidations.
The purpose of the Insolvency Regulation is the stability of the internal market in attempting to prevent cross border opportunism. The Regulation does this by providing rules to settle jurisdiction and allocation between the EU Member States in cross border matters. The Regulation does however do more than that: it provides for automatic recognition of jurisdiction, of the office holder’s authority and it provides for the appropriate place to settle disputes in insolvency matters. However, and even in relation to what might be considered “local” insolvencies, the effect of the Insolvency Regulation has been to require the court to consider abstract concepts of place when it is required to consider jurisdiction. Indeed, although one consistent complaint levelled against UK practitioners by our European colleagues is the innate sense that the Insolvency Act is the better framework, there has been a creeping “eurofication” of the terminology used in the insolvency process: jurisdiction, for example, is considered on the “opening” of an insolvency, there has to be shown a “centre of main interest” and there are “insolvency office holders”.
What will be left once (or is it if?) Article 50 has been triggered, two years have passed, and the European Communities Act 1972 has been repealed? There are (at least) two perspectives. From personal experience as a key sponsor of INSOL Europe, and of countless annual congresses and technical meetings, the European complaint was that the UK jurisdictions were too acquisitive, and that the Insolvency Regulation at least provided framework and guidelines when considering the number of corporate entities “relocating” to the UK to then restructure. Will that stop? Before the Act became subject to the Regulation the conditions for jurisdiction were a good deal more wide-ranging. Second, and without automatic recognition within Europe, how is the office holder to realise assets and enforce judgments?
As the Brexit process develops we may not in fact notice much change within the market. However, and with the goalposts, pitch markings and referee about to be removed, these are uncertain times.
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