Vol 13 (2016) - Issue 4

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Continental Drift: Challenges and Possible Solutions to Cross-Border Insolvency Issues Following Brexit

An uncertain future
There can be no disputing that the people of the United Kingdom have voted for Brexit. If, when and on what terms the UK will, in fact, leave the European Union is far less certain.
The referendum itself is merely advisory in nature. It is only the third ever UK-wide referendum, and the previous two – the 1975 vote on membership of the then European Economic Community, and 2011’s AV referendum – both saw a vote in favour of the status quo. There have been a small number of other, more local, referendums, mostly related to devolution, and in one case to the Good Friday Agreement. However, the people have never voted for a change that was not actively being promoted by the government. We are in waters yet more uncharted than the seas that are the subject of EU fishing quotas.
As for the position under EU law, we are likewise in an unprecedented situation. While Greenland did leave the EEC, it did so many years prior to the coming into force of the Lisbon Treaty, with its now famous Article 50, which sets out the mechanism for withdrawal. The UK appears to be free to pick and choose when it exercises Article 50. Until it does so, it remains a member of the EU. When the button is pushed, the UK will have two years to negotiate the terms of its withdrawal, although the Council and the UK could agree to extend the period indefinitely.
There already appears to be a significant disconnect between the legal – and political – realities, and the views of some in the insolvency industry. Many view Brexit as a done deal, and in some cases there is a perception that the UK has already left the EU. It has not done so – and new Prime Minister Theresa May has said that Article 50 will not be exercised this year, but will instead be used in the 'right timescale to get the right deal for the UK.' Keeping to this timescale may require clearing the obstacle of the EU’s refusal to hold any form of negotiation on Brexit prior to the invocation of Article 50, despite the EU lacking any means of forcing the UK to invoke it. It is possible that the UK keeps its finger off the trigger for many months or even years – or indeed never formally exercises Article 50.
A middle way could be for the UK instead to negotiate changes to its relationship with the EU but remaining a member. Politically, although difficult, this is possible, particularly if a new relationship were validated by a second referendum or a General Election called by a government seeking a mandate for the new arrangement. Even if Britain formally leaves, the eventual relationship may be a far cry from the vision of the future projected by Vote Leave during the referendum campaign, and could involve the UK being a member of the single market and subject to the jurisdiction of the ECJ.

What may change?
From a cross-border insolvency perspective, as with any commercial view point, uncertainty leads to loss of confidence and indecision. In the case of UK insolvency, the uncertainty is likely to be increased by the complexity of the overlapping machinery currently in force in the UK to deal with cross border insolvency issues, not all of which can or will suffer an impact from the UK’s eventual withdrawal from the EU.
On the hypothesis that the UK will not, in future, adhere to or be bound by any EU regulation, the principal threat to the efficiency of cross-border insolvency procedures would be the putative withdrawal from the regime imposed by Council Regulation (EC) 1346/2000 on insolvency proceedings (the 'Insolvency Regulation'). The Insolvency Regulation has in fact been amended and Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) entered into force in principle on 25 June 2015, with the majority of its provisions applying from 26 June 2017. However, the relatively slight changes in the recast regime and the time before its entry into force make it convenient to examine the existing Insolvency Regulation and its impact on European insolvencies that touch the UK.