Heidi Wagstaff, Corporate Recovery solicitor, explores the implication of the EU referendum on the UK’s restructuring and insolvency market, should the UK vote leave?
On 23 June 2016 the UK will make history in holding a referendum on whether we should leave or remain in the European Union. Hot topics such as immigration and the economic impact have been debated at length between the ‘Brexit’ and the ‘Bremain’ camps, but what about issues a little closer to our heart, what will it mean for the restructuring and insolvency markets if we were to leave the EU?
The short answer is: nobody really knows.
As with all matters, predicting what will happen if we leave the EU is fairly tough without a crystal ball. I mean, who would have predicted that next season Leicester City would be playing football across Europe?
However, what we do know is that currently European insolvency and restructuring law is generally administered by the EC Regulation on Insolvency Proceedings 2000 (Regulation) which is a framework aimed at governing insolvency rules cross-border. If the UK were to leave the EU, new rules would have to be put in place to deal with cross-border insolvencies with a European dimension and UK insolvency proceedings would no longer benefit from automatic recognition within the EU. It would also probably be necessary to widen the effect of section 426 Insolvency Act 1986 which governs the co-operation between courts exercising insolvency jurisdiction in certain countries. In addition, the Recast Insolvency Regulation (Recast), set to come into force on 26 June 2017, would not take effect and therefore we would also have to ensure important aspects are implemented to ensure the UK can still compete on a European footing. Alternatively the UK could try to come an agreement with the EU to continue to participate in the Regulation, but there is no guarantee that the EU would agree.
And what if we Bremain, I hear you cry? Well, the Regulation would remain intact and the Recast would introduce changes to the benefit of businesses operating within the EU, including stricter regulations on forum shopping to the benefit of creditors and a requirement to publish relevant information in cross-border insolvencies with a view to preventing the opening of parallel insolvency proceedings in different jurisdictions. A further aim of the Recast is to make cross-border insolvency proceedings involving groups operating in multiple jurisdictions more efficient. These changes have been debated for many years and are considered vitally important for the improvement of the European insolvency framework.
Whilst we can speculate on the potential outcomes of the vote, ultimately we cannot predict how things would change in the insolvency market if we were to leave the EU. However, a vote to leave would not be implemented immediately as the UK would probably have to see out a 2 year notice period before making its final farewell. For now, the current mood in the UK appears to be quite evenly split. Whatever happens, 2016 will go down in history, and not just because Leicester won the League.
References: Should we stay or should we go now? The implications of Brexit for cross-border insolvency – Corporate Rescue and Insolvency Journal/2016 Volume 9/Issue 1