England has been the jurisdiction of choice for European restructurings. While other jurisdictions have sought to revamp their insolvency law in recent years in an effort to chip away at the English dominance in the restructuring arena, the lure of the tried and tested English legislation and judiciary means that the English system has remained dominant. In the wake of Brexit, will England lose its place as jurisdiction of choice?
One likely result of the EU referendum is that, upon the UK leaving the EU, the European Insolvency Regulations will no longer apply. It is under these regulations that insolvency proceedings and judgments of an EU member state are entitled to recognition and enforcement throughout Europe. Once the UK is out of the EU, these regulations will no longer apply to UK insolvency proceedings and the utility of using a UK insolvency process may diminish for multinational companies since there will be no automatic recognition throughout Europe.
The impact of such a change should not be over-stated however: England has also adopted the Model Law (through the Cross Border Insolvency Regulations 2006) and while recognition of foreign office holders under this legislation is not automatic, it is much used, predictable and clear. Further, as recognition under the European Insolvency Regulations does not also create an immediate stay on proceedings in the jurisdictions where the UK office holder is recognised, there is frequently a need for a court application and secondary proceeding in any event.
It should be noted that in recent times, the restructuring industry as a whole has also seen a move away from formal insolvency proceedings and the ever popular ‘English scheme of arrangement’ has never fallen within the ambit of the European Insolvency Regulations, albeit that recognition of UK schemes under Rome Regulation (EC) 593/2008 (Rome I), may also be threatened by Brexit.
If England is no longer an attractive jurisdiction, will multinational debtors be more likely to seek protection elsewhere in Europe so that automatic recognition within Europe is assured or, alternatively, in the U.S., a notoriously debtor-friendly jurisdiction? The implications for lenders and creditors could be that they are faced with distant, unfamiliar and possibly unfriendly jurisdictions with, in some circumstances, untested laws.
While some European-based companies may want to look to another European jurisdiction, more may see the U.S. bankruptcy process as the best option, given its debtor-friendly approach. The U.S. bankruptcy courts in New York especially, have been seeking to position themselves as the world’s bankruptcy court. They may use this opportunity to set out the welcome mat to those that no longer feel comfortable looking to England.