As with every other aspect of life following the triggering of Article 50 by the UK government in 2017, Brexit poses a fundamental challenge to the way that insolvency proceedings are undertaken. This is not just because insolvency involves several strands of EU law but also because the manner in which assets are recovered has the potential to change overnight if a no deal, or a non-reciprocal deal is reached between the UK and EU.
Under the current process, insolvency and asset recoveries are predominantly conducted via the Centre of Main Interest (“COMI”) principle. This determines in which member state or jurisdiction the insolvency proceedings should be opened and primarily conducted from, based upon which state the individual or company is most closely associated with. These principals have provided invaluable in reducing costs in insolvency proceedings when individuals or companies have assets across the EU e.g. a bankrupt with a holiday home in Spain or a Northern Irish Company in Administration with a factory in Germany.
The current EU legislation allows for much efficiency when conducting insolvency proceedings and attempting to reclaim assets. These allow for an Insolvency Practitioner (“IP”) when appointed in the member state in which COMI has been established, can ask the courts in other member states to allow the IP to recover assets without the need for further applications.
Post Brexit, there is the possibility that UK IP’s will be unable to avail of this efficiency as they will have no means to compel EU member states to recognise the UK appointment of the IP, thus creating delays and increasing costs in recovering assets outside of the UK.
If, however a withdrawal agreement is concluded and this allows for the continued and reciprocal recognition of IPs appointed both in UK and EU member states, then this scenario may be avoided. However, with all things Brexit, the devil will be in the detail and so we would encourage IPs, creditors and companies who are facing or considering insolvency proceedings to seek legal advice, particularly if you have knowledge of assets located outside of the UK.
If you or your business have any questions on the potential implications of Brexit in relation to insolvency, please feel free to get in touch.