Preparing for EU exit

EU Exit

The UK (including Scotland) may be leaving the European Union on 29 March 2019.

While clarity around how and if this will happen is still needed, this page will seek to provide information on insolvency, particularly cross-border proceedings and EU exit.

Please continue to check back as we update this page with information and any advice we can provide.

Current position

The EU does not have a single insolvency regime which deals with financial failure.

Instead, EU Insolvency Regulations are in place which deal with cross-border cooperation and coordination of insolvency proceedings of businesses and individuals with operations or assets in more than one member State.

Under the EU Insolvency Regulations, a member State’s courts can only open insolvency proceedings against individuals and companies based in the EU if they are based in that member State.

Once insolvency proceedings are opened in an EU member State, the EU Insolvency Regulations gives those proceedings automatic recognition throughout the EU rather than only being accepted in the one country.

This removes the need to open separate local insolvency proceedings in all EU States in which the individual or company operates or assets are located and provides an efficient and cost effective method for securing and recovering assets in other member States.

Effect on insolvency proceedings if the UK leaves the EU without a deal

On leaving the EU without a deal, insolvency proceedings opened in the UK would no longer have automatic recognition in EU member States and it may therefore be necessary to open proceedings against the same debtor in the UK and all EU states where the business operates or has assets located.

This could increase the costs and impact on securing and recovering overseas assets and reduce sums available to creditors.

What is being done to address a no deal exit from the EU?

Both the Westminster Parliament and Scottish Parliament have considered the impact of an exit from the EU without a deal – this is necessary as insolvency matters span areas that are both reserved to UK Parliament and fully devolved.

Draft legislation has been progressed which would come into force on the date the UK leaves the EU, if no deal has been agreed.

This takes the form of two statutory instruments laid in the UK and Scottish Parliaments:

UK Statutory Instrument (The Insolvency (Amendment) (EU Exit) Regulations 2018)

Scottish Statutory Instrument (The Insolvency (EU Exit) (Scotland) (Amendment) Regulations 2019).

These instruments will remove from UK law the major part of EU Insolvency Regulations which implements the current system of mutual cooperation on cross-border insolvencies between member States along with changes which were made to UK insolvency legislation to enable the operation of the EU Insolvency Regulations in domestic law.

The UK Statutory Instrument will maintain a modified version of the EU Insolvency Regulations’ rules for opening insolvency proceedings which will apply across the UK and will sit alongside the UK’s own rules – in particular the Centre of Main Interest test (the test to determine whether a foreign insolvency proceeding is the main proceedings with respect to the individual or company).

This will allow UK courts to continue to open insolvency proceedings where an individual or company has an establishment in the UK.

The UK Statutory Instrument also amends the reserved and partly devolved aspects of UK Insolvency legislation by removing references to the areas of the EU Regulations which have been repealed or updating references to the updated jurisdictional tests.

The Scottish Statutory Instrument makes provision to allow for the modified Centre of Main Interest test to operate effectively in fully devolved areas of insolvency legislation.

It will also  correct deficiencies in devolved insolvency legislation caused by the repeal of parts of the EU Insolvency Regulations and will protect the current powers in the Insolvency Act 1986 to appoint a receiver.

If you have any questions or if there are any issues you feel should be covered in this note, please raise them with AiB Policy Development.