With continuing daily headlines in the news it can be difficult to resist Brexit fatigue, but with the UK government and EU representatives at a very sensitive stage in the negotiations regarding the terms of the UK’s exit from the EU, it is worth focussing for a moment on a less publicised end of the financial services market, that of bankruptcy and restructuring.
Whilst the City of London’s leading position in the world as a world financial centre is undisputed, over the last 15 or so years the City has developed into a prime location to carry out restructurings of major global companies. The UK’s interaction with and membership of the EU has played a major part in that growth.
Since 2002, the EC Regulation on Insolvency (now evolved into the Recast Insolvency Regulation) has been law.
It provides for mutual recognition and application of member states’ insolvency law across the EU 27 countries (other than Denmark, who opted out) and applies to both companies and individuals.
In short, if an entity or person has their centre of main interests (known as COMI) in a particular EU jurisdiction, then that that country will host “main proceedings” and its insolvency law will have application and recognition throughout the EU. The implementation of this regulation has greatly simplified the work of insolvency practitioners appointed to companies with assets spread across Europe. In particular, such companies as Nortel, APCOA and Wind Hellas have utilised the UK courts to base their restructuring procedures.
It has also assisted trustees in bankruptcy of people made bankrupt in the UK owning foreign assets, and has, for example, made it that much easier for them to prove title to and sell holiday homes on the Cote d’Azur or the Costas of Spain. Previously, it was necessary to make separate applications in each jurisdiction where assets were located, often a time consuming and expensive process with uncertain outcomes.
The terms of transition and exit are still a matter of negotiation although there is hope that the European Union (Withdrawal) Bill (aka, the Great Repeal Bill) when enacted may provide for the Recast Insolvency Regulation to continue to apply immediately in the UK upon exit from the EU.
If that hope is realised then, whilst that may entitle insolvency office holders from the EU 27 to have recognition of the UK courts in carrying out their functions, it will not, without more, assure the continuation of reciprocity and mutual recognition across the EU leading to a return to the days of multiple applications across jurisdictions.
Accordingly, when financially distressed global companies are considering which jurisdiction from which to coordinate their restructuring, the UK will be at a disadvantage- the playing field will not be level. The UK and in particular the courts in the City of London have long been favoured by international global companies for major restructurings, due to the flexibility and relatively light touch of court intervention compared with other jurisdictions.
In fact, other companies have gone to even greater lengths to gain access to the UK courts, even moving their head office to the UK in order to relocate their COMI so that the main proceedings will reside in the UK. The UK may become even more “debtor friendly” in the years to come when the government concludes its current ongoing review of the Corporate Insolvency Framework*.
Another often used restructuring procedure is known as a scheme of arrangement, under the UK Companies Act. To avail themselves of access to this procedure a foreign company may simply need to show a sufficient connection with the UK to enable the Courts of England and Wales to consider themselves the proper jurisdiction and in many instances the existence of a “governing law” clause in finance documents specifying that the law of England and Wales applies will suffice.
These schemes in large part work because another EU regulation (the Judgments Regulation) provides for recognition of foreign judgements and orders in all EU27 jurisdictions, In fact, other companies have gone to even greater lengths to gain access to the UK courts, even moving their head office to the UK in order to relocate their COMI so that the main proceedings will reside in the UK.
There are many special interest groups pressing the UK government to have regard to their particular needs in the ongoing negotiations, but if the mutual and reciprocal status provided for by the existing regulations are not preserved, the status of London as a leading centre of international restructuring could undoubtedly suffer as a consequence and lose out to Amsterdam, Berlin and Paris.