All the facts you need to know
As experienced company liquidation practitioners and administration experts, we do have to take a professional interest and the departure day of January 31st raises some important questions that are more fundamental than will Big Ben bong?
Specifically – what will be the UK’s status regarding European Insolvency Regulation (EIR)?
Like anything else to do with the EU, EIR is convoluted and complex but basically it allows liquidators and administrators appointed in the UK to be recognised professionally within any of the other 27 EU member countries.
This is important because it stops creditors in different countries from trying to gain an advantage based on their geography. It’s also reciprocal which means that other EU countries recognise the primacy of UK insolvency procedure and proceedings.
Now regardless of remaining goodwill and previously good and close working relationships with EU countries, the UK is finally leaving. The fate and future of these existing schemes of arrangement are in abeyance pending what the final EU withdrawal agreement looks like and covers.
If the UK pulls out or falls out of the EIR and joint recognition arrangements are in doubt then so could be any insolvency cases started before 31st January 2020.
It’s important to note that entirely domestic UK insolvency cases won’t be affected but if a company has assets or economic activities on the continent, including Ireland, then the laws could be tested quite quickly.
The UK is currently one of the main centres for international business restructuring due to an obscure but important company law mechanism called a Scheme Of Arrangement (SOA).
This preeminence based on the SOA could be threatened if UK courts doubted that the schemes were entirely enforceable within the EU. Right now one SOA suffices for all of the Eurozone but it’s entirely possible that there might be 27 competing versions quickly appearing to challenge the status quo.
As obvious or paradoxical as it may seem depending on your point of view, Brexit can also offer an opportunity for the insolvency and restructuring industries.
The UK government introduced a series of reforms that its been considering from August 2018 to help update our systems and laws and to help maintain the UK’s reputation as being the premium restructuring location.
They’re also a response to some of the more high-profile domestic corporate collapses including Carillion, which was the largest ever trading liquidation in the UK.
The main areas under consideration include:
- The introduction of a new stand-alone restructuring procedure
- A new moratorium procedure and additional protections regarding guaranteed supplies of goods and services/licences
- Prohibiting suppliers from terminating contracts on the grounds of insolvency
- Greater accountability for directors of distressed companies
- Attacks on so-called “value extraction schemes” by which third parties have been able to strip out value from a distressed business
The proposed reforms to the Corporate Insolvency Framework are summarised in full in a House of Commons Library briefing paper in December 2019 but there is still no specific timescale on when and which proposals will be voted upon.
Industry experts have likened the proposals as an attempt to draw UK legislation closer to the American “Chapter 11” bankruptcy protection laws which gives US businesses more freedom to manage their restructure and debt repayments than EU based companies.
While nobody knows for certain what’s going to happen to their industry and its dealings with the EU after the UK leaves, we do know that unexpected events can damage even the most successful, profitable and prudently run businesses.
One of our experienced, expert advisors will arrange a convenient free initial consultation session with you to discuss your company and what you can do to prepare for the future – whether it’s expected or unexpected.