Some important areas of the UK insolvency law regime are impacted by the harmonisation and applicability of EU treaties, regulations, directives and court decisions: both directly (e.g., recognition of cross-border proceedings, interpretation of where an entity has its centre of main interest (COMI) and indirectly (e.g., TUPE, use of schemes of arrangement). This, of course, especially applies to multi-jurisdictional insolvencies.
The vacuum in the law caused by Brexit will need to be filled. As the most obvious example, the clear framework in place for dealing with cross border proceedings will no longer apply and there will be no automatic recognition of proceedings between the EU and UK (and vice versa). This will be more of an issue for the UK than the EU and it will also affect countries outside the EU (for example, the United States) whereby often a COMI shift to the UK is sought to take advantage of UK insolvency law and the automatic access to the rest of the EU. These shifts in COMI will now likely move elsewhere.
The hope must be that amid the uncertainty, those negotiating the exit would look to keep much of the current system in place. The current advantages of recognition and cooperation in cross-border insolvency (as well as other areas such as employment law) clearly assist and increase value for creditors – amongst other matters it will now be much harder for UK insolvency practitioners to realise EU assets – whilst also being clear for practitioners and other stakeholders, such as employees through TUPE.
One immediate impact of Brexit to the domestic insolvency market will be the inevitable delay of the proposed new insolvency regime whilst the full impact of Brexit is considered and other pressing matters are dealt with by the UK government.
On a positive note, Brexit should not have such a bearing on the insolvency of domestic entities/individuals who did not trade or have assets in the EU given the fact that the bulk of UK insolvency law is not derived from EU law. Indeed, freed from the shackles of EU competition rules, the UK government may have more flexibility in being able to assist distressed companies and industries in the UK financially and otherwise.
Finally, the turmoil in the financial markets and impact on trade will no doubt increase the level of insolvencies in the UK. Whilst this may bring new opportunities, the chief beneficiaries of this are likely to be the insolvency practitioners and the insolvency industry in general.