Recognition of Foreign Insolvency and Bankruptcy Proceedings in England & Wales

When the UK left the EU following Brexit, the co-ordination rules for insolvency proceedings between member states ceased to apply to UK courts, making life for creditors and insolvency practitioners more complicated. UK insolvency proceedings ceased to be automatically recognised in EU member states and similarly, EU insolvency proceedings ceased to be automatically recognised in the UK.

Recognition of English insolvency proceedings in an EU member state

At present, there are two main ways to ensure English insolvency proceedings are recognised in other jurisdictions:

• Where a country has adopted it, via the existing model law, the UNCITRAL Model Law on Cross-Border Insolvency, or

• For countries who have not adopted the UNCITRAL Model Law, via the private law of the country where recognition is sought.

The Model Law is designed to assist states to equip their insolvency laws with a modern legal framework to more effectively address cross-border insolvency proceedings concerning debtors experiencing severe financial distress or insolvency. It focuses on authorizing and encouraging cooperation and coordination between jurisdictions. There is a list of countries that have adopted or are considering adopting the UNCITRAL Model Law. Neither of the above approaches are straightforward.

Recognition of foreign insolvency proceedings in England & Wales

Similarly, if someone is made insolvent or declared bankrupt in a foreign jurisdiction, creditors can pursue assets in England via two sets of rules:

• The Insolvency Act 1986, and

• The Cross Border Insolvency Regulations 2006.

Either or both of these routes may be available, and which is appropriate will normally depend on the individual facts of each case. It is also possible to invoke both routes in one single application. The Insolvency Act route is often seen as the less complex.

The Insolvency Act 1986

Section 426 enables the UK courts to provide assistance to the courts of “relevant countries and territories” upon request. The scope of the assistance available under section 426 can be very wide, and much wider than under the Cross Border Insolvency Regulations. The English court can apply English insolvency law or the law of the requesting court but section 426 cannot be used to recognise and enforce foreign judgments.

There is a list of relevant countries and territories. English courts will generally assist unless there is a good reason not to.

Cross Border Insolvency Regulations 2006

The UK hasimplemented the Model Law via the Cross-Border Insolvency Regulations 2006 (SI 2006/1030) (CBIR). Under the Cross Border Insolvency Regulations, either the foreign court or a representative creditor can apply to the English courts for assistance. The foreign representative is usually an official receiver or insolvency practitioner. On making the application, all known circumstances surrounding the insolvency / bankruptcy will need to be disclosed to the court including any consequential effects of recognition on third parties.

Recognition under the CBIR for foreign main proceedings only (i.e. opened where the debtor has its COMI) results in an automatic stay on certain enforcement actions against the debtor, equivalent to the stay applicable in English liquidation proceedings; and

If requested by the foreign representative, discretionary relief is available. This relief is limited and cannot involve the application of a rule of foreign law or be used to recognise and enforce a foreign judgment.

Letter of Request

In both of the above procedures, an application for a Letter of Request to be issued must be made to the court of the home jurisdiction. The Letter of Request is then made from the originating court to the English court, requesting assistance in relation to certain target assets.

An application for a Letter of Request will need to be carefully drafted to ensure that it is sufficiently specific. It will need to clearly identify the assets in issue as well as the bankrupt or insolvent’s interest in those assets and whether or not there are any other relevant proceedings.

Comment

Brexit created additional hurdles and complications for both debtors and insolvency practitioners. However, there are ways to achieve recognition of foreign insolvency proceedings although care and careful consideration is required. This is also still an evolving area, and we can expect interesting developments in the years ahead.

If you would like to discuss an insolvency issue, please get in touch.

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