Caroline Sumner, technical and education director at R3, has shared with Accountancy Age her thoughts on how insolvency practices in the UK could be affected by a potential no-deal Brexit.
Throughout the Brexit process R3, the UK’s insolvency and restructuring trade body has been keeping a close eye on how Brexit will affect the UK’s insolvency framework and has begun to raise concerns about its potential impact on the country’s insolvency market.
Currently, the UK insolvency sector is recognised by the World Bank as the 14th best jurisdiction in the world for ‘resolving insolvency’. However, much of this success stems from the nation’s ability to swiftly handle cross-border insolvencies thanks to the EU’s legal framework.
Under the current rules, the UK is able to make use of two key EU directives The European Insolvency Regulation and The Recast Brussels Regulation.
The former regulation ensures that the appointment of an administrator, liquidator, or trustee in bankruptcy in one EU member state is automatically recognised in other EU jurisdictions, while the latter aids with enforcement by allowing court judgments made in one EU country to be automatically recognised across EU member states.
Together, these directives mean that cross-border insolvencies can be dealt with as if they were taking place in one jurisdiction, which ensures that UK insolvency practitioners can take control of assets spread across EU in one go while preventing insolvency procedures from competing jurisdictions acquiring the same assets on behalf of local creditors.
This ensures that cross-border insolvencies are more joined up, which can also play an essential role in preventing individuals fraudulently hiding assets in other countries, while also keeping costs down and providing fair treatment to all creditors.
However, if the UK does leave the EU without a deal both directives will cease to apply in the UK and overnight UK insolvency practitioners will lose all the benefits that they have gained.
This will mean that UK insolvency practitioners as administrators of companies with complex cross-border operations will have to initiate new insolvency proceedings in all of the other countries where the company has staff, subsidiaries, or other assets.
The result of which will be additional time and expense, as well as smaller returns for creditors and a greater risk of assets being hidden.
Caroline Sumner said: “At R3, we’ve been working hard to make sure that the insolvency and restructuring profession’s concerns are clearly spelt out to the Government, and we’ve had some success. It is now the Government’s stated policy to seek a post-Brexit agreement which closely reflects the existing framework of mutual recognition and cooperation on civil judicial matters, including, specifically, insolvency.
“While this is positive, it takes two – or 27 – to tango, and the shape of the future relationship remains to be decided. R3 will continue to argue for reciprocal automatic recognition, as it presents the best outcomes for all stakeholders in cross-border insolvency and restructuring cases, and for the economy overall.”
If you are concerned about an overseas debtor or have complex operations in multiple jurisdictions and are concerned about your own business’s financial health, please contact Gibson Hewitt’s experienced team immediately.