On 1 January 2021, the free movement of people, goods and services between the UK and the EU ended, impacting many industries including the legal profession. But what does Brexit mean for contentious insolvency? Not only are there questions about who can enforce what, but a key issue is that the trade deal has overlooked insolvencies. For now, it will fall to insolvency practitioners and lawyers to find out insolvency laws of the nations involved on a case-by-case basis until the UK reaches an international agreement.
Cross-border litigation: What’s changed since Brexit?
In addition to the procedural and logistical issues, such as ensuring documents are served validly, cross-border litigants will now also have to re-consider
- which court has jurisdiction to hear their case
- which nation’s laws are applicable
- how any judgment may be enforced.
Enforcing judgments post Brexit
Many European businesses have traditionally chosen the courts of England and Wales to resolve their disputes due to the high standard of judiciary and use of the English language and there is no reason to suggest this will change.
Pre-Brexit, EU member states recognised an English judgment by default because of overarching international agreements such as the Brussels Regulations and Lugano Convention. Any proceedings issued prior to 31 December 2020 can still rely on these agreements.
The UK-EU Trade and Cooperation Agreement (TCA) does not refer to enforcement of judgments cross-border. Whilst the UK’s Lugano Convention application is still pending, English litigants may instead have to make use of the Hague Convention which can be used to enforce English judgments in nations not party to the EU or other prevailing agreements. There are exceptions to this principle, however, including insolvencies which are not recognised.
Parties wishing to rely on the Hague Convention must ensure their judgment is complete and certified and provide evidence that their judgment is enforceable in the state of origin. The judgment must also be translated if they are not in the official language of the enforcing state.
However, there are some limitations of the Hague Convention:
- It has relatively few members and signatories.
- It fails to recognise key areas of law such as insolvencies, matrimonial disputes or Wills.
- Protective measures such as interim injunctions and freezing orders can’t be enforced.
Enforcement difficulties may encourage potential litigants to use formal or informal alternative dispute resolution methods such as arbitration. Arbitral awards are likely to become more popular as they remain enforceable under the New York Convention.
Recognising insolvencies post Brexit
The future of insolvency recognition is even more uncertain. Despite the lengthy (1,246 pages) UK-EU Trade and Cooperation Agreement, it does not cover insolvencies and so EU states are no longer required to recognise or enforce UK insolvency proceedings.
The United Nations Commission on International Trade Law (UNCITRAL) Model Law gives a potential route for obtaining insolvency recognition in certain nations. This model uses the Centre of Main Interest (COMI) principle to require certain nations to recognise foreign insolvency proceedings. The UNCITRAL does not have many signatories, with less than half of EU member states having enacted the Model, although the USA is a member.
In the short term, insolvency practitioners will need to investigate the relevant insolvency laws of the relevant nation on a case-by-case basis in the absence of any international agreement. In the longer term the UK may be admitted as a member of the Lugano Convention, or other nations may adopt the UNCITRAL Model which would provide some certainty for British based insolvency practitioners and lawyers.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.