The potential impact of a ‘no deal’ Brexit on cross-border insolvency cases, as set out by the Government in a just-published technical note, is deeply concerning, says insolvency and restructuring trade body R3.
Stuart Frith, R3 president, said “We would be deeply concerned about the impact of a ‘no deal’ on the UK’s insolvency and restructuring framework. The strength of the UK’s insolvency and restructuring framework partially depends on its pan-European reach. At the moment, EU regulations mean UK insolvency and restructuring procedures and judgments are automatically recognised across the EU – and vice versa. A loss of this recognition, as would happen in a ‘no deal’ situation, would be bad news for UK businesses and creditors.
“Reciprocal automatic recognition means it’s relatively quick and cost effective to retrieve the assets of insolvent UK-based companies or individuals wherever those assets are in the EU. It means the insolvencies of companies with a presence across the EU can be dealt with through one insolvency procedure rather than several. This keeps costs down and increases the chances of business rescue, which, in turn, boosts returns to creditors. If the current EU-UK insolvency framework is not preserved post-Brexit then it will become much more expensive and difficult to resolve UK and EU insolvency cases where UK-EU cross-border work is required. This will jeopardise creditor returns, business and job rescue, lending and investment, and it will damage the UK’s reputation as a place to do business.
“The insolvency and restructuring framework is there to provide businesses, lenders, and investors with the confidence that, in the event of an insolvency, they will see at least some of their money back. Adding barriers to this process where a UK company has a presence in the EU would damage confidence in trading with, lending to, and investing in that company. The Government has repeatedly outlined a desire to seek a post-Brexit agreement which closely reflects the principles of mutual cooperation that exist under the current EU framework. This is welcome and R3 is happy to support the Government’s pursuit of its objective.
“In the event of a ‘no deal’, it’s important that the Government takes steps to improve the domestic insolvency framework in order to maintain its international competitiveness. The Government has just published plans to deliver a package of major insolvency reforms first proposed in 2016, but the timetable for introducing them is not clear. Introducing the reforms would be a good step towards mitigating some of the problems which the loss of automatic recognition might cause.”
Responding to the government’s guidance on data protection in the event of a ‘no deal’ Brexit scenario, Stephen Jones, Chief Executive of UK Finance, said “We continue to believe that a ‘no deal’ scenario can and should be avoided. However, it is right that the government is providing guidance to businesses on critical cliff-edge issues such as the cross-border flow of data.
“Every day, millions of citizens and businesses rely on the free flow of personal data between the EU and UK that underpin our modern digital economies. A pragmatic approach is needed to ensure this vital cross-border exchange of personal data can continue including in a ‘no deal’ scenario. Both sides currently share the highest standards of data protection, which the UK has rightly committed to maintaining after Brexit.
“It is vital that negotiations progress swiftly to ensure continued cross-border data flows and prevent additional costs and bureaucracy for firms and their customers on both sides of the Channel.”