2000 (EIR) came into force in 2002
and was significantly amended in
2015. Despite its relatively recent arrival
on the scene, the EIR has become
the foundation for cross-border
insolvency recognition across the
EU (except in relation to Denmark,
which opted out of the EIR).
The EIR does not impose uniform
insolvency laws across EU member
states; instead, it sets out a framework
of rules governing the administration
and recognition of insolvency
proceedings that involve more than
one EU jurisdiction. By way of example,
insolvency proceedings started in an
EU member state where the insolvent
person or company has its centre of main
interests (COMI) must be recognized
throughout all other participating EU
member states. The EIR also sets out
what laws apply to certain matters
arising in insolvency proceedings,
such as antecedent transactions,
set-off, and security matters.
As an EU regulation, the EIR is directly
effective in the U.K. and would cease
to have effect upon Brexit unless the
U.K. and the EU agree otherwise. This
would be true whatever model the U.K.
chose to adopt, including whether or
not it joined the EEA. Two obvious
consequences if the EIR ceased to
apply in the U.K. are as follows:
• Courts in EU member states
would not have to recognize
proceedings started in the U.K. as
main proceedings. Unless the U.K.
negotiated bilateral recognition
agreements with each EU member
state (which at this stage might
appear unlikely), recognition would
depend upon local recognition
rules. This may lead to a patchwork
of different, and not necessarily
consistent, decisions on the
same issue, depending upon
the jurisdictions involved.
• Under the EIR, once main
proceedings have been started in one
EU member state, only secondary
proceedings can be started in other
member states, effectively giving
precedence to the main proceedings.
This concept of main and secondary
proceedings would disappear, and
it would be open to courts in other
jurisdictions to bring conflicting
proceedings elsewhere despite the
commencement of proceedings
in the U.K., leading to delay and
increased costs as conflicts were
resolved. Without the framework
of the EIR, under which insolvency
practitioners are appointed in
different jurisdictions, a return to the
use of insolvency protocols, which
can take time to negotiate and would
inevitably increase the costs of the
proceedings, might be in the offing.
However, the EIR is not the only
legislation that assists in the recognition
of cross-border insolvency proceedings.
The Cross-Border Insolvency Regulations
2006 (CBR) implement into U.K. law
the Model Law of the United Nations
Commission on International Trade
(UNCITRAL). The Model Law aims
to provide a common international
framework in which to deal more
effectively with cross-border insolvencies
by enabling recognition of foreign
insolvency proceedings and allowing
for cooperation between foreign
courts and foreign representatives.
The CBR should remain unaffected on
any repeal of the ECA, and neither the
CBR nor the Model Law requires the U.K.
to be a member of the EU for the CBR
to be effective. It is possible, therefore,
that insolvency practitioners appointed
in EU member states would be able to
gain recognition in the U.K., whereas
recognition of insolvency proceedings
commenced in the U.K. would depend
upon the local recognition rules of
each relevant EU jurisdiction. Where
an EU member state has implemented
the Model Law, this may not be an
issue. However, to date only Greece,
Poland, Romania, and Slovenia have
implemented the Model Law.
Credit Institutions, Insurers. The EIR
and the CBR do not apply to credit
institutions or insurers. In those cases,
cross-border recognition and assistance
is achieved through a combination of:
• The Credit Institutions
Winding-Up Directive (CIWD)
and the Credit Institutions
(Reorganisation And Winding-
Up) Regulations 2004 (CIRWR)
• The Insurers Winding-up Directive
2001 (IWD) and the Insurers
(Reorganisation and Winding
up) Regulations 2004 (IRWR)
• The Bank Recovery and Resolution
Directive and the Banking Act 2009
Both the CIWD and IWD are EU directives
and were implemented as a matter
of English law under the CIRWR and
IRWR, respectively. Unless confirmed
by Parliament before Brexit, both the
CIRWR and the IRWR would fall away
as and when the ECA was repealed.
The rest of this section assumes the
continuation of both post-Brexit.
The Brexit effect would depend
on the model the U.K. adopted for
its relationship with the EU:
• The U.K. joins the EEA.
The legislation applies to EEA
states as well as EU member states.
If the U.K. became a member
of the EEA, there would be little
change to the current position.
• The U.K. does not join the EEA.
Both the IRWR and the CIRWR would
continue to apply as a matter of
English law, meaning that the U.K.
would have to give effect to and
recognize any reorganisation or
winding-up measures affecting an
EEA credit institution or insurer and
which were applied to any branch
of that credit institution or insurer,
any of its property or other assets,
and any of its debts or liabilities.
However, similar action by the U.K.
resolution authorities in relation to a
U.K. credit institution would not be
recognized or given effect to in the
same way by EU member states.
The BRRD should have been
implemented by each EU member state
by January 1, 2015; it was implemented
in the U.K. by amendments to the
Banking Act 2009. As this is primary as
opposed to secondary legislation, the
Banking Act would be unaffected by
a repeal of the ECA. However, as with
the CIRWR, the effect of Brexit on the
resolution and recovery regimes set
out in the Banking Act would depend
upon which post-Brexit model the
U.K. ultimately decided to follow.
• The U.K. joins the EEA. The directive
applies to EEA states that implement
the directive, which the U.K. has
already done. If the U.K. joined the
EEA it would be treated as a member
state for purposes of the directive and
the Banking Act, so there should be
little change to the current position.
However, cross-border recognition
of resolution actions is achieved
through the CIWD/CIRWR; the
U.K. would therefore need to take
appropriate steps to ensure the
continuation of that legislation.