Journal of Corporate Renewal

Sept

2016

Contrary to polls and the odds at he bookmakers, the U.K. in June voted to leave the European Union
(EU). An avalanche of political change
swiftly followed, resulting, as this is
written, in a new Conservative prime
minister, Theresa May, and a fight for
the leadership of the Labour Party. The
nature of the U.K.'s relationship with
the EU and the rest of the world, post-
Brexit—if or when Britain leaves the
EU—is uncertain. Some things are clear:
• Legally speaking, the referendum
result has no immediate effect.
It is only advisory. The U.K.
remains a member of the EU for
the time being and is still bound
by the EU treaties and subject to
the jurisdiction of the Court of
Justice of the European Union.

• The only legal mechanism for withdrawal is set out in Article 50 of the Treaty on the European Union. This requires the U.K. to issue a formal notice, known fittingly as an "Article 50 notice,” to the European Council, which then triggers a two-year period during which terms of an EU exit can be negotiated.

At the end of that period, the U.K. automatically would cease to be an EU member state, whether or not a withdrawal agreement had been reached. It is up to the U.K. to decide when and if to notify the European Council of its decision to leave; no time frame for notification is provided under Article 50.

• It may be that an Article 50 notice will not be served until autumn at the earliest—and possibly even later. However, politicians from certain member states have already indicated that they are not prepared to start any negotiations with the U.K. until notice has been given.

So where does that leave things? The
U.K. has its own legal system, which
is enforced by its own independent
court systems. However, a great deal
of law that currently applies in the U.K.
is derived from EU law in two ways:
• Directly, without the need for any
domestic implementing legislation,
in the form of EU regulations
• Indirectly, in the form of EU
directives, which must be
implemented by member
states through domestic
implementing legislation
If, as part of Brexit, the U.K. repeals
the European Communities Act 1972
(ECA), secondary legislation that is
incorporated into U.K. law by the ECA
may also fall unless steps are taken by
Parliament to affirm that secondary
legislation. However, any primary
legislation would still stand. This risks
causing inconsistencies and gaps in
U.K. law that would need to be addressed
in the transition period. Post-Brexit,
the U.K. must decide how much, if
any, EU law it wishes to retain.

One of the key unknown impacts of a Brexit on restructuring and insolvency laws is what sort of relationship the U.K. will have with the rest of the EU once its “divorce” becomes final. Will the U.K. join the European Economic Area (EEA)? Will it become a member of the European Free Trade Association (EFTA) but otherwise negotiate bilateral agreements with member states? Or will it go it alone, negotiating a bespoke solution with each jurisdiction?

The flexibility and pragmatism of its courts, combined with the creativity of restructuring professionals in this jurisdiction, have gone a long way toward making England a forum of choice for the implementation of numerous complex restructuring transactions. That could be in serious jeopardy unless the post-Brexit world includes means by which access to the mutual recognition and cooperation provisions in the various European insolvency provisions can be preserved.

The remainder of this article considers the impact that Brexit might have on restructuring and insolvency transactions, keeping in mind the different models that the U.K. might follow when negotiating its future relationships with EU member states.