Lawyer Monthly - February 2023

To give a broad overview, what have been the primary outcomes of Brexit on cross-border insolvency and restructuring proceedings? In Luxembourg (as in many other EU jurisdictions) there is no specific legal framework on automatic recognition of UK judgements following Brexit. That is to say, there is no replacement or equivalent to the previously applicable: (i) EU Insolvency Regulation, (ii) Brussels Recast Regulation on recognition of judgments, and (iii) recognition in certain circumstances where the Hague Convention would typically not apply. The consequences have a significant effect on the use of certain previously common restructuring tools such as the UK Scheme of Arrangement and, more recently, the UK Restructuring Plan. Whereas Schemes and other UK processes were commonly used to restructure debt prior to Brexit, their use has become less common post Brexit due to this lack of automatic and direct enforceability. The UK restructuring processes can still be used, but their scope of use is now limited, it being noted that parties need to undertake a more detailed factual analysis as to the need for enforceability of the UK judgement in the specific matter and associated risks as to lack of direct enforceability. Post-Brexit, it appears from practice that a Scheme or other UK restructuring process is limited to use on debt governed by English law only and only with respect to the contractual nature of the debt. This is a change from past practice, where the UK processes could also be used to order positive actions as against the debtors. As positive actions against the debtor require immediate enforceability of the judgement for them to be effective, these positive actions would appear to be no longer viable, thereby limiting the scope of applicability of the Scheme. As to market trends as a result of Brexit: (i) the overall use of Schemes has decreased, (ii) other restructuring processes in EU 34 LAWYERMONTHLY FEBRUARY 2023 countries are considered as options in far more detail (such as the German or Dutch restructuring processes), and (iii) the scope of the Schemes has been reduced to and generally limited only to contractual debt matters. The UK restructuring procedures, however, remain very practical and the UK Courts have significant experience in debt restructuring, making it an objective of parties to attempt to fit facts and circumstances to try and still use these processes. One such trend is the growing popularity of attempting to create a coobligor structure following the Gategroup model to limit recognition issues. What has been the impact on international recognition and enforcement of postBrexit UK judgements in EU member nations? English Schemes of arrangement (voluntary pre-insolvency proceedings) are not considered to be insolvency proceedings. As a result, prior to the Brexit transposition deadline such orders were generally automatically recognised in the EU under the Brussels Recast Regulation. However, as no equivalent proceedings, treaties or recognition conventions exist in EU Member States, with the Brussels Recast Regulation no longer being applicable post-Brexit, sanctioned Schemes would now generally be required to undergo the exequatur procedure in order to be recognised in an EU Member State. In Luxembourg, the exequatur procedure is an ordinary civil proceeding without priority and as such may take significant time to achieve in contested proceedings, leaving an uncertainty in the restructuring transaction (which often proves fatal due to time being of the essence). On the other hand, English Company Voluntary Arrangements (CVAs) are considered to be insolvency proceedings as they are listed under the European Insolvency Regulation1. Thus, prior to Brexit, rulings in relation to CVAs were entitled to automatic recognition in all Member States whereby the European Insolvency Regulation had been fully implemented (subject to that European Member State’s public policy). For example, following the Brexit transposition deadline, a Luxembourgish court would need to apply the exequatur procedure for the recognition of foreign judgements, as Luxembourg has not incorporated the European Insolvency Regulation into national legislation.

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