Lawyer Monthly - February 2023

While the European Insolvency Regulation existed prior to the end of the Brexit transition period, more Member States have implemented national measures to harmonise their approaches with that seen in the UK. English restructuring plans were generally equated to those of Schemes of arrangement for the purpose of recognition (i.e. considered to fall under the scope of the Brussels Recast Regulation). However, following the (albeit controversial) Gategroup case2, restructuring plans are now widely regarded as falling within the description of insolvency proceedings under the European Insolvency Regulation. Therefore, any restructuring plans launched pre-Brexit would likely be automatically recognisable in all Member States whereby the European Insolvency Regulation had been fully implemented, while restructuring plans launched posttransposition period would follow the exequatur (or equivalent) procedure and not be automatically recognised. More specifically, what does the UK’s departure from the Lugano Convention mean for judgements? The exequatur (or equivalent) procedure is only applicable if there is no existing convention or treaty between the UK and another Member State whereby automatic recognition exists. Previously, the Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters was seen as a potential means of obtaining recognition of a Scheme or a restructuring plan in Europe. However, since Brexit (and the UK having failed to accede in its own right, outside of being an EU Member State), the Lugano Convention is no longer applicable to the UK. The Lugano Convention would have been useful for the purpose of recognition of a Scheme (which is not an insolvency procedure). Some parties saw the potential accession by the UK to the Lugano Convention as a means of ensuring recognition of a restructuring plan, but the decision of the English Courts in the Gategroup matter cast significant doubt in this respect. While the facts of the Gategroup matter differ from restructuring plans launched post-Brexit, (as the proceedings were initiated on the day of the Brexit transposition deadline), this case provided a detailed analysis of an English restructuring plan, and ultimately ruled that it fell within the bankruptcy proceedings exemption of the Lugano Convention. This had the consequence that the choice of the English Courts as the location for insolvency proceedings to be commenced did not fall within the scope of Lugano, and thus did not qualify for automatic recognition. The concern with a lack of automatic recognition of these judgements is that while in the majority of Member States, a ruling pursuant to a Scheme, a CVA, or a restructuring plan would likely be recognised under their exequatur (or equivalent) proceedings3, if a Luxembourg entity is the initiator of a UK Scheme of arrangement or a restructuring plan, for the ruling to be recognised in Luxembourg, they must first have had a COMI shift, or shift of place of central administration to England or other procedural steps. Failing this, in the eyes of the Luxembourg court, the English court ruling on the Scheme, CVA, or restructuring plan does not have jurisdiction to hear a Luxembourgish entity’s pre/post-insolvency proceedings. Secondly, as Luxembourg has a somewhat outdated idea of creditor cramdown through the concordat preventative de faillite procedure4, and has not yet implemented any of the measures within the European Insolvency Regulation, there is a certain level of uncertainty as to whether a Luxembourg court would recognise the notion of creditor cramdown in the pre/post-insolvency mechanisms which are employed through Schemes, CVAs or restructuring plans in line with their national public policy. This means that, following lengthy exequatur proceedings, companies run the risk that the Luxembourg court finds that Schemes, CVAs and restructuring plans whereby creditor cramdown are ordered are contrary to public policy, meaning that the recognition order cannot be given. While certain practitioners argue that by virtue of Luxembourg having failed to implement the Insolvency Regulation by transposition deadline, elements of creditor cramdown ought to be recognisable in a Luxembourg court (if the need for recognition should arise), this cannot be guaranteed leaving an air of uncertainty. While this risk is remote, a lack of public policy is rarely used as grounds to justify a ruling, it cannot be ignored, as was shown in Ireland in Apperley Investments Limited & Others v Monsoon Accessorize Limited [2020] IEHC 523. An English Scheme/CVA/restructuring plan is perfectly fine to proceed in the UK without being subsequently recognised in a European Member State, unless the proposed procedure expects to make changes within a European Member State whereby recognition is required. As detailed in the DTEK case5, an English or Welsh judge sanctioning one of these actions should have confirmation EXPERT INSIGHT 35

RkJQdWJsaXNoZXIy Mjk3Mzkz