Lawyer Monthly - February 2023

There are very large discrepancies in terms of the recognition of pre-insolvency proceedings initiated in the UK across Europe and within EU Member States. that there is a reasonable likelihood of recognition in the relevant Member States before sanctioning such an action. Have there been any more significant developments in the insolvency sector since the end of the Brexit transition period? Generally, there have been no major developments in the area of insolvency law in Luxembourg since the end of the Brexit transposition period. However, it is important to note that the COVID-19 pandemic was ongoing at the time the transition period finished, and the various stays of payments permitted across various jurisdictions had led to a lower number of insolvency proceedings being initiated within Luxembourg, but we have recently seen some signs that this is changing. Separately, 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. However, Luxembourg has not yet done so, nor has it implemented the EU Restructuring Directive. This means that Luxembourg currently does not have the restructuring tools that other EU jurisdictions have implemented (such as, for instance, the French safeguard and the German and Dutch Schemes), and thus complex restructurings are not done in court in Luxembourg but rather settled out of court by security enforcement or by using procedures abroad. That being said, the so called ‘Luxembourg pre-pack’, which is completed using the very advantageous and robust Luxembourg financial collateral legislation, remains a very common means to implement a cross border debt restructuring. This mechanism entails the enforcement of the top Lux share security and thus transferring ownership of the distressed or restructuring group of companies to the relevant creditor groups. The Luxembourg collateral law remains one of the most, if not the most, creditor-friendly laws in Europe. 36 LAWYERMONTHLY FEBRUARY 2023 What implications do these post-Brexit developments have for Luxembourg? The new changes have certainly led to a renewed interest and further requests surrounding where Luxembourg stands on matters such as the implementation of the EU Restructuring Directive or the recognition of Schemes, CVAs or restructuring plans, along with an increased push for clarity in this respect in the Luxembourg market itself. Other than adding more complexity to the structuring around restructuring deals, Luxembourg is still a very popular restructuring jurisdiction because of the number of Luxembourg SPVs that are involved in international financings and the very creditor-friendly financial collateral legislation, which brings the enforcement of Luxembourg share security to one of the most popular ways of taking control of a debtor group in Europe. Is the current status quo regarding UK insolvency likely to change in the near future? It is rather unlikely to substantially change, but depending on how Luxembourg will implement the EU Restructuring Directive, using a Scheme may become easier in the future. Separately, there is discussion as to whether the UK may attempt to accede to the Lugano Convention. While, as per Gategroup, this would not be of assistance to those seeking to initiate restructuring plans or, separately, CVAs, this could certainly aid companies or groups seeking to initiate Schemes out of the UK while having their COMI/headquarters/ place of central administration in an EU Member State, or in one of the other countries which are a party to the Lugano Convention. We anticipate more complex litigation, in particular if recognition of UK judgments are sought in the insolvency context. Once exequatur procedures are launched concerning post-Brexit UK pre-insolvency and insolvency judgments and the Luxembourg judgments are subsequently rendered, creditors will have more clarity on the likely implications, timing and consequences if enforcement of a UK judgment is needed in Luxembourg.

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