Brexit: Where are we going?

Published June 2018
Government/RegulationManufacturing
Authors
Mark Phillips QC

Brexit: Where are we going?

Published June 2018

Any parent of young children can tell you that one of the most frequently asked questions on any car journey that takes longer than 15 minutes is “are we there yet?”

Often it isn’t an easy question to answer because there are several variables, the traffic, the number of breaks, and whether the journey straddles mealtimes. There is also the possibility that something goes wrong with the car. Something that is not a variable (usually at least) is the destination. When it comes to Brexit, we are on a journey. There are many variables. There are several possible routes. We even have the scenario, familiar to all parents, of the children squabbling in the back “Boris keeps taking my best single market toy”, “Well Theresa keeps changing the game”, “David, give Michel the map back, it’s been agreed he’s in charge of the route.” “Michel what’s the matter?”, “Boris has taken my green marker pen.” “Boris, let Michel have the yellow one and we can talk about it later.” “Liam, what’s the matter?”, “Michel won’t let me play with Donald.” Unlike the journey to a family holiday, the Brexit destination hasn’t yet been agreed. At the moment the best we can do is agree that by a particular time we are going to stop off at a convenient service station on the motorway. So the answer to the question “are we there yet?” is no. The full answer is “we haven’t yet worked out where we are going.”

At 11pm on Friday 29 March 2019, absent agreement between Parliament and the EU to the contrary, the UK will “exit” the EU2. At that moment the UK will cease to be a Member State. The Draft Agreement on the withdrawal of the UK from the EU of 19 March 2018 (the “Draft Withdrawal Agreement”) 3 provides “This Agreement shall enter into force on 30 March 2019.”4 It is now agreed that there will be a “transition or implementation period” that ends on 31 December 2020.5

In this article I focus on the law applicable in the UK and the 27 remaining EU countries relevant to the recognition and enforcement of insolvencies in the 28 current EU member states during the transition or implementation period and, to the extent that it is possible, after 31 December 2020. When considering the question of recognition in the 27 remaining EU countries, I consider it from the perspective of the applicability of the Recast EU Regulation on Insolvency Proceedings (848/2015) (“the EU Insolvency Regulation”), the Recast Brussels Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (1215/2012) (“the Brussels Regulation”), Rome I on the law applicable to contractual obligations (593/2008) (“Rome I”), and in passing the UNCITRAL Model Law. I am not qualified to comment on the domestic laws of the 27 remaining member states, although it remains the case that in the majority of the remaining member states, the enforcement and recognition of UK insolvencies and schemes could become a matter of domestic law. 6

The European Union (Withdrawal) Bill

the European Union (Withdrawal) Bill 7 provides that on or after exit day direct EU legislation, so far as operative immediately before exit day,8 forms part of domestic law on and after exit day. Direct EU legislation includes any EU regulation as it has effect in EU law immediately before exit day subject to certain exceptions.9 The effect of section 3(1) of the European Union (Withdrawal) Bill10 will be that the EU Insolvency Regulation, the Brussels Regulation and Rome I “forms part of domestic law” after 11pm on 29 March 2019. The incorporation of these EU Regulations into English domestic law is not conditional upon the EU giving equivalent reciprocal effect to English insolvencies or proceedings. The position of contracts under Rome I is different because its application is not dependent on the country of the law of the contract being a Member State. There are provisions intended to enable Ministers to alter the operation of EU law in the UK, but the circumstances are limited and it is hard to imagine how they could apply to these three EU Regulations, but in theory they could. Section 7 of the European Union (Withdrawal) Bill provides that a “Minister of the Crown may by regulations make such provision as the Minister considers appropriate to prevent, remedy or mitigate – (a) any failure of retained EU law to operate effectively, or (b) any other deficiency in retained EU law, arising from the withdrawal of the UK from the EU.”11 Sub-section 7(2) identifies seven types of deficiency. Sub-sections (c), (d) and (e) might become relevant in the present context. Those subsections identify as deficiencies “where the Minister considers that retained EU law”:

1) “makes provision for, or in connection with, reciprocal arrangements between …the UK…and the EU… which… are no longer appropriate.”12

2) “makes provision for, or in connection with, other arrangements which… involve the EU… or are otherwise dependent on the United Kingdom’s membership of the EU… and which are no longer appropriate.”14

3) “makes provision for, or in connection with, any reciprocal or other arrangements not falling within paragraph (c) or (d) which…are no longer appropriate, as a result of the United Kingdom ceasing to be a party to any of the EU Treaties.”14

The provisions governing deficiencies in retained EU law range widely. Amongst other things, they apply to reciprocal arrangements.

However, the Minister, with Parliamentary approval, is only able to address deficiencies as a matter of English law.15 Where the deficiency with reciprocal arrangements lies in the fact that other EU jurisdictions no longer recognise or give effect to aspects of English insolvencies, or to certain rights of English creditors, there is little a UK Minister can do. The Minister could perhaps withdraw the equivalent reciprocity afforded to EU insolvency regimes by virtue of the EU Insolvency Regulation, or less likely, make the reciprocal effect given to EU insolvency regimes dependent on reciprocity being given to English proceedings. The same could be done in relation to judgments by making recognition and enforcement in the UK dependent upon recognition of UK judgments through the Brussels Regulation. By its nature reciprocity requires give and take by both parties. The provisions of section 7 can only enable unilateral action, and the action that might be taken is so extreme that it must be unlikely. In addition, there are provisions in section 9 of the European Union (Withdrawal) Bill that enable a Minister of the Crown, by regulations, to make “such provision as the Minister considers appropriate for the purposes of implementing the withdrawal agreement”. Schedule 7 gives Parliament the power to scrutinise.

In addition section 17(5) provides that “a Minister of the Crown may by regulations make such transitional, transitory or saving provision as the Minister considers appropriate in connection with the coming into force of any provision of [the Act].” In the context of the EU Insolvency Regulation it is difficult to conceive of transitional arrangements the UK government might want to introduce in relation to the UK’s continued application of the EU Insolvency Regulation.

Given that the EU Insolvency Regulation, the Brussels Regulation and Rome I will continue during the transition or implementation period in the draft Withdrawal Agreement with the EU, there is no reason for the Government to alter the operation of those regulations before 31 December 2020. After 31 December 2020 the effect of the EU (Withdrawal) Act (as it then would be) would be that subject to the provisions of sections 7 and 9 to make alterations, the EU Insolvency Regulation the Brussels Regulation and Rome I would be in force in England as a matter of domestic law.

The Draft Withdrawal Agreement

On 19 March 2018 the EU and the UK published the Draft Withdrawal Agreement. Where the Draft Withdrawal Agreement provides for the application of EU law in the UK “it shall produce in respect of and in the UK the same legal effects as those which it produces within the EU and its Member States.16 A fair reading of the Draft Withdrawal Agreement is that it contains transitional and implementation provisions that will apply until 31 December 2020. Whether or not it is an indication of what might happen after the end of the transition and implementation period is a “known unknown”. All that can be said at this stage is that we know that some agreement will be made in relation to the ongoing application of the EU Insolvency Regulation, the Brussels Regulation and Rome I, but we do not know where in the spectrum between no application and full application the EU and UK will agree to go forward.

In the context of insolvency the three regulations that matter are the EU Insolvency Regulation, the Brussels Regulation and Rome I. Article 63 of the Draft Withdrawal Agreement is concerned with jurisdiction, recognition and enforcement of judicial decisions, and related cooperation “between central authorities”. As regards the EU Insolvency Regulation, article 63(4) provides that a number of provisions “shall apply”, including under Regulation 63(4)(c):

Regulation (EU) 2015/84817… shall apply to insolvency proceedings provided that the main proceedings were opened before the end of the transition period.

This provision is not yet agreed.18 It applies only to insolvency proceedings where the main proceedings were opened before 31 December 2020.19

As regards the Brussels Regulation, article 63(1) identifies “acts or provisions” that “shall apply in respect of legal proceedings instituted before the end of the transition period” which is before 31 December 2020. The “acts or provisions” referred to include “the provisions regarding jurisdiction” of the Brussels Regulation,20 the provisions relating to choice of jurisdiction,21 and the recognition and enforcement of judgments.22 In addition the arrangements between the EU and Denmark continue to apply to the UK by article 65(2).23

As regards Rome I, article 62(a) of the Draft Withdrawal Agreement provides that Rome I shall apply in respect of contracts concluded before the end of the transition period.

The EU Insolvency Regulation

After 31 December 2020 the UK will be a nonmember state, no longer a Member State. However, unlike other non-member states, the UK will give effect to the EU Insolvency Regulation as English domestic law. There are provisions in the EU Insolvency Regulation that apply to both Member States and non-member states. There are other provisions that apply only to Member States (excluding Denmark which is not a Member State for the purposes of the EU Insolvency Regulation).

Questions of Interpretation

Before turning to the provisions of the EU Insolvency Regulation that will apply to the UK as a non-member state, the question arises how the English Courts should approach the interpretation of the EU Insolvency Regulation. After exit day the EU Regulation becomes English domestic legislation, but it has not been drafted as English domestic legislation.

The principle of the supremacy of EU law will no longer apply to any enactment or rule of law passed after exit day.24 Section 6(1) provides that a court or tribunal “is not bound by any principles laid down or any decisions made, on or after exit day by the [CJEU], and cannot refer any matter to the [CJEU] after exit day.” Section 6(2) goes on to provide that a court or tribunal “need not have regard to anything done on or after exit day by the CJEU… but may do so if it considers it appropriate to do so.

Section 6(4) of the EU (Withdrawal) Bill provides that the Supreme Court and the High Court sitting as a court of appeal (apart from some circumstances not relevant here) are not bound by any retained EU case law (subject to the rules in section 6(5) referred to below). It is conceptually possible for the higher English courts to decide not to follow a CJEU decision on a particular point. However, the circumstances in which the higher English courts might do that are prescribed by section 6(5) of the EU (Withdrawal) Bill. If the Supreme Court or Court of Appeal want to depart from any retained EU case law the English court “must apply the same test as it would apply in deciding whether to depart from its own case law.” Accepting the test laid down by section 6(5) of the EU (Withdrawal) Bill, the circumstances in which the higher English court might refuse to follow a decision of the CJEU made prior to exit day are limited.

By contrast under the draft Withdrawal Agreement provisions “referring to [EU] law or concepts or provisions thereof shall in their implementation and application be interpreted in conformity with the relevant case law of the [CJEU] handed down before” 31 December 2020.25 Article 4(5) provides that in the interpretation and application of the draft Withdrawal Agreement “the [UK’s] judicial and administrative authorities shall have due regard to relevant case law of the [CJEU] handed down after the end of the transition period.” Nothing in Article 4 is yet agreed26 and there are a number of tensions between those provisions of the Draft Withdrawal Agreement and the EU (Withdrawal) Bill. The EU Draft Withdrawal Agreement provides that in the period before 31 December 2020 UK courts “shall” apply EU concepts consistently with EU case law and after 31 December 2020 UK courts “shall have due regard” to relevant CJEU case law. The UK EU (Withdrawal) Bill provides that the UK courts are “not bound” to apply EU principles after exit day. There is also a temporal question that will need to be ironed out. The EU (Withdrawal) Bill applies from exit day. The draft EU Withdrawal Agreement applies through the transition period and beyond. That should be ironed out by changing the provisions in the EU (Withdrawal) Bill so that they apply from the end of the transition and implementation period, not from exit day. The tensions between the EU’s wish that UK courts apply CJEU decisions and the UK’s wish that UK courts should no longer be bound by CJEU decisions cannot be solved by drafting alone.

However, this highly charged debate is more symbolic than substantive. Whatever the form of the final agreement, in order to give effect, as a matter of English domestic law, to the EU Insolvency Regulation, the Brussels Regulation and Rome I, the English courts are highly likely to adopt the EU’s purposive approach, and are highly likely to have regard to relevant decisions of the CJEU and the courts of other Member States. It makes no sense for the English Courts to continue to apply the EU Regulation, the Brussels Regulation or Rome I, without having regard to how those regulations have been interpreted and understood by the other states in which they apply and by the CJEU. In an insolvency proceeding in England and one or more other EU jurisdictions it would make no sense for the English court to give a different answer to that given the EU Member States to the same question27. Experience of the English courts when faced with such an issue, is that the Judges take a common sense approach. They would avoid a conflict between the English court and the courts of the EU Member States and the CJEU, particularly if the question arose in the same case, for example, a cross border insolvency that raised questions about the centre of main interests (“COMI”) of entities in a group operating across England and other EU states28. It follows that, in the context of the EU Insolvency Regulation, the 33 recitals will retain their significance as will the Virgos-Schmit report29. Moreover, existing, and possibly future, judgments in other European countries and judgments of the CJEU will continue to be instructive. UK courts will no longer be able to refer questions to the CJEU. The courts of other member states dealing with the same insolvency will be able to refer questions to the CJEU. The result of any such references will not be binding on the English court, but will be binding on the other EU courts dealing with the same insolvency and would very likely be applied by the English court. It is unlikely we have got to the end of the journey on how EU law should be interpreted when the English courts come to interpret what has become, after exit day, a matter of English domestic law. One final matter worthy of note in the context of questions of interpretation. Article 8 of the UNCITRAL model law on cross border insolvency, applied in England by the Cross-Border Insolvency Regulations 2006, provides that in the interpretation of “this Law”, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith. Article 3 provides that to the extent “this Law” conflicts with an obligation of the United Kingdom under the EU Insolvency Regulation, the requirements of the EU Insolvency Regulation prevail. Whilst “this Law” is a reference to the UNCITRAL model law, and where there is a conflict the EU Insolvency Regulation prevails, there are several concepts that apply both to the EU Insolvency Regulation and to the UNCITRAL model law. Of significance is the concept of COMI. The English courts are obliged by Article 8 to have regard to the decisions of the CJEU and other European courts in relation to common concepts. The Cross-Border Insolvency Regulations 2006 may apply to all insolvencies, whether in an EU country or not. It is possible that the English court will have regard to decisions made by EU courts after 31 December 2020 to the extent that they deal with concepts common to the UNCITRAL Model law.

Provisions applying to member states and non-member states

The structure of the EU Insolvency Regulation regime is well known. The courts in a Member State of the EU debtor’s COMI have an exclusive right to open ‘main’ proceedings.30 The main proceedings extend to all of the debtor’s assets. Where the debtor has an establishment in another Member State, secondary proceedings may be opened in relation to local assets.31 Secondary proceedings may protect the interests of local stakeholders, respond to the complexity of the debtor’s estate or the differences between the legal systems of the COMI and establishment states. The proceedings and recognition and enforcement of those proceedings over the debtor’s assets and creditor claims depend upon the debtor’s COMI or establishment being in a Member State. There are some provisions that apply the laws of nonmember states.

After 31 December 2020 the UK will be a non-member state and the transitional and implementation provisions will no longer apply. If the COMI of a debtor is in England, insolvency proceedings opened in England will not be recognised by EU Member States under the EU Insolvency Regulation. If the COMI of a debtor is in a Member State and the debtor has an establishment in England, the English courts will recognise insolvency proceedings opened in the country of the COMI and any secondary proceedings opened in a Member State in which there is an establishment, because the EU Insolvency Regulation has become a part of English domestic law under the EU (Withdrawal) Bill. However, EU Member States will not recognise a secondary insolvency proceeding opened in England on the ground of an establishment in England, because England is not a Member State. Whilst England will recognise orders made by the courts of the EU Member States in an insolvency that falls within the EU Insolvency Regulation, English court orders will not be recognised in EU Member States, other than under any applicable domestic legislation (including, in the case of Greece, Poland, Romania, Slovenia, and one day Serbia under UNCITRAL).

The basic rule is that the lex concursus in both main and secondary proceedings governs both procedural and substantive matters.32 The main and secondary proceedings must be in a Member State, so this basic rule applies to the laws of Member States. UK courts will give effect to this basic rule in relation to insolvency proceedings opened in Member States. So, for example, UK courts will apply article 7(2) of the EU Insolvency Regulation, which provides that the law of the state opening the proceedings determines, amongst other things, “the assets which form part of the insolvency estate”, “the conditions under which set-offs may be invoked”, and “the effects of the insolvency proceedings on current contracts”.

There are exceptions to the basic rule that apply the laws of Member States other than the lex concursus. However, after 31 December 2020 the UK will not be a Member State and so these exceptions will not apply in the UK. That means that in the EU27 the lex concursus will apply. There are several examples:

(a) UK courts will apply article 8 of the EU Insolvency Regulation which applies to rights in rem in respect of assets situated within the territory of a Member State. By contrast Member States will not be bound to recognise rights in rem of assets situated in the UK unless the lex concursus points to English or other UK law as the governing law33.

(b) Article 10 provides that insolvency proceedings shall not affect sellers’ ROT rights where “at the time of the opening of proceedings the asset is [in a Member State].” UK courts will recognise the ROT rights of the seller if the assets are in a Member State, but EU courts will only recognise the ROT rights of a seller whose assets are in the UK if the lex concursus points to English or other UK law.

(c) Article 11 concerns the effects of insolvency proceedings on a contract conferring the right to acquire or make use of immovable property. That is governed by the law of the Member State where the immovable property is situated. UK courts will apply this provision to immovable property in a Member State. EU courts will not apply this provision to immovable property in the UK. A contract conferring the right to acquire or make use of immovable property in England will almost certainly be governed by English law34. Applying the rule in Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Metaux (1890) LR 25 QBD 399, the effect of EU insolvency proceedings on an English law contract is limited. There is considerable scope for uncertainty as to the effect of EU Insolvencies on such contracts.

(d) The EU Insolvency Regulation provides that the effects of insolvency proceedings on the rights and obligations of the parties to a payment or settlement system or to a financial market “shall be governed solely by the law of the Member State applicable to that system or market35 although English law would govern securities that are publicly registered in England36. Article 12 provision will not be applied by the EU27 to the UK’s payment systems and markets after 31 December 2020. This could lead to different legal systems being applied to some aspects of the London markets by the UK courts and by the courts of the EU. It is difficult to see how this problem could be solved by the UK alone, because the problem is primarily the failure of the EU27 to apply English law to the London markets.

(e) Another area of concern is the effects of an insolvency on contracts of employment. Article 13 provides that “the effects of insolvency proceedings on employment contracts and relationships shall be governed solely by the law of the Member State applicable to the contract of employment.” After 31 December 2020 the UK will no longer be a Member State. If the COMI of a company is in an EU Member State, the effect of the insolvency on contracts of employment, for example whether the employment contract has terminated, will be governed by the law in the COMI37. The exception that would otherwise have resulted in the application of English law to the effect of the insolvency on the contract would be inapplicable. In the UK there would be a question whether the incorporation into UK law of the EU Insolvency Regulation meant that the English courts were bound to apply the law of the COMI to the effect of the insolvency on employment contracts of English employees. However, as a matter of contract law in England, contracts governed by English law, could not be discharged or terminated by the foreign insolvency the contracts.38 The political problems that would arise if English employees were to be told that their employment contracts had been terminated by an insolvency proceeding in a Member State of the group of which the English company is a part, are obvious.39 In the circumstances this might be an area in which Ministers would identify a deficiency in the application of the EU Insolvency Regulation in England under section 7(2)(c) of the EU (Withdrawal) Bill.

There are also provisions in the EU Insolvency Regulation that also appear to apply the law of a nonmember state.

(a) Article 9 provides that set-off is available where “a set-off is permitted by the law applicable to the to the insolvent debtor’s claim.” If set off applies in England to an English law claim40, that should be recognised by the EU Member States.

(b) Article 17 gives protection to third party purchasers41 in relation to acts concluded after the opening of insolvency proceedings where a debtor disposes of an immovable asset, a ship, an aircraft or securities. The validity of the disposition is governed by the law of the State within the territory where the immovable asset is or where the register is kept. This is not restricted to Member States and so will continue to apply to assets in the UK or registered in the UK.

Denmark

The position of Denmark is unaffected by Brexit. That is because the EU Insolvency Regulation does not apply to Denmark.42 Moreover, Denmark has not given effect to the UNCITRAL Model law. Whilst the English Courts could give effect to a Danish Insolvency under the Cross-Border Insolvency Regulations 2006 (SI 2006/1030) the Danish Courts could only give effect to an English insolvency under its domestic law. That is the position today.

Greece, Poland, Romania, Slovenia and Serbia have implemented the UNCITRAL Model Law. After 31 December 2020, English insolvency proceedings may be recognised and enforced in those countries by an application made to their courts under the local laws giving effect to the UNCITRAL Model Law.

The recognition and enforcement of schemes of arrangement has depended on both the Brussels Regulation and Rome I. Rome I enables the parties to a contract to choose the law applicable to their contract and provides that the chosen law governs “the various ways of extinguishing obligations44 Rome I applies to non-member states,44 and will continue to apply to contracts with an English choice of law after 31 December 2020. The rule in Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Metaux (1890) LR 25 QBD 399 is that an English law contract will not be discharged by a foreign insolvency. This has been upheld in several cases, most recently in Bakhshiyeva v Sberbank of Russia [2018] EWHC 59 (Ch). In the context of a scheme of arrangement, where English law has been chosen only an English scheme will be effective to extinguish or vary the debt.45 Applying Rome I, where there is an English choice of law, and a scheme of arrangement varies or extinguishes that debt, that contractual effect will continue to be recognised across the EU.

Rome I is only effective in relation to English law contracts. A scheme of arrangement often also involves contracts subject to other systems of law and there may not be recognition of the effect of the scheme under the contract.46 In relation to the recognition and enforcement of orders sanctioning a scheme of arrangement reliance is place upon the Brussels Regulation. The EU Insolvency Regulation and the Brussels Regulation are complimentary. Article 2(b) of the Brussels Regulation provides that it does not apply to “bankruptcy, proceedings in relation to the windingup of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings.47 The list of insolvency proceedings to which the EU Insolvency Regulation applies does not include schemes of arrangement.48 The general provisions on jurisdiction in the Brussels Regulation apply to persons domiciled in a Member State.49 After 31 December 2020 those rules will cease to apply to persons domiciled in the UK. However, they will continue to apply to persons domiciled in another EU member state. The “special jurisdiction” provisions that enable a person domiciled in a Member State to be sued in another Member State50 will no longer apply to England. Recognition of a judgment or order of the English Court, pursuant to Article 36(1) of the Brussels Regulation, will no longer be automatic. After 31 December 2020 judgments by other Member States will be recognised in England, but judgments given or orders made in England, will not. Article 36(1) of the Brussels Regulation is the provision pursuant to which recognition is given to orders convening scheme meetings and sanctioning schemes of arrangement. After 31 December 2020, that provision will no longer apply. The enforceability of schemes of arrangement made in England will thereafter be governed by the domestic laws of the EU27.

The Brussels Regulation also completes the scheme for recognition and enforcement of judgements and orders made during the course of insolvency proceedings. Article 25(1) of the EU Insolvency Regulation provides that judgments handed down by the court concerned with the opening, course of and closure of the insolvency proceedings, and compositions approved by that court, shall also be recognised. They are enforced in accordance with the Brussels Regulation.51 Articles 36 to 57 of the Brussels Regulation deal with the recognition and enforcement of judgments given in member states. The effect of the EU (Withdrawal) Bill is that after 31 December 2020 England will give effect to judgments and orders made in insolvency proceedings in the remaining 27 EU Member States (including, for this purpose, Denmark) but the enforceability and recognition of judgments and orders made by the English courts in English insolvency proceedings will be governed by the domestic laws of the member states in which it is sought to have the orders recognised or enforced.

Are we there yet?

The answers to the questions touched on in this article are politically charged. There will be different views about the destination of the journey we are on. Having no agreements in place after 31 December 2020 is theoretically possible, but the effect would be asymmetric. The insolvency processes, contracts and proceedings of the EU27 would continue to be recognised and given effect in the UK but aside from those states that have adopted the UNCITRAL Model Law (Greece, Poland, Romania, Slovenia and prospectively Serbia), only a few aspects of UK processes and proceedings would be given effect in the remaining EU Member States. As for English law contracts, they could only be restructured in England, but the order sanctioning a scheme of arrangement would only be recognised if that is what the domestic laws of the EU27 provide. At the other end of the spectrum, it might be argued that the systems we have in place, that took many years to discuss and agree, should be continued. It might be argued that these provisions do not relate to the single market but are the result of a need, recognised internationally, to make cross border insolvency efficient and effective. It may not be possible to predict where in the spectrum between those two extremes we may find is our destination. It seems likely that the answer to that question will remain a “known unknown” until quite late in the Brexit piece. Meanwhile, the squabbling in the back of the car gets worse and the children start threatening to stop playing with each other.

Mum says to Dad: “Nigel, I said that we should not set off without a proper route and a proper itinerary. We should have had a family discussion where we want to go before jumping into the car and setting off. We might run out of petrol and there isn’t a service station for miles.

Dad replies: “Gina, if we run out of petrol we can have a picnic at the side of the road, put out a crisp checkered picnic blanket, fold out the deck chairs, get out the wicker basket, have proper pork pies and drink Robinson’s Barley water. It will be just like one of those scenes from the cover of an Enid Blyton book.” “But Nigel, we’ll be on the side of a motorway! The children will get hit by a Continental lorry!

Perhaps Nigel thinks that wouldn’t be such a bad thing.

 

 

1 I gratefully acknowledge the assistance and advice given by my colleague Riz Mokal, who helped me avoid too many mistakes and provided me with his October 2017 paper to the ABI on Cross-Border Practice Post-Brexit.

2 Section 1 of the European Union (Withdrawal) Bill provides that “The European Communities Act 1972 is repealed on exit day.” Section 14(1) provides that “exit day” means 29 March 2019 at 11.00pm. Section 14(4) of the European Union (Withdrawal) Bill provides that “A Minister of the Crown may by regulations … (a) amend the definition of “exit day” in subsection (1) to ensure that the day and time specified in the definition are the day and time that the Treaties are to cease to apply to the United Kingdom.” Schedule 7 paragraph 10 provides that any such regulation must be laid before Parliament.

3 Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community highlighting the progress made (coloured version; I explain the colour scheme in footnote 15, below) in the negotiation round with the UK of 16-19 March 2018.

4 Article 168 of the Draft Withdrawal Agreement.

5 Article 121 of the Draft Withdrawal Agreement.

6 In the cases of Greece, Poland, Romania, Slovenia and Serbia when it becomes a member, it will be governed by the UNCITRAL Model law which has been adopted in those 5 member states.

7 I refer to the version of the EU (Withdrawal) Bill in the form that it took when it went from the House of Commons to the House of Lords.

8 Section 3(1) of the European Union (Withdrawal) Bill.

9 Those exceptions are “(i) [the EU regulation] is not an exempt EU instrument” which are defined in section 14(1) and schedule 6; (ii) applies to EU decisions, “(iii) the EU regulation is not reproduced in an enactment to which section 2(1) [of the European Communities Act 1972] applies.”

10 I refer to sections because I assume in this article that the bill is enacted in something like its present form. They are clauses of the bill.

11 Section 7(1) of the European Union (Withdrawal) Bill. Section 7(9) provides that the reference in (a) to a failure or other deficiency arising from the withdrawal of the UK from the EU “includes a reference to any failure or other deficiency arising from withdrawal taken together with the operation of any provision, or the interaction between any provisions, made by or under this Act.”

12 Section 7(2)(c) of the European Union (Withdrawal) Bill.

13 Section 7(2)(d) of the European Union (Withdrawal) Bill.

14Section 7(2)(e) of the European Union (Withdrawal) Bill.

15 Schedule 7 of the European Union (Withdrawal) Bill provides for the scrutiny by Parliament of regulations made by a Minster under section 7(1). The detail is not relevant for present purposes. In this article I focus on English law, although the EU (Withdrawal) Bill applies to the UK as a whole.

16 Article 4(1). The Draft Withdrawal Agreement is presented in three colours. A preamble provides: “The colouring of the text corresponds to the following meanings: text in green is agreed at negotiators’ level, and will only be subject to technical legal revisions in the coming weeks. For text in yellow, negotiators agreed on the policy objective. Drafting changes or clarifications are still required. Test in white corresponds to text proposed by the Union on which discussions are ongoing. The text quoted here is in white. The Draft Withdrawal Agreement has to be treated with circumspection, not only because it is not yet a complete agreement, but some of the issues on which there is not yet agreement are politically charged and controversial. However, it is the best guide we have. In this article I try to analyse what the EU and the UK have said is going to be agreed rather than project what I might like them to agree.

17 The EU Insolvency Regulation.

18 It is in white.

19 It will not apply where secondary proceedings are opened before 31 December 2020 even if a main proceeding is opened subsequently. Whilst rare, this is possible.

20 Article 63(1)(a). EU Regulation No 1215/2012.

21 Article 63(2)(a), giving effect to article 25 of the Brussels Regulation.

22 Article 63(3)(a).

23These transitional provisions are not yet agreed (they are in white) aside from the ongoing position in relation to Denmark (which is in green).

24 Section 5(2) EU (Withdrawal) Bill. 2

25 Article 4(3) of the draft Withdrawal Agreement. There is a further provision in article 4(4) that refers to “Union law or concepts or provisions” but aside from the words being in a different order it is difficult to discern what the difference is between the two provisions.

26 It is in white.

27 This is also consistent with the general principle that domestic statutes giving effect to instruments of an international character should be interpreted in light of that character.

28 After 31 December 2020 the English courts will be bound to apply the rules found in the EU Insolvency Regulation regarding the opening of main and secondary proceedings dependent upon the location of the COMI and an establishment. That is because of the effect of the EU (Withdrawal) Bill. Other Member States will not be bound by decisions of the English courts on those questions, although the English courts are bound to have regard to any decisions of the courts of other Member States because those courts would be considering questions that apply to the case by virtue of the UK having adopted the EU Insolvency Regulation.

29The Report on the Convention on Insolvency Proceedings, prepared by Professor M. Virgos and M.E. Schmidt, EU Council document 6500/1/96.

30Article 3(1) of the EU Insolvency Regulation.

31Article 3(2) of the EU Insolvency Regulation.

32 Article 7(1) of the EU Insolvency Regulation. This includes the Member State’s law of applicable law (‘conflicts’). So if the Member State’s law of applicable (‘conflicts’) law says that the lex situs governs rights in movable assets, and the assets are situate in England, then 7(1) requires (“shall be that…”) that English law governs.

33Purssuant to article 7.

34 Rome I, Art 4(1)(c).

35Article 12 of the EU Insolvency Regulation.

36Article 12(1), read with article 8(3) of the EU Insolvency Regulation.

37The law of the contract would be recognised under Rome I article 8 and would almost certainly be English law.

38 Because of the rule in Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Metaux (1890) LR 25 QBD 399, considered further below.

39 Such a structure is not fanciful. Take for example a large car manufacturing group headquartered in Germany with manufacturing companies in England employing thousands of English workers. It is possible that the COMI of the group would be in Germany and the exception for employment contracts would not apply.

40Rome I would continue to apply to determining the law of the contract.

41Rome I will continue to apply to determining the law of the purchase contract.

42 As a consequence of articles 61(c) and 67(1) of the EC Treaty.

43Articles 3(1) and 12(1)(d) of Rome I.

44Article 2 of Rome I.

45 Subject to the untested question whether an EU composition would discharge the debt because of the wider language used in article

46 EU Insolvency Regulation. Post Brexit this would mean that a discharge by a composition in an EU27 country of an English law contract would be recognised in England as a matter of English law. This highlights the asymmetry that might result from the continued application of the EU Insolvency Regulation in the UK but the UK no longer being a Member State.

46 See the discussion of this in R Mokal “Shopping and scheming, and the rule in Gibbs” (2017) South Square Digest (March 2017) 58–63.

47 Schemes of arrangement do not fall within UNCITRAL it is not a “foreign proceeding”, which is defined as “a collective judicial or administrative proceeding in a foreign state … pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.”

48 Annex B.

49 Articles 4, 5 and 6.

50 Articles 7, 8 and 9.

51 The EU Insolvency Regulation refers to the Brussels Convention. That was superseded by the Brussels I Regulation. Recital (19) to that that regulation states “Continuity between the Brussels Convention and this Regulation should be ensured…”. Brussels I Regulation was superseded by the Recast Brussels Regulation on 12 December 2012.

The content of the Digest is provided to you for information purposes only, and not for the purpose of providing legal advice. If you have a legal issue, you should consult a suitably-qualified lawyer. The content of the Digest represents the views of the authors, and may not represent the views of other Members of Chambers. Members of Chambers practice as individuals and are not in partnership with one another.
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