The Model Law in Great Britain: Cross-Border Insolvency Regulations 2006

The Model Law

The main advantage of the Model Law is its provision of something approaching a “level playing-field” for restructuring and insolvency practitioners in the jurisdictions in which it has been implemented. In other words, for outbound requests for recognition, cooperation and assistance, it is always easier for practitioners if they have familiarity, in broad terms, with the scheme and key features of the underlying legislative framework, where their home jurisdictions are enacting states or they otherwise have experience of the Model Law as it is enacted in other jurisdictions.

The approach to implementation has varied across jurisdictions, but the approach taken in the UK – noting that the Model Law has been enacted through separate secondary legislation in Great Britain and Northern Ireland – has been the wholesale adoption of the Model Law in discrete regulations, rather than its adoption through the amendment of existing legislation (as has happened in Canada, for example).

Cross-Border Insolvency Regulations 2006

There is now an established body of case law under Great Britain’s implementing legislation, the Cross-Border Insolvency Regulations 2006 (CBIR). The English court has adopted a largely progressive approach to the interpretation of the Model Law, including by readily extending the relief available automatically on the recognition of foreign main proceedings to enable the more expansive protection available under an administration-like moratorium (which, for example, precludes the unilateral enforcement of security) and conferring on foreign representatives investigation powers that are equivalent to those available to British insolvency office-holders under UK insolvency law.

Some key developments under CBIR have been:

1. the refusal of recognition of a foreign receivership on the basis that it is not a collective proceeding (Re Stanford International);
2. the recognition of foreign “debtors in possession” as foreign representatives (Re Videology);
3. the need for full and frank disclosure by foreign debtors on ex parte recognition applications as to the effects recognition will have on third parties (Nordic Trustee v OGX Petroleo);
4. the fact that recognition, and the stay consequent on recognition, does not restrain the giving of termination notices by contractual counterparties on the basis that such notices do not amount to the commencement of proceedings against the debtor (Fibria Cellulose v Pan Ocean);
5. the lifting of the stay in exceptional circumstances to allow litigation to proceed against a debtor in England where to do so would not unduly advance the claimants’ interests of those of the creditors as a whole (Ronelp Marine v STX Offshore);
6. the limitation of recognition to foreign insolvency proceedings and refusal of recognition of the just and equitable winding-up of a foreign debtor (Re Sturgeon Central Asia Balanced Fund);
7. the recognition of foreign “extension proceedings” with respect to companies effectively substantively consolidating them with already-recognised insolvency proceedings of an affiliated company (Leite v Amicorp);
8. the recognition of foreign main proceedings of a single company that is subject to foreign group insolvency proceedings (Re Agrokor); and
9. the pragmatic recognition of insolvency proceedings in respect of an European Economic Area credit institution – a discrete recognition regime for which previously existed under EU-originating legislation substantially repealed as a result of Brexit – despite an express exclusion of such institutions from the application of CBIR (In re Greensill Bank).

Key differences between the CBIR and the Model Law as enacted in other jurisdictions are the fact that the English court lacks jurisdiction to order relief under CBIR that would go further than the relief available to an insolvent debtor under English law, and – through application of the “Rule in Gibbs” referenced in Scott and John’s article – that it is not possible under CBIR to recognise the substantive effect on English law-governed obligations of a foreign restructuring (Bakhshiyeva v Sberbank). This distinguishes the relief available under CBIR from that available under section 426 of the UK Insolvency Act 1986, under which the English court can apply either English insolvency law or the equivalent foreign law to the matters the subject of the request. That said, however, unlike CBIR, s426 does not apply to “all-comers”; its application is restricted to a relatively restricted list of designated countries and territories (which are mainly Commonwealth or ex-Commonwealth countries).

What does the future hold?

Following Brexit (the UK’s departure from the European Union), it had been widely expected that the loss of automatic recognition in the UK of insolvency proceedings in the remaining twenty-seven EU member states under the European Insolvency Regulation (Recast) would lead to a flood of recognition applications under CBIR from debtors in member states. In general terms, that has not in fact been the case, for a number of reasons – not least of which is the raft of government support made available across the continent to companies in response to COVID-19, which has contributed to an overall relatively benign insolvency and restructuring market over the past couple of years. It remains to be seen whether the energy and food crises and spiralling inflation now being experienced will change the landscape.

It will be interesting to see what (if any) further countries adopt the Model Law, within the EU and beyond. Only four EU member states – Poland, Romania, Greece and Slovenia – have themselves so far implemented the Model Law. There have been suggestions that the EU might or should adopt the Model Law wholesale but that appears unlikely. In this regard, it is worth noting that the EU’s own approach to date has been to regard cross-border insolvency as a function of the internal market, such that its cross-border insolvency measures are introspective in nature; member states are free to legislate how they choose on cross-border insolvency matters that are not intra-EU.

Irrespective, the track-record of the Model Law as implemented to date – in Great Britain and beyond – makes a powerful case for the adoption of the Model Law in more countries, and a further levelling of the playing-field in restructuring and insolvency matters globally. International restructuring practitioners have an important part to play – individually and through professional associations and bodies – in championing the cause for the broader roll-out and use of the Model Law in practice.