UK looks to become first country to adopt UNCITRAL Model Law on Enterprise Group Insolvency

New law on group insolvencies

The UK Government has confirmed it will adopt the UNCITRAL Model Law on Enterprise Group Insolvency (Group Model Law) ‘at the earliest opportunity’. The Group Model Law introduces a procedural framework for dealing with cross-border group insolvencies. 

Adopting national courts are required to cooperate with other courts and insolvency officeholders. When granting relief, creditors’ interests must be protected. The procedural relief is subject to the fundamental principle that each group company will be subject to its own insolvency proceedings. 

The Government has confirmed that the Group Model Law will only apply to formal insolvency proceedings and will not expressly include restructuring plans.

Cross-border impact

While there have been examples of successful coordinated cross-border group insolvencies outside formal frameworks (for example, Nortel Networks), they can be notoriously difficult to implement. The EU Recast Insolvency Regulation (Regulation (EU) 2015/848) makes specific provision for group proceedings, but we are not aware that it has been used since it came into effect and it no longer applies to the UK in any event. 

Insolvencies in different jurisdictions are subject to different substantive laws and it is often challenging to secure co-ordination and co-operation between the respective insolvency officeholders, even in jurisdictions which have adopted the original UNCITRAL Model Law on Cross-Border Insolvency. The Group Model Law may help by creating a universally accepted framework. However, to be effective additional countries will need to adopt it into their legislation. 

Recognising insolvency-related judgments

The Government is also keen to promote international co-operation by implementing Article X of the UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments (Judgments Model Law). However, in the light of responses to its 2022 consultation it has decided to consult further amid concerns around the potential impact on legal predictability and contractual certainty. 

Article X provides that the discretionary relief the court may grant to foreign office-holders may include the recognition and enforcement of a foreign insolvency judgment (potentially including judgments sanctioning restructuring plans).

The Government received ten responses to its 2022 consultation on whether to adopt Article X of the Judgments Model Law. The responses reflected a range of views, including some concerns as to how the adoption of Article X (without more stringent safeguards) might undermine the long-standing rule in Gibbs (which in effect means that an English law governed debt cannot be discharged under a different law) and therefore create uncertainty for parties contracting under English law. The pause in implementation will allow for a wider debate as to whether the rule in Gibbs should be retained and, if so, how this can be achieved consistently with the policy objective of achieving greater international coordination in cross-border insolvencies. 

Separately, UNCITRAL is drafting a further model law on choice of law rules in insolvency, which may assist in providing a way forward.

Comment

The Government’s decision to implement the Group Model Law as soon as possible means that the UK could be the first country in the world to adopt this new legal framework. This clearly demonstrates the UK’s commitment to international co-operation and to remaining a key global hub for cross-border insolvencies.

The same policy objective underpins the Government’s desire to implement Article X. However, the pause for further consideration and debate is to be welcomed to ensure that any legislative move does not undermine the reputation of English law for predictability and certainty.