Chapter 15 EIR Recast and Brexit

• Jurisdiction: United States

15. EIR Recast and Brexit

In Section 2.4 we discussed the territorial scope of the EIR Recast, which is all EU Member States apart from Denmark. However, it is widely known that the U.K. wishes to leave the EU. Both the procedure of leaving, as well as its result, are interchangeably called "Brexit." In a referendum on 23 June 2016, a small majority of the participating U.K. electorate voted in favor of leaving the EU. On 29 March 2017, the U.K. government invoked Article 50 of the Treaty of the European Union (TEU), which provides that any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements. In July 2017, the EU (Withdrawal) Bill [HL] (2017-19), a bill in the U.K.'s Parliament, was published. It aims at shaping the terms of the exit from the EU and sets the cut-off date of Brexit at 11:00 p.m. (U.K. time) on 29 March 2019. The exact terms of the withdrawal have not been negotiated or agreed upon as of the publication of this book. Nevertheless, it is clear that Brexit will undoubtedly have a strong economic impact on both the U.K. and the EU. The value of foreign direct investment (FDI) positions held in the U.K. by EU27 (all EU Member States except the U.K.) investors totaled EUR 1.8 trillion in 2016. That same year, U.K. FDI positions held in the EU27 were worth EUR 1.2 trillion, according to Eurostat.

Alongside the national U.K. parliamentary debates, there is a negotiations process between the U.K. and the EU. The Draft Agreement on the Withdrawal of the UK from the EU dated 19 March 2018 ("Draft Agreement") is the most recent result of such negotiations. It includes a proposal for the transition period until 31 December 2020. If approved, until such period the U.K. will continue to follow the EU rules and remain a part of the Customs Union and the Single Market. Regarding insolvency, the Draft Agreement establishes that the EIR Recast will continue to "apply to insolvency proceedings provided that the main proceedings were opened before the end of the transition period." What will happen after the end of the transition period, and what will be the status of insolvency proceedings opened after such period, remains unclear. The EU (Withdrawal) Bill favors the incorporation of direct EU legislation, including the EIR Recast, into the U.K.'s domestic law. However, this will not change the fact that EU Member States will not, as a general rule, apply direct EU legislation to insolvencies initiated or otherwise connected with the U.K.

In this section, we discuss some of the potential consequences of Brexit for cross-border insolvencies and restructurings, keeping in mind that the final EU-U.K. Brexit deal has not been reached so far.

From the perspective of creditors...