Maria McNally

When considering the impact of Brexit on the ability and ease for cross border insolvency recognition, it is useful to examine the former legal relationship between the UK and Ireland.

Recognition pre-Brexit

EU member states have benefitted from an automatic recognition of cross border insolvencies under the European Insolvency Regulation (EIR) which was introduced in 2002. The regulation permits insolvency practitioners within EU member states to request assistance from member state courts to recognise proceedings commenced in a different jurisdiction.

Securing recognition under the EIR is a relatively straight-forward process, whereby the court may recognise insolvency proceedings and grant enforcement without reviewing the merits of the foreign judgment.

Following the United Kingdom’s exit from the EU on 31 December 2020, recognition applications for proceedings post this date cannot be made under EIR (it can still be relied upon for proceedings prior to this date). Where EU member states require a main proceeding to be recognised, this is done in accordance with the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross Border Insolvency.

The process for recognition under the Model Law is similar to EIR — however, as Ireland has not adopted the Model Law and insolvency cooperation is not covered by either the Belfast Agreement or the Northern Ireland Protocol annexed to the Withdrawal Agreement with the EU, this creates uncertainty for insolvency practitioners when considering the best course of action.

Prior to 2002, recognition of insolvency proceedings was governed by section 426 of the Insolvency Act 1986, which applies to Northern Ireland, England, Scotland and Wales. Although section 426 focuses on automatic recognition of insolvency proceedings between jurisdictions in the UK, insolvency practitioners in Ireland can request assistance from the UK courts under The Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986.

In practice, seeking recognition under section 426 of the Act became redundant with the introduction of the EIR, although the right remains and may be used in appropriate circumstances.

Recognition post-Brexit

The cross-border regime in recognising insolvencies between member states and the UK has fundamentally changed in the post-Brexit era. As such, the process of requesting assistance from UK courts is not as apparent as it was.

Determining the grounds on which an application for recognition is to be made depends on the circumstances of each case. It is therefore important for insolvency practitioners to obtain legal advice on the process within the relevant jurisdiction, likelihood of success, costs and timeframes before proceeding with any application to a UK court.

Generally, there are two options available to insolvency practitioners in Ireland:

• recognition in accordance with section 426 of the Act; or
• recognition under common law.

Section 426 of the Act

The Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986 lists the countries that have the right to request assistance under section 426. Notably, Ireland is the only EU member state that has the benefit of section 426.

Recognition of insolvency proceedings in accordance with this section requires an insolvency practitioner to make an application to the relevant UK court. The relevant court within the UK will hear the application and grant any order it deems fit.

Section 426 was recently applied by the UK courts for the first time since 1997 in the matter of Silverpail Dairy (Ireland) Unlimited Company and Havana Company Unlimited Company where an insolvency practitioner was appointed in relation to an eExaminership of those companies. An application to recognise the Republic of Ireland examinership was made concurrently in England and Northern Ireland. The application in each jurisdiction was successful.

Common law

Where recognition cannot be secured in accordance with section 426, it may be sought under common law. Each case will be dealt with on its own merits, which means a successful outcome is not guaranteed. When assessing common law applications, the court may consider, but is not limited to, the following;

• the centre of main interest of the debtor;
• if recognition is being sought for a legitimate purpose; and
• if there is any public policy reason why assistance should not be granted.

An example of when recognition may be sought under common law is when a liquidator has been appointed over a company whose registered address and place of business is in Ireland but the company has assets within the UK to be realised. The liquidator is required to make an application to the court for an order recognising the appointment and permitting the liquidator to realise any assets within the relevant UK jurisdiction.

When considering the future of cross-border insolvencies between the UK and Ireland, law reform groups in Ireland have highlighted the need to establish cross-border insolvency provisions with the UK as a priority for Ireland and recommend Ireland sign up to the Model Law.

If Ireland adopts the Model Law this would give insolvency practitioners some comfort as to the chance of success when seeking the UK court’s assistance for recognition. In the meantime, it is important for insolvency practitioners to obtain advice from the relevant jurisdiction.

• Maria McNally is an associate director in the dispute resolution department at Cleaver Fulton Rankin in Belfast.