Cross-border insolvency – the model law with a focus on the USA

Understandably there has been much focus of late on how Brexit impacts upon European and UK cross-border insolvencies going forward, some of which has been touched upon in our previous article. Here, we consider how insolvency officers in the USA can seek insolvency assistance in the UK and whether this may differ from the approach to be taken by insolvency office holders in Europe.

The Model Law and Europe

As of 1 January 2021 (unless further agreement is entered into) for new insolvency appointments made after this time, there is no EU wide mechanism whereby Member States of the EU will be able/obliged to automatically recognise UK insolvency proceedings, the appointed insolvency office holder and its applicable UK law in their respective jurisdictions. Accordingly, the UNCITRAL Model Law on Cross-Border Insolvency (Model Law) (implemented under the Cross-Border Insolvency Regulations 2006 (CBIR)) will likely be relied upon more going forward. However, very few EU Member States have implemented the Model Law. Therefore, UK insolvency office holders are faced with potentially having to seek recognition of their domestic appointment in an EU Member State (where this is necessary) under the relevant local laws of that EU Member State (if it has not adopted the Model Law). Clearly, this can lead to lack of certainty of outcome for UK insolvency office holders needing local EU assistance and potentially cause delay and increase costs to insolvency estates where local law applications for recognition and assistance may be required in particular EU Member States. Whereas, given that the UK has adopted the Model Law, EU Member State insolvency office holders can apply for assistance in the UK as regards their local insolvency proceedings pursuant to the CBIR.

The Model Law and the USA

As the USA is not a relevant country or territory for the purposes of section 426 of the Insolvency Act 1986 the Model Law is of relevance as regards cross-border assistance required as between the UK and the USA. Other notable countries, in addition to the U.S, that have incorporated legislation based on the Model Law are: Australia, the BVI, Singapore, Canada, Chile, Greece, Japan, New Zealand, Philippines, Poland, Romania and South Africa. Where the Model Law has been adopted, assistance can be sought by UK representatives in a foreign state in relation to a UK insolvency.

The aim of the CBIR is to give assistance in the UK where it is sought by a foreign court or foreign representative in connection with a foreign insolvency proceeding. The CBIR does not require reciprocity before its provisions can be utilised by a foreign insolvency office holder who asks for assistance, therefore it does not matter for instance to a French insolvency office holder that his country has not adopted the Model Law, he can still apply to the UK for recognition of his appointment and assistance under the CBIR if required.

It should be noted that the Model Law is not as far reaching in scope as the Recast Insolvency Regulation (or its predecessor) in that it does not seek to dictate which law should govern insolvency proceedings, whilst the Recast Insolvency Regulation seeks to govern the applicable law that shall apply to insolvency proceedings opened in a Member State throughout the subscribing EU Member States. Whilst the Recast Insolvency Regulation provides for automatic recognition of insolvency proceedings opened within the subscribing EU Member States, under the Model Law, an application to Court is required to secure recognition.

A US insolvency office holder may continue to apply to the UK for appropriate cross-border assistance as required and as is available pursuant to the CBIR. Given that the USA has adopted the Model Law into its own domestic legislation, a UK insolvency office holder likewise has similar scope and opportunity to seek local assistance in the USA as may be required and is available pursuant to the United States bankruptcy code that incorporates the Model Law.  

Comment

Therefore, as matters currently stand, UK insolvency office holders are the ones who are likely to encounter substantive difficulties going forward as regards securing smooth and efficient recognition and assistance with their insolvency appointments in EU Member States, given that very few EU Member States have adopted the Model Law. Although EU Member States can apply to the UK for assistance with their insolvency appointments pursuant to the CBIR, as indicated, the full scope of automatic recognition of appointment and determination of applicable law of insolvency proceedings that was otherwise upheld via the Recast Insolvency Regulation will not be provided by way of the Model Law/CBIR. This will inevitably have a detrimental impact upon the efficiency, certainty of outcome and cost within which cross-border insolvency work can be undertaken between the UK and European jurisdictions going forward.