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Potential implications of a no-deal Brexit on UK insolvencies involving Irish real estate

10/12/2020

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Ireland

With the possibility of a no-deal Brexit looming large, the implications for Irish insolvency practitioners are something we will all have to consider. The insolvency landscape will most likely look very different when we all return to the office after Christmas. This is a discussion on some of the possible implications for Irish and UK insolvency practitioners post-Brexit.

 
Current Regime
 
Insolvency proceedings involving companies or individuals with their centre of main interest (COMI) in an EU Member State are governed by Regulation 2015/848 of the European Parliament and of the Council of 20 May 2015 Proceedings (Recast Regulation).
 
Recast Regulation provides rules on the jurisdiction for the commencement of insolvency proceedings and the law that applies to the proceedings. By way of example, currently where a company or an individual have their COMI in the UK, the jurisdiction in which to commence the main insolvency proceedings will be the UK. Those proceedings will be governed by UK law and recognised automatically in all other Member States, including Ireland. The insolvency practitioner will therefore be able to exercise their powers in Ireland, without the need for further measures. Equally, Irish insolvency practitioners can carry out their duties in the UK pursuant to the Recast Regulation.
 
There are of course some formalities that must be attended to. For example a UK Trustee in Bankruptcy, who has an interest in assets in Ireland, must register the bankruptcy with the Insolvency Service of Ireland and with the Property Registration Authority (PRA) here. However, and most importantly, the Order of Adjudication and the Appointment of the Trustee in the UK will automatically be recognised and registered, without the requirement of a court application in Ireland.
 
The Impact of Brexit
 
In the event of a no-deal Brexit, which is looking ever more likely with less than a month to go to the end of the transition period, there will be no overarching framework governing insolvency events between the UK and EU Member States. Therefore, proceedings commenced in the UK will not automatically be recognised by Member States and vice versa. Considering the strong economic ties between Ireland and the UK, the lack of recognition of insolvency proceedings between the two countries will create serious difficulties for insolvency practitioners working across both jurisdictions.
 
Recognition of Foreign Insolvency Proceedings
 
Insolvency practitioners and their lawyers will be forced to rely on domestic law to determine recognition of insolvency proceedings commenced in the UK. In Ireland, recognition of those proceedings will be governed by the common law rules of private international law, which have been developed over time by the Courts.
 
Practically speaking, this means that a UK insolvency practitioner will have to apply to the High Court in Ireland pursuant to common law for an order recognising the appointment (as liquidator or trustee in bankruptcy, etc) and the insolvency proceedings. There have been a small number of cases in recent years, which have shed light on the Irish Court's inherent jurisdiction to recognise foreign insolvency proceedings. However, a recurring theme in judgments of this type has been a focus on the particular facts in each case. The recognition of the insolvency process appears to be determined on a case-by-case basis. Consequently, it seems that reliance on the common law rules of private international law is likely to give rise to a significant lack of certainty.
 
Furthermore, the Irish Courts have expressed a view that, although they retain an inherent jurisdiction,
 
 “In the area of conflicts of law it is desirable to await development of a broad consensus before developing the common law and it has not been suggested that such a consensus exists among common law jurisdictions. It is in any event desirable that such a significant change in the common law should be by legislation as appears to be the case in the United Kingdom…. For such a change to occur in this jurisdiction it is desirable that it should occur by way of legislation rather than by judicial development having regard to the significant changes which would be wrought in the common law.[1]"
 
The Court has recognised the lack of clarity which reliance on the common law provides to insolvency practitioners and has called for the implementation of legislation to assist in this area.
 
Possible Solution
 
The UNCITRAL Model Law on Cross Border Insolvency (UNCITRAL) could provide some assistance to the recognition of insolvency proceedings from certain jurisdictions. In simple terms, the UNCITRAL provides for recognition of insolvency proceedings on application to the local Court. However, rather than the decision being arrived at through the broad discretion of the Court in the absence of any guidelines, it would be determined having regard to express requirements and in accordance with the process set out in UNCITRAL.
 
UNCITRAL was incorporated into UK law by the Cross Border Insolvency Regulations, 2006. Unfortunately, it is of little value in this jurisdiction, as despite ongoing discussions between interest groups and the government, it has not yet been incorporated into Irish law. We are not alone in this position as UNCITRAL has not been adopted amongst many other EU Member States.
 
Real Estate Issues
 
A common issue may arise in practice where insolvency proceedings originate in the UK, a UK insolvency practitioner has been appointed and there are assets located in Ireland. In order to exercise their power to realise the assets, a UK insolvency practitioner's authority must be recognised in this jurisdiction.
 
Once the transition period expires at the end of the month, there will likely be additional hurdles for a UK insolvency practitioner in realising any assets held in Ireland. As we have discussed, it is likely that practitioners will need to apply to the Irish Courts for an Order in relation to assets held here. This may include an additional application to vest Irish property in a trustee, where such an application was not required before. The PRA would require such an Order to effect registration of the new interest in the property. This will add additional costs to clients, in terms of time and resources, when dealing with Irish assets arising as a result of UK insolvency proceedings.
 
Conclusion and advice
 
Whatever legal status applies to the UK in January 2021 it is sure to have significant implications for insolvency practitioners in Ireland and the UK. Frankly, it is not clear whether a consistent approach can be applied in the Irish and UK Courts.
 
As the Irish Courts have already concluded, it is preferable that specific legislation be introduced to govern insolvency law. A possible solution would be the adoption by Ireland of the UNCITRAL Model or some other form of legislation incorporating mutual recognition of insolvency law in both jurisdictions and of course the practise and procedure associated with that law.
 
Whatever the approach considered, it should be addressed as a matter of urgency by the two governments.
 
Written by Mark Woodcock, Paddy Smyth and Ciara Gilroy
 

[1] Re Flightlease (Ireland) Limited (In Voluntary Liquidation [2012] 1 IR 722, Finnegan J

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