Cross-Border Insolvency within the UK and outside the European Union

Cross-Border Insolvency within the UK and outside the European Union

February 2009

Cross-border insolvency is a complex area of law and these parts are intended to give a general overview only and must be read in conjunction with Chapter 42 – Cross-Border Insolvency – within the UK and outside the European Union.

Chapter 42 gives more detailed advice and information relating to the legislation concerning insolvencies of entities and individuals whose interests straddle national and international borders.

No action should be taken unless instructed by the examiner.

Introduction

The involvement of an official receiver in an insolvency with any cross-border dimension is still rare, but it is expected that official receivers will encounter more cases with an international aspect as time goes on.

All property belonging to the insolvent, wherever situated, is covered by the Insolvency Act 1986 . Therefore, under English law the liquidator or trustee has the power to deal with all assets.  In practice, however, it is often the case that the country in which the property is situated will retain control of the property, regardless of the making of an insolvency order in England and Wales.

The approach to insolvency law differs widely between nations, both in terms of the practical approaches to dealing with insolvency and matters of the principles of public policy. This can lead to difficulties in dealing effectively with insolvencies of entities and individuals whose interests straddle international borders and borders within the UK.

The procedures governing cross-border insolvency is mainly dependant on what regulations are in force in the particular county and whether the country is signed up to EC regulations, the UNCITRAL Model Law (see paragraphs 3 and 4 below) or has it’s own regulations. Where the debtor has affairs in another country of the EU, reference should be made to Case Help Manual part : Cross-Border Insolvency – European Union.  Otherwise,  cross-border insolvency can be grouped into four main areas as detailed in paragraphs 1-4 below.

1. Cross- Border insolvency concerning countries within the UK

The United Kingdom consists of the countries of England, Wales, Scotland and Northern Ireland. With the exception of Wales, each country has its own laws relating to insolvency matters. For an overview of the insolvency legislation operating in Scotland and Northern Ireland, see Technical Manual Chapter 42 paragraphs 42.90 - 42.93. England and Wales are one jurisdiction and therefore there are no special provisions or procedures applying to insolvency matters where an insolvent has affairs in both England and Wales.

Apart from affairs between England and Wales, the co-operation between courts in the different countries of the UK is governed by legislation in the respective Acts relating to insolvency, and has nothing to do with any international agreements or regulations relating to cross-border insolvency.

(a) How does the co-operation of the courts in the UK assist the official receiver?

One of the difficulties for the official receiver is likely to be in performing his/her duties regarding the realisation of assets or obtaining information. If the official receiver encounters difficulties in the performance of his duties, there exists a mutual agreement between courts throughout the UK whereby the official receiver is able to apply directly to courts in other parts of the UK to request assistance where necessary, to enforce an order. For example, an application for the court of Scotland to recognise the bankruptcy order so that the official receiver may persuade a third party to release property.

2. Cross-Border insolvency concerning non-EU countries outside the UK

The majority of cases where the official receiver is properly acting will be in respect of realising assets or obtaining information. When dealing with insolvency concerning countries outside the UK, it is suggested that the official receiver, where possible, deals with these matters on an informal basis such as obtaining agreement from the insolvent to surrender assets or provide authority to disclose information, as appropriate.

Where the official receiver has difficulty, the company officer or bankrupt should be reminded of the duty to co-operate and to deliver up property and the consequences of failure i.e. suspension of discharge or consideration of unfitness to act as a director.

If the official receiver still encounters difficulties he/she will need to determine whether the country outside of the UK has signed up to the UNCITRAL Model Law ( see paragraph 3  below) and consider what further action is possible.

(a) How can the official receiver obtain assistance from foreign courts if that country is outside the EU and has not implemented the UNCITRAL?

Where there are interests in a country that is both outside of the EU and which has not implemented a regulation known as the UNCITRAL Model Law, assistance of the foreign court may be granted under local laws of that country to enable the official receiver to continue with his statutory duties. See Technical Manual Chapter 42 paragraph 42.7 and 42.11 for details of countries which are likely to have such provisions.

Similarly, courts in any part of the UK are required to assist courts having corresponding jurisdiction in any of the countries designated, according to the relevant orders of the Secretary of State. For further guidance on the recognition of foreign insolvency proceedings and application of the law see Technical Manual Chapter 42.12 – 17.

Different arrangements exist with the Channel Islands of Jersey, the Bailiwick of Guernsey and the Isle of Man (see Technical Manual Chapter 42 paragraphs 42.18 - 42.20).

(b) Will the official receiver be required to deal with foreign companies?

The making of a winding-up order of foreign companies (with or without a connection in England and Wales) is at the discretion of the English and Welsh courts, to which the official receiver is attached as an officer of the court. The existence of assets or actual place of business are not the only matters that a court will take into account when considering the making of a winding-up order. For example, different rules will apply if a COMI within a member state of the EU has been established (see Case Help Manual part : Cross Border Insolvency – European Union paragraph v). These matters are dealt with in detail in Technical Manual Chapter 42.22-28.

3. UNCITRAL Model Law on Cross-Border Insolvency

(a) What is the UNCITRAL Model Law?

UNCITRAL stands for United Nations Commission on International Trade Law. As part of the commission’s programme to harmonize and unify the law of international trade, the commission developed a Model Law on Cross Border Insolvency  referred to as “the Model Law”.

The main purpose of the Model Law is to ensure a fair distribution of an insolvent’s assets where those assets are in more than one country.  It achieves this by setting rules governing co-operation of courts, the provision of assistance to insolvency administrators, the co-ordination of two or more proceedings in different countries and the opening of proceedings .Unlike the EC Regulation, which has automatic effect throughout the EU, the Model Law provides for countries, if they wish, to modify or leave out provisions within the model in order to adapt the law to their own country’s particular circumstances. In fact, countries are not bound to implement the Model Law at all.

(b) Which countries have adopted the UNCITRAL Model Law?

A list of countries that have adopted the law can be found at http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model_status.html#$35287 but include Australia, Great Britain(as opposed to the UK),Northern Ireland, Japan, New Zealand, South Africa and United States of America. The overall purpose of the Model Law is to provide effective mechanisms for dealing with cases of cross-border insolvency.

(c) What are the consequences for the official receiver?

Where the official receiver encounters cases with assets outside his/her jurisdiction, whether this be in respect of assets or an insolvent with creditors overseas, assistance and cooperation of the authorities in those countries that have implemented the Model Law into their own national systems of legislation, is likely to be much easier to obtainFor example, the Model Law may be applied where a request for assistance by a court in England and Wales, in connection with foreign proceedings is sought or in the commencement of, or participation in insolvency proceedings by creditors in England and Wales.

More details covering foreign proceedings, recognition of foreign proceedings and the effects can be found in Technical Manual Chapter 42 paragraphs 42.38-42.57.

4. Application of UNCITRAL Model Law to England and Wales

The Cross-Border Insolvency Regulations 2006 (the Cross-Border Regulations) provides that the Model Law, with certain modifications, has the force of law in Great Britain which consists of England, Wales and Scotland. Northern Ireland has separately implemented the Model Law.

Where there is any conflict between British insolvency law and the provisions of the Cross-Border Regulations, the latter will prevail. Conversely, where there is any conflict between the Cross-Border Regulation and the EC Regulation on Insolvency Proceedings the EC Regulation will prevail.

More details covering foreign proceedings, recognition of foreign proceedings and the effects can be found in Technical Manual Chapter 42 paragraphs 42.61-42.81.

a) What is the effect on the official receiver?

The Cross-Border Regulations place a duty on the official receiver to co-operate with a foreign court or foreign insolvency administrator, so long as the requested assistance is within the laws of England and Wales.  Additionally, the Cross-Border Regulations set rules regarding the content of any insolvency notices issued to creditors overseas.  Details of these requirements can be found in the Technical Manual chapter 42 paragraph 42.68.

Where can I find out more?

(For details of the relevant articles of the regulations please see the Notes  attached to Technical Manual Chapter 42)

Insolvency Act 1986

The EC Regulation on Insolvency Proceedings 2000

UNCITRAL Model Law on Cross-Border Insolvency

Cross-Border Insolvency Regulations 2006

Technical Manual

Chapter 42 Cross-Border Insolvency -  Within the UK and Outside the European Union

Case Help Manual

Cross-Border Insolvency – European Union

Technical Notices

T53-08 – Cross-Border Insolvency