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Disputes & Insolvency

Disputes

In general, uncertainty and change tend to trigger disputes – and there can be little doubt that disputes will generated by Brexit. Sharp dislocations in currencies, asset prices and other disruption to the economy often cause parties to look for ways to avoid their contractual obligations. Similarly, the assumptions behind contracts which form part of a European supply chain may no longer hold, again leading parties to look for exits. Contractual parties, including borrowers and lenders, will be examining their material adverse change or force majeure clauses and other events of default. These will work their way through the English courts over the next several years.

In the longer term, there is no reason why the English Courts should not continue to be the venue of choice for large commercial disputes. The reasons for the popularity of the English Courts are independent of the UK’s membership of the EU. Even if there are changes to the procedural mechanisms of enforcement and (to a lesser extent) service of process, they should not undermine the advantages that exist in litigating in the English courts.

In terms of service of documents in the EU, if no formal arrangements between the UK and the EU are put in place to replace the current Service Regulation, claimants could instead effect service on defendants in other EU states in accordance with the Hague Convention.

In any event, contracts often include a provision authorising service on a process agent at an address within England and Wales. Such service, in accordance with the Civil Procedure Rules (CPR 6.11), is quicker and simpler than service under the Service Regulation and will be unaffected by Brexit, whatever the outcome of negotiations.

Even opting out of all international agreements so that the UK applies its previous common law rules and other EU countries apply their existing rules, treating the UK as a non-Member State or equivalent non-signatory country, should not result in significant difficulties in enforcing judgments in EU Member States.

Insolvency

The impact of Brexit “no deal” scenario on the UK insolvency framework

At the moment, UK insolvency practitioners are able to make use of two key EU regulations – The European Insolvency Regulation and The Recast Brussels Regulation.  Together, these regulations allow automatic recognition of UK insolvency procedures and judgments across the EU and vice versa, and enable cross-border insolvencies to be dealt with as if they were taking place in one jurisdiction.

A “no deal” exit would result in the loss of automatic recognition. The practical effect is that UK insolvency practitioners would need to make separate applications for recognition in every jurisdiction in which an insolvent party has assets in order to have UK proceedings and judgments recognised there.  There is a risk that Member States may not grant such recognition and local law advice in the relevant Member State where recognition is sought would need to be taken. Likewise, insolvency practitioners dealing with insolvencies in other Member States which have assets in the UK would need to apply to the UK court for recognition.

The ultimate effect is that it would become much more expensive, time consuming and challenging to resolve cross-border insolvency proceedings and restructurings, while reducing returns to creditors. Unless the Government is able to implement measures to mitigate some of the problems that would result from the loss of automatic recognition, there is a very real risk that in the event of a “no deal” Brexit, the UK will relinquish its position as leading jurisdiction for resolving cross-border insolvencies.