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Cross Border and International Insolvency

At Isadore Goldman, our insolvency and restructuring team assist and advise clients on insolvency issues with a cross-border and international aspect.

Given the rapid growth of technology, trade, and the corporate world, cross-border issues are becoming more applicable and play an important part in insolvency law and practice.

At Isadore Goldman, we have particular experience with international insolvency law. We regularly assist creditors, shareholders, lenders and Insolvency Practitioners in other jurisdictions with UK based corporate insolvencies, particularly administration and liquidation, restructuring issues and personal insolvency.

With access to insolvency and restructuring professionals across the world through our membership of R3 and subsequently INSOL Europe and INSOL International, our insolvency lawyers are also well placed to advise UK based clients on the sometimes-difficult problems faced through formal and informal procedures with a foreign element including:

  • Recognition of foreign representatives and foreign proceedings.
  • Interaction with official, unofficial and ad hoc groups of multijurisdictional creditors and shareholders.
  • Enforcement of creditor rights and remedies in multiple jurisdictions.
  • Protection of foreign investments and recoveries in multiple jurisdictions.

Ready to speak to our international insolvency lawyers? You can contact your local Isadore Goldman office in London, Norwich or Portsmouth or email info@isadoregoldman.com

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What is cross-border and international insolvency and why is it relevant?

When an insolvent debtor has credit and/or debtors in more than one jurisdiction, this circumstance is referred to as cross-border insolvency or international insolvency.

The international elements may, for example, present themselves during the course of local insolvency proceedings or where local property is the subject matter of foreign proceedings.

What are the principles of cross-border insolvency?

The process pertaining to cross-border and international insolvency law is primarily focused on regulating the insolvency proceedings that operate beyond the ambit of domestic jurisdiction and the constraints involved in the same.

The following are the aspects involved in cross-border insolvency:

  • Protection of interests of the domestic and foreign creditors to be at par
  • Value of the assets of a debtor located in different jurisdictions to be safeguarded
  • Uniformity in the insolvency law and practices of different jurisdictions
  • Coordination and cooperation amongst Courts and other Judicial Authorities in various jurisdictions and the domestic laws applicable therein.

Commencing insolvency proceedings in one jurisdiction may be just one step in the process of resolving the debtor’s financial difficulties, because they may have only a limited effect on assets or creditors located in other jurisdictions.

For this reason, it is critical for the courts to recognise and give effect to the insolvency proceedings started in other jurisdictions, or, if it is necessary to commence insolvency proceedings in any other jurisdiction.

What cross-border issues arise in insolvencies

A range of potential issues can arise during the course of international insolvency proceedings. These include, but are not limited to:

  • Which jurisdiction’s law will govern the insolvency and where should any principal set of insolvency proceedings be opened.
  • Whether there be a need for co-operation and co-ordination between insolvency office holders in different jurisdictions.
  • Whether the assistance of the UK and/or foreign courts will be needed.
  • Whether foreign restructuring or insolvency proceedings need to be formally recognised by the UK courts or UK restructuring or insolvency proceedings need to be formally recognised in foreign jurisdictions.

The elements of legal framework which assist with cross-border insolvency in United Kingdom comprise of:

The Model Law is designed to provide uniform legislative provisions to deal with the recognition of foreign insolvency proceedings and the coordination of concurrent proceedings.

However, the CBIR does not provide for automatic and an application to the court will have to be made.

Under the CBIR 2006 a foreign representative administering foreign insolvency proceedings can apply to the British courts for recognition of those insolvency proceedings. Foreign proceedings for which recognition may be sought are collective insolvency proceedings that are subject to the supervision and control of a foreign court.

  • Section 426of the Insolvency Act 1986 (IA 1986). Under this section, a court in the Channel Islands, Isle of Man or any country or territory designated by the Secretary of State (mostly Commonwealth countries) can apply to the UK courts for assistance in insolvency proceedings. In cooperating with foreign courts in relation to insolvency proceedings, the UK court has a wide discretion. The UK court can apply UK insolvency law or the relevant foreign insolvency law (section 426(5), IA 1986).
  • The English common law. Common law principles in cross-border insolvencies are based on the concept of universalism, which promotes the idea of one set of insolvency proceedings being recognised worldwide and applied to all creditors and assets in the same manner. In the UK, common law is based on the principle of modified universalism which means that the court has power to assist foreign insolvency proceedings so far as it properly can.
  • Council Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency proceedings (for insolvency proceedings within its ambit that were opened before 26 June 2017) and Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) (for insolvency proceedings within its ambit opened on or after 26 June 2017 and where main proceedings under it were opened on or before 31 December 2020.

These rules provide the legal framework for determining which country’s insolvency law should apply and how the different jurisdictions' insolvency laws should interact, but the substantive insolvency laws are left to the local jurisdiction. In United Kingdom, this is the Insolvency Act 1986.

Some legal provisions with extra territorial scope

Section 265 of the Insolvency Act 1986

The purpose of this provision is to establish a geographic connection between the debtor and the English bankruptcy system. Under this section, a bankruptcy petition may be served on a debtor who is not domiciled in England and Wales if the debtor had a ‘place of residence’ in England and Wales or if he has carried on business in England and Wales in the three years prior to the petition being served.

Section 236 of the Insolvency Act 1986

The underlying principles of this section apply not just in a domestic context, but also in the context of cross-border investigations, both where foreign insolvency office holders are seeking information in England and where English insolvency office holders are seeking information abroad.

The common law decisions suggest that the English court’s power to order the production of documents under section 236 IA 1986 may be exercisable in respect of documents situated abroad, even if the power under section 236(2) cannot be exercised to summon persons resident overseas to be examined in this jurisdiction. This power is however limited because the person in question must have a sufficient connection with the jurisdiction.

Section 423 of the Insolvency Act 1986

Section 423 Insolvency Act 1986 deals with transactions at an undervalue that were intended to defraud creditors. This section has an extra-territorial effect as it confers on the Court the power to make orders against persons or property outside England and Wales, subject to the Court being satisfied that there is a close enough connection with England and Wales.

What is the impact of Brexit on cross-border insolvency?

The Brexit deal between the UK and the EU does not cover international and cross-border insolvencies. By extension, any benefits from the Recast Insolvency Regulation between the UK and EU is lost.

That said, the Recast Insolvency Regulation continues to apply to insolvencies where the main proceedings were opened before the ‘transitional’ period.

There are no changes to proceedings and any rules related to the applicable law, jurisdiction and automatic recognition continue to apply unamended.

Contact our international insolvency lawyers

As can be seen, the National insolvency regimes often have very different approaches to key issues, for example in relation to the treatment of secured creditors, rights of set-off and corporate rehabilitation regimes.

The complexity is increased were transactions and recoveries travel across jurisdictional boundaries. It is therefore more than important to engage experienced advisors with practical and integrated judgment.

Our experienced solicitors can help with various scenarios, providing expert advice and guidance on the niche issues pertaining to cross-border and international insolvency law.

If you need advice on international insolvency, you can contact our international insolvency lawyers in London, Norwich or Portsmouth, or email info@isadoregoldman.com.