18 July 2022
Disputes Quick Read – 58 of 57 Insights
On 7 July 2022 the UK government launched a consultation on the implementation of two model laws adopted by the United Nations Commission on International Trade Law (UNICTRAL): the Model Law on Recognition and Enforcement of Insolvency-Related Judgments and the Model Law on Enterprise Group Insolvency. The government claims that the consultation signals the UK's 'ongoing commitment to mutual cooperation and international best practice' in cross-border insolvencies.
The UK has previously implemented the UNICTRAL Model Law on Cross-Border Insolvency in the form of the Cross-Border Insolvency Regulations 2006 ("CBIR"). This Model Law has been enacted in 48 states across the world and provides a framework for those states to recognise and enforce foreign insolvency proceedings.
However, it is ambiguous in relation to the extent to which foreign insolvency judgments should be recognised and enforced which has resulted in different countries taking different approaches to the issue. In the UK, the Supreme Court has held that the CBIR does not extend to recognition of insolvency judgments whereas in the US, the Model Law (adopted in Chapter 15 of the Bankruptcy Code) is regarded as enabling the courts to recognise and enforce foreign insolvency judgments.
The Model Law on Cross-Border Insolvency also does not provide a framework for insolvencies of groups of companies in various jurisdictions which means that they are often conducted in a disjointed way.
The UK government believes that adoption of these two new Model Laws will go some way to addressing the gaps in the current Model Law regime.
Model Law on Recognition and Enforcement of Insolvency-Related Judgments:
Model Law on Enterprise Group Insolvency:
The (partial) adoption of the two proposed Model Laws should enhance the flexibility and reach of the UK's insolvency legislation. Article X will give the courts a framework to recognise foreign insolvency judgments where that might not have been possible under the existing insolvency regime.
However, the effectiveness of the Model Law on Enterprise Group Insolvency will depend partly on how many countries follow the UK's lead and implement the Model Law. If uptake is low, then the impact is likely to be limited.
The government anticipates that it will implement the Model Law on Enterprise Group Insolvency as soon as possible. Both Model Laws could be implemented fairly quickly given they do not require an act of parliament to be given effect.
The consultation closes on 29 September 2022.
To discuss the proposals in more detail, please contact a member of our Restructuring & Insolvency team.
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