Disputes Quick Read: UK government consults on potential new cross-border Model Laws

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.

Background

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.

Key proposals

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:

Because of concerns over the interaction of this Model Law with English law, the government proposes to implement only "Article X".
Article X would supplement the CBIR by allowing courts to recognise foreign insolvency-related judgments as a form of relief (effectively overruling the UK Supreme Court decision in Rubin and another (Respondents) v Eurofinance SA and others [2012] UKSC 46 in this respect), but also meaning that it would be available only where a foreign insolvency proceeding has been recognised under the CBIR.
The government also proposes to publish a non-exhaustive list of factors that a court may take into account when deciding whether or not to recognise a foreign judgment.
The court will be required to have regard to public policy in the UK, but will retain its discretion as to the relief granted.

Model Law on Enterprise Group Insolvency:

This Model Law aims to coordinate a group insolvencies by ensuring that group members can cooperate effectively in implementing a plan regardless of the jurisdictions in which they operate, including avoiding or minimising multiple parallel insolvency proceedings where possible.
Corporate groups looking to utilise this regime in the UK will need to initiate a 'planning proceeding' by applying to court to commence the group plan alongside a qualifying UK insolvency process.
The coordination of the planning proceeding will be carried out by a group representative.
A group insolvency situation must be approved under the law of each relevant state.
The enforcement of the group insolvency solution in the various jurisdictions is a matter for each jurisdiction. However, the government anticipates that the UK courts will consider whether a group insolvency solution will be effective in the relevant jurisdictions when reaching their decision on the group plan.

Comment

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.