The impact of Brexit on UK/European cross border schemes and restructuring plans

Introduction

The English law scheme of arrangement under Part 26 Companies Act 2006 (and now the new English law restructuring plan under Part 26A Companies Act 2006¹) is regularly used as a restructuring tool for both English and foreign companies².  An English court considering whether to exercise its discretion to sanction a scheme in respect of a foreign company must be satisfied, among other things, that it is likely to be effective and achieve its purpose.  The English court will refuse to sanction a scheme for a foreign company where to do so would not serve any real purpose.

Ordinarily this involves the English courts considering expert evidence from local lawyers as to whether the scheme would be recognised in the relevant foreign jurisdictions where creditors or assets may be located.  However, there appears to be no requirement that recognition in the relevant foreign jurisdiction(s) be inevitable.

The bases of recognition

The English courts have discussed and/or accepted a number of different bases of recognition.  For instance, in a US/UK cross border context, expert evidence has been adduced that an English scheme would be recognised and given effect to in the US pursuant to Chapter 15 of the US Bankruptcy Code.

In a UK/European context, a number of bases of recognition have been relied upon and/or discussed by the English court and/or discussed in commentary:

• Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Judgments Regulation): it has been argued that the order of the English court sanctioning the scheme is capable of recognition under the Judgments Regulation.  This argument is often relied upon in the expert evidence from local lawyers in the relevant jurisdiction as a basis upon which the scheme will be recognised.
  However, the Judgments Regulation ceased to apply as between the UK and the EU at the end of the transition period, leaving those proposing a scheme to explore the alternatives.
• Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I): Rome I (and Rome II³) is not dependent upon reciprocity or membership of the EU and so it continues to apply following the end of the transition period.  As a result, if the relevant finance documents are governed by English law, then this choice of law will be recognised.  The Courts in some European jurisdictions may conclude that, by extension, any variation or compromise of such English law governed debts under a scheme will also continue to be recognised. 
• Hague Convention on Choice of Court Agreements 2005 (Hague Convention): if the relevant finance documents contain an exclusive jurisdiction clause in favour of the English courts and provided that the scheme/plan falls outside the Convention’s insolvency exclusion provision, then it is possible that the Hague Convention may form the basis of recognition.  It would not assist, however, if the jurisdiction clause is asymmetric or non-exclusive. 
• Private international law: a scheme of arrangement may be recognised in another jurisdiction on the basis of its own local laws.

In the future, if the UK accedes to the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (Lugano Convention 2007), then it is possible that this will also constitute a basis for the recognition of an English law scheme⁴.

Conclusion

In light of the loss of the Judgments Regulation, the English courts will have to look to alternative bases of recognition of English schemes in respect of foreign companies.  Whilst we think that many English schemes in respect of foreign companies will be capable of recognition in the relevant European jurisdictions, careful planning (particularly in relation to obtaining local law advice on recognition in relevant jurisdictions) will be required and we expect to see heightened scrutiny by the English courts of the expert evidence regarding recognition of the scheme in any relevant European jurisdictions.  We expect that English schemes of arrangement (and restructuring plans) will remain a popular choice for UK/European cross border restructurings, particularly where English law debts are to be compromised as the rules in Gibbs⁵is likely to apply.