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A no-deal Brexit could have a seriously damaging effect on cross-border insolvency cases, the UK’s turnaround and restructuring trade body R3 has warned.
Editor at Credit Strategy. Previously held roles at Accountancy Age, Accountancy Daily and the Leicester Mercury.
The strength of the country’s insolvency and restructuring framework is partially dependent on its pan-European reach, it said, adding that EU regulations mean UK insolvency and restructuring procedures and judgments are automatically recognised across the EU and vice versa.
“A loss of this recognition, as would happen in a ‘no deal’ situation, would be bad news for UK businesses and creditors,” said R3 president Stuart Frith.
“Reciprocal automatic recognition means it’s relatively quick and cost effective to retrieve the assets of insolvent UK-based companies or individuals wherever those assets are in the EU. It means the insolvencies of companies with a presence across the EU can be dealt with through one insolvency procedure rather than several. This keeps costs down and increases the chances of business rescue, which, in turn, boosts returns to creditors.
“If the current EU-UK insolvency framework is not preserved post-Brexit then it will become much more expensive and difficult to resolve UK and EU insolvency cases where UK-EU cross-border work is required.
“This will jeopardise creditor returns, business and job rescue, lending and investment, and it will damage the UK’s reputation as a place to do business.”
In August, Brexit minister Dominic Raab outlined what he described as a “practical and proportionate” plan for the possibility that the UK leaves the EU with no deal.
Guidance issued by the Department for Exiting the European Union included instructions for businesses facing extra paperwork at borders.
The framework, split across 25 technical notices covering areas sectors including finance, medicine and farming, warns that:
In his speech, Raab insisted the government “neither wants nor expects” the UK to crash out of the EU with no deal, but added it was prudent to plan for the possibility.
Despite Raab’s assurance, Frith said: “In the event of a ‘no deal’, it’s important that the government takes steps to improve the domestic insolvency framework in order to maintain its international competitiveness. The government has just published plans to deliver a package of major insolvency reforms first proposed in 2016, but the timetable for introducing them is not clear. Introducing the reforms would be a good step towards mitigating some of the problems which the loss of automatic recognition might cause.”
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