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The new UK, Dutch and German restructuring tools compared – how competitive will the UK be post-Brexit?

Background

Reforms to the restructuring landscape in England have been on the government's radar for some time, at least from 2016, though became urgent due to the COVID-19 pandemic. As a result, a new tool referred to as a Restructuring Plan was introduced by the Corporate Insolvency & Governance Act 2020 (CIGA) which came into force on 26 June 2020. Similar processes were implemented in response to the pandemic in the Netherlands and Germany (the Dutch Scheme and the German Scheme respectively) which both came into force in January this year. In this article we look at the main features of all three schemes and discuss the position of the Restructuring Plan in the post-Brexit world.

Comparison of the main features of the UK, Dutch and German new restructuring tools

 

Restructuring Plan

Dutch Scheme

German Scheme

Debtor in possession process

Yes

Yes

Yes

Jurisdiction requirements

Sufficient connection

Public version - COMI

 

Private version - registered office or a sufficient connection

COMI

Entry conditions

Yes (Read more)

Yes

Yes

Commencement

By a debtor, a creditor or shareholder

By a debtor or a restructuring expert  on behalf of  a creditor/shareholder

By a debtor

Approval requirements

 

75% in value of creditors in each class

a two-thirds majority in value of voting creditors in each class

75% in value of creditors in each class

Cross-class cram down

Yes

Yes

Yes

Stay of proceedings

No, but an application for a new moratorium introduced by CIGA  can be made separately

Yes

Yes

Automatic recognition in EU member states

No

Yes

Yes


The use of Restructuring Plans post-Brexit

As can been seen above, the main features of the three schemes are broadly similar. However, a notable distinguishing factor is that the Dutch and German Schemes benefit from automatic recognition in EU member states whilst recognition of the Restructuring Plan will largely depend on private international law.

Does this mean that the Restructuring Plan will be less popular?

In our view it does not. The English restructuring mechanisms have been successfully used by companies from outside of Europe without the benefit of automatic recognition, a trend which has continued through the pandemic with examples such as Virgin Atlantic Airways Limited, Pizza Express and the DeepOcean Group. This is because England is widely recognised as a hub for cross-border restructurings and insolvencies due to the reputation and experience of the judges as well as its insolvency professionals.

Furthermore, the Restructuring Plan is largely based on the well-established UK scheme of arrangement under Part 26 of the Companies Act 2006. This means that there is already significant case law developed in this area which are already being applied directly to Restructuring Plans. Unlike Dutch and German judges who will have to navigate inevitable challenges due to the novelty of the schemes in those jurisdictions, the English judges have years of experience in dealing with those processes.

In this context, it should be noted that, English law is a very popular choice for governing international commercial and financial contracts due to its certainty and predictability. As a result it may simply be impossible to deal with such contracts or debts arising out of these contracts by way of foreign restructuring tools. Pursuant to the Gibbs rule, a debt may be only compromised pursuant to the law by which it is governed. Therefore, where it is proposed that an English debt is discharged in a foreign restructuring plan, the English court could still allow a creditor to enforce that debt in England unless a separate English restructuring plan or scheme dealing with the debt is implemented.

It is also worth noting that in the recent decision in Re gategroup Guarantee Ltd, the court made it clear that whilst as a matter of English law Restructuring Plans amount  to insolvency proceedings and fall within the bankruptcy exclusion under the Lugano Convention 2007, Restructuring Plans can be used by new companies incorporated for the purpose of assuming liabilities to access the jurisdiction notwithstanding the artificiality of the arrangement.

Conclusions

The Dutch and German Schemes are certainly competitive new tools, particularly given that they benefit from automatic recognition across Europe. However, the English restructuring regime is well rooted and widely used by businesses all over the world and as such it is anticipated that companies and insolvency professionals will quickly navigate the challenges with recognition in the post-Brexit world. With the Restructuring Plan as a highly competitive new tool,  the UK will remain an international restructuring hub, accessed by businesses in Europe and further afield. 

 For more information on the article above please contact Karolina Lewandowska and Alan Bennett.

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