Cross Border Insolvency in Scotland
Insolvencies with some cross border element are on the increase. We are often asked for advice in relation to an insolvency or restructuring which has some cross border element to it. This can sometimes be by a UK insolvency practitioner seeking advice on proceeding in relation to foreign assets, but this brief guide attempts to provide some basic background on how foreign cases are treated in Scotland.
Scots insolvency law is governed by a hierarchy of regulation. Until the beginning of the 21st Century UK Acts of Parliament governed Scots insolvency law. The Insolvency Act 1986 (so far as it relates to Scotland) still provides the basic law on liquidations, administrations and CVLs. Similarly the Bankruptcy (Scotland) Act 1985 still provides the basic law in relation to sequestration (bankruptcy) and protected trust deeds.
However, what has changed is the fact that these Acts are subject to other regulations. In particular, the Cross Border Insolvency Regulations 2006, introduce the UNCITRAL (United Nations Commission on International Trade Law) model law on cross border insolvency, into Scots law. The 1986 Act and 1985 Act therefore have to be read subject to those regulations. Secondly, those Acts and the 2006 Regulations, have to be read subject to the EC Regulation on Insolvency 1346/2000.
Scottish practitioners often miss the dramatic impact the regulations have had on the practice of insolvency law in Scotland. To give a very brief example, Scots private law has always allowed the Scottish courts to wind up a company registered in Scotland. That power no longer exists in terms of companies registered in Scotland, where their centre of main interest lies in another member state party to the EC Insolvency Regulation.
What help for Foreign Practitioners?
Firstly, within the UK, if an insolvency practitioner is appointed by the courts in England and Wales, or Northern Ireland, the orders of that court will be enforced in Scotland as if made by the Scottish Courts. However, there is no compulsion on the Scottish Courts to deal with property located in Scotland, based on English, Welsh or Northern Irish law. Regulation 3 of the 2006 Regulations does compel the Courts throughout the United Kingdom, including Scotland, to assist the other UK Courts.
So far as other EC member states are concerned, the insolvency regulation applies to Scotland just as it does to other states. Therefore, primary proceedings may only be opened in Scotland if a person or company has their centre of main interest (“COMI”) in Scotland. Any application for a winding up, for example, in Scotland will require averments to the court about the centre of main interest being located here, otherwise the Court will be unwilling to entertain the application. As European practitioners will be aware, there remains the possibility, that secondary or territorial proceedings can be opened in Scotland dealing simply with Scottish assets. Separately, it is possible to apply for recognition of the primary proceedings in Scotland. The best option will depend on the facts of a particular case, and we are happy to discuss matters on a case by case basis.
Practitioners should of course bear in mind that if the centres of main interest are located outside an EC Member state that is a party to the regulations, the regulations do not apply even if the registered office is within a member state, or there are establishments. Looking wider than the EC Regulation, the cross border regulations effectively mirror the model law, which many countries have adopted. There is therefore provision for foreign proceedings to be recognised and maximum possible assistance being given to foreign courts, subject to matters of UK public policy (for example in relation to financial services, or in relation to penalties being enforced by foreign tax regimes). However, in certain circumstances, even when recognition is possible, it may be preferable to have territorial UK insolvency proceedings in place.
In short, like the rest of the UK, the Scottish Courts have a number of useful mechanisms available for efficient insolvency proceedings where there are cross border elements. BBM’s insolvency team have a particular interest in cross border issues, and are happy to have a no obligation discussion about how we may be able to assist companies and office holders