New model law for cross-border insolvencies ‘may be too complex to use’
30 July 2023
The Government plan announced this month to implement a new cross-border model insolvency law will have little impact in the short term and may add complexity, time and costs if used, say insolvency lawyers.
The Government intends to implement the Model Law on Enterprise Group Insolvency (MLEG) developed by Uncitral (the United Nations Commission on International Trade Law) at ‘the earliest opportunity’, the Insolvency Service has said. If legislated into law, it could make the UK the first country to do so.
Craig Montgomery, partner at Freshfields, said that over the longer term, implementation of the MLEG may be valuable in certain insolvency scenarios.
“The MLEG could prove a useful tool in complex cross-border insolvencies. Practically, however, to work efficiently, the MLEG needs to have been implemented by the other jurisdictions concerned by the group insolvency proceedings. No country has yet implemented the MLEG, and, therefore, its immediate impact is likely to be rather limited,” he said.
But Stewart Perry, Fieldfisher partner and chair of R3’s general technical committee, said: “When it comes to the MLEG, our members are concerned this will add complexity, time and costs to the resolution of enterprise groups, and therefore may be little used in practice. However, we remain happy to work with the Government to address this.
We would still like to understand what the Government intends to do to assist UK office-holders faced with seeking recognition in foreign jurisdictions where the model law is not available – especially in Europe, where automatic recognition no longer applies.”
The last notable Uncitral model law adopted in the UK, the Model Law on Cross-Border Insolvency, was published in 1997 and implemented via the Cross-Border Insolvency Regulations 2006. Legislation based on or influenced by this cross-border model law has been adopted in 58 states in a total of 61 jurisdictions, according to Uncitral.
This month, the Insolvency Service released the outcome of its consultation last summer on the adoption of the MLEG, and another Uncitral model law, the Model Law on Recognition and Enforcement of Insolvency-Related Judgments (MLIJ).
The MLIJ, which the Government had proposed to implement in part only, will remain under review while the Government ‘continues to develop the detail of the proposal’ and address issues raised during the consultation. One such issue listed was the interaction with existing case law, such as the Rule in Gibbs, which holds that a debt governed by English law cannot be discharged or altered by a foreign law.
Commenting on the consultation the Insolvency Service said: “The Government remains of the view that enacting the model laws will enhance the UK’s highly regarded insolvency regime. Doing so will be an important step in ensuring that the UK stays aligned with international best practice, and remains in the best possible position to lead, influence and respond to future developments in this area.”
