What are the implications of BREXIT for the UK insolvency profession?
So, it is now three weeks since the UK voted to leave the EU and the initial shock appears to be beginning to subside. The stock markets have recovered at least for the time being and the pound has stabilised against the US dollar albeit at a 30 year low.
After a period of almost daily resignations from politicians Teresa May will replace David Cameron as Prime Minister on 13 July 2016 and the initial reaction has been positive with markets hoping for a ‘soft Brexit’.
Whilst the way forward is at present unclear, we can predict with a little more assurance what the effects of Brexit may mean for the UK insolvency market.
Until the uncertainties surrounding Brexit are resolved or at least a clear way forward has been set out, many businesses are likely to be cautious about making investment decisions. A lack of business confidence may result in a decrease in consumer spending as the public will be concerned about the effect on jobs and interest rates. Accordingly those industries that are reliant on consumer spending such as retail, housing, leisure and tourism may see a financial downturn.
In addition, Brexit may affect industries that are reliant on low wage migrant workers, which may face a tough challenge due to a substantial reduction in the numbers of foreign nationals wishing to come to the UK to work.
I would encourage any business facing uncertainty and financial distress to obtain professional advice and the sooner the advice is obtained, the more options there are available to them.
Further afield, Brexit is likely to have a substantial impact on cross-border insolvencies which at present are governed by the EC Regulation on Insolvency Proceedings. Cross-border insolvencies are usually complex requiring navigation across a number of insolvency regimes. The EU Regulation enables insolvency proceedings in the UK to be recognised across EU states. Following Brexit, the Regulation may not apply and accordingly recovering assets in foreign jurisdictions is likely to be more difficult, time consuming and costly leading to a less favourable result for the creditors in the proceedings.
Teresa May has commented that she will not invoke Article 50 of the Treaty on the European Union until 2017 following which the UK will leave the EU at the earlier of an exit agreement being signed or two years after notice is given. It is my fear that insolvency is unlikely to be a top priority and the UK may not have much of a say in future negotiations on the EU cross-border regime. The UK can therefore expect unfavourable revisions in the future which may operate against UK interests and further complicate the insolvency process.