The new SAMR merger compliance guidelines
On 11 September 2023, the State Administration for Market Regulation of China (SAMR) issued the Antimonopoly Compliance Guidelines for Concentrations of Undertakings (the Guidelines).
With the global economy reeling from the body-blow dealt by the COVID-19 pandemic, Brexit—the UK's exit from the European Union—became fully effective at the turn of the year with the expiry of the implementation period on 31 December 2020. The economic impact of this combination will be felt for years to come and it remains to be seen how the UK will manage its Rocky Balboa style comeback.
It seems inevitable that debtor companies and their stakeholders in the UK and Europe will increasingly be looking to restructuring and insolvency regimes for support to rescue businesses or, where that is not achievable, to liquidate businesses and their assets and facilitate the efficient redistribution of capital for use elsewhere in the economy. In a global marketplace, this invariably relies on cross-border cooperation between states and their courts and practitioners, depending on where a business carries out its operations.
Prior to 1 January 2021, recognition and enforcement of restructuring and insolvency procedures and judgments between the UK and EU member states was subject to common EU regulations which had direct effect and broadly offered automatic recognition. Those common regulations no longer apply to the UK. This article considers the changes to the cross-border restructuring and insolvency regime in the UK and Europe brought about by Brexit.
In summary, there remains an effective legal framework for recognition of inbound proceedings and judgments from EU member states to the UK. Recognition of UK proceedings and judgments in the EU will be subject to the local laws (including EU law) of the individual member states concerned; this is not expected to be unduly difficult in most cases but, as matters stand, will not be as straightforward as it was prior to Brexit. However, some additional court applications and procedural hurdles are likely to be encountered, requiring expert navigation.
On 23 June 2016, the UK voted to leave the EU by a narrow margin of 3.8%. The political turmoil caused by that vote has been considerable; with two prime ministers and two elections in the period between the June 2016 referendum and the end of the implementation period on 31 December 2020. A deal was finally struck between the UK and the EU on 24 December 2020 relating to the sale of goods across the UK-EU border but, with the omission of much detail (including on the offering of services across the border), further negotiations on the future UK-EU relationship may continue for a significant period.
Following the implementation of Brexit, new EU law (including decisions of the Court of Justice of the European Union (CJEU)) does not apply to the UK. Existing EU law, in so far as it was operative immediately before Brexit implementation, now forms a part of UK domestic law. Ministers have broad delegated authority to remedy failures or deficiencies in such retained EU law so that it works in a UK domestic context, including where that retained EU law makes provision for reciprocal or other arrangements between the UK and the EU which no longer exist or are no longer appropriate. EU legislation that governed recognition and enforcement of insolvency procedures and civil judgments across European borders (the Recast Insolvency Regulation1 and the Recast Brussels Regulation2, among other rules relating to specific sectors) relied largely on reciprocity and so were substantially revoked.
The Recast Insolvency Regulation lays down mandatory jurisdictional (including conflict of laws-related) rules relevant to the opening and conduct of insolvency proceedings, as well as prescribing certain automatic and multilateral consequences of the opening of such proceedings (including, crucially, automatic recognition of those proceedings across EU member states (except Denmark)). In the UK, the Recast Insolvency Regulation applied to administrations, company voluntary arrangements and court-supervised winding-up proceedings, but not schemes of arrangement. Despite the revocation of the reciprocal elements of the Recast Insolvency Regulation, the UK unilaterally retained the benefit of the regulation's jurisdictional hooks (which will sit alongside the UK's pre-existing jurisdictional tests) so EU parties will enjoy at least the same level of access to the UK courts post-Brexit as they previously did.
The Recast Brussels Regulation governs recognition and enforcement of judgments in civil and commercial matters and provides for recognition and enforcement across EU member states. Prior to Brexit, the question of whether schemes (and, now, the new so-called "restructuring plans" (as to which, see below)) were subject to the Recast Brussels Regulation was subject to significant judicial debate in the UK and will likely now remain undecided.
To mitigate the loss of the Recast Brussels Regulation, the UK acceded to the Hague Convention in its own right following Brexit implementation3. The Hague Convention provides for allocation of jurisdiction and enforcement of judgments given by a court designated by an exclusive jurisdiction clause. EU member states are already a party to the Hague Convention. The UK has also applied to re-accede to the Lugano Convention4 as an independent contracting state. The Lugano Convention governs jurisdiction and the recognition and enforcement of judgments in civil and commercial matters between the EU and other contracting parties on terms similar to the Recast Brussels Regulation. Unlike the Hague Convention however, acceptance of accession to the Lugano Convention requires unanimous agreement of the contracting parties; with accession becoming effective three months later.
Under the post-Brexit arrangements in the UK, by virtue of secondary legislation enacted in anticipation of Brexit, EU laws determining the law governing contractual and non-contractual obligations will continue to apply in the UK (as in the EU).
The loss of automatic recognition means that insolvency proceedings in EU member states are now treated in the UK on the same footing as those in the rest of the world; foreign representatives will need to request recognition of those insolvency proceedings and any related assistance from the UK courts. The UK has a range of measures that can be used to facilitate such assistance, including the Cross-Border Insolvency Regulations 2006 (CBIR) (Great Britain's enactment of the UNCITRAL Model Law on Cross-Border Insolvency), section 426 of the Insolvency Act 1986 (Section 426) and the common law. Recognition of civil (restructuring) judgments is considered below.
In broad terms, debtors and/or appointed insolvency office-holders must identify and specifically request from the UK courts, on a case-by-case basis, the forms of relief desired within the UK prior to the courts being satisfied that such relief is appropriate and ought to be granted in the circumstances, in the exercise of their discretion.
Request-based forms of assistance may involve additional delay, complexity and cost when compared with automatic recognition. They can be less effective in dealing with the immediate consequences of "free-fall" insolvencies; that is, insolvencies which are the result of last-minute or knee-jerk filings by directors, debtors themselves, or creditors, and/or are not commenced on a pre-planned basis, and/or are not commenced in a manner calculated to optimise returns to creditors and other stakeholders. Section 426 is limited and applies only in the case of requests from courts in certain designated countries and territories (only one of which, the Republic of Ireland, is another EU member state). A further drawback is that the UK courts could not be confident that any assistance provided under CBIR would be reciprocated in many other member states; to date, only Poland, Greece, Romania and Slovenia have implemented the Model Law in their national law.
Foreign office-holders do, however, have a great deal of flexibility and the ability to devise bespoke solutions in any given case when using the request-based forms of assistance. There are additional advantages of using other measures above and beyond what was available under the Recast Insolvency Regulation, such as the ability for the English court under Section 426 to apply either UK insolvency law to the issue the subject of the request, or the applicable foreign law, depending on how the request is framed.
However, as things stand, the English courts will not give effect to the purported discharge of English law-governed claims in foreign insolvency proceedings (as occurred in the context of EU proceedings under the Recast Insolvency Regulation). This rule dates from 1890 and is known as the rule in Gibbs5. The sun may soon set on this rule, however. The UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments was adopted by a decision of UNCITRAL on 2 July 2018 and published with a recommendation that all states give favourable consideration to its implementation. The new Model Law arguably provides for an abrogation of the Gibbs rule and so it will be for the UK legislature to decide whether to implement the new Model Law (and, if so, on what terms). Encouragingly, in December 2020 the UK passed the Private International Law (Implementation of Agreements) Act 2020 which gives the appropriate national authority (in England and Wales, the Secretary of State) the power to make regulations for the purpose of implementing any international agreement relating to private international law. This authority could be used to give effect to the new Model Law (as, presumably, to be modified).
Recognition in remaining EU member states of insolvency proceedings opened in the UK, i.e. "outbound recognition", will be a matter for the laws of the relevant member state (including the Recast Insolvency Regulation, which continues in remaining member states). In many cases, there will be pre-existing frameworks in remaining member states which are capable of operating between the UK and that other state so as to mitigate the effects of the Recast Insolvency Regulation ceasing to apply to the UK. In Germany, for example, the position would fall to be regulated under § 343 of the German Insolvency Code which provides, generally, for recognition of foreign insolvency proceedings without separate exequatur proceedings, subject to certain conditions. One such condition is that there will be no recognition in Germany if the UK courts did not have jurisdiction based on German law principles ("mirror principle"); the mere assertion of jurisdiction by an English court (e.g. on the basis of "sufficient connection" rather than jurisdiction of incorporation of the debtor) is no longer sufficient per se.6 Accordingly, it may be the case that, even where EU debtors have access to the UK courts and UK insolvency proceedings, recognition of those proceedings in home (and other) jurisdictions will prove to be more difficult.
As noted above, the CBIR and Section 426 only apply to recognition and assistance requested in the context of insolvency proceedings. There is a separate regime in the UK governing jurisdiction and enforcement of judgments in civil proceedings. The laws of certain EU member states make a similar distinction; in Germany, recognition of foreign civil judgments are governed by Sec. 328 German Code of Civil Procedure, ZPO.
To the extent required by the EU Restructuring Directive7 (in the case of remaining member states) and in response to the COVID-19 pandemic, European countries have been reforming their restructuring regimes in favour of more debtor-friendly preventative restructuring frameworks. Restructuring measures may not necessarily fall within a relevant definition of insolvency proceedings but where those restructuring measures result in or involve a judgment from a court that judgment may need to be recognised in another jurisdiction in order to ensure the international effectiveness of the underlying measures (as was the case with schemes in the pre-Brexit regime).
In terms of the recognition of "inbound" judgments from EU member states to the UK, where the Hague Convention applies (including where the judgment is from the courts of the jurisdiction where the parties have chosen exclusively to resolve their dispute), that judgment will be recognised and enforced in the UK. Historic bilateral treaties (i.e. pre-1987 when the previous EU regime took effect) between the UK and certain EU member states (including France, Germany, Italy and the Netherlands) may also assist with recognition and enforcement of money judgments, but the position is uncertain. Where the Hague Convention (or a bilateral treaty) does not apply, English common law requires the judgment creditor to commence a fresh cause of action against the judgment debtor in the English courts with the foreign judgment being the cause of action. This should not be problematic in practice but will be slower than enforcement under the Recast Brussels Regulation.
In terms of the recognition of "outbound" judgments from the UK in to EU member states, absent any alternative arrangement (such as accession to the Lugano Convention) and to the extent the Hague Convention does not apply (as above), then recognition would be a matter for the laws of the relevant member state. It is possible that enforcement of English judgments in EU member states will, at least procedurally, be more complicated than under the Recast Brussels Regulation, although this should not undermine the reasons parties choose the English courts in the first place.
Schemes of arrangement are a statutory form of compromise under companies legislation which have extensive application outside the insolvency and restructuring context but which have long been a cornerstone of the UK's restructuring regime. In June 2020, the UK introduced a new scheme of arrangement or "restructuring plan", similar to the existing scheme of arrangement but "super-charged" with the ability to effect a "cross-class cram–down" of dissenting classes of creditors and an ability to disenfranchise out-of-the-money creditors.
Given the prominence of English schemes in European cross-border restructuring transactions and the introduction of the new restructuring plan, a great deal of attention has been focused on whether Brexit will impact the use of schemes as a restructuring tool. The short answer is that the effects of Brexit on the use of schemes are likely to be limited.
In deciding whether it has jurisdiction to sanction (i.e. approve) a scheme proposed by a foreign company, the English court will consider: (i) whether the company has a "sufficient connection" to England (which is a low threshold, able to be satisfied by English law-governed debt agreements); and (ii) whether the scheme is likely to achieve a substantial effect in the foreign jurisdictions in which the company conducts significant business (which is a matter for the local law of the relevant state; requiring foreign debtors to adduce evidence as to the likelihood of recognition in relevant foreign states as a part of the scheme proceedings).
Pre-Brexit, there was a third consideration: where the company has creditors in the EU, whether the English court's jurisdiction to sanction the scheme is limited by the Recast Brussels Regulation. As noted above, the loss of the Recast Brussels Regulation will remove this potential jurisdictional hurdle.
The laws of the relevant foreign (e.g. EU) jurisdiction will dictate the process for recognition of an English court's scheme sanction order, which process will likely depend on whether the scheme is considered to amount to insolvency proceedings or if the scheme sanction order constitutes a civil judgment under relevant foreign law. Schemes have never been insolvency proceedings within the Recast Insolvency Regulation (as noted above) and so, pre-Brexit, EU debtors often relied on the Recast Brussels Regulation as a basis for recognition of the order as a civil judgment in their home jurisdiction. The new restructuring plan is only available to a company likely to encounter financial difficulty that may affect its ability to continue as a going concern, potentially bringing that new procedure closer to "insolvency proceedings" (if and to the extent relevant in the foreign state in question). Whether insolvency proceedings or a civil judgment, recognition and enforcement of the English court's scheme sanction order in the EU would be subject to the principles applicable to outbound recognition, as described above.
EU debtors may be able to rely on the substantive effects of the English proceedings where the parties have chosen English law to apply to the subject debts based on universal EU rules on the law applicable to contractual obligations, which rules provide that the law applicable to the contract shall govern the various ways of extinguishing obligations.
Whilst the post-Brexit landscape presents new challenges, for so long as there has been a corporate restructuring market in Europe, the UK's legislature, courts, practitioners and other market participants have consistently demonstrated their ability to innovate and devise cutting-edge solutions to pan-European complexities arising in situations involving distressed debtors with operations in multiple jurisdictions. There is little reason to believe that Brexit will have any permanent impact on the lustre and appeal of the UK as a destination of choice for the implementation of cross-border restructuring transactions, particularly in view of the recently-augmented tool-kit of measures and options available in the UK.
Returning to the boxing metaphor at the beginning of the article, even though it may appear to some as though it has its back to the ropes, it is a safe bet that the UK will continue to "float like a butterfly and sting like a bee" in restructuring stakes, in the face of all adversity.
The authors thank Regina Rath, a Partner in Norton Rose Fulbright’s Frankfurt office, for her input on matters of German law.
1 The Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)
2 Regulation (EU) No 1215/2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
3 Hague Convention of 30 June 2005 on Choice of Court Agreements
4 Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, concluded at Lugano on 30 October 2007
5 Antony Gibbs & Sons v La Sociětě Industrielle et Commerciale des Mětaux (1890) 25 QBD 399 (Gibbs)
6 See: Regina Rath and Matthew Thorn, 'UK and Germany: New Restructuring Tools and Cross-border Recognition Post-Brexit', INSOL World, 4th Quarter 2020, pg 24.
7 Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency)
On 11 September 2023, the State Administration for Market Regulation of China (SAMR) issued the Antimonopoly Compliance Guidelines for Concentrations of Undertakings (the Guidelines).
Welcome to Volume 5 of Norton Rose Fulbright’s Big Read Book series, Avoidance and cancellation of non-life insurance policies: The comic book edition.
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