Brexit Leaves Recognition of Insolvency Proceedings in Unknown Territory
In the European Union, the European Insolvency Regulation (EIR) determines the jurisdiction for a debtor's insolvency proceedings, the law applicable to those proceedings and provides for mandatory recognition of the proceedings in other EU member states.
With the end of the implementation period for Brexit on 31 December 2020, the EIR is now no longer in force between the UK and the EU member states, which leaves the recognition of insolvency proceedings in unknown territory. In this blog we will discuss what officeholders in both UK and Finland must consider when seeking recognition and assistance in other countries post-Brexit.
Recognition of Insolvency Proceedings Opened before 31 December 2020
As of 1 January 2021, the EIR continues to apply to insolvency proceedings in the UK in cases where the main proceedings were opened before the end of the implementation period on 31 December 2020. In these cases, there will be no changes, and insolvency proceedings commenced in the UK will be automatically recognised in the EU member states. Likewise, main proceedings that have been opened before 31 December 2020 in any EU member state will be automatically recognised in the UK.
However, if proceedings have been opened after 1 January 2021, the situation is considerably less clear, and recognition must be sought through the national laws of the UK or the EU member state in question respectively.
Recognition of Finnish Proceedings in the UK
The UK has implemented the UNCITRAL Model Law on Cross-Border Insolvency with its Cross-Border Insolvency Regulations 2006. This provides a framework for recognition by the UK courts of proceedings started in another country and assistance to foreign representatives.
A Finnish administrator seeking recognition of proceedings in the UK can bring a court application under the UK Cross-Border Insolvency Regulations 2006. This requires that the debtor’s centre of main interests or establishment is in Finland. It will be subject to greater court scrutiny than under the EIR and only provide a route to recognition for insolvency proceedings, not other insolvency-related judgments.
English courts may also assist foreign officeholders under common law principles. In addition, insolvency related judgments can be recognised under common law if they meet the criteria set down in the UK Supreme Court decision on the enforceability of foreign judgments in the case of Rubin v. Eurofinance S.A.  UKSC 46.
Recognition of UK Proceedings in Finland in Legal Limbo
Finland does not recognise foreign insolvency proceedings unless specifically provided for in legislation. There currently is no national Finnish legislation that would provide for the recognition of insolvency proceedings outside the scope of the EIR or the Nordic Bankruptcy Convention, which Finland applies with Norway, Iceland and Denmark.
This means that there is no legislative basis for recognising UK insolvency proceedings in Finland. The lack of a legal framework makes it difficult to draw solid legal conclusions from the current situation. It could be argued that a foreign insolvency officeholder’s status will be recognised in Finland if it cannot be regarded as being against the ordre public doctrine. This would mean that the status of officeholders from the UK should mainly be recognised. Consequently, a UK officeholder should be able to access the debtor’s assets situated in Finland if the debtor would have the same right. This would require that the officeholder is able to produce a reliable account of their status and authority and that there are no concurrent proceedings in Finland.
The officeholder could also be a party in a claim against a third party who is said to be in possession of the debtor’s assets. However, as the situation currently stands, insolvency proceedings initiated in the UK do not have any automatic effect on enforcement proceedings directed at a British debtor’s assets in Finland. Therefore, a British officeholder’s status alone will not enable them to compete with creditors who are looking to enforce their claims from the assets the debtor has in Finland.
Separate bankruptcy proceedings could also be initiated in Finland under the Finnish Bankruptcy Act (120/2004) if the debtor has an establishment here or if the debtor has funds in Finland that justify initiating separate proceedings. These proceedings would in many ways be similar to secondary proceedings under the EIR. In practice, the simplest way for a UK trustee to initiate separate proceedings in Finland is to get authorisation from a creditor to file for bankruptcy in Finland.
The Way Forward
As it stands, Finnish officeholders seem to have two main options: seeking assistance and recognition of their proceedings in UK courts under the UK Cross-Border Insolvency Regulations 2006 or under common law principles.
UK officeholders seeking assistance or recognition in Finland are in an even more uncertain position. Finnish legislation does not grant any support for recognising proceedings outside the scope of the EIR or the Nordic Bankruptcy Convention. Nevertheless, the officeholder’s status will likely be recognised, enabling them to access the assets of the debtor or to file claims. UK proceedings will not, however, directly give protection against creditors seeking enforcement of their claims in Finland. Separate proceedings could also be opened in Finland if the criteria for opening those proceedings are met.
We are currently in unknown territory, and attempts to find new practices will be overshadowed by a great deal of uncertainty from some time to come.