Partner Article

To Brexit, or not to Brexit?

by John Harlow, Harlow Insolvency

Forty odd years ago I voted for the very first time. Unlike some of my school chums, I had missed voting in the first General Election of February 1974 but, having just started at University, I was given a second chance in October of that year. That second Election returned a majority Labour government under Harold Wilson, which government as part of its manifesto was pledged to “test” the Electorate’s support for what was then widely known as the Common Market, “through the Ballot Box”. Britain had joined the EEC only a year before, under the then Conservative government of Edward Heath. A referendum was held in June 1975, the first ever referendum held in this country and the British public voted with a significant majority to stay-in. All exciting stuff for the newly enfranchised me!

The questions over Europe have never really gone away however, with dissatisfactions causing rifts in the main parties, in particular (ironically) within the ranks of the Tory Party. This dissatisfaction has given rise to the birth of UKIP, a party vehemently against Britain being part of the European Union, although seemingly scoring little support at the last election.

We are now faced once again, with a Referendum to decide whether to remain in the Union. The date has been announced as Thursday 23rd June 2016 and the outcome, which currently appears far from certain, could have far reaching effects across the board.

I suspect that we will all be heartily sick of the matter by the time we get to June. Already the news is full of wrangling and argument, with the apparent split within the Tory Party being the chief topic of the moment, with main figures within that party coming-out on one side or the other. The No brigade have seen the media jump on the term “Brexit”, which to me sounds more like a biscuity breakfast cereal than a sophisticated political term.

From a purely personal point of view, I feel that if it ain’t bust, there’s no need to fix it. Europe is our nearest and largest market place and we all enjoy the freedom to travel and engage in business with the member countries. I tend to feel that we’re better placed to fix problems from the inside rather than run away, which smacks of cutting off our noses to spite ourselves.

Nevertheless, if the Referendum does lead to a so-called Brexit, I am forced to consider what implications this may have for the insolvency profession and whether it will have a material impact on my own business.

So, would a Brexit create problems within British industry, in particular with SMEs, which would lead to an increase in insolvencies? Would it lead to increased tariffs if trading with European customers and would closed borders lead to increased costs, in transport for instance? This may be good in the short term for insolvency practices currently short of work, but it could never be good for the economy overall to see an increase in insolvency and the inevitable rise in unemployment which must follow.

The issue of immigration has been one of the loudest arguments used by the No’s, but if the influx of European workers is stopped as a result of Brexit, what will happen to the myriad of jobs which are undertaken by these workers, jobs which British workers seem reluctant to do, for example agricultural work undertaken by seasonal migrants from Europe and many service related jobs in hotels and restaurants &c:? In all likelihood employers will end up having to pay much higher wages to attract employees, which in turn will place cash flow pressure on certain sectors, as well as pushing-up general price levels within the economy.

While this may seem a bit simplistic, the technical side of the argument is far more complicated. Over the years the relationship between insolvency jurisdictions within the Union has developed considerably. Cross-border insolvencies with other EU countries are governed by the EC Regulation on Insolvency Proceedings 2000. These regulations deal with, inter-alia, the proper jurisdiction for a debtor’s insolvency proceedings, which country’s law will be applicable and mandatory recognition of those proceedings in other Member States.

An update on the Regulation in the form of a Recast Insolvency Regulation is due to come into force in June 2017 and includes provisions to deter “Forum Shopping”. A Brexit after that date would mean that the UK would have to rely on the Cross Border Insolvency Regulations 2006, which implements the Uncitral Model Law on Insolvency into UK legislation and is currently used for recognition of insolvency proceedings in non-EU countries.

A Brexit would mean that insolvency proceedings commenced in the UK would no longer be recognised automatically by the other EU States. The UK would have to negotiate new agreements jointly or severally with the remaining 27 Member States.

Employees rights on insolvency may be also be adversely affected by a Brexit, as the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) are governed by the Transfer of Undertakings Directive. From an employee’s perspective this may mean that their employment rights are not automatically transferred on the sale of a business.

In conclusion, it is not hard to see that, in the absence of renegotiation for continued participation in the EC regime, a Brexit would create a huge amount of uncertainty and cost in respect of cross-border insolvencies and may adversely affect creditors caught-up in these matters. Some businesses may actually move their centres of main interest out of the UK in order to take advantage of the EC regulations. Even if the UK were able to negotiate continued participation in the regime, its ability to influence any future revisions in a manner favourable to itself would be compromised.

Would a Brexit have an effect on the level of UK insolvencies? Well, that’s anyone’s guess, but it would undoubtedly have an effect on the way cross border insolvencies are handled and may lead to worse outcomes for both creditors and employees caught up in those proceedings.

Back in 1975 I voted to exit, for all sorts of reasons which I don’t necessarily still adhere to. How will I vote in June?…..well it’s a secret ballot, isn’t it.

This was posted in Bdaily's Members' News section by Laura Jones .