Government issues 'no deal' competition and insolvency papers
The government has published documents setting out its position in the event of a ‘no deal’ Brexit, including information relating to mergers and acquisitions, the future role of the Competition and Markets Authority (CMA), and insolvency
14 Sep 2018
The merger review and anti-competition document states that in preparing for the eventuality of no deal being reached with the EU, the government is not currently proposing to make substantial changes to the UK’s competition regime ‘beyond those necessary to manage the UK’s exit from the EU’, although it will ‘make necessary changes to UK law through Statutory Instruments made under the EU Withdrawal Act 2018’. These include removing references to EU laws from statutes and revoking the powers relating to the European Commission’s ability to carry out investigations of business premises in the UK.
UK competition law will remain in effect, and ‘anti-competitive agreements and abuses of a dominant market position that affect competition within the UK will continue to be prohibited’. Competition law will continue to be invoked by the CMA, which will carry out investigations possible breaches.
However, in cases where certain types of agreements are exempted from anti-competition laws for the benefit of the consumer, the EU block exemption regulations currently in place will continue to be preserved. These are defined in Article 101(2) of the Treaty on the Functioning of the European Union 2007 (TFEU 2007) as applying to agreements that satisfy conditions in producing ‘objective economic benefits that outweigh the negative effects of the restriction of competition’.
The goal is that ‘existing agreements between companies that benefited from the parallel application of an EU exemption to the UK antitrust prohibitions prior to EU exit should continue to benefit from that exemption in the UK’.
The most significant change that businesses will see is that mergers that currently meet the relevant EU thresholds will be subject to review by both the CMA and the European Commission, and that ‘EU firms that conduct business in the UK will continue to be subject to UK competition law’. In the interim period, competition infringement decisions made by the European Commission will be recognised by the UK.
It advises businesses that currently meet EU turnover thresholds to continue to notify the European Commission. UK firms that engage in behaviour that distorts competition within the EU will become subject to action from both the Commission and the CMA, and businesses subject to ongoing antitrust investigations would take independent legal advice on complying with the European Commission and the CMA.
In a technical note issued on the subject of civil legal cases, the government states that the bulk of the current shared insolvency regulation will be repealed, but that the EU rules ‘that provide for the UK courts to have jurisdiction where a company or individual is based in the UK’ will be preserved. However, the existing EU insolvency regulation will no longer restrict action, allowing proceedings to be opened under the tests set out in UK domestic law, regardless of the location of the debtor.
In the future, UK insolvency practitioners will need to apply under an EU country’s domestic law to have UK regulations recognised there. In cases where UK insolvency laws are not recognised, cases will take on additional complexity, and the paper advises insolvency practitioners to ‘take professional advice on the prospects of successfully obtaining recognition for a UK insolvency order in an EU country’. EU insolvency proceedings will likewise no longer be recognised unless they adhere to United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (1997).
Commenting on the lack of a UK-EU insolvency framework Stuart Frith, president of R3, the trade association for the UK’s insolvency, restructuring, advisory, and turnaround professionals, has said:
‘We would be deeply concerned about the impact of a “no deal” on the UK’s insolvency and restructuring framework. The strength of the UK’s insolvency and restructuring framework partially depends on its pan-European reach. At the moment, EU regulations mean UK insolvency and restructuring procedures and judgments are automatically recognised across the EU - and vice versa. A loss of this recognition, as would happen in a “no deal” situation, would be bad news for UK businesses and creditors.
‘If the current EU-UK insolvency framework is not preserved post-Brexit then it will become much more expensive and difficult to resolve UK and EU insolvency cases where UK-EU cross-border work is required. This will jeopardise creditor returns, business and job rescue, lending and investment, and it will damage the UK’s reputation as a place to do business.
‘The insolvency and restructuring framework is there to provide businesses, lenders, and investors with the confidence that, in the event of an insolvency, they will see at least some of their money back. Adding barriers to this process where a UK company has a presence in the EU would damage confidence in trading with, lending to, and investing in that company.
‘In the event of a “no deal”, it is important that the government takes steps to improve the domestic insolvency framework in order to maintain its international competitiveness. The government has just published plans to deliver a package of major insolvency reforms first proposed in 2016, but the timetable for introducing them is not clear. Introducing the reforms would be a good step towards mitigating some of the problems which the loss of automatic recognition might cause.’
Report by James Bunney