Article X does not (quite) mark the spot: UK Government considers implementation of two UNCITRAL Model Laws on Insolvency

On 7 July 2022, the UK Government published a consultation on changing UK law to implement two model laws in the field of insolvency that have been adopted by the United Nations Commission on International Trade Law (UNCITRAL). These are:

• the Model Law on Recognition and Enforcement of Insolvency-Related Judgments (MLIJ), which deals with cross-border recognition of judgments that are associated with insolvency proceedings; and
• the Model Law on Enterprise Group Insolvency (MLEG), which provides tools to manage and coordinate insolvencies within corporate groups, while respecting that each company within the group remains a separate legal entity.

The MLIJ and MLEG complement and expand upon the Model Law on Cross-Border Insolvency (MLCBI), which has been implemented by 48 states worldwide, including the UK. Whilst the MLCBI is designed to make cross-border insolvency proceedings more efficient, it does not cover the recognition of foreign judgments relating to insolvency proceedings. After the UK’s departure from the European Union (and, consequently, it no longer benefitting from the automatic recognition of insolvency proceedings and judgments afforded by the EU Insolvency Regulation and Judgments Regulation), the MLCBI forms part of a web of different legislative instruments and local laws that are now used to achieve the recognition of insolvency proceedings and judgments inside and outside of the UK. It is hoped that implementing the MLIJ will further assist with such recognition. Similarly, whilst the EU Insolvency Regulation contains a concept of "group" insolvency proceedings affecting several companies in different jurisdictions, this concept is not squarely a part of English law. It is hoped that implementing the MLEG will help to streamline and improve group-wide insolvencies which affect UK companies.

The outcome of the consultation was published on 10 July 2023, with the Government intending to legislate to implement the MLEG “at the earliest opportunity”. This means that the UK is likely to be the first (or amongst the first) jurisdictions to implement the MLEG. Whilst doing so is unlikely to be of any real practical benefit until a number of jurisdictions have followed suit, it will at least signal the Government’s intention for the UK to be at the forefront of group-wide, cross-border insolvencies.

The respondents to the consultation were more concerned about the UK’s implementation of the MLIJ – specifically, a provision known as “Article X” which is intended to create a framework for the recognition of insolvency-related judgments. This has led to concerns that the implementation of the MLIJ in the UK would, even with the leeway sought by Article X, undermine the rule in Gibbs (in which the court held that, where a contract specifies that it is governed by a particular country’s law, it cannot be compromised or discharged by insolvency proceedings under a different law) by providing for English courts’ recognition and enforcement of foreign courts’ insolvency-related judgments regarding contracts governed by the English law. Given the large number of international contracts that are governed by English law, and the choice of the UK as the preferred forum for a significant number of cross-border restructurings, it is feared that the implementation of the MLIJ could, in undermining the rule, erode the UK’s status in this area. As a result, the Government has decided that it will not implement the MLIJ at this time, but has stated it will instead facilitate “debate” on the issue to ensure that any unintended consequences of doing so are avoided and, generally, to seek greater legal certainty in this complex area riddled with potential conflicts of laws. In the same vein, it is to be made clear in the UK’s implementation of the MLEG that, at least initially, available relief will not include recognition of foreign judgments.