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We look at the impact of the latest art 50 TEU extension on R&I lawyers.
In what has been another critical week in the political Brexit story, we look at the impact of the extension under art 50 of the Treaty of the European Union (TEU) on R&I lawyers. On 10 April 2019, the European Council adopted a decision, taken in agreement with the UK, providing for an extension until 31 October 2019 at the latest. The decision notes that the extension should last only as long as necessary, and no longer than 31 October 2019. The Withdrawal Agreement may enter into force on an earlier date if approval and ratification procedures are completed sooner. On this basis, UK withdrawal would take place on the first day of the month following the completion of the ratification procedures or on 1 November 2019, whichever is the earliest. If the UK fails to adhere to the obligation to hold European Parliament elections, the extension will end on 31 May 2019 (see LNB News 11/04/2019 76).
The European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) (No 2) Regulations 2019, SI 2019/859 entered into force immediately on 11 April 2019. These regulations amend the definition of ‘exit day’ under EU(W)A 2018, s 20(1), to 31 October 2019 at 11.00 pm (see LNB News 11/04/2019 76).
For updates on the process and preparations for Brexit, see: Brexit timeline.
Various key dates include:
23 May 2019—if the UK is still a Member State, the UK must hold European Parliament elections in accordance with EU law. If the UK fails to do so, the withdrawal period will end automatically on 31 May 2019, with or without a deal in place
31 May 2019—Early termination date for extended Article 50 withdrawal period if UK breaches obligation to hold European Parliament elections
1 June 2019—government target for exit. The PM intends to stick to her timeline: ‘if we are able to pass a deal in the first three weeks of May, we will not have to take part in European Elections and will officially leave the EU on Saturday, 1st June’
31 October 2019—Exit Day (longstop under the Art 50 TEU extension)
June/July 2021—likely deadline for Member States to comply with the European Directive of the European Parliament and of the Council 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 (the EU Harmonisation Directive) (see LNB News 29/03/2019 106 and Practice Note: Harmonising insolvencies and restructurings across Europe)
This latest extension gives some welcome breathing space. However, until the Withdrawal Act is ratified, No deal is still a possibility. We look at the impact of these three scenarios on R&I lawyers:
It obviously depends what form any final Withdrawal Agreement takes, but The European Council decision confirmed that the extension excludes any re-opening of the Withdrawal Agreement. Therefore assuming that the key provisions follow those set out in the November 2018 draft Withdrawal Agreement, a transition period applies effectively maintaining the status quo until the end of the transition period—during this period, the UK is no longer a Member State, but the rights and obligations under EU law continue to apply as if the UK was still a Member State. In particular, any EU Regulations and EU Directives would continue to apply until the end of the transition period.
The draft Withdrawal Agreement (Nov 2018), art 67(3)(c) specifically referred to the Recast Regulation on Insolvency 848/2015 and provided that in the UK and all Member States it shall apply to insolvency proceedings (and actions referred to in art 6(1) being actions deriving directly from insolvency proceedings and closely linked with them) provided that main insolvency proceedings were opened before the end of the transition period (defined in art 126 as 31 December 2020, or such other date as extended under art 132). Oddly, Member States were defined at art 2(b) of the draft Withdrawal Agreement (Nov 2018) to include Denmark.
Note that under the draft Withdrawal Agreement (Nov 2018), art 67, the Recast Regulation on Insolvency would not continue to apply to territorial proceedings opened (in the absence of main proceedings) before the end of the transition period.
The draft Withdrawal Agreement (Nov 2018), art 67(1)(a) also specifically referred to Brussels I (recast), Regulation (EU) 1215/2012 applying until the end of the transition period in respect of legal proceedings instituted (and proceedings or actions related to them) before the end of the transition period (see Practice Note: Brexit—considerations for dispute resolution practitioners).
Note that the draft Withdrawal Agreement (Nov 2018) did not purport to address the question of what the arrangements might be after the withdrawal process has been completed. In June 2018, the Department for Exiting the European Union published a policy paper outlining the UK’s proposals for continued civil judicial co-operation post-Brexit. The paper proposed a new bilateral agreement with the EU to cover a package of measures, underpinned by robust governance arrangements covering various matters including, for insolvency, jurisdictional rules and applicable law, and recognition and enforcement of judgments relevant to insolvency proceedings across borders (see LNB News 14/06/2018 84 and LNB News 22/08/2017 92). The Conference of European Restructuring and Insolvency Law (CERIL) also issued a report on 12 December 2018 recommending the development of a bilateral agreement between the EU and the UK in the field of insolvency and restructuring. Unless something like a new EU treaty on insolvency between the EU and UK is agreed during the transitional period, there is still the risk that the Recast Regulation on Insolvency 2015/848 will fall away at the end of the transition period (see Practice Note: Brexit—worst case scenarios for R&I lawyers).
The impact of the new EU Harmonisation Directive on the UK depends on (i) when that EU Directive is finalised (the EU Harmonisation Directive is expected to be formalised at the Council meeting on 6/7 June 2019. It is then effective 20 days from being published in the Official Journal and requires Member States to implement changes within two years, plus an additional year if they encounter difficulties) and (ii) the expiry of the transition period under the Withdrawal Agreement (see LNB News 29/03/2019 106 and Practice Note: Harmonising insolvencies and restructurings across Europe).
In the event of a No deal, various Brexit SIs kick in with various effects, including removing the bulk of the operative effect of the Recast Regulation on Insolvency 2015/848. Our new Practice Notes consider what the impact might be on some of the main insolvency processes:
We have also created a tracker looking at some of the most important Brexit SIs for R&I lawyers: Brexit SI tracker for R&I practitioners. Also see Practice Note: Brexit—worst case scenarios for R&I lawyers.
The European Council decision of 10 April also confirmed that the UK has a right to revoke its notification to withdraw from the EU at any time. If art 50 TEU is revoked, the UK will continue as a Member State and will be bound by all EU regulations and directives (ie business as normal) including the following most important ones for R&I lawyers:
In this case, the UK would also need to comply with the requirements of the new EU Harmonisation Directive within the two year deadline (see LNB News 29/03/2019 106 and Practice Note: Harmonising insolvencies and restructurings across Europe).
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