How could Scottish independence change the insolvency law landscape?

What are the potential implications of Scottish independence on the restructuring of companies with assets on both sides of the border? Stewart Rennie of Rennie McInnes LLP expects that at some point, given the passage of time, there would be changes to the corporate insolvency regime in Scotland.

Original news

Policy Paper: Scotland’s future—Referendum, LNB News 26/11/2013 81

The Scottish Government believes the people of Scotland, individually and collectively, will be better off with independence, and has published a guide, titled ‘Scotland’s Future’, which sets out the gains an independent Scotland will bring. Scotland’s referendum on independence will take place on 18 September 2014. If a Yes vote results, Scotland will become independent on 24 March 2016 and the first elections to an independent Scottish Parliament will be held in the spring of 2016.

If Scotland was to gain independence, how would this affect the restructurings of companies that have assets in both England and Scotland?

I don’t think restructurings would be affected greatly, certainly not in the immediate aftermath of independence. Ironically, the right to a separate Scottish legal system was one of the guarantees given under the Act of Union of 1707 that the Yes campaign is now seeking to dissolve.

Accordingly, there have always been structural differences (eg in property law) and these would remain unchanged. While you would need Scottish lawyers to deal with Scottish aspects of the transaction, this is something you require currently and would not really change.

I attended a briefing given by Alex Salmond and the Scottish Cabinet on the independence White Paper and it is envisioned that current UK legislation that applies to Scotland (such as the relevant parts of the Insolvency Act 1986) will simply be adopted wholesale. While there might be specific problems—for instance, would the right of an English liquidator to deal with Scottish assets without further court authorisation continue?—I am sure resolving these would form part of the transition process envisaged.

What is the possible impact on restructuring deals if post-independence Scotland is not a member of the EU?

As I understand it, any law that had direct effect, such as regulations or court precedents, would simply immediately cease to be relevant. Whereas any indirect law—for instance directives implemented into UK law by legislation or statutory instrument—would continue to apply. This would mean there would no longer be automatic recognition of insolvency proceedings where the centre of main interest (COMI) was in another EU member state under the EU Regulation of Insolvency Proceedings (EC) 1346/2002, including the rest of the UK. This could lead to a lot of confusion but the same situation would arise if the UK (as then constituted) withdrew from the EU after the referendum promised for 2017.

Do you think an independent Scotland would seek to amend the main insolvency legislations currently in force in the UK?

Yes. Personal insolvency was one area devolved to the Scottish Government under the Scotland Act 1998 and, since then, we have seen a number of laws passed which have led to a distinctive Scottish approach—such as the Debt Arrangement Scheme. There are strong rumours currently that the Accountant in Bankruptcy (AIB) will seek increased functions in an independent Scotland, including taking on the role of the Official Receiver (which currently does not exist here).

Although it wouldn’t happen immediately, I would expect given the passage of time there would be changes to the corporate insolvency regime north of the border. In particular, I am aware the AIB is keen to make the provisions of the Debt Arrangement Scheme available to businesses and this would be easier if there was one authority responsible for all forms of insolvency.

Are you expecting to see a number of restructuring deals being pushed through before the vote on 18 September 2014, or before the end of the 18 month transition period?

Insolvent restructurings tend to be driven by events, a cash flow crisis or the withdrawal of bank support and, accordingly, I wouldn’t expect the number of these to be affected by external political matters. In the event, however, that Scotland does vote for independence then I can see a lot of UK companies with businesses throughout the UK setting up separate companies in each jurisdiction. For instance, an English based company transferring assets to a new Scottish registered subsidiary (and vice versa). I therefore think there would be a lot of solvent restructurings in the 18 months following a ‘Yes’ vote.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Filed Under: Market news , Reform

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