UK to sign up to Hague 2019 - a cross-border boost for schemes?

UK to sign up to Hague 2019 - a cross-border boost for schemes?

UK to sign up to Hague 2019 - a cross-border boost for schemes?

The government recently published its response to its earlier consultation on the Hague Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (Hague 2019 or the convention).

Hague 2019 aims to provide a framework of rules facilitating the recognition and enforcement of civil judgments across jurisdictions. Since Brexit, the UK no longer benefits from the European recognition framework in relation to civil judgments as set out in the Recast Brussels Regulation. The European Commission has blocked the UK’s accession to the Lugano Convention. The Brussels and Lugano Conventions do not apply to insolvency related judgments, but the UK is also no longer party to the EU’s Recast Insolvency Regulation.

What is Hague 2019?

Hague 2019 (not to be confused with the 2005 Hague Convention relating to exclusive choice of court agreements) is an international convention offering a common framework for the recognition and enforcement of civil and commercial judgments between contracting states. A judgment will be capable of being recognised and enforced in the courts of another contracting state provided that it meets certain eligibility criteria, and falls within the scope of the convention. Refusal to recognise or enforce an eligible judgment will only be permitted on certain specified grounds, including where it would be manifestly incompatible with the public policy of the recognising state.

Which countries are members?

The convention entered into force in relation to the EU countries and Ukraine on 1 September 2023. Several other countries, including the US, signed and/or ratified the Convention. The Convention allows for a 12 month period post-signature during which contracting states can issue a notification to the effect that ratification by another state will not have the effect of establishing relations between the two states under the convention.

Does Hague 2019 apply to judgments in insolvency proceedings?

Matters related to insolvency (along with certain other matters such as family law and intellectual property) are excluded from the scope of the convention. It will not be capable of being used to obtain recognition of insolvency proceedings, or judgments within such proceedings (specifically, the convention excludes “insolvency, composition, resolution of financial institutions, and analogous matters”). While its interest to insolvency practitioners is likely to be limited, Hague 2019 may still provide benefits in the wider restructuring sphere, particularly in relation to the recognition of schemes of arrangement.

Could Hague 2019 assist with recognition of schemes of arrangement or restructuring plans?

Part 26 schemes of arrangement and the more recently introduced Part 26A restructuring plans are both procedures governed by the Companies Act 2006, enabling a company to make a binding arrangement or compromise with its creditors or members. Both procedures are commonly used in cross-border debt restructuring.

A scheme or a plan is subject to sanction by the English court, and one aspect which the court will consider and need to be satisfied on is whether the scheme or plan will be effective in relevant foreign jurisdictions (for instance, in jurisdictions where the company has creditors which would be affected by the scheme or plan).

The court will rely on expert evidence as to the likely recognition of a scheme or plan in relevant jurisdictions. Certain potential routes to recognition are no longer available post-Brexit (specifically recognition under the Recast Brussels Regulation and the Lugano Convention). Previously, it has been held that a scheme was likely to be recognised in certain EU jurisdictions under the Rome I regulation on contractual obligations, which does not depend on membership of the EU.

Hague 2019 could potentially add another route to recognition of schemes – and another argument to be presented to the English court. Pre-Brexit, schemes of arrangement were considered likely to fall within the scope of both the Recast Brussels Regulation and Lugano Convention for the purposes of recognition. And both Brussels and Lugano exclude insolvency proceedings (specifically “bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings”) from their scope.

The insolvency exception in Hague 2019 does not exactly mirror the wording of the Brussels/Lugano exception, but the reference to insolvency, compositions and analogous matters is substantially similar. If schemes of arrangement were within the scope of Brussels/Lugano (and not excluded due to the insolvency exception), there seems to be a strong argument to be made that they would also fall within the scope of Hague 2019.

The position with regards to restructuring plans, however, is more nuanced. As discussed in our previous article, in the case of Re Gategroup Guarantee Limited, the English court found that a restructuring plan was an “insolvency proceeding” and as a result did not fall within the scope of Lugano. The reasoning behind this decision was that, unlike schemes, restructuring plans are subject to a “financial difficulties” threshold requirement: the company proposing the plan must have encountered, or be likely to encounter, financial difficulties affecting its ability to continue as a going concern, and the proposed plan must be aimed at mitigating such financial difficulties. If a restructuring plan was an “insolvency proceeding” for Lugano purposes, it seems highly likely that it would also be excluded from Hague 2019 by the insolvency exception.

When will the convention be in force for the UK?

The government has stated that it will move to sign the convention as soon as possible. There will then be a period prior to ratification during which the government will put the necessary implementing legislation in place. The convention will enter into force for the UK 12 months after ratification. It is likely therefore that we will be looking at an “in force” date of sometime in 2025.

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