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UK Model Law consultation: full steam ahead for Enterprise Groups, time to reflect on Gibbs for Foreign Judgments Model Law

11 September, 2023
Freshfields USE

On 10 July 2023 the UK government announced the outcome to its consultation on whether (and how) to implement two “model laws” adopted by the United Nations Commission on on International Trade Law (UNCITRAL). These are (i) a partial implementation of the Model Law on Recognition and Enforcement of Insolvency-Related Judgments (the Foreign Judgments Model Law) through the adoption of “Article X” and (ii) the Model Law on Enterprise Group Insolvency (the Group Model Law).

The government intends to introduce legislation to implement the Group Model law at the earliest opportunity.

The UK would be the first country to adopt the Group Model Law. It could prove a useful tool in complex cross-border insolvencies. Practically, however, in order to work efficiently, the Group Model Law needs to have been implemented by the other jurisdictions concerned by the group insolvency proceedings. No country has yet implemented the Group Model Law, and, therefore, its immediate impact is likely to be rather limited. However, over 40 countries have implemented the Cross-Border Model Law, which suggests that several countries may follow the UK’s lead. The Group Model Law is more wide-reaching and flexible than the group insolvency provisions under the European Insolvency Regulation, which have not been widely used, and it therefore seems more promising in its application.

In relation to the Foreign Judgments Model Law, while the government remains of the view that enacting it will enhance the UK’s highly regarded insolvency regime the government will continue to develop the detail of the implementation proposal, to ensure that issues that have been raised (foremost: the rule in Gibbs) are resolved before proceeding.

Taking pause to reflect on the precise implementation of the Foreign Judgments Model Law is to be welcomed. The Insolvency Service confirmed that based on the feedback received, they are of the view that the approach to implementation outlined in the consultation (namely by adopting Article X rather than the full Foreign Judgments Model Law) is in broad terms the correct one. But the government has taken on board feedback that the precise implementation will benefit from further thought and clarity. Further thought will in particular need to be given to the interaction of Article X and the rule in Gibbs. This provides that obligations governed by English law cannot be discharged by foreign law proceedings. Rather, they can only be discharged under English law or where the creditor agrees to the foreign law discharge of the obligations owed to them. The rule in Gibbs gives parties contracting under English law greater certainty of outcomes, which helps English law governed contracts maintain their widespread international use. We welcome the opportunity to start the policy discussions on the rule in Gibbs, not least with the Insolvency Service conference’s Forward Thinking conference in November.

You can read more about the Foreign Judgments Model Law and the Group Model Law here.