The draft agreement on the UK’s withdrawal from the EU was ratified and entered into force at the end of January 2020. Even though the UK has now officially left the EU, the Withdrawal Agreement provides for a transition period up to 31 December 2020. This period allows the UK to continue its current relationship with the EU while a future trading relationship and security co-operation is negotiated.

The terms of the Withdrawal Agreement allow for the extension of this transition period by up to two years. In order for this period to be extended, however, there must be agreement upon on the length of any extension before 1 July 2020. Interestingly, the UK government does not use the term transition: instead it prefers to refer to this period as an “implementation period”.

Nonetheless, during this transition period, EU rules and regulations will continue to apply to the UK and the UK will remain part of the EU’s Single Market and Customs Union.

Measures relevant to creditors

It seems that creditors were not forgotten by the negotiators of the Withdrawal Agreement. The document itself provides for on-going judicial cooperation in civil and commercial matters during the transition period. Importantly, from a creditor’s point of view, these include:

• The Brussels I Recast Regulation^[1], which caters for matters relating to jurisdiction, as well as enforcement and recognition of judgments, and

• The European Enforcement Order^[2] and European order for payment procedures Regulations^[3]

Protect your position now

It is worth pointing out though that under the Withdrawal Agreement, the rights that EU creditors supplying goods/services on credit to UK customers and vice versa – continue to have under those EU Regulations – will only apply to during the transition period. Accordingly, if a debt is currently due, or becomes due during 2020, a creditor should take all appropriate measures under EU law, without delay, to protect their rights.

This may involve for example:

• Applying to a relevant central authority on or before 31 December 2020, for a European order for payment, or

• issuing legal proceedings in a given jurisdiction based on the Brussels I Recast Regulation, during the transition period.

After the transition period ends, there will be changes to how creditors, among so many others, trade with Britain.

If a creditor cannot rely on EU legislation, what can it do?

In the absence of any agreement whatsoever, if the benefits of EU Regulations cannot be invoked by EU-based creditors dealing with UK debtors or vice versa, then those creditors may be forced to contemplate issuing legal proceedings in the jurisdiction where the debtor is based. This will undoubtedly be much more expensive than the current regime. However, there are other practical considerations which could help these creditors, such as

• Putting cross border credit insurance in place
• Assignment/sale of debt, perhaps to an inter-group entity in the UK, if the creditor’s corporate structure permits
• Revision of existing credit terms, e.g. to obtain cash up front/on account, stage payments before goods/service supplied, etc.

Comment - Political Declaration

Interestingly, the Political Declaration^[4] setting out the framework for the future relationship between the European Union and the United Kingdom, which accompanied the Withdrawal Agreement, did not make reference to on-going judicial cooperation in civil and commercial matters. The EU and the UK are currently commencing negotiations on a new Future Relationship agreement which, if agreed, is due to come into effect from 1 January 2021. This is just 10 months away and many perceive a negotiated solution upon the future supply of goods and services, to be a tall order.

Nonetheless, the Political Declaration did stress the fact the EU and the UK have a particularly important trading and investment relationship. It contains, as creditors are only too-well aware, complex and integrated supply chains. As a result, there is a desire on both sides to develop “an ambitious, wide-ranging and balanced economic partnership” that must, out of necessity, respect each other’s creditors’ rights. Like so many other Brexit factors, how exactly this will be achieved, following the transition period, will be of great interest to EU, particularly Irish, creditors.

For as long as creditors have the benefit of the existing range of EU remedies to assist their debt collection activities, during the transition period, they would be well advised to use them to pursue current debt owed by UK creditors. Creditors should also consider what they might do in the absence of these legislative mutual assistance measures similar to those outlined above.

For more information, contact a member of our Debt Recovery team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.