Path Dependent Obstacles to Cross-Border Insolvency: a Social Darwinian Perspective (original) (raw)
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The coordination of legal systems is a concept that has occupied the minds of legislators, political leaders and legal academics for centuries, particularly with a view towards facilitating business across borders. Within the European Union, coordination has been achieved to some extent in those legal areas which deal with the free movement of goods and capital in pursuit of free trade within the Common Market. The EU Insolvency Regulation2 is one of many attempts to coordinate the way in which member states work together on commercial matters in cross border business relationships. While it has set out rules through which cross border insolvencies can be managed, there remain gaps between the individual insolvency systems of the member states which make it more difficult to coordinate insolvency procedures than if they were more closely aligned. Definitions, derogations, procedural purpose and even the fundamental aims of insolvency remain divergent among the legal systems of the EU. This disparity between the aims of insolvency is one obstacle to cross border cooperation but the disparities themselves are influenced by factors endemic to the jurisdictions within which they are found. There are complex factors which exist within the social histories of each member state which contribute to the diversity of aims of legal regulation, among which are legal origin or regulatory style, the concept of freedom of contract, industrialisation and collectivism, economics, politics and human rights. An examination of each of these themes among a number of others in relation to their effect on the development of legal rules and their fundamental aims are explored in detail in the thesis to which this paper is related.3 For the purpose of this paper, focus will be applied to the complexity of diverse legal development in the social policies and regulation of member states, which has an effect on the aims of insolvency law in the weight of protection given to creditors or other stakeholders such as employees. By way of example, the United Kingdom and France will be used as comparators.
Social Policy and the Reform of the European Insolvency Regulation
Social policy is an element of modern European Union legal culture which is commonly seen as running in parallel to discussions of insolvency systems, not to intersect in any meaningful way. Social policy legislation does, however, have an effect on how insolvency systems will function in practice. Ignoring social policy issues limits the perspective of legislators and reformers when considering how insolvency law and more particularly business rescue can be effective within the European Union when crossed with member state and EU requirements of employee protection legislation. While such a matter is not strictly the prevue of EU insolvency law in its current scope, there are practical matters affecting how a pan European rescue culture can function with the greatest efficiency where the conflicting goals of insolvency and the employment protection are not recognised and, to some extent, managed. Underpinned by traditionally opposing socio political values, the juxtaposition of insolvency law and employment protection is difficult to reconcile. However, in these times of financial crisis and its slow recovery, business failures and unemployment are both at the forefront of economic concerns. The EU has made its mark in this area with the Acquired Rights Directive which contains provisions dealing with the transfer of employment contracts in the event of a business transfer, including those transfers which occur during corporate rescue procedures. While implementation of the Directive was left to the Member States and a number of derogations were available, the application of employee transfer provisions in corporate rescue procedures has not failed to cause controversy over the 36 years since its initial implementation. Many EU and national cases have caused further complications. The cooperation of the Member States in matters of insolvency also has a long history. It has been a 40 year project evolving in complexity and cooperation as the EU has expanded and changed. The culmination is the EU Insolvency Regulation which deals with how cross border insolvency should be managed between the Member States. The amendments proposed by INSOL Europe to the EIR are aimed at furthering the proper functioning of the Regulation by amending substantive aspects and improving technical rules. Among the fundamental issues to be resolved is the ease with which companies can “forum shop” among Member States to identify a jurisdiction providing the most advantageous environment to commence insolvency proceedings. However, the EU goal of reducing forum shopping overall is not helped by the existence of divergent rules of employment protection. While there are wide implications in relation to the interaction of employee protection regulations, the EIR and its reforms, for the purpose of this paper only the interaction between business rescue procedures and acquired rights provisions in the United Kingdom and France will be discussed.
The European Parliament, after a lengthy debate, has eventually approved a reform of Regulation 1346/2000 on cross-border insolvency proceedings (hereinafter, the ‘Insolvency Regulation Recast’), which provides for significant innovations in the original Regulation, such as an EU-wide register of insolvencies and a new proceeding for insolvencies of corporate groups. The fundamental logic of the Regulation, however, does not change: the Recast does not harmonise insolvency rules at EU level and its goal is still selecting competent venues and applicable insolvency regimes. In many respects, the reform simply codifies CJEU’s case law, with the aim of increasing legal certainty. The Insolvency Regulation Recast is, however, innovative regarding the definition of COMI, by repealing the causality relation between criterions of ‘permanence’ and ‘ascertainability’. Eventually, the Recast aims at better coordinating secondary proceedings and main proceedings; in this regard, it introduces ‘synthetic secondary proceedings’, whereby the insolvency practitioner of the main proceeding undertakes to respect other Member States distributional criterions in order to avoid the opening of a secondary proceeding. The real impact of these innovations is, however, uncertain.
European Insolvency and Social Policy: Harmonisation Woes
Underpinned by traditionally opposing socio political values, the juxtaposition of insolvency law and employment protection is difficult to reconcile. However, in these times of financial crisis and its slow recovery, business failures and unemployment are both at the forefront of economic concerns. The European Union has made its mark in this area with the Acquired Rights Directive which contains provisions dealing with the transfer of employment contracts in the event of a business transfer, including those transfers which occur during corporate rescue procedures. While implementation was left to the Member States and a number of derogations were available, the application of employee transfer provisions in corporate rescue procedures has not failed to cause controversy over the 36 years since its initial implementation. Many EU and national cases have caused further complications. The cooperation of the Member States in matters of insolvency also has a long history. It has been a 40 year project within the European Community/Union evolving in complexity and cooperation as the EU has expanded and changed. The culmination is the EU Insolvency Regulation which deals with how cross border insolvency should be managed between the Member States. INSOL Europe has recently proposed amendments to the Insolvency Regulation aimed at furthering the proper functioning of the Regulation by amending substantive aspects and improving technical rules. Among the fundamental issues to be resolved is the ease with which companies can “forum shop” among Member States to identify a jurisdiction providing the most advantageous environment to commence insolvency proceedings. However, the EU goal of reducing forum shopping overall is not helped by the existence of divergent rules of employment protection. The purpose of this paper is to discuss how the recommended reforms to the EU Insolvency Regulation affect the application of acquired rights in business transfers, with specific comparisons between the UK and France, and how the lack of cohesiveness in acquired rights implementation may indicate a need for harmonisation in this area of the law in order to prevent an insidious species of forum shopping – social dumping.
European Insolvency Law: Development, Harmonisation and Reform - A Case Study on the Internal Market
Trinity College Law Review , 2015
This article generally focuses on the efforts at EU level to provide a legal framework for dealing with cross-border bankruptcies, notably through the European Council Regulation on Insolvency Proceedings of 2000. This article aims to explore the issue of the harmonisation of corporate insolvency and rescue law at European level, and the tensions between different solutions for the reform of cross-border insolvency and business rescue.