Welcome / Blog Archive / English / 2016-01-doc5 To harmonise or not to harmonise insolvency laws in the EU: is that a question?

2016-01-doc5 To harmonise or not to harmonise insolvency laws in the EU: is that a question?

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‘Harmonization is a euphemism for forcing commercially less important countries to adopt the remedies and priorities of the commercially more important countries’, asserts Lynn LoPucki in one of his challenging publications (see Lynn M. LoPucki, Global and Out of Control?, in: 79 American Bankruptcy Law Journal 2005, 79ff.).

Although the author claims ‘global’ application for his quote, he clearly misunderstands the situation in Europe, which for ‘insolvency’ does not have (unlike the USA) a ‘federal’ Bankruptcy Code, nor a federal system of bankruptcy courts. In the USA, Article I, section 8, clause 4 of the U.S. Constitution explicitly vests the authority to regulate ‘bankruptcy’ in the federal Congress, which – fully different compared to the European Union – established a network of federal bankruptcy courts to decide even on matters of state law, without having to defer to state courts.

On the contrary, the starting point in the European Union is that every Member State has its sovereign power to draft, amend and put into force binding legislation, by its very nature confined to the borders of its own territory and that the Treaty on the Functioning of the European Union (TFEU) does not contain an explicit legal basis authorising the Union to adopt measures which aim at the harmonisation or approximation of insolvency laws. Two strong indirect candidates are Article 81(2) TFEU (concerning cross-border judicial cooperation) and Article 114 TFEU (measures ‘… for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market’).

Five years ago I wrote: the H-word is out! Harmonisation of insolvency laws in Europe was out of bounds! See kluwerlawonline.com/abstract.

In 2012, in a report ‘Harmonisation of Insolvency Law in Europe’, following the call for harmonisation by the European Parliament at the end of 2011,  prof. Fletcher (University College London) and I have developed seven key indicators which may assist in identifying parts insolvency laws in which harmonisation may be beneficial, and the working method to achieve such harmonisation. We did submit that these seven criteria – not necessarily in this order and overlaps could occur – may point at a direction to take in the process of developing a legislative skeleton for harmonisation of insolvency law in the EU in the near future.

Now, early 2016 with that process started, it seems appropriate to recall these indicators:

1. Consistency with international norms: strive for consistency with international norms, so any rules will be generally applied in the same way in any member State and/or across the EU;

2. Goals for the EU: agree on the basis allowing the European legislator to act and on the goals that the European legislator set himself to achieve;

3. Take stock: map the present level of harmonisation in all areas of law related to insolvency;

4. Overriding objectives: formulate overriding objectives to take into account, such as offering any involved party a sufficient degree of legal certainty;

5. Flexible legislation: draft a legal skeleton which is sustainable, including a process which is sufficiently flexible and capable of adapting to changing circumstances in which businesses operate;

6. Need for action: examine whether there is a specific need for a certain action or legislative intervention, and if so, what would be the most suitable course of action and ensure that its result be supported by a wider group that will have to work with it;

7. Balance: any rules of such a skeleton should reflect a fair balance between the (often competing) interests of creditors and other parties concerned.

For an explanation of this method, see: report-vvb-2012-selection-fletcher-wessels-an-agenda-for-harmonisation.pdf