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2016-02-doc6 Nordic-Baltic Recommendations on Insolvency Law

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The Nordic-Baltic Insolvency Network was established in 2010. The network contains five EU Member States (Sweden, Finland, Estonia, Latvia and Lithuania) and two other countries: Norway and Denmark. The main reason for its establishment was the financial crisis that the Baltic States had endured. It revealed that there were considerable differences not only between these countries’ insolvency systems, but also between theirs and the Nordic region. This diversity was regarded as unjustifiable and not appropriate as it had a negative effect on willingness to invest in this part of Europe.

The main purpose of the network therefore has been to encourage efforts towards the substantive harmonisation of insolvency law. The thought behind the network is to strengthen the Nordic and Baltic States’ participation and influence within such a process for the purpose of arriving at the first stage of developing common principles, which are suitable and much needed, in key areas where substantial legal differences can be found to exist.

In autumn 2015 a final draft of the Nordic-Baltic Recommendations on Insolvency Law was presented. In this way the regional initiative to harmonise restructuring and insolvency laws is unique, be it that the alignment with the European Commission’s March 2014 Recommendation to the Member States to harmonise certain matters on insolvency law (see my blog leidenlawblog.nl/articles/a-new-approach-to-business-failure-and-insolvency) will be the object of further study. What the Nordic-Baltic Recommendations have in common with the EC’s initiative is that the emphasis lies on reorganisation law, as the legislation in the Nordic-Baltic region that has developed over the last 25 years has had hardly any consideration for the regulations of neighbouring countries.

In light of the interaction between the regulations for liquidation and reorganisation, the Network (some 40 academics and practitioners from the seven countries, chaired by Erik Selander of DLA Piper Stockholm) also developed recommendations on important liquidation issues. The result of the Network is certainly worth looking at. After listing eight overall objectives and features of an effective and efficient insolvency law, it formulates recommendations on a whole range of topics that – when comparing European countries – are different in nearly every respect:

(1) application and commencement of insolvency proceedings,
(2) representatives’ liability due to the continued operation of insolvent companies,
(3) immediate legal effects of the commencement decision,
(4) treatment of the debtor’s contracts,
(5) treatment of pending lawsuits in liquidation proceedings,
(6) recovery to the estate,
(7) insolvency claims,
(8) the order of priority regarding insolvency claims,
(9) proof of debt procedure,
(10) treatment of post-commencement claims,
(11) administration of insolvency proceedings,
(12) the reorganisation plan,
(13) treatment of environmental claims in insolvency proceedings,
(14) treatment of groups of companies in insolvency proceedings, and
(15) short-term protection of voluntary restructuring negotiations.

The Nordic-Baltic Network is not unambitious. The whole amalgam of seven national countries’ characteristics of insolvency law have been couched in one set of non-binding recommendations and it will be difficult to find one missing. The first objective of effective and efficient insolvency law, as envisaged by the network, is: ‘The general objective of insolvency law is to maximize efficiency of the economy by facilitating trade and supporting an effective credit system and a favourable investment climate.’ What is so typical in insolvency law (its function to protect a creditor’s interest) is missing. Insolvency law is presented as a building block in the economy, to support the general welfare, an inherent element of the (European and national) market.

Also the second objective is not creditor focused, but instead places the debtor company at the centre of attention (‘Insolvency law shall provide a transparent, predictable and cost-effective set of rules that allows, based on the circumstances of the individual case, the preservation and maximising of the value of the debtor’s assets by enabling, on the one hand, reorganisation of viable businesses and, on the other hand, rapid liquidation of businesses that have no prospect of survival). Suffice to say, we can expect vivid discussions, not only between insolvency scholars and practitioners, but also when national legislatures are confronted with these rules, in their effort to amend laws based on the European Commission’s and the Nordic-Baltic Recommendations.

See for the text of the Nordic-Baltic Recommendations on Insolvency Law: www.swedishbankers.se