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Welcome / Blog Archive / English / 2016-10-doc12 Should the EU Adopt UNCITRAL Model Law on Cross-border Insolvency?

2016-10-doc12 Should the EU Adopt UNCITRAL Model Law on Cross-border Insolvency?

During the period of discussing and revising what finally resulted in the European Insolvency Regulation (recast), which will be effective law as of June 2017, I had a conversation about the topic whether the European Union itself should adopt the UNCITRAL Model Law on Cross-border Insolvency. INSOL Europe had suggested it in 2012, and as we all know, the proposal was not followed.

But what about today? The main reason for the proposal was that the UNCITRAL Model Law (as such a soft law document) provides a system which is supported by a large part of the global community and contains a two staged system of recognition in an aim to ensure the interests of all parties concerned are adequately protected. INSOL Europe considered, with its suggestion of incorporation, that a unified approach to insolvency proceedings opened outside the European Union would enhance the proper functioning of the internal market and support a unified external trade policy.

Could the proposal work in today’s environment? Out the outset I must make a ‘constitutional’ remark. The Insolvency Regulation is based on Article 81 Treaty on the Functioning of the European Union (TFEU) which concerns itself with matters of judicial cooperation, in the framework of creating an area of freedom, security and justice. Although cross-border judicial cooperation is a main foundation of the Model Law, the further development of an internal market and a uniform approach to trade embody much wider goals, the core being Article 114 TFEU. The EU-constitutional basis is different, which may influence the powers the it has in relation to the sovereignty of Member States.

Now to the question. First it should be noted that the existing EU Insolvency Regulation is not, as is often stated, limited to matters of private international law (conflicts of laws). Several provisions of the EU Insolvency Regulation provide for ‘harmonisation’ or even ‘unification’: such as Articles 7(2) (reservation of title), 20 (return and imputation), 29 (right to request the opening of secondary proceedings), 30 (advance payments of costs and expenses), 31 (duty to cooperate and to communicate), 32 (exercising creditors’ rights), 33 (stay of the process of liquidation in secondary proceedings), 34 (measures ending secondary proceedings), 35 (assets remaining in the secondary proceedings), 39 (right to lodge claims) and 40 (duty to inform creditors). Without many knowing it, ‘harmonisation’ in the EU started in 2002 and is creeping on. Secondly, we should first into account what the present situation in the 28 EU Member States is (note: this article was written before the Brexit/Bremain referendum took place).

In a period of some fifteen years, some forty countries throughout the world have enacted legislation that includes the adoption of the text of the UNCITRAL Model Law, either rather literally or in an amended version. These countries include USA, Mexico, Japan and Australia. Five of these countries are EU Member States, in chronological order of enactment: Romania (2003), Poland (2003) (both prior to their respective EU Membership), Great Britain (England, Wales and Scotland, 2006, Northern Ireland, 2007), Slovenia (2008) and Greece (2010).

However, lawyers should not behave as bean-counters, as in fact several other EU Member States have implemented international insolvency rules which are rather similar to or strongly inspired by the Model Law, for instance the rules in Spain, Germany, Belgium and (the volatile pre-draft in) the Netherlands. Thirdly, quite a number of Member States since 2002 have included rules for international insolvency law to be applied beyond the scope of the Insolvency Regulation. A notable difference with the approach the Model Law takes is that the Austrian, Belgian, German, Spanish, Romanian and Dutch pre-draft rules include an extension of the core of the conflict of law rules as laid down in the EU Insolvency Regulation, to be applicable to non-EU Member States.

However, there are notable differences in these countries’ legislations. Some examples are:

(i) that in the UK, Germany and Greece cross-border cooperation in international cases is discretionary for a court (the court ‘may’),

(ii) that Romania and Spain use reciprocity provisions (related to recognition), as Belgium does (more limited, related to cross-border cooperation),

(iii) that in England and Wales, Scotland and Northern Ireland, and also Slovenia, a concentration of cases in specific courts has been included, taking the decisions in international cases away from the general national rules in favour of the jurisdiction of domestic courts, and

(iv) that Slovenia as well as Greece integrate in their legislative frameworks the possibility of formalisation by the court of cross-border protocols or insolvency agreements, as a form of judicial cooperation.

Already at this juncture it can be observed that the choice for incorporating the Model Law in a Regulation (an EU legal instrument with the effect that it is binding Member States automatically) must be regarded as an error. Both the nature and the original effect of the Model Law (drafted as a supportive soft law tool for individual countries), as well as the fact that certain matters already rather recently have been included in national legislation of Member States (be they followers of the Model Law or having drafted their own systems) would only justify the use of a Directive as the medium for bringing about harmonisation of the laws of the Member States in relation to insolvency proceedings originating in non-EU states.

Now, think about sitting around a table in Brussels, negotiating such a Directive. On the agenda, I imagine, are the following items:

(a) Do we take on board the experience in case law in several of the enacting states? And if so which states? Should the EU learn from the over 600 Chapter 15 cases in the USA? (See the interview with Daniel Glosband in GRR issue 3, discussing recently-proposed amendments to Chapter 15).

(b) How should we deal with tax claims? (as within the EU Regulation these are treated equally).

(c) Should we exclude certain proceedings relating to financial institutions? And if so, in which way?

(d) Can we consider a partial exclusion from the existing Regulation, allowing, for instance, non-EU insolvency office holders and others in proceedings in relation to financial institutions to make use of the provision regarding access or the cooperation provisions?

(e) How can we create an efficient quilt of rules between the Insolvency Regulation, the existing international treaties and agreements and the Directive to be drafted?

(f) What would be the options for the competent courts in non-EU matters, being the courts of the Member States with general jurisdiction, where centralising the court’s competence in these international matters seems more logical? See for instance England (High Court), Scotland (the Court of Session in Edinburgh), Australia (Federal Court of Australia for individuals; the Supreme courts and the Federal Court as for other debtors), Mauritius (Supreme Court), the Netherlands (draft: Court of The Hague) and New Zealand (High Court), and, finally,

(g) Which interpretation provision should be drafted, as sometimes an ‘autonomous interpretation’ has to be given to EU-matters?

Bearing in mind that the originally intended ‘unity’ of terms (such as the bothersome ‘COMI’) only a few years after enactments already have resulted in ‘diversity’ in several jurisdictions all over the world. Who said that drafting international insolvency matters is easy?

* For a much more detailed account of the topic, see Ian F. Fletcher and Bob Wessels, Harmonization of Insolvency Law in Europe, Report to the Netherlands Association of Civil Law, Deventer: Kluwer 2012, and Bob Wessels, International Insolvency Law Part I. Global Perspectives on Cross-Border Insolvency Law, 4th ed., 2015 (with the same publisher).

This is a slightly adapted version of a regular column Bob Wessels is writing for Global Restructuring Review (GRR) on the topic of cross-border restructuring and insolvency in a European context. GRR is a subscription-only publication, but here is a link to the full piece, which appeared in August 2016, on GRR’s website at