The EU Insolvency Regulation (Recast) (848/2015) applies since June 2016 to 26 member states (all, except Denmark). In these states more than 100 different collective insolvency proceedings can be used, by natural persons or by companies. Some countries only provide for one such insolvency proceeding (Bulgaria, Croatia), in other countries two proceedings can be opened (Estonia) or three (The Netherlands, Finland, Sweden)), four (Spain, Germany), five (France, United Kingdom, Greece), six (Austria, Malta), seven (Italy), eight (Belgium) or even ten (!) (Ireland) are available. Categorising these proceedings requires, in addition to language skills, a solid understanding about these proceedings’ goals and requirements and the way they function in the respective general national law system (including its contract, company and labour laws). Evidently, the European Parliament’s call in 2011 for harmonisation of national corporate insolvency law has triggered more focused comparative studies. Insolvency law, however, has been regarded until recently as untouchable. In the field of national rules relating to restructuring and insolvency there is hardly any comparative tradition. In conversations the use of the H-word (for ‘harmonisation’) was a crudeness. It’s only since some seven years that in this area of law comparative research has been commenced and gradually has gained in depth, but the number of studies is still rather limited. The book of Gerard McCormack and Reinhard Bork (Eds.), Security Rights and the European Insolvency Regulation, Cambridge: Intersentia, 2017 (700 pages; ISBN: 9781780683171) The book at hand is a welcome addition to the still rather empty shelf.
The book is welcome too, as it does not focus on an insolvency technicality, but it goes right to the heart of the inherent conflicts in insolvency law, the place of security rights and their nearly sacrosanct position in relation to unsecured rights (many times these are the rights of ‘small’ business creditors). That’s the legal perspective. The economic reality is that security rights are of fundamental importance to the granting of credit. A security right for a creditor (e.g. a bank) generally lowers the cost for business to finance operations. The study, the results of which are presented in the book, assesses the concept of security rights according to the different European legal traditions. The book, furthermore, evaluates the appropriateness of the protection given to security rights in the light of the objective of the Insolvency Regulation to facilitate the more effective administration of cross-border insolvency cases as well as the position of these rights in the context of the basic principles of ensuring fairness between creditors.
The book is split in two parts. The first part contains four chapters with comparative analysis and the second part, covering two/third of the book, presents national reports providing answers to a questionnaire of 28 (!) questions. Surprisingly, as the title of the book does not disclose so, the analysis and the national reports also cover avoidance laws (faillissementspauliana, Insolvenzanfechtung, transaction avoidance, nullité), as the editors wish to cover advantages gained by creditors in the period immediately before formal insolvency proceedings are instituted. Indeed, it touches upon the area of potential unfairness to other creditors who may be forced into taking enforcement proceedings against the debtor. An avoidance action, however, is not limited to security rights and their meaning may be rather different within a restructuring taken place outside formal insolvency proceedings. The results of the study in the book augment to the very many suggestions and options presented in literature during the last decade. The attractiveness of the book lays in the theme of security rights.
In the first part, the first chapter covers security rights under Article 5 of the original Insolvency Regulation (1346/2000) and the nearly similar Article 8 of the Recast. It is a fine piece of some 40 pages using cases and literature from around seven jurisdictions and it suggests options for reform also based on important soft laws, such as the UNCITRAL Legislative Guide and model laws related to secured transactions. Chapter 2 does the same for transaction avoidance, although the use of soft laws seems more limited here. Chapter 3 (‘Security rights, national laws and possible reforms’) brings into play the aforementioned national reports. It is noted here that the national reports date from around the midst of 2016. The editors do not take these reports themselves into account, rather develop on their basis a classification or an arrangement of legal families, resulting in four of these, the Germanic Legal System (Germany and Austria), the Common Law System (England and Ireland), the Roman Legal System (Spain, Italy and France) and the Central and Eastern European Systems (Hungary, Poland and Lithuania). This approach has at least three flaws. To have a view on the EU, it loses out on the Nordic, the South-East and the Low Countries region. Combining or mixing national laws into families many times does not take into account differences which may exist in such hardcore themes as security rights and transaction avoidance. By doing so the result necessarily ends in a rather abstract norm, insufficiently connected to the nitty gritty detail, always so important in creating and executing security rights or applying transaction rules, including its inherent rules of evidence. Thirdly, the mere fact of insolvency is the litmus test of any civil law system. The domestic civil law systems may in one way or the other belong to a family, the response to the incident of insolvency and how to allocate financial loses to the interested parties involved (secured creditors, unsecured creditors, the tax authorities) may well lead to another categorisation.
This 60-pages chapter also takes into account World Bank’s policy indicators in ‘getting credit’, soft laws on secured transactions and possible convergence between laws of the member states, more specifically the provisions on proprietary securities in the Draft academic European Common Frame of Reference (DCFR) on European private law. The editors have so much on their plate that they do not provide clear cut answers, rather develop analysis and evaluation of certain themes in the light of mainstream traditions.
This very broad comparative study includes analysis and evaluation of the laws on secured rights demonstrating rather divergent views across the EU regarding the extent to which it should be possible to create security rights over assets. It presents a broad array of options and solutions which might spark further thoughts and innovations. It deeply goes into the meaning of Article 5 of the EU Insolvency Regulation 1346/2000, now nearly similar Article 8 Recast. It analyses also the many differences countries have when defining a ‘right in rem’ and its effects. The full study may assist members states in enhancing their domestic laws or possible law reform. It should be read by representatives of the banking industry and economists, many times confusing insolvency with pure asset liquidation. In the academic world it will allow for discussion and circulation of ideas. A next step in the area of security rights and insolvency could be to discuss and formulate certain recommendations of principles in this field, as such principles will make the debate and the use of its results more precise. In this regard it is to be regretted that the editors’ views have not been presented (at least not explicitly, the book is from May 2016) and connected to the ‘predecessor’ of the November 2016 European Commission Proposal for preventive insolvency frameworks, the Recommendation on this topic from March 2014.
Any harmonisation confronts us with a decision on the content of such a harmonised rule and therefore with the necessity of developing a common understanding about the goals of such rules and therefore a European debate on insolvency, including restructuring, theory. Who would ever have thought insolvency would be enthusiastically welcomed? European law has an impact on cross-border business and it will have more so in the imminent future. The book is especially important in where it marks a shift in the debate from the question of the feasibility of further harmonisation of insolvency laws to the elaboration of proposals for possible harmonisations.
This is the draft text of a book review, forthcoming in Common Market Law Review, Kluwer Law International, probably the June 2018 issue, by Professor em. Bob Wessels, University of Leiden