With Gert-Jan Boon, PhD researcher and lecurer at Leiden University, I wrote ‘Soft law instruments in restructuring and insolvency law: exploring its rise and impact, published in the TvOB (Law review on company law and corporate governmant and management, published by Paris publishers in the Netherlands) 2019, nr. 2 (May 2019).
In our aticle we provided an overview of the role of soft law instruments in the field of restructuring and insolvency law. We made a study of the literature on the phenomenon of ‘soft law’, the pros and cons of using soft law and the impact it has has and still has in the field of restructuring and insolvency. After developing a working definition of ‘soft law instruments’, and the ambivalent term of ‘standard-setting organisations’, we review which of these organisations are active in the area of international restructuring and insolvency law and what soft law instruments they have developed. We introduced over ten standard-setting organisations and present the instruments they have developed in the past decades. We found international intergovernmental standard-setting organisations such as UNCITRAL and the World Bank, but, also other global standard-setting organisations such as INSOL Europe, IAIR and International Insolvency Institute (III). Furthermore, there are other regional standard-setting organisations, such as the American Law Institute), the rather new Conference on Restructuring and Insolvency Law (CERIL), European Law Institute (ELI), INSOL Europe and the Nordic-Baltic Insolvency Network.
We also noted several informal standard-setters, which for instance developed non-binding rules in the second decade of this century worked on within the latter Network, the EU JudgeCo Project (www.universiteitleiden.nl) and the CoDiRe Project (www.codire.eu). This shows the great diversity of standard-setting organisations continuing to be active all over the world. Increasingly regional standard-setting organisation and informal standard-setters have become active in the area of restructuring and insolvency law that are contributing to a process of convergence of insolvency laws and practices. Specific attention is given also to restructuring (besides liquidation) and to guidance for courts and insolvency practitioners, on matters of cross-border cooperation and communication.
Evidently, we then reviewed the various advantages and disadvantages of using soft law instruments. We showed that soft law instruments on restructuring and insolvency law lead to less politicised compromises, they provide for more flexibility (compared to hard law), and are developed more quickly and at lower cost. Also, soft law instruments are very suitable for developing ethical (and professional) standards and their use does not diminish a states’ sovereignty. On the other hand, soft law instruments may face a serious problem when interpreting their provisions, they may be hard to find and are non-binding. The soft law instruments usually do not provide for a revision procedure and may risk a lack of due process when the drafting and adoption process is not carefully performed. Furthermore, it may take considerable time before the impact of soft law instruments becomes visible, and when they are used, they may face the problem of ‘incomplete contracts’, such as regarding monitoring and conflict resolution.
Also based on this, we emphasise that soft law instruments can have several roles with respect to hard law instruments. They can (i) complement existing hard law, (ii) be an alternative to hard law, or (iii) conflict with hard law (or even soft law). Still, it must be considered that despite their disadvantages, there has been a significant increase in the number of soft law instruments dealing with international restructuring and insolvency law, more than fifty instruments to date. The sheer number already signals both the interest in soft law (by organisations and by addressees, such as insolvency practitioners and courts) and their relevance. We elaborate on two significant global instruments of UNCITRAL on restructuring and insolvency law: (i) the Model Law (1997), and (ii) the UNCITRAL Legislative Guide (2004, 2010, 2013).
The discussion of these instruments shows the broad scope of these soft law instruments in this area and highlights the enormous impact they have had on legal reforms in the past twenty years, globally. For the study of soft law instruments in the area of international restructuring and insolvency law, time is ripe to add an additional layer to the presence and availability of these instruments. Study of the full body of these soft law instruments is complicated given the practical difficulties to find them and further difficulties to assess their practical impact and relevance.
Therefore, we suggest two questions for further research, in particular addressed to (insolvency) practitioners and judges. First, what are the experiences with regard to the advantages and disadvantages of soft law instruments in practice? Second, to what extent are soft law instruments used, more specifically, to what extent is there awareness of the growing body of soft law instruments and to what extent are they used in practice and or implemented? Responses to these questions will certainly add practical and considerate arguments to a better use of soft law instruments in this area. This will support a better understanding of the development and use of soft law instruments on international restructuring and insolvency law. Let me hear from you at info@bobwessels.nl.