We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.
Published online by Cambridge University Press: 16 November 2016
Cross-border transactions and resultant legal proceedings often cause problems. One major problem is knowing which law should govern the transaction and any legal proceedings. Cross-border insolvencies in the EU are subject to the European Regulation on Insolvency Proceedings (EIR) but this legislation does not determine which substantive insolvency law rules apply in a given insolvency. There are many differences in the insolvency rules applicable in the various EU Member States and this has caused concern in relation to the avoidance of transactions entered into by an insolvent prior to the opening of insolvency proceedings. In light of this, the paper examines options to address divergence between national avoidance rules. One option, harmonization, is analysed as well as its possible benefits and drawbacks.
1 Council Regulation on Insolvency Regulations (EC) (1346/2000), 29 May 2000, Recital 5 (recast).
2 Although Tung referred to the Regulation as providing for a territorialist scheme with universalist pretentions: Tung, F, ‘Is International Bankruptcy Possible?’ (2001) 23 MichJIntlL 31, 77Google Scholar.
3 Council Regulation on Insolvency Regulations (EC) (1346/2000), 29 May 2000, Recital 8.
4 Seagon v Deko Marty Belgium NV (Case C-339/07) [2009] BCC 347, [59].
5 Described by Eidenmüller, Horst as making overly modest changes: ‘A New Framework for Business Restructuring in Europe: The EU Commission's Proposals for a Reform of the European Insolvency Regulation and Beyond’ (2013) 20 MJ 133, 150Google Scholar. For a recent discussion of the recast regulation, see Weiss, M, ‘Bridge over Troubled Water: The Revised Insolvency Regulation’ (2015) 24 International Insolvency Review 192 Google Scholar; McCormack, G, ‘Something Old, Something New: Recasting the European Insolvency Regulation’ (2016) 79 MLR 121 CrossRefGoogle Scholar.
6 See art 16 of Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) Official Journal of the European Union, L141/19, 5 June 2015.
7 Seagon v Deko Marty Belgium NV (Case C-339/07) [2009] BCC 347, [59].
8 McCormack (n 5).
9 Bos, T, ‘The European Insolvency Regulation and the Harmonization of Private International Law in Europe’ (2003) NILR 31, 33 Google Scholar.
10 ibid 52.
11 Wessels, B, ‘Harmonization of Insolvency Law in Europe (2011) 8 ECL 27 Google Scholar, 27.
12 See European Commission, DG Justice and Consumer Affairs, ‘Study on a new approach to business failure and insolvency’ Tender No JUST/2014/JCOO/PR/CIVI/0075, 1 January 2016. <http://ec.europa.eu/justice/civil/files/insolvency/insolvency_study_2016_final_en.pdf>.
13 This is not meant to refer only to those who wind up companies in liquidation but to all those qualified to oversee the affairs of an insolvent company. The use of ‘liquidator’ as in the EC Regulation on Insolvency Proceedings is adopted. The Regulation provides in art 2(b) that a liquidator is a person or body whose function is to administer or liquidate assets of which a debtor has been divested or to supervise the administration of the debtor's affairs. In Annex C ‘liquidator’ covers a host of roles that are played by those who administer the estates of insolvents. The recast of the Regulation omits reference to liquidator and substitutes the more neutral term, ‘insolvency practitioner’. See art 2(5) (Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) Official Journal of the European Union, L141/19, 5 June 2015.
14 There has been significant criticism of the COMI concept as providing the foundation for the opening of main insolvency proceedings (see eg Szydlo, M, ‘Prevention of Forum Shopping in European Insolvency Law’ (2010) 11 EBOR 579 Google Scholar; McCormack, G, ‘Jurisdictional Competition and Forum Shopping in Insolvency Proceedings’ (2009) 68 CLJ 213 CrossRefGoogle Scholar), and the recast Regulation has endeavoured to address some of them. For perhaps the leading cases on this issue, see Re Eurofood IFSC Ltd (Case C-341/04); [2006] ECR 1–701, [2006] BCC 397, [2006] BPIR 661; EC Interedil Srl v Fallimento Interedil Srl ((C-396/09); [2011] BPIR 1639.
15 Seagon v Deko Marty Belgium NV (Case C-339/07) [2009] BCC 347, [39].
16 For example, see European Commission, DG Justice and Consumer Affairs (n 12) 168–77.
17 Art 13 of the EIR that is presently in effect (until June 2017).
18 H Roby, Private Roman Law (CUP 1902) 273.
19 Seagon v Deko Marty Belgium NV (Case C-339/07) [2009] BCC 347, [26].
20 See J Moyle, Imperatoris Iustiniani Institutiones (Clarendon Press 1949) 547. Other writers demur to this viewpoint. For instance, see Roby (n 18).
21 Seagon v Deko Marty Belgium NV (Case C-339/07) [2009] BCC 347, [26].
22 A theory popularized by Jackson, Thomas: The Logics and Limits of Bankruptcy Law (Harvard University Press 1986)Google Scholar.
23 Finch, V, ‘Directors’ Duties: Insolvency and the Unsecured Creditor’ in Clarke, A, Current Issues in Insolvency Law (Stevens 1991) 87Google Scholar; Warren, E, ‘Bankruptcy Policymaking in an Imperfect World’ (1993) 92 MichLRev 336 Google Scholar, 353; McCoid, J, ‘Bankruptcy Preferences and Efficiency: An Expression of Doubt’ (1981) 67 VaLRev 249, 260Google Scholar; Keay, A, ‘In Pursuit of the Rationale Behind the Avoidance of Pre-Liquidation Transactions’ (1996) 18 SydLR 56 Google Scholar.
24 The most prevalent exception that is found is that the employees of the insolvent are entitled to be paid a part or all of outstanding wages owed to them before other creditors are paid.
25 McCoid (n 23) 271; Ward, T and Shulman, J, ‘In Defence of the Bankruptcy Code's Radical Integration of the Preference Rules Affecting Commercial Financing’ (1983) 61 WashULQ 1, 16Google Scholar. Recital 21 to the EIR provides that equal treatment of creditors is an important element of the Regulation.
26 A Keay, Avoidance Provisions in Insolvency (Law Book Co 1997) 35.
27 EU Briefing Note, ‘Harmonization of Insolvency Law at EU Level: Avoidance Actions and Rules on Contracts’ (2011) 11.
28 Westbrook, J, ‘Two Thoughts About Insider Preferences’ (1991) 76 MinnLR 73, 77Google Scholar; Keay (n 23).
29 EU Briefing Note (n 27).
30 If this is the case then the outcome is clearly inefficient: Mucciarelli, F, ‘Not Just Efficiency: Insolvency Law in the EU and Its Political Dimension’ (2013) 14 EBOR 175, 179Google Scholar.
31 Piñeiro, L, ‘Towards the Reform of the European Insolvency Regulation: codification rather than modification’ (2014) 2 Nederland Internationaal Privaatrecht 207, 212Google Scholar.
32 European Commission, ‘Commission Recommendation of 12.3.2014 on a new approach to business failure and insolvency’ C(2014) 1500 at <http://ec.europa.eu/justice/civil/files/c_2014_1500_en.pdf>.
33 Seagon v Deko Marty Belgium NV (Case C-339/07) [2009] BCC 347, [26].
34 Art 4 of the EIR that presently applies (until June 2017)
35 The law of the place where insolvency proceedings have been opened
36 Recital 24 of the EIR that presently applies (until June 2017)
37 Report on the Convention of Insolvency Proceedings (the Virgos-Schmit Report) para 138.
38 ibid, para 136.
39 Fletcher, IF, Insolvency in Private International Law (2nd edn, OUP 2005) 401CrossRefGoogle Scholar.
40 J Alexander, ‘Avoid the Choice or Choose to Avoid? The European Framework for Choice of Avoidance Law and the Quest to Make it Sensible’ (March 2009) <http://ssrn.com/abstract=1410157> 16.
41 ibid 16–17.
42 Virgos-Schmit (n 37) para 137.
43 Nike European Operations Netherlands BV v Sportland Oy C-310/14, [2016] 1 BCLC 297 [25], [31], [38], [42].
44 C-557/13, [2015] EUECJ, [2015] BCC 413, [30].
45 The second decision was: Nike European Operations Netherlands BV v Sportland Oy C-310/14; [2016] 1 BCLC 297.
46 C-557/13, [2015] EUECJ, [2015] BCC 413, [47], [53].
47 ibid [49].
48 Nike European Operations Netherlands BV v Sportland Oy C-310/14, [2016] 1 BCLC 297.
49 Art 47 of the Bankruptcy Act
50 C-310/14, [2016] 1 BCLC 297, [20].
51 ibid [25], [31], [38] and [42].
52 ibid [25].
53 ibid [27] and [43].
54 C-310/14, [2016] 1 BCLC 297, [43].
55 ibid [44].
56 P Rott, ‘The Court of Justice's Principle of Effectiveness and Its Unforeseeable Impact on Private Law Relationships’ in D Leczykiewicz and S Weatherill (eds), The Involvement of EU Law in Private Law Relationships (Studies of the Oxford Institute of European and Comparative Law, Hart Publishing 2013); K Lenaerts, ‘Effective judicial protection in the EU’ <http://ec.europa.eu/justice/events/assises-justice-2013/files/interventions/koenlenarts.pdf>. This is a way of upholding the primacy of EU law and restricting the scope of national procedure law: I Lianos, ‘The Principle of Effectiveness, Competition Law Remedies and the Limits of Adjudication’ (2014) CLES Research Paper No 6/2014 available at <http://ssrn.com/abstract=2542940>.
57 VAT Directive.com, ‘Effectiveness and equivalence’ <http://www.vatdirective.com/EU-domestic-VAT-Manual/1-9-effectiveness-and-equivalence>; DJ Rhee, ‘The principle of effective protection: reaching those parts other [principles] cannot reach?’ BEG/ALBA conference, Athens, 2011, and available at <http://www.adminlaw.co.uk/docs/sc%2012%20Deok%20Joo%20Rhee.pdf>.
58 C-310/14, [2016] 1 BCLC 297, [35].
59 ibid [39].
60 See McCormack, G, ‘Conflicts, avoidance and international insolvency 20 years on: a triple cocktail’ (2013) JBL 141, 156–7Google Scholar; Keay, A, ‘Security rights, the European Insolvency Regulation and Concerns about the Non-application of Avoidance Rules’ (2016) 41 ELRev 72 Google Scholar.
61 McCormack ibid, 157.
62 European Commission, DG Justice and Consumer Affairs, ‘Study on a new approach to business failure and insolvency’ (n 12) 176–82.
63 It has also been supported more recently by the Group for International and European Studies at the University of Barcelona: ‘Proposals on the reform of the Council Regulation No 1346/2000 of 29 May 2000 on insolvency proceedings’, 160 and presented at the Conference on the Future of The European Insolvency Regulation, 28 April 2011, Amsterdam—see <http://www.eir-reform.eu/>; and in S Kolmann, ‘Thoughts on the governing [sic] insolvency law’ presented at the Conference on the Future of The European Insolvency Regulation, 28 April 2011, Amsterdam—see also <http://www.eir-reform.eu/>.
64 Alexander (n 40) 25.
65 In private international law, the system of law applicable to the case in dispute. In the context of this article it would be the law that is applicable to the transaction that is under challenge.
66 P Pfeiffer, ‘Article 13 EIR: Avoidance, Avoidability and Voidness’ in External Evaluations of Regulation No 1346/2000/EC on Insolvency Proceedings, JUST/2011/JVC/PR/0049/A4, para 6.10.3.
67 ibid.
68 ibid.
69 Piñeiro (n 31) 212.
70 McCormack (n 60) 146.
71 ibid.
72 Block-Lieb, S and Halliday, R, ‘Harmonization and Modernization in UNCITRAL's Legislative Guide on Insolvency Law’ (2007) 42 TexIntlLJ 475, 494Google Scholar.
73 Magnier, V, ‘Harmonization Process for Effective Corporate Governance in the European Union: From a Historical Perspective to Future Prospects’ (2014) 41 JLS 95, 105CrossRefGoogle Scholar.
74 Duca, L Del, ‘Developing Global Transnational Harmonization Procedures for the twenty-First Century: The Accelerating Pace of Common and Civil Law Convergence’ (2007) 42 TexIntlLJ 625, 650Google Scholar.
75 Art 99.
76 Moss, G, Fletcher, IF and Isaacs, S (eds), The EC Regulation on Insolvency Proceedings: A commentary and Annotated Guide (2nd edn, OUP 2009) 12Google Scholar.
77 Slot, P, ‘Harmonization’ (1996) 21 ELRev 378, 378Google Scholar.
78 Schulte-Nolke, H, ‘Arbeiten an einem Europaischen Privatrecht – Fakten und populare Irrtumer’ (2009) 62 Neue Juristische Wochenschrift 2162 Google Scholar at 2162 and referred to in Zeller, B, ‘Anatomy of EU contract harmonization: where do we stand?’ (2015) 21 International Trade Law and Regulation 41, 41Google Scholar.
79 Geren, W Van, ‘Harmonization of Private Law: Do We Need It?’ (2004) 41 CMLRev 505 Google Scholar, 505.
80 SWD(2014) 61 final, at 24, <http://ec.europa.eu/justice/civil/files/swd_2014_61_en.pdf>.
81 Dougan, M, ‘Approximation of Laws in the EU’ in Cane, P and Conaghan, J (eds), The New Oxford Companion to Law (OUP 2008) 42Google Scholar.
82 Europeanprofiles SA, ‘EU Legal Approximation’ <http://www.europeanprofiles.gr/index.php?option=com_content&view=article&id=57&Itemid=65&lang=en>.
83 Wessels (n 11).
84 Accessible at: <http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A12008E>. It might be argued that harmonization of avoidance rules might not be able to be seen as promoting rules on civil procedure.
85 Parry, R, ‘The Rationale of the Transaction Avoidance Provisions of the Insolvency Act 1986’ in Parry, R, Ayliffe, J and Shivji, S (eds), Transaction Avoidance in Insolvencies (2nd edn, OUP 2011) 15Google Scholar and referring to Jackson, T, ‘Avoiding Powers in Bankruptcy’ (1984) 36 StanLRev 725, 726Google Scholar.
86 Parry, ibid and referring to World Bank, Principles for Effective Creditor Rights Systems, 2005, c11.3; Ponoroff, L, ‘Evil Intention and Irresolute Endorsement for Scientific Rationalism: Bankruptcy Preferences One More Time’ [1993] WisLRev 1439, 1444–5Google Scholar.
87 Draft Common Frame of Reference Outline Edition 2009, Annex (Definitions) 555 and referred to in American Law Institute and the International Insolvency Institute, ‘Transnational Insolvency : Global Principles for Co-operation in International Insolvency Cases’ (American Law Institute 2012) n 209.
88 FAQ – Origin, Mandate and Composition of UNCITRAL and quoted in in Block-Lieb and Halliday (n 72) 493.
89 Slot (n 77) 379.
90 ibid 382.
91 M Haentjens, ‘Harmonisation of Securities Law: custody and transfer of securities in European private law’ (2007) unpublished PhD thesis submitted to the University of Amsterdam, 240.
92 Dougan (n 81) 42.
93 Slot (n 77) 384; De Cecco, F, ‘Room to Move? Minimum Harmonization and Fundamental Rights’ (2006) 43 CMLR 9, 9Google Scholar. Also see Rott, P, ‘Minimum Harmonization for the Completion of the Internal Market? The Example of Consumer Sales Law’ (2003) 40 CMLRev 1107 Google Scholar.
94 Dougan, M, ‘Minimum Harmonization and the Internal Market’ (2000) 37 CMLRev 853, 856Google Scholar.
95 Slot (n 77) 384.
96 ibid 386.
97 ibid 383.
98 ibid 384.
99 ibid 382.
100 ibid 383.
101 A Mattera, Le Marche unique Europeen (Jupiter 1990) and referred to by Slot (n 77) 383.
102 L Iancu, ‘Projects of Harmonization of the Laws on Insolvency’ <http://fse.tibiscus.ro/anale/Lucrari2012_2/AnaleFSE_2012_2_091.pdf>.
103 Wessels (n 11) 30.
104 Interestingly, UNCITRAL had proposed harmonization of the law of secured credit: ‘Draft legislative guide on secured transactions – Report of the Secretary-General’ A/CN 9/WG viwp 2 (2002) para 2 and referred to by McCormack, G, Secured Credit and the Harmonisation of Law (Edward Elgar 2011) 56 CrossRefGoogle Scholar.
105 The European Association of Insolvency Practitioners and Scholars.
106 INSOL Europe, ‘Harmonization of Insolvency Law at EU Level’ PE 419.633 (April 2010) <http://www.europarl.europa.eu/meetdocs/2009_2014/documents/empl/dv/empl_study_insolvencyproceedings_/empl_study_insolvencyproceedings_en.pdf> 20.
107 ibid 27.
109 Consultation on the future of European Insolvency Law <http://ec.europa.eu/justice/newsroom/files/insolvency_en.pdf>.
110 For example, Cohen, A and Ruiz, G, ‘Living in perfect harmony? A new European approach to business failure and insolvency’ (2013) CRI 151 Google Scholar, 151.
111 RJ de Weijs, ‘Harmonization of European Insolvency Law and the Need to Tackle Two Common Problems: Common Pool & Anticommons’ (19 October 2011) <http://ssrn.com/abstract=1950100> 1.
112 European Parliament resolution of 15 November 2011 with recommendations to the Commission on insolvency proceedings in the context of EU company law (2011/2006(INI)) at recital C, <http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2011-0484+0+DOC+XML+V0//EN>.
113 ibid recitals A and B.
114 Annex to European Parliament resolution of 15 November 2011 with recommendations to the Commission on insolvency proceedings in the context of EU company law (2011/2006(INI)), para 1.3 and available at <http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2011-0484+0+DOC+XML+V0//EN>.
115 At 3.
116 C(2014) 1500 final and available at <http://ec.europa.eu/justice/civil/files/c_2014_1500_en.pdf>.
117 Wagner, H, ‘Is harmonization of legal rules an appropriate target? Lessons from the global financial crisis’ (2012) 33 EJLE 541 Google Scholar, 541.
118 European Commission, DG Justice and Consumer Affairs, ‘Study on a new approach to business failure and insolvency’ (n 12).
119 McCormack (n 60) 143.
120 The Secretary-General, ‘Report of the Secretary-General’ delivered to the General Assembly, UN doc A/6396 & Add.1 and Add.2 (23 September 1966) at para 8 and referred to in Block-Lieb and Halliday (n 70) 493.
121 Alexander (n 40) 38.
122 COM(2012) 742 final and accessible at <http://ec.europa.eu/justice/civil/files/insolvency-comm_en.pdf>.
123 INSOL Europe, ‘Harmonization of Insolvency Law at EU Level’ PE 419.633.
124 COM(2012) 742 final at 3 and accessible at <http://ec.europa.eu/justice/civil/files/insolvency-comm_en.pdf>.
125 Micklitz, H, ‘The Targeted Full Harmonization Approach: Looking Behind the Curtain’ in Howells, G and Schultze, R (eds), Modernising and Harmonizing Modern Consumer Contract Law (Sellier European Law Publishers 2009) 51–2Google Scholar.
126 Mucciarelli (n 30) 197.
127 South Square/Grant Thornton, From discord to harmony: the future of cross-border insolvency (2015) 12, <http://www.southsquare.com/files/SouthSquare_GT_Report_From_discord_to_harmony.pdf>.
128 Haentjens (n 91) 235.
129 Del Duca (n 74) 647.
130 See de Weijs, RJ, ‘Towards an objective European Rule on Transaction Avoidance in Insolvencies’ (2011) 20 International Insolvency Review 219, 220–1CrossRefGoogle Scholar.
131 ibid n 7.
132 Piñeiro (n 31) 212.
133 Section 132 of the German Insolvency Code (Insolvenzordnung).
134 Section 239(5) of the Insolvency Act 1986. But not in Scotland. The issue of desire is not so relevant in England and Wales where the creditor who received the benefit is a connected person.
135 de Weijs (n 111) 1.
136 Mucciarelli (n 30) 198.
137 ibid.
138 Westbrook, J, ‘Avoidance of Pre-Bankruptcy Transactions in Multinational Bankruptcy Cases’ (2007) 42 TexIntlLJ 899, 903Google Scholar.
139 Garrido, J, ‘Two Snowflakes the Same: The Distributional Question in International Bankruptcies’ (2011) 46 TexIntlLJ 459, 460Google Scholar.
140 D Mindel and S Harris, ‘The pursuit of harmony can easily lead to discord – why local insolvency laws are best developed locally’ Ernst and Young, April 2015, 1.
141 Nike European Operations Netherlands BV v Sportland Oy C-310/14; [2016] 1 BCLC 297, [17].
142 Magnier (n 73) 107.
143 See Wagner, H, ‘Is harmonization of legal rules an appropriate target? Lessons from the global financial crisis’ (2012) 33 EJLE 541, 549–53Google Scholar.
144 Levmore, S, ‘Harmonization, Preferences, and the Calculus of Consent in Commercial and Other Law’ (2013) 50 CMLRev 243, 250Google Scholar.
