Abuse of Law in the Context of European Insolvency Law

Abstract:     
Abuse of law is a concept that can be found in the private laws of many jurisdictions in the world. The European Court of Justice has recently resorted to the concept quite often when dealing with the reach of the fundamental freedoms guaranteed by the EC Treaty. This article applies the abuse of law concept to European insolvency law questions. Of central importance here are the rules determining jurisdiction to open main insolvency proceedings under the European Insolvency Regulation (EIR). Such jurisdiction is tied to a debtor's 'Centre of Main Interests' (COMI) which can be changed - abusively. The article starts by exploring the context of the debate on abuse of law with respect to European insolvency law. It is characterised by regulatory competition between the Member States. The general elements of the abuse of law concept are then presented. It is an interpretative concept that looks at the dominant purpose of a particular legal provision. The article explores this concept with respect to potential abuses of freedom of establishment on the one hand and the EIR on the other hand in an insolvency context. Its main thesis is that COMI shifts that evidently do not contribute to maximising the debtor's net assets are abusive. COMI shifts that evidently benefit the debtor at the expense of its creditors or some creditors at the expense of others fall into this category: they are driven by distributive rather than by efficiency concerns. The article concludes with a proposal to amend the EIR such that reliance on the abuse of law concept to prevent opportunistic COMI shifts would be less pressing.

Number of Pages in PDF File: 23

Keywords: Cross-Border Bankruptcy, European Insolvency Regulation, Centre of Main Interest, Abuse of Law, Fundamental Freedom of Establishment

JEL Classification: G33, K29, K40

Accepted Paper Series