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Contracting for a European Insolvency Regime

43 Pages Posted: 11 Jan 2017 Last revised: 20 Apr 2017

Horst Eidenmueller

University of Oxford; European Corporate Governance Institute (ECGI)

Date Written: January 9, 2017

Abstract

The European Commission has proposed a directive on ‘preventive restructuring frameworks’ for financially distressed firms. I demonstrate that the proposal is flawed because it creates a refuge for failing firms that should be liquidated, because it rules out going concern sales for viable firms, and because it is, in essence, a twisted and truncated insolvency proceeding. I also demonstrate that the Commission’s harmonisation plan is misguided. If implemented, financing costs for firms would rise. The plan would cast in stone an inefficient restructuring framework on a European-wide scale, preventing Member States from experimenting with more efficient procedures, and it would lead to more written-off loans instead of fewer non-performing loans. The Commission should withdraw its proposal. I suggest an alternative regulatory proposal: European firms should have the option to choose a ‘European Insolvency Regime’ in their charter. This regime should be embodied in a European regulation, guaranteeing legal certainty to stakeholders. Firms might be given the additional option to have the regime enforced by a specialised European insolvency court. This proposal would preserve horizontal regulatory competition between the Member States for the best ‘insolvency product’, and it would introduce vertical regulatory competition between the Member States and the EU in the field of insolvency law. Key design principles of the proposed optional ‘European Insolvency Regime’ are the following: (i) it should be open for restructurings, going concern sales, and liquidations; firms should be channelled into the appropriate process based on the opinion of a court-appointed supervisor; (ii) it should be a fully specified (complete) and fully collective insolvency proceeding; (iii) the proceeding should be conducted in DIP form with the mandatory appointment of a supervisor who performs important insolvency-related functions.

Keywords: Insolvency, Bankruptcy, Restructuring, European Directive, European Regulation, Bankruptcy Contracting

JEL Classification: G33, K1, K22, L2

Suggested Citation

Eidenmueller, Horst, Contracting for a European Insolvency Regime (January 9, 2017). European Corporate Governance Institute (ECGI) - Law Working Paper No. 341/2017; Oxford Legal Studies Research Paper No. 28/2017. Available at SSRN: https://ssrn.com/abstract=2896340

Horst G. M. Eidenmueller (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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