Soft Law Instruments in Restructuring and Insolvency Law: Exploring Its Rise and Impact

Abstract

Soft law instruments are increasingly prevalent in the area of procedural and substantive restructuring and insolvency law. These instruments, all embodied in legally non-binding texts, originate from so-called standard-setting organisations, such as the United Nations Commission on International Trade Law (UNCITRAL) Working Group V (Insolvency) and the World Bank, as well as mainly insolvency practitioners’ organisations, such as INSOL International and INSOL Europe. Ambiguity of what they are and how they impact hard law has blurred the actual role that these soft law instruments have. This raises questions of how soft law instruments can be (legally) characterized, what advantages and disadvantages they have (compared to hard law), and how legislators and policy makers in the field of restructuring and insolvency make use of them.

The vague nature of soft law instruments is a general impediment for practitioners and scholars to consider its relevance. Still, in recent years, legislators and policy makers have given particular attention to such instruments, especially in the area of restructuring and insolvency. In both the European Insolvency Regulation Recast (EIR 2015) and the proposal for a Preventive Restructuring Directive, the EU legislator makes explicit reference to soft law instruments. But, also, the Dutch Vereniging insolventierecht advocaten (INSOLAD) and the Dutch national consultative body of supervisory judges in bankruptcy and suspension of payment cases (Recofa) have set soft law standards for practice.

To highlight the rise and impact of soft law instruments, we will explore the meaning and development of soft law instruments in restructuring and insolvency law. From this analysis we observe that soft law instruments are relevant, also in practice, as they are used for example by insolvency practitioners, policy makers and courts. The growing group of standard-setting organisations focuses on specific topics, for convergence of law and practice, including cooperation and communication by judges and insolvency practitioners in cross-border insolvency cases, as well as issues pertaining to (preventive) restructuring of distressed companies.

This article is structured as follows: in part two we will introduce the concepts of soft law and standard-setting organisation, in part three this will be related to the field of international restructuring and insolvency law by elaborating on instruments in this area, which is elaborated in part four with an overview of the relevant instruments on cooperation and communication and on restructuring distressed businesses. In part five we discuss various advantages and disadvantages of the use of soft law instruments. Subsequently, in part six, we discuss several examples in order to review the impact that soft law instruments in restructuring and insolvency have. This is followed by a conclusion in part seven.

Keywords: soft law; instruments; standard-setting organisation; UNCITRAL; insolvency; bankruptcy; restructuring

JEL Classification: G33; G34; K20; K22; K33; L50