Bankruptcy Tourism and the European Union's Corporate Restructuring Quandary: The Cathedral in Another Light
34 Pages Posted: 12 Nov 2019 Last revised: 5 Dec 2019
Date Written: November 1, 2019
The United States is regarded as having the preeminent corporate restructuring system in the world. The system has been effective in offering creditors predictable recoveries with relatively minor cost and delay. The system has also preserved value by allowing financially viable companies to successfully reorganize, protecting employees and communities. These features have established financial restructuring as a viable option for distressed companies and, in turn, lowered corporate borrowing costs, bolstered capital markets, and facilitated access to credit. However, there is dissonance in this narrative. Amidst all of its success, the US bankruptcy system has been experiencing a 30-year golden age of bankruptcy tourism. Due to extremely permissive venue rules, US corporations have been able to locate their cases in just about any domestic jurisdiction they choose. Scholars have argued that bankruptcy tourism undermines restructuring systems and produces suboptimal results for creditors and stakeholders. This is a global perception. Indeed, the European Union’s restructuring framework and case law aggressively restrict the practice. But how can a central feature of the most revered bankruptcy system in the world be deleterious? Scholars have offered theoretical bases in arguing against tourism, but there is no empirical research supporting the position. This Article proposes that empirical research may ultimately establish that the type of controlled bankruptcy tourism parties arguably enjoy in the US is a necessary element of an efficient and effective bankruptcy system. If true, the EU’s attempt to eliminate the practice has undermined its economic policy objectives. Based on this possibility and the unique vagaries of the EU structure, this Article proposes legislative changes to EU law that encourage the beneficial aspects of bankruptcy tourism but, at the same time, avoid negative externalities that could destabilize the restructuring system.
Keywords: forum shopping, bankruptcy, european union, corporate restructuring, comparative, european insolvency regulation, restructuring directive, brexit
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