Towards a Transnational Model of Bankruptcy Law?

Abstract

For a long time, the European insolvency laws have been considered as country-specific regulations, entirely focused on national needs and expectations. This perception depends on several factors. First, the debtor’s financial distress tends to be systematic by naturally expanding its effects on other debtors operating in the same country. Second, the financial distress is often imbued with criminal liabilities that are unilaterally ruled by national legislators without interference of supranational legal sources. But the European Union (E.U.) law has gradually modified the approach to insolvency proceedings. The E.U. approach to the harmonization of national laws on insolvency proceedings has been twofold. Initially, the E.U. legislature has directly imposed to Member States some general rules to favor the coordination and cooperation between two or more cross-border insolvency proceedings opened in different Member States. Recently, the approach is significantly changed. The E.U. Directive No. 1023 of 2019 establishes a new legal model of restructuring plan for debtors in financial distress (“preventive restructuring framework”) and requires Member States to adequate their national laws to the model within next years.

Accordingly, several European legislation are changing their rules on restructuring proceedings in accordance with the E.U. model. The change is extremely relevant for several reasons. First, it shows that the new approach to insolvency law is aimed at equalizing and standardizing European legislation on insolvency proceedings. Second, it promotes a crucial role for creditors in restructuring bankruptcy by providing that they are not only entitled to submit a plan on behalf of their debtor, but also empowered to formulate a plan under which the debts can be paid in relation to the creditors’ financial conditions. When the E.U. law emphasizes the role played by creditors, it seems to reflect an innovative opinion in the recent American legal debate on bankruptcy. The New Creditors’ Bargain Theory suggests a broad understanding of the creditors’ power in determining and approving a restructuring plan under Chapter 11. The E.U. law similarly accords significant powers to creditors – especially to those who are financially weak or vulnerable – in restructuring proceedings. The article examines the relationship between the New Creditors Bargain Theory and the new E.U. law on preventive restructuring frameworks. By comparing the U.S. legal theory with the E.U. legal rules, the analysis brings a transnational model of bankruptcy law to the forefront.

Keywords: Bankruptcy, Insolvency Law, EU Law, Creditors' Bargain Theory, Legal Harmonization

JEL Classification: K20, K22, K35