How the Old World Encountered the New One: Regulatory Competition and Cooperation in European Corporate and Bankruptcy Law

ECGI - Law Working Paper No. 63/2006

Harvard Olin Fellows' Discussion Paper No. 19/2008

69 Pages Posted: 28 Feb 2006 Last revised: 5 Aug 2008

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

Martin Gelter

Fordham University School of Law; European Corporate Governance Institute (ECGI)

Date Written: February 2006

Abstract

The European framework for creditor protection has undergone a remarkable transformation in recent years. While the ECJ's Centros case and its progeny have given EU businesses free choice with respect to the state of incorporation, and hence to the substantive corporate law regime, the European Insolvency Regulation has introduced uniform conflict of laws rules for insolvencies. However, this regime has opened up some forum shopping opportunities for corporate debtors. Both regulatory competition in corporate law and forum shopping in bankruptcy law have been discussed in the US for years, while they are relatively new territory in the EU. This article attempts to pull together the two emerging discussions and analyzes possible consequences for the relationship between shareholders, managers and creditors in European corporations. We argue that, in the absence of evidence of either a race to the top or the bottom, we cannot rule out adverse consequences of either regulatory competition in corporate law or forum shopping in bankruptcy. However, the discussion so far has largely considered only the consequences of the first type of regulatory arbitrage while neglecting the second. Hence, the issue of the "insolvencification" of corporate law rules has been brought up in order to enable national policymakers to impose their respective ideas about creditor protection on firms. We suggest that such attempts may be futile. First, relabeling is possible only to a rather limited degree, and second, while restricting the scope for corporate law arbitrage, it increases the incentives for forum shopping in bankruptcy. Ultimately, it may even backfire, leading to a higher degree of bankruptcy forum shopping to avoid the very rules that have been insolvencified.

Keywords: Bankruptcy, Centros case, company law, corporate law, creditor protection, European Insolvency Regulation, European Union, European Community, forum shopping, insolvency, regulatory competition, Harmonization

JEL Classification: G32, G33, G34, K19, K22, K29, K41

Suggested Citation

Enriques, Luca and Gelter, Martin, How the Old World Encountered the New One: Regulatory Competition and Cooperation in European Corporate and Bankruptcy Law (February 2006). ECGI - Law Working Paper No. 63/2006; Harvard Olin Fellows' Discussion Paper No. 19/2008. Available at SSRN: https://ssrn.com/abstract=887164 or http://dx.doi.org/10.2139/ssrn.887164

Luca Enriques (Contact Author)

University of Oxford Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http:/www.ecgi.org

Martin Gelter

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States
646-312-8752 (Phone)

HOME PAGE: http://www.fordham.edu/info/23135/martin_gelter

European Corporate Governance Institute (ECGI)

Brussels, B-1050
Belgium

HOME PAGE: http://www.ecgi.org/members_directory/member.php?member_id=621

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