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Letter from Brussels: A lawyer’s feast

It is a case of tackling one challenge after another in the Capital Markets Union (CMU). According to the European Commission, the present morass of different national insolvency rules creates a barrier to the flow of capital across the EU. 

This is why it is initiating steps towards breaking down obstacles as part of the Commission’s action plan on Building a CMU, set out in September 2015, which expressed the intention to “take forward a legislative initiative on business insolvency”. 

The Commission has been working on a draft study to set out options. It lambasts the existing pot-pourri of national legal obstacles, including insolvency. But laws dealing with collateral and securities are under scrutiny. They are all said to “undermine the predictability of rules for direct investments”.  

The study, by the Commission directorate general (DG) for justice, was due to include input from a range of Commission DGs, including for financial services, SMEs, competition, taxation, transport, and employment. 

The study lays out the case for harmonisation and no doubt the planners have an eye on the US, where a uniform bankruptcy regime is set at federal level. They must also have in mind that company indebtedness continues to be high in some EU countries.

Support for the idea dates back at least to December 2012. Then, a Commission communication highlighted that the differences between national insolvency laws could reduce economic competitiveness and stability.

A year later, BusinessEurope, the employers’ lobby, supported reform in a formal letter to the Commission. Marcus Beyrer, the organisation’s director general, noted that “one in four insolvency procedures…has a cross-border nature”. 

In November 2013, Beyrer promoted the idea of a “second chance…for entrepreneurs whose failure was not due to fraudulent or irresponsible behaviour”. This position has been taken on board by the Commission.

In its current initiative, the Commission makes reference to Regulation 848/2015, which deals with matters that are relevant to the drive for harmonisation, but only in a practical sense. The scope of its new set of rules, which would build on the previous EC Regulation 1346/2000, covers elements such as the choice of jurisdiction and applicable law. 

Also included are measures that provide for the restructuring of a debtor at a stage where there is only a “likelihood” of insolvency. These so called “hybrid proceedings” would leave the debtor fully, or partially, in control of his assets and affairs. The regulation is planned to come into force in June 2017.

However, as the Commission’s study comments, an upgraded EU insolvency regulation would not touch upon the substantive insolvency law of member states. 

“The differences among the substantive solvency law of the members states [would] continue to create uncertainty and costs both for investors assessing the risks of investing in the different member states and for companies under such insolvency proceedings,” the study says. 

Various choices are being considered in Brussels. Options include the setting of common minimum rules for insolvency practitioners, company directors, and for the ranking of claims. Another suggestion is standard forms for filing claims, including electronically.

While these choices could be judged simple and probably effective, why were such basic steps to ease the single market not made years ago? 

What, for instance, was the European Economic and Social Committee (EESC) doing? The facts are that in a relevant ‘opinion’, dated in 2000, the EESC did regret failure by legislation to provide “uniform machinery … in all the member states”. And the Commission itself had taken a similar line even earlier, in 1995. 

Where are red faces to be found?

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