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Mucciarelli, Federico (2013) 'Not Just Efficiency: Insolvency Law in the EU and Its Political Dimension.' European Business Organization Law Review, 14. pp. 175-200.

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Abstract

Certain insolvency law rules, like creditors’ priorities and set-off rights, have a distributive impact on creditors. Distributional rules reflect the hierarchies of values and interests in each jurisdiction and, as a result, have high political relevance and pose an obstacle to reforming the EU Insolvency Regulation. This paper will show the difficulty of reform by addressing two alternative options to regulate cross-border insolvencies in the European Union. The first one is the ‘choice model’, under which companies can select the insolvency law they prefer. Although such a model would allow distressed firms to select the most efficient insolvency law, it would also displace Member States’ power to protect local constituencies. The choice model therefore produces negative externalities and raises legitimacy concerns. The opposite solution is full harmonisation of insolvency law at EU level, including distributional rules. Full harmonisation would have the advantage of internalising all externalities produced by cross-border insolvencies. However, the EU legislative process, which is still based on negotiations between states, is not apt to decide on distributive insolvency rules; additionally, if harmonisation includes such rules, it will indirectly modify national social security strategies and equilibria. This debate shows that the choice regarding power allocation over bankruptcies in the EU depends on the progress of European integration and is mainly a matter of political legitimacy, not only of efficiency.

Item Type: Journal Article
Keywords: insolvency law, COMI, forum shopping, harmonisation, political legitimacy
SOAS Departments & Centres: Departments and Subunits > School of Finance & Management
Legacy Departments > Faculty of Law and Social Sciences > School of Finance and Management > Centre for Financial and Management Studies (CeFiMS)
Subjects: K Law > KJ Europe
ISSN: 15667529
DOI (Digital Object Identifier): https://doi.org/10.1017/S1566752912001127
Date Deposited: 03 Sep 2013 15:39
URI: https://eprints.soas.ac.uk/id/eprint/16957

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