Avoid the Choice or Choose to Avoid? The European Framework for Choice of Avoidance Law and the Quest to Make it Sensible

Abstract

In this paper, I propose a novel interpretation of the rules for choice of law with respect to avoidance actions under the EC Regulation on Insolvency Proceedings. Further to an outline of the statutory framework and its interaction with the rules on jurisdiction I focus on the safe harbor rule, which protects a transaction from avoidance under the law of the main proceedings if the law governing such transaction does not enable avoidance. The traditional interpretation of "the law governing the transaction" in this provision designates the law chosen by the parties or the regular choice­ of­ law rules. Instead, I propose that it be interpreted as referring to the law "with the closest connection" to the transaction. I argue for a similar analysis in allocating avoidance actions among the main and the secondary insolvency proceedings.

The proposed interpretation leads to a proper framework for addressing the choice of avoidance law; it is practicable and is not trivial. On this basis, I propose three new rules related to the choice of avoidance law: a rule for choice of applicable fraudulent conveyance law out of insolvency proceedings, a rule giving the trustee in the main proceedings standing to bring non­-insolvency fraudulent conveyance actions, and a rule expanding the safe harbor provision to laws of non­member states.

Keywords: choice of law, avoidance law, fraudulent conveyance, preference, fraudulent transfer, European Insolvency Regulation, insolvency, bankruptcy

JEL Classification: G33, K22