The Costs of Separation: Friction between Company and Insolvency Law in the Single Market

Abstract

The increase in corporate mobility and choice of law within the EU has dominated much of the academic writing in European company law over the last two decades. One aspect that has not yet been appreciated in the debate relates to the way in which national company law interacts with and depends on features of the national legal system outside of company law. In this article, we explore this interaction and its role in the creation of integrated, coherent regulatory systems on the national level.

We argue that increased corporate mobility has the potential to tear these coherent systems apart, creating significant frictions in the regulatory framework for internationally operating companies. These frictions may consist of regulatory gaps or multiplication of legal requirements, as private international law rules are applied inconsistently across Europe. More importantly, however, even consistent application of conflict rules would often fail to produce the desired regulatory outcomes due to cross-doctrinal interdependence within any national legal system.

This paper examines both problems by analysing an area where functional interdependence is especially pronounced: the regulatory framework in relation to companies in the “vicinity of insolvency”. We show how conflict of law rules and the territorial reach of administrative and criminal mechanisms create legal uncertainty and result in incoherent regulatory solutions, potentially impeding the efficient functioning of debt markets. We conclude that this is in essence a design flaw in the way we deal with the increasingly international reach of corporations within the EU.

Keywords: European company law, European corporate law, company law, insolvency law, conflict of laws, regulatory arbitrage

JEL Classification: K22