Not Just Efficiency: Insolvency Law in the EU and its Political Dimension

Posted: 23 Aug 2013

See all articles by Federico M. Mucciarelli

Federico M. Mucciarelli

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Dipartimento di Economia Marco Biagi, Modena; European Corporate Governance Institute (ECGI)

Date Written: June 1, 2013

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.

Keywords: insolvency law, COMI, forum shopping, harmonisation, political legitimacy

JEL Classification: K29 , K22

Suggested Citation

Mucciarelli, Federico M., Not Just Efficiency: Insolvency Law in the EU and its Political Dimension (June 1, 2013). European Business Organization Law Review, Vol. 14, No. 2, 2013, Available at SSRN: https://ssrn.com/abstract=2314892

Federico M. Mucciarelli (Contact Author)

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Dipartimento di Economia Marco Biagi, Modena

Viale Berengario 51
Modena, Modena 41121
Italy

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/federico-mucciarelli

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
384
PlumX Metrics