02 July 2019

ECGI: The rise and fall of regulatory competition in corporate insolvency law in the EU

Horst Eidenmüller warns that Britain stands to lose its dominant market position in this industry that is about to start its falling due to Brexit, the recasting of the EIR, and the European Restructuring Directive.

 The rise is closely associated with the European Insolvency Regulation (EIR, 2002), and it is well-documented.  The UK has emerged as the ‘market leader’, especially for corporate restructurings.  The fall is about to happen, triggered by a combination of factors: the recasting of the EIR (2017), the European Restructuring Directive (ERD, 2019) and, most importantly, Brexit (2019).  The UK will lose its dominant market position.  Horst Eidenmüller presents evidence to support this hypothesis.

The regulatory landscape for corporate insolvency law in the EU is changing.  The EIR was recast in 2017, the EU passed the ERD in 2019, seeking to harmonize Member States’ pre-insolvency restructuring regimes so that local businesses get local access to restructuring processes, and the UK will probably leave the EU in 2019.

Eidenmüller argues that the recast EIR will not significantly affect forum shopping and regulatory competition in corporate restructurings.  However, the ERD will have such an effect, i.e. it will significantly reduce forum shopping and regulatory competition in corporate restructurings.  This is because the ERD mandates that Member States implement certain key features of pre-insolvency restructuring regimes by 2021, effectively ruling out radical legal innovations departing from the new European standard.  Unfortunately, the ERD is a ‘defective product’: it mandates inefficient procedures and should be repealed.

Most importantly, Brexit will eliminate the dominant competitor in the European restructuring market, i.e. the UK.  This is because Member States will no longer be forced to automatically recognize decisions taken in UK restructuring proceedings.  It appears that the restructuring market already anticipates this effect: one can observe a decline of the popularity of the Scheme of Arrangement in cross-border cases from 2016 onwards. 

Full paper

 

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