INTERNATIONAL INSOLVENCY LAW CONFERENCE Wednesday 15 September 2010 Joseph Spooner

1. INTERNATIONAL INSOLVENCY LAW CONFERENCEWednesday 15 September 2010Joseph Spooner A Case Study of Divergences and Convergences in National Personal Insolvency Laws in the Context of European “Bankruptcy Tourism”

2. A national law perspective on forum shopping within the European Judicial Area: the case of Ireland and England Ireland v England and Wales: from “Debtors’ Prison” to “Debtors’ Paradise” and the incentives for forum shopping provided by differences in national laws. Impossibility of harmonisation: inherently national characteristics influencing divergences in personal insolvency law? Trends towards convergence: natural reduction in incentives for forum shopping.

3. Incentives for Forum Shopping: from “Debtors’ Prison” to “Debtors’ Paradise” Irish personal insolvency law wholly inappropriate to address the country’s high levels of over-indebtedness

4. Incentives for Forum Shopping: from “Debtors’ Prison” to “Debtors’ Paradise” • Access: • Ireland: high costs and procedural complications. • England & Wales: inexpensive and simple procedure (same day bankruptcies). • Discharge conditions: • Irl: No automatic discharge: 12 years plus preferential payments plus realisation of entire estate plus court discretion. • It “may be that, because of the requirement to discharge expenses and preferential payments as a precondition to being discharged from bankruptcy, the [debtor] has no prospect of being discharged and will remain a bankrupt for the remainder of [his or her] life unless... [the debtor] wins the lottery.” Grace v Ireland [2007] IEHC 90, per Laffoy J. • EW: 12 month automatic discharge. • Restrictions: • Irl: severe restrictions with view that all bankrupts are dishonest and should be excluded from society. • EW: fewer restrictions, with distinction between honest and culpable debtors – BROs and BRUs. • Conclusions: • Differences in national laws create irresistible incentives for forum shopping. • Extent of differences make harmonisation impractical.

5. Reasons for differences in national personal insolvency laws • Are personal insolvency laws based on inherently national characteristics/preferences, meaning that harmonisation is impossible and/or undesirable? • Social welfare provision • Generous social welfare system could justify restrictive bankruptcy regime. • Ireland: third smallest unemployment benefit in EU15; lowest income replacement rate in EU15 (2009). • Regulation of credit markets • Open credit markets lead to increased indebtedness and necessitate liberal insolvency laws. • Ireland: open credit markets and huge levels of indebtedness, but restrictive bankruptcy regime. • National dispositions towards entrepreneurship • Bankruptcy as a safety net for risk-takers and a driver of entrepreneurship. • Ireland: traditional pro-entrepreneurship government policy and national opinion; bankruptcy law unfriendly towards entrepreneurs. • National “culture” • Ideological and cultural views of credit, indebtedness and default. • Irish law appears to deter and punish over-use of credit, yet Ireland has a modern consumer credit society.

6. Reasons for differences in national personal insolvency laws • “Facts on the ground” and political economy. • Plus research explaining flawed premises of old approaches. • Role of political influences in personal insolvency law reform: • BAPCPA 2005 in USA. • European consumer bankruptcy revolution during recession of early 1990s. • Ireland: • Late 1980s/early 1990s : Very low levels of personal debt: bankruptcy reform not an urgent issue. • 2000s: Credit-driven boom and bust: personal indebtedness as a priority public concern. • Law Reform Commission: research explaining flawed premises of traditional legal approach and outlier status of Irish law. • Are the links between personal insolvency law and national characteristics overstated? • Do national characteristics continue to create obstacles to convergence?

7. A Trend towards Convergence? • France • Consumer insolvency system based on minor, consensual adjustments to contractual obligations. • 2004: “personal recovery” procedure: immediate and total debt discharge. • Sweden • Typical continental approach : restricted access, mandatory payment plan, debt counselling and voluntary negotiations. • 2007: removal of restrictions on access. • “zero proposal”: immediate debt discharge. • Netherlands • Mandatory payment plan (3 years). • 2008: discharge after one year for debtors unable to make part repayments sufficiently large to justify continuing plan.

8. A Trend towards Convergence? • England and Wales • IVA repayment plan as the “gateway criterion”. • Debt Relief Orders: mandatory debt counselling. • Ireland • Law Reform Commission recommendations 2009-2010. • Bankruptcy law: access, discharge, restrictions. • Introduction for first time of a non-judicial debt settlement system: inspired by UK and European regimes. • An outlier of European personal insolvency laws falls in line with laws of other Member States

9. A Trend towards Convergence? • Possibilities for future convergence and consequent reduction in forum shopping • Increase in scope and influence of comparative research: • Renewed academic interest, pan-European research projects, European Consumer Debt Network... • European Union and Council of Europe initiatives: • European Commission Communication: Overcoming the Stigma of Business Failure – for a Second Chance Policy (COM(2007) 584 final). • Recommendation of the Committee of Ministers to Member States on Legal Solutions to Debt Problems (Council of Europe CM/Rec(2007)(8), 2007). • Awareness of bankruptcy tourism as a driver of convergence: • “Debtors’ Prison” and “Debtors Paradise”: are either reputations desirable? • Race-to-the-middle?

10. Conclusions • It may be impossible to remove incentives for forum shopping without harmonisation: bankruptcy tourism remains very attractive. • Harmonisation may be practically impossible at present. • Personal insolvency laws may not be as closely linked to inherently national characteristics as often thought: common realities of credit society and political factors may be key. • Therefore, obstacles to convergence, if not harmonisation, can be overcome. • Convergence has begun, and looks likely to continue. • Natural convergence in national laws may remove incentives for forum shopping.

11. Thank You