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Convergence of European Law. Dr Clive Vlieland-Boddy. World Legal Systems. Either Based on UK Common Law Or a codified system like Napoleon. Jurisprudence. Where legal decisions of judges use the assistance of previous decisions to assist with the outcome.
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Convergence of European Law Dr Clive Vlieland-Boddy
World Legal Systems Either • Based on UK Common Law • Or a codified system like Napoleon.
Jurisprudence • Where legal decisions of judges use the assistance of previous decisions to assist with the outcome. • Is the backbone of UK common law.
Encourage Global Enterprise Preserve Employment Manage Corporate Failure Promote Corporate Good Governance Encourage Sound Credit Practice and Financial Discipline Stability & certainty in market Maximizing value of assets Equal treatment of similar creditors Timely, efficient resolution of insolvency Establish Framework for cross-border insolvency Importance of Insolvency
Overview • Debtor forum shopping within the EU • Why is the UK proving so popular as a ‘tourist’ destination? • Emerging principle and practice in the UK • Endgame? • EU legislative reform or convergence or both?
Drivers to Go Bust in UK! • Totally accepts failure. • Leaders in EU for insolvency law • Seen as Financial Capital • Extensive legal and recovery expertise
Tourists and brothels… • ‘London risks becoming brothel for bankruptcy tourists’ The Observer 31st January 2010
The problem is debtor forum shopping… Looking for the best place! – Cigarettes & Spirits! • Burden on the legal system • Frustrates creditors • More difficult and costly to investigate the debtor’s affairs and administer the estate • No ‘value added’ • Debtors falling between two or three countries (Vlieland-Boddy v Dexter)
Endgame? • ‘Good’ Vs ‘bad’ forum shopping • Does free movement trump creditor protection?
Objectives • Possibilities for future convergence and consequent reduction in forum shopping • Make all Countries have very similar insolvency laws • Increase in scope and influence of comparative research: • Renewed academic interest, pan-European research projects, European Consumer Debt Network...
Objectives • European Union and Council of Europe initiatives. • European Commission Communication: Overcoming the Stigma of Business Failure • Awareness of bankruptcy tourism as a driver of convergence:
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.
Trend Towards Convergence • Netherlands • Mandatory payment plan (3 years). • 2008: discharge after one year for debtors unable to make part repayments sufficiently large to justify continuing plan. • England and Wales • IVA repayment plan as the “gateway criterion”. • Debt Relief Orders: mandatory debt counselling.
Trend Towards Convergence • 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
Key Principles • Debtors should have easy access to the insolvency system. • Creditor access should have legal rights of recovery where there is clear evidence that the debtor failed to pay a debt • The preferred test for insolvency should be the debtor’s inability to pay debts as they come due, known as the liquidity test. A balance sheet test may be used as an alternative secondary test. • The filing of an application to commence a proceeding should automatically prohibit the debtor’s transfer, sale or disposition of assets.
Key Principles • In liquidation proceedings, management should be replaced by a qualified court-appointed official. • Director and officer liability for decisions detrimental to creditors made in pre – insolvency period
Key Principles • Creditor interests should be safeguarded by establishing a creditors committee that enables creditors to actively participate in the insolvency process. • The committee should serve as a conduit for processing and distributing relevant information to other creditors and for organizing creditors to decide on critical issues
Key Principles - Recovery • To establish rehabilitation procedures that permits quick and easy access to the process, • provide sufficient protection for all those involved in the process, • provide a structure that permits the negotiation of a commercial plan, • enable a majority of creditors in favor of a plan or other course of action to bind all other creditors. • provide for judicial or other supervision to ensure that the process is not subject to manipulation or abuse.
INSOL’s Mission • “to take the leadership role in international turnaround, insolvency and related credit issues, facilitate the exchange of information and ideas and encourage greater international co-operation and communication amongst the insolvency profession, the credit community and related constituencies”
GLOBAL FINANCIAL FRAMEWORK:CORE STANDARDS Transparency - Data Dissemination (IMF) - Fiscal Transparency (IMF) - Monetary and Financial Policy (IMF) - Public Debt Management (IMF/WB) - Banking Supervision (BCP) - Payment and Settlement (CPSS) - Insurance Supervision (IAIS) - Security Regulation (IOSCO) - Anti-Money Laundering (FATF/IMF/WB) Financial Sector - Corporate Governance (OECD) - Accounting & Auditing (IAS/ISA) -Insolvency & Creditor Rights (WB) Market Integrity (Infrastructure)
End Game • Encourage restructuring plans • Single distribution mechanism for cross border insolvency • Bind all creditors across jurisdictions • Maximise value to all creditors where ever they are.
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.
Conclusions • With the EU all signed up to centralise on the EUJ and the EUCHR, convergence in all aspects of law will happen. • Insolvency is critical as EU extinguishes borders. • Common procedures and practices must be present. • Trading throughout the EU must be with the same creditor rights. • Macro Economics will converge and create one EU law on insolvency.
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