While the harmonisation of insolvency law in the European Union (EU) has been a top priority on the European institutions’ agenda in the last decade, this endeavour has been slow and has often met resistance from some of the Member States. The COVID-19 pandemic caused this phenomenon of top-down harmonisation of insolvency laws (ie introduced at EU-level) to a temporarily halt. The urgency to control or mitigate the economically and financially destructive effects of the pandemic has, nevertheless, forced European governments to adopt domestic strategies and laws in the area of insolvency. Interestingly, such measures show that insolvency and restructuring law responses to the COVID-19 pandemic, albeit largely uncoordinated, reflect a phenomenon of bottom-up harmonisation (ie introduced by Member States). Overall, this indicates a convergence towards common or shared approaches.
Our paper is an investigation by the board of the Younger Academics Network of Insolvency Law (YANIL) into the insolvency law responses to the COVID-19 pandemic in six European legal systems (Denmark, Germany, France, Italy, the Netherlands, the United Kingdom). We uncover the inadequacy of the EU’s harmonisation language, and the limits of top-down harmonisation strategies in insolvency and restructuring law. We conclude that, to further our understanding of harmonisation of European insolvency laws, there is a need to promote the formulation of a wider-encompassing definition of ‘legal harmonisation’.
The EU as sole driver of harmonisation?
The significance of EU legal harmonisation cannot be overstated, especially in the field of insolvency. Member States tend to be protective of their national sovereignty regarding the regulation of sensitive policy areas (including insolvency), which is ultimately mirrored in corporate and investment decisions. Nevertheless, while acknowledging the potential for insolvency laws to impinge on economic, social and political issues of national interest, Member States have also realised the need for a European level-playing field. The harmonisation of insolvency laws in the EU has, and is, indeed happening.
These praiseworthy European harmonisation efforts have accomplished outstanding results in a previously complex and fragmented political environment. Nevertheless, the limits of the top-down European harmonisation efforts suggest that the EU policy strategy should better adapt to the reality of the legal harmonisation process. As exemplified by our case study analysis, this harmonisation process reflects a dual approach (top-down as well as bottom-up) to increasing the legal similarity across the EU. Rather than opposing these phenomena (harmonisation versus convergence), we argue that European institutions should welcome and embrace this dual approach and accept that legal harmonisation is comprised of, and achieved by, both top-down and bottom-up initiatives. This would put European institutions more in line with the Member States’ expectations and practices.
A case study of COVID-19 reforms and measures on insolvency law
Our case study reveals that, as the COVID-19 pandemic created similar problems in every country, governmental reactions shared common patterns. This brought a phenomenon of natural bottom-up, legal convergence in an area that had previously been deemed too politically sensitive to engage in full substantive harmonisation. While the paper acknowledges that further research is needed to determine whether the regulatory phenomenon uncovered in our case study is coincidental or local, the findings are nonetheless significant in several ways.
First, this discussion is important as scholars have already warned that, until the EU relies on a more structured debate and a solid overarching theory of harmonisation, legal integration is unlikely to succeed. Our proposed understanding of the harmonisation process would also be attuned to the linguistics of the EU, which have long used the words ‘harmonisation’ and ‘convergence’ interchangeably in their policy and legislative documents. While it is argued that these processes should not be opposed, we suggest ways of better co-ordinating these strategies. Just as harmonisation measures can be driven by the EU institutions, they can also result from the elevation of best practices and bottom-up national solutions.
Secondly, while the Commission embarks on a new harmonisation initiative in the field of insolvency and restructuring law, the EU is still battling Eurosceptic tensions and legitimacy challenges. This discussion around the phenomena encompassed within the scope of harmonisation and the role of Member States in the harmonisation processes is thus particularly important. The phenomenon of legal alignment and emulation evidenced by this article was not driven by top-down EU initiatives. Rather, it started at the Member States’ level.
New thoughts on old ideas: harmonisation as a dialectic process
The harmonisation process as applied to the field of insolvency law mirrors broader discussions at EU level around its overall harmonisation policy. Uncovering the role of Member States as drivers of European harmonisation can contribute to the demystification that EU laws are not simply the by-product of technical compromises carried out in Brussels but rather the result of a complex, multi-layered process of dialectic harmonisation.
The article ‘Harmonising Insolvency Law in the EU: New Thoughts on Old Ideas in the Wake of the COVID-19 Pandemic’, which can be found here, has been published in International Insolvency Review, 2021, 30(3).
Emilie Ghio is a Lecturer in Law at Edinburgh Napier University (UK).
Gert-Jan Boon is a Researcher and Lecturer in Insolvency Law at Leiden University (the Netherlands).
David Ehmke is an Associate at GT Restructuring (Germany).
Jennifer Gant is a Lecturer in law at University of Derby (UK).
Line Langkjaer is an Associate Professor at Aarhus University (Denmark).
Eugenio Vaccari is a Lecturer at Royal Holloway, University of London (UK).