Employee Priorities in Insolvency Proceedings and Wage Guarantees: A Critical Assessment

Abstract

In many countries, insolvency regimes alter the distribution of debtors’ assets among creditors, by way of creditor priorities, rules on claw-back actions and on set-off rights. This distributive function of insolvency rules is particularly clear having regard creditor priorities. Many jurisdictions, indeed, in order to protect specific classes of creditors, curb pre-insolvency entitlements deriving from private bargains between a debtor and her creditors. The political decision on whether prioritising certain claims or fully respecting pre-insolvency entitlements reflects the hierarchy of interests that has prevailed in a specific country and the regulatory strategies adopted by policy-makers. Employee priorities are telling examples of these distributive rules. Many jurisdictions, indeed, prioritise employees’ claims for unpaid wages and security payments over claims of other creditors. Employees, however, could also be protected by way of security mechanisms, with the consequence that the impact of employee priorities depends on their interplay with such social security schemes. Employee priorities, in particular, could either equilibrating weaknesses of social security schemes or reinforcing their impact. This work will assess this interplay in a sample of three E.U. Member States: France, U.K. and Germany. These States, according to the traditional ‘varieties of capitalism’ approach, are classified as either ‘liberal market economies’ (U.K.) or ‘coordinated market economies’ (Germany and France). Along this distinction, we expect that the U.K. does not accept insolvency priorities and that Germany and France are open to adopt rules that curb free market entitlements. The current institutional settings ant their historical development only partially reflect this expectation.