How the Old World Encountered the New One: Regulatory Competition and Cooperation in European Corporate and Bankruptcy Law

Abstract

The European framework for creditor protection has undergone a remarkable transformation in recent years. While the ECJ's Centros case and its progeny have given EU businesses free choice with respect to the state of incorporation, and hence to the substantive corporate law regime, the European Insolvency Regulation has introduced uniform conflict of laws rules for insolvencies. However, this regime has opened up some forum shopping opportunities for corporate debtors. Both regulatory competition in corporate law and forum shopping in bankruptcy law have been discussed in the US for years, while they are relatively new territory in the EU. This article attempts to pull together the two emerging discussions and analyzes possible consequences for the relationship between shareholders, managers and creditors in European corporations. We argue that, in the absence of evidence of either a race to the top or the bottom, we cannot rule out adverse consequences of either regulatory competition in corporate law or forum shopping in bankruptcy. However, the discussion so far has largely considered only the consequences of the first type of regulatory arbitrage while neglecting the second. Hence, the issue of the insolvencification of corporate law rules has been brought up in order to enable national policymakers to impose their respective ideas about creditor protection on firms. We suggest that such attempts may be futile. First, relabeling is possible only to a rather limited degree, and second, while restricting the scope for corporate law arbitrage, it increases the incentives for forum shopping in bankruptcy. Ultimately, it may even backfire, leading to a higher degree of bankruptcy forum shopping to avoid the very rules that have been insolvencified.