Rethinking the legitimacy of expectations: Speculative crossclaims, fraudulent transactions, and the immunity rules of the European Insolvency Regulation: Finnish (and some Swedish) perspectives

Abstract

AbstractAs a general principle of the law of the European Union, legitimate expectations should be respected as much as possible. The EU Regulation on Insolvency Proceedings (recast) (EIR) aims to achieve this goal by providing a comprehensive set of rules governing the choice of law in cross‐border insolvency cases. Despite the academic criticism targeted at these rules, they remained intact in the recast EIR. The basic problem discussed in this article is that according to the prevailing regime created by the EIR, the expectations of the general body of creditors might be ignored, regardless of whether the expectations of the counter party—the favored creditor or any other contracting party of the debtor—are actually illegitimate. The purpose of this article is to evaluate this discrepancy and to propose means that might allow for its rejection at both the theoretical and practical levels. It will also be argued that the CJEU's judgment in Vinyls Italia (C‐54/16) is insufficient to tackle the basic problem, even though the abuse of the freedom of the choice of law was clearly rejected by the CJEU. The problem discussed in this article is not the abusive choice of the applicable law, but the fraudulent character of the transaction concluded under said law. Furthermore, it seems highly unlikely that the public policy exception (ordre public) would resolve the basic problem, as immunity protection, provided by the various leges causae, is adopted as an integral part of the EIR, with no exceptions for fraudulent or otherwise inappropriate transactions or arrangements. Therefore, immunity protection is part of the public policy of the EU itself. To conclude this article, it is suggested that immunity protection not be revoked but limited only to crossclaims and transactions with no speculative, fraudulent, or otherwise inappropriate motives. This would most likely require a new preliminary ruling of the CJEU. To concretize the problems discussed in this article, the choice of law rules of the EIR regarding creditors' right to set‐off and transaction avoidance are evaluated and applied in the context of the insolvency law of Finland, and, to the extent the basic principles of the national laws are similar, the insolvency law of Sweden.