Social Policy and Insolvency: Struggles towards Convergence

Abstract

The cooperation of European countries in matters of insolvency has a long history. It has been a 40 year project within the European Union, evolving in complexity and increasing in cooperation as the EU has expanded and changed. The culmination of this cooperation was the EU Insolvency Regulation which deals with the coordination of cross-border insolvency between member states. In 2012, INSOL Europe proposed amendments to the EIR, aimed at furthering its proper functioning by amending substantive aspects and improving technical rules. Among the fundamental issues to be resolved was the ease with which companies can “forum shop” among member states to identify a jurisdiction providing the most advantageous environment to commence insolvency proceedings. However, goal of reducing forum shopping overall is not helped by the existence of divergent rules of employment protection among the member states. Underpinned by traditionally opposing socio-political values, the juxtaposition of insolvency law and employment protection is difficult to reconcile. However, in these times following the financial crisis and its slow recovery, business failures and unemployment are both at the forefront of economic concerns. The EU has applied itself to the intersection of employment protection and insolvency procedures within the Acquired Rights Directive, which contains provisions requiring the transfer of employment contracts to the buyer of a business or a part thereof upon its transfer, including those transfers which occur as a result of corporate rescue procedures. As the ARD provisions took the form of an EU directive, the form and method of implementation of the ARD was left to the member states as long as the intended results of the directive were achieved within national legislation. A number of derogations were also available within the ARD, including the potential to disapply the transfer provisions if the transferor were: “…subject to bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to [the] liquidation....” of a company. The application of employee transfer provisions in corporate rescue procedures has not failed to cause controversy over the 37 years since its initial implementation, significantly as the derogation for insolvency procedures was not present in the original ARD. Many EU and national cases have caused further complications, particularly in relation to how national social policies affect the aims of corporate rescue with regard to the relative favouritism of the safeguarding of employment. Social policy legislation also has an effect on how insolvency systems function in practice as the procedural outcomes can affect a variety of more vulnerable entities such as employees, their families, and the community at large. The relative protection of these more vulnerable entities differs from member state to member state according to diverse national views on the importance of social policy matters. A conception of the effectiveness of insolvency and business rescue procedures that includes a reflection upon the interaction of state and EU requirements of employee protection legislation would likely encourage a more holistic approach to improving cross-border insolvency within the EU. While such a matter is not strictly the prevue of EU insolvency law in its current scope, there are practical matters affecting how a pan-European rescue culture can function with the greatest efficiency when the conflicting goals of insolvency and the protection of employment are not recognised and, to some extent, managed. Among the EU member states that continue to exhibit fundamentally different approaches to corporate rescue and employment protection, the United Kingdom and France present two extreme examples. Through the comparison of two divergent but also highly influential EU jurisdictions, both historically and in the current political climate, an example of the obstacles facing overall convergence in this area can be demonstrated. The differences in these two jurisdictions will also help to highlight the problems associated with differing levels of social protection in terms of jurisdictional competitiveness and cross-border cooperation. This article will discuss the parallel evolution of corporate rescue and the implementation of the ARD in the UK and France with a view to illuminating these obstacles to convergence. While harmonisation in the area of social policy continues to be resisted by many member states, it could be that such harmonisation or at least convergence might assist in capturing a greater cohesiveness in cross-border business and insolvency and level the field of competition between the member states of the EU.