Abstract
The aim of this article 1 is to draw the attention of comparative scholars, researchers and policy-makers to the inferior position of consumer-creditors in bankruptcy proceedings, a topic that escaped attention during the development of financial protection of consumers in Europe. Consumers may become creditors if they prepay certain goods or services that remain undelivered following bankruptcy of a retailer or service-provider. The problem that results is that consumer-creditors are treated as unsecured creditors in bankruptcy law, who rank very low on the priority ladder and are doomed to recover only a small fraction of their claims, if anything at all. In order to fill the vacuum, the article attempts to map the real dimensions of the consumer-creditor problem first by outlining the spectrum of bankruptcy cases involving consumer-creditors and the threats to consumers inherent to abandoned and defunct companies that are usually left without assets creditors could collect upon. This includes case studies of major recent bankruptcies caused by appearance of new technologies (e.g., the collapse of UK Farepak due to appearance of Internet-based competitors) and linked abuses (web-fraudulent schemes). The second part of the article provides an overview of the regulatory responses, ranging from the prescriptive approach of US law implementing limited high priority to consumer-creditors in bankruptcy proceedings in the 1970s, the 2016 multi-pronged proposals of the UK Law Commission, to the specific regulatory responses of selected post-socialist systems, like the blocked accounts introduced by Croatia and Serbia, the forced deletions of Hungary and the special tax imposed in Slovakia.
Highlights
As they are necessary for the administration of bankruptcy cases from the start to the end of the proceedings, the price of the subsequent harm and damages are paid by the creditors, for whom the protection of bankruptcy law is in existence
While savers had on average about ₤400, the highest savings reached ₤2,000.34 Given that the savers were treated in insolvency law as unsecured creditors and the Bank was a secured creditor, the result was that the Bank’s ₤31 m loan was repaid in full, whereas consumer-creditors received in contrast only 15p for every pound they saved
The bankruptcy trustee sued the receiver for turnover of the collected funds, what was refused by the bankruptcy court, because the receiver was properly empowered by State law to undertake the attacked actions unaffected by bankruptcy laws.[73]
Summary
Some protection is available to consumer-creditors in every system. The issue is rather that they are often inadequate. The Law Commission added that similar or even severer problems could be generated by new technologies without specifying what exactly was of concern.[16] One might refer to Blockchain-based systems spreading while this paper is being written, of which cryptocurrencies are well-known examples. These often, involve consumers as the “clients”. Due to inefficient administration of bankruptcy proceedings, as in China and in many post-socialist CEE jurisdictions, consumer-creditors often have zero recoveries compared to more developed and efficient bankruptcy systems These issues confirm that it is essential to discuss whether special protections for consumer-creditors would be justified
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