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Gerard McCormack, Andrew Keay and Sarah Brown

Chapter 6 considers the EC Recommendation on a new approach to business failure and insolvency. The Recommendation encourages Member States to ‘put in place a framework that enables the efficient restructuring of viable enterprises in financial difficulty’ and to provide for ‘minimum standards on … preventive restructuring frameworks’. The chapter addresses in narrative form the main features of the Recommendation and their implementation in Member States. From the study, it appears that modern restructuring procedures already exist in most, if not all, Member States and that European insolvency law has gone through a significant transformation over the past decade or so. But difficulties across the EU remain in that there are some countries where such procedures are outdated at best, or completely lacking. In other cases, the procedures may be cumbersome and inefficient and have the effect of transferring wealth to out-of-the money creditors and shareholders. Other inefficiencies include prolonging the life of financially unviable enterprises. This has detrimental consequences for healthy competitors and the overall soundness of the economy. It hinders achievement of the objective of putting assets to their most effective use. There are other countries with a multiplicity of procedures that may lead to a restructuring outcome. The overall result may be complexity in the law and a number of potentially conflicting options for a debtor to contemplate in a particular case since some but not all the options may be covered by the recast Insolvency Regulation and therefore entitled to the benefit of automatic EU-wide recognition under the Regulation. In short, there appears to be the incomplete and inconsistent implementation of the Recommendation.
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Magnus Strand

Chapter 9 is the final Chapter of the book. Sections 9.B, 9.C and 9.D offer summaries of the findings in previous chapters with regard to the three main legal issues triggered by the passing-on problem. These first issue is access to court (Section 9.B), under which it is asked whether access to claim damages or restitution, as the case may be, should be limited to certain classes of claimants based on the fact that the burden of a charge may have been passed on. The second issue is substantive proximity (Section 9.C) between the original event and downstream claimants. The third legal issue identified is estimating the amount of damages or restitution payable to the respective claimants along the supply chain, and whether that amount should take account of the fact that a financial burden – or any portion of it – has or could have been passed on. After these summaries Section 9.E discusses how actions from various levels of a supply chain might be coordinated in order to find a comprehensive approach to the passing-on problem. Section 9.E.I discusses how the interests of the parties can be reconciled in a comprehensive solution that seeks to satisfy the interest(s) of reparation. In Section 9.E.II the general interest of deterrence and the interrelationship between private and public enforcement of EU law is added to the assessment. In the final Section 9.F it is endeavoured to find a way to reconcile the interests discussed into a comprehensive blueprint that is capable of being compatible with settled EU law throughout the contexts discussed in this book. A suggestion for such a comprehensive blueprint is submitted which is incentive driven, which respects the traditional characters of damages actions and restitutionary actions, and which avoids multiple liability while nevertheless safeguarding full reparation. Keywords: EU law, private enforcement, damages law, restitution law, passing-on, indirect purchasers
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Gerard McCormack, Andrew Keay and Sarah Brown

Chapter 8 deals with Consumer over-indebtedness. This issue is of major significance, both to individual Member States and the European Commission, particularly following the global financial crisis. The EC Recommendation sees the goal of providing a fresh start as relevant to consumer debtors, as well as entrepreneurs. Over-indebtedness, as it relates to the private individual or household, is a tricky concept in that there is no one accepted or standard definition. However, what is clear is that it encompasses financial difficulty in terms of an inability or ongoing difficulty to meet outstanding financial commitments, whether household bills or credit instalments. There are a number of procedures, across the EU, which are available to consumer debtors, from bankruptcy and debt settlement procedures, to the informal arrangement. These may or may not incorporate some form of payment plan, whereby a consumer is committed to repaying a proportion of outstanding debt over a period of time. As with the entrepreneur, an integral element to fresh start is the availability of discharge from debt, where there is distinct advantage in allowing discharge without the need in principle to re-apply to a court after a short period. One area of potential concern that emerges lies in the debts that are excluded from discharge: consideration should be given to encouraging common practice across Member States, keeping the categories of non-dischargeable debts to a minimum, for example, the social responsibilities of maintenance and child support, student loans and debts that arise from criminal activities, such as fines. Another is the length and use of the payment plan, which may do little more than lock the debtor into a period of debt repayment which leads to non-productivity, and potentially exacerbates detriment such as financial exclusion. The study shows that whilst there is generally some similarity in approach to consumer over-indebtedness, divergence is in evidence, for example, in eligibility for procedures and differing conditions for debt discharge. There are active reform initiatives across many Member States, and it is as yet too early to assess the extent to which such reform will be successful. Indeed, further research would be useful, for example, in terms of the impact of consumer over-indebtedness procedures on the supply of personal credit, and the extent to which non-discharge of certain debts precludes fresh start for debtors and their families. Further study of the existence and impact of civil society organizations which represent consumers and/or provide debt advice would also be of benefit.
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Gerard McCormack, Andrew Keay and Sarah Brown

Chapter 1 deals with Directors’ liability and disqualification imposed when their company ends up in insolvency. Liability can take various forms across Member States. In some Member States, the duties that directors owe when their company is solvent shift in nature when their company is near to being insolvent or actually insolvent and if directors do not fulfil their duties they can be held liable for breach of duty. In the vast majority of other states, directors are held liable if they do not file for insolvency proceedings within a prescribed period from the point where they know or ought to know that their company is insolvent. In some states, directors may be liable if they do not take action to stop their company’s slide into insolvency or act to prevent its insolvent position worsening. The liability of directors could be civil and/or criminal. There are a number of obstacles to bringing proceedings against miscreant directors. From the data obtained the following are the most frequent: the directors are impecunious and not worth pursuing; proceedings are costly; and the time delay in getting a hearing of proceedings can be substantial. There is some opinion, but far from unanimous, that the difference in approach in Member States can lead to significant problems. All but a couple of Member States have some form of disqualification process for directors and it is generally seen as an important element in the monitoring and control of directors. The approach taken to disqualification differs across the EU, and is reflected in the time periods prescribed for disqualification, the reasons for making a disqualification order and whether there are other consequences, besides disqualification from acting as a director, emanating from the handing down of an order of disqualification. A problem that exists with breaches of duties and disqualification is that neither are clearly seen as fitting within either company law or insolvency law where the directors’ company is in financial difficulty and ends up subject to insolvency proceedings, so they are matters that can ‘fall between the cracks’ as there is confusion in knowing how they should be addressed.
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Magnus Strand

This second Chapter of the book presents the EU law principles designed to ensure the effective judicial protection of rights conferred on individuals by EU law. It is acknowledged that the precise interrelationship between the various EU law principles at issue is not clear, but it is submitted that the traditional structure of rights, remedies and procedures is useful for the purposes of this book. It is consequently stressed that a right or interest protected by EU law must first be identified before it can be relevant to discuss the effective judicial protection of that right or interest by way of remedies and procedures. With regard to remedies it is explained that EU law presupposes the existence of effective remedies available to individuals for the protection of their rights before the courts of the EU and the Member States. Where no sufficiently effective remedy is available EU law may require such a remedy be made available to the individual by the competent court, notwithstanding the limitations of its jurisdiction in that regard. It is also noted that EU law requires equal availability of remedies to individuals seeking to protect EU law rights as for individual seeking to protect rights conferred on them by national law. The significance of the right of access to court pursuant to Article 47 of the EU Charter is discussed, and the scope for limitations of that right under Article 52(1). Finally the EU law principles of equivalence and effectiveness are presented with a view to understand the scope and intensity of their application in EU law scrutiny of various elements of national law that may condition the use of relevant courses of action. Keywords: EU law, private enforcement, effective judicial protection, right to an effective remedy, EU Charter, principles of equivalence and effectiveness
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European Insolvency Law

Reform and Harmonization

Gerard McCormack, Andrew Keay and Sarah Brown

Critically analysing the substantive law of insolvency in the EU countries as a whole, this book carries out horizontal cross-cutting analysis of the data gathered from a study of national insolvency laws. It selects particular areas for detailed discussion and considers the pros and cons of particular legislative solutions.
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Magnus Strand

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Gerard McCormack, Andrew Keay and Sarah Brown

Chapter 2 deals with the Institutional framework. This framework is crucial in the operation of a properly functioning insolvency system. The chapter considers in particular the role played by insolvency practitioners (IPs). The IP has a central role in the effective and efficient implementation of insolvency law, including certain powers over debtors and their assets, with a duty to protect the value of those assets, as well as the interests of creditors and other stakeholders, and to ensure impartial application of the law. The IP is the link between the court, creditors and the debtor. It is fundamentally important that IPs are appropriately qualified and display appropriate standards of competence, expertise, integrity and professionalism in the conduct of the proceedings. The study has shown that qualification and licensing standards vary considerably across EU countries but because of the principle of mutual recognition of insolvency proceedings in the Regulation on Insolvency Proceedings 1346/2000 and recast Insolvency Regulation 2015/848, the issue of incompetent or poorly qualified IPs in one Member State has potential ramifications in other Member States. A number of international and European standard setting bodies have worked on a set of principles laying down parameters for the qualifications and training of IPs and formulating guidelines for the performance of their functions. While sometimes formulated at a high level of generality, there is a considerable degree of commonality about the nature of these standards and guidelines. It may be that the European Commission could leverage the work of these other organizations with a view to formulating a common European framework.
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Magnus Strand

This first Chapter of the book presents the passing-on problem and identifies the major legal issues triggered by that problem that are discussed throughout the book. ‘Passing-on’ in this respect is the act of letting harm or loss incurred by a business pass through that business and thereby move on to burden its customers, i.e., the next level of the supply chain. This can be done, knowingly or otherwise, by raising selling prices in response to the harm or loss at issue. The point of departure in this chapter and throughout the book is that the passing-on problem is not a single and coherent legal problem that can be addressed as such, but a set of factual circumstances that gives rise, in turn, to several legal issues that need to be resolved in a consistent manner. Three main legal issues triggered by passing-on are identified: (1) Who in the supply chain will have access to court to bring an action in respect of the initial harm caused? (2) Will those parties be able to demonstrate sufficient proximity (within the meaning of applicable substantive law) to the original harmful act or unjustified transaction, as the case may be, to bring a successful claim? (3) Will a possibility for the claimant to pass on the alleged harm or loss be relevant to the estimation of the award? This chapter further identifies the different parties involved in the passing-on problem and their respective interests, introducing shorthand denominators for those parties that are used in the book. Finally the chapter outlines the various EU law contexts in which passing-on has or could occur, and presents the structure of the presentation to follow in subsequent chapters. Keywords: EU law, private enforcement, damages law, restitution law, passing-on, indirect purchasers
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Gerard McCormack, Andrew Keay and Sarah Brown