Optimal allocation of law-making power over bankruptcy law in “federal” and “quasi-federal” legal systems: is there a case for harmonizing or unifying bankruptcy law in the E.U.?

In “federal” or “quasi-federal” legal systems, the competence over bankruptcies can be allocated either to the “federal' level” or to the “member states”. In this regard, the E.U. and the U.S. follow two different paths: while in the U.S. bankruptcy law is federalized, in the E.U. it is governed by member states. E.U. law has only unified choice-of-law and choice-of-forum criteria through a Regulation enacted in 2000, according to which, the main insolvency proceeding is governed by the jurisdiction of debtor’s “Centre of Main Interests” (“COMI”). This mechanism was meant to grant legal certainty and to avoid forum shopping, but was conceived in a 'static' world, where corporations could not freely transfer their headquarters into another member state and could not reincorporate abroad. This world, however, has collapsed, due to the increasing integration of the European markets and the evolution of E.U. law. European corporations now often have assets, activities and even headquarters in member states different from the state of incorporation and, additionally, can reincorporate from one state to another. The consequence is that, in this new environment of increasing corporate mobility, the E.U. Regulation is not able to reach its original goals. Thus, the question arises as to whether the Regulation should be amended and whether bankruptcy law should be harmonized or even unified at the European level. Full harmonization, in theory, has a number of advantages. Nonetheless, in the paper I argue that, at the present stage of the evolution of the E.U. institutions, it is more desirable to allow transparent regulatory arbitrages and forum shopping. I suggest replacing the COMI with the registered office, as choice-of-law and choice-of-forum criterion for bankruptcies: in this way, by reincorporating in another country, corporations would transparently also choose the preferred bankruptcy law. In order to grant to member states the power to protect local interests, however, certain rules with redistributive impact can be carved-out from general bankruptcy law and regulated by the law of the state of the COMI.