The European Union Convention on Insolvency Proceedings: Choice-of-Law Provisions (1998)

IAN F. FLETCHER^ I. INTRODUCTION For those already well familiar with the principal characteristics of a cross-border insolvency and the typical problems confronting the insolvency practitioner, the European Union/European Community (EU) introduces a further range of issues and complexities. There are numerous ways in which the fundamental principles of the Union, which are based upon the concept of a unified internal market, may be transgressed during the course of an international insolvency. Typical problems include: (1) the incompatibility of different national systems of insolvency law, (2) the legal and procedural obstacles to the recognition of the officeholder's standing to represent the collectivized interests in the insolvent estate and to assert claims to the debtor's foreign assets, and (3) the numerous possibilities for exploitative behavior by creditors and debtors alike. The European Union Convention on Insolvency Proceedings, which has not yet entered into force due to last minute intransigence by the United Kingdom in May 1996, attempts to resolve many of these issues and complexities. The Convention, when in force, will embody important and far-reaching provisions affecting: (1) issues of jurisdiction in insolvency matters; (2) mutual recognition and enforcement of insolvency proceedings between member states of the EU; (3) the actual conduct of transnational proceedings, including improved arrangements for creditor participation; and (4) choice of law in virtually all questions bearing upon the conduct of insolvency proceedings.1 This paper is devoted to the examination of the choice-of-law issues with which the Convention endeavors to deal.2 II. THE CHOICE-OF-LAW PROVISIONS OF THE EU CONVENTION A. Introduction The choice-of-law process is central to the entire subject of conflict of laws. It is a process whose very raison d'etre-the factual state of the world, subdivided into numerous, distinct legal systems differing from one another in myriad ways both great and small-is also the cause of a severe, and fundamental, paradox that generates a perpetual threat of chaos and anarchy from what purports to be a principled attempt to achieve the very opposite effect. This paradox occurs because, just each system of law reflects the aspiration of a distinct community or society to regulate its affairs according to its own unique set of values, traditions, and principles, so has the historic course of development of the science of conflict of laws followed the same, diversified pattern. As a result, there are as many systems of conflict of laws there are legal systems themselves. This multiplicity has come about because each system of law has responded to the essential challenge of the collision of laws in its own characteristic way so that, over time, a distinctive corpus of rules, methods, and techniques has evolved to constitute the private international law for that system. Thus, conflict of laws is not only the product of legal diversity, but is itself the producer of further diversity. The final result of a transnational case can vary quite often depending on the venue in which the legal proceedings actually take place. In the orthodox forms of interparty litigation such anomalies may be troublesome, but there are frequently some possibilities for preplanning-or retrospective resolution-when the number of interested parties is manageably small (even few two). In a transnational bankruptcy, however, the collective nature of the proceedings, and the diverse mixture of interested parties embroiled in what generally purports to be a comprehensive resolution of the insolvent debtor's affairs, preclude such relatively simple ways of accommodating the competing interplay of laws. The very fundamental nature of insolvency laws within the fabric of the society to which they belong means that, in practice, profound and irreconcilable differences of outcome are ultimately dependent upon which state's law is applied substantively in the case, either to the whole or at least to some specific issue. …