2. 2. L O G I C A N D L I M I T S O F L U R O P L A N I N S O L V E N CY LAW

In The Logic and Limits of Bankruptcy Law, Jackson sets out to show how, in his view,

insolvency law's objective implies limits for insolvency law policy: how the objective

ot insolvency law 'suggests certain things it should nor be doing'.5 Below, the objective

of insolvency law is being replaced with Community law's objective of marketintegration.

Does the objective of (Community law to establish and maintain an internal

market contain any'logic and limits' for insolvency policy, and more specifically, does

i t generate any constraints on what interests Member States mav lawfully pursue

through their insolvency law?

Essentially this is an inquiry as to the existence of European principles of insolvency

law or the basic contours ol a European insolvency model. Such an inquiry mav sound

over-anxious and far-fetched. At the very most, Community action in the field of, or

related to, substantive insolvency law has been marginal and in anv event highly

Section 'I'wo. Community Law and Cross-Border Insolvency Regulation

The Court has, however, provided little guidance in its decisions as to what interests

could potentially justify exceptions to one of the freedoms as mandatory requirements

of the public interest. In fact, so far the Court has come to only one, albeit negative,

requirement tor possible mandatory requirements of the public interest. The Court

has consistently held that the exceptions must concern interests of a non-economic

nature.1 It is not necessary that no economic interest is invoked, nor is a Member

State precluded from seeking justification for the application of a measure because

it would also serve an economic interest.1 Thus, for instance, in Evans Medical it

concerned a United Kingdom prohibition on the importation of a certain dru»

combined with exclusive rights of manufacture and processing for two domestic

companies. This clearly constituted a breach of the free movement of goods in the

sense of Article 28 EC. As to the possible justification the Court held that

[aj measure which restricts intra-Commimity trade cannot ... be justified by a

Member State's wish to safeguard the survival of an undertaking'."

The measure could nevertheless be justified as a State's need to ensure reliable supplies

for essential medical purposes, coming within the meaning of the protection of the

health and life of humans in the sense of Article 30 F.C. As far as insolvency law is concerned,

the survival of an undertaking is not an end in itself but, like in Evans Medical,

a means to attain other objectives. The question therefore is whether these objectives

may justify obstacles to trade.

It is far from clear what exactly should be understood as an economic or non

economic interest. The distinction is particularly difficult as the Court has allowed

Member States to justify measures which 'reflect certain social and economic choices'

or form a 'legitimate part of e c o n o m i c and social p o l i c y ' . 1 ' The judgment in Campus

Oil may provide some insight as to where to draw the line between economic and not1

economic for the purposes of the freedoms.1 " The case concerned a measure by the

Irish government imposing a duty on importers ot oil products to acquire 35 percent

of their requirements from a state owned refinery at a fixed price. The C lourt had little

problem in holding that the measure amounted to a restriction on trade. Subsequently,

the question was whether it could be justified under Article 30 F.C. The Court observed

that Article 30 F.C

refers to matters of a non-economic nature. A Member State cannot be allowed

to avoid the effects of measures provided for in the Treaty by pleading the economic

difficulties caused by the elimination of barriers to intra-community trade.'

In the Court's opinion the Irish rule transcended purely economic reasons and was

covered by the exception of public security. In Campus Oil the Court directly links

the non-economic nature of mandatory requirements with the establishment of a

common market by removing trade barriers as provided for in the F.C Treaty. In other

words, the intended effects of the freedoms are no defence against them.4 " A protectionist

element seems to be the operative factor in drawing the line between the economic

and the non-economic.1 " As Advocate General Lenz observed in Dn Pont dc

Nemours: 'it is a well-established principle that a Member State may not rely on

mandatory requirements in order to protect its domestic economy'."'

In respect of the objectives of the law of deployment in insolvency the interest of

preserving or enhancing the aggregate value ofthe estate raises little concern. Although

doubtless economic in nature in one sense, there is no protectionist element in attempting

to preserve and enhance the economic value. In trying to establish any 'logic and

limits' of Community law for national insolvency law, the pivotal question is whether

the wider aims of insolvency law, such as employment and economic infrastructure,

can be recognised as mandatory requirements capable of justifying obstacles to trade.

Von Wilmowsky considers it self-explanatory that 'avoiding unemployment,

maintaining competitive markets, the convergence of the standard of living by

stimulating underdeveloped regions as well as the mitigation of economic imbalances

I Section T w o . C o m m u n i t y L aw a n d C r o s s - B o r d e r I n s o l v e n c y R e g u l a t i on

(Konjiinkti<rsehwankiuigeu) constitute mandatory requirements of the public interest

and are thus in principle capable of justifying restrictions of the freedoms of the EC

T r e a t y ' . ' 1 However, in light of the Court's case law, such as Campus Oil, it is in fact

far from clear that these interests of insolvency law are compatible with the common

market in the sense that they may justify restrictions of o n e of the freedoms. On the

contrary, at first sight there is considerable tension between the rationale underlying

the non-economic nature requirement and these wider objectives of the law of depkn -

ment. The reorganisation and rescue of failing businesses in order to protect employment

or economic infrastructure contravenes the functioning and outcome of the

market and directly distorts free competition.' The economic freedoms and the common

market in general envisage the optimal allocation of resources through market

forces. It could therefore be argued that insolvency law should do no more than to

regulate and rationalise the market-exit of inefficient economic operators. Where

insolvency law goes beyond rationalising and rather aims to question or even to

prevent forced market-exit, its compatibility with the market becomes suspect. Consequently,

to regard the broader aims of the law of deployment as mandatory requirements

capable of justifying obstacles to trade is all but self-explanatory and needs

further examination.

The question of the compatibility of the wider objectives of insolvency law with the

common market is not an unfamiliar one in Community law. In the context of state

aids the question has frequently come before the Commission and the Court.

According to the Couit, Article 28 EC and Article 87 EC share a common purpose,

namely the free movement under normal conditions of competition. " T h e relationship

between the law on state aids and (national) insolvency law should therefore be

examined in some depth.