1.2.3. Unsecured Transactions

While it follows from the nature of secured transactions that the universal application

of the insolvency law of the forum results in a sufficiently direct and certain effect on

intra-Community trade to qualify as an obstacle to trade, in respect of unsecured

transactions this is less evident. One could argue that unsecured creditors accepted

the risk of not receiving anything in the event of the debtor's insolvency or they would

have demanded security. As they did not do so, they essentially allowed the debtor to

use his or her entire estate as collateral in the course of secured transactions.-"

Translated to a Community context, as (the materialisation of) the risk of insolvency

was apparently irrelevant for the creditor in his or her decision to enter into a transaction

with the debtor the requirement of causality may not be fulfilled. However, from

I Section Two. Community Law and Cross-Border Insolvency Regulation

164

Chapter five. Community Law and Universality of Insolvency I

See c h a p t e r 1, in p a r t i c u l a r para. 1.1.2.

See c h a p t e r 2, p a r a . 2.

See c h a p t e r 2. para. 1.1.

fori conciirsus. The economic freedoms require the articulation of the concrete interests

pursued by measures subject to the need for justification."

Through their claim of universal applicability, Member States essentially aim to

safeguard the international realisation of the two central objectives of insolvency lawoptimal

deployment and equitable distribution. By extending its own insolvency law

universally, a state aims to implement these objectives of its substantive law internationally.

Admittedly, universality has been defended on various additional grounds.

For instance, the law of the forum would be the most suitable or even the only possible

law to achieve these goals.5 1 In the context of the freedoms, these arguments relate to

the proportionality and necessity of the universal application of the law of the forum

to attain the objectives of deployment and distribution. These arguments are therefore

subject to review at a later stage.

Although all national legal systems address both the questions of deployment and distribution,

there are fundamental differences in what is understood by optimal and

equitable. Consequently, the freedoms require the further identification of the interests

informing national law of what is to be understood as optimal deployment and equitable

distribution. As discussed earlier, one may distinguish two basic approaches to

insolvency law and its objectives: the economic account and the more open-ended

a c c o u n t . ' '

In respect of what is to be understood as 'optimal deployment', the two schools differ

fundamentally about what is optimal (and who is to decide what is). The economic

account considers insolvency law's historic purpose to be one ot debt-enforcement

for the benefit of creditors only. The sole function of insolvency law is, or ought to

be, to provide creditors with a means to maximise the value of the debtor's estate, their

common pool. As such the economic account i s neutral regarding the choice between

liquidation or reorganisation and the manner in which this is achieved. The mode of

deployment is solely dependent on which form yields the higher return for the creditors.

The multi-purpose approach, on the other hand, rejects this narrow objective

of insolvency law and considers the central question of insolvency to be how to deal

with business failure and its related costs. These costs are not limited to those of

creditors only, but include the interests of other parties and the public at large which

are not readily translatable in monetary terms but which are nevertheless real. These

include social costs such as the effect of insolvency on employment, industrial or

regional economic infrastructure and others. These wider concerns (ought to) form

part of the decision on how to deploy the debtor's estate.

due to different levels of protection is 'particularly' and 'more' strong because of the

nature of the service. Package-travel often involves substantial advance payments and

the supply of services in a State other than that in which the consumer is resident.

Advance payments may arguably increase the insolvency risk for the consumer. Likewise,

the insolvency of an employer may have dramatic consequences for the employee

and his or her dependants who rely on the employment to maintain a level of income.

Consequently, it cannot be excluded that the effects of insolvency on entitlements

arising from unsecured transactions, if perhaps not generally, will pass the 'sufficiently

certain and direct' threshold.