Definition of Insolvency: Proposals for Harmonisation in the European Union

With its Proposal for a Directive harmonising certain aspects of insolvency law (2022/0408 (COD)), the European Commission is aiming to harmonise national insolvency laws. Terms such as “insolvency” or “inability to pay debts” are used, but have not yet been defined in EU law. However, harmonisation attempts cannot be successful without such definitions. It cannot be assumed that courts and insolvency practitioners in all countries will understand and apply these terms in the same way. On closer inspection, it turns out that national laws differ so much on this point that there can be no question of a common understanding of the term insolvency and its subspecies.

The present book, which is the fruit of a research project, has therefore set itself the task of using detailed questionnaires to record the definitions of the terms “inability to pay debts”, “cessation of payments”, “likely or imminent inability to pay debts”, and “overindebtedness” in the national laws of all EU Member States (and the UK). It quickly became apparent that, although these terms are used in all or at least many States, the understanding of the terms differs widely. There can be no doubt that harmonisation of insolvency law cannot succeed if one does not simultaneously define what is meant by insolvency.

On this basis, proposals for definitions have been drawn up, the adoption of which is recommended to the European legislator. This was done based on a principle-oriented method, in which the basic principles of insolvency law are identified, weighed and balanced, with a view to the regulatory task of the terms examined. This method has already proven its worth in an earlier research project on the harmonisation of transaction avoidance laws and led to the working group's regulatory proposals that were adopted by the European Commission in the proposal for a harmonisation Directive. The present project has also succeeded in developing generally acceptable proposals for the definitions of insolvency and its subtypes on this basis, which, it is hoped, will meet with the approval of the European legislator.

The report is accompanied by impact assessments in which the members of the working group comment on how the adoption of the proposals into European law would affect the laws of the Member States. As it turns out, despite all the differences between the EU Member States, there are no insurmountable difficulties.