protocol mechanism in civil law countries. Therefore, as the effectiveness of protocols remains limited, especially in non-binding recommendations, the merits of protocols lie in the uniqueness of every case.
(B) Choice Model
This section examines the Choice Model as a solution to the problem of cross-border insolvencies of MCGs at the EU level.155 Choice model gives the creditors and the debtors the right to select the jurisdiction and the applicable law preferable to them.156 In other words, the courts have the power to determine where the COMI is located only if the parties have not reached an agreement to locate the jurisdiction and the applicable law. This solution is suggested by legal scholars as an effort to address the current gap in the treatment of a group of companies.157 It is also relevant because the New Recast EIR 2015 does not reflect any reform in this area.
The rationale for adopting the Choice Model mechanism is based on the option to choose the most efficient law. Indeed, choice model would not restrict companies to domestic insolvency proceedings. Rather, it allows the parties to choose the law of another Member State if that other law will be more favourable and efficient to them and if it permits restructuring that is unavailable under the original law.158 In other words, companies would select across the EU Member States the most efficient legislation, thereby avoiding slow and inefficient
155Robert Rasmussen, ‘Resolving Transnational Insolvencies Through Private Ordering’ (1999) 98 Michigan
Law Review 2252; John Pottow, ‘Beyond CarveQuts and Toward Reliance: A Normative Framework for Cross-Border Insolvency Choice of Law’ (2015) 9 Brooklyn Journal of Corporate, Financial and Commercial
Law 196,208.
156Jackie Gardina, ‘The Perfect Storm: Bankruptcy, Choice of Law, and Same-Sex Marriage’ (2006) 86 Boston
University Law Review 881.
157Christenson (n 34) 1591.
158Horst Eidenmuller, ‘Free Choice in International Company Insolvency Law’ (2005) 6 European Business Organization Law Review 429.
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regulations.159 Two alternatives are available to implement the choice model in the EU. The first option is to permit free selection of the insolvency law to be applied. 160 The second option is to replace the COMI as a choice of forum and choice of law criterion.161
Under both options of the Choice Model mechanism, the insolvency procedure becomes more predictable for all relevant parties, because they have explicitly selected the choice of law and therefore they can anticipate in advance the rules and costs associated with the proceedings.162 Indeed, predictability is crucial to lenders and other contract creditors because they need to assess the risk and the cost of this agreement based on the country where the insolvency proceedings would potentially take place. Thus, they need to know a the time they make the loan agreement which country’s laws will apply in the event of insolvency.163 Thus, in the case of liquidation, the rules will be beneficial to creditors and investors of the company.164
Additionally, the Choice Model mechanism mitigates the problem of abusive forum shopping through identifying, at the time of the establishment of a company, in its articles of association, the court which will have jurisdiction to handle any bankruptcy problem that might occur in the future.165 Also, parties’ agreeing regarding the country, court and law ultimately supports the universalism scheme, which in turn facilitates efficient insolvency proceedings. Also, the choice of law model would enhance overall efficiency by permitting
159 Robert Rasmussen,‘A New Approach to Transnational Insolvencies’ (1997) 19 Michigan Journal of
International Law 1.
160Bolleyer Reh (n 113) 472.
161Eidenmuller (n 158) 438; John Armour, ‘Who Should Make Corporate Law: EC Legislation versus Regulatory Competition’ (2005) 58 European Corporate Governance Institute 401.
162Rasmussen (n 155) 2252.
163Christenson (n 34) 1591.
164Lynn Lopucki, ‘Cooperation International Bankruptcy: A Post-Universalist Approach’ (1999) 94 Cornell
Law Review 696.
165Robert Rasmussen, ‘Debtor’s Choice: A Menu Approach to Corporate Bankruptcy’ (1992) 71 Texas Law Review 51.
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the parties to choose the most preferable insolvency law.166 Thus, this option allows the parties to select the acceptable law, which will, in most cases, lead to a more effective procedural or substantive outcome for all the creditors, particularly involuntary creditors (e.g. tort victims).167 However, it can be argued that it is extremely difficult to define and to know what the acceptable law is. Besides, this acceptable law may not be acceptable to all parties.
In furtherance of this shortcoming, Schwartz has demonstrated the potential problem of debtors’ circumstances, which may change from the time of establishing the company to the time of bankruptcy. If the initial choice was efficient at the beginning, it may not be efficient after a while.168 Similarly, the debtors, in most cases, have the tendency to select the jurisdiction that serves their own interests instead of choosing the most efficient insolvency law, and this may negatively affect the creditors’ interests.169 In addition, it has been submitted that the choice model approach can have a negative impact on creditors who have enforceable security interests according to a certain jurisdiction.170 The choice model also does not deter parties from opening secondary proceedings, which may reduce the efficiency of the insolvency proceedings.171
Taken together, the foregoing analysis suggests that the choice model has a number of advantages, as it permits the directors and shareholders to select the most useful and efficient regime. However, this model is unpredictable for all creditors and does not serve the interests of all of the concerned parties. Thus, companies do not enjoy the right to select the insolvency law that serves their needs irrespective of the creditors’ expectations.
166Bolleyer and Reh (n 113) 472.
167Christenson (n 34) 1591.
168Alan Schwartz, ‘A Contract Theory Approach to Business Bankruptcy’ (1997) 107 Yale Law Journal 1807.
169Fletcher and Wessels (n 103) 56.
170ibid.
171Frederick Tung, ‘Is International Bankruptcy Possible?’ (2001) 23 Michigan Journal of International Law 31.
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