Studies in Convergence? Post‐Crisis Effects on Corporate Rescue and the Influence of Social Policy: The EU and the USA

• Author: Jennifer L. L. Gant
• DOI: http://doi.org/10.1002/iir.1246
• Published date: 01 March 2016
• Date: 01 March 2016

Studies in Convergence? Post-Crisis Effects

on Corporate Rescue and the Influence of

Social Policy: The EU and the USA

1

Jennifer L. L. Gant*

Nottingham Trent UniversityNottingham Law School, UK

Abstract

The financial crisis and the sovereign debt crisis that it precipitated in a number of

peripheral EU Member States heralded massive changes in insolvency, corporate

rescue and employment protection policies. The US and the EU both suffered

greatly in the wake of the crisis, but their recoveries have occurred along very

different tracks. The US has managed to regain much of its position in terms of rel-

ative growth and the UK has outpaced the recoveries of those European countries

that are members of the European Monetary Union. The purpose of this treatise is

to explore the context of the 2007–2008 financial crisis in the US and in the EU

and its impact on legal reform in corporate rescue and restructuring as well as

those aspects of social policy implicated within insolvency systems (notably collec-

tive redundancy and transfers of undertakings). It will also consider whether or

not the corporate rescue and employee protection systems can be seen to be

converging, and whether, in view of the different socio-economic, political and

cultural aspects of the US and the EU, such convergence might be beneficial.

Copyright © 2015 INSOL International and John Wiley & Sons, Ltd.

I. Introduction

It is a different world since the beginning of the financial crisis of 2007. Where there

was once an emphasis on the protection and creation of workers’rights in many

nations, particularly within the European Union,

2

these are now being tempered

*

Email: JenniferL.L.Gant@gmail.com

1. This piece was the recipient of the 2014 inaugural

Ian Strang Founders Award sponsored by INSOL In-

ternational and was presented at the INSOL Interna-

tional Academics Colloquium in San Francisco,

California USA on 24 March 2015. The author would

like to thank INSOL International for this opportunity

and the Ian Strang Award board for the honour of

choosing this piece.

2. Hereafter referred to as the “EU”.

Copyright © 2015 INSOL International and John Wiley & Sons, Ltd. Int. Insolv. Rev., Vol. 25: 72–96 (2016)

Published online 23 December 2015 in Wiley Online Library

(wileyonlinelibrary.com). DOI: 10.1002/iir.1246

by pressing financial issues of sovereign debt, weakened national economies and

soaring deficits. Not every country experienced the financial crisis in the same

way. This is due in part to their position in their economic cycles prior to the crisis,

the fundamental strength of national economies preceding the crisis, the effects of

membership of the European Monetary Union

3

and the spending habits of govern-

ments and consumers. The United States

4

and the EU have fared differently, while

individual EU Member States provide interesting examples of the diverse range of

impact that the financial crisis has had throughout the western world.

The financial crisis had a pervasive impact on the real economy of the EU.

5

Nearly all high income countries suffered an increase in debt during the recession

that followed. One of the fundamental differences between EU and US economies

is the fact that although the EU Member States are bound by a common currency,

they are not constrained by a common fiscal policy. Thus debt ratios and budget

deficits vary significantly across all EU Member States, despite the fiscal restric-

tions contained in the EU Treaties.

6

The extent to which the financial crisis

affected individual Member States depended on their initial economic and regula-

tory conditions and vulnerabilities, often associated with the initial and ongoing

effects of joining the EMU.

7

Since the beginning of the financial crisis there have been massive changes in

national approaches to the regulation of aspects of national and supranational

economies and social policies. This is particularly evident in the changes that have

occurred throughout the EU in its reduced emphasis on social protections, in

favour instead of a more neo-liberal approach designed to support its weakened

economic status. Member State reforms under these revised EU policies as well

as the austerity measures required in those States that are party to Memoranda

of Understanding

8

in return for financial support have seen the steady erosion of

workers’rights generally, while the “rescue culture”

9

has been steadily infused into

Member State legal systems. While the presence of good rescue mechanisms may

mitigate to some extent the loss of social protection, it is questionable whether or

not such reforms are capable of going far enough to protect the most vulnerable

of those EU citizens affected by the financial crisis.

The US and the EU are often seen to conflict in their approach to social policy

issues, although the US also presents an often emulated rescue regime in Chapter

11 of the US Bankruptcy Code.

10

Both the EU and the US have been significantly

affected by the financial crisis, but the US has been able to recover more quickly

3. Hereafter referred to as the “EMU”.

4. Hereafter referred to as the “US”.

5. Commonly referred to as PIIGS (Portugal, Italy,

Ireland, Greece and Spain); for the purpose of this

paper, they will be referred to as the GIIPS.

6. TGrennes,“Diminishing Quality of Fiscal Institutions

in the US and the EU”(2013) 33(1) Cato J 91, 101.

7. “Economic Crisis in Europe: Causes, Consequences

and Responses”(2009) 7 European Economy –Economic

and Financial Affairs 8-10, 20–27.

8. Hereafter referred to as “MoU”.

9. An economic policy emphasising the priority of re-

habilitating viable companies in financial distress for

the purposes of preserving their economic value as well

as the livelihood and well being of those dependent

upon an enterprise, including unsecured creditors, em-

ployees, communities and other stakeholders.

10. An Act to Establish a Uniform Law on the Subject of

Bankruptcies enacted by the 95

th

United States Congress

Pub L 95-598, 92 Stat 2549 of November 6 1978.

Post-Crisis Effects on Corporate Rescue and the Influence of Social Policy 73

Copyright © 2015 INSOL International and John Wiley & Sons, Ltd. Int. Insolv. Rev., Vol. 25: 72–96 (2016)

DOI: 10.1002/iir