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Consumer Insolvency in the European Legal Context

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Abstract

Consumer credit, as an important aspect of the free movement of capital, has for a long time now been subject to European Union regulations. However, one important aspect of consumer credit, over-indebtedness, has not been acknowledged in the Consumer Credit directives of 1978 and 2009, nor is there any other European Union law instrument that addresses over-indebtedness or insolvency of consumers. The only European-level document addressing the problem of over-indebtedness of ordinary people is the Council of Europe Recommendation of 2007. In European Union law, over-indebtedness can and should be approached from several angles. The Insolvency Regulation (2000) does not directly address situations facing the consumer debtor and leaves it up to the discretion of the Member States to include or exclude insolvency proceedings for consumer debtors regarding the scope of the Regulation. There can be little doubt that the European Union has a legal basis for action in this field, and it has also used its competence in a number of related issues, such as general insolvency law and enforcement of judgments. Case C-461/11, in which Advocate General delivered her opinion on Sept 13th, 2012 shows that national insolvency procedures for natural persons may constitute a restriction on the freedom of movement. This article argues that, even in the absence of a European Union law instrument, the Member States should recognize debt adjustment judgments made in another Member State and that there is a need for a regulation in the European Union law in this field.

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Notes

  1. In this article, like elsewhere, I use the word consumer in its broad sense covering all debtors who are over-indebted in their private capacity. The debts need not have anything at all to do with consumption; they may be taxes, damages, housing debts, originate from former business activity, from another person’s business, etc. Consumer insolvency refers, thus, to any judicial procedure, in which a natural person can be discharge of pre-procedure debt.

  2. Council Regulation (EC) No 44/2001 of 22 December 2000 on the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

  3. Actually discharge is a European transplant in the USA and the British Commonwealth. When the bankruptcy law travelled from the UK to the colonies, the concept of bankruptcy adopted was one that included discharge of debt. See Mann 2002; Warren 1935; Skeel 2001.

  4. Consumer bankruptcy is the term used in the USA. The language in the European countries varies but commonly the terminology refers to adjustment or sanierung or rearrangement of the debt.

  5. There are several insolvency options available to consumers in the UK, although the access conditions are rather high in each of them. See Green (2009).

  6. The Irish Bankruptcy Code includes a theoretical option for debt relief. The conditions, however, are so harsh that it cannot be counted as a consumer debt relief option.

  7. Council of Europe Committee of Ministers Recommendation (2007)8E on Legal Solutions to Debt Problems.

  8. The International Association of Restructuring, Insolvency & Bankruptcy Professionals made a similar recommendation. See INSOL International, Consumer Debt Report, Report of Findings and Recommendations, 2001. www.insol.org.

  9. In doing so, it largely follows the categorization of the study that the Council of Europe Committee on Legal Co-Operation had commissioned (Niemi-Kiesiläinen and Henrikson 2006); see also Reifner et al. 2003. European Committee on Legal Co-operation CDCJ (2007) 23 Final Draft Recommendation on Legal Solutions to Debt Problems and its Explanatory Memorandum.

  10. EU Consumer Policy Strategy 2007–2013: Empowering consumers, enhancing their welfare, effectively protecting them. COM(2007) 99 final.

  11. Oral statement at Responsible Credit Conference, London, 13-14.11.2008.

  12. Directive 2008/48/EC on credit agreements for consumers which replaced Consumer Credit Directive 87/102/EEC. For the legislative process, see Franken 2009. The 1978 directive had a minimum harmonization approach, allowing countries to offer a higher level of consumer protection if they wished. The 2008 directive is a maximum harmonization directive.

  13. Explanatory memorandum 2002/0222/COD) 23.11.2005, at 3.

  14. On the concept of “responsible lending” in the EU context, see Ramsay 2007a, b; Reifner 2009; Franken 2009; Ramsay 2007a, b.

  15. COM(2002)443 final Proposal for a Directive of the European Parliament and of the Council for the harmonisation of the laws, regulations, and administrative provisions of the Member States concerning credit for consumers; art 8 and 9.

  16. COM(2005)483 final/2 Amended proposal for a Directive of the European Parliament and of the Council on credit agreements for consumers amending Council Directive 93/13/EC. See Franken (2009).

  17. This was achieved through the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 and within the EEA countries through the Lugano Convention on jurisdiction and the enforcement of judgments in civil and commercial matters 1988 and subsequently through Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and through European Enforcement Order Regulation No 805/2004 (EEO).

  18. Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. The Regulation has largely replaced the Brussels Convention (1968) and the Lugano Convention (1988). It is referred to as Brussels I Regulation. See also Council Regulation (EC) No. 2201/2003 of 27 November 2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility (Brussels II).

  19. Regulation (EC) No 861/2007 of July 2007 establishing a European Small Claims Procedure and See (Nylund 2008).

  20. Regulation (EC) No 805/2004 of the European Parliament and of the Council creating a European Enforcement Order for uncontested claims; Regulation (EC) No 1896/2006 of the European Parliament and of the Council of 12 December 2006 creating a European order for payment procedure.

  21. Note, however, that already in 1980 EC issued Directive 80/987 on the protection of employees following their employer’s insolvency.

  22. In the late 1990s, two treaties on international aspects of bankruptcy were concluded, first within the Council of Europe, and then in the European Community (Fletcher 2002). These treaties never entered into force. The reasons were related to the mad cow disease, which affected some Member States’ willingness to co-operate and conclude international treaties.

  23. Council Regulation (EC) No 1346/2000 May 31, 2002 on Insolvency Proceedings as amended 13.3.2010 L 65–1.

  24. Particularly European Court of Justice, May 2, 2006, C-341/04 (Eurofood); see Wessels 2007.

  25. Note also Council Regulation (EC) No 603/2005, 12 April 2005 amending the lists of insolvency proceedings, winding-up proceedings, and liquidators in Annexes.

  26. The liberal discharge provisions of the USA have done nothing to prevent consumer lenders from extensive lending, leading to much higher rates of consumer insolvencies than in the European countries with no provisions or restrictive provisions on discharge. Accounting for other differences between the USA and Europe, this is hardly evidence of anything, except that discharge laws do not necessarily lead to cautious lending.

  27. Case C-461/11 Ulf Kazimierz Radziejewski v Kronofogdemyndigheten I Stockholm. Opinion of Advocate General Sharpston Sept 13th, 2012.

  28. Case C-461/11 Radziejewski opinioin at 25-26.

  29. European Charter of Fundamental Rights, art 21, which through Lisbon and now article 6 of Treaty of European Union has become part of Union law.

  30. Advocate General in Radziejewski at 58-60 on the duty to cooperate.

  31. Case C-461/11 Ulf Kazimierz Radziejewski v Kronofogdemyndigheten I Stockholm. Opinion of Advocate General Sharpston September 13, 2012. In the practice of ECJ national rules, which set very clear cut and rigid rules, are sometimes found to violate EU law.

  32. Advocate General rejects the argument that regulation of jurisdiction should be coherent with the Insolvency Regulation because Sweden has not included its consumer debt adjustment procedure in Annex A of Insolvency Regulation. Opinion of Advocate General in C-461/11 Radziejewski at 66-70.

  33. C-237/94 O’Flynn v Adjudication Officer 1996 ECR I-2617. From the rich case law on indirect discrimination see also Case-152/73 Sotgiu v Deutsche Bundespost 1974. ECR 153 at 160-161; C-278/94 Commission v Belgium 1996; Commission v. Belgium 1992 ECR I-305 and Bachmann 1992 ECR I-249; C-15/69 Württembergische Milchwervaltung-Südmilch-AG v Salvatore Ugliola 1970 ECR 363. Commission v. Belgium 1998 ECR I-47; C-10/90 Masgio vastaan Bundesknappschaft 1991. Generally see Davies 2003, 28; Graig & de Burca 2011, 729.

    The right to establishment has been given in some ways a similar interpretation as the freedom of movement, yet in other ways it comes closer to the freedom of movement of goods and services.

  34. It is possible that the destination country recognizes the plan according to its national rules of private international law (mutual recognition).

  35. See for example C-274/96 Bickel & Franz 1998. The issue was whether the German-speaking foreigners in Italy had the same right to use German language in the local courts as the German-speaking minority in the region.

  36. Concerning the principle of mutual recognition after Lisbon (when the three Pillars are no longer valid), see Möstl (2010, p. 417), who argues that the application of the principle under judicial co-operation is emerging.

  37. The Öresund situation, that is, debtor living in Sweden and working in Denmark is not covered by the Insolvency Regulation as Denmark had dropped out of it.

  38. Concerning the Öresund situation, in which the debtors live in one country (and perhaps have never moved) and work in the neighbouring country, case law from the European court has held that these kinds of cases fall within the scope of EU law. See Tryfonidou 2009 at 110. C-152/03 Ritter-Coulais v Finanzamt Germesheim 2006; C-212/05 Haartmann v Freistaat Bayern 2007; C-470/04 N v Inspecteur de Belastingedienst Oost 2006.

  39. Case C-461/11 Ulf Kazimierz Radziejewski v Kronofogdemyndigheten I Stockholm. Opinion of Advocate General Sharpston September 13, 2012 at 30. In Radziejewski, the issue was residence as the basis of jurisdiction in insolvency and discharge proceeding for natural persons. Similar argument can be made for the recognition of payment plans once confirmed.

  40. An interesting case here is Lehtonen, in which the discriminatory treatment was found when a national of a Member State was put in a different position as compared to persons from non-Member States. A basket ball player, Jyri Lehtonen, was hindered from joining a team in Belgium on the same terms as players that came from teams outside Eurozone leagues. The Court found that a dead line for accepting new players was justified, but a differential treatment regarding the dead line was not justifiable. Jyri Lehtonen and Castors Canada Dry Namur-Braine ASBL v Fédération royale belge des sociétés de basket-ball ASBL.

  41. Tryfonidou 2009, 18.

  42. C-175/78 R v Saunders 1979; C-299/95 Kremzow 1997; imprisonment did not constitute a breach of freedom of movement; in C-180/83 Hans Moser v Land Baden-Württemberg 1984 pp. 17–18 the prospect of being disadvantaged in future search for employment was not sufficient.

    The principle that wholly internal situations do not fall within EU law has been upheld in cases of family reunification, in which nationals have invoked EU law to claim access to their family members as EU law is often more generous than national law. See C-35 and 36/82 Morson and Jhanjan; Elestina Esselina Christina Morson v State of the Netherlands and Head of the Plaatselijke Politie within the meaning of the Vreemdelingenwet; Sweradjie Jhanjan v State of the Netherlands 1982; C-1/05 Jia v Migrationsverket 2006; However, in C-370/90 Singh: R v Immigration Appeal Tribunal and Surinder Singh 1992, the situation was under EU law as Ms Singh had moved out and returned to home country. See discussion in Tryfonidou 2009, 96-106.

  43. ECJ has recognized that the movement of a Member State’s own nationals may lead to discriminatory treatment. In Terhoeve C-18/95, provisions that could preclude or deter national of a Member State from leaving his country of origin in order to exercise his freedom of movement (a duty to pay higher social contribution payments) constituted an obstacle to that freedom even if they applied without regard to the nationality of the workers concerned. See also Case C-137/04 Amy Rockler v Försäkringskassan 2006 and C-353/06 Grunkin and Paul 2008.

    Indirect discrimination and discrimination of own nationals who have received their professional education and license in another Member State have been subject to case law and are now covered by secondary EU law.

  44. C-415/93Bosman 1995; C-325/08 Olympique Lyonnais SASP v Olivier Bernard and Newcastle UFC. 2010; C-176/96 Lehtonen and Castors Braine 2000. See discussion on Bosman and Lehtonen in Davies 2003, 68-76.

  45. For example, 1 C-325/08 Olympique Lyonnais SASP v Olivier Bernard and Newcastle UFC. 2010.

  46. Bäck v. Finland 20/10/2004 Appl. 37598/97, especially at 53 and 59.

  47. Even if it should not be doubted that the protection of credit markets is a legitimate interest, a very general economic aim as a justification for a restriction can be somewhat suspect. In Rockler, the Court rejected an argument of the financial burden on the social security system as a justification.C-137/04 Amy Rockler v Försäkringskassan 2006.

  48. If the opinion of the Advocate General in Radziejewski C-461/11 is accepted by the ECJ, the discriminatory nature of non-recognition of some payment plans is difficult to refute.

  49. The Gebhard test included four steps: (1) non-discrimination, (2) the general interest pursued should be an “imperative requirement” (now formulated as objective justification), (3) the restriction should be suitable for the securing the attainment of the objective which they pursue, and (4) they must not go beyond what is necessary in order to attain it. C-55/94 Gebhard 1995, at 37; C-325/08 Olympique Lyonnais SASP v Olivier Bernard and Newcastle UFC. 2010 at 38. Advocate General in Radziejewski C-461/11 at 32.

  50. Regulation (EU) No 492/2011 of the European Parliament and of the Council of 5 April 2011 on freedom of movement for workers within the Union.

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Niemi, J. Consumer Insolvency in the European Legal Context. J Consum Policy 35, 443–459 (2012). https://doi.org/10.1007/s10603-012-9215-8

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