Cross-Border Insolvency as a Socio-Economic Second-Chance Mechanism in the European Union

Abstract

The European Union has established a transnational framework for insolvency proceedings through Regulation (EU) 2015/848 on insolvency proceedings. The Regulation determines international jurisdiction for main insolvency proceedings primarily by reference to the debtor’s centre of main interests (COMI). For individuals, this may allow access to insolvency proceedings in a Member State other than their country of nationality or previous residence, provided that the COMI has been genuinely relocated and can be established under the criteria of the Regulation. This paper conceptualizes cross-border personal insolvency not merely as a question of jurisdiction, but as a socio-economic second-chance mechanism that may influence individual recovery trajectories and broader economic participation within the European Union.To place this contemporary function in context, the paper briefly traces the historical development of insolvency law from earlier punitive approaches toward debtors to modern systems of collective debt resolution, discharge, and financial rehabilitation. In doing so, it also considers the influence of common law and Commonwealth legal traditions on the evolution of insolvency concepts, particularly the gradual shift from creditor-driven enforcement and debtor sanctioning toward structured debt resolution, discharge mechanisms, and economic reintegration. This historical perspective highlights the transformation of insolvency law from a sanction-oriented mechanism into a legal framework that increasingly seeks to balance creditor protection with the debtor’s return to economic participation.Despite EU-level coordination, significant differences remain between national personal insolvency regimes, particularly regarding time to discharge, the treatment of secured and unsecured debts, procedural costs, access requirements, and the visibility of insolvency information in public registers. These differences may affect access to financial rehabilitation and can create incentives for over-indebted individuals to consider lawful relocation where a genuine COMI can be established. Against this backdrop, the paper addresses the central research question: to what extent can cross-border personal insolvency function as an effective and legitimate instrument for socio-economic reintegration within the European Union?Methodologically, the study adopts a comparative and conceptual approach, examining selected insolvency regimes within the EU with a focus on structural variables that are critical from an individual debtor’s perspective. These include time to discharge, treatment of residual debts, procedural accessibility, administrative burden, and the potential reputational implications associated with public insolvency registers. The analysis is complemented by a system-level perspective on how these variables may shape behavioral responses, decision-making processes, and access to legal remedies.Methodologically, the study adopts a comparative, conceptual, and historically informed approach, examining selected insolvency regimes within the EU with a focus on structural variables that are critical from an individual debtor’s perspective. These include time to discharge, treatment of residual debts, procedural accessibility, administrative burden, and the potential reputational implications associated with public insolvency registers. The analysis is complemented by a system-level perspective on how these variables may shape behavioral responses, decision-making processes, and access to legal remedies.In addition, the paper investigates the role of advisory and intermediary service models that facilitate cross-border insolvency procedures. These include legal advisers, personal insolvency practitioners, and relocation-related service providers. Such models may reduce informational complexity and improve access to lawful insolvency solutions, but they may also introduce new asymmetries in decision quality, cost exposure, and access to professional guidance. This dual perspective allows for a more nuanced assessment of cross-border insolvency as both an enabling mechanism and a source of emerging systemic challenges.The findings indicate that cross-border personal insolvency can contribute to financial recovery, reduce long-term socio-economic exclusion, and support the EU’s policy objective of promoting entrepreneurship and second-chance opportunities. However, the legitimacy and sustainability of this mechanism depend on maintaining a clear distinction between genuine COMI relocation and artificial forum shopping, addressing regulatory fragmentation, ensuring transparency, and mitigating risks associated with unequal access to professional support and strategic jurisdictional behavior.

Keywords: EU Insolvency Regulation, COMI Relocation, Cross-Border Insolvency Proceedings, Legal Pathways to Debt Discharge

DOI: 10.54941/ahfe1008130