The harmonisation of insolvency law has become a central element of the European Union’s wider agenda for competitiveness, financial integration and cross‑border investment, driven by concerns that divergent insolvency outcomes across Member States undermine the ability of creditors, investors and companies to assess legal and commercial risk. This uncertainty may affect the pricing of credit, the structuring of security, the willingness to invest and the prospects of business rescue.
Against this background, the EU has pursued two related approaches. The first is the adoption of Directive (EU) 2026/799 of the European Parliament and of the Council of 30 March 2026 harmonising certain aspects of insolvency law, which requires Member States to align selected areas of their national insolvency frameworks by 2029. The second is the development of the so-called 28th Regime, an optional EU-level framework which would exist alongside national systems and which businesses may be able to choose in certain circumstances.
Wolf-Georg Ringe’s paper, One Size Fails All? EU Insolvency Law between Harmonisation and 28th Regime, provides a useful basis for assessing these developments. Its central argument is not that insolvency harmonisation is inherently undesirable. Rather, it cautions against treating harmonisation as an obvious cure for market fragmentation. Insolvency law is shaped by national choices concerning creditor protection, business rescue, labour protection, court structures and broader economic policy. As a result, common EU rules may achieve formal legal alignment without necessarily producing the same commercial outcomes across Member States.
Directive (EU) 2026/799 addresses these concerns by harmonising several targeted areas of insolvency law. A central area is the regime on avoidance actions. These rules allow certain transactions entered into before insolvency to be challenged and, where appropriate, unwound. They are intended to prevent a debtor from depleting the insolvency estate before proceedings begin, for example by favouring one creditor over others, transferring assets for inadequate value, or entering into transactions intended to prejudice creditors generally.
Avoidance actions therefore illustrate both the value and the difficulty of harmonisation. On the one hand, if such rules are too weak, value may be removed from the estate before creditors can act. On the other hand, if they are too broad, ordinary commercial transactions may later be exposed to challenge, creating uncertainty for counterparties. The Directive therefore addresses a real problem, but it also raises the question whether the same balance between creditor protection and transactional certainty is appropriate across all Member States.
Beyond avoidance actions, the Directive also addresses asset tracing, by improving access to information on assets that may form part of the insolvency estate, including through bank account registers and relevant databases. It further introduces pre-pack proceedings, allowing the sale of a debtor’s business to be prepared before formal insolvency proceedings are opened, with the aim of preserving value and business continuity. In addition, it deals with directors’ duties in financial distress, creditors’ committees and transparency obligations, all of which may affect how creditors assess risk and how distressed businesses are managed.
However, while these reforms are commercially relevant, their practical impact will depend on more than the wording of the Directive. Insolvency law continues to interact with property law, tax law, company law, labour law, contract law, security rights and civil procedure. These adjacent areas remain domestically regulated. As a result, even harmonised insolvency rules may operate differently across Member States because the surrounding legal systems remain different.
The same applies to institutional capacity. Recovery rates and restructuring outcomes are shaped not only by substantive law, but also by court efficiency, judicial expertise, insolvency practitioner experience, administrative capacity and enforcement culture. A rule may be identical in wording but different in operation if one jurisdiction has specialised courts and efficient procedures while another faces delays or limited institutional resources. Therefore, transposition of a harmonised regime may align legal language, but it does not automatically align legal practice.
Accordingly, the difficulty is not that harmonisation lacks value. Targeted convergence may address real obstacles to cross-border investment and restructuring. The concern is that harmonisation should not be treated as an end in itself. The more important question is whether the rules adopted will produce outcomes that are predictable, enforceable and commercially workable across the diverse legal and institutional systems of the Member States.
It is in this context that the proposed 28th Regime becomes significant. Unlike mandatory harmonisation, an optional regime would not require all Member States to reshape their domestic insolvency systems in the same way. Instead, it would create a parallel EU framework which businesses could choose where it offers a clearer, faster or more commercially attractive route. In principle, this could combine legal certainty with respect for national diversity.
The advantage of optionality is that the regime would be tested by the market. If it is efficient, predictable and cost-effective, businesses will have an incentive to use it. If it is too complex or unattractive, it will have limited uptake. It may also encourage regulatory competition, since Member States may be prompted to modernise their own insolvency frameworks if a credible EU alternative becomes attractive.
However, the 28th Regime also raises important design questions. The timing of adoption is critical. If a company chooses the regime at incorporation, creditors and investors can assess that choice from the outset. The position is more difficult if an existing company is allowed to switch into the regime after debts have already been incurred. A creditor may have lent on the assumption that a particular national insolvency law would apply. If the debtor later moves into an EU regime that changes creditor rights, that creditor may face a risk which was not priced into the original transaction.
Accordingly, any optional insolvency regime would need robust safeguards. It should specify who may decide to opt in, whether and when creditor consent is required, how pre-existing obligations are protected, whether a company may later exit the regime and how opportunistic changes of applicable law are prevented. Without such safeguards, optionality may generate new uncertainty rather than reduce existing fragmentation.
The debate should therefore move beyond the simple question of whether EU insolvency law should be harmonised. The more important issue is what kind of convergence is capable of delivering real legal certainty. Directive (EU) 2026/799 is a significant development, but uniform rules will only be useful if they translate into predictable outcomes for creditors, investors and businesses. In that respect, the 28th Regime should be seen not merely as an alternative to harmonisation, but as a possible testing ground for a more practical European insolvency framework. Its success will depend on careful design, particularly in relation to creditor protection, timing of adoption and safeguards against opportunistic use.
The future of EU insolvency reform should therefore be measured not by the extent of formal alignment, but by whether it creates a framework that is workable, commercially reliable and responsive to the diversity of the internal market.
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Author: Alesea Azzopardi Spiteri