Core principles

Core Principles for an Insolvency Law Regime

Since its creation in 1991, the EBRD has worked to assist its countries of operations in their transition to market economies.  It has long been understood that an essential component for the development of a market economy, particularly in early transition countries, is the presence of sufficient investment by both foreign direct investors and institutional lenders.  In the past, the EBRD has demonstrated that a country’s likelihood to attract foreign direct investment and bank credit increases directly with the increase in effectiveness of that country’s insolvency legislation.  

The EBRD regularly conducts assessments and surveys to measure the extensiveness and effectiveness of insolvency laws in its countries of operations.  These laws are measured not against arbitrary or abstract principles but, rather, against international standards and best practices as articulated by, among other things, the UNCITRAL Legislative Guide on Insolvency Law and the World Bank’s Principles and Guidelines for Effective Insolvency and Creditor Rights Systems.  The EBRD fully appreciates that the nature and content of insolvency laws will vary from jurisdiction to jurisdiction and must in fact do so to accommodate the rich variety of legal traditions across its countries of operation.  Nevertheless, these laws need to comply with the core principles of international standards and best practices as it is international standards that external actors are most likely to apply when determining whether or not to invest in a given country.

This need has led the EBRD to define a set of 10 core principles  (0.1Mb) for a modern insolvency law regime (ILR).  By virtue of being “core” principles, these cannot be exhaustive but, rather, are intended to form the foundation of an ILR.  These principles are based on international standards and best practices and therefore can assist in assessing a country’s ILR and in identifying the need for reform.   These principles are meant as guidelines only and speak more to the results to be achieved rather than the process by which to achieve them.  Invariably, exceptions to these principles may have to be made in the context of a given country’s legal system.  In addition, these principles refer to a country’s entire insolvency legal regime and may, as in most countries, be achieved through a complex combination of laws, rather than in a single statute.

It should be noted that these principles presume the existence of both secured and unsecured creditors and, as such, regard should be had to the EBRD’s extensive work on secured transactions, including its Core Principles for a Secured Transaction Law and its Model Law on Secured Transactions.