A Constitutional Clash Over the “28th Regime”
The European Union is gridlocked over the proposed “28th regime” for European companies, known as the EuInc. Member state ambassadors, meeting within the Committee of Permanent Representatives (COREPER), are set to debate the proposal’s legal foundation and the potential removal of insolvency provisions. This confrontation follows internal warnings from the Council of the EU’s legal service, which questioned whether the current legal basis—Article 114 of the Treaty on the Functioning of the European Union (TFEU)—is sufficient for the regulation’s scope.
Article 114 Versus Article 50
The dispute pits the European Commission’s preference for Article 114 TFEU against the Council’s legal service, which argues that the proposal’s focus on the right of establishment and company law necessitates Article 50 TFEU. The distinction is not merely academic; Article 50 generally mandates the use of a directive rather than a regulation.
Member states are split. France, Italy, Spain, Belgium, Finland, the Czech Republic, and Poland favor a regulation based on Article 114. Meanwhile, Sweden, Austria, the Netherlands, and Luxembourg prefer a directive. The Council’s legal service noted in June that if contentious chapters, such as those governing insolvency, are removed, the necessity of maintaining Article 114 as the sole legal basis would require a formal re-evaluation.
The Controversy Surrounding Chapter X
The proposal’s Chapter X, which outlines a harmonized insolvency procedure for innovative startups, faces significant pushback. The Commission’s draft includes a simplified liquidation procedure that would allow debtors with up-to-date accounts to liquidate without the involvement of a judicial administrator.
BusinessEurope, the leading European business federation, has advocated for the removal of this chapter. In a position paper, the organization argued that maintaining these provisions would create unnecessary complexity and potentially conflict with recent reforms to European insolvency law. They further noted that determining whether a company qualifies as a “young innovative enterprise” under the proposed criteria introduces significant regulatory uncertainty for investors and entrepreneurs.
Labor’s Formal Objection
The European Trade Union Confederation (ETUC) has maintained a formal objection to the current trajectory of the proposal. In a recent communication to member states, the ETUC reiterated its call for the text to be either withdrawn or substantially amended. Their primary demands include:
- A correction of the proposal’s legal basis.
- A transition from a regulation to a directive.
- An immediate initiation of the two-stage consultation process with social partners, as mandated by Article 154 of the TFEU.
Seeking a Pre-Recess Compromise
The Irish Presidency of the Council of the EU is currently seeking guidance from COREPER to determine the path forward. The objective is to establish a compromise project before the upcoming summer recess. Whether the member states choose to excise the insolvency chapter or force a broader structural change to the proposal remains the focal point of the current negotiations. The outcome will determine if the EuInc initiative can proceed in its current form or if it requires a fundamental legal restructuring.
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