In nineteenth-century France, Belgium and the Netherlands, laws imposing pre-insolvency proceedings served different goals. In a first stage, from around 1810 until about 1870, continuity of businesses in distress was not a policy consideration. Rather, legislators purported to give the creditors early control over the insolvent’s estate, which was most often liquidated. The motive of clemency towards honest but unfortunate debtors was present, but became less important over this period. Debtor-in-possession features were mostly conceived of as a temporary reward for cooperation; lowered requirements for re-entry in the market after the winding-up of their business were another advantage for cooperating debtors. This was the same in the three abovementioned countries. In the 1870s and 1880s, the French and Belgian legislators created new pre-insolvency proceedings, which allowed for debtors to keep their assets. In the Netherlands, fixed-term moratoriums prevented such an approach. Yet, however, also in Belgium and France, the exemption of secured creditors hampered the feasibility of compositions, and a goal of saving firms in financial peril.

In the past few decades a marriage between legal studies and economics has produced an influential view of long-term economic development, known as the “legal origins” approach. According to this view, current rates of economic growth across countries are a direct consequence of the legal tradition to which the national legal system belongs - specifically whether they originated in the Anglo-Saxon, German, French or Scandinavian “legal family”. This is because the “legal origin” is supposed to shape the long-term evolution of laws and legislation, in particular bankruptcy and insolvency laws, along paths that are more, or less conducive to economic growth. In this literature, however, the impact of the “legal origin” on institutional evolution is simply assumed but not explicitly analysed. Therefore, the aim of this paper is to incorporate history more fully into this multidisciplinary picture by providing, for the first time, an empirical study of the evolution of bankruptcy and insolvency law in Europe 1850-2015. Using an original database derived from a wide array of sources in different languages, the paper maps out the instances of institutional change, and argues that history provides little support for the “legal origin” view. In fact, state formation and national experiences appear a much more likely explanation for legal evolution across countries.

The paper seeks to add additional scope to the literature that is dealing with the question of how do countries construct their insolvency laws. According to (Eidenmüller, 2017, p.28) insolvency laws worldwide differ significantly and the reasons for jurisdictional divergences with respect to important corporate insolvency law issues have yet to be studied in detail. La Porta et al (1997) were arguing that the major factor is legal origin Sgard (2014) added the importance of the process of capitalist development, Martin (2005) argues that importance of cultural attitudes and stresses that they play a tremendous role in insolvency system. She also claims that Insolvency systems profoundly reflect the legal, historical, political, and cultural context of the countries that have developed them. Sharfman and Warner (2011) argued that from the time of its creation and throughout its evolution, bankruptcy law has affected and been affected by religion. Cepec (2014) argues that insolvency law is an integral part of the country’s economic system and that it changes in accordance with countries economic development and the public relationship towards the fact of “failing a business.” In the present paper, using a comprehensive historical and comparative legal approach we analyze how countries from the same legal origin and with common history of insolvency law but with differences within religious, economic and cultural backgrounds formed (from scratch) new insolvency law legislation in the 25 years after the dissolution of the former Socialist Republic of Yugoslavia. We analyze the historical development and present bankruptcy laws of six countries namely: Slovenia, Croatia, Serbia, Bosnia and Herzegovina, Montenegro and Macedonia. For the large part of the last 200 years, the territories of the countries concerned were a part of the same legal system. Additionally all countries were part of Yugoslavia, a socialist country with specific, none market economy oriented insolvency law, which meant that at the time of dissolution of Yugoslavia former Republics did not have an existing market economy kind of insolvency law, so the legislators have had a chance to start from scratch. Furthermore countries share legal origin and the historical development, but differ in religion, culture and the economic development. Setting a very good starting point for better understanding how countries develop their insolvency law systems. For the purpose of the comparative analysis we constructed a novel system of variables that in our opinion define national insolvency law systems. Our conclusions are that the most important factor for the formation of insolvency laws in this set of countries was legal transplantation within the legal family, but contrary to the historical development countries did not chose the Austrian but German Law. Slovenia is an outlier as legal transplantation from German Law was not used. Furthermore we were not able to identify any differences in insolvency laws due to different religion and we can conclude that religion played no role in forming insolvency laws. We did clearly observe that countries insolvency law development was firmly connected with its economic progress into market economy and as a curiosity we did observe a correlation between the legal complexity of the Insolvency law and the GDP per capita. Furthermore only two countries, both EU members and with the highest GDP per capita (Slovenia and Croatia) have consumer bankruptcy laws. All those facts are an indicator that our previous studies that bankruptcy law is an essential element of market economy and that its development follows the economic needs of a country are right. Even though countries have certain cultural differences we concluded that they share the negative attitude towards failing a business which also results in the fact, that all insolvency systems are creditor friendly oriented. The unique setting of analyzed countries resembles a natural experiment in the field of insolvency law construction and represents a very good opportunity for future especially empirical, sociological and legal research to additionally test in the theory suggested variables that effect the regulation of national insolvency laws.

The financial crisis of 1857 severely affected the free city states of Hamburg and Lübeck. The crisis illustrates the close relationship between insolvency regulation and the bill market. With regard to bankruptcy, the regulatory regimes in those cities attempted to use the bankruptcy procedure as a filtering device. During the early modern period there had been a large number of autonomous towns in Germany enacting their own bankruptcy laws. The free cities reflected this tradition into the nineteenth century. Economic actors, whether it concerned manufacturers, merchant-bankers or shop-keepers, relied on strong corporate organisations like guilds and guild-jurisdictions for rule-enforcement. The law offered a formal liquidation procedure as well as an alternative procedure, in the course of which creditors and debtor would negotiate under the supervision of a judge or courtofficial. The different procedural choices ensured that a liquidity problem did not immediately trigger an insolvency procedure that could lead to the untimely dissolution of a firm. This served as a complementary to the regulation of bills of exchange. In terms of legislation the bill of exchange and bankruptcy law coevolved. For centuries, bills of exchange travelled between different cities but rarely reached the countryside. Towns and cities curtailed the right to draw and underwrite bills by limiting it to members of the local merchant guild and guests of the tightly monitored markets and fairs. Special courts were established to handle conflicts and defaults. The two regulations often complemented each other and they were a function of urban specialization. When, in 1857, Hamburg and Lübeck were affected by a severe financial crisis that brought their bill market to a halt, they reacted by a mixture of measurements that combined the introduction of new legal tender with tweaks in the bankruptcy regime. The crisis offers a rare glimpse to study the strong link between the bill market and bankruptcy regulation that had dominated Europe for centuries. It also marked the end their complementarity. As Europe’s and Germany’s economies were transformed during the 19th century, new regulatory regimes became necessary and the old institutions were slowly undermined.