The EU’s 28th Regime and the Future of Insolvency Law: Why One Size May Fail All

The European Union is currently pursuing two competing visions for the future of insolvency law.

On the one hand, the EU has intensified its long-standing effort to harmonise national insolvency regimes. In March 2026, it adopted a new Directive harmonising selected aspects of insolvency law across EU Member States, continuing a broader policy agenda closely linked to the Capital Markets Union (recently rebranded as ‘Savings and Investment Union’).

On the other hand, the EU is simultaneously advancing a very different idea: the creation of a so-called ‘28th Regime’. Rather than replacing national laws through mandatory harmonisation, this approach would offer firms an optional supranational legal framework alongside existing domestic systems. The EU Commission’s recent EU Inc proposal is the first concrete manifestation of this strategy and may eventually evolve into a broader European framework covering not only company law but also insolvency and restructuring.

The coexistence of these two projects reveals a deeper question at the heart of European integration, which I discuss in my current research: should the EU pursue uniformity through harmonisation, or flexibility through optionality and regulatory competition?

The dominant policy mood currently favours harmonisation. The seminal reports by Enrico Letta and Mario Draghi both advocate greater convergence of insolvency laws, arguing that fragmented national regimes impede cross-border investment, increase transaction costs, and undermine the development of integrated European capital markets.

At first glance, this logic appears persuasive. Creditors operating across borders must assess insolvency risk under many different national systems. Divergent restructuring frameworks create legal uncertainty and may discourage investment. Harmonisation promises a more predictable and coherent market environment.

But insolvency law is not merely a technical field that can easily be standardised. It reflects deeply embedded national choices concerning creditor protection, corporate governance, labour relations, judicial structures, and economic policy. As a result, uniform rules may produce highly uneven effects across the EU.

Business realities in the Internal Market remain heterogeneous. To take an obvious example, banking sectors differ significantly between Member States. Germany, for example, still has a comparatively decentralised banking system with many regional savings and cooperative banks, whereas other Member States are dominated by a smaller number of large financial institutions. Industrial structures, financing patterns, and restructuring cultures likewise vary substantially across Europe.

These differences matter because insolvency law allocates bargaining power between debtors and creditors. A strongly creditor-oriented regime may be justified in markets where creditors are fragmented and coordination problems are severe. In concentrated banking markets, however, powerful financial institutions may already possess sufficient bargaining leverage without additional statutory reinforcement.

The new Harmonisation Directive illustrates this problem. Its provisions on avoidance actions closely resemble existing German insolvency law and are generally regarded as relatively creditor-friendly. Yet it remains unclear why this particular model should necessarily be suitable across all Member States regardless of their economic structures and institutional environments.

The deeper difficulty is that harmonisation inevitably becomes a political exercise. With 27 national insolvency regimes on the table, the selection of a ‘European standard’ is shaped less by functional efficiency than by bargaining, lobbying, and compromise. The result may be rules that are politically acceptable but economically suboptimal.

This is precisely where the idea of a 28th Regime becomes attractive.

An optional European insolvency framework would avoid many of the drawbacks associated with mandatory harmonisation. Firms could voluntarily opt into the European regime whenever it offers advantages in terms of predictability, efficiency, or restructuring flexibility. Crucially, the market—rather than political negotiation alone—would determine whether the regime is successful.

Such an approach would preserve space for experimentation and regulatory learning. Legal diversity would not disappear overnight. Instead, national systems and the European regime would coexist and compete. This competitive dynamic could itself stimulate reform and convergence.

European company law has already demonstrated how regulatory competition can improve legal systems. Following the Centros line of case law, several Member States modernised their company laws in response to competitive pressures generated by the success of the UK private limited company. Similar dynamics have also existed in insolvency law, where jurisdictions have repeatedly adjusted restructuring frameworks in response to foreign alternatives and forum-shopping pressures.

By contrast, harmonisation risks legal ossification. Once a European framework is adopted, reform often becomes politically cumbersome. EU legislation can remain frozen for decades even when practical shortcomings become apparent. In fast-moving areas such as restructuring and financial distress, this rigidity may prove particularly costly.

To be sure, the 28th Regime is no panacea. Political resistance against such a framework may ultimately be almost as strong as resistance against harmonisation itself. If the optional regime becomes genuinely attractive, Member States may fear that firms will gradually abandon domestic systems in favour of the European alternative. Earlier optional-regime projects—including the European Private Company and the Single-Member Company proposal—largely failed because of precisely these political tensions.

Moreover, any meaningful insolvency regime inevitably interacts with company law, labour law, tax law, and judicial enforcement structures. Even an optional European framework would therefore struggle to achieve complete autonomy from national legal systems.

Nevertheless, the growing debate surrounding the 28th Regime reflects an important insight: Europe’s challenge may not simply be legal fragmentation, but the search for institutional flexibility within an increasingly diverse internal market.

If the EU genuinely wishes to strengthen innovation, restructuring capacity, and capital markets integration, it should be cautious about assuming that deeper harmonisation is always the optimal solution. In insolvency law, at least, one size may indeed fail all.

The full paper is available here. Earlier versions of this paper were presented at the ECGI-Bocconi-LawFin Workshop on ‘The Law and Finance of Private Equity and Venture Capital’ on the 28th Regime and at the OBLB Annual Conference at Bocconi University, Milan, on 7 November 2025.

Wolf-Georg Ringe is Professor of Law and Finance and Director of the Institute of Law & Economics at the University of Hamburg as well as Visiting Professor at the University of Oxford.