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The European Commission's Action Plan for Company Law, Modernising Company Law and Enhancing Corporate Governance in the European Union, signals a reorientation of the approach to company law at the European level, away from the protection of those who deal with companies and in favour of concentrating instead on business efficiency and competitiveness. This reorientation undermines the 2nd Company Law directive, which is rooted in dated notions about company law's functions and assumptions about the need for safeguards against abuse. If the reorientation is genuine, it should provoke a more meaningful engagement with questions about company's law role in creditor protection and the regulatory strategies that can best be employed to discharge it.

Yet, despite the new emphasis on business facilitation, the Commission's current approach to reform is to use the 2nd Directive as the benchmark against which to assess the feasibility of an alternative regime that might be introduced on an optional basis for Member States. This approach is liable to create confusion and to lead to muddled policy choices. The failings of the 2nd Directive are certainly relevant to the debate on the extent to which, and how, creditors' interests should be addressed within a flexible company law framework for competitive business but the directive should not be presented as a touchstone against which the merits of alternative schemes are to be measured.

This paper contributes to the debate on the recognition of creditors' interests in modern European company law in the following ways. It reviews important strands in the existing literature on the European legal capital doctrine and adds to the literature by examining the impact of recent trends in accounting, in particular the transition to International Financial Reporting Standards (IFRS), on the operation of the 2nd Directive. It suggests that accounting trends are set to undermine further the (already weak) arguments in favour of retaining the 2nd Directive.

Whilst much of this paper questions the wisdom of the way in which the current proposal for an optional alternative to the 2nd directive has evolved, there is now considerable momentum behind that proposal. The paper therefore concludes by reviewing the substance of the proposal for a solvency-based alternative to the 2nd Directive and comments also on the associated proposal to adopt an EU-wide standard on wrongful trading liability.

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