Midway assessment - Creditor Priority and Financial Stability

PhD candidate Sjur Swensen Ellingsæter at the Department of Private Law will on Friday 10 November present his Doctorate project: "Creditor Priority and Financial Stability".

PhD candidate Sjur Swensen Ellingsæter


Professor of Law Michael Schillig, King's College London

Leader of the assessment

Professor Trygve Bergsåker, Departement of Private Law


Professor Kåre Lilleholt, Department of Private Law and Knut Bergo

For outline and draft text, contact Sjur Swensen Ellingsæter.


Abstract in Norwegian

Research questions

The PhD-project seeks to analyse two research questions. The first research question is essentially the following: Which competing arguments are at play when one sets out to harmonize rules that affect creditor priority in bank resolution? The second research question relates to the first: How does EU law balance the competing interests at stake in its regulation of creditor priority?


Most States have generally applicable rules that govern the legal effects of that a company either is or is at the brink of becoming insolvent. General insolvency law thus deals with the fundamental problem of a company not having sufficient funds to perform all of its obligations. This necessitates that general insolvency law governs in what order the rights of the creditors are to be satisfied.

Banks are subject to sector-specific forms of insolvency proceedings. This is due to the public interest in that important financial services continue to be provided and preventing the spread of the problems of one bank to the rest of the financial system. For instance, the Bank Resolution and Recovery Directive (Directive 2014/59/EU) requires that Member States appoint a public body (a ‘resolution authority’) with the power to take control of failing banks when required by the said public interests. The resolution authority is empowered to write down the bank’s debt or to transfer its assets to a third party.

The exercise of the resolution authority’s powers results in that some creditors suffer losses. As in the case of general insolvency law, this gives rise to the need for rules governing priority among creditors. However, the priority rules in the Bank Resolution and Recovery Directive are different from those found in general insolvency law, as their design is influenced by the abovementioned public interests. These rules form part of a larger body of EU legal acts that utilize creditor priority as a means to protect financial stability.

While both general and bank-specific insolvency proceedings set out certain prescriptive priority rules, companies nonetheless enjoy a great deal of freedom in determining the priority among their creditors should the company become subject to winding-up proceedings. It is for instance possible to give creditors priority to certain assets through security interests. Moreover, it is possible to make claims subject to so-called subordination clauses, whereby a creditor agree to a priority below other unsecured claims. In contrast to what is the case for companies engaged in other sectors, banks are subject to numerous regulatory requirements concerning how they utilize these possibilities. The result is that the loss distribution among bank creditors is a function of both the rules governing priority and the said regulations.   

Published Sep. 26, 2017 2:02 PM - Last modified Nov. 7, 2017 9:43 AM