Today, HERO starts with a special series of publications reporting on the implementation of the Preventive Restructuring Directive (PRD 2019). The PRD 2019 aims to bring about a degree of minimum harmonisation of substantive restructuring law across Europe. By 17 July 2022, all EU Member States must have ultimately completed the implementation process. While some legislators have completed the reforms, there are still many legislators around Europe in full swing with this process. In the coming weeks, a series of papers will be published reviewing the implementation of the PRD 2019 in Austria, Denmark, France, Germany, Greece, the Netherlands and United Kingdom.
A long European journey
In the European Union (EU), for more than ten years, the various bodies of the EU (Parliament, Council, Commission) have been working to harmonise national insolvency laws. In 2011, the European Parliament gave its go-ahead by stating that there are certain areas of insolvency law where harmonisation is useful and feasible, even where the creation of substantive insolvency law at the EU level itself is regarded as impossible.[1] A year later, the European Commission followed suit with a proposal to give companies a 'second chance' via modernisation of their insolvency regimes.[2] This thought is at the forefront of the Commission’s political agenda in promoting the functioning of the European internal market.
In 2014, a (non-binding) recommendation from the European Commission was a next step containing a new approach to business failure and insolvency.[3] However, the following years showed that EU Member States were not following up enough on the Commission's encouragement to introduce rules that enable viable companies in financial difficulties to be restructured at an early stage and to avoid formal insolvency.[4]
Then the panels slide. In 2015, with its Action Plan for Building a Capital Markets Union (CMU Action Plan), the Commission set course for European legislation in the field of 'early restructuring and second chance policy'.[5] Its original main policy objective to harmonise insolvency law becomes an accompanying measure to achieve another goal, namely the establishment of a European Union’s Capital Market Union (CMU). The CMU has the aim of circulating investments and savings between all EU Member States, so that citizens, investors and companies can benefit, wherever they are located. In 2016, that policy goal is not yet very well distilled. A draft Directive on restructuring will be published, which has been adopted in June 2019 at the EU level as the PRD 2019,[6] to be implemented by July 2021. This Directive and its implementation across Europe is at the core of this Special Issue.
A minimum harmonisation framework for preventive restructuring
The Directive focuses on three topics, namely: (i) giving viable companies in financial difficulties access to a system that allows them to restructure their debts, (ii) giving entrepreneurs (natural persons) a 'second chance' by waiving their debt in full; and (iii) rules to make insolvency proceedings more efficient, in particular to shorten their duration. The PRD 2019 necessitates drafters of legislation, and their advisors, to think hard on some core and also new themes.
The main subject of the Directive has to be analysed and formulated: when a debtor is likely to become insolvent, he should be in the position to negotiate a restructuring plan with its creditors; a stay should be available to halt creditors exercising their rights; the creditors should be put in voting classes; a certain majority should adopt the plan; a court should cram down holdout creditors; specific new finance for the company should be protected; and the debtor in possession should be able to steer the whole process. It is certainly not easy to get this show on the road. With extreme legislative pressure due to the sudden need to adapt (amongst others) national insolvency legislation following the 2020 COVID-19 outbreak, it is not surprising that many EU Member States are requesting the European Commission to extend the implementation period of the Directive until 17 July 2022.[7] In parallel, in some Members States legislation had already been adopted to accommodate new restructuring modes following a global wave of legislative changes promoting business rescue over formal insolvency liquidation.[8]
This Special Issue is very timely. The long history of enrolling the harmonisation theme in the EU, the Member States' own strong and uncompromising views on several aspects of the theme, and the complexities of the many possible legislative options in the Directive itself call for an actual and comparative view on how other countries do have addressed these. When laying its groundwork and implementing its details, legislators should take into account that harmonisation – in November 2021 once again acknowledged clearly by the European Commission announcing new legislative steps[9] – is a long and hard way to go.
The next harmonisation steps of the EU legislator
By the way, the EU’s policy theme CMU, that threw a spanner in the European harmonisation wheel of restructuring and insolvency law, has gradually lost its lustre. Nevertheless, five years down the road, the CMU politically got its booster with a new CMU Action plan launched in June 2020.[10] It certainly looks like it that the Commission is trying to get things out of the doldrums.
Insolvency law seems to be designated as a scapegoat. The divergent national insolvency law is a structural obstacle to cross-border investments and thus to the creation of an internal market for capital. In particular, cross-border investors find it difficult to estimate the duration and outcome of value recovery procedures, making it difficult to properly price risk, especially for debt instruments. The harmonisation of certain targeted elements of national insolvency rules or their convergence could improve legal certainty. The Commission’s new plans are expected after Summer 2022, perhaps again as a Directive, possibly supplemented with a Recommendation.[11]
Comparative perspectives: an impulse for legislators and practice
Back to today. This Special Issue allows to get clear and detailed insights in other countries’ implementation of preventive restructuring solutions, as well as the restructuring’s effects on matters of company law and general contract law. Practitioners, in their day-to-day practice, are further developing their know-how and expertise concerning matters as financial restructuring, corporate finance and reorganising businesses. National implementations in a comparative perspective can certainly assist scholars to better understand any implemented tool and practitioners to raise their standards of know-how.
While several EU Member States’ legislators have not yet completed the implementation, this Special Issue presents a selection of European jurisdictions that have already (partially) introduced new legislations drawing on the PRD 2019. This includes Austria, Denmark, France, Germany, Greece, the Netherlands and United Kingdom. These papers examine in detail how the reforms have impacted the national restructuring regime.
Although the Directive aims to improve the level playing field for restructuring in Europe, the papers show that a significant diversity remains in how these preventive restructuring frameworks have been shaped. This includes the position of the debtor, type of practitioner(s) in the field of restructuring that are involved as well as their role, the scope of a restructuring plan, the grounds for confirmation including the applicable priority rule, as well the basis for jurisdiction and cross-border recognition of court decisions. This is not surprising, as many scholars critically reviewed the significant flexibility offered by the EU legislator itself. The coming years will remain extremely interesting. Not only because the implementation phase will come to a completion, but also to see what uptake these new frameworks will have. The economic turbulence of these very times are certainly a first test for all of them.
[1] European Parliament resolution of 15 November 2011 with recommendations to the Commission on insolvency proceedings in the context of EU company law (2011/2006(INI)).
[2] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Single Market Act II, Together for new growth, 3.10.2012, COM(2012) 573 final.
[3] Commission Recommendation on a new approach to business failure and insolvency, 12 March 2014, C(2014) 1500 final.
[4] Directorate-General Justice & Consumers of the European Commission, ‘Evaluation of the implementation of the Commission Recommendation of 12.3.2014 on a new approach to business failure and insolvency’, 30 September 2015 at 2 and 5. This conclusion was reiterated in the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Action Plan on Building a Capital Markets Union, 30.09.2015, COM(2015) 468 final, p. 25.
[5] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Action Plan on Building a Capital Markets Union, 30.09.2015, COM(2015) 468 final, at 6.
[6] Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency).
[7] For an overview of the implementation efforts of EU Member States, including whether they have requesting for an extension of the implementation, see the INSOL Europe Tracker on the Implementation of the EU Directive on Restructuring and Insolvency, available at: https://www.insol-europe.org/tracker-eu-directive-on-restructuring-and-insolvency.
[8] See for instance, European Law Institute (ed. Part I) and B. Wessels B., S. Madaus & J.M.G.J. Boon (eds. Part II), Rescue of Business in Europe, Oxford: Oxford University Press 2020, p. 354 et seq.
[9] European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Capital Markets Union – Delivering one year after the Action Plan, 25 November 2021, COM(2021) 720 final, at 3.4.
[10] High Level Forum, A New Vision for Europe’s Capital Markets, Final Report of the High Level Forum on the Capital Markets Union, June 2020, available at: https://europa.eu/!gU33Hm.
[11] European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Capital Markets Union – Delivering one year after the Action Plan, 25 November 2021, COM(2021) 720 final, at 3.4.
