Since the global financial crisis, insolvency and restructuring law have been at the forefront of law reform initiatives in Europe and elsewhere. The specific topic of business rescue ranks top on the insolvency law-related agenda of both the EU and national legislators, faced by a rapid growth in insolvencies, which clearly highlights the importance of efficient mechanisms for dealing with financially distressed, but viable business. For the European Law Institute (ELI), this fuelled the momentum to launch an in-depth project on furthering the rescue of such businesses across Europe. The European Law Institute, established in 2011, is an independent non-profit organisation established to initiate, conduct and facilitate research, make recommendations and provide practical guidance in the field of European legal development. Building on the wealth of diverse legal traditions, ELI’s mission is the quest for better law-making in Europe and the enhancement of European legal integration. Through its endeavours, ELI seeks to contribute to the formation of a more vigorous European legal community, integrating the achievements of the various legal cultures, endorsing the value of comparative knowledge, and taking a genuinely pan-European perspective. As such, its work covers all branches of the law: substantive and procedural; private and public (see website European Law Institute).+RT
The aim of the project was to design (elements of) a legal framework that will enable the further development of coherent and functional rules for business rescue in Europe. This includes certain statutory procedures that could better enable parties to negotiate solutions when a business becomes financially distressed. Such a framework also includes rules to determine in which procedures, and under which conditions, an enforceable solution can be imposed upon creditors and other stakeholders despite their lack of consent. The project had a broad scope, and extended to consider frameworks that can be used by (non-financial) businesses out of court, and in a pre-insolvency context. The ELI appointed professor Stephan Madaus (University of Halle-Wittenberg, Germany) and myself as reporters. We were challenged to extend and deepen current thinking on corporate business rescue. As Europe stands at the doorstep of approximating existing insolvency and restructuring laws, we worked to develop a coherent system for the benefit of all involved stakeholders.
In the first week of September 2017, during the General Assembly and Annual Conference of ELI in Vienna, the report ‘Rescue of Business in Insolvency Law’, was approved as an official ELI Instrument. The report consists of 115 recommendations explained on more than 375 pages. The report contains recommendations on a variety of themes affected by the rescue of financially distressed businesses. The report’s ten chapters cover: (1) Actors and procedural design, (2) Financing a rescue, (3) Executory contracts, (4) Ranking of creditor claims; governance role of creditors, (5) Labour, benefit and pension issues, (6) Avoidance transactions in out-of-court workouts and pre-insolvency procedures and possible safe harbours, (7) Sales on a going-concern basis, (8) Rescue plan issues: procedure and structure; distributional issues, (9) Corporate group issues, and (10) Special arrangements for small and medium-sized enterprises (SMEs) including natural persons (but not consumers). The report also includes a glossary of terms and expressions commonly used in restructuring and insolvency matters.
In September 2013, the ELI Council approved the proposal for a project on the ‘Rescue of Business in Insolvency Law’ and appointed us as project reporters to lead this two-stage project. The first stage comprised the drafting of National Inventory and Normative reports by National Correspondents (NCs) from 13 EU countries. In addition, Gert-Jan Boon, University of Leiden, prepared an inventory report on international recommendations from standard-setting or developing organisations, such as UNCITRAL, the World Bank, the American Bankruptcy Institute (on their recommendations, see my blog, or the Nordic-Baltic Business Rescue Network (on their recommendations see my blog), under the supervision of the reporters. Based primarily on these detailed reports, the second stage consisted of drafting the ELI Instrument on Business Rescue (‘ELI Business Rescue Report’) that elaborates recommendations for a legal framework enabling the further development of coherent and functional rules for business rescue in Europe. After the project team finalised the draft Instrument in early 2017, ELI Fellows and Members of the ELI Council voted to approve the ‘ELI Business Rescue Report’ at the ELI General Assembly, representing ELI Members, and Annual Conference in Vienna (Austria) on 6 September 2017 with no objection. This occurred after a 90 minutes lively debate, see my website.
We, as reporters, feel that the report is timely and may have a significant and positive impact on the harmonisation efforts of the European Commission as laid down in the November 2016 Proposal for a Directive on preventive restructuring frameworks. See my blog.
The topics addressed in the report are intended to present a tool for better regulation in the EU, developed in the spirit of providing a coherent, dynamic, flexible and responsive European legislative framework for business rescue. Mindful of the European Commission’s commitment to better legal drafting, the report’s proposals are formulated as comprehensibly, clearly, and as consistently as possible. Still, the recommendations are not designed to be overly prescriptive of specific outcomes, given the need for commercial flexibility and in recognition of the fact that parties will bargain in the ‘shadow of insolvency law’. The report is addressed to the European Union, Member States of the EU, insolvency practitioners and judges, as well as scholars. The targeted group many times flows explicitly from the text of a recommendation or the context in which such a recommendation is developed and presented.
We cherish the belief that the report will assist in taking a next, decisive step in the evolutionary process of the European side of business rescue and insolvency law.
The source of the report and the suggested citation is: Wessels, Bob and Madaus, Stephan, Business Rescue in Insolvency Law - an Instrument of the European Law Institute (September 6, 2017). Available at SSRN, or alternatively: Wessels, Bob and Madaus, Stephan, Business Rescue in Insolvency Law - an Instrument of the European Law Institute (September 2017). Available at website European Law Institute.