Proposal for a Restructuring Directive
A major harmonisation process on restructuring and insolvency law has been launched in the EU. What does it entail?
On Thursday 22 November 2016 Vera Jourová, EU Commissioner for Justice, Consumers and Gender Equality, presented the long-awaited ‘Proposal for a Directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU’ (‘Restructuring Directive’).
The proposal is the follow up to a non-binding recommendation to the Member States in March 2014 advising them to take steps towards the harmonisation of key topics in EU insolvency law aimed at a new approach to business failure and insolvency. Two goals were formulated: (i) to ensure that viable enterprises in financial difficulties, wherever they are located in the Union, have access to national insolvency frameworks which enable them to restructure at an early stage with a view to preventing their insolvency, and therefore maximise the total value to creditors, employees, owners and the economy as a whole, and (ii) to encourage greater coherence between the national insolvency frameworks in order to reduce divergences and inefficiencies which hamper the early restructuring of viable companies in financial difficulties and the possibility of a second chance for honest entrepreneurs, and thereby lower the cost of restructuring for both debtors and creditors. The European Commission is quite active in the field of insolvency. In the summer of 2015 it published its final recast of the European Insolvency Regulation (EIR 2015). In June 2017 it will replace the existing regulation (EIR 2000) which concerns private international law (conflict of law) issues, such as international jurisdiction, recognition and enforcement of insolvency judgements, applicable law, as well as communication and coordination of cross-border insolvency procedures by insolvency practitioners and court.
The proposal of 22 November 2016 obliges Member States to introduce sprecific types of procedures and set up measures to ensure that insolvency proceedings are effective with regard to promoting preventive restructurings and a second chance. Throughout the proposal’s development from March 2014 onwards, it has been set in the context of the Juncker Plan, the Action Plan on Building a Capital Markets Union and the Single Market Strategy, with the overall goal of strengthening Europe’s economy and the stimulation of investment in Europe. This initiative seeks to address the most important barriers to the free flow of capital, building on national regimes that work well, meaning that ‘(insolvency) laws’ should be drafted in such a way that it would be much easier for investors to assess credit risk, particularly in cross-border investments. Insolvency is put between brackets, as in certain Member States assessing credit risk relates to the creation and enforcement of security rights, including the transparency of systems of registration of assets.
The proposal, with 47 recitals and 36 Articles, introduces (i) common principles on the use of early restructuring frameworks, which will help companies continue their activity and preserve jobs, (ii) rules to allow entrepreneurs to benefit from a second chance, as they will be fully discharged of their debt after a maximum period of 3 years, and (iii) targeted measures for Member States to increase the efficiency of insolvency, restructuring and discharge procedures. These include reducing the excessive length and costs of procedures in many Member States, which result in legal uncertainty for creditors and investors and low recovery rates of unpaid debts, and ensuring proper training for courts and insolvency practitioners.
Restructuring evidently has ramifications in several other areas of law, e.g. financial law, labour law and company law. It is proposed that the Directive shall be without prejudice to (a) Directive 98/26/EC on settlement finality in payment and securities settlement systems, (b) Directive 2002/47/EC on financial collateral arrangements, and (c) Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories. Regarding labour law immunity is the leading principle. The Directive shall be without prejudice to workers’ rights guaranteed by Directives 98/59/EC, 2001/23/EC, 2002/14EC, 2008/94/EC and 2009/38/EC. A form of alignment is introduced to the area of company law. Articles 19(1), 29, 33, 34, 35, 40(1)(b), 41(1) and 42 of Directive 2012/30/EU45 provide for the necessity of convening a shareholders’ general meeting. If capital is increased by consideration in cash, Article 33 of the Directive establishes a pre-emptive right of shareholders to the new shares. Both the requirements for a shareholders’ general meeting and the pre-emption rights could jeopardise the effectiveness of the restructuring plan’s adoption and implementation. The proposal requires Member States to derogate from those company law provisions to the extent and for the period necessary to ensure that shareholders do not frustrate restructuring efforts by abusing their rights under Directive 2012/30/EU. In Article 32 it is proposed that in Article 45 of Directive 2012/30/EU, a paragraph 4 is added, with the text that Member States shall derogate from the Articles mentioned ‘… to the extent and for the period that such derogations are necessary for the establishment of the preventive restructuring framework provided for in’ the Restructuring Directive. The proposal has to be discussed and agreed upon by the European Parliament and the Council. After it has been finalised, an implementation period of two years is proposed. So in the period ahead there will be (and should be) discussion on the specific form of these preventive insolvency frameworks. On 27 January 2017 a group of international scholars, judges and practitioners will launch an exchange of ideas at the EYE building in Amsterdam. This will be the first contribution to collective thinking on the restructuring proceedings of the future.