Leiden Law Blog

Rescue of businesses in distress: shaping the insolvency and restructuring landscape

Rescue of businesses in distress: shaping the insolvency and restructuring landscape

Since the global financial crisis, insolvency and restructuring law have been at the forefront of law reform initiatives in Europe and elsewhere. More specifically, the topic of business rescue appears to rank top on the insolvency law related agenda of both the EU and national legislatures, faced with a rapid growth of insolvencies. In light of these developments, the European Law Institute (ELI) started the Business Rescue Project in 2013. This project aims to develop a legal framework that will enable the further development of coherent and functional rules for business rescue in Europe. It has resulted in a report of 375+ pages and some 115 recommendations.

Initiatives for reform at the EU level

The European legislature has been considering the rescue of distressed business for several years. In 2011 the European Parliament published a resolution and expressed its aims with regard to insolvency law: “insolvency law should be a tool for the rescue of companies at Union level”, and also, that “a legal framework should be established that better suits cases of companies which are temporarily insolvent.”

The Commission subsequently employed many activities including a Resolution at the end of 2012 with a ‘Communication on a new European approach to business failure and insolvency’ (Communication). The Commission also presented a proposal on the revision of the European Insolvency Regulation of 2000. These efforts all support the development of a more coherent legal framework for dealing with distressed businesses. In the following years these developments continued. In 2014 the Commission presented its ‘Recommendation on a new approach to business failure’ and in 2016 the Proposal for a restructuring directive was published. In this way, the Commission strives to promote the furthering of a (legal) European business rescue culture.

Business Rescue Project: Project Design

Against this background, the European Law Institute (ELI) saw momentum in 2013 to launch an in-depth project on furthering the rescue of distressed businesses across Europe. On 3 September 2013, the ELI Council approved the proposal for a project on the ‘Rescue of Business in Insolvency Law’ (‘Business Rescue Project’). Professors Bob Wessels and Stephan Madaus were appointed as Project Reporters to lead this two-stage project.

The first stage comprised the drafting of National Inventory Reports and Normative Reports by National Correspondents (NCs) from 13 EU countries. In addition, an Inventory report on international recommendations from standard-setting organisations was prepared. Based primarily on these detailed reports, the second stage consisted of drafting the ELI Instrument on Business Rescue with recommendations for a legal framework enabling the further development of coherent and functional rules for business rescue in Europe.

Scope of the study

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).

Finalising the report

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.

In the first week of September 2017, during the General Assembly and Annual Conference of ELI in Vienna, the report on ‘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 is also available here (SSRN) or here (ELI).

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