EU Proposal for a new Preventive Restructuring Framework (‘Restructuring Directive’)
By Mario Kapp and Raffaela Lödl, KAPP & PARTNER Rechtsanwälte GmbH
On 22 November 2016, the European Commission announced as part of its single market strategy a proposal for a new directive whose main aim is to focus on effective preventive restructuring frameworks across Europe.(1) It is furthermore intended that honest entrepreneurs get a second chance and beyond to make insolvency proceedings more efficient.
The proposal’s key objective is to reduce the significant barriers to the free flow of capital arising from differences in member states’ restructuring and insolvency frameworks. It is definitely time to raise awareness of this important initiative and to create a basis for discussions.
If adopted, the proposal binds Member States to introduce specific types of procedures and set up measures to ensure that insolvency proceedings are effective with regard to promoting preventive restructurings and a second chance.
With special regard to corporate restructuring and insolvency, the proposal consists of three main parts:
(i) a preventive restructuring framework
(ii) rules to allow entrepreneurs to benefit from a second chance
(iii) measures for Member States to increase the efficiency of insolvency, restructuring and discharge procedures in general.
Ad (i) Preventive restructuring framework
The core element of the proposal intends to implement effective preventive restructuring frameworks in all of the Member States. We want to underline some of the key features:
The debtor is to be left in possession of their assets and affairs; only in exceptional cases may the competent court or authority appoint a supervisor or mediator.
The debtor will be able to apply (while considering certain safeguards) to court to stay individual enforcement actions.
Restructuring plan: Creditors are to be divided into classes to adopt the plan. Nevertheless, secured creditors will be treated separately from unsecured creditors. With respect to the confirmation by the court, even a cross-class cram down is possible.
Ad (ii) Second chance
A true second chance for honest entrepreneurs to restart business activities will encourage entrepreneurial mannerism. Beyond that, costly COMI (centre of main interest) shifting activities will be prevented. Therefore, overindebted entrepreneurs will have access to an automatic full discharge of their debts after a period of three years beginning from the opening decision on a liquidation procedure or the start of a repayment plan. If discharge is obtained, the entrepreneur is no longer prevented from taking up or pursuing businesses.
Ad (iii) Measures to increase the efficiency of restructuring, insolvency and second chance
Minimum standards for appointing, supervising and remunerating practitioners in the field of restructuring, insolvency and second chance are proposed in order to enable the practitioners to take quick decisions and to shorten the length of procedures by professional acting. In summary, member states must have competent and well trained courts and insolvency professionals.
It is not intended to create an EU-wide restructuring and insolvency regime but to ensure coherence between member states’ regimes. Nevertheless, the directive is subject to the co-decision procedure and will face many amendments, compromises and negotiations along the way.
In the last few months the European Parliament and the European Commission have been intensively working on the proposal. As of 31 October 2017, there is a new text proposal for some of the articles. Member States are currently invited to comment.
In order to become a binding directive, the Proposal will need to be approved by the European Council following hearings before the European Council and the European Parliament. We are expecting this to happen in 2018. The Member States will then have to implement the framework into local law; this will take two or three years more from now. We eagerly await further developments.
(1) COM (2016) 723 final, 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 demanding Directive 2012/30/EU
Mario KappKAPP & PARTNER Rechtsanwälte GmbH, Graz, Austria
T: +43 316 22 59 55
Published: January 2018 l Photo: SFIO CRACHO - Fotolia.com