This will be Directive (EU) 2019/….. of the European Parliament and of the Council 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).
In a nutshell, this Directive will require Member States to ensure that their restructuring and insolvency procedures comply with various minimum standards. This falls broadly into three categories:
- Each Member State should have a preventive restructuring framework available, which follows certain “common principles”;
- Entrepreneurs should benefit from a second chance, with bankruptcies lasting a maximum of three years;
- The efficiency of restructuring, insolvency and discharge procedures should be increased.
These harmonising measures include:
- A focus on an early restructuring involving the debtor
- A breathing space or moratorium for a maximum period of 4 months initially, which can be extended for up to 12 months
- Use of the breathing space/moratorium to assist with negotiating a restructuring
- Ability to cram down dissenting stakeholders; safeguarding their rights but preventing them from jeopardising a restructuring
- Protection for rescue finance lent in the context of the restructuring
- Specialist insolvency practitioners and judges
- Technology to improve efficiency of insolvency proceedings, and reduce cost and duration.
England and Wales
Following the recent interim postponement of the UK’s exit from the EU, as a Member State we will still be bound by the new Directive. It is to be hoped that during the two year enactment period, the Brexit process will finally take shape.
Many of the new principles will already be the status quo in England and Wales, such as the bankruptcy discharge period (absent non co-operation and the like). Our IPs and judiciary have long been well renowned. It’s acknowledged widely that our procedures are cheaper and quicker than many in mainland Europe.
We only have a moratorium in limited circumstances (administration proceedings and small company CVAs) and interim orders for individuals. Schemes of arrangement are set out in company, not insolvency legislation.
The Government’s corporate insolvency proposals, as initially set out in May 2016 in its Review of the Corporate Insolvency Framework – A Consultation on options for reform, do put forward suggestions for a stand-alone moratorium, and for a new restructuring plan with a cram down mechanism. In August 2018 the Government confirmed these remained key components of its proposed insolvency reform. A breathing space for individual debtors is also proposed. Despite Brexit, it seems that we too are marching in the same direction as the EU in the insolvency arena.
Indeed, some may argue that but for Brexit, there may have been more space in the statute book, and these reforms may have been brought into force already.
Inevitably, each Member State’s government will interpret and enact the Directive slightly differently. Nonetheless, in approving the Directive, the EU Parliament has taken a significant step towards harmonising insolvency procedures.
The existing EU Insolvency Regulation focusses on cross-border recognition of insolvency proceedings, rather than the insolvency procedures themselves. The new Directive goes a step further in terms of laying down some common ground rules, but falls well short of regulating how and when insolvency procedures can be triggered, and on priority of debts, for example. Member States’ laws will continue to differ enormously on these aspects.
Looking ahead, EU Member States currently without restructuring processes will need to introduce these. The restructuring options for European companies and their lenders may soon increase and the market may become more competitive. It is unlikely that the UK’s mature insolvency regime, supported by highly regulated practitioners and specialist judiciary, will be overtaken in the short to medium term.