European policies can influence current and new initiatives for EU regulations. What does 2025 have in store?
On 27 November 2024, the European Parliament voted in favour of a new College of Commissioners proposed by President Ursula von der Leyen at the start of her second term as head of the European Commission. It was, however, not a clear win. The new commissioners received 370 votes in favour, 282 votes against and 36 abstentions. The new Commission took office on 1 December 2024.
Former Irish Finance Minister Michael McGrath is the new EU Commissioner for Democracy, Justice and the Rule of Law, whose portfolio includes insolvency and restructuring. In my December 2024 GRR column, I signalled that the new commissioner already wholeheartedly supports ideas for innovative European companies. These companies should have the possibility of choosing their own legal European stature, unhindered by national details and limitations. With such a choice to carry out their activities across a single European market through an EU-wide legal status, more than just a uniform company legal form would need to be established. In addition, an autonomous European framework would include, for example, rules on contracts, taxation and insolvency. It will be quite a challenge to set up a European legal vehicle that is not partly determined by the effects of national (and if so, which national?) rules.
Just before New Year’s Eve, it was also announced that the Council of the EU reached agreement on a “partial general approach” on key elements of the proposal for a Directive to harmonise certain aspects of insolvency law. The original Directive dates from December 2022. This “partial general approach” focuses on transactions avoidance, asset tracing, the duties of directors in the event of insolvency and transparency obligations. I read somewhere that the other themes of the Directive will be approved. That must be a mistake. During the present Polish presidency, the official link says, “… member state experts will continue discussions on the remaining provisions”. I am pretty sure these discussions will continue when, in July, Denmark takes over the Presidency.
With the growth of the number of EU member states and the volume of European legislation in the field of restructuring and insolvency law, the use of clear legal terminology will play a critical role. Clear terminology has important ramifications for the substantive scope of these instruments, as well as for their application and interpretation. Legislative terminology is more specifically a concern for legislators, including those in the field of restructuring and insolvency law, as seen in the December 2022 Directive. The Proposal has been criticised, among other things, for its lack of suggestions for harmonising key concepts such as “insolvency”, “insolvency proceeding” as well as the term “director”. Moreover, the use of terms in relation to a certain situation is unsteady and problematic in itself, for instance: “an impending insolvency”, “close to insolvency” or “a likelihood of insolvency”. Lawyers can be very good at arguing and bickering in detail about the meaning of words if they are only stated in general terms. Nearly all terms, and their underlying rationales, deserve interpretation.
Instead of developing a shared and autonomous European acquis, the Commission has left describing or defining terms used to national legislators of member states. In general, providing a definition is not simple. In an international context, it may become more problematic, when criteria or standards on how the term should be interpreted are only rudimentary. The gauntlet was recently taken up by three professors (Reinhard Bork, Ben Schuijling and Michael Veder, with the assistance of over 20 other experts) in relation to the query: is it possible to establish a common, uniform definition of the term “insolvency”? This is relevant to, at least, transactions avoidance and the duty to file that will be imposed on directors. In their recent book “Definition of Insolvency”, these scholars explain why uniform definitions of the term insolvency and its subspecies (such as “inability to pay debts”, “cessation of payments”, “likely or imminent inability to pay”, and “overindebtedness”) are necessary to achieve meaningful harmonisation in the EU and why harmonisation cannot be achieved when the definition of these key terms is left to national law. The book proposes a set of uniform definitions of these terms. A fine example of cross-border academic research that is indispensable for the Commission. But the more important question is: does the Commission read? This year, again, we’ll find out.
EU Commissioner McGrath has published his top priority: consumer protection especially in relation to the Digital Fairness Act. In matters of restructuring and insolvency, with respect, there is more the commissioner can do. In 2022, the independent European think tank Conference on European Restructuring and Insolvency Law (CERIL) found that, in restructuring and insolvency situations, consumers in the EU have a scattered and diffuse bargaining power. There is a need for some regulatory solutions that help balance their disadvantageous procedural positions. Clear and consensual solutions are yet to be presented, but the discussion must be further developed. CERIL has recommended that the European Commission arrange, under its aegis in collaboration with several European universities and European consumer organisations, a discussion to further clarify and possibly strengthen a consumer’s position in case of insolvency or preventive restructuring of a company to which the consumer is a client/customer. The report, representing some 10 jurisdictions, presents an agenda with key topics for this dialogue: (i) information regarding the contractual position of a consumer once restructuring and insolvency proceedings, including cross-border proceedings, are opened, (ii) information on the position of a consumer during the course of restructuring and insolvency proceedings, (iii) representation of consumers or their interests in restructuring and insolvency proceedings, and (iv) the strengthening of a consumer’s financial position when it makes prepayments for goods or services prior to the start of restructuring and insolvency proceedings. CERIL, of which I was chair until 2023, is convinced that for any European solution, the brainpower of specialists in private law (consumer law) and insolvency law is needed. The report is available free of charge. A great challenge for the Danish presidency?
In January 2025, CERIL published a report about the transposition of the EU Preventive Restructuring Directive 2019/1023, which is already six years old. It identifies that the transposition led to various results among the EU member states and even beyond. CERIL analysed the Directive’s impact, in particular: the influence of the Directive on national legislation post-transposition, the conformity of such legislation with the Directive, its practical use after its transposition, and current challenges and need for reforms.
I highlight four main outcomes in short, resulting from the over 130-pages report:
1) Implementation of the Directive has largely reinforced or expanded existing restructuring frameworks across member states, with the impact depending on the availability of pre-existing national legislation. It has fine-tuned or expanded national restructuring frameworks, alongside introducing entirely novel concepts, such as the cross-class cram-down, or has instituted new frameworks into national legislations. A conclusion too is that non-EU Member States (Norway, UK, Ukraine) have also been influenced by the Directive.
2) Conformity with the Directive varies across jurisdictions. In jurisdictions where existing frameworks remained unchanged, or where frameworks were amended to align with the Directive, the conformity is generally moderate. Where new features were implemented, conformity is generally perceived as high, likely due to the absence of pre-existing provisions that needed alignment. The report suggests that newly implemented or substantially revised features tend to align more closely with the Directive, compared to amending pre-existing frameworks. Overall, the level of conformity appears to correlate with the extent of changes made to national frameworks.
3) Practical use of the Directive in EU-jurisdictions: most countries exhibit high or moderate use. Where legislative alignment with the Directive is widespread, the practical application of its individual measures is influenced by factors such as the timing of the implementation (for instance early 2021 or late 2023) and the general level of familiarity with the new procedures.
4) The Directive has been a significant step for the EU towards targeted harmonisation of the EU member states’ national insolvency legislations in relation to pre-insolvency proceedings, introducing important new features to the restructuring frameworks of most EU member states, with some jurisdictions viewing the changes as revolutionary. Despite the overall acceptance of the reforms, the report elicits that some individual respondents to the survey have identified important challenges relating to the implementation of specific provisions. Examples are (i) the concept of cross-class cram-down, (ii) uncertainties in valuation, and (iii) directors’ duties where there is a likelihood of insolvency.
The report is available via the CERIL website.
Finally, the report indicates support for continued reforms, though some respondents believe that future efforts should remain more on national-level adjustments and the practical application of existing rules. As the Directive is seen as still relatively new, many respondents emphasise the importance of allowing time for the changes to be fully integrated before pursuing further reforms. For this reason, the CERIL report concludes, regular reviews are recommended to monitor the ongoing impact of the Directive to be able to periodically determine which aspects need to be revisited with the aim to guide future harmonisation efforts within the EU restructuring and insolvency landscape.
The experienced new commissioner will understand that the list of work is long (and can certainly be made longer!) and that changes, once adopted, take time. What will be more important is what is not on the 2025 agenda: how to convince national member states to really work on harmonisation of restructuring and insolvency in the EU and not to adhere to twenty-seven national wishes in every detail. Terminology issues aside, there is a danger that harmonisation will degenerate into fragmentation. What do you mean, a single market?
References
https://commission.europa.eu/strategy-and-policy/policies/justice-and-fundamental-rights/civil-justice/civil-and-commercial-law/insolvency-proceedings_en
https://www.consilium.europa.eu/en/press/press-releases/2024/12/13/insolvency-law-council-settles-on-position-for-core-capital-markets-union-legislation/
Reinout Bork et al., Definition of Insolvency, Larcier Intersentia, published in Open Access and available for download as an e-book at: https://lnkd.in/eJuF9KNu
https://ec.europa.eu/commission/presscorner/detail/en/qanda_24_4909
CERIL – Conference on European Restructuring and Insolvency Law, Report 2024-1,
Transposition of the EU Preventive Restructuring Directive 2019/1023 (professors Reinout Vriesendorp, Stephan Madaus, and Ignacio Tirado; Research Associates Defne Taşman and Guillem Gabriel-Pizarro), www.ceril.com
This is a slightly adapted version of a regular column Bob Wessels is writing for Global Restructuring Review (GRR) on the topic of cross-border restructuring and insolvency in a European context. GRR is a subscription-only publication and the column appeared in GRR in the first week of January 2025. See www.globalrestructuringreview.com.