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2021-05-doc1 Impact of Restructuring Reseach

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European restructuring research

https://youtu.be/8E6ZCOAgctA

Text accompanying my YouTube video

Over 3,5 years ago, my German colleague Stephan Madaus and I published our report on ‘Rescue of Business in Europe’ for the European Law Institute (ELI). The Report contains over 100 recommendations on a variety of themes affected by the rescue of financially distressed but in its core viable businesses. The Report’s ten chapters cover: (1) Actors (judges, IPs, mediators etc) 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).

See Bob Wessels and Stephan Madaus, Rescue of Business in Europe. A European Law Institute Instrument, Oxford University Press 2020. This book (over 1400 pages) also contains all appendices, questionnaires and country reports. See https://global.oup.com/academic/product/rescue-of-business-in-europe-9780198826521?q=madaus&lang=en&cc=nl. It was officially presented to ELI in October last year, see https://www.universiteitleiden.nl/en/news/2020/10/european-law-institute-launches-book-on-rescue-of-business-in-europe

Our Rescue-report (without annexes: some 400 pages) was unanimously adopted in September 2017 by the European Law Institute and is available via SSRN: https://ssrn.com/abstract=3032309, or via

http://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/Instrument_INSOLVENCY.pdf. The Institute does not count its downloads, www.ssrn does, and mid May 2021 there were 944 (and counting).

Impact for the development of the European legal order?

I am not shy to say that our project has had its impact on all we as reporters have reached out to:

– The European Commission has used the report in preparing for the text of the Preventive Restructuring Directive of 2019/1023, which should be implemented soon, July 2021;

– Judges in Europe have taken notice of it, for instance in August 2020, the Court of Appeal of Lithuania cited the ELI Instrument in its judgment, stressing the importance of rescuing viable businesses to support a strong economy and save jobs;

– National legislators expressly referred to the Instrument in legislative proposals, e.g. the Corporate Insolvency and Governance Act of 2020 in the UK. Translations of large parts of the report are available in German and Portuguese, while a Russian translation of the full report just has been published! It recently has been published (taking 600 pages, see

https://estatut.ru/catalogue/books/grajdanskoe-pravo/korporativnoe-pravo/spasenie-biznesa-v-bankrotnom-prave-otchet-instituta-evropeyskogo-prava-per-s-angl/?fbclid=IwAR2qAQiVmzKXrP7g9WhJKwau1Xk0gBpNvPnz_J6CzOrYjiYmZ_FFq8jCi28.

And the ELI project’s method has been taken as an example in the present corporate restructuring harmonisation efforts in Asia, see https://bobwessels.nl/blog/2020-09-doc2-corporate-restructuring-in-asia/

Will the research remain relevant in the longer run?

It will certainly remain relevant:

– National insolvency laws do not change overnight. Fashion changes every year, for insolvency law it takes a decade;

– Also, a dramatic challenge is to cope with the effects of the COVID-19 pandemic. Even a return to pre-pandemic economies may see a tidal wave of impending insolvencies that have been suppressed by the Government measures. There is certainly a cliff edge risk and our recommendations may assist legislators to deal with the post-pandemic area of recovery of the European economies.

Is Europe facing a ‘tsunami’ of insolvencies?

The European Systemic Risk Board (ESRB) in a report of April 2021 believes so. The dramatic rise of insolvencies across Europe is expected as government measures introduced to help businesses through the COVID pandemic are eased. The ESRB predicts that, although insolvencies fell by almost 20% across Europe between July and September 2020, the number of insolvencies could spike by a third by the end of 2021. EU leaders were also encouraged to use appropriate insolvency procedures to avoid a rise in ‘zombie’ businesses as the measures are reduced. See

https://www.esrb.europa.eu/pub/pdf/reports/esrb.report210428_PreventionAndManagementOfALargeNumberOfCorporateInsolvencies~cf33e0285f.en.pdf?351f85b1f1648308508846cc8c4dd0bf

National legislators will find in our Rescue of Businesses report a true companion.

– The European Commission just started its programme of further enhancing the convergence on insolvency laws. The Commission is to report with an instrument (recommendation and/or directive) in Summer 2021 and nearly all its policy goals are on themes Madaus and I have covered in our report.

See https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12592-Insolvency-laws-increasing-convergence-of-national-laws-to-encourage-cross-border-investment_en

Webinar on ‘Rescue of Business in Europe: the impacts of ELI’s work’

ELI has announced a series of webinars on the occasion of its 10th anniversary. The webinars will feature some of ELI’s past projects and legal developments pertinent to their work. The webinar on ‘Rescue of Business in Europe: the impacts of ELI’s work’ will take place on Tuesday 6 July 2021 from 18:30 to 19:45 CET.

With a dramatic shift in paradigm in insolvency in Europe, from mainly focusing on liquidation heading to rescue viable business for the strength of the economy, many issues remain open for debate. During our webinar two of them will be discussed: should the board of a company during a restructuring process remain in charge of it? This is the debate of the role and function of the debtor-in-possession. The session with be chaired by Gert-Jan Boon (Leiden, he was part of our research team). With many millions of medium and small enterprises, should an individual restructuring process be customised to the special needs of smaller business, encouraging timely use of a flexible, less legal-formal framework?  This session will be chaired by Stephan Madaus. With these two topics, the ELI webinar will be discussing present and future options in developing effective restructuring regimes in Europe. Other speakers will be confirmed, and the webinar will also feature a Q&A session. See you there!