Welcome / Blog Archive / English / 2021-12-doc4 In 2022 the EU takes a new step in harmonizing corporate insolvency

2021-12-doc4 In 2022 the EU takes a new step in harmonizing corporate insolvency

Last week in November 2021, the EU Commission published a Communication with a set of intended measures, responding to a number of action points identified under its Capital Markets Union (CMU) 2.0 Action Plan. This Plan was published in September 2020. See COM(2021) 720 final. The Commission wishes to tackle problems across a broad range of capital market services to help achieve a strong and well-integrated single EU capital market. The Commission will propose, in the 3rd quarter of 2021, a new Directive. See for my commentary, and for what the Commission has in mind for corporate insolvency https://bobwessels.nl/blog/2021-11-doc3-capital-markets-union-cmu-insolvency-the-odd-couple/.

To do list. In that post I indicated that several topics could be serious candidates for a future Directive. In the light of current developments, it is rather obvious to expect that on the Commission’s list would be rules for transaction avoidance, asset tracing and recovery (on UNCITRAL’s wish list as well) and greater effectiveness in insolvency proceedurer involving small and small/midsize companies.

Straight forward liquidaton proceedings. As I see it, most national restructuring and insolvency regimes have revolved and sometimes changed during the last decade. Unprecedented changes during the last 18 months through government interventions have brought other changes. The work of the Commission has to be aligned with the COVID-19 related temporary or even permanent changes to legislation in national insolvency frameworks. The number of restructurings and insolvencies is expected to increase across the regions as economies slow. Once viable businesses have ceased to trade or trade has declined. Government support packages are withdrawn or diminished. Two weeks ago, in the UK, in a Future Strategy conference organised by the English Insolvency Service, thoughts were developed to change focus from restructuring, and its variations, to liquidation. Many states only have one single proceeding for liquidation. With the uncertain future of our economies, shouldn’t there be alternatives for liquidation? Should these alternatives include special regimes for no-asset of asset-light cases? Or even mandatory liquidation, to get rid of zombie companies?

A Recommendation. The blog related to the CMU also signalled that the Commission has in mind to ‘complement’ its envisaged Directive with a Recommendation. Such a move has historic roots. The present Preventive Restructuring Directive (2019/1023) started off with with a 2014 Recommendation on a new European approach to business failure and insolvency. Good candidates are easy to find, also based on solid research from my German colleage prof. Stephan Madaus and me in our 2017 European Law Institute (ELI)  report on Rescue of Business in Europe, see https://bobwessels.nl/blog/2021-05-doc1-impact-of-restructuring-reseach/. Topics would include

Transparant rules for insolvency practitioners. See ELI Recommendation 1.02: “The EU as well as Member States should ensure that any restructuring and insolvency system includes transparent rules in the law for legal powers and duties, appointment, licensing, supervision, education and work standards and ethics for the key actors in that system….”. And Recommendation 1.12: “The European and national legislators should set professional and ethical standards for insolvency practitioners and ensure that the relevant professional bodies are consulted and involved in the creation of such standards and that they take into account best practices for appropriately regulated professional parties as set out in principles and guidelines on regulation of the restructuring and insolvency profession developed or adopted by European and international non-governmental organisations active in the area of restructuring and insolvency. Such standards should at least contain rules on licensing and registration, supervision and discipline, qualification and training, an appointment system, work standards during administration, legal powers and duties, remuneration, reporting and communication and ethical working standards (including rules on conflict of interests and a complaint procedure).”

Rules for creditors’ committees. See ELI Recommendation 4.08: “Member States should secure the involvement of a creditors’ committee in formal restructuring or insolvency proceedings provided that there are sufficient assets in the estate to justify the additional costs. Such a creditors’ committee should not only have a supervisory function, but also be competent to approve decisions in the administration of the estate that may have a significant effect in the later distribution (except the decision about a restructuring or insolvency plan which is governed by separate rules).” See my blog of a few days ago, https://bobwessels.nl/blog/2021-12-doc2-time-is-ripe-for-a-european-code-of-conduct-for-creditors-committees/. And see ICR18-6-1

Fine suggestions, however, as always, let’s wait and see.