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Welcome / Blog Archive / English / 2024-02-doc1 Where is EU Insolvency Law heading in 2024?

2024-02-doc1 Where is EU Insolvency Law heading in 2024?

In Europe, the availability of the EU Insolvency Regulation (Recast) (EIR 2015) serves as a solid rock in EU-related cross-border insolvency matters. The last five years, case law has been rather scarce. But in international insolvency practice the Regulation plays its role as tool to include when weighing options to arrive at pragmatic solutions.

A first step in harmonising substantive national laws across EU member states has also just been completed with the implementation of the Preventive Restructuring Directive 2019/1023 (PRD 2019/1023).
In December 2022, the Commission issued a proposal for another round of harmonisation of core matters across national insolvency laws of the members states. This time, with 63 recitals and no less than 73 articles, rules have been designed to cover such topics as avoidance actions (protecting the estate by harmonising rules against illegitimate removal of assets conducted prior to the opening of insolvency proceedings), asset tracing, pre-pack proceedings, a directors’ duty to request the opening of insolvency proceedings and civil liability, the winding-up of insolvent microenterprises, creditors’ committees, and measures enhancing transparency of national insolvency laws (practical info via standard factsheet).

Although heavily debated, it has been suggested that a final version of a Directive embodying those rules may be available by December 2024, which will then come into effect in member states after an implementation period of, say, two years, sometime in 2026 to 2027. This is all rather optimistic, as European elections are around the corner in June 2024. This may lead to other politicians and other political priorities.

Of course, harmonisation does not take place in a vacuum. Fundamental changes in general areas of business (in fact, in society and in all our lives) do have to be taken in account. I will just mention here a few words about digitalisation and sustainability.

First digitalisation. It has had its consequences too in European company law in recent years.
It will soon be possible to digitalise the establishment of legal entities and general meetings of shareholders through the use of digital tools and processes in company law.
In December 2021, these was also a proposal for a Directive ‘on the digitalisation of judicial cooperation and access to justice in cross-border civil, commercial and criminal matters, and amending certain acts in the field of judicial cooperation.’ The proposed Directive’s goal is to enable electronic means of communication, facilitating videoconferencing and validating electronic documents and signatures. It suggests, among other things, amending Article 53 of the EIR 2015 (on the right to lodge claims by a foreign creditor) and Article 57(3) (on means of communication between competent authorities), providing that cooperation shall be implemented in Article 3 (on international jurisdiction).

Flipping through it, I thought: “why is Article 42 of the EIR 2015 (cooperation and communication between courts) not addressed?” Did the drafters give any thought to widening its use to blockchain-based real time creditor meetings and cooperation between IPs and IPs and courts (in Articles 41 and 43 of the EIR 2015)?

The second fundamental development in corporate law concerns sustainability. EU regulations are being developed to provide insight into the effects of companies’ actions on people, the environment and climate, as well as to tighten due care obligations with regard to these actions.
Regarding insolvency law, the debate is rather fresh. Will ESG (“Environment, Social and Governance”) have a carrying-over effect and lead to direct applicability in restructurings? Will a business viability test and a statement on a business’ prospects in future take into account ESG policy? Or does the ESG criteria require a fundamental structural reform of existing insolvency systems? There are live questions such as, do existing restructuring and insolvency laws adequately protect and uphold environmental obligations, employee entitlements and workplace health and safety obligations? Will the European Commission take the lead in the European debate?

With 2024 ahead of us, a final remark about the relationship between the EIR 2015 and the PRD 2019/1023.
A major challenge is the necessity to prevent frictions between these two important pieces of legislation. A key disruptor seems to be the lack of a clear definition of “insolvency proceedings”. When the Harmonisation Proposal of December 2022 came out, lawyers were shocked that it did not include a description or definition of “insolvency” or “insolvency proceedings”, or “collective insolvency proceedings” or (as presently in Article 1(1) of the EIR 2015) “public collective proceedings, including interim proceedings, which are based on laws relating to insolvency, …, for the purpose of rescue, adjustment of debt, reorganisation or liquidation:…”.

Such a definition is necessary on a national level to have a clear indication whether a proceeding is an insolvency proceeding, as certain rules may apply or may not apply depending on the definition: for example, time limits to file an insolvency proceeding, or the effect of an insolvency filing on the filer’s assets (fixation of an estate), or the possibility to call for a stay against creditor actions, or the potential for the filer to stay in charge of its business decisions where an insolvency officeholder is put in charge under a court’s supervision. The date of the opening of insolvency proceedings may also be decisive for the question of whether a company director can be held liable, or for the determination of the length of a suspect period. Such a period will be determined under a country’s insolvency rules on the application of avoidance actions.

Another weakness is that there will be procedures (such as the Dutch non-public, “besloten” WHOA-restructuring procedure) that are not listed on Annex A. Non-Annex A procedures may turn to seek assistance in other European countries by applying the Brussels Ibis Regulation, depending on whether they qualify under the applicability of the bankruptcy-exclusion in the meaning of Article 1(2)b of Brussels Ibis Regulation. They may also seek effect under the application of general private international law rules. However, this seems to open the door for an erosion of the EIR 2015 system.

More fundamental is the question of whether the EIR 2015 provisions regarding international jurisdiction, recognition and applicable law perfectly fit where there is a negotiated “preventive restructuring”. In the large spectrum of possibilities, a preventive restructuring may on the one hand be regarded as a formal insolvency or formal restructuring proceeding, falling under the purview of a country’s insolvency law. The availability of the existing cross-border insolvency system can indeed be extremely attractive for classification of a preventative restructuring as such. On the other hand, it may well be a contractually negotiated restructuring plan (a work-out), which falls under the system of a country’s contract law. With such a restructuring plan, parties do after all wish to prevent insolvency.

Restructuring is just a multiparty agreement – one debtor with multiple creditors and/or shareholders – amending or modifying pre-existing legal debt relationships. However, where consent of all parties cannot be established and a decision of a court (confirmation; homologation) is needed to establish the legal duty of the dissenting party to accept the workout, doubts may arise as to the doctrinal nature of the enforced agreement. As such, the court’s order requiring creditors to agree (in the meaning of approval of an offer or the confirmation of a plan, which substantially and by way of procedure passes a certain test), is not enough to qualify the procedure or its outcome as an “insolvency procedure”.

In a grey area, there may be doubts whether a preventive restructuring is an “insolvency proceeding” indeed. In such a system, the question is whether the dominance of insolvency-look-alike solutions is still feasible in every respect. We are in the middle of the debate.

There will be other loopholes and gaps in the EIR 2015 and its interrelationship with the PRD 2019/1023. For instance: with ongoing harmonisation, does a conflict of law rule provision such as Article 16 of EIR 2015 (transaction avoidance) still make sense, where rules regarding transactions on a member states’ national level are being harmonised?

Essential pillars upon which the internal market rests – clear concepts, terms and norms as well as guiding principles – are not all clear in these pieces of legislation, rather fragmented or inconsistent. New policies (digitalisation; sustainability) will need to be taken into account when thinking about a revision of the present system of EU insolvency law.

The ambition to create a true European common market, including for insolvency, by the year 2030, begins today.

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 on 6 January 2024. See