In my January column, I wondered what the European Commission’s agenda for restructuring and insolvency law would be for the next four years. In December 2024, the new Commission, headed by President Ursula von der Leyen, had just come into power; what are the new Commission’s insolvency plans?
Last week, a tip of the veil was lifted. The new European Commissioner for Democracy, Justice, the Rule of Law and Consumer Protection, Michael McGrath from Ireland, spoke via a video message at the annual meeting of the Conference of European Restructuring and Insolvency (CERIL) in Leiden. I was asked to reflect on his message for a few minutes. I summarise the core of it as follows.
The Commissioner emphasised that the new mandate of the European Commission is fully determined by the competitiveness of the EU. At the heart of its actions will be its recent “Competitiveness Compass”, a roadmap outlining actions to enhance the EU’s global competitiveness. Input from several reports (including former Italian Prime Ministers Enrico Letta and Mario Draghi) has convinced the Commission of the necessity of completing the Capital Markets Union and Single Market. The Compass serves the Commission’s primary framework for decisive action at the EU level. It will lead to efforts to simplify processes, reduce administrative burdens, and eliminate barriers, all with the goal of boosting Europe’s competitiveness.
Last March, McGrath launched the High-Level Forum on Justice for Growth to assess—together with Parliament, Council and stakeholders, including industry—how new initiatives in civil law, company law, and the digitalisation of justice can best support these objectives. It should lead to an even better functioning of matters of civil law. It underlines three policies: (a) legal certainty and predictable rules are crucial components of a functioning internal market since they ensure stability for businesses and consumers in cross-border commercial transactions; (b) in case of legal disputes, the parties need to know which court is competent and which law applies; (c) parties also need to trust that decisions issued in one member state can be recognised and enforced in other member states. McGrath did not give examples, but could this lead to improvements in the Brussels Ibis Regulation that governs jurisdiction and enforcement of judgments in civil and commercial matters in the EU?
The 400-pages Draghi Report of September 2024 was clear. The EU has not made much progress in insolvency. Insolvency regimes across member states remain substantially unaligned; significant differences also exist across countries in thresholds for insolvency, rules for proceedings, priorities of claims, and restructuring mechanisms. McGrath’s answer is in line with one of Draghi’s proposals. Early next year a proposal can be expected for a 28th regime, offering companies a simpler and harmonised set of rules, with the aim of supporting innovative companies to set up and grow in Europe. The Commissioner’s focus will be on “a new EU-wide corporate legal framework”. I hope it does not refer solely the scope of European corporate law, but to a balanced blend of flexibility and harmonisation in relation to innovative companies (starters and scaling uppers). The Commissioner indicated that such a 28th regime could make it easier for companies to set up and operate across the Single Market, would facilitate pan-European investments in innovative companies, and reduce administrative burdens for companies by leveraging digital solutions and the “once-only” principle, which ensures individuals and companies only need to provide standard information to public authorities once.
Later the day, the 28th regime was a topic for discussion. A Spanish suggestion was not to limit such a regime only to innovative companies, but for it to be available for all corporate businesses. A Belgian view was that the country already had twelve options for corporates to choose from in relation to insolvency and restructuring. Why this 13th option? Sufficient to indicate that it is rather daring to announce that a proposal will be ready in eight months.
While McGrath announced a possible review of the Shareholder Rights Directive, a regulation aimed at strengthening shareholder engagement and improving corporate governance in EU-listed companies, he turned to matters of insolvency. The main goal to achieve greater convergence of national restructuring and insolvency laws is essential for establishing truly integrated capital markets in Europe. This echoes an all too familiar sound. What will McGrath do?
Quite a surprise was the Commissioner’s statement that the Directive regarding the harmonisation of certain aspects of insolvency could be adopted by the end of 2025. Wise he added: if all goes to plan. The topics put forward for harmonisation were avoidance actions, tracing of assets belonging to an insolvent estate, directors’ duties to request the opening of insolvency proceedings (and civil liability), the winding-up of microenterprises, creditors’ committee and measures enhancing transparency of national insolvency laws.
In December 2024, the Council of the EU reached agreement on a “partial general approach” on transactions avoidance, asset tracing, the duties of directors in the event of insolvency and transparency obligations. The remainder is what McGrath calls the Directive’s “central achievement”, namely pre-pack proceedings, allowing the sale of an insolvent business on a going concern basis.
The Commission recognises the urgent need for an insolvency proceeding specifically designed for the unique requirements of the smallest businesses. It has taken note of concerns that a simplified liquidation procedure for microenterprises—without the assistance of an insolvency practitioner—might be open to abuses. The Commission is ready to correct any existing shortcomings.
The Commission is also looking forward to “finalising” the harmonisation process with the co-legislators, to jointly deliver this final measure of the 2020 Capital Markets Union Action Plan, i.e. the harmonisation-package. Two years ago, at CERIL’s annual conference of 2023, an international forum addressed yet other topics for harmonisation: (i) a workable definition for “insolvency”; (ii) harmonisation of the ranking of creditor’s claims; (iii) harmonisation of a definition for “debts of the estate”; and (iv) more clear and uniform rules for practitioners in insolvency proceedings.
What is wrong with harmonising these topics, and perhaps others, which were not included in the current “certain aspects” of the Commission’s proposal? Will harmonisation be stopped halfway? Has harmonisation proved to be more stubborn than expected? Will harmonisation return under another political banner, such as “strengthening competition” or the need for a voluntary withdrawal of the powers of member states in favor of a more united external action. Will this make the EU more attractive for investors from third countries, certainly for those countries with which the EU has concluded trade agreements or will revive them, because of a shift in geo-political relations?
In speeches at this level, the most important topics are often about what is not said. There is a wild bouquet of technical terms and expressions in the various EU texts. The soon-to-be-finalised harmonisation proposal from two years ago, for instance, has been criticised for its lack of suggestions for harmonising key concepts such as “insolvency”, “insolvency proceeding” and the term “director”.
Moreover, the use of terms in relation to a certain situation is unsteady and problematic in itself, for instance with the terms “an impending insolvency”, “close to insolvency” or “a likelihood of insolvency” all being used. Lawyers can be very good at arguing in detail about the meaning of words if they are only stated in general terms. Nearly all terms, and their underlying rationales, deserve interpretation. And then, even when legal terms are clear, they may have a different meaning in a different context. ‘“Jurisdiction” is one of those words that means different things in different contexts, as recently was expressed by an English court. There is certainly a need to develop a shared and autonomous European acquis. Now, in many cases, the Commission has left describing or defining terms used to national legislators of member states. It is a passport to the land of confusion and an invitation for litigation.
The surprising and most striking point the EU Commissioner was silent about was the EU’s review of the Insolvency Regulation (recast), which is due in a little over two years. During the CERIL conference many topics for revision were discussed, and reports of the conference can be expected on the GRR website and the CERIL website.
In any case, it was a pleasure to see McGrath get to work with purpose and drive.
References
Conference on European Restructuring and Insolvency Law, www.ceril.eu
Competitative Compass, https://commission.europa.eu/topics/eu-competitiveness/competitiveness-compass_en
Letta Report, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf
Draghi Report, https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en
England and Wales Court of Appeal (Civil Division), in: Khan v Singh-Sall & Anor [2023] EWCA Civ 1119, [41] (06 October 2023).
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 of 12 May 2025. See www.globalrestructuringreview.com.