Proposal for a Directive of the European Parliament and of the Council

09.02.2017 / 8:21 /

on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU

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On 22.11.2016 the European Parliament and the Council enacted a proposal for a Directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU.

The proposal is based on Articles 53 and 114 of the Treaty on the Functioning of the European Union (TFEU). The proposal sets out a comprehensive set of principles and, where necessary, targeted rules for an effective preventive restructuring framework and second chance. It also provides measures to make procedures more efficient, including formal insolvency (liquidation procedures), with the aim of reducing their length.

An effective second chance would also imply limiting the length of disqualification orders issued for honest over-indebted entrepreneurs to enable them to take up and pursue an entrepreneurial activity after a reasonable period of time. This proposal’s objective is to remove obstacles to the exercise of fundamental freedoms, such as the free movement of capital and freedom of establishment, which result from differences between national laws and procedures on preventive restructuring, insolvency and second chance. In particular, the proposal will remove additional ex ante costs for investors when assessing the risks of debtors entering financial difficulties in one or more Member States and the ex post costs of restructuring companies that have establishments, creditors or assets in other Member States, typically when restructuring international groups of companies.

The proposal will also remove the additional risk-assessment and cross-border enforcement costs EN 15 EN for creditors of over-indebted entrepreneurs who relocate to another Member State in order to obtain a second chance in a much shorter period of time. It would also remove additional costs for entrepreneurs themselves who relocate to another Member State to obtain second chance. The single market problems are not limited to purely cross-border situations. Even purely national insolvencies may have a domino effect on the functioning of the single market. Companies operating cross-border have in their supply chain some suppliers that may be purely domestic businesses. Where a supplier experiences financial difficulties and cannot be saved, this may have negative impacts, triggering the insolvency of the cross-border company. An instrument limited to cross-border insolvencies only would not solve the single market problems, nor would it be feasible for investors to determine in advance the cross-border or domestic nature of debtor’s future potential financial difficulties.

The proposal goes beyond matters of judicial cooperation and establishes substantive minimum standards. For these reasons, it would not be appropriate to use Article 81 as a legal basis. Several Members States took or have taken action independently and have recently enacted or started preparatory work to adopt new rules to improve the preventive restructuring and second chance framework. However, these national rules differ widely in content and, as a result, provide an uneven level of transparency and protection for investors. Investors may be obstructed from investing cross-border because the costs of doing so are much higher than they need to be.

If the EU does not act, it is to be expected that other Member States reforming existing restructuring and second chance frameworks or introducing such frameworks for the first time will follow this divergent trend. This proposal is also designed to prevent such divergent legislative developments and consequent obstacles in the future.

The official text can be found here.