Download This PaperClaims, Classes, Voting, Confirmation and the Cross-Class Cram-Down
INSOL Europe, 2020
45 Pages Posted: 20 May 2020
Date Written: April 14, 2020
Abstract
This note has been written for INSOL Europe in order to provide assistance to legislative drafters in the 27 Member States of the European Union tasked with implementing into their national laws the restructuring frameworks envisaged in Title II of EU Directive 2019/1023 on restructuring and insolvency. Specifically, the note focuses on legislating for the issues of classification of investors' claims and interests in restructuring plans, voting on restructuring plans, and on official confirmation of restructuring plans.
That legislative task is as difficult as it is important.
Implemented well, the European Restructuring Directive might bring a lot of good to the Member States' credit markets and economies in general, facilitating early restructurings of financially distressed businesses and averting the social costs which are often incurred when financial distress is allowed to develop into full-blown insolvency that must be dealt inside formal court procedures. If implemented poorly, the European Restructuring Directive might stifle the market process of reallocation of resources used by failing businesses to more productive uses or even make credit less available (or more costly) to certain types of business debtors.
What means of implementation will be right or wrong will to an overwhelming degree depend on the pre-existing institutions available in the individual Member States. This includes both the pre-existing legal rules applicable to the resolution of corporate financial distress and insolvency, and the actual practices through which those rules are being applied by the respective public authorities and market players. A specific implementing solution that might work perfectly well in one Member State might bring about disappointing outcomes in another.
However, certain threshold questions will be very similar across jurisdictions when it comes to particular topics relevant to corporate restructurings.
In the context of agreeing and adopting a restructuring plan, some of the key questions arise in relation to classification of investors' claims and interests, grouping these claims and interests into classes, voting in the classes, and obtaining an official approval of the restructuring plan after investors have expressed their opinions on it via the voting mechanism.
It is the purpose of this note to flag some of the key issues that national legislators will want to consider in this particular context when implementing the restructuring frameworks prescribed by Title II of EU Directive 2019/1023, and, at least at times, also to respectfully suggest which approaches, in the authors' humble opinions, might perhaps be explored more productively than others.
Keywords: preventive restructuring, European Restructuring Directive, EU Directive 2019/1023, restructuring plans, classes and voting, cross-class cram-down
JEL Classification: G33
Suggested Citation: Suggested Citation