The EU Preventive Restructuring Framework: A Hole in One?

Abstract

The perception of insolvency and restructuring law in Europe has been subject to significant changes in recent years; with a fresh breeze coming from national reforms, topped by a radical and substantive reform as reflected in the U Drective on restructuring and insolvency (“Directive”). For decades, the (continental) European understanding of insolvency was merciless. The troubled debtor’s directors were threatened with strict liability and, in some jurisdictions, even criminal punishment for a failure to file for an insolvency procedure. This would almost always lead to the dissolution of the debtor and the (piece-meal) liquidation of its assets. The stigma of insolvency was firmly attached to the insolvent debtor.

Compared to the United States,3 it has taken some time for the European paradigm of insolvency and restructuring procedures to accept that they should be a tool to facilitate a going-concern rehabilitation of the business and to grant the debtor a second chance for the benefit of value-maximization. Legal reforms in the recent years were aimed at establishing a more restructuring-friendly culture in Europe, espousing a rescue culture for insolvency frameworks.4 The underlying proposition is that a timely and cooperative restructuring, incentivized by carrots rather than sticks, should create a surplus in contrast to a delayed in-court insolvency procedure; a surplus that could be shared amongst the debtor and its creditors.

In this article, following a short description of the background of the Directive in section 2, an analytical overview of the state of the art of restructuring practice in five European countries (Denmark, France, Germany, the Netherlands, and the UK) will be provided in section 3, prior to which the key elements necessary for a successful restructuring will be extracted and explained. These key elements also reflect the main obstacles to be overcome in agreeing the contents and approach in the Directive and its eventual legislative counterpart as is demonstrated in a comparative review of the position in section 4. In section 5, an analysis of the findings set out herein linked to the Directive is given, followed by a brief conclusion and commentary on the issues present as seen from the authors’ points of view.

Keywords: preventive restructuring; corporate rescue; insolvency law; comparative law; Preventive Restructuring Directive; rescue culture

JEL Classification: G3