Earlier intervention in case of distress to preserve value and save jobs. That is the goal of the proposed 'EU Business Restructuring Directive', which was presented yesterday by the European Commission and aims to ensure a minimum harmonization of restructuring procedures within the European Union.
Yesterday, 22 November 2016, the European Commission presented its long awaited proposal for the EU Business Restructuring Directive. Goal of this proposal is to come to a minimum harmonisation within the European Union of rules regarding the restructuring of liabilities outside a formal insolvency procedure. The availability of such a restructuring framework aims to give businesses an opportunity to timely take measures in case of distress and preserve value and jobs. The directive also contains supportive measures related to giving honest entrepreneurs second chance and increasing the efficiency of insolvency procedures.
Preventive restructuring frameworks
The directive aims to provide an extensive set of rules regarding the availability of a restructuring framework outside the context of a formal insolvency procedure. In many aspects these rules resemble the American Chapter 11 procedure, although details differ. The directive specifically aims to introduce rules in relation to:
- ensuring that debtors remain (at least partly) in control of their business during the restructuring;
- the circumstances under which an insolvency practitioner may be appointed in relation to the restructuring;
- a (limited) stay of enforcement actions and requests for the opening of liquidation procedures by individual creditors (including secured creditors);
- the barring of contractual acceleration/termination clauses coming into effect;
- valuation (in relation to both the plan and the confirmation process);
- rules regarding the voting by creditors and shareholders on the plan (including majority thresholds);
- plan confirmation criteria (including a best interest of creditors test);
- plan cram down criteria (including an absolute priority rule);
- rules to protect new and interim financing against transaction avoidance; and
- rules regarding duties of directors in case of a likelihood of insolvency.
Second chance for entrepreneurs and increasing the efficiency of insolvency procedures
The directive also contains supportive measures that are related more to insolvency in general. Regarding individual bankruptcies, the directive proposes to introduce rules relating to the discharge of over-indebted entrepreneurs, including the lifting of any director disqualifications, no more than three years after a insolvency procedure was opened or a repayment plan started. Regarding the increasing of the efficiency of insolvency procedures, the directive is more principle based. These principles aim to ensure:
- the proper training of insolvency judges and insolvency practitioners;
- a clear national standard regarding the eligibility to act as insolvency practitioners;
- transparency regarding the criteria based on which insolvency practitioners are selected for appointments;
- appropriate oversight for insolvency practitioners;
- rules regarding appropriate reimbursement of insolvency practitioners; and
- the right to electronic communication for: i) the filing of claims; ii) the filing of restructuring plans; iii) the notification of creditors; iv) the voting on restructuring plans; and v) the lodging of appeals.
The proposal for the directive will now be sent to both the European Parliament and the Council of the European Union (consisting of the relevant ministers of the Member States). Once these bodies agree on a final text, the directive will become final and enter into force. After this entry into force, Member States will have two - for the increased efficiency part: three - years to implement the directive into national law.
Apart from the European initiative, the Dutch legislator is currently also working on a bill - the Continuity of Enterprises Act II - related to business restructuring. This bill is expected to provide an even further reaching enhancement of the reorganizational capabilities under Dutch bankruptcy law.