The European Commission recently published a recommendation addressed to Member States on a new approach to rescuing businesses and offering a second chance to honest entrepreneurs. It aims to ensure that viable businesses experiencing financial difficulti es have access to restructuring mechanisms at an early stage to prevent insolvency and maximise overall value for creditors, employees and owners. It also proposes a second chance for honest entrepreneurs involved in insolvency proceedings.

The recommendation defines “restructuring” as changing the composition, conditions, or structure of assets and liabilities of debtors, or a combination of these, to enable the continuation, in whole or in part, of the debtors’ activity.

With regard to restructuring, Member States are mainly asked to (i) facilitate the early restructuring of companies in financial difficulties (as soon as it becomes apparent that there is a likelihood of insolvency), without needing to start formal legal proceedings and with the debtor keeping control of management, allowing a temporary stay of individual enforcement actions and with protection for new financing; (ii) facilitate the process to adopt a restructuring plan to ensure the viability of the business activity, approved by the majority of creditors, distinguishing between different classes of creditors (at least two, i.e., secured and unsecured), with the possibility of making the plan binding on dissenting creditors, provided that the plan is approved by the court and it does not reduce the rights of creditors below what they would reasonably be expected to receive (in comparison with what they would obtain if the debtor’s business was liquidated or sold as a going concern); and (iii) protect the new financing agreed on in the restructuring plan and confirmed by a court (including sale of assets or debt-equity swaps) so that it is not declared void or voidable as an act detrimental to the general body of creditors, with creditors taking part in the plan being exempt from civil or criminal liability, except in the event of fraud.

The recommendation is available via the following link: