The EU Parliament adopted the Directive on future "Preventative Restructuring Frameworks.
This creates the basis for a uniform legal framework for preventive restructuring within Europe. To date there has been a "patchwork" of regulations in the EU: in some cases there are no regulations at all, in others there are sophisticated procedures in place. The new directive now counteracts the dangers and risks of such regulatory differences.
The Directive on Preventive Restructuring Frameworks resulted from the trilogue talks between the EU Parliament, the European Council and the EU Commission on the Draft Directive COM(2016) 723 final dated 22 November 2016. The draft, in turn, was based on a recommendation of the EU Commission dated 12 March 2014 ("new approach to business failure and insolvency").
Another cornerstone has thus been laid on the path to establishing a preventive restructuring framework in Germany and Europe. Now that the directive has been published, the Member States have two years to transpose the provisions into national law. In exceptional cases, this transposition period can be extended by one year on request.
In Germany, it can be assumed that the transposition period will not need to be realised in full and that proposals will soon be submitted for the transposition into German law. At the same time, these should be brought into line with the results of the ESUG evaluation of October 2018 [German Facilitation of the Reorganisation of Enterprises Act (Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen, ESUG)].
Preventive restructuring frameworks in Germany from 2022 at the latest
By 2022 at the latest, Germany will have preventive restructuring frameworks (also known as "pre-insolvency restructuring proceedings"). This may be one or more proceedings or isolated measures.
The new legal situation will fundamentally change how companies deal with financial difficulties and restructuring. For the first time, a legal framework outside insolvency proceedings opens up the possibility of coordinating and implementing restructuring measures under protective conditions in a uniform manner with the parties involved, without the need to reach a consensus or individual parties being able to block the project.
Restructuring plans are at the heart of the new directive's instruments. These can provide for a variety of provisions that serve to restructure the debtor. The creditors affected by those provisions vote on the restructuring plan in accordance with the majority principle. As with insolvency plans, the vote takes place in groups or classes, whereby the economic interests of the parties involved are taken into account when classifying these groups/classes. If individual creditors or groups are outvoted, the restructuring plan must be confirmed by a court. The court will then examine in particular compliance with the rules of procedure and the question of any unreasonable disadvantage of the parties concerned. Only then, and only to the extent that the affected parties have been involved accordingly, does the restructuring plan have a binding effect.
During the preparation and negotiation of a restructuring plan, the ongoing business operation must be protected from disruptions caused by enforcement measures taken by individual creditors or by the loss of contractual relationships necessary for business operations. To enable this protection, the competent court can order a moratorium — a kind of "protection period" similar to preliminary insolvency proceedings, during which the creditors' interests may not be unreasonably disadvantaged. Strict requirements must therefore be placed on the order and lifting of moratoriums. In particular, the moratorium period will initially be limited to up to four months, with the possibility of extending it to 12 months at the most.
In addition, the new directive provides that new financing granted during a preventive restructuring scheme will be protected from claw-back actions by the insolvency administrator in the event of subsequent insolvency.
Targeting an improved restructuring culture, but allowing flexibility in its implementation
The new directive is binding for all Member States. The EU therefore hopes that the restructuring and reorganisation of companies in Europe as a whole will be made easier, thus preventing insolvencies. The reduction of barriers to trade and investment will also be promoted, as previously widely-differing regulations in the individual Member States are harmonised. This will enable market participants to better assess entrepreneurial risks. In addition, restructuring measures should in principle be undertaken earlier to increase their chances of success. The costs of restructuring processes should also be reduced so that small and medium-sized companies in particular have easier access to them.
One ambivalent point of the new directive is that it allows the Member States considerable flexibility in transposing the provisions on many detailed issues into national law. It is therefore quite possible that some Member States will introduce regulations, which are highly functionalbut have lower levels of protection for the interests of the parties involved. Other Member States could implement stricter proceedings with high barriers, thereby guaranteeing a high degree of protection of individual interests. As a result, there could be a risk of competition between jurisdictions in the short term, since a well-functioning legal framework also offers economic advantages. Ultimately, time will tell which constructions will prove their worth in practice.