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Publicado el 24/11/2016
Proposal for a directive on a pre-insolvency restructuring proceeding
Yesterday, the European Commission published a proposal for a directive on pre-insolvency restructuring proceedings (et al.), see doc. COM(2016) 723 final. In the proposal, the Commission implements its initiative first introduced in the recommendation of 12 March 2014 and reaffirmed in the “Action Plan on Building a Capital Markets Union” of 30 September 2015.
In order to preserve values in insolvency, the proposed directive shall ensure minimum standards throughout Europe for so-called preventive restructuring proceedings and for the debt discharge for honest but over-indebted entrepreneurs. In Germany, the introduction of a pre-insolvency restructuring proceeding would significantly change the current insolvency law.
The submission of the proposal to the European Parliament and the Council is the first step of the EU’s ordinary legislative procedure. The European Parliament then conducts a “first reading” of the Commission’s proposal and either adopts or amends it. After this, the Council also conducts a “first reading” by which it can either accept or amend the Parliament’s position from its first reading. If the Council accepts the Parliament’s position, it adopts the legislative act. However, if the Council proposes amendments, the amendments will be returned for a “second reading” at the Parliament (and where appropriate, a second reading at the Council). This process can easily last for one year or longer. The proposal provides in Art. 34 para. 1 that the Member States must implement the directive into national law within two years after its entry into force (twenty days after publication).
The proposal is in part similar to, and goes in part beyond the recommendation of 2014. Below is a list of the main features especially of the proposed preventive restructuring proceeding:
• The restructuring proceeding requires the debtor to be in financial difficulty and that there be a likelihood of insolvency, Art. 4 para. 1.
• During the restructuring proceeding, the debtor may benefit from a stay of individual enforcement actions for a duration of up to four months and under certain conditions up to a maximum of 12 months, Art. 6.
• During any stay of individual enforcement actions, the debtor’s potential obligation to file for insolvency is suspended; no insolvency proceeding can be opened at the request of a creditor during a general stay covering all creditors, Art. 7 para. 1/2. Exceptions may apply in the event of illiquidity. In such event the restructuring proceeding only ends after a court has decided whether the prospects for a successful restructuring during the stay of individual enforcement actions justify to defer the opening of the insolvency proceeding, Art. 7 para. 3.
• The debtor shall remain in control of its assets and of the operation of its business. Art. 5 para. 1. However, inter alia upon a general stay of individual enforcement actions, a court may appoint a restructuring practitioner, Art. 5 para. 3. The restructuring practitioner may assist as a mediator in negotiations with creditors, he may as a trustee supervise the activities of the debtor or he may be granted partial control over the assets or affairs of the debtor, Art. 2 para. 15.
• A restructuring plan is mandatory. A restructuring plan approved by the majority of creditors that affects the rights of dissenting creditors becomes binding for all creditors when a court confirms the plan, Art. 9/10.
• Where no majority is reached in one or more classes, the court can nevertheless confirm the plan per cross-class cram-down, if certain conditions are met (best interests test, at least one approving class, absolute priority rule), Art. 10/11.
• Financing measures, payments and other transactions in connection with a restructuring proceeding enjoy special legal protection, e.g. against avoidance or other liability, and may rank senior to other claims, Art. 16/17.
• In particular SMEs shall be provided with better and earlier access to restructuring measures via so called early warning tools, such as accounting, monitoring and reporting obligations, Art. 3.
The Commission further proposes measures to increase the efficiency of restructuring, insolvency and second chance proceeding (Title IV). The Commission expects adequate initial and further training, independence and competence, a code of conduct as well as a clear, transparent and fair selection process based on experience and expertise, Art. 24/25. In cross-border cases, the proposal requires the practitioner’s ability to communicate and cooperate with foreign insolvency practitioners and judicial and administrative authorities, Art. 26. Finally, the Commission demands that a number of important actions in the proceeding may be performed electronically, Art. 28.
The Commission’s proposal further addresses the discharge of debts of insolvent but honest entrepreneurs within a uniform discharge period of no more than three years (Title III) and measures to monitor restructuring, insolvency and discharge periods (Title V).
If the Commission’s proposal is adopted as a directive, Member States will be obligated to comply with the minimum standards in the directive, and where appropriate, adapt their respective national insolvency legislation. In the German Federal Ministry of Justice and Consumer Protection, the European Commission’s plans have thus far been viewed openly but with reservations. The evaluation of the ESUG insolvency reform of 2012 will take place in 2017. A potential pre-insolvency restructuring proceeding had been discussed within the framework of the ESUG reform, but the legislator ultimately decided against its introduction. Instead, the ESUG introduced the protective umbrella proceeding (Schutzschirmverfahren).
Among restructuring practitioners, the pre-insolvency restructuring proceeding has received much support as well as criticism. On the one hand, restructuring efforts promise more success the earlier they are initiated and often they come too late. Others view a pre-insolvency restructuring proceeding, which gives the debtor time to negotiate, as a risk for creditor rights with unsecure reorganization success.
Dr H. Philipp Esser
Attorney at Law in Germany
Attorney at Law (New York State)