Restructuring in the EU
The EU Parliament adopted a Directive on preventive restructuring frameworks, establishing uniform standards across member states for companies facing financial difficulties. This represents a significant shift from the previous fragmented regulatory landscape, where some markets lacked restructuring procedures while others had sophisticated ones.
Background and Development
The directive emerged from negotiations between the EU Parliament, European Council, and Commission regarding draft directive COM(2016) 723 final from November 2016. This draft built upon a March 2014 Commission recommendation titled the “new approach to business failure and insolvency.”
Member states have two years to incorporate these provisions into national law, with potential one-year extensions available in exceptional circumstances.
Key Features
The directive creates a legal framework outside insolvency proceedings, allowing coordinated restructuring measures under protective conditions. Importantly, restructuring plans no longer require unanimous consent, preventing individual parties from blocking initiatives.
Creditors vote on restructuring plans using majority principles, organized by economic interest classes. If creditors are outvoted, courts examine the plan for procedural compliance and unreasonable disadvantage before binding implementation.
Protective Mechanisms
Courts may impose a moratorium—a “protection period” safeguarding business operations from creditor enforcement actions during restructuring negotiations. Initially limited to four months, moratoriums can extend up to twelve months. Additionally, new financing provided during preventive restructuring receives protection from insolvency claw-back actions.
Expected Impact
The harmonization is anticipated to facilitate company restructuring across Europe, prevent insolvencies, promote cross-border trade and investment, and improve risk assessment for market participants.