The Lack of Harmonised Insolvency Regimes
The differences of substantive insolvency law create various degrees of efficiency of the insolvency proceedings and lead in some Member States to higher transaction costs, especially information and litigation costs for the involved creditors. Liquidation proceedings can, for example in some Member States, be quite lengthy and disproportionated to the recovered value for the creditors.
The European Commission considers the wide differences in national insolvency regimes to be an obstacle for the single market, since they limit cross-border investments and business operations within the EU.
Through the Proposal, the European Commission wants to harmonise insolvency rules and by doing so, strengthen the procedural efficiency, in particular for microenterprises, and maximise the recovery of value from the insolvent company for creditors.
The Proposal focuses on three important areas of insolvency law: (i) the recovery of assets from the liquidated insolvency estate; (ii) the efficiency of proceedings; and (iii) the predictable and fair distribution of recovered value among creditors.
Berlaymont by Łukasz W
Key Topics of the Proposed
The Proposal focuses on the following measures:
- Avoidance actions: The Proposal foresees rules on transaction avoidance to protect the insolvency estate and to preserve its value for creditors. Under certain circumstances, transactions on a due claim made within three months prior to the opening of insolvency proceedings to the detriment of other creditors can be declared void if the creditor knew, or should have known, that the debtor was unable to pay its mature debts or that a request for the opening of insolvency proceedings has been submitted. Any transactions made for no or a manifestly inadequate consideration can be declared void within one year prior to the filling for insolvency or after the submission of filling. Also, transaction by which the debtor has intentionally caused a detriment to the general body of creditors can be declared void if they were done either within four years prior to the submission of the request for the opening of insolvency proceedings or after the submission of such request and the other party to this transaction knew or should have known of the debtor’s intent to cause a detriment to the general body of creditors.
- Tracing of assets belonging to the insolvency estate: The Proposal provides that insolvency courts must, upon request of the officeholder, have the power to access and search, directly and immediately, bank account information. This measure will be taken on a case-by-case basis.
- Pre-pack proceedings: Upon request of the debtor, the insolvency court must appoint a monitor who will supervise the preparation phase of the pre-pack proceedings, meaning a phase aiming at finding an appropriate buyer for the debtor’s business or part thereof. The monitor must make sure that some principles such as competitivity, transparency and fairness of the sale process are guaranteed and that market standards are met. The pre-pack proceedings will end with the liquidation phase, which aims at approving and executing the sale of the debtor’s business or part thereof and at distributing the proceeds to the creditors.
- Duty of directors to submit a request for the opening of insolvency proceedings: Directors must file for insolvency no later than 3 months after becoming aware or being reasonably expected to have been aware of the insolvency of the company.
- Simplified winding-up proceedings for microenterprises: small and microenterprises cannot be denied the right to be subject of insolvency proceedings on the ground that they, as debtors, have no assets or no sufficient assets to cover the costs of the proceedings.
- Creditors’ committees: Creditors’ committee can only be established if the general meeting of creditors decides so, whereby some exceptions apply.
Timing
It will take some time for the Proposal to be adopted into law and published in the EU’s Official Journal. It will be reviewed by the Parliament and the Council, which means that changes are to be expected and it may not be published in its present form.
Note that this short article does not constitute legal advice. If you need assistance in connection with the Proposal, please do not hesitate to get in touch with us.
