The European Council and the European Parliament have successfully concluded their Trialogue on the European Commission’s Proposal for a Directive of the European parliament and of the Council on preventive restructuring frameworks, second chances and measures to increase the efficiency of restructuring, insolvency and discharge procedures, and amend Directive 2012/30/EU. This is a big step forward for restructuring distressed businesses within the EU.

The EU-Directive aims to provide a uniform preventive framework for pre-insolvency restructuring measures among the European Union and implement key instruments to help struggling businesses find their way back to prosperity. To date, many jurisdictions have not provided any preventive restructuring measures, which ultimately leads to a situation where businesses have to rely on foreign instruments such as the popular “scheme of arrangement” to prevent insolvency. The European Union now works towards an equal opportunity approach in order for all member states to implement a common set of instruments for preventive restructuring and to harmonize further the national insolvency laws. Once the Directive enters into force (expected most likely in autumn of 2019), it will then be up to the member states to transform the Directive into their national legislation.

In the course of the so-called Trialogue, agreement was made upon the implementation of a pre-insolvency moratorium, which allows creditors to vote upon a distinct restructuring plan in a safe harbor, hindering spoilsports to damage joint efforts to safe troubled enterprises. Most jurisdictions currently require a unanimous vote on an out-of-court restructuring plan, which in practice often leads to single arbitrary creditors blocking the procedure. Under the new Directive, such creditors or creditor groups can be subjected to the restructuring plan, if necessary and applicable in a so-called “cross-class cram-down.” The moratorium, which aims to help achieve a majority vote amongst those creditors affected by the restructuring plan, will be limited to a period of four months and may at most be extended to a period of 12 months. This will result ultimately in more effective restructuring strategies, which best serve the interests of both creditors and debtors.

Under the new Directive, any transactions made in execution of the restructuring plan will also be safer with regard to any potential claw-back procedures in case the plan fails to prevent insolvency. Consequently, creditors and debtors can act quickly and more efficiently, which will increase the chances of successful restructuring significantly. Furthermore, the regulations on the profession of office holders in insolvency and restructuring procedures implemented in the Directive will serve to improve vastly the quality of such procedures across the EU.

European Insolvency and Restructuring professionals have long sought after the Directive. Dentons’ Frankfurt Restructuring Partner Daniel F. Fritz advised the European Commission as Private Expert during the legislative procedure for the Directive. He states, “The European Restructuring Directive provides businesses with incentives to approach preventive restructuring confidently with considerably more autonomy and security and in order to avoid insolvency. If handled adequately, this new tool box, in particular the moratorium and the restructuring plan, will have the potential to allow for a fair and effective procedure with the right balance of trust and supervision.”

Dentons’ Managing Partner Germany and Head of Restructuring Europe, Andreas Ziegenhagen comments, “The directive provides excellent opportunities for troubled businesses. With the instruments on hand, we can—more than ever before—create swift and efficient solutions to overcome substantial crises hand-in-hand with our clients. We look forward to the new challenges ahead.”

About Dentons

Redefining possibilities. Together, everywhere. For more information visit dentons.com