Financial Services

Adoption of the proposal for a European Directive on preventive restructuring and second chance

Published on 30th May 2019

The European Parliament's proposal of 28 March 2019 for a Directive of the European Parliament on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and restructuring proceedings (hereinafter, the "Directive") aims at developing national preventive restructuring frameworks. This ensures the continuity of viable companies in financial difficulties; exonerating bona fide entrepreneurs from their debts after a reasonable period of time; and achieving more effective restructuring, insolvency and discharge of debt proceedings.

The Directive shall apply to legal persons (but Member States may decide to apply it also to individuals); and to all types of credit, excluding workers' credits, maintenance claims, claims arising from the commission of a crime and accrued pension entitlements. The deadline for transposition of the Directive by the Member States is two years from the date of its entry into force and five years for the laws, regulations and administrative provisions necessary to comply with it effectively.

Preventive restructuring frameworks are intended to avoid the unnecessary liquidation of economically viable companies by means of effective action prior to the moment of possible insolvency. Access may be subject to a viability test aimed at excluding debtors who have no prospect of viability, while limiting the number of times a debtor may resort to these frameworks over a period of time. The debtor, creditors and employee representatives (subject to the consent of the debtors), may request the initiation of preventive restructuring frameworks. As for the control of the assets and management of the debtor company, it shall be the debtor himself, with the exception of certain cases in which it may be possible to regulate the obligatory nature of an administrator.

On the other hand, preventive restructuring frameworks may be ordered through restructuring plans, which shall include, among others, the assets and liabilities of the debtor, the type of creditors, the proposed measures, the financial flows and the new financing. The binding of these plans will be subject to confirmation by a judicial or administrative authority when there are dissenting parties, new financing is foreseen or the loss of more than 25% of the staff is expected; with the possibility of extending such binding to dissenting parties when it has been approved by a majority of creditors in the same category and provided that it does not involve discriminatory treatment towards dissenting parties.

Member States shall ensure that operations are justified and necessary for the negotiation of a restructuring plan, as well as new financing and interim financing. They cannot be declared null and voidable or unenforceable on the grounds that they are prejudicial to the creditors as a whole when the debtor becomes insolvent, provided that the operations were carried out before a possible situation of breach of payments of debts when due and that the plan had been confirmed by a judicial or administrative authority.

Similarly, the negotiations of these restructuring plans may be favoured through the suspension of the debtor's individual enforcement actions (maximum initial duration of 4 months and 12 months with their respective extensions), with the possibility of lifting this suspension under certain circumstances.

With respect to discharge of debt processes, insolvent business owners must be guaranteed access to them, and they may be required to cease previously the activity related to their debts and to pay them partially. In no case the exoneration shall entail the conclusion of the proceedings for the enforcement and distribution of the debtor's assets arising from the insolvent. The period of discharge of debts, together with the period of disqualification, may not exceed three years from the opening of the discharge procedure or the determination of the debtor's bankruptcy assets. And Member States may exclude from discharge of debt certain categories of debts and/or insolvent business owners who have acted dishonestly or in bad faith towards creditors.


* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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