Restructuring, insolvency and discharge of debt

 

SUMMARY OF:

Directive (EU) 2019/1023 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt

WHAT IS THE AIM OF THE DIRECTIVE?

• It aims to give bankrupt* entrepreneurs* a second chance.
• It makes it easier for viable companies in financial difficulty to access restructuring measures at an early stage to prevent them becoming insolvent.
• It amends Directive (EU) 2017/1132 on certain aspects of company law concerning limited liability companies.

KEY POINTS

The directive lays down rules on:

• restructuring* for debtors in financial difficulty to prevent them going bankrupt and to ensure their viability;
• discharge of debt of insolvent entrepreneurs;
• measures to make restructuring, insolvency* and discharge of debt procedures more efficient.

The legislation provides debtors with:

• an early warning system and online information highlighting any likelihood of insolvency. This can include:
  • alerts when certain payments are not made;
  • public and private advisory services;
  • incentives for third parties, such as accountants and tax and social security authorities, to flag up potential problems;
• a preventive programme allowing them to restructure their finances to avoid going bankrupt and to maintain jobs and business activity;
• the possibility of remaining totally or partially in control of their assets and day-to-day business activity while restructuring;
• a stay of individual enforcement actions* for a maximum of 4 months initially, with possible extension up to a period of 12 months, while a restructuring plan is negotiated.

Restructuring plans:

• contain basic information such as identity of the debtor and their assets and liabilities, the affected parties and the terms of the plan;
• may be submitted by debtors, creditors and experts in the field;
• must be confirmed by a judicial or administrative authority to be binding if they:
  • affect the claims or interests of dissenting affected parties;
  • provide for new financing;
  • involve the loss of over 25% of the workforce;
• do not affect individual and collective workers’ rights, such as rights to collective bargaining, industrial action, information and consultation.

EU countries:

• may apply additional conditions to preventive restructuring arrangements, stays of individual enforcement actions, adoption of restructuring plans and discharge of debt;
• must ensure that new and interim financing in restructuring operations are adequately protected;
• give bankrupt entrepreneurs at least one procedure enabling them to discharge their debt in full within 3 years;
• ensure any professional disqualifications an insolvent entrepreneur may have are expunged once their debt is discharged;
• provide suitable training for judicial and administrative authorities and practitioners involved in restructuring, insolvency and discharge of debt;
• collect data annually on the various procedures used.

Directors, where insolvency is likely, must:

• pay attention to the interests of creditors, equity holders* and other stakeholders;
• take steps to avoid insolvency;
• refrain from deliberate or grossly negligent conduct that threatens the viability of the business.

The directive does not apply to:

• insurance and reinsurance companies (as defined by Directive 2009/138/EC);
• credit institutions and investment firms or collective investment undertakings (Regulation (EU) No 575/2013);
• central counterparties (Regulation (EU) No 648/2012);
• central securities depositories (Regulation (EU) No 909/2014);
• other financial institutions (Directive 2014/59/EU);
• public bodies under national law;
• individuals (natural persons) who are not entrepreneurs (unless a EU country explicitly extends the application of rules on discharge of debt to those persons).

The European Commission, no later than 17 July 2026, and every 5 years thereafter, is to present a report to the European Parliament, the Council and the European Economic and Social Committee on the implementation of the legislation.

FROM WHEN DOES THE DIRECTIVE APPLY?

The directive applies in the EU countries as of 17 July 2021, apart from the rules on electronic communication (Article 28) which apply from 17 July 2024 and 17 July 2026.

BACKGROUND

• The Commission estimates that every year some 200,000 firms in the EU go bankrupt, leading to over 1.7 million job losses.
• The new rules help businesses to restructure earlier, foster innovation and could create 3 million jobs. Research suggests that businesses established by restarters grow faster in terms of turnover and jobs than those set up by first-timers.
• The new rules complement Regulation (EU) 2015/848 on insolvency proceedings across EU borders.
• For more information, see:
  • Insolvency proceedings (European Commission).

KEY TERMS

MAIN DOCUMENT

Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency) (OJ L 172, 26.6.2019, pp. 18-55)

RELATED DOCUMENTS

Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (codification) (OJ L 169, 30.6.2017, pp. 46-127)

Successive amendments to Directive (EU) 2017/1132 have been incorporated into the original text. This consolidated version is of documentary value only.

Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (OJ L 141, 5.6.2015, pp. 19-72)

See consolidated version.

last update 08.01.2020