Inception Impact Assessments aim to inform citizens and stakeholders about the Commission's plans in order to allow them to provide feedback on the intended initiative and to participate effectively in future consultation activities. Citizens and stakeholders are in particular invited to provide views on the Commission's understanding of the problem and possible solutions and to make available any relevant information that they may have, including on possible impacts of the different options.

Title of the initiative

Enhancing the convergence of insolvency laws

Lead DG (responsible unit)


Likely Type of initiative

Non-legislative or legislative (Recommendation or Directive – to be determined in the impact assessment process)

Indicative Planning


Additional Information


The Inception Impact Assessment is provided for information purposes only. It does not prejudge the final decision of the Commission on whether this initiative will be pursued or on its final content. All elements of the initiative described by the Inception Impact Assessment, including its timing, are subject to change.

A. Context, Problem definition and Subsidiarity Check

Context [max 10 lines]

The initiative aims to address major discrepancies in national substantive insolvency laws that were recognised as obstacles for the establishment of a well-functioning Capital Markets Union (CMU). 1 The issue at hand is corporate insolvency (i.e. non-bank insolvency), including companies, partnerships and entrepreneurs. Corporate insolvency addresses situations where a corporation, other than a bank, is in financial distress and/or unable to serve its debts. Inefficient insolvency proceedings can delay the recovery of value, restructuring of corporate assets and liabilities with negative knock-on effects for productivity, jobs and growth. Furthermore, the efficiency of insolvency proceedings is one of several key criteria for investors to decide whether to make cross-border investments. More efficient and predictable insolvency frameworks and enhanced confidence in cross-border financing would help strengthen capital markets in the Union and thus become a steppingstone towards completing the CMU. 

Insolvency law is considered to be a cross-cutting area of civil law that always has to strike a delicate balance between the legitimate interests of creditors and debtors, as well as between those of different types of creditors. This initiative will take a holistic approach towards insolvency issues, taking into account the banking/investor perspective and other stakeholders' interests - including suppliers (often SMEs), employees, the public purse and debtors to identify an adequate balancing of those interests; there will be appropriate cross-references to the work on consumer insolvency carried out in parallel. An optimal insolvency framework will maximize economic value in the economy as a whole adequately balancing the interests of the various groups of creditors/stakeholders. 

The political guidelines of President Ursula von der Leyen announced measures for a robust insolvency framework. 2 In the new Capital Markets Union Action Plan adopted on 24 September 2020, the Commission announced that in order to make the outcomes of insolvency proceedings more predictable, it will take a legislative or non-legislative initiative for minimum harmonisation or increased convergence in targeted areas of non-bank insolvency law. 3

Problem the initiative aims to tackle [max 20 lines]

Discrepancies between the Member States' insolvency laws create barriers to the free movement of capital in the internal market, in particular because diverging time-limits and lengths of procedures as well as diverging overall procedural efficiency make it more difficult to anticipate the outcome for value recovery, making it harder to price risks, including for debt instruments. If it cannot be anticipated at reasonable cost what will happen with an investment throughout its life-cycle, including during insolvency proceedings, there is a risk that such investment will not be made at all. In addition, excessively disparate insolvency regimes in the Member States make EU cross-border investments more uncertain.

In 2014, the Commission issued a Recommendation on a new approach to business failure and insolvency, which emphasised the need to take into account a broad group of interests, including those of creditors, employees and other stakeholders, as well as the economy as a whole. Ministers at ECOFIN 4 , as well as many stakeholders 5 , have called for ambitious measures on insolvency law in the context of both the Banking Union and CMU. In 2015, the European Parliament adopted a resolution where it called for CMU to ease cross-border investment and indicated that for the CMU to work smoothly, insolvency rules must be made to work better in a cross-border context.

In 2019, a directive was adopted on preventive restructuring frameworks, discharge of debt and disqualifications, and measures to increase the efficiency concerning of procedures restructuring, insolvency and discharge of debt (the Directive on Restructuring and Insolvency 6 ). It establishes minimum standards for: (i) preventive restructuring procedures available for debtors in financial difficulty, when there is a likelihood of insolvency; (ii) procedures leading to a discharge of debts incurred by over-indebted entrepreneurs and allowing them to take up a new activity, (iii) targeted rules on increasing the efficiency of all types of insolvency procedures, including liquidation procedures. However, this directive did not harmonise core aspects of substantive insolvency law, such as a common definition of insolvency, the conditions for opening insolvency proceedings, the ranking of claims, avoidance actions, the identification and tracing of assets belonging to the insolvency estate, etc. Vast differences in insolvency frameworks of EU Member States, where no two systems are alike, thus continue to exist. 

In addition, while amendments to the Directive (EU) 2017/1132 7 facilitated the transfer of companies within the Union, they also established a corresponding need for the convergence of insolvency laws. Namely, measures leading to convergence could very well mitigate the risk of abusive relocation of companies from one Member State to another. Already the landmark CJEU litigation cases (such as in the Parmalat and Interedil cases) demonstrated, that companies tried to exploit the fragmentation of the system in the event of insolvency. Even a recent UK preliminary reference (C-168/20) unveiled discrimination between companies in terms of insolvency rules if they have a foreign part of the business or not. Therefore, companies should be able to move freely, but minimum requirements regarding the rules on insolvency would certainly contribute to preventing abusive relocations of companies.

Basis for EU intervention (legal basis and subsidiarity check) [max 10 lines]

Two separate legal bases for this initiative could be used, in particular: Art. 292 TFEU (for a Commission Recommendation) or Article 114 TFEU (for a Directive). Insolvency has been a key issue in integrating capital markets in Europe since the initial Action Plan on Building a CMU of 30 September 2015. Efficient insolvency laws are one of the key criteria when investors decide, whether or not, to invest cross-border; the current fragmentation of rules, as well as inefficient insolvency systems in some jurisdictions, are a potential barrier to more integrated capital markets in the EU. In particular, differences in Member States' insolvency laws can reduce legal certainty and cause additional costs for investors, companies and other stakeholders. This can lead to the abortion of viable investment projects, reducing growth and employment opportunities. These barriers will stand in the way of optimal capital allocation from investors in one Member State to businesses in a different Member State (and potentially from third countries into different EU Member States) and thus constitute a hindrance to the development of a true Capital Markets Union. As regards subsidiarity and proportionality, the initiative should concentrate on key aspects of substantive insolvency law where action at EU level appears necessary in order to contribute to the creation of a true Capital Market Union.

B. Objectives and Policy options [max 20 lines]

The general objective is to boost cross-border investment. Proposed measures under the present initiative would therefore address those aspects of insolvency proceedings that have been identified as barriers to such cross-border investment. The specific objective is to improve the preservation of value of insolvent businesses, thus increasing the levels of debt recovery.

Regarding subsidiarity, in those targeted areas where fragmentation generates significant barriers for the internal market, only targeted efforts at EU level are capable of achieving the objective of greater convergence. The Commission will assess whether a Recommendation or a proposal for binding measures (or a combination of both) will be the most adequate tool in order to comply with the principles of subsidiarity and proportionality. Under the baseline „no action scenario“, the Commission will continue to look at insolvency in the context of the European Semester aiming at correcting certain macro-economic imbalances. Several Member States received specific recommendations on reforming their insolvency frameworks, not least in terms of increasing debt deleveraging tools for both corporate and consumer debtors, reducing the length of proceedings, including via the introduction of out-of-court tools, improving the professionalism of insolvency professionals and generally improving the efficiency of the court system. However, the country specific recommendations addressed to certain Member States in the framework of the European Semester cannot trigger a coherent EU wide reform in terms of substantive law. Most of these recommendations can only lay down specifications aimed at correcting macro-economic instability risks; they cannot reduce in a coordinated way differences between national procedures that could influence investment and location decisions. They also only address a small number of Member States and thus, would not be able to tackle an EU-wide problem.

To harmonise insolvency in a targeted manner, the Commission could consider aligning some features of insolvency regimes from the following non-exhaustive list, to maximise value preservation in insolvent businesses:

(i)    prerequisites for when insolvency proceedings should be commenced (including a definition of insolvency and provisions on who is entitled to file for insolvency);

(ii)    conditions for determining avoidance actions and effects of claw-back rights;

(iii)    directors’ duties related to handling imminent/actual insolvency proceedings;

(iv)    position of secured creditors in insolvency taking into account specific needs for the protection of other creditors (e.g. employees, suppliers);

(v)    court capacity when it comes to expertise and necessary training of judges; and

(vi)    asset tracing which would be relevant, in particular in the context of avoidance actions;

C. Preliminary Assessment of Expected Impacts [max 20 lines]

Preservation of value and efficient value recovery in insolvency are critical not only for banks providing loans to businesses, but also for other businesses such as suppliers, including many SMEs, which often suffer from protracted insolvency proceedings of a trade partner and are even at risk of becoming insolvent themselves. Poorly designed insolvency frameworks have been previously identified as negative factors for the overall business environment in a number of Member States.

Likely economic impacts

An effective insolvency law should help to speedily and efficiently liquidate non-viable firms and restructure (within insolvency proceedings) those that can be led back to viability and thus enable them to continue operating. Insolvency rules should also preserve the value that can be received by creditors, shareholders, employees, tax authorities and other parties concerned, whilst ensuring an adequate balance of interests of different stakeholders. A better insolvency framework contributes to a more efficient allocation of capital within and across Member States; more efficient and predictable insolvency frameworks are expected to facilitate cross-border investments and flows of market-based finance. The importance of predictability and of having coherent insolvency regimes is even more important when the investment is not secured (collateralised).

An approximation of the Member States' bankruptcy systems has been recommended to remove the barriers to the flow of capital in the European Union, by the Organisation for Economic Cooperation and Development (in its 2014 Economic Review for the European Union), by a High Level Expert Group on SME and Infrastructure Financing, as well as by the Association for Financial Markets in Europe (AFME).

Likely social impacts

Insolvency law has to respect the legitimate interests of all divergent creditor groups like banks and investors, but also workers, suppliers (often SMEs), service providers, landlords, consumers and public interests (fiscal and social security authorities). Insolvency – and a harmonisation of insolvency law – may have considerable impact on socially vulnerable groups such as employees and on overall social policy objectives such as the preservation of jobs. Several respondents to the 2015 CMU Green Paper consultation highlighted the complexity involved in approximating substantive laws in the area of insolvency, which may touch upon the functioning of tax and social security systems of Member States.

Likely environmental impacts

Not expected.

Likely impacts on fundamental rights

A particular attention shall be paid to the following fundamental rights to ensure that the proposed schemes fully respect the rights and principles set out in the Charter: the rights enshrined in its Article 17 (right to property), Article 16 (freedom to conduct a business), Article 15 (freedom to choose an occupation and right to engage in work), Article 47 (2) (right to a fair trial), as well as Article 8 (protection of personal data) and Article 7 (respect for privacy and a family life). The basic rights and freedoms protected by the Treaties, in particular the free movement of persons, services and establishment should also be duly ensured.

Likely impacts on simplification and/or administrative burden

The proposed initiative will aim at further digitalisation and the related simplification of insolvency procedures building on the Directive on Restructuring and Insolvency which - to further reduce the length of procedures and to facilitate better participation of creditors in insolvency procedures - obliged Member States to put in place provisions enabling the use of electronic means of communication in insolvency procedures, such as for the steps of filing of claims by creditors, notification of creditors, or lodging of challenges and appeals. The exemption of micro enterprises for the proposed instrument is not relevant (as no business is exempt from bankruptcy).

D. Evidence Base, Data collection and Better Regulation Instruments

Impact assessment

An impact assessment will be launched in 2021 to help prepare this initiative and support the Commission's decision. Harmonising insolvency laws is very complex, in particular as it is closely intertwined with other fields of law (property law and rules on collateral, labour law, company law) and given the need to balance the interests of various groups of creditors and the diverse objectives that Member States chose to prioritise in their national legislation. Against that background, as evidenced by public consultations in 2015 and 2016 on insolvency, although there was support for EU activities in the area of insolvency Member States’ Justice Ministries were very hesitant about harmonisation. On the other hand, Member States’ Finance Ministers called for a reform of non-bank insolvency laws, e.g. in the 2017 Action Plan to tackle non-performing loans.

A soft law instrument to increase the transparency of national insolvency laws could be deemed relevant in areas which are not fit for approximation but nevertheless important for investors, for example the definition and consequences of insolvency, or the treatment of certain claims (employment, tax claims) in insolvency proceedings. Such a soft law instrument could draw inspiration from some existing global instruments, such as the UNCITRAL Legislative Guide on insolvency proceedings. Yet, a self-regulation instrument, such as the aforementioned UNCITRAL Legislative Guide, is difficult to apply in the area of substantive insolvency laws, where there is a strict legislative regulation in all Member States, which is highly divergent from one Member State to the other.

The impact assessment will assess whether the appropriate way forward is to consider a proposal for a Directive harmonising some key aspects of insolvency law, a Commission Recommendation, or a combination of both. The gradual approach of a Recommendation, later followed by a proposal for binding measures (if insufficient follow-up by Member States of the Recommendation), could also be considered. A similar approach was successful in the area of restructuring and second chance, where a 2014 Commission Recommendation was followed up by a Directive (proposed in 2016 and adopted in 2019). However, this approach would cover a longer time span, therefore the final decision on the instrument would need to consider also efficiency aspects against the identified need.

Evidence base and data collection [max 10 lines]

The Commission will build on the results of a previous comparative study on substantive insolvency law in the EU (Study on a new approach to business failure and insolvency – comparative legal analysis of the Member States’ relevant provisions and practices, 8 July 2016) 8 , which revealed vast differences in national insolvency frameworks and raised issues that are deemed appropriate for the EU legislator to consider. The Commission may launch a further study to shed light on aspects on which the evidence base has not yet been developed sufficiently, such as on asset tracing and the role of data for increased market-based finance during all phases of insolvency proceedings (pre-insolvency) and following insolvency proceedings.

The Commission will also take into account the results of the study on benchmarking loan enforcement regimes, which focused on loan contract enforcement by banks. It was based on a survey filled in by the Member States and published in November 2019 9 . Quantitative data gathered by the European Banking Authority will complement this, based on a Call for Advice from DG FISMA, following up on the 2017 Action Plan to tackle non-performing loans. The Commission will also use the World Bank’s resolving insolvency score, which is a part of an effort to assess the absolute level of regulatory performance over time in countries worldwide, not only EU Member States. This score captures the gap of each economy from the best regulatory performance observed and measures aspects such as the outcome, cost, and length of an insolvency procedure.

Consultation of citizens and stakeholders [max 10 lines]

In 2019, the Member States’ expert group on insolvency benchmarking (from 2020 on co-chaired by DG FISMA and DG JUST) continued to discuss the insolvency benchmarking exercise and discussed targeted areas for potential insolvency harmonisation. Expert views from the existing Insolvency Expert Group will also be taken into account. A public consultation as announced in the new CMU Action Plan of 2020 10 , will help to gather views from further stakeholders. In addition, a roundtable for stakeholders should help to exchange views and gather further technical input. The Commission will consult representatives from all relevant interest groups, including banks and investors, workers, suppliers, service providers, property owners, consumers, public bodies (fiscal and social security authorities) and SMEs.

Will an Implementation plan be established? [max 5 lines]

An Implementation plan will be established if the impact assessment process demonstrates that a binding legislative instrument (Directive) should be pursued.

(1)  Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Action Plan on Building a Capital Markets Union, Brussels, 30.9.2015 COM(2015) 468 final, p. 24.
(3)  Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - A Capital Markets Union for people and businesses-new action plan, Brussels, 24.9.2020, COM/2020/590 final, p. 13. 
(4)  Council Action Plan to tackle non-performing loans of 11 July 2017.
(6)   Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019
(7)      Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (Text with EEA relevance), (OJ L 321, 12.12.2019, p. 1–44).
(8) Available at:
(9)  Available at:
(10)  COM/2020/590 final.