COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU
Date: 2016-11-22
Institutions: Directorate-General for Justice and Consumers, European Commission
Subjects: EU Member State, aid for restructuring, aid to undertakings, approximation of laws, company in difficulties, company law, financial solvency, liquidation

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   EUROPEAN COMMISSION  Strasbourg, 22.11.2016  SWD(2016) 358 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL   on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU {COM(2016) 723 final} {SWD(2016) 357 final}  
 
 
Executive Summary Sheet 

Impact assessment on a Proposal for a Directive on preventive restructuring frameworks, second 
chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures 
and amending Directive 2012/30/EU 

Why? What is the problem being addressed?  

A. Need for action 

The proposal addresses the following key problems: (i) lost opportunities and costs generated by barriers to 
cross-border  investment  related  to  insolvency  frameworks,  (ii)  foregone  benefits  and  additional  costs  for 
creditors and debtors related to liquidations of viable companies, (iii) lost opportunities and additional costs 
for natural persons related to inefficiencies in insolvency frameworks as regards a fresh start. 

These problems stem from differences in national set of rules regarding: (a)   rules  on  the  possibility  of 
restructuring at an early stage, (b) rules on stay of enforcement actions (moratorium), (c) rules on debtor-in-
possession, (d) rules on the preparation and adoption of restructuring plans, (e) rules on provision of new 
financing  in  restructuring,  (f)  intensity  and  quality  of  courts'  and  insolvency  administrators'  involvement, 
(g) rules on debt restructuring for natural persons, including discharge and second chance. 

The  differences  between  restructuring  and  second  chance  frameworks  of  Member  States  generate 
continuing legal uncertainty, additional costs for investors in assessing their risks, and persisting barriers to 
the efficient restructuring of viable companies in the EU, including cross-border enterprise groups. 

What is this initiative expected to achieve?  

General objectives:  
1.  Reduce the barriers for cross-border investment which are related to restructuring and insolvency 

frameworks and increase investment and job opportunities in the internal market 

2.  Reduce the number of unnecessary liquidations of viable companies and increase the possibilities of 

cross-border restructurings in the internal market 

3.  Reduce the costs and increase the opportunities for honest entrepreneurs to be given a fresh start. 
In general the initiative aims at harmonising certain aspects of restructuring and second chance provisions. 

What is the value added of action at the EU level?  
Member States alone cannot ensure that their insolvency and restructuring regimes will be compatible.  A 
well-functioning  EU  internal  market  requires  a  coherent  restructuring  and  second  chance  framework, 
capable  of  addressing  the  cross-border  dimension  of  firms,  as  interaction  between  companies  located  in 
different Member States has become increasingly common. EU action will add value by facilitating cross-
border  investing  in  the  EU,  ensuring  that  viable  businesses  in  financial  difficulty  will  benefit  from  more 
choice of accessible tools aiming at preventing their insolvency; at the same time, entrepreneurs will profit 
from the possibility of using reasonable discharge periods in their Member States. The proposed rules will 
create legal certainty for creditors and investors which want to lend in other Member States.  

B. Solutions 

What legislative and non-legislative policy options have been considered? Is there a 
preferred choice or not? Why?  
The following high level options were considered: 
Option 1: Maintaining the status quo (baseline scenario) 
Option 2: Setting up a fully harmonised preventive restructuring procedure and a second chance framework 
Option 3: Introducing an alternative, optional EU restructuring and second chance regime  
Option  4:  Setting  up  a  harmonised  minimum  legal  framework  in  the  area  of  restructuring  and  second 
chance for entrepreneurs  
To  achieve  the  objectives  above,  various  substantive  sub-options  are  envisaged.  These  substantive  sub-
options  include  (i)  enabling  efficient  possibilities  of  early  restructuring,  (ii)  improving  chances  of 
negotiations  by  allowing  the  debtor  a  "breathing  space"  by  way  of  stay  of  enforcement  actions 
(moratorium),  (iii)  facilitating  the  continuation  of  debtor's  business  while  restructuring,  (iv)  disallowing 
dissenting  minority  creditors  and  shareholders  to  jeopardise  restructuring  effort  while  safeguarding  their 

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interests, (v) increasing the chances of success of the restructuring plan, (vi) increase the effectiveness and 
reducing the length of restructuring, insolvency and second chance procedures, (vii) enabling the discharge 
for entrepreneurs in a reasonable time (3 years). 

Who supports which option?  
Most Member States support the objectives of the Commission to improve early restructuring and second 
chance frameworks, but insist that harmonisation should remain on the level of principles due to complex 
links  with  other  areas  of  law  such  as  company  law.  As  to  the  stakeholders,  business  organisations, 
professionals' associations, financial institutions, consumer organisations, Trade Unions and academics 
were in general supportive of minimum harmonised rules on early restructuring and a second chance 
approach  and  welcomed  the  idea  of  an  efficient  and  (cost)-effective  EU  insolvency  framework  for 
saving  viable  businesses.  They  also  stressed  that  a  balanced  approach  should  be  envisaged, 
safeguarding the interests of all stakeholders and preventing moral hazard. However, the banking sector 
and some other stakeholders were of the view that consumer discharge should not be covered by this 
initiative.  The  European  Parliament  supports  harmonisation  of  certain  aspects  of  restructuring  and  puts 
emphasis on ensuring a second chance to all natural persons. 

C. Impacts of the preferred option 

What are the benefits of the preferred option?  
The preferred option would enhance the prospects of realising a higher number of restructurings of cross-
border  groups  the  costs  of  which  are  currently  prohibitive.  The  impacts  will  be  potentially  significant  in 
several  Member  States  (BG,  DK,  SK,  SI,  HR,  CY,  EE,  IE,  LT,  LU,  NL,  PL,  RO).  This  will  lead  to  a 
significant  reduction  in  the  number  of  jobs  lost  due  to  insolvency  (currently  estimated  at  1.7  million  per 
year). Efficient preventive procedures lead to a speedier deleveraging of non-performing loans. Apart from 
a  significant  negative  relationship  between  corporate  deleveraging  and  GDP  growth  (1  percentage  point 
reduction in the ratio of debt to financial assets leads to about 0.4 percentage points less GDP growth), the 
preferred option should lead to increases in recovery rates which, in turn, lead to lower borrowing costs (a 
10  percentage  point  increase  in  expected  recovery  rate  is  associated  with  a  37  basis  point  fall  in  bond 
spread).  The  preferred  option  will  increase  the  rate  of  self-employment,  since  the  reduction  of  discharge 
period increases the rate of self-employment in Member States, such as HU, IT, LT, MT, PT and RO where 
discharge periods exceed the period of 3 years. 3 million new jobs are likely to be created as a result. 

What are the costs of the preferred option?  
Some  Member  States  will  need  to  put  in  place  a  preventive  procedure  or  a  procedure  leading  to 
discharge of debt, or adapt a procedure already notified under Annex A of the Insolvency Regulation. 
Some changes to company law may be needed to implement the provisions on shareholders' position in 
restructuring. 

How will businesses, SMEs and micro-enterprises be affected? 

The preferred option will reduce the costs of restructuring of SMEs, through measures such as recuing court 
involvement,  reducing  the  instances  where  restructuring  practitioners  need  to  be  appointed,  providing  for 
national  model  restructuring  plans.  Cross-border  credit  to  SMEs  will  be  more  accessible:  an  efficient 
restructuring  procedure  would  enable  SMEs  to  recover  more  than  in  the  case  of  the  insolvency  of  the 
debtor,  since  creditors’  recovery  rates  are  in  general  higher  where  the  insolvency  framework  allows  for 
early  and  efficient  restructuring  of  viable  firms  and  quick  resolution  of  the  non-viable  ones.  Better 
conditions  for  fresh  start  after  failure  will  reduce  the  death  rate  of  companies  and  the  negative  knock-on 
effects of related insolvencies in the supply chain. Entrepreneurship and innovation will be encouraged. 

Will there be significant impacts on national budgets and administrations?  
No. Member States where preventive procedures or procedures leading to discharge are introduced for the 
first time may need to provide training for their judicial or administrative authorities and possibly also for 
practitioners. These training costs will be of one-off character in the range of €950-1300 per judge in those 
countries  where  a  preventive  procedure  is  used  for  the  first  time.  Member  States  which  are  not  currently 
collecting data will have to put in place such data collection tools, but the costs are not likely to be high 
especially if procedures are already digitised. Most Member States are already introducing digitisations of 
procedures as part of eGovernment initiatives. 

Will there be other significant impacts?  
No.  

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When will the policy be reviewed?  
5 years after the entry into application of the Directive. 

D. Follow up 

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