COMMISSION STAFF WORKING DOCUMENT 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

EN 

   EN 

   EUROPEAN COMMISSION  Strasbourg, 22.11.2016  SWD(2016) 357 final   COMMISSION STAFF WORKING DOCUMENT  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) 358 final}  
 
 
1. INTRODUCTION ................................................................................................................ 4 

2. POLICY CONTEXT, ECONOMIC CONTEXT, PROBLEM DEFINITION AND 
SUBSIDIARITY ....................................................................................................................... 5 

2.1. Policy context ................................................................................................................. 5 

2.2. Economic context ........................................................................................................... 9 

2.3. Drivers and problems .................................................................................................. 13 

2.3.1. Drivers .................................................................................................................... 13 

2.3.2. Problems ................................................................................................................ 28 

2.4. Risks .............................................................................................................................. 41 

2.5. Baseline scenario .......................................................................................................... 42 

2.6. The EU's right to act, subsidiarity, necessity and proportionality ......................... 43 

3. OBJECTIVES ..................................................................................................................... 47 

4. HIGH-LEVEL OPTIONS ................................................................................................. 48 

4.1. Description of high level options ................................................................................ 48 

  Option 1: Maintaining the status quo (baseline scenario) ........................................... 48 

  Option 2: Setting up a fully harmonised preventive restructuring procedure and a 

second chance framework .............................................................................................. 48 

  Option 3: Introducing an alternative, optional EU restructuring and second chance 

regime for cross-border cases ........................................................................................ 49 

  Option 4: Setting up a minimum harmonised legal framework in the area of 

restructuring and second chance for entrepreneurs .................................................... 49 

4.2. Analysis of high level options and discarded options ............................................... 50 

5. SUBSTANTIVE SUB- OPTIONS AND ANALYSIS OF THEIR IMPACT ................ 55 

5.1. Early restructuring possibility ................................................................................... 57 

5.3. Debtor in possession .................................................................................................... 64 

5.4. Plan approval by a majority of creditors .................................................................. 67 

5.5. New financing and interim financing, safe harbour provisions and third party 
releases ................................................................................................................................. 71 

5.6. Reducing the formalities relating to court proceedings ........................................... 75 

5.7. Lowering and aligning discharge periods for natural persons ................................ 77 

5.7.1. Entrepreneurs ....................................................................................................... 77 

5.7.2. Consumers ............................................................................................................. 82 

5.8. Measures to increase the effectiveness of restructuring, insolvency and second 
chance procedures ........................................................................................................... 86 

2 

 
 
 
6. THE PREFERRED HIGH-LEVEL OPTION 4 ............................................................. 89 

7. ANALYSIS OF OVERALL IMPACTS OF THE PREFERRED HIGH-LEVEL 
OPTION 4 ............................................................................................................................... 93 

8. MONITORING AND EVALUATION ........................................................................... 103 

9. ANNEXES ......................................................................................................................... 104 

3 

 
 
 
IMPACT ASSESSMENT REPORT 

RESTRUCTURING AND SECOND CHANCE 

1. INTRODUCTION 

Insolvency rules in their widest sense cover a wide range of measures from early intervention 
before  a  company  gets  into  serious  difficulties,  timely  restructuring  to  ensure  that  viable 
business parts are preserved, giving a second chance to honest entrepreneurs and liquidation 
proceedings.  A  well-functioning  insolvency  framework  covering  all  these  measures  is an 
essential  element  of  a  good  business  environment  and  it  is  a  key  condition  for  sustainable 
growth and jobs creation, which is a key priority of the European Commission. A reliable and 
predictable  insolvency  framework  maximises  the  efficiency,  predictability  and  effectiveness 
of  insolvency  proceedings,  which  ultimately  results  in  an  effective  credit  system  and  a 
favourable investment climate. Insolvency frameworks providing for transparent, predictable 
and cost-effective mechanisms for resolution of over-indebtedness should make it possible to 
save viable businesses in difficulties (by restructuring the existing company or by selling it as 
a "going concern") or make it easier to liquidate a company and its assets if the company does 
not have any prospect of survival. Efficient insolvency rules, thus, help increase the recovery 
rate  of  debts  and  avoid  the  build-up  of  non-performing  loans  in  the  financial  system  At  the 
same time, allowing honest entrepreneurs to benefit from a second chance after overcoming 
bankruptcy is crucial for ensuring a dynamic business environment and promoting innovation. 
Restructuring and second chance for individuals are therefore critical parts of an appropriate 
insolvency framework. 

Good insolvency frameworks should define procedures for dealing with  

-  

-   

-  

businesses  in  financial  difficulties,  but  not  yet  insolvent  (where  the  restructuring 
framework is most useful), 

companies that are very close to insolvency or already insolvent (where any means of 
recovery the value for creditors are most important),  

a  possibility  of  a  fresh  start  of  economic  activity  for  natural  persons,  in  particular 
entrepreneurs (debt discharge). 

The core of any insolvency law is the most efficient use of the resources used by a distressed 
company  and  allocation  of  potential  costs.  This  primary  economic  efficiency  objective  is 
complemented  by  specific  redistributive  goals1  which  result  from  cultural  and  social  value 
patterns of a given society and may vary between countries. Insolvency legislation therefore 
sets out conditions for initiating insolvency procedures, outlines creditors’ and debtors’ rights 
and  obligations,  describes  the  role  of  courts,  as  well  as  the  steps  and  the  timeframe  to  be 
followed once the procedure starts. 

An effective insolvency regime should not only ensure a fair and timely distribution of assets 
among  creditors  through  liquidation  proceedings,  but  it  should  also  allow  viable  debtors  to 
restructure at an early stage and thus avoid insolvency and the related loss of value, jobs and 

1  

For  example,  the  need  to  ensure  a  high  recovery  for  creditors  comes  into  an  apparent  conflict  with  a 
society's interest in curbing poverty and social exclusion and bringing individuals back to a productive 
life. 

4 

 
 
                                                            
know-how. In addition, in a cross-border context, each of the countries affected has an interest 
in  regulating  insolvency  of  an  entrepreneur  whose  activities  or  assets  are  located  on  its 
territory2.  An  effective  restructuring  and  second  chance  framework  should  also  provide  for 
safeguards  against  possible  moral  hazard  risks  which  are  inherent  but  which  should  not 
impede  the  adoption  of  restructuring  and  second  chance  frameworks.  This  brings  about 
problems  which  cannot  be  resolved  solely  by  rules  determining  the  applicable  law  and 
jurisdiction. These aspects have been partly addressed through the Regulation (EU) 2015/848 
on  insolvency  proceedings3  (the  Insolvency  Regulation),  which  includes  provisions  on 
jurisdiction  for  opening  insolvency  proceedings,  recognition  and  enforcement  of  judgments 
issued in such proceedings, as well as provisions regarding the law applicable to insolvency 
proceedings. However, even under such rules, in a number of situations, more than one law 
and  jurisdiction  will  have  a  competence  to  handle  the  cross-border  insolvency  and  the 
differences in these laws will hinder a successful resolution of such a case4. 

2. POLICY CONTEXT, ECONOMIC CONTEXT, PROBLEM DEFINITION AND 
SUBSIDIARITY 

2.1. 

Policy context 

Efficient insolvency frameworks play a key role in economic policy since they can contribute 
in a tangible way to create jobs and sustainable growth by helping companies in difficulties, 
but still viable, to get back on their feet and quickly taking companies beyond rescue off the 
market.  For  this  reason,  the  issue  has  attracted  considerable  interest  at  the  level  of  the 
European Union for quite some time. In 2011, the European Parliament adopted a Resolution 
on  insolvency  proceedings5  which  contained  recommendations  for  harmonising  specific 
aspects  of  substantive  insolvency  law,  including  restructurings,  and  company  law.  The 
recommendations regarding the harmonisation of specific aspects of insolvency and company 
law  concerned  certain  aspects  of  the  opening  of  insolvency,  certain  aspects  of  the  filing  of 
claims, aspects of avoidance actions, general aspects of the requirements for the qualification 
and  work  of  liquidators,  as  well  as  aspects  of  restructuring  plans.  An  accompanying  study6 
confirmed that there were ‘certain areas of insolvency law where harmonisation is worthwhile 
and  achievable',  in  particular  as  regards  the  efficiency  of  restructuring  procedures.  Also  the 
Competitiveness  Council  conclusions  of  2011  called  on  Member  States  to  reduce  the 
discharge period for entrepreneurs to 3 years. 

2  

3  
4  

5  

6  

Ghio, E., Coping with Business Failure and Bankruptcy in the European Union. A Case Study on the 
Failure of Market Integration, 16 October 2015, p. 3. 
OJ L 141, 5.6.2015, p. 19. 
The  “universality  principle”  for  cross-border  insolvencies implies that the  court  having  jurisdiction  to 
the insolvency proceedings encompasses all assets and creditors of the debtors’ estate, and that the law 
applied by this court (the "lex fori concursus") applies to all questions emerging during the proceedings. 
However, a fully-fledged application of the universality principle proved not to be realistic in the EU. 
Therefore,  even  the  recently  adopted  Insolvency  Regulation  still  keeps  wide  ranging  possibilities  of 
opening  secondary  or  other  local  proceedings  in  parallel  to  the  main  insolvency  proceedings  in  other 
Member States, thus resulting in the parallel application of insolvency laws of different Member States 
to a single economic unit operating in several Member States.  
Report  with  recommendations  to  the  Commission  on  insolvency  proceedings  in  the  context  of  EU 
company law, 2011/2006(INI), 17 October 2011. 
Harmonisation of Insolvency Law at EU level, Directorate General for Internal Policies of the European 
Parliament, PE 419.633. 

5 

 
 
 
                                                            
frameworks, 

the  European  Commission 

Against  this  background  and  recognising  the  significant  differences  between  national 
insolvency 
in  December  2012  a 
Communication7  which  highlighted  a  need  for  a  step-by-step  approach  as  regards  certain 
areas where differences between domestic insolvency  laws could hamper the functioning of 
an  efficient  internal  market8.  The  subsequent  first  action  under  this  approach  was  the 
modification  of  Regulation  (EC)  No  1346/20009  accomplished  by  the  adoption  of  the 
Insolvency  Regulation.  The  Insolvency  Regulation  focuses  on  resolving  the  conflicts  of 
jurisdiction and laws in cross-border insolvency proceedings, and ensures the recognition of 
insolvency-related judgments across the EU. It does not harmonise the substantive insolvency 
laws of the Member States.  

issued 

As  a  next  step,  the  Commission  adopted  in  2014  the  Recommendation  on  restructuring  and 
second chance (the Recommendation)10. The Recommendation focused on restructuring and 
second chance, since it was considered that in these two fields the action at EU level would 
bring  most  added-value11.  The  Recommendation  invited  Member  States  to  put  in  place  (i) 
effective pre-insolvency procedures with the aim of helping viable debtors to restructure and 
thus  avoid  insolvency  and  (ii)  second  chance  provisions  for  entrepreneurs  enabling  them  to 
have  a  discharge  in  no  more  than  three  years  after  insolvency.  In  particular  the 
Recommendation focused on: 

(i) 

availability of a preventive restructuring framework, 

(ii) 

facilitating negotiations of restructuring plans, including appointment of a mediator or a 
supervisor,  stay  of  individual  enforcement  actions  and  suspension  of  insolvency 
proceedings, 

(iii)  restructuring plans, including contents of restructuring plans, adoption of restructuring 
plans by creditors, court confirmation of the restructuring plan, rights of creditors, and 
effects of a restructuring plan, 

(iv)  protection for new financing, and 

(v) 

second chance for entrepreneurs, including discharge periods. 

Following  its  adoption,  an  evaluation  of  its  implementation  was  conducted12  and  two  data 
collection rounds were carried out after one year and after two years, respectively. Already on 
the occasion of these two reviews which were carried out in 2015 and 201613, it was apparent 
that  most  Member  States  which  were  already  lagging  behind  in  this  area  were  not  making 
sufficient progress.  

7  

8  

9  
10  
11  

12  

13  

European  Commission:  "A  new  European  approach  to  business  failure  and  insolvency"  COM(2012) 
742, 12 December 2012. 
Second  chance  for  entrepreneurs,  discharge  periods,  opening  of  insolvency  and  restructuring 
proceedings, filing of claims and their verification, promotion of restructuring plans. 
OJ L 160, 30.6.2000, p. 1. 
C(2014) 1500 final, 12 March 2014. 
Impact Assessment accompanying the Commission Recommendation on a New Approach to Business 
Failure and Insolvency, SWD(2014) 61 final, 12 March 2014. 
Evaluation of the implementation of the Commission Recommendation of 12.3.2014 on a new approach 
to 
at: 
http://ec.europa.eu/justice/civil/commercial/insolvency/index_en.htm). 
See Annex 8 of this Report. 

insolvency, 

30.9.2015, 

(available 

business 

failure 

and 

6 

 
 
                                                            
These  reviews  also  revealed  that  while  the  Recommendation  has  provided  useful  focus  for 
those  Member  States  undertaking  reforms  in  the  area  of  insolvency,  it  has  not  led  to  the 
desired impact in terms of consistent changes across all Member States, facilitating the rescue 
of businesses in financial difficulty and in giving a second chance to entrepreneurs. This was 
due to  its partial  implementation  in a significant  number of Member States, including  those 
having launched certain reforms.  

By  way  of  example,  it  can  be  outlined  that  on  restructuring,  there  are  still  several  Member 
States  where  it is  not  possible  to  restructure a business  before  it  is  insolvent  (DK,  CZ,  BG, 
HU,  SK,  LT).  CY,  SI  and  PL  introduced  new  preventive  restructuring  procedures  but  they 
differ  in  certain  points  form  the  Recommendation  (in  SI  commercial  creditors  for  example 
cannot  participate  in  preventive  restructuring  which  is  limited  to  financial  creditors);  while 
EL, ES, SL, RO and IT brought some limited improvements to their existing procedures14. On 
second chance, since the adoption of the Recommendation, several Member States (e.g. ES, 
RO, HU, HR) have introduced for the first time a debt discharge regime for natural persons. 
In EL, discharge for entrepreneurs was reduced to 3 years. However, in most Member States 
where  reforms  were  recently  introduced,  the  duration  of  the  discharge  period  and  the 
conditions for having access to discharge do not comply with the Recommendation: in general 
discharge  periods  are  five  year  or  more  (ES,  RO,  HU)  and  sometimes  there  are  impossible 
repayment  obligations  attached  (in  HU,  50%  of  debt  needs  to  be  repaid  to  benefit  from 
discharge).  In  Romania,  only  consumers  benefit  from  the  discharge  regime,  but  not  the 
entrepreneurs. Other differences in the implementation of the Recommendation are described 
in more detail below in section 2.3.2. on problem drivers. Such differences in Member States 
frameworks  translate  into  continuing  legal  uncertainty,  additional  costs  for  investors  in 
assessing  their  risks,  less  developed  capital  markets  and  persisting  barriers  to  the  efficient 
restructuring of viable companies in the EU, including cross-border enterprise groups.  

A  comparative  legal  study  on  differences  between  insolvency  and  restructuring  regimes  in 
Member  States  concluded  that  "there  appears  to  be  the  incomplete  and  inconsistent 
implementation  of  the  Recommendation."15  Following  the  adoption  of  the  Insolvency 
Regulation,  the  Commission  reflected  on  ways  forward  to  deal  with  the  disparities  between 
substantive insolvency laws16. Evidence from the public consultation on the Green Paper on 
the Capital Markets Union17, which included explicit questions on insolvency frameworks, as 
well  as  the  Doing  Business  data  of  the  World  Bank18  on  the  global  practices  for  resolving 
insolvency  confirmed  the  critical  importance  of  restructuring  processes  as  workable 
alternatives to liquidation processes for viable businesses. In parallel, studies and reports on 
entrepreneurial  activities19  concluded  that  entrepreneurs  should  not  be  stigmatised  when 
honest  business  endeavours  fail.  On  the  one  hand,  individuals  should  not  be  deterred  from 
entrepreneurial activity, resuming consumption or taking up gainful employment; on the other 

14  

15  
16  
17  
18  

19  

IT improved the debtor in possession regime; EL made the stay period more effective, in line with the 
Recommendation;  RO  introduced  additional  minimum  voting  requirements  for  the  approval  of  the 
reorganization  plan;  and  by  clarifying  rules  on  voidable  transactions;  ES  made  resolving  insolvency 
easier by introducing new rules for out-of-court restructuring, introducing provisions applicable to pre-
packaged reorganizations. 
Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 223. 
Action Plan on Building a Capital Markets Union, COM (2015) 468 final, p. 24 - 25. 
COM (2015) 063 final. 
International 
http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/02/26/000333037_201302261
23527/Rendered/PDF/752400BRI0SMAR0urable0Results0FIXED.pdf 
Bankruptcy  and  second  chance  for  honest  entrepreneurs,  Ecorys,  Report  for  DG  Enterprise  and 
Industry, 31 October 2014. 

Corporation,  World 

Finance 

Group, 

2013, 

Bank 

7 

 
 
                                                            
hand, any rules providing for debt discharge should prevent abuse and incentivise careful debt 
management. In light of these assessments, it was apparent that  non-binding measures at the 
European level would not be sufficient to bring about these changes.  

The  "Five  Presidents'  report"  of  22  June  2015  on  "Completing  Europe's  Economic  and 
Monetary  Union"  listed  the  area  of  insolvency  law  among  the  most  important  bottlenecks 
preventing the integration of capital markets in the euro area and beyond20. Convergence of 
insolvency  and  restructuring  proceedings  would  facilitate  greater  legal  certainty  for  cross-
border  investors  and  encourage  the  timely  restructuring  of  viable  companies  in  financial 
distress. The inefficiency and divergence of insolvency laws make it both harder for investors 
to  assess  credit  risk  in  general  and  particularly  as  regards  cross-border  investments.  More 
cross-border  risk-sharing,  deeper  and  more  liquid  capital  markets and  diversified sources  of 
funding for EU businesses will deepen financial integration, lower costs and increase the EU's 
competitiveness. This in turn will contribute to job creation and sustainable growth. 

The 2015 Capital Markets Union Action Plan21 therefore announced a legislative initiative on 
business  insolvency,  including  early  restructuring  and  second  chance.  This  initiative  is 
intended  to  address  the  most  important  barriers  to  the  free  flow  of  capital  and  build  on 
national regimes that work well. In the public consultation of the Green Paper on the Capital 
Markets  Union  Action  Plan  which  took  place  in  summer  2015  the  majority  of  stakeholders 
highlighted  the  need  of  further  action  going  beyond  the  2014  Recommendation  on 
restructuring and second chance regarding on restructuring of companies, stay on individual 
creditor claims and definition of a common discharge period, efficiency and effectiveness of 
insolvency practitioners and the courts22.  

At  the  same  time,  the  Single  Market  Strategy  stated  that  the  Commission  would  support 
honest  entrepreneurs  and  propose  legislation  to  ensure  that  Member  States  provide  a 
regulatory environment that is able to accommodate failure without dissuading entrepreneurs 
from trying new ideas again23.  

More specifically as regards the banking sector, the Communication Towards the Completion 
of Banking Union24 published in November 2015 confirmed that (i) there is a need for greater 
convergence in  insolvency law and restructuring proceedings across Member States, (ii) the 
inefficiency  and  divergence  of  insolvency  laws  make  it  harder  to  assess  and  manage  credit 
risk,  and  that  (iii)  enhancing  legal  certainty  and  encouraging  the  timely  restructuring  of 

20  

21  
22  

23  

24  

‘Completing  Europe’s  Economic  and  Monetary  Union’,  Report  by  Jean-Claude  Juncker  in  close 
cooperation  with  Donald  Tusk,  Jeroen  Dijsselbloem,  Mario  Draghi  and  Martin  Schulz  (so-called  Five 
Presidents’), 22 June 2015, p. 10. 
Action Plan on Building a Capital Markets Union, COM(2015) 468 final, p. 25.  
COMMISSION STAFF WORKING DOCUMENT, Feedback Statement on the Green Paper "Building a 
Capital  Markets  Union",  SWD  (2015)  184  final,  p.  59.  And  at  p.  77:  'The  European  Commission  has 
addressed a Recommendation to the Member States to encourage them to put in place minimum standards 
on early restructuring procedures and second chance for natural persons. The Recommendation has been 
partially taken up by some Member States, especially by those receiving insolvency recommendations in 
the  context  of  the  European  Semester  exercise  addressing  macro-economic  imbalances.  Even  those 
Member States which have taken up the European Commission Insolvency Recommendation did so in a 
selective manner, meaning that differences remain'. 
Upgrading the Single Market: more opportunities for people and business , European Commission, COM 
(2015) 550 final, p. 6. 
‘Towards  the  completion  of  the  Banking  Union’,  European  Commission,  COM  (2015)  587  final,  24 
November 2015. 

8 

 
 
                                                            
borrowers in financial distress is particularly relevant for the success of strategies to address 
the problem of non-performing loans in some Member States.  

The ECOFIN Council Conclusions of July 2016 on a roadmap to complete the Banking Union 
underlined the importance of the work carried out by the Commission to propose a legislative 
proposal  for  minimum  harmonisation  in  the  field  of  insolvency  law  in  the  context  of  the 
Capital  Markets  Union  (CMU),  noting  that  this  may  also  support  efforts  to  reduce  future 
levels of non-performing loans.25 

More  recently,  it  its  Communication  on  Capital  Markets  Union  -  Accelerating  Reform  the 
Commission  reiterated that inefficiencies and differences in national insolvency frameworks 
generate  legal  uncertainty,  obstacles  to  recovery  of  value  by  creditors,  and  barriers  to  the 
efficient restructuring of viable companies in the EU, including for cross-border groups.26 

2.2. Economic context 

In recent years, an average of 200,000 firms went bankrupt each year in the EU, resulting in 
direct  job  losses  totalling  5.1  million  over  three  years27.  About  one-quarter  of  these 
bankruptcies involved creditors and debtors in more than one EU Member State28. However, 
the single market dimension of the problems  is even larger than these figures suggest since 
many companies avoid expanding or investing cross-border in the first place, due to the non-
convergence  of  insolvency  frameworks  and  uncertainty  about  the  effectiveness  of  the 
applicable  rules,  as  described  in  section  2.1.  The  trends  in  the  number  of  corporate 
insolvencies are provided below as provided below in the table show the increasing number of 
insolvencies starting with the peak of the economic crisis in 2009 and still remaining high. 

Table 1: Trends in number of business bankruptcies and other forms of unvoluntary 
business cessations selected Member States 2007 to 201429 – 2009=100 % (the numbers in 
the table are given in 100%)30. 

Member 
State 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

AT 

BE 

BG 

CY 

25  

26  

27 

28  

29  

30  

91.2 

81.5 

91.5 

90.0 

100.0 

92.4 

85.0 

87.5 

79.1 

78.6 

100.0 

101.6 

108.5 

112.4 

124.6 

114.0 

100.0 

125.2 

145.1 

177.6 

193.8 

170.6 

88.7 

84.9 

100.0 

107.5 

114.5 

83.6 

118.9 

102.5 

of 

17 

601 

June 

2016 

http://www.consilium.europa.eu/press-releases-

http://ec.europa.eu/finance/capital-markets-union/docs/20160913-cmu-

Council  Conclusions 
pdf/2016/6/47244642837_en.pdf  
COM(2016) 
final 
accelerating-reform_en.pdf  
Impact Assessment accompanying the Commission Recommendation on a New Approach to Business 
Failure and Insolvency, SWD(2014) 61 final, 12 March 2014, p. 2. 
27% of insolvencies in the UK are triggered by the insolvency of another company, the European Small 
Business Alliance response to the public consultation, 2013, SWD (2014) 61 final, p. 6. 
[Annual  Report  on  European  SMEs  2015/2016,  SMEs  as  the  engine  of  growth  in  2016,  SME 
Performance  Review  2015/2016,  March  2016,  prepared  for  Directorate-General  for  Internal  Market, 
Industry, Entrepreneurship and SMEs] [forthcoming], p. 53 – 54. 
2009 was chosen as reference year because it was a peak year for a large number of Member States and 
for no Member States was it the lowest value year. Peak values by country are in red, the lowest values 
in green. 

9 

 
 
 
 
 
                                                            
CZ 

DK 

EE 

EL 

ES 

FI 

FR 

HU 

IR 

IT 

LT 

LU 

LV 

NL 

PT 

SE 

SK 

UK 

144.5 

101.1 

100.0 

100.0 

125.4 

116.9 

110.4 

67.3 

42.0 

19.1 

72.3 

65.0 

40.1 

19.9 

68.8 

81.2 

53.6 

65.6 

32.9 

95.1 

0.0 

68.5 

75.8 

61.2 

62.8 

55.6 

79.8 

87.9 

84.7 

66.0 

80.0 

51.9 

82.8 

56.4 

92.5 

82.5 

90.9 

86.2 

100.0 

109.1 

119.7 

131.0 

151.1 

144.3 

100.0 

113.2 

100.0 

97.4 

95.8 

59.1 

95.6 

46.9 

87.4 

43.5 

70.6 

40.6 

93.0 

109.5 

148.9 

167.2 

114.0 

100.0 

100.0 

100.0 

94.5 

87.5 

95.5 

100.0 

104.4 

90.0 

94.1 

83.0 

90.4 

96.7 

68.7 

100.0 

100.8 

113.0 

109.0 

91.2 

98.9 

149.1 

95.6 

99.0 

93.1 

95.6 

100.0 

119.7 

129.5 

130.6 

150.6 

167.5 

100.0 

88.8 

69.0 

76.0 

84.2 

91.4 

100.0 

132.5 

141.1 

151.5 

151.4 

122.7 

100.0 

121.9 

100.0 

88.8 

41.2 

88.1 

40.0 

36.5 

105.9 

120.7 

42.9 

95.7 

100.0 

107.2 

124.4 

175.3 

158.1 

105.3 

100.0 

95.2 

91.1 

97.8 

100.8 

93.7 

100.0 

124.6 

135.9 

130.4 

142.8 

148.6 

100.0 

85.8 

89.7 

85.5 

75.9 

69.7 

Sources: London Economics based on data from AT: Kreditschutzverband; BE: Statistics of the Belgium Federal Public Service Economy; 
BG:  provided  by  official  of  Ministry  of  Economy;  CY:  Department  of  Registrar  of  Companies  and  Official  Receiver;  CZ:  CRIF  from 
Insolvency  Register  of  Ministry  of  Justice:  DK:  Statistics  Denmark;  EE:  Krediitiinfo  SA;  ES:  OECD;  Statistics  Finland;  FR:  Insee:  EL: 
OECD; HU: Hungarian  Central  Statistical  Office; IR: Dpt  of  Jobs,  Enterprise  and  Innovation; IT:  Cerved;  LT:  Statistics  Lithuania; LU: 
Statec; LV: Lursoft; NL: Statistics Netherlands; PT: COSEC SA: Swedish Agency for Growth Policy Analysis; SE: SK: Ministry of Justice 
Slovakia; UK: Insolvency Service 

Today in Europe half of all businesses do not survive the first 5 years of their existence. In a 
number of Member States, the peak of bankruptcies was reached during the initial years of the 
crisis, i.e. in 2009 (Austria, Estonia, Finland, France, Lithuania, United Kingdom) or in 2010 
(Denmark,  Hungary,  Latvia).  In  another  group  of  Member  States  the  peak  was  reached  in 
2012  (Luxembourg,  Portugal)  or  in  2013  (Belgium,  Bulgaria,  Cyprus,  Czech  Republic, 
Luxembourg,  Netherlands,  Spain  and  Sweden)31.  However,  even  if  the  number  of 
bankruptcies  can  be  expected  to  stabilise  and  re-converge  to  pre-crisis trends,  the  economic 
case for more efficient and convergent insolvency frameworks remains.   

In  case  of  liquidation,  companies  trading  with  the  insolvent  company  may  not  receive 
anything at all if their debt was not secured; also secured creditors have to take into account 
the possibility of a substantial reduction in value of their claims32. In case of restructuring, on 

31  

32  

[Annual  Report  on  European  SMEs  2015/2016,  SMEs  as  the  engine  of  growth  in  2016,  SME 
Performance  Review  2015/2016,  March  2016,  prepared  for  Directorate-General  for  Internal  Market, 
Industry, Entrepreneurship and SMEs] [forthcoming], p. 53 – 54. 
The recovered value for secured creditors can be in certain countries as low as cca 16 % of the original 
value of the secured loan (http://www.insolcentrum.cz/kompletni-databaze-insolvencnich-rizeni). 

10 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
the  other  hand,  insolvency  is  avoided,  contract  debts  are  in  general  paid,  and  negotiations 
concern  in  most  cases  only  the  financial  debt.  Restructuring  is  in  general  beneficial  for  the 
creditors if the business is viable. Hence, restructuring instead of liquidation constitutes a gain 
for  all  stakeholders involved,  provided  that  restructured companies  are  able  to  stick to  their 
new repayment plan.  

Regarding  second  chance,  a  distinction  between  entrepreneurs  and  consumers  needs  to  be 
made, since the economic rationale for offering each of them a second chance is different in 
the  two  cases.  Offering  a  second  chance  to  entrepreneurs  means  that  they  have  a  chance  to 
restart a business activity and there is evidence that those starting for a second time learn from 
their  mistakes  and  their  next  businesses  are  more  viable33.  For  consumers,  the  rationale  of 
providing  them  with  a  second  chance  is  not  only  economic  but  also  social.  Consumers 
discharged  of  debts  can  start  buying  services  and  products  and  therefore  contributing  to  the 
rise of GDP. But most importantly, consumers and their families could avoid being caught in 
a debt-trap for life, with all the precarious social consequences that this situation may cause to 
individuals and families.  

In  some  Member  States  natural  persons  entrepreneurs  (with  unlimited  liability)  constitute 
more  than  50%  of  all  businesses,  since  the  creation  or  management  of  limited  liability 
companies has not been facilitated in those Member States34. Therefore, a discharge, even for 
entrepreneurs  or  managers  of  single-member  limited  liability  companies,  could  have  a 
significant  impact  on  the  economy  going  beyond  what  is  usually  associated  with  local 
businesses.  A  number  of  such  companies,  registered  as  "sole  traders",  have  cross-border 
activity which in other Member States is normally performed by their corporate equivalents.  

Moreover, entrepreneurial debts are often intertwined with personal debts (e.g. using the same 
car  both  for  business  and  private  purposes).  In  addition,  in  order  to  start  a  limited  liability 
company, credit institutions require a security on private houses as a prerequisite to a loan35. 
This means that economic consequences of entrepreneurial debts, and a possible discharge of 
them, go beyond the economic activity of an entrepreneur.  

The  focus  on  restructuring  of  corporate  entities  and  discharge  of  natural  persons  is 
complementary and allows dealing with the economic consequences of debts regardless of the 
legal  form  which  created  such  debts.  The  debts  of  natural  persons-entrepreneurs  would  be 
subject  to  discharge,  whereas  the  debts  of  limited  liability  companies  would  be  treated  in 
restructuring or liquidation proceedings. 

Enterprise  mortality  is  closely  linked  to  the  problem  of  non-performing  loans  which  is  the 
most  usual  cause  of  liquidation  of  companies.  The  European  Central  Bank’s  2015 
comprehensive assessment identified a total of EUR 980 billion in non-performing exposures 
in  the  banking  system36.  The  table  below  compares  the  change  in  non-performing  loans 
between  2004  and  2014  in  the  EU,  the  United  States  and  Japan.  It  demonstrates  that  the 
Eurozone  had  the  greatest  difficulties  in  liquidating  the  large  portfolios  of  non-performing 
loans.  Whilst  there  are  several  reasons  for  this,  it  is  clear  that  cumbersome  and  lengthy 

33  

34  

35  
36  

Bankruptcy  and  second  chance  for  honest  entrepreneurs,  Ecorys,  Report  for  DG  Enterprise  and 
Industry, 31 October 2014, p.14. 
Impact Assessment accompanying the proposal of the Directive of the European Parliament and of the 
Council on single-member private liability companies, SWD/2014/0124 final, p. 13-17 and 21. 
Ibid., p.37. 
European 
Bank, 
https://www.bankingsupervision.europa.eu/banking/statistics/html/index.en.html 

Statistics, 

Central 

2016, 

June 

23 

11 

 
 
                                                            
insolvency  proceedings,  as  well  as  lack  of  modern  restructuring  and  second  chance 
frameworks contribute significantly to this problem37. 

Chart 1: Non-performing Loans, Provisions and Write-offs in the United States, Eurozone 
and Japan 

Source: Euro Area Policies, Selected Issues, IMF July 201538 

Member States with less efficient insolvency frameworks to deleverage non-performing loans 
are  faced  with  the  weight  of  existing  company  debt  which  deters  investors,  holds  back 
consumption, and creates a situation of debt overhang39. High levels of non-performing loans 
in banks' portfolios also undermine their lending capacity for banks and impacts job creation 
and  growth.  Studies  and  data  from  the  International  Monetary  Fund40  suggest  that  high 
indebtedness  of  EU  companies  and  the  problem  of  non-performing  loans  represent  an 
investment  barrier  and  prevent  economic  growth.  As  the  graph  above  shows,  in  the  EU  the 
progress  has  been  slower  in  resolving  these  impaired  loans  in  comparison  to  the  U.S.  or 
Japan. As long as private debts remain at high levels, economic activity may struggle to pick 
up.  The  International  Monetary  Fund  calculates  that  freeing-up  capital  disposed  for  non-
performing loans could unlock new lending of between EUR 167–€522 billion, provided there 
is a corresponding demand for new loans41.  

Efficient  insolvency  and  restructuring  laws  can  serve  to  avoid  future  build-up  of  non-
performing  loans  since  loans  on  which  performance  ceases  could  be  enforced  more 

37  
38  

39  

40  

41 

Gros, D., The Transatlantic Growth Gap, Project Syndicate, 21 July 2014. 
IMF:  Euro  Area  Policies  –  Selected  Issues,  IMF  Country  Report  No.  15/205,  July  2015,  Euro  Area 
Policies, IMF Country Report No. 15/2014, July 2015, p 58. 
Yan, L., Rosenberg, Ch., “Dealing with Private Debt Distress in the Wake of the European Financial 
Crisis: A Review of the Economics and Legal Toolbox, IMF Working Paper No. 13/44, Washington, 
D.C.: IMF, 2013. 
IMF:  Euro  Area  Policies  –  Selected  Issues,  IMF  Country  Report  No.  15/205,  July  2015,  Euro  Area 
Policies, IMF Country Report No. 15/2014, July 2015, p. 61. 
Potential economic gains from reforming insolvency law in Europe, AFME, Frontier economics, Weil, 
February 2016, p. 21. 

12 

 
 
 
 
                                                            
efficiently. Improving legal settings of enforcement regimes will thus not resolve the issue of 
existing  NPLs  over  which  enforcement  proceedings  have  already  started.  However, 
reinforcement of the judiciary setting could still help to speed up the remaining steps of the 
proceedings.  High  levels  of  NPLs  have  a  direct  consequence  on  the  capacity  of  banks  to 
support  growth. According  to  the  IMF Article  IV  review  of  the  Euro  area,  “high  levels  of 
NPLs  and  debt  have  held  back  bank  lending  and  investment,  limiting  the  pass  through  of 
easier financial conditions. 42” In this way, reforms of insolvency laws can complement other 
ongoing reforms at the EU level in the banking sector and as regards capital markets. 

2.3. Drivers and problems 

2.3.1. Drivers 

This  sub-section  describes  the  main  drivers  which  give  rise  to  the  problems  explained  in 
section 2.3.2. These drivers were raised by stakeholders in the performed public consultations, 
in particular in the public consultation on the Green Paper on the Action Plan of the Capital 
Markets Union43. Overall, respondents indicated a number of specific issues within the area of 
insolvency  which  in  their  view  should  be  harmonised  at  EU  level,  such  as  preventive 
restructuring proceedings, out-of-court and hybrid restructuring procedures, second chance for 

42  

43  

IMF:  Euro  Area  Policies  –  Selected  Issues,  IMF  Country  Report  No.  15/205,  July  2015,  Euro  Area 
Policies, IMF Country Report No. 15/2014, July 2015, p. 61. 
COMMISSION STAFF WORKING DOCUMENT, Feedback Statement on the Green Paper "Building 
a Capital Markets Union", SWD(2015) 184 final. 

13 

 
 
 
                                                            
 
 
entrepreneurs,  regulation  of  qualifications,  tasks  and  rights  of  insolvency  practitioners, 
liability  of  directors  and  shadow  directors,  introduction  of  a  time  cap  on  insolvency 
procedures,  establishment  of  an  EU  register  with  information  on  insolvencies  and  a 
harmonised form for petition claims. Stakeholders suggestions also aimed at harmonisation of 
requirements  for  opening  insolvency  proceedings,  including  a  common  definition  of  default 
and  avoidance  actions,  restructuring  of  companies,  stay  on  individual  creditor  claims  and 
definition  of  a  common  discharge  period.  Other  frequently  quoted  proposals  for  action 
suggested  harmonisation  of  ranking  of  creditors'  claims  and  the  issue  of  personal 
insolvency44.  Following  the  consultations  with  the  group  of  insolvency  experts,  relevant 
stakeholders  and  Member  States  experts,  all  the  issues  raised  were  examined  and  most  of 
them, although not all45, have been made subject to a deeper analysis and regulatory action as 
described in the following sub-section A. to E. and in section 5 on substantive sub-options. 

A. 

Preventive restructuring 

A.1. Rules on the possibility of restructuring at an early stage 

The  later  a  business  initiates  restructuring  proceedings,  the  higher  the  costs  of  restructuring 
and  the  lower  the  management  powers  and  success  rate.  Therefore  debtors  in  financial 
difficulties should have the possibility to restructure their debts before they are insolvent. That 
said, the risk of insolvency has to be apparent, for example, because the debtor is unlikely to 
be  able  to  repay  his  debts  as  they  fall  due  in  the  foreseeable  future46.  However,  the  overall 
general  statistics  demonstrate  that  less  formal  procedures  are  not  applied  very  often  in  the 
majority of Member States47. The highest proportion of restructurings in relation to the overall 
number  of  insolvency  proceedings  in  the  EU  appears  to  be  in  France  with  around  30  %  of 
restructuring proceedings48. For instance, in Spain, where restructuring proceedings have been 
recently introduced and which shows a situation common to most Member States, out of all 
the  agreements  reached  in  2014,  only  9.7%  were  made  in  an  early  composition  agreement. 
Since  2010,  a  smaller  number  of  agreements  has  been  made  (with  exception  of  2013) 
compared  with  2006,  2007  and  2009  where  the  rates  were  22.4%,  25.4%  and  21.8 
respectively. Most agreements are made as part of ordinary insolvency proceedings and this is 
the case even more in the last years which might suggest that the latest changes in the law did 
not succeed in promoting less formal proceedings, or that debtors are using alternatives, such 
as the homologation refinancing agreement. This is despite the fact that the median value of 
recovery rates in the early composition agreements in 2014 was 68.7% of the nominal present 
value  of  the  debt,  whereas  in  the  ordinary  composition  agreement  it  was  only  44.3%. 
Additionally, recovery rates in  early composition agreements were  in general higher always 
higher than in the ordinary composition agreement (see figure below). 

44  
45  

46  

47  

48  

SWD(2015) 184 final, Answers to Question 29, p. 59. 
For example, the insolvency expert group, stakeholders and Member States' expert did not consider as 
feasible or desirable to harmonise, at this stage, the definition of insolvency, requirements for opening 
insolvency procedures or ranking of claims in insolvency etc. 
According  to  the  Insolvency  Regulation  a  preventive  restructuring  procedure  can  be  notified  to  the 
Commission only if it is available to the debtor once there is a 'likelihood of insolvency'. 
Existing  statistics  on  the  number  of  out  of  court  preventive  restructuring  procedures  and  in  court 
preventive  restructuring  procedures  in  EU  Member  States  are  only  very  partial  statistics.  Distinct 
figures  for  liquidated  and  restructured  companies  exist  for  some  Member  States  only.  Moreover,  the 
restructuring and restructuring procedures are understood differently in different Member States. 
For instance, 62 586 judgments opening insolvency proceedings were registered for the overall 2014 in 
France, as follows: 42 874 liquidation proceedings, 18 092 reorganisation proceedings, 1 620 safeguard 
proceedings (Impact assessment study on policy options for a new initiative on minimum standards in 
insolvency and restructuring law, Final Report, VVA/JIIP/DTI/Grimaldi consortium, November 2016). 

14 

 
 
                                                            
Chart 2: Comparison of median recovery rates in Spain between ordinary composition agreements and early 
composition agreements 

63,5% 

56,8% 

54,0% 

52,8% 

53,0% 

52,7% 

44,8% 

43,6% 

45,6% 

44,8% 

43,8% 

43,8% 

47,1% 

46,4% 

44,3% 

50,3% 

51,9% 

68,7% 

80%

60%

40%

20%

0%

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ordinary

Early Composition Agreement

Source: Own elaboration of VVA/ JIIP/ DTI/ Grimaldi  consortium using the data provided by Colegio de Registradores de la Propiedad, 
Bienes Muebles y Mercantiles de España; * The recovery rates refer to the recovery expectations of the nominal present value for the normal 
creditors and under the supposition of full payment of what is agreed49 

A concern that such preventive procedures can be misused by debtors whose businesses are 
not viable, and should rather be liquated than rescued, has led some Member States to impose 
high  thresholds  for  entering  these  procedures.  Furthermore,  in  some  Member  States  debtors 
are  under  an  obligation  to  file  for  formal  insolvency  procedures  as  soon  as  they  are  over-
indebted (balance sheet test), which may dissuade directors to file for preventive restructuring 
due  to  risks  of  personal  liability.  SMEs,  in  particular,  are  reported  to  have  great  difficulties 
recognising their financial difficulties and the need to act quickly to contain the damage50.  

Table 3: Situation in Member States as regards access to restructuring frameworks 

Access to restructuring 
No access to any type of defined procedure to restructure debts 
with  creditors  before  their  companies  are  actually  insolvent  or 
are already late with payments 
Possibility to restructure before being insolvent, but under very 
strict access conditions (e.g. an expert certificate must be filed 
or proof of a high majority of creditors already supporting the 
plan is required, imminent insolvency leading to late filing). 
Possibility  to  restructure  at  an  early  stage  when  there  is  a 
likelihood of insolvency in the future, without strict conditions 
being attached 

Member States 
BG, HU, SK and HR 

AT, DE, DK, IT and PT 

BE,  CZ,  EE,  FI,  FR,  EL, 
ES, LV, LT, LU, NL, PL, 
RO, SE, CY, IE and UK 

An  early  possibility  of  restructuring  and  a  low  threshold  for  entering  into  negotiations  of  a 
restructuring  plan  favours  the  saving  of  viable  businesses  channelling  them  away  from 
liquidation51. The risk of misuse exists but should be addressed by a proper assessment of the 

49  

50  

51  

Impact assessment study on policy options for a new initiative on minimum standards in insolvency and 
restructuring law, Final Report, VVA/ JIIP/ DTI/ Grimaldi consortium, November 2016. 
SMEs  also  often  lack  resources  to  hire  independent  experts  to  help  them  with  the  drafting  of 
restructuring  plans  which  would  help  debtors  making  the  necessary  disclosures  in  order  to  submit 
credible restructuring plans to their creditors and to courts. 
SMEs should be further encouraged to file early, for example by giving them access to early warning 
tools and by making available model restructuring plans. 

15 

 
 
 
                                                            
viability of the business in the light of the restructuring plan, adopted by creditors, rather than 
by imposing strict entry conditions to access the procedures.  

In the public consultation and during the 'Sounding Board' meetings, most of the stakeholders 
from  business  and  the  financial  sector  as  well  as  practitioners  in  the  field  of  restructuring 
underlined  that  many  economically  viable  business  that  could  have  eventually  avoid 
insolvency,  end  up  in  bankruptcy  because  they  did  not  have  the  possibility  to  restructure 
effectively at an early stage. Business sector voiced that the death rate of companies can be 
reduced by the possibility of early restructuring for viable business in difficulties as it would 
shift the focus away of liquidation. Financial sector also stressed that 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, the introduction of 
efficient restructuring procedures in EU will allow creditors to recover more than in the case 
of liquidation of an insolvent debtor. Trade Unions' representatives warned against the moral 
hazard  risk  that  business  may  use  restructuring  frameworks  strategically  to  reduce  their 
liabilities towards workers. 

A2.Rules on stay of enforcement actions (moratorium)  

A stay on enforcement actions by a court suspends the right of a creditor to enforce its claim 
against a debtor52. A properly defined "stay" of individual or collective enforcement actions is 
a crucial element of any useful restructuring procedure53. Inadequate or overly restrictive stay 
provisions are likely to reduce the chances for a successful turnaround and damage the overall 
value  of  the  business.  The  application  of  the  stay,  as  one  of  the  “fundamental  debtor 
protections  provided  by  the  bankruptcy  laws54,  impacts  on  the  prospects  of  viability  of  the 
company and may give higher rewards to creditors who started enforcement early55. This goal 
will  be  compromised,  however,  if  creditors  are  able  to  seize  assets  that  are  essential  to  the 
carrying on of the company’s business56. It is thus essential to strike the right balance between 
the different interests at stake.  

Table 4: Situation in Member States as regards rules on stay of enforcement actions 

Conditions of application of stay of enforcement actions 
No  possibility  to  obtain  a  stay  of  individual  enforcement 
actions in preventive restructuring procedures 
Stay  period  limited  in  time,  but  extendable  in  more  complex 
cases or upon evidence of progress in negotiations 

Stay period limited in time and non-extendable in more 
complex cases or upon evidence of progress in negotiations 

Member States 

AT 

CZ,  FR,  IT,  LV,  LT,  NL, 
PT,  SE,  SI,  CY,  IE  and 
UK 
DE, ES, EL, PL 

52  

53  

54  
55  

56  

In  principle,  each  creditor  has  the  right  to  seize  the  debtor´s  assets  according  to  a  “first  come  first 
served”  basis  in  order  to  satisfy  its  claim.  Creditors,  however,  usually  cannot  coordinate  themselves 
and, therefore, it is rational for them to collect their debts individually and to seize debtor´s assets as 
soon as financial distress becomes apparent. 
The UNCITRAL Legislative Guide on Insolvency reflects the view that to allow recovery procedures 
by  creditors  to  operate  without  restraint  could  frustrate  the  overall  socially  desirable  goal  of 
restructuring and rescue. Since going-concern value may be a lot more than breakup value, restructuring 
proceedings are designed to keep a business alive so that this additional value can be captured. 
Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 230. 
For example, an ineffective stay could allow customers and suppliers to walk away (or demand punitive 
amendments) at a time when their continued commitment is most crucial to the company’s rescue. 
The stay is also an intrinsic feature of Chapter 11 of the U.S. Bankruptcy Code. 

16 

 
 
                                                            
Stay  may  be  lifted  by  the  court  before  the  expiry  of  the  stay 
period if the objectives of the stay can no longer be achieved or 
evidence of abuse 
Stay  for  an  indefinite  period  until  the  restructuring  plan  is 
adopted or rejected 

BE, DE, EL, SE, CY, IE 

BE,  EE,  FI,  LU,  RO  and 
DK 

Most often the stay also means that formal insolvency procedures cannot be opened against 
the debtor. In some Member States certain actions cannot be "stayed" (e.g. in BE, DK and SE 
in respect of specific secured transactions; in EE in respect of employment claims).  

During negotiations of a restructuring plan, the debtor should be able to apply to a court for a 
suspension  of  individual  enforcement  actions  ("stay"),  otherwise  the  success  of  the 
restructuring  process  is  in  jeopardy.  The  "stay"  could  be  requested  against  any  type  of 
creditor.  The  stay  would  not  be  effective  if,  at  the  same  time,  the  debtor's  duty  to  file  for 
insolvency  were  not  suspended  for  the  period  of  the  stay  or  if  creditors  were  allowed  to 
enforce  their  rights  through  a  collective  action  (i.e.  opening  insolvency  proceedings)  during 
this time57.  

During the consultation process, the business sector and experts in the field of restructuring 
have  pointed  out  that  the  absence  of  a  'breathing  space'  (stay  on  individual  or  collective 
enforcement actions) is likely to reduce the prospects of a successful restructuring. They were 
of the view that businesses in financial difficulties should have the possibility of a necessary 
amount of time to define a restructuring plan and avoid precipitate creditor action. In addition, 
the  financial  sector  stressed  that  a  stay  of  a  proportionate  and  appropriate  timeframe,  along 
with the possibility for a creditor to lift it under conditions, can contribute to the efficiency of 
negotiations by striking a balance between the debtor's and creditors' interests. 

A3. Rules on debtor-in-possession  

The debtor-in-possession is a mechanism ensuring that the management of the debtor will not 
be  displaced  in  favour  of  an  outside  insolvency  administrator.  The  use  of  this  mechanism 
encourages timely use of the restructuring option58. However, the debtor-in-possession is not 
available in all jurisdictions and not under the same conditions. The choice between debtor-in-
possession and management displacement is not an ‘all-or-nothing’ one and there are in fact a 
plurality  of  possible  approaches  on  this  issue59.  Evidence  from  the  World  Bank  Doing 
Business  Index  suggests  that  average  recovery  rates  for  creditors  in  economies  where 
insolvency administrators have a key role in deciding on the viability of the business are more 
than 10% higher than in economies where that determination is done by other means60. 

57  

58  
59  

60  

Also,  the  company  would  not  be  able  to  carry  out  its  business  if  essential  suppliers,  during  the  stay 
period, were to terminate contracts early. 
Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 228. 
These approaches are discussed in detail in the InsolEurope study done for the European Commission, 
‘Study  on  a  new  approach  to  business  failure  and  insolvency  –  Comparative  legal  analysis  of  the 
Member States’ relevant provisions and practice’s, p. 24-26.  
Doing  Business  Project  Encourages  Economies  to  Reform  Insolvency  Frameworks,  World  Bank, 
January 
http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/02/26/000333037_201302261
23527/Rendered/PDF/752400BRI0SMAR0urable0Results0FIXED.pdf 

2013, 

17 

 
 
 
 
                                                            
Table 5: Situation in Member States as regards debtor-in-possession rules  

Application of debtor-in-possession rules 
Debtor  may  lose  certain  powers  of  control  over  the  business 
during preventive restructuring procedures 
Debtor  left  in  possession,  but  an  insolvency  practitioner  or 
administrator is also appointed to supervise the debtor 

Supervision of the debtor by the court  

No  obligation  for  a  court  to  appoint  insolvency  practitioner  or 
administrator (or out-of-court appointment possibility) 
Supervision  of  insolvency  practitioner  or  administrator  is  not 
required in a simplified restructuring procedure. 

Member States 

FR, CY and NL 

AT,  CZ,  EE,  FI,  DE,  LV, 
LT,  LU,  PL,  RO,  SK,  SI, 
SE, UK, IE and HR 
BE 

EL, IT, PT and ES 

FI 

While the principle of a debtor in possession is not controversial as such, the role and level of 
involvement of insolvency practitioners must strike a balance between the need to ensure the 
success of proceedings, including the necessary confidence, and cost and effective access to 
such procedures, in particular for SMEs.  

Most  of  the  stakeholders  consulted  were  of  the  view  that  the  productive  capacity  of  a 
company is undermined if the debtors do not have the possibility to keep control over the day-
to-day operations of their business. In the public consultation, the business sector particularly 
mentioned  that  debtor-in-possession  arrangements  can  promote  operational  efficiencies  and 
realise  significant  cost  savings.  During  the  dedicated  stakeholders'  meetings,  some  business 
organisations also voiced that many SMEs are hindered from accessing restructuring, because 
of the costs and difficulties that the appointment of a supervisor/administrator entails. On the 
other  hand,  it  was  supported  by  the  business  and  financial  sector  that  the  appointment  of  a 
practitioner sometimes is proved necessary, for example, in complex cases or where it is the 
only way to achieve full transparency for creditors and reduce the risk of abuse,  

A4. Rules on the preparation and adoption of restructuring plans 

A company’s ability to make use of a legal proceeding for the adoption of a restructuring plan 
is  integral  to  any  insolvency  system  aiming  to  avoid  business  failure  where  possible.  The 
speed and rules of adoption of a restructuring plan are of crucial importance for a cross-border 
investor. Both secured and unsecured creditors need to know what the  so-called cram down 
rules61 are, if any,  in  the country  where the investment is  made and what it means for their 
own  prospects  of  recovery.  If  the  creditor  is  a  shareholder,  he  needs  to  know  the  rights  of 
shareholders in the adoption of the restructuring plan itself and the rate of recovery. 

61  

The  term  ‘cramdown’  can  be  understood  in  two  senses.  In  one  sense,  it  simply  means  that  if  the 
necessary  majority  within  a  class  approve  a  plan  then  the  plan  becomes  binding  on  the  other  class 
members.  But it can also be used in the sense of cramming down a dissenting class in its entirety, i.e., 
forcing a  majority of the class to accept a scheme against their wishes (so-called cross-class or inter-
class  cram  down  (Study  on  a  new  approach  to  business  failure  and  insolvency,  University  of  Leeds, 
January 2016, p. 245). 

18 

 
 
 
 
                                                            
Table  6:  Situation  in  Member  States  regarding  the  preparation  and  adoption  of 
restructuring plans  

Preparation and adoption of restructuring plans 
No  possibility  of  binding  dissenting  creditors  by  majority 
voting 
Possibility  of  binding  dissenting  creditors  allowed,  but  certain 
categories  of  creditors  are  exempted  (e.g.  public  creditors, 
workers, secured creditors, commercial creditors) 
Creditors are not treated in separate classes for the purposes of 
voting on a restructuring plan and the restructuring plan is 
adopted if not opposed by a majority of creditors 
Simple majority in value for a “cram-down” of liabilities in the 
course of a voluntary business arrangement 
Possibility of binding dissenting creditors, but all creditors must 
be involved, even those whose rights are not affected 
Possibility  that  only  certain  categories  of  creditors  which  are 
affected by the plan are involved (e.g. financial creditors) 

Member States 

AT and LT 

CZ,  EE,  EL,  ES,  HR,  IT, 
LV,  LU,  NL,  PL,  PT,  SI 
and the UK 
DK 

CY 

BE, DE and RO 

FI, FR and SI 

The rules on adoption of restructuring plans should reflect the different interests of creditors 
(e.g.  secured  and  unsecured)  and  shareholders  and  their  likely  recovery  in  the  event  of 
insolvency. For example, creditors or classes of creditors and shareholders who can no longer 
profit should not have a decisive say in the adoption of such plans. By giving a bigger say to 
creditors  and  shareholders  who  are  "in  the  money",  that  is  those  who  can  still  financially 
contribute  to  the  rescue  of  the  business,  restructuring  plans  would  have  bigger  chances  of 
success in the long term and help debtors avoid relapsing into financial difficulties soon after 
a first restructuring.  

SoLocal, the French online marketing group (former YellowPages in France), has 4.400 
workers and €1.164 billion euros in debt. On 19 October 2016, the shareholders rejected 
the group’s debt restructuring during a general meeting. The company’s “Conquer 2018” 
proposal, which aimed at reducing the group’s debt to €400 million and featured a capital 
increase,  required  the  support  of  two-thirds  of  shareholders,  even  after  the  required 
majority  of  creditors  approved  the  financial  restructuring.  After  the  shareholders'  vote, 
creditors have the right to demand immediate payment on SoLocal’s debt as it wouldn’t 
comply  with  its  September  and  June  leverage  covenants.  The  company  future  enters  a 
phase of serious uncertainty. 

During  the  consultation  process,  business  sector  and  practitioners  in  restructuring  said  that 
restructuring cannot be effective and successful if there are no clear rules on the adoption of 
the  plan  and  on  the  need  for  the  plan  to  balance  among  the  different  interests.  Specifically, 
they were of the view that restructuring can have bigger chances to success if the plan is fair 
and  reasonable  and  leave  no  creditor  worse  off  than  they  would  be  in  the  most  likely 
alternative scenario, i.e. liquidation. Financial institutions also underlined that uncertainty and 
higher  financing  costs  can  only  be  avoided  by  ensuring  adequate  safeguards  for  secured 
creditors in cram-down mechanisms. Trade Unions' representatives underlined the importance 
of preserving the workers' rights to information and consultation, which are conferred by EU 
law, in particular where restructuring involves a transfer of parts of the business.  

19 

 
 
 
 
 
 
 
 
 
A5. Rules on provision of new financing in restructuring 

If  new  financing  is  necessary  for  the  success  of  restructuring,  the  protection  of  the  parties 
providing  this  funding  is  of  vital  importance  for  the  rescued  company62.  In  the  absence  of 
debtor-in-possession financing arrangements, under which a company under court-supervised 
protection  can  receive  additional  financing,  a  distressed  company  has  to  rely  on  existing 
creditors to meet its interim funding requirements whilst a restructuring plan is devised. The 
process with a large number of financial institutions having differing strategies and involved 
in  complicated  cross-border  proceedings  often  leads  to  conflicting  objectives63.  Weak 
protection of parties providing new sources of financing diminishes the prospects of viability 
of the company and also of recovery rates64. 

Table 7: Situation in Member States as regards provision of new financing in restructuring 

Conditions of provision of new financing in restructuring 
No  special  protection  provided  in  relation  to  parties  who  provide 
new financing65 
New financing involving a connected person and provided within 
6 months prior to the filing of bankruptcy proceedings can be set 
aside 

Member States 
CZ,  EE,  DE,  HU,  LT, 
LU, MT, NL, SK, UK 
PL 

New financing 
cannot be 
challenged 
provided that 

the lender supplied funds and it was in relation to 
a settlement that had been approved by the court 
the  new  financing  was  provided  pursuant  to  a 
bona fide attempt to rehabilitate the insolvent and 
restructuring provisions were adhered to 
the new financing occurred during the execution 
of a restructuring plan 
the bankruptcy judge approves the reorganisation 
arrangement 
certain specified conditions have occurred66 
the  arrangement  envisaged  favourable  treatment 
being bestowed on the financing67 
the  action  was  designed  to  fulfil  obligations 
under  the  restructuring  scheme  approved  by  the 
court68 

Any transaction involving new financing  and entered into 
pursuant to an effort to restructure is deemed not to have an 
intention of harming creditors  

FR 

BG 

EL 

RO 

ES 
LV 

SI 

DE 

Putting in place incentives for new financing is an essential element in ensuring a sustainable 
restructuring.  Protection  from  avoidance  actions69  in  subsequent  insolvency  proceedings  is 

62  

63  
64  
65  

66  
67  
68  

Potential economic gains from reforming insolvency law in Europe, AFME, Frontier economics, Weil, 
February 2016, p. 18 and 19. 
Idem. 
Idem. 
Avoidance  rules  that  are  generally  applicable  will  apply  to  new  financing,  but  it  will  mean  that  any 
security that is granted in exchange for new financing, and in order to support restructuring, will usually 
be safe from attack. 
For example, the scheme is recorded in a public document. 
Latvian Insolvency Law, s 40(5). 
Slovenian Insolvency Act (ZFPPIPP) (Slovenia), Arts. 44 and 273. 

20 

 
 
                                                            
therefore  an  essential  element  of  restructuring  plans.  It  seems  necessary  to  extend  such 
protection also to interim financing, i.e. financing necessary to ensure the continuation of the 
debtor's business during negotiations (before the plan is adopted), in particular in respect of 
creditors who are stayed. Several Member States fall short of ensuring this basic protection. A 
super-priority  status  for  new  financing  exists  in  some  Member  States,  however  while  being 
very  effective  in  protecting  new  financing  it  is  more  controversial  as  it  is  sometimes 
considered  to  come  into  conflict  with  the  principle  of  legal  certainty  and  protection  of 
property rights for existing creditors.  

During  the  public  consultation  and  the  ‘Sounding  Board’  meetings,  protection  of  new 
financing was deemed by most of the stakeholders as a necessary incentive for restructuring.  
The business sector underlined that if viable companies, in need of working capital, are left 
without  the  possibility  to  finance  their  day  to  day  operations,  they  will  be  driven  to 
liquidation,  to  the  detriment  of  the  real  economy.  In  addition,  business  sector  and  financial 
institutions stressed that potentially interested creditors should be encouraged; when creditors 
decide to inject liquidity in a distressed company, they should be given a sufficient degree of 
predictability on the recovery of their claims. 

A6. Intensity and quality of courts' and insolvency administrators' involvement 

Preventive  restructuring  frameworks  allow  debtors  and  creditors  to  negotiate  informally 
before  insolvency  starts.  However  a  number  of  jurisdictions  allow  only  for  restructuring 
through formal insolvency: within these jurisdictions there are differences in the opening of 
the insolvency procedure that may generate problems in cross border situations70.  

In  most  Member  States,  insolvency  proceedings  are  administered  by  a  judicial  authority, 
through  commercial  courts,  courts  of  general  jurisdiction  or  through  specialised  insolvency 
courts.  Sometimes  judges  have  specialised  knowledge  and  responsibility  for  insolvency 
matters,  while  in  other  cases  insolvency  matters  are  just  one  of  a  number  of  wider  judicial 
responsibilities of the courts. 

During the ‘Sounding Board’ meetings, most of the stakeholders, including the business and 
financial sector as well as practitioners in the field of restructuring agreed that rigidity, cost 
and  time  of  the  procedures  can  be  reduced  if  there  is  less  court  involvement.  The  experts 
consulted  were  also  of  the  view  that  court  involvement  should  be  required  when  there  is  a 

69  

70  

Provisions  concerning  avoidance  actions  exist  so  as  to  enable  the  general  body  of  creditors  to  be 
protected from an unfair reduction in the value of the insolvent’s estate which can be the consequence 
of the debtor giving an advantage to one party prior to the opening of insolvency proceedings by those 
avoidance  actions  (Study  on a  new  approach  to business  failure  and  insolvency, University of  Leeds, 
January 2016, p. 138). 
For instance, some EU Member States apply liquidity tests (the ability to pay debts as and when they 
fall due) others balance sheet tests (the surplus of assets over liabilities). Under Polish law, the balance 
sheet  test  only  applies  to  certain  categories  of  entities  including  companies  and  partnerships.  Under 
Spanish  and  French  laws,  only  the  liquidity  test  applies.  Under  Italian  law  the  liquidity  test  applies 
subject  to  some  additional  criteria.  In  Germany  over  indebtedness  and  imminent  illiquidity  can  be  a 
reason to file for bankruptcy. The majority of Member States adopt the general cessation of payments 
test and the balance sheet test in different combinations to establish a commencement standard. Other 
requirements may be added, such as for example, that the cessation of payments must reflect a difficult 
financial situation that is not temporary. In Germany and Austria, the debtor must also be overindebted. 
Under Danish law, the debtor is insolvent when the debtor is unable to pay its creditors on the due date 
and  the  situation  is  not  temporary.  A  similar  test  is  adopted  in  Estonia  (Impact  assessment  study  on 
policy  options  for  a  new  initiative  on  minimum  standards  in  insolvency  and  restructuring  law,  Final 
Report, VVA/ JIIP/ DTI/Grimaldi consortium, November 2016). 

21 

 
 
                                                                                                                                                                                          
need  to  protect  the  interests  of  third  parties  and  avoid  abuse.  Furthermore,  in  the  public 
consultation, business and financial sector stressed that confidence in the operation of courts 
and efficiency of the restructuring procedures can be enhanced by improving the efficiency of 
insolvency practitioners as well as encouraging specialisation of judges. 

their  qualifications,  eligibility  for 

The  laws  of  Member  States  have  different  rules  on  insolvency  practitioners  themselves, 
namely 
licensing,  regulation, 
supervision, professional ethics and conduct. The questions related to insolvency practitioners 
concern any type of mediators or supervisors engaged in the insolvency process.  Depending 
on the extent of involvement of courts and/or insolvency practitioners one could distinguish: 

their  appointment, 

 

 

Pure  out-of-court  agreements:  private  contractual  arrangements  that  require  all 
creditors' consensus; 

Hybrid  informal  agreements:  mechanisms  which  combine  the  benefits  of  judicial 
control  and  out-of-court  easiness  at  low  cost  can  rely  on  decisions  by  a  majority  of 
creditors. 

The lowest degree of involvement of courts or insolvency administrators or practitioners is in 
out-of court proceedings, whereas the highest in formal insolvency proceedings. The degree 
of  involvement  has  an  impact  on  costs.  However,  in  Member  States  where  no  insolvency 
practitioner is involved in restructuring procedures, the debtor is less likely to make use of the 
procedure and to do so quickly and effectively71.  

The  high  quality  of  insolvency  practitioners  and  judges  matters  for  the  time  of  the 
proceedings.  Specialised  insolvency  practitioners  and  judges  can  contribute  greatly  towards 
reducing the length of procedures and bring other benefits72. Since cross-border restructurings 
and  insolvencies  presuppose  a  high  level  of  cooperation  between  insolvency  administrators 
and judges, it is even more crucial that they have a proper training and resources and that they 
adhere by common ethical standards. 

Table  8:  Situation  in  Member  States  as  regards  intensity  of  courts'  and  insolvency 
administrators' involvement 

Hybrid  proceedings  combine  out-of-court  and 
procedures 
Formal insolvency proceedings needed with full involvement of 
the court/insolvency practitioners 

formal 

Member States 
UK,  EL,  PT,  ES,  FR  and 
AT 
BG, HU, DK, CZ, SK, SI, 
HR, LT 

Providing for hybrid proceedings and the enforceability of private agreements would increase 
the effectiveness of insolvency frameworks, especially as regards preserving value for debtors 
and creditors. It would provide more options to companies, instead of always having to go for 
more costly involvement of courts or insolvency administrators. The efficiency could further 
increase if judges or insolvency administrators had a high level of specialisation in insolvency 

71  
72  

Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 329. 
In  2013-2014,  the  insolvency  profession  rescued  approximately  6  700  businesses  through  formal 
insolvency procedures, saving around 230 000 jobs, while another 3 700 businesses continued operating 
after informal advice, employing around 310 000 people after informal advice, employing around 310 
000  people  after  receiving  advice  (Why Insolvency  Matters  –  the  in  solvency  profession value  to  the 
UK Economy, Association of Business Recovery Professionals, 2015). 

22 

 
 
 
                                                            
and restructuring. According to the 2016 public consultation, the degree of specialisation of 
insolvency administrators and of judges co-relates with increased recovery rates for creditors. 

B. Insolvency (liquidation) procedures 

Other  drivers  concern  in  particular  rules  related  to  formal  insolvency  (liquidation) 
proceedings such as: conditions for filing for insolvency (definition of insolvency), ranking of 
claims,  the  wider  issue  of  avoidance  actions,  the  length  of  formal  insolvency  proceedings, 
directors'  responsibilities  relating  to  insolvency.  In  the  public  consultation,  although  many 
stakeholders identified them as areas, which would merit some form of action at the EU level, 
they also acknowledged feasibility concerns due to the existing divergence of national rules, 
national specificities and implications on other areas of law. Moreover, most of the Member 
States expressed strong concerns with regard to those areas.   

B1. Definition of insolvency 

In  the  performed  public  consultation,  the  banking  sector  voiced  that  different  definitions  of 
insolvency  result  in  different  moments  when  insolvency  is  declared,  therefore  there  is  no 
clarity  for  creditors  about  the  time  span  for  the  restructuring  and  when  the  opening  of  an 
insolvency  proceedings in  inevitable. In  addition, some business organisations agreed that  a 
common  definition  of  insolvency,  although  difficult  to  achieve,  would  be  very  useful. 
However, the Expert Group on Insolvency73 expressed the view that a definition would not be 
necessary in order to access early restructuring proceedings and that harmonising this aspect 
might  have  unintended consequences  for  other  areas  of  national  law,  such  as  company  law, 
employment  law  etc..  Certain  experts  were  of  the  opinion  that  focus  should  be  put  on  the 
triggering criteria, especially for early restructuring proceedings74. Against the background of 
the  discussions  with  Member  States'  experts  it  appeared  that  there  is  opposition  to  a 
harmonisation of the definition of insolvency but also that this is less relevant for the purposes 
of restructuring than the critical guidance on when the debtor can access early restructuring, 
on  the  terms  of  such  restructuring  and  on  the  impact  on  the  debtors'  duty  to  file  for  formal 
insolvency  proceedings.  So  while  it  may  be  important  to  define  concepts,  a  definition  of 
insolvency  did  not  appear  to  be  indispensable  to  ensure  the  efficiency  of  preventive 
insolvency procedures while for formal insolvency procedures, although helpful, a definition 
would not be at this moment in time a priority. 

B2. Order of priority of claims 

The  laws  of  Member  States  differ  significantly  as  regards  the  priority  of  claims  in 
insolvency.  This  has  an  impact  on  how  insolvency  proceedings  are  run  and  how  debts  are 
recovered.  In  the  public  consultation,  some  stakeholders  supported  that  differences  in  the 
areas  of  ranking  of  claims  affect  to  a  large  or  to  a  considerable  extent  the  operation  of  the 
internal market. Moreover, others supported that a general harmonisation in this area would 
increase  recovery  rates  for  creditors.  However,  the  banking  sector  voiced  that  although  this 
issue  is  important  when  doing  business  on  a  cross  border  basis,  it  is  not  necessarily  the 
essential driver  of the decision  to  invest or  not. Moreover, business  organisations  expressed 
scepticism on the feasibility of EU action in this area given how it is deeply rooted in national 
legal traditions, which carries the risk of unintended consequences in case of intervention. In 

73  
74  

For more details on the work of this expert group, see Annex 2. 
Other experts were of the opinion that if general and objective criteria may be relevant at EU level (see 
the  eventual  interplay  with  Recital  17  of  the  recast  Insolvency  Regulation),  details  should  be  left  to 
Member States. 

23 

 
 
 
 
                                                            
addition, during the dedicated meetings with the Member States, most of them, if not all, were 
opposed to a general harmonisation of ranking of claims because of national specificities and 
implications on other areas of law. Discussions in the Commission Expert Group revealed that 
this  area  is  sensitive  given  that  Member  States  have  taken  different  approaches  as  regards 
preference for workers and state creditors (tax, social security etc.). This goes at the core of 
national discretion and competing values are at stake. Nevertheless to incentivise companies 
to restructure at an early stage, tax and state aid rules should not be more burdensome in early 
restructuring than in insolvency procedures. 

B3. Avoidance actions 

The laws of Member States also differ on possibilities for avoiding contracts detrimental to 
companies and creditors. Differences concern conditions under which a detrimental act can 
be avoided (avoidance actions) and the period within which such acts can be challenged. In 
the  public  consultation,  a  part  of  the  respondents  stressed  that  divergence  on  avoidance 
actions  affect  to  some  extent the  operation  of  the  internal  market  and  that  harmonisation  of 
avoidance  actions  (in  particular  of  suspect  periods)  would  contribute  to  increasing  recovery 
rates for creditors. They stressed that investors, companies and entrepreneurs would be more 
willing to  invest or  do business  outside their  Member States if they were provided with  the 
assurance that certain types  of transactions, entered into within  a certain period of time, are 
prescribed  throughout  the  EU.  Particularly,  the  banking  sector  acknowledged  that  rules  on 
avoidance actions are essential to decide whether to deal with a debtor in financial trouble and 
insolvency  practitioners’  organisations  voiced  that  different  standards  in  avoidance  actions 
create legal uncertainty and it gives rise to substantial legal costs in insolvency proceedings. 
However, discussions in the Commission Expert group revealed that while avoidance actions 
could in principle be harmonised across the board, it would be disproportionate to do so at this 
stage.  Therefore,  it  was  proposed  to  create  a  limited  rule  on  avoidance  actions,  namely  a 
harmonized safe harbour from avoidance actions for non-related party transaction related to 
restructuring negotiations. 

B4. Liquidation of assets 

In some Member States the rules on the actual liquidations of assets result in prolonging the 
proceedings. In the performed public consultation, when asked what are the key issues for the 
excessive length of insolvency proceedings, most of the respondents mentioned delays in the 
liquidation  of  the  debtor's  assets,  activities  related  to  the  supervision  of  the  debtors  and 
litigation  concerning  the  debtors'  right  and  obligations.  A  smaller  part  of  respondents 
considered  lack  of  digitisation  as  a  key  issue  for  the  excessive  length  of  proceedings. 
Particularly,  the  banking  sector  explained  that  the  foreseeable  length  of  enforcement  and 
insolvency  proceedings  are  usually  taken  into  consideration  for  investment  decisions. 
Business  organisations  mentioned  that  measures  to  shorten  the  length  of  the  proceedings 
would have a positive impact in recovery rates. . However, while some stakeholders were of 
the view that a target maximum duration for insolvency proceedings would be useful, a larger 
part  were  of  the  opinion  that  it  would  not  be  appropriate.  Particularly,  practitioners’ 
organisations expressed that the variety of proceedings is much too large for that and there are 
too many risks entailed.  

When  asked  what  incentives  could  be  put  in  place  to  reduce  the  length  of  insolvency 
proceedings,  the  respondents  mentioned:  electronic  means  of  communication;  specialisation 
of courts; supporting the courts' resources; less court involvement/supervisory role only; clear 
requirements for entering to insolvency proceedings; ensuring that the thresholds are triggered 

24 

 
 
 
 
early  enough  for  restructuring;  deadlines/time-limits  for  court  proceedings;  publicly 
accessible information as a (general) prevention; remuneration of insolvency practitioners. 

B5. Directors and shareholders 

In a company, directors exercise corporate powers which are generally balanced with duties 
of  care  prohibiting  wrongful  trading.  Some Member  States  have  certain obligations  in  place 
for directors in the period before insolvency occurs and impose liability for any harm caused 
by continuing to operate when it was either clear or should have been foreseen that insolvency 
could not be avoided. The rationale for such provisions is to create appropriate incentives for 
early  action  through  the  use  of  voluntary  restructuring  negotiations.  It  may  also  encourage 
directors  to  obtain  competent  professional  advice  when  financial  difficulties  occur  and  thus 
avoid insolvency.  Shareholders  may obstruct a restructuring procedure which would return 
the company to viability. Allowing shareholders to oppose restructuring would likely reduce 
the number of successful restructurings. 

In  the  public  consultation,  the  majority  of  stakeholders75  were  of  the  view  that  directors  of 
companies should be incentivised to take appropriate preventive measures if companies are in 
distress  but  not  yet  insolvent.  Financial  institutions  voiced  that  it  is  necessary  that  directors 
should have a duty to act diligently in order to protect creditors and stakeholders. However, 
during the dedicated meetings with the Member States, although they acknowledged the need 
to  incentivise  directors  for  early  restructuring,  most  of  them  were  reluctant  to  mandatory 
detailed provisions on directors’ duties, due to the implications on company law.  

On  shareholders,  many  stakeholders  from  the  business  and  financial  sector  said  that  the 
existing differences between the laws of the Member States regarding measures to clarify the 
position  of  shareholders  of  companies  in  insolvency  or  close  to  insolvency  affect  the 
functioning of the Internal Market either to a considerable extent or to some extent. Financial 
institutions and investor associations (EBF, AFME,) said that the shareholders' rights within 
creditors' committee might need to be limited in certain circumstances, i.e. when they prevent 
the  plan  from  being  adopted  although  this  plan  is  likely  to  ensure  the  continuation  of  the 
company's activity and the recovery of the debts. 

Overall,  these  other  drivers  while  being  relevant  relate  only  indirectly  to  restructuring  and 
second chance and are strongly dependent on the existing national legal frameworks and the 
social,  economic  and  political  choices  made  in  other  areas  of  law.  They  will  be  looked  at 
more closely in this impact assessment report but only in connection with the aspects which 
are  related  to  preventive  restructuring  and  second  chance.  The  assessment  in  the  preferred 
option  touches  upon  some  specific  aspects  relevant  for  these  additional  drivers,  such  as  the 
availability  of  early  restructurings,  definition  of  conditions  for  new  financing  and  their 
priority,  cram  down  requirements  or  reduction  court  formalities  which  would  impact 
positively on the costs, length and recovery rates of both preventive restructuring and formal 
insolvency procedures. 

C. Second chance 

Discharge from debt is instrumental for those who wish to learn from their mistakes and have 
a  fresh  start.  The  need  of  discharge  for  natural  persons  is  amplified  by  the  fact  that  people 
starting business bring in their project also personal assets and credits taken in their personal 

75 Among those, UEAPME, EACTP, BusinessEurope, German Bar Association. 

25 

 
 
                                                            
capacity  or  help  from  the  members  of  family76.  Where  debt  settlement  procedures  are  not 
available the entrepreneur will normally still have access to bankruptcy procedures available 
to  corporate  debtors77.  At  the  same  time,  almost  all  Member  States  offer  a  debt  settlement 
procedure to consumers78. 

Table 9: Situation in the Member States debt restructuring for natural persons including 
discharge and second chance 

Full  discharge  of  entrepreneurs  as  part  of  bankruptcy  is 
available 
Bankruptcy does not give right to discharge 
Opportunity  of  discharge  for  entrepreneurs  after  a  debt 
settlement following the expiry of discharge period of differing 
length 
Discharge without further conditions after one year 
Discharge within 3 years is available in bankruptcy proceedings  CY, IE, FR, UK 
Discharge within 3 years is available in debt settlement 
No debt settlement procedures for entrepreneurs 

Member States 
BE, CZ, CY, EE, FR, EL, 
IE, LU, RO, SI, UK 
AT, BG, HU, NL, SE 
AT, CY, CZ, DK, EE, FI, 
DE,  EL,  HU,  IE,  LT,  LV, 
NL, PT, SK, SI, ES, UK 
UK, IE 

AT, CY, NL and SK 
BG, FR, LU, MT, PL, RO 

Chart 3: Period of time to obtain full discharge 

Source: Ecorys, Bankruptcy and Second Chance for Honest Entrepreneurs, 2014 

76  

77  
78  

Consulting 

As  to  natural  persons  without  business  activity,  over-indebtedness  is  most  often  caused  by  external 
circumstances, such as the unemployment of disease .(The over-indebtedness of European households: 
updated  mapping  of  the  situation,  nature  and  causes,  effects  and  initiatives  for  alleviating  its  impact, 
Civic 
32, 
European 
http://ec.europa.eu/consumers/financial_services/reference_studies_documents/docs/part_1_synthesis_o
f_findings_en.pdf) 
Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 329. 
With  the  exception  of  Bulgaria  where,  however,  proposal  for  establishing  consumer  debt  settlement 
procedure is in the legislative pipeline. In the UK, for instance,  

Commission, 

2014, 

the 

for 

p. 

26 

 
 
 
 
                                                            
Discharge  from  business  debts  (and  personal  debts  of  business  people)  under  reasonable 
conditions and received after a period which is not excessively long gives a second chance to 
restart  business.  The  impossibility  of  repayment  and  too  difficult  conditions  of  discharge 
cause both entrepreneurs and consumers to fall in a debt trap. In consequence, these natural 
persons do not contribute to economic growth (reduced consumption, withdrawal from labour 
market,  lower  potential  for  entrepreneurship)  and  instead  of  returning  to  economically 
productive life they may have to rely on social services support. 

In the performed public consultation, the majority of the respondents were of the view that the 
absence  of  adequate  second  chance  provisions  hampers  economic  and  entrepreneurial 
activities  and  that  therefore  a  full  discharge  of  debts,  possibly  subject  to  certain  conditions, 
should be offered to both entrepreneurs and consumers provided that they are 'honest' debtors. 
Many stakeholders’ organisations, including practitioners in the field of restructuring, stressed 
the  increasing  number  of  sole  entrepreneurs  and  the  difficulties  of  distinguishing  between 
debts arising from professional  and private life; they were  of the view  that  consolidation of 
the procedures is appropriate for an effective discharge. Businesses and entrepreneurs stressed 
that  a  second  chance  approach  would  increase  trade,  strengthen  the  real  economy  and  be  a 
driver  for  growth,  since  it  would  encourage  entrepreneurship  and  stimulate  consumer 
spending. However, they supported adequate safeguards in order to prevent moral hazard. The 
banking  sector said that a  responsible entrepreneurship model should  be promoted in a way 
that  a  full  discharge  of  debt  is  given  to  honest  entrepreneurs  only  after  the  repayment  of 
certain  amount  of  debt.    They  were  even  more  critical  of  consumer  insolvency,  saying  that 
this policy area should not be pursued at this moment in time. 

D. General effectiveness of procedures 

A  modernised  insolvency  framework  could  not  achieve  the  objectives  set  if  the  quality  and 
efficiency  of  actors  involved  is  not  improved.  This  conclusion  came  up  consistently  in  the 
public consultation, during the expert group discussions and the dedicated meetings with the 
stakeholders,  academics  and  practitioners.  This  no  doubt  translates  into  excessive  length  of 
procedures in some Member States and/or high costs of procedures. Although an ideal length 
of insolvency procedures has not yet been established,  investors are reluctant to invest where 
procedures  risk  taking  too  long.  In  the  EU,  there  are  10  Member  States  where  the  average 
time to resolve insolvency is more than two years79 (in 8 of these MS the average length is 3 
years or more). 

The effectiveness of all procedures is dependent on the speed with which the courts can take 
decision,  on  the  quality  of  the  assistance  or  supervision  performed  by  insolvency 
practitioners  and  by  the  level  of  digitalisation  of  procedures.  These  aspects  are  relevant 
across all insolvency spectrum, be it preventive restructuring, liquidation of second chance, a 
view which came across consistently during the consultations.  

Specialised  insolvency  practitioners  and  judges  can  contribute  greatly  towards  reducing  the 
length  of  procedures  and  bring  other  benefits.  In  the  public  consultation  and  the  ‘Sounding 
Board’ meetings, businesses, financial sector, insolvency practitioners and academics stressed 
that enhancing the efficiency of insolvency practitioners as well as encouraging specialisation 
of judges is of key importance in order to increase confidence in the operation of the system 
and improve the efficiency of the procedures.  

79  

2016 
11, 
justice/files/justice_scoreboard_2016_en.pdf.  

Scoreboard, 

Justice 

p. 

available 

at 

http://ec.europa.eu/justice/effective-

27 

 
 
 
 
 
 
                                                            
E. Additional drivers  

One additional important indirect driver is the lack of special arrangements for restructuring 
SMEs.  SMEs  often  do  not  have  the  resources  to  undergo  an  early  health  check  by  a 
professional and therefore the number of early restructurings in this sector is relatively small. 
As  a  result,  SMEs  are  disproportionately  driven  to  liquidation  rather  than  restructuring. 
Liquidation of SMEs can be value destructive in a disproportionate manner since a majority 
of countries do not have a simplified procedure for SMEs; a simplified liquidation procedure 
could  speed  up  the  process  and  lower  the  costs of  liquidation,  resulting  in  higher returns  to 
creditors and a speedier second chance for directors or entrepreneurs.80 Means to encourage 
SMEs  to  address  their  financial  difficulties  early  include:  early  warning  tools,  including 
specialised  low-cost  advice;  templates  for  restructuring  plans;  hybrid  procedures  or  out-of-
court work-outs with creditors.  

Special  small  business  rescue  procedures  do  not  exist  in  many  Member  States,  including 
countries  with  mature,  sophisticated  economies  such  as  Germany,  Austria,  Netherlands  and 
the  Scandinavian  countries  (Denmark,  Sweden,  Finland  the  comparator,  Norway)81. 
Therefore, the creation of an EU-wide fast track procedure for SMEs would not seem in line 
with  the  approaches  taken  in  most  Member  States.  Instead,  SMEs  problems  could  be 
addressed throughout the whole framework focussing on specific points where access can be 
improved and made less costly and where SMEs can be encouraged to seek early advice on 
how to address their financial difficulties. 

2.3.2. Problems 

The differences and inefficiencies in national laws cause the following key problems: 

 

 

 

Lost opportunities and excessive costs generated by barriers to cross-border investment 
(Problem 1), 

Foregone benefits and additional costs for creditors and debtors related to liquidations 
of viable companies (Problem 2), 

Lost  opportunities  and  additional  costs  for  natural  persons  (entrepreneurs  and 
consumers)  related  to  inefficiencies  in  insolvency  frameworks  as  regards  a  fresh  start 
(Problem 3). 

Problem 1: Lost opportunities and excessive costs generated by barriers to cross-border 
investment 

The suboptimal cross-border investment in the EU is caused by many factors. Inefficiencies in 
insolvency frameworks are an important element which has an influence on the level of cross-
border investment82. Cross-border investment is hampered in the following ways: 

(i)   difficulty  to  assess  cross-border  investment  risks  due  to  divergences  in  insolvency 
frameworks  (and  uncertainties  as  regards  the  outcomes),  including  the  rules  on 

80  

81  
82  

Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 281 
and foll. 
Ibid, p. 211.  
Economic Analysis accompanying the Action Plan on Building a Capital Markets Union, SWD(2015) 
183 final, 30 September 2015, p. 72 and. foll. 

28 

 
 
                                                            
restructuring and second chance. This means that at least to a certain extent cross-border 
investment is not taking place, since it is too difficult or it is too costly to quantify the 
risk;    

(ii)   significant  differences  in recovery rates  cross-border  due to divergences in  insolvency 
frameworks, including the rules on restructuring and second chance. This means that at 
least to a certain extent cross-border investment is not taking place, since the recovery 
rates for foreign investors are unsatisfactory.  

When  taking  a  decision  about  funding  a  project  in  another  country  of  the  EU,  a  prudent 
creditor or investor will seek information about the prospect of recovering his dues in case of 
failure.  In  order  to  evaluate  the  risk  of  any  investment,  the  investor  needs  to  be  able  to 
quantify  both  the  expected  risk  of  failure  (probability  of  default)  and  the  expected  loss 
incurred  if  that  failure  happens  (loss  given  default).  In  its  risk  assessment  the  prudent 
investor/creditor  will  look  at  the  insolvency  framework  as  a  whole  (prevention,  recovery  of 
value  and  discharge).  Not  only  will  he  analyse  major  parameters  of  the  formal  insolvency 
proceedings (security of claims, distribution of value and time to resolution), but he will also 
want  to  know  whether  a  debtor  can  restructure  a  business  and  whether  it  can  do  it  with  or 
without  the  agreement  of  its  creditors.  In  order  to  make  a  cross-border  investment,  it  is 
essential  to  know  whether  restructuring  can  be  "imposed"  on  some  classes  of  stakeholders. 
Also,  it  is  critical  to  know  whether  an  entrepreneur  could  be  discharged  of  debts  (at  which 
moment and after which period)83.  

Large  asymmetries  between  Member  States  in  the  way  restructuring  proceedings  and  debt 
discharge are regulated generate additional costs for cross-border  investors compared to those 
who invest in the EU only in one Member State84. The costs increase exponentially in case the 
investor would like to invest in more than one Member State. In particular, such costs could 
be  prohibitive  if  the  investment  were  to  take  place  simultaneously  in  a  number  of  Member 
States  or  would  be  done  by  an  SME  which  does  not  have  in-house  legal  department  and 
would need to pay for the costs of foreign legal advice85.  

Moreover,  the  investor  in  the  EU  may  be  obliged  to  pay  not  only  for  the  assessment  of 
multiple  differing  restructuring  frameworks  of  individual  Member  States,  but  also  for  the 
assessment  of  the  costs  resulting  from  the  coordination  of  the  multiple  applicable  national 
restructuring frameworks. The more the insolvency frameworks, including restructuring and 
second  chance,  will  differ,  the  more  expensive  the  assessment  of  the  coordination  between 
their concurrent applications will be. Ultimately, this leads to additional costs of creation of 
corporate  structures  which  will  not  be  designed  economically  in  the  most  efficient  way  but 
with  the  aim  of  circumventing  the  concurrent  application  of  multiple  insolvency  and 
restructuring  frameworks  or  at  least  those  with  low  recovery  rates  or  those  under  which 
restructuring  is  difficult.  Certain  transactions  in  EU  Member  States  are  under  certain 

83  

84  
85  

A  good  example  of  taking  all  the  elements  into  account  are  the  U.S.  Investment  Climate  Statements 
(published  very  year)  which  provide  'country-specific  information  and  assessments  prepared  by  U.S. 
embassies and diplomatic missions abroad on investment laws and practices in those countries [...].The 
statements cover a breadth of topics that can help U.S. investors make informed investment decisions'. 
They  include  information  on  all  elements  of  insolvency  frameworks  (i.e.  on  formal  insolvency 
proceedings, second chance for individuals, preventive restructuring). 
OECD, 2014 Economic Review for the European Union, p. 50. 
Unlocking  Funding  for  European  Investment  and  Growth,  AFME,  2013,  www.afme.eu/unlocking-
funding-for-European-investment-and-growth, p. 100. 

29 

 
 
                                                            
circumstances  structured  using complex  structures  with  special  purpose  vehicles86  to  reduce 
the potential impact of insolvency if it occurs87. 

According  to  the  World  Bank,  the  highest  recovery  rates  for  creditors  are  recorded  in 
economies where restructuring is the most common insolvency proceeding88. For instance, 45 
percent of OECD economies use restructuring as the most common way to save viable firms 
and  have  an  average  recovery  rate  of  83  cents  on  the  dollar,  as  opposed  to  57  cents  on  the 
dollar  in  liquidation89.  This  difference  contributes  to  the  creation  of  additional  costs  in  the 
assessment of the risk under the foreign system. 

Chart 4: Higher recovery rates are more likely in economies where restructuring is the 
most common insolvency proceeding,  

Source: World Bank 

A  recent  report  shows  that  balanced  and  effective  insolvency  frameworks  have  a  beneficial 
effect on the costs of borrowing via changes to credit ratings. It also proves that recovery rates 
remain  a  significant  factor  affecting  the  cost  of  borrowing,  even  when  other  institutional 
variables, beyond insolvency-related factors, are shown to have explanatory power90.  

In the performed public consultation, stakeholders in banking and investment acknowledged 
that differences in insolvency frameworks between Member States can become a deterrent to 
cross-border corporate investment, since the difficulties of establishing the value of distressed 
debt, may increase the cost at which investors are willing to invest or even it could discourage 
investors from establishing their business activities in  other Member States.  Moreover, they 
voiced that creditors who decide to inject liquidity in a distressed company should be given a 
sufficient degree of predictability on the recovery of their claims. They agreed that a system 
that  enables  the  rescue  of  viable  companies,  outside  or  within  insolvency  proceedings,  is 
essential to mitigate the problem of non-performing loans. Moreover, insolvency practitioners 
supported  that  divergence  and  inefficiency  in  insolvency  frameworks  can  create  barriers  to 
corporate  lending  and  investment,  including  cross-border  investment.  They  stated  that 

86  
87  

88 

89  

90  

Registered in Luxembourg, for instance. 
Feedback  Statement  on  the  Green  Paper  "Building  a  Capital  Markets  Union"  (Question  29), 
SWD(2015) 184 final, 30.9.2015, p. 59 and foll. 
Resolving 
 http://www.doingbusiness.org/reports/globalreports/~/media/GIAWB/Doing%20Business/Documents/
Annual-Reports/English/DB14-Chapters/DB14-Resolving-insolvency.pdf 
Doing  Business  Project  Encourages  Economies  to  Reform  Insolvency  Frameworks,  World  Bank, 
January 2013. 
Potential economic gains from reforming insolvency law in Europe, AFME, Frontier economics, Weil, 
February 2016, p. 40. 

Insolvency, 

World 

Bank, 

30 

 
 
 
                                                            
uncertainty  or  difficulties  over  realising  value  from  distressed  debt  may  be  particularly 
pronounced in the case of cross-border lending and investments and this may increase the cost 
at which investors and creditors are willing to invest in or lend to cross-border borrowers. 

Also in the public consultation on the Green Paper on the Action Plan of the Capital Markets 
Union  large number of market participants and investors noted that the diversity of regimes 
across  the  EU  negatively  impacts  confidence  in  cross-border  investment.  Central  banks  and 
regulators of capital markets supported a comprehensive reform of insolvency frameworks to 
remove obstacles to cross-border investment in the EU posed by differing national insolvency 
regimes. Also from the point of view of commercial banks, pension funds and other financial 
intermediaries, in this consultation the widespread divergence  in  Member States' insolvency 
regimes  constitute  a  key  deterrent  to  cross-border  investment.  Banks  further  argued  that  a 
targeted harmonisation of certain aspects of the differing national insolvency regimes would 
be  a  positive  contribution  to  the  Capital  Markets  Union.  Member  State  governments  and 
Finance Ministries adopted a more cautious approach suggesting the performance of a step-
by-step approximation.  Likewise, business associations showed more divided  positions both 
on the impact of differing national insolvency regimes and on the form of possible actions to 
tackle those differences. Representatives of the SMEs would appreciate improvements in the 
efficiency and effectiveness of insolvency practitioners and the courts. Labour unions called 
for a wide ranging harmonisation of national insolvency frameworks. Other respondents, such 
as  research  institutes,  considered  that  a  better  insolvency  framework  allows  for  a  better  re-
allocation of capital and more growth, and that a targeted harmonisation of certain aspects of 
national insolvency frameworks would bring an added value in a Capital Markets Union91. 

Problem 2: Foregone benefits and additional costs for creditors and debtors related to 
liquidations of viable companies 

A  successful  restructuring  of  a  financially  distressed,  but  economically  viable  enterprise  is 
conditioned by  a  number  of  pre-requirements,  in  particular the  resolution  of  the  problem  of 
the “race to grab” debtors' assets92 (the need for a stay of enforcement actions at least for the 
period  of  preparation  of  the  restructuring  plan)  and  the  “hold-out”  problem93  of  individual 
creditors  (the  need  for  a  qualified  majority,  not  unanimity,  for  the  adoption  of  the 
restructuring  plan)  and  some  additional  requirements94.  Moreover,  cross-border  groups  of 

91  
92  

93  

94  

SWD(2015) 184 final, Answers to Question 29, p. 59 - 60. 
Usually,  creditors  cannot  coordinate  themselves  and,  therefore,  often  collect  their  debts  individually, 
seizing the debtor's assets as soon as financial distress becomes apparent (race to grab). This “race to 
grab” leads to inefficient outcomes for the creditors as a group, especially if the going concern value of 
debtors' assets is higher. (Mucciarelli, F. M., Optimal allocation of law-making power over bankruptcy 
law  in  “federal”  and  “quasi-federal”  legal  systems:  is  there  a  case  for  harmonizing  or  unifying 
bankruptcy  law  in  the  E.U.?  September  2011,  LAW  &  ECONOMICS  RESEARCH  PAPER  SERIES 
WORKING PAPER NO.11-28, p. 9). 
Individual  creditors  may  reject  restructuring  plans,  which  would  keep  the  going  concern  value  of  the 
firm and would be value-enhancing for the creditors as group, simply because they hope to be paid in 
full if the plan succeeds and all other creditors adhered to it (Mucciarelli, F. M., Optimal allocation of 
law-making power over bankruptcy law in “federal” and “quasi-federal” legal systems: is there a case 
for  harmonizing  or  unifying  bankruptcy  law  in  the  E.U.?  September  2011,  LAW  &  ECONOMICS 
RESEARCH PAPER SERIES WORKING PAPER NO.11-28, p. 10). 
In  addition,  in  a  number  of  Member  States  successful  restructurings  face  the  problem  of  overly 
restrictive  conditions  preventing  an  early  entry  of  distressed  companies  to  restructuring  proceedings 
which  leads  to  the  relocation  of  companies  to  Member  States  where  access  to  restructuring  is  easier, 
unavailability of early warning mechanisms allowing a timely identification of companies which could 
be candidates for restructuring, lack of assessment tools enabling to distinguish viable businesses which 
should  be  rescued  and  non-viable  businesses  which  should  be  liquidated,  lack  of  protection  of  new 

31 

 
 
                                                            
companies  have  to  deal with  additional  coordination  costs of  multiple national restructuring 
proceedings.  

In  the  performed  public  consultation,  business  sector  and  practitioners  voiced  that 
unnecessary liquidation of viable businesses can increase costs for all stakeholders and result 
in a loss of productive capacity. 

The  absence  of  an  easily  accessible  and  well-functioning  restructuring  framework  generates 
three  types  of  costs:  relocation  costs,  coordination  costs  and  lost  benefits  from  financially 
distressed  companies  which  due  to  the  difficult  access  or  low-quality  of  restructuring 
frameworks have to be liquidated instead of being rescued. 

a) 

Relocation costs 

Relocation  costs  represent  costs  for  companies  that  could  not  use  a  good  restructuring 
framework in a Member State where they were located and were obliged to relocate to other 
Member States for the purpose of restructuring and avoiding insolvency. Relocation costs also 
include the costs for creditors to inform themselves about the laws of the "new" Member State 
(the one to which the distressed company moved). 

Great discrepancies between the restructuring regimes in Member States create incentives for 
relocation.  Relocation  triggered  by  differences  in  restructuring  regimes  might  lead  to  the 
application  of  a  different  insolvency  regime  than  originally  expected  by  creditors.  Debtors 
who want to free themselves of long-standing re-payment obligations at home gain from re-
locating to  another Member State with  less  stigmatising regimes.  This  may adversely affect 
minority  creditors  even  though  the  restructuring  itself  could  be  beneficial  to  the  body  of 
creditors  and  the  company  as  a  whole.  At  the  same  time,  creditors  at  home  risk  to  be 
adversely affected if debtors relocate too soon, particularly if they are taken by surprise and 
have  to  incur  legal  and  administrative  expenses  trying  to  enforce  their  claim  in  another 
Member State.  

In  the  case  of  SMEs,  relocation  is  usually  not  an  option  because  of  the  anticipated  legal 
complexity.  Luxembourg  has  been  mentioned  as  one  of  the  countries  where  relocation  to 
other European Member States happens more frequently. Consulted stakeholders stated that it 
is  quite  common  among  Luxemburgish  companies  to  move  to  the  UK  due  to  its  more 
favourable  pre-pack  insolvency  regime  (better  adapted  procedures  and  higher  chances  of 
business survival), under which companies can be restructured. Such relocation is ‘common’ 
individual 
merely  among 
entrepreneurs95. Total relocation costs for both debtors and creditors amount to an estimated € 
9 million per year in Europe. Of course, this figure is a rough estimate which does not account 
for  all  types  of  cases  (e.g.  a  large  multinational  bank  declaring  insolvency  abroad  after 
relocation)96. 

large  companies,  being  way 

too  costly  for  SMEs  and 

financing provided to distressed enterprises which will ensure successful restructuring and high costs of 
restructuring resulting from the involvement of courts or insolvency administrators. 
Impact assessment study on policy options for a new initiative on minimum standards in insolvency and 
restructuring law, Final Report, VVA/ JIIP/ DTI/ Grimaldi consortium, November 2016.  
Idem, p. 47. 

95  

96  

32 

 
 
 
                                                                                                                                                                                          
Table 10: Estimation of relocation costs incurred by debtors in the EU 

Number of relocating 
businesses in the EU 
0.5% x Total number of formal 
insolvencies  
(=559) 

Relocation costs/business 

Travel  Moving 

Renting 

Total relocation 
costs for debtors 

€100 

€250 

€8742 

€5,082,428 

Source: Calculations of VVA/ JIIP/ DTI/ Grimaldi consortium based on respondents’ answers97 

The forum shopping98 phenomenon has been used in the EU in situations where debtors and 
creditors have sought to utilise more friendly non-insolvency based restructuring procedures 
existing  in  other  Member  States  than  insolvency  based  restructuring  schemes  available  in 
Member States where they had they their centre of main interest (COMI). In particular, there 
has  been  a  recent  trend  for  non-English  companies  to  restructure  under  the  English  law 
scheme  of  arrangement99.  In  some  circumstances,  the  ability  to  institute  proceedings  in  a 
different and more favourable jurisdiction may be helpful to a company in distress, but this is 
not available to all companies (particularly medium or smaller companies), and may often be 
more costly and inefficient than proceedings in the debtor’s own jurisdiction100. The costs for 
the  creditor  may  discourage  enforcing  of  claims  and  lead  to  small  or  inexistent  recovery. 
Additional costs will arise for creditors after the relocation, i.e. costs of legal advice and the 
costs related to a shift in centre of main interests (COMI)101; this may be a barrier for creditors 
to properly manage their interests in recovering the debt, especially when it is relatively low. 

Some high profile examples of relocation have been noted in the impact assessment on the 
revision of the existing Insolvency Regulation102. In a recent series of cases the three German 
companies  Deutsche  Nickel,  Schefenacker  and  Hans  Brochier  took  steps  in  order  to  be 
able to make use of the English law on schemes of arrangement.  The costs associated with 
these  moves  can  be  very  high.  For  example,  “Schefenacker,  with  debts  of  €400m,  paid  its 
advisers  €40m”  in  order  to  “move  to  the  UK  in  2007  to  speed  up  a  complicated 
restructuring.”103 Another high-profile case involves Hellas Telecommunications, which led 
to a reported loss of € 1.3 billion for its unsecured creditors104. 

However,  as  these  examples  only  cover  large  companies,  they  may  not  be  representative  of 
the total amount of relocations, nor of the average economic impact. It seems likely that many 
more relocations happen 'behind the scenes' and involve smaller enterprises105. The fact that a 

97  
98  
99  

100  

101  

102  

103  

104  

105  

Idem, p. 46. 
See Glossary in Annex 5. 
English courts have been willing to approve such schemes of arrangement where sufficient connection 
with the English courts was established. 
Potential economic gains from reforming insolvency law in Europe, AFME, Frontier economics, Weil, 
February 2016, p. 13. 
The  Centre  of  Main  Interests  (COMI):  represents  the  place  where  main  insolvency  proceedings 
commenced under the Insolvency Regulation must be opened. 
Impact  Assessment  accompanying  the  document  Revision  of  Regulation  (EC)  No  1346/2000  on 
insolvency proceedings, SWD(2012) 416 final, 12 December 2012,  
‘European 
http://www.ft.com/cms/s/3/305fa1de-b113-11deb06b-00144feabdc0.html>  (accessed 25/07/2015). 
See for more examples: Laufer, B., An economic analysis of the German bankruptcy code in the context 
of the European reform movement, Paris 2012, p. 33. 
Legal  practitioners  confirm  that  COMI-shifts  are  usually  a  serious  option  for  restructuring  –  in 
instance, 
particular 

bankruptcies’, 

jurisdictions, 

Financial 

London, 

non-UK 

October 

Times, 

2009) 

See, 

for 

in 

5 

33 

 
 
                                                            
debtor opts for another jurisdiction could be related to the court efficiency or certain features 
of  the  chosen  jurisdiction's  preventive  procedure  (e.g.  the  possibility  to  bind  dissenting 
creditors  to  a  restructuring  plan106  which  helps  save  a  business  from  bankruptcy  and 
liquidation)107. 

b) 

Coordination costs 

Coordination  costs  represent  additional  costs  for  groups  of  companies,  which  have 
subsidiaries  in  other  Member  States,  or  lost  benefits  from  an  unrealised  restructuring  of  a 
viable  cross-border  group  which  due  to  the  differences  in  restructuring  rules  of  affected 
Member States had to be liquidated instead. The difference in costs between purely domestic 
and  cross-border  insolvency  proceedings  could  not,  in  most  cases,  be  quantified,  although 
cross-border  insolvency  proceedings  were  acknowledged  as  costlier.  This  increase  was 
assumed  to  be  10%,  based  on  the  results  of  the  consultation  carried  out108.  The  average 
difference  in  length  between  cross-border  and  domestic  proceedings  (as  indicated  by  the 
stakeholders  who  provided  a  quantitative  estimate)  is  55%.  Much  longer  proceedings  for 
cross-border insolvencies than for purely domestic insolvencies is one of the key drivers for 
costlier proceedings for both debtors and creditors109.  

In other words, a financially distressed, but viable group of companies located in one Member 
State  will  have  much  higher  chances  of  being  rescued  than  a  group  in  the  same  situation 
which operates in two or  more Member  States because  the latter  will have  to  overcome the 
differences of  multiple national restructuring  procedures.  In  case  of  a cross-border group  of 
companies  in  financial  distress,  if  in  one  Member  State  restructuring  takes  place  in  formal 
proceedings  and  in  others  in  informal  (or  is  not  available  at  all),  this  may  even  lead  to  a 
collapse  of  the  whole  restructuring.  If  there  is  no  consolidated  proceeding  for  a  group  of 
companies  with  domestic  and  foreign  subsidiaries,  there  is  a  need  to  involve  lawyers, 
administrators  and  trustees  in  all  the  different  countries  where  there  are  subsidiaries110.  In 

106  

107  

108

109  

110  

http://www.thisismoney.co.uk/money/markets/article-2052296/Bankruptcy-tourism-crackdown-shuts-
61-companies.html#ixzz24QOWR1P9  
Webb,  L.,  Butter,  M.:  ‘Insolvency  Proceedings:  Shopping  for  the  best  forum’  (2009)  (available  at: 
www. practicallaw.com). 
Another example of less formalised proceedings are so-called pre-packaged proceedings (abbreviated as 
pre-packs).  In  Europe,  the  practice  of  pre-packs  has  been  largely  confined  to  the  UK,  France,  the 
Netherlands and, to a certain extent, Greece, Ireland and Slovenia. Moreover, pre-packs have tended to 
take  the  form  of  pre-packaged  asset  sales  rather  than  pre-packaged  restructurings.  In  many  other  EU 
countries, pre-packs, while not strictly speaking prohibited, are rarely, if at all, encountered in practice. 
The lesson however, from the experience in the UK and Netherlands, as well as also the US, where the 
practice originated, is that pre-packs are potentially a valuable tool for preserving going concern value 
and  maximising  returns  from  the  debtor’s  estate  (Study  on  a  new  approach  to  business  failure  and 
insolvency, University of Leeds, January 2016, p. 204). 
Insolvency practitioners, public authorities and creditors’ and debtors’ associations consulted as part of 
this  study  provided  different  figures  on  the  difference  between  domestic  proceeding  costs  and  cross-
border proceeding costs. Some assumed domestic and cross-border proceedings to be equally expensive 
for creditors and debtors, while other reported an increase in proceeding costs of between 10 and 50% 
for cross-border proceedings compared with domestic proceedings. One outlying data points indicates a 
10-time increase for cross-border proceedings costs compared with domestic proceeding costs. (Impact 
assessment  study  on  policy  options  for  a  new  initiative  on  minimum  standards  in  insolvency  and 
restructuring law, Final Report, VVA/ JIIP/ DTI/ Grimaldi consortium, November 2016). 
Impact assessment study on policy options for a new initiative on minimum standards in insolvency and 
restructuring law, Final Report, VVA/ JIIP/ DTI/ Grimaldi consortium, November 2016. 
For creditors, coordination costs relate mainly to legal fees for foreign lawyers. Those costs can prove 
extremely  high,  up  to  double  the  costs  that  would  have  been  incurred  under  a  purely  domestic 
proceeding according to one insolvency practitioner in Austria. In practice, the amount of coordination 

34 

 
 
 
                                                                                                                                                                                          
  
particular, higher costs arise when there is a need for coordinating formal procedures in some 
Member States and less formalised procedures in other Member States. These differences in 
restructuring frameworks will make the cross-border restructuring much more expensive than 
a purely national restructuring. Often they will prevent any restructuring from happening, and 
force an otherwise viable group of companies into liquidation. For the reasons listed above, 
no restructuring plan involving the continuation of the business of groups of companies has 
ever  been  accepted  in  more  than  two  jurisdictions111.  Even  when  a  group  of  companies  is 
represented by a mother company and one subsidiary in another Member State (for example 
an SME which has acquired one of its foreign suppliers), a common restructuring plan may be 
hard to be adopted.  

According  to  the  April  2011  report  of  the  Reflection  Group  on  the  Future  of  EU  Company 
Law, the international group of companies has become the prevailing form of European large-
sized  enterprises,  in  which  business  activity  is  typically  organised  and  conducted  through  a 
multinational network of subsidiaries. About 20% of large enterprises (ca. 8,500) have foreign 
subsidiaries or joint ventures112. There are more than one million SMEs in Europe which have 
subsidiaries or joint ventures abroad113.  

Where the rules for the content and adoption of an early restructuring plan are complex and 
cumbersome and the conditions vary from Member States to Member States, the restructuring 
of the whole group of companies in financial distress is hardly an option for the management 
board. Although ad hoc solutions have been found in practice (mainly through the relocation 
of the firm to a Member States with an efficient preventive regimes, such as UK), where the 
legal  uncertainty  and  costs  for  all  parties  involved  is  an  obstacle  to  the  functioning  of  the 
Single Market. 

In the insolvency of the PIN Group, a mail delivery service provider114 the Luxembourg 
holding  company  moved  its  COMI  to  Germany  where  the  vast  majority  of  its  subsidiaries 
were located, in order to enable a proper restructuring process for all members of the group 
in the same jurisdiction. Despite the vicinity of the insolvency petition the court held that the 
COMI shift was not abusive as it merely tried to coordinate the insolvency proceedings over 
the whole holding group. Therefore, it was regarded as being in the interest of the creditors 
as  it  tried  to  maximize  the  debtor’s  net  assets.  The  restructuring  of  the  group  was 
successfully carried out115. 

The additional coordination costs of cross-border restructuring, where such restructuring will 
not  be  impossible,  can  lead  ultimately  to  extra  costs  for  debtor.  Creditors  are  likely  to 

costs depends on whether it is primary and secondary proceedings. An interviewee from a Belgian bank 
indicated  that  coordination  costs  account  for  about  10%  of  the  total  proceeding  costs.  Coordination 
costs are mainly driven by the need to hire expertise and legal representation abroad and it can therefore 
be  assumed  that  coordination  costs  are  proportionate  to  the  number  of  insolvency  regimes  involved, 
with a 10% increase for every additional jurisdiction (Impact assessment study on policy options for a 
new  initiative  on  minimum  standards  in  insolvency  and  restructuring  law,  Final  Report,  VVA/  JIIP/ 
DTI/ Grimaldi consortium, November 2016). 
Robert van Galen, Stephan Madaus, Corporate Rescue, 2013, p. 52. 
2007 Eurobarometer survey. 
Internationalisation of European SMEs, EIM, report for DG Enterprise and Industry. 
Local District Court Cologne, Resolution of February 19, 2008 (73 IE 1/08), [2008] Zeitschrift für  
Wirtschaftsrecht 423 
Schlaefer, G., ‘The International Insolvency Institute: International Insolvency Studies’ (2010) Forum 
Shopping  under 
at: 
the  Regime  of 
http://www.iiiglobal.org/images/pdfs/georg_schlaefer.pdf) 24 

Insolvency  Regulation 

the  European 

(available 

111  
112  
113  
114  

35 

 
 
 
                                                                                                                                                                                          
compensate  the  legal  uncertainty  due  to  the  differing  restructuring  rules  by  raising  their 
interest rates  on loans, mortgages and other forms of credit or  on reducing  the amount  they 
lend.  

c) 

Additional costs and lost benefits from unsuccessful rescues of viable companies 

Viable companies in financial distress should have the chance to be rescued instead of being 
directly  liquidated116.  If  this  were  the  case,  a  number  of  financially  distressed,  but  viable 
companies could be saved and a number of other companies in the EU internal market would 
not become insolvent due to liquidation of other companies (knock-on effect). This could be 
achieved if all Member States had the necessary elements of a restructuring framework with 
an  optimal  economic  potential.  This  could  therefore  lead  to  an  efficiency  gain  in  each 
Member State. 

What is the foregone benefit of too formalised procedures? An example from the UK 
1) Hypothetically, if the UK restructuring framework did not include the less formal tools such as the "Company 
Voluntary Arrangement" (CVA), firms would need to use formal procedures such as "Administration" in order 
to  restructure.  Assuming  that  27%  of  firms  use  the  CVA  procedure  successfully,  that  all  firms  using  it  are 
small117  and  that  839  firms  were  using  it  in  2012118  it  allows  for  the  conclusion  that  if  they  used  instead  the 
Administration procedure (assuming that they could afford it), this would create for them additional cost of up 
to 62.2 million119.  

2)  The  average  return  for  unsecured  creditors  in  the  administration  procedure  is  4%120.  Average  return  for 
unsecured creditors in rescue cases under CVA is 37% 121. The CVA rescue rate is 27%, so the number of firms 
rescued in 2012 would be 226122. Assuming the average unsecured debt of £506,781, if those firms were dealt 
with  in  the  administration  procedure  the  return  would  be  20,000  (compared  with  187  500  under  CVA). 
Consequently, the foregone value would amount to £167,500 per case, or £37.8 m in total.  

In conclusion, the (hypothetical) financial cost of no alternative to the formal restructuring procedure in the UK 
would be around £37.8 – 62.2 m. In reality this cost would be significantly higher if the cases of restructuring via 
another  UK’s  less  formal  procedure  (Schemes  of  Arrangements)  were  included123.  Scaling  up  the  quantifiable 
part of the cost to the group of countries which have only formal restructuring procedures (BE, DE, FR, FI, SE, 
LV) the total cost of not having a hybrid alternative could be (with all due caveats) estimated to be in the order 
of magnitude of €135-223 m124. 

116  

117  

118  
119  
120  
121  
122  

123  

124  

Upgrading  the  Single  Market:  more  opportunities  for  people  and  business,  European  Commission, 
COM (2015) 550 final, p. 6. 
Preliminary  Report  to  the  Insolvency  Service  into  Outcomes  in  Company  Voluntary  Arrangements, 
prof. A.Walters, dr S.Frisby, Outcomes from the sample of CVAs commencing in 2006 
http://www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/research/corpdocs/CVA-
Report.pdf  
Data provided by The Insolvency Service, UK 
(27%*839*£300000) – (27%*839 * £25000)= £62.2 m 
Companies House data, based on 500 records 
This concerns rescue cases. In wind down cases the average recovery is 17%. 
The CVA seems to be also used as informal wind-down device with the average return of 17% in wind 
down cases. This benefit was not included. 
According to anecdotal evidence, the schemes of arrangement are becoming increasingly popular, see 
http://www.thelawyer.com/the-rise-and-rise-of-schemes-of-
for 
arrangement/124768.article  
14.7% (the share of UK in EU GDP) was scaled up to 44% (the share of Member States from Group 3 
in EU GDP) (44%). Data on GDP shares is for 2012 as reported by the IMF. 

example 

article 

an 

at 

36 

 
 
                                                            
Table  11:  The  costs  of  a  formal  rescue  procedure  (administration)  compared  to  the  less 
formal procedure (company voluntary arrangement or CVA) in the UK125. 

Small company 
Medium company 
Large company 

per Administration (formal 
procedure) (£ 000’s) 
5 – 300 
45 – 500 
2000 – 4000 

per CVA (less formal 
procedure) (£ 000’s) 
5 - 25 
10 - 200 
500 - 1500 

Assessment of additional costs due to cross-border dimension  

Table 12: Total costs at EU level for domestic and cross-border insolvency proceedings: 
SMEs (incl. entrepreneurs) 

Domestic proceedings 

Cross-border proceedings 

Number of formal 
insolvencies/year 

Total proceeding 
costs (€/year) 

Number of formal 
insolvencies/year 

Total proceeding 
costs (€/year) 

76,327 

319,436,885 

145,703 

609,783,071 

2,907 

6,071 

24,080,618 

50,289,651 

277,553 

1,161,589,814 

10,767 

89,190,235 

211,628 

885,686,443 

8,419 

69,740,187 

UK+CZ+LU 
+FR+BE+LV 
EU28 
(method 1) 
EU28 
(method 2) 
EU28 
(middle 
estimate) 

Source: Calculations of VVA/ JIIP/  DTI/ Grimaldi consortium based on respondents’ answers126 

Table 13: Total costs at EU level for domestic and cross-border insolvency proceedings: 
large companies 

Domestic proceedings 

Cross-border proceedings 

Number of formal 
insolvencies/year 

Total proceeding 
costs (€/year) 

Number of formal 
insolvencies/year 

Total proceeding 
costs (€/year) 

UK+CZ+LU 
+FR+BE+LV 
EU28 
(method 1) 
EU28 
(method 2) 
EU28 
(middle 
estimate) 

95 

291 

322 

307 

2,931,011 

8,969,861 

9,934,585 

9,471,793 

5 

15 

17 

16 

224,617 

687,402 

763,698 

718,774 

Source: Calculations of VVA/ JIIP/  DTI/ Grimaldi consortium based on respondents’ answers127 

125  

126  

insolvency 

Impact Assessment on encouraging company rescue - consultation, UK (Informal figures sourced from 
http://www.detini.gov.uk/encouraging_company_rescue_-
the 
_impact_assessment.pdf  
Impact assessment study on policy options for a new initiative on minimum standards in insolvency and 
restructuring law, Final Report, VVA/ JIIP/ DTI/Grimaldi consortium, November 2016. 

profession), 

37 

 
 
 
 
 
 
 
 
 
 
                                                            
First,  it  is  important  to  note  that  these  figures  do  not  represent  the  additional  costs  of  the 
cross-border  dimension  of  insolvency  proceedings,  but  the  total  costs  incurred  by  all  cross-
border  insolvency  proceedings  in  the  EU.    Second,  while  the  two  methods  used  yield  very 
different results (since the total number of formal insolvency proceedings per year in the EU 
has been estimated as 152,000 with the first method and 289,000 with the second method) the 
reality is believed ‘reality’ to lie in between, around 220,000 total insolvency proceedings per 
year  in  the  EU,  close  to  the  European  Commission  figure  of  200,000  firms  going  bankrupt 
each year in the EU. With 220,000 insolvency proceedings every year, total proceedings costs 
in the EU would amount to €895 million for domestic proceedings, and €70 million for cross-
border  proceedings128.  The  additional  cost  of  the  cross-border  dimension  of  insolvency 
procedures is estimated as follows: 

Table 14: Difference between domestic and cross-border insolvency proceedings costs - 
SMEs 

Domestic 
proceedings 
Average proceeding 
costs (€/insolvency) 

Cross-border 
proceedings 
Average proceeding 
costs (€/insolvency) 

Difference (cross-border vs. Domestic) 
(€/insolvency) 

EU28 

4,185 

8,284 

+4,099 
An addition of 98% compared with purely 
domestic proceedings 

Source: own calculations based on respondents’ answers129 

Table 15: Difference between domestic and cross-border insolvency proceedings costs - 
Large companies 

Domestic 
proceedings 
Average proceeding 
costs (€/insolvency) 

Cross-border 
proceedings 
Average proceeding 
costs (€/insolvency) 

EU28 

30,853 

44,923 

Difference (cross-border vs. domestic) 
(€/insolvency) 

+14,070  
An addition of 45% compared with 
domestic proceedings 

Source: Calculations of VVA/ JIIP/  DTI/ Grimaldi consortium based on respondents’ answers130 

127  
128  

129  

130  

Ibid. 
Proceedings  cost  have  been  estimated  at  national  (for  a  sample  of  6  Member  States  )  and  EU  level  . 
Two  different  methods  were  used  to  compute  total  proceedings  costs  at  EU  level:  (i)  Method  1  – 
Method  1  relies  on  the  assumption  that  the  number  of  formal  insolvencies  (both  SMEs  and  large 
companies) per year in the EU is equal to 0.7%  of all active businesses. In addition, formal domestic 
insolvency proceedings of SMEs (resp. large companies) are estimated to account for 96%  (resp. 95%) 
of  all  formal  insolvency  proceedings.  The  number  of  active  SMEs  (incl.  entrepreneurs)  and  large 
companies in the EU used in these calculations is 21,681,933 and 43,719, respectively . (ii) Method 2 - 
Method  2  relies  on  the  assumption  that  the  number  of  formal  insolvencies  is  proportionate  to  the 
number of businesses, with UK, CZ, LU, FR, BE and LU altogether reporting 76,327 SME insolvency 
proceedings (resp. 95 large company insolvency proceedings) and accounting for around 27.5% (resp. 
29.5%) of all SMEs (resp. large companies) active in the EU. 
Impact assessment study on policy options for a new initiative on minimum standards in insolvency and 
restructuring law, Final Report, VVA/ JIIP/ DTI/Grimaldi consortium, November 2016. 
Ibid. 

38 

 
 
 
 
 
 
 
 
 
 
 
 
                                                                                                                                                                                          
If  viable  companies  become  insolvent,  rather  than  restructured  at  an  early  stage,  this  has 
consequences for the whole chain of trading partners of these companies (knock-on effect). In 
the performed consultation, organisations of small business stressed that in some cases, since, 
start-ups  have  a  smaller  client  -  base  as  well  as  a  smaller  financial  buffer  than  “older” 
companies,  the  insolvency  of  a  client  might  have  a  larger  impact  on  start-ups.  One  in  six 
corporate insolvencies are the result of knock on effects from other insolvencies. Moreover, 
the 2016 Eurobarometer on insolvency showed that 17% of companies (SMEs) have foreign 
debtors.  For  those  who  have  foreign  debtors  for  many  (50%)  foreign  debt  constitutes  more 
than  6%  of  turnover.  It  is  higher  for  bigger  and  also  for  newer  companies.  It  is  true  that 
companies less frequently enforce foreign claims, but it may be the effect of giving up certain 
foreign claims since they are more difficult and more costly to enforce131.   

Government  intervention  is  necessary  to  mitigate  this  network  externality  from  business 
failures and reduce the impacts on employment and productivity. European companies have 
large  networks  of  cooperation:  on  average,  export  constitutes  17,6%  of  supply  provided  by 
those  companies.  Thus  there  is  a  substantial  risk  that  insolvency  of  a  client  will  impact  its 
supplier. Large companies, although only representing 0.2% of European companies, provide 
30% of jobs in the EU and produce 41% of gross added value. According to the April 2011 
report of the Reflection Group on the Future of EU Company Law, the international group of 
companies  has  become  the  prevailing  form  of  European  large-sized  enterprises,  in  which 
business  activity  is  typically  organised  and  conducted  through  a  multinational  network  of 
subsidiaries.  About  20%  of  large  enterprises  (ca.  8,500)  have  foreign  subsidiaries  or  joint 
ventures132. There are also more than one million SMEs in Europe which have subsidiaries or 
joint ventures abroad133. 

Problem 3:  Lost opportunities and additional costs for natural persons (entrepreneurs 
and  consumers)  related  to  inefficiencies  in  insolvency  frameworks  as  regards  a  fresh 
start 

Failure and over-indebtedness are situations that affect natural persons, whether entrepreneurs 
or  consumers.  Business failure is  an unavoidable risk inherent to  any enterprises, especially 
young  ones.  In  Europe,  every  year,  more  than  200,000  companies  go  bankrupt134.  Since the 
financial  crisis,  due  to  lowering  incomes  and  increasing  unemployment,  over-indebtedness 
has impacted more than 10% of European citizens (recent data show that 11.4% of consumers 
are permanently in arrears135).  

Different  discharge  regimes  may  lead  natural  persons  to  relocate  to  more  debtor-friendly 
jurisdictions. This involves costs for the debtor who needs to seek information, legal advice 
and  relocate  their  centre  of  main  interest136.  Likewise,  creditors  would  also  bear  costs 
following the relocation as they would have to adjust to the change of their debtors or even 
have  to  give  up  the  recovery  of  these  debts.  For  smaller  value  loans,  which  are  typically 

131  
132  
133  
134   

135  

136  

Flash Eurobarometer, Report Insolvency, no. 442, 2016. 
2007 Eurobarometer survey. 
Internationalisation of European SMEs, EIM, report for DG Enterprise and Industry. 
accompanying  Commission 
Commission  Staff  Working  Document, 
Recommendation  on  a  New  Approach  to  Business  Failure  and  Insolvency,  SWD(2014)  61  final, 
12.3.2014, p. 2. 
Study 
households, 
http://ec.europa.eu/consumers/financial_services/reference_studies_documents/docs/part_1_synthesis_o
f_findings_en.pdf 
Not  everyone  could  benefit  from  this  possibility,  in  particular,  vulnerable  people  and  younger 
businesses would be excluded.  

Impact  Assessment 

over-indebtedness 

European 

on 

of 

39 

 
 
                                                            
granted to natural persons, the cost of recovery may discourage the enforcement of claims or 
lead to very low recovery. This would impact in particular creditors that have many debtors 
with smaller value loans. 

Additional costs for natural persons may stem from the stigma of insolvency and the related 
"reputational damage" of insolvency. Entrepreneurs are likely to find it more difficult, hence 
more  costly  to  find  new  trading  partners  for  their  new  business  or  simply  to  continue  the 
existing  (restructured)  business.  For  a  natural  person,  finding  a  new  job,  for  instance,  after 
winding  up  a  business, or  new  apartment  to  rent  will  also  tend  to  be  more  difficult  and  the 
whole transaction more costly. 
Personal  and  business  debts  of  individual  entrepreneurs  are  often  intertwined:  entrepreneurs 
take personal loans to start and run their business, for example because they guarantee their 
business  loan  by  personal  assets,  such  as  car  or  a  family;  or  natural  persons  use  consumer 
credit to buy assets which they use also for professional activities. Since any debt, including 
the  one  contracted  by  the  natural  person,  whether  entrepreneur  or  consumer,  can  become 
unpaid,  almost  all  Member  States  have  systems  that  allow  for  discharge  of  natural  persons 
from  debts  which  they  can  no  longer  service.  The  chart  gives  a  broad  view  of  how 
entrepreneurs are treated in insolvency proceedings in EU Member States. 

Chart  5:  Treatment  of  entrepreneurs  in  insolvency  proceedings  in  the  28  EU  Member 
States 

In several MS there is one single regime for discharging personal debt whether the debtor is a 
consumer  or  whether  he  is  an  entrepreneur  (e.g.  Finland,  UK).  These  regimes  are  more 
efficient  in  affording  second  chance  since  all  personal  debts  are  consolidated  into  one 
procedure.  In  other  MS,  there  are  different  regimes  for  entrepreneurs  and  consumers  (e.g. 
France, Romania). 

Debt discharge frameworks in Member States still substantially, in particular in terms of the 
conditions of access, repayment schedules and periods (one to eight years in depending on the 

40 

 
 
 
legal regulations in individual Member States137), restrictions on performing certain activities 
and asset disposals etc.  

A lost benefit consists in a reduced economic activity of individuals resulting from a limited 
access  to  new  credit  for  natural  persons  stigmatised  by  insolvency.  While  in  some  cases 
refusing  a  credit  is  justified,  possibly  even  in  the  interest  of  the  borrower  (e.g.  for  persons 
unable to manage their budget) this should not be applied systematically to all persons who 
have had payment difficulties. A further lost benefit of excessively long discharge periods for 
natural  persons  resides  in  the  continuing  poverty  and  financial  exclusion  of  bankrupt 
individuals.  Poverty  has  negative  impacts  on  public  spending,  and  the  state  of  health  and 
security in a country138. As to financial exclusion139, it is also detrimental to the providers of 
financial services who lose a part of their potential customers. 

The  lack  of  harmonised  rules  on  consumer  insolvency  impacts  negatively  on  cross-border 
selling of retail financial services140. Legal uncertainty for creditors in the case of default of a 
natural person was identified as a barrier to cross-border lending, by several reports such as 
the  report  of  2009  on  the  functioning  of  the  Directive  on  Distance  Marketing  of  Financial 
Services141 and the study on the consumer credit market in Europe142. Cross-border lending to 
households,  which  is  now  at  the  level  of  approximatively  5%  of  the  total  of  household 
lending, could be substantially increased. At the same time, the overall costs of credit could 
decrease if natural persons had an easier access to loans offered in other Member States143. 

The  Recommendation  invited  Member  States  to  implement  the  discharge  principles 
developed  for  entrepreneurs  also  to  consumers.  Many  Member  States  have  in  recent  years 
adopted or reformed (ES, RO, HU, HR, LU, CY, SI) national laws on consumer insolvency 
recognising  the  importance  of  enabling  consumers'  discharge  of  their  debts  and  obtain  a 
second chance. The discharge periods for over-indebted consumers remain very long in AT, 
BE, CZ, EE, EL, ES, LT, PT, SI, SE, RO (5 years or more). In addition, in DE, SK, HU and 
CY discharge after 3 years is conditional upon repayment of a certain percentage of the debt 
(e.g. 35% in DE, 50% in HU). 

2.4. Risks 

A. Moral hazard 

A  prevailing  concern  in  deciding  how  to  design  an  insolvency  system  is  the  risk  of  moral 
hazard.  Many  insolvency  systems  take  a  harsh  stance  in  favour  of  liquidation  because  it 
provides for safeguards against such risks, in the form of full court involvement, a general and 
automatic  moratorium,  an  insolvency  practitioner  acting  in  the  interests  of  creditors  taking 
over the business, with powers to avoid transactions etc. Member States may equally opt for 

137  

138  
139  

140  

141  
142  
143  

Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 382 
and following. 
Those negative impacts are indicated in the study on over-indebtedness of European households 
According  to  the  data  from  EU-SILC  12%  of  European  citizens  were  living  in  households  without  a 
bank account (Research note 3/2010 Financial exclusion in the EU New evidence from the EU-SILC 
special module). 
Replies 
to 
http://ec.europa.eu/finance/consultations/2015/retail-financial-services/index_en.htm#results 
http://ec.europa.eu/consumers/archive/rights/docs/final_rep_financial_services_2009.pdf 
http://ec.europa.eu/consumers/archive/rights/docs/consumer_credit_market_study_en.pdf 
As  reported  in  the  Study  on  the  functioning  of  consumer  credit  market  in  Europe,  p.78,  APR  on 
consumer credits goes from 5% in Finland to 35% in Estonia. 

Financial 

Services, 

Green 

Retail 

Paper 

the 

of 

41 

 
 
                                                            
long discharge periods or very strict conditions of access to discharge as a means of fending 
off potential risks of moral hazard.  

However,  experience  from  those  Member  States  which  have  well-functioning  restructuring 
and second chance frameworks shows that it is possible to achieve more restructurings, save 
more  companies  and  jobs,  help  more  entrepreneurs  to  re-enter  the  productive  economy 
without creating further moral hazard risks. Any action in this area should provide therefore 
for appropriate safeguards against such risks. These risks will be considered in more detail in 
relation to specific options in the impacts sections below. 

B. Employees' rights in early restructuring procedures 

(Directives  98/59/EC144,  2001/23/EC145,  2002/14EC146, 
A  number  of  Directives 
2008/94/EC147 and 2009/38/EC148) guarantee the right to information and consultation before 
restructuring  and/or  collective  redundancies.  Directive  2001/23/EC  aims  at  safeguarding 
workers' rights in case of transfers of part of the undertaking. Early restructuring procedures 
should not curtail such rights which provide important safeguards to employees. 

Furthermore,  Directive  2008/94  imposes  an  obligation  on  Member  States  to  put  in  place 
guarantee  institutions  to  guarantee  the  payment  of  employees'  outstanding  claims  resulting 
from  contracts  of  employment  or  employment  relationships  in  the  event  of  the  employer's 
formal insolvency proceedings in relation to the employer. Member States have the possibility 
to  extend  the  coverage  of  such  guarantee  institutions  also  to  other  types  of  procedures,  but 
they are not obliged to do so. Where such claims are not guaranteed under national law, an 
early  restructuring  procedure  which  gives  the  debtor  the  benefit  of  a  temporary  stay  of 
enforcement  actions  would  risk  negatively  affecting  employees'  claims  and  protection. 
Special  arrangements  should  therefore  be  put  in  place  to  ensure  that  employees  receive 
appropriate  protection  in  preventive  procedures,  equivalent  to  what  they  would  receive  in 
liquidation procedures.  

2.5. Baseline scenario 

The  2008  financial  crisis  and  the  following  global  economic  downturn  adversely  affected 
businesses  around  the  world,  resulting  in  financial  difficulties  for  many  firms.  Hence,  the 
need  for  efficient  and  speedy  restructuring  regimes  covering  in  particular  several  countries. 
Disparities in restructuring laws will not be resolved or determined by market forces due to an 
intensive  regulation  of  Member  States  of  insolvency  and  restructuring  proceedings149. 
Stakeholders  will  approach  each  restructuring  with  their  own  agenda  and  strategy,  often 

144 

145 

146 

147 

148 

149  

Council  Directive  98/59/EC  of  20  July  1998  on  the  approximation  of  the  laws  of  the  Member  States 
relating to collective redundancies, OJ L 225, 12.08.1998, p. 16. 
Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States 
relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or 
parts of undertakings or businesses, OJ L 82, 22.03.2001, p. 16. 
Directive  2002/14/EC  of  the  European  Parliament  and  of  the  Council  of  11  March  2002  establishing  a 
general  framework  for  informing  and  consulting  employees  in  the  European  Community,  OJ  L  80, 
23.3.2002, p. 29. 
Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection 
of employees in the event of the insolvency of their employer, OJ L 283, 28.10.2008, p. 36. 
Directive 2009/38/EC of the European Parliament and of the Council of 6 May 2009 on the establishment 
of  a  European  Works  council  or  a  procedure  in  Community-scale  undertakings  and  community-scale 
groups  of  undertakings  for  the  purpose  of  informing  and  consulting  employees,  OJ  L  122,  16.5.2009, 
p.28. 
Ringe, W-G.: Forum Shopping under the EU Insolvency Regulation, EBOR 9 (2008), p. 602. 

42 

 
 
                                                            
looking  for  positions  of  control  and  influence  to  gain  leverage,  and  not  seeking  common 
ground  and  consensus.  In  addition,  policymakers  in  various  local  jurisdictions  will  use 
political considerations or historical and cultural practices as justification for avoiding reforms 
of their insolvency and restructuring frameworks.  

Many  Member  States  have  reformed  or  are  in  the  process  of  reforming  national  insolvency 
laws. However, fashioning ad hoc restructuring frameworks around national or market driven 
influences results in greater transaction risks and higher costs of capital. When Member States 
introduce changes, they will only take into account the national perspective. As a result, the 
heterogeneity  of  existing  rules  will  continue  to  inhibit  cross-border  investment  and  the 
divergent and inadequate insolvency regimes will continue to limit the potential of the private 
sector  to  attract  investment.  The  absence  of  a  consistent  and  predictable  EU-wide 
restructuring  framework  would  thus  continue  to  create  a  considerable  layer  of  uncertainty, 
increase  costs  and,  to  some  extent,  alter  the  economic  rationale  of  capital  markets 
transactions. 

Given  the  substantial  divergences  between  national  restructuring  and  second  chance 
frameworks in the EU, it is highly unlikely that Member States individually would be able to 
ensure  the  overall  coherence  of  their  legislation  with  other  Member  States'  insolvency 
legislations.  Several  Members  States  took  or  have  taken  action  independently  and  have 
recently  enacted  or  started  preparatory  work  to  adopt  new  rules  aiming  at  improving  the 
preventive  restructuring  framework  and  second  chance,  such  as  Cyprus,  Croatia,  Poland, 
Portugal. Reforms are being discussed in other Member States (Luxembourg, Italy) but there 
is  yet  no concrete timeline. However, these national rules differ widely in  content and, as a 
result,  they  provide  an  uneven  level  of  transparency  and  protection  for  investors.  Although 
this  does  not  mean  that  investors  do  not  invest  cross-border,  it  does  mean  that  the  current 
regulatory framework inhibits them to play a more optimal role within the internal market. It 
is  to  be  expected  that  other  Member  States  will  follow  this  trend  if  the  EU  does  not  act. 
Besides,  given  the  heterogeneity  of  the  restructuring  market,  it  would  be  difficult  for  it  to 
overcome the existing legal complexity and fragmentation.  

2.6. The EU's right to act, subsidiarity, necessity and proportionality 

The Union’s right to act in this field is set out in Article 114 of the Treaty on the Functioning 
of  the  European  Union  (TFEU).  Its  first  paragraph  empowers  the  European  Parliament  and 
the  Council  to  adopt  measures  for  the  approximation  of  the  provisions  laid  down  by  law, 
regulation  or  administrative  action  in  Member  States  which  have  as  their  object  the 
establishment and functioning of the internal market. Article 114 TFEU allows the EU to take 
measures, not only to eliminate current obstacles to the establishment and functioning of the 
internal market but also to address barriers that dissuade economic operators from taking full 
advantage of the benefits of that market (in particular investing in other Member States). On 
that  basis,  the  European  Union  has  a  right  to  act  to  improve  the  conditions  for  creditors, 
debtors, investors and other stakeholders in the context of restructuring viable businesses in 
financial  difficulty.  Should  an  instrument  address  also  consumer  insolvency,  according  to 
Article 114 (3) TFEU, a high level of protection must be taken as a basis. 

The case law of the Court of Justice of the European Union shows that if a measure addresses 
real  obstacles  to  free  movement  or  distortions  of  competition,  present  or  future,  it  can  be 

43 

 
 
based on Article 114 despite the fact that it may touch on important social aspects150. It has 
been  used  in  fields  as  diverse  as  environment,  health,  consumers,  worker  protection, 
telecommunication  networks  (roaming),  circulation  of  personal  data,  advertising  and 
promotion of tobacco products, the establishment of the European Network and Information 
Security Agency. It allows taking measures both with regard to existing and future obstacles, 
among  others  to  prevent  the  emergence  of  divergent  development  of  national  laws.  Future 
obstacles/distortions of competition must be real, not only address an abstract risk. 

The increasing cross-border nature of investment suggests the need for coordinated action by 
Member  States  hosting  business  entities 
the 
Eurobarometer on insolvency has showed, 17% of companies (SMEs) have foreign debtors. 
but that many cross-border claims remain un-enforced. This entails additional costs of doing 
business cross-border in particular for SMEs. 

(companies  and  entrepreneurs).  As 

When  lending  to  or  investing  in  business  entities  in  other  Member  States,  creditors  are 
confronted  with  different  mandatory  rules  resulting  from  the  lack  of  harmonised  tools 
available  to  businesses  in  financial  difficulty.  The  problems  described  above,  creating  costs 
and foregone benefits, obstruct fundamental freedoms (in particular free movement of capital) 
and thus have a direct effect on the functioning of the internal market.  

However, investment in businesses does not mean only lending but can also take the form of 
ownership (the investor is not a creditor, but a shareholder of a company). Foreign investors 
do establish and run local business entities in other Member States, which themselves do not 
have cross-border activities. The barriers to cross-border investments have, therefore, a direct 
effect on the functioning of the internal market. These additional costs for investors may only 
be eliminated, if there is a general convergence of regulatory frameworks in Member States 
covering both cross-border and domestic cases (while an artificial distinction in the scope of 
restructurings on the basis of their expected or actual cross-border nature would just reinforce 
legal fragmentation). A convergent EU framework on insolvency would thus remove barriers 
also  for  foreign  investors  from  outside  the  EU:  looking  at  one  set  of  restructuring  and 
insolvency indicators valid for two or more of the EU Member States where an investment is 
foreseen would reduce the additional costs associated with assessing risks of investing in EU 
Member States. The additional costs grow exponentially where the foreign investor looks at 
several Member States in order to establish where to invest (e.g. where to set up a plant or a 
distribution point from where the whole EU can be covered). Building up the CMU is an EU 
priority  also  as  regards  making  the  EU  a  more  interesting  place  for  foreign  investors  from 
outside the EU.  

The  internal  market  problems  are  not  limited  to  purely  cross-border  scenario.  Even  purely 
national insolvencies may have  an impact on the functioning of the internal market through 
the so-called domino effect. Companies operating cross-border (about 25% of bankruptcies in 
EU involve creditors and debtors in more than one EU Member State151) have in their supply 
chain  suppliers  some  of  which  may  be  purely  domestic  businesses.  When  a  supplier 

150  

151  

Article  81  on  judicial  (cross-border)  cooperation  in  civil  matters  is  not  an  appropriate  legal  basis  for 
measures  of  harmonisation  of  domestic  procedures,  which  is  the  case  here.  There  are  already  several 
precedents for measures of harmonisation of court procedures adopted on the basis of Art. 114, e.g. the 
Injunctions Directive or the Directive on the enforcement of IP rights. Procedural measures adopted on 
the basis of Art. 81 have so far created an exhaustive, 29th regime, not a harmonisation (e.g. European 
order for payment procedure, European small claims procedure). 
Commission  Staff  Working  Document, 
accompanying  Commission 
Recommendation  on  a  New  Approach  to  Business  Failure  and  Insolvency,  SWD(2014)  61  final, 
12.3.2014, p. 2. 

Impact  Assessment 

44 

 
 
                                                            
experiences financial difficulties and cannot be saved, this may have negative impacts which 
may trigger the insolvency of the cross-border company. Good restructuring frameworks are 
necessary  in  order  to  avoid  a  domino  effect  of  insolvencies.  According  to  the  Flash 
Eurobarometer survey carried out in June 2016 among small and medium sized enterprises in 
28 European countries, on average, 17% of those companies had debt claims against foreign 
debtors  over  2015  fiscal  year.  However,  in  some  countries  this  situation  was  much  more 
frequent: 49% in Luxembourg, 45% in Slovenia, 31% in Austria. Half of the companies with 
foreign  debt  claims  say  foreign  debt  claims  represented  at  least  6%  in  their  2015  turnover. 
Frequency  of  outstanding  foreign  debt  claims  as  compared  to  domestic  claims  and  also 
relative  difficulty  to  recover  them  depended  on  the  general  economic  situation  in  a  given 
country. In the countries with internal economic difficulties recovery of domestic claims was 
perceived as more difficult, while in some countries not experiencing those difficulties (UK, 
Germany,  Finland,  Sweden)  recovery  of  foreign  debt  was  similarly  or  more  difficult  as 
recovery  of  domestic  debts152.  As  17%  of  small  and  medium  sized  companies  have  foreign 
debts, and in half of them they make a substantial proportion of their turnover, the probability 
neither of the fact of cross-border insolvencies nor of their importance for creditor companies 
cannot be neglected153. In the UK alone, 27% of insolvencies are triggered by the insolvency of 
another company154. In the light of the domino effects of insolvency, it is necessary to act not 
only in purely cross-border insolvency scenarios, but also in domestic insolvency cases. The 
possibility  of  an  insolvency  regime  limited  to  cross-border  insolvency  or  restructuring 
proceedings  must  therefore  be  discarded  since  such  a  limited  solution  would  not  solve  the 
internal market problem.  

In addition, a crystal-clear distinction between domestic and cross-border cases is particularly 
difficult  in  the  context  of  insolvency.  First,  in  most  cases  it  is  impossible  to  anticipate  in 
advance (at the opening of proceedings), if the case will have a cross-border element in course 
of the proceedings. The cross-border nature of a restructuring proceedings (in the context of 
the  Insolvency  Regulation)  depends  of  various  different  circumstances  and  factors  which 
simply may not be anticipated by the debtor or by the court in advance, at the opening of the 
proceedings or beginning of the negotiations, even having carried out the highest diligence. If 
a debtor has a creditor abroad or some assets of the estate of the debtor are situated in another 
State, this alone qualifies the insolvency proceeding as having cross-border elements. These 
factors  generating  the  cross-border  element  may,  however,  appear  also  in  course  of  the 
proceedings,  once  negotiations  are  already  on-going.    For  example  this  is  the  case  where  a 
domestic  creditor  changes  domicile  during  the  proceedings  concerning  the  debtor  or  where 
during preventive restructuring assets are sold to a buyer in another Member State and later 
insolvency  proceedings  are  opened  and  the  insolvency  practitioner  aims  at  avoiding  those 
transactions. These circumstances alone transform the domestic nature of the case to a cross-
border situation. 

As  regards  second  chance,  a  distinction  needs  to  be  made  between  natural  persons 
entrepreneurs and consumers. Different discharge periods may lead bankrupt entrepreneurs to 
exercise their free movement rights and relocate to a more debtor friendly jurisdiction (such 
movements  were  observed  for  instance  from  Germany  to  UK  and  France).  This  movement 
however raises two types of internal market problems: first, creditors and investors, whether 
at  home  or  abroad,  will  face  uncertainty  as  to  what  legal  regime  might  ultimately  apply  to 
their claims against the debtor and whether in practice they will have no claim after 1 (UK), 3 

152  
153 
154  

Flash Eurobarometer, Report Insolvency, no. 442, 2016, para 1. 
Flash Eurobarometer, Report Insolvency, no. 442, 2016, para 2. 
The European Small Business Alliance response to the public consultation of 2013, see Annex  

45 

 
 
 
 
                                                            
years  (UK,  FR,  NL,  FI)  or  7  years  (CZ).  Second,  the  costs of  obtaining  a  discharge  for  the 
entrepreneur  who  wants  to  benefit  from  a  second  chance  sooner  rather  than  later  are 
considerably higher if he has to relocate to another jurisdiction (there is now a presumption in 
the  reformed  Insolvency  Regulation  that  a  debtor  must  be  established  in  another  MS  for  at 
least 6 months in order to be able to open discharge procedures in that state). This problem is 
not  solved  by  the  fact  that  entrepreneurs  can  set  up  a  limited  liability  company  to  protect 
themselves: the concept of entrepreneurs includes also professionals, craftsmen, traders which 
may  not  opt  for  such  a  possibility  (these  may  be  lawyers,  artists,  midwives,  cleaners  etc.). 
These categories of persons will incur personal liability for their work-related activities. 

Contrary to entrepreneurs, who constantly search for any sources of investment (often cross-
border),  consumers  tend  to  be  provided,  at  this  stage,  by  local  financing  (loans  from  local 
banks).  Therefore,  it  is  not  self-evident  that  the  problem  of  consumers'  over-indebtedness, 
which is real, should not be tackled first at national level. At this moment, there are attempts 
to  attract cross-border lending to  consumers, but  this  market has not  been  developed so far. 
Therefore, principle sources of debt for consumers are most often based on loans provided by 
local creditors. 

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 therefore add value by facilitating cross-border investing in the EU, ensuring that viable 
businesses in financial difficulty, wherever they are located in the internal market, 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. This could not realistically be achieved by the Member States acting alone. 
Despite  ongoing  efforts  to  improve  European  insolvency  and  restructuring  procedures, 
important  differences  persist  across  Member  States.  World  Bank  indicators155  suggest  that 
resolving insolvency can take between less than one year in Ireland, Belgium and Finland and 
more than three years in Bulgaria, Romania, Greece and the Slovak Republic. The recovery 
rate varies between 30% in Croatia and Romania and 90% in Belgium and Finland.  
In addition, ensuring that cross-border creditors and investors involved in such a restructuring 
process have at their disposal appropriate safeguards will have positive economic effects. The 
proposed  rules  will  create  legal  certainty  for  creditors  and  investors  which  want  to  lend  in 
other Member States. At least, they would in many cases receive the necessary information to 
take informed decisions.  

The proposal is designed to respect the principle of proportionality. The means it uses will be 
tailored to achieve the objective of ensuring the proper functioning of the internal market. The 
future EU instrument should set common objectives and general rules, while leaving freedom 
to Member States to define how to achieve those objectives. All policy options will therefore 
be  assessed  with  regard  to  their  compliance  with  the  proportionality  principle.  Options  that 
would not be in line with this principle will be discarded. 

155  

COMMISSION STAFF WORKING DOCUMENT, Economic Analysis accompanying Action Plan on 
Building a Capital Markets Union, SWD(2015) 183 final, p. 75. 

46 

 
 
 
                                                            
3.  

OBJECTIVES 

General  

 

 

 

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  

Reduce the number of unnecessary liquidations of viable companies and increase the 
possibilities of cross-border restructurings in the internal market 

Reduce the costs and increase the opportunities for honest entrepreneurs to be given a 
fresh start 

Specific  

 

 

 

Reduce the costs of assessing ex-ante the investment risks and improve recovery rates   

Reduce  the  costs  of  restructuring,  including  for  groups  of  companies,  so  that  viable 
companies are rescued rather than liquidated and maintain jobs 

Reduce the number of entrepreneurs who would need to relocate to escape a debt-trap 
and thus reduce costs of second chance and increase the number of persons who would 
re-integrate in the economic life to support a dynamic business environment  

Operational objectives  

 

 

 

 

 

 

Enable efficient possibilities of early restructuring 

Improve  chances  of  negotiations  by  allowing  the  debtor  a  "breathing  space"  from 
enforcement actions (stay/moratorium) 

Facilitate  the  continuation  of  debtor's  business  while  restructuring  (debtor  in 
possession) 

Disallow  dissenting  minority  creditors  and  shareholders  to  jeopardise  restructuring 
efforts  while  safeguarding  their  interests  (majority  voting;  inter-class  cram-down; 
treatment of shareholders in restructuring) 

Increase  chances  of  success  of  the  restructuring  plan  (protecting  new  financing;  safe 
harbour for non-related party transactions; release of third parties) 

Reduce costs and the average length of all types of restructuring, insolvency and second 
chance procedures (minimum necessary court involvement in restructuring and second 
chance frameworks, raising court expertise, capacity to respond quickly, use of modern 
technology; harmonise quality of the profession of the insolvency practitioners) 

 

Enable discharge in a reasonable time for entrepreneurs who are acting in good faith 

47 

 
 
4. HIGH-LEVEL OPTIONS 

4.1. Description of high level options 

Option 1: Maintaining the status quo (baseline scenario) 

The expected evolution of status quo is described in section 2.4.  

Option  2:  Setting  up  a  fully  harmonised  preventive  restructuring  procedure  and  a 
second chance framework 

Under  this  option,  key  elements  of  at  least  one  type  of  preventive  restructuring  procedure 
would be fully harmonised. For restructuring, in addition to the main principles which were 
defined  in  the  2014  Recommendation,  many  more  rules  would  need  to  be  harmonised,  
including  for  example  the  definition  of  'insolvency'  or  'likelihood  of  insolvency',  the 
majorities  required  for  plan  adoption  (e.g.  a  plan  should  be  adopted  by  75%  in  value  of 
creditors' claims), the treatment of shareholders in restructuring (e.g. whether they should be 
treated as a separate class and given a right to vote or not) and protection on new financing 
(e.g.  whether  new  financing  should  be  given  super-priority  status  in  subsequent  insolvency 
proceedings).  Other  more  technical  rules  which  make  up  national  restructuring  frameworks 
are  those  relating  to  whether  to  bifurcate  secured  claims  according  to  the  value  of  the 
collateral,  or  how  to  treat  contingent  and  contested  claims.  On  second  chance,  such 
harmonisation may include rules on the conditions for repayment plans, on filing of claims, 
on determining the disposable income of natural persons from which creditors can be repaid 
for the period of the discharge period etc. 

48 

 
 
 
Option  3:  Introducing  an  alternative,  optional  EU  restructuring  and  second  chance 
regime for cross-border cases 

This  option  would  imply  establishing,  alongside  national  restructuring  and  insolvency 
procedures, an alternative EU procedure which could be chosen by the party initiating it, for 
example,  the  debtor,  or  the  creditors  with  the  debtor's  consent156.  This  European  procedure 
could be available in principle in both cross-border insolvency cases and in domestic cases157, 
but  the experience with other  European civil procedures shows that Member States will not 
accept  the  application  of  European  procedures  to  purely  domestic  situations158.  In  order  to 
operate  as  a  stand-alone  restructuring  and  second  chance  framework,  this  option  would 
require a full harmonisation as described in Option 2 above. 

An optional regime available in both cross-border and domestic cases would need to be based 
on Article 114 TFEU. An optional regime available in cross-border cases only would need to 
be based on Article 81 TFEU on judicial cooperation in civil law matters.  

Option  4:  Setting  up  a  minimum  harmonised  legal  framework  in  the  area  of 
restructuring and second chance for entrepreneurs  

High level principles accompanied by  more targeted rules where necessary would follow in 
the  steps  of  the  2014  Recommendation  and  provide  an  appropriate  follow  up  response.  It 
would allow Member States to choose the means of implementing these principles and rules. 
For example, the rule that creditors should vote in separate classes on the adoption of the plan, 
would need detailed rules on for example on how to deal with secured claims where the value 
of the collateral is lower than the claim (whether to bifurcate such claims or not). National law 
will also need to specify the majority(ies) needed to adopt a plan, be it one single majority in 
all classes (either simple majority or qualified majority), or different majorities for different 
classes  (e.g.  simple  majority  for  unsecured  creditors'  class,  qualified  majority  for  secured 
creditors'  class).Whilst  the  general  rules  would  be  established  at  the  EU  level  to  ensure 
coherence and consistent application, the detailed implementation rules would be established 
in national law . 

This option would make binding the principles and rules set out in the 2014 Recommendation, 
but  would  significantly  reinforce  the  framework  with  additional  efficiency  elements.  For 
restructuring  frameworks,  such  rules  would  be for  example  include  early  warning tools,  the 
treatment  of  shareholders  in  restructuring  procedures,  the  protection  for  interim  financing 
necessary to keep the operations going throughout the negotiations; the duties of directors in 
the vicinity of insolvency. Furthermore, rules on the effectiveness of all restructuring, second 
chance  as  well  as  formal  insolvency  procedures  could  be  envisaged,  such  as  rules  on  the 
specialisation  of  judges  and/or  courts,  on  enhancing  the  quality  of  insolvency  practitioners 
and on digitisation of procedures. 

156  

157  

158  

Several responses to the Green Paper consultation on a Capital Market Union pointed to the desirability 
of  such  a  regime.  (Feedback  Statement  on  the  Green  Paper  "Building  a  Capital  Markets  Union" 
(Question 29), SWD(2015) 184 final, 30.9.2015, p. 59 and foll.) 
As  opposed  to  Option  2,  this  option  would  leave  national  laws  untouched.  Jurisdiction  would  be 
established by the Insolvency Regulation on the basis of the COMI principle, but the law applicable to 
the proceedings would be the European procedure rather than the law of the COMI state (to make this 
possible, a modification of the Insolvency Regulation would be necessary). 
See for example the European Account Preservation Order, the European Small Claims Procedure, the 
European Enforcement Order. 

49 

 
 
                                                            
4.2. Analysis of high level options and discarded options 

Option  1:  as  already  demonstrated  in  the  assessment  of  the  baseline  scenario  (point  2.4 
above), if no further action is taken, the solutions between Member State laws will continue to 
diverge. This is likely to lead to important delays in concluding insolvency procedures and a 
low  success  rate  for  cross-border  restructurings  which  would  ultimately  result  in  more 
unnecessary liquidations of viable companies, instead of restructuring and entrepreneurs and 
consumers  being trapped in  debt  for too long159. It would also be a deterrent to cross-boder 
investments. This option needs therefore to be discarded. 

Option  3  (optional  instrument)  has  to  be  discarded  as  well  since  creating  a  European 
procedure  competing  with  national  procedures  could  prove  highly  contentious  without 
bringing the desired benefits. First, litigations would arise in situations where at least some of 
the  creditors  would  have  more  rights  or  more  favourable  treatment  under  the  otherwise 
applicable  domestic law160. Second,  debtors (when initiating the restructuring) and  creditors 
(when  considering  whether  to  support  the  restructuring  efforts)  would  likely  make  an 
assessment  of  whether  the  European  or  the  domestic  procedures  are  better  suited  for  their 
interests.  This  assessment  exercise  –  whether  carried  out  ex  ante,  when  investing or  trading 
cross-border, or ex post when restructuring efforts start – would increase legal costs, decrease 
legal certainty and, in the ex post scenario, delay the restructuring procedures161. For the same 
reasons, a fully-fledged discharge framework for entrepreneurs and consumers defined at the 
EU  level  would  not  be  a  feasible  variant  either.  Third,  an  optional  instrument  would  not 
guarantee the necessary uptake to address the EU level scale of the problem and would likely 
not be applied by Member States anyway. 

Additionally,  there  are  also  some  political  constraints  to  be  considered  under  this  option. 
Although  in  principle  an  optional  regime  could  stand  alongside  national  regimes  and  be 
'chosen'  in  domestic  cases  also,  this  option  would  most  probably  be  restricted  in  scope  to 
cross-border insolvencies, as several European procedures show162.  

Option  2  (full  harmonisation)  would  facilitate  the  restructuring  of  groups  of  companies, 
increase legal certainty and reduce risk assessment costs for investors investing in more than 
one  Member  State.  It  would  also  reduce  the  number  of  unnecessary  liquidations  of  viable 
companies  in  favour  of  successful  restructurings.  For  such  a  solution  to  work  efficiently, 
harmonisation  of  certain  key  formal  insolvency  aspects,  such  as  the  ranking  of  claims  and 
avoidance  actions  in  the  event  of  the  insolvency  of  the  debtor,  would  also  be  necessary, 

159  

160  

161  

162  

in 

those  areas  which  were  not  covered  by 

The Commission Recommendation on restructuring and second chance may continue to inspire certain 
Member  States  to  reform  their  laws,  but  it  would  not  achieve  a  level  playing  field  in  terms  of 
the 
restructuring  opportunities.  Furthermore, 
Recommendation  on  restructuring  and  second  chance,  such  as  the  treatment  of  shareholders  or  the 
provision of interim financing, there will be little guidance to Member States on common best practices. 
This would most likely lead to an entrenchment of a few differing regulatory models rather than to an 
EU-wide convergence. 
At  the  same  time,  dissenting  creditors  and  shareholders  could  legitimately  argue  that  their  rights  are 
lowered as compared to what they receive under otherwise applicable domestic procedures. 
In order to work properly, a European procedure would have to be self-standing and make no or limited 
reference to national laws (there are similarities here with Option 2). Such a European procedure would 
likely be based on Article 81 TFEU, which means that Denmark will not be bound by it and that United 
Kingdom and Ireland would have an opt-in possibility, which means that the internal market would not 
anyways be covered in its entirety. 
E.g. the European Order for Payment Procedure, the European Small Claims Procedure. 

50 

 
 
 
                                                            
including a single maximum discharge period for natural persons across the EU163. While this 
option would be most effective in ensuring full legal certainty of insolvency laws across the 
EU,  it  would  at  this  juncture  be  premature,  too  intrusive  and  does  not  seem  feasible  as  an 
initiative  at  this  stage  given  the  current  diversity  in  Member  States'  restructuring  and 
insolvency  frameworks164  and  the  political  reticence  that  such  a  proposal  would  face.  This 
option must also be discarded, as politically unfeasible and clearly disproportionate. 

Option  4,  i.e.  a  binding  instrument  in  the  form  of  a  Directive  setting  up  a  minimum 
harmonised  framework  covering  a  number  of  key  aspects  is  conducive  to  effectively 
achieving  the  policy  objectives  in  the  areas  of  restructuring  and  insolvency165,  which  are 
highly regulated at the national level.  

It  is  true  that  in  terms  of  addressing  the  full  spectrum  of  drivers  identified  as  triggering 
difficulties due  to  fragmented  national  legislation  this  option  could  be  considered to  remain 
below  that  of  Option  2  (full  harmonisation).  However,  fully  harmonised  rules  in  relation  to 
these  problems  may  seem to  be a preferable solution  only  at  first sight, but  not  necessary a 
workable solution required for overcoming the full set of problems. More specifically, a full 
harmonisation  of  insolvency  law  in  general  is  a  very  complex  option,  not  advisable  at  this 
stage for several reasons. 

Firstly, account needs to be taken of the fact that these drivers are not isolated but have to be 
considered in the context of the entirety of national insolvency tools and that a certain degree 
of  flexibility  is  needed  to  enable  Member  States  to  apply  them  in  a  suitable  fashion.  A 
minimum harmonization Directive would allow Member States to retain the most appropriate 
means to make those tools work in their national context. Secondly, in the light of numerous 
links  of  insolvency  law  with  connected  areas  of  national  law,  such  as  tax  law,  employment 
law, social security laws  (to a good extent outside EU competence), fully  harmonising only 
insolvency  law could still not  produce the desired effect of complete uniformity. Therefore, 
continuing to have a certain level of differences between Member States’ regulations (and as a 
consequence  still  some  costs  relating  to  the  need  to  identify  and  assess  these  differences), 
appears unavoidable. And thirdly, consideration of subsidiarity and proportionality of the EU 
intervention would have to be duly considered as regards a full harmonisation of insolvency 
related aspects. 

Option  4  would  be  a  tangible  approach  to  substantial  convergence  of  national  frameworks 
based  on  key  common  rules  applicable  in  all  Member  States  to  companies  in  financial 
difficulties, but viable and therefore susceptible to successful restructuring, as well as on the 
other  individual  aspects  highlighted  in  this  document.  This  would  ensure  major  progress 
towards  a  functioning  internal  market.  Under  such  a  convergent  framework  cross-border 
investment  would  no  longer  be  inhibited  by  concerns  that,  for  example,  preventive 
restructuring of the debtor is not effectively possible in all Member States or that shareholders 
may bloc a plan which is supported by creditors.  

163  

164  

165  

This alternative would also probably require a harmonisation of the procedures themselves leading up 
to a discharge. 
It would also be probably very difficult to agree on such a complex new instrument, given the links of 
insolvency law with connected areas of law, such as tax law, employment law, social security laws. 
The 2014 Recommendation on restructuring and second chance was not coherently implemented across 
the EU due to its non-binding character. 

51 

 
 
                                                            
For  these  reasons,  it appears  most  appropriate to  consider high-level Option  4  the  preferred 
option  and  to  assess  in  detail  a  number  of  sub-options  only  with  regard  to  this  high-level 
Option.  

In terms of the material scope of a minimum harmonized legal framework, Option 4 focuses 
on  early  restructuring  and  second  chance  frameworks,  but  also  aims  at  achieving  more 
effectiveness of formal insolvency (liquidation procedures) and at amending such procedures 
in order to make early restructuring more attractive.  

As regards early restructuring, the key aspects for consideration are as follows:  

 

 

 

 

 

the  objectives  of  increasing  recovery  rates  for  creditors,  saving  jobs  and  know-how  is 
best served by early restructuring of a viable company than by liquidation;  

early restructuring is also the first port of call for transforming a non-performing loan 
into one which performs; 

currently, the early restructuring frameworks in the Member States are developing, but 
there is little coherence between them,  

given the current diversity of rules, it is impossible to have a restructuring of a cross-
border group of companies with members in more than two MS; 

the need to focus on restructuring rather than liquidation was confirmed by the results of 
two  public  consultations  (one  on  CMU  in  spring  2015  and  one  on  restructuring, 
insolvency and second chance in spring 2016), by discussions with a specially created 
expert group and a group of stakeholders representing a wide range of interested parties 
as well as by the two meetings with governmental experts from the Member States.  

As  for  liquidation  procedures,  a  thorough  analysis  of  what  could  be  harmonized  for  the 
purposes of improving the effectiveness of the procedures was performed. On the basis of this 
analysis only provisions directly linked with shortening the length of such procedures and to 
making  early  restructuring  effective  appear  adequate  to  be  covered  at  this  stage  by  this  EU 
initiative for the following reasons: 

 

 

 

 

in  liquidation,  the  most  important  is  legal  certainty  and  the  speed  of  the  procedures, 
hence the provisions on courts, insolvency practitioners and digitalisation of procedures 
which are horizontal 

harmonising substantive liquidation issues such as the definition of insolvency, ranking 
of claims and avoidance actions would touch upon fundamental values in the Member 
States, such as the protection of workers and the safeguarding of security rights.  

in liquidation, there are important links with other areas of law, such as company law 
(definition  of  insolvency),  property  law  (ranking  of  claims  and  avoidance  actions), 
criminal law (disqualification of directors) which makes harmonization on the basis of 
minimum standards a disproportionately complex exercise. 

early  restructuring  happens  'in  the  shadow'  of  the  alternative,  which  are  formal 
insolvency  (liquidation)  procedures.  For  this  reason,  insolvency  rules  on  avoidance 
actions  need  to  be  adapted  to  ensure  that  the  early  restructuring  of  companies  in 

52 

 
 
difficulty  is  attractive  for  new  investors  and  creditors,  i.e.  provides  for  sufficient 
guarantees that their investment will be protected in subsequent insolvency procedures. 

Nevertheless, the measures to increase the effectiveness of the procedures have a horizontal 
scope and are equally valid for restructuring and for liquidation, or indeed second chance. In 
all types of procedures timing is of the essence: increasing the specialisation of courts and the 
professionalism of insolvency practitioners and by introducing the digitalisation of all types of 
restructuring and insolvency procedures should be able to address these issues. As a means to 
ensure  the  effectiveness  of  procedures,  the  collection  and  analysis  of  data  on  number  and 
outcome of restructuring and insolvency procedures is of paramount importance. 

Some  elements  of  substantive  law  could  therefore  not  be  addressed  at  this  stage,  given  the 
current diversity in Member States' restructuring and insolvency frameworks: harmonising the 
definition of insolvency, ranking of claims and avoidance actions (with the exception of those 
actions concerning transactions directly linked to preventive restructuring) would touch upon 
fundamental values in the Member States, such as the place of workers and of state creditors, 
and the safeguarding of security rights.  

Because  an  initiative  could  not  at  this  stage  reasonably  be  able  to  fully  harmonise  all 
insolvency-related  aspects,  investors  would  still  face  additional  costs  when  assessing  or 
defending their rights in restructuring and/or insolvency. It is certain however that costs will 
be significantly reduced for investors.  

First, the minimum harmonisation of some restructuring rules would mean that investors may 
still need to assess their position in the jurisdiction of the COMI state. For example: 

-  

-  

-  

-  

investors will have legal certainty as to the fact that a debtor in financial difficulties will 
have the right to a temporary, limited in time stay of individual enforcement actions and 
that  they  (the  investors)  will  have  a  right  to  ask  for  the  stay  to  be  lifted  in  certain 
circumstances; however, investors may still need to investigate in which Member States 
that stay can be prolonged and for how long; 

while it will be possible to adopt restructuring plans by a majority of creditors and while 
creditors will have the certainty that they will have voting rights proportionate with the 
amount of their claim and in a class of similar claims, there will still be differences as to 
the exact proportion of claims needed under national law to adopt a plan; 

investors  will  have  legal  certainty  that  new  and  interim  financing  is  protected 
everywhere in the EU from avoidance actions, but new investors may wish to know in 
which Member States they will be given even better protection by way of super-priority 
status in subsequent liquidation procedures; 

finally, even if it is not possible to harmonise at  this  stage the raking  of claims in  the 
event  of  liquidation  under  national  law,  by incorporating the  best  interest  of  creditors' 
test and the absolute priority rule into the restructuring framework, creditors will have 
legal  certainty  as  to  the  de  minimis  returns  they  have  a  right  to  in  restructuring 
procedures. 

Second, leaving large parts of the liquidation procedures non-harmonised would indeed mean 
that  investors  would  still  experience  additional  costs  needed  to  assess  ex-ante  their  rights 
where  the  debtor  goes  into  liquidation  as  well  as  ex-post  costs  to  manage  liquidation 

53 

 
 
procedures  in  Member  States  where  they  have  not  contemplated  that  the  COMI  will  be 
situated.  However,  even  in  the  absence  of  harmonisation  of  liquidation  procedures,  this 
proposal would have positive effects in terms of increasing legal certainty for creditors, e.g. 
vis  a  vis  avoidance  actions  of  new  and  interim  financing  given  in  preventive  restructuring 
procedures or the reduction of length of liquidation procedures and the increased participation 
of creditors via distance means - both leading to higher recovery rates for creditors.  

Third,  a  discharge  of  debt  alone  may  in  some  Member  States  not  be  enough  to  allow  the 
entrepreneur  to  take  up  a  new  business  activity.  For  example,  where  bankruptcy  triggers  a 
disqualification order which lasts for longer periods of time and which may be issued without 
consideration  being  given  to  whether  the  entrepreneurs  was  acting  in  good  faith  or  not.  In 
order to give honest entrepreneurs an effective second chance, disqualification  orders linked 
to over-indebtedness should also be limited in time to expire at the latest when the discharge 
period ends. Other potential impediments to second chance stemming from the retention and 
use of personal data linked to an entrepreneurs over-indebtedness beyond a certain period of 
time, for example in credit rating databases, are sufficiently addressed by the provisions of the 
General Data Protection Regulation166. 

On second chance aspects, this option would give Member States the flexibility to determine 
the most appropriate means to achieve the following objectives:  

- access of all honest debtors to a full discharge of debt after no more than 3 years;  

- debtors must have effective access to early warning tools, just as business debtors;  

- debtors unable to pay any part of their outstanding debt could be provided an opportunity of 
discharge without obligation of repayment;  

-  on  expiry  of  the  discharge  period,  debtors  would  be  discharged  of  their  debts  without  the 
need in principle to re-apply to a court.  

As personal debts of professional and non-professional nature are often intertwined (and also 
that  of  families),  Member  States  could  try  to  consolidate  such  proceedings  to  achieve  a 
coherent outcome, or, at the very least, should coordinate them.  

As to consumers, their discharge treatment is in many Member States not different than that 
for entrepreneurs. Indeed, there is no apparent reason why consumers should have a different 
discharge regime than entrepreneurs: in both cases what is at stage is the personal liability of 
the debtor and in most cases it is very difficult or even impossible to distinguish between the 
professional  and  non-professional  debts  of  the  debtor167.    However,  in  view  of  the  business 
focus of this initiative and its objective to primarily tackle internal market problems relating 
to  the  investment  of  capital  and  the  freedom  of  establishment  for  entrepeneurs  as  self-
employed persons and in view of the differences between discharge periods for entrepreneurs 
and consumers respectively particularly as regards the degree of an internal market problem168 
binding rules for consumer discharge periods should remain outside the scope of a potential 

166  

167  

168  

Regulation (EU) 2016/679 of the European Parliament and of the Council on the protection of natural 
persons  with  regard  to  the  processing  of  personal  data  and  on  the  free  movement  of  such  data,  and 
repealing Directive 95/46/EC, OJ L 119/1, 4.5.2016. 
Since the adoption of the 2014 Recommendation on restructuring and second chance, several Member 
States  introduced  discharge  procedures  for  the  first  time  or  shortened  discharge  periods  under  the 
existing procedures (see recent reforms in Spain, Romania, Hungary, Croatia or Poland). 
Point 2.6 above. 

54 

 
 
                                                            
instrument.  Nevertheless,  taking  into  account  that  many  Member  States  treat  the  discharge 
and second chance for natural persons in the same way irrespective of whether the indebted 
person is a consumer or entrepreneur it should remain possible and be encouraged, if outside 
the  context  of  legal  obligations,  to  coordinate  of  debt  resolution  procedures  regarding  sole 
entrepreneurs  and  consumers.  Concrete  sub-options  concerning  consumer  discharge  will  be 
assessed in the light of these considerations. 

5.   SUBSTANTIVE SUB- OPTIONS AND ANALYSIS OF THEIR 

IMPACT 

To  achieve  the  objectives  above,  various  substantive  sub-options  can  be  envisaged.  The 
choice  between  the  various  substantive  sub-options  has  no  influence  on  the  type  of  the 
instrument.   

The objective of the instrument is to  ensure that certain essential minimum standards are in 
place.  As  to  the  parameters  of  the  restructuring  procedure  to  be  harmonised,  the  described 
substantive  options  are  those  which  have  most  impact  on  ensuring  a  swift  and  efficient 
procedure. In general, these elements (i) early restructuring, (ii) shorter discharge periods for 
entrepreneurs,  (iii)  raising  the  quality  and  efficiency  of  courts  and  insolvency  practitioners 
and  (iv)  digitalisation  in  all  types  of  restructuring  and  insolvency  procedures  (including 
liquidation).  

On  most  points,  it  suffices  to  introduce  clear  general  principles  without  entering  into  too 
detailed  and  prescriptive  regulation  (e.g.  shareholders  should  not  be  able  to  block  a 
restructuring, debtors should remain in control of their assets and affairs). On certain points, 
however,  it  is  necessary  to  be  more  specific  in  order  to  ensure  a  useful  effect  of  the 
instrument.  For  instance,  in  order  to  prevent  obstructing  shareholders  from  blocking  the 
adoption of a restructuring plan, the general principle should be established while leaving to 
Member  States  the  exact  details  of  how  this  may  be  achieved.  On  the  other  hand,  when  it 
comes to the stay of enforcement actions, one needs to address the duration of the stay and the 
conditions  for  its  extension  need  to  be  addressed  in  order  to  meet  creditors'  concerns  and 
reduce  the  length  of  restructuring  procedures.  The  period  of  the  stay  (in  principle  no  more 
than 4 months) has been established by looking at recent reforms in Member States e.g. DE, 
FR, ES, IE, PT, SI). 

For  the  key  sub-options  on  debtor-in-possession,  stay  of  enforcement,  cram-down,  new 
finance  the  inspiration  came  originally  from  the  work  of  INSOL  Europe  at  the  time  of  the 
2014 Recommendation on restructuring and second chance169, from best practices in this area, 
from the elements of restructuring identified in the World Bank Index, from the review of the 
implementation  in  the  Member  States.  These  rules  have  been  further  developed  with  the 
assistance of a specially created representative group of restructuring and insolvency experts 
from  across  the  EU,  also  in  the  light  of  the  results  of  two  specific  public  consultations,  on 
Capital  Market  Union  (spring  2015)  and  on  restructuring,  insolvency  and  second  chance 
(spring 2016) . For example, a new rule on the effects of the stay on early termination clauses 
in  contracts  was  suggested  by  this  group,  as  was  the  additional  rules  on  safe  harbour  from 
avoidance actions provisions (there was high support for harmonising the rules on avoidance 
actions in the 2016 public consultation). Some other rules were inspired by the responses to 

169  

Study on a new approach to business failure and insolvency – Comparative legal analysis of the 
Member States' relevant provisions and practices (INSOL Europe, 2014). 

55 

 
 
                                                            
the  public  consultation  (e.g.  the  rules  on  early  warning  are  supported  by  Business  Europe, 
UEAPME and other business organisations, those on the specialisation of courts and IPs are 
supported by the Association of Financial  Markets in  Europe). Where valid concerns where 
advanced by stakeholders, certain sub-options were not retained: this is the case with the rule 
on the release of third party guarantees. 

Operational 
objective (Driver) 

Sub-options: building blocks of the proposed framework 

EFFECTIVE RESTRUCTURING FRAMEWORK 

5.1. Enable early 
restructuring  
(Rules on the 
possibility of 
restructuring at an 
early stage) 

Sub-option 1 
The procedure is available 
when a viable debtor is in 
financial difficulties and 
there is a likelihood of 
insolvency.  

Sub-option 2  
Sub-option 1 + over-
indebted but viable 
debtors must have a clear 
possibility to enter 
preventive restructuring. 

Sub-option 3 
Sub-option 2 + early 
warning tools (advice 
and/or alert systems) + 
model restructuring plan. 

5.2. Improve chances 
of negotiations by 
allowing debtor a 
'breathing space' 
(Rules on stay of 
enforcement actions 
(moratorium)) 

5.3. Facilitate 
continuation of 
debtor's business  
while restructuring 
(debtor in 
possession)  
(Rules on debtor-in-
possession) 

5.4. Disallow 
minority creditors 
and shareholders to 
jeopardise 
restructuring efforts  
(Rules on the 
preparation and 
adoption of 
restructuring plans) 

5.5. Increase chances 
of success of the 
restructuring plan 
(Rules on provision of 
new financing in 
restructuring) 

Sub-option 1 
Moratorium affects 
individual enforcement 
actions and suspends 
formal insolvency 
proceedings. 

 Sub-option 2 
Sub-option 1 + 
suspension of the right of 
essential suppliers to avail 
themselves of early 
termination clauses. 

Sub-option 3 
Sub-option 2 + 
moratorium of a short, 
limited duration no longer 
than 4 months and giving 
creditors right to ask for 
lifting the stay. 

Sub-option 1  
Debtor remains in possession, but 
Member States may enable courts to 
appoint a mediator and /or a supervisor.  

Sub-option 2 
Debtor remains in possession but a 
mediator or a supervisor is always 
appointed. 

Sub-option 1  
The plan is adopted if the 
required majority in every 
class is in favour of the 
plan, provided that the 
minority creditors are not 
unfairly prejudiced; all 
classes of creditors can be 
affected by the plan, vote 
and be bound by it, 
including secured 
creditors 

Sub-option 1  
Exempting new financing 
contained in the 
restructuring plan from 
avoidance actions. 
Member States may also 
provide for super-priority 
status to new financing, 
ranking it at least above 
unsecured creditors 

Sub-option 2  
Sub-option 1 + Member 
States may also provide 
that the plan can be 
adopted if the required 
majority in at least one 
class of creditors is in 
favour of the plan, 
provided that dissenting 
classes are not unfairly 
prejudiced (inter-class 
cram-down). 

Sub-option 2  
Sub-option 1 + Non-
related party transaction 
entered into before 
insolvency, but in 
connection with a 
restructuring plan adopted 
by creditors shall be 
exempted from avoidance 
actions (safe harbour 
provisions). 

Sub-option 3 
Sub-option 2 + principle 
that shareholders should 
not be able to block the 
plan if their interests are 
protected (e.g. by 
including shareholders as  
class(es) of their own). 

Sub-option 3 
Sub-option 2 + limited 
co-obligors' and 
guarantors'  releases 
under the plan 

56 

 
 
Sub-option 1:  
A flexible framework, which allows for 
a more limited involvement of courts. 

Sub-option 2 
Sub-option 1 + use of modern 
technology such as electronic voting 

SECOND CHANCE FOR NATURAL PERSONS 

FOR ENTREPRENEURS 

Sub-option 1: Discharge 
of debts for entrepreneurs 
within 1 year from start of 
liquidation proceedings, 
with limited exceptions. 

Sub-option 2: Discharge 
of debts for entrepreneurs 
within 3 years from when 
liquidation proceedings 
are open or the repayment 
plan starts being 
implemented, with limited 
exceptions. 

Sub-option 3: Sub-option 
2 + the possibility to 
consolidate all personal 
debts of the entrepreneur 
in one procedure, be they 
business or non-business 
in nature 

FOR CONSUMERS 

Sub-option 1: Discharge of debts for 
consumers within 1 year from start of 
liquidation proceedings, with limited 
exceptions. 

Sub-option 2: Possible discharge of 
debts for consumers within 3 years from 
start of liquidation proceedings or the 
start of implementation of repayment 
plan, with limited exceptions. 

5.6. Reducing the 
formalities relating 
to court proceedings 
(Intensity of courts' 
and insolvency 
administrators' 
involvement) 

5.7.1. Enable the 
discharge for natural 
persons in a 
reasonable time for 
those in good faith 
(Rules on debt 
restructuring for 
natural persons - 
entrepreneurs, 
including discharge 
and second chance) 

5.7.2. Enable the 
discharge for natural 
persons in a 
reasonable time for 
those in good faith 
(Rules on debt 
restructuring for 
natural persons - 
consumers, including 
discharge and second 
chance) 

EFFECTIVENESS OF RESTRUCTURING, SECOND CHANCE AND INSOLVENCY 
PROCEDURES 

5.8. Reduce average 
length of procedures 
to 2 years or less in 
all Member States 
(Rules to increase 
effectiveness of 
procedures) 

Sub-option 1: 
specialisation of judges, 
training and professional 
standards for practitioners 
in the area of 
restructuring, insolvency 
and second chance 

Sub-option 2 
S/o 1 + digitisation of 
court procedures 

Sub-option 3: S/o 2 + 
monitoring and data 
collection on number and 
outcome of procedures 

5.1. Early restructuring possibility 

5.1.1 Description of sub-options 

Sub-option 1: Since the concept of 'likelihood of insolvency' is not defined in the Insolvency 
Regulation,  one  option  would  be  to  simply  leave  it  up  to  the  Member  States  to  define  the 
concept, however diverse their approaches.  

57 

 
 
 
Sub-option  2:  Legal  certainty  could  be  enhanced  by  having  a  common  definition  of 
'insolvency'  or  at  least  of  'likelihood  of  insolvency'.  However,  Member  States  are  almost 
unanimously opposed to such a harmonisation. Nevertheless, the situations could be improved 
if Member States which apply the over-indebtedness test as a trigger for the duty to file for 
insolvency would enable directors of viable debtors to enter preventive procedures at any time 
before the business becomes illiquid.  

Sub-option 3: it is not sufficient to enable debtors to restructure at an early stage. Additional 
measures  need  to  be  taken  to  incentivise  SMEs  in  particular  to  access  early  restructuring 
procedure. For example, SMEs should be helped to detect early their financial difficulties and 
to obtain support in drafting good restructuring plans and making the necessary disclosures to 
creditors adaptable to the needs of every SME.  

5.1.2. Assessment of impact of the sub-options and the preferred sub-option 

Sub-options 

Sub-option 1 

Sub-option 2 

Sub-option 3 

Sub-option 
summary 

Restructuring framework 
available when viable debtor 
is facing a 'likelihood' of 
insolvency.   

Sub-option 1 + over-indebted 
but viable debtors must have 
a clear possibility to enter 
preventive restructuring  

Sub-option 2 + early warning 
tools (advice and/or alert 
systems) + model 
restructuring plan 

Reduced costs 
of assessing 
risk by 
investors 

+ 
The risk that debtors could 
not access early restructuring 
would be removed, but the 
intricacies in determining if 
the conditions of 'likelihood 
of insolvency' are met in each 
Member States would still be 
costly. In particular, investors 
would face uncertainty in MS 
where the debtor might have 
a duty to file for formal 
insolvency proceedings when 
over-indebted.  

Reduced costs 
of 
restructuring, 
in particular 
of cross-
border groups 

+ 
Being able to access 
restructuring proceedings 
before a duty to file for 
formal insolvency will enable 
the early restructuring of 
each member of the group, 
thus ensuring the higher 
benefits of early restructuring 
(e.g. higher returns to 
creditors) for the group as a 
whole. 

Impacts 

++ 
Ensuring that viable 
businesses can access 
restructuring procedures 
when over-indebted but not 
illiquid everywhere in the EU 
will increase legal certainty 
for investors and, thus, 
reduces the costs with risk 
assessment even more. The 
potential risk of moral hazard 
could be addressed by a 
safeguard ensuring that when 
debtors are illiquid courts 
should decide whether to 
allow the debtor to continue 
the restructuring efforts or 
whether the channel them 
toward liquidation. 

++ 
As compared to Sub-option 
1, this sub-option would 
further reduce costs, because 
group members in countries 
where over-indebtedness may 
trigger a duty to file would 
have increased legal certainty 
that they can access such 
restructuring procedures 
before they are illiquid. The 
restructuring of several 
members of the group or 
even the entire group could 
then be launched in tandem 

+++ 
An early warning mechanism 
may lead to debtors taking 
action earlier rather than 
later, and therefore indirectly 
to lower risks for investors. 

+++ 
The availability of a model 
restructuring plan may 
facilitate the adoption of a 
coherent group plan, 
especially when the group 
members are SMEs.  

58 

 
 
Effectiveness 

Legal systems 

+ 
Increase the number of 
preventive restructuring 
procedures, and consequently 
of business and jobs being 
saved, increase creditors' 
recovery rates including state 
creditors, and increase 
productivity since only 
profitable parts of the 
business are likely to survive 
while other resources can be 
reallocated. 

- 
This sub-option would 
enlarge the restructuring 
possibilities for debtors in 
those Member States where 
restructuring procedures are 
available only if the debtor is 
actually insolvent or his 
insolvency is 'imminent'. 
Sub-sequent changes may be 
needed in company law for 
example. 

in the different jurisdictions. 

++ 
As compared to Sub-option 
1, this sub-option will further 
increase the number of 
businesses potentially 
accessing preventive 
restructuring possibilities. 

+++ 
In helping SMEs detect 
earlier signs of financial 
distress and helping them 
draft good quality 
restructuring plans, this Sub-
option would represent an 
improvement compared to 
Sub-option 2. 

- -  
This sub-option will require 
that in some Member States 
the restructuring framework 
is amended to allow a clear 
choice for debtors in 
financial difficulty between 
preventive restructuring and 
formal insolvency 
proceedings. Sub-sequent 
changes may be needed in 
company law for example. 

- -  
Some Member States may 
need to provide for early 
warning tools, but these may 
not necessarily be costly (e.g. 
making information publicly 
available on-line, requiring 
that Chambers of Commerce 
provide advice). Almost all 
Member States will need to 
implement national model 
restructuring plans (UK is an 
exception). 

Summary  assessment  of  the  preferred  sub-option:  Sub-option  3  is  the  preferred  sub-option 
since  it  ensures  an  early  possibility  of  restructuring  which  can  be  effectively  used  also  by 
SMEs. By lowering the thresholds on access to such procedures, the preferred sub-option will 
ensure  a  higher  number  of  applications  from  viable  enterprises  at  an  early  stage.  Certain 
downside  risks  which  could  be  associated  with  the  possibility  of  early  restructuring  have 
been identified and can be addressed in a proportionate manner. First, there may be a concern 
that allowing the debtor an easy access to preventive restructuring procedures will lead many 
unviable  enterprises  in  financial  difficulties  to  enter  restructuring  negotiations  simply  to 
postpone  the  moment  of  filing  for  insolvency  and  thus  potentially  deplete  assets  from  the 
insolvent  estate. On the other hand, a too restrictive access into such  procedure discourages 
debtors  and  translates  in  very  low  numbers  of  filings.  There  should  be  therefore  a  balance 
between the possibility of debtors to enter easily into such procedures, but at the same time to 
have in place possibilities for creditors to terminate negotiations where they are not likely to 
lead to a successful restructuring. Second, this sub-option may bring about a risk of misuse or 
high costs. However, the fact that there need to be a likelihood of insolvency suggests a real 
threat to the existence of the company.  

This  sub-option  does  not  have  negative  impacts  on  fundamental  rights,  as  most  Member 
States have now recognised that the need to safeguard the rights of creditors must be balanced 
against  the  general  interest  of  saving  companies  and  jobs,  and  for  this  reason  some 
interference  with  (dissenting)  creditors'  rights  in  order  to  make  restructuring  effective  is 
justified.  The  social  impacts  of  such  procedures  should  be  positive,  as  one  of  the  main 
objectives  of  early  restructuring  procedures  is  to  save  jobs  by  saving  the  companies  which 
employ them. While it is true that as a result of a restructuring some jobs might be lost, such 
losses  would  have  to  be  expected as  being  greatly  lower  than  in  a  liquidation  scenario,  and 

59 

 
 
putting  a  company  back  on  a  growth  part  has  also  the  potential  of  creating  new  jobs.  For 
example, the restructuring of an old-fashioned  factory may require the introduction of  more 
modern  technologies  which  require  less  operating  personnel.  But  the  loss  of  machine-
operating  jobs  may  be  compensated  by  the  creation  of  other  types  of  jobs,  such  as  product 
design, sales or marketing.  

Most  Member  States  supported  the  idea  of  early  restructuring  already  at  the  time  of  the 
Recommendation  on  restructuring  and  second  chance.  In  the  performed  public  consultation 
the majority of respondents were in favour of early restructuring procedures while a smaller 
part believed that restructuring should be available at any time. Member States170 agreed on 
the necessity of preventive measures enabling early restructuring of viable businesses. During 
the dedicated meetings with the Member States, they were of the view that when the viability 
of the business is threatened due to over-indebtedness, the businesses should have a right to 
access an early restructuring framework. However, almost all MS (e.g. AT, EE, FI, DE, IE, 
PL,  PT,  ES,  SE)  were  opposed  to  harmonising  the  definition  of  insolvency  or  that  of  the 
likelihood of insolvency. All the Member States advocated for early warning mechanisms and 
tools,  but  there  was  no  consensus  regarding  the  modalities  how  these  systems  should  be 
established and operated (whether they should be funded and monitored by the State or by the 
private  sector).  As  for  model  restructuring  plans,  although  the  majority  of  Member  States 
expressed concerns regarding the effectiveness, they were in favour as long as these models 
are optional and can be adapted to each case. 

The  business  sector  (Eurochambers,  Independent  Retail  Europe,  EUAPME)  was  strongly  in 
favour  of  early  restructuring  for  viable  businesses  when  there  is  a  likelihood  of  insolvency 
and  they  underlined  the  importance  for  early  warning  tools.  Some  business  organisations 
(Independent Retail Europe, EUAPME) also stressed that models for restructuring plans could 
be used as a starting point in order to reduce costs for SMEs, as long as they are optional and 
flexible.  

Legal  practitioners,  insolvency  practitioners  and  academics  were  in  favour  of  early 
restructuring for viable debtors, when there is a likelihood of insolvency, including when the 
viability of the business is threatened due to over-indebtedness. They were also in favour of 
early  warning  mechanisms  and  facilitating  access  to  advice.  As  for  the  model  restructuring 
plans,  although  some  professionals  (ACCA)  expressed  feasibility  concerns,  others  (CCBE, 
ELI) were in favour.  

The financial sector (EBF, AFME) supported option 3 and advocated for more efficient alert 
mechanisms, such as tax and social security authorities flagging a negative development of a 
business. 

Trade  unions  (ETUC)  agreed  that  an  early  restructuring  framework  should  be  available  to 
viable debtors in financial difficulties when there is a likelihood of insolvency. However, they 
reminded  of  abusive  practices  by  which  insolvency  proceedings,  and  in  particular 
restructuring,  are  deliberately  used  to  evade  responsibilities  under  labour  law.  An  easier 
access  to  preventive  restructuring  framework  should  be  counterbalanced  by  safeguards 
against  'tactical  insolvencies',  for  the  protection  of  workers’  rights.  Additionally,  they 
advocated that the EU labour acquis should not be affected. 

170  

18 Member States replied (AT, DE, EL, CZ, EE, MT, PL, SK, SE, SI, LT, LV, HU, FR, IT, IE, FI and 
BE), but several asked for their contributions to remain confidential. 

60 

 
 
                                                            
5.2. Stay of enforcement actions (moratorium) 

5.2.1. Description of sub-options 

Sub-option  1:  In  order  to  ensure  that  the  debtor  can  effectively  conduct  restructuring 
negotiations,  the  legal  framework  must  allow  it  a  'breathing  space',  i.e.  the  possibility  to 
address  the  problem  of  hold-out  creditors  who  might  have  an  interest  in  enforcing  their 
individual claims immediately rather than participate in the negotiation process and saving the 
debtor. The exact configuration of the stay can vary but it should also suspend the duty to file 
for formal insolvency procedures in order to be effective. 

Sub-option 2: Contracts usually contain clauses enabling one of the parties to terminate early 
or  the  counter-party  enters  insolvency  proceedings.  Such  clauses  are  also  often  extended  to 
situations  where  the  debtor  enters  restructuring  procedures.  As  a  minimum,  such  clauses 
should not be enforceable for the period of the stay in respect of essential supplies necessary 
for the continuation of the business. 

Sub-option  3:  Creditors'  rights  are  safeguarded  by  limiting  the  duration  of  the  stay  and  by 
giving them the right to ask for the stay to be lifted in certain circumstances.  

5.2.2. Assessment of impact of the sub-options and preferred sub-option 

Sub-options 
Sub-option 
summary 

Sub-option 1 

Sub-option 2 

Sub-option 3 

Moratorium which 
suspends individual 
enforcement actions and 
the duty to file for formal 
insolvency proceedings.  

Sub-option 1 + suspension of 
the right of essential suppliers 
to avail themselves of early 
termination clauses. 

Sub-option 2 + moratorium of 
a short, limited duration no 
longer than 4 months and 
giving creditors the right to 
ask for lifting the stay. 

Impacts 

++ 
Investors will be able to 
predict better the chances of 
survival of their distress 
debtor if during the stay the 
essential supplies are kept in 
place to ensure that the debtor 
can continue operating 
relatively normally for the 
period of the stay. 

+++ 
This option adds important 
safeguards to creditors that the 
stay will not be abused in 
order to delay formal 
insolvency procedures and in 
the meantime to deplete the 
estate of important assets. As 
such, this sub-option will 
reduce more costs for 
investors first because they 
will have more predictability 
across the EU on the length of 
the stay and the conditions for 
the lifting of the stay. 

Reduced costs 
of assessing 
risk by 
investors 

+ 
In principle, the more 
elements are harmonised 
across the EU, the lower 
the costs for investors in 
assessing risks in different 
MSs, and the more 
favourable the conditions 
for lending. A stay which 
suspends the enforcement 
actions to address the hold-
out problem gives investors 
a better  
The risk on the one hand 
that the debtor might 
become illiquid before the 
stay period expires and still 
be allowed the benefit of 
the stay and on the other 
hand that significant 
restructuring efforts could 
be wasted if the procedure 
is stopped and the debtor 
channelled to 
insolvency/liquidation, can 
be addressed by requiring 

61 

 
 
Effectiveness  

Creditors' 
rights 

Judicial 
authorities 

the intervention of a court 
on whether to allow the 
procedure to go on or not. 

+ 
Suspension of individual 
enforcement actions 
means, first, protection of 
normal activity of the 
debtor and preservation of 
value for the estate and 
consequently for the 
investors etc. It also 
ensures an equal situation 
for all creditors. According 
to a UK report, a stay on 
debt collection for viable 
businesses in distress 
should enable businesses to 
restructure more easily and 
deliver improved business 
rescue outcomes, it is 
estimated that this will 
deliver benefit to creditors 
of between £2m and £60m, 
with a best estimate of 
£31m per year171. 

+ 
The stay of enforcement 
ensures that no creditor can 
run for the assets of the 
debtor, disregarding the 
collective benefit of 
restructuring the debtor's 
business. However, a stay 
should not create unfair 
prejudice to any creditor. 
Where the stay would 
create such unfair 
prejudice, even in respect 
of one single creditor, the 
courts should refuse to 
grant it. 

0  
A stay is always granted by 
a judicial authority, 
whether in a specific 
decision or as part of a 
decision to open 
restructuring procedures. 

++ 
If during negotiations on a 
restructuring plan, trade 
creditors who have the benefit 
of a clause allowing them to 
terminate their contract 
unilaterally in the event of the 
insolvency of the debtor 
would cease supplying the 
debtor, the debtor would not 
be able to continue operating 
the business. Stay should 
therefore be extended to the 
enforcement of early 
termination clauses. However, 
as a means of protecting 
affected suppliers, they should 
be paid in full during the stay 
period and such payments be 
protected from avoidance 
actions in subsequent 
insolvency procedures. 

++ 
A stay which at the same time 
improves the chances of the 
debtor to continue operating 
during negotiations increases 
the likelihood of viable 
businesses being saved and 
thus improves the likely 
returns to the body of 
creditors.  

+++ 
A limited, short period of the 
stay provides an incentive to 
speed up the negotiations 
between the debtor and his 
creditors.  
The short stay period will 
reduce the length of the 
procedure in Member States 
where restructuring 
procedures last too long (e.g. 
up to 24 months in LU, up to 
18 months in FR), to the 
detriment of creditors. At the 
same time, where the 
complexity of the case 
requires it and where progress 
in negotiations has been made, 
Member States could enable 
the courts to extend the stay 
period. An absolute cap would 
however need to put at 12 
months, which according to 
experts in the Expert group is 
the most a restructuring 
procedure should take. 

+++ 
A short stay which could also 
be lifted on request by 
creditors under certain 
conditions is likely to mitigate 
further possible damaging 
impacts under Sub-option 2.  

- 
May require courts to assess 
what are essential suppliers; 
may cause some additional 
litigation. 

- - 
Slightly more negative if the 
possibility to lift the stay 
results in additional litigation.  

Legal systems 

- 

- - 

- -  

171 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/525529/Consultation_sta
ge_corporate_insolvency_consultation_Impact_Assessment_-_Mar_2016.pdf.  

62 

 
 
 
 
                                                            
of Member 
States  

Fundamental 
rights 

The concept of a stay is 
almost universally 
recognised in MS which 
have preventive procedures 
(AT is an exception). The 
suspension of the 
obligation to file for 
insolvency may be more 
controversial in some MS 
(e.g. DE). As explained 
above, to balance the 
interests of effective 
restructuring with those of 
preservation of the 
insolvency estate for the 
good of creditors, a court 
could be called on to 
decide if the illiquid (not 
over-indebted) debtor 
should continue the 
restructuring process or 
should enter formal 
insolvency procedures.  

- 
Without appropriate 
safeguards this option 
could unfairly prejudice the 
creditors' property rights. 
This risk should be 
mitigated by the fact that 
the stay should not be 
granted or extended if such 
unfair prejudice exists.  
The right to a fair trial may 
be affected since the 
creditors are not able to 
object to the stay in an oral 
hearing. 

In several MS it is not yet 
possible to prevent contracts 
being terminated during 
restructuring negotiations 
(e.g. the UK is now 
considering a reform which 
would make this possible). 

This may require changes in 
several Member States, either 
because the stay periods are 
currently not limited in time 
(in FI for example they last for 
as long as necessary) or 
because the time limits are 
currently too long (e.g. 24 
months in LU). 

- 
Without appropriate 
safeguards this option could 
unfairly prejudice the 
creditors' property rights if for 
example they would not be 
able to terminate contracts 
early. To mitigate this risk, 
such effects could be limited 
to essential contracts which 
are needed to ensure the 
continuation of the debtor's 
activity. 

+ 
This option balances the 
creditors' property rights and 
the societal interest in saving a 
viable business in financial 
difficulties, because it 
provides adequate protection 
also in the form of a short 
period of stay, of prolongation 
of the stay period only when 
necessary to ensure the 
adoption of a successful 
restructuring plan and the 
possibility to ask for the stay 
to be lifted at any time when it 
no longer fulfils its objective. 
The right to a fair trial would 
be justified in the light of the 
objectives of the stay and the 
fact that it is granted for a 
short period of time.  

Summary  assessment  of  the  preferred  sub-option:  Sub-option  3  is  the  preferred  sub-option 
since  it  balances  the  interests  of  all  parties  and  does  not  have  detrimental  effects  on  the 
availability and cost of credit while also supporting the continuation of the debtor's business. 
Certain downside risks have been identified and addressed by the preferred sub-option. First, 
there is a risk that the stay will not fulfil its purpose of supporting negotiations but rather be 
misused to delay the initiation of insolvency procedures, thus leading to further devaluation of 
the business. This potential risk is addressed by the short stay period, the possibility of lifting 
it  at  the  request  of  creditors  and  the  conditions  which  need  to  be  fulfilled  for  its  potential 
extensions. Second, there is a risk that the right to property or the right to a fair trial may be 
negatively  affected.  Several  safeguards  will  need  to  be  put  in  place  to  ensure  that 
fundamental rights are not affected (stay cannot be grated or extended and it can be lifted 
where  creditors  are  unfairly  prejudiced,  court  oversight  when  an  extension  of  the  stay  is 

63 

 
 
sought  etc.).  Third,  in  terms  of  social  impacts,  workers  could  be  negatively  affected  if  the 
stay  of  enforcement  would  suspend  their  possibility  to  recoup  salaries  and  if  the  Member 
States  have  not  provided  for  the  means  to  ensure  the  payment  of  workers  'salaries  (eg.  by 
extending the coverage of insolvency guarantee funds also to preventive procedures). Member 
States would therefore need to make available safeguards to adequately protect the payment 
of salaries for the period of the stay. 

A tendency in Member States which have a stay is to have shorter stays up to three or four 
months as a consequence of their reforms in past decades. Longer stays are becoming more 
and  more  an  exception.  Moreover  a  number  of  safeguards  to  prevent  that  the  exemption 
situation  (1  year)  turns  into  the  majority  practice  would  need  to  be  in  place,  such  as:  the 
extensions of the 4 month period can be granted by the court only, it can be granted only on 
the  basis  of  a  justified  request  and  is  conditional  upon  evidence  of  progress  in  the 
negotiations. 

In  the  public  consultation,  the  majority  of  stakeholders  agreed  that  a  stay  of  individual 
enforcement actions should be available in preventive procedures. The vast majority were in 
favour of limited stay periods with a possibility of renewal in certain circumstances, or of any 
time limit set by the court. Particularly, in the public consultation and the dedicated meetings 
with the stakeholders, businesses and business support organisations were in favour of a short 
limited stay (2-3 months) for individual enforcement actions, while some of them (UEAPME) 
underlined that a stay should be granted for a period set by the court. 

Financial  institutions  were  of  the  view  that  a  short  stay  (2-3  months)  should  not  be 
automatically  pronounced  by  the  court,  but  only  ordered  in  specific  situations,  with  the 
possibility to be lifted at the request of the creditors. 

Legal  and  insolvency  practitioners  were  in  favour  of  a  short  stay  of  3-4  months  with  the 
possibility  of  renewal  under  certain  circumstances  and  be  lifted  by  the  creditors.  Some  of 
them (INSOL Europe) underlined that where creditors are stayed from enforcing their rights it 
is advisable to institute effective supervision.  

Trade Unions underlined that workers should not be treated worse in preventive restructuring 
scenarios than in case of insolvency proceedings.  

Member  States  in  general  supported  a  short  stay  (4  months)  with  the  possibility  of  its 
prolongation  under  certain  circumstances,  while  diverse  views  were  expressed  as  to  the 
maximum period envisaged. Some Member States (FI, SE) were in favour of a general stay, 
while  others  (NL)  supported  only  a  stay  on  individual  enforcement  actions.  Most  of  the 
Member States (PL, PT, ES, SE, IT, AT) were in favour of an automatic stay (which can be 
ordered without the obligation for the debtor to prove chances of success of the restructuring), 
but with the possibility to be lifted by the creditors.  

5.3. Debtor in possession  

5.3.1. Description of sub-options 

Sub-option  1:  An  obligation  to  appoint  in  court  a  professional  insolvency  practitioner  in  all 
cases may increase the costs which can make the procedures prohibitive for SMEs. However, 
in certain circumstances a mediator is necessary to broker a deal with the creditors, especially 
in  cases  of  companies  with  few  financial  creditors,  sometimes  one  bank,  and  a  few  main 

64 

 
 
clients. In other cases (for example where transactions out of the ordinary course of business 
need to be concluded during this period), the debtor would need to be supervised if he is to 
benefit from protection from avoidance actions later on.  

Sub-option 2: Having a mediator and/or supervisor appointed in every case may enhance the 
trust in the procedure but it would also raise costs. 

5.3.2. Assessment of impact of the sub-options and preferred sub-option  

Sub-options 

Sub-option 1 

Sub-option 2 

Sub-option 
summary 

Courts may appoint, on request by the 
debtor, the creditors or any interested party 
(e.g. a regulator) a mediator and /or a 
supervisor (insolvency practitioner).  

Debtor remains in possession but a 
mediator and/or a supervisor (insolvency 
practitioner) is always appointed  

Reduced costs of 
assessing risk by 
investors 

Reduced costs of 
restructuring of 
cross-border 
group 

Effectiveness 

Impact 

+ 
A procedure where there is no blanket 
supervision obligation by a professional 
may raise costs for investors in assessing 
when such a mediation or supervision is 
needed. 

0 
Cross-border groups are likely to involve 
complex restructurings with external 
professionals brought by the debtor and/or 
the creditors. Such professionals may work 
for the interest of the group as a whole, 
rather than for one member of the group. 

+ 
A mediator may be appointed on court's 
initiative or on request by the debtor or 
creditors where the parties cannot manage 
the negotiations by themselves to help 
reach a compromise.  
A supervisor may be appointed on a case-
by-case basis, e.g. where there is a risk of 
abuse of the stay or of high-risk 
transactions being undertaken by the 
debtor.  

++ 
If a professional is always appointed, there 
are less risk assessment costs for the 
investor. 

- 
Cross-border groups are likely to involve 
complex restructurings with external 
professionals brought in by the debtor 
and/or the creditors. An obligation for a 
court-appointed mediator/supervisor in 
each jurisdiction may make restructuring 
more difficult. 

+ 
A full-time mediator/supervisor appointed 
by a court is likely to increase confidence 
in the procedure and the quality of the 
process. He may also increase the quality 
of the restructuring plan and reduce the 
likelihood of challenges at a later stage.  
In many Member States it may be 
considered a necessary condition to reduce 
the involvement of the court in the 
procedure. However, such appointment 
would add to costs which would in turn 
undermine the attractiveness of the 
procedure for SMEs in financial difficulty 
already short of funds.  

Impact on 
creditors 

+ 
When insolvency practitioners have a key 
say in deciding on the viability of the 

++ 
As compared with Sub-option 1, this sub-
option could in principle further contribute 

65 

 
 
 
 
Costs of 
procedure 

Legal systems 

Judiciary 
authorities 

distressed debtor, recovery rates for 
creditors are more than 10% higher172. 
However, this sub-option is likely to  

+ 
This sub-option could be more costly for 
certain debtors, but the costs are mitigated 
by the benefits of having a mediator 
helping with negotiations or, in more 
complex cases, a supervisor advising on 
the legality of certain actions of the debtor 
and creditors.  
Still, the reduction in costs is significant 
compared to those preventive national 
procedures where a supervisor is always 
appointed, as the fees of insolvency 
practitioners are the biggest single cost 
element of insolvency procedures.  
The reduction of costs of restructuring is 
crucial for allowing SMEs to benefit from 
restructuring procedures. 

- 
Some Member States already provide for 
the possibility that a mediator/supervisor 
need not a priori be appointed by a court 
(PT, BE, EL, IT, ES). 
Other Member States would need to 
remove the obligation to appoint a 
mediator or a supervisor in every case and 
specify the conditions under which such 
appointment would always be necessary. 

0 
A supervisor is a guarantor of procedural 
fairness, so this sub-option may reduce the 
burden on the judiciary at the stage of 
confirmation of the plan or challenging the 
plan. However courts may have to play a 
more prominent role in more simple 
restructuring cases where an insolvency 
practitioner is not appointed. 

to increasing recovery for creditors, but an 
obligation to have a supervisor may prove 
in some cases prohibitively costly. The 
trade seems to be between having more 
restructuring cases and less, bearing in 
mind that the administrative costs are a 
high obstacle to entry. 

-  
The costs of having a fulltime supervisor 
will be high, even prohibitive for smaller 
businesses. The services of a mediator 
may be somewhat less costly.  

- 
Similar to sub-option 1 some MS already 
have such obligations, while in others this 
is not the case.  

0 
In practice, there is likely to be no 
significant difference in the number of 
cases where a supervisor is appointed in 
sub-options 1 and 2. As compared to Sub-
option 1, this sub-option would lead to less 
restructuring applications, but not 
necessarily less workload for the courts as 
debtors who are not restructured early go 
into liquidation procedures. . 

Summary  assessment  of  the  preferred  sub-option:  Sub-option  1  is  the  preferred  sub-option 
since  it  allows  for  a  reduction  of  the  costs  of  procedures,  which  could  be  significant  for 
SMEs,  while  at  the  same  time  it  ensures  necessary  assistance  and  supervision  from  an 
independent insolvency practitioner in more complex cases. This possibility is not hampered 
by the principle that appointment of a mediator or a supervisor needs to be made on a case-by-
case  basis.  This  option  does  not  have  any  apparent  impacts  on  fundamental  rights  or  social 

172  

http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/02/26/000333037_201302261
23527/Rendered/PDF/752400BRI0SMAR0urable0Results0FIXED.pdf 

66 

 
 
 
                                                            
impacts. The downside risk that debtors may abuse of the debtor-in-possession possibility to 
engage in transactions affecting negatively the rights of creditors is addressed to some extent 
by rules  on liability of directors and on avoidance  actions which are already  in place in the 
Member States.  

In  the  public  consultation  the  vast  majority  of  respondents  were  of  the  view  that  debtors 
should be allowed to keep control over the day-to-day operation of the business, in order to 
maintain the productive capacity of the debtor. 

From the public consultation and the dedicated meetings with the stakeholders, businesses and 
business  support  organisations  were  strongly  in  favour  of  sub-option  1.  They  particularly 
underlined that if the appointment of a supervisor/mediator is optional, this could reduce costs 
for  SMEs.  Some  of  them  were  also  of  the  view  that  when  rights  of  third  parties  are  not 
affected, the decision of the appointment of a supervisor should be confidential. 

Practitioners  were  in  favour  of  debtor-in-possession  principle  with  the  possibility  for 
appointing  a  supervisor.  They  were  however  reluctant  to  harmonising  the  conditions  for 
appointing an insolvency practitioner.  

Credit and financial institutions were of the view that the debtor should in principle remain in 
possession  and  they  fully  supported  the  principle  according  to  which  the  appointment  of  a 
mediator in a preventive restructuring framework should not be mandatory, but made by the 
court  on  a  case  by-case  basis.  They  also  underlined  the  importance  of  transparency  of 
information for creditors.  

Trade Unions  supported the debtor-in-possession principle, but  underlined  that the workers’ 
rights to information and consultation should not be affected.  

Almost all the Member States (AT, BE, EE, DE, EL, HU, IE, FR, FI, IT, LV, LT, PL, SK, SI) 
were in favour of the debtor remaining in possession, but subject to supervision by a suitably 
qualified mediator/ supervisor/ court. They also agreed that the appointment of a mediator or 
supervisor  (insolvency  practitioner)  should  remain  optional,  but  were  not  in  favour  of 
harmonising the conditions for appointment.   

5.4. Plan approval by a majority of creditors 

5.4.1. Description of sub-options 

Sub-option  1:  Creditors  act  individually  and  are  unaware  of  the  broader  impact  that  their 
actions  will  have  on  businesses,  causing  rescue  to  become  more  difficult  and  therefore 
worsening the position for creditors as a whole173. 

Sub-option 2: This sub-option includes the first sub-option and, in addition, allows Member 
States to foresee that the plan can be adopted if the required majority in at least one class of 
creditors is in favour of the plan, provided that dissenting classes are not unfairly prejudiced 
(inter-class cram-down). 

Sub-option  3:  Equity  holders  may  also  oppose  the  adoption  of  restructuring  plans  in  some 
Member States, even when the value of the company is so low that they are no longer 'in the 

173  

A review of the corporate insolvency framework, UK Insolvency Service, 1 March .2016, available at 
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/525529/Consultation_sta
ge_corporate_insolvency_consultation_Impact_Assessment_-_Mar_2016.pdf  

67 

 
 
                                                            
money'. Appropriate safeguards for equity holders should accompany any such measure (e.g. 
business  valuation  test,  right  to  challenge  the  plan  in  court)  to  ensure  that  they  are  not 
effectively expropriated. 

5.4.2. Assessment of impact of the sub-options and preferred sub-option  

Sub-options 

Sub-option 1 

Sub- option 2 

Sub-option 3 

Sub-option 
summary  

Reduced costs of 
assessing risk by 
investors 

Reduced costs of 
restructuring of 
cross-border 
group 

Effectiveness 

The plan is adopted if the 
required majority in every 
class is in favour of the 
plan, provided that the 
minority creditors are not 
unfairly prejudiced; all 
classes of creditors can be 
affected by the plan, vote 
and be bound by it, 
including secured creditors. 

+ 
The more predictable the 
conditions for adoption of 
restructuring plans by 
creditors across the EU 
Member States, the lower 
the up-front costs for 
investors. 

+ 
The more uniform the rules 
on the adoption of 
restructuring plans, the 
lower the costs for running 
parallel restructurings for 
members of the cross-
border group. 

+ 
Without a majority rule 
binding secured creditors, 
restructuring would not be 
effective: most cases 
include debt restructuring 
of companies whose 
business is otherwise 
sound; and most financial 
claims (e.g. bank loans) 
enjoy some form of 
collateral. 

Sub-option 1 + the plan can 
be adopted if the required 
majority in at least one 
class of creditors is in 
favour of the plan, provided 
that dissenting classes are 
not unfairly prejudiced 
(inter-class cram-down). 

Sub-option 2 + principle 
that shareholders should not 
be able to block the plan if 
their interests are protected 
(e.g. by including 
shareholders as  class(es) of 
their own) 

++ 
This sub-option will 
provide better chance for 
quick adoption of a plan 
despite the dissent of one or 
more classes of creditors, so 
costs of assessing risk will 
be potentially lower.. 

+++ 
The option reduces 
additional source of risk to 
be assessed, namely the 
opposition of shareholders 
to a plan which is otherwise 
capable of returning the 
debtor to viability.  

++ 
This sub-option enables a 
quicker and more feasible 
adoption of a restructuring 
plan in a group context, so 
additional costs of 
restructuring for cross 
border groups will be 
limited. 

++ 
This sub-option would be 
more effective since classes 
of creditors which do not 
have a stake in restructuring 
(because the valuation of 
the company shows that in 
a liquidation scenario they 
would recuperate very little 
or nothing) would not be 
able to obstruct the 
restructuring process. This 
sub-option will therefore 
result in a higher number of 
restructurings. Such 
restructuring are also likely 
to be more sustainable in 
the long run, since they will 
be able to effect more 
radical changes needed to 
rescue the business (such as 
sales of parts of the 

+++ 
Enabling the adoption of 
viable plans despite the 
opposition of shareholders 
would further reduce the 
risk of delays and possible 
failures to restructure one or 
more members of the cross-
border group.  

+++ 
This sub-option will be 
even more effective and 
would allow for example 
debt-to-equity swaps as a 
means to restructure the 
capital structure of the 
company – a measure 
which is unlikely to be 
supported by shareholders 
who would see their shares 
devalued as a consequence. 
This option would increase 
the number of successful 
restructurings in Member 
States where currently 
shareholders are able to 
block the adoption of a 
restructuring plan. 

68 

 
 
Availability and 
cost of credit 

0 
This sub-option would have 
negative impacts on the 
availability and cost of 
finance if dissenting 
creditors would not be 
adequately protected to 
ensure that they do not lose 
more in restructuring than 
in liquidation (best interest 
of creditors test). 
Appropriate valuation 
requirement should also be 
put in place 

business) without the need 
to 'buy' the support of 
classes of creditors which 
do not have an interest in 
the restructuring.  

0 
This sub-option may have 
in the short term negative 
impacts on the availability 
and cost of finance, as 
lenders adapt to the new 
rules. To mitigate such 
risks, appropriate 
safeguards should be put in 
place to ensure that 
dissenting creditors do not 
lose more as a result of the 
restructuring plan than they 
would in liquidation (best 
interest of creditors test). 
Appropriate valuation 
requirement should also be 
put in place. 

Legal systems  

- 
Those Member States 
where preventive 
procedures do not contain 
such a feature will need to 
amend existing procedures 
(AT, EE, EL, LV, LU, NL, 
PT, SE). 

- 
Some Member States 
already have such 
possibility in place (e.g. FI), 
while others will have to 
create such a possibility in 
order to facilitate the 
adoption of restructuring 
plans. 

0 
This option may have in the 
short term negative impacts 
as equity investors may in 
principle shy away unless 
they can be confident that 
their interests are protected. 
Appropriate safeguards 
need to be put in place so 
that shareholders do not 
lose more than they would 
in a scenario where the 
debtor's business is sold as 
going concern (shareholders 
are normally last in the 
distribution of proceeds 
from liquidation, but in 
preventive procedures they 
receive normally some 
proceeds if there is still 
value in the company). 
Appropriate valuation 
requirement should also be 
put in place. 

- -  
Member States which have 
no system of ensuring that 
shareholders cannot block 
restructuring plans will 
need to provide for such 
means. Because treatment 
of shareholders raises some 
sensitive constitutional 
concerns about the 
protection of the right to 
property, the means of 
implementing this rule 
should be left to the 
Member States, provided 
they are effective. There 
may be a need to adapt the 
company law (rights of 
shareholders) legislation as 
well. 

Fundamental 
rights (right to 
property) 

- 
A minority of creditors may 
need to accept a significant 
reduction in their claim 
without their consent. In 
order to ensure that such 
measures do not amount to 
expropriation, the 
restructuring plan should 

- 
Still higher risk for minority 
creditors or creditors from 
dissenting classes. To limit 
this risk, the best interest of 
creditors test should be 
applied (i.e. they should 
receive at least what they 
would be entitled to in the 

- 
Expropriation risks are not 
higher in case of 
shareholders since in 
liquidation proceedings 
they would likely receive 
nothing. However, in many 
Member States shareholders 
rights are seen as being 

69 

 
 
 
 
guarantee that dissenting 
creditors receive at least the 
liquidation value of their 
claims.  

essentially different than 
creditors' rights. For this 
reason, Member States 
should be allowed some 
flexibility as to how they 
understand to implement 
this rule (e.g. by opening 
formal insolvency 
proceedings). 

event of liquidation) and the 
absolute priority rule 
(meaning that junior classes 
must receive nothing in 
order to cram-down over a 
senior class). A court would 
need to confirm such a 
restructuring plan after 
ensuring that dissenting 
creditors are not unfairly 
prejudiced. Second, 
creditors and shareholders 
should also be able to 
challenge the valuation and 
the distribution of rewards 
made under the plan. 

Summary  assessment  of  the  preferred  sub-option:  Sub-option  3  is  the  preferred  sub-option 
since it is the most likely to lead to a higher number of adopted restructuring plans. The risk 
that,  in  the  absence  of  full  harmonisation,  the  Member  States  could  set  a  too  high  majority 
(e.g. 90%) or a double majority (both in amount of claims and in number of creditors) which 
would  effectively  raise  the  obstacles  to  plan  adoption  should  be  addressed  by  limiting  the 
maximum majority which can be required by Member States (e.g. 75%) and by establishing a 
simple majority only (i.e. in amount of claim). In order not to negatively impact fundamental 
rights  (i.e.  the  right  to  property  of  dissenting  creditors  and  shareholders)  and  to  avoid 
opportunistic behaviour on the part of a majority of creditors to the detriment of the minority, 
this option must be accompanies by several safeguards (eg. the best interest of creditors' test, 
the absolute priority rule). Member States will be able to set up the majorities they consider 
appropriate,  although  a  qualified  majority  of  the  value  of  claims  should  be  recommended. 
Given  the  sensitivity  of  reducing  shareholders'  rights,  Member  States  should  have  greater 
flexibility  in  deciding  which  measures  are  more  appropriate  to  achieve  the  objective  of 
enabling plans to be confirmed despite the shareholders' opposition when this is not justified. 
In respect of social impacts, this procedure will be without prejudice to the workers' rights to 
information  and  consultation  which  are  laid  down  in  other  EU  instruments.  Where  they  are 
affected as a class, workers will have the same rights to vote on a plan as other creditors.  

In the performed public consultation, most respondents were in favour of a plan binding on 
secured  creditors,  while  a  smaller  part  of  stakeholders  said  that  secured  creditors  should  be 
exempted.  The  majority  also  supported  a  cross-class  cram-down,  provided  that  appropriate 
court supervision and the principle of "no creditor worse-off" are observed. More specifically, 
business organisations and insolvency practitioners supported in general that the plan should 
be  adopted  if  the  required  majority  in  every  class  is  in  favour  provided  that  the  minority 
creditors are not unfairly prejudiced and that all classes of creditors should be affected by the 
plan. They were strongly of the view that secured and unsecured creditors should be treated in 
separate  classes..  As  for  shareholders'  position,  various  views  were  expressed;  some 
stakeholders were more reluctant to introducing mandatory provisions regarding shareholders 
in  preventive  restructuring,  while  others  (EBF,  AFME)  were  of  the  view  that  although 
shareholders should be involved in the negotiations, they should not have a hold out position 
if they are out of the money.  

Financial  institutions  were  not  opposed  to  sub-option  3,  but  they  underlined  that  adequate 
safeguards  should  exist  for  secured  creditors,  because  the  write  off  of  claims  of  a  secured 
creditor without individual consent could generate the type of uncertainty that may result in 

70 

 
 
higher costs of financing. They were also of the view that shareholders' rights might need to 
be  limited  in  certain  circumstances,  i.e  when  they  prevent  the  plan  from  being  adopted 
although  this  plan  is  likely  to  ensure  the  continuation  of  the  company's  activity  and  the 
recovery of the debts.  

The  majority  of  the  Member  States  were  in  favour  of  sub-option  2,  as  long  as  appropriate 
safeguards  are  put  in  place.  However,  views  were  diverging  with  regard  to  majorities 
required, exceptions and safeguards. As for the position of shareholders in early restructuring, 
despite the fact that all the Member States supported the rationale, some of them (FI, ES, BE, 
IE)  were  concerned  about  the  idea  of  introducing  mandatory  detailed  rules,  because  of 
potential implications on company law and constitutional protection of property rights.  

5.5.  New  financing  and  interim  financing,  safe  harbour  provisions  and  third  party 
releases 

5.5.1. Description of sub-options 

Sub-option 1: Protection of new financing - necessary to implement a restructuring plan - and 
of interim financing, necessary to keep the debtor operating during restructuring negotiations - 
is  essential  to  make  funds  available  to  distressed  businesses  and  for  companies  to  keep 
operating  while  negotiating  a  restructuring  plan.  In  both  cases,  protection  can  range  from 
exemption from avoidance actions to a priority allowing the provider of new financing to rank 
above unsecured creditors.  

Sub-option 2: In addition to protection from avoidance actions, protection of new financing in 
the form of rebuttable presumption ensures safe harbour from challenges for non-related party 
transactions which were concluded during negotiation of a restructuring plan.  

Sub-option 3: Finally, release of third parties related to the insolvent subject from contractual 
obligations  under  the  restructuring  plan  may  be  useful  to  strengthen  the  chances  of 
restructuring  of  a  business  in  difficulty.  However,  given  the  risks  of  interfering  with  the 
national  provisions  on  guarantees  and  the  security  of  transactions,  such  release  provisions 
should be limited to two situations: 

-  

-  

a debtor must be released from recourse claims of other affected obligors or guarantors 
in the same way as he is discharged of the claims of the guaranteed creditors; 

except for legal entities, co-obligors and persons who have granted a personal guarantee 
or allocated or assigned an asset as collateral may avail themselves of the provisions of 
the restructuring plan confirmed by a court. 

5.5.2. Assessment of impact of the sub-options and preferred sub-option  

Sub-options 

Sub-option 1 

Sub-option 2 

Sub-option 3 

Sub-option 
summary  

Exempting new financing 
contained in the 
restructuring plan and 
interim financing necessary 
to support the debtor during 
negotiations from 
avoidance actions. Member 
States may also provide for 
super-priority status to new 
financing, ranking it at least 

Sub-option 1 + Non-related 
party transaction entered into 
before insolvency, and in 
connection with a 
restructuring plan adopted by 
creditors shall be exempted 
from avoidance actions (safe 
harbour provisions). 

Sub-option 2 + limited co-
obligors' and guarantors'  
releases under the plan  

71 

 
 
Reduced costs 
of assessing 
risk by 
investors 

Reduced costs 
of 
restructuring 
of cross-
border group 

above unsecured creditors. 

+ 
Ex ante, investors need to 
know what protection they 
will enjoy in case of failure 
of the business or, in case 
they are investing in a going 
concern business, in case of 
failure of the restructuring 
plan. The more elements of 
the investors' protection are 
harmonised, the lower the 
costs of assessing risks for 
investors across the EU. 
The protection for 
avoidance actions is a 
minimum level of 
protection; although many 
MS have super-priority 
rules for new financing in 
order to encourage 
investors, this is not 
accepted across the Union. 
Legitimate concerns as to 
the protection of the 
expectations of existing 
investors are often invoked. 
Moral hazard risks related 
to new and interim 
financing are addressed by 
the fact that protection shall 
not be available where there 
is fraud or bad faith. 

+ 
Protection for new 
financing and interim 
financing across the 
Member States will increase 
the chances of success of 
restructuring members of 
groups of companies in a 
coordinated and efficient 
way.  

Impacts 

++ 
This sub-option would ensure 
more certainty as to which 
transactions are not likely to 
be annulled or declared void 
in subsequent insolvency 
proceedings.   

- 
Banks might incur higher 
costs in assessing ex-ante the 
costs of releasing guarantors 
even in limited circumstances 
than making that assessment 
on a case-by-case basis ex-
post. 

+++ 
This sub-option would ensure 
that the restructuring of the 
mother company does not 
trigger financial difficulties 
for a subsidiary in another 
Member State. 

++ 
Harmonisation of additional 
elements of the functioning of 
the debtor reduces the costs 
of restructuring of cross-
border groups. This sub-
option will protect from 
avoidance actions 
transactions which are 
necessary for the execution of 
an approved restructuring 
plan potentially in several 
Member States without 
having been specifically 
mentioned in the plan itself. 

Effectiveness  

+ 
More companies would be 
restructured successfully, 
since new and interim 
financing can be crucial for 
the rescue of business in 
difficulty. 

++ 
Even more companies may be 
successfully restructured in 
comparison with sub-option 
1.  
Likely to increase the 
willingness of creditors to 

+++ 
Even more companies 
restructured successfully in 
comparison with sub-option 
2.  
Third party releases would 
incentivise entrepreneurs to 

72 

 
 
Minimum protection for 
their investments will 
encourage lenders to 
support viable companies in 
financial difficulties by 
extending new financing 
and by supporting the 
continuation of operations 
by the debtor during 
restructuring174.  

- 
Since many restructuring 
attempts are still likely to be 
unsuccessful and end in 
insolvency, the protection 
of new and interim finance 
may reduce the pool of 
assets for the pre-
restructuring creditors. 
Giving new finance super-
priority may impact even 
more heavily on the 
recovery by pre-
restructuring creditors. 

- 
In some Member States, 
changes to the rule on 
avoidance actions, suspect 
periods and the civil and 
criminal liability of lenders 
to companies in distress 
would need to be made. 

Costs of 
restructuring 
procedure  

Legal systems  

file early in order to benefit 
from the provisions of the 
plan. This will also 
consolidate the position of the 
restructured debtor who will 
not fear a right to recourse 
from third parties which 
could annul the benefits of 
the restructuring.  

- - 
Such a provision would allow 
lenders such as banks to deal 
with both the principal loan 
and its guarantee in one 
single procedure rather than 
in separate procedures. Banks 
may need to factor in the 
possibility of third party 
releases when extending 
credit. This may increase the 
cost of credit. However, 
banks may already do so on a 
voluntary basis. 

- - 
Some additional changes in 
relation to sub-option 2 in 
national legislations on 
enforcement of guarantees 
may be necessary.  

extend credit to the debtor 
undergoing restructuring 
negotiations and to help the 
debtor continue its daily 
operation of the business.  
Directors will be more 
willing to enter transactions 
with non-related parties to 
save the businesses if they are 
not risking personal liability 
actions. 

- 
Since many restructuring 
attempts are still likely to be 
unsuccessful and end in 
insolvency, the protection of 
non-related party transactions 
may reduce the pool of assets 
for the body of creditors. No 
change compared with Sub-
option 1. 

- 
Similar to sub-option 1. This 
measure would not exempt 
transactions from avoidance 
actions, but simply shift the 
burden of proof on the 
insolvency administrator or 
creditors wishing to challenge 
a transaction concluded in the 
vicinity of insolvency as 
detrimental to the general 
body of creditors175. Member 
States may need to amend 
their provisions on burden of 
proof in relation to avoidance 
actions, but could keep other 
provisions unchanged, 
including on suspect periods 
and definition of 'non-related 
party'.  

Fundamental 
rights – right 
to property 

- 
Super-priority rules may 
impair the rights of pre-
petition creditors to 
property. As a safeguard, a 
liquidation value test should 
be carried out by a court, 
and challenges should be 

0 
Avoidance actions are already 
an expression of the 
competing rights to 
enforceability of contracts 
and legal certainty and 
protection for the interests of 
creditors. A large margin of 

- 
Lenders may face the 
additional threat of not being 
able to fully enforce 
collateral. For this reason, 
such measures should be 
allowed only in limited 
circumstances, and only if 

174  
175  

See Annex 2 on the analysis of the results of the performed public consultation. 
Non-related party transactions are less likely to be fraudulent and for this reason in almost all Member 
States there are shorter suspect periods in respect of such transactions. 

73 

 
 
                                                            
allowed. Super-priority can 
remain an option for the 
Member States or for 
creditors themselves. 

appreciation is already found 
in the Member States.  

adequate safeguards are put 
in place. 

Summary  assessment  of  the  preferred  sub-option:  Sub-option  2  is  the  preferred  sub-option 
since  it  provides  the  necessary  incentives  for  investors  to  support  the  company  while 
negotiations  are  on-going  and  ensuring  that  restructuring  plans  can  be  successfully 
implemented  by  providing  for  new  financing.  These  objectives  could  be  achieved  without 
excessively affecting  the  property  rights  of  existing  creditors,  especially  banks,  and  without 
raising the costs of credit. There is a risk that, in the absence of unified rules on affording new 
and interim finance super-priority status in the context of subsequent insolvency proceedings, 
investors  would  not  be  sufficiently  encouraged  to  support  restructuring  efforts.  However,  if 
new investment would indeed be crucial to the survival of a viable debtor, such super-priority 
status  could  be  contractually  agreed  upon  among  creditors  via  inter-creditor  agreements. 
Moral hazard risks should be addressed for example by ensuring that the protection for new 
financing and interim financing is not available where there is evidence of fraud or bad faith. 
There are no discernible social impacts related to this sub-option. 

In  the  public  consultation,  the  vast  majority  of  respondents  agreed  that  interim  and  new 
financing  is  needed  for  the  successful  restructuring  and  continuity  of  the  business.  Most 
stakeholders from the business sector were of the view that financing should be protected if 
agreed in the restructuring plan and confirmed by the court, while some of them believed that 
new  financing  should  always  be  protected.  Particularly,  business  organisations  such  as 
UEAPME,  Independent  Retail  Europe  and  BusinessEurope  mentioned  that  adequate 
protection of providers of new financing will provide incentives for early restructuring.  

Legal and insolvency practitioners were in favour of providing protection for new financing 
and,  for  the  sake  of  greater  certainty,  they  supported  the  idea  of  a  safe  harbour  provision 
equipped with adequate safeguards. However, they were opposed to harmonising substantive 
definitions of avoidance actions and look back periods, because of the existing divergence in 
national  systems.  Although  they  were  not  entirely  opposed  to  specific  rules  on  third  party 
releases, they remained reluctant, mainly because of fear of moral hazard. 

Financial institutions were in favour of adequate protection for new financing provided that it 
was agreed in the plan and confirmed by the court. They were opposed to any rules on third 
party releases due to potential implications in cost of credit.  They were also opposed to any 
harmonisation of ranking of claims.  

During the dedicated meetings, the majority of the Member States (NL, AT, SI, RO, PT, IE, 
PL, EL) were in favour of general principles for the protection of new and interim financing, 
provided that there are appropriate safeguard against bad faith behaviour and fraud. Member 
States  were,  nevertheless,  opposed  to  mandatory  provisions  granting  super  priority  for  new 
money  or  to  any  rules,  which  would  affect  domestic  systems  of  ranking  of  claims  and 
securities. As to safe harbour provisions, the majority of the Member States (RO, PT, ES, DE, 
PL,  IT,  BE)  were  in  favour  of  providing  a  safe  harbour  for  transactions  which  are  closely 
connected with the negotiation of a restructuring plan and which are adopted by the creditors 
and confirmed by the court, as long as European legislation remains at the level of principles 
and  there  are  no  too  detailed  provisions.  A  few  Member  States  (DE,  FI,  AT)  expressed 
concerns with regard to legal certainty and the danger of abuse. Finally, the majority of the 
Member States were opposed to any rules on third party releases.  

74 

 
 
5.6. Reducing the formalities relating to court proceedings  

5.6.1. Description of sub-options 

Sub-option 1: Courts need to be involved only in case procedural acts will have legal effects 
on  third  parties  or  where  abuses  need  to  be  avoided.  In  a  preventive  procedure,  the  court 
needs  only  be  involved  at  two  moments:  (1)  when  a  moratorium  is  sought  against  creditors 
and (2) when a plan needs to be approved in order to bind a minority of creditors or to provide 
security to new lenders. Removing the involvement of courts in other steps, such as formally 
opening  a  court  procedure,  convening  creditors'  committees  and  taking  a  vote  among  the 
creditors present in a court hearing would make these procedures less costly and speedier. At 
the same time, it must be acknowledged that a high level of court involvement may produce 
more trust in the procedures especially in Member States where insolvency practitioners are 
not highly specialised.  

Sub-option 2: Full involvement of courts, e.g. for opening formally restructuring procedures, 
for appointing in every case a practitioner in the field of restructuring, for taking a vote among 
creditors etc. 

5.6.2. Assessment of impact of the sub-options and the preferred sub-option 

Sub-options 

Sub-option 1: 

Sub-option 2: 

A flexible framework, which allows for a 
more limited involvement of courts  

Full involvement of courts 

Reduced costs of 
assessing risk by 
investors 

Reduced costs of 
restructuring of 
cross-border 
groups 

Effectiveness 

+ 
Courts should be guarantors of the rights of 
the parties. Where their involvement is 
limited to steps where the rights of such 
parties are affected, this may reduce the 
elements on which creditors would need to 
perform due diligence. 

+ 
Since in some Member States courts are 
involved fully while in other they are not, 
the costs of restructuring of cross-border 
groups can be made more complex, less 
predictable and therefore more costly. 
Ensuring that courts are involved only 
when rights of third parties are effected will 
lead to a reduction of costs overall.. 

+ 
Evidence from the Member States shows 
that reducing the courts' involvement in the 
procedure results in significant cost savings 
for the debtor and creditors. Hybrid 
procedures are cheaper than fully 
formalised court proceedings. 
The time required to adopt a restructuring 
plan may also be significantly reduced. 

- 
There will be more costs with determining 
the legal requirements for involving courts 
in such steps as convening creditors' 
committees and organising a vote among 
creditors.  

-  
While there will be more legal certainty in 
such cases, there will also be unnecessary 
court involvement across the Member 
States which is likely to push up the costs 
of restructuring on individual members of 
the group. 

- 
Too formalised procedures may be an 
additional guarantee of legality especially 
in very complex restructurings, but in most 
restructurings full court involvement may 
only add to the length of procedures. 

75 

 
 
 
 
Rights of creditors  0 

Judicial 
authorities 

Legal systems  

Fundamental 
rights 

Reducing court involvement to where it is 
necessary to protect the rights of creditors 
will not negatively affect creditors.  

+ 
Reduce the workload of courts in Member 
States where preventive procedures are 
highly formalised and even more so in 
Member States where full insolvency 
procedures are used to restructure or where 
the existing preventive procedures are not 
accessible to debtors. 
As more of these insolvencies will be 
channelled towards the preventive 
procedures, courts would become less 
burdened  

- 
Member States which now provide for a 
full involvement of courts would need to 
provide that certain steps could be taken 
out court. 

0 
Court involvement is necessary when third 
parties' rights are affected. Court oversight 
guarantees that there is a justified 
interference with the right to property. 
Equally, where third parties' rights are 
affected, they should have the right to an 
effective remedy and to a fair trial requires 
that creditors can challenge or appeal 
decisions on the confirmation of a 
restructuring plan.  

0 
If a court is always involved when a 
creditor's rights are affected, this option 
should not have a significant impact as 
compared with Sub-option 1. 

- 
A full court involvement requires that more 
steps on the procedure should be organised 
or directly supervised by the court. Such an 
approach is likely to increase the workload 
of the courts. 

- 
Member States which now provide for a 
targeted involvement of courts would need 
to provide for more court involvement. 

0 
Where third parties rights are not affected, 
involving courts does not guarantee more 
protection of fundamental rights. 

Summary assessment of the preferred sub-option: Sub-option 1 is the preferred option since it 
balances  both  the  need  to  reduce  length  and  costs  of  procedures  and  at  the  same  time  to 
safeguard  the  procedural  right  of  the  parties.  There  is  a  risk  that  the  involvement  of  courts 
could raise costs and discourage restructurings. However, the need for a court to be involved 
whenever  there  is  an  impact  on  their  parties'  rights  is  an  important  safeguard  against  moral 
hazard  when  entering  such  procedures,  on  the  side  of  both  debtors  and  creditors,  since  the 
refusal  to  confirm  a  restructuring  plans  adopted  by  creditors  after  months  of  negotiations 
would  lead  to  potentially  significant  losses  for  all  involved.  The  benefits  for  the  internal 
market will be considerable: not only will more restructurings happen simply because of the 
guarantee of legality which the involvement of a court pre-supposes; but also because court 
decision  can  circulate  and  be  recognised  across-borders  under  the  Insolvency  Regulation 
(such as a decision to grant a stay, or a decision to confirm a plan). It is also likely that 'in the 
shadow' of a strong legal framework able to cram-down on dissenting creditors, more out-of-
court restructurings will take place to avoid a court procedure. There is also a risk that, to the 
extent court systems  still  need to  be  involved, lack of efficiency of courts in  some Member 
States  may  be  a  deterrent.  This  risk  could  be  managed  by  targeted  provisions  on  the 
specialisation of courts and the use of modern communications technology. This sub-option is 
not likely to have negative social impacts. Fundamental rights of right to property and right 
to an effective remedy and to a fair trial are guaranteed under this sub-option. 

76 

 
 
 
 
In  the  public  consultation,  many  respondents  said  that  the  involvement  of  a  court  or  other 
competent authority is necessary when a moratorium is granted or in case of a confirmation of 
a  restructuring  plan,  while  a  smaller  part  of  stakeholders  were  of  the  opinion  that  the 
involvement of a court is not an absolute requirement.  

Particularly, in the public consultation and the dedicated meetings, business organisations and 
financial institutions welcomed a fast, cheaper and less court-driven procedure. 

Trade  Unions  underlined  that  the  aim  of  shortening  the  length  of  the  proceedings  cannot 
disregard the workers’ rights to information and consultation. 

During the dedicated meetings, the vast majority of the Member States (AT, BE, EE, FR, DE, 
EL, HU, IT, LT, MT, NL, PL, SK, SI) favoured the opening of some sort of formal procedure 
in  which  a  court  (or  other  competent  authority  or  body)  is  involved  from  the  moment  it 
becomes  necessary  to  stay  enforcement  actions  or  obtain  confirmation  for  the  restructuring 
plan.  

5.7. Lowering and aligning discharge periods for natural persons 

5.7.1. Entrepreneurs 

5.7.1.1. Description of sub-options 

Sub-option  1:  Reducing  the  stigma  culture  and  encouraging  restarters  rests  on  a  distinction 
between  honest  and  dishonest  entrepreneurs  and  a  reduction  of  the  discharge  period  for  the 
honest  bankrupts.  While  the  concept  of  dishonesty  should  in  principle  cover  fraudulent 
conduct, Member States may also extent it to bad faith either before or after the opening of 
bankruptcy  procedures.  A  discharge  could  be  offered  after  1  year  to  debtors  who  have  no 
assets and no income (NINAs), e.g. after a liquidation of assets. One suggestion made in the 
Insolvency Conference on 12 July 2016 was that natural persons should be distinguished, for 
the purposes of insolvency/repayment plan procedures and discharge, not by their economic 
activity (entrepreneurs v consumers), but by whether they are high net worth or low net worth 
debtors. Sub-option 1 and Sub-option 2 attempt to make that distinction. 

Sub-option 2: A  maximum discharge period  of 3 years would address all debtors, including 
those who still have income to repay creditors under a repayment plan. In fact, Sub-option 2 
could be combined with Sub-option 1 for NINA176s. 

Sub-option 3: A second chance would not be effective if entrepreneurs would not be able to 
discharge  both  their  professional  and  their  personal  debt  together.  This  option  proposes 
therefore a consolidation of proceedings in one procedure. 

5.7.1.2. Assessment of impact of the sub-options and preferred sub-option  

Very  small  businesses  (i.e.  one  person  business  or  businesses  with  up  to  four  workers) 
accounted for more than 95 % of new businesses in the different Member States in 2013 and 

176  

No income, no asset (person). See Glossary in Annex 5. 

77 

 
 
                                                            
30  %  of  them  did  not  survive  their  first  2  years177.  It  is  important  to  allow  entrepreneurs  a 
quick re-entry into the productive economy.  

Sub-option 

Sub-option 1 

Sub-option 2 

Sub-option 3 

Discharge of debts for 
entrepreneurs with no 
assets and no income and 
low levels of debt within 1 
year from start of 
liquidation proceedings, 
with limited exceptions 
(e.g. fraud, bad faith, gross 
negligence). 

Discharge of debts for 
entrepreneurs within 3 
years from start of 
liquidation and start of 
implementation of the 
repayment plan, 
implemented, with limited 
exceptions (e.g. fraud, bad 
faith). 

Impacts 

Sub-option 2 + possibility 
to consolidate all personal 
debts of the entrepreneur - 
be they business or non-
business in nature - in one 
procedure. 

+++ 
There may be significant 
additional cost savings 
where the same creditors 
will have professional as 
well as personal claims 
against the same debtor. 

++ 
Because this sub-option 
will capture more over-
indebted entrepreneurs, its 
impacts will be necessarily 
more significant. Reducing 
the risk of relocation of 
entrepreneurs with higher 
amounts of debt will also 
lead to more significant 
savings for creditors of 
these entrepreneurs (as 
otherwise they may have 
higher amounts to write off 
as a results of discharge in 
another MS). 

Sub-option 
summary 

Costs of relocation: 
cross-border impact 
on creditors 

Cost of relocation: 
cross-border impact 
on entrepreneurs 

+ 
Incentives for relocation for 
the purposes of taking 
advantage of more 
favourable discharge 
periods would be reduced, 
and therefore the additional 
costs such relocations 
would entail for creditors 
(potential ex ante costs 
assessing the risk of 
relocation of the debtor to 
the most friendly 
jurisdiction in the EU; costs 
of enforcing or trying to 
enforce in another MS; 
costs resulting from the 
need to write off debts 
following a discharge 
decision in another MS), 
will be reduced. This sub-
option will have however a 
limited impact: NINAs are 
also the less likely to be 
able to relocate given the 
financial constraints. 

+ 
Some NINAs who might 
have otherwise relocated 
will be able to have cost 
savings (such as travel 
costs to another MS, 
finding a job in less than 3 
months, living in that MS 
for at least 6 months or 
more in order to establish 
COMI change). 

++ 
Significantly more 
entrepreneurs will be able 
to avoid relocation, hence 
significantly more savings 
from reducing the need for 
relocation.  

+++ 
Consolidating procedures 
will lead to a more 
effective, quicker second 
chance, hence the 
additional cost savings for 
entrepreneurs. 

Entrepreneurship 

+ 

++ 

+++ 

177  

Annual  Report  on  European  SMEs  2015/2016,  SMEs  as  the  engine  of  growth  in  2016,  SME 
Performance  Review  2015/2016,  March  2016,  prepared  for  Directorate-General  for  Internal  Market, 
Industry, Entrepreneurship and SMEs, p. 59. 

78 

 
 
                                                            
Jobs 

Impact on GDP 

Availability and 
costs of credit 

A short discharge period 
would have positive effects 
on the level of 
entrepreneurship, as the 
possibilities for a second 
and more successful start 
increase.  
Exceptions allow Member 
States to filter out dishonest 
or fraudulent entrepreneurs. 

+ 
The option would have a 
positive impact on re-
starting business by 
previously defaulting 
entrepreneurs. More of 
them (and more new 
entrepreneurs) will re-start 
businesses and create new 
jobs. Some increase of 
jobs, but substantially 
lower than 3 million 
assessed for option 2. 
However, it may happen 
that some proportion of 
defaulting entrepreneurs 
(without any assets) will 
not restart business. 

+ 
As the proportion of 
defaulting entrepreneurs 
without assets would not be 
substantial, some limited 
boost of GDP possible. 
Effect rather due to more 
encouragement of 
entrepreneurship. 

+ 
A short discharge period 
may have negative impact 
on availability and costs of 
credit, as the creditors may 
fear that they are likely to 
have more claims unpaid 
due to the discharge.  

A medium length discharge 
period would have positive 
effects on the level of 
entrepreneurship, albeit 
less than Sub-option 1. If 
discharge periods will be 
reduced to no more than 3 
years in all Member States, 
the number of newly 
created SMEs would be 
5.9% higher than today178. 

++ 
Number  of  jobs  in  the 
SME  sector  could  be  3 
million higher than it is at 
present179. 

This sub-option will 
increase even more the 
positive effects on the 
number of second starters 
and the speed with which 
they return to activity.  

+++ 
As compared to Sub-
option 2, entrepreneurs are 
likely to benefit further 
from being able to resolve 
all their debts in one 
procedure and thus to be 
more willing to restart 
business. 

++ 
A GDP boost by between 
0.2% and 2.1% in the long 
run180. 

++ 
At least the same as Sub-
option 2, or higher due to 
bigger number of second 
starters. 

+ 
Same as Sub-option 2. 

+ 
However, risks are usually 
calculated on the basis of 
rates of default, not rates of 
discharge. Compared to 
sub-option 1, the negative 
effects on availability and 
costs of credit should be 
limited. There is no 
evidence of positive 
correlation between interest 
rates and length of 
discharge periods in 
Member States.  

Legal systems 

--- 

-- 

- 

178  
179  
180  

Idem, p. 65. 
Idem, p. 54. 
Idem, p. 66. 

79 

 
 
 
                                                            
Fundamental rights 

Many Member States have 
such a possibility in their 
law (BE, FR, FI, DE, UK), 
others would have to 
adapt.  

0 
Same as Sub-option 2  

Many Member States 
(except e.g. FI, SE) would 
have to provide for shorter 
discharge periods, while 
some Member States may 
only have to reconsider the 
conditions under which 
discharge is granted (e.g. 
FR, DE, SK, CY).  

0 
Compared to Sub-option 1, 
the change would strike 
less controversially the 
balance between the 
creditors' right to property 
and the debtor's right to 
human dignity and to 
engage in work. 

Almost all Member States 
(except IE and UK) would 
have to change their laws to 
enable such a short 
discharge period.    

0 
Given that debtors 
benefiting from such short 
periods of discharge have 
low amount of debts, 
creditors are not likely to 
suffer significant detriment. 
Creditors' rights have to be 
balanced against the right 
of debtors to human dignity 
and to engage in work, 
which the absence of 
discharge renders very 
difficult. 

Summary assessment of the preferred sub-option: Sub-option 3 is the preferable sub-option as 
it provides for a fair  balance between the rights of the creditor  and the rights  of the debtor, 
while  having  a  most  positive  impact  on  the  levels  of  entrepreneurship.  In  terms  of 
fundamental  rights,  this  sub-option  will  have  positive  impacts  in  terms  of  right  to  human 
dignity and right to engage in work, which do not appear to be outweighed by the potential 
harmful impact on creditors' property rights, in particular when taking into consideration that 
in practice recovery rates are very low during these periods and creditors' rights are therefore 
not effectively protected. A short discharge period is a concern from a moral hazard point of 
view.  Reducing  the  discharge  period  is  often  feared  to  incentivize  debtors  to  take  on  debts 
with  no  intention  of  repaying  them.  Such  a  fear  is  not  supported  by  evidence.  Research181 
shows  that  the  key  reason  of  over-indebtedness  of  sole  entrepreneurs,  which  represent 
important part of SMEs, resides in the lower resistance of SMEs to external economic shocks 
due  to  their  lower  ability  to  mobilise  reserves  for  the  period  of  economic  downturns. 
Negligence or intention to repay the contracted business loans is a reason for default of their 
obligations only  in  a  very  low  number  of  situations.  There is  a  potential  downside  risk  that 
discharge  alone  could  not  give  entrepreneurs  effective  access  to  second  chance.  Other 
flanking  measures  could  therefore  be  necessary,  for  example  limiting  the  duration  of 
disqualification  order  which  are  issued  for  honest  entrepreneurs  simply  because  they  were 
involved in a bankruptcy procedure. 

In recent decades a number of Member States reduced the time limit of discharge period and 
there is no information that in any of those Member State the amount of unpaid loans would 
have increased due to an increased moral hazard risk. At the same time, Member States with 
very  short  discharge  periods  (for  example  1  year  in  the  UK)  do  not  report  higher  levels  of 
unpaid loans or higher costs for obtaining credit due to the moral hazard than Member States 
with long discharge period (for instance Greece with 10 years). 

181  

Quoted by Annual Report on European SMEs 2015/2016, p.62. 

80 

 
 
                                                            
In  general,  in  the  performed  public  consultation,  the  majority  of  the  respondents  were  in 
favour of full discharge of debt for entrepreneurs who are 'honest'. Respondents also said that 
such a measure should be complemented by disincentives for dishonest conduct. The majority 
was also of the opinion that the test of honesty should be harmonised at EU level, with many 
indicating that a presumption of honesty should be put in place. The views were more diverse 
when it came to the length of the discharge (many of them agreed to less than 3 years and a 
smaller  part  of  stakeholders  was  in  favour  of  5  years)  and  whether  discharge  should  be 
conditional upon repayment of a certain amount of debt 

More  specifically,  stakeholders  in  the  business  sector  as  well  as  professional  associations 
strongly  supported  the  objective  of  offering  honest  bankrupt  entrepreneurs  a  second  chance 
reducing  the  stigma  of  insolvency  and  allowing  them  to  return  to  economic  life  in  a 
reasonable  timeframe.  They  were  in  favor  of  a  3-year  discharge  period,  but  underlined  that 
consideration  should  be  given  to  clarifying  certain  criteria  for  'honesty',  so  that  there  is 
appropriate  legal  certainty  about  the  cases  when  a  facilitated  discharge  should  be  allowed. 
Additionally,  during  the  stakeholder  meetings,  business  organisations  as  well  as  legal 
professionals  and  accountants  voiced  that,  where  the  entrepreneur  has  personal  debts,  both 
generated  by  his/her  business  activity  and  by  his/her  non-business  activity,  the  proceedings 
should be consolidated for the purposes of the discharge.  

The banking sector was of the view that honest bankrupt entrepreneurs should be discharged 
from debts after a relatively short period of time (3 years) only if a certain amount of the debt 
is  repaid  (threshold  should  not  necessarily  be  statutory,  but  may  also  be  determined  by  the 
courts  on  a  case-by-case  basis).  Access  to  such  discharge  should  be  possible  only  when 
restructuring measures have failed or are impossible. Financial institutions also advocated that 
a  ‘second’  full  discharge  should  only  be  available  after  a  longer  period  of  time  in  order  to 
exclude incentives for bad practices (and avoid moral hazard). Additionally, they were not in 
favour of consolidation of economic and private debts. 

Trade Unions supported the objective of second chance, but they warned from too generous 
rules which can facilitate the so-called “phoenix syndrome182”. 

Although  all  Member  States  supported,  in  principle,  the  idea  of  a  second  chance  for 
entrepreneurs, providing for a reduced  discharge period,  various views were  expressed with 
regard  to  the  conditions  and  exemptions.  During  the  informal  governmental  expert  group 
meetings, some Member States (BE, FR, FI) were in favour of introducing a presumption of 
honesty, while others (PL, NL) spoke against. In addition, views were diverging with regard 
to  the  issue  of  introducing  a  limited  time-period  within  which  a  discharged  entrepreneur 
would be banned from another discharge procedure. Some Member States (DE) pointed out 
that  a  full  discharge  of  debt  should  be  possible  only  after  the  repayment  of  a  predefined 
portion of the debt. Finally, many Member States were in favour of consolidation of economic 
and private debts (BE, FI, FR, NL, ES). 

Consumer  organisations  strongly  supported  a  three-year  discharge  period,  not  only  for 
entrepreneurs but for all honest bankrupt individual debtors.  

182  

This is defined as a situation where controllers of a company that becomes insolvent by reason of their 
acts  or  omissions  are  enabled  to  be  relieved  of  their  failure  and  debts  and  immediately  re-establish 
themselves  in  a  new  enterprise  effectively  carrying  on  the  same  business  and  still  availing  of  the 
privilege of limited liability. 

81 

 
 
                                                            
5.7.2. Consumers 

5.7.2.1. Description of sub-options 

Sub-option 1: The regulation of personal insolvency has an influence on how individuals deal 
with  risks  in  their  economic  activity,  and  determines  whether  individuals  suffering  from  an 
excessive  debt  burden  can  return  to  a  productive  economic  life.  'Discharge  is  the  essential 
feature and one of the most salient characteristics of modern systems for the regulation of the 
insolvency  of  natural  persons.  One  of  the  principal  purposes  of  an  insolvency  system  for 
natural persons is to re-establish the debtor’s economic capability, in other words, economic 
rehabilitation,48  and  discharge  is  the  most  effective  way  in  which  the  debtor  can  resume 
productive activity for society. It is also the most effective incentive for the use of a personal 
insolvency regime.'183 

Sub-option  2:  As  a  matter  of  principle,  there  is  no  need  to  distinguish  in  term  of  discharge 
periods  between  entrepreneurs  and  consumers.  First,  the  same  arguments  linked  to  re-
integration in to the economic life play out for both. Second, in many cases it will be difficult 
to draw the line between the personal debts incurred as a result of the business activity of the 
debtor  and  those  incurred  for  other  reasons.  In  such  cases,  different  discharge  periods  may 
make procedures more cumbersome and costly, with even more losses to creditors and more 
hardship  to  debtors.  For  these  reasons,  the  same  sub-options  should  be  kept  for  both 
entrepreneurs  and  consumers.  Sub-option  1  and  Sub-option  2  are  therefore  similar  to  Sub-
option 1 and Sub-option 2 under the section on discharge for entrepreneurs. 

5.7.2.2. Assessment of impact of the sub-options and preferred sub-option 

Sub-options 

Sub-option 1 

Sub-option 2 

Sub-option 
summary  

Discharge of debts for consumers could 
take place within 1 year from start of 
liquidation proceedings, with limited 
exceptions (e.g. fraud or bad faith). 

Effectiveness 

+ 

Impacts 

This option would help in cases of no-
assets-no-income debtors with debts of a 
relatively small value (e.g. under 10,000 
euro). It would address an important 
segment in the society, i.e. those who 
cannot enter a repayment plan because 
they do not have any income. 
A 1 year discharge period would not be 
appropriate for debtors who still have the 
possibility to repay their creditors or for 

Possible discharge of debts for consumers 
could take place within 3 years from the 
start of liquidation proceedings or the 
moment when the repayment plan starts 
being implemented, with certain 
exceptions (e.g. fraud or bad faith). 

++ 
A medium length maximum discharge 
period for all over indebted debtors, i.e. 
NINAs184 but also those still able to make 
repayments to creditors and those having 
large amounts of debt, would have positive 
effects overall on affording debtors a 
reasonable second chance with much less  
risk of moral hazard than in option 1. A 3 
years repayment period is, according to 
evidence185, an optimal period which 
encourages repayment to creditors. Longer 

183  

184  
185  

Garrido, J. M., The Role of Personal Insolvency Law in Economic Development, An Introduction to the 
World  Bank  Report  on  the  Treatment  of  the  Insolvency  of  Natural  Persons,  World  Bank, 
http://elibrary.worldbank.org/doi/pdf/10.1596/978-1-4648-0037-5_ch5, p. 124. 
No income, no asset (person). See Glossary in Annex 5. 
Garrido, J. M., The Role of Personal Insolvency Law in Economic Development, An Introduction to the 
World  Bank  Report  on  the  Treatment  of  the  Insolvency  of  Natural  Persons,  World  Bank,, 
http://elibrary.worldbank.org/doi/pdf/10.1596/978-1-4648-0037-5_ch5, p. 124 and foll. 

82 

 
 
                                                            
those who have large amounts of debt.  

discharge period may also make too big 
sacrifices in the terms of private life of the 
debtors. While NINAs would arguably be 
better off with a shorter discharge period, 
the lack of experience in the Member 
States with such short discharge periods 
may create a rather negative perception of 
second chance provisions.  
According to the World Bank, experience 
with voluntary workout arrangements 
indicated that expecting debtors to live 
longer than three years at a subsistence 
level would be “from a social point of 
view not responsible.” Practice in many 
countries has indicated that plans longer 
than three years produce more failure than 
success. In one large system, for example, 
a consistent two-thirds of all payment 
plans fail before they reach the end of their 
five-year term.186 

Bankruptcy 
tourism(relocation) 

Legal certainty for 
creditors 

Availability and 
cost of credit 

Promotion of 
responsible lending 

+ 

++ 

Incentives for relocation for the purposes 
of taking advantage of more favourable 
discharge periods would be reduced for 
those debtors who have smaller amounts 
of debt and no income.. 

+ 
Certainty for creditors (assessment of risk-
given-default) would be greatly improved, 
in particular with respect to the least 
creditworthy borrowers. 

Incentives for relocation for the purposes 
of taking advantage of more favourable 
discharge periods would be greatly 
reduced for all honest debtors.  

++ 

Certainty for creditors (in respect of risk-
given-default) would be greatly improved 
for all categories of borrowers. 

- 

++ 

A too short discharge period may have 
negative impact on availability and costs 
of credit, as lenders may fear they are 
likely to have more claims unpaid due to 
the moral hazard which a short discharge 
period would generate. In practice, such a 
risk is mitigated by the fact that only 
debtors with small amounts of debt would 
be addressed. 

Compared to sub-option 1, the negative 
effects on availability and costs of credit 
are limited, as in practice lenders calculate 
the cost of credit based on the rate of 
default and rather recovery rates that the 
length of discharge.  Furthermore, more 
legal certainty in this area would help 
lenders foresee better the risk-given-
default. 

+ 
Creditors would limit irresponsible 
lending as they would be discouraged to 
offer credit to not creditworthy 
consumers. 

++ 

This option would limit tendency to 
irresponsible lending (application of too 
low creditworthiness standards) by 
creditors to all categories of borrowers. 

Impact on legal 

+ 

++ 

186  

Working Group on the Treatment of the Insolvency of Natural Persons Report on the Treatment of the 
Insolvency 
Bank, 
http://siteresources.worldbank.org/INTGILD/Resources/WBInsolvencyOfNaturalPersonsReport_01_11
_13.pdf, p. 86. 

Persons, 

Natural 

World 

of 

83 

 
 
 
                                                            
systems 

Many Member States (except UK) would 
have to change their laws to adjust to the 
new discharge period.    

Many Member States (except e.g. FI, SE) 
would have to provide for shorter 
discharge periods, while some Member 
States may only have to reconsider the 
conditions under which discharge is 
granted (e.g. FR, DE, SK, CY). Compared 
to sub-option 1, the legal system of 
Member States is less affected. 

Facilitate return of 
debtors to 
consumption 

+ 

+ 

This option will address the poorest 
borrowers. The Impact on consumption 
and growth will be positive, but limited 
due to their limited income. The impact on 
social security expenditures will be 
positive (less help needed if people able to 
get back to work). 

Create a favourable 
entrepreneurship 
climate 

+ 
Limited positive impact, as the 
beneficiaries of this option can hardly 
become entrepreneurs. 

The positive impact of this option on 
consumption and growth may be 
substantial, as borrowers freed from debt 
will come back to higher consumption 
levels. Some limited impact on 
expenditures on social help (less help 
needed if over-indebted back to work and 
normal life). 

++ 

Potential positive effect, as previously 
over-indebted could start a business (or re-
start, if their debts were partly due to 
previous professional activity) . 

Fundamental rights  + 

++ 

The change may be somewhat detrimental 
in the short term to the creditors' right of 
property in some Member States, although 
the impact on creditor is likely to be 
minimal given that this sub-options 
concerns consumers with no income and 
no assets. Debtors, on the other hand, 
would benefit from less interference with 
their private life, as creditors can enforce 
claims for a shorter period of time. 
Positive impact on the right to decent life, 
in particular if over-indebtedness is due to 
external reasons. 

Compared to sub-option 1, the change 
would strike a better balance between the 
creditors' right of property, due to the 
limited discharge period, and the 
interference with the debtor's private life 
following a limited discharge period. 

Positive impact on the right to decent life, 
in particular if over-indebtedness due to 
external reasons.  

Summary  assessment  of  the  preferred  sub-option:  Sub-option  2  is  the  preferred  sub-option 
because  overall  it  would  have  an  impact  on  a  larger  group  of  citizens,  provide  a  better 
balancing of the need to afford debtors a second chance while at the same time encouraging 
repayment of debts and therefore creating a better perception of second chance provisions. It 
would  also  be  less  sensitive  with  Member  States  which  currently  have  longer  discharge 
periods.  The  risk  of  moral  hazard  is  reduced,  as  a  Study  on  consumer  over-indebtedness187 

187  

THE  OVER-INDEBTEDNESS  OF  EUROPEAN  HOUSEHOLDS:  UPDATED  MAPPING  OF  THE 
SITUATION,  NATURE  AND  CAUSES,  EFFECTS  AND  INITIATIVES  FOR  ALLEVIATING  ITS 
IMPACT, Report prepared by Civic Consulting of the Consumer Policy Evaluation Consortium (CPEC) 
for  the  European  Commission  (DG  SANCO),  Report  published  in  2014,  p.167.   Available  at: 
http://ec.europa.eu/consumers/financial_services/reference_studies_documents/docs/part_1_synthesis_o
f_findings_en.pdf. 

84 

 
 
                                                            
confirms  that  the  reasons  of  consumer  over-indebtedness  are  mostly  external  and  objective 
(loss of employment, divorce, disease).  

In terms of impacts on fundamental rights, this options strikes the right balance between the 
creditors' right of property, due to the limited discharge period, and the interference with the 
debtor's  private  life  following  a  limited  discharge  period.  Positive  impact  on  the  right  to 
decent  life  is  expected,  in  particular  if  over-indebtedness  is  due  to  external  reasons.  Social 
impacts will be positive, as more debtors will be able to have a second start, escape debt traps 
and possibly avoid going on the black market to find for sources of income. 

In  the  2016  public  consultation,  most  of  the  respondents  agreed  that  consumers  should  be 
given  the  chance  to  restructure  their  debt,  supporting  also  that  a  full  discharge  of  debts, 
possibly subject to certain conditions, should be offered to consumers provided that they are 
'honest'  debtors.  They  particularly  mentioned  that  this  needs  to  be  complemented  by 
disincentives  for  dishonest  conduct.  The  majority  also  replied  that  over-indebted  consumers 
should have access to free or low cost advice. 

Whilst there is support for some harmonisation of rules on discharge of debt for consumers 
among  business  stakeholders,  some  (e.g.  Bundesverband  der  Deutschen  Industrie  e.V) 
highlight that a too short period for discharge can be an incentive for misuse.  Some business 
stakeholders188 are also of the opinion that consumer insolvency and discharge should be dealt 
with  separately  and  should  not  form  part  of  the  effort  to  create  an  efficient  insolvency 
framework  for  businesses.  Additionally,  financial  institutions  are  strongly  opposed  of 
including rules on consumer insolvency. 

Family  and  consumer  protection  stakeholders  on  the  contrary  strongly  endorse  minimum 
standards  on  consumer  insolvency  and  discharge  and  stress  that  there  are  no  convincing 
arguments  for  differentiating  between  entrepreneurs  and  consumers  with  regard  to  the 
applicable conditions. 

Given  the  insufficiently  developed  body  of  evidence  of  the  positive  impacts  of  discharge 
periods for consumers on the internal market as well as the differences in rationale between 
this  initiative  focused  on  the  improved  functioning  of  the  capital  market  union  and  the 
freedom  of  establishment  for  self-employed  persons,  the  principle  in  Sub-option  2  above 
should  be  set  as  a  possibility  in  a  soft  law  instrument  rather  than  in  binding  legislation,  as 
already set out above189. However, this possibility would need to be considered in light of the 
ongoing developments in Member States as regards national reforms of consumer insolvency 
laws  and  existing  frameworks  for  addressing  the  problem  at  this  stage,  as  described  under 
Problem  3.  It  is  true  that  soft  law  already  exists  in  that  respect  in  the  form  of  the  2014 
Recommendation. However, it needs to be taken into account that Member States would be 
obliged  to  regulate  a  discharge  period  for  entrepreneurs  in  line  with  the  minimum 
requirements  of  a  Directive.  In  those  circumstances  even  non-binding  provisions  on  the 
extension of that regulation to consumers could have tangible impact on the ground over and 
above the 2014 Recommendation,  particularly in view of the fact that many Member States 
have  common  rules  for  entrepreneurs  and  consumers  and  that  in  practice  very  often  the 
consumer and business debts of an entrepreneur can hardly be distinguished. 

188  

189  

BUSINESSEUROPE,  European  Banking  Federation  (EBF)  and  European  Mortgage  Federation-
European Covered Bond Council (EMF-ECBC). 
Point 4 in fine. 

85 

 
 
                                                            
5.8. Measures to increase the effectiveness of restructuring, insolvency and second 
chance procedures 

5.8. Description of sub-options 

Sub-option  1:  courts  or  judges  dealing  with  restructuring,  insolvency  and  second  chance 
procedures will need to be appropriately trained and specialised; practitioners in these fields 
will need to be professional, abide t ethical standards, be monitored and have a disciplinary 
system,  and  be  remunerated  in  a  manner  which  encourages  them  to  achieve  sustainable 
outcomes  in  the  short  time  period  possible.  Increasing  the  performance  of  courts  and 
practitioners will also contribute to making the system less vulnerable to moral hazard: when 
people know the system works well and is transparent, there is less room for moral hazard. 

Sub-option  2:  the  introduction  of  electronic  means  of  communication  for  procedural  steps 
such  as  filing  of  claims,  notifications  to  creditors,  voting  of  restructuring  plans,  lodging 
challenges and appeals will reduce the length of restructuring, insolvency and second chance 
procedures, increase the participation of creditors, especially cross-border creditors with small 
amounts of debt which would otherwise not consider it worthy to travel to another Member 
State  in  order  to  vote  on  a  restructuring  plans  or  to  file  an  appeal;  and  the  data  collection 
exercise under Sub-option 3 below. 

Sub-option 3: This sub-option will add an element of monitoring of restructuring, insolvency 
and second chance procedures. Member States will be asked to collect data on the number of 
filings, the outcomes of procedures, and the sustainability of restructuring and second chance 
outcomes (by collecting data on re-applications of debtors who already went one through such 
procedures). Such data shall be collected on the basis of a standard data collection form and 
will be communicated to the Commission. 

5.8. Assessment of impact of the sub-options and preferred sub-option 

5.8. Increase the 
effectiveness of 
procedures 

Reduce costs of 
assessing risks by 
investors 

Sub-option 1: 
specialisation of courts or 
judges, training and 
professional standards for 
practitioners in the area of 
restructuring, insolvency 
and second chance 

+ 
Investors' confidence in 
the courts and judges as 
well as in the 
practitioners assisting the 
courts where their debtor 
has its COMI is crucial to 
their decision to invest 
(AFME). 

Sub-option 2 
S/o 1 + digitisation of 
court procedures 

Sub-option 3: S/o 2 + 
monitoring and data 
collection on number and 
outcome of procedures 

++ 
Increasing the creditors' 
possibility to participate 
in restructuring, 
restructuring and second 
chance procedures 
reduces the risks for 
creditors, in particular 
small, cross-border 
investors who would be 
otherwise unable to 
participate in person or by 
representation and thus 

+++ 
Publicly available data on 
the length of the different 
types of procedures, the 
likely outcomes of such 
procedures etc. provides 
better information for 
investors, much as the 
WB Ease of doing 
business Index does 
currently. The advantage 
of such monitoring at EU 
level has the advantage 

86 

 
 
Reduce costs of 
restructuring of cross-
border groups 

Effectiveness 

Judicial authorities 

Legal 
systems/Administrative 
costs 

influence the process or 
defend their interests190. 

++ 
Communication in cross-
border cases between the 
parties (debtors, creditors, 
shareholders etc.), 
between parties and 
practitioners appointed by 
a court and between 
courts would be greatly 
facilitated and made 
speedier if procedures 
were digitised. 

the 

costs 

++ 
This  sub-option  would 
reduce 
of 
creditors'  participation  in 
restructuring  procedures, 
in  particular 
in  cross-
border  cases.  A  higher 
participation  of  credits 
will  in  turn  result  on  a 
more 
and 
balanced 
therefore  more  viable 
restructuring plan.  

++ 
This sub-option would 
have positive impacts on 
the legal system, as it 
reduced delays and 
antiquated 
communication systems. 

-  
No significant changes in 
the legal system, but there 
would be additional costs 
for the justice budgets to 
implement such 
measures. However, the 
digitisation of procedures 
is a trend in all Member 
States, any the upfront 

that it will provide 
concrete data rather than 
expert estimates. 

++ 
No significant additional 
direct impact as compared 
to Sub-option 2. 
Indirectly, data on the 
effectiveness parameters 
in each Member State 
may help those 
restructuring groups of 
companies to take 
preventive action. If for 
example a legal system is 
known to produce delays, 
the group may decide or a 
targeted COMI shift of a 
certain subsidiary. 

+++ 
Monitoring of procedures 
in each Member States 
will enable legislators to 
identify the soft spots of 
these systems and act in a 
targeted way to address 
them. For example, if the 
number of fillings is too 
small, further incentives 
could be put in place. 

++ 
This sub-option should 
not require more work at 
the level of courts, if the 
steps in the procedure are 
digitised and can then 
feed into a dedicated 
database. 

-  
If procedures are 
digitised, the costs of this 
sub-option would be 
reduced to the costs of 
developing a software 
aggregating relevant data 
which already exists in 
the system in a special 
database. These costs are 

+ 
Costs will be reduced as 
the courts' capacity to 
respond quicker and with 
more authority to urgent 
requests, as so often in 
restructuring and 
insolvency cases, would 
be enhanced in all 
jurisdictions where a 
group has subsidiaries. 
This effect will be 
compounded if the 
practitioners assisting 
courts and the parties are 
also enjoying a high level 
of professionalism in all 
Member States. 

+ 
In the public consultation, 
among the measures 
which would contribute to 
increasing recovery rates 
for creditors, insolvency 
practitioners were 
mentioned by most 
respondents, followed by 
avoidance actions and 
specialisation of courts or 
judges 

+ 
Specialisation of courts or 
judges would contribute 
to reducing the time 
necessary to deal with 
cases, thus leading to a 
reduction of the overall 
workload in courts.. 

- 
sub-option  may 
This 
that  Member 
require 
States 
the 
re-think 
organisation of courts and 
implement 
some 
substantial  changes.  To 
avoid 
of 
dysfunctions  in  the  short 
longer 
a 
term, 

risks 

any 

Flash EB 422 of 2016 on Domestic and foreign claims of EU businesses shows that enforcement of 

190  
foreign claims is relatively rare and rather for higher value of claims, which may suggest many low value claims 
are abandoned. 

87 

 
 
                                                            
costs putting it in place 
are likely to be quickly 
offset by the gains in the 
reduction of the length of 
procedures. 

negligible in comparison 
with the costs under Sub-
option 2.  

period 
implementation 
should  be  considered  for 
measures. 
such 
Organisational 
changes 
would  imply  some  one-
off costs but would result 
in  efficiency  gains  within 
the  judiciary  that  should 
more than compensate for 
these  costs  in  the  longer 
term. 
There  may  be 
some 
further  costs  linked  with 
the training of insolvency 
practitioners, and with the 
supervision 
their 
activity.  However,  these 
not 
should 
costs 
necessarily  be made  from 
the  public  purse,  but 
rather  by  the  associations 
of 
insolvency 
practitioners  and  other 
professionals 
who 
perform 
tasks  of 
the 
insolvency  practitioners 
and should be part of their 
life-long 
and 
self-regulation 
expenditure. 

lawyers, 

learning 

of 

Summary  assessment  of  the  preferred  sub-option:  Sub-option  3  is  the  preferred  sub-option 
because it has the highest impact on the reduction of the length of procedures, the increase of 
confidence in the operation of courts and the professionalism of insolvency practitioners. This 
is the most likely sub-option to lead to a reduction of average insolvency proceedings in the 
Member States where procedures are too lengthy. The internal market objective would be best 
achieved  by  this  sub-option  which  would  ensure  a  considerable  reduction  of  the  investors' 
costs of assessing risk ex-ante and of coordinating procedures ex post. No significant impacts 
on fundamental rights or social impacts can be discerned. 

In the public consultation, many respondents stated that a court system in terms of speed, cost 
and  specialisation  may  have  an  impact  on  saving  viable  businesses  and  increasing  the 
recovery rates.. More specifically, the vast majority of the respondents were of the view that 
minimum standards on qualifications and training for insolvency practitioners would help to 
increase  the  efficiency  and  effectiveness  of  insolvency  proceedings,  while  more  than  half 
called for minimum standards on licensing and registration requirements, liability and a Code 
of  Ethics.  In  addition,  specialisation  of  courts  and  digitalisation  was  also  mentioned  as  a 
potential incentive to reduce the length of insolvency proceedings. 

Particularly,  in  the  public  consultation  and  the  dedicated  meetings  with  the  stakeholders, 
business  sector  welcomed  minimum  standards  for  practitioners  in  the  field  of  restructuring 
and insolvency. Many of them advocated the introduction of a code of conduct for insolvency 
practitioners. 

88 

 
 
Financial  institutions  in  general  would  welcome  the  introduction  of  minimum  standardised 
rules  on  the  role  of  mediators  and  supervisors,  which  should  include  among  others:  (i) 
professional  qualification  standards;  and  (ii)  general  principles  covering  their  remuneration. 
They were also of the view that the effective length of insolvency proceedings, as well as the 
skill of insolvency practitioners and the specialisation of courts and judges, have an enormous 
impact on the debt recovery rate. 

However,  insolvency  practitioners'  organisations  were  reluctant  to  detailed  provisions 
regarding  insolvency  office  holders.  INSOL  Europe  stressed  that  although  harmonisation 
would be in general desirable, only common principles in cooperation matters, independence 
and  continuous  education  are  advisable  at  this  stage,  due  to  the  great  diversity  of  national 
rules  with  regard  to  all  aspects  related  to  insolvency  office  holders  (types,  nature  of 
employment, size, qualification, training, appointment, remuneration and liability issues).  

Academics  and  experts  were  of  the  view  that  qualification,  training  and  independence  of 
insolvency practitioners as well as courts’ specialisation are of key importance for an efficient 
early restructuring legal framework.  

In  the  public  consultation  and  the  meetings  with  governmental  experts  from  the  Member 
States,  the  majority  of  the  Member  States  (PT,  DE,  ES,  FR,  NL,  FI,  IE)  supported  the 
objectives  of  adequate  qualification  and  training  of  insolvency  practitioners.  Many  Member 
States  voiced  that  EU  intervention  should  remain  at  the  level  of  general  objectives  and 
provide a rather flexible approach, especially regarding the appointment and remuneration of 
practitioners. With regard to specialization of the judiciary, the majority of the Member States 
welcomed the general objectives of proper qualification, training and specialisation of judges, 
but  expressed  concerns  regarding  a  provision  on  the  concentration  of  courts  in  insolvency 
cases,  since  it  affects  the  organisation  of  the  internal  judiciary  system,  which  is  a  matter  of 
national competence. 

6. 

THE PREFERRED HIGH-LEVEL OPTION 4 

The preferred option is Option 4 with the following combination of selected substantive sub-
options: 

Operational objectives 

The preferred sub-option  

Enable efficient 
possibilities of early 
restructuring 

Sub-option 3 
(i)  A  restructuring  procedure  must  be  available  when  the  debtor  is  in 
financial difficulties and there is a likelihood of insolvency.  
(ii)  Over-indebted  but  viable  debtors  must  have  a  clear  possibility  to 
enter preventive restructuring. 
(iii)  A  model  restructuring  plan  must  be  made  available  to  SMEs  to 
assist  them  in  drafting  plans  and  making  the  necessary  disclosures  to 
creditors, accompanied by early warning tools or advice mechanisms. 

Improve chances of 
negotiations by allowing 
the debtor a "breathing 
space" by way of stay of 
enforcement actions 
(moratorium) 

Sub-option 3 
(i) The moratorium suspends individual enforcement actions and the 
duty to file for formal insolvency proceedings. 
(ii) The moratorium also suspends the right of essential suppliers to 
avail themselves of early termination clauses. 
(iii) The moratorium is of a short, limited duration of no longer than 4 

89 

 
 
months and gives creditors right to ask for lifting the stay. 

Facilitate the continuation 
of debtor's business while 
restructuring  

Sub-option 1 
Debtor remains in possession, but courts may appoint on a case-by-
case basis a mediator or a supervisor  

Disallow dissenting 
minority creditors and 
shareholders to 
jeopardise restructuring 
effort while safeguarding 
their interests 

Increase chances of 
success of the 
restructuring plan 

Sub-option 3 
(i) The plan is adopted if the required majority in every class is in 
favour of the plan, provided that the minority creditors are not unfairly 
prejudiced; all classes of creditors can be affected by the plan, vote and 
be bound by it, including secured creditors. 
(ii) Member States may also provide that the plan can be adopted if the 
required majority in at least one class of creditors is in favour of the 
plan, provided that dissenting classes are not unfairly prejudiced (inter-
class cram-down). 
(iii) Shareholders should not be allowed to block restructuring plans, 
provided their legitimate interests are protected, for example, by 
including shareholders as  class(es) of their own). 

Sub-option 2 
(i) Exempt new financing contained in the restructuring plan as well as 
essential interim financing from avoidance actions. Member States 
may also provide for super-priority status to new financing, ranking it 
at least above unsecured creditors. 
(ii) Non-related party  transaction entered into before insolvency, but in 
connection with a restructuring plan adopted by creditors shall be 
exempted from avoidance actions (safe harbour provisions)  

Reduce costs and length 
of restructuring 
procedures 

Sub-option 1 
A flexible framework, which allows for a limited necessary 
involvement of courts, for example, for granting a moratorium and for 
confirming the plan 

Enable the discharge for 
natural persons in a 
reasonable time for those 
in good faith 

Sub-option 3 
(i) Discharge of debts for entrepreneurs within 3 years from start of 
liquidation and start of implementation of the repayment plan, 
implemented, with limited exceptions (e.g. fraud, bad faith). 
(ii) Possibility to consolidate all personal debts of the entrepreneur - be 
they business or non-business in nature - in one procedure. 
Member States could also reduce discharge periods for consumer debts 
to 3 years from the start of liquidation proceedings or the moment 
when repayment plan starts being implemented, with certain 
exceptions (e.g. fraud or bad faith). A coherent discharge regime for all 
natural persons would facilitate the consolidation of all debts of the 
entrepreneurs for the purposes of obtaining a discharge.  

Increasing the 
effectiveness of 
restructuring, insolvency 
and second chance 
procedures 

Sub-option 3 
(i) Specialisation of judges and enhancing the quality of insolvency 
practitioners.  
(ii) Digitisation of procedures. 
(iii) Data collection 

90 

 
 
The  selection  of  sub-options  was  also  inspired  by  well-performing  national  frameworks191. 
Hence,  the  provisions  of  the  future  directive  will  not  require  significant  changes  in  those 
Member  States,  while  allowing  those  Member  States  which  need  to  improve  a  reasonable 
degree of flexibility. 

For example, on restructuring: 

 

 

 

a  stay  of  enforcement  actions  is  necessary  to  address  the  problem  of  a  minority  of 
creditors  who  have  no  interest  in  restructuring  the  debtor  and  who  may  therefore 
obstruct the negotiations. at the same time, a too long stay period may be detrimental to 
creditors,  therefore  increasing  the  number  of  those  who  would  be  opposed  to 
restructuring the debtor's business 

the inspiration for a short stay period of no longer than 4 months came from France (the 
ad-hoc and conciliation procedures), Germany, Spain and a number of Member States 
which  reformed  very  recently  in  this  area  (Slovenia  for  example);  the  inspiration  for 
allowing  MS  the  discretion  to  prolong  the  stay  period  up  to  12  months  provided  that 
certain  conditions  are  met  came  from  Finland  and  France  (the  sauvegarde  procedure) 
where more complex restructurings can take place. 

the  preferred  option  will  therefore  not  change  what  works  well  in  several  Member 
States,  while  addressing  the  biggest  problems  with  the  stay  which  are:  too  long  stay 
periods  (24  months  in  Luxembourg)  with  no  control  and  therefore  potentially  open  to 
abuse and (2) no stay possibility at all (Austria). 

For discharge: the trend is clearly towards reducing the discharge period for natural persons. 

 

 

 

following  the  2014  Recommendation,  most  reforms  took  place  in  this  area:  Spain, 
Romania,  Hungary,  Croatia  have  for  the  first  time  introduced  the  possibility  of  a 
discharge  of  debt  after  a  number  of  years  –  this  is  a  positive  development,  but  the 
discharge period implemented in these countries is 5 years and not the recommended 3 
years 

in  some  Member  States  the  existing  discharge  periods  were  reduced  to  3  years,  e.g. 
Greece (for entrepreneurs only, from 10 years) 

several  Member  States  where  entrepreneurship  is  very  dynamic  have  short  discharge 
periods,  e.g.  UK,  NL,  FI    -  they  were  the  inspiration  probably  also  for  the  2011 
Competitiveness Council conclusions which recommended 3 year discharge periods to 
be implemented in the Member States by 2013. 

191  

See Annex 6 Overview of Member States frameworks. 

91 

 
 
 
 
                                                            
Chart  6:  An  illustration  of  how  a  restructuring  framework  including  the  preferred  sub-
options could work in practice 

92 

  Negotiations Moratorium Successful negotiations Preventive restructuring plan National insolvency proceedings Discharge of honest entrepreneurs Max 3 years Non successful negotiations P O S T  I N S O L V E N C Y F I N A N C I A L   D I F F I C U L T I E S I N S O L V E N C Y TIME                                                                                 COURT INVOLVEMENT                                                                 OUTCOME COURT CONFIRMATION COURT PROCEEDINGS Non-viable businesses Restructuring / reorganisation  Sale as a going concern Piecemeal  liquidation COURT INVOLVEMENT  
 
 
7.  ANALYSIS  OF  OVERALL  IMPACTS  OF  THE  PREFERRED  HIGH-
LEVEL OPTION 4 

There is a substantial amount of evidence that the approach to restructuring that is set out in 
the preferred option, of giving preference to restructuring over liquidation, and of facilitating 
a  fresh  start  for  failed  entrepreneurs  and  consumers  can  give  rise  to  significant  economic 
benefits192.  However,  the  insufficient  granularity  and  lack  of  data  comparability  between 
Member States as regards the number and types of restructuring and insolvency proceedings, 
and  essential  elements  of  such  proceedings,  such  as  their  length,  costs  and  recovery  rates  - 
make it challenging to make precise quantitative estimates of the scale of the positive impacts 
that the preferred Option 4 is expected to generate. 

Thanks  to  its  binding  character,  Option  4  will  introduce  a  new  culture  of  rescuing  viable 
businesses in those Member States (mostly central, eastern and southern EU Member States) 
where such approach is currently virtually non-existent and which the 2014 Recommendation 
could not bring about given its non-binding character. 

Option 4 provides for key effectiveness and efficiency elements of restructuring proceedings 
which  have  been  elaborated  together  with  a  group  of  insolvency  experts  as  well  as  the  key 
stakeholders. Given the large divergences between the substantive insolvency frameworks in 
Member States as attested by the comparative study, Option 4 tries to put in place a minimum, 
targeted  effectiveness  and  efficiency  framework  while  at  the  same  time  not  upsetting  the 
existing insolvency and restructuring procedures in the Member States where these work well. 
A degree of flexibility for Member States to decide on the means to achieve the objectives is 
necessary  because  in  practice  we  observe  that  different  approaches  could  work  well  in 
practice.  For  example,  Member  States  have  different  approaches  to  class  formation  (for 
example  whether  to  bifurcate  secured  claims  in  different  classes  based  on  the  value  of  the 
collateral)  and  to  the  majorities  required  for  the  plan  to  be  adopted  (for  example  whether 
simple  or  qualified  majority),  therefore  the  details  in  these  matters  were  left  to  their 
discretion.  

Furthermore, Option 4 will create a framework where restructuring of cross-border groups of 
companies will be possible – thanks to the common binding minimum standards. This will be 
an  important  progress  compared  to  the  existing  situations  where,  according  to  the 
stakeholders,  cross-border  restructurings  with  application  of  multiple  Member  State 
insolvency  laws  are  currently  unfeasible  due  to  the  inefficiency  or  divergences  of  national 
restructuring frameworks. By more coherent insolvency law, current barriers which hold back 
cross-border  investments  would  be  removed.  However,  Option  4  does  not  attempt  to 
introduce  a  new  European  preventive  restructuring  procedure,  but  it  rather  defines  certain 
efficiency  measures  which  Member  States  should  implement  in  their  existing  (or  to  be 
introduced) preventive restructuring procedures. 

192  

Annual  Report  on  European  SMEs  2015/2016,  SMEs  as  the  engine  of  growth  in  2016,  SME 
Performance  Review  2015/2016,  March  2016,  prepared  for  Directorate-General  for  Internal  Market, 
Industry, Entrepreneurship and SMEs. 

93 

 
 
 
 
 
 
                                                            
Objectives / 
impacts 

Reduce the 
barriers for 
cross-border 
investment 
which are 
related to 
insolvency 
frameworks and 
increase 
investment and 
job opportunities 

Reduce the costs 
of restructuring, 
including for 
groups of 
companies, so 
that viable 
companies are 
rescued rather 
than liquidated 
and maintain 
jobs 

Assessment of impacts of the high-level option 4                                                                                                          

(with selected substantive sub-options against status quo) 

General objectives 

Less  distortion  of  investment  decisions  and  facilitated  resolution  of 
non-performing loans. The preferred option will contribute to reducing 
barriers to cross-border investment. When investing in the EU on a cross-
border  basis,  the  investor  has  to  make  an  assessment  of  as  many 
substantive restructuring regimes as is the number of Member States he 
intends  to  invest  in.  By  reducing  the  differences  between  these 
restructuring  regimes,  the  costs  of  their  assessment  will  decrease. 
Consideration  of  rights  against  foreign  debtors  would  be  an  important 
factor  impacting  on  a  decision  to  invest  abroad  for  almost  a  half  of 
companies already having foreign debtors. The proportion of companies 
that  would  consider  those  rights  is  particularly  high  in  Poland,  Croatia, 
Romania,  Bulgaria,  Latvia,  Slovenia,  Malta,  Greece  and  Lithuania.  The 
majority  of companies (55%)  find it difficult to find the information  on 
those rights. Lack of knowledge of foreign law is considered by almost a 
half  (47%)  of  interviewees  a  potential  obstacle  to  invest  abroad,  while 
around  40%  of  companies  find  practical  difficulties  to  file  a  claim  in 
another country or  cost of pursuing this claim, or  cost of legal advice a 
potential obstacle to invest193.  

The  preferred  option  4  would  result  in  more  viable  business  being 
rescued than at present since:   
- Minority creditors will not be able to destabilise the negotiation process 
in the hope of extracting some commercial advantage, e.g. by forcing an 
early recovery of their debt.  
-  Cross-class  cram-down  will  ensure  that  creditors  with  no  economic 
interest  in  the  company  are  not  able  to  hinder  the  adoption  of 
restructuring  plans.  Shareholders  will  not  be  able 
to  oppose  a 
restructuring  which  restores  the  viability  of  the  company.  This  will 
improve  the  restructuring  frameworks  in  particular  in  BG,  DK,  SK,  SI, 
HR, CY, EE, IE, LT, LU, NL, PL, RO where currently the restructuring 
is not effective (too late, formal, inefficient, lack of enabling framework). 
- Viable SMEs in financial distress with a relatively simple debt structure 
would benefit in particular.  
- This option will reduce the spill-over effects of insolvency which result 
in delayed payments or defaults by other businesses in the supply chain. 

Reduce the costs 
of and increase 
the opportunities 
for natural 
persons to have 
a fresh start 

Option  4  would  partially  fulfil  the  objective  of  reducing  the  costs  of 
and increasing the opportunities for natural persons to have a fresh start 
as regards natural persons (entrepreneurs). The risk of bankruptcy is 
what  Europeans  fear  most  about  setting  up  a  new  business.  In  Flash 
Eurobarometer194, 49%  of Europeans have  declared that they would not 
start a business because of the fear of failure. That fear is justified given 
that 50% of businesses do not survive the first 5 years of their existence 

193  
194  

Flash Eurobarometer, Report Insolvency, no. 442, 2016. 
Flash Eurobarometer 354, ENTREPRENEURSHIP IN THE EU AND BEYOND, June - August 2012. 

94 

 
 
                                                            
Reduce the costs 
of assessing ex-
ante the 
investment risks 
and improve 
recovery rates  

Reduce the costs 
of restructuring, 
including for the 
groups of 
companies, so 
that viable 
companies are 
rescued rather 
than liquidated  

and  that  in  many  Member  States  it  takes  a  long  time  for  a  bankrupt 
person to obtain a discharge of debt. 

Specific objectives 

The  costs  of  assessing  ex-ante  the  investment  risks  will  be  reduced 
and  recovery  rates  in  insolvency  proceedings  will  be  improved.  The 
greater alignment of restructuring regimes would reduce the cost of legal 
to  avoid  application  of  multiple  national 
advice  currently  used 
restructuring  and  insolvency  frameworks.  Stakeholders,  and  especially 
those  in  the  banking  and  investment  sector  reported  that  greater 
convergence  of  insolvency  frameworks  would  enhance  predictability, 
reduce  risk  assessment  costs  and  encourage  investors  establishing  their 
business  activities  in  other  Member  States.  At  the  same  time,  this 
alignment  would  prevent  inefficiencies  of  the  cross-border  investment 
structures which are so designed in the economically most efficient way, 
but  in  order  to  circumvent  the  application  of  certain  inefficient 
insolvency and restructuring laws. Although it is difficult to assess how 
much in assessment of recovery rate can  be associated with parts of the 
insolvency  framework  on  restructuring  and  second  chance,  if  all  EU 
Member  States  were  to  reach  a  recovery  rate  of  85  percent,  this  would 
imply a permanent increase in GDP of €41bn to €78bn (or between 0.3% 
and  0.55%  of  EU28  GDP).  The  distribution  of  macroeconomic  effects 
suggests  that  much  of  the  absolute  gains  from  insolvency  reform  could 
flow  to  Italy,  Spain  and  France,  as  well  as  some  central  European 
member states such as Poland, Hungary and Romania195. 

to  widely  differing  national  restructuring 

The impacts of the preferred option 4 on restructuring costs will be 
potentially  significant  in  several  Member  States  (in  particular  BG, 
DK, SK, SI, HR, CY, EE, IE, LT, LU, NL, PL, RO) and of minimal order 
of magnitude in terms of savings in other Member States (€135-223 m in 
particular in BE,  DE, FR, FI, SE,  LV), plus  other  unquantified savings. 
Option  4  would  enhance  the  prospects  of  realising  a  higher  number  of 
restructurings  of  cross-border  groups  the  costs  of  which  are  currently 
laws. 
prohibitive  due 
Furthermore,  the  solution  under  the  preferred  option  4  will  reduce  the 
barriers  for  cross-border  crediting  of  SMEs:  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. 
Moreover, in the public consultation and the dedicated meetings with the 
stakeholders,  business  and  banking  sector  considered  that  minimum 
standards  on  insolvency  practitioners  and  specialisation  of  judges  could 
contribute significantly to the increase in recovery rates. 

The  majority  of  the  respondents  in  the  performed  public  consultation 
agreed  that  measures  enabling  the  rescue  of  viable  companies  are 
essential for mitigating the problem of non-performing loans, while less 
were  of  the  view  that  measures  to  improve  the  effectiveness  of 

195  

Idem. 

95 

 
 
                                                            
insolvency  proceedings  can  also  contribute  to  reducing  the  problem  of 
non-performing  loans.  It  was  in  general  stressed  that  the  problem  of 
NPLs  can  be  dealt  more  effectively  in  a  system  providing  for  realistic 
possibilities of an effective restructuring and debt enforcement on the one 
hand  and  a  prompt  discharge  of  what  is  not  realistically  recoverable  on 
the  other  hand.  More  particularly,  the  banking  sector  and  legal  and 
insolvency  practitioners  supported  the  view  that  early  restructuring 
measures  result  in  better  recovery  for  lenders  since  they  can  allow 
rescued companies to repay their loans (at least in part) and to continue to 
make  a  positive  contribution  to  the  economy.  Also  in  the  view  of 
financial and banking sector, creditors and investors' certainty concerning 
legal  outcomes  particularly  as  to  the  enforceability  of  the  loans  and  the 
effectiveness  of  the  restructuring  initiatives  will  lead  to  the  efficient 
resolution of NPLs in Europe. 

In concrete terms, the length of procedures will be reduced in a number 
of ways: 

 

 

 

a  maximum  four  months  limit  to  the  stay  of  enforcement  actions; 
prolongation would be possible but only upon evidence of progress 
in the negotiations and in any case it should not be longer than 12 
months,  

courts must decide with expedience, 

challenges  and  appeals  shall  not  be  able  to  suspend  confirmation 
and application of restructuring plans. 

Finally,  by  requiring  specialisation  of  insolvency  courts  and  judges,  the 
proposal  will  oblige  Member  States  to  enhance  quality  and  speed  of 
restructuring  procedures  which  are  of  essence 
successful 
restructurings. 

for 

Conservatively,  if  only  the  reduction  of  the  stay  period  should  have  an 
impact (assuming all other elements are complies with), one can estimate 
that length of restructuring procedures will, for example, be halved in LU 
and reduced by 1/3 in France.  

Reduce the 
number of 
natural persons 
(entrepreneurs 
and consumers) 
in a debt-trap so 
that these 
natural persons 
could create new 
companies and 
re-integrate in 
economic life of 

The  selected  option  4  will  reduce  the  number  of  natural  persons-
entrepreneurs trapped in debt. This will also increase the rate of self-
employment in the EU since a reduction in the discharge period increases 
the  rate  of  self-employment  in  total  employment196.  During  the 
‘Sounding  Board’  meetings,  business  and  practitioners’  organisations, 
consumers  organisations  as  well  as  academics  acknowledged  that  a 
second  chance  approach  accompanied  with  adequate  safeguards  will  be 
beneficial  for  allowing  entrepreneurs  to  re-enter  in  the  productive 
economy. At one end of the spectrum there are countries such as Cyprus, 
Hungary, Italy, Lithuania, Malta, Portugal, and Romania, where currently 
there is no discharge period for entrepreneurs and where the impact of 3-
year  discharge  period  would  be  significant.  The  number  of  new 

196  

Annual  Report  on  European  SMEs  2015/2016,  SMEs  as  the  engine  of  growth  in  2016,  SME 
Performance  Review  2015/2016,  March  2016,  prepared  for  Directorate-General  for  Internal  Market, 
Industry, Entrepreneurship and SMEs, p. 63. 

96 

 
 
                                                            
a society to 
support a 
dynamic 
business 
environment   

businesses each year in Greece, for example, would double. On the other 
hand, in the countries which have already have a period to discharge of 
less than 3 years or even less than a year (Belgium (less than 1), Bulgaria 
(1),  Denmark  (3),  Estonia  (3),  France  (3),  Ireland  (3),  Latvia  (3),  the 
Netherlands  (3),  Poland  (1),  Slovakia  (3)  and  the  United  Kingdom  (1)) 
the impact would be only marginal and would be achieved by reducing in 
practice the discharge period to even less than what it is now.  

Key impacts 

The impact on entrepreneurship will  be positive.  The latest analysis 
of  enterprise  mortality  rates  shows  that  on  average  across  Member 
States, only 82% of firms created in 2012 and 67% of firms  created in 
2011 survived in 2013. In other words, the death rate of newly created 
firms  is  about  1/3  after  two  years197.  Since  any  liquidation  can 
potentially  cause  a  chain  effect  of  further  insolvencies  (according  to 
most  recent  Eurostat  data  available  for  2011,  cross-border  sales 
constituted  17,6%  of  the  whole  value  of  sales  in  Europe)  firms  further 
upstream or downstream in the supply chain in one Member State may 
face financial difficulties because of the insolvency of a firm in another 
Member  State,  even  if  they  have  no  direct  dealings  with  that  firm.  By 
promoting a more flexible restructuring framework and better conditions 
for fresh start upon failure, the death rate of companies can be reduced 
as  well  as  the  negative  knock-on  effects  of  related  insolvencies  in  the 
supply  chain.Easier  discharge  conditions  for  entrepreneurs  also 
contribute to greater innovation198. 

The  option  will  positively  contribute  to  consumption  and  growth, 
due to enhanced possibilities for companies to continue their operations 
and keep employment. Since (i) more efficient restructuring procedures 
lead  to  a  speedier  normalisation  of  portfolios  of  non-performing  loans, 
and (ii) there is a significant negative relationship between resolution of 
corporate  non-performing  loans  and  GDP  growth  -  1  percentage  point 
reduction  in  the  ratio  of  debt  to  financial  assets  leads  to  about  0.4 
percentage  points 
increasing  efficiency  of 
restructuring  proceedings  should  positively  influence  the  growth  of 
GDP. It will have a positive impact for natural persons-entrepreneurs to 
come  back  to  professional  life  and  previous  consumption,  after  using 
discharge  and  second  chance  possibility.  Furthermore,  according  to  a 
study  carried  out  in  2006,  GDP  growth  is  positively  correlated  with  a 
favourable attitude towards second chance199.  

less  GDP  growth  – 

Entrepreneurship 
and innovation 

Consumption and 
growth 

Chart  7:  Estimated  impacts  of  insolvency  reform  on  GDP  and 

197  
198  
199  

Ibid. 
Bankruptcy codes and innovation, CEPR, May 2007, http://www.cepr.org/pubs/dps/DP6307.asp  
Burchell  and  Hughes,  2006,  The  Stigma  of  Failure:  an  international  comparison  of  failure  tolerance 
and second chancing. 

97 

 
 
 
 
                                                            
employment in the EU28 

Source: 

Frontier Economics and Weil, for AFME, Potential economic gains from 
reforming insolvency law in Europe, February 2016, based on Datastream, 
World Bank, S&P and Moody’s data 

The impact on SMEs will be positive. SMEs as debtors are most likely 
to  succumb  to  temporary  financial  difficulties,  as  (i)  their  smaller  size 
may  mean  that  they  have  fewer  financial  reserves  on  which  they  can 
draw  in  case  of  financial  difficulties  –  often  triggered  by  the  financial 
difficulties  of  a  bigger  company  in  their  network,  (ii)  they  are  most 
affected  by  the  cost  of  restructuring  and  the  reticence  of  lenders  to 
extend  new  finance  to  companies  in  financial  distress.  A  more 
accessible,  cheaper,  and  faster  preventive  restructuring  framework 
would  afford  SMEs  more  chances  to  restructure  successfully  and 
therefor are more resilient to shocks in the supply chain. 

The  preferred  option  will  contribute  to  higher  competitiveness  of 
EU  companies  since  it  is  expected  that  it  will  lead  to  increases  in 
recovery  rates  which,  in  turn,  lead  to  lower  borrowing  costs200.  The 
lower borrowing costs for EU companies will have a positive effect on 
their competitiveness. 

The preferred option will have a positive impact on employment. 

Since  early  restructuring  saves  companies  rather  than  drive  them  into 
liquidation, it is expected that jobs will be saved rather than lost. It was 
hard  to  measure  the  exact  impact  on  jobs,  but  it  is  expected  that  a 
significant  proportion  of  the  1.7  million  jobs  which  are  lost  to 
insolvency every year will be saved. Benefits will be seen in particular 
in particular in BG, DK, SK, SI, HR, CY, EE, IE, LT, LU, NL, PL, RO.  

The  selected  option  will  not  impact  on  the  protection  of  workers, 
including their rights to information and consultation, as guaranteed by 
EU law. This will be clearly spelled out in the proposal. Furthermore, it 

SMEs 

Competitiveness 

Jobs and social 
impacts 

200  

A 10 percentage point increase in expected recovery rate is associated with a 37 basis point fall in bond 
spread  (Potential  economic  gains  from  reforming  insolvency  law  in  Europe,  AFME,  Frontier 
economics, Weil, February 2016, p. 34). 

98 

 
 
                                                            
contains a flexibility to ensure that workers as a class can be adequately 
protected.  For  example,  courts  can  exempt  an  entire  class  of  creditors 
from the stay of enforcement if such a class will be unfairly prejudiced 
by the stay. Furthermore, possibilities for the salaries to be paid during 
the stay period and protected under the 'safe harbour' provision would be 
introduced. Also, plans will not be confirmed by a court if they do not 
guarantee at least liquidation value to all creditors.  

Second  chance  provision  will  also  have  a  positive  impact  on  jobs. 
Restarters  could  create  up  to  3  million  new  jobs201.  The  measures  on 
discharge period also have an impact on preserving a decent livelihood 
for debtors (who can otherwise slide into the grey or black economy.  

The preferred option will have a mostly positive impact on financial 
institutions. The positive impacts will result from the expected increase 
in recovery rates and from the accelerated rate of reduction in the share 
of  non-performing  loans.  This  will  be  due  in  particular  to  easier 
detection  of  viable  debtors,  shorter  and  less  costly  process  of 
restructuring  or  liquidation.  Financial  sector  will  benefit  from  better 
crediting  capacity  and higher  demand for credit (due to  better standing 
of the economies) Higher convergence of discharge regimes for debtors 
will  have  a  positive  impact  on  financial  institutions  as  creditors,  by 
enabling them to  better foresee  the prospects of repayment of debts by 
companies  and  individuals.  Some  negative  impact  may  come  from  the 
moratorium on enforcement actions of secured creditors. The provision 
on  majority  decision  on  the  restructuring  plan  binding  all  types  of 
creditors  may  lead  financial  institutions  to  think  that  they  have  less 
control  over  their loans  held  against  borrowers  in  distress  or  insolvent. 
However,  specific  safeguards  are  foreseen  in  Option  4  to  mitigate 
potential negative impacts. For example, the duration of the moratorium 
has  been  designed  to  be  limited  and  short.  Court  confirmation  of  a 
restructuring  plan  must  hinge  on  whether  the  plan  is  fair  towards 
dissenting  creditors  (i.e.  best  interest  of  creditors  test  and  the  absolute 
priority rule). 

In liquidation proceedings, creditors with no security suffer the biggest 
losses: this reality is universally valid, and consequently the World Bank 
Ease of Doing Business Index measures only recovery rates for secured 
creditors.  Precisely  because 
liquidation  would  be  so  disastrous, 
unsecured creditors are the most likely to benefit from the rescue of the 
debtor's  business:  even  if  subject  to  a  long  stay,  unsecured  creditors 
would  at  the  end,  if  restructuring  is  successful,  be  able  to  claim  and 
obtain compensation for the unpaid debts, where as in case of liquidation 
they will get close to nothing. 
Nevertheless, it is important to ensure that the debtor is able to continue 

Financial 
institutions 

Impact on 
unsecured 
creditors 

201  

Annual  Report  on  European  SMEs  2015/2016,  SMEs  as  the  engine  of  growth  in  2016,  SME 
Performance  Review  2015/2016,  March  2016,  prepared  for  Directorate-General  for  Internal  Market, 
Industry, Entrepreneurship and SMEs. According to another study, Additional employment in the EU28 
would increase by between 600,000 jobs in the low scenario and 1.2 million jobs in the high scenario, 
see  Potential  economic  gains  from  reforming  insolvency  law  in  Europe,  AFME,  Frontier  economics, 
Weil, February 2016, p. 5. 

99 

 
 
                                                            
Impact on 
consumers 

Non-performing 
loans 

operating during the stay period, therefore his essential suppliers should 
not  be  able  to  terminate  contracts  provided  the  debtor  fulfills  his 
obligation. They should also not be able to terminate contracts for debts 
which arose before the stay was granted. 

Although  the  proposal  would  not  lay  down  mandatory  rules  on 
consumer discharge, it would encourage that the same regime applies to 
entrepreneurs  and  to  non-entrepreneurs  (consumers).  Many  Member 
States already treat the discharge and second chance for natural persons 
in  the  same  way  irrespective  of  whether  the  indebted  person  is  a 
consumer  or  entrepreneur.  It  should  also  be  made  possible  where  it  is 
not currently the case.  

A  solid  restructuring  framework  will  prevent  the  accumulation  of 
bad debts by putting in place tools that allow the transformation of non-
performing loans into performing ones, or alternatively to channel non-
viable  companies  to  quick  liquidation.  The  preferred  option  is  also 
expected to have a positive impact on contributing to reducing  the NPLs 
accumulated  in  the  balance  sheets  of  banks  issue,  although  it  will  not 
fully solve it (at least not in a very short time span). More specifically, 
the NPLs will be tackled by: 

- rescuing viable companies in financial difficulties: such company will 
mostly  owe  to  a  bank  a  performing  loan  (which  is  not  yet  due  but  the 
due  date  coming  close).  Rescuing  a  higher  number  of  companies  will 
ensure  that  new  NPLs  are  not  added.  However,  since  it  cannot  be 
excluded that a viable company in financial difficulties may also owe a 
non-performing  loan (which is  already due), there is a twofold  indirect 
link between early restructuring and reduction of non-performing loans. 
First,  higher  recovery  rates  are  more  likely  in  economies  where 
restructuring is the most common insolvency proceeding. For example, 
45 percent of OECD economies use reorganization as the most common 
insolvency  proceeding  to  save  viable  firms,  leading  to  an  average 
recovery  rate  of  83  cents  on  the  dollar,  as  opposed  to  57  cents  on  the 
dollar  with  liquidation  (World  Bank,  Doing  Business  Report,  2013). 
There  is  also  solid  evidence  from  the  US  showing  that  an  insolvency 
system which favours restructuring is more resilient to economic shocks.  

-  by  making  restructuring  frameworks  more  effective  and  efficient,  the 
costs of enforcement of non-performing loans through restructuring will 
decrease,  so  that  banks  will  be  able  to  deleverage  a  higher  number  of 
those  loans  through  restructuring  channel  (the  other  channel  of 
deleveraging of non-performing loans in insolvency is through a piece-
meal  liquidation).  This  effect  has  been  observed  in  several  countries 
which  recently  introduced  some  sort  of  restructuring  proceedings  and 
faced  a  problem  of  a  high  number  of  non-performing  loans,  such  as 
Slovenia. In addition, in the performed public consultation, the banking 
sector agreed that early restructuring and efficient insolvency procedures 
can  have  a  very  positive  impact  on  recovery  rates  and  non-performing 
loans. 

Tax revenues and  The preferred option will have a neutral impact on tax revenues and 

100 

 
 
state aid rules 

Legal systems of 
Member States 

Moral hazard 

Fundamental 
rights 

state  aid  rules.  The  preferred  options  complies  with  the  "private 
investor test" since it treats both the public and the private investors in 
the same way. In particular, a public creditor agreeing with a reduction 
of  its  claim  under  in  a  restructuring  plan  will  be  subject  to  the  same 
haircut as the private creditor in the same position. If the public creditor 
will be among the dissenting creditors, he will be entitled to no less than 
the liquidation value of the restructures business. Thus, no loss of value 
meaning no loss of actual or potential revenues for public budgets will 
occur. Also the stay on enforcement action (the moratorium) limited in 
time and strictly linked to the preparation of a viable restructuring plan 
is  in  accordance  with  the  state  aid  rules  and  principles  in  the  area  of 
rescue and restructuring. 

The  preferred  option  will  require  a  modification  of  restructuring 
and  second  chance  frameworks  in  certain  Member  States.  The 
preferred  option  will  require  some  Member  States  to  put  in  place  a 
preventive procedure or adapt a procedure already notified under Annex 
A of the Insolvency Regulation. Some changes to the law of companies 
may be needed to implement the provision on shareholders. 

The  preferred  option  should  in  principle  not  affect  moral  hazard 
elements neither on the side of lenders nor on the side of borrowers due 
to  the  safeguards  provided  for  each  risk  element  of  the  procedure.  For 
example: 

 

 

 

 

in  respect  of  the  stay  of  enforcement:  creditors  can  ask  the  court 
for lifting the stay when creditors are unfairly prejudiced;  

courts  have  to  confirm  both  the  stay  and  the  restructuring  plan, 
making  sure  that  the  procedural  steps  were  respected,  that 
dissenting creditors are not unfairly prejudiced and that the plan is 
not clearly unviable;  

creditors  can  appeal  the  courts'  decision  and  thus  challenge  the 
restructuring plan;  

in respect of second chance: Member States can reduce the access 
to  the  discharge  period  or  extend  the  discharge  period  in  case  of 
dishonesty of the debtor. 

The  impact  on  fundamental  rights  will  be  neutral.  The  right  to 
conduct a business and engage in gainful employment will be enhanced, 
since  companies  will  be  able  to  continue  operating,  and  entrepreneurs 
would be able to have a second chance. Although certain elements of the 
procedure may affect the right to property and the right to an effective 
remedy  and  to  a  fair  trial,  safeguards  will  be  foreseen  in  each  case  in 
order  to  ensure  that  these  are  proportionate  in  view  of  attaining  the 
objectives and respect the rights and principles set out in the Charter of 
Fundamental Rights, in particular those in 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),  Article  27  (on  the  workers'  rights  to  information  and 

101 

 
 
consultation),  as  well  as  Article  8  (protection  of  personal  data)  and 
Article 7 (respect for private and a family life). 

Third countries, 
international 
trade or 
investment 

The  impact  on  third  countries,  international  trade  or  investment 
will  be  positive.  The  selected  option  will  stimulate  international 
investment from third countries into the EU, as investors will likely face 
fewer obstacles when entering the EU market. 

Court workloads 

Public 
administrations 

The  preferred  option  4  will  decrease  the  workload  for  courts  by 
reducing  the  necessity  of  involving  courts  in  many  restructuring 
proceedings and by introducing the digitisation of procedures. Where the 
proposed  procedure  is  used,  the  courts'  involvement  would  only  be 
limited  and they would have  the possibility of concentrating on formal 
insolvency procedures. 

The  impact  on  costs  for  public  administrations  of  Member  States 
will be limited. Where preventive procedures are introduced for the first 
time Member States would need to provide training for their courts and 
for  insolvency  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.  Exchange  of  best 
practices could be done in the context of the European Judicial Network, 
at no extra cost for public administrations. Cost of reporting obligations: 
many  Member  States  already  have  statistical  data,  and  only  need  to 
make  it  available  to  the  Commission  once  a  year.  For  the  rest  of  the 
Member States, the costs of gathering such data are not expected to be 
significant. 

102 

 
 
 
 
8. MONITORING AND EVALUATION 

The implementation of the Directive in the Member States will be followed in the context of 
the European Judicial Network, which will act as a forum for the exchange of best practices 
on  restructuring  and  second  chance  frameworks  at  EU  level.  Currently,  national  official 
sources  (e.g.  justice  ministries  or  national  statistical  institutes)  provide  information  on  the 
number of insolvency cases filed. In some Member States, additional breakdown of different 
types  of  insolvency  proceedings  –  which  may  include  restructuring  proceedings  –  can  be 
available.  

Although some cross-country data on the number of insolvencies are assembled and reviewed 
by  international  institutions202,  currently,  it  is  not  possible  to  distinguish  the  number  of 
national  proceedings  with  a  cross-border  element  from  the  total  number  of  insolvency 
proceedings203;  the  same  applies  to  restructuring  proceedings.  Due  to  the  aforementioned 
limitations in availability of real data on insolvency, it is currently not possible to say what the 
actual costs of cross-border insolvency or restructuring proceedings and cross-border recovery 
rates204. With respect to time needed for resolving insolvency cases, estimations on the basis 
of insolvency practitioners experience are available205. Introducing performance reporting by 
national  insolvency  agencies  (e.g.  on  costs,  timescales  and  asset  recovery  percentage)  has 
been  suggested  by  private  stakeholders206  as  well  as  international  organisations,  such  as  the 
IMF207. 

In the proposed instrument, it would be necessary to include an obligation for Member States 
to provide annual statistical data on: 

(i)  

(ii) 

(iii)  

(iv)  

(v)  

the number of preventive restructuring procedures opened by enterprises in difficulty,  

the number of liquidations and sales as a going concern,  

the average length of proceedings, including particular procedural phases (e.g. before 
courts, out-of-court), 

the  size  of  the  debtors  involved  in  such  proceedings  (medium,  large  or  micro-
enterprises), and 

the outcome of the procedures opened, including the recovery rates in different types 
of procedures.  

The  evaluation  of  statistical  data  will  allow  the  Commission  to  decide  on  the  appropriate 
follow-up. 

202  

203  

204  

205  

206  

207  

For example, the OECD indices on the number of insolvencies in "Entrepreneurship at a glance - 2015", 
or insolvency data published by Creditreform (2015). "Corporate insolvencies in Europe, 2014/15". As 
the  data  used  relies  on  national  sources,  comparability  is  hampered  by  the  fact  that  there  can  be 
discrepancies in the definition of insolvency and the criteria used for the construction of the statistics.  
For  example,  it  is  currently  not  possible  to  find  out  from  the  national  statistics  on  insolvency 
proceedings, where they exist, (i) whether a certain procedure is a secondary proceeding conducted in 
parallel  to  the  main  proceedings  taking  place  in  another  EU  Member  State  or  purely  a  self-standing 
national proceeding; or (ii) whether there is a non-domestic real asset (located in the EU) in the estate of 
the company subject to restructuring or presence of a non-domestic EU based creditor 
For  example,  with  respect  to  the  Czech  Republic  the  analysis  made  by  Insolcentrum  available  at: 
http://www.insolcentrum.cz/kompletni-databaze-insolvencnich-rizeni). 
This  lack  of  reliable  data  prevents  comparisons  and  assessments  on  the  strengths  on  insolvency  and 
restructuring frameworks of different Member States, in terms of costs and recovery rates. 
Potential economic gains from reforming insolvency law in Europe, AFME, Frontier economics, Weil, 
February 2016, p. 6. 
IMF:  Euro  Area  Policies  –  Selected  Issues,  IMF  Country  Report  No.  15/205,  July  2015,  Euro  Area 
Policies, IMF Country Report No. 15/2014, July 2015. 

103 

 
 
 
                                                            
9. ANNEXES 

ANNEX  1.  PROCEDURAL  INFORMATION  CONCERNING  THE  PROCESS  TO 
PREPARE THE IMPACT ASSESSMENT REPORT AND THE RELATED INITIATIVE 

ANNEX  2.  SUMMARY  OF  CONSULTATIONS  OF  STAKEHOLDERS,  INCLUDING 
THE  OUTCOME  OF  THE  PUBLIC  CONSULTATION  ON  AN  EFFECTIVE 
INSOLVENCY FRAMEWORK WITHIN THE EU 

ANNEX 3. THE IMPACT OF THE INITIATIVE AND DATA  

ANNEX 4. LEGAL BACKGROUND 

ANNEX 5. GLOSSARY 

ANNEX 6. OVERVIEW OF MEMBER STATES' RESTRUCTURING FRAMEWORKS 

ANNEX 7. WHO IS AFFECTED BY THE INITIATIVE AND HOW 

ANNEX  8.  EVALUATION  OF  THE  IMPLEMENTATION  OF  THE  COMMISSION 
RECOMMENDATION  of  12.3.2014  ON  A  NEW  APPROACH  TO  BUSINESS  FAILURE 
AND INSOLVENCY 

104 

 
 
 
 
 
 
 
ANNEX 1 

PROCEDURAL INFORMATION CONCERNING THE PROCESS TO PREPARE 
THE IMPACT ASSESSMENT REPORT AND THE RELATED INITIATIVE 

1. REGULATORY SCRUTINY BOARD 

The Impact Assessment Report was examined by the Regulatory Scrutiny Board on 
28 September  2016.  Recommendations  from  the  Board  were  transmitted  on  30 
September 2016 and were implemented into the resubmitted version of the IA Report 
as follows: 

Board's Recommendations 

Implementation of the recommendations into the 
revised IA Report 

 (1)  The  policy  context  should 
better  justify  the  need  to  act  now, 
only  two  years  after  the  related 
Recommendation.  

The  policy  context  should  better 
justify  the  need  to  act  now.  Member 
States  have  had  relatively  little  time 
2014 
to 
the 
implement 
the 
Recommendation.  What 
is 
evidence 
suitable 
that 
implementation  will  not  take  place 
over time without further EU action?  

in 

and 

second 

relation 

(1)  The  section  on  policy  context  (section 
2.1)  was  further  improved  by  additional 
details on the assessment of the evaluation 
of  the  2014  Insolvency  Recommendation 
showing  the  inconsistencies  in  the  existing 
chance 
restructuring 
frameworks in Member States as well as the 
diverging  character  of  the  national  reforms 
in  the  pipeline.  This  need  for  current  action 
is evidenced by the Feedback Statement on 
the Green Paper "Building a Capital Markets 
Union" 
insolvency  and 
the  Economic  Analysis 
restructuring, 
accompanying  Action  Plan  on  Building  a 
Capital  Markets  Union  (both  published  in 
2015)  and 
independent  external 
implementation  of 
evaluation  of 
Recommendation  on  restructuring  in  the 
Study on a new approach to business failure 
and  insolvency  performed  by  the  University 
of  Leeds  (January  2016).  A  new  annex  8 
summarising 
the 
implementation  of  the  Recommendation  in 
2015  and  2016  on  the  basis  of  Member 
States reporting was added. 

evaluation 

the 

the 

the 

to 

of 

initiative's 

(2) The report should better justify 
internal  market 
the 
aspects 
minimum 
and 
harmonisation approach. It should 
elaborate  on  the  cross  border 
dimension  of 
It 
should develop the justification for 

restructuring. 

(2)  The  internal  market  aspects  of  both 
restructuring  and  second  chance  was 
substantially  improved.  From  the  economic 
perspective, data about (i) cost of the cross-
border  dimension  of  insolvency  procedures, 
including  restructuring,  for  large  companies 
and  SMEs,  and  (ii)  the  additional  costs  of 

105 

 
 
 
 
 
 
 
 
 
 
 
 
the  specific  features  put  forward 
for  harmonisation.  It  should  also 
clarify  the  internal  market  aspects 
of 'second chance.' 

achieve 

The report should provide more detail 
on  the  cross-border  dimensions  of 
restructuring cases. Notably, it should 
justify  the  internal  market  aspects  of 
the various provisions of the initiative. 
For  instance,  it  should  explain  why 
the  proposal  covers  all  potential 
cases  (including  purely  domestic) 
rather  than  only  those  with  a  direct 
debtor/creditor 
cross-border 
dimension.  The  report  should  also 
explain  how  harmonizing  specific 
features  would 
stated 
objectives.  What  will  be  the  gains 
from  harmonizing  early  restructuring, 
stay,  debtors'  business  continuation, 
safeguarding  of  minority  interests, 
possibility of new financing, costs and 
length  of  restructuring  procedures 
and  discharge? 
the 
In 
proportionality  principle,  the  report 
needs better address the issue raised 
by  stakeholders  on  'principle'  versus 
'detailed'  regulation.  Clarify  what  the 
proposed  approach 
for 
Member  States  and  their  degree  of 
flexibility in implementation.  
Explain the internal market dimension 
of the second chance provision.  
The 'discharge for consumers' option 
is presented as a recommendation to 
Member  States  -  how  would  this  be 
the  2014 
more  effective 
recommendation in that respect?  

line  with 

implies 

than 

for 

plan 

involving 

report  of 

restructuring 

the  contractor 

restructuring 
including 
insolvency, 
proceedings  with  cross-border  element(s) 
compared  to  domestic  procedures  were 
inserted as provided in the meantime by the 
the 
final 
economic analysis study of the restructuring 
and second chance proposal (section 2.3.2). 
Additional  data  on  cross-border  aspects  of 
debt  resolution  from  the  2016  Insolvency 
Eurobarometer were provided (section 2.3.2 
and 2.5). From the legal perspective, it was 
explained  that  due  to  the  divergences  in 
restructuring  frameworks  in  Member  States 
no 
the 
continuation  of  the  business  of  groups  of 
companies has ever been accepted in more 
than  two  jurisdictions  (section  2.3.2).  As 
regards 
the  discharge  period,  evidence 
about its application and duration in Member 
States  was  supplemented  based  on  the 
information provided by the Study on a new 
approach to business failure and insolvency 
the  University  of  Leeds 
performed  by 
(January  2016)  and  the  Bankruptcy  and 
Second Chance for Honest Entrepreneurs of 
2014  elaborated  by  Ecorys.  (section  2.3.1 
part  B)  The  justification  of  specific  features 
of  restructuring  and  second  chance  which 
merit  harmonisation  was  strengthened  by 
the  propositions  expressed  by  stakeholders 
in the sounding board meetings and experts 
in 
the  expert  group 
organised for this purpose during the impact 
impact  assessment  processed  Detailed 
explanation  with  examples  showing  why  a 
dedicated  restructuring  regime  limited  to 
cases  of  EU  cross-border  restructuring  is  a 
not  a  viable  possibility  was  added.  The 
internal  market  dimension  of  the  second 
chance  provision  was  supplemented  by  the 
explanation showing that different discharge 
periods may lead bankrupt entrepreneurs to 
exercise  their  free  movement  rights  and 
relocate to a more debtor friendly jurisdiction 
(section 2.3.2) . The IA Report also clarified 
that  the  issue  of  discharge  and  second 
chance for  consumers  will  not  be dealt  with 
under  the  current  proposal  and  that  it  will 
keep  the  status  quo  foreseen  by  the  2014 
restructuring  and 
Recommendation  of 

the  meetings  of 

106 

 
 
(3) Stakeholder views should feature 
throughout the assessment of the various 
policy options. Clearly present differences 
in views across the stakeholder groups.  

Stakeholder views should feature 
more prominently throughout the 
report. This would strengthen the 
evidence base and enhance 
policymaker assessment of options. 
When doing so, it is important to 
present differences across 
stakeholder (sub-) groups.  
The report should justify the inclusion of a 
soft law instrument in the preferred option 
against the background of the stated 
ineffectiveness of the 2014 
Recommendation.  

(4) Clarify the overall impacts of 
the package, notably with regard 
to fundamental rights and social 
aspects. Identify potential 
downside risks, such as moral 
hazard and limited capacity of the 
courts to implement new 

second chance (section 4.2 or 5). 

the 

why 

main 

certain 

respect, 

impact  of 

the  ANNEX 

(3) In Chapter 5 of the Report containing the 
analysis  of 
the  various 
substantive  options,  we  included  to  each 
element  the  opinions  of  the  stakeholders 
grouped  according  to  sectors.  Furthermore, 
we  amended  extensively  ANNEX  2  on 
stakeholder  consultation.  This  new  version 
of 
the  consulted 
identifies 
stakeholders  in  a  more  detailed  manner 
(listing  them  according  to  sectors);  contains 
short  paragraphs  summarizing  the  views  of 
the 
stakeholder 
European 
organizations,  includes  with  regard  to  each 
issue  addressed  by  the  public  consultation 
the  structured  presentation  of  stakeholders' 
opinion  by  sectors,  and  disposes  of  a  table 
explaining 
proposals 
recommended  by  different  stakeholders 
were not taken on board by the initiative. In 
this 
relevant  stakeholders' 
views on the specific sub-options have been 
added, based on their input according to the 
public  consultation  (stakeholders'  position 
papers  and  EU-Survey  questionnaire)  and 
meetings 
stakeholders' 
dedicated 
('Sounding  Board'  meetings  and  bilateral 
meetings).  There  is  a  clear  breakdown  of 
financial 
stakeholders 
field  of 
institutions,  practitioners 
restructuring, 
consumer 
organisations,  academics  and  experts). 
and 
different 
Stakeholders' 
concerns/suggestions  with 
to 
different policy options are made clear. The 
IA  Report  clarified 
issue  of 
for 
discharge 
consumers  will  not  be  dealt  with  under  the 
current  proposal  and  that  it  will  keep  the 
the  2014 
foreseen  by 
status  quo 
Recommendation  of 
restructuring  and 
second chance (section 4.2 or 5). 

(business  sector, 
the 

that 
second 

trade  Unions, 

chance 

regard 

views 

and 

the 

the 

in 

how 

analysis 

Additional 

(4) 
key 
effectiveness  and  efficiency  elements  of 
restructuring 
been 
proceedings 
identified  and  elaborated  together  with  a 
group  of  insolvency  experts  as  well  as  the 
key stakeholders was added. A new section  
4.2 containing analysis of high level options 

have 

107 

 
 
 
 
provisions.  

in 

preferred 

the  provisions  of 

The  report  should  strengthen  the 
section on the impacts of the different 
the  currently 
sub-option  beyond 
It  should 
descriptive  presentation. 
discuss 
the 
involved 
risks 
implementation  of  the  proposal.  The 
options 
of 
package 
to  national 
represents  an  add-on 
insolvency  proceedings. 
It  entails 
elements  that  will  have  to  work  in 
close  sync  with  existing  national 
systems. Given this dependence and 
the  diversity  of  legal  systems  across 
the union, harmonization would seem 
to entail risks as well as benefits. The 
report  ignores  administrative  costs 
such  as 
the 
preferred option requiring specialised 
judges.  
The report should also consider risks 
related  to  moral  hazard  problems 
occurring 
restructuring 
the 
process.  It  needs  to  explain  better 
how  this  relates  to  the  problem  of 
non-performing  loans,  and  it  should 
estimate  the  extent  to  which  the 
proposal  will  have  an  impact  on 
these.  Given  that  restructuring  may 
lay-offs, 
situations  with 
involve 
impact 
outsourcing, 
the 
etc., 
assessment  also  needs 
to  cover 
the  preferred 
social 
options  better.  It  should  spelling  out 
any  links  to  the  social  dialogue  and 
workers' 
on 
information  and  consultation).  The 
link  with  –  and 
- 
fundamental  rights  should  also  be 
clarified.  

impacts  of 

impact  on 

(including 

rights 

in 

to 

that 

relation 

the  key 

and discarded options was included. Impact 
on  fundamental  rights,  in  particular  social 
aspects was further improved both in the IA 
Report  and  in  the  Annex  3  (Chapter  5).  As 
to  the  issue  of  the  moral  hazard,  further 
conclusions  from  past  research  on  moral 
hazard  performed 
the 
in 
impacts  of  household 
assessment  of 
indebtedness  were  added  (section  2.4  and 
5.7)  :  The  research  (Quoted  by  Annual 
Report  on  European  SMEs  2015/2016  ) 
reason  of  over-
shows 
indebtedness  of  sole  entrepreneurs,  which 
represent important part of SMEs, resides in 
the  lower  resistance  of  SMEs  to  external 
economic shocks due to their lower ability to 
mobilise reserves for the period of economic 
downturns. Negligence or intention to repay 
the  contracted  business  loans  is  a  reason 
for default of their obligations only in a very 
low  number  of  situations.  Information  about 
experience in recent decades in a number of 
Member  State  which  reduced  the  time  limit 
of  discharge  period  was  added.  This 
experience  shows  that  in  none  of  those 
Member  State  the  amount  of  unpaid  loans 
would  have  increased  due  to  the  moral 
hazard  issue.  At  the  same  time,  Member 
States with very short discharge periods (for 
example 1 year in the UK) do reports how a 
higher level of unpaid loans due to the moral 
hazard issue than Member States with long 
discharge  period  (for  instance  Greece  with 
10  years)  (section  5.7).  The  study  on 
consumer 
further 
confirmed  that  the  reasons  of  consumer 
over-indebtedness  are  mostly  external  (loss 
of  employment,  divorce,  disease)  and  does 
not 
for  moral  hazard 
behavior  on 
the  side  of  over-indebted 
consumers.  Research on US (having liberal 
insolvency  regime)  quoted  in  this  study 
confirms that only 15% of mortgage defaults 
OVER-
be 
may 
INDEBTEDNESS 
EUROPEAN 
HOUSEHOLDS:  UPDATED  MAPPING  OF 
THE  SITUATION,  NATURE  AND  CAUSES, 
FOR 
EFFECTS 
IMPACT,  Report 
ALLEVIATING 
ITS 
the 
prepared  by  Civic  Consulting  of 

over-indebtedness 

find  confirmation 

INITIATIVES 

strategic 

(THE 

AND 

OF 

108 

 
 
Consumer  Policy  Evaluation  Consortium 
(CPEC)  for  the  European  Commission  (DG 
SANCO),  Report  published 
in  2014). 
Moreover,  better  clarification  on  numerous 
safeguards  against  moral  hazard,  namely 
possibility 
reduce  stay  on  creditors 
request,  confirmation  of  restructuring  plan 
by the court, limiting access to discharge to 
dishonest  debtors  were  added 
to  an 
additional  section  in  the  IA  Report  (section 
7).  The  impact  on  the  capacity  of  courts 
further considered and explained. 

to 

in 

the 

(D)  The  concept  of  discharge  and  recovery 
rates  defined  in  the  Glossary  were  further 
additional 
clarified 
explanations as to the contents of the notion 
of  recovery  rates  and  its  calculation  was 
added  in  Section  8  of  Annex  3.  Mandatory 
annex  on  stakeholder 
identification  was 
added. 

report, 

(D) Procedure and presentation  

The  report  should  clarify  concepts 
and  definitions  of  'discharge'  and 
rates.'  The  mandatory 
'recovery 
stakeholder 
(2) 
annex 
identification should be added. 

on 

2. IMPACT ASSESSMENT STEERING GROUP 

This  Impact  Assessment  was  drawn  up  by  Directorate-General  for  Justice  and  Consumers 
(DG JUST). 

An Impact Assessment Steering Group (IASG) was set up to bring in views of other services 
of  the  Commission.  DG  Competition,  DG  Economic  and  Financial  Affairs,  DG  Financial 
Stability,  Financial  Services  and  Capital  Markets  Union,  DG  Internal  Market,  Industry, 
Entrepreneurship and SMEs, DG Justice, Secretariat General, Legal service, DG Taxation and 
Customs  Union,  DG  Employment,  Social  Affairs  and  Inclusion  and  DG  Communications 
Networks, Content and Technology accepted the invitation.  

The  Impact  Assessment  Steering  Group  met  3  times  and  was  consulted  by  writing  on  9 
February 2016. The first meeting took place on 11 December 2015, the second - on 30 June 
2016 and the third - on 20 July 2016. The minutes of the two last meetings may be found in 
section 2 (below). 

3.  THE  MINUTES  OF  THE  TWO  LAST  MEETINGS  OF  THE  IMPACT 
ASSESSMENT STEERING GROUP 

4th Inter-Service Meeting on initiative on preventive restructuring and second chance 
frameworks 

109 

 
 
 
 
 
 
 
 
 
 
 
 
 
Commission services represented: GROW, CNECT, ECFIN, TAXUD, FISMA, EMPL, DGT,  JUST, 
SG 

A  fourth  inter-service  meeting  on  the  initiative  on  preventive  restructuring  and  second  chance 
frameworks took place on 22 September 2016. The purpose of the meeting was to discuss the content 
of  the  new  initiative  based  on  a  first  draft  Directive  on  preventive  restructuring  and  second 
chance frameworks. 

Horizontal  provisions  -  Judges  and  practitioners  in  the  field  of  restructuring,  insolvency  and 
second chance 

DG FISMA welcomed the provisions on specialisation of judges and insolvency practitioners, as the 
rationale  aligns  with  many  country  specific  recommendations  on  improving  the  efficiency  of 
insolvency frameworks.  

Employees 

DG EMPL referred to the importance of employees’ standing and suggested that a clear reference to 
the fact that the current Directive will not affect EU labour acquis should be made. In addition, they 
expressed  concerns  regarding  the  impact  of  the  stay  period  (which  can  be  up  to  12  months)  on 
workers. 

DG  JUST  welcomed  the  suggestion  made  and  will reflect  further  on  a  possible  solution  in  order  to 
clarify the effect of the stay on employees. 

Stay of individual enforcement actions 

DG FISMA expressed concerns with regard to the length of the stay period (up to 12 months). They 
would  favour  a  proposal  of  a  stay  of  3  or  4  months  with  the  possibility  for  renewal  or  extension  in 
prescribed  circumstances  (up  to  6  or  8  months),  especially  when  the  recourse  to  restructuring  is  not 
limited to a clear viability test. 

DG  JUST  underlined  the  significant  divergence  regarding  the  characteristics  and  period  of  stay  in 
Member States and referred to the safeguards provided for creditors so as to address moral hazard: the 
stay can be lifted any time on the request of one creditor; the extension of the stay will be decided by a 
court, only if there is evidence of relevant progress in the negotiations on the restructuring plan and 
evidence that the continuation of the stay is not detrimental to the creditors' rights.  

DG ECFIN remarked that the safeguards introduced depend largely on the quality of the judiciary.   

DG  FISMA  expressed  concerns  with  regard  to  the  suspension  of  acceleration/termination  clauses 
foreseen for executory contracts during the stay period. They required certain clarifications in order to 
remove uncertainty and ensure compatibility with the Financial Collateral Directive. 

DG JUST stressed that the early termination/suspension will apply mostly to non-financial contracts. 
Additionally,  the  future  Directive  provides  that  the  creditors  should  be  paid  during  the  stay  as  only 
pre-commencement  claims  are  affected.  Finally,  in  collaboration  with  DG  FISMA,  these  provisions 
could be fine-tuned in order to be in accordance with the Financial Collateral Directive. 

DG  FISMA  expressed  concerns  with  regard  to  the  suspension  of  the  obligation  to  open  insolvency 
proceedings for the duration of the stay. 

110 

 
 
DG JUST explained that in some jurisdictions over-indebtedness or the prospect of illiquidity could 
trigger the obligation to file for insolvency. The future Directive provides safeguards so as to ensure 
that that only viable companies can benefit from preventive restructuring, since creditors can lift a stay 
at any time and the court will reject the plan if it is clearly non-viable. Additionally, the Insolvency 
Regulation already provides that secondary proceedings can be suspended for three months. 

Discharge for entrepreneurs 

DG FISMA and DG ECFIN suggested that the wording used in Article 22(1), which allows Member 
States  to  restrict  the  access  to  discharge  or  lay  down  longer  discharge  periods  for  dishonest 
entrepreneurs should be looked at in order to disincentive dishonesty.  

DG TAXUD suggested leaving flexibility to the Member States in this matter. 

DG  JUST  explained  that  flexibility  is  provided  to  Member  States  to  restrict  access  or  to  lay  down 
longer periods for debtors when there is bad faith or fraud and that the Member States can also exclude 
some kinds of debt from discharge. A Recital would be added in order to underline further the need to 
disincentivise dishonest debtors. 

Discharge for consumers 

DG FISMA and DG ECFIN expressed concerns about the provision encouraging Member States to 
envisage  debt  discharge  for  households,  given  the  current  vulnerabilities  in  EU  banking  system  and 
the  focus  of  the  initiative  on  business  restructuring  and  second  chance  for  entrepreneurs.  They 
suggested that explanation (Recital) should be improved in order to clarify that what is intended is not 
to change the status quo.  

DG  JUST  explained  that  this  is  not  a  mandatory  provision  and  is  in  line  with  the  2014  COM 
Recommendation. 

The SJ would be invited to look at whether a reporting obligation could be inserted when there is no 
substantial  obligation  (i.e.  also  for  those  Member  States  who  did  not  take  up an  option  to extend  to 
consumers).  

Explanatory Memorandum 

SG suggested improving the text of the explanatory memorandum providing for more visibility on the 
broader goals (CMU, Single Market). 

* * * * 

Summary  record  of  the  3rd  Inter-Service  Meeting  on  the  insolvency  initiative  -  BERL 
20.07.2016 

Participants:  P.  Stachowiak  (COMP);  N.  Philiponnet  (ECFIN);  O.  Martinez  De  Briones 
(EMPL);  N.  Bohan,  M.  Parmentier,  F.  Poliani  (FISMA);  D.  Tsagkris  (GROW);  J.  Lopez 
Rodriguez  (TAXUD);  K.  Vandekerckhove,  M.  Carpus-Carcea,    O.  Vondracek,  A.  Chra,  M. 
Mailly, P. Sziranyi, M. Lissowska, M. Janschek (JUST); W. Sleath, A-L. Barreau (SG) 

111 

 
 
 
 
 
 
Agenda: Discussion of the draft impact assessment before the submission to RSB  

Meeting document: Draft impact assessment  

Discussion: 

K.  Vandekerckhove  (JUST)  provided  an  update  on  the  state  of  play  of  the  initiative  and 
explained  the  evolution  of  the  text  since  the  last  inter-service  group  meeting  and  further 
meetings with Member States. Some adaptations would be made in terms of the baselines, the 
impacts  and  stakeholders'  views.  It  had  been  a  conscious  choice  to  change  the  order  of  the 
presentation of the options, but if this was to be retained, the rationale would be explained. It 
was  noted  that  the  Communication  planned  to  accompany  the  proposal  would  be  an 
opportunity  to  provide  the  broader  context,  including  on  the  relationship  with  the  Capital 
Markets  Union  and  the  Single  Market  Strategy,  so  this  could  be  kept  relatively  brief  in  the 
impact  assessment  report.  Personal  insolvency  would  be  dealt  with  in  a  separate 
recommendation.  

N. Philiponnet (ECFIN) commented on the following aspects:  

  The scope of the initiative should be clarified. It would be useful to explain why the 
initiative focuses on restructuring and does not address other aspects of the insolvency 
framework.  This  could  help  anchor  expectations  on  the  potential  impact  of  the 
initiative.  

  With  regard  to  the  choice  of  instrument,  it  would  be  useful  to  develop  further  why 

other legislative instruments could not be used.  

  Regarding  the  sub-options,  there  could  be  more  clarity  on  what  the  criteria  for  their 

selection is, and whether they are exhaustive and exclusive.  

  The consistency between the options and the objective could be improved. The overall 
objective of the initiative is to reduce the cost of cross-border insolvency. However in 
section 7 on the overall impact of the instrument, the improvement of the performance 
of the insolvency systems at the national level is given more prominence. The impact 
on cross-border flows of capital could also be better articulated.  

  There  could  also  be  a  more  cautious  approach  to  the  quantification  of  the  benefits, 

given that restructuring agreements were only one element.  

  More  globally,  the  general  approach  and  the  communication  could  underline  that  a 
positive  environment  for  start-ups  needed  the  right  balance  between  liquidation  and 
restructuring. 

JUST agreed to seek to adjust the text accordingly. 

N. Bohan (FISMA) underlined the following elements:  

  The  text  could  have  a  more  logical  frame  to  better  link  the  identification  of  the 
problem  in  the  draft  impact  assessment  with  the  intention  to  come  with  a  proposal 
confined to business restructuring. The problem definition and objectives should more 
clearly lead to the options identified. 
In  terms  of  criteria  for  assessing  options,  a  specific  objective  /  criterion  should  be 
added related to the way in which the restructuring solution balances the interests of 
creditors  and  debtors;  financial  stability  should  be  a  criterion  in  assessing  all  the 
options.  The  regime  should  ensure  adequate  protection  for  creditors  and  limit  the 

 

112 

 
 
 
 
 
 
 
 
 
 
 
scope  for  tactical  abuse  of  restructuring  systems  (for  example,  through  excessive 
delay). It should be clear that for some companies, liquidation will always remain the 
best option. 

  A specific option for SMEs could be included.  

JUST  agreed  that  the  overall  narrative  needed  to  explain  the  more  specific  place  of 
restructuring (and its limits), including why acting on restructuring would help banks to deal 
with  non-performing  loans,  also  noting  that  this  would  be  an  important  element  for  the 
chapeau communication.  

J.  Lopez  Rodriguez  (TAXUD)  considered  that  the  problem  driver  stressed  too  heavily  the 
impact of differences of national legislation/fragmentation, as opposed to the shortcomings of 
some (but not all) national approaches. It would be useful to identify further national practices 
creating problems and gaps, so as to address them as objectives and in the policy options.  

O. Martinez De Briones (EMPL) considered that the area of ranking of claims is missing in 
this draft impact assessment. She also underlined the need for better protection of employees. 
JUST explained that the ranking issue was left to national legislation. 

D. Tsagkris (GROW) raised the issue of early warning provisions for SMEs. Generally it was 
noted that the costs of restructuring could be prohibitive for the smallest companies, pointing 
that  the  "second  chance"  through  liquidation  is  taking  place  in  the  majority  of  cases  rather 
than restructuring.  

Next steps: 
  The draft impact assessment will be submitted to the RSB in August 
  The RSB will meet on 28 September 
  The next ISG meeting will take place in the second half of September. The objective of 
next meeting is to have a look at the proposals and the Communication ahead of the inter-
service consultation. 

4.  LIST  OF  STUDIES  RELEVANT  FOR  THE  PREPARATION  OF  THE  IMPACT 
ASSESSMENT 

FORTHCOMING 
- Annual Report on European SMEs (2016): Work Package 1 - Section 'What is the situation 
as regards the availability of a ´second chance´ for honest failed/bankrupt entrepreneurs in the 
EU', DG GROWTH, [forthcoming] 
-  Rescue  of  Business  in  Insolvency  Law,  European  Law  Institute  (commissioned  by  DG 
JUST), [forthcoming] 
-  'Promoting  protection  of  the  right  to  housing.  Homelessness  protection  in  the  context  of 
evictions (Pilot Project)', FEANTSA  [forthcoming]208 
 -  Statement  of  principles  for  a  global  approach  to  multi-creditor  workouts,  INSOL 
International, 2nd ed. [forthcoming] 
-  Impact  assessment  study  on  policy  options  for  a  new  initiative  on  minimum  standards  in 
insolvency  and  restructuring 
law,  JIIP  consortium  (commissioned  by  DG  JUST), 
[forthcoming] 
- Flash Eurobarometer 2016, Report Insolvency, [forthcoming] 

208 See Terms of Reference available at: http://ec.europa.eu/social/main.jsp?catId=624&langId=en&callId=387&furtherCalls=yes 

113 

 
 
 
 
 
 
 
 
 
                                                            
2016 
- Doing Business: Resolving insolvency, World Bank Group (2016) 
-  Study  on  'Harmonising  insolvency  law  in  the  Euro  Area:  rationale,  stock  taking  and 
challenges. What role for the Eurogroup?', European Parliament, July 2016, PE 574.428  
-  Impact  Assessment  'A  review  of  the  corporate  insolvency  framework',  UK  Insolvency 
Service, 1 March 2016 
- SME Performance Review 2015/2016, DG GROWTH, March 2016 
-  Turnaround  Wing  Guidelines  for  Restructuring  and  Turnaround  Professionals,  INSOL 
Europe, March 2016 
-  Report  on  'Potential  economic  gains  from  reforming  insolvency  law  in  Europe’,  AFME, 
Frontier Economics and Weil Gotshal & Manges LLP, February 2016 
- Study on 'A new approach to business failure and insolvency. Comparative legal analysis of 
Member States’ relevant provisions and practices', University of Leeds (commissioned by DG 
JUST), January 2016. 
-  Study  on  'Consumer  vulnerability  across  key  markets  in  the  European  Union',  London 
Economics,  VVA  Consulting  and  IPSOS  Mori  consortium  (commissioned  by  DG  JUST), 
January 2016 

2015 
- Doing Business: Resolving insolvency, World Bank Group (2015) 
- 'Corporate insolvencies in Europe 2014/15', Creditreform (2015) 
- Nordic-Baltic Recommendations on Insolvency Law, revised version of 15 December 2015 
-  'Upgrading  the  Single  Market:  more  opportunities  for  people  and  business',  European 
Commission, COM(2015) 550 final, 28 October 2015 
-  Feedback  Statement  on  the  Green  Paper  'Building  a  Capital  Markets  Union',  SWD(2015) 
184 final, 30 September 2015 
-  Economic  Analysis  accompanying  the  Action  Plan  on  Building  a  Capital  Markets  Union, 
SWD(2015) 183 final, 30 September 2015 
- 'The Economic Impact of Rescue and Recovery Frameworks in the EU', Commission Staff 
Discussion Paper (n°4), September 2015 
- Euro Area Policies – Selected Issues, IMF Country Report No. 15/204, July 2015 
- Euro Area Policies – Selected Issues, IMF Country Report No. 15/205, July 2015 
-  'Tackling  Small  and  Medium  Sized  Enterprise  Problem  Loans  in  Europe',  IMF  Staff 
Discussion Note, March 2015 

2014 
- Doing Business: Resolving insolvency, World Bank Group, 2014 
- Economic Review for the European Union, OECD, 2014 
-  Study  on  'Bankruptcy  and  second  chance  for  honest  bankrupt  Entrepreneurs',  ECORYS 
(commissioned by DG Enterprise & Industry), November 2014 
- Study on a new approach to business failure and insolvency – Comparative legal analysis of 
the Member States' relevant provisions and practices, INSOL Europe  (commissioned by DG 
JUST), May 2014 
-  Impact  Assessment  accompanying  the  Commission  proposal  of  the  Directive  of  the 
European Parliament and of the Council on single-member private liability companies, COM 
SWD(2014) 124 final, 9 April 2014 
- Impact Assessment accompanying the Commission Recommendation on a New Approach to 
Business Failure and Insolvency, SWD(2014) 61 final, 12 March 2014. 

114 

 
 
 
 
 
-  Study  on  'Consumer  Protection  Aspects  of  Financial  Services',  European  Parliament, 
February 2014, PE 507.463 
- Report on 'The treatment of the insolvency of natural persons', World Bank, January 2014 

2013 
- Study on 'The over-indebtedness of European households: updated mapping of the situation, 
nature  and  causes,  effects  and  initiatives  for  alleviating  its  impact',  Civic  Consulting 
(commissioned by DG SANCO), December 2013 
-  Report  on  'Overindebtedness  of  European  households:  updated  mapping  of  the  situation, 
nature  and  causes,  effects  and  initiatives,  for  alleviating  its  impact',  Civic  Consulting 
(commissioned by DG SANCO), December 2013 
- Selected Issues, IMF Country Report No. 13/299, September 2013 
-  Study  on  'The  functioning  of  consumer  credit  market  in  Europe,  IPSOS  and  London 
Economics  (commissioned  by  Executive  Agency  for  Health  and  Consumers  (EAHC)  on 
behalf of DG SANCO), July 2013 
- 'Unlocking funding for European investment and growth. An industry survey of obstacles in 
the  European  funding  markets  and  potential  solutions',  Oliver  Wyman  (commissioned  by 
AFME),June 2013 
- Study on 'Directors' Duties and Liabilities', London School of Economics (commissioned by 
DG MARKT), April 2013 
- 'Dealing with Private Debt Distress in the Wake of the European Financial Crisis: A Review 
of the Economics and Legal Toolbox', IMF Working Paper No. 13/44, February 2013 
- 'Measureable Results! Doing Business Project Encourages Economies to Reform Insolvency 
Frameworks', IFC World Bank Group, January 2013 
- UNCITRAL Legislative Guide on Insolvency Law, Part Four: Directors' obligations in the 
period approaching insolvency (2013) 

2012 
-  Report  on  the  application  of  Council  Regulation  (EC)  No  1346/2000  of  29  May  2000  on 
insolvency proceedings, COM(2012)743, December 2012 
-  Impact  Assessment  accompanying  the  Revision  of  Regulation  (EC)  No  1346/2000  on 
insolvency proceedings, SWD(2012) 416 final, 12 December 2012 
- 'Directors' duties and liabilities in the EU', European Commission, DG MARKT, December 
2012 
- Study on 'Means to protect consumers in financial difficulty: Personal bankruptcy, datio in 
solutum  of  mortgages,  and  restrictions  on  debt  collection  abusive  practices',  London 
Economics (commissioned by DG MARKT), December 2012 
-  Global  Principles  for  Cooperation  in  International  Cases  (‘Global  Principles’),  American 
Law Institute (ALI) and International Insolvency Institute (III), June 2012 
- 'Out-of-court Debt Restructuring, World Bank Studies No. 66232, January 2012 

2011 
-  Preliminary  Report  to  the  Insolvency  Service  into  Outcomes  in  Company  Voluntary 
Arrangements, Prof. Adrian Walters and Dr Sandra Frisby, March 2011 
- 'Business Dynamics: Start‐ups, Business Transfers and Bankruptcy. The economic impact of 
legal  and  administrative  procedures  for  licensing,  business  transfers  and  bankruptcy  on 
entrepreneurship  in  Europe',  European  Commission,  DG  Enterprise  and  Industry,  January 
2011 

115 

 
 
 
 
 
- 'Harmonisation of insolvency law at EU level with respect of opening of proceedings, claims 
filing and verification and reorganisation plans', European Parliament Briefing Note 2011, PE 
432.766 
-  'Harmonisation  of  insolvency  law  at  EU  level:  Avoidance  actions  and  rules  on  contracts', 
European Parliament Briefing Note 2011, PE 432.767 

2010 
-  ‘Harmonisation  of  insolvency  law  at  EU  level’,  European  Parliament  Study,  2010,  PE 
419.633 
- 'Household Indebtedness in the EU', European Parliament Briefing paper 2010, PE 433.453 
- 'Internationalisation of European SMEs', DG Enterprise and Industry, 2010 
-  'Financial  exclusion  in  the  EU,  New  evidence  from  the  EU-SILC  special  module',  DG 
Employment, Social Affairs and Equal Opportunities, November 2010 

2007 
- 'Bankruptcy Codes and Innovation', CEPR Discussion Paper No. DP6307, May 2007 

2006 
-  'The  stigma  of  failure:  An  International  Comparison  of  Failure  Tolerance  and  Second 
chancing', Centre for Business Research, University of Cambridge, Working Paper No. 334, 
December 2006 

116 

 
 
 
 
 
 
 
 
 
 
ANNEX 2 

Summary  of  consultations  of  stakeholders,  including  the  outcome  of  the  public 
consultation on an effective insolvency framework within the EU 

Table of Contents 

1. 

2. 

LIST OF MOST IMPORTANT CONSULTATIONS .................................................... 118 

MAIN FINDINGS .............................................................................................................. 119 

2.1.  General attitude towards the initiative ................................................................................ 119 

2.2.  The affectation of internal Market by current rules .......................................................... 124 

2.3.  Impact of the proposed measures on the creation of new companies ............................... 127 

2.4.  Impact of the proposed measures on the increase of recovery rates of debts .................. 128 

2.5.  The impact on the problem of non-performing loans ........................................................ 129 

2.6.  Cross-border element and its impact on restructuring ...................................................... 130 

2.7.  The characteristics of an appropriate restructuring framework at EU level .................. 131 

2.7.1.  Situation of debtors ......................................................................................................... 131 

2.7.2.  Involvement of national courts ........................................................................................ 133 

2.7.3.  Publicity related to proceedings ...................................................................................... 134 

2.7.4. 

'Debtor-in-possession arrangements’ ............................................................................... 134 

2.7.5.  Enforcement actions – stay and its duration .................................................................... 136 

2.7.6.  Creditors' rights - ‘cross-class cram down’ (i.e. the confirmation of the restructuring plan 
supported by some classes of creditors in spite of the objections of some other classes of 
creditors) ...................................................................................................................................... 138 

2.7.7.  Protection of new financing............................................................................................. 139 

2.7.8.  Role of directors in preventing insolvencies ................................................................... 140 

2.7.9.  Role of Member States in preventing insolvencies ......................................................... 141 

2.7.10. Avoidance actions ........................................................................................................... 141 

2.7.11. Insolvency practitioners .................................................................................................. 142 

2.8.  Second chance – debt discharge for natural persons ......................................................... 143 

2.8.1.  General considerations .................................................................................................... 144 

2.8.2.  Affectation of the Internal Market ................................................................................... 145 

2.8.3.  Advice to debtors ............................................................................................................. 145 

2.8.4.  Discharge of debts ........................................................................................................... 146 

2.8.4.1.  Entry conditions for the discharge procedure .......................................................... 147 

2.8.4.2.  Discharge period ...................................................................................................... 148 

2.8.4.3.  Exclusion from discharge ......................................................................................... 149 

2.9.  Outside restructuring framework and second chance ....................................................... 149 

117 

 
 
2.9.1. Duration of insolvency proceedings .................................................................................. 150 

2.9.2. Directors' disqualification .................................................................................................. 151 

2.10. ............................. Stakeholder suggestions which were not taken on board by the initiative

152 

1. 

LIST OF MOST IMPORTANT CONSULTATIONS 

The Commission has consulted stakeholders in many different ways. Below a list of the most 
important consultations: 

  Public  consultation,  which  was  launched  on  23  March  2016  and  ended  on  14  June 
2016. It received more than 260 contributions from 27 MS  and the country with the 
most  overall  contributions  was  Germany  followed  by  UK,  Belgium  and  Lithuania. 
Approximately  30%  of  replies  were  made  on  behalf  of  insolvency  and  legal 
practitioners,  while  the  rest  were  mainly  from  companies  and  business  support 
organisations,  credit  and  financial  institutions,  debt  collection  and  marketing 
information  services,  trade  associations,  consumer  organisations,  Trade  Unions, 
academics and judges. In addition, replies were received from the public authorities of 
18 Member States.  

  Dedicated  meetings  with  Member  States  (on  29  June  2016  and  on  7  September 

2016). 

  Dedicated  meetings  with  stakeholders  (on  7  April  2016,  27  May  2016  and  on  18 
July  2016).  An  informal  "Sounding  Board"  composed  of  selected  stakeholders  with 
particular  interest  in  issues  of  debt  restructuring  and  business  failure  was  created. 
When  creating  this  group  of  stakeholders  we  tried  to  identify  the  widest  possible 
representation  across  EU  or  worldwide  with  a  view  to  share  their  views  on  the 
initiative. The main participants were: 

o  from  the  financial  sector:  AFME209,  EBF210,  Invest  Europe;  EMF-ECBC211, 

EFIN212; 

o  from the business and trade sector: BusinessEurope, BDI213, EuroChambers214; 
specifically  for  SMEs:  UEAPME215,  ESBA216,  Independent 
Retail Europe; 

o  social or economic interest organisations: 

 
 

for workers', employees: ETUC217, UNI Europa 
for consumers: BEUC 

209 Association for Financial Markets in Europe 
210 European Banking Federation 
211 European Mortgage Federation – European Covered Bond Council  
212 European Financial Inclusion Network 
213 The Federation of German Industries  
214 The Association of European Chambers of Commerce and Industry 
215 Union Européenne de l’Artisanat et des Petites et Moyennes Entreprises 
216 European Small Business Alliance 
217 European Trade Union Confederation 

118 

 
 
 
 
 
 
 
                                                            
o  Practitioners with interest in the field of insolvency: ACCA218, FEE219, IBA220, 

CCBE221, UIA222, INSOL Europe; 
think-tanks: FDC223 

o 

In  addition,  bilateral  meetings  with  specific  stakeholders  were  held  during  the 
consultation  period.  These  included  among  others  meetings  with  the  Nordic-Baltic 
Insolvency  Network,  Trans  Europe  Experts,  with  Verband  Insolvenzverwalter 
Deutschlands  (VID),  with  the  National  Bank  of  Austria,  with  Managed  Funds 
Association  (MFA),  with  INSOL  International,  with  Droit  et  Croissance,  with 
FENCA224, with the German Insurance Association. 

  Expert group meetings (on 13 January 2016, 19 February 2016, 28-29 April 2016, 24-
25  May  2016,  14-15  June  2016  and  on  11  July  2016.)  The  expert  group  on 
restructuring  and  insolvency  law  was  created  in  the  end  of  November  2015  and  the 
detailed list of experts could  be found on the Register  of Commission  expert groups 
(http://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupDetail
&groupID=3362).  

  Conference on the convergence of insolvency frameworks within the European Union 
organised  under  the  auspices  of  the  Slovak  Presidency  on  12  July  2016.  It  was 
consisted of three main panels; on a new approach to business failure and insolvency 
and  what  can  be  improved  following  the  2014  Recommendation,  how  to  create  an 
appropriate insolvency framework beyond the scope of the 2014 Recommendation and 
on second chance for entrepreneurs and consumers. 

2. 

MAIN FINDINGS 

2.1. 

General attitude towards the initiative 

Most  of  the  stakeholders  supported  the  adoption  of  preventive  measures  to  enable  the 
restructuring of viable businesses as well as measures to increase the recovery rates of debt in 
insolvency  in  order  to  achieve  an  appropriate  insolvency  framework  within  the  EU.  The 
provisions related to second chance were more controversial, but the majority considered that 
measures ensuring the discharge of debts for entrepreneurs (individuals) would be necessary 
for  an  appropriate  insolvency  framework  within  the  EU.  Moreover,  although  most  of  the 
stakeholders  and  Member  States  acknowledged  the  importance  of  discharge  for  consumers, 
many of them preferred that mandatory rules on consumer insolvency should not be included 
in this instrument. 

The majority of those consulted were in favour of a minimum harmonisation entailing high-
level  principles  that  would  help  introducing  a  level  playing  field  across  the  Europe  for 
investors  and  entrepreneurs;  they  supported  the  objective  to  shift  the  focus  of  insolvency 
proceedings  away  from  liquidation  in  such  a  way  that  viable  businesses  are  encouraged  to 
implement quick and cost-effective restructuring measures at an early stage. 

218 Association of Chartered Certified Accountants 
219 Federation of European Accountants 
220 International Bar Association 
221 The Council of Bars and Law Societies of Europe 
222 Union Internationale des Avocats 
223 Fondation pour le Droit Continental 
224Federation of European National Collection Associations 

119 

 
 
 
 
 
                                                            
Other measures such as measures ensuring the enforcement of claims and measures governing 
employees' rights in insolvency did not gain much support as being appropriate for insolvency 
framework at EU level.  

All the Member States agreed on the necessity of preventive measures enabling restructuring 
of viable businesses. While some of them were more open to a well targeted harmonisation, 
the  majority  of  them  were  cautious  about  the  harmonisation  related  to  insolvency, 
restructuring  and  second  chance,  opting  for  high-level  principles,  where  obstacles  to  the 
functioning of Internal Market are identified. In particular, some were more reluctant (FI, CZ, 
SE), while others either did not see the need (since introduced reforms – PL), or were afraid 
of  many unintended  interactions with other  areas of law (DE) as  well as with  well-working 
systems and local cultures and policies. Wider diversity of views and reluctance was observed 
with regard to discharge periods and the conditions for discharge. 

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  believed  that  any  intervention  at  EU  level  should  be  sensitive  to 
national specificities, as well as existing Member State legislation and strike a right balance 
among  the  interests  of  different  stakeholders.  More  particular,  they  gave  attention  to  early 
warning mechanisms, early restructuring, court involvement and publicity requirements when 
rights of third parties are affected, protection of financing, short moratorium periods, reducing 
the  cost  and  length  of  proceedings,  protection  of  security  and  property  rights,  sufficient 
qualified and regulated professionals and enhanced judicial system. The banking industry also 
stressed the importance of protecting collateral and the cost of credit and financing. Consumer 
organisations underlined the need of early detection of financial difficulties, access to free or 
low-cost debt advice and discharge for natural persons. Trade Unions stressed that employees' 
interests,  consultation  and  priority  ranking  rights  should  not  be  overruled.  As  to  discharge, 
some  stakeholders  (mainly  the  banking  sector)  were  of  the  view  that  consumer  discharge 
should be dealt separately. 

Also  the  experts  advised  the  Commission  to  focus  on  business  restructuring  and  make  the 
Recommendation  more  workable.  The  opinions  were  divided  as  whether  the  future  legal 
instrument should be more detailed or more principle based. 

Views of main stakeholders 

According to the position papers received during the public consultation, the position of the 
main European stakeholders is summarised below: 

BUSINESSEUROPE is generally supportive of a second chance approach to insolvency in 
the EU by ensuring minimum standards for pre-insolvency (early restructuring) and recovery 
proceedings.  It  is  essential  to  provide  early  warning  systems,  preserve  the  ability  of  the 
company going through a restructuring procedure to keep its business, protect new financing, 
promote  specialisation  of  courts  and  training  of  judges  and  provide  minimum  standards  for 
insolvency  practitioners  (e.g.  Code  of  Ethics).  In  addition,  consideration  should  be  given  to 
clarifying  certain  criteria  for  identifying  'honesty’,  promoting  access  to  assistance  and 
information  tools  as  well  as  to  alternative  out-of-court  means  and  digitalisation.  However, 
Businesseurope is of the view that there should be no harmonisation of the classes of creditors 
and that consumer insolvency should be dealt separately. 

120 

 
 
Association  of  Chartered  Certified  Accountants  (ACCA)  welcomes  the  initiative  of  the 
European Commission to introduce minimum standards in the EU in relation to restructuring 
and  insolvency,  but  underlines  the  dangers  of  changing  well-working  regimes.  ACCA  is  in 
general  in  favour  of  introducing  an  effective  and  efficient  framework  for  preventive 
restructuring measures in EU. Particularly, they opt for a framework entailing the possibility 
to file early, less court involvement and publicity, protection of secured creditors, protection 
of  financing  (no  abusing)  and  sufficient  qualified  and  regulated  professionals.  Finally, 
artificial  distinctions  between  entrepreneurs  and  consumers  in  relation  to  discharge  are  not 
encouraged. 

European  Banking  Federation  (EBF)  fully  embraces  the  Commission's  intention  to 
introduce preventive measures developing a new approach to business restructuring in EU. It 
is however of key importance that the future legislative initiative would be well balanced in 
catering to the needs of both creditors as well as present and future debtors. In particular, EBF 
supports involvement of creditors in the restructuring plan and in the assessment of viability 
of the debtor, enhanced access to information for creditors, reasonable time limits for judicial 
restructuring procedures, super senior rank priority for new financing as long as is agreed in 
the  restructuring  plan  and  confirmed  by  the  Court,  EU  common  standards  for  claim 
statements'  time  limits,  harmonisation  of  certain  aspects  on  avoidance  actions  and 
strengthening  the  enforcement  framework.  Moreover,  EBF  welcomes  the  introduction  of 
minimum  standardized  rules  on  the  qualification  of  insolvency  practitioners  and  measures 
laying down obligations for directors’  of distressed  companies. Concerns are expressed  to a 
full discharge for entrepreneurs without the additional requirement of paying certain amount 
of the debt. Finally, they consider that consumers' insolvency should be dealt separately.   

European  Federation  for  the  Factoring  and  Commercial  Finance  Industry  (EUF) 
supports the idea of an efficient and (cost)-effective EU insolvency framework allowing for 
early  restructuring,  increasing  the  recovery  rates  and  ensuring  the  enforcement  of  debts. 
Moreover, EUF underlines that the diversity of rules in several aspects related to insolvency 
and  restructuring  proceedings  constitutes  a  barrier  to  the  functioning  of  the  Internal  Market 
and  increases  the  costs  for  creditors  (e.g.  costs  for  participating  in  cross-border  insolvency 
proceedings, costs of assessing the risk of default) and for SMEs (e.g. they are dicincentivised 
to  start  restructuring  at  an  early  stage).  Harmonisation  of  measures  related  to  claw-back, 
interim financing, and avoidance actions would increase legal certainty. Finally, EUF is of the 
view that there should not be a full discharge available for entrepreneurs.  

European  Financial  Inclusion  Network  (EFIN)  believes  that  preventive  measures  for 
enabling restructuring of viable businesses and measures to ensure the discharge of debts are 
key issues for an efficient insolvency framework in the EU and for achieving better recovery 
rates. Such framework should entail an early detection of financial difficulties, access to free 
debt  advice,  the  possibility  of  a  moratorium  and  of  a  cross-class  cram  down  as  well  as 
discharge  for  entrepreneurs  and  consumers.  The  concept  of  ‘honesty’  is  also  essential  and 
should not be abused and the principle of dignity should be central. Finally, they suggest the 
introduction of a calculation method for a minimum cost of living (e.g. reference budget) with 
the agreement of all stakeholders at a national level. 

European Association of Certified Turnaround Professionals (EACTP) strongly supports 
Commission's Recommendation on a new approach to business failure and insolvency. They 
underline  that  the  overall  aim  of  a  preventive  restructuring  framework  should  be  to  fully 
turnaround  the  business  allowing  for  an  operational  restructuring.  They  are  in  favour  of 
introducing  incentives  for  business  to  take  early  action  for  restructuring,  protecting  'bridge' 

121 

 
 
financing  and  granting  a  temporary  stay  (having  also  a  designated  court  different  from  the 
insolvency  court).  They  also  support  establishing  professional  standards  for  insolvency 
practitioners, mediators etc.  

European  Mortgage  Federation-European  Covered  Bond  Council  (EMF-ECBC) 
supports the efforts to ensure the existence of effective insolvency frameworks for business in 
EU.  However,  any  intervention  at  EU  level  should  be  sensitive  to  national  specificities,  as 
well  as  existing  Member  State  legislation.  EMF-ECBC  stresses  that  differences  between 
Member  States’  insolvency  frameworks  can  act  as  an  obstacle  to  the  free  movement  of 
capital,  goods  and  services  and  the  functioning  of  Internal  Market.  They  express  concerns 
regarding  limiting  the  enforcement  of  claims  over  the  collateral  underlining  potential 
implications to capital bank requirements. Although they recognise that second chance entails 
benefits for the wider economy, they advocate that a debt discharge should be available only 
when  a  certain  amount  of  a  debt  is  repaid  in  order  to  avoid  moral  hazard  and  promote 
responsible entrepreneurship. Finally, they strongly believe that measures to ensure discharge 
of  debt  for  consumers  should  not  form  part  of  the  efforts  of  this  consultation  to  create  an 
efficient insolvency framework for businesses and it should be dealt separately. 

Independent  Retail  Europe  supports  maximum  harmonisation  of  EU  insolvency  rules,  as 
this would provide businesses operating cross-border (and providing credit cross-border) with 
maximum  levels  of  legal  certainty,  investor  protection  and  cost  savings.  Independent  Retail 
Europe  particularly  underlines  the  importance  of  protection  (absolute  priority  ranking)  of 
financing for SMEs under restructuring, in case of recovery proceedings, as well as protection 
of security and property rights.  Harmonisation should also help with  reducing the costs and 
the length of the cross-border proceedings and simplify the formal requirements. It would be 
also beneficial to introduce general principles for defining the viability of a debtor. Moreover, 
discharge  periods  should  allow  an  entrepreneur  to  return  to  economic  life  in  a  reasonable 
timeframe;  a  set  of  objective  criteria  should  be  developed  to  determine  when  a  facilitated 
discharge should be allowed in order to avoid moral hazard as well as fraudulent bankruptcies 
(taking also into account the risk of the chosen business). Finally, they stressed the knock-off 
effect that insolvencies of independent retailers have for the wider independent group (double 
punishment)  and  advocated  that  the  group,  with  the  agreement  of  the  independent  retailer 
should be able to intervene in a restructuring process, including, if necessary, the buy- out of 
the point of sale.  

EUROCHAMBERS  stresses  that  effective  national  insolvency  systems  are  crucial  for 
business and underlines the increasing risks for payment recovery in cross-border businesses. 
Insolvency frameworks that allow for early access to restructuring, strengthening the position 
of  secured  creditors  and  introducing  flexible  and  less  costly  out-of-court  procedures  would 
reduce the overall default rates. However, EUROCHAMBERS is not convinced that there is a 
clear  justification  for  EU  competence  for  harmonisation  in  this  area,  but  efficiency  in 
insolvency laws should be rather achieved through guidance and pressure from the European 
semester  process.  EUROCHAMBERS  supports  the  idea  of  introducing  interconnected 
insolvency  registers  that  would  include  information  for  creditors  as  well  as  sufficient 
information  available  online  on  all  applicable  legal  frameworks.  Finally,  they  encourage 
initiatives for professional support including mentoring, training and advising entrepreneurs in 
financial  distress  and  believe  that  both  consumers  and  entrepreneurs  should  have  the 
possibility to restructure debts under certain conditions. 

European  Trade  Union  Confederation  (ETUC)  underlines  the  importance  of  protecting 
employees'  rights  in  insolvency.  They  stress  the  severe  direct  and  indirect  effects  of 

122 

 
 
insolvency for employment and for economy in general, due to the knock-off effect. They are 
generally  in  favour  of  preventative  restructuring  of  viable  businesses  and  a  second  chance 
approach  as  described  in  the  Insolvency  Recommendation,  but  they  also  express  strong 
concerns regarding certain elements. Particularly, ETUC is concerned to ensure that there is 
no  erosion  of  existing  employee  protections,  as  currently  laid  down  in  EU  legislation,  no 
alteration of the preferential creditor status of employees and no misuse about early filing or 
abuse of second chance with letter box practices. In addition, ETUC states that Member States 
should  be  encouraged  to  set  up  early  warning  and  advice  systems  to  businesses  and  also 
stresses the fundamental issue of consultation and information of workers. Moreover, they are 
in favour of establishing a common definition for insolvency, including a reasonable chance 
of viability test for entry in restructuring, enhancing the rights of employees to be heard and 
ensuring  transparency  and  external  supervision.  Furthermore,  ETUC  fully  supports  the 
improvement of supervision of directors’ duties and liability as well as the establishment of 
minimum  standards  for  Insolvency  Practitioners  as  an  aid  to  increasing  the  efficiency  and 
effectiveness  of  insolvency  proceedings.  Finally,  ETUC  is  reluctant  to  a  full  discharge  of 
debts  after  a  relatively  short  period  of  time  and  is  in  favour  of  more  stringent  rules  for 
dishonest entrepreneurs. 

European  Association  of  Craft,  Small  and  Medium-Sized  Enterprises  (EUAPME) 
emphasises  that  preventive  measures  that  enable  viable  business  to  restructure  should  be  a 
primary consideration for an appropriate insolvency framework in the EU, taking though into 
account  the  coherence  of  the  national  legal  systems  and  different  policies.  Particularly, 
measures  ensuring  the  viability  of  a  debtor,  offering  assistance  for  debtors  in  financial 
difficulties,  raising  the  degree  of  recovery  rates  and  improving  the  efficiency  of  procedures 
are crucial. A fair balance of debtors' and creditors' interests is needed and companies should 
be  better  directed  to  appropriate  proceedings.  Insolvency  proceedings  should  be  more 
efficient,  quicker,  fairer  and  more  cost-effective,  particularly  for  SMEs.  In  addition, 
restructuring  proceedings  should  entail  the  involvement  of  the  court  and  supervision  when 
creditors' rights are affected, the possibility of a moratorium when it is absolute necessary and 
cram-down  under  conditions.  However,  no  interference  with  ranking  of  creditors  should  be 
foreseen.  Finally,  with  regard  to  discharge,  indebted  honest  individuals  should  be  offered  a 
second chance and access to free or low cost advice, accompanied with adequate safeguards 
in order to prevent misuse. 

INSOL Europe agrees that some level of harmonisation of preventive measures is desirable 
and particularly, issues such as rules on the opening of insolvency proceedings, reorganisation 
plans, avoidance actions, ipso facto clauses and directors liability are important topics apt for 
harmonisation. INSOL Europe also advocates for a European Rescue Plan that can be adopted 
of  groups  of  companies  which  have  opened  insolvency  proceedings  in  more  than  one  EU 
jurisdictions.  Moreover,  they  mention  that  both  measures  to  protect  new  financing  and 
measures to promote assistance to financially distressed debtors are important and they stress 
the  necessity  of  introducing  minimum  standards  on  avoidance  actions.  In  addition,  the 
availability  of  debtor-in  -possession  proceedings  is  encouraged,  but  effective  supervision 
when creditors are stayed from enforcing their rights is advisable.  Furthermore, majorities of 
creditors  should  not  be  able  to  bind  creditors  with  differing  interests,  but  the  court  should 
decide about overruling such vote. They also advocate that a common definition of insolvency 
in  the  context  of  the  opening  of  the  proceedings  is  not  necessary  and  they  stress  that  the 
distinctive  criterion  between  claims  which  predate  the  insolvency  proceedings  and  claims 
which occur during insolvency proceedings should be harmonized. Nevertheless, they are not 
in favour of statutory rules on assessment of a debtors' viability or any minimum standards on 
IPs,  judges,  courts  and  ranking  of  claims.  Finally,  the  opportunity  for  honest  individuals  to 

123 

 
 
obtain  a  discharge  should  be  given  to  both  consumers  and  entrepreneurs  under  the  same 
conditions  and  access  to  cheap  or  low  cost  advice  should  be  available  for  SMEs  and 
individuals. 

Federation  of  European  Business  Information  Services  (FEBIS)  supports  that  minimum 
standards on preventive measures to enable the restructuring of viable business, measures to 
increase the recovery rates of debts in insolvency and measures ensuring the enforcement of 
debts should be  taken to achieve an appropriate insolvency framework in the EU. They are in 
favour  of  early  warning  systems,  publicity,  court  involvement,  short  stay  provisions  and 
discharge  for  all  honest  individuals  with  stricter  conditions  applicable  for  entrepreneurs.  In 
addition,  they  stressed  the  important  role  of  suppliers  providing  credit  and  the  necessity  to 
reduce cascade bankruptcies. Finally, they advocate for a better access to finance, enhancing 
information requirements for SMEs and introducing common accounting standards. 

2.2. 

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The  vast  majority  of  those  consulted  in  the  public  consultation  believed  that  existing 
differences  between  the  laws  of  the  Member  States  in  all  the  areas  mentioned  in  the  chart 
above affect the functioning of the Internal Market. Particularly, almost half of them indicate 
that differences in the areas of preventive measures and measures increasing the recovery of 
debts affect to  a large or a considerable extent  the functioning of  the Internal  Market. Very 
few claimed that divergence in the laws of the Member States in those areas does not pose any 
barriers to the functioning of the Internal Market. 

In the public consultation and the dedicated stakeholders meetings, all the stakeholders agreed 
that timely access to preventive (restructuring) proceedings is a key issue in order to avert the 
insolvency of economically viable business. The majority was in favour of a minimum broad 

124 

 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
standards harmonisation, whilst allowing Member States flexibility as to how those standards 
are  applied  in  practice,  without  affecting  adversely  any  well-working  regimes.  In  addition, 
they raised several points where more targeted harmonisation would be useful. 

In the public consultation, the majority of respondents outlined that a minimum harmonisation 
of  a  preventive  framework  would  be  helpful  providing  for  consistency,  predictability  and 
motivating investment and cross-border transactions. In particular, they argued that:  

  The  differences  between  Member  States  insolvency  frameworks  can  affect  exports, 

imports, investment, cross-border lending and cross-border company groupings. 

  The  unpredictability  of  insolvency  proceedings  makes  it  difficult  for  creditors  to 
recover  value  from  distressed  debts,  which  contributes  to  high  levels  of  non-
performing  loans.  The latter weight on a bank’s balance sheet and as  a consequence 
may lead to constrains in its lending activities. 225  

  Divergences in the laws of the Member States raise the cost of financing leading to a 

fractured Internal Market. 

 

  Harmonisation  of  business  failures  processing  rules  may  help  to  encourage  an 
environment  in  the  EU  where  investors,  funds,  banks  and  other  stakeholders  will  be 
motivated  to  support  relevant  European  distressed  companies  and  help  them  survive 
and thrive.  
Investors  primarily  want  certainty  of  treatment  and  consistency  of  application  in 
insolvency. Differences in insolvency regimes may increase uncertainty for investors 
as  well  as  the  cost  of  assessment  of  risks;  it  can  become  a  deterrent  to  cross-border 
corporate investment, since the difficulties of establishing the value of distressed debt 
may  increase  the  cost  at  which  investors  are  willing  to  invest,  or  even  it  could 
discourage  investors  from  establishing  their  business  activities  in  other  Member 
States. 226 
Forum  shopping  and  COMI  shifts  usually  reflect  the availability of preventive measures.  SMEs 
are less able to do so.227 Costs from shifting of activities.228 

 

  Approximation  of  preventive  measures  would  reduce  the  regulatory  arbitrage, 
preventing the debtors from relocating their center of interest to countries with a more 
favourable insolvency regime and file there for bankruptcy (“bankruptcy tourism”).229 
  National  differences  encourage  rogue  businesses  to  strategically  establish  their 
registered  offices  in  Member  States  with  "lax"  legislation  with  a  view  to  gain  a 
competitive  advantage  over  other  national  undertakings.  The  problem  is  particularly 
acute for letterbox companies.230 
It  would  allow  for  more  efficient  evaluation  of  the  likely  outcome  of  all  affected 
parties, speeding the means for a solution as well as providing greater clarity around 
valuations at various layers of the capital structure, resulting in an efficient means of 
risk assessment and valuation.231 
It would cut down on legal fees and other expenses, the need to forum shop and move 
corporate headquarters to enable a viable and speedy restructuring. 

 

 

225 EBF 
226 BBA, Loan Market Association,  
227 Insolvency practitioners Association (UK) 
228 IBA 
229 EACB 
230 ETUC 
231 Standard Life Capital Partners (UK) 

125 

 
 
 
 
                                                            
  Debt discharge after a period will allow entrepreneurs second chances and provide a 
driver  for  growth.  This  should  be  tempered  by  ensuring  disincentives  for  dishonest 
conduct.232 

  Second time entrepreneurs are more successful and operate for longer than start-ups. 
  Currently,  there  is  a  wide  disparity  within  the  EU  Member  States  both  as  regards 
availability  of  appropriate  rescue  tools  and,  should  rescue  not  be  possible, 
effectiveness of the individual insolvency regimes and thus outcomes for stakeholders. 
There is anecdotal evidence of centre of main interests shift at the time of failure (for 
example from Germany or Spain to UK).233 

  There  are  examples  where  one  members  of  a  group  of  companies  has  filed  for 
insolvency  because  of  strict  legal  requirements  in  the  relevant  Member  State  which 
has pushed the parent company into insolvency proceedings in another Member State 
when a restructuring might otherwise have been possible.234 

However, some concerns were expressed whether a harmonisation in the above-mentioned areas 
is necessary and whether the above-mentioned differences have a direct effect on the Internal 
Market: 

  A  partial  harmonisation  may  undermine  the  operation  of  the  regime  altogether  as  many 
aspects  of  a  restructuring  are  interlinked  with  the  formal  insolvency  processes  or  with 
other  areas  of  law  (company  law,  contract  law,  employment,  labour  law,  tax  law).  This 
may have a limiting effect on the impact of any new measures. 

  Some of the differences in approach to certain aspects of national insolvency are driven by 
national  social  and  political  considerations  and  therefore  are  not  readily  conducive  to 
being harmonised across the EU socio-economic constructs and cultural differences make 
certainty and consistency difficult. 

  An approach that might weaken the well-functioning approaches in some countries would 

not be welcome. 

  Some insolvency practitioners mentioned that investment decisions of enterprises as well 
as decisions about cross-border transactions are not entirely depended on different features 
of  insolvency  law  in  a  specific  Member  State.  The  level  of  risk  depends  mainly  on  the 
financial  situation  of  the  respective  business  partner  and  –  if  this  risk  is  realised  –  the 
efficiency of the applicable insolvency law. The differences in insolvency laws will need 
to be taken into account when carrying out any risk analysis, but will not necessarily be a 
key focus or determining factor for investors, creditors or debtors. 

  Certain  measures  notably  those  governing  employees’  rights  are  likely  to  be  rather 
political  and  polarising  measures  and  therefore  difficult  to  amend  on  EU  level  (e.g.  In 
France,  saving  employment  is  the  second  priority  of  French  insolvency  law,  after 
continuation of activity (first priority) but before settlement of liabilities (third priority). 
  Differences  in  the  laws  of  the  Member  State  may  only  affect  the  administration  and 

the cost of the proceedings.235 

  Differences in existing regimes are not necessarily problematic in practice, but can be 
seen  as  offering  a  greater  variety  of  options  for  debtors  who  operate  across  borders. 
For  example,  English  schemes  of  arrangement  have  been  used  as  a  solution  for 
restructuring non-UK companies.236 

 

232 KPMG 
233 Deloitte 
234 PwC 
235 Finnish Bar Association 
236 Invest Europe, R3 

126 

 
 
 
 
                                                            
2.3. 

Impact of the proposed measures on the creation of new companies 

100%
90%
80%
70%
60%
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40%
30%
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The  majority  of  those  consulted  in  the  public  consultation,  stressed  that  all  the  measures 
mentioned  above  have  an  impact  on  the  creation  and  operations  of  newly  established 
companies.  Particularly,  more  than  one  third  believed  that  preventive  measures  to  enable 
restructuring of viable business, measures to increase the recovery of debts in insolvency and 
ensure enforcement of debts as well as measures to ensure discharge for entrepreneurs affect 
to a large or a considerable extent the creation and operations of newly established companies. 

  On  the  one  hand,  the  impact  of  the  measures  mentioned  above  was  deemed 
considerable for start-ups since access to credit can be facilitated. Providers of equity 
and debt capital to new and growing businesses will be more willing to invest when 
their  rights  are  clear  and  there  is  predictability  and  transparency  of  the  process 
especially  for  measures  that  affect  debt  enforcement.  At  the  same  time,  it  may  be 
easier for business to obtain funding where there is an effective regime across EU for 
creditor' rights and enforcement of debts.237  

  On the other hand, although the possibility to restructure viable business may have an 
impact on new companies providing for incentives and confidence to entrepreneurs238, 
it was largely supported that, at the time of establishing a start-up, no significant focus 
is  placed  on  insolvency  regime  (except  maybe  for  certain  considerations  of  personal 
liability  or  very  strict  discharge  regimes),  as  the  possibility  of  failure  is  not  largely 
considered by entrepreneurs; newly formed businesses take into account a variety of 
different  considerations  (commercial,  financial,  operational,  legal  and  regulatory)  in 
order  to  decide  in  which  jurisdiction  operations  should  be  located  and operate  from, 
but  rarely  in  the  areas  mentioned  above,  apart  from  exceptional  cases  (e.g.  where  a 

237 Standard life Capitals Partners (UK), ICAS, ICAEW, entrepreneur from Hungary, IBA 
238 Unicredit, Barreau de Luxemburg 

127 

 
 
 
 
                                                            
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
new  company  is  used  in  a  restructuring  solution  for  an  existing  company/special 
purpose vehicles).239 

  Other stakeholders were of the view that all the measures mentioned above can have 
an impact on start-ups in the sense that due to their limited ‘financial buffer’ they are 
more vulnerable to knock-off effects.240 

Other  issues  that  according  to  the  stakeholders  may  have  an  impact  on  saving  viable 
businesses: 

  The cost of restructuring 
  The availability/range of recognised informal measures 
  The court system in terms of speed, cost and specialisation 
  The ability of qualified and regulated insolvency processionals to lead the restructure/ 

business rescue 

  The broader business environment and regulatory regime 

2.4. 

Impact of the proposed measures on the increase of recovery rates of debts 

When asked which  measures would contribute to increasing the recovery rates of debts, the 
respondents to the public consultation replied as follows: 

49% 

51% 

47% 

41% 

44% 

41% 

22% 

15% 

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239  Clifford  Chance  LLP,  academic  from  Germany,  University  of  Bonn,  ICAS,  ICAEW,  German  banking  industry 
committee,  Loan  Market  Association,  insolvency  practitioners  association  (UK),  ILA,  Finnish  bar  association, 
Chamber of Trade for Munich and Upper Bavaria 

240 Unizo, INSOL Europe 

128 

 
 
 
 
 
 
 
                                                            
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
More  than  40%  of  the  respondents  supported  that  all  the  measures  mentioned  above  would 
contribute  to  increasing  the  recovery  rates  of  debts.  Minimum  standards  on  insolvency 
practitioners/mediators/supervisors,  minimum  harmonized  rules  on  avoidance  actions, 
specializations  of  judges  and  the  length  of  insolvency  proceedings  were  deemed  as  more 
important.241 

It was also stated that: 

  Other factors (such as the speed of access to the courts, the predictability of outcome 
in  litigation  and  the  expertise  and  innovation  of  insolvency  practitioners)  are  more 
likely to have an impact on recovery.242 

  Although several of the measures mentioned may be necessary to obtain a higher debt 
recovery rate, there is no need to set minimum standards under European law.243 

2.5. 

The impact on the problem of non-performing loans 

When  asked  about  which  measures  would  contribute  to  reducing  the  problem  of  non-
performing loans, the respondents to the public consultation replied as follows:  

62% 

46% 

28% 

24% 

21% 

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The majority of those consulted agreed that measures enabling the rescue of viable companies 
are essential for mitigating the problem of non-performing loans, while less were of the view 
that  measures  to  improve the effectiveness  of insolvency proceedings can  also contribute to 
reducing the problem of non-performing loans. 

241 EBF, IBA 
242 The City of London Law Society  
243 German Banking Industry Committee 

129 

 
 
 
 
 
 
 
 
                                                            
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

It was in general stressed that the problem of NPLs can be dealt more effectively in a 
system  providing  for  realistic  possibilities  of  an  effective  restructuring  and  debt 
enforcement  on  the  one  hand  and  a  prompt  discharge  of  what  is  not  realistically 
recoverable on the other hand. 

  Effective insolvency legislation promotes efficient management of non-payments.244 
  More  particularly,  it  was  supported  that  early  restructuring  measures  result  in  better 
recovery for lenders since  they can allow rescued companies to repay their loans (at 
least in part) and to continue to make a positive contribution to the economy.245  

  Timely resort to restructuring well serves the objectives of recovery rates and NPLs.246 
  Creditors  and  investors'  certainty  concerning  legal  outcomes  particularly  as  to  the 
enforceability  of  the  loans  and  the  effectiveness  of  the  restructuring  initiatives  will 
lead to the efficient resolution of NPLs in Europe.247 

  One of the primary factors for commencing enforcement action is the possibility of a 

quick enforcement and a degree of certainty on the process and outcome.248 

  Consideration should be given not to impede efficient enforceability of the collateral, 
because  in  case  a  default  the  collateral  backing  the  credit  is  deemed  as  a  central 
element.249 

Other measures mentioned: 

  Consumer and family organisations supported limiting the cost of debt collection to 
reflect  the  ‘real  costs’  and  promote  a  non-profit  model  for  debt  collection  and  debt 
advice companies. 

  The  European  banking  sector  would  welcome  strengthening  the  enforcement 
framework and protecting secured creditors. In particular, the adoption of harmonised 
enabling  certain  creditors’  claims,  at  least  those  secured  by  a  pledge,  to  be  satisfied 
before  the  enforcement  of  contracts  under  insolvency  proceedings  would  effectively 
enhance  the  lenders’  recovery  ratio  or  at least prevent  excessive credit  deterioration. 
Moreover,  it  was  suggested  that  the  context  of  ordinary  enforcement  procedures 
should allow the direct/automatic enforcement of the claims or part of the claims that 
have not been objected by the debtor, without any court preliminary consent. Finally, 
it  was  advocated  to  enlarge  the  scope  of  the  Collateral  Directive  to  include  also 
unlisted financial instruments (e.g. shares of private companies).250 

2.6. 

Cross-border element and its impact on restructuring 

The  majority  of  the  participants  to  the  public  consultation  recognised  that,  as  opposed  to  a 
purely national situation, the restructuring of a business is very significantly or significantly 
affected when creditors are situated in a different Member State(s) than their debtors. On the 
contrary, very few stated that there is no impact at all. 

Particularly, the majority of the stakeholders mentioned that: 

244 EUAPME 
245 INSOL Europe, Bar Council of England and Wales 
246 BBA, IBA 
247 Financial Markets Law Committee 
248 Insolvency Practitioners Association (UK), KPMG 
249 Danish Mortgage Banks´ Federation 
250 EBF 

130 

 
 
 
 
 
 
                                                            
in  cross-border 

  There  are  higher  costs  and  risks  for  creditors  (especially  unsophisticated  and  small 
(language  barrier, 

ones)  participating 
professional guidance, possible fees/costs) compared to a purely national situation.251 
  Where  creditors  are  situated  in  a  different  Member  State  from  the  debtor,  a 
restructuring  will  be  more  complex  due  to  various  legal  uncertainties  (such  as 
specificities of the legal regime, including the different treatment of securities in rem, 
multiple and competing requirements, different time limits).252 

restructuring  process 

  Variations  in  the  requirements  between  jurisdictions  mean  that  considerable  extra 
costs would have to be incurred by creditors in order to fully understand the process 
and  debtor  and  creditor  rights;  this  would  make  it  both  slower  and  harder  for  an 
external creditor to effectively participate in supporting a debtor.253 

  The  difficulty  to  properly  assess  the  consequences  of  a  crisis,  given  the  lack  of 
harmonized  minimum  standards  on  debt  enforcement  and  debt  recovery  procedures, 
makes  it  less  secure  for  credit  institutions  and  other  investors  to  invest  in  other 
Member States. 

Other stakeholders argued that: 

  Creditor  engagement  is  usually  mainly  driven  by  the  likely  outcome  and  individual 

effect on creditors.  

  There  can  be  problems  in  relation  to  proceedings  which  are  outside  of  the  scope  of 

European Regulation on insolvency. 

 

  The  overall  impact  on  the  restructuring  is  likely  to  be  low;  other  than  the  practical 
issues of locating and notifying creditors and assessing claims, there is little impact. 
It is more likely to have an impact on SMEs, where creditors are more likely to have 
relatively low stakes. For such creditors, the need to access advice on a restructuring 
in another Member State, to enable them to participate in that restructuring, may not 
be cost effective given the likely level of any recovery.254 

2.7. 

The characteristics of an appropriate restructuring framework at EU level 

2.7.1.  Situation of debtors  

In the performed public consultation, the majority of the respondents were in favour of having 
the  possibility  of  early  restructuring  (before  the  debtor  is  insolvent,  but  where  there  is  a 
likelihood  of  imminent  insolvency),255  less  stressed  that  restructuring  should  be  available  at 
any  time256,  while  very  few  were  of  the  view  that  only  already  insolvent  debtors  should  be 
eligible for restructuring.257 

In particular, the majority of stakeholders stressed that it is fundamental that both the failing 
viability of the debtor is identified in sufficient time before collapse, so that restructuring can 
be  put  in  place,  but  also  that  its  future  viability  can  be  assessed.  Moreover,  it  was  clearly 

251 EUF, ICAEW, Academic from Germany, insolvency practitioner from Germany 
252 EACB, German Institute for applied insolvency law (Hamburg University) 
253 BBA 
254 Insolvency lawyers association (UK) 
255  UEAPME,  PMT/PME/MN,  Bundesverband  der  Deutschen  Industrie  e.V.,  EBF,  ACCA,  BV  ESUG,  Association  of 
lnsolvency Administrators (Germany), German Institute for applied insolvency law (Hamburg University) 

256 Eurochambers, ACCA, Bar Council of England and Wales 
257 INSOL Europe, German Federal Association of notaries 

131 

 
 
 
 
 
                                                            
mentioned  that  adequate  safeguards  should  be  ensured  in  order  to  avoid  abuses,  such  as 
delaying the onset of insolvency where there is no chance of a successful rescue. 

In  the  public  consultation  and  the  dedicated  staleholders'  meetings,  the  business  sector 
(Eurochambers,  Independent  Retail  Europe,  EUAPME)  was  strongly  in  favour  of  early 
restructuring  for  viable  businesses  when  there  is  a  likelihood  of  insolvency  and  they 
underlined the importance for early warning tools. Some business organisations (Independent 
Retail Europe, EUAPME) also stressed that models for restructuring plans could be used as a 
starting point in order to reduce costs for SMEs, as long as they are optional   and flexible.  

Legal  practitioners,  insolvency  practitioners  and  academics  were  in  favour  of  early 
restructuring for viable debtors, when there is a likelihood of insolvency, including when the 
viability of the business is threatened due to over-indebtedness. They were also in favour of 
early  warning  mechanisms  and  facilitating  access  to  advice.  As  for  the  model  restructuring 
plans,  although  some  professionals  (ACCA)  expressed  feasibility  concerns,  others  (CCBE, 
ELI) were in favour.  

The financial sector supported the idea of and advocated for more efficient alert mechanisms, 
such as tax and social security authorities flagging a negative development of a business. 

Trade  Unions  agreed  that  an  early  restructuring  framework  should  be  available  to  viable 
debtors  in  financial  difficulties  when  there  is  a  likelihood  of  insolvency.  However,  they 
reminded  of  abusive  practices  by  which  insolvency  proceedings,  and  in  particular 
restructuring,  are  deliberately  used  to  evade  responsibilities  under  labour  law.  An  easier 
access  to  preventive  restructuring  framework  should  be  counterbalanced  by  safeguards 
against  'tactical  insolvencies',  for  the  protection  of  employees’  rights.  Additionally,  they 
advocated that the EU labour acquis should not be affected. 

Most  Member  States  supported  the  idea  of  early  restructuring  already  at  the  time  of  the 
Recommendation  on  restructuring  and  second  chance.  In  the  performed  public  consultation 
over  50  %  of  respondents  were  in  favour  of  early  restructuring  procedures  while  20% 
believed  that  restructuring  should  be  available  at  any  time.  Member  States258  agreed  on  the 
necessity of preventive measures enabling early restructuring of viable businesses. During the 
dedicated meetings with the Member States, they were of the view that when the viability of 
the  business  is  threatened  due  to  over-indebtedness,  the  businesses  should  have  a  right  to 
access an early restructuring framework. However, the majority, if not all ((AT, EE, FI, DE, 
IE, PL, PT, ES, SE) were opposed to harmonising the definition of insolvency or that of the 
likelihood of insolvency.  

In  addition,  all  the  Member  States  advocated  for  early  warning  mechanisms  and  tools,  but 
there was no consensus regarding the modalities how these systems should be established and 
operated  (whether  they  should  be  funded  and  monitored  by  the  State  or  by  the  private 
market). As for model restructuring plans, although the majority of Member States expressed 
concerns  regarding  the  effectiveness,  they  were  in  favour  as  long  as  these  checklists  are 
optional and flexible. 

Closely  related  to  it  was  the  question  about  a  harmonised  definition  of  insolvency  or 
likelihood  of  insolvency.  In  the  public  consultation,  two  thirds  of  those  consulted  were  in 
favour of introducing a common definition of insolvency at EU level, particularly with a view 

258  

18 Member States replied (AT, DE, EL, CZ, EE, MT, PL, SK, SE, SI, LT, LV, HU, FR, IT, IE, FI and 
BE), but several asked for their contributions to remain confidential. 

132 

 
 
                                                            
to  enhance  certainty  and  predictability  for  firms  and  investors  across  the  EU  and  create  a 
level-playing  field  for  cross  border  insolvency  proceedings.259  The  majority  of  those 
consulted were of the view that such a definition should include elements of both a cash flow 
(liquidity) and a balance sheet test. 

However, during the dedicated meetings with the stakeholders, it was highlighted by almost 
all  of  them  that  whilst  some  minimum  standards  might  be  helpful,  it  is  unlikely  to agree  in 
practice  on  a  common  definition.260  In  this  context,  some  stakeholders  argued  that  the 
consequences  of  a  company  meeting  the  insolvency  definition/test  are  more  important  than 
the definition itself, in particular when there are strict requirements for mandatory filing for 
insolvency.261  Additionally,  in  the  public  consultation  and  the  informal  meetings  with  the 
Member States, most of them were not in favour of harmonising these definitions at EU level.  

Finally, the experts consulted did not reach a consensus on the need to a common definition of 
insolvency at EU level. The view expressed was that a definition would not be necessary to 
access early restructuring proceedings. Most of the experts expressed the view that the future 
initiative  should  focus  more  on  trigger  elements/criteria,  especially  for  early  restructuring 
procedures. 

2.7.2. 

Involvement of national courts 

Approximately 45% of the respondents to the public consultation supported that some sort of 
formal procedure (with the involvement of the court or other competent authority) should be 
opened when a moratorium is granted or in case of a confirmation of a restructuring plan,262 
while  18%  were  in  favour  of  a  rather  flexible  process  without  having  the  involvement  of  a 
court  as  an  absolute  requirement263.  In  addition,  during  the  ‘Sounding  Board’  meetings,  the 
majority  of  stakeholders  in  business  and  financial  sector  as  well  as  professionals  in  the 
field  of  restructuring  confirmed  that  less  court-driven  procedures  may  make  the 
restructuring process less rigid, costly and time-consuming. 

Particularly, the majority argued that as soon as rights of third parties are affected, (e.g. cram- 
down or moratorium), court involvement should be required to avoid an abuse of process by 
the debtor (and consenting creditors).264  

The majority of the stakeholders indicated that restructuring measures in which the courts are 
involved  to  a  lesser  degree  or  not  at  all  should  equally  be  available  to  all  forms  of 
enterprises265, with many of them stressing that they should be particularly available to SMEs. 

Other stakeholders argued that: 

 

In purely consensual restructurings court involvement is not necessary. 

259 BBA, Bundesverband der Deutschen Industrie e.V., EBF, law firm from Germany, German Bar Association, BV ESUG, 
Association of lnsolvency Administrators, Association of lnsolvency Administrators (Germany), German Institute 
for applied insolvency law (Hamburg University) 

260 BusinessEurope 
261 AIMA, KPMG 
262  Bundesverband  der  Deutschen  Industrie  e.V.,  German  Bar  Association,  Association  of  lnsolvency  Administrators 

(Germany), German Institute for applied insolvency law (Hamburg University) 

263 Bar Council of England and Wales, ACCA, BV ESUG 
264 UEAPME, EACTP  
265 Eurochambers, INSOL Europe, German Bar Association 

133 

 
 
 
 
 
 
 
                                                            
  Flexible  out-of-court  procedures  would  be  an  efficient  and  viable  solution  both  in 

terms of success rate and duration.266 

Additionally,  in  the  public  consultation,  the  majority  of  the  stakeholders  indicated  that 
restructuring measures in which the courts are involved to a lesser degree or not at all should 
equally  be  available  to  all  forms  of  enterprises267,  with  many  of  them  stressing  that  they 
should be particularly available to SMEs. 

2.7.3.  Publicity related to proceedings 

Some stakeholders were of the view that publicity is only required in case of a moratorium or 
a  confirmation  of  the  plan,  while  others  stated  that  publicity  should  not  be  an  absolute 
requirement.268 Fewer were of the view that publicity is required as from the beginning of the 
negotiations on a restructuring plan. 

In the public consultation, it was particularly stated that:  

  Publicity should be required when the restructuring measures affect all or the majority 

of the creditors.269 

  Notification  should  be  given  to  all  affected  stakeholders,  but  this  may  be  only  a 

limited group of creditors.270 

  For  entirely  consensual  restructurings,  which  do  not  rely  on  stays  or  court  approval, 

publicity is not required.271 

  Especially for cross-border cases, access to information about restructuring/insolvency 

proceedings on a timely manner, is crucial for creditors. 

  A  European  register  of  insolvencies  based  on  existing  national  registers  would  be 
beneficial particularly for cross-border cases, as creditors could be informed about the 
opening of an insolvency proceedings against their debtor in another Member State.272 

In light of these, the Trade Unions underlined the importance of consultation and information 
rights of the employees at an early stage.  

Finally, during the dedicated meetings with the Member States, while some Member States 
(UK,  DE,  IT,  FI)  mostly  favoured  transparent  procedures  and  certain  publicity,  others  (NL, 
BE, ES, FR) stressed the importance of confidential procedures. 

2.7.4. 

'Debtor-in-possession arrangements’ 

In the public consultation, the vast majority of stakeholders were of the view that debtors in 
the context of restructuring measures should be allowed to keep control over the day-to-day 

266 Eurochambers 
267 Eurochambers, INSOL Europe, German Bar Association 
268  Eurochambers,  Bar  Council  of  England  and  Wales,  Bundesverband  der  Deutschen  Industrie  e.V.,  ACCA,  BV  ESUG, 
Association  of  lnsolvency  Administrators  (Germany),  German  Institute  for  applied  insolvency  law  (Hamburg 
University) 

269 UEAPME 
270 GDV 
271 ILA 
272 Eurochambers 

134 

 
 
 
 
 
 
 
 
 
 
                                                            
operations  of  their  business  (‘debtor-in-possession  arrangements’)  with  almost  two  thirds 
supporting 
qualified 
mediator/supervisor/court.273 

supervision 

suitably 

should 

there 

from 

that 

be 

a 

Main comments: 

  The  debtor-in-possession  arrangements  prove  to  be  very  often  the  best  solution  in 
order  for  a  debtor  to  preserve  the  productive  capacity  of  a  company;  they  promote 
operational efficiencies and realize significant cost savings. 

  Some form of supervision by a suitably qualified and independent professional would 
reduce the risk of abuse and provide a transparent and trustful process for creditors.274 
  The level of oversight may depend on the nature of restructuring and on the measures 

requested (e.g. where the rights of creditors are limited).275 

  A  range  of  restructuring  measures  should  be  available  with  options  for  a  debtor  to 
remain in possession or where appropriate have an independent supervisor or the court 
to assist.276 
In principle, the intervention/supervision of a mediator/supervisor/court should not be 
mandatory.277 

 

  Once a moratorium is ordered, supervision is necessary.278 
  The debtor-in-possession arrangements are especially needed for SMEs, since it would 
be  very  difficult  to  find  proper  management  for  the  company.  However,  it  is  highly 
unlikely that the restructuring would succeed without any supervision or control.279 

During the 'Sounding Board' meetings, business sector and business support organisations 
were  strongly  in  favour  of  debtor-in-possession  arrangements.  They  particularly  underlined 
that if the appointment of a supervisor/mediator is optional, this could reduce costs for SMEs. 
Some  of  them  were  also  of  the  view  that  when  rights  of  third  parties  are  not  affected,  the 
decision of the appointment of a supervisor should be confidential. 

Practitioners  were  in  favour  of  debtor-in-possession  principle  with  the  possibility  for 
appointing  a  supervisor.  They  were  though  reluctant  to  harmonising  the  conditions  for 
appointing an insolvency practitioner.  

Credit and financial institutions were of the view that the debtor should in principle remain 
in  possession  and  they  fully  shared  the  principle  according  to  which  the  appointment  of  a 
mediator in a preventive restructuring framework should not be mandatory, but made by the 
court  on  a  case  by-case  basis.  They  also  underlined  the  importance  of  transparency  of 
information for creditors.  

Trade  Unions  supported  the  debtor-in-possession  principle,  but  underlined  that  the 
employees’ rights to information and consultation should not be affected.  

273  Eurochambers,  EACTP,  INSOL  Europe,  EBF,  PMT/PME/MN,  Bundesverband  der  Deutschen  Industrie  e.V.,  Buchalik 
Brömmekamp  Rechtsanwälte  |  Steuerberate,  German  Bar  Association,  German  Federal  Association  of  notaries, 
Association of lnsolvency Administrators, Association of lnsolvency Administrators (Germany), German Institute 
for applied insolvency law (Hamburg University) 

274 KPMG, University of Palermo, Barreau de Luxemburg, Academic from Germany, GDV, ICAS 
275 KPMG, Insolvency practitioners association (UK), Martin Luther University Halle-Wittenberg, Unizo, UEAPME 
276 Loan Market Association 
277 BBA, EACTP, Academic from Spain 
278 University of Bonn, IBA 
279 Finnish Bar Association, German Bar Association 

135 

 
 
 
 
                                                            
From the public consultation and the dedicated meetings with the Member States, almost all 
of them (AT, BE, EE, DE, EL, HU, IE, FR, FI, IT, LV, LT, PL, SK, SI) were in favour of the 
debtor  remaining  in  possession,  but  subject  to  supervision  by  a  suitably  qualified  mediator/ 
supervisor/  court.  They  also  agreed  that  the  appointment  of  a  mediator  or  supervisor 
(insolvency  practitioner)  should  remain  optional,  but  were  not  in  favour  of  harmonising  the 
conditions for appointment.   

2.7.5.  Enforcement actions – stay and its duration 

In the public consultation, the majority of those consulted supported that a stay of individual 
enforcement  actions  should  be  available  both  in  formal  insolvency  proceedings  and  in 
preventive/pre-insolvency restructuring procedures.280 

The majority underlined that: 

  A  stay  of  individual  enforcement  actions  gives  the  viable  businesses  in  temporary 
financial  distress  a  necessary  amount  of  time  ('breathing  space')  to  define  a 
restructuring plan and to avoid precipitate creditor action, thus significantly increasing 
their chances for a successful restructuring.281 
It should be ensured that creditors whose rights are stayed are adequately protected; a 
balance  must  be  found  between  depriving  creditors  (especially  secured  creditors)  of 
their  contractual  or  propriety  rights,  and  allowing  the  debtor  breathing  space  to 
restructure;  adequate  safeguards  should  be  put  in  place  (e.g.  limited  conditions  and 
supervision, possibility for creditors to lift the stay).282 

 

  A stay should be limited to prevent individual creditor claims (no general stay). 

The majority was also in favour of allowing an individual creditor to lift the stay granted to 
the debtor, under certain conditions. 283 

They specifically argued that: 

  An  individual  creditor  should  be  allowed  to  ask  the  court  to  lift  the  stay  in  order  to 
reduce 
the  risk  connected  with  commencement  of  preventive/pre-insolvency 
procedures  in  bad  faith  (e.g.  in  order  to  harm  creditors'  interests,  delay  enforcement 
actions).  

  The creditor should be able to request the stay to be lifted if it can show that it leads to 
unfair prejudice or abuse against the creditor, or if the creditor would be able to block 
the restructuring proceedings (i.e. it represents a blocking minority).284 

Others were of the view that an individual creditor should not be sufficient, but a qualified or 
a large majority of creditors should be allowed to ask the court to lift the moratorium (e.g. if 
they  prove  that  the  debtor  is  not  negotiating  or  there  are  not  any  realistic  chances  of 
success).285 

280  UEAPME,  BusinessEurope,  INSOL  Europe,  Bar  Council  of  England  and  Wales,  PM/PME/MN,  Bundesverband  der 
Deutschen Industrie e.V. , EBF, ACCA, Association of lnsolvency Administrators (Germany), German Institute for 
applied insolvency law (Hamburg University) 

281 University of Palermo, University of Bonn, barrister from UK, BBA, Barreau de Luxemburg 
282 ICAS, AIMA, GDV, IBA, Financial Markets Law Committee 
283 UEAPME, EBF, Bar Council of England and Wales, German Federal Association of notaries, Association of lnsolvency 

Administrators (Germany), German Institute for applied insolvency law (Hamburg University) 

284 Academic from Germany, Barreau de Luxembourg, ICAEW, Insolvency practitioners Association (UK), Unizo (BE) 
285 Academic from Spain, Grow your business East Anglia ltd (UK), business advisor from UK, EUF 

136 

 
 
 
 
 
 
 
 
                                                            
As  for  its  duration,  the  majority  of  the  stakeholders  were  of  the  view  that  a  stay  should  be 
granted  for  a  maximum  of  2-3  months  with  a  possibility  of  renewal  in  certain 
circumstances, while others were of the view that the time limit should be set by the court 
subject to the fulfillment of certain conditions. 

The majority stated that: 

  There should be a fair balance between the debtors’ and creditors' rights. Thus, a stay 
should not be granted for a very long period, but for a proportionate and appropriate 
timeframe in order to contribute to the efficiency of the negotiations. 

  Only  a  fast  restructuring  ensures  the  survival  of  the  business  operation  and  longer 
periods may not lead to better results, but have a negative impact on the recovery of 
debt. 286 

  There should be the possibility of renewal or extension, under certain circumstances, 
(e.g. depending on the level of the complexity of the restructuring or in the event that 
there are prospects of success). 

According  to  the  experience  of  the  majority  of  insolvency  practitioners  and  legal 
professionals consulted:  

  2-3 months is a reasonable and sufficient time, but there should be the option to extend 
if  there  is  a  reasonable  basis  (i.e.  complexity).  Longer  stays  without  a  review 
mechanism  would  unfairly  prejudice  the  rights  of  creditors.  It  is  often  the  case  that 
preliminary negotiations are conducted without requiring a stay. The longer the period 
of the process, the lower the chances of a successful restructuring. 

Others were of the view that: 

  Since there is no one-size-fits-all approach, flexibility is needed as to the time limit.287 
  The  period  of  a  stay  should  depend  upon  the  level  of  oversight  of  the  debtor's 
continuing activities by suitably qualified and regulated professional and be subject to 
appeal to a Court.288 

During  the  ‘Sounding  Board’  meetings,  businesses  sector  was  in  favour  of  a  short  limited 
stay  (2-3  months)  for  individual  enforcement  actions,  while  some  of  them  (UEAPME) 
underlined that a stay should be granted for a period set by the court. 

Financial  institutions  were  of  the  view  that  a  short  stay  (2-3  months)  should  not  be 
automatically  provided  by  the  court,  but  only  ordered  in  specific  situations,  with  the 
possibility to be lifted by the creditors. 

Legal  and  insolvency  practitioners  were  in  favour  of  a  short  stay  of  3-4  months  with  the 
possibility  of  renewal  under  certain  circumstances  and  be  lifted  by  the  creditors.  Some  of 
them (INSOL Europe) underlined that where creditors are stayed from enforcing their rights it 
is advisable to institute effective supervision.  

286 GDV, German banking industry committee, BBA 
287 Finnish Bar Association, Academic from Germany, Barreau de Luxemburg, Bar Council of England and Wales 
288 Insolvency Practitioners Association (UK) 

137 

 
 
 
 
 
 
 
 
 
 
                                                            
Trade  Unions  underlined  that  employees  should  not  be  treated  worse  in  preventive 
restructuring scenarios than in case of insolvency proceedings.  

From  the  public  consultation  and  the  dedicated  meetings  with  the  Member  States,  the 
majority of them (PL, PT, ES, SE, IT , AT) supported the view that a stay should be granted 
without any conditions (automatically) with the possibility to be lifted by the creditor, while 
others  preferred  that  a  stay  should  be  granted  only  if  the  debtor  shows  that  it  is  likely  that 
negotiations  have  a  reasonable  prospect  of  leading  to  a  successful  restructuring.  Some 
Member States (FI, SE) were in favour of a general stay, while others (NL) supported only a 
stay  on  individual  enforcement  actions.  As  for  the  duration,  Member  States  in  general 
supported  a  short  stay  (4  months)  with  the  possibility  of  its  prolongation  under  certain 
circumstances,  while  others  opted  for  longer  periods  (LU,  FR)  and  others  (FI)  were  of  the 
opinion that the duration of a stay should be set by the Courts. Diverse views were expressed 
as to the maximum period envisaged.  

2.7.6.  Creditors' rights - ‘cross-class cram down’ (i.e. the confirmation of the restructuring 
plan supported by some classes of creditors in spite of the objections of some other 
classes of creditors) 

In the public consultation, almost 60% of those consulted were of the view that a ‘cross-class 
cram  down’  should  be  possible,  subject  to  certain  conditions  and  safeguards.289  It  was 
mentioned  that,  in  particular  circumstances,  a  cross  class  cram  down  is  beneficial,  but 
mitigations  should  be  taken  into  account  (e.g.  appropriate  court  supervision,  worse-off 
principle, separate classes for creditors with different interests etc.). 

It was in general supported that: 

 

In  principle,  a  restructuring  plan  adopted  by  an  appropriate  majority  of  classes  of 
creditors and with any necessary court confirmation should be binding on all creditors.  
  Creditors  with  different  interests  should  be  treated  in  separate  classes,  which  reflect 

those interests.290 

  As a minimum, there should be separate classes for secured and unsecured creditors.  
  A  class  of  creditors  which  is  out  of  the  money  should  not  be  able  to  veto  a 
restructuring  plan  so  long  as  they  are  not  being  unfairly  prejudiced.  However,  the 
assessment  of  valuation  should  be  independently  supervised  by  the  Court  or  an 
appropriately regulated person and subject to mechanism for challenge.291 

  The  plan  should  be  fair  and  reasonable  and  leave  no  creditor  worse  off  than  they 

would be in the most likely alternative scenario, e.g. liquidation.292 

In  the  public  consultation  and  the  'Sounding  Board'  meetings,  business  organisations  and 
insolvency practitioners supported in general that the plan should be adopted if the required 
majority  in  every  class  is  in  favour  provided  that  the  minority  creditors  are  not  unfairly 
prejudiced and that all classes of creditors should be affected by the plan. They were strongly 
of  the  view  that  secured  and  unsecured  creditors  should  be  treated  in  separate  classes.  The 
majority supported minimum standards on cross-class cram-down accompanied by adequate 

289  UEAPME,  EBF,  ACCA,  Bar  Council  of  England  and  Wales,  PMT/PME/MN,  Bundesverband  der  Deutschen  Industrie 

e.V., BV ESUG, Association of lnsolvency Administrators (Germany) 

290 Loan Market Association 
291 Insolvency practitioners association (UK), ICAS 
292 Loan Market Association, University of Bonn, Judge from Germany 

138 

 
 
 
 
 
 
                                                            
safeguards. As for shareholders' position, various views were expressed; some of them were 
more  reluctant  to  introducing  mandatory  provisions  regarding  shareholders  in  preventive 
restructuring, while others were of the view that although shareholders should be involved in 
the negotiations, they should not have a hold out position if they are out of the money. 

Financial institutions were not opposed to cram down mechanisms, but they underlined that 
adequate  safeguards  should  exist  for  secured  creditors,  because  the  write  off  of  claims  of  a 
secured  creditor  without  individual  consent  could  generate  the  type  of  uncertainty  that  may 
result in higher costs of financing. They particularly stressed the importance of the protection 
of the enforceability of the collateral and the implications to the cost of credit and financing. 
They  were  also  of  the  view  that  shareholders'  rights  might  need  to  be  limited  in  certain 
circumstances, i.e when they prevent the plan from being adopted although this plan is likely 
to ensure the continuation of the company's activity and the recovery of the debts.  

Trade  Unions  stressed  that  employees'  interests  should  not  be  overruled;  where  there  is  a 
preventative restructuring of a business or undertaking then the employer must be obliged to 
inform,  consult  and  engage  with  the  employees  with  a  view  to  reaching  agreement.  Any 
subsequent  agreement  reached  on  restructuring  in  as  far  as  employment  and  industrial 
relations is concerned should not be subject to veto by other creditors. 

From the public consultation and the informal meetings with the Member States, the majority 
of  the  Member  States were  in  favour  of  cram-down  on  al  creditors,  as  long  as  appropriate 
safeguards  are  put  in  place.  However,  views  were  diverging  with  regard  to  majorities 
required, exceptions and safeguards. As for the position of shareholders in early restructuring, 
despite  the  fact  that  all  the  Member  States  supported  the  rationale,  some  of  them  were 
concerned  about  the  idea  of  introducing  mandatory  detailed  rules,  because  of  potential 
implications on company law and constitutional protection of property rights.  

2.7.7.  Protection of new financing 

The  vast  majority  of  the  participants  to  the  public  consultation  underlined  the  significant 
importance  of  interim/new  financing  for  a  successful  restructuring  and  the  continuity  of  a 
business and agreed that there should be appropriate incentives and safeguards to encourage 
the provision of financing to enable restructuring to take place. Almost 70% were of the view 
that  financing  ensuring  current  operations  should  be  protected  in  case  of  insolvency  in  the 
future293 and only 5% were opposed to any kind of protection. In particular, the majority of 
those  in  favour  stressed  that  financing  necessary  for  the  implementation  of  a  restructuring 
plan should be protected only if agreed in the restructuring plan and confirmed by the court.294 
More  specifically,  50%  of  the  business  sector  was  of  the  view  that  financing  should  be 
protected if agreed in the restructuring plan and confirmed by the court, while additional 20% 
believed that new financing should always be protected. 

The majority agreed that: 

 

If there is not any protection (e.g. protection from avoidance rules or higher priority) 
of interim and new financing, then potentially interested investors will be discouraged 

293 Independent Retail Europe, BusinessEurope, Bundesverband der Deutschen Industrie e.V., EBF, ACCA, BV ESUG 
294 German Bar Association, Association of lnsolvency Administrators (Germany) 

139 

 
 
 
 
 
 
 
 
 
 
                                                            
and  companies  in  need  of  working  capital  could  be  left  without  the  possibility  to 
finance their day to day operations, to the detriment of the real economy.295 

  Creditors  that  decide  to  inject  liquidity  in  a  distressed  company  should  be  given  a 

 

sufficient degree of predictability on the recovery of their claims.  
In general, such a financing should be protected, if there are reasonable prospects for 
the  plan  to  be  successful  and  subject  to  a  confirmation  by  the  court  and  there  is 
potential benefit to the creditors.296 

It was also argued that: 

  Statutory  super  priority  is  best  left  to  each  Member  State  to  decide  as  any  such 
proposals  will  need  to  be  consistent  with  existing  national  laws  regarding  property 
rights and security interests. 

During  the  ‘Sounding  Board’  meetings,  business  organisations  such  as  UEAPME, 
Independent Retail  Europe and BussinessEurope mentioned that adequate protection of new 
financing will provide incentives for early restructuring.  

Legal and insolvency practitioners were in favour of providing protection for new financing 
and,  for  the  sake  of  greater  certainty,  they  supported  the  idea  of  a  safe  harbour  provision 
equipped with adequate safeguards.  

Financial  institutions  were  in  favour  of  adequate  protection  for  new  financing  if  that  is 
agreed in the plan and confirmed by the court.  

The  majority  of  the  Member  States  (NL,  AT,  SI,  RO,  PT,  IE,  PL,  EL)  were  in  favour  of 
general  principles  for  the  protection  of  new  and  interim  financing,  provided  that  there  are 
appropriate  safeguard  against  bad  faith  behaviour  and  fraud.  Member  States  were, 
nevertheless,  opposed  to  mandatory  provisions  granting  super  priority  for  new  money  or  to 
any rules, which would affect domestic systems of ranking of claims and securities. 

Regarding  the  priority  of  claims  in  insolvency,  almost  45%  of  respondents  in  the  public 
consultation supported that differences in the areas of ranking of claims affect to a large or to 
a  considerable  extent  the  operation  of  the  internal  market.  41%  also  believed  that 
harmonisation in this area would increase recovery rates for creditors. However, discussions 
in the Commission Expert Group revealed that this area is fraught with difficulty especially 
because of Member States approaches to giving preferences to employees and state creditors 
(tax, social security etc.). Competing values are at stake and harmonisation is not at this stage 
feasible.  In  addition,  in  the  public  consultation  and  during  the  dedicated  meetings  with  the 
Member States, most of them were opposed to any harmonisation of ranking of claims. 

2.7.8.  Role of directors in preventing insolvencies  

More than half of those responded in the public consultation were of the view that directors of 
companies should be incentivised to take appropriate preventive measures if companies are in 
distress but not yet insolvent297, while 18% were against.  

295 EUF 
296 German Banking Industry Committee 
297 UEAPME, EACTP, BusinessEurope, EBF, German Bar Association 

140 

 
 
 
 
 
 
 
                                                            
It was particularly stressed that: 

  Directors  should  be  incentivised  and  encouraged  to  take  professional  advice  and 
appropriate preventive measures at an early stage and this could be a mitigating factor 
in any subsequent assessment of the conduct of the director.  

  Mandatory  filing  periods  which  penalise  directors  can  have  a  negative  effect  on 
directors  taking  preventative  measures  and  precipitate  (in  some  cases)  premature 
filings for formal insolvency.298 

  There should be a flexible “safe harbour” protecting against potential liability directors 
who, in good faith, attempt to restructure a financially distressed company with a view 
to the long term best interests of the company and its constituencies. This should not 
formal 
protect  abusive  practices, 
restructurings.299 
Instituting  preventative  proceedings  should  not  protect  directors  from  earlier 
misbehaviour,  nor  should  they  be  protected  from  actions  relating  to  their  conduct 
during  the  moratorium  where  that  conduct  involves  fraud,  negligence  or  wilful 
misfeasance.300 

shareholder-directors  delaying 

such  as 

 

However,  during  the  dedicated  meetings  with  the  Member  States,  although  they 
acknowledged  the  need  to  incentivise  directors  for  early  restructuring,  most  of  them  were 
reluctant  to  mandatory  detailed  provisions  on  directors’  duties,  due  to  the  implications  on 
company law.  

2.7.9.  Role of Member States in preventing insolvencies  

In  the  public  consultation,  the  majority  of  stakeholders  were  in  favour  of  encouraging 
Member  States  to  take  specific  action  to  help  debtors  in  financial  distress.  Approximately 
30% supported specific action only for SMEs and individuals, while 22% for all the debtors.  

During  the  ‘Sounding  board’  meetings,  business  sector  and  practitioners  in  restructuring 
underlined the importance for early warning tools and facilitating access to advice. However, 
while  some  stakeholders  were  of  the  view  that  some  kind  of  government-backed  measures 
(i.e.  funds,  assistance  schemes)  could  be  introduced  to  support  viable  businesses  in  their 
attempt to restructure, others supported that the financial and administrative burden should be 
borne by each debtor.  

The financial sector supported the idea of and advocated for more efficient alert mechanisms, 
such as tax and social security authorities flagging a negative development of a business. 

Additionally,  during  the  dedicated  meetings,  all  the  Member  States  advocated  for  early 
warning  mechanisms  and  tools,  but  there  was  no  consensus  regarding  the  modalities  how 
these  systems  should  be  established  and  operated  (whether  they  should  be  funded  and 
monitored by the State or by the private market). 

2.7.10.  Avoidance actions 

298 Barreau de Luxembourg, ILA, Unizo, Invest Europe 
299 IBA, academic from Spain  
300 KPMG 

141 

 
 
 
 
 
 
 
 
                                                            
The  majority  of  those  consulted  in  the  public  consultation  believed  that  certain  aspects  of 
avoidance actions should be harmonised at EU level, such as setting up common rules on the 
types  of  transactions  subject  to  annulment  and  a  common  time  period  that  corresponds  to 
"suspect periods", with a view to enhance predictability and legal certainty for investors and 
business for the risks faced across EU Member States.301 Others believed that harmonisation 
on avoidance actions is not necessary at this point.302 

The majority particularly argued that: 

 

Investors, companies and entrepreneurs would be more willing to invest or do business 
outside their Member States if they were provided with the assurance that certain types 
of transactions, entered into within a certain period of time, are prescribed throughout 
the EU. This is especially the case when dealing with foreign counterparts in financial 
distress and there is an impact on regular business transactions, in particular lending. 

During  the Sounding  Board meetings,  legal  and insolvency practitioners  were reluctant to 
harmonising  substantive  definitions  of  avoidance  actions  and  look  back  periods,  because  of 
the  existing  divergence  in  national  systems.  Additionally,  discussions  in  the  Commission 
Expert group revealed that while avoidance actions could in principle be harmonised across 
the board, it would be disproportionate to do so at this stage. 

The  majority  of  the  Member  States  (RO,  PT,  ES,  DE,  PL,  IT,  BE)  were  in  favour  of 
providing a safe harbour for transactions which are closely connected with the negotiation of 
a  restructuring  plan  and  which  are  adopted  by  the  creditors  and  confirmed  by  the  court,  as 
long  as  European  legislation remains at the level of principles and there are no too detailed 
provisions.  A  few  Member  States  (DE,  FI,  AT)  expressed  concerns  with  regard  to  legal 
certainty and the danger of abuse. 

2.7.11.  Insolvency practitioners  

When  asked  in  what  areas  minimum  standards  for  insolvency  practitioners  would  help  to 
increase  the  efficiency  and  effectiveness  of  insolvency  proceedings,  the  respondents  to  the 
public consultation replied as follows:  

301  AIMA,  EUF,  EACB,  Insolvency  Practitioners  Association  (UK),  EBF,  Academic  from  Germany,  Martin  Luther 
University  Halle-Wittenberg,  German  bar  Association,  German  Institute  for  applied  insolvency  law  (Hamburg 
university) 

302 German Banking Industry Committee, ICAEW, KPMG, ILA, University of Bonn 

142 

 
 
 
 
 
 
 
                                                            
57% 

50% 

56% 

52% 

70% 

16% 

16% 

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As for any additional standards needed for insolvency practitioners specifically dealing with 
cross-border cases, some professionals' associations were reluctant.303 On the other hand, 50% 
of  the  respondents  to  the  public  consultation  would  welcome  the  introduction  of  minimum 
standardised  rules  on  relevant  foreign  language  knowledge,  46%  on  sufficient  human  and 
financial  resources  and  33%  on  a  pre-defined  period  of  experience  for  insolvency 
practitioners specifically dealing in a cross-border context. 

Particularly,  INSOL  Europe  stressed  that,  although  harmonisation  would  be  in  general 
desirable,  only  common  principles  in  cooperation  matters,  independence  and  continuous 
education are advisable at this stage, due to the great diversity of national rules with regard to 
all  aspects  related  to  insolvency  office  holders  (types,  nature  of  employment,  size, 
qualification, training, appointment, remuneration and liability issues). 

It  was  particularly  stated  that  improving  the  efficiency  of  insolvency  practitioners  will 
increase confidence to the whole system and improve the efficiency of the procedures.  

During  the  ‘Sounding  board’  meetings,  business  organisations  welcomed  minimum 
standards  for  practitioners  in  the  field  of  restructuring  and  insolvency.  Many  of  them 
advocated  the  introduction  of  a  code  of  conduct  for  insolvency  practitioners.  Financial 
institutions in general would welcome the introduction of minimum standardised rules on the 
role  of  mediators  and  supervisors,  which  should  include  among  others:  (i)  professional 
qualification standards; and (ii) general principles covering their remuneration. 

Insolvency  practitioners  were  reluctant  to  detailed  provisions  regarding  insolvency  office 
holders due to the existing divergence of rules and specificities. They rather favoured general 
principles on independence and adequate qualification. 

The majority of the Member States (PT, DE, ES, FR, NL, FI, IE) supported the objectives of 
adequate qualification and training of insolvency practitioners. Many Member States voiced 
that  EU  intervention  should  remain  at  the  level  of  general  objectives  and  provide  a  rather 
flexible approach, especially regarding the appointment and remuneration of practitioners.  

2.8. 

Second chance – debt discharge for natural persons 

303 IBA, ICAEW, ICAS, ILA, Insolvency practitioners Association (UK) 

143 

 
 
 
 
 
 
                                                            
 
 
 
 
 
 
 
 
2.8.1.  General considerations 

The  vast  majority  of  the  respondents  to  the  public  consultation  (74%)  agreed  that  both 
entrepreneurs  and  consumers  as  long  as  they  are  honest  should  be  given  the  chance  to 
restructuring their debt304, while only 1% was opposed and 8% considered that the chance to 
restructuring  should  be  offered  only  to  entrepreneurs  for  debts  related  to  their  professional 
activity.  

A  general  consensus  was  that  the  prospect  of  debt  rehabilitation  for  natural  persons 
(entrepreneurs and consumers) is vital both from an economic and social policy perspective. 
However,  this  should  be  subject  to  adequate  checks  and  balances  to  ensure  that  culpable 
behavior is recognised and sanctioned.305 

The  majority  of  those  consulted supported that  a  second  chance  approach  for  over-indebted 
natural persons should be promoted because:  

 

 
 
 

It  will  stifle  trade,  strengthen  real  economy  and  be  a  driver  for  growth,  since  it  will 
encourage entrepreneurship and stimulate consumer spending.306 
It will address the issue of bankruptcy tourism. 
It will reduce the problem of black labour.  
It  is  counterproductive  for  honest  bankrupts  (consumer  or  entrepreneur)  to  labour 
under the shadow of undischarged debt for extended periods. 

  Restrictions on bankrupts may significantly impact their daily lives. 
  Extended bankruptcies may also contribute to overburdening the financial and judicial 

system. 

However,the  banking  sector  and  some  business  organisations307 
that 
entrepreneurs and consumers should be dealt separately and that consumers should not form 
part of the future initiative on business restructuring and second chance.  

  supported 

Trade Unions stressed that attention should be given whether some rules on “second chance” 
are so lax to facilitate the so-called “phoenix syndrome”.308 

In  the  public  consultation,  the  majority  of  the  Member  States  agreed  in  principle  with  a 
second chance approach providing the possibility for natural persons to restructure their debt 
and be offered  a discharge, but there was a diversity of views with regard to  the conditions 
and the duration of discharge. Moreover, during the informal Member States meetings, most 
of  the  Member  States  were  reluctant  to  including  mandatory  provisions  on  consumers 
discharge. 

304  Eurochambers,  UEAPME,  INSOL  Europe,  ACCA,  Bar  Council  of  England  and  Wales,  debt  counseling  companies 
Association (Germany), German Bar Association, BV ESUG, Association of lnsolvency Administrators (Germany) 

305 ICAS 
306 Academic from Spain, Martin Luther University Halle-Wittenberg, Insolvency practitioners Association (UK), IBA, EFIN 
307  BUSINESSEUROPE,  European  Banking  Federation  (EBF)  and  European  Mortgage  Federation-European 

Covered Bond Council (EMF-ECBC). 

308 This is defined as a situation where controllers of a company that becomes insolvent by reason of their acts or omissions 
are enabled  to  be  relieved  of their  failure  and  debts  and  immediately  re-establish themselves  in a new  enterprise 
effectively carrying on the same business and still availing of the privilege of limited liability. 

144 

 
 
 
 
 
 
 
                                                            
 
the  field  of 
However,  many  stakeholders’  organisations, 
restructuring were in favour of consolidation or coordination of procedures (business and 
personal debts) for the purposes of discharge. Finally, many Member States were in favour of 
consolidation of economic and private debts (BE, FI, FR, NL, ES). 

including  practitioners 

in 

Family and consumer protection stakeholders on the contrary strongly endorsed minimum 
standards  on  consumer  insolvency  and  discharge  and  stress  that  there  are  no  convincing 
arguments  for  differentiating  between  entrepreneurs  and  consumers  with  regard  to  the 
applicable conditions. 

2.8.2.  Affectation of the Internal Market 

The majority of the respondents ot the public consultation considered that existing differences 
between the laws of Member States in the area of second chance affect the functioning of the 
Internal Market to some extent (34% to some extent, 19% to considerable extent, 14% to large 
extent). Only 6% held the view that it had no impact.  

Consumer and household organisations supported that differences in this area have led to 
bankruptcy  tourism,  with  debtors  seeking  to  move,  or  claim  to  have  moved,  their  centre  of 
main  interests  to  Member  States  where  they  are  able  to  take  advantage  of  favourable 
discharge periods. 

However, a few stakeholders stated that the problem is not sufficiently severe or pervasive as 
to require an EU-wide minimum standards approach; it is materially different from corporate 
insolvency,  where  one  distressed  group  can  have  operations  and  legal  entities  in  several 
Member States and a consistent approach across the EU can have real and immediate benefits 
for the restructuring or insolvency of the distressed group as a whole.  

2.8.3.  Advice to debtors  

The  vast  majority  of  the  respondents  to  the  public  consultation  were  of  the  view  that  both 
over-indebted entrepreneurs and consumers, possible to certain conditions, should have access 
to free or low cost advice309, while only 2% were opposed.  

Some stakeholders argued that the details of debt counseling should be addressed according to 
the national policy of each  Member State and different views were  expressed as to whether 
such advice should be publicly funded or market-driven or operated within the relevant bodies 
of the industry and consumer organisations. 

Consumer organisations supported that a key tool to gain efficiency would be to elaborate 
on a method setting minimum cost of living (reference budget) agreed by all the stakeholders 
at a national level.310  

309  Finnish  Bar  Association,  IBA,  EFIN,  ACCA,  Bundesverband  der  Deutschen  Industrie  e.V.,  Eurochambers,  UEAPME, 
INSOL Europe, Barreau de Luxembourg, BBA, Loan Market Association, German Banking Industry Committee, 
Martin  Luther  University  Halle-Wittenberg,  Bar  Council  of  England  and  Wales,  debt  counseling  companies 
Association (Germany), Association of lnsolvency Administrators (Germany) 

310 EFIN 

145 

 
 
 
 
 
 
 
                                                            
In  the  public  consultation  and  the  discussions  in  the  informal  meetings  with  the  Member 
States, while all of them recognised the importance of offering free or low cost advice to the 
debtors, there was a diversity of views with regard whether this should be coordinated by the 
State  (courts,  administrators)  or  by  localized  chambers  of  commerce  and  industry 
organizations.  

2.8.4.  Discharge of debts 

In the performed public consultation, almost two thirds of the respondents, were of the view 
that a full discharge of debts, possibly subject to certain conditions, should be offered to both 
entrepreneurs and consumers provided that they are 'honest' debtors,311 while very few were 
opposed to any discharge of debt for natural persons. In addition, very few argued that only 
entrepreneurs  should  be  entitled  to  a  full  discharge.  The  majority  of  the  stakeholders  and 
Member  States  underlined  that  discharge  should  be  tempered  by  ensuring  disincentives  for 
dishonest conduct and adequate control for abuses. 

In  the  'Sounding  Board'  meetings,  stakeholders  in  the  business  sector  as  well  as 
professional  associations  strongly  supported  the  objective  of  offering  honest  bankrupt 
entrepreneurs a second chance reducing the stigma of insolvency and allowing them to return 
to economic life in a reasonable timeframe. 

EU  banking  sector  argued  that  a  full  debt  discharge  may  ultimately  result  in  a 
counterproductive measure, providing wrong signals for entrepreneurs and consumers; thus, a 
discharge  should  be  given  provided  that  a  certain  amount  of  debt  is  repaid  or  that  the 
individuals used all their efforts and financial means to repay the debt. Moreover, a limitation 
on the period after which a second discharge may be provided should be envisaged in order to 
prevent abuses. 

Other stakeholders were of the view that a case-by case approach is needed and each debtor 
situation  should  be  evaluated  before.  The  amount  and  time  tolerance  given  should  be 
specified  by  the  court  taking  into  consideration  various  elements,  including  the  aggregated 
value of debt. 

Moreover,  less  than  half  of  the  respondents  to  the  public  consultation  supported  that  the 
conditions for the discharge of debts should be the same for entrepreneurs and consumers312, 
while  only  28%  were  of  the  opposite  view  (that  the  conditions  applicable  to  entrepreneurs 
should  be  stricter  than  those  applicable  to  consumers).313  Most  of  stakeholders  shared  that 
viewed  and  considered  that,  if  this  matter  is  to  be  regulated,  the  conditions  for  discharge 
should be the same for all natural persons, because there is not any public policy rationale for 
consumers  and  small-scale  entrepreneurs  to  be  treated  differently  or  any  reason  to  have 
stricter conditions for discharge applied depending on the purpose of the debt.314 

311 BBA, ICAS, Eurochambers, Insol Europe, EFIN, ACCA, Barreau de Luxembourg, Bar Council of England and Wales, 
Bundesverband  der  Deutschen  Industrie  e.V.,  debt  counseling  companies  Association  (Germany),  German  Bar 
Association,  German  Federal  Association  of  notaries,  BV  ESUG,  Association  of  lnsolvency  Administrators 
(Germany), German Institute for applied insolvency law (Hamburg University) 

312  UEAPME,  INSOL  Europe,  Bundesverband  der  Deutschen  Industrie  e.V.,  EFIN,  ACCA,  debt  counseling  companies 
Association  (Germany),  German  Bar  Association,  German  Federal  Association  of  notaries,  Association  of 
lnsolvency Administrators (Germany), German Institute for applied insolvency law (Hamburg University) 

313 Eurochambers, BV ESUG 
314 ICAS, ILA, IBA, German Institute for applied insolvency law (Hamburg University) 

146 

 
 
 
 
                                                            
Additionally,  during  the  stakeholder  meetings,  business  organisations  as  well  as  legal 
professionals and accountants voiced that, where the entrepreneur has personal debts, both 
generated  by  his/her  business  activity  and  by  his/her  non-business  activity,  the  proceedings 
should be consolidated for the purposes of the discharge.  

  Moreover,  it  was  strongly  outlined  that  many  such  insolvent  individuals  will  have  a 
mixture  of  consumer  and  business  liabilities,  therefore  potentially  giving  rise  to  a 
costly,  time  consuming,  unnecessary  process  to  determine  whether  they  are  to  be 
treated as consumers or as entrepreneurs if a distinction is to be made; it will be often 
difficult  to  adequately  distinguish  between  a  purely  consumer  debtor  and  self-
employed  persons  who  may  also  have  incurred  consumer  credit,  potentially  in 
supporting their trading activities.315 

  Apart from that, some participants mentioned that, if the conditions vary, there is room 
for discrimination (constitutional issues) or for potential risks of gaming the system.316 
Although  all  Member  States  supported,  in  principle,  the  idea  of  a  second  chance  for 
entrepreneurs, providing for a reduced  discharge period,  various views were  expressed with 
regard to the conditions and exemptions. 

2.8.4.1.  Entry conditions for the discharge procedure 

Despite  the  fact  that  many  stakeholders  supported  that  a  full  discharge  of  debt  should  be 
offered without the condition of repayment of a certain amount of debt317, there was a strong 
minority (mainly composed of the banking industry) that opposed to this view.318 In addition, 
some MS (DE) pointed out that a full discharge of debt should be possible after the repayment 
of certain amount of debt. 

In the public consultation: 

On the one hand, it was stated that: 

  The condition of repayment of a certain amount of debt would weaken the objective of 
discharge, since it would deprive many over-indebted debtors that they would not be 
in  a  position  of  repaying  the  exact  amount  of  debt  from  the  possibility  of  a  second 
chance and the potential benefits for the wider economy. 

On the other hand, it was stressed that: 

  Discharge should be a case-by-case outcome and be subject to the adoption of ex ante 
conditional measures. On the basis of the assessment of the economic performance of 
the  insolvent  debtor  the  payment  of  a  certain  amount  of  the  debt  should  be  made  a 
condition and this can constitute a balance so as not to dicincentivise lending.319 

Moreover,  in  the  public  consultation  and  the  'Sounding  Board'  meetings,  the  majority  of 
stakeholders  agreed  that  there  is  a  need  for  harmonisation  of  the  test  of  'honesty'  at  EU 

315 ICAS, Insolvency practitioners Association (UK), EFIN 
316 ICAEW, Association of lnsolvency Administrators (Germany) 
317    Bar  Council  of  England  and  Wales,  Bundesverband  der  Deutschen  Industrie  e.V.,  EFIN,  Debt  counseling  companies 

association (Germany), BV ESUG, German Institute for applied insolvency law (Hamburg University) 

318 Eurochambers, EBF, German banks, law firm from Germany 
319 Finnish Bar Association, banking sector and debt collection companies, Bar Council of England and Wales 

147 

 
 
 
 
 
 
 
                                                            
level.320  A  lot  of  stakeholders  agreed  that  there  could  be  a  presumption  of  honesty  or  a 
'honesty').321 
negative  definition  (i.e.  certain  minimum  criteria 
Nevertheless, many stakeholders expressed concerns with regard to the level of difficulty and 
complexity of establishing a harmonised test of honesty across all EU Member States. During 
the dedicated meetings with the Member States, most of them were reluctant to harmonising 
the  test  of  honesty,  but  agreed  that  certain  general  non-mandatory  principles  could  be 
envisaged. In addition, some Member States were in favour of introducing a presumption of 
honesty, while others spoke against. 

that  would  exclude 

Trade unions made reference to directors that act not just honestly but also responsibly; for 
example, criteria such as the extent to which there is compliance with obligations of company 
law or employment law, the extent to which there is certain responsibility for the insolvency 
of company or any responsibility for net deficiencies in the assets of a company etc.  

2.8.4.2.  Discharge period 

The majority of those consulted supported short discharge periods. In the public consultation, 
almost one third stated that a maximum discharge period of 3 years is a reasonable balance322 
for honest debtors, while less were in favour of a 5-year discharge period.  

It was specifically argued that:  

  A  too  short  period  encourages  frivolous  use,  while  a  too  long  period  discourages 

entrepreneurship and risk taking. 

  Variations should exist or extension should be possible in exceptional cases (e.g. when 
the  debtor  has  hidden  assets  or  has  not  co-operated  with  the  trustee  or  bankruptcy 
court). 
If the debtor is insolvent and no assets or income are available there is no valid point 
in delaying the discharge. 

 

  Honesty  should  be  considered  and  dishonest  conduct  may  be  subject  to  a  longer 

period. 

  Convictions for fraud or financial misfeasance may be taken into account. 
  There may be causes which could revoke a debt discharged, for example, if the debtor 

receives a heritage or it breaches the out of court payment agreement. 

.The banking sector was of the view that honest bankrupt entrepreneurs should be discharged 
from debts after a relatively short period of time (3 years) only if a certain amount of the debt 
is  repaid  (threshold  should  not  necessarily  be  statutory,  but  may  also  be  determined  by  the 
courts  on  a  case-by-case  basis).  The  banking  sector  and  some  other  stakeholders  supported 
that  limitations  with  regard  to  the  period  after  which  a  second  discharge  may  be  available 
should exist. 

320 Academic from Germany, University of Bonn, Bundesverband der Deutschen Industrie e.V., EBF, EFIN, debt counseling 
companies  Association  (Germany),  BV  ESUG,  Association  of  lnsolvency  Administrators  (Germany),  German 
Institute for applied insolvency law (Hamburg University) 

321 EFIN, EBF, banks from Germany 
322  ICAS,  Martin  Luther  University  Halle-Wittenberg,  Loan  Market  Association,  ILA,  KPMG,  EFIN,  debt  counseling 
companies  Association  (Germany),  Association  of  lnsolvency  Administrators  (Germany),  German  Institute  for 
applied insolvency law (Hamburg University), consumer organisations 

148 

 
 
 
 
 
 
 
 
                                                            
Consumer  organisations  strongly  supported  a  three-year  discharge  period  for  all  honest 
debtors.  

2.8.4.3.  Exclusion from discharge 

When asked which special types of debt should be excluded from discharge, the respondents 
to the public consultation replied as follows: 

47% 

42% 

57% 

15% 

12% 

27% 

Tort claims

Fines

Child
support

Tax and
other pubic
liabilities

Other types
of debt

No 
opinion/Νo 
answer 

2.9. 

Outside restructuring framework and second chance 

When  asked  what  the  causes  are  for  the  excessive  length  of  insolvency  proceedings,  the 
respondents to the public consultation replied as follows: 

Causes 
Judicial  activities  concerning  the  supervision  or  administration  of 
insolvency proceedings 
Delays in the liquidation of the debtor's assets 
The  time  taken  to  obtain  final  decisions  on  cases  concerning  the 
rights and duties of the debtor (e.g. claims, debts, disputed property 
in goods) 
A lack of promptness in exercising creditors’ rights 
Lack  of  electronic  means  of  communication  between  the  creditors 
and relevant national authorities, such as for the purposes of filing 
of claims, distance voting etc. 
Other 
No opinion/No answer 

Results 
48% 

58% 
46% 

19% 
24% 

21% 
19% 

However, it was also mentioned that although all the causes mentioned above may affect at a 
greater or  lesser  extent the length  of the insolvency proceedings,  the duration of insolvency 
proceedings in itself is not a matter which can sensibly be considered for harmonisation.323 

323 ILA, IBA  

149 

 
 
 
 
 
 
 
 
                                                            
2.9.1. Duration of insolvency proceedings 

When asked whether a target maximum duration of insolvency proceedings — either at first 
instance or including appeals — would be appropriate, 30% of the respondents to the public 
consultation  were  of  the  view  that  a  target  maximum  duration  for  insolvency  proceedings 
would  be  useful324,  a  larger  part  of  them  were  of  the  opinion  that  it  would  not  be 
appropriate.325 

The  European  banking  sector  was  in  favour  of  introducing  certain  maximum  periods/time 
limits (e.g. to come up with the restructuring plan or for claim statements). 

However, discussions in the Expert Group as well as in dedicated meetings with stakeholders, 
revealed that deadlines or maximum period for insolvency proceedings would not be feasible 
to  regulate  now  at  EU  level,  due  to  the  divergence  for  rules.  Most  of  the  stakeholders  and 
that  other  measures  (e.g.  enhancing  efficiency  of  practitioners, 
experts  advocated 
specialization  of  judges)  could  reduce  the  length  of  insolvency  procedures  and  maximizing 
the efficiency of insolvency frameworks. 

When  asked  what  incentives  could  be  put  in  place  to  reduce  the  length  of  insolvency 
proceedings, the respondents to the public consultation replied as follows: 

  Digitalisation;  facilitating  electronic  communication  between  practitioners,  creditors 

Informal and out-of-court proceedings; 

and national authorities;  
  Specialisation of courts;326 
  Supporting the courts' resources;327 
  Less court involvement; 
 
  Clear requirements for entering to insolvency proceedings; 
  Ensuring that the thresholds are triggered early enough for restructuring; 
  Deadlines/time-limits for court proceedings;328 
  Publicly accessible information as a (general) prevention; 
  Remuneration of insolvency practitioner or liquidator upon success of restructuring or 
percentage  on  liquidation;  'sprinter  bonus'  for  administrators;329  payment  benefits  to 
enhance fast proceedings330 

  Providing incentives for speeding up auctions, e.g. reducing tax for those participating 

in judicial auctions;331 

  Cut-off periods for creditors presenting their claims; 
  A  common  online  EU  portal  for  companies  requiring  restructuring  or  declared 

insolvent in order to facilitate access to take-overs and credit; 

  Public  insolvency  claim  register,  where  any  creditor  can  file  its  claim  publicly,  in 

order to allow efficient claims trading;332 

324 EU Banking sector, Unizo vzw(BE), EACB, AIMA, Eurochambers, EBF, PMT/PME/MN 
325  INSOL  Europe,  ACCA,  Bar  Council  of  England  and  Wales,  German  Bar  Association,  German  Federal  Association  of 
notaries,  Association  of  lnsolvency  Administrators  (Germany),  German  Institute  for  applied  insolvency  law 
(Hamburg university) 

326 Martin Luther University Halle-Wittenberg 
327 Insolvency practitioner from Spain  
328 Standard life Capital Partners (UK) 
329 Barreau de Luxembourg, German Banking Industry Committee 
330 German lawyers association, German Institute for applied insolvency law (Hamburg university) 
331 Judge from Italy 

150 

 
 
 
 
 
 
 
                                                            
  Specific fast process in order to deal with insolvency cases, where there are no assets 

to liquidate; 

2.9.2. Directors' disqualification 

The  majority  of  the  respondents  to  the  public  consultation  supported  that  directors’ 
disqualification  orders  should  be  made  available  for  information  purposes  through 
interconnected insolvency registers333, while more than one third were of the view that when 
disqualification orders for directors are issued in one Member State, they should automatically 
prevent  disqualified  directors  from  managing  companies  in  other  Member  States.334  The 
majority  of  the  respondents  was  also  of  the  view  that  disqualified  directors  in  one  Member 
State  (home  State)  should  be  prevented  from  managing  companies  in  other  Member  States 
only for the duration applicable to equivalent disqualification orders in the host State. 

However, although the majority of the stakeholders agreed with the principle that disqualified 
directors  in  one  Member  State  should  not  be  involved  in  the  management  of  companies  in 
another Member State, they stressed that an automatic effect of disqualification orders should 
not be feasible or appropriate at this stage due to divergence of the rules on disqualification 
across  EU.  In  addition,  with  regard  to  interconnection  of  registers,  many  participants 
expressed their concerns with regard to data protection issues and the interlinkage with certain 
aspects of criminal and company law.335 

During  the  dedicated  stakeholder  meetings,  business  organisations  underlined  that  any 
potential  action  in  this  area  should  not  lead  to  disincentivising  entrepreneurship.  During 
informal  meetings  with  the  Member  States,  although  some  of  them  welcomed  EU  action  in 
this area, the majority was reluctant.  

332 Insolvency practitioner from Germany 
333 ICAEW, Insolvency Practitioners Association (UK), BBA, PMT/PME/MN, ACCA, German Bar Association, Association 

of lnsolvency Administrators 

334  ICAS,  AIMA,  ETUC,  Eurochambers,  Bar  Council  of  England  and  Wales,  German  Federal  Association  of  notaries, 

German Institute for applied insolvency law (Hamburg university) 

335 UEAPME 

151 

 
 
 
 
 
 
                                                                                                                                                                                          
2.10. 

Stakeholder suggestions which were not taken on board by the initiative  

Suggestion 

Sector where the 
position is coming 
from 

Justification why it was not integrated by the proposal  

The stay may be lifted only upon the request of a 
majority of creditors, individual request from 
creditors should not be taken into account. 

Initial stay should be granted only if the debtor 
shows that it is likely that negotiations have a 
reasonable prospect of success.  

It should be allowed that courts grant stay periods 
longer than 4 months, on a case by case basis. 

Secured creditors should not be crammed down by 
another class, or write off claims without their 
consent. 

g
n
i
r
u
t
c
u
r
t
s
e
r

e
v
i
t
n
e
v
e
r
P

some Member States 

certain business 
stakeholders 

The stay is a strong limitation of creditors' rights the 
impact of which should be limited to the necessary 
minimum. Among others, the possibility of individual 
requests for lifting the stay is considered as one guarantee 
to ensure this objective.  
Since the "breathing space" obtained by the debtor by the 
moratorium can be vital on several occasions in terms of 
the chances of restructuring, it was decided to provide an 
easy entry counterbalanced by the possibility of lifting it. 
Evidence on prospects of success is, nevertheless, required 
for the exceptional prolongation of the initial stay period.  
certain Member States  There was a general impression that a short period of the 
stay is sufficient for a viable company, and that with time 
passing by the real chances for restructuring are fading. 
Anyway the stay may be exceptionally prolonged. 

Financial institutions  On  the  one  hand,  restructuring  plan  that  does  not  bind 
secured  creditors  has  less  prospects  of  success.  On  the 
other  hand,  adequate  safeguards  will  exist  for  dissenting 
creditors:  creditors  with  different  interests  should  vote 
separately (at least secured and unsecured creditors should 
be in different classes), the plan should be reasonable and 
leave  no  creditor  worse–off  than  they  would  be  in  the 
most likely alternative scenario, i.e. liquidation.  

152 

 
 
 
 
 
 
 
Shareholders' position should not be touched by the 
harmonised rules on restructuring because of 
potential implications on company law and 
constitutional protection of property rights 

certain Member States  A preventive restructuring framework should prevent 

hold-out of shareholders who are out of the money. The 
proposal of the initiative in this respect remains at the 
level of principle, though, giving Member States large 
flexibility in how they transform this principle to the level 
of detailed rules.   

Debt discharge for consumers should be treated by 
the initiative equally with those of entrepreneurs 
(second chance provisions should extend also to 
consumers).  

Consumer 
organisations 

e
c
n
a
h
c
d
n
o
c
e
S

The possibility of a "full discharge" is gives wrong 
signals for entrepreneurs; discharge should be given 
provided a certain percentage of the debt is repaid.  

Financial institutions 

Harmonisation of  the test of "honesty" in context of 
discharge is necessary 

certain stakeholders 
from the business 
sector and 
practitioners 

153 

Many Member States have in recent years adopted or 
reformed (ES, RO, HU, HR, LU, CY, SI) national laws on 
consumer insolvency. At the same time, the cross-border 
lending market appears to be very small at the moment. 
The Commission will continue to assess the recent 
national reforms of insolvency laws on consumer aspects 
and collect data to assess the relevance of a future possible 
EU contribution in the area of consumer insolvency. Also 
to be noted that some other sectors were strongly opposed 
of including rules on consumer insolvency (e.g. financial 
institutions). 
Empirical evidence shows that repayment of a statutory 
rate of the amount makes discharge in most of the cases 
impossible. The initiative accepts a repayment condition if 
it is based on an individual assessment of the 
circumstances of the case.  
Substantive harmonisation of concepts embedded in 
national legal systems is an inappropriate approach. The 
initiative shall tackle the practical problems instead. The 
initiative gives some guidance with examples in this 
respect, though, in accordance with the Member States 
shall interpret the concept.  

 
 
 
 
ANNEX 3 

THE IMPACT OF THE INITATIVE AND ADDITIONAL DATA ON INSOLEVNCY 
AND RESTRUCTURING PROCEEDINGS 

Table of Contents 

1. IMPACT ON CREDIT AVAILABILITY................................................................................... 155 

2. IMPACT ON COMPETITIVENESS .......................................................................................... 161 

3. IMPACT ON COMPETITION AND STATE AID RULES ..................................................... 163 

4. IMPACT ON FUNDAMENTAL RIGHTS ................................................................................. 164 

4.1. Right to property .................................................................................................................... 164 

4.2. Right to an effective remedy and to a fair trial .................................................................... 165 

4.3. Right to conduct a business and to engage in work ............................................................. 166 

4.4. Workers' right to information and consultation within the undertaking 

5. IMPACT ON SOCIAL ENVIRONMENT .................................................................................. 167 

6. IMPACT ON TAX REVENUES .................................................................................................. 170 

7. IMPACT ON SMEs ....................................................................................................................... 171 

8. ADDITIONAL DATA ................................................................................................................... 178 

154 

 
 
 
 
 
 
 
 
1. IMPACT ON CREDIT AVAILABILITY  

High  levels  of  NPLs  have  negative  consequence  for  the  economy.  They  discourage 
investment by over-indebted businesses and also consumption and entrepreneurship by over-
indebted households336. 

While non-performing loans (NPLs) have been recently decreasing, they still constituted 6,4% 
of all loans in June 2015. They are much higher with respect to loans granted to SMEs (18,6% 
of loans granted to them are non performing) and they are also substantial in loans granted to 
households (5,1%) mostly for loans for residential purposes.337   

High level of NPL has obviously a negative impact on the functioning of banks. It limits their 
capacity of lending and thus restrains access to credit to the potential borrowers. The tendency 
to  deleverage  and  reduced  possibility  to  better  allocate  credit  may  have  additional  negative 
impact on growth of the economy338.  

For the banks, resolving the problem of NPL by debt restructuring is in principle preferable to 
liquidation  of  assets  of  the  debtor.339  To  respect  the  interests  of  creditors  there  is  a  need  to 
distinguish viable debtors, who should be given possibility to restructure, and those who are 
not viable and whose assets should be liquidated fast. The process of assessment of viability 
and  preference  conditions  (stay)  granted  during  this  process  should  be  sufficiently  fast  to 
avoid losing assets of the debtor. There should be also incentives to viable borrowers to create 
value  to  repay  outstanding  debt.  Efficient  insolvency  procedures  would  limit  reticence  of 
banks to start proceedings because of expected high cost and uncertain prospects of recovery. 

Quality of insolvency framework may impact on the costs of credit. Creditors may hesitate to 
offer  more  cross-border  credits  because  they  do  not  have  sufficient  knowledge  about  the 
applicable insolvency regimes in other Member States. There are still substantial divergences 
in relation to insolvency regimes across the EU. If lenders are unable to assess and quantify 
the  outcome  of  insolvency  proceedings  and  repossession  laws,  they  will  not  feel  confident 
lending  to  individuals.340  The  AFME  study  found  that  a  significant,  negative  correlation 
between corporate bond yields and expected recovery rate for bonds can be observed. A 10 
percentage point increase in expected recovery rate is associated with a 37 basis point fall in 
bond  spread.  This  suggests  that  countries  with  strong  insolvency  regimes  have  lower 
borrowing  costs.  Alternative  estimations  that  take  into  account  the  effect  of  unobservable 
country level characteristics (i.e. “country dummies”), a 10 percentage point improvement in 
recovery rates is associated with a 0.18 percentage point reduction in bond spread341. 

336  

337  

338  
339  

340  
341  

C. Cuerpo, I. Drumond, J. Lendvai, P. Pontuch, R. Raciborski, Indebtedness, Deleveraging Dynamics 
and Macroeconomic Adjustment, European Economy – Economic Papers 477, April 2013 
Risk  Assessment  of  the  European  Banking  System,  EBA  December  2015,  p.28.  It  should  be  kept  in 
mind that those figures cover only banking sector, while loans granted by other financial providers may 
reveal other levels of NPL 
Ibid, p.36 – 38. 
IMF:  Euro  Area  Policies  –  Selected  Issues,  IMF  Country  Report  No.  15/205,  July  2015,  Euro  Area 
Policies, IMF Country Report No. 15/2014, July 2015. 
Action Plan on Building a Capital Markets Union, COM (2015) 468 final, p.25 
Potential economic gains from reforming insolvency law in Europe, AFME, Frontier economics, Weil, 
February 2016, p. 34. 

155 

 
 
 
                                                            
The AFME report finds a statistically significant effect of changes to the recovery rate on the 
cost  of  borrowing  i.e.  as  the  recovery  rate  improves,  it  can  be  observed  that  the  cost  of 
borrowing declines, even once other factors (notably country fixed-effects) are controlled for. 
The results can be paired with  previous empirical research, notably the work undertaken by 
the World Bank and the Commission, linking changes in the recovery rate to reforms to the 
insolvency regime, and notably reforms that include pre-insolvency restructuring options. The 
results  can  also  be  paired  with  the  qualitative  evidence  reported  in  that  report,  which 
documents  improvements  to  the  recovery  rate  in  many  Member  States  following  accession. 
The AFME report also documents that balanced and effective insolvency regimes can have a 
beneficial effect on the costs of borrowing via changes to credit ratings. It also documents that 
recovery  rates  remain  a  significant  factor  affecting  the  cost  of  borrowing,  even  when  other 
institutional  variables,  beyond  insolvency-related  factors,  are  shown  to  have  explanatory 
power342. 

342  

Potential economic gains from reforming insolvency law in Europe, AFME, Frontier economics, Weil, 
February 2016, p. 40. 

156 

 
 
                                                            
If these results are combined with those from bond pricing model, it is possible to simulate the 
macroeconomic  impact  of  insolvency  reform  at  EU  level.  If  all  EU  member  states  were  to 
reach a recovery rate of 85 percent, this would imply a permanent increase in GDP of €41bn 
to €78bn (or between 0.3% and 0.55% of EU28 GDP). Additional employment in the EU28 
would increase by between 600,000 jobs in the low scenario and 1.2 million jobs in the high 
scenario. The distribution of macroeconomic effects suggests that much of the absolute gains 
from  insolvency  reform  could  flow  to  Italy,  Spain  and  France,  as  well  as  some  central 
European member states such as Poland, Hungary and Romania343.  

Downward adjustment of indebtedness from peak has been mixed so far, with only a handful 
of countries having managed to significantly revert to lower levels (graph 1). In parallel, high 

343  

Potential economic gains from reforming insolvency law in Europe, AFME, Frontier economics, Weil, 
February 2016, p. 5. 

157 

 
 
 
 
                                                            
indebtedness has led to a considerable deterioration of banks' balance sheets, as reflected in 
very  high  NPLs  levels  (graph  2).  The  weight  of  existing  debt  held  by  corporations  and 
households  prevents  them  from  undertaking  new  investments  and  holds  back  their 
consumption  (known  as  the  debt  overhang  problem)344.  By  implication,  as  long  as  private 
debts remain at high levels, economic activity may struggle to pick up. 

Graph 1: Private sector debt adjustment 

Graph  2:  Extent  of  the  non-performing 
loans problem 

Source: Eurostat 

Source: IMF 

While  booming  indebtedness  was  associated  with  high  investment  prior  to  the  crisis,  it  was 
followed  by  an  even  stronger  contraction  in  investment  thereafter  (graph  3).  The  countries 
where  the  corporate  sector  has  accumulated  more  debt  over  the  debt  boom  period  are  not 
necessarily the same exhibiting higher insolvency rates in 2013. The occurrence of insolvency 
is indeed highly country-specific, and differences may be linked to other factors than just the 
magnitude of deleveraging needs. The data however indicate that the evolution of bad debt is 
linked to that of insolvencies. Such link is highly country-specific. Cross-country correlations 
suggest  that  countries  with  more  effective  insolvency  frameworks  are  characterised  by  a 
lower stock of NPLs and have implications for business dynamics.   

344  

Debt overhang is defined as a situation where a firm's high levels of debt act as a disincentive to new 
investment (Myers, 1977). Consequences of household debt overhang and deleveraging are presented in 
C.Cuerpo,  I.  Drumond,  J.  Lendvai,  P.  Pontuch,  R.  Raciborski,  Indebtedness,  Deleveraging  Dynamics 
and Macroeconomic Adjustment, European Economy, Economic Papers 477, April 2013 

158 

050100150200250300350400CYIEDKNLSEPTESUKBEMTEEFIFRBGATLVELHRDEITHUSILTSKROPLCZ141209090912090914090914140910101110011209100914101413% of GDPCountry | Peak year2000incr. to peak2014e0510152025303540CyprusGreeceIrelandRomaniaBulgariaHungaryItalyCroatiaSloveniaPortugalLithuaniaMaltaSpainEuropean UnionEuro areaCzech RepublicLatviaSlovak RepublicPolandDenmarkFranceBelgiumUnited KingdomNetherlandsGermanyUnited StatesEstoniaSwedenFinlandLuxembourg20082014 
 
 
 
 
 
 
 
 
 
 
                                                            
Graph 3: Corporate non-residential investment and debt overhang in the EU 

Source: Eurostat 

An additional problem which emerged after the financial crisis and recession in some Member 
States  is  a  problem  of  financing  viable  borrowers,  in  particular  SMEs  in  the  countries  in 
recession;  where  access  to  credit  is  very  difficult.  High  levels  of  non-performing  loans 
undermine the capacity of banks to lend in recovery. The banks' reduced lending capacity is 
likely to disproportionately affect SMEs that are more dependent on bank finance. Studies and 
data from the International Monetary Fund suggest that high indebtedness of EU companies 
and  the  problem  of  non-performing  loans  represent  an  investment  barrier  and  prevent 
economic growth. To encourage cross-border lending to them it is necessary to provide more 
certainty  to  the  lenders  in  what  manner  they  can  recover  debt  in  case  of  insolvency  of  the 
borrower. Beyond that, progress has been slow in resolving impaired loans, as manifested in 
high  non-performing  loan  (NPL)  ratios  in  banks'  balance  sheets,  which  could  act  as  a 
constraint  on  the  supply  of  credit  and  has  implications  for  the  allocation  of  financial 
resources.  Hence,  there  is  less  credit  available  to  the  economy  since  markets  are  unable  or 
unwilling to lend to firms having non-performing loans or charge high or prohibitive rates.  

159 

-8-6-4-20246-40-20020406080100Investment/GDP relative to 2002-06 average (pp.)Change in corp. indebtedness, 2002-07 (pp.)20142007 
 
 
Effective insolvency frameworks contribute to the reduction of adverse effects of high private 
debt  on  economic  activity  by  freeing  up  resources  caught  in  unproductive  activities. 
Moreover,  they  can  mitigate  deadweight  costs  linked  to  bankruptcies  by  providing  a 
transparent and speedy process to resolving non-viable debt. 

160 

 
 
 
 
 
2. IMPACT ON COMPETITIVENESS 

According  to  the  Commission’s  competitiveness  proofing  tool,  competitiveness  consists  of 
three aspects:  

Cost  competitiveness  (i.e.  the  extent  to  which  a  proposal  affects  competitiveness  by 

o 
raising costs for some companies but not for others)  

Innovation competitiveness (i.e. the extent to which a proposal affects the propensity 

o 
of likelihood of success of innovation among some companies but not others)  

International competitiveness (i.e. the extent to which a proposal affects the ability of 

o 
European companies to compete with non-European companies). 

As to the aspect of costs, the proposal on restructuring and second chance will have a positive 
impact for companies with high cross-border volumes. This will be due to reduction of costs 
of  assessment  of  cross-border  investment  and  of  different  types  of  costs  of  proceedings,  of 
costs  of  relocation  falling  on  debtors  and  creditors.  The  impact  on  costs  of  companies 
operating  only  domestically  will  depend  on  the  type  of  jurisdictions.  For  the  companies 
operating in jurisdictions where efficient restructuring is already available, the effect would be 
neutral;  For  the  companies  operating  in  jurisdictions  with  less  efficient  restructuring 
framework the effect would be positive.   

As  to  the  impact  on  innovation,  the  proposal  will  have  a  significant  positive  impact  by 
encouraging  entrepreneurship  and  creation  of  small  businesses.  Thus  it  will  have  some 
positive  impact  on  innovation  (to  the  degree  start-ups  are  favourable  environment  for 
innovation).  

Excessive  liquidations  and  excessively  long  discharge  periods  cause  small  firms  and 
entrepreneurs  to  shy  away  from  innovation  as  their  financial  resources  are  tied  to  the 
repayment of past bad debts often resulting from investments to non-viable business models 
which  cannot  be  redirected  to  more  viable  and  innovative  investments.  Moreover,  such 
entrepreneurs are often stigmatised and do not want to experiment one more time. In contrast, 
a  restructuring  and  second  chance  framework  encourages  greater  innovation  and  a  start-up 
culture. The insolvency of a large company has significant effects on the European economy 
because  large  companies,  although  only  representing  0.2%  of  European  companies,  provide 
30% of jobs in the EU and produce 41% of gross added value. According to the April 2011 
report of the Reflection Group on the Future of EU Company Law, the international group of 
companies  has  become  the  prevailing  form  of  European  large-sized  enterprises,  in  which 
business  activity  is  typically  organised  and  conducted  through  a  multinational  network  of 
subsidiaries.  About  20%  of  large  enterprises  (ca.  8,500)  have  foreign  subsidiaries  or  joint 
ventures345. There are more than one million SMEs in Europe which have subsidiaries or joint 
ventures abroad346.  

345  
346  

2007 Eurobarometer survey. 
Internationalisation of European SMEs, EIM, report for DG Enterprise and Industry. 

161 

 
 
 
 
                                                            
Incentives not only to invest but also to supply labour are reduced if a large part of income is 
used  to  repay  debt.  When  the  overhang  problem  affects  many  economic  actors  at  the  same 
time,  the  whole  economy  may  have  little  incentives  to  repay  external  debt  (e.g.,  Krugman, 
1988).  Empirical  evidence  shows  that  the  impact  of  the  debt  overhang  on  aggregate 
investment can be quite sizable. Lagging debt restructuring leads to lower investments since 
highly indebted companies have to use all profits created for repayment of old debts instead 
for  new  investment.  Debt  deleveraging  currently  weighs  on  economic  activity  and 
competitiveness of EU industry compared to U.S. or Japan. 

As to international competitiveness, the proposal will have positive impact for companies that 
compete in global markets (i.e. against non-EU imports) due to both effects described above 
(lowering costs in some situations and providing better environment for innovation). 

162 

 
 
 
 
3. IMPACT ON COMPETITION AND STATE AID RULES 

Easier  access  to  restructuring  and  preferential  conditions  awarded  in  restructuring  plan  (as 
stay,  moratorium)  may  enhance  competitive  position  of  businesses  participating  in  those 
proceedings.  It  should  be  however  underlined  that  those  measures  are  not  directed  to  any 
predefined  sectors  of  activity,  but  available  to  all  businesses.  However,  to  limit  potential 
asymmetries as to competition position it would be necessary to strictly limit the conditions of 
access to restructuring to viable businesses and impose control of creditors and courts on the 
manner stay and restructuring plan as such are being used.  

Discharge  creates  asymmetry  with  respect  to  competition  between  discharged  and  not 
discharged  businesses.  However,  the  impact  on  competition  is  limited  because  discharged 
entrepreneurs  are  by  definition  unable  to  continue  business  or  unable  to  continue  it  in 
previous size and scope (if obliged to repay a substantial part of debt, while being constrained 
in income capabilities).  

The  proposal  will  not  impact  state  aid,  except  very  small  expenditures  of  horizontal  type 
(potential financing of debt advice and similar services). 

163 

 
 
 
 
 
 
4. IMPACT ON FUNDAMENTAL RIGHTS 

When  assessing  the  impact  of  the  envisaged  initiative  to  improve  substantive  insolvency 
regimes, the final impact assessment report pays a particular attention to fundamental rights in 
order to ensure that the proposed schemes fully respect the rights and principles set out in the 
Charter, in particular those in 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), Article 27 (Workers’ right to information and consultation within 
the undertaking) as well as Article 8 (protection of personal data) and Article 7 (respect for 
private and a family life). The basic rights and freedoms protected by the Treaties in particular 
the free movement of persons, services and establishment, are also relevant for this measure. 

4.1. Right to property  

Where creditors' and shareholders' rights can be suspended or curtailed, the fundamental right 
to property comes into question. Article 17 of the European Charter of Fundamental Rights, 
hereafter  ECFR  (see  also  Article  1  of  Protocol  1  to  the  European  Convention  on  Human 
Rights,  hereafter  ECHR)  enshrines  a  right  to  property,  as  being  the  right  to  peaceful 
enjoyment of one's property or possessions, not to be deprived of possessions unless certain 
conditions  are  met  and  to  have  the  use  of  property  controlled  only  in  accordance  with  the 
general  interest.  The  right  applies  irrespective  of  whether  the  subject  is  a  natural  or  legal 
person. 

The  concept  of  property,  or  “possessions”,  is  very  broadly  interpreted.  It  covers  a  range  of 
economic  interests,  including  'movable  or  immovable  property,  tangible  or  intangible 
interests,  such  as  shares,  patents,  an  arbitration  award,  the  entitlement  to  a  pension,  a 
landlord’s  entitlement  to  rent,  the  economic  interests  connected  with  the  running  of  a 
business,  the  right  to  exercise  a  profession,  a  legitimate  expectation  that  a  certain  state  of 
affairs will apply and a legal claim. The rights of shareholders to equity and those of creditors 
entitled  to  a  legal  claim  are  therefore  both  protected  under  this  provision.  The  right  to 
property is not absolute, but must be applied on balance with other values. Interferences with 
the  enjoyment  of  property  as  well  as  deprivations  of  possessions  can  be  justified  by  a 
legitimate  objective  in  the  public  or  general  interest,  provided  that  the  measures  are 
proportionate. 

In  preventive  procedures,  several  measures  have  been  considered  from  the  perspective  of 
compliance with the right to property: 

-  where  certain  creditors'  rights  to  enforce  a  claim  are  suspended  during  a 
moratorium,  proportionality  is  ensured  by  the  fact  that  the  duration  of  the 
moratorium is short and safeguards have been put in place so that creditors can ask 
for the moratorium to be lifted when their rights are unfairly prejudiced; 

-  where minority creditors are over-ruled in a majority vote or in a cross-class cram-
down  plan,  they  should  be  guaranteed  the  liquidation  value  (best  interest  of 
creditors test);  

164 

 
 
 
 
 
 
-  where  shareholders'  equity  is  diluted  or,  exceptionally,  wiped  off  following  a 
restructuring plan, they shall be guaranteed the enterprise value (fairness test). 

This  impact  on  the  right  to  property  is  considered  to  be  proportionate  to  the  objective  of 
rescuing  businesses  and  saving  jobs,  not  the  least  since  it  has  been  shown  that  the  median 
recovery rate for creditors may be significantly higher in case of restructuring as compared to 
liquidation.  

In second chance provisions: 

- 

full discharge of debt for natural persons is justified by competing values such as 
that of ensuring the dignity of the person; a maximum period of 3 years is thought 
to strike the balance between the creditors' interest to be repaid, the debtor's right 
to  dignity  and  to  restart  work  and  the  societal  value  of  bringing  people  in  to  the 
productive economy back from poverty and exclusion. 

4.2. Right to an effective remedy and to a fair trial  

Article 47 (2) ECFR of the Charter enshrines the right to an effective remedy and to fair trial 
for anyone engaged in a civil law dispute (see also Article 13 and 6 of the ECHR).  

In  preventive  procedures,  several  measures  have  been  considered  from  the  perspective  of 
compliance  with  the  right  to  an  effective  remedy  and  to  a  fair  trial  and  safeguards  were 
designed to address potential concerns: 

-  where  certain  creditors'  rights  to  enforce  a  claim  are  suspended  during  a 
moratorium,  they  have  the  right  to  ask  the  court  to  lift  the  moratorium  if  their 
rights  are  unfairly  affected;  a  court  must  approve  any  prolongation  of  the  short 
moratorium period after being satisfied that appropriate progress in being made in 
the negotiations; 

-  where minority creditors are over-ruled in a majority vote or in a cross-class cram-
down  plan,  they  have  the  right  to  challenge  the  restructuring  plan  before  a  court 
and/or to appeal the court order confirming the plan; a court must confirm such a 
plan  and  also  ensure  that  dissenting  creditors  are  not  unfairly  prejudiced 
(according to the best interest of creditors test); 

-  where  shareholders'  equity  is  diluted  or,  exceptionally,  wiped  off  following  a 
restructuring  plan,  there  again  they  have  the  right  to  challenge  the  plan  and/or 
appeal  against  it;  a  court  must  confirm  such  a  plan  after  being  satisfied  that  the 
plan complies with the fairness test; 

-  where new finance which might affect the rights of third party creditors is agreed 
in the plan, a court must confirm the plan to ensure that the rights of creditors are 
not unfairly prejudiced. 

In second chance provisions: 

-  where  creditor's  rights  are  affected  by  a  discharge  in  favour  of  a  natural  person, 

they shall be protected against dishonest behaviour.  

165 

 
 
 
 
 
4.3. Right to conduct a business and to engage in works 

A greater convergence in early restructuring possibilities within the EU would have a positive 
impact in terms of the freedom to conduct a business and right to engage in work as it  will 
generate a greater level of rescuing businesses and will contribute to saving jobs. The fact that 
efficient  preventive  restructuring  proceedings  with  similar  core  features  will  be  available  in 
all  Member  States  will  raise  legal  certainty  for  entrepreneurs  and  investors  and  will  raise 
cross-border business activities.  

Similarly, the second chance provisions in the initiative providing a debt-discharge for hones 
entrepreneurs  within  a  reasonable  period  of  time  will  facilitate  the  possibility  of  a  second 
chance  for  those  entrepreneurs  concerned  and  (where  relevant)  for  natural  persons,  thereby 
ensuring their return to the internal market as economically active persons . 

4.4. Workers' right to information and consultation within the undertaking  

Article  27  of  the  ECFR  stipulates  that  workers  or  their  representatives  must,  at  the 
appropriate levels, be guaranteed information and consultation in good time in the cases 
and under the conditions provided for by Union law and national laws and practices. 

The proposal on an early restructuring framework will not change the current rules which 
provide for information and consultation of workers under EU law: the present Directive 
is  without  prejudice  to  the  EU  labour  law  Directives  such  as  Directives  98/59/EC, 
2001/23/EC,  2002/14EC,  2008/94/EC,  2009/38/EC.  Nor  does  the  forthcoming  proposal 
prescribe  how  such  consultation  and  information  should  be  effected  (i.e.  on-line  or 
otherwise).  

Where employees will be affected under a restructuring plan, they will also have the right 
to vote on it and, if they are dissenting, a court will need to confirm the plan and guarantee 
the  legality  of  the  process.  The  vote  could  be  organised  by  distance  means  of 
communication, which will facilitate the participation of creditors. 

166 

 
 
 
 
 
 
 
 
5. IMPACT ON SOCIAL ENVIRONMENT 

Effective  rescue  and  second  chance  provisions  may  have  a  positive  influence  upon 
employment  and  entrepreneurship.  Rescuing  viable  companies  rather  than  liquidating  them 
can reduce the amount of jobs lost and unemployment in general. Second chance for honest 
but  bankrupt  entrepreneurs  is  an  important  incentive  for  individuals  to  re-enter  the  jobs 
market  and  the  productive  economy.  Several  respondents  to  the  CMU  Green  Paper 
consultation highlighted the resulting 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.347.  This  suggests  the  necessity  of  adopting  a  pragmatic  line 
identifying  on  the  basis  of  a  thorough  impact  assessment  specific  areas  where  common 
principles/minimum  standards  would  be  appropriate  in  order  to  achieve  CMU  objectives, 
whilst  leaving  the  details  of  implementation  to  Member  States  to  fit  in  with  their  national 
frameworks.  

Households  are  a  key  source  of  funds  to  finance  investment,  but  also  remain  under  debt 
overhang  pressure.  EU-SILC  survey  data  shows  that,  in  2011  and  across  the  EU  area  as  a 
whole, one in almost nine of those surveyed (11.4%) had been in arrears with payments over 
the  previous  12  months  on  rent/mortgage,  utility  bills  and/or  hire-purchase/loan  agreements 
due to financial difficulties. However, more than three in ten of those surveyed in Bulgaria, 
Greece  and  Romania  were  in  this  situation.348  The  situation  in  the  EU  shows  high  cross-
country heterogeneity349 with the household sector effectively deleveraging only in a subset of 
countries. In other countries, this sector is likely to be caught in a debt trap. Households with 
lower  income  or  wealth  appear  to  be  affected  by  the  debt  overhang  which  has  a  negative 
impact  on  household  spending  and  hence  aggregate  demand.  Remaining  in  a  debt  trap  has 
detrimental  consequences  both  for  the  indebted  person  and  for  the  society.  The  person  is 
under  financial  strain,  reduces  his/her  consumption,  may 
lose  apartment.  Indirect 
consequences may be on one's health and willingness to participate in active economic life – 
find    a  job  or  start  business.  The  over-indebted  person  will  be  most  probably  refused  any 
further credit and may be excluded totally from using financial products, even having a bank 
account.  Consequences  to  the  society  may  be  increased  demand  for  social  help,  but  also 
deteriorating social climate, even expansion of crime if more people are becoming homeless 
and without resources.  

Workers 

Workers  are  also  a  key  group.  They  are  first  needed  in  order  to  ensure  that  the  business  in 
financial  difficulties  continues  operating  as  usual.  Second,  after  the  restructuring  plan  is 
confirmed, they are needed to implement the measures required to bring the company back to 
viability.  

347  

348  

Feedback Statement on the Green Paper "Building a Capital Markets Union" (Question 29), SWD(2015) 
184 final, 30.9.2015, p. 59 and foll. 
The over-indebtedness of European households: updated mapping of the situation, nature and causes, 
effects and initiatives for alleviating its impact, Civic Consulting for the European Commission, 2014,  p. 
32, 
http://ec.europa.eu/consumers/financial_services/reference_studies_documents/docs/part_1_synthesis_of
_findings_en.pdf 

349   Also a high within country heterogeneity can be observed. 

167 

 
 
 
                                                            
The proposal enshrines work-related rights provided by the Charter of Fundamental Rights of 
the  European  Union350.  In  particular,  the  Freedom  to  choose  an  occupation  and  right  to 
engage in work (Article 15) is reinforced through the protection of existing jobs, as a direct 
consequence  of  encouraging  efficient  restructuring  instead  of  their  extinction  as  a  normal 
consequence of liquidation. Furthermore, since debtors in financial difficulties will be able to 
continue  operating  during  restructuring  negotiations  having  full  or  at  least  partial  control  of 
their assets and affairs, and over indebted entrepreneurs would be able to have a second start 
after  a  full  discharge  of  debt,  the  Freedom  to  conduct  a  business  (Article  16)  will  be 
strengthened under the proposal's framework.  

In respect to rights of workers, the proposal does not entail any restriction. EU law guarantees 
a  number  of  essential  rights  to  workers  in  insolvency  and,  to  a  certain  extent,  in  early 
restructuring procedures. A framework on early restructuring does not upset the existing set of 
rights which workers enjoy and full labour law protection should be guaranteed to employees 
during such procedures.  

In  particular,  this  Directive  should  be  without  prejudice  to  employees'  rights  guaranteed  by 
Directives 98/59/EC351, 2001/23/EC352, 2002/14EC353, 2008/94/EC354 and 2009/38/EC355.  

The  rights  concerning  the  information  and  consultation  of  employees  under  national  law 
implementing the above-mentioned-Directives remain fully intact. 

Where  a  partial  transfer  of  undertaking  is  agreed  in  the  restructuring  plan,  Directive 
2001/23/EC puts in place safeguards for workers. Some limitations to this basic principle are 
possible under insolvency proceedings. For proceedings not targeted at liquidation, which is 
the  case  for  preventive  restructuring  by  definition,  Art.  5  (2)  mentions  two  possible 
limitations:  (i)  the  transferee  can  be  relieved  of  previous  liabilities  if  workers  receive  a 
compensation  at  least  equivalent  to  the  one  they  would  receive  from  the  existing  guarantee 
fund  for  workers  (ii)  working  conditions  can  be  downsized  in  agreement  with  employees. 
These  limitations  are  only  possible  where  "proceedings  are  under  the  supervision  of  a 
competent public authority (which may be an insolvency practitioner determined by national 
law)". 

350  
351  

352  

Charter of Fundamental Rights of the European Union, 2010 O.J. C 83/02. 
Council  Directive  98/59/EC  of  20  July  1998  on  the  approximation  of  the  laws  of  the  Member  States 
relating to collective redundancies, OJ L 225, 12.08.1998, p. 16. 
Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States 
relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or 
parts of undertakings or businesses, OJ L 82, 22.03.2001, p. 16. 

353   Directive 2002/14/EC of the European Parliament and of the Council of 11 March 2002 establishing a 

general framework for informing and consulting employees in the European Community, OJ L 80, 
23.3.2002, p. 29. 

354   Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection 

of employees in the event of the insolvency of their employer, OJ L 283, 28.10.2008, p. 36. 

355   Directive 2009/38/EC of the European Parliament and of the Council of 6 May 2009 on the establishment 
of a European Works council or a procedure in Community-scale undertakings and community-scale 
groups of undertakings for the purpose of informing and consulting employees, OJ L 122, 16.5.2009, 
p.28. 

168 

 
 
                                                            
On the other hand, Directive 2008/94 imposes an obligation on Member States to put in place 
guarantee  institutions  to  guarantee  the  payment  of  employees'  outstanding  claims  resulting 
from  contracts  of  employment  or  employment  relationships  in  the  event  of  the  employer's 
formal insolvency proceedings in relation to the employer. Member States have the possibility 
to  extend  the  coverage  of  such  guarantee  institutions also to  other  types  of  procedures.  The 
current  proposal  will  not  have  an  impact  on  the  application  of  Directive  2008/94.  The 
proposal aims at putting in place in each Member State preventive procedures which aim at 
helping the debtor avoid a state of insolvency. However, if restructuring efforts fail  and the 
debtor becomes insolvent according to national law, the provisions of Directive 2008/94 will 
apply accordingly. 

Moreover,  the  right  to  information  and  consultation  before  restructuring  and/or  collective 
redundancies, guaranteed by Directives 98/59/EC, 2001/23/EC, 2002/14EC, 2008/94/EC and 
2009/38/EC, remain intact. 

As  creditors,  employees  also  enjoy  certain  safeguards  under  the  preferred  option  to  ensure 
that their legitimate interests are protected. For example: 

-    ask  for  the  stay  of  enforcement  to  be  lifted  or  to  not  be  granted  if  they  are  unfairly 

prejudiced; 

-   if they are affected by the plan, they will have the right to be involved and to vote; if they 

are not involved, they will not be affected by the plan; 

-    a  court  needs  to  confirm  a  plan,  and  at  that  stage  the  court  needs  to  be  satisfied  that 
employees  receive  under  the  plan  at  least  as  much  as  they  would  receive  in  liquidation 
proceedings; 

-   salaries will need to be paid during the stay period. Salaries will also be protected under the 

'safe harbour' provision; 

-   employees may challenge and appeal a restructuring plan. 

169 

 
 
 
 
 
 
6. IMPACT ON TAX REVENUES 

The proposal may have some impact on tax revenues. The assessment would be different for 
short  term and for longer term perspective. 

In  longer  term  the  impact  on  tax  revenues  would  be  positive.  This  is  due  to  availability  of 
early  restructuring  which  would  increase  the  proportion  of  saved  businesses  (taxpayers  if 
longer  period  is  taken  into  account).    As  to  leaving  debtor  in  possession  of  business,  in 
principle  the  outcome  in  terms  of  saved  assests  (and  thus  higher  taxable  base  in  the  future) 
oculd  be  positive,  but  detrimental  decisions  of  debtor  with  respect  to  the  prospects  of  bui-
siness as  a whole can not be exluded.  Involvement of the court in allowing debtor to stay in 
possession would counter-act such tendencies. 

Another  reason  of  increase  of  tax  revenues  would  be  reduction  of  costs  and  of  lenght  of 
proceedings.  To  the  degree  costs  of  restructuring  are  treated  as  costs  reducing  the  base  of 
taxation, the outcome of reducig those costs would imply higher tax revenue. 

There may be however reasons for reduced tax revenue, in particular in short term. It could be 
due  to  including  taxes  due  in  the  moratorium  and  by  giving  priority  to  new  financing  over 
previous,  also  fiscal,  debts.  This  negative  impact  of  taxation  should  be  short  term  and 
underpinned by the necessities of the success of restructuring.  

170 

 
 
 
 
 
 
7. IMPACT ON SMES 

Capital  Markets  Union  is  about  improving  the  funding  of  the  EU  economy,  especially  for 
equity  and  SMEs.  Tackling  insolvency  laws,  to  ensure  creditors,  debtors  and  courts  have 
sufficient  incentives  to  resolve  NPLs,  is  important  to  improve  the  funding  of  the  EU 
economy. It is through an effective insolvency regime that the current high level of debt can 
be transformed into equity, and it is through an effective personal insolvency regime that the 
funding of SMEs can be improved. Both personal and corporate insolvency laws are relevant 
for SMEs, but it is the first that is most restrictive. The focus here is on households and small 
companies,  because  insolvency  for  large  companies  is  less  disputed.  Concerning  large 
companies,  the  EU's  approach  is  not  dissimilar  to  that  of  the  US,  a  less  recourse  regime, 
captured in Chapter 11. This is not the case for households and small companies. All Member 
States  have  different  insolvency  regimes,  and  do  not,  in  principle,  follow  the  US  approach 
reflected in Chapter 7. This is also consistent with the DG GROW report of giving a second 
chance  to  facilitate  risk-taking  activities  of  households  and  small  companies.    If  we  want 
small companies to take risks and to ask for funding in order to grow, we have to introduce a 
less recourse regime that shares risk between banks and them. Furthermore, in order to grow 
they need space i.e.  they need  labour  and capital, factors of production that can  be released 
through insolvency, from unproductive companies. 

As  can  be  seen  in  Charts  1  and  2  below,  insolvency  frameworks  and  the  effectiveness  and 
enforcement of contract law continue to differ significantly across EU Member States, despite 
ongoing  efforts  to  improve  the  efficiency  of  European  insolvency  and  restructuring 
procedures.  

Chart  1:  The  number  of  years  required  to 
enforce a contract or resolve an insolvency 

Chart  2:  The  recovery  rate  in  enforcing  a 
contract  or resolving an insolvency 

Source: World Bank Doing Business 2014 

Source: World Bank Doing Business 2014 

The considerable differences in and the inter-action between the insolvency laws of Member 
States  create  additional  costs  for  foreign  investors  to  assess  the  risk  and  work-out  the 
insolvency  proceedings,  and  thus  hamper  the  emergence  of  pan-European  credit  markets.In 
particular, the lack or inadequacy of rules enabling early debt restructuring in many Member 

171 

   
 
 
 
 
 
States, the absence of provisions to give a second chance for persons and entrepreneurs and 
the  length  and  costs  of  formal  insolvency  proceedings  in  many  Member  States  lead  to  high 
NPLs (Chart 3 and 4) and discourage investors who either hold back from investing or do so 
only at a higher premium.356  

Chart 3: NPLs versus payment enforcement 

Chart 4: NPLs versus insolvency 

Source: World Bank Doing Business 2014, ECB 

Source: World Bank Doing Business 2014, ECB 

Another point relating to different type of insolvency or preventive procedures that emerges 
from  the  comparative  study  is  that  a  substantial  majority  of  EU  countries  do  not  have  such 
small  business  rescue  procedures.    The  results  of  the  study  are  set  out  in  the  following 
table357.  The  absence  of  small  business  rescue  procedures  includes  countries  with  mature, 
sophisticated  economics  such  as  Germany,  Austria,  Netherlands  and  the  Scandinavian 
countries (Denmark, Sweden, Finland the comparator, Norway)358.  More countries however, 
have  simplified  liquidation  procedures  for  small  enterprises  or  at  least  special  provisions  of 
Insolvency  Law  that  apply  to  the  liquidation  of  debtors  with  relatively  small  liabilities  e.g. 
France,  Greece  and  Hungary.    The  threshold  for  the  application  of  the  special  provisions 
varies  however  ranging  from  liabilities  €100,000  in  Greece,  €750,000  in  France  to  €5m  in 
Spain359.  However,  the  US  experience  demonstrates  that  designing  an  appropriate  small 
business restructuring regime is not likely to be easy.360   

356  

357  
358  
359  
360  

Commission  Staff  Working  Document  "Impact  Assessment  accompanying 
Recommendation on a new approach to business failure and insolvency", SWD (2014) 61 final. 
Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 209. 
Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 211.  
Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 212 
See  generally  G  McCormack,  “Rescuing  Small  Businesses:  Designing  an  “Efficient”  Legal  Regime” 
[2009] Journal of Business Law 299-330.  

the  Commission 

172 

 
 
 
  
 
 
 
 
 
 
                                                            
Table 1: Special insolvency arrangements for SMEs361 

Country 

Special insolvency arrangements for SMEs and their effectiveness 

Austria 

Belgium 

Bulgaria 

Croatia 

Cyprus 

Czech 
Republic 

No.    But  Austrian  Insolvency law  dates  from  1914 when  most businesses  were  small.    Entire 
procedure is well-suited for SMEs – proceedings are considered big if the claims total more than 
10m EUR.  Current procedures considered sufficient. 

No 

No 

No 

No 

Streamlined  liquidation  proceedings  are  available  for  small  business  debtors.  Indeed,  the 
majority of business insolvencies seem to take this form.  

Denmark 

No 

Estonia 

No – about 95% of existing companies in Estonia are SMEs 

Finland 

No but the Restructuring Act enables simplified restructuring proceedings that are, in practice, 
more suitable for SMEs.   

France 

Germany 

Greece 

Hungary 

Ireland 

Italy 

361  

Yes  –  for  companies  and  individual  debtors  submitted  to  rescue  proceedings  –  court  appoints 
only IP for checking of claims and representing the collective interests of creditors – limits no 
more than 20m Euros turnover or less than 20 employees. Simplified liquidation procedure for 
SMEs  -  no  more  than  750,000  euros  turnover,  5  employees  and  no  immovable  assets. 
Procedures considered to be a convenient tool for many debtors i.e. individuals with few assets, 
by giving them a very efficient tool for a rescue through discharge.  

No.    Germany  Insolvency  Law  provides  for  one  single  and  unitary  insolvency  procedure,  no 
matter  whether  it  pursues  restructuring  or  liquidation  and  no  matter  whether  the  debtor  is  a 
natural or legal person or large or small company.  No special forms or templates.  

Simplified  liquidation  procedure  for  SMEs  but  only  for  companies  with  assets  of  less  than 
100,000 euros. 

Some  special  rules  for  small  businesses  but  no  special  procedures.    Standard  forms  and 
templates.  The rules were introduced not for encouraging the quick rescue of small businesses 
but rather to minimise the opportunities for committing fraud. 

Special procedure in that a small company is enabled to apply to the Circuit Court rather than 
the High Court to access the recovery procedure – promoted as a more cost efficient process but 
questionable since the working capital required to fund the company during the process and the 
dividends for creditors will not change and High Court continues to hear cases that could have 
been heard in the Circuit Court. 

Changes not having a visible effect in practice.  

No  special  insolvency  arrangements  applicable  only  to  SMEs  but  simplified  insolvency 
procedures, including liquidation and composition procedures that may be applied to SMEs. No 
special forms or templates and as yet no evidence to suggest that the simplified procedures are 

Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p. 209 
-211 

173 

 
 
 
                                                            
Country 

Special insolvency arrangements for SMEs and their effectiveness 

particularly successful. 

Latvia 

No 

Lithuania 

Simplified  and  more  expeditious  bankruptcy  procedure  available  when  the  court  or  IP 
established during the case that the enterprise has no assets or that its assets are insufficient to 
cover  the  legal  and  administrative  expenses.    Considered  useful  generally  to  have  provisions 
specifically tailored for SMEs. 

Luxembourg  No 

Malta  

Netherlands 

No and the provisions on corporate recovery do not expressly apply to small companies as such 
term is defined in the Act. 

Considered  that  provisions  allowing  for  a  more  expeditious  and  cost  effective  mode  of 
insolvency for small and often family run enterprises would be a welcome development.  

No.  But a characteristic feature of insolvency proceedings under Dutch law is the expedient and 
flexible  manner  in  which  proceedings  can  be  conducted.    Examples  include  prompt 
commencement  of  the  proceedings  following  a  basic  insolvency  test  and  the  short  periods 
applicable to certain formal processes.  Limited court supervision and extensive powers of the 
IP  to  manage and  realise  the  insolvent  estate  have  further  minimised  procedural  delays  whilst 
maintaining a sufficient degree of checks and balances.  

Norway 

No 

Poland 

No special procedures though size and nature of debtor’s enterprise is recognised as important 
factor in certain provisions of the Insolvency law. 

Portugal 

No 

Romania  

Simplified liquidation with special forms and templates but the procedure is not designed at all 
for business rescue. 

Slovakia 

Simplified  liquidation  procedure  with  modified  rules  but  no  special  templates.    A  special 
restructuring procedure for SMEs not considered to be realistic since the “restructuring process 
requires experienced experts with strong integrity, who are generally very few and the costs of 
their services are high.” 

Slovenia 

Simplified composition rather than liquidation procedures but a greater role for creditors in the 
procedure considered to be useful. 

Spain 

Speedy insolvency procedure for debtors with liabilities of less than 5m euros.  Also procedure 
with standard forms for an out-of-court restructuring plan specifically tailored for debtors with 
liabilities of less than 5m euros.  But the fact the State claimants have a privileged position in 
the procedure appears to militate against their effectiveness.  

Sweden 

No 

United 
Kingdom 

Special arrangement introduced for SMEs but not widely used and not considered to be a great 
success.  

US 

Chapter  11  process  is  streamlined  for  ‘small  business  debtors’,  which  are  defined  as  persons 
engaged  in  commercial  or  business  activities  that  have  aggregate  noncontingent  liquidated 
secured and unsecured debts as of the date of the filing of the bankruptcy petition in an amount 
not more than (currently) $2,490,925. The requirement for an official creditors’ committee can 
be  relaxed  by  the  court  in  small  business  cases.  Other  onerous  disclosure  requirements  are 

174 

 
 
Country 

Special insolvency arrangements for SMEs and their effectiveness 

substantially  reduced.  Otherwise,  small  business  cases  are  subject  to  usual  chapter  11 
procedures. 

The  small  business  provisions  are  not  thought  to  work  well  in  practice  because  of  their 
inflexibility  and  associated  process  costs.  As  a  consequence,  small  businesses  often  seek 
recourse to alternative procedures outside of the bankruptcy system. 

At  present,  it  appears  that  the  small  business  provisions  of  the  Bankruptcy  Code  are  not 
effective for  encouraging  quick  rescues. However, US experience  suggests that it  can be  very 
difficult to strike a balance between streamlined process and effective protection for creditors. 
One  concern  that  led  to  the  tightening  of  the  small  business  provisions  in  2005  was  that  too 
many  nonviable  small  businesses  were  using  them  to  delay  their  inevitable  failure,  thus 
prolonging their demise at increased administrative cost, when an immediate orderly liquidation 
would have provided a better return to creditors. 

Table  2.  Trends  in  number  of  business  bankruptcies  and  other  forms  of  unvoluntary  business  cessations  selected 
Member States 2007 to 2014 – 2009=100. 

Member 
State 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

AT 

BE 

BG 

CY 

CZ 

DK 

EE 

EL 

ES 

FI 

FR 

HU 

IR 

IT 

LT 

LU 

LV 

NL 

PT 

SE 

SK 

UK 

91.2 

81.5 

88.7 

67.3 

42.0 

19.1 

91.5 

90.0 

84.9 

72.3 

65.0 

40.1 

144.5 

101.1 

19.9 

68.8 

81.2 

53.6 

65.6 

32.9 

95.1 

0.0 

68.5 

75.8 

61.2 

62.8 

55.6 

79.8 

87.9 

84.7 

66.0 

80.0 

51.9 

82.8 

56.4 

92.5 

82.5 

90.9 

86.2 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

85.0 

108.5 

145.1 

114.5 

119.7 

95.8 

59.1 

125.4 

109.5 

90.0 

94.1 

83.0 

113.0 

129.5 

69.0 

141.1 

41.2 

88.1 

124.4 

91.1 

135.9 

89.7 

92.4 

101.6 

125.2 

107.5 

109.1 

113.2 

97.4 

100.0 

94.5 

87.5 

95.5 

104.4 

100.8 

119.7 

88.8 

132.5 

121.9 

88.8 

107.2 

95.2 

124.6 

85.8 

175 

87.5 

112.4 

177.6 

83.6 

131.0 

95.6 

46.9 

116.9 

148.9 

90.4 

96.7 

68.7 

109.0 

130.6 

76.0 

151.5 

40.0 

105.9 

175.3 

97.8 

130.4 

85.5 

79.1 

124.6 

193.8 

118.9 

151.1 

87.4 

43.5 

110.4 

167.2 

95.6 

99.0 

93.1 

95.6 

150.6 

84.2 

151.4 

36.5 

120.7 

158.1 

100.8 

142.8 

75.9 

78.6 

114.0 

170.6 

102.5 

144.3 

70.6 

40.6 

93.0 

114.0 

91.2 

98.9 

149.1 

167.5 

91.4 

122.7 

42.9 

95.7 

105.3 

93.7 

148.6 

69.7 

 
 
 
 
 
 
 
 
 
Sources: London Economics based on data from AT: Kreditschutzverband; BE: Statistics of the Belgium Federal Public Service Economy; 
BG:  provided  by  official  of  Ministry  of  Economy;  CY:  Department  of  Registrar  of  Companies  and  Official  Receiver;  CZ:  CRIF  from 
Insolvency  Register  of  Ministry  of  Justice:  DK:  Statistics  Denmark;  EE:  Krediitiinfo  SA;  ES:  OECD;  Statistics  Finland;  FR:  Insee:  EL: 
OECD;  HU: Hungarian  Central  Statistical  Office; IR: Dpt  of  Jobs,  Enterprise  and  Innovation; IT:  Cerved;  LT:  Statistics  Lithuania; LU: 
Statec; LV: Lursoft; NL: Statistics Netherlands; PT: COSEC SA: Swedish Agency for Growth Policy Analysis; SE: SK: Ministry of Justice 
Slovakia; UK: Insolvency Service362 

Table quoted from Annual Report on European SMEs 2015/2016 p. 53 

A  recent  study 
entrepreneurship363.  The features of bankruptcy that were taken into account contain:  

impact  of  different  features  of  bankruptcy  regime  on 

looked 

into 

the 

- availability of discharge 

- time to discharge 

- generosity of exemptions 

- impact on the bankruptees  civil and economic rights 

- level of difficulty  a debtor faces in achieving discharge by agreement with creditors 

- the minimum capital requirements for creating a limited liability company. 

362  
363  

Annual Report on European SMEs 2015 / 2016, p. 53-54. 
Annual Report on European SMEs 2015/2016, Special Study   

176 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
The  impack  of  those  variables  on  entrepreneurship  (measured  by  self-employment  and  by  business 
birth rate was analysed in the context of control variables such as GDP growth, stock market growth 
and income taxes on wages. 

It was found that high number of years to discharge is a key deterrent of entrepreneurship. 

177 

 
 
 
 
 
 
8. ADDITIONAL DATA 

Since 2004, the World Bank Doing Business initiative has scored countries on various aspects 
of institutional quality, including rule of law, creditor protection, and quality of the insolvency 
framework. 

In relation to resolving insolvency, the following types of data are available: 

• Quantitative data on insolvency outcomes. This covers the cost of insolvency proceedings, 
the time for creditors to recover credit, and recovery  rates. These data are available back to 
2004. 

• Qualitative data on strength of insolvency framework. This composite measure is based on 
four  sub-indices  covering:  (i)  a  reorganisation  index;  (ii)  a  commencement  of  proceedings 
liquidation  and/or 
index  (to  gauge  whether  debtors  and/or  creditors  can 
reorganisation); (iii) a management of debtor’s assets index; and (iv) a creditors’ rights index. 
Each  sub-index  is  given  a  rating  of  0-4,  and  these  are  added  to  give  a  score  of  0-16.  This 
dataset starts in 2014. 

initiate 

• Overall ‘distance to frontier’ score. The DTF is an overall score showing how a country is 
performing  in  relation  to  insolvency,  drawing  on  the  available  measures.  For  each  variable 
included,  a  country’s  performance  is  measured  relative  to  the  worst  and  best  performers, 
expressed as a number from 0 to 100. These scores are then averaged to give the DTF score. 
This  approach  is  used  to  summarise  each  aspect  of  institutional  quality  in  Doing  Business. 
Note that this measure was not used in earlier years, so any analysis of this variable over time 
would need to use a consistently derived measure364. 

Figure 2 shows the EU28 countries ranked by insolvency DTF score in 2015. The bars show 
the  2015  DTF  score.  This  ranking  tends  to  place  established  EU  members  higher,  with  the 
EU15 clustered  to  the upper end of  the distribution and the accession countries clustered to 
the lower end. The only exceptions to this pattern are that the Czech Republic appears in 10th 
place amongst the EU15, and that Luxembourg and Greece are ranked much lower than other 
EU15  countries365. 

The two measures on which the 2015 DTF score is calculated – estimated recovery rate and 
strength of insolvency framework – are also shown. In general we see that the EU15 countries 
perform  relatively  better  in  terms  of  estimated  recovery  rate,  but  not  so  well  in  terms  of 
strength of framework, whereas the 13 Member States (EU13) which have joined since 2004 
are rated better on strength of insolvency framework than on recovery rate. 

364  

365  

The range of indicators and method of aggregating scores in Doing Business has changed over time. In 
2004  the  quantitative  measures  of  cost  of  proceedings  and  time  of  proceedings  were  used,  alongside 
qualitative measures of priority of claims and efficiency of outcomes. In 2005 the qualitative measures 
were  dropped,  and  a  recovery  rate  was  introduced,  itself  reflecting  the  time  and  cost  of  proceedings. 
From 2007, the recovery rate was used to rank countries. From 2012 a distance to frontier approach was 
used to treat each aspect of institutional quality – in relation to insolvency this used only the recovery 
rate. In 2014 the strength of insolvency framework index was introduced and used alongside recovery 
rate in 50:50 proportion to calculate DTF. 
Potential economic gains from reforming insolvency law in Europe, AFME, Frontier economics, Weil, 
February 2016, p. 26. 

178 

 
 
 
 
                                                            
The DTF scores of EU28 Member States range from 93.5 (Finland) to 44.78 (Malta), while 
recovery  rates  range  from  90.2  (Finland)  to  30.5  (Croatia).  The  large  differences  between 
countries  highlight  the  potential  benefits  of  harmonising  insolvency  regimes  with  adequate 
minimum standards. Likewise, the scope of each EU 28 member state to vary the manner in 
which  it  implements  those  standards  should  be  limited;  otherwise  the  DTF  scores  and 
recovery rates would preserve similar ranges of variation between countries, limiting in turn 
the ‘single market’ benefits of harmonisation366. 

Clearly,  in  the  context  of  28  divergent  insolvency  regimes  in  the  EU,  foreign  investors  are 
facing  higher  costs  of  assessing  risks  resulting  from  different  insolvency  regimes  than  in  a 
jurisdiction with a single rule book on insolvency. Those individual differences can translate 
into differing strength on insolvency frameworks of individual Member States. Although the 
below mentioned table of the World Bank does not take into account all the aspects indicated 
under  letters  (a)  to  (h)  above  in  the  subsection  on  drivers,  it  can  serve  as  a  valuable 
comparator  of  the  key  differences  between  Member  State  restructuring  frameworks  taking 
into account most of the abovementioned aspects.  

The strength of insolvency framework index is the sum of the scores on the commencement of 
proceedings  index,  management  of  debtor’s  assets  index,  reorganization  proceedings  index 
and creditor participation index. The index ranges from 0 to 16, with higher values indicating 
insolvency  legislation  that  is  better  designed  for  rehabilitating  viable  firms  and  liquidating 
nonviable  ones  (table  2).  This  methodology  was  developed  by  Djankov,  Hart  and  others 

366  

Potential economic gains from reforming insolvency law in Europe, AFME, Frontier economics, Weil, 
February 2016, p. 27. 

179 

 
 
 
                                                            
(2008) and is adopted here with several changes. The strength of insolvency framework index 
was introduced in Doing Business 2015. 367 

The efficacy of the legal mechanisms and system that serve to protect creditors and provide 
recovery in the event of a default can increase or decrease the risk to the lender of investors. If 
one concludes that the enforcement or insolvency procedures will yield little or no return, than 
the chance of non-performance carries a higher risk of loss that must be factored into the cost 
of  the  credit  at  the  front  end  of  the  transaction.  This  is  typically  reflected  in  higher  interest 
rates and higher lending cost, which restrict  access to  credit by  making it less  accessible or 
accessible only it grater cost to the maker.368  

367  
368  

http://www.doingbusiness.org/data/exploretopics/resolving-insolvency 
"Corporate restructuring. Lessons from experience" by World Bank, Chapter 15 "Developing effective 
framework for insolvency and credit rights" , by Gordon W. Johnson". 

180 

Member StateStrength of insolvency framework index (0-16)Commencement of proceedings index (0-3)Management of debtor's assets index (0-6)Reorganization proceedings index (0-3)Creditor participation index (0-4)Netherlands15.02.56.01.02.0Slovenia14.52.56.02.01.0Croatia14.53.04.03.02.0Denmark14.03.06.01.02.0Greece13.52.55.53.01.0Latvia13.52.55.02.52.0Spain13.53.06.02.01.0Sweden13.03.06.01.02.0Poland13.03.06.02.51.0Bulgaria13.02.54.02.54.0Cyprus12.53.04.52.53.0Slovak Republic12.03.04.03.03.0Czech Republic12.03.05.53.02.0Italy12.03.05.53.02.0Romania12.03.06.02.52.0Estonia12.02.55.52.04.0Finland12.03.06.02.53.0Portugal11.53.05.53.03.0Germany11.53.06.03.03.0Luxembourg11.52.53.00.51.0Malta11.02.52.00.03.0Lithuania11.02.54.00.51.0Hungary11.02.55.00.51.0Ireland10.03.04.51.51.0Austria9.02.55.51.02.0France8.03.06.01.01.0United Kingdom7.53.05.01.02.0Belgium7.02.56.01.02.0 
 
 
 
 
 
 
                                                            
In Doing Business database recovery rates are reported as the percentage of the initial value of the loan 
recovered by secured creditors.  The costs of proceedings are deduced form the value recovered and 
depreciation  of  physical  assets  and  actualisation  of  financial  flows  are  taken  into  account.  By  this 
means duration of the procedure negatively impacts the value recovered. 

The recovery rates calculated according to this definition, for the EU Member States, are presented in 
the table below, together with the data on time, cost of proceedings and its outcome. 

Country 

Recovery 
rate 
(cents on the euro) 

Time (years)  Costs 
estate) 

(% 

of 

(0 

Outcome 
– 
piecemeal  sale,  1  – 
going concern) 

FI 

DE 

PT 

BE 

NL 

SI 

CY 

AT 

IE 

IT 

FR 

ES 

SK 

EE 

LV 

EL 

LT 

LU 

MT 

90,1 

83,7 

73,4 

89,3 

88,9 

88,2 

71,4 

82,7 

87,7 

63,1 

77,5 

71,2 

54,7 

40,0 

48,1 

34,9 

42,8 

43,8 

39,6 

EU average  63,8 

EA average  66,9 

World 
average 

43,7 

1 

1 

1 

1 

1 

1 

1 

1 

1 

1 

1 

1 

1 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0,9 

1,2 

2,0 

0,9 

1,1 

0,8 

1,5 

1,1 

0,4 

1,8 

1,9 

1,5 

4,0 

3,0 

1,5 

3,5 

2,3 

2,0 

3,0 

2,0 

1,8 

36,1 

3,5 

8 

9 

3,5 

3,5 

4 

14,5 

10 

9 

22 

9 

11 

18 

9 

10 

9 

10 

14,5 

10 

10,3 

9,9 

2,6 

181 

 
 
 
 
 
 
 
 
 
 Recovery rate (cents on the dollar) 

 Time to resolve debt (years), 

Cost for resolving debt (% of estate value) 

Source: Doing Business, World Bank, authors' calculations. 

Note: there has been a recent change in methodology in Doing Business.  

182 

0102030405060708090100CroatiaRomaniaBulgariaGreeceEstoniaMaltaHungaryLithuaniaLuxembourgLatviaSloveniaSlovak RepublicPolandItalyCzech RepublicCyprusSpainPortugalSwedenFranceAustriaGermanyDenmarkIrelandUnited KingdomNetherlandsBelgiumFinlandUnited StatesSingaporeJapanSwitzerlandAustraliaIsraelHong KongNew ZealandCanadaNorwayIceland2007 (2008 for Cyprus)2014EU Average01234567IrelandBelgiumFinlandUnited KingdomDenmarkAustriaNetherlandsGermanyCyprusLatviaSpainItalyFranceHungaryLuxembourgSloveniaSwedenPortugalCzech RepublicLithuaniaMaltaEstoniaPolandCroatiaRomaniaBulgariaGreeceSlovak RepublicIcelandNew ZealandHong KongCanadaNorwaySwitzerlandIsraelAustraliaJapanSingaporeUnited States2007 (2008 for Cyprus)2014EU Average0510152025BelgiumFinlandNetherlandsDenmarkSloveniaUnited KingdomGermanyIrelandFranceSwedenPortugalEstoniaBulgariaGreeceAustriaLatviaLithuaniaMaltaRomaniaSpainCyprusHungaryLuxembourgCroatiaPolandCzech RepublicSlovak RepublicItalyNorwayCanadaIcelandIsraelAustraliaUnited StatesHong KongNew ZealandSwitzerlandJapanSingapore2007 (2008 for Cyprus)2014EU Average 
 
 
 
 
 
 
 
 
 
The following figure indicates the areas where improvement of reorganisation proceedings is 
needed. 

Analysis  of  the  data  collected  for  the  strength  of  insolvency  framework  index  confirms  the 
connection  many  researchers  have  made  between  insolvency  laws  and  credit  market 
development. Economies that score well on the index have higher levels of credit provided to 
the  private  sector  by  domestic  financial  institutions  (figure  12.3).  These  results  suggest  that 
the quality of bankruptcy laws is important not for its own sake but as an indication of and 
perhaps  a  step  toward  a  better  developed  financial  system.  Where  credit  institutions  and 
entrepreneurs can anticipate the outcome of the worst-case scenario—when a business fails to 
pay  its  loans  and  several  creditors  must  compete  for  the  best  return—more  banks  will  be 
willing to lend and more entrepreneurs will be willing to take on the challenge of starting a 
business369.  

There  is  also  evidence  on  the  relationship  between  the  general  score  of  Doing  Business 
quality and FDI stock in a country. 

369  

World Bank Doing Business Report, p.  

183 

 
 
 
 
 
                                                            
SOURCE: http://www.globalopportunityindex.org/pdf/2015-Global-Opportunity-Index.pdf 

There is also evidence on the relationship between facilitation of continuaton of operations and debt 
sustainability in a country. 

184 

 
 
 
 
Figure 2. Composite indicators of preventive procedures: 
Easiness vs. Direct and Indirect Costs. 

Figure 3. Composite indicators of preventive procedures 
and  discharge  periods:  Debt 
vs. 
Continuation of Operations. 

sustainability 

Source: Staff calculations370 

Annex 6 of this Report provides comparative elements of reorganisation and discharge in the 
member States of the European Union. 

370 The information conveyed by the indicators describes the situation of Member States as of end-2012. 

185 

ATBEBGCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUKHR0.00.10.10.20.20.30.30.00.10.20.3Direct and Indirect CostsEasiness/Availability-+-+ATBEBGCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUKHR0.00.10.10.20.20.30.00.10.20.3Debt sustainabilityFacilitation of Continuation of Operations+--+ 
 
 
 
 
 
 
 
 
 
                                                            
The  graph  below  illustrates  the  methodology  of  assessing  quality  of  insolvency  frameworks  from 
creditors risk perspective (Standard&Poors). It illustrates how complex the process is. .371 

371https://www.standardandpoors.com/ja_JP/delegate/getPDF?articleId=1565219&type=COMMENTS&subTyp
e=CRITERIA) 

186 

 
 
 
 
 
 
 
                                                            
ANNEX 4 

LEGAL BACKGROUND 

Reforming  insolvency  law  in  Europe  is  driven  by  the  objective  of  promoting  economic 
recovery after the years of crisis. It is pursued to the benefit of the citizens of the European 
Union, since higher investment rate and reinforced businesses bring more jobs and prosperity. 
Growth  in  Europe  cannot  be  achieved  without  a  new  insolvency  culture,  which  looks  at 
business  failure  as  an  opportunity  rather  than  a  loss,  or  which  helps  viable  businesses  in 
financial  distress  instead  of  punishing  them.  Modern  insolvency  law  should  ensure  that 
procedures  are  speedy  and  efficient,  in  the  interest  of  both  debtors  and  creditors,  including 
investors, and should help safeguard jobs, help suppliers to keep their customers, and owners 
to retain value in viable companies.  

Modernizing insolvency rules in Europe has been identified since many years as an important 
tool for achieving the key priority of growth and investment of the European Union. Already 
the  2009  Stockholm  Programme  for  the  European  area  of  justice372  highlighted  the 
importance of insolvency rules in supporting economic activity. In the Single Market Act II373 
of  3  October  2012,  the  Commission  undertook  as  a  key  action  to  modernise  the  Union 
insolvency rules in order to facilitate the survival of businesses and present a second chance to 
entrepreneurs.  Furthermore,  the  "Five  Presidents'  report"  of  22  June  2015  on  "Completing 
Europe's Economic and Monetary Union"374 listed the area of insolvency law among the most 
important bottlenecks preventing the integration of capital markets.  

1.  THE EU-LAW CONTEXT  

1.1.  Contribution of the revision of the Insolvency Regulation to the insolvency reform 

in Europe 

Both  the  original  European  Insolvency  Regulation375  and  its  recently  adopted  recast376  deal 
with the private international law dimension of issues related to insolvency. The regulations 
aim  at  facilitating  the  treatment  of  cross-border  insolvencies  by  creating  uniform  rules  on 
conflicts  of  laws  and  jurisdictions  and  on  the  recognition  and  enforcement  of  foreign 
decisions  arising  from  insolvency  proceedings  opened  in  another  Member  States  or  of 
judgments  which  are  directly  linked  to  these  proceedings.  They  also  contain  rules  on  the 
coordination  between  various  proceedings  commenced  in  different  Member  States  on  the 
same insolvency estate.  

372   OJ C 115, 4.5.2010, p. 1. 
373  

Communication from the Commission to the European Parliament, the Council, the European Economic 
and  Social  Committee  and  the  Committee  of  the  Regions  on  a  Single Market Act  II:  Together for new 
growth, COM(2012) 573 final, Brussels, 3.10.2012, p. 11-12. 
Completing  Europe's  Economic  and  Monetary  Union,  Report  by  Jean-Claude  Juncker  (in  close 
cooperation  with  Donald  Tusk,  Jeroen  Dijsselbloem,  Mario  Draghi  and  Martin  Schulz,  22  June  2015 
(http://ec.europa.eu/priorities/economic-monetary-union/docs/5-presidents-report_en.pdf) 
Council regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings 
Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency 
proceedings 

374  

375  
376  

187 

 
 
 
 
 
                                                            
The modernised rules of the Regulation will make it easier for businesses to restructure and 
for  creditors  to  get  their  money  back,  while  ensuring  that  procedures  for  cross-border 
insolvencies are effective and efficient. The recast Regulation has  a broadened  scope which 
encompasses also less formal restructuring schemes of national laws, which are speedier, less 
costly  and  are  carried  out  partly  out-of-court.  The  renewed  Regulation  will  increase  legal 
certainty  by  establishing  clearer  conditions  in  determining  the  State  having  jurisdiction  for 
insolvency  proceedings  and  by  introducing  additional  safeguards  against  so  called 
"bankruptcy tourism". The Regulation will increase chances to rescue a company in a cross-
border  context,  by  avoiding  the  unnecessary  opening  of  secondary  proceedings  in  other 
Member  States.  It  also  addresses  for  the  first  time  the  insolvency  of  groups  of  companies. 
Finally,  it  creates  transparency  about  on-going  insolvency  proceedings  by  the  establishment 
of  the  EU-wide  interconnection  of  national  insolvency  registers  through  the  European  e-
Justice Portal.  

While  the  existing  Insolvency  Regulation  and  its  recast  have  substantially  improved  legal 
certainty  and  have  succeeded  in  minimizing  parallel  insolvency  proceedings,  the  existing 
instruments  cannot  prevent  debtors  from  taking  advantage  of  more  favourable  insolvency 
regimes in other Member States, possibly to the detriment of creditors and investors.  

Also, the existing instruments cannot ensure a coherent substantive treatment of cross-border 
insolvencies.  Indeed,  the  existing  Regulations  follow  the  so  called  "principle  of  mitigated 
universality"  and  are  based  on  the  approach  of  a  system  of  satellite  secondary  bankruptcies 
which  revolve  around  and  give  assistance  to  a  main  core  proceeding.  This  system 
acknowledges,  based  on  economic  necessity  and  political  feasibility,  the  legitimacy  of  the 
opening  of  secondary  or  other  local  proceedings  in  parallel  to  the  main  insolvency 
proceedings. In such a system, it is accepted that the insolvency laws of several States may be 
applied to various questions of the insolvency estate.  

It is to be noted that the uncompromised “universality principle” for cross-border insolvencies 
would imply that the court having jurisdiction to the insolvency proceedings encompasses all 
assets and creditors of the debtors’ estate, and that the law applied by this court (the "lex fori 
concursus")  applies  to  all  questions  emerging  during  the  proceedings.  However,  a  fully-
fledged  application  of  the  universality  principle  proved  not  to  be  realistic  in  the  EU.  The 
rationale  for  this  decision  is  explained  by  the  Virgos-Schmit  Report  prepared  to  the  1995 
Convention  on  insolvency  proceedings  which  was  the  direct  predecessor  of  the  old 
Regulation. The Report states that "the idea of a single exclusive universal form of insolvency 
proceedings for the whole of the Community is difficult to implement without modifying, by 
the  application  of  the  law  of  the  State  of  the  opening  of  proceedings,  pre-existing  rights 
created  before  insolvency  under  the different  national  laws  of  other  Contracting States. The 
reason for this lies in the absence of a uniform system of security rights in Europe, and in the 
great diversity of national insolvency laws as regards criteria for the priority to be given to the 
different  classes  of  creditors.  In  this  legal  context,  the  Convention  seeks  to  reconcile  the 
advantages of the principle of universality and the necessary protection of local interests. This 
explains why a combined model has been adopted which permits local proceedings to coexist 
with the main universal proceedings".377 

Consequently,  even  the  recently  adopted  Insolvency  Regulation  keeps  wide  ranging 
possibilities  of  opening  secondary  or  other  local  proceedings  in  parallel  to  the  main 
insolvency  proceedings  in  other  Member  States,  thus  resulting  in  the  parallel  application  of 
insolvency  laws  of  different  Member  States  to  a  single  economic  unit  operating  in  several 

377 M. Virgos, E. Schmit: Report on the Convention on Insolvency Proceedings, paragraphs 12-13. 

188 

 
 
                                                            
Member  States.  Therefore,  the  handling  of  cross-border  insolvencies  requires  not  only  the 
handling  of  competing  rights  and  interests,  but  also  the  handling  of  competing  jurisdictions 
and  competing  laws.  The  diverging  national  insolvency  regimes  provide  for  incentives  for 
forum shopping and undue economically measureable differences in outcomes for creditors, 
investors, and debtors in financial distress.  

In  a  situation  where  in  case  of  insolvency  with  cross-border  elements  parallel  national 
proceedings may exist, complementary action is therefore needed to ensure legal certainty for 
and  appropriate  protection  of  creditors  and  investors  throughout  Europe  and  to  ensure  a 
coherent treatment of cross-border insolvencies. Such action may consist of a harmonisation 
of  certain  substantive  law  aspects  of  the  national  proceedings.  The  more  similar  national 
insolvency or restructuring proceedings are in their substantive aspects, the smoother they will 
be running and the better their outcome will be, in particular if they run in parallel in respect 
of  an  insolvent  corporate  entity  with  assets,  liabilities  or  participations  spread  over  several 
Member States. 

1.2.  Steps  taken  in  the  EU  towards  a  greater  convergence  of  selected  aspects  of 

domestic insolvency laws  

In its conclusions of 30 May 2011, the Competitiveness Council invited the Member States to 
promote a second chance for entrepreneurs by limiting, when possible, the discharge time and 
debt settlement for an honest entrepreneur after bankruptcy to a maximum of three years by 
2013. 

In  November  2011,  the  European  Parliament  adopted  a  Resolution378  on  insolvency 
proceedings  which,  in  addition  to  recommendations  regarding  the  revision  of  Council 
Regulation  (EC)  No  1346/2000  of  29  May  2000  on  insolvency  proceedings,  included 
recommendations  for  harmonising  specific  aspects  of  national  insolvency  law.  A  study 
commissioned  by  the  European  Parliament379  in  this  context  had  shown  that  disparities 
between  national  insolvency  laws  can  create  obstacles,  competitive  advantages  and/or 
disadvantages and difficulties for companies with cross-border activities or ownership within 
the  EU.  That  study  concluded  that  ‘there  are  certain  areas  of  insolvency  law  where 
harmonisation  is  worthwhile  and  achievable',  which  would  increase  the  efficiency  of 
restructuring procedures and the returns to creditors. 

Based  on  these  recommendations,  the  Commission  Communication  of  December  2012380 
identified certain areas where differences between domestic insolvency laws may hamper the 
establishment of an efficient internal market, which included among others discharge periods 
for  honest  entrepreneurs,  chances  of  restructuring  of  businesses  due  to  rules  relating  to 
opening of insolvency proceedings and rules promoting the acceptance of restructuring plans.  

Under  an  economic  recovery  programme,  the  Commission  has  identified  the  key  role  of 
judicial  reforms,  including  reforms  of  national  insolvency  laws,  as  a  means  to  promote 
economic recovery. A number of Member States received country-specific recommendations 
relating  to  conditions  for  rescuing  and  restructuring  of  firms  in  difficulties  as  part  of  the 

378  

European  Parliament  Resolution of 15 November  2011  with  recommendations  to  the  Commission  on 
insolvency proceedings in the context of EU company law, P7_TA (2011) 0484. 

379   Harmonisation of Insolvency Law at EU level, Directorate General for Internal Policies of the European 

380  

Parliament, PE 419.633. 
European Commission: Communication "A new European approach to business failure and insolvency" 
COM(2012) 742. 

189 

 
 
 
                                                            
European  Semester  in  2013.381  On  9  January  2013  the  Commission  adopted  the 
Entrepreneurship 2020 Action Plan382 where the Member States are invited, among others, to 
reduce when possible, the discharge time and debt settlement for an honest entrepreneur after 
bankruptcy to a maximum of three years by 2013 and to offer support services to businesses 
for  early  restructuring,  advice  to  prevent  bankruptcies  and  support  for  SMEs  to  restructure 
and re-launch.   

On  12  March  2014  the  Commission  adopted  a  Recommendation  on  a  new  approach  to 
business  failure  and  insolvency  addressed  to  the  Member  States.383  This  Recommendation 
aims at establishing minimum standards for: (i) preventive restructuring procedures enabling 
debtors  in  financial  difficulty  to  restructure  at  an  early  stage  with  the  objective  of  averting 
insolvency,  and  (ii)  debt  discharge,  within  prescribed  periods,  for  honest  bankrupt 
entrepreneurs as one of the steps necessary to provide them with a second chance.  

The Member States were invited to implement the Recommendation by 14 March 2015.  An 
evaluation carried out on the basis of this information by the Commission concluded that the 
Recommendation  has  been  only  partially  taken  up  by  some  Member  States,  including  by 
those receiving insolvency-related recommendations in the context of the European Semester 
exercise  addressing  macro-economic  imbalances.  Even  those  Member  States  which  have 
taken  up  the  Recommendation  did  so  in  a  selective  manner,  meaning  that  differences 
remain.384 

The public consultation on the Capital Markets Union385 asked for stakeholders' views as to 
what specific aspects of insolvency laws would need to be harmonised in order to support the 
EU  capital  market.  A  number  of  investors  advocated  an  approach  aiming  at  least  at  the 
identification of common principles in the area of insolvency at the EU level.  

On 30 September 2015 the Commission published the Capital Markets Union Action Plan386 
which  indicated,  amongst  other  things,  that  the  Commission  would  consult  on  the  key 
insolvency barriers and take forward a legislative initiative on business insolvency, including 
early restructuring and second chance, drawing on the experience of the Recommendation. It 
was announced that the initiative will address the most important barriers to the free flow of 
capital and building on national regimes that work well. 

Also  the  Single  Market  Strategy387  indicated  that  the  Commission  would  support  bona  fide 
entrepreneurs  and  propose  legislation  to  ensure  that  Member  States  provide  a  regulatory 
environment that is able to accommodate failure without dissuading entrepreneurs from trying 
new ideas.  

More recently, the Council highlighted, in its Conclusions on the Commission Action Plan on 
building a Capital Markets Union388, the insolvency initiative and invited the Commission to 
consult the Member States in order to identify business insolvency law-related barriers to the 
development  of  a  single  market  for  capital.  Furthermore,  the  Eurogroup  stated,  on  22  April 

381   Available at http://ec.europa.eu/europe2020/making-it-happen/country-specific-recommendations/. 
382  
383  
384   

COM(2012) 795 final  
C(2014) 1500 final 
For more details please see the evaluation of the implementation of the Commission Recommendation on 
a new approach to business failure and insolvency, 30 September 2015:  
http://ec.europa.eu/justice/civil/files/evaluation_recommendation_final.pdf.   
COM/2015/063 final of 18 February 2015.   

385  
386   Action Plan on Building a Capital Markets Union, COM(2015) 468 final, 30.9.2015 
387  
388  

COM (2015) 550 final, 28.10.2015 
10 December 2015. 

190 

 
 
                                                            
2016, that 'early restructuring procedures with limited court involvement  – in particular out-
of-court  settlement  –  should  be  developed  further  as  a  priority  and  resorted  to  where 
appropriate. Insolvency procedures should be easily accessible and affordable for both debtors 
and creditors. Honest distressed debtors should also be given a second chance after a certain 
period  of  time.'  Finally,  the  Council  Conclusions  on  a  roadmap  to  complete  the  Banking 
Union adopted on 17 June 2016 underline the work being carried out by the Commission on ' 
a legislative proposal for minimum harmonisation in the field of insolvency law in the context 
of the Capital Markets Union (CMU), which may also support efforts to reduce future levels 
of non-performing loans'. 

2.  THE INTERNATIONAL CONTEXT 

2.1.    UNCITRAL 

UNCITRAL  has  been  working  on  insolvency  law  for  a  number  of  years.  UNCITRAL  first 
focussed  on  cross-border  insolvency  and  adopted  a  Model  Law  on  this  issue  in  1997.  The 
material  scope of the Model  Law broadly  corresponds to  that of the Insolvency Regulation. 
Work  then  concentrated  on  substantive  insolvency  law.  A  Legislative  Guide  on  insolvency 
law was adopted in 2004 (Part I and II); this was supplemented more recently by a part three 
on  the  treatment  of  enterprise  groups  (2010)  and  a  part  four  on  directors'  obligations  in  the 
period approaching insolvency (2014).  

Although  these  instruments  have  a  long  record  of  shaping  national  insolvency  reforms 
throughout the world, they are not appropriate to  serve the objectives set by the current EU 
legislative initiative: 

On the one hand, the subject matter scope of the UNCITRAL instruments does not have its 
focus  on  the  preventive  restructuring  mechanisms.  The  Legislative  Guide  addresses 
insolvency law in an overarching manner and provides a comprehensive statement of the key 
objectives,  structures  and  principles  that  should  be  reflected  in  a  State's  insolvency  laws. 
Although the Guide contains some pieces of information about existing models of voluntary 
restructuring or  (in the context  of insolvency  proceedings) about pre-insolvency  schemes  of 
certain legal systems389, it does not contain specific recommendations on this issue.  

On the other hand, the type of the instrument of the Legislative Guide is not a tool specifically 
designed for the approximation of laws. “The Legislative Guide does not provide a single set 
of model solutions to address the issues central to an effective and efficient insolvency law, 
but  assists  the  reader  to  evaluate  different  approaches  available  and  to  choose  the one  most 
suitable in the national or local context.”390  

2.2. 

United States 

In this context it appears worthwhile to underpin the differences which the preferred option of 
this Impact Assessment has compared to the procedure in Chapter 11 of the US bankruptcy 
code.  

389  
390  

UNCITRAL Legislative Gudie on Insolvency Law, pp. 25, 29-30.  
UNCITRAL Legislative Gudie on Insolvency Law, p. 2.  

191 

 
 
 
 
 
                                                            
Chapter  11  deals  with  the  restructuring  of  ailing  businesses.  It  is  generally  filed  by 
corporations that require time to restructure their debts, and it gives the debtor a fresh start, 
subject to the debtor's fulfilment of his obligations under the plan of reorganization. In most 
cases, Chapter 11 is run as a "debtor in possession" procedure, however, under the protection 
of the procedure the business is banned from making certain decisions without the permission 
of the courts. Entry into Chapter 11 bankruptcy in the US is also permitted when a company is 
not  insolvent.  But  if  a  company  is  not  insolvent  then  entry  into  Chapter  11  proceedings  is 
often tactical and to allow the directors to renegotiate pre-existing contracts, particularly with 
employees.391 Chapter 11 is available to every types of business and to individuals, although it 
is most prominently used by corporate entities.  

The main difference between Chapter 11 and the preferred option of this report is the formal 
and complex nature of the US proceeding. Chapter 11 is a fully judicial procedure, while the 
EU  initiative  provides  a  flexible  framework  which  combines  out-of-court  elements  with 
judicial  intervention  at key  moments  in  the  procedure,  where  the  rights  of  creditors  may  be 
unduly  affected  (stay  of  enforcement  actions,  cram  down).  From  this  complexity  of  the 
procedure  and  from  the  costs  involved  follows  that  protection  under  Chapter  11  is  mainly 
required by large companies. Although the US legislator made several steps to streamline the 
procedure to the needs of SMEs, these small business provisions are not thought to work well 
in practice however. Certainly, they have not met with universal support and small businesses 
often seek recourse to alternative procedures outside of the bankruptcy system. The detailed 
record  keeping  required  by  the  procedure  increases  the  cost  for  small  businesses  seeking 
bankruptcy protection.392  

391  
392  

Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p.52. 
Study on a new approach to business failure and insolvency, University of Leeds, January 2016, p.214. 

192 

 
 
 
 
 
 
                                                            
ANNEX 5 

Glossary393 

Avoidance actions – An avoidance action provides for setting aside transfers of property that 
are made to defeat or delay the claims of creditors or to put the property beyond the reach of 
creditors. 

Bankruptcy – A legal process in which the debtors’ assets are liquidated and the proceeds of 
sale are distributed to creditors. 

‘Best  interests’  test  –  This  is  a  test  which  requires  that  creditors  should  receive  at  least  as 
much under a restructuring plan as they would receive in a liquidation of the business. 

Centre  of  Main  Interests  (COMI)  –  The  place  where  main  insolvency  proceedings 
commenced under the European Regulation on Insolvency Proceedings must be opened.  

Consumer – Natural person who is not an entrepreneur. 

Co-obligor – A person bound with other(s) by an obligation. 

Cram down – The judicial power to confirm or modify a plan against the wishes of certain 
classes of interest or claim holders. 

Cross-class  cram  down  –  A  situation  where  not  all  creditor  groups  have  approved  a 
restructuring plan but it is proposed to approve the plan regardless. 

Debt discharge – Permanent release from a debt obligation. This may be straight discharge 
(unconditional freedom from debt) or  conditional  discharge (dependent upon some payment 
of debt). 

Debtor-in-possession – A debtor in financial difficulties or in the state of over-indebtedness 
who  as  a  fiduciary  of  the  creditors  keeps  control  over  his  estate  and,  as  a  result,  has  an 
obligation  to  refrain  from  acting  in  a  manner  which  could  damage  the  estate,  or  hinder  a 
successful reorganization. 

Discharge period – A period after which the debtor is released from his/her debt obligations. 

Disqualification – A process that leads to a director being unable to act as a director and, in 
some jurisdictions, act in other capacities.  

Dissenting  (creditor,  class)  –  Creditors  or  group  of  creditors  who  object  to  the  terms  of  a 
restructuring plan. 

Enforcement    –  A  procedure  under  the  control  of  a  court  for  collecting  debt  in  respect  of 
which there has been a court order, which may include seizing assets.  

393  Unless  specified  otherwise  the  definitions  are  taken  from:  (i)  Study  on  a  new  approach  to  business  failure  and 
insolvency,  University  of  Leeds,  January  2016,  and  (ii)  Impact  assessment  study  on  policy  options  for  a  new 
initiative  on  minimum  standards  in  insolvency  and  restructuring  law,  Second  Progress  Report,  VVA/  JIIP/  DTI/ 
Grimaldi consortium, 24 August 2016. 

193 

 
 
                                                            
Entrepreneur – An individual, with unlimited liability, carrying out a trade, profession, craft 
or business as a natural person. 

Equity holder – Same as shareholder, see below Shareholder. 

GDP – Gross domestic product 

Going  concern  value  –  The  value  of  the  debtor’s  business  if  it  is  kept  alive  rather  than 
liquidated. 

Haircut – A reduction of the rights of creditors in restructuring or insolvency. 

Insolvency – The state of being unable to pay the money owed, by a person or company, on 
time.  There  are  two  forms:  cash-flow  insolvency  and  balance-sheet  insolvency.  Cash-flow 
insolvency is when a person or company has enough assets to pay what is owed, but does not 
have  the  appropriate  form  of  payment  (liquidity  shortcoming).  Balance-sheet  insolvency is 
when a person or company does not have enough assets to pay all of their debts.  

Insolvency administrator – An individual who acts in a bankruptcy to liquidate assets and 
distribute proceeds of sale to creditors. 

Insolvency practitioner – A person specialised in representing creditors and to administer or 
liquidate the assets of which the debtor has been divested or to supervise the administration of 
the debtor's affairs. 

Insolvency proceedings  –  Means collective insolvency proceedings which entail the partial 
or  total  divestment  of  a  debtor  and  the  appointment  of  a  liquidator  or  an  administrator 
normally applicable to institutions under national law and either specific to those institutions 
or generally applicable to any natural or legal person.394  

o  Formal insolvency proceedings – They are those provided by national laws.  

o  Informal insolvency proceedings – When creditors negotiate informally with a debtor to 
achieve  a  restructuring  by  consensus.  Creditors  with  sufficiently  similar  interests  and 
incentives  (such  as  banks)  may  also  develop  their  own  restructuring  processes,  for  use 
where a debtor with exposure to multiple creditors of that class becomes distressed.395  

Liquidation  –  A  process  where  the  assets  of  an  insolvent  company  are  sold  and  after  the 
paying  of  expenses  the  balance  to  paid  out  to  creditors  according  to  the  provisions  of  the 
appropriate statute or other legal provision.  

394  Article  2  (1)  (4)  DIRECTIVE  2014/59/EU  OF  THE  EUROPEAN  PARLIAMENT  AND  OF  THE  COUNCIL  of  15  May  2014 
establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council 
Directive  82/891/EEC,  and  Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC,  2007/36/EC,  2011/35/EU, 
2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and 
of the Council.  
395 (J. Armour and S. Deakin (2001), “Norms in private insolvency: The ‘London Approach’ to the resolution of financial 
distress”, Journal of Corporate Law Studies, pp. 21-51). 

194 

 
 
                                                            
Liquidation  value  –  A  value  received  by  creditors  under  a  restructuring  plan  which 
corresponds to what they would receive in a liquidation of the business. 

Mediator – A person who assists the debtor and creditors in negotiations on a restructuring 
plan. 

Moratorium – See Stay. 

New finance – Finance that is provided to a person or company in financial distress or even 
when insolvent. 

NINA (person) – No income, no asset person. It refers to persons, most unemployed, which 
do not have any revenues and property. 

Non-performing loan – It is a loan that is in default or close to being in default, generally 
after being in default for at least 90 days. 

Non-related  party  (transaction)  –  A  person  or  a  company  that  is  not  connected  to  the 
insolvent, usually through association or other economic interest. 

Over-indebtedness  –  A  situation  where  a  company  or  a  person’s  assets  do  not  cover  their 
liabilities. 

Personal insolvency – Insolvency of a consumer or entrepreneur. 

Pre-pack – An agreement for the sale of all or part of the debtor’s business or assets which is 
entered into before the commencement of formal insolvency proceedings.   

Restructuring – Changing the composition, conditions, or structure of assets and liabilities of 
debtors, or a combination of those elements, with the objective of enabling the continuation, 
in whole or in part, of the debtors' activity. 

Restructuring  plan  –  A  plan  aimed  at  restructuring  of  a  business  usually  containing  a 
description of the following elements: identification of the creditors who would be affected by 
the plan; the effects of the proposed restructuring on individual debts or categories of debts; 
the  position  taken  by  affected  creditors  on  the  restructuring  plan;  where  applicable,  the 
conditions  for  new  financing;  and  the  potential  of  the  plan  to  prevent  the  insolvency  of  the 
debtor and ensure the viability of the business. 

Ranking  of  claims  –  The  order  of  priority  established  by  the  national  legislation  for  the 
repayment of creditors in the insolvency proceedings. 

Recovery  rate  –  A  function  of  the  outcome,  time  and  cost  of  insolvency  proceedings  in 
respect of a particular kind of local company. 

Second chance – The opportunity to start again in terms of Entrepreneurial activity. 

Secured  creditor  –  A  person  having  a  security  interest  that  is  the  right  over  property  to 
ensure the payment of money or the performance of some other obligation. 

195 

 
 
Self-employed – Self-employed persons are defined as persons who are the sole owners, or 
joint  owners,  of  the  unincorporated  enterprises  in  which  they  work,  excluding  those 
unincorporated  enterprises  that  are  classified  as  quasi-corporations.  Self-employed  persons 
are classified here if they are not also in a paid employment which constitutes their principal 
activity: in that latter case they are classified under employees.396 

Shareholder – An owner of a company. 

SME  –  Small  and  medium  enterprise  –  The  category  of  micro,  small  and  medium-sized 
enterprises  (SMEs)  is  made  up  of  enterprises  which  employ  fewer  than  250  persons  and 
which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet 
total  not  exceeding  EUR  43  million.    A  small  enterprise  is  defined  as  an  enterprise  which 
employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total 
does not exceed EUR 10 million. A microenterprise is defined as an enterprise which employs 
fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not 
exceed EUR 2 million. 

Stay  (moratorium)  on  enforcement  actions  –  A  legal  bar  on  creditors  commencing  or 
continuing legal action to recover debt. 

Super-priority  (for  new  financing)  or  also  absolute  priority  rule  –  This  is  a  principle 
requiring that creditors and other claimants against the debtor’s estate should  be paid  in the 
same order under a restructuring plan as they would be paid in a liquidation of the debtor’s 
business. 

Supervisor  –  A  person  who  oversees  the  activities  of  the  debtor  and  takes  the  necessary 
measures to safeguard the legitimate interests of creditors and other interested parties. 

Work-out (plan) – Same as Restructuring plan. 

396  

Eurostat's  Concepts  and  Definitions  Database,  http://ec.europa.eu/eurostat/documents/3859598/5826305/CA-
15-96-001-EN.pdf/aeec2852-bed2-46d2-9534-5859d3c911d5.  

196 

 
 
 
                                                            
Early 
warning 
tools 
0-no 
tools; 1-1 
or 2 tools; 
2-3 or 4 
tools; 3-5 
tools or 
more 

Length of 
insolvency 
proceedings 
0-more than 2 
years; 1-
between 1.5 
and 2 years; 2- 
between 1 and 
1.5 years; 3-
under 1 year 

Restructuring procedure scored 
Where more than one restructuring 
procedures exists in the Member 
States, the information in this table 
relates to that procedure which yielded 
higher scores on most of the 
dimensions analysed. 

Conditions for initiating the procedure 
0-debtor must be insolvent; 1- insolvency 
must be imminent, and produce a 
certificate or other expert evidence; or the 
procedure must be launched with a big 
majority of creditors agreeing (60% in IT); 
2-insolvency must be imminent, but no 
expert evidence required; 3-debtor must 
be in financial difficulties; 4-no test 
required 

ANNEX 6 

MS 

Restructuring 
possibilities 
0 - no possibility 
of restructuring, 
1-late possibility 
inside 
insolvency 
procedures, 2-
somewhat 
earlier 
possibility, when 
firm is only in 
imminent 
insolvency; 3-
early possibility, 
when debtor is 
in financial 
difficulties  

Possibility of stay  
 0-no possibility 
of stay; 1-stay is 
general and 
automatic; 2- 
stay is general 
but on request; 3-
stay is targeted 
and on request  

Length of stay 
 0-no possibility of 
stay; 1-possibility 
of stay for longer 
than 4 months or 
for an indefinite 
period; 2-
possibility of stay 
for less than 2 
months; 3-
possibility of stay 
between 2 and 4 
months 

Debtor in possession 
0-debtor may be 
divested of the day-
to-day operation of 
business and an 
insolvency 
practitioner 
appointed by court; 
1-an insolvency 
practitioner is 
appointed by the 
court, but he does 
not take over the 
administration of 
business, or the court 
itself supervises the 
procedure; 2- an 
insolvency 
practitioner can be 
appointed outside 
court (e.g. elected by 
the committee of 
creditors); 3-no 
obligation to appoint 
an insolvency 
practitioner 

New financing 
support measures 
0-new finance not 
allowed; 1-new 
finance not forbidden, 
but on the risk of 
debtor; 2-new finance 
can have super-
priority; 3-new 
finance is exempted 
from avoidance 
actions 

Discharge periods 
0-no discharge; 1-
indefinite discharge 
period,  discretion for 
the judge or 
discharge period of 
more than 3 years; 2-
discharge period of 3 
years but conditional 
on certain factors, eg 
payment of a 
percentage of debt; 
3-discharge period of 
3 years or less with 
no repayment 
threshold  

Court 
involvement  
0-full court 
involvement, 
from launch of 
the procedure to 
end, including 
appointing an 
insolvency 
practitioner and 
voting by 
creditors in court; 
1-court 
involvement from 
launch, but 
negotiations and 
voting out-side 
court; 2-limited 
court 
involvement, only 
for appointing the 
insolvency 
practitioner or 
the confirmation 
of plan; 

Cram-down 
involving all classes 
of creditors 
0-no possibility of 
cram-down or no 
possibility of 
affecting the rights 
of creditors; 1-
possibility of cram-
down , but certain 
creditors 
excluded(tax 
authorities, 
employees, secured 
creditors, 
commercial 
creditors); 2-
possibility of cram-
down involving all 
types of creditors 
and all creditors, 
whether affected or 
not; 3-possibility of 
cram-down 
involving all types of 
creditors and 
possibility to involve 
only those who 
would be affected 
by the plan  

AT 

BE 

BG 

CY 

CZ 

DK 

EE 

FI 

FR 

DE 

EL 

HU 

IE 

IT 

LV 

LT 

LU 

MT 

NL 

PL 

PT 

RO 

2 

3 

0 

3 

1 

1 

3 

2 

2 

2 

3 

1 

2 

3 

3 

1 

2 

2 

2 

2 

3 

3 

0 

2 

2 

1 

1 

2 

2 

3 

3 

3 

2 

1 

1 

1 

2 

2 

2 

0 

3 

2 

3 

1 

2 

3 

0 

2 

0 

3 

0 

3 

1 

2 

Formal reorganisation  

Examinership 

Procedure de sauvegarde 

Protective shield procedure 

0  Rehabilitation procedure 

1  Bankruptcy procedure 

3 

Examinership procedure 

1  Accordo di ristrutturazione dei debiti  

2  Restructuring proceedings (in-court) 

0 

1 

0 

2 

Interim measure during insolvency 

Concordat preventif de faillite 

Company recovery procedure 

Surseance van betaling 

0  Arrangement proceedings 

1 

0 

SIREVE 

Preventive scheme of composition 

1 

3 

0 

0 

3 

1 

1 

1 

2 

1 

3 

2 

2 

3 

1 

1 

1 

0 

0 

1 

3 

1 

1 

3 

0 

3 

0 

0 

3 

2 

3 

1 

3 

0 

1 

1 

3 

2 

3 

2 

2 

2 

1 

3 

197 

0 

1 

0 

2 

2 

1 

1 

2 

1 

1 

2 

2 

1 

2 

1 

1 

1 

1 

1 

1 

1 

2 

0 

1 

0 

1 

3 

1 

1 

1 

1 

3 

1 

3 

3 

3 

1 

1 

1 

1 

1 

3 

3 

1 

0 

2 

0 

2 

0 

3 

1 

3 

2 

2 

2 

1 

2 

1 

1 

0 

1 

2 

1 

1 

1 

2 

3 

1 

0 

1 

2 

2 

1 

2 

2 

2 

3 

0 

1 

3 

2 

2 

2 

1 

1 

1 

3 

1 

2 

0 

0 

1 

0 

0 

1 

0 

1 

1 

1 

0 

0 

2 

1 

1 

1 

1 

0 

1 

2 

1 

2 

1 

0 

2 

1 

1 

1 

2 

2 

2 

3 

1 

1 

1 

1 

2 

1 

1 

3 

1 

1 

1 

 
 
 
 
  
  
  
  
  
  
SK 

SI 

ES 

SE 

UK 

HR 
Source 

INSOL Study 

Comments 

1 

3 

2 

3 

3 

1 

1 

1 

2 

2 

3 

0 

Business 
Dynamics 
study 

0 

3 

2 

1 

3 

Compulsory settlement procedure 

Cram-down procedure 

Company Voluntary Arrangement 

0 
The EU Justice 
Scoreboard 
2016  

The longer the 
insolvency 
proceedings, 
the less 
incentive to 
try early 
restructuring. 

2 

2 

1 

3 

3 

1 

Business Dynamics 
Study+Review of 
2014 
Recommendation 
Discharge periods for 
cases where the 
debtor keeps his 
residential home 
should not be taken 
into account 

0 

3 

2 

3 

4 

1 

1 

3 

3 

1 

1 

1 

1 

2 

1 

1 

2 

1 

1 

1 

2 

3 

3 

3 

2 

1 

1 

1 

1 

1 

0 

3 

3 

2 

1 

1 

1 

1 

2 

1 

2 

1 

INSOL Study 

INSOL Study 

INSOL Study 

INSOL Study 

INSOL Study 

INSOL Study 

INSOL Study 

The earlier the possibility of restructuring 
the higher the success rate. For PT, a score 
of 1 is given because the IAPMEI needs to 
approve the plan. 

There is an 
expectation that the 
higher the control 
the debtor keeps on 
his assets and his 
affairs, the higher the 
incentives for him to 
attempt early 
restructuring.  Losing 
control over the 
business may create 
a barrier to engaging 
in a process of 
restructuring. 

Where certain 
creditors are 
excluded (eg 
secured creditors 
- SE, PL, or 
dissenting 
creditors - PT) 
from the stay, a 
score of 1 is given 
(eg SE,PL). Stay 
must be a tool to 
support 
negotiations, it 
must be effective 
as against 
dissenting 
creditors, not just 
those who agree 
to negotiate (as is 
the case in PT 
SIREVE) 

Situations where 
confirmation of a 
plan is necessary 
only if a cram-
down is sought by 
the debtor are 
scored with 2 (eg 
PT). 

Protection of new 
finance is an 
important ingredient 
for the successful 
implementation of 
restructuring plans.  
Protection against 
avoidance actions is 
key to providers of 
new financing. A 
super-priority rule is 
also helpful; however, 
since it may change 
the order of priority 
of pre-existing 
creditors, it may also 
have the adverse 
effect of discouraging 
creditors from 
supporting the 
restructuring plan.  

Where there is no 
set duration for 
the stay but there 
is a maximum 
duration for the 
entire procedure, 
and the stay is 
granted from the 
beginning of the 
procedure until 
the end, the 
duration of the 
stay will be given 
by the maximum 
duration of the 
procedure (eg PT). 
Where there is a 
set duration for 
the stay, but the 
period can be 
extended by 
application to a 
court up to a 
certain maximum, 
the initial period 
of stay shall be 
taken into 
account. In such 
cases, it can 
assume that the 
length of the stay 
is a measure of 
the complexity of 
the case, and not 
of unjustified 
delays.  

In a situtaion where 
a quorum 
representing a 
majority of the value 
of debts of creditors 
(eg PT has a 50% 
quorum, EL has 60% 
plus 40% of secured 
creditors) will fall in 
category 1. This is 
because the 
procedure would 
not permit the 
debtor to select only 
those creditors 
whose rights woudl 
be affected by the 
restructuring plan, 
but a fix number 
irrespective of 
whether their rights 
would be affected or 
not. Furthermore, 
this solution makes 
it possible that the 
debtor does not 
involve creditors 
which rights would 
be in fact affected 
by the restructuring 
plan. All creditors 
except unsecured 
creditors are 
excluded from the 
cram-down 
possibility in SE, SI. 
ES: no principal 
haircut is a 
disincentive. 

198 

 
 
  
  
  
  
  
  
  
 
 
ANNEX 7 - WHO IS AFFECTED BY THE INITIATIVE AND HOW 

PRACTICAL IMPLICATIONS OF THE INITIATIVE FOR BUSINESSES  

The  initiative  ensures  that  businesses  in  financial  distress  will  have  access  in  all  Member 
States  to  a  preventive  restructuring  mechanism  which  provides  for  the  same  efficiency 
elements irrespectively of the place of its application. It will ensure in the future that viable 
businesses  survive  and  restructure  also  in  cases  in  which  today  they  would  be  driven  to 
liquidation.  

The initiative will assist companies in recognizing at an early stage cases of financial distress 
which  need  to  be  addressed  by  the  preventive  restructuring  framework,  by  putting  in  place 
early  warning  alert  mechanisms.  This  will  enable  that  directors  of  companies  take  early 
actions  and  will  further contribute  to  the  survival  of  viable  businesses.    The  initiative  gives 
room  for  manoeuvre  for  the  Member  States  in  determining  that  in  which  way  they  want  to 
incentivise  businesses  for  early  action.  In  this  context  they  may  also  introduce  certain 
accounting or reporting duties for the companies.    

The initiative will help distinguishing quickly viable and not viable businesses, by short stay 
period and involvement of the courts in drafting restructuring plan. Viable businesses will be 
given a possibility to run business as usual during this short stay. Non-viable business will be 
able to liquidate assets quickly, without substantial losses. 

Beyond that, the Initiative does not impose regulatory obligations for businesses relating, for 
example,  to  information,  reporting,  organisational  or  administrative  requirements,  and  thus, 
does not create additional costs related thereto.   

Another  practical  implication,  especially  for  SMEs,  will  be  the  availability  of  model 
restructuring  plans  adapted  to  the  respective  insolvency  laws  of  the  Member  States,  which 
facilitate actual access to restructuring for this type of businesses, by decreasing the costs of 
the  process.    Short  discharge  periods  will  enable  defaulting  entrepreneurs  to  take  second 
chance opportunity without the burden of loss of reputation. 

The  harmonisation  of  restructuring  frameworks  of  Member  States  according  to  common 
minimum principles will facilitate the restructuring of cross-border groups of companies with 
group members in several Member States. In too complex enterprise group structures this is 
currently practically not possible or very difficult due to the differences in restructuring rules 
of affected Member States.  

PRACTICAL IMPLICATIONS OF THE INITIATIVE FOR CONSUMERS 

In Member States which decide to extend the principles of the initiative on second chance to 
consumers (to individual debtors not exercising independent business or professional activity) 
it  is  to  be  expected  that  consumers  will  gain  on  shorter  discharge  periods  where  now  those 
discharge  periods  are  substantially  longer  than  3  years.  After  having  adjusted  to  the  new 
situation created by the discharge conditions of the initiative, they will be able to come back 
to normal professional and personal life, to ordinary consumption and care for their health and 
education  of  the  children.  They  will  be  no  more  a  burden  for  social  assistance.  Also,  hard 

199 

 
 
 
 
 
 
experience of insolvency reduces the repetition of subjective factors triggering personal over-
indebtedness ("learn from default").397 

Some  of  them  may  start  their  own  businesses.  When  their  financial  standing  will  stabilise, 
they  will  be  able  to  return  as  customers  of  financial  products,  as  loans,  saving  products, 
private pensions.  

PRACTICAL IMPLICATIONS OF THE INITIATIVE FOR FINANCIAL INSTITUTIONS   

Financial  institutions  interested  in  cross-border  investment  banking  will  gain  on  the  greater 
alignment of national restructuring regimes as this reduces costs both in the level of ex-ante 
risk  assessment  and  by  a  better  recovery  rate  of  the  invested  resources  in  case  of  failure. 
Recovery rate will be more predictable and recovery itself will be faster. As more borrowers 
will be saved from liquidation and able to return to normal activity; creditors may expect to 
recover higher proportion of debts and, moreover, to continue lending to them.   

Financial  institutions  as  secured  creditors  of  businesses  in  financial  difficulties  will  have  to 
adapt  their  lending  practices  in  legal  systems,  where  secured  claims  are  not  affected  by  a 
moratorium  in  preventive  restructuring  procedures,  or  where  such  claims  may  not  be 
crammed down by majority decisions relating to restructuring plans. However, the initiative 
foresees specific safeguards to mitigate potential negative impacts in this respect (see in detail 
in Chapter 7 of the Report).  

Higher convergence of discharge regimes for debtors will have a positive impact on financial 
institutions  as  creditors,  by  enabling  them  to  better  foresee  the  prospects  of  repayment  of 
debts by companies and individuals. 

Financial  institutions  in  general  will  gain  from  the  positive  impact  of  the  initiative  on  the 
reduction in the share of non-performing loans. 

PRACTICAL IMPLICATIONS OF THE INITIATIVE FOR EMPLOYEES 

Since  early  restructuring  saves  companies  rather  than  drive  them  into  liquidation,  it  is 
expected that jobs will be saved rather than lost. It was hard to measure the exact impact on 
jobs,  though.  Promulgating  second  chance  for  entrepreneurs  will  also  affect  employment 
positively: “restarters” could create up to 3 million new jobs398. 

On  the  other  hand,  the  initiative  will  not  impact  on  the  protection  of  employees,  including 
their rights to information and consultation, as guaranteed by EU law. This is clearly spelled 
out in the proposal. Furthermore, it contains a flexibility to ensure that employees as a class 
can be adequately protected. For example, courts can exempt an entire class of creditors from 
the stay of enforcement if such a class will be unfairly prejudiced by the stay. Furthermore, 
salaries will need to be paid during the stay period. Salaries will also be protected under the 

397  

From the Commission 2014 Study on household over-indebtedness it appears that principal cases of over-
indebtedness  are  external  to  the  people  (loss  of  income,  disease,  family  problems).  Nevertheless,  other 
causes  were  also  identified  as  important,  which  were  "subjective"  such  as  lack  of  money-management 
skills, or incapacity to deal with financial products. Study on over-indebtedness of European households, 
http://ec.europa.eu/consumers/financial_services/reference_studies_documents/docs/part_1_synthesis_of
_findings_en.pdf, p. 157, 162.  

398   Annual Report on European SMEs 2015/2016, SMEs as the engine of growth in 2016, SME Performance 
Review  2015/2016,  March  2016,  prepared  for  Directorate-General  for  Internal  Market,  Industry, 
Entrepreneurship and SMEs. 

200 

 
 
 
 
                                                            
'safe harbour' provision of the initiative. Also, restructuring plans will not be confirmed by a 
court if they do not guarantee at least liquidation value to all creditors. 

PRACTICAL IMPLICATIONS OF THE INITIATIVE FOR INSOLVENCY PRACTITIONERS  
Although  insolvency  practitioners399  do  not  constitute  a  separate  and  independent  regulated 
profession  in  the  majority  of  the  Member  States,  they  are,  nevertheless,  subject  to  codes  of 
professional  ethics  and  disciplines  as  members  of  other  professional  groups  (lawyers, 
accountants) and in this context their activity is usually appropriately supervised also in these 
States400. In addition, in most of the Member State specific qualification requirements are in 
place  for  being  licensed  or  authorised  as  an insolvency  practitioner.401  From  this  outset,  the 
implementation  of  the  standards  of  the  initiative  with  regard  to  professional  conduct  and 
qualification does not imply significant changes to them, except that in some Member State, 
where it is not yet the case, additional obligation to participate in professional training courses 
may be imposed on them, the costs of which they will need to bear, most probably.   

Certain  adaptation  is  to  be  required  with  regard  to  professional  activity  in  Member  States 
where the selection of insolvency practitioners to concrete cases currently does not take into 
account  the  requirements  set  in  the  initiative.  Similarly,  a  slight  shift  may  be  expected  in 
terms  of  the  allocation  of  fees  to  insolvency  practitioners  in  concrete  cases  in  the  Member 
States402, where regulation of remuneration currently does not follow all the principles set by 
the initiative (see e.g. rules do not take into account the timely resolution of cases). 

PRACTICAL IMPLICATIONS OF THE INITIATIVE FOR PUBLIC ADMINISTRATIONS  

Except for the obligation to transpose the Directive into national law and enforce it, there are 
no specific practical implications for public administrations and courts.  

In  terms  of  the  early  alert  mechanism,  costs  will  be  generated  in  public  administration  if  a 
Member State decides that it will establish and operate a State funded system providing free 
or low cost advice to businesses. Nevertheless, Member States have large discretion defining 
the modalities of the mechanism, and the Directive does not impose any solution which would 
charge the budget of the State.  

Most  of  the  Member  States  already  apply  the  specialisation  of  judges  or  concentrate 
jurisdiction  in  insolvency  proceedings  to  specialized  sections  of  the  courts  or  to  specialized 
courts. Those few who do not follow currently this model (e.g. Estonia, or Germany in lower 
courts) need to comply with the requirement of the Directive. This obligation, however, will 
not  generate  new  costs,  except  in  some  cases  funding  for  additional  training  for  the  judges 
might be required, if the Member State concerned decides to facilitate specialization by this 
way.  It  must  be  stressed  in  this  context,  that  specialization  in  the  field  of  insolvency  can 
usually  be  obtained  by  long-standing  practical  experience  and  not  necessarily  by  vocational 
trainings.  Exchange  of  best  practices  between  the  judiciaries  of  the  Member  States  will  be 

399  

The  initiative  uses  the  concept  of  „practitioners  in  the  field  of  restructuring,  insolvency  and  second 
chance”,  which  is  a  broader  concept  as  the  one  of  „insolvency  practitioner”  in  the  Regulation  (EU) 
2015/848  on  insolvency  proceedings,  as  it  includes  also  mediators  or  other  professionals  providing 
service in this regard. In this Annex we address the profession in the narrower sense of the Regulation.  

400   AT, BE, CY, CZ, DK, FI, DE, EL, HU, IE, IT, LU, MT, NL, ES, SE See Table 2.1. in the Study on a new 

approach to business failure and insolvency, University of Leeds, January 2016, pp. 82-93. 
BG, BE, CY, CZ, DE, EE, EL, ES, FR, HU, IE, LV, LT, MT, NL, PL, PT, RO, SK, SI, SE. Idem pp. 82-
93. 
e.g. AT, BE, DE, HU. Idem pp. 82-93. 

401  

402  

201 

 
 
 
 
                                                            
done  in  the  context  of  the  European  Judicial  Network,  at  no  extra  cost  for  public 
administrations.  

Cost  of  reporting  obligations:  many  Member  States  already  have  statistical  data,  and  only 
need to make it available to the Commission once a year. For the rest of the Member States, 
the costs of gathering such data are not expected to be significant.  Nevertheless, in the long 
term  specialised  judges,  court  sections  and  courts  would  contribute  to  cost  savings  due  to 
efficiency gains.  

202 

 
 
 
 
 
 
ANNEX 8 

EVALUATION OF THE IMPLEMENTATION OF THE COMMISSION 
RECOMMENDATION  

of 12.3.2014  

ON A NEW APPROACH TO BUSINESS FAILURE AND INSOLVENCY  

2015-2016 Review exercise 

The  Member  States  were  invited  to  implement  the  principles  set  out  in  Commission 
Recommendation of 12 March 2014 on a new approach to business failure and insolvency403 
by 14 March 2015 and to communicate to the Commission, on a yearly basis, data concerning 
the insolvency procedures.  

In 2015, the Commission services sent a questionnaire on the review of the Recommendation 
to the Member States to enquire about its implementation. 24 Member States have sent their 
contributions 
the 
the  Commission  explaining  how 
Recommendation404.. No reaction was received from four Member States405.  

implemented 

they  have 

to 

In the 2016 review, the Commission, by a new questionnaire sent to the Member States, seeks 
to  collect  data  which  has  become  available  in  the  meantime  and  was  not  communicated 
already  in  2015  as  well  as  to  receive  information  on  further  national  reforms  in  the  areas 
covered  by  the  Recommendation.  19406  Member  States  have  sent  their  contributions,  while 
9407 Member States have not replied to the Questionnaire. 

Part 1 

The first part provides information on the reform processes in the Member States undertaken 
since the adoption of the Recommendation according to the data received in 2015 and 2016. 
In addition, it includes a detailed and comparative analysis of the implementation of the main 
principles of the Recommendation by the Member States.  

1.  Reform  processes  in  the  Member  States  undertaken  since  the  adoption  of  the 
Recommendation 

1.1 2015 Review exercise 

403 COM (2014) 1500 final. 
404 Austria, Belgium, Bulgaria, Croatia, Czech Republic, Estonia, Finland, France, Germany, Greece, Hungary, 
Italy, Latvia, Lithuania, Luxembourg, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, 
Sweden and the UK. 

405 Cyprus, Denmark, Ireland and Malta. 
406 Belgium, Croatia, Czech Republic, Cyprus, Denmark, France, Greece, Ireland, Italy, Lithuania, Luxemburg, 

the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and the UK. 

407 Austria, Bulgaria, Estonia, Finland, Germany, Hungary, Latvia, Malta and Sweden. 

203 

 
 
 
 
 
 
 
 
 
                                                            
in 

in 

resulted 

legislation 

some  cases, 

implementing 

According to the responses received in 2015, a few Member States have undertaken reforms 
which, 
the  Commission's 
Recommendation  (legislation  was  passed  in  SI  introducing  a  preventive  restructuring 
procedure,  ES,  HU  and  RO  have  improved  their  personal  insolvency  regime,  HR  in  both 
personal and corporate restructuring regimes, now PL is also due to pass legislation soon in 
the area of corporate restructuring). Such legislation in most cases implements only partially 
the  Commission  Recommendation:  for  example,  SI  has 
implemented  a  preventive 
restructuring procedure which is limited to debtors which are medium and large companies, 
but  excludes  from  its  scope  small  enterprises,  and  to  financial  creditors  only;  ES  has 
implemented  a  personal  insolvency  procedure,  but  did  not  follow  the  Commission's 
recommendation  on  limiting  the  discharge  period  for  honest  debtors  to  three  years,  instead 
limiting it to five years.  

In  NL  a  reform  process  which  aims  at  improving  the  existing  preventive  restructuring 
procedures which does not seem to function properly is still on-going, in LT improvements to 
the  personal  insolvency  laws  are  being  discussed,  while  in  others  Member  States 
consideration  is  still  being  given  to  whether  any  specific  action  is  necessary  following  the 
adoption  of the Commission  Recommendation  (for example in  Sweden  a special committee 
was  appointed  to  look  at  the  need  to  adapt  national  legislation  in  the  light  of  the 
Recommendation  and  the  results  are  expected  in  October  2016;  in  the  UK  a  public 
consultation has recently been carried out).  

1.2 2016 Review exercise 

According to the responses received in 2016, a few Member States have undertaken reforms 
in  the meantime, implementing  some of  the principles  of the Recommendation; others have 
introduced amendments in the previous legislation; while in others, legislative proposals are 
still pending.  

More specifically, in 2015, there was a new package of insolvency laws approved in CY: the 
reform  entailed  the  introduction  of  examinership,  a  simple  majority  in  value  for  a  “cram-
down”  of  liabilities  in  the  course  of  a  voluntary  business  arrangement,  personal  repayment 
plans  and  debt  relief  after  3  years  under  certain  conditions.  In  PO,  a  new  restructuring  law 
entered  into  force  in  2016  introducing  new  types  of  restructuring  proceedings  and  the 
implementation  of  pre-packaged  restructuring  plans.  In  HR,  an  insolvency  act  entered  into 
force  in  2015  introducing  pre-bankruptcy  proceedings  in  case  of  insolvency  and  in  2016,  a 
system of consumer bankruptcy proceedings was developed. 

In EL, in 2015, the restructuring processes were amended: the likelihood of insolvency was 
introduced  as  a  criterion  for  filing  early,  an  automatic  stay  is  available  under  certain 
circumstances, the profession of insolvency administrator was initiated and a discharge period 
of  maximum  3  years  was  agreed  for  entrepreneurs.  In  SI,  in  2016,  an  amending  act  on 
insolvency  proceedings  entered 
for  simplified  compulsory 
(restructuring)  proceedings  for  micro-enterprises  and  introducing  a  discharge  period  of 
maximum 2 years but  not  less than 6 months accompanied by additional  safeguards against 
abuses.  

force,  providing 

into 

In NL, in 2015, a legislative proposal introducing a procedure to prevent unnecessary losses 
caused  by  bankruptcy  and  facilitate  second  chance  for  business  has  been  submitted  to  the 
Parliament, while a second proposal introducing new legislation on compulsory composition 
for  restructuring  of  debts  outside  of  bankruptcy  is  being  prepared.  In  LU,  a  legislative 

204 

 
 
proposal aiming at modernizing bankruptcy law and preventing bankruptcies through various 
reorganization  measures  for  business  in  difficulty  is  still  pending  and  in  PT,  there  is  an 
internal on-going discussion on the subject of preventive procedures and restructuring.  

2. Implementation of the principles of the Recommendation by the Member States 

Two  years  after  the  adoption  of  the  Commission  Recommendation,  on  the  basis  of  the 
responses of the Member States, the main elements of the Recommendation are implemented 
in different ways in the Member States.   

2.1. Preventive restructuring procedures 

Enterprises  do  not  have  the  same  opportunities  to  deal  with  their  financial  difficulties 
everywhere  in  the  Union.  In  some  Member  States  businesses  in  financial  difficulties  have 
more opportunities than in others of restructuring their debts by having access to efficient, fast 
and  low  cost  procedures.  In  several  Member  States,  flexibility  is  also  built  into  the  legal 
framework,  in  that  debtors  can  choose  between  several  such  procedures  according  to  their 
needs (such as the need to restructure only certain of their debts, e.g. financial debts; or the 
need  to  obtain  a  stay),  or  can  combine  several  such  procedures  as  negotiations  on  a 
restructuring plan evolve (for example where a stay becomes necessary only at a later stage).   

Several  conditions  may  contribute  to  the  efficiency  of  restructuring  procedures,  but  six  in 
particular seem to stand out. The Recommendation has focused on these six conditions which, 
in order to increase the efficiency of restructuring procedures, should be met cumulatively. 

a) The possibility to file early with the objective of avoiding insolvency 

The  later  a  business  initiates  restructuring  proceedings,  the  higher  the  costs  of  restructuring 
and  the  lower  the  management  powers  and  success  rate.  Debtors  in  financial  difficulties 
should have the possibility to restructure their debts before they are insolvent, when the risk 
of  insolvency  is  however  apparent  for  example  because  the  debtor  is  unlikely  to  be  able  to 
repay his debts as they fall due in the foreseeable future.   

Member States' procedures fall in several categories. In BG, HU, SK, DK and HR debtors do 
not  have  access  to  any  type  of  structured  procedure  to  restructure  their  debts  with  their 
creditors before they are actually insolvent or are already late with re-payments. AT, DE, IT 
and  PT  offer  debtors  the  possibility  to  restructure  before  they  are  insolvent,  but  under  very 
strict access conditions (e.g. an expert certificate must be filed or proof of a high majority of 
creditors already supporting the plan is required). Finally, BE, CZ, EE, FI, FR, EL, ES, LV, 
LT,  LU,  NL,  PL,  RO,  SE,  CY,  IE  and  UK  offer  the  debtor  in  financial  difficulties  the 
possibility  to  restructure  at  an  early  stage  when  there  is  a  likelihood  of  insolvency  in  the 
future, without strict conditions being attached. 

b) The position of the debtor 

In  order  to  encourage  debtors  to  address  their  financial  difficulties  at  an  early  stage,  they 
should be left in principle in control of the day-to-day operation of their business. This would 
also  ensure  that  the  least  disruption  to  the  activity  of  the  enterprise.  Where  necessary,  a 
mediator or a supervisor should be appointed by the court. Debtors should be left in principle 
in control of the day-to-day operation of their business. 

205 

 
 
 
In  FR,  CY  and  NL  the  debtor  may  lose  certain  powers  of  control  over  the  business  during 
preventive  restructuring  procedures.  In  AT,  CZ,  EE,  FI,  DE,  LV,  LT,  LU,  PL,  RO,  SK,  SI, 
SE,  UK,  IE  and  HR  the  debtor  is  left  in  possession,  but  an  insolvency  practitioner  or 
administrator  is  also  appointed  (AT,  DE,  EE,  FI,  FR,  DK)  or  the  court  itself  supervises  the 
debtor  (BE).  Finally,  in  EL,  IT,  PT  and  ES  there  is  no  obligation  for  a  court  to  appoint 
insolvency  practitioner  or  such  a  practitioner  can  be  appointed  out-of-court,  while  in  FI  an 
insolvency practitioner is not required in a simplified restructuring procedure. 

c) The possibility of a stay on individual enforcement actions 

During negotiations on a restructuring plan, the debtor should be able to apply to a court for 
suspension of individual enforcement actions which could otherwise jeopardise the success of 
the restructuring process. The stay could be requested against any type of creditor, but at the 
same time safeguards should be put in place in order to ensure that it is used strictly for the 
purposes  of  facilitating  negotiations  on  a  restructuring  plan.  The  first  such  safeguard  is  the 
duration of the stay, which should be calibrated to the complexity of the case and not exceed 
four  months;  only  in  more  complex  cases  should  the  court  be  able  to  prolong  the  initial 
duration of the stay upon proof of progress in the negotiations. The second safeguard is the 
possibility  to  have  the  stay  lifted  when  it  is  clear  that  it  is  no  longer  needed  to  attain  the 
objective of the procedure. 

In  AT  there  is  no  possibility  to  obtain  a  stay  of  individual  enforcement  actions  in  such 
preventive restructuring procedures. In many Member States the stay period is limited in time 
and can be extended in more complex cases or upon evidence of progress in negotiations (CZ, 
FR, IT, LV, LT, NL, PT, SE, SI, CY, IE and UK), while in some it cannot be extended (DE, 
ES, EL, PL). Where there are several procedures in place, the length of the stay usually varies 
from one procedure to another. In BE, EE, FI, LU, RO and DK, the stay is for an indefinite 
period, until the restructuring plan is adopted or rejected. In BE, DE, EL, SE, CY, IE the stay 
may be lifted by the court before the expiry of the stay period if the objectives of the stay can 
no  longer  be  achieved  or  there  is  evidence  of  abuse.  Most  often  the  stay  also  means  that 
insolvency  procedures  cannot  be  open  against  the  debtor.  In  some  Member  States  some 
actions cannot be stayed (e.g. in BE, DK and SE in respect of specific secured transactions; in 
EE in respect of employment claims).    

d) Adoption of the restructuring plans by creditors   

The  Recommendation  provides  for  the  adoption  of  restructuring  plans  by  creditors 
representing the majority stipulated under national law. It also requests that creditors should 
vote  in  classes  constituted  according  to  their  interests,  but  that  as  a  minimum  secured  and 
unsecured  creditors  should  be  treated  in  different  classes  for  the  purposes  of  adopting 
restructuring  plans.  Furthermore,  the  majority  should  be  weighted  depending  not  merely  on 
the  number  of  creditors,  but  on  the  amount  of  their  claims.  For  the  success  of  restructuring 
plans, it is necessary to involve those creditors likely to be affected by the plan. While formal 
voting  is  not  absolutely  necessary,  when  it  is  foreseen  in  national  law,  creditors  should 
whenever possible be allowed to vote by distance means of communication. This will increase 
creditor participation by lowering their ancillary costs.  

In  AT  and  LT  there  is  no  possibility  of  binding  dissenting  creditors  by  majority  voting.  In  
CZ, EE, EL, ES, HR, IT, LV, LU, NL, PL, PT, SI and the UK binding dissenting creditors is 
in  principle  possible,  but  certain  categories  of  creditors  are  exempted  (e.g.  public  creditors, 
employees,  secured  creditors,  commercial  creditors).  In  DK,  creditors  are  not  treated  in 
separate classes for the purposes of voting on a restructuring plan and the restructuring plan is 

206 

 
 
adopted if not opposed by a majority of creditors, while in CY there is a simple majority in 
value for a “cram-down” of liabilities in the course of a voluntary business arrangement. BE, 
DE  and  RO  offer  the  possibility  of  binding  dissenting  creditors,  but  they  require  that  all 
creditors are involved, even those whose rights are not affected. Finally, FI, FR and SI give 
the  possibility  that  only  certain  categories  of  creditors  which  are  affected  by  the  plan  are 
involved (e.g. financial creditors).  

e) The protection for new finance granted in restructuring procedures 

Encouraging  new  financing  is  necessary  to  ensure  the  success  of  a  restructuring  plan.  As  a 
minimum, the most effective means of protecting new financing which was agreed on in the 
context  of  a  restructuring  plan  are  first  to  exempt  it  from  avoidance  actions  and  second  to 
exempt  providers  of  such  new  financing  from  civil  and  criminal  liability,  where  it  exists. 
Furthermore, no protection should be granted where fraud was established. 

In most MS new finance during restructuring proceedings is allowed (albeit debt-equity swaps 
are permitted to a lesser extent), however in EE, HR, LT, LU, , DK and SE it does not seem to 
be protected in subsequent insolvency proceedings in any special way. In AT, EL, ES, FR, IT, 
NL, PT, SI and the UK new finance is protected from avoidance actions while in BE, CZ, FI, 
FR, IT, DE, EL, LV SI, SK, PL, RO and the UK it receives super-priority or a special status 
in subsequent insolvency proceedings. 

f) The involvement of courts when third party rights could be affected 

The  Recommendation  encourages  certain  limits  to  the  extent  of  court  involvement.  Certain 
steps in a restructuring process require court involvement. This is the case where the rights of 
dissenting creditors are affected, either at the stage of imposing or subsequently lifting a stay 
of  individual  enforcement  actions,  or  at  the  stage  of  validating  a  restructuring  plan  which 
affects such creditors or which provides for new financing directly or indirectly affecting the 
rights of certain creditors. However, most other steps in the restructuring process do not need 
to take place in court. For example, when formal voting is required in national laws this could 
take place out-of-court. 

In  BE,  FI,  DK  and  NL  early  restructuring  procedures  require  full  court  involvement,  from 
starting negotiations, and including the appointment of an insolvency practitioner and voting 
on a plan. In CZ, EE, FR, DE, LV, LT, LU, PL, RO, SE, SI, CY, IE and the UK, while a court 
must  be  involved  early  at  the  beginning  of  the  process,  negotiations  between  debtor  and 
creditors and voting take place outside court. Finally, in AT, EL, IT, PT and ES the court is 
involved only to approve a stay or to confirm a restructuring plan. 

2.2. Second chance provisions 

a) Discharge of debt to allow second chance for entrepreneurs 

The  Commission  Recommendation  urges  Member  States  to  provide  for  a  reasonable 
discharge  period  of  maximum  three  years  from  the  opening  of  liquidation  of  assets 
proceedings  or,  in  cases  where  a  repayment  plan  has  been  approved,  from  the  moment  the 
plan is put into application. The provision also contains exemptions which are aimed either at 
discouraging dishonest entrepreneurs from thinking they can benefit from a quick discharge, 
or to safeguard the livelihood of the debtor, for example. 

In DE, IE, LV, FI, FR, NL, SK, UK, EL, CY and DK discharge periods are largely complying 
with the Recommendation, although in some cases there are strict conditions attached (e.g. in 

207 

 
 
DE  the  need  for  the repayment  of  35%  of  debt,  in  HU  50%).  Gaps still  remain:  there is  no 
possibility  of  discharge  in  BG,  in  HR  and  LU  there  is  no  definite  discharge  period  and  the 
discharge is left to the discretion of the judge, while in PL, a full discharge can be obtained 
after a successful fulfilment of a 3-year repayment plan. Discharge periods are still too long in 
CZ, EE, ES, LT, PT, SI, SE (5 years), AT and BE (7 years). 

2.3 Consumer insolvency 

Although  consumer  insolvency  is  not  covered  by  the  scope  of  the  Recommendation,  some 
principles may also be relevant (e.g. debt discharge and second chance). Thus, the MS were 
invited to explore the possibility of applying these recommendations also to consumers.  

In the majority of the MS, there is no distinction between consumers and other natural persons 
and there are not  any special procedures or  mechanisms for consumer insolvency,  since the 
personal bankruptcy/insolvency proceedings are also available to them (LT, SI, AT, CZ, BE, 
IT, SK, IE, UK, DK, FI, DE, EE, LV, NL). However, special procedures for individuals not 
exercising professional activity can be found in FR, EL and PT408. In CY, there is a mediation 
procedure through the Financial Ombudsman. Only in BG, there are currently no procedures 
available for consumer insolvency and second chance. Recent important reforms can be found 
in  LU  and  HR;  in  LU,  a  law  on  over  indebtedness  of  private  persons  came  into  force  on  1 
February  2014  introducing  a  new  personal  recovery  procedure  in  order  to  contain  more 
safeguards  and  provide  the  debtor  with  a  second  chance.  In  HR,  in  2016,  consumer 
bankruptcy  was  introduced  to  the  legal  system,  enabling  also  for  extrajudicial  settlement  of 
obligations.  

3. Initial impact of reforms implementing the Recommendation 

As  a  general  rule,  it  can  be  noticed  in  Member  States  with  weak  preventive  restructuring 
frameworks the number of restructurings is low or very low.  

As for the recent reforms, although it is still too early to make a comprehensive assessment of 
their  impact,  the  initial  results  in  the  Member  States  are  already  visible.  For  example,  in 
Member States which have introduced a preventive restructuring procedure for the first time, 
the  number  of  restructurings  has  increased  significantly  while  the  amount  of  debt-overhang 
has decreased.   

4. Conclusion resulting from the implementation of the Recommendation  

In  conclusion,  it  can  be  seen  that  among  the  Member  States  who  replied,  several  Member 
States  consider  that  they  already  largely  comply  with  the  Recommendation,  and  that  a 
significant number of those which do not comply have not launched any reforms to date.  

While it is clear that the Recommendation has provided useful focus for those Member States 
undertaking  reforms  in  the  area  of  insolvency,  it  has  not  succeeded  in  having  the  desired 
impact  in  facilitating  the  rescue  of  businesses  in  financial  difficulty  and  in  giving  a  second 
chance to entrepreneurs because of its only partial implementation in a significant number of 
Member  States,  including  those  having  launched  reforms.  These  differences  in  the 
implementation of the Commission Recommendation mean continuing legal uncertainty and 

408 In PT, in 2013, important amendments were introduced to the legal framework applicable to retail banking 
markets, which widened the rights of bank customers and in particular of over indebted customers. Sole 
traders, craftsmen, professionals and consumers can benefit from such procedure. 

208 

 
 
                                                            
additional  costs  for  investors  in  assessing  their  risks  and  continuing  barriers  to  the  efficient 
restructuring of viable companies in the EU, including cross-border enterprise groups. 

Part 2 

This part contains specific data related to several elements of the Recommendation (number 
of preventive restructuring proceedings initiated per MS, size of the debtor involved, outcome 
of  the  proceedings  and  data  on  formal  insolvency  proceedings).  The  data  received  is  not 
always comprehensive, thus only general conclusions can be drawn. 

1. Data on the number of preventive restructuring proceedings initiated 

Number of preventive restructuring proceedings initiated in 2015 

MS 

France 
Portugal 
Italy 
Croatia 
UK 
The Netherlands 
Denmark 
Lithuania 
Czech Republic 
Slovenia 
Cyprus 

2015 
4551409 
3121410 
3029 
1791 
1764411 
369412 
102413 
50 
22414 
5 
1415 

Detailed data on the number of preventive restructuring proceedings per year for six MS can 
be found in the following column chart.  

Number of preventive restructuring proceedings initiated during 2013-2015 

409 The data refer to sauvegarde, mandat ad hoc and conciliation. 
410 This number refers only to PER. With regard to SIREVE, from 2012 until the mid of 2015, 504 requests were 

submitted. 

411 The data refer to the insolvency procedures used in restructuring (Administrations and CVAs). There is no 
information  on  Schemes  of  Arrangement  as  these  are  restructuring  procedures  available  to  all 
companies and not just those facing insolvency. 

412 The data refer to the number of cases in which suspension of payment was granted. Under Dutch law, there 

are currently no other preventive restructuring proceedings.  

413 This number concerns finalised cases instituted in District Court and in Maritime and Commercial Court. 
414 The statistics do not distinguish between ordinary roerganizace (in the situation of insolvency) and preventive 

reorganizace (in the situation of a likelihood of insolvency).  

415 The number of preventive restructuring proceedings is 1 application for Examinership. Restructurings are also 
done through the Financial Ombudsman Procedure of Mediation and the Arrears Management Directive 
of the Central Bank, which include both personal and corporate entities. 

209 

 
 
 
                                                            
5000

4500

4000

3500

3000

2500

2000

1500

1000

500

0

2013

2014

2015

Italy

the
Netherlands

UK

Portugal

Lithuania

France

2. Data on the size of debtors involved 

From the data we received, it is  apparent that the vast majority of debtors that make  use  of 
restructuring proceedings are micro enterprisers and SMEs.  

SIREVE (2012-mid 2015) 

Large companies

SMEs

Micro-companies

In PT, from 2012 until the mid of 2015, 
237  micro  companies,  258  SMEs  and 
submitted 
only  9 
large  companies 
‘SIREVE’ 
requests 
Recovery 
(Extrajudicial 
System).416  

the 
Business 

under 

416 For these purposes, micro companies are those with less than ten employees and an annual turnover or a total 
annual balance sheet of EUR 2 million; small and medium-sized enterprises are those with less than 250 
employees and an annual turnover or total balance sheet under EUR 43 million and large companies are 
the remaining ones.  

210 

 
 
 
 
 
 
 
 
 
 
 
 
                                                            
1600

1400

1200

1000

800

600

400

200

0

2012 2013 2014 2015

Regarding  the  PER,  the  Special  Revitalisation 
Process, it is evident that in the course of 2012 
until  2015,  not  only  did  the  total  number  of 
debtors  significantly  increased,  but  also  the 
number  of  individuals  gradually  augmented. 
Particularly,  in  2015,  50%  of  debtors  involved 
in  PER  were  individuals,  while  42%  were 
undertakings.  On  the  contrary,  in  2012,  only 
18%  of  the  debtors  involved  were  individuals, 
while 77% were undertakings.  

Undertakings

Individuals

Other

In FR, in 2015, the vast majority of enterprises involved in sauvegarde were enterprises with 
less  than  100  employees  (approximately  1.000  enterprises  or  78%  of  the  total  number  of 
debtors  involved).  More  specifically,  from  a  total  of  1533417  enterprises  involved  in  these 
proceedings  in  2015,  approximately  733  (48%)  were  micro  enterprises  (less  than  10 
employees), while those that had more than 100 employees were only 25 (1.6%). The same 
patent was observed during the previous years.  

417  Approximately  400  companies  are  indicated  as  companies  with  0  employees  or  with  unknown  number  of 

employees. 

211 

 
 
 
 
 
 
 
 
                                                            
1000

900

800

700

600

500

400

300

200

100

0

1-19 employees

20-49 employees

50-99 employees

100+ employees

2011

2012

2013

2014

2015

In  LT,  in  2015,  the  average  number  of  employees  per  debtor  involved  in  restructuring 
proceedings was 23 employees with an average size of assets per debtor of 1.491.000 euros. 
At the same year, with regard to the composition with creditors in the course of bankruptcy 
procedure,  the  average  number  of  employees  per  debtor  involved  is  1  employee  and  the 
average size of assets per debtor was 762.000 euros.  

Restructuring proceedings 

Average number of 
employees per 
debtor 
Average size of 
assets per debtor 

2011 

2012 

2013 

2014 

2015 

17 

32 

45 

22 

23 

4.232.000 

2.707.000 

3.849.000 

2.197.000 

1.491.000 

Composition with the creditors in the course of bankruptcy procedure 

Average number of 
employees per 
debtor 
Average size of 
assets per debtor 

2011 

2012 

2013 

2014 

2015 

14 

8 

4 

4 

1 

2.579.000 

195.000 

729.000 

18.000 

762.000 

In 2014, in SE, there was an average of 22 employees per debtor involved in cases that were 
granted  composition.  In  ES,  both  in  2014  and  in  2015,  approximately  65%  of  the  debtors 

212 

 
 
 
 
 
 
 
 
involved  in  restructuring  were  microenterprises  and  SMEs,  while  only  12%  were  big 
enterprises.  

In  RO,  data  available  only  for  restructuring  inside  formal  insolvency  procedures:  of  768 
successful  restructurings  completed  during  2015  (but  filed  between  2011-  2015),  616  are 
small enterprises, 131 are medium enterprises and 16 are large enterprises. 

3. Data on the outcome of the preventive proceedings 

From the data received, the rate of successful restructuring varies across the EU.  

On  the  one  hand,  in  2015,  in  DK,  only  2  cases  ended  up  with  a  successful  reconstruction, 
while  78  preventive  restructuring  cases  were  initiated.  LT  also  seems  to  have  a  rather  low 
successful restructuring rate, since during the past 5 years, 12 cases were successfully finished 
out of 220 restructuring proceedings initiated. During the past 3 years in IT, around 15% of 
preventive  restructuring  cases  are  completed  within  the  restructuring  agreement,  while  67% 
failed and 15% changed into insolvency proceedings.  

On  the  other  hand,  in  SE,  during  2008-2012,  18%  of  all  company  reconstructions  were 
successful.  In  PO,  during  2010-2014,  from  a  total  of  127  preventive  restructuring  cases 
initiated, 27 were approved, amounting to approximately 20%. In EL, during 2011-2015, from 
a total  of 291 applications for recovery, 66 were completed with  ratification. In  HR, during 
the  last  5  years,  approximately  28%  of  all  preventive  restructuring  proceedings  received  a 
confirmation  of  a  pre-bankruptcy  settlement.  Finally,  in  PT,  in  43%  of  preventive 
restructuring cases, there was a confirmation of the plan and in SI, 6 out of 9 cases initiated in 
2014 were successful.   

It is not possible to determine from the data provided if debtors successfully undergoing 
a restructuring procedure lapse into financial difficulties shortly after.  

4. Data on the length of proceedings 

The  average  length  of  preventive  restructuring  proceedings  varies  across  the  MS.  However, 
from  the  data  received,  apart  from  Lithuania,  Czech  Republic  and  Italy,  where  the  average 
length for restructuring proceedings is more than one year, in the other countries restructuring 
proceedings last less than one year with an average duration between 5 and 8 months.  

In detail, the countries can be divided in three categories according to the average length of 
the proceedings:  

  Less  than  5  months:  France  (21.2  days  for  mandat  ad  hoc  and  2.2  months  for 
conciliation),  Denmark  (4.3  months),  Slovenia  (4.23  months418),  Portugal  (5  months 
for PER) and Poland (3 months). 

418 It is indicated that this number concerns preventive restructurings that are successfully concluded. 

213 

 
 
 
                                                            
  6-12 months: Portugal (7.1 months for SIREVE), France (7.8 months for sauvegarde), 

Belgium (8.38 months), Croatia (11.7 months).  

  More  than  one  year:  Czech  Republic  (3  years),  Lithuania  (4.7  years  for  closed 

proceedings and 2.4 years for terminated proceedings419), Italy (1.3 years420). 

The  average  duration  of  preventive  restructuring  proceedings  per  country  is  depicted  in  the 
following column chart. 

Average length of restructruing proceedings 

60

50

40

30

20

10

0

duration in months

5. Data on the number of ordinary/formal insolvency proceedings and their outcome 

In  general,  it  can  be  noticed  that  in  many  countries,  the  number  of  formal  insolvency  and 
bankruptcy proceedings per year is higher than that of preventive restructuring. As for the rate 
of successful restructuring within the formal insolvency proceedings, it varies across the EU, 
but in most countries, the majority of cases in formal insolvency end up in liquidation. It can 
be  argued  that  in  comparison  with  the  preventive  measures,  the  formal  insolvency 
proceedings have a lower rate of a possibility of a successful restructuring.   

For example, in DK, the majority of cases initiated in formal insolvency proceedings end up 
in  bankruptcy.  During  the  past  five  years,  the  rate  for  successful  restructuring  in  formal 
insolvency is 1.5-2%, while in 2015, 67% of formal insolvency cases ended up in bankruptcy. 
In  the  same  year  in  Portugal,  17.235  insolvency  cases  were  initiated  (approximately  14.000 
more  than  in  preventive  restructuring  procedures)  out  of  which  14.612  ended  up  with  a 
declaration  of  bankruptcy  and  only  3  with  confirmation  of  a  restructuring  measure.  In  HR, 

419 Restructuring proceedings are closed when the restructuring plan is successfully implemented. 
420  According  to  the  data  received,  the  average  length  for  insolvency  proceedings  (procedure  fallimentari)  in 

Italy in 2015 was 7.6 years.  

214 

 
 
 
 
 
                                                            
during  the  last  five  years,  there  were  more  than  35.000  incoming  cases  (in  comparison  to 
almost  9.000  cases  in  preventive  proceedings).421  Finally,  in  CZ,  every  year,  20  cases  in 
preventive  restructuring  proceedings  are  initiated,  while  1000-15000  bankruptcy  orders  are 
issued.  

In RO, in 2015 there were 768 confirmed judicial reorganisation procedures opened in 
the period 2011-2015, and 10,274 new applications for insolvency proceedings.  

421  The  largest  number  of  incoming  cases  (almost  20.000)  was  received  in  2015  due  to  the  new  legislative 

insolvency framework. 

215