COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a Directive harmonising certain aspects of insolvency law
Date: 2022-12-07
Institutions: Directorate-General for Justice and Consumers, European Commission
Subjects: claim, company in difficulties, cross-border cooperation, debt, financial solvency, free movement of capital, investment, judicial proceedings, liquidation

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.12.2022  SWD(2022) 396 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the document Proposal for a Directive  harmonising certain aspects of insolvency law {COM(2022) 702 final} - {SEC(2022) 434 final} - {SWD(2022) 395 final}  
 
 
Need for action 

Insolvency  proceedings  aim  at  ensuring  an  orderly  winding  down  or  restructuring  of 
companies  in  financial  and  economic  distress.  The  EU  has  already  legislated  in  the  area  of 
insolvency. However, existing EU legislation only covers pre-insolvency  and debt-discharge 
measures  (captured  by  the  recent  Restructuring  and  Insolvency  Directive)  and  rules  on 
applicable law in cross-border insolvency cases (set out in the Insolvency Regulation). As a 
result, substantive national insolvency law remains widely differing across Member States.  

The  wide  differences  in  national  insolvency  regimes  are  an  important  obstacle  to  the  single 
market  for  capital  in  the  EU.  They  pose  difficulties  for  cross-border  investors  who  need  to 
obtain information about - and be able to compare - 27 insolvency laws, in order to consider 
them in  their investment decisions  (and reflect  in the cost  of capital).  Furthermore, national 
insolvency  regimes  continue  to  differ  in  terms  of  efficiency,  notably  regarding  the  time  it 
takes  to  liquidate  a  company  and  the  value  that  can  eventually  be  recovered.  Data  sources 
analysed  in  this  Impact  Assessment  suggest  that  procedures  in  some  Member  States  suffer 
much  more  from  delays  and  yield  considerably  less  efficient  outcomes  than  the  best 
performers in the EU. This divergence ties closely with low predictability of the outcome of 
insolvency procedures, which leads to higher information and learning costs for investors and 
poses  a  significant  barrier  to  cross  border  investments.  This  ultimately  prevents  efficient 
allocation of capital and hinders the development of the Capital Markets Union (CMU).  

This initiative follows-up on Action 11 of the 2020 Capital Markets Union Action Plan, where 
the  Commission  committed  to  making  the  outcome  of  cross-border  investment  more 
predictable  as  regards  insolvency  proceedings.  It  aims  to  harmonise  targeted  aspects  of 
substantive  law  on  corporate  (non-bank)  insolvency  in  order  to  make  insolvency  regimes 
more efficient and reduce information and learning costs for cross border creditors resulting 
from  the  lack  of  harmonisation.  It  also  aims  to  facilitate  cross-border  investments  and 
competition while safeguarding the orderly functioning of the single market as mandated by 
Article 114 TFEU.  

Member  States’  different  starting  points,  legal  traditions  and  policy  preferences  imply  that 
reforms  at  national  level  in  substantive  insolvency  law  are  unlikely  to  lead  to  sufficient 
convergence,  despite  some  reforms  launched  in  the  past  years.  Therefore,  action  at  the 
European level is required to ensure that the problem is addressed.  

Possible solutions 

Two  packages  of  policy  options  were  identified  based  on  input  from  a  group  of  experts  on 
restructuring and insolvency law, a dedicated study and stakeholder views. These sources of 
evidence, as well as the data from the benchmark study carried out by the European Banking 
Authority in 2020 and the World Bank Doing Business indicators, were also used to compare 
the options and assess their impacts. The two options considered are a targeted harmonisation 
option  (Option 1)  and  a  more  comprehensive  harmonisation  option  (Option 2),  both 
implemented via a directive. The option of only issuing a recommendation was discarded as 
being unlikely to address the identified problem.  

1 

 
 
The proposed options target the three key dimensions of insolvency law: (i) the recovery of 
assets from the liquidated estate, (ii) the efficiency of procedures and (iii) the predictable and 
fair distribution of recovered value among creditors. They cover, in particular, issues related 
to transaction avoidance, asset tracing, directors’ duties and liability, the sale of a company as 
a  going  concern  (‘pre-pack’),  the  insolvency  trigger,  a  special  insolvency  regime  for  micro 
and small enterprises, the ranking of claims and creditors’ committees. Option 2 includes all 
elements  covered  in  option  1,  complemented  by  more  ambitious  measures  across  the  three 
key dimensions mentioned above. 

The  analysis  assesses  the  options  in  relation  to  three  objectives:  whether  they  (i) allow  a 
higher recovery value, (ii) lead to a shorter duration of insolvency proceedings and (iii) reduce 
legal  uncertainty  and  information  costs.  The  analysis  also  considers  carefully  their  cost-
effectiveness and coherence.  

Impacts of the preferred option 

Based  on  the  comparison  of  effectiveness  and  efficiency,  option  1  (targeted  harmonisation 
through  a  directive)  is  selected  as  the  preferred  option.  The  detailed  analysis  found  that  a 
more comprehensive harmonisation (Option 2) would yield higher benefits with regard to two 
of the three objectives, but this would also come at a higher cost, notably in terms of potential 
inconsistencies  with  other  pieces  of  law  (property  law,  company  law,  labour  law).  The 
targeted  harmonisation  (Option 1)  would  deliver  comparable  benefits  (to  Option  2)  but  in  a 
more cost effective manner.  

The  preferred  option  is  expected  to  bring  significant  economic  benefits  for  investors 
(creditors), companies, including SMEs, and, in general, the wider economy. Creditors will in 
particular  benefit  from  expected  higher  value  recovery  as  well  as  reduced  information  and 
learning  costs.  Investors  from  third  countries  will  enjoy  similar  benefits,  making  it  more 
attractive  for  them  to  invest  in  the  EU.  Companies  across  the  EU  will  face  more  uniform 
insolvency  regimes  and  lower  legal  uncertainty  about  what  will  happen  if  they  become 
insolvent.  Micro  and  small  companies  will  benefit  directly  from  the  creation  of  a  special 
alleviated insolvency regime that will be more proportional to their needs.  

The  qualitative  and  quantitative  assessment  suggests  that  the  targeted  harmonisation  could 
lead  to  significant  reductions  in  both  costs  and  time  of  recovery.  This  is  expected  to  boost 
recovery rates by about 1.5 percentage points, which, when extrapolating empirical estimates 
in  economic  studies,  could  lead  to  a  reduction  of  funding  costs  by  1.5  basis  points  and  an 
increase  in  cross-border  portfolio  asset  holdings  by  about  1.5  percentage  points.  When 
quantified  on  the  basis  of  available  data  and  plausible  assumptions,  direct  and  indirect 
benefits  are  expected  to  exceed  10  billion  EUR  annually.  Meanwhile,  the  total  costs  are 
expected to be limited (and would largely accrue to Member States). Some indirect costs are 
also  expected  for  companies  due  to  a  higher  liability  of  directors.  The  initiative  may  also 
positively, although marginally, affect digitalisation, transition to a climate-neutral economy 
and Sustainable Development Goals.  

2