COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a Directive of the European Parliament and of the Council 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) 395 final  COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT REPORT  Accompanying the document Proposal for a Directive of the European Parliament and of the Council harmonising certain aspects of insolvency law {COM(2022) 702 final} - {SEC(2022) 434 final} - {SWD(2022) 396 final}  
 
 
Table of Contents 

1. 

INTRODUCTION ................................................................................................................................ 5 

1.1.  Political context ................................................................................................. 5 
1.2.  Scope of the initiative ........................................................................................ 7 
1.3.  Key insolvency concepts ................................................................................... 7 
1.4.  Economic context ............................................................................................ 10 
1.5.  Legal context ................................................................................................... 12 

2. 

PROBLEM DEFINITION .................................................................................................................. 18 

2.1.  What are the problems? ................................................................................... 18 
2.2.  What are the consequences? ............................................................................ 25 
2.3.  What are the problem drivers? ........................................................................ 26 
2.4.  How will the problem evolve? ........................................................................ 34 

3.  WHY SHOULD THE EU ACT? ........................................................................................................ 35 

3.1.  Legal basis ....................................................................................................... 35 
3.2.  Subsidiarity: Necessity of EU action ............................................................... 35 
3.3.  Subsidiarity: Added value of EU action .......................................................... 36 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? ............................................................................... 36 

4.1.  General objectives ........................................................................................... 36 
4.2.  Specific objectives ........................................................................................... 37 

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? .................................................................... 37 

5.1.  What is the baseline from which options are assessed? .................................. 38 
5.2.  Description of the policy options .................................................................... 39 
5.3.  Options discarded at an early stage ................................................................. 44 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ........................................................... 46 

6.1.  Benefits and costs of a targeted regime ........................................................... 47 
6.2.  Benefits and costs of a comprehensive EU regime ......................................... 56 

7.  HOW DO THE OPTIONS COMPARE? ............................................................................................ 62 

7.1.  Benefits and costs across the elements of insolvency regime ......................... 62 
7.2.  Quantification of effectiveness ........................................................................ 64 
7.3.  Assessment of judicial efficiency and adjustment costs .................................. 65 
7.4.  Coherence with national and EU law .............................................................. 66 
7.5.  Synthesis .......................................................................................................... 66 

8. 

PREFERRED OPTION ...................................................................................................................... 69 

9.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? .................................. 74 

ANNEX 1: PROCEDURAL INFORMATION ............................................................................................ 76 

ANNEX 2: STAKEHOLDER CONSULTATION ....................................................................................... 81 

Appendix to Annex 2: Summary report – online public consultation ....................... 84 

ANNEX 3: WHO IS AFFECTED AND HOW? .......................................................................................... 95 

ANNEX 4: ECONOMIC ANALYSIS ....................................................................................................... 105 

 
 
ANNEX 5: DETAILED DESCRIPTION OF INSOLVENCY BUILDING BLOCKS ............................. 156 

ANNEX 6: RECENT INSOLVENCY-RELATED REFORMS IN MEMBER STATES ......................... 230 

ANNEX 7: SME TEST .............................................................................................................................. 235 

10.  LIST OF REFERENCES .................................................................................................................. 237 

2 

 
 
 
 
Glossary 

Term or acronym 

Meaning or definition 

BCA 

BORIS 

BRIS 

CMU 

COMI 

CSR 

DRI 

EAPO 

EBA 

EBRD 

ECB 

ECOFIN 

EIR 

ELD 

ESRB 

EU 

GDP 

HLEG 

IMF 

IP 

IRI 

ISSG 

JRC 

MS 

MSE 

NFC 

Business Continuity Act 

Beneficial ownership registers interconnection system 

Business Registers Interconnection System 

Capital Markets Union 

Company’s centre of main interest 

Country Specific Recommendations 

Directive  on  Restructuring  and  Insolvency  (Directive  (EU) 
2019/1023  of  the  European  Parliament  and  of  the  Council  of  20 
June 2019 on preventive restructuring frameworks, on discharge of 
debt  and  disqualifications,  and  on  measures  to  increase  the 
efficiency  of  procedures  concerning  restructuring,  insolvency  and 
discharge  of  debt,  and  amending  Directive  (EU)  2017/1132 
(Directive on restructuring and insolvency) 

European Preservation Order Procedure 

European Banking Authority 

European Bank for Reconstruction and Development 

European Central Bank 

Economic and Financial Affairs Council 

European Insolvency Regulation (Regulation (EU) 2015/848 of the 
European  Parliament  and  of  the  Council  of  20  May  2015  on 
insolvency proceedings) 

Environmental Liability Directive 

European Systemic Risk Board 

European Union 

Gross Domestic Product 

High Level Expert Group on Sustainable Finance 

International Monetary Fund 

Insolvency practitioners 

Insolvency registers’ interconnection 

Commission’s inter-service steering group 

Joint Research Centre 

Member State 

Micro and small enterprises 

Non-financial Corporation 

3 

 
NPL 

OECD 

RSB 

SDG 

SME 

TFEU 

UNCITRAL 

WB DB 

Non-performing loans 

Organisation for Economic Cooperation and Development 

Regulatory Scrutiny Board 

Sustainable Development Goals 

Small and medium-sized enterprises 

Treaty on the Functioning of the European Union 

United Nations Commission on International Trade Law 

World Bank Doing Business 

4 

 
 
 
 
1.  INTRODUCTION 

1.1. 

Political context 

It  is  a  well-established  view  among  stakeholders,  researchers,  international  institutions 
and  policy  makers1  that  the  significant  differences  in  insolvency  rules  across  Member 
States  constitute an important  barrier to  cross-border investments  and  a key  obstacle to 
further  economic  integration.2  The  European  Central  Bank  (ECB)  as  well  as  the 
International  Monetary  Fund  (IMF)  recurrently  flagged  that  tackling  the  divergence  in 
national  insolvency  rules  is  key  to  achieving  progress  on  the  Capital  Markets  Union 
(CMU). The IMF “….identifies three key barriers to greater capital market integration in 
Europe: transparency, regulatory quality, and insolvency practices.3 [..] As the EU seeks 
to  build  an  integrated  capital  market,  how  best  to  regulate  the  sector  and  improve 
insolvency processes become key questions.”4 According to the ECB “where insolvency 
and judicial frameworks are more efficient, risk-sharing through both  capital and credit 
markets is higher [..] This empirical research finding shows that it is important to address 
the major shortcomings and divergence between insolvency frameworks which persist at 
the  European  level.  This  would  require  taking  measures  beyond  the  draft  Directive  on 
Insolvency,  Restructuring  and  Second  Chance”.5  Furthermore,  multiple  think  tanks  and 
other  international  bodies  concluded  on  the  significance  of  divergences  in  insolvency 
rules as an obstacle to cross-border investment.6 

Regulators and market participants singled out differences in insolvency practices among 
the  three  most  important  barriers7  to  market  integration  in  a  survey  carried  out  by  the 
IMF  (2019)  on  the  benefits  of  the  CMU  and  the  obstacles  towards  its  realisation.  The 
empirical analysis undertaken by IMF identified that convergence in insolvency regimes 
would yield the largest contribution to three key metrics of financial integration: higher 
cross-border asset holdings, a reduction in cross-country differences in corporate funding 
costs  and  improved  risk-sharing  across  the  EU  Member  States.8  Annex  4,  Section  4 

1 See, for instance, the Five presidents report (5-presidents-report_en.pdf (europa.eu), European Parliament 
resolution of 9 July 2015 on Building a Capital Markets Union (2015/2634(RSP)) and of 8 October 2020 
on further development of the Capital Markets Union (CMU) (2020/2036(INI)). 
2 Similar to the degree of economic integration being measured by the level of cross-border trade, cross-
border  investment  flows  are  a  standard  measure  of  capital  market  integration,  with  higher  flows  being 
indicative of a better economic integration among Member States. 
3  The  two  other  important  policy  triggers  to  cross-border  investment  (in  addition  to  national  insolvency 
regimes),  such  as  regulatory  quality  and  transparency  of  data,  are  addressed  by  other  Commission 
initiatives  (e.g.  report  on  the  operation  of  the  European  Supervisory  Authorities  and  the  proposal  on  the 
creation  of  the  European  Single  Access  Point).  Nevertheless,  the  importance  to  tackle  the  insolvency-
related barriers would remain irrespective of progress made on these other policy initiatives.  
4 Quoted from IMF (2019).  
5 Quoted from  ECB (2018). “More efficient and harmonised insolvency laws and regulatory  frameworks 
for  equity  investments,  including  addressing  the  debt-equity  bias  in  taxation,  can  improve  certainty  for 
investors,  reduce  costs  and  facilitate  cross-border  investments,  while  also  making  risk  capital  more 
attractive and accessible to companies”, ECB (2022). 
6 See for example, CEPS (Valiante, 2016), Bruegel (Demertzis et al. 2021), DIW (Bremus and Kliatskova, 
2019). See also Demmou et al. (2021) for the perspective of the OECD. 
7 See IMF (2019a, 2019b).  
8  Taken  at  face  value,  the  IMF  analysis  suggests  an  improvement  of  the  recovery  rate  by  one  standard 
deviation  (difference  between  Italy  and  Germany)  would  lead  to  a  24%  increase  in  cross-border  asset 
holdings, reduce the dispersion in corporate funding costs   by 6% for unlisted firms and by 2% for listed 
firms, and increase risk-sharing through the capital and credit channel from 24% (in the baseline scenario) 
to 53%. For more details, see Annex 4 and in particular Figures A4.25 and A4.26. 

5 

 
                                                 
provides  more  details  on  the  statistical  analysis  done  by  the  IMF,  ECB  and  academic 
researchers  about  the  impact  of  more  efficient  and  alligned  insolvency  rules  on  cross-
border investment and risk sharing.9 

The  Commission’s  first  Action  Plan  on  building  a  CMU10  in  2015  argued  that 
“convergence of insolvency  and restructuring proceedings would facilitate greater legal 
certainty  for  cross-border  investors”.  In  2015,  the  European  Parliament  adopted  a 
resolution11  where  it  called  to  ease  cross-border  investment  and  indicated  that  for  the 
CMU to work smoothly, insolvency rules must be made to work better in a cross-border 
context.  This  led  to  the  adoption  of  the  Directive  on  Restructuring  and  Insolvency  in 
2019,  which  pursued  targeted  harmonization  in  the  specific  areas  of  pre-insolvency 
measures  and  debt-discharge  procedures.  Since  it  did  not  cover  rules  governing 
insolvency  proceedings,  the  expert  group12  set  up  by  the  Commission  and  tasked  with 
informing policy choices for the 2020 Capital Markets Union Action Plan13 emphasised 
that progress towards the CMU, as the integrated market for capital, requires addressing 
further  the  inefficiency  and  divergence  of  insolvency  regimes  across  Member  States.14 
Similar recommendations were also put forward by a number of expert groups, organised 
by Member States and industry representatives.15  

The  CMU  Action  Plan  from  202016  announced  that  the  Commission  would  take  a 
legislative  or  non-legislative  initiative  for  minimum  harmonisation  or  increased 
convergence  in  targeted  areas  of  non-bank  corporate  insolvency  law  to  make  the 
outcomes  of  insolvency  proceedings  more  predictable.17  The  Council  Conclusions 
(ECOFIN)  of  3  December  2020  on  the  Action  Plan  encouraged  the  Commission  to 
deliver on this initiative.18 In April 2021, Eurogroup concluded that national reforms of 
insolvency regimes shall progress in coherence with parallel work streams led by the EU 

9 The empirical approach used in economic studies to demonstrate the impact of differences in insolvency 
regimes  on  cross-border  investment  follows  the  spirit  of  gravity  models,  which  are  a  standard  tool  to 
analyse the determinants of international trade flows, see Portes/Rey (2005) for the seminal application on 
cross-border capital flows, Hartmann et al (2018), IMF (2019), Kliatskova and Savatier (2020). 
10 COM/2015/0468 final 
11 European Parliament resolution of 9 July 2015 on Building a Capital Markets Union (2015/2634(RSP)) 
12 High Level Forum on the Capital Markets Union (2020). 
13 COM/2020/590 final. 
14 A similar perspective is adopted in IMF and ECB publications:  “differences in European restructuring 
and  insolvency  regimes  will  persist  after  implementation  of  the  Directive,  despite  its  goal  of 
harmonization.  The  Directive  shows  that  harmonization  of  insolvency  laws,  particularly  important  in  the 
context  of  the  Banking  Union  and  the  Capital  Markets  Union  is  a  complex  challenge”,  Garrido  et  al. 
(2021); “further harmonisation of general legal frameworks would be desirable.  [...] In particular, market 
participants would find it easier to invest in firms located in different Member States if core elements of 
insolvency  regimes,  such  as  the  definition  of  insolvency  triggers,  avoidance  actions  and  the  ranking  of 
claims, were harmonised at best-practice levels”, de Guindos et al. (2020). 
15  See  also  the  reports  by  Next  CMU  set  up  by  seven  Member  States,  by  Markets4Europe  set  up  by 
financial institutions.  
16 COM(2020) 590 final. 
17  The  subsequent  Capital  Markets  Union  Communication  of  25  November  2021,  under  its  Action  11 
entitled  “Making  the  outcome  of  cross-border  investment  more  predictable  as  regards  insolvency 
proceedings”, the Commission announced that “it would propose an initiative by Q3 2022 that would seek 
to harmonise targeted aspects of the corporate insolvency framework and procedures.” 
18 Council Conclusions on the Commission’s Action Plan, doc. nr.12898/1/20 REV 1. These Conclusions 

were confirmed by the Euro Summit statement of 11 December 2020, Doc. nr. EURO 502/20. 

6 

 
                                                 
institutions, which were undertaken in the CMU Action Plan.19 The European Parliament 
reiterated  again  in  2020  that  for  the  CMU  to  work  smoothly,  insolvency  rules  must  be 
made to work better in a cross-border context.20 

1.2. 

Scope of the initiative 

This  initiative  covers  business  non-bank  insolvency  procedures  and  does  not  include 
insolvency procedures for banks and consumers. The banks’ bankruptcy proceedings and 
recovery  and  resolution  are  governed  respectively  by  the  Winding  up  Directive  and  by 
the  Bank  Recovery  and  Resolution  Directive21  and  Single  Resolution  Mechanism 
Regulation,22 together with national liquidation law. Member States have national laws to 
deal  with  the  bankruptcy  of  consumers,  which  are  excluded  from  the  scope  of  this 
initiative  because  of  the  limited  cross-border  dimension.  Consumers  do  not  typically 
raise  funds  from  cross-border  creditors  and  consumer  bankruptcy  procedures  do  not 
significantly contribute to the key objectives of the CMU. 

The  intiative  aims  at  a  targeted  harmonisation  of  substantive  insolvency  rules.  The 
initiative excludes policy intervention on preventive restructuring of corporations, as well 
as  on  other  matters  that  are  covered  by  the  Directive  on  Restructuring  and  Insolvency 
(DRI)23. The intiative nonetheless includes the aspects of restructuring and reorganisation 
proceedings  where  relevant  to  debtors  in  insolvency.  The  scope  of  DRI  carves  out 
traditional insolvency law (with very minor exceptions), covering only situations of pre-
insolvency  and  post-insolvency.  The  DRI  deals  with  the  debt  discharge  of  failed 
entrepreneurs only to the extent it is relevant to answer the question on when and how an 
entrepreneur,  who  has  become  insolvent,  can  make  a  fresh  start  after  insolvency 
proceedings. Section 1.4 clarifies the relationship between the DRI and this initiative. 

1.3.  Key insolvency concepts 

Insolvency  proceedings  aim  at  ensuring  the  orderly  winding  down  or  restructuring  of 
companies  or  enterpreneurs  in  financial  and  economic  distress  (i.e.  that  have  been 
declared insolvent).24 These are compulsory and collective procedures that take over the 

19 Doc. nr. EURO 502/21. Similarly, the statement of the Euro Summit meeting of 25 June 2021 confirmed 
that “structural challenges to the integration and development of capital markets, particularly in targeted 
areas of corporate insolvency laws, need to be identified and addressed” 

20 European Parliament resolution of 8 October 2020 on further development of the Capital Markets Union 
(CMU):  improving  access  to  capital  market  finance,  in  particular  by  SMEs,  and  further  enabling  retail 
investor participation (2020/2036(INI)). 
21  Directive  2001/24/EC,  Directive  (EU)  2019/879 of  the  European  Parliament  and  of  the  Council  of  20 
May 2019 amending Directive 2014/59/EU as regards the  loss-absorbing and recapitalisation capacity of 
credit  institutions  and  investment  firms  and  Directive  98/26/EC.  As  part  of  the  acquis,  the  ranking  of 
claims  in  the  bank  creditor  hierarchy  was  partially  harmonised  to  ensure  a  common  approach  enhancing 
legal certainty in the event of resolution and insolvency. 
22  Regulation  (EU)  No  806/2014  of  the  European  Parliament  and  of  the  Council  of  15  July  2014 
establishing  uniform  rules  and  a  uniform  procedure  for  the  resolution  of  credit  institutions  and  certain 
investment firms in the framework of a Single  Resolution Mechanism and a Single Resolution Fund and 
amending Regulation (EU) No 1093/2010. 
23 Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive 
restructuring  frameworks,  on  discharge  of  debt  and  disqualifications,  and  on  measures  to  increase  the 
efficiency of procedures concerning restructuring, insolvency and discharge of debt. 
24  ‘Insolvency’ or ‘insolvency proceedings’ have become the more usual terms in international documents 
(see UNCITRAL Legislative Guide on Insolvency Law) and in the relevant EU policy instruments in the 
last  three  decades  as  opposed  to  ‘bankruptcy’  or  ‘bankruptcy  proceedings’.  The  former  (‘insolvency 

7 

 
                                                 
 
contractual  enforcement  of  claims  against  the  insolvent  debtor,  which  would  be 
otherwise exclusively left to the individually agreed enforcement mechanisms between a 
given  counterpart  and  the  debtor.  This  section  provides  a  general  overview  of  central 
concepts whereas Annex 5 describes the main features of insolvency systems in the EU 
Member States in detail. 25 

The proceedings typically include tools that ensure a timely declaration of insolvency, so 
that  it  does  not  affect  the  possibility  to  either  restore  the  going  concern  or  to  ensure  a 
cost-effective  liquidation,  as  well  as  tools  to  maximise  the  recovery  value  of  the 
company’s assets being liquidated. 

The main insolvency features relate to: 

1.  Governance of the proceedings;  
2.  Tools to recover asset values from the liquidated company; 
3.  Tools to distribute recovered values among creditors. 

The  governance  of  proceedings  involves  actions,  such  as  defining  when  a  business 
should be declared insolvent, and therefore should be subject to insolvency proceedings. 
It,  for  example,  includes  the  obligation  of  directors  to  file  for  insolvency  in  due  time 
before  depleting  the  value  of  the  company’s  assets  (e.g.  to  avoid  the  situation  where 
directors make large pay-outs to themselves and other employees of the company). The 
governance of proceedings also cover the institutional aspect: notably, if the proceedings 
are run before a court or another competent authority, or if an insolvency practitioner is 
appointed to steer the procedure and administer the estate.  

The insolvency regime may also include several tools to ensure proper identification of 
the  debtor’s  assets  and  recovery  of  their  market  value.  These  tools  may  include  (i) 
transaction  avoidance  tools,  i.e.  actions  to  challenge  past  transactions  that  have  been 
concluded  to  deprive  creditors  of  the  debtor’s  assets;  (ii)  pre-pack  liquidation,  i.e.  the 
possibility  to  conduct  negotiations  on  the  sale  of  the  company  or  its  parts  as  a  going 
concern before insolvency filing with the deal finalised in insolvency, to avoid significant 
value destruction due to protracted insolvency proceedings, or (iii) access rights to asset 
registries, to ensure proper tracing of the company’s assets.  

Finally, the value distribution tools of an insolvency regime include tools that govern the 
orderly allocation of the recovered value of the company’s assets among creditors. Such 
distribution  tools  may  for  example  include  a  pre-determined  creditors’  ranking  that 
establishes  the  order  of  priority  among  various  types  of  creditors,  providing  ex-ante 
clarity  to  creditors  about  their  chances  to  recover  value  in  case  of  insolvency  and 
avoiding  a  lengthy  case-by-case  assessment  based  on  court  discretion  in  insolvency. 
Another tool is creditors’ committees that ensure that all represented creditors’ views are 
heard in insolvency, leading to a better coordination among creditors and more efficient 

proceedings’)  is  generally  understood  as  a  broader  term,  including  all  types  of  in-court  or  out-of-court 
procedures which address collectively the financial distress of a debtor. The term ‘bankruptcy’ is narrower, 
usually connected to the judicial declaration of  the  insolvent state of the debtor and implies a traditional 
court  proceeding.  Irrespective  of  these  differences,  this  Impact  Assessment  Report  uses  the  terms  as 
intercheangeable with each other. 
25 Further sources for descriptions of insolvency systems in the EU Member States are McCormack et al. 
2016, Steffek 2019, Deloitte/Grimaldi 2022. Information per Member State is also available in the e-justice 
portal (https://e-justice.europa.eu/447/EN/insolvencybankruptcy). 

8 

 
                                                                                                                                                 
decision  making  (lack  of  coordination  among  creditors  often  leads  to  disruption  in 
insolvency cases). 

A  business  is  part  of  a  complex  web  of  relationships  with  suppliers,  investors  and 
creditors,  employees,  clients,  public  authorities  (e.g.  tax  and  social  security  authorities) 
etc. All of these groups are direct or indirect providers of financing and creditors of the 
business. The opening of insolvency proceedings directly affects the rights and positions 
of all these stakeholders. The rights of each type of creditor and some of their incentives 
differ in the event of an insolvency. Insolvency law is further strongly linked to questions 
of property law, labour law and freedom of economic activity. 

From  the  perspective  of  the  CMU,  the  outcome  of  insolvency  proceedings  and  the 
allocated recovered value therein is of particular importance to the supply of capital and 
credit  in  the  economy  and  particularly  to  providers  of  financing  to  companies.  When 
deciding on their offers,  providers of financing  consider the future risk of the company 
becoming insolvent and the value of recovered assets for the price that they will charge 
for the capital offered to that company. Recovery values, recovery time and the judicial 
costs  of  insolvency  proceedings  are  all  affected  by  differences  in  national  insolvency 
laws  that  ultimately  influence  this  risk  assessment  and  thus  have  bearing  on  the 
willingness  to  invest  and  provide  financing  across  borders  and  on  the  terms  of  such 
financing.  

Banks  as  the  most  common  type  of  lenders  to  businesses  often  enjoy  a  senior  creditor 
status  and  hence  a  privileged  treatment  in  insolvency.  Since  the  market  share  of  other 
financial investors and inter-company loans has been increasing over the last  years, the 
recovery  value  of  the  insolvent  businesses’  assets  in  an  insolvency  case  is  critical  not 
only  for  banks,  but  also  for  other  providers  of  equity  and  debt  financing.  Furthermore, 
value  recovery  could  also  be  relevant  for  other  companies  such  as  suppliers,  including 
many  SMEs,  which  often  suffer  (disproportionately  more  than  larger  companies)  from 
their  trade  partner  becoming  insolvent  (often  leading  to  what  is  known  the  insolvency 
domino effect).  

Finally, public authorities are creditors in insolvency cases because of due tax or social 
security  contributions.  Often  tax  claims  enjoy  a  privileged  treatment  in  creditors’ 
ranking. Furthermore, employees, who are in a vulnerable situation in insolvency as they 
may  lose  their  jobs,  enjoy  special  privileges  in  some  systems  in  relation  to  due  wage 
claims.26  

The longer insolvency proceedings last, the bigger the adverse effects on the value that 
can  be  recovered  in  a  liquidation  (“melting  ice  cube”  phenomenon).27  Moreover,  any 
judicial  proceedings,  including  insolvency  proceedings,  are  associated  with  costs. 
Complex judicial proceedings are associated with very high costs (including in particular 

26  The  insolvency  experts  interviewed  in  Deloitte/Grimaldi  (2022)  stated  that  “Employees  are  in  general 
well protected in the EU. […] Outside of insolvency regulations, governments pay the dues to employees 
and then become creditors of insolvent company”. 
27  The  recovery  value  will  generally  be  smaller  than  100%,  but  it  is  often  not  zero  because,  even  if  the 
borrower is insolvent, there may still be assets with a positive value. The “melting ice cube” phenomenon 
stipulates that the recovery value is not a fixed, exogenously determined amount, but that it tends to decline 
the longer the duration of the process.  This is because beyond the depreciation of physical assets  such as 
machinery over time, their value deteriorates if they are not used. Moreover, business lines that may still be 
viable on their own become less valuable if business relationships are interrupted. 

9 

 
                                                 
the  costs  related  to  insolvency  practitioners  (IPs)  who  often  have  to  be  appointed  in 
insolvency  proceedings).  For  SMEs,  the  costs  of  proceedings  can  be  so  high,  that  very 
little or nothing is left for allocation to creditors after paying the costs. The impossibility 
to pay for the costs remains to be a major reason why in many cases proceedings are not 
even opened for SMEs, depriving them of orderly liquidation.  

Figure 1 presents a visualisation of central decision points during the insolvency process. 

Figure  1:  A  stylised  perspective  of  the  different  steps  in  insolvency  procedures  and  critical  elements  that  determine 
their outcome 

1.4.  Economic context 

Efficient  and  harmonised  insolvency  rules  underpin  the  efficient  allocation  of  capital, 
economic recovery from recessions and thus also economic growth.28 In contrast, lengthy 
and inefficient insolvency procedures undermine economic growth by preventing capital 
reallocation from businesses with low profitability and high indebtness. Such businesses 
are investing less and are less likely to pursue innovative activity, which slows down the 
diffusion of technical progress and ultimately the growth potential. Capital allocation is 
impaired  because  economic  resources  locked  in  distressed  entities  (zombie  companies) 
are  not  available  for  more  productive  uses.  Banks’  exposure  to  bad  loans  impairs  their 
capacity to provide credit to new business.29  

Insolvency  rules  impact  on  economic  activity  not  only  if  a  company  needs  to  wound 
down  and  the  remainings  of  the  estate  be  distributed  to  its  creditors.  The  expected 
recovery value, time and costs  have an impact much earlier by affecting to what extent 
and  under  which  conditions  companies  can  get  access  to  funding  they  need  for  their 
operations and growth. As further detailed below, inefficient insolvency procedures and 
divergences  in  procedures  across  Member  States  discourage  the  supply  of  cross-border 
funding, as evidenced by a high home bias in portfolio investment and a low proportion 
of cross-border credit.  

28 See Annex 4 for empirical studies in support of the arguments made in this paragraph. 
29 The more uncertain and lengthy the enforcement of non-performing loans, the stronger the incentive of 
banks to evergreen non-performing loans at the expense of credit to new customers. 

10 

 
 
                                                 
The number of corporate insolvencies in the EU is in the range of 120,000 to 150,000 per 
year.30  Data  shows  a  substantial  decline  in  bankruptcy  declarations  in  2020,  which  is 
primarily  due  to  the  public  support  measures  during  the  COVID-19  crisis.  Many  more 
businesses cease to exist in the EU each year, which suggests that a substantial number of 
businesses  are  wound  down  without  recourse  to  public  insolvency  procedures.31  The 
introduction  of  debt  moratoria  and  other  means  helped  companies  and  entrepreneurs 
overcome the Covid-19 induced economic downturn at the expense of increasing the debt 
level in the corporate sector and the creation of a larger number of businesses exposed to 
debt overhangs.32 While many observers anticipated a pronounced increase in corporate 
bankruptcies,  it  has  not  yet  materialised.33  It  is  however  not  excluded  that  it  may  still 
occur in the future, especially since the energy price shock and supply chain bottlenecks 
have  increased  the  likelihood  of  a  severe  slowdown  of  economic  growth  in  the  EU. 
Accordingly, the IMF cautioned in its assessment of the euro area’s economic  recovery 
prospects that “Insufficient efforts to address labor market rigidities, debt overhang, and 
inefficient  insolvency  processes  could  impede  efficient  reallocation  of  resources,  thus 
leading  to  significant  labor  market  hysteresis,  low  productivity  growth,  and  sizable 
economic scarring.”  34 Although the proposed changes to insolvency rules will not be in 
place to support adjustment to and recovery from the current economic shocks, the latest 
economic  developments  demonstrate  the  vulnerability  of  the  EU  economy  to  sizeable 
economic shocks and distress. If and when future shocks hit the EU economy, corporate 
adjustment  and  the  winding-down  of  insolvent  firms  should  imperatively  take  place 
under  more  efficient  and  better-aligned  insolvency  rules  in  the  EU,  which  suggests  a 
need to act as soon as possible. 

There  is  currently  no  information  about  the  share  of  insolvency  cases  in  which  cross-
border creditors are involved, neither for intra-EU nor for creditors from third countries. 
However,  the  data  on  the  share  of  cross-border  exposure  of  the  EU  companies  may  be 
seen  as  proportionate  to  the  (potential)  share  of  cross-border  bankruptcy  cases.  It  can 
hence allow  for  an  approximation.35 This  data  suggests  that  a significant  number of all 
insolvency proceedings in the EU - 10%-20% are likely to involve claims of cross-border 
creditors36.  This  number  should,  however,  not  be  interpreted  as  implying  a  low 
importance  of  insolvency  rules  for  cross-border  investors:  the  current  level  of  cross-
border  investment  (which  may  be  subject  to  potential  cross-border  insolvency 
proceedings)  is  impaired  by  the  existing  cross-border  obstacles,  including  those  on 
divergent and inefficient insolvency regimes. It is, thus, likely to underestimate the true 
level  of  importance  of  cross-border  insolvency  proceedings,  once  these  obstacles  are 

30 See  Annex 2 for a review of data  sources and  more  information  about the economic context.  Eurostat 
collects  statistics  on  the  number  of  bankruptcies  and  companies’  deaths,  which  are  however  not 
comparable  because  of  differences  in  coverage.  It  does  not  publish  bankruptcy  numbers  to  account  for 
differences in definitions, methodologies and structures across Member States.  
31 See Annex 4 for a more detailed discussion on the number of insolvency cases and business exits. 
32 For a quantification of the number of “zombie” firms in the euro area, see the ECB May 2021 Financial 
Stability Report,  
33 See ESRB (2021). 
34 see IMF (2022). 
35 It should be noted that this is an underestimation (a lower bound), as the foreign exposure only captures 
the direct cross-border aspects of a company’s exposure. However, cross-border investors may also operate 
via domestic legal entities and therefore be affected by insolvency proceedings in a similar way.   
36 The term cross-border creditor is used in this impact assessment as synonym to cross-border investor. 

11 

 
                                                 
removed (including via this initiative).37 More details on economic context are discussed 
in Annex 4, Section 1.  

1.5.  Legal context 

1.5.1.  The limited scope of prior EU action 

The  intiative  covered  by  this  impact  assessment  seeks  to  increase  the  convergence  of 
substantive  insolvency  rules  of  the  EU  Member  States.  It  is  different  in  terms  of  its 
objective  and  scope  from  any  existing  EU  law.  This  section  sets  out  how  the  EU  law 
developed in the areas of pre-insolvency (preventive restruturing), insolvency and post-
insolvency  (second  chance)  over  the  course  of  the  last  years  and  where  the  current 
intiative fits in this context. 

The  Union  started  to  legislate  in  the  area  of  insolvency  about  twenty  years  ago.  In  the 
beginning,  the  EU  did  not  aim  at  creating  the  convergence  between  the  domestic 
substantive  insolvency  frameworks.  Rather  it  intended  to  ensure  a  smooth  coordination 
and  cooperation  between  the  national  regimes  in  cases  of  cross-border  insolvency.  The 
EU Insolvency Regulation (EIR, first adopted in 2000, recast in 2015) was adopted on 
the  legal  basis  for  judicial  cooperation  in  civil  and  commercial  matters  (Article  81 
TFEU).38 The EIR introduced uniform rules on international jurisdiction and applicable 
law that – for cases of cross-border insolvency – determined in which Member State the 
insolvency proceedings have to be opened and which law is to be applied to the questions 
at hand. In parallel, there were uniform rules that ensured that the judgments taken by the 
courts  having  jurisdiction  in  these  cases  are  recognized,  and  if  needed,  enforced  in  the 
territory  of  all  Member  States.  The  EIR  has  no  impact  on  the  content  of  national 
insolvency  law.  It  determines  the  applicable  law but  does not  prescribe  any  features or 
minimum standards for that law. Therefore, it does not address the divergences across the 
Member States’ insolvency laws (and the resulting problems and costs).  

The approach of judicial cooperation  hence  did  not  comprehensively  address  the issues 
that are relevant from the perspective of cross-border investment. Accordingly, the EIR 
only  allowed  cross-border  investors  to  establish  which  law  would  be  applicable  in  the 
event  of  an  insolvency  of  a  debtor,  but  it  left  unchanged  substantial  divergences  in 
national  insolvency  rules.  These  differences  continued  to  weigh  on  cross-border 
investors’  ability  to  anticipate  the  outcome  for  value  recovery  in  case  of  insolvency  in 
another  Member  State  and  hence  impair  cross-border  investment  and,  more  generally, 
capital market integration in the EU.  

37  A  similar  scale  of  insolvency  proceedings  with  cross-border  elements  may  be  estimated  from  the 
proportion  of  outstanding  foreing  debt  claims  of  MSE  companies  in  the  EU.  According  to  the  Flash 
Eurobarometer survey carried out in June 2016 among small and medium sized enterprises in the [then] 28 
EU Member States, on average, 17% of those companies had debt claims against foreign debtors over 2015 
fiscal  year.  However,  in  some  countries  this  proportion  was  much  higher:  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.  Flash  Eurobarometer,  Report  Insolvency,  no.  442,  2016, 
para 1 and 2. The survey data was used in the Commission Impact Assessment Accompanying the Proposal 
for  a  Directive  on  preventive  restructuring  frameworks,  second  chance  and  measures  to  increase  the 
efficiency of restructuring, insolvency and discharge procedures, SWD (2016) 357 final, p. 45.  
38 Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency 
proceedings. 

12 

 
                                                 
The first Action Plan on building a CMU39 of 2015 led to the adoption of the Directive 
on Restructuring and Insolvency in 2019. The DRI pursued targeted harmonization in 
the  specific  areas  of  pre-insolvency  measures  and  debt-discharge  procedures  but  not  in 
relation to the rules governing insolvency proceedings per se. It obliged Member States 
to introduce preventive restructuring procedures with certain minimum standards and to 
provide fair debt discharge for failed entrepreneurs40.  

The preventive restructuring procedures are only available to debtors in financial distress 
before they become insolvent, (i.e. when there is only a likelihood of insolvency) and 
are based on the fact that there is a much greater chance to save ailing businesses when 
tools for restructuring their debts are accessible for them at a very early stage and before 
they  become  definitively  illiquid.  These  rules  do  not  bring  about  any  harmonisation  of 
the rules governing insolvency. The minimum standards on the second chance for failed 
entrepreneurs,  set  out  in  the  DRI,  do  not  address  the  way  insolvency  proceedings  are 
conducted either. They rather relate to the discharge of debts for insolvent entrepreneurs 
as  a  consequence  of  insolvency  and  could  be  described  as  a  regulation  of  post-
insolvency  effects.  Nevertheless,  the  DRI  includes  a  few  cross-cutting  rules  that  also 
affect insolvency matters to a very limited extent. These rules contain very general high-
level  principles  concerning  specific  topics  (the  training  of  judges,  some  professional 
standards  for  insolvency  practitioners  and  the  means  of  communication  in  insolvency 
proceedings)  which  were  so  horizontal  in  nature  that  it  would  have  been  artificial  to 
regulate them for pre-insolvency and post-insolvency proceedings but not for insolvency 
proceedings.   

The  initiative  covered  by  this  impact  assessment  does  not  seek  to  reopen  the  elements 
already covered by the DRI. Beyond these limited elements, the DRI does not harmonise 
any  substantive  insolvency  law;  its  restructuring  rules  are  expressly  applicable  only  on 
the  condition  that  the  company  in  question  is  not  yet  insolvent.  As  a  result,  the 
substantive insolvency laws of Member States are currently not approximated at the EU 
level and as acknowledged by the EIR remain “widely differing”.41 The limited scope of 
the DRI can be explained by the fact that pre-insolvency restructuring proceedings were 
considered  important  in  order  to  create  frameworks  allowing  to  preserve  value  by 
avoiding  insolvency  proceedings  where  possible  in  a  situation  where  such  frameworks 
were previously entirely absent in many Member States. The relative novelty of such pre-
insolvency  proceedings  to  a  considerable  number  of  national  legal  orders  made  this  an 
adequate  topic  for  a  first  step  of  harmonising  substantive  law  in  the  broader  area  of 
insolvency law because of the reduced number and sensitivity of clashes with  the long-
established  principles  under  national  law.  This  first  step  having  been  achieved,  the 
initiative covered by this impact assessment aims at taking the next step by seeking the 
convergence  of  the  rules  governing  insolvency  where  a  debtor  cannot  be  returned  to 
viability in pre-insolvency restructuring but has to enter into insolvency proceedings.         

39 COM/2015/0468 final. 
40 The deadline for the transposition of the Directive on Restructuring and Insolvency is July 2022 and a 
review is foreseen for 2026. 
41  Recital  22  of  the  EIR:  “This  Regulation  acknowledges  the  fact  that  as  a  result  of  widely  differing 
substantive laws it is not practical to introduce insolvency proceedings with universal scope throughout the 
Union.  […]  This  applies,  for  example,  to  the  widely  differing  national  laws  on  security  interests  to  be 
found in the Member States.  Furthermore, the preferential rights enjoyed by some creditors in insolvency 
proceedings are, in some cases, completely different. […]” 

13 

 
                                                 
Figure  2  provides  for  a  schematic  representation  of  the  coverage  of  the  areas  (pre-
insolvency, insolvency, post-insolvency) and actors by the existing legal acts, as well as 
identifying the existing gap in EU law (substantive rules on insolvency proceedings).  

Figure 2: Aspects and areas relevant to insolvency regulated and not yet regulated in EU law 

ASPECTS 

AREAS 
PROCEE- 
DINGS 

POST-
INSOLVENCY 

DRI  
- Debt discharge 
proceedings 
- Reasons for 
disqualification 

CROSS-
BORDER 
PROCEDURAL 
ASPECTS 

EIR 
- Applicable law 
-International 
jurisdiction 
- Recognition of 
the effects of 
opening 
insolvency and of 
further 
judgements taken 
in the course of 
the insolvency 
proceedings 
- Group 
coordination 
proceedings 

SUBSTANTIVE ASPECTS  

PRE-
INSOLVENCY 

DRI  
- Debtor in 
possession 
- Stay of individual 
enforcement 
actions 
-Restructuring 
plans 
- Cross-class 
cramdown 
- Protection for new 
financing and 
interim financing 
- Duties of directors 

INSOLVENCY 

NOT YET REGULATED 
AT THE EU LEVEL 
- Material elements of 
insolvency (transaction 
avoidance, asset tracing, 
duties of directors (and 
liabilities) of companies to 
file for insolvency, pre-
packs) 
- Procedural elements of 
insolvency (opening of 
insolvency proceedings, 
special insolvency rules for 
micro- and small 
enterprises) 
- Distributional elements of 
insolvency (ranking of 
claims, creditors’ 
committees) 

ACTORS 
TARGETED 

EIR 
- Powers of 
insolvency 
practitioners in 
cross-border 
situations 

DRI  
- Training of judges 
- Training of insolvency practitioners 
- Supervision and remuneration of practitioners 

DRI  
- Honest 
entrepreneurs 
- Possibility for 
Member States 
to extend to 
consumers 

1.5.2.  The divergences between national laws on key features of insolvency 

law 

There are important differences across Member States with respect to various aspects of 
substantive insolvency law. This section illustrates some of these differences across the 
relevant elements as a basis for the discussion of why they emerged as problem drivers in 
Section 2.3 of this impact assessment. More details on differences across Member States 
are provided in Annex 5. 

Rules  on  transaction  avoidance  to  protect  the  insolvency  estate  against  undue 
transactions  and  thus  ensuring  the  preservation  of  value  for  creditors  exist  in  all  EU 
Member  States.  Apart  from  few  exceptions,  they  cover  a  broad  range  of  reasons  and 
recipients  and  define  a  maximum  timeframe  for  the  retrospective  period  for  voidable 

14 

 
 
 
 
 
 
transactions42. However, the features of national systems diverge considerably. In certain 
Member  States,  like  France,  Germany,  Poland,  Portugal  and  Sweden,  all  legal  acts  are 
subject to avoidance rules, regardless of whether they were performed by the debtor, the 
defendant  or  a  third  party,  provided  that  they  are  detrimental  to  the  general  body  of 
creditors.  By  constrast,  in  other  Member  States,  like  Czechia,  Malta,  the  Netherlands, 
Slovenia and Spain, only transactions by the debtor that have disadvantaged the general 
body of creditors are covered.43 

Different  EU  regulations  enable  taking  evidence  and  other  asset  tracing  and  recovery 
measures in civil or commercial matters across EU Member States44, although excluding 
the  insolvency  proceedings.  The  EIR  does  not  specifically  address  the  issue  of  asset 
tracing in the context of cross–border insolvency proceedings. It provides that the powers 
of  insolvency  practitioners  are  governed  by  the  lex  fori  concursus45.  Thus,  the  EU 
landscape is very fragmented in this respect and each Member State has its own rules and 
entrusts  the  insolvency  practitioners  with  different  powers  in  respect  to  the  asset 
tracing.46  

In relation to directors’ duties and liability in the vicinity of insolvency, only a duty to 
convene a meeting exists in EU company law (2017 Company Law Directive47) but there 
is  no  obligation  to  take  a  decision  on  re-capitalizing  or  liquidating  the  company  in 
difficulty.  Member  States  take  different  strategies  to  protect  creditors  in  the  vicinity  of 
insolvency by imposing varying duties on directors48. In a significant number of Member 
States49,  directors  must  file  insolvency  proceedings  within  a  certain  period  of  time  of 
their  company  becoming  insolvent.  The  time  in  which  filing  must  be  done,  however, 
varies  widely  across  the  EU  (e.g.,  “immediately”  in  Germany,  within  one  month  in 
Belgium,  within  two  months  in  Spain,  no  express  time  limit  in  some  Member  States). 
Some  Member  States  make  it  clear  that  in  the  vicinity  of  insolvency,  the  focus  of 
directors should shift to the creditors’ interest.50 In Hungary, the change in duty involves 
the  interests  of  creditors  as  a  priority,  and  directors  could  be  held  liable  for  a  form  of 
wrongful trading. The German approach provides that the directors must call a meeting 
of  shareholders  in  case  of  “serious  loss  of  the  subscribed  capital”  to  take  measures  to 
safeguard both the interests of the company and its creditors. Some Member States (like 

42  Rules  on  avoiding  certain  types  of  transactions  concluded  by  the  management  in  the  vicinity  of 
insolvency  (or  when  already  insolvent)  and  thereby  clawing  back  the  assets  concerned  to  the  insolvency 
estate (for the benefit of the creditors) represent an immanent part of all national insolvency regimes. 
43  A  more  detailed  description  of  the  aspects  of  transaction  avoidance,  including  a  more  detailed 
description of rules of Member States law in this area, can be found in section 2.1. of Annex 5. 
44  Regulation  (EC)  No  1206/2001;  Regulation  (EU)  No  805/2004;  Regulation  (EC)  No  1896/2006; 
Regulation (EC) No 861/2007. 
45 Art. 7 EIR.  
46 A more detailed description of the aspects of asset tracing, including a more detailed description of rules 
of Member States law in this area, can be found in section 2.2. of Annex 5, see in particular the Table about 
the powers of insolvency practitioners in the area of asset tracing across EU Member States. 
47  Directive  (EU)  2017/1132  of  the  European  Parliament  and  of  the  Council  of  14  June  2017 relating  to 
certain aspects of company law, OJ L 169, 30.6.2017, p. 46–127. 
48  In  certain  EU  jurisdictions,  the  existence  of  a  near  insolvency  situation  does  not  lead  to  any  marked 
change  in  the  general  duties  of  directors.  The  jurisdictions  where  a  change  is  noticeable  are  Cyprus, 
Denmark, Estonia, Hungary, Ireland, Latvia, and Malta. Denmark, for example, addresses the proximity of 
insolvency by providing that directors must exercise special care when this situation exists.  
49  The  circumstances  that  trigger  the  need  for  directors  to  file  are  variously  described,  but  effectively 
amount to the demonstrated state of insolvency. For example, in most common law jurisdictions, there is 
no obligation on the directors to file proceedings if their company becomes insolvent.  
50 See mapping of the divergences in national laws in McCormack et al. (2016), pp. 44.  

15 

 
                                                 
Italy51)  require  that,  in  case,  of  “serious  loss  of  the  subscribed  capital”,  the  board  shall 
call  a  meeting  and  have  the  company  decide,  upon  losing  half  of  its  subscribed  share 
capital, whether to recapitalise or wind down the company’s business and liquidate it52. 

When an insolvent business has to be liquidated, creditors can usually achieve a greater 
recovery  rate  if  the  business  or  a  part  thereof  is  sold  as  a  going  concern,  i.e.  as  an 
operating, value generating economic entity.53 An effective form of a sale of the business 
as a going concern in insolvency proceedings is the “pre-packaged sale” or ‘pre-pack’, 
where  a  non-public  negotiation  phase  between  the  debtor  and  some  possible  buyers 
precedes  the  formal  opening  of  the  insolvency  proceedings.  Whereas  the  liquidation  of 
the debtor through a going concern sale is allowed in most of the insolvency laws of the 
Member States,  pre-pack  mechanisms exist only  in  a handful of Member States. Those 
that  govern  pre-packs,  do  it  differently.  For  example,  the  sale  of  the  entire  assets  of  a 
debtor  on  a  going  concern  basis  is  only  possible  outside  of  court  in  France,  it  requires 
court  involvement  in  Belgium  unless  the  pre-pack  is  organised  as  amicable  settlement. 
Whereas  pre-pack  sales  must  achieve  the  continuation  of  the  business  in  France,  the 
German rules intend to liquidate the business. 

With  respect  to  opening  of  insolvency,  there  are  typically  two  insolvency  tests  under 
national law that are used as insolvency triggers: the balance sheet test or the cash flow-
based  test.  Different  Member  States  use  the  general  cessation  of  payments  (cash-flow) 
test  and  the  balance  sheet  test  in  different  combinations  to  establish  a  commencement 
standard.  Regardless  of  the  causes  that  lead  to  insolvency,  there  is  no  unambiguous 
definition  of  “insolvency”  across  all  Member  States  (numerically  identifiable  and 
therefore easily predictable or monitored)54. Hence, one can currently expect as much as 
27 different answers under each Member State law or the question whether a business is 
(in)solvent, or likely to be insolvent that is whether or not it is making a profit sufficient 
to provide a return to the business owner while also meeting its commitments to business 
creditors or where it has sufficient cash resources to sustain itself through a period when 
it is not returning a profit. Moreover, in some Member States (e.g. the Netherlands) the 
court has relatively wide discretionary powers in assessing whether the debtor has ceased 
to pay its debts. 

In  most  Member  States,  large  companies  and  MSEs  are  treated  alike  and  there  are  no 
special  procedural  alleviations  to  cater  for  the  specific  situation  that  micro-  and  small 
enterprises  (MSEs)  face  when  they  are  in  financial  distress.  Small-  and  micro 
enterprises  do not  even  have access  to  liquidation  proceedings in a number of Member 
States, as in most cases such debtors have no or only very few assets left when becoming 
insolvent, which circumstance barres them from the opening of insolvency proceedings 
(i.e.  Austria,  Germany,  Greece  and  Italy)  or  results  in  an  immediate  termination  of 

51 Article 2474 Italian Civil Code. 
52 A more detailed description of the aspects of directors’ duties and liability in the vicinity of insolvency, 
including a  more detailed description of rules of Member States law in this area, can be found in section 
2.3. of Annex 5. 
53  Recovery  values  tend  to  be  lower  in  the  alternative  “piece-meal  liquidation”  under  which  individual 
assets of the business are sold separately. 
54  In  fact,  concepts  such  as  "insolvency"  or  "vicinity  to  insolvency",  as  well  as  “crisis”,  which  are  often 
used in the  European regulatory  framework as  well as in individual national laws,  are not defined at EU 
level. 

16 

 
                                                 
insolvency proceedings (i.e. Belgium and Spain)55. Simplified liquidation procedures for 
MSEs are available only in Czechia, France, Greece, Lithuania, Romania and Slovakia.56  

While some features of the ranking of claims of creditors are common to all Member 
States (e.g. the prioritization of secured over unsecured creditors),  national  systems  are 
substantially divergent57. Almost all the Member States ensure a preferential treatment of 
secured credit58, but the position of secured creditors vis-à-vis other claims, specifically 
those relating to taxes and/or employee rights varies significantly.  In the Netherlands  – 
historically known to be a ‘creditor-friendly’ jurisdiction59 – secured creditors are granted 
a strong position in respect of their claims as (in principle) these outrank other creditors 
(including  those  with  a  right  of  preference).60  Only  in  specific  exceptions  may  other 
claims  take  priority  over  secured  claims.  The  most  important  example  of  this  is  the 
preference that is granted to the Dutch tax authorities for certain categories of tax debts 
over certain movable assets located on the premises of the debtor.61 In turn, in France – a 
jurisdiction  historically  known  for  being  debtor-friendly62  –  secured  claims  are  (in 
principle)  outranked  by  other  claims.63  In  Spain  claims  concerning  salaries,  taxes  and 
social  security  withholdings  are  granted  (in  said  order)  a  status  of  ‘general  privileged 
claims’64,  however,  these  are  still  outranked  by  ‘insolvency’  claims,  and  special 
privileged  claims65  (i.e.,  secured  with  in  rem  security  over  specific  collateral  (e.g., 
mortgage  or  pledge).  On  the  other  hand,  in  Germany  certain  categories  of  secured 
creditors do not fall within the ranking order since they shall benefit from an exclusive 
right over the economic value of the assets and, in practice, rank ahead all other creditors. 
Creditors  entitled  to  separate  satisfaction  are  completely  excluded  from  the  concept  of 
insolvency  creditors:  they  are  granted  a  priority  right  of  satisfaction  and  have  the 
possibility to pursue their claims outside the rules of the relevant insolvency legislation66, 
i.e., in normal civil proceedings. In relation to specifically protected interests, Germany, 

55 A more detailed description of the aspects of special insolvency regime for micro- and small enterprises, 
including a  more detailed description of rules of Member States law in this area, can be found in section 
3.2. of Annex 5. 
56 See McCormack, G. et al. ( 2016).  
57  In  particular,  a  number  of  Member  States  afford  particular  privileges  to  tax  and  other  governmental 
claims.  Some  Member  States  give  a  priority  or  even  super-priority  ranking  (trumping  all  other  claims 
including  those  of  secured  creditors)  to  the  claims  of  employees  (unpaid  wages).  Furthermore,  there  are 
significant  differences  also  with  regard  to  the  treatment  of  “new  financing”  in  subsequent  insolvency 
proceedings. 
58  It  is  a  fundamental  principle  of  insolvency  law  that  pre-insolvency  entitlements  of  creditors  should  be 
respected  by  insolvency  and  restructuring  rules  unless  there  are  legitimate  grounds  to  a  post-
commencement redistribution of value, see Wessels et al. (2017) 
59 See Brown Rudnick (2020).  
60 Article 3:279 of the Dutch Civil Code. 
61 Wet van 30 mei 1990 inzake invordering van rijksbelasting (Invorderingswet 1990 (IW 1990), Act of 30 
May 1990 on the collection of state taxes (Collection of State Taxes Act (CSTA)), article 21. 
62 However, the implementation of the RDI in France may lead to a shift towards a more creditor friendly 
insolvency framework. On this matter, see Podeur (2021) and Golshani et al, page 14.  
63  First  and  foremost,  a  portion  of  employees'  pre-petition  claims  benefits  from  a  super-senior  status 
(“superprivilège des salaires”) [Arts. L622-17, French Code of Commerce].  Additionally, pre-petition tax 
claims  also  rank  ahead  pre-petition  secured  claims,  For  more  information  on  the  national  insolvency 
framework  in  France,  see  Talbourdet  and  Gumpelson  (2021)..  For  more  information  on  the  national 
insolvency framework in France, see Talbourdet and Gumpelson (2021). 
64 Article 280 of the Spanish Insolvency Act, Real Decreto Legislativo 1/2020,. 
65 Article 270 of the SIA.  
66  Sec.  47  of  the  Insolvenzordnung  (Insolvency  Statute)  of  5  October  1994  (BGBl.  I  p.  2866),  as  last 
amended by Article 35 of the Act of 10 August 2021 (BGBl. I p. 3436). 

17 

 
                                                 
for example, keeps workers in the same rank as all other unsecured creditors because its 
law  and  social  safety  net  shelters  workers  from  the  consequences  of  their  employers’ 
insolvency67.68  

In the vast majority of jurisdictions a creditor committee may/must be appointed and its 
general  role  is  to  safeguard  the  interests  of  creditors.  The  amount  of  input  that 
committees  have  in  the  administration  of  the  insolvency,  however,  varies  greatly.  This 
difference  affects  the  actual  extent  of  creditor  involvement  in  the  proceedings.  For 
example,  while  in  some  Member  States  they  are  merely  carrying  out  an  advisory  role 
(e.g. in Denmark), in other Member States (e.g. in Greece) the functions of the committee 
are,  principally,  to  support  and  supervise  the  insolvency  practitioner  (and  even  control 
the  insolvency  practitioner)  and  give  consent  for  some  actions  to  be  taken  by  him/her. 
Similarly,  in  Austria  for  certain  important  transactions  (e.g.  sale  of  the  business),  the 
consent  of  the  creditor  committee  is  a  precondition  for  their  validity.  In  other  Member 
States, such as Germany, for transactions of particular importance, such as entering into a 
loan  contract  with  considerable  burdens  on  the  insolvency  estate,  the  insolvency 
administrator  needs  the  approval  of  the  creditor  meeting  or  of  an  appointed  creditor 
committee. In Romania, the creditor committee can request the removal of the debtor’s 
right to manage its affairs.  

2.  PROBLEM DEFINITION 

2.1.  What are the problems? 

Insolvency  rules  are  fragmented  along  the  lines  of  national  insolvency  systems  (see 
section 1.5).69 They thus deliver different outcomes characterised by different degrees of 
efficiency across Member States in terms of the time it takes to liquidate a company and 
the  value  that  can  eventually  be  recovered  (see  Figure  3).  This  leads  to  a  pronounced 
length  of insolvency procedures, and  a low  average  recovery value in  liquidation cases 
(see Table 1). Differences in national regimes also create legal uncertainty as regards the 
outcomes of insolvency proceedings and lead to high information and learning costs for 
cross-border creditors.  

Low recovery values, long insolvency procedures, administrative costs of the procedures 
matter not only for the efficiency of a company’s liquidation. Even more important is that 
these three factors and the uncertainty surrounding them determine the magnitude of the 
risk  premium  that  creditors  factor  in  when  they  undertake  an  investment.  A  high  risk 
premium  increases  the  cost  of  capital  for  the  corporation  and,  if  the  risk  is  particularly 
high,  dissuades  investors  to  provide  credit  and  cross-border  investors  to  consider 
investing abroad.  

67 The general lesson to be drawn from this example is that liens should not be granted by insolvency law, 
but by those laws - social security law, labour law, etc. - that are responsible for that particular protection 
(as is the case in Denmark, for example).  
68 A more detailed description of the aspects of ranking of claims, including a more detailed description of 
rules of Member States law in this area, can be found in section 4.1. of Annex 5. 
69 For a comparison of descriptions of the features of insolvency systems in the EU Member States that are 
discussed  in  this  impact  assessment,  see  Annex  5,  for  more  comprehensive  comparisons  of  insolvency 
systems, see McCormack et al. (2016), Steffek (2019), Deloitte/Grimaldi (2022). 

18 

 
                                                 
2.1.1.  Costly  and 

lengthy 

(national  and  cross-border) 

insolvency 

proceedings lead to low recovery values 

If companies are liquidated, the recovery value is usually a low proportion of the initial 
investment. Whereas investors may be able to estimate the likelihood of insolvency, they 
face uncertainty about the consequences of an actual insolvency, which will depend to a 
considerable extent  on the  length  and complexity  of the individual case.  Moreover, the 
predictability  of  outcome  in  insolvency  cases  and  of  recovery  rates  for  cross-border 
creditors also depends on the level of discretion exercised by courts and IPs in insolvency 
cases.  Insolvency laws do not offer adequate guidance on how the discretion should be 
exercised by courts (and insolvency practitioners).  

Divergences in insolvency laws may increase uncertainty to such an extent that investors 
are not  able to  predict, quantify  and manage the  risks  that  affect  their investment.  This 
exposure  to  uncertainty  will  be  mirrored  in  a  higher  risk  premium  demanded  and  in 
consequence higher funding costs for the corporate sector or even in greater reluctance to 
do business with foreign companies at all. Beyond the impact on risk premium, a lengthy 
insolvency  proceeding  reduces  the  present  value  of  the  expected  investment  returns,  as 
the  opportunity  cost  for  creditors  and  investors  of  allocating  these  funds  in  other  more 
profitable investments increases with passing time. Uncertainty about the possible value 
or  time  of  recovery  is  an  important  factor  for  financial  investors  that  need  to  generate 
returns  or  obtain  additional  refinancing  if  an  investment  is  not  redeemed  in  time  to 
manage their liquidity needs.  

A protracted time to recover some value may even lead to creditors becoming at risk of 
becoming insolvent themselves, leading to a possible cascade of defaults. This could be 
the  case,  especially  for  business  partners  that  are  not  financial  institutions,  but  rely  on 
outstanding payments for the delivery of their products and services. 

The  scale  of  the  problem  is  expected  to  be  large:  recovery  values  and  recovery  time 
determine  recovery  rates,  which  in  turn  determine  the  level  of  cross-border  asset 
holdings70  and  risk  sharing.71  The  insolvency  experts  interviewed  in  Deloitte/Grimaldi 
(2022) stated that they  would  expect  sizeable gains  in  terms  of lower costs and shorter 
duration of proceedings from the initiative subject to this impact assessment, pointing to 
considerable 
insolvency  regimes.  Nevertheless,  a 
comprehensive quantification of these inefficiences is not feasible due to  a lack of data 
on  recovery  rates  and  on  the  degree  to  which  they  are  influenced  by  the  length  and 
complexity  of  insolvency  procedures.72  Even  many  banks  struggle  to  report  recovery 
rates for non-performing loans despite credit provision being their daily business.73   

inefficiencies 

the  current 

in 

70 See Annex 4, specifically the sections presenting the results of IMF (2019) and Bremus and Kliatskova 
(2018). Since these studies use the recovery rate as indicator of the strength of the insolvency regime and 
demonstrate a significant link between the recovery rate and measures of cross-border investment, one can 
derive that any policy measure that improves recovery rates would also foster cross-border investment. 
71 ECB (2018) and IMF (2019) show a significant correlation between recovery rates and the extent risks 
are shared across Member States through the capital and credit channel, with improved cross-country risk 
sharing being one of the economic benefit of the Capital Markets Union.  
72 Standard pricing models used in finance offer little help in estimating recovery values and recovery rates 
since these rely on discretionary decisions and timing of insolvency practitioners and courts. Theoretically, 
it  would  be  possible  to  calculate  the  expected  recovery  rate  as  a  function  of  the  yield  difference  of  a 
corporate bond (or credit default swap) to the safe interest rate and the expected likelihood of default. In 
practice,  this  requires  determining  two  unknown,  namely  the  likelihood  of  default  and  the  recovery  rate, 

19 

 
                                                 
 
Figure 3. Time and costs of insolvency proceedings and recovery rates 

Source: World Bank Doing Business Report. 

Despite considerable efforts to produce data on the outcome of insolvency proceedings, 
little data is available to date.74 Annex 4, Section 2 explains the different data sources and 
their  limitations.  The  analysis  conducted  in  this  impact  assessment  relies  primarily  on 
two sources: The World Bank Doing Business indicators75 presented in the charts above 
and  data  from  the  benchmark  study  carried  out  by  the  European  Banking  Authority 
(EBA) in 2020.76 The two sources, however, contain rather different data. In the World 
Bank  exercise,  insolvency  experts  are  asked  to  assess  the  outcome  of  insolvency 
procedures  based  on  a  narrowly  defined  illustrative  bankruptcy  case77.  In  contrast,  the 
EBA  collected  actual  data  from  banks  in  the  EU  Member  States  on  gross  replacement 
rates,  net  replacement  rates  (i.e.  after  judicial  costs),  time  for  recovery  and  judicial 
costs.78  

The World Bank Doing Business data yielded recovery rates in the case of liquidation in 
an  EU  Member  State  between  32  and  44  %,  with  an  average  for  the  Member  States 

and it turns out not  feasible to disentangle both  without recourse to strong assumption on one of them.73 
This is evidenced by the difficulties EBA encountered in sourcing such data for its benchmarking exercise, 
see EBA (2020), especially the sections on data quality. 
73  This  is  evidenced  by  the  difficulties  EBA  encountered  in  sourcing  such  data  for  its  benchmarking 
exercise, see EBA (2020), especially the sections on data quality. 
74  According  to  the  survey  performed  with  the  Member  States  in  the  process  of  verification  of  the 
Insolvency  Recommendation  as  well  as  on  the  basis  of  the  comparative  law  study,  the  overall  picture  is 
very inconsistent: currently, in certain Member States data about insolvency proceedings are not collected, 
in  certain  Member  States  they  are  collected  but  not  necessarily  in  a  centralised  or  electronic  manner;  in 
other Member States where data about insolvency proceedings are collected in a centralised and electronic 
manner they are not always published or are not available in an anonymised way, i.e. stay confidential. 
75 The evidential value of World Bank's Doing Business scoring is limited. The irregularities in reporting 
information to the World Bank were found in relation to four countries, namely Azerbaijan, Saudi Arabia, 
United  Arab  Emirates  and  China.  These  irregularities  triggered  the  pause  of  the  Doing  Business  report 
announced on August 27, 2020. The review process did not identify any further specific data irregularities 
beyond those affecting these four countries as described in this document. The methodology for scoring of 
insolvency frameworks has been reviewed following this incident. 
76 See EBA (2020). 
77 The first indicator aims at measuring the efficiency of insolvency frameworks by estimating the recovery 
rate  associated  with  a  stylised  corporate  insolvency  case.  This  estimate  is  obtained  by  surveying 
practitioners about the most likely outcome, the expected length, and the cost of a fictitious insolvency case 
for  a  business  whose  main  asset  is  a  hotel.  The  other  indicator  ("strength  of  insolvency  legislation") 
measures  on  the  basis  of  expert  judgement  the  extent  to  which  the  insolvency  framework  abides  by  the 
efficiency  criteria  described  in  Djankov  et  al.  (2008).  See  annex  4  for  more  information  on  insolvency 
indicators. 
78  See  EBA  (2020),  Report  on 
EBA/REP/2020/29. 

the  benchmarking  of  national 

loan  enforcing  frameworks, 

20 

 
 
                                                                                                                                                 
concerned of 38%.79 The recovery rate in the five best performers outside the EU was 50 
to 51%. 

Data from the World Bank shows that  the length of insolvency procedures and judicial 
costs  in  EU  Member  States  tend  to  be  higher  than  in  other  OECD  countries  (see  chart 
above). National insolvency experts that provided estimates for benchmark scenario used 
for the World Bank Doing Business insolvency indicators pointed to a range of 1.5 to 3.5 
years  for  the  duration  and  judicial  costs  between  9  and  15%  for  EU  Member  States, 
which  compares  to  1.2  years  and  5%  costs  for  the  fifth  best  performer  in  the  panel  of 
non-EU countries. 

The EBA benchmarking exercise on national loan enforcement in insolvency (see Table 
1)  found  that  on  average  it  takes  3.4  years  and  costs  1.4%  of  the  recovery  value  to 
enforce  corporate  loans  in  the  EU.  Judicial  costs  for  SMEs  loans,  however,  are  much 
larger  in  proportion,  at  3.5%  of  the  recovery  value,  while  their  time  of  enforcement  is 
about the same as for corporate loans. The EBA benchmarking exercise also found that 
the simple average of recovery values of corporate loans in the EU is 40% of the amount 
outstanding at the time of the default and 34% for SMEs.  

Table 1. EU-27 EBA benchmark exercise (2020) 

Simple 
average 

Corporate loans 
Weighted 
average 

Recovery value1 
Time to recovery2 
Judicial costs1 

40.4 
3.4 
1.4 

26.2 
3.9 
0.5 

Simple 
average 

33.8 
3.3 
3.5 

SME loans 

Weighted 
average 

35.1 
3.5 
1.2 

Median 

4.9 
2.2 
0 

Median 

16.2 
2.7 
0 

Source:  EBA.  1 gross,  as a  share  of  the  notional  amounts at  time  of  default,  2  in  years,  from  the  start  of  the  formal 
enforcement status to the date of ultimate recovery from the formal enforcement procedures. 

The EBA benchmark exercise also revealed substantial variations across Member States, 
with  the  average  recovery  time  ranging  from  0.6  to  7  years  and  judicial  costs  ranging 
between 0 to above 10%.  

The  pronounced  differences  across  EU  Member  States,  documented  in  the  EBA  and 
World  Bank  data,  suggest  that  procedures  in  some  Member  States  suffer  much  more 
from delays and result in additional costs. Both data sources also show that enforcement 
regimes in some Member States yield considerably less efficient outcomes than the best 
performers in  the EU. The World Bank data suggests that the  average  outcome  for EU 
Member States is less efficient in terms of recovery values, time and judicial costs than in 
the best performers outside the EU. It is unlikely and no analysis exists that demonstrates 
that these differences could be entirely explained by debtor characteristics.80 

79 In the World Bank exercise, insolvency experts were asked to provide an estimate for the case that the 
underlying  firm  was  either  liquidated  or  restructured.  The  numbers  quoted  are  from  those  10  Member 
States and non EU countries in which insolvency experts assumed the firm will be liquidated. 
80  One  can  implicitly  derive  that  the  variation  in  the  insolvency  outcome  is  larger  than  what  firm  or 
industry  specific-factors  suggest  from  those  empirical  studies  that  use  firm  level  data  and  despite 
controlling  for  these  factors  find  a  significant  impact  of  insolvency  indicators  on  the  number  of 
bankruptcies (Fatica 2022) or funding costs (IMF 2019b). 

21 

 
 
 
                                                 
2.1.2.  Low  predictability  of 

to  high 
information costs and constitute barriers to cross-border investments 

insolvency  proceedings 

lead 

Differences  in  legal  systems  across  Member  States  fragment  the  single  market  and 
increase transaction costs for cross-border business:81 “disparate national law rules may 
lead  to  higher  transaction  costs,  especially  information  and  possible  litigation  costs  for 
enterprises  in  general  and SMEs and consumers in  particular. Contractual parties could 
be forced to obtain information and legal advice on the interpretation and application of 
an unfamiliar foreign law.”82 Already in the mid-1990s, “legal uncertainty was regarded 
by the European Commission as the main reason for the fact that the economic dynamics 
triggered  by  the  process  of  European  integration  in  the  early  nineties  developed  more 
slowly  than  expected  and  desired”.83  Transaction  costs  are  caused  by  “(a)  costs  of 
collecting  information,  (b)  costs  of  legal  disputes,  (c)  costs  of  setting  incentives  for 
pushing through legal claims, and (d) other transaction costs” and these “costs are higher 
in international transactions than in domestic trade”.84 

Legal uncertainty and associated transaction costs could also be expected specifically in 
the  case  of  differences  in  insolvency  regimes.  The  divergence  of  insolvency  regimes 
across  EU  Member  States85  discourages  cross-border  investments  through  high 
information and learning costs and low predictability of outcome of recovery rates. Large 
divergences in time to recovery, judicial costs and recovery rates among Member States 
suggest  that  cross-border  investors  in  the  single  market  are  at  a  higher  risk  of  being 
unable  to  predict  outcomes  of  insolvency  proceedings  if  they  allocate  their  investment 
portfolio across several/different Member States.  

Information  costs  and  low  predictability  of  the  investment  outcome  in  insolvency  and 
recovery rates play a key role for cross-border creditors, since they need to account for 
all  possible  scenarios  and  so  the  conditions  and  prospects  for  recovery  of  their 
investments  in  case  of  failure  of  the  company  they  are  invested  in.  This  aspect  is  even 
more important for unsecured funding operations, which require significant knowledge of 
procedures  and  conditions  affecting  recovery  rates  in  insolvency.  The  higher  is  this 
knowledge, the easier and more accurate will be the calculation of loss given default and 
probability of default and therewith the price discovery of financial assets, which is key 
to the orderly functioning of capital markets.  

The more dissimilar the insolvency system abroad is from that in the home country, the 
less can domestic experiences and those made in other jurisdictions be used to assess the 
expected  return  on  a  cross-border  investment  if  the  debtor  becomes  insolvent.  The 
consistent finding in empirical studies is that geographical distance and clusters of legal 
traditions86  are  important  determinants  of  cross-border  investments.  This  confirms  the 

81 See Cecchini (1988) and Wagner (2005). 
82 COM(2001) 398 final 
83 Wagner (2005).  
84 Wagner (2005) provides a holistic analysis of the costs of legal uncertainty.  
85  Recital  22  of  the  European  Insolvency  Regulation:  (22):  “This  Regulation  [the  European  Insolvency 
Regulation] acknowledges the fact that as a result of widely differing substantive laws it is not practical to 
introduce  insolvency  proceedings  with  universal  scope  throughout  the  Union.  […]  This  applies,  for 
example,  to  the  widely  differing  national  laws  on  security  interests  to  be  found  in  the  Member  States. 
Furthermore,  the  preferential  rights  enjoyed  by  some  creditors  in  insolvency  proceedings  are,  in  some 
cases, completely different. […]” 
86  This  is  covered  by  a  dummy  variable  if  the  home  or  destination  country  follows  an  Anglo-Saxon, 
Nordic, Latin or Germanic tradition or a dummy variable measuring a common legal origin. 

22 

 
                                                 
notion that familiarity matters, suggesting that the more similar the rules, the lower the 
threshold to  engage and  undertake the necessary  due diligence.87  Greater differences in 
substantive  insolvency  laws  make  it  more  costly  to  assess  the  risks  of  cross-border 
investments  compared  to  those  realised  in  a  home  Member  State.  High  information 
barriers with respect to claim procedures increase the costs of legal advice.88  

Recent studies presented empirical evidence that the outcome of insolvency proceedings 
and  their  respective  design  have  a  significant  effect  on  the  magnitude  of  cross-border 
investment  across EU Member States. The effect  is  material  even when  using different 
data sources and specifications for measuring insolvency and cross-border investment.89 
The  statistical  support  at  macro  level  that  convergence  of  insolvency  regimes  to  best 
practices would foster capital market integration implies by inversion that inefficient and 
diverging  insolvency  regimes  are  an  obstacle  to  cross-border  investment.  Due  to  the 
methodological difficulties of (objectively) measuring information and learning costs, the 
empirical  research  about  the  transmission  channels  is  still  scarce.90  The  effects  of 
insolvency  regimes  on  the  magnitude  of  cross  border  investment  should  be  overall 
comparable  to  those  of  other  institutional  determinants  such  as  investor  protection, 
accounting  standards  or  corporate  governance  for  which  the  empirical  literature 
established a significant link to cross-border investment.91  

While there is no data about the magnitude of information and learning costs that cross-
border creditors face, these costs can be approximated through the substantial home bias 
in  investment.  Home  bias  describes  the  under-proportionate  investment  in  cross-border 
equity  and  debt  (and  hence  over-proportionate  investment  in  home  equity  and  debt). 
Home bias is evidenced in a large body of empirical research, and the literature attributes 
an important role of informational frictions and uncertainty avoidance in explaining it.92  

2.1.3.  Stakeholders’ perspectives 

129 stakeholders submitted replies to the public consultation on this initiative, which is a 
sufficiently  large  number  to  derive  quantitative  results  about  their  positions.93  These 
results  can,  however,  not  be  considered  fully  representative  for  the  EU.  Stakeholders 
from  one  large  Member  State  are  over-represented,  while  there  were  no  submissions 
from some EU Member States. Like all public consultations, there is also a self-selection 

87  While  familiarity  appears  as  a  factor  separate  from  information  costs  in  Roque  Cortez  et  al.  (2014), 
empirical studies tend to cover them with similar variables. 
88 On top of other costs and risks, such as language support, translating terms, general standardisation of 
tools, access to information. For more, please see  the interviews with insolvency experts conducted by in 
the study conducted by Deloitte/Grimaldi (2022) on behalf of the Commission (Annex 4, Section 3). 
89 See Annex 4, Section 4 for more details on these studies. IMF (2019) and Bremus and Kliaskova (2020) 
use the World Bank insolvency recovery rates and the IMF Coordinated International Investment Portfolio 
Survey,  Kliatskova  and  Savatier  (2020)  the  OECD  insolvency  data  and  the  ECB  Security  Holdings 
Statistics. 
90 Wagner (2005) reports that the most widespread means to measure legal uncertainty and the underlying 
information costs consist in indicators that measure differences in legal institutions (such as the rule of law 
or insolvency indicators) or are based on surveys of risk experts or cross-border investors. 
91  See  for  example  Giofre  (20014),  Poshakwalea  and  Thapa  (2011),  Ferreira  and  Miguel  (2011).  The 
legitimacy of using the results of these studies is supported by the finding in Jack (2018) that the World 
Banks’ legal rights index is correlated with recovery rates.  
92  See  for  example,  Portes  and  Rey  (2005),  Aggarwal  et  al.  (2012).  Measures  of  home  bias  of  debt  and 
equity holdings are part of the CMU indicators. 
93 See Annex 2 for more details on the public consultation. 

23 

 
                                                 
bias,  implying  that  stakeholders  for  whom  the  issue  is  particular  pertinent  are 
overrepresented. 

The replies to the public consultation on this initiative revealed that stakeholders find that 
the problem created for the internal market by differences in Member States’ insolvency 
frameworks is serious. 54% of the respondents who provided an answer to the question 
perceived  the  problem  for  the  internal  market  stemming  from  the  divergence  in 
insolvency  rules  as  important,  attributing  a  score  between  3  and  5  (with  0  meaning  no 
problem and 5 meaning an extremely significant problem).  

Figure  4:  Number  of  responses  in  the  public  consultation  –  Do  differences  in  corporate  (non-bank)  insolvency 
frameworks in EU Member States pose a problem for the functioning of the internal market?  

40

35

30

25

20

15

10

5

0

0

1

2

3

4

5

No answer

Note: 0 means 'no problem' and 5 means 'extremely significant problems'  

An  especially  large  representation  of  German  respondents  (58  out  of  129)  created  a 
geographical bias in the response rate. The responses revealed a geographical split across 
the  Northern  and  Southern  Member  States.  They  also  showed  that  researchers  and  the 
business sector see a higher need for policy measures than public authorities. The views 
and  level  of  ambition  of  insolvency  practitioners  and  legal  experts  differ  depending  on 
the issue.94  

94 This may be explained by the fact that insolvency practitioners and legal experts provide legal advice on 
cross-border rules. The more aligned the rules in the EU would be, the less the need for such advice migh 
be in the future.  

24 

 
 
                                                 
Figure 5: Average support rate in the public consultation 
by Member State 

Figure 6: Average support rate in the public consultation 
by sector representation  

Note:  Average  rating  on  a  0-5  scale  with  0  means  'no  problem'  and  5  means  'extremely  significant 
problems'. Number of responses on the x-axis.  
Source: European Commission. 

When  asked  for  the  reasons,  stakeholders  indicated  that  differences  in  national 
insolvency frameworks deter cross-border investment/lending. In a  follow-up workshop 
with selected stakeholders, these stakeholders reported on practical difficulties resulting 
from  the  fragmentation  or  different  performance  rates  of  the  national  insolvency 
frameworks.  These  stakeholders  expressed  strong  support  for  greater  convergence  in 
insolvency rules in the EU. Annex 2 provide more details about stakeholders’ views. 

2.2.  What are the consequences? 

The first consequence of lengthy, costly and very divergent insolvency proceedings is the 
impact on capital allocation, which is likely to be less efficient compared to the situation 
when  insolvency  regimes  are  more  efficient  and  overall  more  similar  across  Member 
States.  Creditors  and  investors  anticipate  the  consequences  of  inefficient  insolvency 
regimes in their decision to provide credit or to invest.95 They will demand a higher risk 
premium or insist on other safeguards such as collateral, which increases capital costs for 
the  corporates.96  This  higher  risk  can  also  discourage  investors  from  undertaking  the 
investment at all, limiting the supply of funding available to companies, leading to higher 
funding costs for corporations and, more broadly, to less efficient capital allocation in the 
EU economy.  

The design of insolvency systems therefore has consequences for the provision (supply) 
of credit, capital costs and the allocation of capital. The academic literature reviewed in 
Annex 4,  Section  4  found  empirical  evidence  of  significant  adverse  effects  of 
inefficiencies  in  insolvency  regimes  on  cross-border  capital  flows,  credit  provision, 

95  For  a  theoretical  analysis  of  the  interaction  of  bankruptcy  rules  and  corporates’  financial  structures  in 
terms of optimal contract design, see von Thadden et al. (2010). See Annex 4, Section 4.2 for an analysis 
on the impact of insolvency regimes on credit provision. 
96  Davydenko  and  Franks  (2008)  suggest  that  weak  credit  protection  induces  creditors  to  look  for 
compensating measures, in particular to request higher collateral. See Annex 4, Section 4.3 for literature on 
the impact on credit conditions. 

25 

 
 
 
 
 
                                                 
funding  cost  and,  ultimately,  the  adjustment  capacity  of  the  economy,  with  follow-on 
effects  on  the  diffusion  of  technical  progress  and  productivity  growth.97  Whereas  the 
earlier economic research  found  that better insolvency  regimes  lead to more lending to 
the economy in cross-country comparisons,98 newer studies point that positive effects of 
more efficient insolvency regimes are better visible  in funding costs or non-price credit 
conditions in advanced economies.99 Annex 4 gives more details of this literature.  

Since  they  impair  cross-border  investment,  both  differences  and  inefficiencies  in 
insolvency  regimes  fragment  the  single  market  for  capital  in  the  EU  and  deter  the 
realisation  of  the  CMU  that  seeks  to  build  an  integrated  market  for  capital  in  the  EU. 
Since market practitioners consider divergence of insolvency regimes a central obstacle 
to  cross-border  investment,  absence  of  tangible  progress  in  this  policy  field  could 
jeopardise  the  credibility  of  the  overall  CMU  project.  The  studies  quoted  in  the 
introductory  section  provide  evidence  that  more  efficient  (and  more  converging) 
insolvency regimes spur cross-border investment and macroeconomic risk sharing.100  

Finally, differences and inefficiencies in insolvency regimes can also have an impact on 
business relocations. Business can relocate either to declare bankruptcy and avoid paying 
creditors  (insolvency  tourism),  or  to  gain  certain  advantages  that  would  allow  them  to 
benefit  from  the  availability  of  more  favourable  insolvency  laws.  In  practice,  however, 
while  the  possibility  for  the  company  to  migrate  to  a  different  and  more  favourable 
jurisdiction  may  be  an  option  in  theory,  this  may  end  up  being  costlier  and  more 
inefficient  than  staying  in  the  debtor’s  own  jurisdiction.  A  recent  study  finds  that 
relocation  can  only  be  an  option  for  large  companies.101  In  any  event,  the  reduction  or 
elimination of key differences between national insolvency laws and an enhanced degree 
of  efficiency  of  insolvency  regimes  across  the  EU  would  remove  incentives  for 
relocations that are driven by the existing divergences.   

2.3.  What are the problem drivers? 

The  members  of  the  expert  group  on  insolvency,  the  stakeholders  in  the  public 
consultation  and  the  external  contractor  performing  the  economic  study102  in  the 
preparation  of  this  Report  recognised  the  differences  in  certain  targeted  aspects  of 
insolvency rules as drivers of the problems identified above. Insolvency tools available in 
these areas appear to be very different across Member States (See also Section 1.4. of this 
impact assessment). For several of these elements, rules are missing completely in some 
Member  States’  insolvency  regimes;  where  they  exist,  their  design  may  deliver 

97 A more efficient insolvency regime speeds up economic recovery after recessions in Jorda et al (2020), 
which  they  link  to  fewer  zombie  companies  holding  back  productivity  growth  in  countries  with  more 
efficient insolvency procedures. Also OECD research (McGowan, et al. 2017 and 2018) found that capital 
blocked  in  zombie  companies  is  higher,  the  weaker  the  insolvency  regime,  which  slows  down  capital 
reallocation, weakens the adjustment process and ultimately slows down the diffusion of technical progress 
and productivity growth. See Annex 4, Section 4.1 for a discussion of the effects. 
98 See Djankov et al. (2008), replicated in Uttamachandani et al. (2021). 
99  See  AFME  (2016)  and  IMF  (2019)  on  capital  costs,  Davydenko  and  Franks  (2008)  and  Deakin  et  al 
(2017) on non-price credit terms. 
100 “[C]ross-country risk sharing in the euro area remains quite low, highlighting the importance of policy 
initiatives such as the capital  markets union and the completion of the banking union. [..] More efficient 
insolvency frameworks appear to be associated with higher risk sharing via both the capital and the credit 
channels”, Draghi (2018). 
101 Spark, Tipik, Study on the issue of abusive forum shopping in insolvency proceedings, DG JUST 2022. 
102 Deloitte, Grimaldi (2022). 

26 

 
                                                 
suboptimal  outcomes,  at  least  in  some  of  the  Member  States.  They  are  grouped  below 
according  to  the  role  they  primarily  play  in  triggering  various  problems.103  One  driver 
might  lead  to  several  problems.  Similarly,  several  drivers  might  contribute  to  the  same 
problem and reinforce it. 

2.3.1.  Inadequately  designed  (or  missing)  features  and  large  cross-border 

divergences on asset recovery proceedings 

Some of the components of insolvency regimes help recover as much capital as possible 
from the insolvent company. If they are missing or not well designed, there is scope for 
moral hazard because the owner, debtor or director of a company may face an incentive 
to procrastinate on filing for insolvency (“gamble for resurrection”) or to use their better 
knowledge of the company to redirect resources away from the estate, thereby leading to 
a  lower  value  that  can  be  distributed  to  creditors.  Detecting  whether  transactions  have 
been  initiated  for  this  purpose  or  whether  assets  are  placed  in  hidden  places  allows 
increasing the recovery value.  

Without suitable measures that govern transaction avoidance, it is difficult to claw back 
assets  that  were  alienated  in  the  vicinity  of  insolvency,  for  example  transactions  to 
benefit  owners  or  transactions  at  unjustified  prices.  Member  States  have  currently  very 
different  rules  to  govern  transaction  avoidance  aimed  at  the  rescission  of,  or  the 
compensation for, transactions that are detrimental to creditors and had been performed 
prior  to  the  opening  of  insolvency  proceedings.  Divergences  among  Member  States  go 
across  all  the  key  elements  of  transaction  avoidance,  such  as  the  suspect  periods,  the 
legal acts concerned, the limitation period and so on (Grimaldi and Deloitte 2022).  For 
example, only transactions of the debtor are considered in some Member States (Czechia, 
Spain, Malta, the Netherelands, Slovenia), whereas all legal acts performed by the debtor, 
the  defendant  or  a  third  party  that  are  detrimental  to  the  general  body  of  creditors  are 
subject  to  avoidance  actions  in  others  (Germany,  France,  Poland,  Portugal,  Sweden). 
There are also divergences in the suspected periods and in the limitation periods across 
Member States. Such differences lead to information and learning costs in particular for 
cross-border  investors  and  makes  cross-border  investments,  especially  in  companies  in 
financial difficulties, more costly.104  

Consultations with stakeholders (see Annex 2) revealed problems related to asset tracing, 
especially  where  the  asset  is  situated  in  another  Member  State  than  the  one  where  the 
proceedings  have  been  opened.  Each  Member  State  has  its  own  rules  and  entrust  the 
insolvency  practitioners  with  different  powers  in  respect  of  asset  tracing.  This  implies 
that powers of insolvency practitioners may not include coercive measures if they are not 
provided by the applicable law, unless ordered by a court of the specific Member State or 
the right to rule on legal proceedings or disputes. Missing or cumbersome possibilities of 
asset tracing impair the capacity of courts, insolvency practitioners or other parties with a 
legitimate interest to determine and locate the assets, examine the revenue generated by 
often fraudulent activity, and follow its trail. As a “follow the money” tool, asset tracing 

103  These  problem  drivers  are  more  granular  than  those  that  for  example  World  Bank  and  OECD  have 
subjected to a mapping into numerical values. While this lack of numerical indicators for granular features 
of  insolvency  regimes  complicates  the  empirial  search  for  evidence,  Annex  4,  Section  2  reports  on 
properties for some of them that are linked to the problems and consequences elaborated above. 
104 Recovery values as measured in the EBA (2020) benchmarking exercise are however not higher in those 
Member States with a broader group of actors subject to rules on transaction avoidance. 

27 

 
                                                 
is  of  particular  significance  in  an  insolvency  context,  as  debtors  have  an  incentive  to 
remove assets from the insolvency estate.  

Directors and managers’ have a key role in the vicinity of insolvency. It is detrimental to 
the recovery value if rules are absent or ineffective that govern (i) when directors have to 
file  for  insolvency,  (ii) whether  their  goal  should  shift  to  the  creditors’  interest,  or 
(iii) whether  they  are  liable  if  it  is  found  that  they  acted,  prior  to  the  advent  of  formal 
insolvency proceedings, with intent to defraud creditors. Procrastination in the start of the 
process, including of attempts to engineer restructuring solutions early on, however, tend 
to  reduce  the  recovery  value.105  Duties  (and  potential  liability)  for  directors  are  very 
differently defined across the EU. In some Member States there is not even such a duty, 
while in others there is a duty to file within a very short timeframe or more generically in 
a ‘timely manner’. As illustrated in Annex 5 Section 2.3, the time in which filing must be 
done  varies  widely  across  the  EU  and  directors  have  different  obligations  vis-à-vis 
shareholders. 

This divergent landscape generates additional costs, uncertainty and, hence, obstacles for 
investors  that  operate  cross-border.  This  can  be  further  complicated  by  the  fact  that 
investors  can  also  hold  directors’  positions  in  various  companies  and  face  different 
obligations in companies in different Member States. This is particularly the case, in both 
large  and  small  innovative  companies,  for  very  active  investors  with  large  stakes  that 
want to be more engaged with the governance of their (invested) companies.  

Recovery  values  are  low  and  could  be  different  across  Member  States,  everything  else 
being equal, also because pre-pack sales are not available in Member States. At present, 
many Member States either do not have pre-pack procedures or have very different rules 
regulating them. Some of those Member States that have rules on pre-packs are among 
those with the highest recovery rates (Denmark, Netherlands and Sweden).106 

2.3.2.  Inadequately  designed  (or  missing)  features  and  large  cross-border 

divergences in the governance of insolvency proceedings 

Procedural  efficiency is  determined by the capacity of public actors such as  courts and 
insolvency practitioners to deal with the liquidation of a company.  

Without  the  involvement  of  public  actors  in  insolvency  proceedings,  the  possibility  of 
creditor runs leads to  a market failure, i.e. creditors who claim first will be served first 
and those that claim last will receive only what is left.107 A market failure occurs since 
this  can  lead  to  companies  being  liquidated  prematurely.  Since  it  is  not  rare  that 
companies face liquidity shortages  and payment  difficulties, there is a risk that creditor 
runs lead to the liquidation of viable companies that face temporary difficulties. 

The absence of lighter procedures for micro and small companies (MSEs) contributes to 
the  workload  of  courts  and  insolvency  practitioners.  MSEs  are  often  not  wound  down 
properly108 but remain in limbo. Incentives to close their cases are distorted because the 

105 For an analysis of incentives to file for insolvency and their impact on recovery values, see for example 
Gurra-Martinez (2020). 
106 Three other Member States with pre-pack regimes are however not: France, Italy and Poland. 
107 See Hart (2000), Longhofer and Peters (2004). 
108 This is for example suggested by the comparison of almost 700,000 exits of businesses with less than 5 
employees with about 2700 cases of corporate bankruptcy in a sample of six Member States (BE, DE, FR, 
NL, FI, SE) in 2019. 

28 

 
                                                 
costs of proceedings  can easily  exceed the value of the estate.  For MSEs, in particular, 
traditional  long  and  complex  liquidation  procedures  easily  cost  more  money  than  what 
they  are  able  to  generate  in  proceeds  for  creditors.  To  allow  an  orderly  liquidation  of 
MSEs,  some  Member  States  already  have  a  lighter  regime,  which  may  even  avoid  the 
launch  of  standard  proceedings  if  resources  are  structurally  limited  (size  of  the  firm). 
However, the picture is rather patchy across the EU and the conditions and the definitions 
of  eligible  MSEs  vary  considerably.109  While  France  and  Greece  introduced  simplified 
rules  for  MSEs  recently,110  MSEs  for  example  in  Austria,  Germany  and  Italy  will  find 
their  application  for  opening  insolvency  proceedings  rejected  if  their  remaining  asset 
value is too low to cover the expenses of that insolvency proceeding. 

Companies normally face financial distress some time before an insolvency procedure is 
initiated.  From  the  perspective  of  the  creditor,  the  insolvency  trigger  is  therefore  a 
determinant  of  the  length  of  time  s/he  is  exposed  to  uncertainty.  In  the  absence  of  a 
harmonised definition there could be as many as 27 different answers to the question of 
whether a business is (in)solvent and the insolvency procedure should start, which creates 
high  information  and  learning  costs  for  cross-border  creditors.  In  some  Member  States 
the  main  determinant  is  the  cash  flow,  i.e.  a  company  is  declared  insolvent  when  it 
cannot pay its debts as they become due. In other Member States, it is also the value of a 
company’s  liabilities  on  its  balance  sheet  outweighing  the  value  of  its  assets.  Most 
Member  States  apply  a  combination  of  both  determinants  and  many  also  require  a 
durability criterion (See Table A5.1 in Annex 5). 

2.3.3.  Inadequately  designed  (or  missing)  features  and  large  cross-border 
divergences on procedures for distribution of recovered values  

A  number  of  components  in  insolvency  regimes  govern  the  position  of  all  types  of 
creditors and define rules that determine the share of the value of the estate that can be 
paid to each creditor.111 Their design impacts on their bargaining position and incentives 
of each creditor to support the resolution of the insolvency case.  

Knowledge  of  these  rules  is  important  for  investors  and  creditors  when  they  decide  to 
provide credit or to invest. Transparency and fairness of these rules is also important for 
those  business  partners  of  a  defaulting  company  that  became  creditors  through  their 
provision of goods and services to the defaulting company. Creditors are heterogeneous. 
There  are  differences  in  the  type  of  claims  on  a  defaulting  company  (financial,  trade 
credit,  labour  liabilities,  obligations  vis-à-vis  public  authorities).  Creditors’  different 
priority  status  (secured,  senior,  junior)  generally  entails  high  information  and  learning 
costs  for  (other)  creditors  and  have  a  substantial  impact  on  the  recovery  prospects  and 
risk premia.  

The  large  divergences  across  Member  States  on  how  distribution  of  recovered  value  is 
organised mean that  costs are even higher for creditors acting cross-border, which may 
hamper their willingness to do business. Cross-border creditors will in particular need to 
understand what the existing rules mean for their position in the group of creditors and 

109 Thresholds  for  access  to  simplified  MSE  insolvency  proceedings  diverge:  the  value  of  the  company's 
business needs to be less than EUR 100,000 in Greece; the company’s assets can be be a maximum of EUR 
5  million  and  creditors  be  less  than  50  in  Spain;  assets  need  to  be  below  EUR  300,000,  gross  revenues 
below EUR 200,000 and debt a maximum €500,000 in Italy. See Grimaldi and Deloitte 2022. 
110 2019 and 2021, respectively. 
111 Including tax authorities and employees. 

29 

 
                                                 
relative  to  preferred  creditors,  debtors  and  other  stakeholders,  such  as  employees  or 
public  authorities.  They  are  likely  to  be  disadvantaged,  facing  obstacles  to  coordinate 
with  domestic  creditors  due  to  different  legal  regimes,  language  and  less  knowledge 
about  the  (divergent)  insolvency  systems  and  domestic  actors.  Creditors  from  third 
countries  encounter  problems  identical  to  those  of  cross-border  creditors  within  the 
EU.112 

The  potential  drivers  that  contribute  to  determining  the  distribution  of  recovered  value 
among the different creditors include the ranking of claims and creditor committees (in 
the scope of this initiative) and a few others (which are not in scope and briefly discussed 
in a separate section below). 

The ranking of claims is of key interest to creditors since it determines the distribution of 
the  remaining  value  of  a  defaulted  company.  It  presents  an  important  source  of 
uncertainty because the impact of the ranking of creditors on the expected recovery rate 
is  generally  hard  to  predict  for  all  creditors.  They  are  a  particular  challenge  for  cross 
border creditors since systems are substantially divergent across Member States and the 
differences  are  not  sufficiently  transparent.  For  example,  a  number  of  Member  States 
afford  particular  privileges  to  tax  and  other  governmental  claims  (for  example  Italy, 
France,  Spain).  Some  Member  States  give  a  priority  or  even  super-priority  ranking 
(trumping  all  other  claims  including  those  of  secured  creditors)  to  the  claims  of 
employees (unpaid wages).113 A new phenomenon with potential impact on the ranking 
of  claims  concerns  the  remediation  of  environmental  damage.114  Given  their  impact  on 
the risk premium  and, hence, the cost  of lending, divergences  in  this  area may act  as a 
significant deterrent for engagement by cross border creditors. 

While creditor committees exist in most Member States,115 different rules across Member 
States and limited powers and scope in  some of them (see Table  A5.9 in  Annex 5) for 
creditor committees contribute to the high information and learning costs for cross-border 
creditors, in particular due to the difficulty to coordinate their actions during proceedings 
or  the  risk  of  facing  hold-up  problems.116  Cross-border  creditors  are,  in  particular, 
disadvantaged by language barriers and unfamiliarity with domestic proceedings. Unless 
they  hold  a  sizeable  claim  against  the  defaulting  company,  cross-border  creditors  are 
likely  to  face  a  bargaining  disadvantage  relative  to  domestic  creditors.  As  creditors’ 
committees provide an institutional guarantee that creditors can articulate their views in 
the  insolvency  proceedings,  in  particular  thanks  to  their  oversight  by  the  insolvency 
practitioners, cross-border creditors may specifically benefit from this tool to compensate 
their disadvantages listed above. Thus, rules on creditor committees can have a decisive 
impact on the recovery value.  

112 The remoteness of creditors from third countries should have an effect on where they invest. Whereas 
intra-EU investors often invest in neighbouring countries, extra-EU investors have an incentive to focus on 
large Member States to counter their information costs with higher scale economies in larger markets. 
113 For example, Cyprus, France, Italy, Lithuania, Poland. 
114  The  issue  is  of  relevance  for  the  Environmental  Liability  Directive  (Directive  2004/35/EC),  which 
offers  an  EU  framework  for  preventing  and  remediating  environmental  damage  in  accordance  with  the 
‘polluter pays’ principle, as enshrined in the EU Treaties. 
115  Exceptions  are  Belgium,  Greece,  Latvia  and  Malta.  It  is  of  advisory  nature  in  Denmark,  limited  to 
business reorganisations in Sweden and requires court intervention to be established if the firms is below 
certain size in France. 
116  Hold  up  problems  describe  when  some  parties  block  decisions  that  are  in  the  interest  of  the  group  in 
order to gain a larger benefit for themselves. 

30 

 
                                                 
2.3.4.  Stakeholders’ views about problem drivers 

When  the  DRI  was  negotiated  as  well  as  in  their  replies  to  the  public  consultation, 
Member  States  reasoned  that  the  close  links  of  insolvency  law  with  other  areas  of 
national law would make full harmonisation of insolvency rules not feasible at this point. 
Many  stakeholders,  however,  argued  that  the  complexity  and  opacity  around  national 
insolvency  laws  is  a  barrier  to  cross-border  investments  as  it  makes  it  costly  to 
understand and measure the risk in investing in the EU. This applies to both EU as well 
as non-EU investors. 

Stakeholders expressed divergent views in the public consultation  about the importance 
of  the  different  problem  drivers  as  an  obstacle  to  the  single  market.117  For  example, 
insolvency  practitioners  highlighted  in  particular  divergent  rules  on  asset  tracing  and 
avoidance  actions  as  important  obstacles.118  Financial  institutions  identified  the 
insolvency trigger and the ranking of claims as the key obstacles, whereas non-financial 
business indicated asset tracing and the ranking of claims. Firms that provide consultancy 
or  other  services  to  businesses  flagged  the  insolvency  trigger,  directors’  duties  in  the 
vicinity of insolvency and the ranking of claims as most concerning. Researchers argued 
that both avoidance actions and the ranking of claims needed to be harmonised, whereas 
public authorities generally considered the need to act on any of the proposed elements as 
low.  

Figure 7: Stakeholder views on the extent problem drivers constitute a problem for the functioning of the single market 
on a scale 0 to 5, average reply in the public consultation (left-hand chart) and average per stakeholder group (right-
hand chart)  

Note: 0 means 'no problem' and 5 means 'extremely significant problems'.  

The relevance of the different problem drivers can also be derived from  the indications 
about  their  cost  and  time  saving  potential  that  the  insolvency  experts  surveyed  in 
Deloitte/Grimaldi  (2022)  attributed  to  them.  The  existence  of  cost  and  time  saving 
potential  suggests  that  current  rules  are  not  efficient.  Table  2  shows  how  many  of  the 
insolvency  experts  supported  measures  in  this  area  and  their  assessment  of  the 
effectiveness  of  EU  harmonisation  from  the  perspective  of  cross-border  insolvency 
procedures.  It  suggests  that  foreign  investors  would  derive  benefits  mainly  from 
measures that improve asset recovery and transparency, and  perhaps see less in relative 
terms direct benefits from common MSE regimes and creditor committees. Similarly to 
the  results  of  the  public  consultation,  German  and  Swedish  respondents  were  less 

117 See section 3 in Annex 2 for a description of the methodology and more detailed results. 
118 Their overrepresentation in the panel leads to a high average rating for these elements. 

31 

 
 
 
                                                 
supportive of wider harmonisation efforts than French, Spanish or Italian respondents.119 
Respondents  from  Romania  and  Poland  were  on  average  even  more  supportive  than 
those from the Southern Europe in this survey, differing from the views of respondents 
from Central and Eastern Europe in the public consultation, to which neither Polish nor 
Romanian stakeholders contributed. 

Table 2: Indications by insolvency experts about the impact of policy measures on the effectiveness of an EU regime 
from the perspective of cross-border creditors 

Avoidance 
actions 

Asset 
tracing 

Directors 
duties 

Pre-
packs 

MSE 

Ranking 
of claims 

Trans-
parency* 

Creditor 
committee 

0.8 

1.0 

0.7 

0.6 

61.6% 

85.8% 

53.4% 

74.1% 

82.4% 

70.0% 

Approval 
rate+ 
Score** 
Note: + a % share of the 120 interviewed insolvency experts who indicated an increase in effectiveness out 
of all positive replies to “Considering the overall effectiveness of the cross-border insolvency procedure, as 
concerns  the  liquidation  of  debts  and  the  satisfaction  of  the  claims  of  creditors,  please  provide  us  your 
estimate  of  the  change  in  the  overall  effectiveness  determined  by  the  introduction  of  EU  rules”  [in  this 
area]. * A glossary of insolvency terms and of the equivalent professional figures in different jurisdictions. 
**.  The  score  is  defined  as  0  indicating  no  efficiency  gains,  0.5  marginal  gains,  1  normal  gains  and  2 
significant gains and likewise for negative values. 
Source: FISMA with Survey data from Deloitte/Grimaldi. 

87.5% 

51.6% 

0.4 

1.1 

0.5 

0.3 

2.3.5.  Out -of-scope drivers 

The  proper  functioning  of  the  courts  and  the  high  quality  of  judges  can  significantly 
contribute to reducing the length of proceedings120 and increase the ability to distinguish 
viable from non-viable companies121. The long recovery time documented above is also 
the result of (insufficient) court capacity.  

In the same way, the qualifications and incentives of insolvency practitioners can have a 
significant  impact  on  the  running  and  outcome  of  insolvency  proceedings.  On  the  one 
hand, costs for insolvency practitioners, for example, reduce the payback to creditors and 
often  make  the  opening  of  bankruptcy  procedures  non-economical  for  smaller 
companies.  On  the  other  hand,  insolvency  practitioners  often  play  an  essential  role  in 
ongoing  proceedings.  Notably,  they  can  act  on  transaction  avoidance  and  trace  assets, 
manage the operations of the insolvent  estate and influence how the debtor’s assets are 
sold. The powers and efficiency of insolvency practitioners thus affect the length of the 
insolvency  framework  and  therewith  the  trust  cross-border  investors  place  on  the 
efficient treatment of their claims. The exposure of insolvency practitioners to conflict of 
interests,  the  absence  of  mandatory  professional  assurance  and  –  possibly  –  standards 
relating to their remuneration makes them sensitive to moral hazard that can compromise 
their role as neutral and independent actors.  

Nevertheless,  despite  their  importance,  this  initiative  excludes  an  intervention  on  the 
capacity and quality of judicial  systems  and qualifications and incentives of  insolvency 
practitioners.  First,  major  interventions  to  improve  capacity  and  quality  of  domestic 
courts  and  insolvency  practitioners  adds  a  major  complexity  to  the  overall  EU  action, 
such  as  the  need  to  have  significant  political  support  (currently  lacking)  for  major 

119 German and Swedish respondents were particularly more negative on the effectivenss of an EU regime 
for  pre-packs,  MSEs  and  transparency.  Swedish  experts  were  also  critical  on  asset  tracing  and  creditor 
committees. 
120 See, for example, Kruczalak-Jankowska et al. (2020). 
121 See Ayotte and Yun (2007). 

32 

 
  
                                                 
judicial  systems  and  significant 

reforms  of  domestic 
in  available 
infrastructures and personnel.  Moreover, the Directive on Restructuring and  Insolvency 
is already expected to lead to some convergence towards more efficient court structures 
and  framework  for  insolvency  practitioners.  As  the  Directive  is  being  transposed,  it  is 
still too early to take stock or envisage another EU intervention.  

investments 

33 

 
 
Drivers 

Problems 

Consequences  

D.1  Large  divergences  of  national 
insolvency 
across 
Member States 

proceedings 

 Asset value recovery tools (e.g. 
transaction avoidance actions, 
directors’ duties to file for 
insolvency, pre-pack sales and other 
asset sales) 

 Governance of proceedings (e.g. 
insolvency triggers, proportionate 
rules for MSEs) 

 Tools for distribution of recovered 
value (e.g. creditors’ committees, 
ranking of creditors) 

and 

P.1  Costly  and  lengthy 
(national 
cross-
insolvency 
border) 
proceedings  lead  to  low 
recovery values 

P.2  Low  predictability  of 
insolvency 
proceedings 
leads  to  high  information 
costs, 
price 
weaker 
discovery  and  constitutes 
a  barrier  to  cross-border 
investment 



D.2 Missing or inadequately designed 
elements in insolvency cases 

Out of scope Drivers 

– Quality and capacity of judicial systems 
– Qualifications and incentives of Insolvency 

Practitioners 

C.1  Less  efficient  allocation 
of capital  


Higher capital costs and 
smaller supply of cross-
border capital 
Lower adjustment 
capacity of the economy 
(more ‘zombie firms’ 
and less entry with 
negative impact on 
growth) 



impact  on 

C.2  Negative 
single market for capital  


Limitation to cross-
border investment and 
business operations  
Less risk sharing 
through capital and 
credit markets 

2.4.  How will the problem evolve? 

In the absence of an initiative on the convergence of insolvency laws, EU action would 
remain  restricted  to  the  few  general  provisions  in  the  Restructuring  Directive  on 
insolvency  proceedings  concerning  digitalisation,  training  of  judges  and  insolvency 
practitioners  and  data  collection  and  to  country  specific  recommendations  issued  each 
year towards several Member States122. This does not leave ground to believe that action 
would  be  taken  across  Member  States  to  move  in  the  direction  of  a  coordinated  or 
comparable solution for the problems and problem drivers identified above (see Annex 6 
for a review of progress with insolvency reforms in the Member States).  

The  expected  phasing  out  of  policy  measures  to  keep  distressed  companies  as  going 
concerns  during  the  Covid-19  economic  downturn  and  the  significant  adjustment 

122 Recommendations in relation to insolvency frameworks to Member States within the annual European 
Semester  exercise  address  only  a  small  number  of  Member  States  and,  thus,  cannot  achieve  a  consistent 
solution  to  an  EU-wide  problem.  Maintaining  the  status  quo  will  imply  ongoing  disparity  between  the 
national legislations on insolvency. 

34 

 
 
 
 
 
                                                 
 
 
 
 
 
challenges for the economy123 are likely to increase the number of business exits in the 
future.124  The  exposure  of  the  EU  economy  to  energy  price  shocks  and  supply-chain 
bottlenecks evidenced in 2022 reveal the vulnerability of the EU economy to pronounced 
economic shocks. Whenever these hit the economy, companies may come into conditions 
where  their  debt  level  turns  out  unsustainable  or  may  find  that  changes  to  demand  and 
factor  costs  make  their  business  models  no  longer  viable.125  The  baseline  scenario  is 
therefore one in which a rising number of insolvency cases will continue challenging the 
capacity  of judicial systems. The absence of  converging  insolvency  regimes will  imply 
that  the  magnitude  of  cross-border  investment  and  extent  of  cross-border  business 
relationships would remain below its potential.  

3.  WHY SHOULD THE EU ACT? 

3.1.  Legal basis 

Since the objective of this initiative is to ensure the functioning of the Single Market, the 
EU has the right to act under the Treaty. Article 114 TFEU provides a suitable legal basis 
for the approximation of legislation and administrative actions in Member States. The use 
of Article 114 is  justified by  problems  for the functioning of the  Single  Market, which 
result from the disincentives to invest across borders (described in more details above) as 
a consequence of the divergences and inefficiencies in national insolvency laws.  

3.2. 

Subsidiarity: Necessity of EU action 

The functioning of the single market is in the interest of the EU and all Member States. 
Without EU actions, there is no mechanism to foster that elements of national insolvency 
regimes would become more similar over time. An important obstacle to the functioning 
of the single market for capital and the completion of the CMU would remain unadressed 
and many companies would be deprived of access to (cross-border) investment. Member 
States’ different starting points, legal traditions and policy preferences imply that reforms 
at  national  level  in  this  area  are  unlikely  to  lead  to  converging  insolvency  systems. 
Member States  that assess their insolvency  regime as already well-functioning may not 
undertake any reforms that make elements of their system more similar to those in other 
Member States. Among those Member States with higher recovery rates, there are only 
two that have undertaken insolvency reforms in the last years or committed to doing so in 
the recovery and resilience plans.126 Member States that consider their insolvency system 
as in need of reform are likely to focus on improving elements that promise an increase 
of  effectiveness  of  the  national  system  and  tailor  them  to  their  domestic  preferences 
rather than aiming to make them more similar to those in other Member States.127  

123  Including  the  transition  to  a  greener  and  digital  economy  and  the  strengthening  of  the  EU’s  strategic 
open  autonomy.  “Insufficient  efforts  to  address  labor  market  rigidities,  debt  overhang,  and  inefficient 
insolvency  processes  could  impede  efficient  reallocation  of  resources,  thus  leading  to  significant  labor 
market hysteresis, low productivity growth, and sizable economic scarring,” IMF (2022). 
124 See ESRB (2021), OECD (Demmou (2021).  
125 See Fell et al. (2021).  
126 These are Spain and Slovenia. Further information on insolvency-related reforms in Member States is 
included in Annex 6. 
127  The  European  Insolvency  Regulation  “acknowledges  the  fact  that  as  a  result  of  widely  differing 
substantive laws it is not practical to introduce insolvency proceedings with universal scope throughout the 
Union”  (recital  22). This  attests  that  Member  States’  individual  action  in  the  area  of  insolvency  will  not 
suffice to ensure convergence of their insolvency regimes. 

35 

 
                                                 
Since  cross-border  creditors  are  not  part  of  the  electorate,  there  is  a  risk  that  national 
reforms  will  be  biased  towards  the  interest  of  domestic  stakeholders  and  not  place 
sufficient attention to the interests of and disadvantages faced by cross-border creditors.  

3.3. 

Subsidiarity: Added value of EU action 

Action at the European level is better suited to substantially reduce the fragmentation of 
insolvency  regime  and  ensure  convergence  of  targeted  elements  of  Member  States’ 
insolvency rules towards the rules that would work well across all Member States. Rules 
at  national  level  with  a  cross-border  component,  such  as  cross-border  asset  tracing, 
information  to  cross-border  creditors,  would  be  less  suitable  to  address  the  needs  of 
cross-border creditors and imply higher information and learning costs for them than if 
they were following a common design at EU level. 

Measures  at  the  EU  level  would  ensure  a  level-playing  field  and  avoid  distortions  of 
cross-border  investment  decisions  caused  by  both  lack  of  information  about  and  actual 
differences in the designs of elements in insolvency regimes. This would help to facilitate 
cross-border investments and competition while safeguarding the orderly functioning of 
single market. Since divergences in insolvency regimes are a key obstacle to cross-border 
investment, addressing this obstacle will be crucial to realise a single market for capital 
in the EU. 

EU  action  would  act  as  motor  of  reform  and  help  overcome  policy  inactivity  in  the 
Member  States  to  address  issues  with  core  insolvency  rules.128  The  options  proposed 
respect the principle of proportionality, are adequate for reaching the objectives and do 
not  go  beyond  what  is  necessary.  They  aim  at  striking  a  balance  between  establishing 
pan-European  standards  in  targeted  areas,  while  at  the  same  time,  leaving  sufficient 
flexibility to Member States to adapt to local conditions and to maintain the consistency 
of insolvency rules with the broader national legal system. 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? 

4.1.  General objectives 

This policy initiative aims to contribute to the more efficient allocation of capital in the 
single market and enhance market integration under the CMU. While it cannot and will 
not,  on  its  own,  achieve  capital  market  integration  in  the  EU,  it  could,  alongside  other 
CMU measures  (outside the scope of this initiative),  contribute to  the creation of more 
favourable conditions for better market integration. 

  A  first  general  objective  is  to  allocate  capital  in  the  economy  more  efficiently, 
which means supporting the provision of credit to companies and improving the 
adjustment  capacity  of  the  EU  economy  as  elements  crucial  for  balanced 
economic  growth  and  a  highly  competitive  social  economy.  This  requires 
accomplishing  more  efficient  (non-bank)  insolvency  regimes  in  the  Member 
States that are able to generate a higher recovery value of liquidated companies in 
a shorter time and at lower costs than at present. 

128 See Annex 6 for a review of progress with insolvency reform in the Member States in the last decase 
and their announcement of reforms in their recovery and resilience plans. 

36 

 
                                                 
  The  second  general  objective  is  to  ensure  the  free  movement  of  capital  in  the 
single market by fostering investors’ trust and increasing cross-border investment, 
with  the  ultimate  objective  of  creating  a  level  playing  field  for  all  economic 
operators in the EU concerned with regards to insolvency rules regardless of their 
location.  This  demands  to  make  the  design  of  insolvency  regimes  more  similar 
across  Member  States  and  reduce  the  information  and  learning  costs  that  they 
entail for cross border creditors. . 

Both general objectives reinforce each other. The more efficient the insolvency regimes 
at  national  level,  the  more  conducive  they  are  to  cross-border  investment  in  the  single 
market.  The  more  similar  the  elements  of  insolvency  rules  are  in  Member  States,  the 
more active would be cross-border investors and therewith - the more intense would be 
competition among providers of funding and the lower would be the cost of financing for 
companies. 

4.2. 

Specific objectives 

The  initiative  aims  to  initiate  a  completion  of  the  toolbox  used  in  insolvency  cases  by 
adding specific, targeted elements to insolvency regimes, pursuing the following specific 
objectives: 

  The development of more efficient and similar rules in Member States for better 
value  recovery,  notably  in  the  fields  of  transaction  avoidance,  asset  tracing, 
directors’ duties and pre-pack procedures. 

  The  development  of  more  similar  rules  in  Member  States  for  more  efficient 
insolvency  proceedings,  notably  with  respect  to  MSEs  procedures,  insolvency 
triggers  and  insolvency  rule  transparency  to  support  a  timelier  conclusion  of 
insolvency proceedings for non-bank companies.  

  The  development  of  more  similar  rules  for  efficient  and  fair  distribution  of 
recovered  values  in  Member  States,  notably  in  the  field  of  creditor  committees 
and the ranking of claims to reduce legal uncertainty and information costs related 
to insolvency processes for cross-border creditors.  

Insolvency rules need to be consistent with the wider legal system in the Member States 
such as company law, labour law and property law. The convergence of insolvency rules 
should not compromise neither the consistency of national insolvency regimes with other 
parts  of  the  national  legal  systems  nor  a  fair  treatment  of  debtors,  creditors  and  other 
stakeholders in companies undergoing insolvency procedures. 

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? 

The problem analysis identified a number of elements related to the value recovery tools, 
governance  of  proceedings,  and  tools  for  efficient  value  allocation  typically  used  in 
insolvency  cases  that  insolvency  experts  identified  as  either  missing  in  national 
insolvency laws in some Member States or inadequate in other Member States to address 
the problems of overly lengthy and costly insolvency proceedings and low predictability 
of insolvency proceedings, notably for cross-border creditor. Building on those findings, 
this section assesses how the problem would evolve if there is no intervention (baseline 
scenario) and what policy options can be considered to address such problems. Annex 5 
complements this section by providing more details on the individual building blocks.  

37 

 
5.1.  What is the baseline from which options are assessed? 

Without  action  at  EU  level,  Member  States  are  likely  to  either  keep  their  existing 
insolvency  regimes  unchanged  over  the  next  years  or  introduce  limited  changes  that 
would very likely not be aligned across the EU. After the transposition of the Directive 
on (preventive) Restructuring and Insolvency, which had to be concluded by July 2022, 
Member  States  are  unlikely  to  enhance  further  the  convergence  between  substantive 
elements of their national insolvency regimes.  

Against  the  forecast  of  rising  bankruptcy  figures  in  light  of  winding  down  of  public 
support measures related to Covid-19 and slowing economic activity as a consequence of 
the energy inflation shock,129 a rising case load is likely to increase further the duration 
of insolvency proceedings. This could be partially mitigated by action by Member States 
to  improve  court  capacity.  Annex  6  reports  on  what  kind  of  measures  Member  States 
already  envisage  to  undertake  in  the  area  of  insolvency  in  their  reform  and  resilience 
plans.  Furthermore,  were  not  already  done,  Member  States  could  also  improve  judicial 
capacity  by  making  better  use  of  digital  means,  as  well  as  react  to  a  rising  number  of 
insolvency  cases  by  reallocating  courts  and  judges’  capacity  to  address  bottlenecks. 
While  such  measures  would  partly  help  address  the  first  identified  problem,  they  are 
unlikely to happen in a uniform matter across the EU.  

The  prospect  of  a  rising  case  load  and  widening  divergence  in  the  efficiency  of 
insolvency procedures should be seen against the backdrop of a gradual improvement in 
cross-border  investment  flows  stimulated  by  other  CMU  policy  measures  and  the 
resulting  more  important  role  of  cross-border  creditors  in  this  context.  Increased  cross-
border  activity  is  likely  to  exacerbate  further  the  issue  around  the  length  and  ensuing 
bottleneck of insolvency proceedings across Member States.  

Ongoing  (or  future)  CMU  measures  in  other  areas  will  not  make  this  initiative 
superfluous,  but  should  contribute  to  addressing  other  obstacles  to  cross-border 
investments.130  In  doing  so,  these  proposals  may  also  implicitly  raise  the  potential 
number of cross-border insolvency cases in the future. The Commission proposal on the 
European  Single  Access  Point  for  company  data,  once  agreed  by  the  co-legislators,  
should  increase  the  visibility  of  companies  across  the  EU  and  hence  further  facilitate 
cross-border  investment.131  The  upcoming  Commission  proposal  on  the  Listing  Act 
should  make  the  use  of  funding  through  public  markets  by  companies  more  attractive, 
also contributing to more public offers of securities cross-border. Cross-border activity is 
likely to remain significantly below its potential if structural barriers, at least in the area 
of  insolvency,  remain  unaddressed.  The  importance  to  tackle  the  insolvency-related 
barriers  would  remain  irrespective  of  progress  made  on  other  determinants.  Slow  and 
costly  treatment  of  cross-border  creditors’  claims  in  a  liquidated  estate  and  low  value 
recovery,  unless  tackled,  will  serve  as  a  serious  obstacle  and  disincentive  for  them  to 
engage  in  cross-border  investment  in  the  future,  reducing  the  EU  growth  potential 
overall.  

129 See for example, Demmou et al. (2021), Allianz Research (2022). 
130  IMF  (2019)  identified  supervisory  convergence  and  transparency  of  data  as  the  other  two  important 
policy triggers to cross-border investment (in addition to national insolvency regimes). Other Commission 
initiatives  aim  at  tackling  these  other  areas  (e.g.  report  on  the  operation  of  the  European  Supervisory 
Authorities and the proposal on the creation of the European Single Access Point). 
131 COM/2021/723 final, COM/2021/724 final and COM/2021/725 final. 

38 

 
                                                 
The assessment of the quantitative impact of the envisaged policy measures will use, as a 
benchmark,  the  EU  averages  for  recovery  values,  judicial  costs  and  recovery  time 
experienced by banks as creditors.132 Since the numbers pre-date the COVID crisis, they 
are  not  distorted  by  the  low  bankruptcy  numbers  accomplished  by  the  public  support 
measures  in  the  last  years.  They  are  the  most  recent  indicators  that  represent  “normal” 
business  conditions  and  therefore  considered  to  be  suitable  for  the  baseline.  Although 
these  values  may  not  be  necessarily  representative  of  all  creditors,  variations  in  their 
values would be expected to closely mirror variations for other creditors. 

5.2.  Description of the policy options 

Available  policy  options  have  been  carefully  selected  and  grouped,  among  others, 
considering  the  experience  during  the  negotiatons  of  the  Restructuring  and  Insolvency 
Directive,  the  deliberations  and  final  recommendations  of  the  expert  group,  the  results 
from the public consultation, a study by an external consultant and extensive interactions 
with  stakeholders.  More  specifically,  the  impact  assessment  considered  the  areas  put 
forward  for  harmonisation  of  insolvency  regimes  by  stakeholders  in  the  public 
consultation.  Furthermore,  the  group  of  experts  on  restructuring  and  insolvency  law133 
elaborated on the scope of these areas. Finally, the external study (Deloitte and Grimaldi 
(2022)) provided further analysis on the impact of harmonisation in these areas and how 
the rules in question are currently applied in Member States.134  

Measures  that  target  different  elements  of  insolvency  proceedings  are  packaged  in  two 
options that differ in their degree of ambition. Option 1 focuses on targeted elements for 
which  some  commonalities  already  exist  across  Member  States.  They  would  not 
necessitate that Member States overhaul fundamental principles of their current national 
insolvency  laws  (and  other  areas  of  national  law  that  are  related  to  insolvency  laws). 
Option  2  is  more  ambitious  as  it  aims  to  address  the  problem  more  holistically.  It 
includes  some  elements  that  certain  respondents  (e.g.  corporates)  to  the  public 
consultation    signalled  as  obstacles to  the  efficiency  of insolvency proceedings and  the 
removal  of  which  would  be  beneficial  to  foster  cross-border  integration.  These  in 
particular concern a trigger for insolvency proceedings and the ranking of claims.135 As 
set out in later in this impact assessment (see in particular sections 7 and 8), the higher 
ambition in option 2 may, however, lead to potential conflicts with other areas of law in 
Member  States,  determined  by  differences  in  legal  tradition,  history  and  policy 
preferences across Member States.  

The  composition  of  those  packages  was  intensely  analysed,  especially  on  the  elements 
that  distinguish  the  two  options.  The  elements  presented  in  option  1  reflect 
recommendations by insolvency experts about what they considered appropriate. Option 
2 is a credible alternative to Option 1, reflecting the perspective of wider economic and 
business  interests.  Given  the  number  of  building  blocks  and  links  between  them,  the 

132 Report on the benchmarking of national loan enforcement frameworks, EBA, 2020.  
133https://ec.europa.eu/transparency/expert-groups-register/screen/expert-
groups/consult?lang=en&groupID=3362 
134 See Deloitte/Grimaldi (2022). 
135 Although the ECB did not  submit a response to the public consultation, the quote below indicates an 
important role for elements in option 2: “Market participants would find it easier to invest in firms located 
in  different  Member  States  if  core  elements  of  insolvency  regimes,  such  as  the  definition  of  insolvency 
triggers, avoidance actions and the ranking of claims, were harmonised at best-practice levels”, de Guindos 
et al. (2020). 

39 

 
                                                 
present grouping of options was considered the only feasible approach to present options 
with different levels of ambition. Each option, by design, covers a number of elements to 
ensure that the reform under each option has a meaningful impact (which would not be 
the  case  if,  instead  of  grouped  options,  each  element  would  be  presented  as  a  separate 
option).  No  additional  elements  have  been  identified  in  interactions  with  stakeholders 
and experts, which would also  be politically  feasible and could  thus  be incorporated in 
either (or both) options. 

Both  options suggest  legislative changes, namely through a new Directive, whereas the 
option  to  pursue  them  through  a  Recommendation  was  discarded  from  the  onset  (see 
section 5.3).  

5.2.1.  Option  1:  Targeted  measures  on  procedural  efficiency  and  value 

maximization (‘Targeted harmonisation’) 

Option 1 presents targeted measures grouped based on the problem driver they primarily 
address.   

5.2.1.1. Measures targeting value recovery 

Under this option, a set of targeted measures would aim to increase value recovery for all 
creditors, including  cross-border  creditors  in  the  EU. More specifically,  these measures 
would  aim  to  increase  the  effectiveness  of  transaction  avoidance  rules  and  subsequent 
asset  tracing  for  its  recovery  across  the  EU.  Furthermore,  they  would  aim  to  introduce 
more discipline on timely filing of insolvency to avoid unnecessary value  destruction in 
case  of  delayed  filings.  Finally,  they  would  seek  to  put  in  place  harmonised  rules  on 
procedures allowing for better value recovery through a pre-pack arrangement. 

In  the  case  of  transaction  avoidance,  a  minimum  set  of  harmonised  conditions  for 
exercising avoidance actions would be introduced. 84% of the respondents to the public 
consultation  supported  a  more  comprehensive  harmonisation  of  avoidance  actions  and 
for  the  harmonisation  of  elements  such  as  the  different  avoidance  grounds,  of  the 
objective and subjective conditions leading to avoidance, as well as  of the time periods 
prior to the opening of insolvency, which count as relevant for avoidance claims.136 More 
concretely,  the  following  key  elements  of  the  transaction  avoidance  legal  framework 
would  be  clarified  in  EU  law:  types  of  suspicious  transactions,  avoidance  grounds, 
related  parties,  the  period  during  which  the  avoidance  measures  can  be  enacted,  and, 
finally, legal consequences of avoidance, including the liability of third parties and rights 
of the opponent.  

Transaction  avoidance  measures  would  be  complemented  by  measures  strengthening 
asset  traceability  through  a  better-facilitated  access  by  insolvency  practitioners  to  asset 
registers, notably in a cross-border setting (i.e. when assets have been moved to/acquired 
in  another Member State  during the period relevant for transaction  avoidance rules).  In 
the  public  consultation,  almost  85%  of  the  stakeholders  favoured  harmonised  rules  on 
assistance  (including  the  interconnectivity  of  relevant  registers)  in  the  cross-border 

136 All stakeholder groups showed support for all of the proposed subjective criteria to be used as possible 
conditions  to  qualify  a  transaction  as  avoidable  action.  Also,  the  use  of  objective  criteria  was  supported. 
The most often quoted objective criteria were that: 1) The transaction happened within the ‘suspect period’ 
(77%); 2) the transaction is to the detriment of the general body of creditors (70%); and 3) the debtor was 
insolvent at the time of the transaction (53%). The majority of stakeholders (74%) agreed that the ‘suspect 
period’ should be harmonized at EU level. 

40 

 
                                                 
tracing of assets of the insolvent debtor. This would be achieved by enhancing in EU law 
the  access  rights  of  practitioners  to  a  registry  in  another  Member  State.  This  can  also 
build  on  the  already  existing  arrangements  for  access  to  EU-wide  interconnected 
registries (BRIS, BORIS, etc.137).  

Furthermore, to avoid potential asset value losses due to a delay in filing for opening the 
insolvency proceeding, directors would be obliged to timely file for insolvency within a 
pre-defined period of time (e.g., at least within the three months of failing the insolvency 
test of the Member State). Directors failing to comply with this obligation would be held 
liable.  The  public  consultation  yielded  widespread  support  (81%)  for  minimum 
harmonization  at  EU  level  of  the  duties  and  obligations  of  directors  in  the  event  of 
vicinity  of  insolvency  or  when  the  company  is  insolvent.  In  particular,  the  most 
beneficial aspect  of harmonization would be to impose a duty on the director, once the 
company is insolvent, to file for insolvency proceedings (71%).138 

Finally,  under  this  option,  a  minimum  set  of  harmonised  standards  for  a  pre-pack 
liquidation procedure would be introduced to maximise the value preservation in the sale 
of all or part of the business. The pre-pack rules would set out harmonised conditions for 
conducting negotiations on the sale of the business before insolvency filing, with the deal 
finalised  in  insolvency,  hence  enabling  the  realisation  of  the  value  of  the  insolvency 
estate  right  or  shortly  after  the  official  opening  of  the  proceedings.  The  pre-pack 
arrangement could thus avoid significant value destruction, which usually happens, when 
the  assets  can  be  realized  only  at  a  later  stage  of  the  proceedings,  long  after  the 
opening.139  The  pre-pack  rules  would  include  safeguards  to  ensure  transparency  and 
equal treatment of creditors, to avoid abuses. In addition, these safeguards would need to 
ensure  that  employees’  rights  are  not  unduly  curtailed  by  the  pre-pack  administration, 
including the right to information and consultation.  

5.2.1.2.Measures targeting procedural efficiency 

With  SMEs  being  the  backbone  of  the  EU  economy,  it  is  important  to  ensure  that  the 
new  rules  work  well  also  for  smaller  companies  in  the  EU,  for  whom  the  cost  of  the 
ordinary (i.e. established) insolvency procedure is prohibitively high, and where a more 
rapid  debt  discharge  would  allow  to  unblock  the  entrepreneurship  capital  for  new 
projects. Under this option, a special harmonised insolvency procedure would be set out 
in  EU  law  tailored  to  the  needs  of  micro  and  small  enterprises  (MSE).  This  MSE 
insolvency  proceeding  would  be  designed  proportionally  to  the  needs  of  MSEs,  their 
creditors and other stakeholders, allowing them to be wound down orderly at low costs. 
Instead  of  establishing  derogations  for  MSEs  from  the  existing  general  rules  of 
insolvency  proceedings,  this  option  would  suggest  a  bespoke  MSE  procedure  at  EU 
level.  

This specific procedure should follow a flexible, modular approach, in which the default 
liquidation  process  is  run  with  reduced  formalities  and  without  the  involvement  of 
lawyers or insolvency practitioners. Additional elements, such as the involvement of an 

137  In  its  proposal  for  the  6th  Anti-money  Laundering  Directive,  the  Commission  proposed  the  EU-wide 
interconnection of the national centralized bank account registries. The proposal is being negotiated by the 
EU legislator. See COM/2021/423 final.  
138 Two thirds of the respondents supported a clarification that in the vicinity of insolvency directors should 
formulate plans to take preventive action. 
139 A functioning market for distressed assets would leverage the benefits of pre-pack sales. 

41 

 
                                                 
insolvency practitioners or the ordering of a moratorium could be included optionally, on 
the  request  of  the  debtor  or  creditors,  thereby  keeping  costs  as  low  as  possible.  The 
procedure  would  set  out  simple  rules  on  the  entry  conditions  and  the  administration  of 
procedures  (including  digitalisation  and  automation  of  key  procedural  steps140  and  the 
use of electronic auctions to generate revenues from MSE assets141). In order to make this 
procedure  attractive  for  MSEs,  the  procedure  would  be  coupled  automatically  with  a 
debt-discharge. The system shall ensure that liquidations could also be carried out where 
the debtor’s assets do not cover the costs of the procedure. 

In  addition,  under  this  option,  Member  States  would  be  required  to  further  enhance 
transparency  of  the  key  features  of  their  respective  insolvency  rules,  by  making  such 
information easily accessible to investors on a public website and in a pre-defined user-
friendly format, with the e-Justice Portal as default option.142 This would take the form of 
a brief factsheet document with standardised key information that would be essential for 
(potential) investors to make a “glance-through” assessment of the insolvency framework 
in  a  given  Member  State,  in  a  comparable  way.  The  factsheet  would  provide  targeted 
information about relevant insolvency triggers. It would also contain information on the 
average  duration  of  an  insolvency  proceeding  in  a  given  Member  State.  A  requirement 
for Member States  to  raise awareness  among the potential  investors on these factsheets 
would be part of the option. 

5.2.1.3.Measures targeting the distribution of recovered values 

To ensure a distribution of recovered values that is perceived as fair and predictable, this 
option  introduces  requirements  for  improving  the  representation  of  interest  of  the 
creditors  throughout  the  proceedings  and  for  enhancing  the  transparency  about  the 
ranking of claims.  

In relation to the representation of the creditors in the insolvency proceedings the option 
would set out the minimum harmonisation requirements on creditors’ committees. These 
measures  would  encompass  the  establishment  of  the  committee,  the  organisation  of 
meetings, the voting rules and the powers and duties of the creditors’ committees. 

As  regards  the  ranking  of  claims  of  different  types  of  creditors,  the  option  would 
introduce enhanced transparency requirements to ensure that Member States make public 
the  easily  readable  information  on  the  ranking  of  claims  in  their  jurisdiction  in  a 
simplified (user-friendly) format, possibly on the e-Justice portal. This disclosure should 
include  references  to  national  laws  setting  the  ranking  and  possible  exceptions  to  the 
standard ranking of claims in corporate insolvency.  

140 Electronic communication with courts and IPs is standard in about 75% of the EU Member States. see 
Steffek (2019). 
141 The majority of Member States uses on-line judicial auctions, though few only in insolvency cases, see 
https://e-justice.europa.eu/content_judicial_auctions-473-en.do. 
142  While  the  e-Justice  portal  already  includes  some  information  on  national  insolvency  proceedings, 
presented according to a Q&A template, the detail and presentation of information differs across Member 
States,  making  it  difficult  to  consult  especially  for  non-lawyers.  Furthermore,  while  the  Insolvency 
Regulation,  which  has  introduced  a  requirement  for  Member  States  to  include  a  description  of  national 
insolvency  laws  on  the  e-Justice  portal,  has  been  in  application  for  several  years,  not  all  Member  States 
have by now included the required information on the portal. 

42 

 
                                                 
5.2.2.  Option  2:  A  more  comprehensive  harmonisation  of  insolvency 

regimes in the EU (‘Wide harmonisation’) 

Option  2,  in  addition  to  the  policy  options  set  out  under  option  1,  would  include  a 
number  of  additional  elements  that  would  seek  to  pursue  a  more  comprehensive 
harmonisation of national corporate insolvency rules across the three dimensions (value 
recovery, procedural efficiency and distribution of recovered values). This option is more 
holistic  and  ambitious,  moving  beyond  what  insolvency  experts  considered  as  broadly 
consistent  with  the  existing  rules  in  Member  States  and  touching  on  the  areas  that  are 
deeply intertwined not only with the fundamental principles of national insolvency laws, 
but  also  with  other  areas  of  law  such  as  property,  company  or  labour  laws  in  many 
Member States.  

5.2.2.1.Value recovery measures 

On  value  recovery,  option  2  would  include  the  transaction  avoidance  and  asset  tracing 
measures, as well as the minimum standards on the pre-pack as set out under option 1.  

In addition to those measures, option 2 would also include further reaching measures on 
asset  seizure  and  recovery.  Under  this  option,  in  addition  to  better  equip  insolvency 
practitioners to trace assets moved to another Member States, their ability to seize assets 
across borders would also be enhanced. A harmonised judicial mechanism could be set 
up  in  Member  States’  laws  by  the  help  of  which  insolvency  practitioners  of  other 
Member States could  easily freeze bank accounts  or seize other assets belonging to the 
insolvency  estate.  Such  a  streamlined  mechanism  would  complement  the  existing  legal 
possibilities for insolvency practitioners, which – according to qualitative evidence – do 
not ensure asset preservation flawlessly.143 

Furthermore,  under  option  2  a  general  principle  would  declare  the  shift  of  fiduciary 
duties  of  the  directors  of  the  company  in  the  vicinity  of  insolvency.  Hence,  directors 
would  be  required  to  consider  the  interests  of  the  creditors  alongside  the  interest  of 
shareholders. The requirements (and ensuing liability) would thus extend beyond a mere 
obligation to file for insolvency.  

5.2.2.2.Measures targeting procedural efficiency 

On procedural efficiencies, in addition to the special insolvency regime for MSE already 
set out under option 1, option 2 would also seek to harmonise the insolvency trigger (i.e. 
the start of insolvency proceedings) across Member States by putting forward a common 
liquidity criterion. This criterion would serve as the latest point in time by when the state 
of  insolvency  would  have  to  be  established.  Member  States  would  nevertheless  be 
allowed  to  add  a  stricter  (economic)  test  to  bring  forward  the  moment  of  the 
establishment of insolvency (but not to delay it). This harmonised liquidity test would set 
out the methodology for concluding on illiquidity of a company. It could for example set 
out that a company that was not in a position to meet its debt obligations within a pre-

143 Under Article 21 of the EIR, insovlency practitoners have the same powers in other Member  States  as 
attributed to them by the law of the insovlecny proceedings (lex forum concursus), these powers have to be 
applied, however, in compliance with the law of the Member State within the territory of which it intends 
to  take  action.  Insolvency  practitioners  may  also  resort  to  the  rules  of  Regulation  (EU)  655/2014 
establishing a European Account Preservation Order procedure, but the scope of this instrument is limited.  

43 

 
                                                 
defined  period  (e.g.  90  or  180  days)  would  be  deemed  insolvent.  Court  discretion  and 
case-by-case assessment would be limited to exceptional cases.  

Two thirds of the respondents to the public consultation supported a harmonised trigger 
for  insolvency.  The  notable  exception  were  the  responses  from  public  authorities.  The 
most popular proposed common trigger for insolvency was based on a liquidity test. 

5.2.2.3.Measures targeting distribution of recovered values 

On  distribution  of  recovered  values,  option  2  would,  similarly  to  option  1,  include  the 
rules on creditors’ committees. In addition to these rules, option 2 would also include a 
harmonisation of certain elements of the ranking of claims (without harmonising the full 
domain of ranking of claims that was deemed non-feasible and hence discarded upfront). 
Under  this  targeted  harmonisation,  rules  would  be  introduced,  for  example,  to  exclude 
the privileged treatment of some unsecured claims, such as tax claims. The responses to 
the public consultation on the ranking of claims were met with certain opposition from at 
least  some  groups  of  stakeholders.  Furthermore,  there  was  overall  opposition  to  the 
proposed  harmonisation  of  the  carve-out  rules  (i.e.  when  a  group  of  creditors  is  given 
preferential treatment by being treated before any creditor in the ranking of creditors) and 
of rules to protect ‘new-financing’ 

5.3.  Options discarded at an early stage 

This  initiative  focuses  solely  on  traditional  insolvency  proceedings,  to  complement  the 
existing  minimum  harmonisation  on  preventive  restructuring.  Elements  in  insolvency 
regimes  that  deal  with  preventive  restructuring  schemes,  i.e.  mechanisms  that  can  be 
accessed  by  the  debtor  before  the  state  of  formal  insolvency  under  national  law,  were, 
thus, discarded upfront from being part of any option.  

44 

 
 
Table 3: Measures under the two policy options 

Option 1 
Targeted measures on procedural efficiency and value 
maximization 

A1: measures that target asset recovery: 
Minimum  harmonisation  (i.e.  stricter  national  rules  permissible) 
of specific rules, such as scope of legal acts concerned, avoidance 
grounds, definition of related parties, the period before insolvency 
under  scrutiny,  legal  consequences  of  avoidance  /including  the 
liability of third parties/ and rights of the opponent 
Improving  access  of  IPs  to  asset  registers  abroad,  with  focus  on 
access via systems of EU-wide interconnections – BRIS, BORIS, 
etc.   
Obligation  to  file  for  insolvency  (within  a  time  limit  no  longer 
than 3 months) and related liability 
Minimum standards for a pre-pack liquidation regime 

B1: measures that improve procedural efficiency 
Obligation  to  enhance  transparency  (public  [e-Justice  Portal] 
website)  of  the  main  elements  of  insolvency  rules,  including 
insolvency trigger  
Special  liquidation  procedure  for  MSEs  coupled  with  a  debt 
discharge for entrepreneurs (this should be an expedited, low-cost 
procedure, that also applies in asset-less scenarios).  
C1: measures that govern the distribution of recovered values: 
Obligation  to  enhance  transparency  (public  [e-Justice  Portal] 
website) on creditor ranking 
Minimum  standards  (i.e.  rules  at  national  level  providing  more 
influence  for  creditors  are  permissible)  on  the  elements  of 
establishment,  meetings,  voting  rules,  powers  and  duties  of 
creditors’ committees. Setting up a committee in individual cases 
would depend on the decision of the creditors.    

Transaction avoidance 

Asset 
recovery  

tracing 

and 

Directors’  duties  and 
liability  
Going  concern  sales  in 
insolvency 

Insolvency trigger 

Specific  treatment  of 
micro- 
small 
and 
enterprises  

Ranking of claims 

Creditors’ committees  

Option 2 
A more comprehensive EU insolvency regime 

As in option 1   

Enhancing  the  ability  of  IPs  to  seize  assets  in  other  Member  States. 
Improving  their  access  to  asset  registers  abroad  and  their direct  powers 
of seizing or recovering assets from abroad.  
In addition, a change of fiduciary duties of the directors in the vicinity of 
insolvency  
As in option 1 

Targeted  harmonisation  of  liquidity  criterion  for  the  latest  possible 
triggering of the procedure 

As in option 1 

Harmonisation of the treatment of public claims  

As in option 1 

 
 
 
 
 
 
The  analysis  in  preparation  of  this  impact  assessment  revealed  that  Member  States’ 
starting  positions  on  the  harmonisation  of  ranking  of  claims  are  very  different  and  are 
strongly linked with other national policy objectives, values and legal traditions (such as 
the  protection  of  employees).  Moreover,  their  interference  with  other  parts  of  legal 
systems imply that harmonisation in this area is likely to affect in a significant manner in 
particular  national  property  and  labour  laws.  The  option  to  introduce  a  comprehensive 
harmonisation of the ranking of claims was therefore discarded as potentially problematic 
from subsidiarity perspective and politically non-feasible. 

The option to  propose  non-legislative measures  was  also  considered at  an earlier  stage. 
The  public  authorities  that  replied  to  the  public  consultation  expressed  a  strong 
preference  for  a  recommendation,  the  insolvency  practitioners  for  a  combination  of  a 
legislative  instrument  and  a  recommendation,  whereas  all  other  participants  (including 
corporates)  favoured  a  legislative  instrument  (either  on  a  stand-alone  basis  or  in 
combination  with  a  recommendation).  Following  an  assessment,  it  was  concluded, 
however, that non-binding measures, such as a Commission Recommendation, would be 
insufficient to entice Member States to conduct sufficient reforms in the complex area of 
insolvency.  Non-binding  measures  are  highly  unlikely  to  be  sufficient  to  ensure  the 
harmonisation  of  insolvency  regimes  that  are  at  present  very  different  across  Member 
States.  This  is  corroborated  by  recent  experience  in  the  area  of  EU  insolvency  policy. 
the  Commission 
The 
Recommendation  of  12  March  2014  on  a  new  approach  to  business  failure  and 
insolvency  (2014/135/EU)  was  only  sporadically  followed  by  them.  Even  those  who 
enacted  national  legislation  on  the  basis  of  the  Recommendation,  have  done  this  in  a 
divergent  and  inconsistent  manner,  that  did  not  produce  convergence  towards  the 
standards suggested in the Recommendation. It has therefore  been deemed subsequently 
necessary to propose the Restructuring Directive.144  

invitation  addressed 

to  Member  States 

the  form  of 

in 

Given the proximity of the policy areas covered and the general sensitivity of the matters 
related  to  insolvency  law,  a  similar  outcome  could  be  expected  for  non-legislative 
measures  in  the  context  of  this  initiative  so  that  it  seems  justified  to  discard  that  as  an 
option. Therefore, the impacts of a non-legislative measure that would contain the same 
elements  as  those  set  out  in  options  1  or  2  are  not  assessed  in  this  impact  assessment. 
Based on the recent experience referred to above one would have to expect a very limited 
uptake and,  even in  the  event  of  an  uptake, it would  have to  be  expected to  be uneven 
impact  from  a 
across 
recommendation  would  thus  be  at  best  a  small  fraction  of  the  impacts  identified  under 
either of the two options, with the analysis highly conditional on (likely to be random and 
hence speculative) assumptions about the level of voluntary uptake in Member States.  

those  Member  States 

take  measures.  Any 

that  would 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? 

The initiative will improve tools in all Member States to create the conditions that could 
reduce the duration of the proceedings or recover more value. Whether this potential will 
be  exploited  will  depend  on  the  application  in  practice.  It  will  for  example  depend  on 
whether the judicial system has the capacity to deal with insolvency cases and IPs have 

144  OJ  L  74,  14.3.2014,  p.  65–70.  Similarly,  a  self-regulation  instrument,  such  as  the  aforementioned 
UNCITRAL Legislative Guide, is difficult to apply in the area of substantive insolvency laws, where there 
is a strict legislative regulation in all Member States, which is highly divergent from one Member State to 
the other. 

 
 
                                                 
no incentive to abuse the additional powers they would be entrusted with. The analysis of 
the  impacts  assumes  that  the  two  factors  outside  the  scope  of  the  initiative,  i.e.  the 
organisation  of courts  and  the regulation  of  IPs,  do not  act  as deterrent  to the effective 
use of the enhanced tools at their disposal. Judicial capacity is likely to become an issue 
if the expectation of a higher number of corporate insolvency cases materialises. Most of 
the  measures  discussed  in  this  impact  assessment,  however,  are  expected  to  lead  to 
shorter procedures  and lower judicial  costs, with  the exception of the MSE regime, for 
which the countervailing effects are further discussed in more detail below.  

6.1.  Benefits and costs of a targeted regime 

6.1.1.  Measures targeting asset recovery 

the  administration,  avoiding  procrastination 

Targeted measures in this area would increase the value that can be recovered from the 
liquidated estate, with the largest benefits expected in those Member States that have not 
yet  implemented  efficient  practices  in  this  area.  In  those  Member  States,  insolvency 
practitioners, whose task it is to preserve the insolvency estate in the collective interest of 
the creditors, would be equipped with better tools to preserve value. More efficient rules 
would allow and encourage insolvency practitioners to focus on avoidance actions early 
in 
in  ascertaining  whether  certain 
transactions  may  be  revoked.  Moreover,  they  would  enable  insolvency  practitioners  to 
collect  the  necessary  evidence  and  be  sufficiently  meticulous  in  their  investigation.145 
Almost 84% of the stakeholders in the public consultation favoured harmonised rules on 
assistance  (including  the  interconnectivity  of  relevant  registers)  in  the  cross-border 
tracing  of  assets  of  the  insolvent  debtor.146  In  particular  insolvency  practitioners  and 
researchers supported  EU action in  this  area, whereas  the support of  public authorities, 
financial  and  non-financial  business  entities  was  somewhat  less  pronounced.  Almost 
90% of the  stakeholders agreed that insolvency practitioners should have full access to 
property and collateral databases.  

The  possibility  to  use  pre-packs  in  all  Member  States  that  do  not  permit  this  tool  yet 
would improve the recovery value and could shorten the duration of insolvency cases in 
those  Member  States.  The  requirement  for  directors  to  file  timely  and  the  associated 
liability for them would further limit value destruction in the vicinity of insolvency. The 
public consultation revealed widespread support among stakeholders (81%) for minimum 
harmonisation at EU level of the directors’ duties in the vicinity of insolvency or when 
the  company  is  insolvent.147  Nevertheles,  the  extent  of  support  varied  depending  on  a 
stakeholders’ group. Whereas 93% of the practitioners/professionals supported minimum 
harmonization at EU level of the directors’ duties in the vicinity of insolvency, only 50% 
of the public authorities were of the same opinion.148 

More efficient rules on transaction avoidance – as supported by 84% of the respondents 
to  the  public  consultation  -  would  be  beneficial  for  all  creditors,  whether  they  are 

145 See Keay (2018). 
146  Stakeholders’  replies  to  the  more  detailed  questions  reveal  that  such  rules  would  be  most  useful  in 
relation to the following types of assets: real estate (78%), company interest (60%), bank accounts (75%) 
and claims other than those arising from bank accounts (46%). 
147  In  particular,  the  most  beneficial  aspect  of  harmonisation  would  be  to  impose  a  duty  on  the  director, 
once the company is insolvent, to file for insolvency proceedings (71%). 
148 With an average rating of 2.8 assigned by insolvency practitioners/lawyers and 1.5 by the public sector 
on a 0 to 5 scale (see Figure 8). 

47 

 
                                                 
domestic  or  cross-border.  Nevertheless,  given  their  inherent  information  disadvantage 
and  resulting  increased  difficulties  to  influence  the  running  of  the  proceeding,  cross-
border creditors would stand to benefit even more than domestic creditors if the rules on 
avoidance actions become more similar, efficient and transparent. Stakeholders signalled 
that  the  enforcement  of  in  particular  cross-border  assets  and  the  detailed  and  divergent 
rules applied across Member States have led to  differences in the amount that  could be 
recovered and the time it could take to claw back assets. Hence, more harmonised rules 
on  transaction  avoidance  and  asset  tracing  would  help  to  level  the  playing  field  and  to 
increase  value  recovery,  notably  in  cross-border  proceedings.  Enhanced  possibilities, 
through a more facilitated access to asset registries in other Member States to trace assets 
abroad,  would  also  reduce  the  costs  for  insolvency  practitioners  (and  insolvency 
proceedings overall). 

For  cross-border  creditors,  transparency  and  alignment  of  rules  are  particularly 
important.149  For  example,  while  cross-border  creditors  would  benefit  from  the 
possibility to opt for a pre-pack procedure – another tool enhancing value recovery – they 
may  see  themselves  disadvantaged  if  the  rules  governing  the  pre-pack  are  opaque  and 
accountability is unclear. Only  subject to the necessary safeguards for the protection of 
interests  of  all  affected  creditors  in  pre-packs,  the  measures  would  make  it  overall  less 
costly for cross-border creditors, including by making it easier for them to find out about 
the  respective  rules  in  other  jurisdictions  and  to  assess  the  prospects  for  claw-back. 
Creditors  from  third  countries  face  the  same  challenge  as  cross-border  creditors  within 
the EU. 

Furthermore, creditors stand to benefit from improved tools for value recovery not only 
in  insolvency,  but  also  long  before  it  –  notably  when  making  their  decision  to  invest. 
Since  the  more  efficient  and  aligned  rules  around  value  recovery  increase  creditors’ 
confidence to  obtain  better or fairer  access  to  the debtor’s assets in  case  of insolvency, 
they  allow  for  more  certainty  in  assessing  the  cost  of  capital  against  which  credit  is 
granted. In particular, when rules are more aligned across Member States, creditors who 
give a loan to a debtor in another Member State will find it easier to evaluate the impact 
of transaction avoidance law of another Member State  (compared to their own) in their 
assessment of the consequence of the debtor’s insolvency on their investment150. 

The  conduct  of  the  insolvent  companies  and  their  directors  is  key  to  influence  the 
prospects  of  value  maximization  and  recovery  rate  in  the  concrete  proceedings.  The 
introduction of more efficient rules on directors’ duties and liabilities would address the 
moral  hazard  problem  and  reinforce  the  incentive  to  timely  file  for  insolvency  (as  a 
counterweight  to  the  aversion  to  acknowledge  business  failure),  which  is  likely  to 
increase the recovery value.  Company directors would face higher liability risks, which 
may lead them to demand higher salaries, and likely higher premia for liability insurance. 
While  honest  debtors  would  not  undertake  measures  to  procrastinate  the  filing  of 
insolvency,  hide  assets  or  divert  them  at  the  brink  of  insolvency,  such  opportunistic 

149 While not a subject of the public consultation, the survey by Deloitte and Grimaldi (2022) revealed that 
about  80%  of  the  interviewed  insolvency  experts  supported  measures  towards  more  transparency.  See 
Table 4. 
150  The  applicable  law  in  question  is  that  of  the  lex  fori  concursus  (Art.  7(2)(m)  EIR),  which  can  be 
mitigated for the interest of the creditor by a more lenient rule of the  lex causae (Art. 16 EIR). Both laws 
can be different than the law of the State where the creditor resides.  

48 

 
                                                 
behaviour at the expense of creditors has been observed in practice.151 The new measures 
would discourage and limit the ability of those debtors to hide assets. 

The  impact  of  changes  in  these  areas  on  the  public  sector  is  expected  to  be  small. 
Nevertheless,  they  can  lead  to  lower  incurred  costs  of  judicial  review  if  procedures 
become shorter. It is also possible that easier cross-border asset tracing and seizure leads 
to  higher  demand  for  court  involvement.  While  it  is  not  possible  to  provide  numerical 
estimates  to  what  extent this latter  effect  could  impair judicial  capacity,  the analysis in 
Annex 4 suggests for which Member States judicial bottlenecks are more likely to be an 
issue (see also section 6.1.2). They are hence the ones more likely to (but not necessarily) 
be  exposed  to  any  possible  adjustment  costs  (if  such  costs  materialise)  from  the 
introduction  of  the  proposed  measures,  leading  to  potential  procedural  delays.  Since 
option  1  is  calibrated  to  target  only  those  elements  in  insolvency  regimes  where  the 
harmonised  rules  do  not  introduce  major  inconsistencies  with  other  pieces  of  national 
law,  the  impact  in  terms  of  the  need  to  provide  additional  legal  clarity  or  adjust  other 
pieces of national law should be limited. Exceptions could stem from the need to address 
possible issues from avoidance actions on property rights and from asset tracing on data 
protection. 

6.1.2.  Procedural efficiency measures 

In  the  presence  of  transparency  about  the  key  features  of  insolvency  regimes,  both 
creditors  and  debtors  would  be  able  to  assess  under  which  conditions  an  insolvency 
process starts and how it will run its course. It means procedures related to the beginning 
of  protective  measures  (e.g.  avoidance  actions),  beginning  of  insolvency  proceedings 
(e.g.  insolvency  trigger),  use  of  outside  expertise  (e.g.  insolvency  practitioners), 
governance supporting effective decision making (e.g. creditors committee). This allows 
debtors  to  react  effectively  (and  if  necessary  pre-emptively)  as  well  as  for  creditors  to 
seek  solutions.  These  measures  towards  procedural  efficiency  would  allow  to  shorten 
proceedings  at  certain,  more  difficult  phases,  allowing  for  quicker  and  fairer  decision 
making and for more efficient running of proceedings overall.  

Transparency on insolvency triggers reduces uncertainty to creditors and in particular to 
cross-border  creditors,  who  would  incur  lower  information  and  learning  costs.  This 
should  translate  into  a  higher  willingness  of  these  investors  to  provide  credit  to 
companies at  the beginning  and lower cost  of financing to  those companies as  a result. 
The  Deloitte/Grimaldi  (2022)  study  reports  that  insolvency  experts  attribute  sizeable 
efficiency  gains  to  more  transparency  in  a  cross-border  context,  supporting  the  notion 
that information costs are an important obstacle in practice (see Table 4). 

In addition to better transparency, which would empower both creditors and debtors to 
use  the  most  effective  toolkit  to  ensure  a  more  efficient  proceeding,  procedural  rules 
could  also  be  made  more  proportionate  to  a  specific  type  of  a  company  in  insolvency. 
Thus, a dedicated MSE liquidation procedure, by reducing formalities, increasing the use 
of  electronic  means  of  communication  and  limiting  the  involvement  of  insolvency 
practitioners  and  lawyers  would  reduce  the  costs  of  the  procedure.  Together  with  the 
statutory  debt-discharge,  this  would  make  the  insolvency  regime  more  attractive  for 
ailing debtors (entrepreneurs).  Better access to insolvency  procedures would reduce the 
debtors’ (i.e. entrepreneurs’) bias towards keeping the company alive as long as possible. 

151 See the insolvency case of a drugstore chain in Germany 2012. 

49 

 
                                                 
The conduct of insolvency proceedings even in cases where today such proceedings are 
not  opened  because  the  assets  of  the  debtor  do  not  cover  the  judiciary  costs  (so  called 
‘asset-less  cases’),  would  generate  additional  costs  for  financing  these  proceedings 
(possibly  for  the  public  budget,  the  businesses  or  insolvency  practitioners).  These 
additional costs as well as the costs of dealing with a higher overall number of insolvency 
proceedings152 are, nevertheless moderate as this simplified procedure would entail much 
lower  costs  than  those  of  normal  insolvency  proceedings.  The  cost  also  needs  to  be 
considered against the potentially sizeable benefits of orderly winding down of distressed 
micro-  and  small  businesses,  coupled  with  a  debt-discharge  for  the  entrepreneurs 
concerned. Since the bankruptcy of a MSE has direct consequences for the entrepreneur, 
a  fast  and  orderly  liquidation  through  MSE  procedures  could  accelerate  discharge  and 
help create a second chance for these entrepreneurs.  

In  general,  cross-border  creditors  tend  to  be  less  exposed  to  MSEs  given  their  low 
transaction value (also known as ‘investment ticket size’) compared to larger companies. 
However,  once  can  observe  that  cross-border  creditors  started  to  take  interest,  for 
example, in very innovative start-ups that are prepared to pay high-risk premia for access 
to  capital.  In those cases, cross-border creditors  would favour a possibility  for  a quick, 
efficient  and  low-cost  winding  down  of  a  company.153  Furthermore,  with  other  policy 
measures ongoing at  EU level  to  increase the visibility of SMEs across  Member States 
(such  as  the  creation  of  the  European  Single  Access  Point  for  company  data154),  the 
number  of  cross-border  creditors  taking  interest  in  SMEs  is  likely  to  increase  in  the 
future.  Since  the  proposal  seeks  to  ensure  a  quicker  value  recovery  in  MSEs,  it  makes 
MSEs more attractive for cross-border investors, complementing other actions under the 
CMU.  An  investor  association  indicated  that  risk-capital  investors  (e.g.,  private  equity 
firms) see virtue in second chances and hence a quick debt discharge for innovative and 
driven entrepreneurs. For smaller creditors of MSEs (which are likely to be in majority 
for  MSEs),  ill-placed  to  absorb  high  fees  of  insolvency  practitioners,  the  MSE  regime 
would also help reduce legal costs.  

The fact that national insolvency frameworks are not always adapted to treating properly 
(and  in  a  proportionate  manner)  insolvent  MSEs  represents  a  lost  opportunity  for  the 
economy: these companies are in many cases deprived of the possibility to benefit from 
an  orderly  exit  (if  unviable)  or  from  an  adequate  restructuring  (if  viable).  This  would 
apply  to  a  very  large  number  of  EU  companies,  given  that  MSEs  represent  in  some 
Member  States  up  to  90%  of  the  total  count  and  98%  of  the  firms  that  exit.155  The 
entrepreneurship  capital  becomes  effectively locked in  these  companies,  which become 
in  many  cases  zombie-companies,  with  founding  entrepreneurs  unable  to  benefit  from 
debt  discharge  in  a  timely  manner  and  unable  to  start  anew  sufficiently  quickly. 
Establishing  a  more  proportionate  regime  for  MSEs,  and  in  particular  granting  access 
rights for MSEs to insolvency proceedings, would mean that more EU micro companies 

152 As a consequence of the fact that companies who, at present, are not eligible for insolvency proceedings 
or  are  not  interested  in  going  under  the  protection  of  insolvency,  due  to  the  high  costs,  will  opt  for  the 
expedited procedure 
153 For a case study on cross-border transfers of SMEs, see European Commission ‘Improving the evidence 
base  on  transfer  of  business  in  Europe:  annex  C:  case  study  on  the  cross-border  dimension  of  business 
transfers,’ February 2021, available at: https://data.europa.eu/doi/10.2826/94014. 
154  Proposal  for  a  Directive  of  the  European  Parliament  and  the  Council  amending  certain  Directives  as 
regards the establishment and functioning of the  European single access point, COM(2021) 724 final. 
155  94.3%  of  enterprises  in  the  business  economies  had  0  to  9  employees  in  2018  according  to  Eurostat 
numbers for the EU-27 and would be counted as MSEs.  

50 

 
                                                 
would be liquidated in a court insolvency proceeding (rather than outside one, which is 
often the case today).  

Numerical  estimates  of  the  impact  of  this  option  on  the  length  of  proceedings  and  the 
outcome of the insolvency process are difficult to get by because by their nature, there is 
no  good  basis  to  estimate  the  level  of  information  and  learning  costs.  However,  the 
insolvency  practitioners  surveyed  by  Deloitte  Grimaldi  (2022)  point  to  a  reduction  in 
recovery time and an increase of the recovery value of about 12% if a harmonised MSE 
regime  is  introduced.  They  reported  sizeable  efficiency  gains  from  the  introduction  of 
tools that provide transparency about insolvency triggers and other features of insolvency 
regimes, suggesting that the benefits could be sizeable. 

Table  4.  Indications  from  insolvency  experts  about  the  impact  of  harmonisation  on  the  cost  and  time  of  insolvency 
procedures as a result of EU rules in the different areas. 

MSEs regime 

Transparency 

Glossary* 

Standard 
ontologies**  

Cost savings 
52.5% 
11.9 

Time savings 
52.6% 
12.5 

Approval rate+  
Amount in % 
Efficiency score *** 
Note: + share of the interviewed 120 insolvency experts that indicates the measure would lead to a decline in costs or 
time. % values are calculated as weighted average of the mean of the ranges indicates. They show by how much % the 
average  insolvency  expert  thinks  costs  or  time  would  decline.  See  Annex  4  for  full  numbers  and  more  details.  *  A 
glossary of insolvency terms and of the equivalent professional figures in different jurisdictions, **A set of concepts 
and  categories  in  the  insolvency  subject  area and  domain  showing  their  properties  and  the  relations between  them, 
***  0  indicates  no  efficiency  gains,  0.5  marginal  gains,  1  gains  and  2  significant  gains  and  likewise  for  negative 
values. 

77.4 
NA 
0.9 

0.6 

Increase in efficiency 
87.5% 
NA 
1.1 

Source: FISMA with Survey data from Deloitte/Grimaldi 2022. 

The  public  sector  could  benefit  from  a  simplified  MSE  insolvency  regime  because  it 
reduces  the  costs  of  judicial  review.  MSEs  that  already  have  insolvency  proceedings 
opened (or will open them  in  the future) before the court under the ordinary procedure 
would  switch  to  a  more  alleviated  and  quicker  one,  economising  judicial  capacity.  For 
example, the introduction of an MSE regime in France in 2019 aimed to reduce the time 
of judicial review from more than two years to one; cost savings could be proportional to 
the expected time shortening. Member States may also realise cost savings by using their 
existing electronic auction platforms for seized assets to sell assets of insolvent estates to 
foster quick and cost-efficient realisation of proceeds. The creation of cross-border links 
between these auction platforms would enlarge the potential bidder base and therewith on 
the  proceeds  that  can  be  realised.  The  new  regime  may  also  allow  for  a  possibility  for 
MSEs  to  have  a  full  debt  discharge  in  an  out-of-court  setting,  e.g.  before  competent 
administrative authorities, with faster and cheaper procedures. 

Furthermore, the introduction of a simplified regime for MSEs will not necessarily lead 
to  a higher number of insolvency  cases by  micro enterprises  across all Member States. 
For example, it has not been observed in France since 2019, following its introduction.156 
It  is,  however,  likely  to  increase  the  case  load  in  those  Member  States  that  practice  to 
reject applications for opening insolvency proceedings because of a lack of assets in the 
insolvent  estate.  Deloitte/Grimaldi  (2022)  reported  that  some  “Member  States  do  not 
even  open  (i.e.  Austria,  Germany,  Greece  and  Italy)  or  immediately  terminate 

156  The  estimates  in  Annex  4,  Section  4.1  show  a  negative  correlation  between  business  exits  and  the 
recovery rate, suggesting that there may be fewer business exits in a more efficient insolvency regime. 

51 

 
 
 
 
 
 
                                                 
proceedings (i.e. Belgium and Spain) if the debtor does not have sufficient resources to 
cover  at  least  the  proceedings’  expenses.”  In  Germany  and  Austria,  it  applies  to  about 
30% of the cases.157  

Annex 3 provides some numerical estimates about the potential effect of the introduction 
of an MSE regime on judicial capacity under the assumption of a proportional increase in 
the case load for judges and no cost savings from other measures. The scenario analysis 
suggests judicial costs could vary between EUR 900 million up to a maximum of EUR 2 
billion.  The  underlying  calculations  and  assumptions  are  further  detailed  in  Annex  4, 
Section  3.2.  Nevertheless,  key  assumptions  underlying  these  calculations  are  highly 
uncertain. Some aspects of the impact on the judicial capacity remain to be impossible to 
quanify.  

The calculations do not incorporate two mitigating effects of the MSE regime that should 
reduce  costs  for  the  public  sector.  First,  even  when  insolvency  proceedings  are  not 
opened for MSEs due to a lack of sufficient assets, a judge still has to establish that the 
conditions  of  opening  are  not  met  and  take  the  decision  to  refuse  the  opening  of 
insolvency  proceedings.  These  steps  generate  judicial  costs,  although  they  usually  are 
lower  than  those  of  opening  and  conducting  a  full-fledged  insolvency  proceeding.  
Second,  the  opening  of  insolvency  proceedings  concentrates  the  handling  of  all  claims 
against the debtor in the insolvency proceedings and makes it therefore inadmissible for 
creditors  to  enforce  their  claims  through  individual  enforcement  actions.  If  insolvency 
proceedings are not opened, individual creditors can and often go to court anyway to get 
a judgment that in reality may only become enforceable when the MSE has assets again. 
Courts  therefore  often  have  to  deal  with  multiple  proceedings  on  claims  by  creditors 
against  the  insolvent  business,  negatively  impacting  the  available  judicial  capacity  in  a 
Member  State.  These  effects  are  likely  to  mitigate  significantly  or  even  outweigh 
completely the additional costs (i.e. a possible negative impact on judicial capacity) from 
the new MSE regime. Finally, even in case the introduction of the MSE regime increases 
(which is not certain) costs for the public sector  due to the impact on judicial capacity,158 
it will have a positive impact on the economy and growth overall due to earlier discharge 
of failed debtors.  

Annex 4, Section 3.2 attempts to identify which Member States’ judicial capacity could 
be  particularly  vulnerable  to  a  higher  caseload.  The  assessment  uses  two  metrics  of 
judicial efficiency – clearance rates and time of non-criminal court cases159. It is assumed 
that  Member  States  with  a  currently  already  low  clearance  rate  and  longer  duration  of 
insolvency  cases  are  likely  to  experience  even  more  difficulties  in  coping  with  the 
consequences  of  introducing  the  MSE  regime,  notably  if  the  latter  leads  to  more 
insolvency  cases  to  be  brought  before  courts.  Based  on  these  metrics,  Cyprus,  Ireland, 
Spain and Malta were identified as the Member States that would potentially be the most 
exposed  to  a  possible  negative  consequence  from  the  MSE  regime  on  their  respective 
court  capacity.  Spain  has,  however,  just  introduced  a  special  shortened  insolvency 
procedure for micro-companies with a value of less than two million euros or with fewer 

157 See Annex 4, Section 3.2. 
158 The costs of an MSE regime depend on the number of MSEs that use an insolvency procedure relative 
to those that are closed without an insolvency procedure. The costs to the public sector also depend on the 
share  of  assetless  MSEs  that  use  an  insolvency  procedure,  see  Annex  4,  Section  3  for  assumptions  and 
estimates of quantitative effects.  
159 The indicators  were taken from CEPEJ (2022), which is underlying the EC Justice Scoreboard. 

52 

 
                                                 
than  ten  employees.  Since  this  procedure  is  already  available  also  for  microcompanies 
with  no  assets,  the  EU  MSE  regime  is  unlikely  to  lead  to  a  further  significant  impact 
(beyond that from the implementation of the national regime) on its judicial capacity.  

In  addition  to  the  costs  for  the  public  sector  from  a  possible  increase  in  insolvency 
proceedings, the public sector would also incur limited additional costs from developing 
the  tools  for  better  transparency  on  the  features  of  insolvency  regimes  and  insolvency 
triggers.160 Since the basis for such tools is already available on the e-justice platform, it 
should  be  possible  to  achieve  it  without  considerable  additional  investments.  It  is 
estimated  that  the  development  of  factsheets  for  better  transparency  in  all  EU  Member 
States may cost from EUR 67 000 to EUR 90 000.161 These costs are mainly of a one-off 
nature  and  are  likely  to  be  by  far  outweighed  by  reducing  the  economic  cost  of  legal 
uncertainty,  such as  a lower (than could  otherwise be) level  of  cross-border investment 
and the need to procure expensive legal advice in the vicinity of insolvency. 

6.1.3. 

Measures targeting the distribution of recovered values 

Well-defined  rules  about  the  role  of  creditor  committees  and  transparency  about  the 
ranking of claims would reduce the costs associated with deciding on how the recovery 
value should be distributed among the creditors. They may have little impact on the role 
of  debtors.  Nevertheless,  as  these  rules  could  reduce  the  costs  of  negotiations  with 
creditors, both the debtor and the insolvency practitioner tasked with the liquidation of a 
company would be expected to see their costs reduced. 

Creditor  committees  allow  creditors  to  cooperate  and  more  effectively  coordinate  their 
decisions, which is important given that multi-creditor lending relationships are common 
in the EU. Creditors may have different views about the best way forward, face collective 
action  problems  and  can  generate  holdout  problems  that  may  prevent  the  insolvency 
practitioners  from  achieving  an  agreement  that  maximises  the  collective  interest  of  all 
creditors. Clear rules on the role of creditor committees reduce the time and costs to find 
common  solutions,  which  reduces  the  risk  of  holdout  problems  and  may  increase  the 
recovery  value.  The  survey  by  Deloitte/Grimaldi  (2022)  asked  insolvency  experts 
whether EU rules on creditor committees could yield time savings: almost two thirds of 
those  who  voiced  a  view  on  this  agreed.  According  to  the  respondents,  the  presumed 
reduction in time thanks to creditor committees could amount to 1.4%.  

While  creditor  committees  ensure  that  the  common  interest  of  creditors  is  adequately 
protected, representation in creditor committees is more costly for cross-border creditors 
and their bargaining with other creditors is more complicated. Hence, similar (i.e. more 
aligned)  and  efficient  rules  on  key  aspects  of  powers  and  roles  in  creditors’  committee 
can  help  especially  cross-border  creditors  to  exercise  their  rights  and  lead  to  a  fairer 
treatment, thereby making cross-border lending more attractive and further reducing the 
cost of capital for companies. 

More transparency on insolvency rules partly compensates for the difficulties for  cross-
border  creditors  arising  from  language  barriers,  translation  obligations  and  from  being 
less  familiar  with  the  position  of  other  creditors.  Especially  the  complexity  of  the 
national  insolvency  rules  pertaining  to  the  ranking  of  claims  may  make  the  outcome 

160 The provision of transparency on insolvency regime has the character of a public good. The non-rivalry 
of information leads to a suboptimal degree of transparency when organised by private actors. 
161 See Annex 3. 

53 

 
                                                 
particularly  difficult  to  anticipate  for  cross-border  creditors.  Transparency  about  the 
ranking of claims means investors are better able to assess what part of the residual value 
of the company will be distributed to them.  

When a company is wound down, employees, tax authorities and other public authorities 
including those administering the procedure often enjoy preferential  treatment that puts 
them above other creditors. Transparency on creditor ranking and common rules on the 
role and powers of creditor committees would reduce tensions in the actual negotiations 
with  other  creditors,  while  leaving  the  choice  about  the  actual  ranking  to  the  Member 
States.  They  are  likely  to  lead  to  less  disputes  about  the  decisions  of  insolvency 
practitioners  and  fewer  reviews  by  courts  of  their  decisions,  which  would  be  to  the 
benefit of both length and costs of insolvency proceedings for the public sector. 

The role  given to  creditors’ committees in  an insolvency  regime is  directly linked with 
the roles attributed to other actors (courts, insolvency practitioners) – and altogether these 
rules  ensure  the  appropriate  balance  between  the  interests  of  creditors  and  debtors. 
Common rules on creditors’ committees may therefore require the public sector to ensure 
consistency  with  other  laws  governing  property  rights.  This  would  lead  to  some 
adjustment costs for the public sector.  

Table 5 summarises key benefits and costs for the different stakeholders involved. 

54 

 
 
Table 5. Key benefits and costs, by stakeholder type – Option 1 (see also Annex 3) 

Creditors 

-  Less  assets  being  diverted  from 
the insolvency estate (indirect) 
-  Less  costs  for  the  lodging  of 
claims  and  participation  to  the 
insolvency proceedings (direct) 
of 
-  Value  maximization 
distributable  assets  through  more 
effective  tools  (asset  recovery, 
directors’ 
pre-packs, 
duties, 
direct) 
-  Better  coordination  among 
creditors 
to  maximise  value 
recovery and efficient distribution 
(creditors committees, direct) 

Cross-border 
investors 

creditors/ 

rules  of 

- Similar to domestic creditors 
information  and 
-  Lower 
learning 
(costs  of 
costs 
familiarizing  themselves  with 
the 
foreign 
the 
greater 
through 
regimes) 
transparency  and  comparable 
factsheets (direct).  
- Easier participation and 
greater influence in 
proceedings through 
standardized rules on 
creditors’ committees (direct) 

Benefits 

Costs 

-  In  prepacks  limited  options  for 
negotiations 
in 
involvement 
compared 
standard 
to 
restructuring 

-  Familiarisation  costs  (likely 
small or negligible) 

Insolvent 
company 
and  directors  (going 
concern) 

SMEs 

Employees 

Insolvency 
practitioners 

Public sector 

the  company 

-  More  certainty  about 
is 
when 
insolvent (direct) 
-  Higher 
timely 
concern  parts  of 
business (indirect) 

chances  of 
going 
its 

selling 

-  Increased  availability  of 
an  orderly  liquidation  for 
small 
and 
micro- 
businesses 
financial 
in 
distress  
for 
-  Debt  discharge 
entrepreneurs  concerned 
by 
liquidation  of 
MSEs  (automatic  second 
chance)   
-  Access 
liquidation 
cases 
moral hazard (indirect) 

orderly 
to 
in  asset-less 
reduces  MSEs 

the 

-  Higher  chances 
preserve 
to 
for 
employment 
concerns 
going 
parts 
the 
of 
business (indirect)  

-  Easier  access 
to  asset  tracing 
registries 
(direct) 
tools  to  recover 
value from asset 
disposal 
(e.g. 
avoidance 
actions; direct) 

Shorter 

- 
insolvency 
proceedings 
overall 
(indirect) 
for 
specifically 
(direct) 

and 
MSEs 

More 
proceedings  for 
assetless  MSEs 
(indirect),  costs 
to  establish  and 
maintain 
transparency 
tools (direct) 

- Higher liability risks for 
directors and 
entrepreneurs (indirect) 
-  Familiarisation  costs 
or 
(likely 
negligible) 

small 

- Negligible 

- Increased costs 
if  MS  decided 
the 
to  finance 
treatment 
of 
asset-less  cases 
through IPs 

-  Higher 
liability  of 
directors may be reflected 
in  higher  wage  demands, 
more  difficult  recruitment 
company 
of  directors, 
procedures  /  information 
flows  or  higher  liability 
insurance costs (indirect) 
internal 
- 
an 
procedures 
information 
to 
enable  due  diligence  in 
case  of  a  pre-pack  sale 
(indirect) 
-  Familiarisation  costs 
(likely 
or 
negligible) 

and 
flows 

Further 

small 

 
 
 
 
 
 
 
 
 
6.2.  Benefits and costs of a comprehensive EU regime  

6.2.1.  Measures targeting asset recovery 

Option  2  foresees  a  wider  harmonisation  of  the  asset  recovery  measures,  beyond  the 
elements  targeted in  option 1 (transaction  avoidance,  asset tracing and directors duties) 
than the targeted measures.  

More specifically, in comparison to option 1, option 2 includes two additional ambitious 
elements,  which  would  allow  for  a  more  far-reaching  insolvency  reform  at  EU  level: 
directors’  duties  and  options  for  IPs  to  seize  assets  abroad.  If  directors  are  under  the 
obligation to consider the interests of the creditors alongside the interest of shareholders 
(and may be held liable if they fail to do so), they face an incentive to take less risks in 
their  business  decisions  to  avoid  insolvency  becoming  a  possibilility  and  initiate 
proceedings earlier than  without such liability.  Whether this  stronger incentive leads to 
material  changes  in  directors’  behaviour  will  depend  on  specific  circumstances  and  is 
likely to  be different  across  companies  and directors.  It  will also  depend on the  courts’ 
capacity  to  ensure  effective  enforcement.  If  creditors  consider  their  interests  better 
protected  uniformly  across  the  EU,  they  would  face  lower  transaction  costs  when 
considering  credit  to  entities  in  other  Member  States.  The  flip  side  of  stronger  liability 
vis-à-vis  creditors  in  the  vicinity  of  insolvency  are  potential  loyalty  conflicts  between 
shareholders and directors that shareholders need to consider when appointing directors.  

Better  opportunities  for  insolvency  practitioners  to  seize  assets  would  facilitate  their 
work,  speed  up  the  recovery  process  and  are  likely  to  increase  recovery  values.  Since 
they currently face hurdles to act in cross-border insolvency cases, their empowerment to 
asset  seizures  could  significantly  improve  their  efficiency.  The  stronger  powers  for 
insolvency  practitioners  could  also  reduce  the  likelihood  that  transaction-avoidance 
actions  are  carried  out  in  the  run-up  to  insolvency.  Creditors  would  benefit  from  this 
action,  especially  when  engaged  in  credit  to  cross-border  companies.  Honest  debtors 
should not be negatively affected by these rules.  

Overall, both  these elements  are likely to  lead to a higher value recovery for investors, 
including  cross-border  creditors,  in  the  EU.  Deloitte/Grimaldi  (2022)  interviewed 
insolvency experts about their expectations regarding how an EU regime on the different 
elements would impact on the costs of recovery and the time of insolvency procedures. A 
large  majority  of  the  120  respondent  expects  savings  of  cost  and  time  from  the 
comprehensive  harmonisation  of  the  different  elements.  Their  numerical  estimates 
suggest a significant improvement in the range 9-16%. 

Table 6: Indications from insolvency experts about the impact of comprehensive harmonisation on the cost and time of 
insolvency procedures as a result of EU rules in the different areas 

Approval rate+ 
Amount in % 

Avoidance actions  Asset tracing  Directors duties 

Prepacks 

57.4% 
10.0 

Cost Savings 
60.0% 
13.4 

47.5% 
9.3 

58.3% 
13.5 

Time savings  
65.1% 
16.1 

54.1% 
16.1 

Approval rate+ 
Time of procedures in % 
Note: + Share of the interviewed 120 insolvency experts that indicated the measure would lead to a decline 
in  costs  or  time.  %  values  are  calculated  as  weighted  average  of  the  mean  of  the  ranges  indicates.  They 
show by how much % the average insolvency expert thinks costs or time would decline.  See Annex 4 for 
full numbers and more details. 
Source: FISMA with Survey data from Deloitte/Grimaldi 2022. 

46.7% 
9.4 

67.5% 
12.6 

 
 
 
However, at the same time, both elements are also likely to be much more difficult to fit 
into  the  existing  legal  orders  of  the  Member  States,  potentially  causing  frictions  with 
other  areas  of  national  law.  For  example,  the  redirection  of  directors’  duties  from 
shareholders to creditors would conflict with the existing provisions in company law in 
Member  States.  Addressing  these  issues  would  lead  to  follow-on  costs  for  the  public 
sector because it would need to restore the consistency with these parts of national law. 
Furthermore, it is likely to lead to certain legal uncertainty, at least at the beginning (until 
the  relevant  aspects  of  national  law  are  fully  clarified  and  jurisprudence  of  the  court  is 
settled),  and  adjustment  costs  in  companies  if  shareholders  want  to  appoint  different 
directors  in  anticipation  of  possible  loyalty  conflicts.  This  would  lead  to  costs  for 
companies  and  creditors  who  would  have  to  revert  to  expensive  legal  advice.  The 
insolvency  specialists  in  the  expert  group  advised  that  these  costs  could  be  substantial 
and may thus outweigh the incurred cost savings.  

Respondents  to  the public consultation  were on  average as supportive to  a clarification 
that directors should secure the interest of creditors in the vicinity of insolvency as to the 
introduction  of  an  obligation  to  file  for  insolvency.162  They  were  less  supportive  to 
introducing  minimum  standards  at  EU  level  that  lead  to  the  establishment  of  liabilities 
for  directors.163  The  public  sector  and  the  stakeholder  groups  that  represent  potential 
debtors and creditors, i.e. non-financial and financial business, expessed the most critical 
view on the establishment of liability for directors, whereas insolvency practitioners and 
researchers  were  most  supportive  of  such  a  measure.  Although  the  public  consultation 
did  not  explicitly  ask  for  views  on  asset  seizure,  stakeholders  that  replied  to  related 
questions  expressed  stronger  support  for  the  less  intrusive  powers  for  insolvency 
practitioners.164  The  public  support  for  harmonisation  in  this  area  may  therefore  be 
limited. Responses from  public authorities and non-financial  corporates on the debtors’ 
side  were  most  critical,  while  those  from  research  and  financial  corporations  on  the 
creditors’ side were on averge more supportive of more intrusive measures.  

6.2.2.  Procedural measures 

In addition to the improvements to procedural rules foreseen in option 1, option 2 would 
seek  to  align  across  the  EU  the  test  for  the  insolvency  trigger.  By  establishing  a  point 
when  the  company  can  no  longer  procrastinate  the  start  of  the  insolvency  procedure,  a 
liquidity  trigger  would  bolster  recovery  values.  A  common  test  would  ensure  a  timely 
insolvency start over the debtor’s estate across the EU, removing differences across and 
inefficiencies  in  some  Member  States.  In  practice,  it  would  harmonise  the  notion  of 
insolvency that would introduce a harmonised reference point also for other elements of 
the  insolvency  regime,  including  for  determining  the  scrutiny  period  for  avoidance 
actions.165 

162 Two thirds of the respondents supported “A clarification of the focus of duties of the director when a 
company is near to insolvency or is actually insolvent to look at the interests of the creditors”. Two thirds 
also supported “A duty of the director, once the company is insolvent, to file for the appropriate insolvency 
proceedings”. 
163 Half of the respondents supported this. 
164 More than two thirds of respondents supported powers to compel the production of books and records 
and to conduct audits compared to one third that supported search orders or the duty to report suspicious 
transactions to law enforcement authorities. 
165 It could also play a role outside  insolvency procedures for example in  state aid procedures that could 
benefit from a harmonised determination of firms in difficulties.  

57 

 
                                                 
It follows from the broader scope that cross-border creditors would benefit more from a 
harmonised  insolvency  trigger  than  from  the  mere  provision  of  transparency  about  the 
multitude  of  triggers  across  the  EU  Member  States  (foreseen  under  option  1).  Since 
differences  in  insolvency  triggers  are  sizeable  at  present,  such  harmonisation  can 
generate sizeable savings for cross-border investment on information, learning and legal 
the 
advice.  Researchers  and  consultancy  services  supported  overproportionally 
harmonisation  of  insolvency  triggers  in  the  public  consultation.  Public  authorities  and 
stakeholders representing non-financial business were the least supportive.166 Two thirds 
of  respondents  to  the  public  consultation  favoured  a  liquidity  criterion.167  The  support 
was spread evenly across all stakeholder groups, except for respondents from the public 
sector, who favoured the combination of two triggers (a liquidity criterion complemented 
with a balance sheet criterion). 

While  a  harmonised  trigger  reduces  uncertainty  to  creditors  and  in  particular  to  cross-
border  creditors,  by  removing  discretion,  in  certain  cases  it  may  also  negatively  affect 
creditors.  For  example,  financial  institutions  may  need  to  write  off  in  certain  instances 
credit  positions  on  their  balance  sheet  faster,  which  reduces  their  capital  buffer. 
Companies in  those Member States that  currently  rely  on an overindebtedness  criterion 
would  now  need  to  file  earlier  for  insolvency  under  the  common  liquidity  trigger.  To 
avoid that the trigger is enacted for technical (i.e. temporary), rather than structural (i.e. 
long-term)  problems,  companies  in  these  Member  States  would  need  to  adjust  their 
business  plans/cash  flows  to  limit  liquidity  constraints,  taking  precautions  for  payment 
modalities. This leads to additional costs for these companies.  

Debtors (i.e. companies) would benefit from clarity on the insolvency trigger primarily in 
the  run-up  to  insolvency.  An  unclear  trigger,  where  the  court  enjoys  a  considerable 
degree  of  appreciation/discretion,  creates  a  situation  of  legal  uncertainty.  Once  the 
liquidity threshold is breached, it inflicts reputational damage and will in many cases cut 
off  the  company  from  new  financing.  This  accelerates  the  need  to  wind  down  the 
company  and  takes  away  (or  considerably  reduces)  any  possibility  that  it  can  remain  a 
going concern. The setting of a clear trigger for the start of the process that leads to the 
liquidation  of  the  company  may,  however,  improve  incentives  for  debtors  to  seek 
solutions in pre-insolvency proceedings.  

In the presence of a common liquidity trigger, both creditor and debtor would be able to 
assess  under  which  conditions  an  insolvency  process  starts,  which  should  create 
incentives  for  debtors  to  react  pre-emptively  as  well  as  for  creditors  to  seek  solutions 
before courts get involved. This helps avoid that the start of an insolvency procedure is 
postponed  until  the  companies’  position  deteriorates  so  much  that  prospect  of  value 
recovery is low. 

The  sizeable  differences  in  insolvency  triggers  across  Member  States  imply  costs  to 
adjust to the new harmonised regime for debtors that have planned their business along 
the existing rules and for investors that provided finance in the knowledge of the current 
regime.168  Costs  for  companies  would  arise  from  the  need  to  implement  a  more 
sophisticated  cash-flow  management  to  contain  the  risk  of  liquidity  shortfalls.  These 

166 Replies in the public consultation also show a clear geographical division.  Stakeholders from Member 
States in the North and West are on average less supportive than those in the South and East. 
167 13% expressed a preference for a liquidity criterion in combination with a balance sheet criterion. 
168 On the concept of the costs of legal change, see Van Alstine (2002). 

58 

 
                                                 
adjustments  would  likely  be  transitory  and  could  be  mitigated  through  grandfathering 
rules.  While  costs  for  stakeholders  to  adjust  and  to  familiarise  themselves  with  new 
standards  may  not  be  negiligble,  they  are  one-off  costs  and  their  importance  declines 
with time. 

Nonetheless,  the  introduction  of  a  common  regime  would  mean  a  fundamental  regime 
change  in  those  Member  States  that  relied  on  a  balance  sheet  criterion,  i.e.  where 
insolvency was defined through overindebtedness. These Member States would also need 
to address tensions with other parts of law, for example if the introduction of a liquidity 
criterion would compromise property laws and constitutional freedoms. The reservations 
expressed by Member States in the public consultations to a harmonisation of insolvency 
triggers suggests the adjustment costs could be substantial. The adjustment costs reflect 
the divergences across Member States in other parts of law, than financial or insolvency 
laws, that govern how business is organised and contracts with other business entities are 
concluded/governed.  These  are  often  ruled  in  substantial  law  with  links  to  civil  law  or 
constitutional law. Although it is not possible to provide a cost estimate for the ensuring 
legal uncertainty and the costs of adjusting other laws, one of the few studies in this area 
found that the costs of substantial changes to legislation is a multiple of those that change 
rules on technical proceedings.169  

6.2.3.  Measures targeting the distribution of recovered values 

In addition to the elements set out in option 1, option 2 foresees a partial harmonisation 
of the ranking of claims.  

Debtors  would  have  broadly  the  same  benefits  and  costs  as  in  option  1.  Additional 
benefits to creditors accrue from enhanced clarity about the position of some privileged 
creditors.  Since  clarity  about  the  ranking  of claims  is  crucial  for creditors to  determine 
their recovery value, it is a key element of insolvency regimes from their perspective.170  

Since it is rather common that little is left to an estate after the state’s claims have been 
fully  settled,  an  abolishment  of  the  privileged  treatment  of  tax  claims  would  allow  a 
larger  recovery  value  to  be  distributed  to  other  unsecured  creditors.  Secured  creditors 
would also appreciate that their claims become less contestable by other creditors. Their 
better  protection  should  translate  into  a  larger  willingness  to  provide  secured  loans. 
However,  changes  to  the  ranking  of  creditors  would  entail  distributional  effects,  which 
can  be  sizeable.  The  public  sector  would  receive  fewer  revenues  if  tax  claims  are  no 
longer privileged. Moreover, applying the experience of the banking sector, a rising share 
of  secured  credit  can  lead  to  asset  encumbrance,  implying  less  assets  becoming 
disposable in insolvency cases overall (and hence to other creditors). 

Any harmonisation of parts of the ranking of claims that would allow creditors to better 
and  more  easily  assess,  which  share  of  the  recovered  value  would  be  distributed  to 
creditors,  would  be  of  particular  benefit  to  cross-border  creditors.  The  increase  in 
transparency  envisaged  under  option  1  would  lead  to  a  smaller  reduction  in  their 

169 The estimates by Ngiem et al (2012) suggest that the costs of creating substantial legislation is about 7 
times higher than that of legislation that addresses technical issues. 
170 Consistent with this view, de Guindos et al (2022) describe the ranking of claims, insolvency triggers 
and avoidance actions as core elements of insolvency regimes of which the harmonisation “at best practice 
levels” would facilitate cross-border investment. 

59 

 
                                                 
information  costs  than  the  harmonisation  of  the  privileges  of  certain  creditors  under 
option 2. This should positively affect cross-border investment.  

Consistent  with 
this  argument,  financial  stakeholders  were  over-proportionally 
supportive towards harmonisation of the ranking of claims in their replies to the public 
consultation. Researchers, consultancy services and financial stakeholders were the most 
supportive  while  public  authorities  were  the  least  supportive  of  the  proposal.  The 
responses to the public consultation, however, showed no clear (i.e. across all stakeholder 
groups) preference for which elements of the ranking of claims should be harmonised as 
a  priority.171  Stakeholders  from  the  non-financial  sector  gave  most  support  to  secured 
credit  and  those  from  the  financial  sector  and  business  services  to  new  finance.  Both 
correspond  to  their  business  interest  as  debtors,  creditors  and  consultants,  respectively. 
Lawyers and insolvency practitioners expressed the highest support to shareholder loans, 
followed by public claims. In contrast, 90% of public authorities responding to the public 
consultation  preferred  to  maintain  the  priority  status  of  certain  claims  in  insolvency 
proceedings.  Responses  from  public  authorities  were  thus  the  most  critical  to  the 
harmonisation of the elements pertaining to the treatment of public claims than any other 
stakeholder group. 

171  About  half  of  the  respondents  ticked  all  possibilities:  claims  of  secured  creditors,  unpaid  employees, 
public claims, shareholder loans, new finance (multiple replies were possible). 

60 

 
 
                                                 
Table 7: Key benefits and costs, by stakeholder type – Option 2 (incremental benefits/costs versus option 1  

Creditors 

the 

-  Less  assets  being  diverted 
from 
insolvency  estate 
(indirect) 
-  Less  costs  for  the  lodging  of 
claims  and  participation  to  the 
insolvency proceedings (direct) 
-  Better  coordination  among 
to  maximise  value 
creditors 
recovery 
efficient 
distribution (direct) 
of 
-  Value  maximization 
through 
distributable 
more effective tools (pre-packs, 
direct)-  Less  uncertainty  on 
identifying  when  the  firm  is 
close to insolvency (direct)  

assets 

and 

Cross-border 
creditors/ investors 
-  Lower  information  and 
learning  costs  (costs  of 
themselves 
familiarizing 
with 
the 
the  rules  of 
foreign  regimes)  through 
greater  transparency  and 
comparable 
factsheets 
(direct).  
-  Easier  participation  and 
in 
greater 
through 
proceedings 
on 
standardized 
rules 
creditors’ 
committees 
(indirect) 

influcence 

Benefits 

Costs 

- In prepacks limited options for 
in  negotiations 
involvement 
compared 
standard 
to 
restructuring 
-  Less  flexibility  to  address 
liquidity  problems 
temporary 
and  to  preserve  going  concern 
(indirect) 

-  Familiarisation  costs 
(likely 
or 
negligible) 

small 

Insolvent  company  and 
directors (going concern) 

SMEs 

Employees 

Insolvency 
practitioners 

Public sector 

discharge 

-  Increased  availability  of 
an  orderly  liquidation  for 
micro- and small businesses 
in financial distress  
-  Debt 
for 
entrepreneurs  concerned  by 
the 
liquidation  of  MSEs 
(automatic second chance)   
orderly 
-  Access 
liquidation 
asset-less 
in 
cases  reduces  moral  hazard 
(indirect) 

to 

-  Higher  chances  to 
preserve  employment 
for  going  concerns 
parts  of  the  business 
(indirect)  

to 

-  Easier  access  to 
asset 
tracing 
registries (direct) 
-  More  effective 
recover 
tools 
value  from  asset 
disposal  (e.g.  pre-
pack; tools to seize 
across 
assets 
borders,  direct) 

tax 
from 

Higher 
revenues 
higher 
investment  and 
productivity  of 
the 
economy 
(indirect)  

- Higher liability risks for 
directors and entrepreneurs 
(direct) 
- Need for better business 
procedures to monitor and 
manage cash flows (direct 
and recurrent) 
- 
Familiarisation 
(likely small or negligible) 

costs 

-  Position  in  ranking 
may  be  affected  by 
the change of ranking 
of  public  claims  as  a 
consequence 
of 
harmonisation  of  the 
latter (indirect) 

-  Financial  losses 
if IPs have to carry 
the  costs  in  cases 
of 
asset-less 
companies 

public 
Fewer 
from 
revenues 
less  favourable 
treatment 
of 
public 
claims 
(direct) 
Need to address 
conflicts  with 
other  pieces  of 
law (indirect) 

- More certainty about when the 
company is insolvent (direct) 
-  Higher  chances  of  timely  sell 
going  concern  parts  of 
its 
business (indirect) 

insurance 

recruitment 

-  Higher  liability  and  litigation 
(with  shareholders)  risks  for 
directors  may  be  reflected  in 
higher  wage  demands,  more 
difficult 
of 
directors, company procedures / 
information  flows  or  higher 
liability 
costs 
(indirect) 
-  Further  internal  procedures 
and  an  information  flows  to 
enable  due  diligence  in  case  of 
a pre-pack sale (indirect) 
-  Need 
procedures 
flows (direct and recurrent) 
-  Familiarisation  costs  (likely 
small or negligible) 

for  better  business 
to  manage  cash 

 
 
 
 
 
 
 
 
The public sector would suffer from revenue shortfalls in those Member States where tax 
revenues  are  currently  privileged  and  would  have  to  be  deprioritised.  This  might 
seriously  affect  fiscal  revenues  of  a  Member  State  with  an  insolvency  backlog.  At  the 
same time, a deprioritisation of public claims would support companies’ and in particular 
SME’s  access  to  finance  since  private  creditors  need  to  factor  in  that  in  case  of  an 
insolvency, their claim will be junior to those of the public sector. In those cases where 
the  public  sector  steps  in  and  pays  employees’  due  wages,  a  deprioritisation  of  public 
claims would reduce the incentive for the public sector to support employees.172  

7.  HOW DO THE OPTIONS COMPARE? 

7.1.  Benefits and costs across the elements of insolvency regime 

The  introduction  of  the  described  measures  under  option  1  on  avoidance  actions,  asset 
tracing,  directors’  duties,  pre-packs  target  to  preserve  the  best  value  of  assets  in  a 
liquidation  case  and  would  lead  to  a  significant  improvement  over  the  base  line.  The 
harmonisation  of  some  key  features  of  avoidance  actions  and  directors’  duties  and  the 
better asset tracing in  cross-border cases  would also  provide assurances to  cross-border 
creditors  and  reduce  their  information  costs.  Some  measures  in  the  option  are  likely  to 
reduce the time of insolvency processes (e.g. pre-packs have a specific feature to allow 
for a quick approval of the sale; better asset tracing possibilities (access to registers) will 
also  reduce  the  time  to  reclaim  assets,  MSE  insolvency  proceedings  will  be  more 
proportionate).  Although  these  measures  will  lead  to  some  adjustment  costs  for  the 
public  sector,  insolvency  practitioners  and  companies,  they  should  not  be  substantial 
because  the  targeted  elements  under  option  1  are  not  expected  to  produce  major 
inconsistencies with other areas of law. 

A special regime for MSEs and transparency on insolvency triggers would increase the 
recovery value because more MSEs would be subject to an orderly liquidation and faster 
debt  discharge.  The  MSE  regime  would  be  designed  to  deliver  a  shortening  of  the 
insolvency process and decrease the costs incurred for MSEs, which would both improve 
their  situation  compared  to  the  baseline.  This  would  also  reduce  debtors’  incentive  to 
procrastinate. Transparency on the insolvency triggers may not reduce the duration of the 
proceedings, but would rather allow creditors and debtors to better anticipate the start of 
insolvency and for creditors to better price the risks. These measures are likely to lead to 
further  costs  for  the  judicial  infrastructure  dealing  with  an  increased  number  of  MSE 
insolvency cases and to the public sector in charge of the production of comparable and 
simple yet meaningful information on insolvency regimes. But such costs are expected to 
be far outweighed by the benefits described above. 

The primary target  of more harmonised rules on creditor  committees  in  option 1 and 2 
and  improved  transparency  on  the  ranking  of  claims  in  option  1  is  to  reduce  legal 
uncertainty  and  information  costs  for  cross-border  creditors  relative  to  the  baseline. 
Creditor  committees  improve  the  articulation  and  representation  of  the  interest  of 
creditors  with  a  particular  benefit  for  cross-border  creditors.  It  is  not  evident  whether 
they would have an impact on recovery values. It is likely that they would have a positive 
effect on the willingness of creditors to cooperate and thus possibly reduce the length of 

172  Nevertheless,  Directive  2008/94/EC,  on  the  protection  of  employees  in  the  event  of  the  insolvency  of 
their  employer,  guarantees  a  minimum  level  of  protection  for  employees  which  is  not  removable  by 
Member States.  

 
 
                                                 
the proceedings. While the production of the information for the transparency tool would 
give  rise  to  some  (limited)  administrative  costs  mainly  of  one-off  nature,  more 
harmonised  rules  on  creditor  committees  should  not  have  any  notable  cost  effects 
compared to the baseline. 

A comprehensive EU regime (option 2) on asset recovery measures would lead to further 
effectiveness  gains  relative  to  the  baseline  because  the  additional  elements  on  asset 
seizure and directors duties may further increase value recovery and its speed relative to 
option  1.  The  addition  of  asset  seizure  is  likely  to  lead  to  a  stronger  impact  than  the 
addition of fiduciary duties in option 2 relative to option 1. About 75% of the insolvency 
experts surveyed in Deloitte and Grimaldi (2002) indicated a more than minor increase in 
the efficiency of insolvency cases from access to cross-border registers for the purpose of 
asset tracing. 173 The larger scope of option 2 would also contribute more to the reduction 
of legal uncertainty and information costs for cross-border investors than under option 1. 
The  higher  effectiveness  with  regard  to  the  preservation  of  asset  value  and  shorter 
insolvency proceedings would make the market exit of firms less costly under option 2. 
The more comprehensive coverage of elements in Option 2 would also contain the risk of 
forum  shopping  more  strongly  than  option  1,  albeit  the  sparse  evidence  that  this  is  a 
material risk.174 

New types of compliance costs would arise under both options compared to the baseline, 
with comparatively higher compliance costs for option 2. The harmonisation of elements 
at EU level would require that Member States undertake further legislative measures to 
restore consistency with other pieces of law (in particular under option 2, where conflicts 
with  other  areas  of  law  are  likely).  In  addition  under  option  2,  courts  would  have  to 
provide timely jurisprudence on the general principle of shifting the fiduciary duties for 
directors, at least in Member States where this principle has not existed so far. Some of 
insolvency 
the  measures  would 
practitioners, which would have to comply with stricter requirements (more under option 
2 than under option 1). 

increase  compliance  costs  for  companies  and 

The  more  ambitious  measure  on  insolvency  triggers  under  option  2  may  reduce  legal 
uncertainty  and  information  costs  for  cross  border  creditors  relatively  more  than  under 
option 1 and lead to  earlier openings of insolvency procedures with positive effects  for 
asset recovery and the length of proceedings. Adjustment costs for stakeholders and costs 
for the public sector to  ensure that the harmonised insolvency trigger is consistent with 
other areas  of national  law (company and property  laws)  would however be substantial 
under option 2.  

Since  the  ranking  of  claims  is  a  major  source  of  uncertainty,  the  inclusion  of  common 
rules  on  the  ranking  of  claims  would  have  a  more  sizeable  effect  on  cross-border 

173 See Annex 4,Section 3.1. In the absence of data in the study by Spark and Tipik (2022) on tracing and 
recovery of debtor’s assets by insolvency practitioners to estimate the effect of the broader and narrower 
coverage on asset seizure and given comparable estimates by insolvency experts in Deloitte and Grimaldi 
(2022) about the increase in efficiency accomplished by access to registers for the purpose of asset tracing 
and  more  powers  for  IPs  to  trace  and  seize  assets  (see  chart  in  Annex  4),  it  seems  a  conservative 
assumption that the limitation to asset tracing in option 1 reduces the impact of by two thirds compared to 
what  insolvency  experts  expect  to  result  from  a  comprehensive  solution  that  includes  asset  seizure. 
Regarding, directors duties, option 1 covers broadly two third of the elements of option 2, it is therefore 
assumed for the numerical simulation that the absence of fiduciary duties reduces the impact of directors’ 
duties by a third. 
174 See the Spark and Tipik (2022) study on forum shopping. 

63 

 
                                                 
creditors’ legal certainty and information costs than the transparency requirements under 
option  1,  even  if  the  harmonisation  is  limited  to  a  narrow  subset  of  the  universe  of 
creditors. The impact of such reforms for Member States would nevertheless be sizeable 
because the ranking of claims touches  upon the  central  elements  of property  rights  and 
have  strong  implications  on  how  the  public  sector  will  behave  in  the  run-up  to  an 
insolvency. Apart from the risk of foregone public revenues from the deprioritisation of 
tax claims, the public sector may become less supportive of companies in distress, with 
potential far-reaching consequences for broader economic performance. 

7.2.  Quantification of effectiveness 

The  Deloitte  Grimaldi  survey  asked  insolvency  practioners  to  assess  the  impact  of  the 
different  measures  on  recovery  values  and  time  to  recover.  Table  8  translates  these 
estimates into changes to the recovery rate,175 using the EBA numbers for the average EU 
recovery  number  and  time  to  recovery  as  baseline.  It  is  shown  that  the  recovery  rate 
would increase by just under 2 percentage points under option 1 and almost 3 percentage 
points under option 2 relative to the base line. The measures on asset recovery contribute 
most to the higher recovery rate. Reductions in time and the saving of costs under options 
1 and 2 are almost at par in their contribution to the increased recovery rate. Note, that 
the  difference  in  the  effect  between  option  1  and  option  2  is  largely  driven  by  the 
underlying assumptions.176  

Table 8: Induced changes to costs and time of recovery and resulting increase in the recovery rate 

Asset recovery 

Cost savings in % 
Time reduction in % 
Induced  increase  in 
recovery rate (%-pts) 

-28 
-31 

1.02 

Insolvency 
procedures 

Option 1 

-12 
-13 

0.38 
Option 2 

Distribution 
recovered assets 

of 

Sum 

0 
-1 

0.02 

-36 
-40 

1.42 

-39 
-44 

Cost savings in % 
Time reduction in % 
Induced  increase  in 
recovery rate (%-pts) 
Note:  Assumptions  are  a  recovery  value  of  40.4%,  recovery  time  3.4  years,  judicial  costs  1.4%,  interest 
rate 1.36%. For more details, see Annex 4, Section 3. 

-12 
-13 

-49 
-54 

-3 
-5 

0.13 

2.07 

1.56 

0.38 

175 The present value of the recovered value net of judicial costs, see Annex 4, Section 3.1 for the formula 
to calculate recovery rates. 
176  The  survey  responses  from  insolvency  experts  could  be  read  as  the  expected  outcome  of  the  most 
ambitious policy option. Regarding the options on pre-packs, MSEs, ranking of secured claims and creditor 
committees, the policy options are ambitious and therefore their indications were taken as a basis for the 
estimate of the impact of their realisation on the recovery rate. On avoidance actions, it is conceivable that 
more  elements  than  suggested  could  be  harmonised.  Since  the  measure  includes  the  core  elements,  an 
estimate  that  the  measure  yields  2/3  of  the  indicated  effect  seems  conservative.  Since  cross-border  asset 
tracing  is  a  preparation  to  asset  seizure,  the  table  below  assumes  that  the  effectiveness  of  asset  tracing 
without  asset  seizure  in  option  1  yields  only  1/3  of  the  effect.  Regarding  directors’  duties,  option  2  is 
encompassing, while the absence of a change in the direction of their interest from shareholders to creditors 
should  lead  to  a  discount.  It  is  assumed  that  the  obligation  to  file  for  insolvency  accounts  for  2/3  of  the 
impact on the recovery rate. 

64 

 
 
 
                                                 
7.3.  Assessment of judicial efficiency and adjustment costs 

The  elements  discussed  under  both  policy  options  would  improve  the  efficiency  and 
effectiveness of national judicial systems in dealing with insolvency proceedings, which 
is  in  the  scope  of  the  initiative,  addressing  both  the  first  general  objective  and  specific 
objectives.  For  example,  an  earlier  start  of  proceedings  (due  to  enhanced  duties  for 
directors to file for insolvency) as well as better means to avoid asset misuse, and better 
means  to  trace  the  already  misused  assets,  should  facilitate  (and  expedite)  the  work  of 
courts and insolvency practitioners. The creation of an MSE regime is the only measure 
in this initiative that may lead to a possibly higher workload of courts. While these costs 
may be substantial in some Member States, these costs could (at least in part) potentially 
be  outweighed  by  newly  gained  efficiencies  of  a  more  streamlined  regime,  which  are, 
however, not possible to quantify. Member States would also be expected to put in place 
additional measures, using their discretion, to address a possible strain on court capacity 
due to the MSE regime. 

Other  measures  in  the  competence  of  Member  States,  that  they  may  undertake 
individually, or  past  measures  already  adopted,  may  further improve the efficiency and 
effectiveness  of  national  insolvency  frameworks  but  are  considered  as  out  of  scope 
drivers.  These  could,  for  example,  relate  to  setting  up  specialised  courts  (or  court 
chambers),  dedicated  exclusively  to  insolvency  proceedings,  or  better  training  of 
insolvency  judges.  In  addition,  there  could  also  be  additional  measures  that  Member 
States can take building  on recent  EU law setting out  rules for insolvency  practitioners 
(e.g.  on  conflict  of  interest).  Finally,  any  negative  impact  may  be  further  mitigated  by 
ongoing wider improvements to court proceedings, such as the upcoming digitalisation of 
the  judicial  system177,  as  well  as  the  ongoing  efforts  in  Member  States  to  improve  the 
efficiency of their judicial system. 

Comparing the costs of the different options is difficult. Option 1 is expected to simplify 
and  shorten  the  insolvency  process,  and  should  hence  reduce  the  costs  involved.  It, 
however,  requires  that  the  public  sector  adjusts  the  existing  legal  provisions  and 
introduces transparency enhancing measures. The resulting costs for adjusting legislation 
in principle should not be large.178 The introduction of the MSE regime may potentially 
lead to a higher burden for the judicial system if the efficiency gains from a simplified 
regime  are  outweighed  by  the  costs  from  more  MSE  insolvency  proceedings  (which  is 
not  certain).  In  this  case,  higher  costs  for  the  public  sector  would  result  from  granting 
acess  to  insolvency  proceedings  for  assetless  entities.  Estimates  of  both  costs  to  the 
public  sector  and  benefits  to  the  broader  society  are  included  in  Annex  3,  which  also 
documents the assumptions used and the underlying uncertainty of the estimates. 

It is expected that option 2 would lead to higher costs than option 1. All costs identified 
under option 1 would also be relevant under option 2. Option 2, however, gives rise to 
additional costs on top of those identified under option 1: the loyality conflicts between 
directors and shareholders, possible legal disputes in cross-border asset seizure, the need 
for implementation of more advanced cash-flow management by firms, short-falls for the 

177  Proposal  for  a  Regulation  laying  down  rules  on  digital  communication  in  judicial  cooperation 
procedures in civil, commercial and criminal matters; Proposal for a Directive aligning the existing rules 
on communication with the rules of the proposed Regulation. 
178 There is little data on the cost of producing legislation. A study on this topic is Ngiem et al (2012). It 
identified average costs of USD 2.6 million for an act in New Zealand (adopted by Parliament) and USD 
382,000 for producing a regulation in New Zealand (not adopted by Parliament), and USD 980,000 for bill 
enacted by all US state governments.  

65 

 
                                                 
public sector resulting from less fiscal revenue and rising asset encumbrance in insolvent 
firms.  Some  of  the  measures  considered  under  option  2,  notably  cross-border  asset 
seizure and a liquidity-driven insolvency trigger  may lead to  inconsistencies with  other 
areas  of  law  in  some  Member  States.  This  would  likely  create  (at  least  initially)  a 
considerable  degree  of  legal  uncertainty  (unlike  in  option  1)  for  stakeholders  that  the 
public  sector  would  have  to  address,  thus  incurring  substantially  higher  (additional) 
costs.179 This is the reason why option 2 scores lower that option 1 in terms of efficiency.  

7.4.  Coherence with national and EU law 

Discussions  with  insolvency  experts  in  preparation  of  this  impact  assessment  helped 
identify those elements, which focus on narrow and technical improvements to national 
insolvency rules  that do not  interfere  with  broader legal  systems  in  Member States  and 
the  principles  established  in  the  EIR.  Since  option  1  is  limited  to  these  elements,  it  is 
coherent with the Member States’ broader legal frameworks. The changes envisaged in 
option 2 would possibly lead to conflicts with the fundamental principles in other pieces 
of national law and necessitate costly efforts for Member States to resolve them. Option 2  
therefore scores worse on coherency compared to option 1. 

Both options are considered to be in full coherence with other EU legislation in this field, 
notably the DRI and the EIR, and address problems, which this other existing legislation 
does not tackle. The initiative instead focuses on the areas that were left outside the scope 
of  the  DRI,  i.e.  the  substantive  insolvency  law.  The  two  options  set  out  in  the  impact 
assessment  do  not  contain  any  changes  to  the  areas  that  are  affected  by  the 
implementation of the relevant provisions of the DRI. 

The initiative is coherent with the Environmental Liability Directive (ELD) and does not 
impair  the  effectiveness  of  the  ELD,  which  aims  to  limit  the  accumulation  of 
environmental  liabilities  and  to  ensure  compliance  with  the  ‘polluter  pays’  principle. 
ELD obliges Member States to take measures, including financial mechanisms in case of 
insolvency, with the aim of enabling operators to use financial guarantees to cover their 
responsibilities under ELD. These mechanisms aim to ensure that claims will be served 
even in cases where the debtor becomes insolvent.   

7.5. 

Synthesis 

Table  9  synthesises  the  qualitative  and  quantitative  arguments  in  an  ordinal  ranking  of 
the  two  policy  options.  Double  or  triple  pluses  or  minuses  were  allocated  when  the 
difference from the baseline was assessed as significant  or very significant  in  line with 
the  reasoning  in  this  section.  They  were  allocated  with  the  objective  to  accomplish  a 
ranking  that  is  consistent  across  the  different  dimensions  and  sub-options  of  options  1 
and  2.  The  effects  of  suboptions  were  aggregated  because  their  effects  cumulate.  The 
three dimensions of effectiveness were aggregated into an overall score through a simple 
average,  which  implies  an  equal  weight  of  each  dimension.  The  overall  score  is  the 
balance of benefits (+) and costs (-). 

The markings suggest that option 2 is superior to option 1 in terms of its effectiveness for 
value recovery and reducing legal uncertainty and information costs. However, option 1 
and option 2 rank (more or less) on equal terms in their effectiveness with regard to the 
procedural  efficiency  and  the  distribution  of  recovery  value,  where  advantages  are 

179 The estimates by Ngiem et al (2012) suggest that the costs of creating substantial legislation is  about 7 
times higher than that of legislation that addresses technical issues. 

66 

 
                                                 
outweighed  by  some  disadvantages.  For  example,  more  predictable  triggering  of  the 
insolvency  procedure  needs  to  be  balanced  against  the  disadvantage  that  the  liquidity 
trigger  removes  the  scope  for  discretionary  choices  from  the  system.  Furthermore,  the 
advantage of clarity on the ranking of public claims has largely a re-distributive impact 
whereas the impact on information and learning costs might be small.  

Overall,  there  are  crucial  trade-offs  between  the  two  options.  Option  2  would  be  more 
effective in tackling the long-standing divergences in insolvency regimes, while it would 
carry  higher  costs  and  coherence  issues  for  many  Member  States.  In  terms  of 
effectiveness,  option  2  would  lead  to  a  greater  improvement  of  recovery  rates  due  to 
more effective asset seizure and greater (overarching) liability for directors. It would also 
lead  to  a  greater  reduction  of  legal  uncertainty  and  information  costs  for  cross-border 
investors  than  under  option  1  due  to  a  targeted  harmonisation  of  insolvency  triggers. 
However,  option  2  would  be  more  costly  than  option  1,  as  it  would  lead  to 
inconsistencies with the existing broader national legal systems which would imply large 
costs for Member States and make this option more politically challenging. For example, 
any harmonisation  in  relation  to  the ranking of claims in  insolvency (even if limited to 
the  treatment  of  public  sector  claims,  as  proposed  under  option  2)  would  have  wider 
implications for the treatment of claims in general and raise broader issues of tax law as 
well  as  of  social  security  legislation.  Therefore,  the  overall  advantage  of  option  2  over 
option 1 in terms of its effectiveness in achieving the objectives comes at the cost of cost-
efficiency and lower coherence. Option 1 allows to achieve the objectives at lower costs 
and is more coherent with EU and national law, and is therefore preferred over option 2.  

67 

 
  
Table 9: Comparison of options 

EFFECTIVENESS 

Preserve the best 
possible value of assets 
that are due for 
liquidation 

Support a 
timelier 
conclusion of 
insolvency 
proceedings  

Reduce legal 
uncertainty and 
information costs 
related to 
insolvency 
processes  

3 

++ 

+ 

≈ 

4 

+++ 

+ 

≈ 

3 

+ 

++ 

≈ 

3 

+ 

++ 

≈ 

5 

++ 

+ 

++ 

7 

+++ 

++ 

++ 

SUM (each 
objective 
weighted 
with a third) 

3.66 

4.66 

Objectives 

Policy option  
Targeted measures (option 1) 

recovery 
asset 

(avoidance 
tracing, 

Asset 
actions, 
directors’ duties, pre-packs) 
Procedural  measures:  MSEs, 
transparency  on 
insolvency 
features 
recovered 
of 
Distribution 
assets (creditor committees and 
transparency on ranking) 
A 
comprehensive 
insolvency regime (option 2) 
Asset 
actions, 
directors’ duties, pre-packs) 
Procedural  measures:  (MSEs, 
insolvency triggers) 
Distribution 
recovered 
of 
assets (creditor committees and 
targeted ranking of claims) 

(avoidance 
tracing, 

recovery 
asset 

EU 

EFFICIENCY 
(cost-
effectiveness) 

Adjustment costs 

COHERENCE 

Score 

Consistency  with  EU  and 
other national laws 

-2 

- 

- 

≈ 

-3 

- 

- 

- 

1.66 

-1.34 

0 

≈ 

≈ 

≈ 

-3 

- 

- 

- 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The trade-off between benefits and costs also transpires in the views from stakeholders. 
Although  the  average  responses  to  the  public  consultation  were  biased  by  the 
overrepresentation of German stakeholders, which gave a more sceptical view than those 
from  other  Member  States,  the  breakdown  by  stakeholder  groups  in  Figure  8  yields 
interesting insights. Researchers and representatives of business services, amongst which 
most were from consultancy firms, voiced overall the most supportive view. Insolvency 
practitioners  were  more  ambitious  in  particular  on  some  aspects  of  the  reform  (but  not 
all),  whereas  public  authorities  advocated  for  a  more  cautious  approach  in  almost  each 
area.  All  stakeholder  groups  (except  for  public  authorities)  gave  higher  scores  for  the 
existence of a problem than for the need of reform.  Financial stakeholders were overall 
supportive  of  more  ambitious  harmonisation  than  non-financial  corporations,  including 
on the ranking of claims and the insolvency trigger (part of option 2). This is consistent 
with the perception that the most visible benefits are likely to accrue to  creditors while 
benefits  for  debtors  would  be  more  indirect  and  less  visible,  such  as  better  access  to 
credit.  

Figure 8: Average reply by stakeholder group to the public consultation: In which area do you consider the insolvency 
framework of the jurisdiction where you operate is to be reformed? Scale 0-5  

8.  PREFERRED OPTION 

Based on the comparison of effectiveness, efficiency and coherence, option 1 is selected 
as the preferred option. Option 1 delivers similar benefits to option 2 in terms of a shorter 
duration  of  insolvency  proceedings,  although  a  somewhat  lower  impact  on  bettervalue 
recovery.  However,  option  1  will  accomplish  the  objectives  in  a  more  cost  effective 
manner than potion 2.  The preferred option is both internally and externally coherent. In 
terms of ‘internal’ coherence, the proposed measures fit together as they address various 
key phases of insolvency proceedings180 and do so with the underlying policy objectives 
in  mind  to  improve  the  efficiency  of  the  insolvency  proceedings  and  increase  the 
recovery value.  

180 Figure 2 shows that the measures address crucial steps in an insolvency proceeding. 

69 

 
 
 
                                                 
The  measures  on  transaction  avoidance  and  on  asset  tracing  mutually  reinforce  each 
other in the maximisation of the value of the insolvency estate. This, combined with an 
obligation of the directors to become active early and the possibility of maximizing the 
value of the business at an early stage through pre-packs, makes the preservation of the 
business as a going concern more likely. There is, in effect, a higher likelihood that a pre-
pack  deal  may  actually  materialise  because  there  is  more  value  and  directors  have  a 
strong incentive to take action earlier. The simplified regime for MSEs could be seen as 
slightly less efficient than the rest, considering the potential impact on judicial capacity 
that  was  discussed  above.  However,  it  would  create  clear  benefits  for  both  MSEs  ( 
simplifying  the  review  and  debt  discharge  process)  and  creditors  (leading  to  higher 
recovery rates), which would improve the efficiency of the overall insolvency regime to 
the benefit of the economy as a whole.  

The  preferred  option  is  also  externally  coherent,  by  fitting  well  with  previous  EU 
interventions  in  the  area  of  cross-border  insolvency  (the  EIR  and  of  preventive 
restructuring (the DRI). The EIR, in particular, covers the potential conflicts of laws (and 
jurisdictions  over  the  proceeding)  arising  in  cross-border  insolvencies.  The  preferred 
option focuses instead on targeted harmonisation of measures for key areas of insolvency 
proceedings, which were not addressed previously. It therefore complements the EIR and 
other EU policy interventions taken over the years in the area. The comparison of options 
in  section  7  has  considered  this  together  with  the  coherence  with  Member  States’  law 
overall.  

Economic impacts 

In  terms  of  economic  impacts,  the  preferred  option  is  expected  to  bring  significant 
benefits for creditors, companies, including SMEs, and the wider economy.  

Creditors  will  benefit  from  expected  higher  value  recovery  arising  from  better 
possibilities  for  IPs  to  counter  transaction  avoidance  and  trace  assets,  including  across 
borders, less asset deterioration from earlier and faster insolvency procedures and better 
opportunities  to  use  pre-pack  sales.  Creditor  committees  will  also  allow  them  to  more 
effectively  coordinate  their  decisions.  Cross-border  creditors  will  further  benefit  from 
higher transparency on key characteristics of insolvency regimes and ranking of claims, 
which is expected to significantly reduce related information and learning costs.  

Companies, especially those operating in a cross-border context, will face more uniform 
conditions  and  lower  legal  uncertainty  of  what  will  happen  if  they  become  insolvent. 
This  sets  incentives  to  act  in  time  in  case  of  financial  turmoil,  which  increases  their 
chance of survival. For those firms that do not manage overcoming financial distress, the 
more efficient framework should lead them to look for either preventive restructuring or 
liquidation.  They  benefit  indirectly  from  the  higher  chances  of  settling  parts  of  the 
business as going concern. Directors will face higher liability risks, which may lead them 
to  demand  higher  wages.  The  initiative  should  not  lead  to  higher  compliance  costs  in 
general.  

The initiative is  expected to  indirectly improve the competitiveness  of the EU business 
sector through better prospects to wind up zombie companies. This should contribute to 
the reallocation of capital and labour to more productive means and hence have positive 
impacts on the broader economy. Since better predictability of the outcome of insolvency 

70 

 
 
procedures  fosters  credit  provision  from  domestic  and  cross-border  actors,  it  facilitates 
access to finance, which improves the competitive position of companies.  

Insolvency practitioners will benefit from lower costs due to easier access to asset tracing 
registries  and better opportunities to  recover value from asset disposal.  There will be a 
higher  demand  for  their  services  due  to  more  MSEs  becoming  orderly  wound  down. 
Since  a  share  of  MSE  are  likely  to  be  asset-less  at  the  time  of  filing  for  insolvency, 
insolvency practitioners may not be able to recover their expenses, depending on how the 
treatment of asset-less cases will be financed. 

In  terms  of  magnitudes,  the  model  scenario  suggests  that  pursuing  the  preferred  option 
would reduce the cost  of recovery  by approximately 40% (in terms of  relevant  judicial 
costs) and the time of recovery by 50% relative to present conditions. These benefits are 
conditional  on  the  good  application  in  practice  of  the  new  rules  and  on  that  neither 
limited capacity in courts and IPs nor IPs abuse of their enhanced possibilities impair the 
performance of insolvency systems. Using the end-2021 interest rate as discount rate, the 
average  recovery  rate  would  increase  from  37.2%  to  38.7%.  This  implies  a  non-trivial 
improvement that results from more efficient public proceedings.  

Taking  the  empirical  estimates  in  Annex  4  and  in  the  economic  literature  presented 
therein at face value, a 1.5 percentage point increase in the recovery rate could translate 
into  a  1.5  basis  point  compression  in  debt  funding  costs  and  a  1.5  percentage  point 
increase in intra-EU cross border portfolio asset holdings181. Further sizeable savings are 
expected  in  information  costs  for  cross-border  investors  from  more  harmonised  rules 
across  Member  States  and  from  the  transparency-enhancing  measures.182  Since  the 
initiative addresses a major obstacle to capital market integration, the envisaged changes 
are  expected  to  lead  to  a  non-trivial  increase  in  cross-border  investment  on  the  single 
market,  with  positive  spill  over  to  other  policy  measures  under  the  CMU  umbrella 
towards  this  end.  A  full  harmonisation  of  insolvency  regimes  that  also  includes  the 
insolvency trigger and the ranking of claims could deliver even larger gains in terms of 
capital market integration, as set out earlier in this impact assessment. 

Impacts on SMEs 

The SME test concluded that this initiative is relevant for SMEs since the dominant part 
of insolvency cases concern SMEs.183 The measures in this inititative would increase the 
recovery  rate  for  businesses  including  for  SMEs.  This  would  reduce  risks  for  creditors 
and would make financing for SMEs cheaper and more easily accessible (i.e. with less or 

181 These numerical estimates result from combining coefficients and numbers from very different studies 
that  use  different  methodologies,  data  and  terminologies  on  a  best-effort  basis.  Considering  that  this 
initiative  addresses  a  very  narrow  determinant  of  cross-border  capital  flows  and  of  the  development  of 
capital markets, the effects seem sizeable, but remains realistic. 
182 These are not measurable at present. Nor is it sensible to formulate a target value for recovery rates and 
its components. Although some Member States perform much better than others in the EBA benchmarking 
exercise, the lack of representativeness of the sample and its narrow focus on bank loans prevent using it to 
establish broader numerical targets or to assess how the expected improvement in recovery rates compares 
to such target. 
183 While statistics about the size breakdown of insolvent firms exists only for few Member States, SMEs 
represent at least 90% of the insolvency cases. See Annex 4, Section 3. 

71 

 
 
                                                 
even  no  collateral),  ceteris  paribus.  SMEs  are  even  more  likely  to  benefit  from  this  as 
they are inherently more risky and hence more likely to face insolvencies. 

The SMEs would also benefit directly from the creation of special insolvency regimes for 
MSEs  that  are  more  proportionate  to  their  needs  than  the  currently  existing  “one-size-
fits-all”  proceedings.  It  should  allow  more  MSEs  to  be  wound  down  in  orderly 
procedures.  Their  improved  access  to  orderly  liquidation  in  asset-less  cases  reduces 
moral hazard. Entrepreneurs concerned by the liquidation of MSEs can expect easier debt 
discharge, which gives them a faster second chance.  

The initiative does neither impose reporting burden nor compliance costs on SMEs. They 
would  need  to  familiarise  themselves  with  the  new  rules  if  they  approach  the  state  of 
insolvency.  Under  the  assumption  that  most  solvent  SMEs  are  not  familiar  with 
insolvency  rules  under  the  current  regime,  these  information  costs  should  not  be 
substantially  higher  than  now  (in  fact  they  could  be  lower  due  to  new  transparency 
measures put forward by the initiative). 

Costs related to “one in, one out” 

The  initiative  is  expected  to  give  rise  to  some  costs,  but  no  cost  impacts  related  to  the 
‘one in, one out’ approach have been identified. Costs for businesses may arise from the 
need  to  familiarise  themselves  with  the  new  rules  and  indirectly  as  a  result  of  the 
increased  liability  for  directors,  but  these  are  not  of  administrative  nature184  Limited 
administrative costs are expected to arise for the Member States with the production and 
updating of factsheets providing greater transparency on national insolvency frameworks 
(since  they  materialise  for  public  sectors  only,  these  costs  are  out  of  scope  of  the 
Commission’s  “One-In-One-Out”  commitment).  Those  Member  States  that  do  not  yet 
have an electronic judicial auction platform would need to bear the cost of setting one up 
and those Member States that have such platform, but do not use it for insolvency cases 
would need to adapt them for the purpose of auctioning assets of MSEs. 

Cost savings are overall expected for judicial system (insolvency lawyers and courts) as 
some  procedures  set  out  at  a  Member  State  level  will  be  made  simpler.  Only  in  the 
second  step,  these  will  be  passed  on  to  creditors  in  the  form  of  higher  recovered  value 
and  then  to  businesses  in  the  form  of  cheaper  (or  more  accessible)  financing.  Hence, 
these  costs  savings,  while  potentially  sizeable,  do  not  count  under  the  under 
Commission’s “One-In-One-Out” principle. Similarly, the cost savings from a dedicated 
simplified insolvency procedures for MSEs relate to the simplification of national  rules 
and not to administrative obligations under EU legislation and are therefore not counted 
under the “One-In-One-Out” commitment. 

Annex 3 further elaborates on expected benefits and costs.  

184  These  may  include  possible  higher  wage  demands,  more  difficult  recruitment  of  directors  or  higher 
liability  insurance  costs.  There  may  also  be  costs  for  reports  to  directors  about  liability  risks  and 
information disclosure and costs about information disclosure when pre-packs are used. It was not feasible 
to estimate the size of these costs, although they are expected to be moderate.  

72 

 
 
                                                 
Environmental impacts 

No  direct  environmental  impacts  and  no  significant  harm,  either  direct  or  indirect,  are 
expected  to  arise  from  the  implementation  of  the  preferred  option.  The  initiative  may 
have  some  indirect  positive  impacts  on  fostering  the  transition  to  a  more  sustainable 
economy by reducing the share of zombie companies in the economy. This could enable 
reallocation of capital and labour towards companies with a higher rate of innovation and 
productivity and thus may indirectly contribute to accelerating structural change towards 
more sustainable production. This effect would however be indirect and is not possible to 
quantify. It also does not interfere with measures under the ELD. On the contrary, a more 
efficient  insolvency  framework  would  contribute  to  a  speedier  and  more  effective 
recovery  of  asset  value  overall  and  hence  would  facilitate  the  compensation  of 
environmental claims of an insolvent company even without having recourse to financial 
security instruments, in full consistence with the aims of the ELD. With regards to these 
claims,  it  would  partially  contribute  to  the  predictability  for  investors  and  other 
economic  actors  which  is  one  of  the  objectives  of  the  European  Climate  Law,  though 
greater transparency on the ranking of claims – and hence this initiative is considered to 
be consistent with the objectives of the European Climate Law. 

Social impacts 

Employees  are  not  directly  impacted.  The  stronger  incentives  for  entrepreneurs  and 
directors to  avoid  insolvency resulting from  the  higher predictability of the outcome of 
insolvency procedures increases employees’ changes to keep their jobs in going concerns 
parts  of  the  business.  The  position  in  gone  concern  parts  of  the  business  is  unchanged 
relative  to  the  baseline.  Often,  the  government  compensates  employees  for  outstanding 
wages  and  salaries.  The  incentive  for  the  government  to  provide  this  compensation 
should  not  be  affected  by  the  measures.  No  further  significant  social  impacts  are 
expected. 

Impact on Sustainable development goals (SDGs) 

This initiative is expected to directly or indirectly contribute to the achievement of SDG 
no.  8  (Decent  work  and  economic  growth),  SDG  no.  9  (Industry,  innovation,  and 
infrastructure) and SDG no. 16 (Peace, justice and strong institutions). Annex 3 provides 
more detail.  

Digital by default 

This initiative has slightly positive impact on digitalisation, arising notably though higher 
degree of process automation in the simplified insolvency procedure for MSEs and use of 
digital portal (e-Justice portal) to provide user-friendly information on the key features of 
insolvency regimes and ranking of claims. Based on our assessment, it can be considered 
future-proof. 

External impacts 

While this initiative does not specifically target third countries or their entities, creditors 
from third countries are also expected to benefit from the measures. The benefits would 
materialise through the same channels as for intra-EU creditors and also the magnitude of 
the benefits should be comparable. As a result, more efficient and harmonised insolvency 

73 

 
 
regimes  in  the  EU  Member  States  could  increase  investment  flows  from  abroad.  The 
impact  on  the  financial  and  the  current  account  is,  however,  not  quantifiable  without 
recourse to a large set of economic assumptions. 

Impact on fundamental rights  

The preferred option respects 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  free  movement  of  persons,  services  and  establishment 
constituting one of the basic rights and freedoms protected by the Treaty on the European 
Union  and  the  Treaty  on  the  Functioning  of  the  European  Union  is  relevant  for  this 
measure. 

The  preferred  option  shall  not  have  any  negative  impacts  on  fundamental  rights  since 
most Member States recognize that the need to safeguard the rights of creditors must be 
balanced  against the rights  of debtors and the general  interest  of saving companies and 
jobs. Fundamental rights of right to property and right to an effective remedy and to a fair 
trial are guaranteed under this preferred option. Overall, the impact on fundamental rights 
will be neutral. Although certain elements 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.  

9.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

The proposal is expected to follow normal implementation procedures for directives. Ex-
post evaluation of all new legislative measures is a top priority for the Commission. The 
Commission shall review the outputs, results and impacts of this initiative five years after 
the legal instrument becomes effective. 

The  key  indicators  to  measure  the  impact  of  this  policy  initiative  in  relation  to  the 
selected  objectives  include  recovery  rates,  recovery  time  and  costs  of  insolvency 
proceedings  (as  percentage  of  the  recovered  value).  While  separating  the  effect  of  the 
initiative from external factors will arguably be challenging and will only be possible to 
do in an evaluation, Commission services plan to create and monitor the following data 
sources that could be useful for the review:   

  Recovery values and time of recovery in the enforcement of bank loans will become 
available  from  the  insolvency  benchmarking  exercise,  which  the  Commission 
committed to undertake in the 2020 CMU Action Plan. Preparations for this exercise 
are  currently  ongoing  with  the  EBA.  While  this  data  is  limited  to  bank  loans,  it  is 
certainly  an  important  number  considering  that  most  of  companies  funding  is 
through (secured and unsecured) bank loans.  

  New data on the length of procedures, and possibly the recovery rate and the size of 
the  debtors  involved  in  such  proceedings  (medium,  large  or  micro-enterprises),  as 
well as the outcome of the procedures opened will become available, following the 
adoption of an implementing act under the DRI, which imposes reporting obligations 

74 

 
 
on Member States. It will allow the Commisison to analyse the length of insolvency 
procedures,  the  breakdown  of  insolvencies  for  different  sizes  of  companies  and, 
dependent  on Member States’  ability  to  provide  relevant  data,  recovery  values and 
job  losses  due  to  insolvencies.  Notwithstanding  the  upcoming  adoption  of  the 
Commission  proposal  for  the  implementation  act,  it  would,  however,  take  at  least 
several years to collect the necessary time series to perform a robust analysis of any 
impact. 

  Surveys with insolvency and investors to gauge the effect of the different measures. 
It can be envisaged to run a suvey among insolvency practitioners and experts akin 
to the survey conducted by Deloitte/Grimaldi. 

  The development of the number of insolvencies, credit volumes and costs and cross-
border capital flows and home bias in international investment based on the statistics 
produced  by  Eurostat,  ECB,  EBA  JRC  and  national  actors  (statistical  offices  and 
court  statistics).  These  data  would  then  be  used  by  the  Commission  to  analyse  the 
impact of the intiative. 

An  evaluation  is  envisaged  5  years  after  the  implementation  of  the  measure  and 
according  to  the  Commission's  better  regulation  Guidelines.  The  objective  of  the 
evaluation will be to assess, among other things, how effective and efficient it has been 
and to recommend whether new measures or amendments are needed.  

75 

 
 
 
ANNEX 1: PROCEDURAL INFORMATION 

1. Lead DG, Decide Planning/CWP references 

Co-lead  DGs:  Directorate-General  for  Justice  and  Consumers  (DG  JUST)  and 
Directorate‑General  for  Financial  Stability,  Financial  Services  and  Capital  Markets 
Union (DG FISMA) 

Decide  Planning:  PLAN/2020/8631  –  Initiative  to  increase  the  convergence  of 
substantive corporate (non-bank) insolvency laws 

2. Organisation and timing 

A Commission inter-services steering group (ISSG) was established in September 2020 
for preparing the initiative. It was chaired by Directorate-General Justice and Consumers 
(DG JUST) and was steered in close cooperation with Directorate‑General for Financial 
Stability,  Financial  Services  and  Capital  Markets  Union  (DG  FISMA).  The  following 
DGs and services participated at the inter-service group: Legal Service (SJ), Secretariat 
General (SG), Directorate-General for Competition (DG COMP), Directorate‑General for 
Economic  and  Financial  Affairs  (DG  ECFIN),  Directorate-General  for  Employment, 
Social  Affairs  and  Inclusion  (DG  EMPL),  Directorate-General  for  Internal  Market, 
Industry,  Entrepreneurship  and  SMEs  (DG  GROW),  Directorate-General  for  Mobility 
and  Transport  (DG  MOVE),  Directorate-General  for  Communication  (DG  COMM), 
Directorate-General  for  Trade  (DG  TRADE),  Directorate-General  for  Taxation  and 
Customs Union (DG TAXUD), Directorate-General for Structural Reform Support (DG 
REFORM), Directorate-General for Environment (DG ENV).  

Given  the  fact  that  the  Insolvency  initiative  was  included  in  the  Commission  work 
programme 2022, the previous ISSG was replaced, in line with the Commission working 
methods,  with  a  new  ISSG  chaired  by  the  Secretariat-General  in  November  2021.  The 
new ISSG had the same members.  

The ISSG held so far three meetings:  

on 14 September 2020, where it discussed and validated the inception impact assessment 
report, the consultation strategy and the questionnaire to the on-line public consultation, 

on 25 May 20201, where it discussed and validated the terms of reference of the external 
economic  study  supporting  the  preparation  of  the  Impact  Assessment  by  the 
Commission, 

on  18  May  2022,  where  it  discussed  and  validated  the  Impact  Assessment  report  to  be 
submitted to the RSB.  

On  7  September  2022,  where  it  discussed  how  the  comments  by  the  RSB  were 
accommodated. 

Another  meeting  of  the  Steering  Group  is  scheduled  to  discuss  and  validate  the 
Commission proposal.  

76 

 
 
3. Consultation of the RSB 

Before  the  finalisation  of  the  Impact  Assessment  report,  DG  JUST  and  DG  FISMA 
received  advice  from  the  members  of  the  Regulatory  Scrutiny  Board  (“RSB”)  at  an 
upstream meeting organised on 8 February 2022. 

The Impact Assessment report was then examined by the Regulatory Scrutiny Board and 
received a negative first opinion on 24 June 2022. The Board noted a lack of evidence of 
how insolvency proceedings affect  cross-border investment  and  considered the analysis 
of divergences across Member States  as insufficient. The Board also  called for a better 
articulation of the link of this initiative to the RDI and the EIR. It also missed an analysis 
of the impact on the Member States’ judicial capacity, information on views of different 
stakeholder groups, a more balanced assessment of options and a clear presentation of the 
trade-offs.  It  asked  for  a  more  robust  assessment  methodology  and  transparency  on 
underlying assumptions. 

the  Board.  More  concretely, 

The Commission services revised the impact assessment in accordinace with the opinion 
the  Commission  services  further 
received  from 
substantiated, where required  by the Board, the elements in the core text (including by 
moving  certain  parts  from  the  annexes),  added  more  details  about  the  Member  States’ 
insolvency systems in the core text as well as added methodological clarifications to the 
annexes.  The  analysis  about  the  relationship  between  this  initiative  and  the  RDI,  the 
motivation  and  impacts  of  the  policy  options  were  deepened  and  the  presentation  of 
methodological steps and trade-offs improved. Additional analysis was carried out on the 
impact of the initiative on judicial capacity in Member States and on SMEs. The views of 
various stakeholder groups in the public consultation were consistently added across the 
core text of the impact assessment (in particular, in sections 5 and 6). Tables with details 
about the Member States’ insolvency regimes were added to annex 5, the responses to the 
public consultation to Annex 2 and an SME test in Annex 7. The table below presents a 
point-by-point list of the RSB critcisism and how it was addressed. 

on 

opinion 

RSB 
shortcomings  
1a  The  report  does  not 
sufficient 
how 
of 
insolvency 

provide 
evidence 
current 
proceedings 
negatively 
cross-border 
investment 
single market.  

affect 

the 

in 

Approach taken to resolve the shortcomings 

Addressed in 

There  is  a  rich  body  of  assessments/reports  made  by 
international  bodies, 
think  tanks,  expert  groups  that 
analysed  the  impact  of  divergent  insolvency  rules  on  the 
level  of  cross-border  investment  and  market  integration  . 
The  authors  moved  upfront  and  made  more  visible  the 
reports  of 
evidence 
in 
international  bodies/ 
show 
that 
empirical 
insolvency  proceedings  are  a  crucial  determinant  of  cross 
border investment and market integration. 

this  area  stemming 

from 
studies 

Section  1.1; 
Annex 
4, 
Section 4 

While  there  is  no  possibility  to  show  direct  empirical 
evidence  how  strongly  each  problem  driver  holds  back 
cross-border investment and market integration, the survey 
data  allows  to  establish  estimates  by  how  much  targeted 
harmonisation  of 
increase 
recovery  rates  and  reduce  recovery  time.  This  magnitude 
now  serves  as  illustration  of  how  proceedings  hold  back 
cross-border investment/market integration.  
The text also includes now a comparison of the importance 
of insolvency rules as obstacle to cross border investment 

individual  features  would 

Tables  2  and 
6; 
Section 
7.2;  Annex  4, 
Section  3.1; 
in  particular 
Table A4.9 

Section  1.1; 
4, 
Annex 

77 

 
 
 
 
 
 
 
 
b 

not 

does 
It 
convincingly 
demonstrate  why  the 
EU should act now 

c 

The  analysis  of  how 
the 
divergent 
in 
situation 
Member  States 
is 
insufficient 

is 

b 

2a  The  report  does  not 
clearly  set  out  the 
articulation  between 
the  initiative  and  the 
Restructuring 
2019 
and 
Insolvency 
Directive 
It  does  not  clearly 
the 
identify 
remaining  gap  after 
the latter is transposed 
in July 2022. 
The  report  does  not 
sufficiently  assess  the 
impacts 
the 
capacity  of  Member 
judicial 
State’s 
resulting 
systems, 
from 
the  expected 
increased  number  of 
cases 
involving 
SMEs  and  how  this 
may 
the 
affect 
expected benefits.  

on 

3 

4a  The  report  does  not 
provide  a  balanced 
assessment  of  options 
geared 
and 
towards 
the 
preferred option. 

is 

Section 4.4 

Sections  1.4 
and 5.1 

Section  1.5; 
Section  2.3; 
Annex 5 

1.5 
in 

Section 
and 
particular 
Figure 2  

1.5 
in 

Section 
and 
particular 
Figure 2 

Section  6.1.2; 
Section  7.3; 
Annex 
4, 
Section 3.2 

Section  5.2  ; 
Section  6.2, 
Chapter 7 

international 

identified  by 

to  other  factors, 

relative 
institutions. 
The  initial  draft  downplayed  the  impact  of  the  economic 
downturn on the need to improve the economic adjustment 
capacity through more harmonised insolvency proceedings 
(as  the  forecast  that  insolvencies  would  increase  once  the 
Covid support measures ran out, did not materialise). Since 
the  inflation  pressure  has  mounted  and  the  likelihood  of 
outright  recession  has  further  increased  in  the  meantime, 
these  arguments  were  strengthened 
the 
urgency.  Latest  economic  studies  suggest  that  efficient 
insolvency  rules  have  an  important  role  in  facilitating 
economic 
of 
crisis/recession/recovery).  This  argument  was  made  more 
prominent.  
in 
More 
insolvency  rules  has  meanwhile  been  added  to  the  core 
text.  Furthermore  tables  with  key  characteristics  of  each 
problem  driver  for  each  Member  States  were  added  to 
Annex 5, using a study that was prepared for this purpose. 
Moreover, examples from Member States have been added 
to the description of problem drivers (i.e. which features of 
the building blocks exist in which Member States).  

information  on  cross-country  differences 

to  underpin 

adjustment 

times 

(at 

this 

the  2019  Directive  on 
The  differences  between 
Restructuring  and  Insolvency  (DRI),  EU  Insolvency 
Regulation  (EIR)  and 
initiative  are  now  more 
extensively  explained.  It  is  made  clear  that  the  new 
initiative covers elements that the DRI/EIR do not address, 
since  it  will  seek  targeted  harmonisation  of  substantive 
rules on insolvency. 
The  authors  added  a  table  that  shows  which  parts  of 
insolvency rules are not  harmonised  with the  EIR and the 
DRI. 

The impact assessment now clearly says that all  measures 
will  contribute  to  make  the  insolvency  regime  more 
efficient  and  therewith  help  Member  States  cope  with 
judicial capacity. The area where this is questioned by the 
RSB is a simplified regime for micro and small enterprises 
where  the  Board  argued  that  the  introduction  of  such  a 
regime  could  lead  to  higher  costs  in  those  Member  States 
that  currently  refuse  opening  an  insolvency  procedure  if 
MSEs have too few assets to pay for the legal costs. These 
impact 
effects  were  explained  more  clearly 
assessment and estimates  produced to  show the effects on 
court  capacity  to  the  extent  possible  (the  most  exposed 
Member States identified). 
The  reasoning  was  strengthened  and  fine-tuned  and  the 
presentation  of  how  both  options  were  selected  has  been 
revised 
it  more  balanced.  Stakeholder 
perspectives on the different options were also included to 
demonstrate that option 1 and option 2 would be favoured 
by different stakeholder groups. Because of its higher level 
of  ambition  option  2  is  assessed  as  more  impactful,  but  it 
also  generates  additional  difficulties  and  costs  that  were 
more visibly indicated.  

render 

the 

in 

to 

78 

 
 
 
 
 
 
b 

It  does  not  present 
clearly  the  trade-offs 
policymakers 
that 
face. 

5a  The  report  does  not 
robust 

present 
a 
assessment 
methodology  nor  sets 
out 
the 
clearly 
underlying 
assumptions. 
The  SME 
missing. 

test 

is 

b 

The  text  was  made  more  explicit  about  the  trade-offs. 
Option  2  would  be  more  effective,  but  at  the  expense  of 
higher  adjustment  costs  and  less  coherence  with  the 
fundamental  legal  principles  in  Member  States.  Legal 
uncertainty during the adjustment time and higher costs for 
restoring legal clarity are explicitly referred to. 
Assumptions  were  made  more  transparent  and  limitations 
more clearly spelled out. The description of the assessment 
methodology  has  become  more 
transparent.  The 
presentation  was  modified  by  summing  up  the  three 
objectives  into  a  single  effectiveness  criterion  and  by 
splitting  efficiency  and  coherence  into  two  separate 
criteria. 
An  SME  test  was  added  in  an  additional  annex.  The 
description of the impact of an MSE regime on micro and 
small firms  was already covered in the relevant section of 
the impact assessment. 

Section 7.5 

Section  7.1; 
Section  7.3; 
Section  7.5; 
3; 
Annex 
Annex 
4, 
Section 3 

Annex 
7; 
Section  6.1.2; 
4, 
Annex 
Section 3 

The RSB examined the revised impact assessment and issued a positive second opinion 
on  10  October  2022  without  reservations.  The  board  noted  that  the  impact  assessment 
substantially  improved,  following  the  second  submission.  The  board  only  made  a  very 
few suggestions for further improvements. Firstly, it suggested to detail more the analysis 
of  factors  that  are  likely  to  affect  court  capacity.  Secondly,  it  proposed  to  further 
elaborate on the plans to collect data for future monitoring and evaluation. The final text 
of  the  impact  assessment  accommodated  these  comments  to  the  extent  possible,  by 
adding  additional  detail  on  other  factors  that  may  influence  court  capacity  and  on  data 
collection.  

4. Evidence, Sources and Quality 

In the preparation of this impact assessment, DG JUST and DG FISMA consulted a wide 
range of experts and stakeholders and used several different methods to gather evidence.  

Evidence  used  in  this  impact  assessment  was  gathered  based  on  a  Commission’s 
consultation  strategy,  which  included:  (i)  public  feedback  to  the  inception  impact 
assessment; (ii) an open public consultation; (iii) a meeting with stakeholders ; and (iv) 
and a meeting with  Member States  representatives. (v) DG JUST and  DG FISMA  also 
received  expertise  through  a  collaboration  with  the  Commission  Expert  Group  on 
Restructuring  and  Insolvency  Law  consisting  of  both  individual  experts  appointed  in  a 
personal  capacity  (so  called  “Type  A”  experts)  and  experts  appointed  to  represent  a 
common interest shared by stakeholder organisations in a particular policy area (so called 
“Type B” experts). The Commission held nine meetings with the expert group between 
April 2021 and January 2022, which helped to inform the development of policy options, 
especially  the  legislative  ones.  The  results  of  all  these  consultation  activities  are 
presented in ANNEX 2 of this report. 

DG JUST and DG FISMA also gained further insight into the subject of this report with 
the  help  of  available  resources,  such  as  existing  literature,  reports  and  studies.  The 
detailed  list  of  these  sources  are  to  be  found  in  the  list  of  references  at  the  end  of  this 
report, the list below covers only those external studies, which the Commission itself has 
launched for the purpose of preparing this initiative:  

79 

 
 
 
 
  Deloitte/Grimaldi (2022), Study to support the preparation of an impact assessment 
on  a  potential  EU  initiative  increasing  convergence  of  national  insolvency  laws, 
Draft Final Report, DG JUST, March 2022. 

  Spark,  Tipik,  ‘Study  on  the  issue  of  abusive  forum  shopping  in  insolvency 
nr. 
February 

(specific 

contract 

2022 

proceedings’,  DG 
JUST/2020/JCOO/FW/CIVI/0160) . 

JUST, 

  Spark,  Tipik,  ‘Study  on  tracing  and  recovery  of  debtor’s  assets  by  insolvency 
nr. 

JUST,  March 

(specific 

contract 

2022 

practitioners’  DG 
JUST/2020/JCOO/FW/CIVI/0172). 

  European  Commission,  ‘Improving  the  evidence  base  on  transfer  of  business  in 
Europe : annex C : case study on the cross-border dimension of business transfers,’ 
Executive  Agency  for  Small  and  Medium-sized  Enterprises,  Publications  Office, 
February 2021, available at: https://data.europa.eu/doi/10.2826/94014.  

  Stanghellini,  Mokal,  Paulus,  Tirado  et  alii,  Best  Practices 

in  European 
Restructuring  -  Contractualised  Distress  Resolution  in  the  Shadow  of  the  Law  , 
2018.  

States’,  DG 

FISMA,  November 

  Steffek, F., ‘Analysis of individual and collective loan enforcement laws in the EU 
at 

Member 
https://ec.europa.eu/info/publications/191203-study-loan-enforcement-laws_en. 
  McCormack,  G.  et  al.,  ‘Study  on  a  new  approach  to  business  failure  and 
insolvency,  comparative  legal  analysis  of  the  Member  States’  relevant  provisions 
and 
at 
https://op.europa.eu/en/publication-detail/-/publication/3eb2f832-47f3-11e6-9c64-
01aa75ed71a1.  

practices’, 

available 

available 

January 

JUST, 

2019, 

2016, 

DG 

All  of  these  external  studies  have  deployed  a  variety  of  different  methods  for  data 
collection, including desk research, on-line public surveys (targeted or public), structured 
interviews  with  stakeholders  or  validation  workshops.  In  these  studies  data  collection 
encompassed all 27 Member States, and the analytical methods used were able to deliver 
results in a representative manner, almost all studies are accompanied by national reports 
per Member States.  

In  general,  the  report  was  based  on  solid  theoretical  understanding  gained  in  particular 
through desk research, collaboration with participants of the expert groups and research 
and data collection by the external contractors of the studies mentioned above. Moreover, 
many stakeholders have shown great interest and willingness to share their views through 
the  consultation  activities  described  above.  The  report  thus  draws  on  that  thorough 
feedback. All EU jurisdictions were represented in the consultations. 

With regard to the robustness of the data and information received, the quantitative and 
qualitative nature of the meaures at hand, a detailed description can be read in Annex 4 to 
this report.  

80 

 
 
 
 
ANNEX 2: STAKEHOLDER CONSULTATION  

In  line  with  its  Consultation  Strategy,  the  Commission  carried  out  different  and 
complementary consultations of stakeholders.  

The Inception Impact Assessment was published on 11 November 2020, and received 
feedback  from  26  stakeholders.  Replies  came  in  from  various  stakeholders  from  the 
financial sector, some stakeholders from the trade and industry sector, from three central 
governmental  bodies  (Portugal,  Finland,  Austria)  and  from  different  representatives  of 
the  insolvency  practitioners,  among  them  from  the  European  umbrella  organisation  of 
insolvency  practitioners  (INSOL  Europe).  The  feedback  can  be  read  on  the  dedicated 
website of the Commission.185 

An  on-line  public  consultation  was  launched  in  order  to  receive  input  from  all  the 
concerned stakeholders. The public consultation was launched on 18 December 2020 and 
after an extension of the original consultation period by more than two weeks ended on 
16  April  2021.  129  contributions  from  17  Member  States  and  from  the  UK  were 
submitted,  with  almost  45%  of  the  responses  coming  in  from  Germany,  more  than  9% 
from Italy, 8.5% from Belgium and equally 4.65% of the responses from the Netherlands, 
Spain  and  Lithuania.  One third of  the replies were made on behalf  of practitioners and 
professionals  with  interest  in  the  field  of  insolvency  (this  category  includes  insolvency 
practitioners as well as lawyers). Approximatley 17% of the responses were submitted by 
stakeholders  in  the  financial  sector,  almost  12%  by  stakeholders  from  the  business  and 
trade  sector,  7%  from  social-  and  economic  interest  organisations  and  5.5%  from  the 
members of the judiciary (judges). In addition, 10 replies (7.75%) were received from the 
public  authorities  of  8  Member  States,  with  only  7  replies  originating  from  the  central 
governmental level. 

As  to  the  substance  of  the  responses,  they  were  in  general  in  favour  of  the  initiative. 
Stakeholders  indicated  that  the  problems  created  by  differences  in  Member  States’ 
insolvency frameworks to the further development of the internal market are reasonably 
serious,  and  that  differences  in  national  insolvency  frameworks  deter  cross-border 
investment/lending.  According  to  the  perception  of  the  stakeholders,  the  current 
fragmentation affects the functioning of the internal market in particular with regard to: 
1)  avoidance  actions;  2)  the  tracing  and  recovery  of  the  assets  belonging  to  the 
insolvency estate; 3) the duties and liability of directors in the vicinity of insolvency and 
4) how insolvency proceedings are triggered. Consequently, the overwhelming majority 
of  stakeholders  were  in  favour  of  an  EU  action  enhancing  convergence  in  this  policy 
field (either in form of a targeted legislation /37.21%/, as a recommendation /23.26%/, or 
as a combination of both /27.13%/).   

As  to  the  specific  issues  pertaining  to  insolvency  law,  there  was  widespread  support 
(81.4%)  for  minimum  harmonization  at  EU  level  of  the  duties  and  obligations  of 
directors in the event of vicinity of insolvency or when the company is insolvent. Those 
respondents flagged, in particular, that the most beneficial aspect of harmonization would 
be to impose a duty on the director, once the company is insolvent, to file for insolvency 

185https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12592-Insolvency-laws-
increasing-convergence-of-national-laws-to-encourage-cross-border-investment_en   

81 

 
 
                                                 
proceedings (70.54%). Similarly, there was widespread support amongst stakeholders for 
harmonisation the various aspects vis-a-vis the duties, responsibilities and powers of the 
IPs. With regard to the issue of ranking of claims, whereas certain areas of reform were 
supported (i.e. abolishing the priority status of tax and other public claims), this section 
saw a higher proportion of opposition to harmonisation. There was overall opposition to 
the  proposed  harmonisation  of  so  called  ‘carve-out’  rules  (a  proportion  of  assets 
recovered  on  the  claims  of  secured  creditors  should  be  distributed  to  unsecured 
creditors). A number of stakeholders felt that the financial position of employees in the 
context  of  insolvency  proceedings  might  be  appropriately  protected  by  enhancing  the 
protections  available  under  employment  law  directives,  in  particular,  by  strengthening 
the safeguards available under national wage guarantee funds. Furthermore, there was a 
wider  support  for  a  more  comprehensive  harmonisation  of  avoidance  actions, 
encompassing the harmonisation of the different avoidance grounds, of the objective and 
subjective  conditions  leading  to  avoidance,  as  well  as  the  time  periods  prior  to  the 
opening of insolvency which count as relevant for avoidance claims. Finally, respondents 
spoke in favour of simplifying and improving the conditions of asset tracing and recovery 
(e.g.  87%  supported  the  idea  that  insolvency  practitioners  have  full  access  to  property 
and collateral databases) 

The  Commission  organized  a  dedicated  meeting  with  a  group  of  selected  stakeholders 
(on  8  March  2022).  A  workshop  composed  of  selected  stakeholders  with  particular 
interest in insolvency proceedings. The selection has been made on the basis of the scale 
of  representation  (stakeholders  with  European  representation  activity  were  invited). 
Invitees  included  representatives  of  the  financial  sector,  the  business-  and  trade, 
employees,  practitioners  and  professionals  working  in  insolvency  proceedings,  the 
representatives of employees and consumers, as well as academic areas and think-tanks. 
In the meeting, stakeholders proactively contributed by reporting on practical difficulties 
resulting  from  the  fragmentation  or  different  performance  output  of  the  national 
insolvency  frameworks.  They  also  expressed  support  towards  a  greater  convergence  in 
the legal landscape of insolvency proceedings in Europe.  

The  preparation  of  the  initiative  was  supported  by  the  Group  of  experts  on 
restructuring and insolvency law. This Expert Group of the Commission consisting of 
individual experts was set up originally for the preparation of the proposal leading to the 
Directive  on  Restructuring  and  Insolvency.  This  time,  the  group  was  extended  with  10 
individual  experts  appointed  as  representatives  of  a  common  interest  shared  by 
shareholders  in  a  particular  policy  area  (the  interest  groups  represented  were  financial 
creditors,  trade  creditors,  consumer  creditors,  employee  creditors,  insolvent  or  over-
indebted  debtors).  Between  April  2021  and  January  2022,  the  expert  group  held  nine 
meetings. The detailed list of experts, as well as the meeting reports are available in the 
Register 
on 
https://ec.europa.eu/transparency/expert-groups-register/screen/expert-
groups/consult?do=groupDetail.groupDetail&groupID=3362.  

Commission 

accessible 

groups 

expert 

of 

In connection with the preparation of the proposal, the Commission launched and carried 
out two external studies dealing with specific areas of insolvency. Both studies were 
carried out by a consortium consisting of Tipik and Spark Legal Network. The first one, 
assessing  abusive  forum  shopping  practices  in  insolvency  proceedings  after  the  2015 
amendments  to  the EIR  addresses also  the question to  what extent  differences between 

82 

 
 
national  insolvency  frameworks  serve  as  incentive  for  stakeholders  to  abusive  forum 
shopping.  The  second  study  is  dedicated  to  the  analysis  of  the  subject  of  asset  tracing- 
and  recovery  in  insolvency  proceedings.  Both  studies  included  empirical  analysis,  for 
which  data  collection  by  the  contractor  involved  both  public  on-line  surveys  and 
structured  interviews  with  a  range  of  stakeholders  from  all  Member  States  of  the  EU. 
Both studies are available at the website of the Commission.  

The  Commission  also  consulted  Member  States  in  several  iterations  throughout  the 
preparation of the proposal. The initiative has been addressed several time by the finance 
ministers of the Member States, where support was expressed towards the initiative. The 
Council Conclusions (ECOFIN) of 3 December 2020 on the Action Plan186 encouraged 
the Commission  to  deliver on  this initiative. These Conclusions were confirmed by the 
Euro  Summit  statement  of  11  December  2020.187  In  April  2021,  ministers  of  the 
Eurogroup area concluded that national reforms of insolvency regimes shall progress in 
coherence with parallel  work streams led by EU institutions, which were undertaken in 
the CMU Action Plan188. Similarly, the statement of the Euro Summit meeting of 25 June 
confirmed  that  “structural  challenges  to  the  integration  and  development  of  capital 
markets, particularly in targeted areas of corporate insolvency laws, need to be identified 
and addressed”.189  

At the same time, given the close link of insolvency laws to other areas of national law 
(such  as  property  law  and  labour  law),  and  the  differences  concerning  the  main  policy 
objectives of insolvency law, seven Member States sent a joint letter to the Commission 
to express reluctance to engage in substantial harmonisation discussion. Two others have 
separately expressed the same reluctance.  

On  22  March  2022,  the  Commission  organised  a  workshop  with  the  governmental 
experts of the Member States in connection with the upcoming initiative. Here, Member 
States  underlined  the  need  for  a  deep  and  detailed  problem  analysis,  as  well  as  the 
importance of having a clear diagnosis of the actual practical problems, their scale, on the 
scope of stakeholders affected by them and on their actual impact on the internal market. 
Similarly,  as  to  the  nature  of  a  future  action  at  European  level,  these  Member  States 
reiterated  their  words  of  caution,  and  suggested  that  measures  shall  focus  on  the 
improvement of efficiency of insolvency proceedings.  

186 Council Conclusions on the Commission’s Action Plan, doc. nr.12898/1/20 REV 1.  
187 Doc. nr. EURO 502/20.  
188 See Commission’s note for the discussion at https://www.consilium.europa.eu/media/49192/20210416-
eg-com-note-on-insolvency-frameworks.pdf,  The  summing-up  letter  of  the  discussion  is  available  at 
https://www.consilium.europa.eu/media/49366/20210416-summing-up-letter-eurogroup.pdf  
189 Doc. nr. EURO 502/21. 

83 

 
 
                                                 
Appendix to Annex 2: Summary report – online public consultation  

1. 

INTRODUCTION AND OVERVIEW OF RESPONDENTS 

Discrepancies  in  Member  States’  national  insolvency  laws  create  barriers  to  the  free 
movement  of  capital  in  the  internal  market.  Such  discrepancies,  in  particular,  make  it 
more  difficult  to  anticipate  the  outcome  for  value  recovery  in  cases  of  insolvency.  In 
2015, the Commission concluded in its original Action Plan for a Capital Market Union 
that  “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”. 

Although minimum  harmonisation rules were set  out  by the Directive on Restructuring 
and  Insolvency  (Directive  (EU)  2019/1023),  significant  differences  continue  to  exist  in 
core areas of insolvency law, such as a common definition of insolvency, the conditions 
for  opening  insolvency  proceedings,  the  ranking  of  claims,  avoidance  actions,  and  the 
identification and tracing of assets belonging to the insolvency estate. 

The  present  initiative  complements  the  Directive  on  Restructuring  and  Insolvency  and 
thus focuses on aspects of insolvency laws not addressed there.  

This  public  consultation  helped  prepare  this  initiative  by  gathering  the  perception  and 
views of affected stakeholders on a range of issues including: the liability and duties of 
directors of companies in the vicinity of insolvency; the status and duties of insolvency 
practitioners; the ranking of claims; avoidance actions; identification and preservation of 
assets belonging to the insolvency estate; core procedural notions. 

Figure A2.1: Respondents to the Public Consultation questionnaire by group 

Other
23%

Academic/resea
rch institution…

Business 
association
15%

Public 
authority
8%

Non-
governmental 
organisation 
(NGO)
15%

Company/bus
iness 
organisation
8%

EU citizen
23%

84 

 
 
 
Figure A2.2: Size of organisations that responded to the questionnaire 

35

30

25

20

15

10

5

0

Micro (1-9)

Small (10-49) Medium (50-

Large (250+)

No answer

249)

Figure A2.3. Country of origin of responses, overall 

70

60

50

40

30

20

10

0

2. 

OUTCOME OF REPLIES  

2.1. Fragmentation  of 
convergence  

insolvency  frameworks  and  the  need  for  greater 

Stakeholders indicated that the problems created for the internal market by differences in 
Member  States’  insolvency  frameworks  are  reasonably  serious,  and  that  differences  in 
national insolvency frameworks deter cross-border investment/lending. According to the 
perception  of  the  stakeholders,  the  fragmentation  affects  the  functioning  of  the  internal 
market in particular with regard to 1) avoidance actions; 2) the tracing and recovery of 
the assets belonging to the insolvency estate; 3) the duties and liability of directors in the 
vicinity  of  insolvency  and  4)  how  insolvency  proceedings  are  triggered.  Consequently, 
the  overwhelming  majority  of  stakeholders  were  in  favour  of  an  EU  action  enhancing 

85 

 
 
 
 
 
convergence  in  this  policy  field  (either  in  form  of  a  targeted  legislation  /37.21%/,  as  a 
recommendation /23.26%/, or as a combination of both /27.13%/).   

Figure  A2.4  –  Assessing  the  scale  of  problems  posed  by  differences  in  insolvency  frameworks  in  the 
internal  market.  Replies  in  %  to  “Do  differences  in  corporate  (non-bank)  insolvency  frameworks  in  EU 
Member States pose a problem for the  functioning of the internal market?” where 0 means 'no problem' 
and 5 means 'extremely significant problems' 

40

35

30

25

20

15

10

5

0

0

1

2

3

4

5

No answer

Figure A2.5 – Preferred measures to take at EU level, overall in % of respondents 

The majority of stakeholders were in favour of the introduction of legislation, either 
alone or in combination with a recommendation.  

40%

35%

30%

25%

20%

15%

10%

5%

0%

Targeted
harmonisation
through legislation

Recommendation Combination of both

No measures

No answer

2.2.  Directors’ liability in the vicinity of insolvency proceedings, disqualification 
of directors  

There is  widespread support (81%) for  minimum harmonization at  EU level  of the 
duties  and  obligations  of  directors  in  the  event  of  vicinity  of  insolvency  or  when  the 

86 

 
 
 
 
 
company  is  insolvent.  In  particular,  the  most  beneficial  aspect  of  harmonization 
would be to impose a duty on the director, once the company is insolvent, to file for 
insolvency proceedings (71%). 

Figure  A2.6  –  On  the  minimum  harmonisation  of  Directors’  duties.  Replies  to  “should  there  be  any  minimum 
harmonization at EU level on the duties and obligations of directors in the event of vicinity of insolvency or when the 
company is insolvent? 

2.3. Insolvency practitioners  

Overall,  a  majority  of  stakeholders  felt  that  the  following  areas  would  benefit  from 
harmonization  at  EU-level:  1)  The  licensing  and  registration  of  IPs  (53%);  2)  Their 
regulation,  supervision  and  enforcement  of  professional  obligations  (51%);  3)  The 
qualification and training of  IPs (56.59%); 4) the appointment system of  IPs (50%); 5) 
work standards and ethics (54%); and 6) the legal powers and duties of IPs (51%). 

There is considerable support for a set of principles190 laying down parameters for 
the qualifications of insolvency practitioners/insolvency office holders to guide their 
performance  of  their  function,  with  all  proposed  principles  gaining  at  least  66% 
support. These overlap with the areas named above, but also include the remuneration of 
IPs, and that IPs should be subject to a duty to keep all stakeholders regularly informed 
of the progress of the insolvency case. 

2.4. Ranking of claims  

While  certain  areas  of  reform  were  supported  in  relation  to  the  ranking  of  claims  (i.e. 
abolishing the priority status of unpaid taxes), this section saw a higher proportion of 
opposition  to  harmonisation.  There  was  overall  opposition  to  the  proposed 
harmonisation of carve-out rules and of rules protecting ‘new-financing’. Over one-
third  of  academics  and  half  of  the  public  authorities  felt  that  no  harmonisation  of 
insolvency law is needed regarding the position of employees in the event of insolvency. 
A number of stakeholders felt that the financial position of employees in the context of 
insolvency  proceedings  might  be  appropriately  protected  by  enhancing  the  protections 

190 [1] See details in University of Leeds, “Study on a new approach to business failure and insolvency“, p. 
78. 
https://op.europa.eu/en/publication-detail/-/publication/3eb2f832-47f3-11e6-9c64-
01aa75ed71a1/language-en  

87 

 
 
 
 
                                                 
available under employment law directives, in particular, by strengthening the safeguards 
available under national wage guarantee funds. 

Figure  A2.7  –  Less  than  50%  support  for  reform  in  most  aspects  of  the  rules  on  ranking  claims-  %  of  replies  to 
“According  to  your  opinion,  which  aspect  of  the  rules  on  the  ranking  of  claims  would  benefit  most  from  a 
harmonization at EU level?” ˙(Multiple replies were possible.) 

Figure A2.8 – On abolishing the priority status of unpaid taxes- % of replies to “Do you agree that the priority status 
of unpaid taxes and other public contributions in the context of insolvency proceedings shall be abolished at EU level? 

100
90
80
70
60
50
40
30
20
10
0

Yes, tax and other
public law claims shall
be put in the category
of general unsecured
claims.

Yes, tax and other
public law claims shall
be treated as claims by
involuntary creditors.

No, it is important that
Member States may
maintain the priority
status of such claims in
insolvency proceedings

No answer

2.5. Avoidance actions 

There  is  support  for  harmonized  rules  on  avoidance  action  in  relation  to  the 
following  transactions:  1)  preferences  (transactions  benefitting  one  creditor  to  the 
detriment of the general body of creditors); 2) transactions at an undervalue, including 
gifts to a creditor or third party; 3) securities created in the ‘suspect period’ in order to 
convert a debt from being unsecured or being secured (invalidation of securities); and 4) 
transactions to defraud creditors. Support for harmonizing the above transactions was 
particularly strong in the business, financial and academic sectors. 

All stakeholder groups showed support for all of the proposed subjective criteria to 
be  used  as  possible  conditions  to  qualify  a  transaction  as  avoidable  action  (under 

88 

 
 
 
 
 
“subjective”  criteria  the  questionnaire  listed  conditions  which  involved  the  subjective 
knowledge/awareness  of  the  debtor/beneficiary  on  the  real  nature  of  the  transaction). 
Also, the use of objective criteria was  supported. The  most popular objective criteria 
were  that:  1)  The  transaction  happened  within  the  ‘suspect  period’  (77%);  2)  the 
transaction  is  to  the  detriment  of  the  general  body  of  creditors  (70%);  and  3)  the 
debtor was insolvent at the time of the transaction (53%). 

The majority of stakeholders (74%) agree that the ‘suspect period’ should be harmonized 
at EU level, as shown below. 

Figure A2.9 – On whether the ‘suspect period’ should be harmonised, replies to “Should the time-periods before the 
opening  of  insolvency  proceedings  in  which  a  transaction  must  have  been  entered  into  for  it  to  be  avoidable  (the 
“suspect period”) be harmonized at EU level? 

7%

19%

74%

Yes

No

A majority of stakeholders also support common rules on specific time-limits: 

Figure A2.10 –time-limits for suspect period proposed by respondents 

Transaction type 

Length: General 

Where 
party involved 

connected 

Preferences 

One year 

One year 

Undervalued transactions/gifts 

One year/Three years 

Three years 

Transactions to defraud creditors 

Five years 

Five years 

2.6. Harmonising procedural issues concerning formal insolvency proceedings  

There  is  support  for  a  harmonised  definition  of  insolvency,  with  the  notable 
exception of public authorities. The most popular proposed definition of insolvency is 
based on a liquidity test (see Figure A2.12). There was reasonable overall support for 
harmonised  rules  on  how  insolvency  proceedings  are  opened,  especially  amongst 
practitioners. All stakeholders were strongly in favour of the idea that such rules provide 
creditors  with  a  right  to  file  for  insolvency  and  oblige  an  insolvent  debtor  to  apply  for 
insolvency. While all stakeholder groups showed a majority support for harmonising the 
national  rules  on  the  time  limits  for  creditors  to  lodge  their  claims,  no  clear  majority 
emerged on a specific time limit. 

89 

 
 
 
 
Importantly,  stakeholders  underlined  that  the  national  insolvency  registers  and  the 
interconnectivity  of  national  insolvency  registers  at  EU  level  are  not  functioning 
properly. 

71%  of  stakeholders  suggested  that  there  should  be  harmonised  rules  on  judges’ 
minimum  training  requirements  or  professional  qualifications  (see  Figure  A.2.13).  In 
addition,  there  was  overwhelming  support  (84%)  for  Member  States  to  designate 
specialised  insolvency  chambers  at  the  appropriate  court  instances  to  increase  the 
efficiency of insolvency proceedings (see Fig. A2.14). 

Figure  A2.11:  Responses  to  “Should  there  be  a 
harmonised definition of insolvency at EU level?” 

Figure  A2.12:  Responses  to  “What  should  the  definition  of 
insolvency be based on?”  

Figure  A.2.13:  Rules  concerning  judges  I:  Resposes 
training 
to:  Should 
requirements/professional qualifications for judges be 
level?” 
harmonised 

rules  on  minimum 

EU 

the 

the 

at 

it  contribute 

Figure  A.2.14:  Rules  concerning  judges  II:  9:  Responses  to 
insolvency 
“Would 
proceedings 
if  Member  States  designated  specialised 
chambers at the appropriate court instances for the handling 
of insolvency cases?” 

the  efficiency  of 

to 

2.7. Preservation, identification and tracing of assets  

All stakeholder groups support the harmonization of ipso facto clauses (76% overall 
support)  to  enhance  legal  certainty  and  predictability  for  businesses.  Under  ipso  facto 
clauses  the  questionnaire  understood  any  contractual  provision  that  allows  one  party  to 
the contract to terminate or modify the operation of the contract upon the occurrence of a 
specified insolvency related event. Support was especially strong amongst academics and 
practitioners.  Furthermore,  84%  of  stakeholders  favour  harmonised  rules  on 

90 

 
 
 
 
 
 
 
 
 
 
 
assistance (including the interconnectivity of relevant registers) in the cross-border 
tracing of assets of the insolvent debtor. Such rules would be most useful in relation to 
the following types of assets: real estate (78%), company interest (60%), bank accounts 
(75%) and claims (other than arising from bank accounts) (46%). 

Stakeholders  want  insolvency  practitioners  to  have  the  following  powers  and  duties  in 
order to trace, secure and recover assets: 1) the power to compel the production of books 
and  records  (including  from  lawyers,  accountants  and  banks)  (75%),  2)  the  power  to 
conduct  audits  (65.%)  and  3)  the  duty  to  report  suspicious  transactions  to  law 
enforcement  authorities  (53%).  Almost  all  stakeholders  agree  that  IPs  should  have  full 
access to property and collateral databases.  

Figure  A2.15  –  On  giving  IPs  full  access  to  property  and  collateral  databases-  replies  in  %  to  “Should  Insolvency 
Practitioners have full access to property and collateral databases?” 

100

80

60

40

20

0

Yes

No

No answer

Yes

No

No answer

3. 

VIEWS OF VARIOUS STAKEHOLDER CATEGORIES 

This section provides a detailed analysis of the responses given to the public consultation 
by group of stakeholder. Since stakeholders’ economic and social interests influence their 
views,  the  129  stakeholders  replies  were  reattributed  to  a  functional  breakdown  that  is 
closer  to  their  economic  and  social  background  than  above  2,  which  relies  on 
stakeholders’ self-classification.  

This  alternative  breakdown  makes  use  of  additional  information  that  stakeholders 
revealed  about  themselves  when  replying  to  the  consultation.  For  some  doubtful  cases, 
stakeholders’  internet  websites  were  used  to  guide  their  attribution  to  a  stakeholder 
group.  Entities  that  responded  as  business  and  companies  or  their  associations  were 
distinguished  into  financial  corporations  and  non-financial  corporations,  assuming  that 
the  former  represent  creditors’  interest  and  the  latter  debtors’  interest.  Among  the 
financial  corporations  are  a  few  that  specialised  in  debt  collection,  i.e.  are  not  in  the 
business  of  credit  provision,  but  may  have  similar  interest  than  for  example  banks.  A 
significant number of the non-financial companies that replied to the consultation provide 
advisory  services  to  other  firms,  i.e.  consultancy,  accounting  and  auditing.  They  were 
taken as independent third business group since their interest would be different from that 
of debtors. Most “EU citizens” and “other respondents” that submitted replies identified 
themselves  as  lawyers,  legal  experts  or  active  as  insolvency  practitioners  and  were 
clustered  accordingly.  Four  respondents  represent  social  protection  interests.  The  few 
respondents  that  classified  themselves  as  EU  citizens  without  activity  as  lawyer  or 
insolvency practitioners had all academic credentials and were therefore attributed to the 

91 

 
 
 
group of researchers. Figure A2.16 shows the breakdown of stakeholders in the revised 
breakdown. 

Figure A2.16: Functional breakdown of stakeholders 

Figure  A2.17:  Stakeholders’  assessment  of  the  existing 
rules  on  a  scale  0  to  5  with  higher  numbers  indicating 
higher intensity 

Respondents  had  comparable  assessments  of  whether  the  current  insolvency  regimes 
represents a problem and would require policy measures on a scale between 0 and 5 each 
(Figure A2.17). Public authorities were most positive about the functioning of the current 
rules. They were the only group that expressed a higher need for policy action than they 
considered the current rules as a problem. Insolvency practitioners and lawyers were also 
relatively  positive  on  the  current  status  quo  and  expressed  less  urgency  for  policy 
measures than other stakeholder groups. Researchers were most critical on the status quo, 
followed  by  the  business  sector,  in  which  those  that  represent  interest  of  advisory 
services gave the most severe indications. Non-financial corporations gave slightly more 
critical  marks  than  financial  corporations,  which  is  unexpected.  None  of  the  social 
protection entities responded to this question. 

Figure  A2.18  shows  the  views  of  the  different  stakeholders  about  which  areas  of 
insolvency law they consider the most significant barrier to the single market on a scale 0 
to  5.  The  replies  look  consistent  with  the  economic  and  social  interest  of  the  different 
stakeholder groups. Insolvency practitioners consider avoidance actions and asset tracing 
most  severe.  Financial  institutions  take  most  issues  with  the  trigger  of  the  insolvency 
process  and  the  ranking  of  claims  whereas  non-financial  business  does  so  with  asset 
tracing  and  the  ranking  of  claims.  Firms  that  provide  advisory  services  flagged  the 
insolvency definition and trigger, directors’ duties and even the ranking of claims as most 
concerning.  Researchers’  put  their  weight  on  avoidance  actions  and  the  ranking  of 
claims. None of the social protection bodies responded to this question. 

92 

 
 
 
 
 
Figure A2.18: Stakeholders’ assessment to what extent the different elements of insolvency regimes act as a deterrent 
to the single market on a scale 0 to 5 

Stakeholders  had  different  views  with  regard  to  both  whether  EU  measures  were 
desirable in different areas (Figure A2.19) and how the EU should address the problems 
(Figure A2.20). Public authorities gave the least supportive responses, in particular with 
regard to  the introduction of a common definition and common directors’ duties, while 
their  backing  for  asset  tracing  is  not  much  lower  than  that  of  the  business  sector. 
Researchers,  insolvency  practitioners  and  legal  experts  were  strongly  supportive  of  EU 
measures  that  target  directors’  duties  and  asset  tracing.  Financial  institutions  gave  a 
larger  share  of  supportive  replies  to  asset  tracing  and  the  introduction  of  a  common 
insolvency  definition.  The  lion’s  share  of  both  financial  and  non-financial  business 
supported EU measures in these three areas, with the weakest backing given to directors’ 
duties,  which  is  however  the  most  important  among  these  three  areas  when  looking  at 
firms that provide advice to business. Researchers and public authorities represent polar 
cases with respect to which instrument the EU should use. The majority of the former is 
in  favour  of  a  binding  legal  instrument,  the  latter  group  has  a  preference  for  a 
recommendation.  The  business  sector  holds  disperse  views.  Advisory  and  financial 
entities  place  a  large  weight  on  the  combination  of  both,  similar  to  insolvency 
practitioners.  

Figure  A2.19:  Share  of  stakeholders  that  support  EU 
measures in three selected areas (Y/N question) 

Figure  A2.20:  Stakeholders’  assessments  through  which 
instrument the EU should act (Y/N question) 

Private and public respondents expressed opposite views on the suitability of a common 
definition  of  insolvency  along  a  liquidity  criterion  (Figure  A2.21).  Public  authorities 
favour a combination of a balance-sheet and a liquidity criterion or the possibility to opt 
between  both.  Only  a  minority  of  the  private  stakeholders  backs  the  combination  or 
optional solution. They dominantly favour a liquidity criterion, though financial and non-
financial corporations were less supportive to a liquidity criterion than the other private 

93 

 
 
 
 
 
stakeholder groups. Hardly any respondent, except a few legal experts favoured a balance 
sheet criterion. 

Figure  A2.21:  Stakeholders’  assessment  of  a  suitable 
common  definition  of  insolvency  (share  of  respondents 
with  positive  reply,  Y/N  question,  multiple  replies 
possible) 

Figure  A2.22:  Stakeholders’  assessment  of  credit  claims 
that  would  benefit  from  common  EU  rules  (share  of 
reply,  Y/N  question) 
respondents  with  positive 

The different views of stakeholder groups about the ranking of claims is also reflected in 
the variation of their views when asked which types of credit claims would benefit from 
common rules at EU level (Figure A2.22). Researchers are the most positive and public 
authorities the most negative stakeholders across the types of claims. Few of the social 
protection bodies that participated in the consultation see generally benefits of EU rules, 
not  even on the claims  of unpaid  employees. Both  financial and non-financial business 
express low support for common rules on the subordination of shareholder loans, while 
other private respondent groups do. Financial corporations‘ preference for common rules 
on  new  finance  is  shared  by  researchers,  lawyers  and  insolvency  practitioners.  On  the 
opposite side, non-financial companies have least interest in rules for new finance. More 
researchers,  legal  experts  and  insolvency  practitioners  see  benefits  from  common  rules 
on  public  claims  than  the  business  sector,  i.e.  financial,  non-financial  and  advisory 
stakeholders.  

Overall,  perceptions  of  the  problems  suggested  in  the  questionnaire  differ  across 
stakeholders. When asking stakeholders to what  extent they see the lack of harmonised 
rules in the various topics of insolvency law as an impediment to the proper functioning 
of  the  internal  market,  public  authorities  and  respondents  belonging  to  the  trade-  and 
business  sector  did  not  perceive  this  as  a  significant  problem  (70%  and  60%  of  the 
responses being in the ‘less significant’ range, respectively). In contrast, 69% and 55% of 
the  insolvency  practitioners  or  from  the  financial  stakeholders  who  responded  to  this 
question  saw  this  as  a  significant  problem.  Interestingly,  the  low  rate  of  problem 
perception  was  not  necessarily  followed  by  a  low  rate  of  support  for  an  EU 
harmonisation  of insolvency laws. For instance,  around 80% of the business- and trade 
sector  respondents  supported  the  idea  of  an  EU  harmonisation  of  the  duties  and 
obligations of directors in the vicinity of insolvency, or agreed with the abolition at EU 
level of the priority status of unpaid taxes in the insolvency proceedings. Similarly, more 
than  2/3  of  them  supported  harmonisation  on  the  professional  regulation  of  insolvency 
practitioners or vis-à-vis avoidance actions. 

94 

 
 
 
 
 
     
ANNEX 3: WHO IS AFFECTED AND HOW? 

1. Practical implications of the initiative 

The  preferred  option  will  imply  the  following  obligations  for  companies  facing 
insolvency and for the Member States. 

Obligations for companies facing insolvency: 

Companies  facing  insolvency  would  have  to  familiarise  themselves  with  the  new  rules 
and  adapt  some  internal  processes  to  comply.  Directors  would  have  to  comply  with 
stricter duties in the vicinity of insolvency (in particular, with the duty to timely file for 
insolvency). Distressed MSEs will have the option to follow a more orderly winding up 
based on a new simplified liquidation procedure proportionate to their needs. To be able 
to use it, MSEs will have to get familiar with this new regime.  

Obligations for Member States 

Member States would be required to further enhance transparency of the key features of 
their  respective  insolvency  rules,  by  making  such  information  easily  accessible  to 
investors on a public website and in  a pre-defined user-friendly format. Member States 
would also be expected to ensure that their judicial systems make it possible for MSEs to 
benefit  from  simplified  insolvency  procedures  and  for  companies  to  opt  for  a  pre-pack 
procedure.   

2. Summary of costs and benefits 

The tables below summarise expected benefits and costs arising from the implementation 
of the preferred option (option 1) as an aggregate. The impacts of various measures can 
be  considered  additive,  but  not  having  further  synergies  (which  could  also  be  the  case, 
but  it  may  not  be  prudent  to  assume  this).  Main  impacts  summarised  in  the  table  and 
further information about the assumptions used are further explained below.  

I. Overview of Benefits (total for all provisions) – Preferred Option 

Description 

Amount 

Comments 

Direct benefits 

Reduction of costs to the 
judicial system at 
Member State level 

Who benefits: public 
sector (courts, insolvency 
practitioners) 

Approximately  EUR 
1.9 
billion  of  cost  savings  from 
simplification  of  insolvency 
proceedings. 

The  amount  is  obtained  as  40%  lower  judicial  costs  times  1.4% 
judicial costs times 130 000 insolvency cases times average claim of 
insolvency  case  (see  further  detail  below  the  table).  This  is  a  point 
estimate  that  is  determined  by  these  assumptions.  The  use  of 
alternative  assumptions  leads  to  a  higher  or  lower  values  (see  text 
below),  but  it  is  not  possible  to  attach  probabilities  to  alternative 
scenarios.These  cost  savings  would  accrue  for  the  judicial  system 
(insolvency  practitioners,  courts)  and  stem  from  simplification  of 
procedures  at  Member  States  level,  hence  they  ,  do  not  count  under 
the one in, one out commitment.  

Higher recovery value  

Who benefits: creditors, 
i.e. the financial sector, the 

4.9 
Approximately  EUR 
of  which 
billion 
out 
approximately  EUR 
1.9 
billion  are  due  to  legal  cost 

A  1.42  percentage  point  increase  (Table  8)  times  notional  amount 
times  130,000  insolvency  cases  per  annum,  table  in  annex  4.1.  The 
notional amount is the average claim of  2.6  million EUR derived as 
3.5  million  EUR  average  for  Germany  corrected  for  the  lower  GDP 

95 

 
 
 
 
 
public sector, other non-
financial corporations and 
households proportional to 
their claims to the debtor 

Simplified insolvency 
procedures for micro 
and small enterprises  

Who benefits: owners / 
entrepreneurs behind 
micro and small 
enterprises 

savings  from  simplification 
of insolvency proceedings. 

per capital in the EU-27 compared to Germany (75%). Part of this are 
legal cost savings described above that are expected to be passed on 
to the creditors.  

Potentially 
but 
cannot be reliably estimated.  

sizeable, 

Owners  of  MSEs  would  benefit  from  a  dedicated  simplified 
insolvency  procedure.  In  most  cases,  this  would  enable  an  orderly 
winding  down  of  distressed  micro-  and  small  businesses  as  costs  of 
normal insolvency procedures  were not proportionate  for them. This 
would also accelerate debt discharge and help create a second chance 
for 
in 
Deloitte/Grimaldi (2022) suggest average cost savings of about 12%. 
EBA (2020) shows judicial costs of 3.5% for SME  loans,  compared 
to 1.4% for corporate loans. 

entrepreneurs. 

Insolvency 

surveyed 

experts 

these 

Better coordination 
among creditors 

Cannot be estimated 

Who benefits: creditors, in 
particular cross-border 
creditors 

Creditor  committees  would  allow  creditors  to  cooperate  and  more 
effectively  coordinate  their  decisions  and  would  help  cross-border 
investors  to  be  better  represented.  This  on  one  hand  contributes  to 
higher recovery value (quantified above) but also presents a benefit of 
its own.  

Indirect benefits 

Lower debt funding costs  

Approximately  EUR 
billion  

1.6 

Who benefits: companies, 
including SMEs 

Higher productivity 
growth 

Approximately  EUR 
billion 

7.2 

Potentially 
cannot be estimated 

sizeable, 

but 

Under the assumption that a 1.4% increase in the recovery rate (table 
7 in section 7.2) triggers 1.4 basis points lower funding costs on 1855 
billion EUR NFC liabilities in form of debt securities and EUR 9592 
billion in loans 2020 (Eurostat) 

0.5%  higher  productivity  growth  from  fewer  zombie  firms  (as 
suggested  in  OECD  2017),  assuming  insolvency  rules  reduce  the 
share  of  zombie  firms  by  10%.  A  higher  or  lower  share  would 
increase  respectively  reduce  the  productivity  gains  proportionately, 
but  there  is  no  possibility  to  attach  probabilities  to  different 
assumptions 

There  is  neither  statistical  data  nor  a  suitable  methodological 
approach  to  quantify  these  benefits.  However,  based  on  the  findings 
of the HLEG on CMU and stakeholder views, benefits in this area are 
potentially sizeable. 

Cannot be estimated 

The  harmonised  pre-pack  procedure  would  increase  the  chances  of 
timely  selling  of  going  concern  parts  of  the  distressed  company’s 
business,  enabling  to  preserve  value  for  its  shareholders  and 
employees. 

Who benefits: broader 
society including both 
private and public sector 

Lower information and 
learning costs for cross-
border investment 

Who benefits: cross-border 
creditors 

Higher chances of timely 
selling going concern 
parts of a distressed 
business 

Who benefits: companies, 
including SMEs, their 
investors and employees 

N/A191 

Administrative cost savings related to the ‘one in, one out’ approach* 
N/A 

N/A 

191 As explained in section 8, none of the cost savings indeitified in this table are applicable for the “one in, 
one out” committment.   

96 

 
 
 
 
 
 
 
 
 
 
                                                 
II. Overview of costs – Preferred option 

Citizens/Consumers 

Businesses (notably insolvent 
businesses and creditors) 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

Direct adjustment 
costs 

none 

none 

at 
of 

Familiarisation 
with  new  rules 
(creditors, 
businesses 
risk 
insolvency, 
lawyers 
and 
consultants;  no 
estimate 
available) 

none 

none 

none 

Direct 
administrative 
costs 

Preferred 
option  (as 
an 
aggregate)  

none 

none 

none 

none 

Creation  of 
factsheets 
on 
key 
characteristi
cs 
of 
insolvency 
frameworks
EUR 
: 
67,000-
90,000192 
Develop-
ment 
online 
auction 
platforms 
and 
adjustment 
of  existing 
platforms  to 
iinsolvency 
cases:  EUR 
185,000-
370,000193 

of 

the 
Updating 
- 
factsheets 
negligible 
costs, 
maintenance  costs 
for  online  auction 
platforms:  EUR 
324,000 p.a. 

Direct regulatory 
fees and charges 

none 

none 

Direct 
enforcement costs 

none 

Indirect costs 

none 

none 

none 

none 

none 

none 

none 

Further  internal 
procedures  and 
an  information 
flows 
for 
distressed 
companies 
enable 

to 
due 

Higher  liability 
of  directors  of 
companies  may 
be  reflected  in 
higher 
wage 
demands,  more 
difficult 

none 

none 

none 

none 

none 

Potentially  more 
insolvency  cases, 
estimated 
at 
approximately 
EUR 
0.9-2.0 
billion194 
and 
more  disputes  on 

192 See below under “expected costs” for an explanation.  
193 See below under “expected costs” for an explanation.  
194 See below under “expected costs” and Annex 4, Section 3.2. 

97 

 
 
 
                                                 
asset  seizures  (no 
estimate 
possible). 

diligence 
in 
case  of  pre-
sale 
pack 
(conditional  on 
company 
opting  in  for  a 
sale, 
pre-pack 
no 
estimate 
available) 

recruitment  of 
directors, 
company 
procedures/info
flows 
rmation 
or 
higher 
liability 
insurance  costs 
(no 
estimate 
available). 

Costs related to the ‘one in, one out’ approach 

Direct adjustment 
costs  

none 

none 

Familiarisation 
with new rules 

none 

Total   

Indirect 
adjustment costs 

none 

none 

none 

none 

Administrative 
costs (for 
offsetting) 

none 

none 

none 

none 

Relevant sustainable development goals 

III. Overview of relevant Sustainable Development Goals – Preferred Option(s) 
Relevant SDG 

Expected progress towards the Goal 

Comments 

SDG  no.  8  -  decent  work 
and economic growth 

Contributes  to  economic  growth  by  fostering 
adjustment  capacity  and  productivity.  More 
predictable outcomes of insolvency procedures 
create  incentives  for  entrepreneurs  to  act 
timely  in  times  of  economic  turmoil,  leading 
to  more  stable  employment  patterns  in  going 
concerns 

SDG  no.  9  – 
innovation, 
infrastructure 

industry, 
and 

access 

More  efficient  insolvency  procedures  will 
improve 
finance.  Efficient 
to 
insolvency  procedures  reduce  the  share  of 
zombie 
indirectly 
contribute  to  higher  rate  of  innovation  and 
productivity  with  a  potential  positive  impact 
on accelerated structural change towards more 
sustainable production  

companies 

thus 

and 

Contributes  directly  to  Target  8.3  “Promote 
that  support 
development-oriented  policies 
productive  activities,  decent 
job  creation, 
entrepreneurship,  creativity  and  innovation, 
and encourage the formalization and growth of 
micro-,  small-  and  medium-sized  enterprises, 
including through access to financial services” 
and  indirectly  to  Target  8.2  “Achieve  higher 
levels  of  economic  productivity 
through 
diversification,  technological  upgrading  and 
innovation” 

Contributes  indirectly  to  Target  9.3  “Increase 
the  access  of  small-scale  industrial  and  other 
enterprises 
including 
to  financial  services, 
affordable  credit,  and  their  integration  into 
value chains and markets”  

SDG  no.  16  –  peace, 
justice 
strong 
and 
institutions 

Access to public insolvency procedure will be 
improved  for  micro  and  small  enterprises  and 
thus become fairer.  

This  contributes  to  Target  16.3  “Promote  the 
rule  of  law  at  the  national  and  international 
levels and ensure equal access to justice for all”  

98 

 
 
 
 
 
 
 
 
 
 
 
 
The numbers reported above are estimates based on best efforts. They do not rely on the 
use of a sophisticated model, but on estimates of partial effects. These estimates use the 
combination of financial and macroeconomic data, the Deloitte/Grimaldi survey data and 
assumptions which had to be used due to the inherent data limitations. The choice of the 
financial and macroeconomic data always had to rely on assumption on which variable is 
the  best  available  proxy  to  the  variables  estimated.  All  the  estimates  are  based  on 
averages  that  are  considered  reasonable,  but  have  to  be  considered  as  only  an 
approximation of the individual items. Benefits and costs are expressed in economy-wide 
terms  given  that  the  proxy  variables  are  mostly  economy-wide  and  their  breakdown 
across company sizes may not be linear. 

Some critical coefficients were taken from the economic literature reviewed in Annex 4. 
For  other  coefficients,  there  are  no  means  to  find  an  approximation.  The  assumptions 
used are based on internal discussions. 

The  starting  point  for  the  quantitative  simulations  below  are  the  figures  from  the  EBA 
benchmarking  exercise  on  the  average  costs  and  length  of  loan  enforcement  and  the 
recovery  rate  in  the  EU.  These  are  combined  with  the  average  response  of  insolvency 
experts in Deloitte/Grimaldi (2022) about the expected effect of harmonised EU rules on 
the costs and length of recovery to produce the estimates. 

3. Expected benefits 

Direct  benefits  accrue  from  option  1  in  the  form  of  a  higher  recovery  rate.  The  lower 
judicial costs and faster  recovery translate into a 1.42 percentage point higher  recovery 
rate  (Table  7  in  section  7.2).  The  economy-wide  benefits  result  from  multiplying  the 
increase in  the recovery  rate  with  the average value of the claim  in an insolvency  case 
and the number of insolvency cases. The number of insolvency cases in the EU-27 varied 
between 150,000 in  2019 and 100,000 in  2020.  Since public support measures deflated 
figures  in  2020  and  2021,  the  2019  figures  can  be  considered  more  representative  for 
future corporate insolvencies. Since there is no data about the average value of claims in 
insolvency cases, the specific calculation take the number of 130,000 insolvency cases in 
the  EU-27  and  the  average  value  of claims in Germany  (EUR 3.5 million)195 corrected 
for  the  higher  GDP  per  capita  in  Germany  relative  to  the  EU-27  (75%),  yielding  an 
average value of EUR 2,600 million. The German number for the average amount was 
used,  because  it  was  the  only  number  that  could  be  identified  in  official  statistics. 
Multiplying the higher recovery rate with the average value and the number of corporate 
insolvencies  yields  economy  wide  benefits  in  terms  of  higher  recovery  value  from 
insolvency of around EUR 4.9 billion per annum.  

The  calculations  depend  on  the  assumptions  applied.  Using  100,000  or  150,000 
insolvency  cases  and  a  10%  lower  or  higher  average  value  of  claims  as  alternative 
assumptions would produce a range for the direct economic benefits of EUR 3.4 to 6.2 
billion. It appears, however, not possible to attach probabilities to the lower and higher 
range. 

195  Projected  amount  of  claims  divided  by  the  number  of  corporate  insolvency  cases  in  2021,  German 
Statistical office.  

99 

 
 
                                                 
Part of the higher recovery value is due to the reduction in judicial costs by 40%.  EBA 
(2020) reports a benchmark for judicial costs of corporate loans of 1.4% of their recovery 
value. Taking these costs separately to obtain a number of legal costs that can be saved, 
yields  a  value  of  EUR  1.9  billion  admin  cost  savings  per  annum,  for  the  130,000 
insolvency cases and taking the average value of a claim  as described above.  Applying 
the alternative set of assumptions described in the previous paragraph would lead to cost 
savings of EUR 1.3 as lower and 2.4 billion as upper value.  

The point estimate may however represent already an underestimation of the cost savings 
because  judicial  costs  are  higher  for  SME  loans  at  3.5%  relative  to  corporate  loans  at 
1.4% and although very few Member States publish statistics about the size breakdown 
of  insolvent  firms,  the  available  numbers  suggest  that  they  could  be  in  the  range  of 
90%.196  If  one  assumes  that  the  40%  cost  savings  apply  to  only  10%  of  the  insolvent 
corporations  and  90%  of  the  insolvent  corporations  are  MSEs  with  3.5%  judicial  costs 
and 12% cost savings as the result of the introduction of an MSE insolvency regime as 
suggested by the survey responses in Deloitte/Grimaldi (2022), legal cost savings would 
amount  to  EUR  4.5  billion.  These  calculations  demonstrate  that  the  outcome  of 
numerical estimates does not only depend on the underlying assumptions, but also on the 
degree of granularity at which the calculations are carried out.  

The  beneficiary  of  a  higher  recovery  values  would  be  first  of  all  creditors,  i.e.  the 
financial  sector,  the  public  sector,  other  non-financial  corporations  and  households 
proportional to their claims to the debtor. While the share of the recovery value will be 
depend on the specific situation of each insolvent corporation, the financial sector will on 
average  be  one  of  the  the  main  beneficiaries  given  its  role  as  credit  provider  to  the 
economy.  While  not  representative  of  the  claims  against  insolvent  corporations,  the 
figure below shows how important the different institutional sectors are as creditor to the 
economy. The interest  of the public sector is larger than the figure suggests because of 
two  effects.  First,  public  banks  are  part  of  the  financial  corporations.  Secondly,  tax 
claims are not counted as financial assets. The largest credit provider is the sector of non-
financial  corporations  due  to  the  important  role  of  trade  credit  and  other  types  of 
interfirm credit in an interlinked economy. The debtors themselves would benefit in the 
rare case that the lower legal costs lead the corporations to be rescued. Since corporations 
that have chance of being rescued should enter pre-insolvency restrucuturing procedures 
and not insolvency procedures, this outcome is expected to be an exceptional.  

196 The share of MSE insolvency was 91% in Germany, 95% in France and 80% in Spain. 

100 

 
 
                                                 
Figure A3.1: Holdings of NFC credit liabilities by institutional sector, average of 11 Member States, 2020 

Note: Calculated as sum of loans, debt securities and other accounts, non-consolidated. 
Average of the 11 Member States for which data is available: BG, EE, EL, FR, LV, LT, 
LU, HU, MT, AT, FI. 
Source: FISMA calculations with Eurostat data 

The  public  sector  will  be  a  primary  beneficiary  of  lower  legal  costs,  with  benefits 
materialising in  the form of lower costs for judges and  court administration from  more 
efficient  and  shorter  proceedings.  More  efficient  proceedings  should  then  also  translate 
into lower costs that are paid for insolvency practitioners, lawyers and other consultants 
that accompany the process and deducted  from  the recovered  capital  that is  returned to 
creditors. The breakdown between the benefits for the public sector and these professions 
will  be  different  across  Member  States,  depending  on  how  the  judicial  system  is 
organised. 

While owners of MSEs would benefit from a dedicated simplified insolvency procedure 
which  imply  cost  savings  for  those  who  would  otherwise  use  ordinary  (established) 
insolvency procedures, these cost savings relate to simplification of national rules and not 
to  administrative  obligations  under  EU  legislation.  They  can  therefore  not  be  counted 
under the Commission’s One-In-One-Out commitment. 

Indirect  benefits  could  accrue  as  a  result  of  creditors  pricing  in  the  higher  expected 
recovery  value  in  their  demands  for  the  interest  rate  they  charge  on  debt,  implying  a 
lower interest rate, ceteris paribus. A lower interest rate means lower capital costs for the 
corporate  sector.  The  magnitude  of  this  effect  is  difficult  to  assess,  but  the  literature 
surveyed  in  Annex  4  points  to  some  plausible  ranges.  The  estimates  in  IMF  (2019) 
suggest  that the cross-country difference in  capital  costs could  decline by  1 basis point 
for  a  1  percentage  point  higher  recovery  rate.  AFME  (2016)  suggests  a  3.7  base  point 
improvement in bond spreads as consequence of a similar increase in the recovery rate. 
The  1  to  100  ratio  looks  conservative  since  it  implies  a  low  probability  of  a  corporate 
becoming insolvent. It is also consistent with the long-term response of coefficient in the 
estimates  in  Table  A4.16.  Given  an  outstanding  volume  of  loans  by  NFCs  of  EUR  9.6 
billion  and  of  debt  securities  of  EUR  1.855  billion  according  to  Eurostat’s  most  recent 

101 

 
 
 
national account data, a 1.42% increase in the recovery rate in combination with the 1 to 
100  translation  into  yields  could  lead  to  a  decline  of  capital  costs  by  1.6  billion  per 
annum.  

The reallocation of capital could lead to high indirect benefits, but these can be quantified 
only with the help of assumptions. The OECD research presented in Annex 4 concluded 
that the market exit of zombie firms to the lowest share observed in a country in a sector 
could boost productivity growth by 0.5 percentage point. If one conservatively assumes 
the reform to insolvency regime contributes 10% to the market exit of zombie firms and 
applies this to the EU-27 GDP in 2021 productivity gains of an approximate magnitude 
around EUR 7 billion would be possible. If the insolvency reform contributed only 5%, 
the productivity gain would halve to EUR 3.5 billion and likewise if its contribution were 
stronger. It is, however, not possible to attach probabilities to alternative assumptions. 

It was not possible to estimate the magnitude of the indirect benefits from more capital 
market integration due to insolvency reform and this would highly depend on the overall 
state of the economy. The estimates in IMF (2019a) show that cross-country risk sharing 
and  the  magnitude  of  cross-border  assets  would  increase  in  response  to  an  increase  in 
recovery rates. The model simulations in Deloitte/Grimaldi suggest also a positive effect. 
It seems, however, not possible to produce a number for the welfare benefits in monetary 
terms nor to establish a number for the lower costs for information and learning.  

There  are  further  expected  benefits  that  could  not  be  quantified.  These  relate  to  the 
benefits  of  simplified  insolvency  procedures  for  micro  and  small  enterprises  (direct 
benefit),  better  coordination  among  creditors,  in  particular  for  cross-border  creditors 
(direct benefit) and higher chances of timely selling going concern parts of a distressed 
business (indirect benefits). These are explained in the table above.  

4. Expected costs 

Additional judicial costs can arise as an indirect cost from an expected rise in insolvency 
cases, for example if the MSE insolvency regime leads to  formal procedures for MSEs 
that were otherwise unwound. 9% of micro  companies (with 0 or 1 employee)  exit the 
market  each  year,  but  it  is  not  known,  how  many  of  them  would  enter  an  insolvency 
proceeding, what their debt is and how many of them would have so few assets that their 
recovery  value  will  be  below  the  judicial  costs  of  the  proceeding.  The  estimation  of 
possible costs needs to rely on a number of assumptions.  

  The  EBA  (2020)  benchmark  points  to  judicial  costs  for  SMEs  are  3.5%  of  the 
notional value. Those of MSEs may be higher, but there is no information by how 
much. The 3.5% is therefore used as benchmark. 

  The insolvency experts surveyed in Deloitte/Survey suggest that an MSE regime 
would  reduce  judicial  costs  by  12%.  The  introduction  of  an  MSE  regime  in 
France aims to reduce judicial time by more than 50%. For the calculations, 50% 
is taken for the optimistic scenario and 12% for the pessimistic one. The latter is 
considered  conservative  because  other  cost  saving  effects  are  not  taken  into 
account, i.e. MSEs would not benefit from the 40% legal cost savings that other 
corporates may. 

  There  is  no  statistics  about  the  average  claims  on  insolvent  MSEs,  but  an 
approximation  of  their  debt  can  be  obtained  by  using  the  share  of  small  bank 

102 

 
 
loans to NFCs, i.e. with a volume below EUR 250,000, to total bank loans in the 
euro area in the ECB bank interest rate statistics as a proxy for the share of MSEs 
in  the  economy’s  corporate  debt  and  multiplying  this  share  of  12%  by  the 
outstanding loan liabilities of NFCs. The assumptions here are that MSEs have no 
debt  in  the form  of debt securities and that there is  no difference between them 
and larger firms in the proportion of loans from banks relative to non-banks. 
  There  is  no  reliable  data  on  the  share  of  MSE  firms  that  enter  into  insolvency 
among  those  that  exit  the  market,  hence 
the  calculation  relies  on  an 
assumption.197  IMF  (2022)  estimates  that  9%  of  MSEs  could  become  bankrupt 
following,  which  is  consistent  with  Eurostat  data  showing  that  8.8%  of  MSEs 
exited the market in 2019. The actual data of market exits is taken as a maximum 
value.  The  large  discrepancy  between  market  exit  and  insolvency  declaration 
suggests that not  all corporations that exit  the market  are insolvent.  For a lower 
bound,  it  is  therefore  assumed  that  2/3  of  the  exiting  firms  will  use  insolvency 
proceedings,  which  seems  a  conservative  estimate  given  that  actual  insolvency 
numbers are less than 10% of market exits. 

  There is data from Germany and Austria about the share of corporations that were 
rejected access to insolvency proceedings because their assets were projected not 
sufficient to pay for the expenses of the procedure. These two observations point 
to  a share of  about  one third.  It  is  also  known from  a few other Member States 
that  the  practice  of  rejecting  insolvency  applications  is  applied.  For  the  EU 
aggregate,  it  is  assumed  that  all  Member  States  had  applied  this  practice  and 
would be exposed to higher costs for the judicial system from the introduction of 
an  MSE  regime  that  grants  access  to  an  insolvency  procedure  for  asset-less 
MSEs. 

Table A4.14 in Annex 4 summarises the details of the calculations and provides numbers 
for those Member States for which it is known that they reject  applications from asset-
less insolvent corporations. If all Member States applied this practice, higher costs for the 
judicial  system  would  amount  to  between  EUR  0.9  and  2  billion.  The  sum  of  the  five 
Member  States  that  either  reject  applications  or  immediately  close  proceedings  for 
assetless corporations would be in the range EUR 0.6 to 1 billion. These calculations do 
not  include  other  benefits  and  countervailing  effects  detailed  in  Annex  4  that  are  not 
quantifiable, but expected to lead to significant cost reductions in the judicial system. 

The  public  sector  would  face  costs  for  the  creation  of  harmonised  information  on 
insolvency rules, which are expected to be limited and mainly of one-off nature. An IT 
platform  that  would  be  used  already  exists  with  e-Justice.  The  main  cost  component  is 
therefore the production of the information. Since it concerns general rules, it should not 
require a legal expert not more than two weeks to produce this information. Since all 27 
Member States would need to produce this information, it would take broadly one FTE 
per  year  for  the  EU-27.  The  cost  figures  are  based  on  Eurostat  Structure  of  earnings 
survey  and  Labour  Force  Survey  data  for  non-wage  labour  costs,  assuming  25% 
overheads. Since the precise category of lawyers was not available, the calculations work 
with  hourly  tariffs  for  professionals  (35.6  EUR  per  hour)  in  case  of  lower  bound  and 

197  Businesses  can  also  closed  without  being  insolvent,  for  example  as  part  of  a  merger,  if  the  business 
purpose is fulfilled, or if the owner takes on another job. 

103 

 
 
                                                 
hourly  tariffs  for  legislators,  senior  officials  and  managers  (47.8  EUR  per  hour)  for  an 
upper bound. It is further assumed that the average work week is 36.4 hours, obtained as 
the  latest  available  EU  average  from  Eurostat.  This  translates  to  approximately  EUR 
67,000-90,000 for the transparency tool.  

The  simplified  insolvency  procedures  for  MSEs  could  use  electronic  platforms  for 
auctions of assets belonging to the insolvent micro enterprise. 14 Member States already 
have such platforms in place for online judicial auctions, but only three seem to use them 
for insolvency cases.198 Member States that want to set up such a platform would need to 
spend  resources  on  the  development  and  maintenance.  According  to  IT  experts,  the 
amounts could be EUR 5,000 -10,000 one off developments costs for a medium complex 
platform,  plus  12,000  maintenance  costs  per  annum.  There  was  no  information  to 
estimate  the  additional  costs  for  the  specificity  of  using  such  platforms  for  insolvency 
cases.  As  conservative  assumption,  the  adjustment  costs  could  be  as  high  as  the 
development costs. Using these data, development cost for all those Member States that 
do not have a judicial platform and adjustment costs for all those that are not using it for 
insolvency  cases  would  sum  up  to  EUR  185,000  to  370,000.  All  27  Member  States’ 
maintenance costs would be EUR 324,000. 

Further,  the  higher  liability  placed  on  directors  may  have  its  own  economic  cost,  as  it 
might be reflected in e.g. higher wage demands, more difficult recruitment of directors or 
higher liability insurance costs, enhanced internal information  flows. The  magnitude of 
this indirect cost impact could be dependent on a range of factors such as labour market 
conditions  and  hence  it  was  not  possible  to  estimate  it  reliably.  Further  internal 
procedures and an information flows to enable due diligence would be needed in case the 
company opts-in for a pre-pack sale. This cost is considered indirect as it depends on  a 
company’s  decision  to  find  a  buyer  on  a  going  concern  basis.  Lastly,  businesses  and 
creditors  are  expected  to  bear  some  costs  related  to  becoming  more  familiar  with  new 
rules.  

198 According to the information of the e-justice portal.. 

104 

 
 
                                                 
ANNEX 4: ECONOMIC ANALYSIS 

Although  numerous  researchers  in  academics  and  international  bodies  have  established 
numerical  metrics  of  insolvency  rules  and  despite  the  successful  use  of  many  of  these 
indicators in empirical research, their application in a study of how targeted changes to 
insolvency rules in the EU could impact on the outcome of insolvency proceedings and 
broader  economic  performance  has  turned  out  challenging.  This  text  reviews  the 
available  indicators  and  presents  a  best-effort  analysis  to  quantify  the  impact  the 
discussed changes to insolvency rules could have.  

For this purpose, the first section presents data on the number of corporate insolvencies 
and  business  death,  complemented  by  various  indicators  that  can  be  used  as 
approximations  for  the  share  of  cross-border  insolvency  cases  in  the  absence  of  proper 
statistics  on  this  phenomenon.  The  second  section  presents  available  indicators  on 
recovery  values  and  time.  It  sketches  their  methodological  shortcomings,  ultimately 
justifying why the World Bank and EBA data is used for the analysis. The third section 
translates  indications  from  a  survey  among  insolvency  experts  into  changes  in  the 
recovery  value  of  an  insolvency  case  and  establishes  scenarios  about  magnitudes  of 
impacts. The fourth section reports how changes to recovery rates could affect financial 
and  macroeconomic  parameters,  using  estimates  from  the  empirical  literature  and  new 
statistical analysis.  

The combination of two empirical results allow to conclude that changes to elements of 
insolvency  proceedings  have  a  significant  impact  on  cross-border  investment.  First, 
estimates  for  cost  and  time  savings  from  the  harmonisation  of  elements  of  insolvency 
proceedings can be derived from the indications of insolvency experts in a survey. These 
changes  in  cost  and  time  savings  can  be  translated  into  changes  to  recovery  rates. 
Second,  economic  studies  used  recovery  rates  as  indicators  of  insolvency  rates  and 
detected  their  significant  impact  on  credit  volumes,  credit  costs,  cross-border  asset 
holdings and risk sharing in cross-country or panel estimates. This analysis complements 
qualitative analysis on the impact the discussed targeted changes to insolvency rules can 
have on incentives of the stakeholders involved. 

1. Corporate insolvencies and cross-border credit exposure 

1.1  

Corporate bankruptcies and market exits  

Statistics of business  exists and bankruptcies since 2020 are strongly influenced by the 
Covid-19  induced  economic  slowdown.  Data  before  2020  appear  to  be  therefore  more 
meaningful to inform about underlying magnitudes and trends. 

Differences in national definitions prevent Eurostat from publishing absolute numbers of 
bankruptcies in the EU.199 CEPEJ (2022) contains absolute numbers of insolvency cases 
sourced from Member States for the years 2012-2020, but without a breakdown between 
corporate  and  consumer  insolvencies.  A  private  consultancy  firm  reported  a  number  of 
120,000  corporate  insolvencies  in  Western  European  economies  in  2020  down  from 

199  In  particular,  the  legal  forms  which  can  declare  bankruptcy  are  different,  which  makes  the  absolute 
figures of the countries non-comparable. 

105 

 
 
                                                 
170,000  in  2016  and  a  private  credit  insurer  estimated  that  about  160,000  businesses 
might  have become bankrupt in  the EU Member States in 2021.200 See the table below 
for  numbers  of  corporate  insolvency  across  the  EU  Member  States  from  various 
sources.201 

Eurostat  official  statistics  show  that  the  trend  in  the  declaration  of  bankruptcies202  was 
stable  between  2015  and  2019,  with  a  considerable  drop  in  Q1  and  Q2  of  2020,  and 
subsequent  fluctuation,  as  it  is  shown  in  Figure  A4.1  below.  The  decrease  in 
bankruptcies, observed in many Member States in the first two quarters of 2020 and the 
subsequent  fluctuation,  can  be  explained  by  the  government  measures  supporting 
businesses during the beginning of the COVID-19 crisis, which allowed the businesses to 
avoid declaring bankruptcy.  

Figure A4.1 – Business bankruptcies in the EU-27 

Figure A4.2: Business deaths in the EU-27 

Source: Eurostat. 

Business economy except holding companies. 
Source: Eurostat. 

The number of deaths of EU enterprises was stable between 2014 and 2017 as it is shown 
in Figure A4.2, with around 1.8 million deaths per year on average. Since 2018 however, 
there  is  an  increasing  trend  on  business  deaths,  reaching  2.1  million  in  2019.  These 
numbers compare to a population of active enterprises in the EU of 25.9 million in 2019, 
which increased by around 1.5% per annum on average since 2014203. Almost 80% of the 
firms that exited in the EU in 2018204 were firms without employees and almost 20% had 
1  to  4  employees.  In  the  EU-27,  25,000  firms  with  5-9  employees  exited  in  2018  and 
11,000 in  2017. More recent  data is  currently available for several  Member States (see 
Table below). 

200  Credit  Reform  (Microsoft  Word  -  2021-05-20_AY_OE_Analyse_EU-2020_englisch.docx  (creditreform.cz))  and 
Euler Hermes (reference Statista, Global insolvency outlook, December 2020). 
201 The CEPEJ data is not included because it also covers consumer insolvency. The number is therefore much higher 
than  corporate  insolvencies,  i.e.  450,000  cases  in  2019  and  257,000  cases  in  2020  of  23  Member  States  reporting. 
These numbers overestimate the decline from 2019 to 2020 since there are no numbers for Germany in 2020 and none 
for Sweden 2019. There is also no data for the Netherlands, Cyprus, Greece in 2019 and 2020. 
202 Bankruptcies is an early indicator to measure situation in business environment. Even if an enterprise has declared 
for bankruptcy, it does not always mean that it ceases all activity when it enters into bankruptcy procedure. In order to 
be recorded as enterprise death in annual business demography typically all production factors have been dissolved / 
terminated. There are several methodological differences between the concepts of bankruptcies and enterprise deaths. 
There  may  also  be  significant  differences  between  countries  with  respect  to  bankruptcy  laws.  The  proportion  of 
bankruptcy  procedures  that  finally  end  up  as  an  enterprise  death  varies  therefore  across  countries  depending  on  the 
bankruptcy laws. In general, bankruptcies represent only a fraction of all enterprise deaths but they cannot be directly 
compared with annual business demography data on deaths of enterprises. 
203  An active  enterprise is  an enterprise that  had  either turnover or employment at  any  time  during 
the reference period. 
204 The latest year for which aggregated data for the EU are presently available. 

106 

 
 
 
 
 
 
                                                 
The  comparison  of  about  150,000  corporate  insolvencies  with  almost  2  million 
companies that cease to exist in the EU each year suggests that a substantial number of 
companies  are  wound  down  without  recourse  to  public  procedures.  Since  the  latter 
number  stems  from  business  registers,  it  is  not  comparable  with  the  number  of 
insolvency cases. Yet, it shows that the use of insolvency procedures is not the standard 
exit  route  for  firms.  One  reason  is  that  not  all  firms  that  exit  are  insolvent.205  For 
example, they can be acquired by or merged with other companies. The observation that 
1.6 million out of 2 million or almost 80% of business deaths in the EU are companies 
without  employees  suggests  that  many  were  likely  closed  down  because  the  self-
employed took a job. It is also possible that companies are set up for a specific purpose 
and close when the company has fulfilled its purpose.206  

Long  term  data  from  about  the  number  of  bankruptcies  is  available  from  the  OECD 
covering the years 2005-2020 for a selected group of EU Member States. Like Eurostat, 
the OECD did not report absolute numbers, but an index equal to 100 in 2007. 

Figure A4.3 Bankruptcy trends (index 2007 = 100) 

Source: OECD. 

While  several  countries  have  put  in  place  short-term  insolvency  and  insolvency-related 
measures  to  help  ensure  companies  and  consumers  have  breathing  space  during  the 
crisis,207 delaying the necessary economic adjustment is not equal of solving it. Factors 
such as lower sales, higher unemployment, and the transition challenge towards a greener 
and  digital  economy,  point  to  a  likely  increase  in  the  number  of  business  insolvency 
filings in the near future. Last but not at least, evidence from previous crises suggest that 
a build-up in non-performing loans (NPL), which is related to insolvencies208, is likely to 

205  Data  from  the  German  statistical  office  can  illustrate  the  magnitude.  It  reported  that  13,993  firms 
applied for an insolvency proceeding in 2021. 4.161 of them were rejected, i.e. almost 30%. This compares 
to more than 340,000 enterprises that exited in 2019, the latest number available in Eurostat.  
206 There is a high correlation between the birth rate and the  exit rate across the EU Member States. The 
correlation is highest between the death rate in a year and the birth rate two years before.  
207 See Menezes and Muro (2020).  
208 See for instance Uttamachandi et al. (2021). 

107 

 
 
 
                                                 
follow in the coming years (as NPL accumulation induced by crises usually takes several 
quarters to peak).  

In summary, the development of corporate insolvencies in Europe in the very recent past 
does not reflect the true economic situation of many sectors and companies. Eventually, 
after crisis reaction measures cease to have effect insolvency rules will again apply with 
full  force  in  all  EU  countries,  with  an  expected  sharp  increase  of  cases,  and  the  full 
impact  of the COVID-19 related distortions  will probably only  become  apparent in  the 
years to come. 

108 

 
 
Table  A4.1:  Number  of  corporate 

insolvencies  and  business  exits  across 

the  EU  Member  States

1.2  

The magnitude of cross border credit 

The  level  of  cross-border  investment  is  considered  as  an  important  indication  of  the 
degree  of  integration  of  EU  capital  markets:  although  cross-border  investment  has 
increased  over  time  as  some  barriers  to  cross-border  investment  have  been  removed, 
there still remains a large home bias in the EU (85% on equity  investment and 69% on 
debt investment, see Figures A4.27 and 28). This large home bias is widely regarded as 
the  consequence  of  the  underdevelopment  of  the  EU  single  market.  Stakeholders, 

109 

   Number of corporate insolvencies Business exits 2019  2019 2020 2021  national sources EH CR national sources OECD EH CR national sources OECD all firms firms with 5 or more employees BE 10598 10598 10598 7203 7203 11000 9878 6533 6533 25309 206 BG  506    520    103063 771 CZ 28149 8620  24903  9300    81930 342 DK 2590 2590 8474 2221 5614 3000 7155 2175 8339 27509 108 DE 18749 18749 18830 15841 15840 19500 19410 13993 13993 340535 7663 EE  148    260   103 9778 422 IE 1001.9 568 568 1054  660 767 571  #N/A #N/A EL 63 75 107 57 35 80 84  27 24832 #N/A ES 4630 4162 4464 4789 4630 5000 4131   266395 7734 FR 51145 51396 51201 31259 31253 53600 53887 27639 27540 195525 2353 HR    4796    8815  22525 351 IT 11110 11000 14228 7594  13000 13695   296917 2893 CY 2374   2497    2511  3406 19 LV 221 557  516  660  838  9648 333 LT  1610    1500    49818 251 LU 1232 1445 1263 1174  1700 1195 1173  2528 132 HU 10226 5176    5850    49154 1257 MT          1776 #N/A NL 3209 3792 3209 2703 3177 4900 3145 1536 1817 79063 315 AT 5018 5018 5235 3034  5520 5224 3034  20156 986 PL 578 977  528  1100  376  205935 3375 PT 2188 2560 5071 2216  3340 5888 1967  117677 1564 RO 6524 6524  5694  6800  6144  72364 1409 SI 1294   10125    1016  9485 71 SK 238 2447  162  2994  2994  55556 615 FI 2623 2990 2597 2135 2135 3550 2534 2472 2473 21137 298 SE 7358 7358 7296 7296 7695 8200 7599 6463 6901 44553 1174 EU* 171118.9 148866 133141 134633 77582 162034 134592 87308 67726 2136574 34642 Note: national sources are mainly statistical offices. Data for some Member States were sourced from Statista, some were traced via INSOL Europe. EH = Euler Hermes, CR = CreditReform. Data on Business exits are from Eurostat. * sum of available Member States.  
 
 
researchers  and  institutions  argue  that  this  is  to  a  large  degree  due  to  cross-country 
differences in insolvency procedures.  

It  is  presently  not  possible  to  report  a  comprehensive  number  for  the  share  of  cross-
border creditors in EU corporations.209 Nevertheless, if such number existed, it would not 
show the importance of insolvency proceedings for cross-border investors since it would 
suffer from the same home bias. That means, it would only reflect the current situation, 
which is impaired by cross-border obstacles, including those on divergent and inefficient 
insolvency regimes. 

The scale of insolvency proceedings with cross-border elements may be estimated from 
the  proportion  of  outstanding  foreing  debt  claims  of  MSE  companies  in  the  EU. 
According to the Flash Eurobarometer survey carried out in June 2016 among small and 
medium  sized  enterprises  in  the  then  28  EU  Member  States,  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.210  

Under the assumption that the share of cross-border bankruptcy cases is proportional to 
the  foreign  financial  exposure  of  firms,  a  number  of  indicators  allow  for  an 
approximation  of  the  possible  share  of  cross-border  insolvencies.  Overall,  they  suggest 
foreign exposures  in  the range of 10-20% of total  credit or activity, consistent with the 
17% suggested by the 2016 Eurobarometer survey (See also Figure A3.1).  

The table below gives averages for the EU Member States for which data on cross-border 
credit  exposure  is  available  based  on  the  latest  period  for  which  the  data  exists.  The 
charts  below  inform  about  the  shares  for  those  Member  States  for  which  such  ratios 
could  be  calculated.  They  required  the  combination  of  data  from  different  sources,  for 
example  of  NFCs  liabilities  in  the  national  accounts  and  foreign  exposure  in  the 
international  investment  position  or  of  the  number  of  enterprises  in  trade  statistics  and 
structural business statistics. They therefore represent an approximation.  

Table A4.2: Indicators to measure cross-border credit exposure 

Share 

14% 

8.4% 

55% 

Indicator  (average  of  available  EU  Member 
States) 
of 
Share 
corporations, 2020 

non-financial 

foreign 

debt 

in 

Share  of  equity  holdings  by  non-domestic 
holders, 2020 

Share  of  bonds 
issued  by  non-financial 
corporations  held  by  non-domestic  counterparts, 
2020 

Source, comment, caveat 

investment  position 

and 
International 
sectoral  national  accounts,  based  on  data 
from 20 MS 
International 
and 
sectoral  national  accounts,  based  on  data 
from 22 MS 
Sectoral  national  accounts  by  counterpart, 
covers 11 Member States. 

investment  position 

210 Flash Eurobarometer, Report Insolvency, no. 442, 2016, para 1 and 2. The survey data was used in the 
Commission  Impact  Assessment  Accompanying  the  Proposal  for  a  Directive  on  preventive  restructuring 
frameworks,  second  chance  and  measures  to  increase  the  efficiency  of  restructuring,  insolvency  and 
discharge procedures, SWD (2016) 357 final, p. 45. 

110 

 
 
                                                 
 
26% 

19% 

10% 

15% 

64% 

17% 

share  of 

corporations; 

Share  of  non-financial 
loan 
liabilities  owed  to  non-domestic  counterparts, 
2020 
Non-financial  corporations’  share  of  loans  from 
banks in other Member States in total bank loans, 
2022Q1 
to  non-financial 
loans 
Banks’ 
corporations in other Member States in total bank 
loans to non-financial corporations, 2022Q1 
Firms that are importers of goods or services from 
other EU Member States in 2019 
Firms  with  more  than  50  employees  that  are 
importers  of  goods  or  services  from  other  EU 
Member States in 2019 
Firms  reporting  to  have  claims  against  foreign 
creditors, 2016 

Sectoral  national  accounts  by  counterpart, 
covers 11 Member States. 

ECB  data,  covers  only  euro  area  Member 
States and banks in other euro area Member 
States 
ECB  data,  covers  only  euro  area  Member 
States and banks in other euro area Member 
States 
Eurostat  export  and  business  statistics  use 
different coverage of enterprises 
Eurostat  export  and  business  statistics  use 
different coverage of enterprises 

Eurobarometer survey 

Figure A4.4: Share of NFC cross-border liabilities, in % 
of total debt liabilities, 2020 

Figure A4.5: Share of cross-border debt liabilities in % of 
total liabilities, 2020 

Source: FISMA calculation with Eurostat data. 
Figure  A4.6:  Cross-border  bank  loans  to  NFCs,  %  of 
total loans to NFCs/from banks, 2021 

Source: FISMA calculation with Eurostat data. 
Figure A4.7: Share of enterprises that import, in % of all 
enterprises*, 2019 

Source: FISMA calculation with ECB data. 

*)  large  enterprises  are  those  with  more  than  250 
employees. Their share is above 100% because of a 
different definition of entities in the  export and the 
structural business statistics. 
Source: FISMA calculation with Eurostat data. 

2. Empirical measures of insolvency 

The development of proper statistical data on the outcome of corporate insolvency is still 
in the infancy. A first comprehensive exercise towards this end by the European Banking 
Authority  has  produced  numbers  for  the  EU  and  its  Member  States.  This  data  is  not 
considered  representative  enough  for  cross-country  analysis.  Existing  insolvency 
indicators  largely  build  on  expert  views  obtained  from  replies  to  surveys  that  largely 

111 

 
 
 
 
 
 
 
focus  on  how  institutional  parameters  of  insolvency  regimes  compare  across  countries. 
This  holds  for  indicators  established  by  the  World  Bank,  OECD  and  European 
Commission with a varying coverage of countries.  

Independent  of  whether  these  numerical  metrics  cover  the  institutional  design  of 
insolvency  rules  (input-oriented)  or  the  outcome  of  insolvency  proceedings,  these 
indicators have been successfully used in the economic literature. That means they stand 
in  a  statistically  reliable  relationship  to  other  financial  and  economic  variables,  which 
adds credibility to the notion that the underlying expert views are a good replacement in 
view  of  the  absence  of  hard  statistical  data.  Their  lack  of  granularity,  however, 
complicates their application for the questions analysed here. Moreover, none of them is 
not free from methodological caveats.  

2.1 

Input-oriented insolvency indicators: best-practices 
institutional features 

Several institutions, including the World Bank, OECD, European Commission and most 
recently  the  EBRD  built  indicators  that  reflect  the  design  of  the  insolvency  regime  in 
different  Member  States.  Simply  said,  the  input-oriented  approach  is  based  on  the 
identification of whether best practices in insolvency law are available in a country. The 
more of the best practices exist in a country, the higher the indicator. The best practices 
and the country scores are usually established with the help of insolvency experts, either 
from public bodies or private entities. In most cases, the aggregate insolvency indicator 
reflects  the  count  of  these  practices.211  Their  economic  justification  would  be  that  the 
closer a national system to the best practices, the more efficient. The design of an input 
indicator  as  sum  of  desirable  feature  of  an 
that 
interdependency  between  the  individual  feature  does  not  matter,  that  improvement  in 
individual features lead do an overall improvement in the insolvency system, without the 
changing being outbalanced by adverse effects in other areas or tilting the overall balance 
between creditors or debtors that the insolvency system in its entirety targets. 

insolvency  system  assumes 

There is no space in this approach to measure the similarity of insolvency regimes across 
countries. This perspective is covered in empirical studies through a dummy variable that 
reflects the origin of the legal system, usually broken down into Anglo-Saxon, Germanic, 
Francophone and Nordic.212 There is, however, also scope to make use of the indicators 
for a cross-country perspective when assuming that  foreign investors have a preference 
for  efficiency.  That  is,  if  cross-border  investors  judge  the  best  practices  as  ideal 
insolvency  system,  they  would  be  more  cautious,  spend  more  into  information  on  the 
investment  risk  and  ask  for  a  higher  risk  premium  the  more  element  from  the  best 
practice  are  missing.  Difference  in  best-practice  elements  between  two  countries  might 
particularly discourage investors from a higher ranking jurisdiction as the lack of element 
means  that  these  investors  miss  factors  they  are  familiar  with  and  for  which  they  can 
know from  domestic experiences how they work. Since the underlying  policy initiative 
strives  for  convergence  of  insolvency  proceedings  towards  the  most  efficient  outcome 

211  The  exception  was  EC  (2013),  which  determined  the  weight  of  different  components  via  a  principal 
component analysis. 
212 See La Porta et al. (2008). 

112 

 
 
                                                 
rather  than  for  convergence  towards  a  mean,  there  is  a  justification  for  using  this 
approach. 

Since the analysis needs to touch on elements that are much more granular than the best 
practices,  the  aggregate  scores  are  not  particular  meaningful.  Rather  it  is  required  to 
identify  whether  sub-components  are  present  that  cover  the  policy  options  and  in  a 
further step check whether they exist in the various Member States. The OECD indicator 
consists of 13 sub-component, its World Bank Doing Business (WB_DB) pendant 16 and 
a  comparable  exercise  by  the  University  of  Cambridge  (CBC)  4  respectively  19 
subcomponents on insolvency. The European Commission conducted a similar exercise 
in 2018/19, asking Member States 108 questions. Although not all questions were linked 
to corporate insolvency, the survey led to information on whether 39 institutional features 
were present in their corporate insolvency system, broadly equal split between individual 
enforcement  and insolvency  proceedings.  The table below shows that the elements  and 
structures  used  by  the  four  bodies  presented  here  differ  substantially.  The  table  also 
reveals  that  many  of  the  sub-indicators  are  rather  remote  to  the  issues  analysed  here. 
These  are  for  example,  those  relating  to  individual  enforcement  in  the  EC  study,  those 
relating to restructuring by the OECD or those obtained from the latest survey carried out 
by the EBRD on restructuring procedures.213 

All these data sets are publicly available except the European Commission one because it 
was  obtained  under  confidentiality  arrangements  with  Member  States.  While  this  has 
prevented  its  use  by  academics  for  empirical  analysis,  EBA  (2020)  found  that  some  of 
the subcomponent  are significant  determinants  of recovery  rate  and recovery time. The 
World Bank data set has been extensively used in the economic literature and acquired 
some authority. The detection of data irregularities however led to a suspension of their 
publication  in  2020.214  The  World  Bank  is  now  engaged  in  a  follow  up  project  to 
establish new indicators. 

Table A4.3: Best practices used in institutional insolvency indicators, number of sub-components in (brackets), binary 
except those in [square brackets show number of possibilities] 

countries, 

WB_DB 
129 
2004-2019 
Commencement of 
proceedings (3) 
Management 
of 
debtors’ assets (6) 

CBC 
5  countries  1995-
2005 
Entry 
proceedings [3] 

in 

Stay  of  secured 
creditors,  Ranking 
of claims [3 and 4] 

OECD 
39 
2010 and 2015 

countries, 

of 

Treatment 
failed 
entrepreneur (3) 

EC 2013 
EU  Member  States 
2014 
Ease/availability 
(*) 
Continuation 
operations(*) 

of 

EC 2019 
EU  Member  States 
2019 
Triggers (5) 

Management 
debtors' assets (6) 

of 

Direct  and  indirect 
costs(*) 

Ranking  of  claims 
(5) 

213  EBRD  2022  structured  the  assessment  along  five  dimensions:  1.  General  Approach  to  Corporate 
Reorganisation.  2.  Planning  and  Initial  Stage  of  the  Reorganisation,  3.  The  Reorganisation  Plan,  4.  The 
Reorganisation Approval Phase, 5. Other Relevant Aspects. 
214 The irregularities in reporting information to the World Bank were found in relation to four countries, 
namely  Azerbaijan,  Saudi  Arabia,  United  Arab  Emirates  and  China.  The  review  process  did  not  identify 
any further specific data irregularities beyond those affecting these four countries. 

113 

 
 
 
 
 
 
 
                                                 
Creditor 
participation (4) 
Restructuring (3) 

Creditor 
participation [3] 

Restructuring (5)  Debt 

Lodgement of claims 
(4) 

restructuring(*) 
Court  capacity  (6 
[partly numerical]) 

Court capacity (4) 

Other (3) 

Prevention 
SMEs (3) 

and 

(*) 12 institutional parameters with weights to the components allocated via principal component analysis 

WB:=  World  Bank  doing  business  strength  of  insolvency  regimes,  CBC:=  University  of  Cambridge, 
published in Armour et al (2009), OECD indicators published in McGowan and Andrews (2018), EC 2013 
is Carcea et al. (2018), EC 2019 are the indicators in Steffek (2019). 

Most  of  the  exercises  yielded  one-off  results,  which  implies  a  limited  number  of 
observations  for  empirical  analysis.  The  OECD  survey  was  carried  out  in  2016  for  39 
countries, the European Commission’s in 2018/19 for the EU Member States. The CBC 
and World Bank investigations yielded time series, the CBC data ranges 1970 to 2005 for 
five countries with 19215 insolvency components and 1995 to 2005 for 25 countries, the 
World Bank’s data from 2004-2020. After the detection of data irregularities, the World 
Bank decided to first interrupt and later suspend updating its indicator, which means the 
most encompassing indicator set was discontinued in 2020.  

Figure  A4.8:  Breakdown  of  institutional  features  of  insolvency  regimes  in  the  World  Bank  doing  business  indicator 
2020 

Note: a higher number indicates presence of more institutional features. 
Source: FISMA with World Bank data. 

215 From 1970 for 5 countries (Germany, France, United Kingdom, United State of America and India). 

114 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Figure A4.9: Breakdown of institutional features of insolvency regimes in the OECD insolvency indicators 2016 

Note:  a  higher  number  indicates  presence  of  institutional  features  that  delay  the  commencement  and 
resolution  of  insolvency  proceedings.  Others  relate  to  court  involvement,  distinction  between  honest  and 
fraudulent bankruptcies and rights of employees. 
Source: FISMA with OECD data. 

the  different  policy  options  would  reduce 

The CMU context  suggests a focus in  the analysis  on the position of foreign investors, 
which  suggests  that  if  specific  measures  of  investors’  information  costs  were  available 
and  these  could  be  related  to  insolvency  indicators,  it  would  be  possible  to  derive 
estimates  how 
information  costs. 
Unfortunately,  these  gauges  are  not  available  and  it  has  not  been  possible  to  identify 
other  indicators  to  replace  them.  Yield  differences  between  comparable  financial 
instruments  could  be  candidates.  In  practice,  yield  differences  are  usually  found 
determined  by  differences  in  risk  and  liquidity  premia.  While  the  economic  literature 
identified information  costs as major reason  for the home bias,216 information  costs are 
measured  indirectly,  i.e.  through  geographical  distance,  common  language,  common 
legal  tradition,  telecommunication  costs  etc.217  Since  the  home  bias  is  determined  by 
other factors than information costs, it seems not suitable to use measures of home bias 
as proxy for information costs. 

2.2  

Output-oriented indicators: Recovery rates 

The World Bank Doing Business indicator on insolvency was spearheaded by a group of 
academics that created an indicator based on the outcome of insolvency proceedings. The 
most important one is recovery rate that a creditor can expect to receive as return when 
the  underlying  company  defaults.218  The  aggregate  World  Bank  insolvency  indicator 
combined  such  recovery  rate  with  the  institutional  approach,  both  weighing  half  in  the 
aggregate score. The recovery rate reflects the value or price of a company that enters the 
insolvency  proceeding.  When  deciding  on  the  investment,  the  creditor  could  use  the 

216 See for example the literature reviewed and empirical analysis in Roque Cortez (2014). 
217 See for example, Portes and Rey (2005), Aggarwal et al. (2012).  
218 See Djankov et al. (2008). 

115 

 
 
 
                                                 
expected recovery rate in combination with the likelihood of insolvency to establish the 
risk of the investment, and accordingly the risk premium requested. The standard formula 
for  the  recovery  rate  consists  of  three  parameters.  First,  the  loss  of  value  or  recovery 
value. This will generally be much smaller than 100%, but must not be zero because even 
if  the  borrower  is  insolvent,  there  may  still  be  cases  with  a  positive  value.  Second,  the 
costs  of  insolvency  proceedings,  which  are  at  least  the  costs  for  the  court  and 
administration  of  the  insolvency.  Third,  the  time  until  the  recovery  value  is  paid.  The 
formula  below  shows  the  recovery  rate  RR  as  the  present  value  of  a  payment  that 
depends on the recovery value RV, the judicial costs C, the interest rate r and the time t 
until the payment is received. 

𝑅𝑅 =

𝑅𝑉 − 𝐶
(1 + 𝑟)𝑡 

The  recovery  value  RV  is  not  a  fixed,  exogenously  determined  amount,  it  tends  to 
decline the longer the duration of the process (“melting ice cube” phenomenon). Beyond 
the depreciation of physical assets over time, their value deteriorates if they are not used. 
Business  lines  that  may  still  be  viable  on  their  own  become  less  valuable  if  business 
relationships are interrupted. 

RV  will  generally  be  smaller  than  100%,  but  it  is  often  not  zero  because,  even  if  the 
borrower  is  insolvent,  there  may  still  be  assets  with  a  positive  value.  RV  declines  the 
longer  t  (so  called,  “melting  ice  cube”).  The  time  t  until  the  recovery  value  is  paid, 
discounted by the interest rate r. The longer t, the lower RV and higher C. The costs of 
insolvency  proceedings  C  are  at  least  the  costs  for  the  court  and  administration  of  the 
insolvency. They also include information and legal costs for creditors. 

The World Bank used this formula to calculate recovery rates for most countries of the 
world. It requested insolvency experts to establish for their jurisdiction what they expect 
these  three  parameters  to  be.  Hence,  the  World  Bank  compiled  data  on  the  recovery 
value, the time to recovery  and the costs of proceedings. To accomplish  internationally 
comparable numbers, the insolvency experts were asked to  assume a standard scenario, 
consisting of a hotel that went into insolvency and that creditors had secured their claim 
with  the  hotel  and  its  interior  as  collateral.  For  the  recovery  value,  two  scenarios  were 
assumed.  Either  the  hotel  was  restructured.  In  this  case,  the  recovery  value  would  be 
100%  minus  the  depreciation  of  the  assets  times  the  time  the  insolvency  procedures 
takes. For the calculation of the depreciation, it was assumed that the assets consisted of 
the  furniture,  with  a  value  of  25%  of  the  assets  and  that  they  depreciated  by  20%  per 
annum.219 If the hotel was liquidated, the recovery value had to be estimated and could 
not be larger than 70%. The calculations for most EU Member States assume the hotel is 
restructured. The scenario of a liquidated company is used in ten smaller Member States, 
yielding  recovery  rates  between  38  and  60%  in  the  last  release  2020.220  The  main 
criticism on the recovery rates related to the fact that the assumed scenario of a hotel was 
not  representative  for  other  corporations.  The  methodology  came  also  under  criticism 
when it appeared that calculations for some countries were politically influenced, which 
led  to  the  suspension  of  the  Doing  Business  indicators.  That  said  the  Doing  Business 

219 When introduced into the formula RV would be 100-25*20%*t in case of restructuring. 
220 These were BG, EL, EE, HR, MT, HU, LV, LT, LU, RO and until 2015 SI. 

116 

 
 
                                                 
recovery rates performed well when academics or staff from international organisations 
used them in empirical analysis. 

Credit  rating  agencies  and  banks  collect  information  about  actual  recovery  rates  from 
their daily business, with credit rating agencies having their strengths in corporate bonds 
and  banks  in  corporate  loans.  Although  the  business  model  of  credit  rating  agencies 
consists in assessing the likelihood and consequences of default, their information base is 
limited.  For  example,  the  data  base  of  a  major  credit  rating  agency  analysed  for  this 
exercise reported about 110 cases of default per year on average 2017-2021, of which 21 
from European entities. The information from this credit rating agency points to recovery 
rates  being  volatile  over  time  and  depending  on  the  type  of  financial  securities.  For 
example,  recovery  rates  of  secured  senior  bonds221  varied  between  50  and  70%  in  the 
period 2017-2021, those of unsecured bonds between 30 and 50%. These numbers relate 
to global markets. When looking at US markets, the recovery rate of secured loans varied 
between  50  and  82%  in  the  period  2017-2021.  The  difference  in  the  recovery  rate  of 
these  loans  to  unsecured  bonds  moved  in  the  range  between  0  and  25%.  The  variation 
seems rather large compared to what one would expect if the only influential factor were 
the  business  cycle.  This  suggests  the  composition  of  the  panel  has  also  an  important 
influence. 

It would be possible to calculate statistics on the expected recovery rate as a function of 
the yield difference of a corporate bond or credit default swap to the safe interest rate and 
the  expected  likelihood  of  default.  While  such  formulas  are  readily  available,  the 
calculations  would  require  abstracting  from  risk  aversion,  liquidity  premia  and  other 
market  specific  factors  that  could  weigh  on  the  arbitrage  assumptions  underlying  such 
calculations.  Apart  from  reservations  of  whether  arbitrage  conditions  on  financial 
markets hold as theory suggests, the close interdependence of the two unknown, namely 
the likelihood of default and the recovery value, casts doubts on the usefulness of such 
calculations.  It  would also be  possible only for those corporations hat  issued a bond or 
for whose debt there is a credit default swap. 

The most granular source of information on recovery rates and recovery time is a study 
carried out by the European Banking Authority (EBA) in 2019/20. Prior to this exercise, 
the  Commission  had  tasked  an  external  contractor  tasked  to  collect  such  data,  but 
suspended  the  work  in  2017  because  it  turned  out  that  it  was  not  feasible  to  obtain 
recovery  rates  at  sufficient  depth  and  representativeness.  As  follow  up  to  this  failed 
endeavour, the EBA carried out a benchmark study. It collected data from banks in the 
EU  Member  States  on  gross  replacement  rates,  net  replacement  rates,  i.e.  after  judicial 
costs,  time  for  recovery  and  judicial  costs.  It  performed  three  rounds  of  verification  of 
data to ensure high quality and robustness of data.  

The  breakdown  is  consistent  with  that  used  by  the  World  Bank,  with  the  notable 
expectation  of  the  recovery  rate.  The  EBA  term  recovery  rate  is  equivalent  to  the 
recovery  value  in  the  World  Bank.  The  EBA  recovery  rate  is  the  amount  the  bank 
recovered relative to the notional amount of the debt at the time of default, i.e. includes 
possible depreciation of the value but does not discount for the time of waiting. The gross 
recovery rate is derived from the amount before any deduction of any costs and the net 

221 First lien bonds. 

117 

 
 
                                                 
recovery rate after deduction of costs. Numbers were collected for corporate credit, SME 
credit and also on other forms of credit that are less relevant for this impact assessment 
(i.e. commercial and residential real estate loans, credit cards, other consumer loans). 55 
banks  provided  data  on  more  than  4000  corporate  loans  and  105  banks  on  more  than 
150000 SME loans.  

The  table  below  shows  the  results  for  corporate  credit,  also  demonstrating  that  the 
number of observations was low for many Member States and the bank populations not 
representative.  The  EBA  exercise  revealed  that  banks  are  using  very  different  data 
standard  to  monitor  loans  defaults  and  recovery,  which  complicates  the  compilation  of 
statistical data. The Commission is currently investigating with ECB and EBA possible 
ways forwards, including through the use of AnaCredit data. 

118 

 
 
 
Table A4.4: EU Benchmarks, Gross Recovery rate (%) per EU Member State - corporate 

Country of 
the formal 
enforcement 

Number of 
observations 

Number of 
banks 

Simple 
average 

Weighted 
average 

Standard 
deviation 

1st quartile 

Median 

3rd quartile 

AT 

BE* 

BG 

CY 

CZ 

DE[1] 

DK 

EE 

ES 

FI 

FR 

GR 

HR 

HU 

IE[2] 

IT 

LT 

LU* 

LV 

38 

*Not shown  

252 

57 

38 

10 

17 

27 

332 

NA 

85 

353 

726 

NA 

NA 

878 

NA 

*Not shown  

NA 

MT* 

*Not shown  

NL 

PL 

PT 

RO 

SE 

SK 

SK 

180 

321 

403 

68 

14 

458 

14 

3 

- 

3 

2 

2 

3 

3 

1 

6 

- 

3 

2 

1 

- 

- 

34.9 

- 

67.9 

17.6 

6.9 

33.3 

95.2 

56.6 

42.2 

- 

35.6 

10.9 

30.2 

- 

- 

41.3 

- 

53.6 

18 

5 

26.9 

97.7 

54.7 

54.6 

- 

48.6 

10.7 

60 

- 

- 

40 

- 

39.3 

28.1 

11.5 

15.5 

11.3 

33.4 

43.8 

- 

36.6 

28 

41.2 

- 

- 

11 

32.3 

29.4 

37.5 

- 

- 

- 

- 

2 

4 

5 

3 

3 

1 

2 

- 

- 

- 

- 

67.5 

6.9 

35 

69.3 

92 

94.7 

28.6 

40.4 

- 

- 

- 

- 

42.9 

5 

21.1 

55.7 

100 

93.2 

24.8 

26.2 

- 

- 

- 

- 

35 

21.2 

41.2 

37.1 

20.5 

17.9 

40 

43.4 

1.7 

- 

23.6 

0 

0 

15 

99.1 

46.3 

0 

- 

2.9 

0 

0 

- 

- 

0 

- 

- 

- 

- 

49.5 

0 

0 

35.8 

100 

99.9 

0 

0 

16 

- 

97.1 

2 

0 

41.1 

100 

57.3 

25 

- 

16.2 

0 

2.3 

- 

- 

76.3 

- 

100 

18.5 

17.5 

41.3 

100 

80.6 

100 

- 

60.6 

0 

74.9 

- 

- 

14.3 

60.1 

- 

- 

- 

- 

70 

0 

8.4 

91.5 

100 

100 

3.1 

16.2 

- 

- 

- 

- 

100 

0 

82.3 

100 

100 

100 

28.2 

100 

EU27 

4,277 

55 

- 

- 

NA 

NO 

- 
Note: * not shown when the number of observations is below five. The EU27 include not shown observations. 
[1]  Based  on  a  very  low  volume  of  observed  data  and,  therefore,  making  generalisations  about  the  whole  banking  sector  can  be 
misleading. 
[2] Where non-judicial debt settlement (i.e., voluntary sale/surrender of property) are prominent features of workout in national financial 
systems distressed debt workout, judicial enforcement benchmarks will not reflect work out recovery rates, costs, or duration. 
[3] For Corporate, SI shows a high number of loans with negative recovery amounts (46% of the total number of loans for the sample in 
the country). In case these loans were considered, the net recovery rate and gross recovery rate would be 50.4% and 50.8%, respectively. 
Source: EBA (2020). 

- 

- 

- 

- 

119 

 
 
 
 
There  is  little  information  about  the  actual  costs  of  insolvency  procedures.  Franks  and 
Loranth (2014) in an analysis of bankruptcy cases in Hungary found that legal costs and 
fees  accounted  for  6  to  14%  of  the  asset  value  on  average.  Costs  are  higher  in  going 
concern compared to immediate closures. This compares to 18% in the UK and 4.5% in 
Sweden,  which  however  date  back  from  sources  in  2000  and  2005.  The  insolvency 
experts  that  populate  the  World  Bank  Doing  Business  index  with  their  estimate  of 
judicial costs produced numbers of 14.5% for Hungary and 10% for Sweden. Difference 
are  due  to  different  approaches  and  experiences.  The  table  below  reveals  that  the 
empirical study by Franks and Loranth builds on around 100 cases. The EBA collected 
data  on  judicial  costs  of  loan  enforcement  from  banks  in  its  benchmark  report  (EBA 
2020). The EU average was 2.1% of the outstanding value for corporate loans and 8.1% 
for SME loans. The EBA reported that foreign banks indicated higher judicial costs than 
domestic banks. When taken at face value, the average judicial costs for corporate loans 
are highest in Estonia, Romania and Bulgaria, those for SME loans in Greece, Portugal 
and  France.  The  substantial  difference  that  emerges  in  the  country  ranking  when  the 
weighted average instead of the simple average is taken suggests that the share of judicial 
costs is strongly determined by the magnitude of the underlying loan.  

Table A4.5: Bankruptcy costs for Hungarian companies in Franks and Loranth (2014) 

Table A4.6: Judicial costs in EBA (2020, in % of nominal outstanding amount) 

Corporate loans 

SME loans 

Country of 
the formal 
enforcement 

AT 

BE 

BG 

CY 

CZ 

DE 

Number of 
observations 

Simple 
average 

Weighted 
average 

Number of 
observations 

Simple 
average 

Weighted 
average 

37 

NA 

245 

61 

38 

– 

0.3 

– 

6.7 

0.6 

2.3 

– 

0.6 

– 

4.6 

0.3 

0.1 

– 

2.4 

2.2 

11.3 

3.5 

2 

2.3 

1 

2.1 

5.9 

0.9 

0.2 

1.3 

4,462 

61 

2,617 

893 

8,696 

925 

120 

 
 
 
 
 
 
DK 

EE 

ES 

FI 

FR 

EL* 

HR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

16 

24 

339 

NA 

11 

703 

NA 

NA 

1,088 

NA 

16 

NA 

35 

118 

331 

457 

61 

14 

830 

10 

EU27 

4,448 

Source: EBA (2020) 

0 

21.2 

2.1 

– 

0.1 

*Not shown 

0.2 

– 

– 

1.1 

– 

0.7 

– 

4.9 

0.5 

0.4 

0.4 

13.8 

0 

0.6 

0.1 

1.4 

0 

0.5 

0.7 

– 

0.1 

0 

– 

– 

0.2 

– 

0.5 

– 

2.3 

0 

0 

0.1 

13 

0 

0.6 

0.1 

0.5 

61 

14 

10,054 

66 

0.1 

1.5 

3.9 

0.1 

1,480 

13.5 

387 

850 

20,224 

684 

18,863 

371 

550 

218 

60 

16,395 

14,938 

30,710 

7,701 

1,693 

5,381 

589 

148,943 

19 

0.7 

0.1 

2.6 

1.7 

0.4 

0.6 

0.9 

5.1 

1.7 

0.3 

9 

2.4 

7.1 

0.7 

9.3 

3.5 

0.1 

0.7 

2 

0 

2 

7.1 

0 

0.3 

0.1 

0.7 

0.1 

0.2 

0.8 

2.1 

1.4 

0.1 

1.1 

5 

0.6 

0.6 

4.6 

1.2 

2.3  

Implications for the use of indicators in the analysis 

The  information  on  recovery  values,  times  and  judicial  information  from  the  EBA 
benchmarking exercise is important input for the analysis. While they are not considered 
representative  for  many  Member  States,  the  EU  aggregate  should  be  sufficiently 
representative  for  scenario  analysis  at  EU  level.  Its  reliability  is  demonstrated  by  the 
findings  in  EBA  (2020)  of  relationships  between  institutional  features  of  insolvency 
regimes and the recovery rate of bank loans obtained from its benchmarking exercise. Its 
empirical analysis looked into the institutional variables from EC (2019) as determinants 
of  recovery  rates  and  recovery  time,  finding  significant  coefficients  for  several  of  the 
institutional variables, especially of collateral arrangements and creditor rankings.  

Academic  researchers  used  either  the  recovery  rates  or  the  institutional  scores  or  the 
World  Banks’  aggregate  of  both  in  their  studies.  Given  the  good  performance  of  the 
World  Bank  data  in  empirical  research,  their  broad  coverage  and  assuming  that  the 
reasons for their discontinuity are not found in observations for the EU Member States, 
the  World  Bank  indicators  are  used  in  the  analysis  below  that  requires  cross-country 
comparisons. Their shortcomings should however be duly noted.  

The  presence  of  best  practices  institutional  features  should  have  a  positive  impact  on 
recovery rates. Since the World Bank Doing Business data includes also both input and 
output indicators, the chart below plots how they compare for the EU Member States in 

121 

 
 
2020. When expanded to all years and countries in the data set, there is a positive, but not 
high  correlation  between  recovery  rates  and  the  “best  practice”  institutional  approach, 
amounting to 0.22 for the EU Member States and 0.57 in all 211 countries covered.  

Figure  A4.10:  Recovery  rates  and  the  strength  of  insolvency  frameworks  as  measured  through  an  institutional 
indicator, 2020 

Note: The recovery rate  is an indicator of the  outcome  of insolvency proceedings, the institutional index 
counts how many of 16 desirable features are present in a country’s insolvency regime. See Table A4.3 for 
a breakdown of the desirable features in the World Bank doing business indicator used here. 
Source: FISMA with World Bank doing business data. 

Further  statistical  analysis  with  the  World  Bank  data  for  the  EU  Member  States  2012-
2020  shows  that  the  variation  in  the  insolvency  score  explains  only  a  small  part  of  the 
cross-country differences in recovery rates. The R2 as measure of the share of variation 
explained by the estimate reported in the table below is very small in the simplest type of 
estimation. They become higher if GDP per capita is added as additional control variable 
(estimates 5 and 8).222 If fixed effects are added (estimates 2-4 and 7), the R2 rises, but at 
the expense of declining coefficient and degree of significance of the insolvency index. 
This  is  not  fully  surprising  since  institutional  parameters  of  insolvency  regimes  do  not 
change  a  lot  over  time  and  are  therefore  similar  to  a  country  fixed  effect.  In  most 
specifications,  the  coefficient  ß  is  significant  at  the  5%  level223  and  suggests  that  a  1 

222 A positive correlation between insolvency indicators and GDP or GDP growth is not uncommon in the 
literature. They appear in Djankov et al (2008), Smrncka (2015) and Becker and Ivashina (2021), albeit are 
interpreted  as  reverse  causation.  That  is,  richer  countries  are  endowed  with  a  better  legal  system,  which 
also shows up in a more efficient treatment of corporate bankruptcies. 
223 The coefficient is significant provided that country-fixed effects are not used, which reflects that scores 
are  relatively  stable  in  Member  States  over  time,  i.e.  are  correlated  with  a  fixed  effect.  Neither  the 
coefficient nor the level of significance depends on whether GDP per capita is controlled for in the estimate 
or not. 

122 

 
 
 
                                                 
point higher institutional score improves the recovery rate by 0.5-2.0%pts. This range can 
be  used  to  translate  changes  to  institutional  scores  caused  by  the  policy  options  into 
changes to recovery rates. 

Table A4.7: Regression results: insolvency outcome and institutional insolvency indicators 

Recovery rateij = Constant + ß * insolvency indexij + γ * GDP per capitaij+ μij 

(1) 
35.5 
2.1 
0.41*** 

(2) 
37.5 
1.9 
0.42*** 

C 
ß 
SE  of 
ß 
γ 
SE  of 
γ 
R2 
period   2004-2020 (unbalanced) 
Fixed 
effects 

none 

time 

0.07 

0.05 

(3) 
41.4 
1.5 
0.29*** 

0.87 

country 

(4) 
56.5 
0.2 
0.32* 

(5) 
39.4 
1.4 
0.41 

(6) 
36.3 
2.2 
0.55*** 

(7) 
54.0 
0.6 
0.55 

8.8E-6 
1.5E-6*** 

0.89 

0.13 

None 

Time 
and 
country 

0.93 

0.06 
2012-2020 (balanced) 
none 

country 

(8) 
42.1 
1.3 
0.55*** 

8.5E-6 
1.8E-6*** 

0.14 

none 

443 and 243 observations, respectively. EU Member States, * significant at 10% level, *** significant at 
1% level; i, j per country i and year j. 

3.  Numerical  estimates  of  the  impact  of  policy  options  on  recovery  rates  and 

institutional insolvency indicators 

Quantitative  analysis  of  how  the  introduction  of  the  measures  discussed  in  the  impact 
assessment would improve insolvency indicators relies on a number of assumption. This 
section presents such analysis and the underlying assumptions. The first section uses the 
replies  of  the  results  of  the  Deloitte/Grimaldi  survey  with  insolvency  experts  presented 
above  and  translates  them  into  estimates  about  how  targeted  changes  in  insolvency 
regimes could translate into changes in recovery rates. The second section reviews maps 
how  the  targeted  changes  in  insolvency  regimes  could  improve  the  institutional 
insolvency  indicators.  This  will  be  the  basis  to  formulate  scenario  analysis  of  the 
different  policy  options.  The  value  of  these  two  sections  will  be  apparent  in  the 
subsequent  section, which reports estimates of what  changes in  either recovery  rates or 
aggregate institutional insolvency indicators imply for monetary and economic variables. 

3.1  

Survey responses and recovery rates 

A new data source is a survey carried out by Deloitte/Grimaldi in 2021/2022 for this 
impact  assessment.  Deloitte/Grimaldi  has  been  tasked  to  gather  insolvency  experts’ 
views on what targeted changes in insolvency regimes would mean for the efficiency of 
the insolvency regime, changes to the costs and changes to the recovery time. They asked 
120 insolvency experts from 24 EU Member States about their assessment of the impact 
of harmonisation of targeted areas in insolvency rules on the determinants of the recovery 
rate,  i.e.  the  time  of  recovery,  costs  involved  or  the  recovery  value.  About  38%  of  the 
surveyed  experts  were  legal  experts  and  practitioners  or  insolvency  lawyers,  24% 
regulated  insolvency  practitioners,  12%  each  judges  in  commercial  courts  or  from 
financial  institutions,  9%  persons  in  public  administrating  handling  insolvencies.  The 
survey asked for estimates how introduction of rules at EU level across various elements 
would translate into changes in costs and time of cross-border insolvency cases. Experts 

123 

 
 
 
 
 
 
 
 
were also asked about their assessment of the efficiency of measures across the different 
elements. 

Figure  A4.11:  geographical  breakdown  of  respondents  to  the  survey  by  Deloitte/Grimaldi  (2022)

Source: Deloitte/Grimaldi (2022). 

124 

 
 
 
 
Figure A4.12: Breakdown by type of respondent in the survey by Deloitte/Grimaldi (2022) 

Source: Deloitte/Grimaldi (2022). 

Overall,  the  experts  estimate  that  costs  would  fall  by  a  double  digit  percentage 
points  from  measures  in  most  areas.  There  is  no  area  where  more  than  25%  of  the 
experts  expect  that  costs  would  increase.  The  most  optimistic  25%  expects  cost 
reductions  of  above  20%  in  most  areas.  Indications  about  time  savings  are  highly 
correlated  with  those  of  cost  reductions.  In  the  absence  of  statistical  data,  reliance  on 
expert  views  is  common  for  all  types  of  indicators  in  the  area  of  insolvency.  Their 
average  assessment  can  be  considered  similar  to  a  “market  perspective”  where  each 
opinion might be biased but the aggregation of independent opinions forms an accurate 
description of the expected value. Although the experts did not receive guidance on how 
effective the measure will be, the context of a survey done on behalf of the Commission 
suggests that they assumed a fairly ambitious measure.  

Table  A4.8:  Estimated  change  of  costs  from  introduction  of  rules  at  EU  level,  distribution  of  indications  from 
insolvency experts, in % 

Pre-
packs 

Avoidance 
actions 

5.0% 
10.8% 
10.0% 
20.8% 
16.7% 

20.8% 
4.2% 
6.7% 
4.2% 
0.8% 

1.7% 
7.5% 
8.3% 
18.3% 
23.3% 

22.5% 
7.5% 
5.0% 
4.2% 
1.7% 

MSE 

2.5% 
10.0% 
11.7% 
15.0% 
15.8% 

31.7% 
5.8% 
3.3% 
2.5% 
1.7% 

Asset 
tracing 

Ranking 
of claims 

Pari 
passu+ 

Directors' 
duties 

Creditor 
committees 

5.0% 
10.8% 
19.2% 
14.2% 
15.8% 

12.5% 
5.0% 
10.0% 
5.8% 
1.7% 

4.2% 
5.0% 
5.8% 
7.5% 
10.0% 

46.7% 
9.2% 
8.3% 
2.5% 
0.8% 

3.3% 
2.5% 
6.7% 
3.3% 
12.5% 

54.2% 
6.7% 
6.7% 
3.3% 
0.8% 

5.8% 
3.3% 
9.2% 
13.3% 
21.7% 

36.7% 
2.5% 
5.0% 
2.5% 

#N/A 
#N/A 
#N/A 
#N/A 
#N/A 

#N/A 
#N/A 
#N/A 
#N/A 
#N/A 

13.5 

10.0 

11.9 

13.4 

3.2 

2.0 

9.3 

#N/A** 

Average change in time in % 

N/A 
< - 40% 
< - 30% 
< - 20% 
< - 10% 
>-10  and 
< 10 
> 10% 
> 20% 
> 30% 
> 40% 
Average
cost 
change*) 

125 

 
 
 
 
 
 
16.1 

12.6 

9.4 
+ At least pari passu treatment of certain unsecured creditors (tax authorities, employees etc.). 
*) weighted average, used are mid-ranges for each interval. + and -50 for the greater 40 indications. 
**)  the  survey  asked  only  for  the  reduction  in  time  yielded  by  harmonisation  of  rules  on  creditors’ 
committees. The average of replies was minus 1.4%. 

12.5 

16.1 

-0.6 

3.9 

1.4 

Since the survey specified numerical  ranges for  the latter two determinants  of recovery 
rates,  it  is  possible  to  transform  the  experts’  replies  into  quantitative  estimates  of  the 
impact  of  the  targeted  changes  on  recovery  rates.  The  table  below  reports  the  results 
transformed into the median (50%), lowest and highest quarter (25%). Since expert were 
asked to indicate a range, the centre of each range was used to calculate the average.224 

Table A4.9: Summary indications of insolvency experts in the Deloitte/Grimaldi survey 

Pre-pack 

Avoidance 
actions 

MSE 

Asset 
tracing 

Ranking 
of 
secured 
claims 

Pari passu  

Directors' 
duties 

Creditors’ 
committes 

Cost reductions 

58.3% 
13.5 

10-20 

57.4% 
10.0 

10-20 

52.5% 
11.9 

60.0% 
13.4 

10-20 

 10-20 

Time savings 

67.5% 
12.6 

54.1% 
16.1 

52.6% 
12.5 

65.1% 
16.1 

20-30 

 -10 - +10 

 10-20 

 10-20 

28.3% 
3.2 
 -10 - 
+10 

32.5% 
3.9 
 -10 - 
+10 

25.0% 
9.3 
 -10 - 
+10 

15.8% 
-0.6 
 -10 - 
+10 

47.5% 

-10 - +10 

NA 

NA 

NA 

46.7% 
9.4 

37.5% 
1.4 

 -10 - +10 

 -10 - +10 

Approval 
rate 
average 
median 

Approval 
rate 
average 
median 

The approval rate is the share of insolvency experts that indicated that the measure will lead to a reduction 
in costs and time, respectively. 

The  subsequent  table  uses  the  average  reduction  in  judicial  costs  and  time  from  the 
Deloitte/Grimaldi survey and combines it with the simple averages for corporate loans in 
the  EU  from  the  EBA  study  about  recovery  values,  recovery  time  and  judicial  costs 
(40.4,  3.4  and  1.4%,  respectively),  and  the  ECB  cost  of  borrowing  to  non-financial 
corporations of 1.36% in December 2021. When using this information to calculate the 
recovery rate, the introduction of an MSE insolvency regime would increase the recovery 
rate from 37.2 to 37.7%. The impact of other measures on the recovery rate is in a similar 
ballpark. The extent of the decline depends on the starting assumption.  If the weighted 
average  instead  of  the  simple  average  from  the  EBA  study  is  taken,  the  impact  would 
decline by about 1.25% on average, and if the median is taken by 0.4%. This reflects that 
small loans have a lower recovery value and higher judicial costs.  

224  French  respondents  are  overrepresented  in  the  sample.  They  were  underrepresented  in  the  interim 
version of the report, which reported answers from 44 respondents. Averages have remained broadly stable 
from the interim to the final report, suggesting that the French overrepresentation has no marked effect on 
the  average.  Exceptions  were  limited  to  indications  on  the  time  of  recovery,  where  the  final  sample  was 
much  more  optimistic  on  the  time  savings  from  transaction  avoidance  and  less  optimistic  on  the  time 
savings from pre-packs and creditor committees. 

126 

 
 
 
 
 
                                                 
Table A4.10: Estimated increase in the recovery rate from the introduction of rules at EU level 

Asset recovery 

Procedural efficiency 

Distribution of assets 

Sum 

-39 
-44 

1.56 

-28 
-31 

Option 2 

Option 1 

-12 
-13 

0.38 

-12 
-13 

-3 
-5 

0.13 

0 
-1 

-49 
-54 

2.07 

-36 
-40 

Costs in % 
Time in % 
recovery 
rate (%pts) 

Costs in % 
Time in % 
recovery 
rate (%pts) 

1.02 

1.42 
Note:  Assumptions  are  a  recovery  value  of  40.4%,  recovery  time  3.4  years,  judicial  costs  1.4%,  interest 
rate 1.36%. Changes in costs and time as average indicated by insolvency experts in the previous table. It is 
furthermore assumed that the measure on transaction avoidance under option 1 yields 2/3 of the effect as in 
option 2, that of cross-border asset tracing 1/3, that on directors’ duties 2/3.The aggregate effect (sum) is 
calculated as the product of the individual effects. 

0.02 

0.38 

Insolvency experts were not asked how the measure will be implemented. They may 
have assumed that the measures they were interviewed about would be transformed 
in  the  most  effective  manner.  Hence,  their  estimates  could  be  read  as  the  expected 
outcome of the most ambitious policy option. Regarding the options on pre-packs, MSEs, 
ranking of secured claims and creditor committees, the policy options are ambitious and 
therefore  their  indications  were  taken  as  basis  for  the  estimate  of  the  impact  of  their 
realisation  on  the  recovery  rate.  On  avoidance  actions,  it  is  conceivable  that  more 
elements than suggested could be harmonised and that in particular the opportunities to 
seize  assets  carries  a  potential  to  increase  recovery  values.  The  replies  by  insolvency 
experts  in  Deloitte  Grimaldi  on  the  questions  of  asset  tracing  and  Since  the  measure 
includes the core elements, an estimate that the measure yields 2/3 of the indicated effect 
seems conservative. Since cross-border asset tracing is a preparation to asset seizure, it is 
assumed  that  the  effectiveness  of  asset  tracing  without  asset  seizure  in  option  1  yields 
only 1/3  of the  effect.  Regarding directors’ duties, option 2 is  encompassing, while the 
absence of a change in the direction of their interest from shareholders to creditors should 
lead to a discount. It is assumed that the obligation to file for insolvency accounts for 2/3 
of the impact on the recovery rate. 

The survey asked for an assessment of the effectiveness of various means to facilitate the 
treatment  of  cross-border  asset  recovery.  More  insolvency  experts  expect  a  significant 
increase  in  efficiency  from  the  cross-border  access  to  registries  for  asset  tracing  than 
from  more  powers  for  IPs  to  trace  and  recover  assets.  While  fewer  experts  expect  a 
significant  increase  from  asset  tracing  and  asset  recovery  than  from  the  cross-border 
access  to  registries  for  the  purpose  of  asset  tracing,  overall  70%  expect  a  more  than 
minor increase in the efficiency from the latter. Regarding better cross-border access to 
different  kinds  of  registers,  for  asset  tracing,  of  business  actors,  and  of  initiated 
insolvency  procedures,  experts’  assessments  are  very  similar.  More  than  75%  expect  a 
more than minor increase in efficiency. 

127 

 
 
  
Figure  A4.13:  Share  of  insolvency  experts  expecting  a 
change in the efficiency in cross-border insolvency cases 

Figure  A4.14:  Share  of  insolvency  experts  expecting  a 
change in the efficiency in cross-border insolvency cases 
from acces to registries 

Source: FISMA with Deloitte survey data. 

Source: FISMA with Deloitte survey data. 

The insolvency experts were not asked about cost and time savings of the transparency 
enhancing  measures.  These  measures  can  also  not  be  expected  to  lead  to  a  direct 
reduction  in  time  and  costs,  but  to  the  already  impossible  to  measure  information  and 
learning  costs.  The  insolvency  experts  were  however  asked  about  the  impact  on  the 
effectiveness  on  cross-border  investors  of  certain  types  of  transparency  enhancing 
measures.  Their  assessment  of  the  effectiveness  is  comparable  to  that  of  the  other 
measures. For example, they rated a glossary of insolvency terms as efficient as common 
rules on the treatment  of senior creditors and a standard ontology  as  comparable to  the 
pre-pack. 

Table A4.11: Assessment of insolvency experts of measures to increase the increase transparency in insolvency cases 
for foreign creditors (distribution of views). 

Impact  on  the 
effectiveness 
for the creditor 

Development 
of  a  glossary 
of 
insolvency 
terms  and  of 
the  equivalent 
professional 
figures 
different 
jurisdictions  to 
aid  translation 
of 
claims 
filing. 

in 

Standard 
ontologies 
(A 
set of concepts 
and  categories 
the 
in 
insolvency 
area 
subject 
domain 
and 
showing 
their 
properties  and 
the 
relations 
between them) 
0.0% 
22% 
24.40% 
41.50% 

Standardised 
models 
filing claims 

for 

Insolvency-
dedicated 
automated 
translation 
tools 
documents, 
inscriptions 
into  registries, 
insolvency 
proceedings 

for 

Authentication 
and  validation 
of claimants to 
ensure 
legitimacy  of 
access 
and 
claims filing 

0.0% 

2.4% 
7.1% 
26.2% 
38.1% 

0.0% 
9.5% 
26.2% 
38.1% 

Decrease  
No change  
Minor increase  
Increase 
Significant 
increase 
Score 
Note: The score is calculated by weighing “no change with 0, an increase with 1, a minor increase with 0.5 
and a significant increase with 2 and likewise for negative values. 
Source: Deloitte/Grimaldi 2022 and FISMA calculations. 

0.0% 
9.8% 
29.3% 
39% 

9.3% 
25.6% 
44.2% 

12.20% 

26.2% 

26.2% 

20.9% 

22% 

1.06 

0.99 

1.07 

1.07 

0.88 

Table A4.12: Assessment of insolvency experts of measures to increase the  efficiency in insolvency cases for foreign 
creditors (distribution of views). 

Impact  on  the 
effectiveness 
for the creditor 
Significant 

pre-pack 
2.4% 

avoidance 
actions 

2.3% 

MSE 

4.7% 

Ranking of senior 
creditors 

creditor 
committee 

4.8% 

128 

 
 
 
 
 
 
4.5% 

2.4% 

decrease 
Decrease  
No change  
Minor increase  
Increase 
Significant 
increase 
Score* 
*) The score is defined as 0 indicating no efficiency gains, 0.5 marginal gains, 1 gains and 2  significant 
gains and likewise for negative values. It is calculated by multiplying the % shares with these weights. 

2.3% 
11.6% 
27.9% 
20.9% 

21.4% 
23.8% 

33.3% 
0.62 

34.1% 
0.78 

11.4% 
36.4% 

33.3% 
26.2% 

28.6% 
0.33 

7.1% 
23.8% 

47.6% 
0.99 

25.6% 
0.47 

4.8% 

3.2  

Changes to aggregate insolvency indicators  

This section derives estimates of the impact of the various policy options on institutional 
indicators of insolvency  regimes. This served as robustness check of the validity of the 
survey responses. It also adds information on those policy options that were not covered 
in  the  Deloitte/Grimaldi  survey.  A  third  motivation  for  this  step  is  that  some  academic 
studies  use  these  institutional  indicators  as  input  for  their  empirical  analysis  of 
insolvency  regimes  on  economic  variables.  Simulating  what  the  policy  options  would 
mean  for  the  institutional  indicators  would  therefore  allow  using  the  results  of  these 
studies in the subsequent section. 

Insolvency triggers 

While the consequences of an insolvency trigger should be positive for the recovery time 
and the recovery value, there are no means to quantify the effect. The specification of the 
insolvency trigger is covered through three features in the World Bank Doing Business 
insolvency indicator. Convergence to  the best  practices  would lift the insolvency index 
by 0.5 in the 14 Member States that have not yet reached the maximum. This would yield 
a 3% point improvement in their overall insolvency score.  

The following charts shows an experiment of how the information from the institutional 
indicators can be used. It seems plausible to assume that foreign investors will prefer to 
invest  in  countries  with  a  similar  insolvency  regime  everything  else  equal.  The  more 
geographical  dispersed  their  investment  is,  the  more  do  investors  face  variations  in 
insolvency  regimes,  suggesting  that  investment  into  Member  States  should  be  more 
clustered the more different and inefficient their procedures. A measure of clustering is 
the  Herfindal-Hirschleifer  index  of  market  concentration  applied  on  intra  EU  portfolio 
investment flows. The left hand chart shows that intra-area portfolio investment is much 
more  concentrated  in  countries  that  score  2.5  in  the  World  Bank  sub-indicator  of 
commencement  of proceedings,  compared to  those that score 3. The comparison of the 
concentration225 measure with the best practices in an EC sub-index of commencement of 
procedures in the right hand chart below yields a less conclusive picture. 

225 A Hirschleifer-Herfindal index over the market share of 83 countries’ portfolio debt investment in the 
EU Member States was calculated with FinFlow data for 2020 from the EC Joint Research Centre. 

129 

 
 
 
 
 
 
 
                                                 
Figure  A4.15:  Intra-EU  concentration  of  capital  flows 
(Herfindal 
index  versus  World  bank  subindex  of 
commencement of procedures) 

Figure  A4.16:  Intra-EU  concentraton  of  capital  flows 
(Herfindal  index  versus  EC  2019  sub-indicator  on 
commencement of procedures) 

Source: FISMA with World Bank and JRC data. 

Source: FISMA with Steffek (2019) and JRC data. 

Creditor committees and ranking of claims 

Representation in creditor committees is more costly for foreign investors and bargaining 
with  other  foreign  creditors  more  difficult  for  them.  The  empirical  estimates  in  the 
economic literature about the impact of insolvency rules on recovery rates and domestic 
financing  costs226  therefore  look  equally  important  for  foreign  investors  and  may 
represent a lower bound for them.  

The  introduction  of  effective  creditor  committees  would  lift  the  World  Bank’s 
institutional indicators of insolvency. The World Bank indicator defines four conditions 
for  creditor  participation  and  allocates  one  score  for  each  of  these  conditions,  which 
means that the fulfilment of an extra condition increases the insolvency-strength score by 
6%.227 Only one Member State was awarded the full score of 4 out of 4 in 2020 for the 
creditor  participation  index.  Applying  the  coefficient  from  the  relationship  between  the 
recovery rate and institutional features shown in the estimates above, implementation of 
one  additional  feature  would  increase  the  recovery  rate  by  between  2.5  and  3.5 
percentage points.  This compares to  the 1.7 percentage points from  the scenario results 
based on the Deloitte/Grimaldi Survey.  

The  OECD  insolvency  indicator  would  rises  if  creditor  participation  became  more 
effective and  a regime for MSEs were introduced. Regarding creditor participation,  the 
OECD  indicator  increases  by  1  score,  representing  an  increase  by  7.5%,  if  dissenting 
investors cannot be crammed down. Only 1 Member State received this score and several 
others were attributed half the score for the case that creditors can be crammed down in a 
restructuring, but the dissenting creditors do not receive more than in a liquidation case. 
Introduction  of  special  procedures  for  SMEs  would  improve  the  aggregate  OECD 

226  See  for  example  IMF  (2019),  AFME  (2016)  and  the  literature  reviewed  in  Kliatskova  and  Savatier 
(2020). 
227 These are “  (i)  whether creditors appoint the insolvency representative or approve, ratify or reject the 
appointment  of  the  insolvency  representative;  (ii)  Whether  creditors  are  required  to  approve  the  sale  of 
substantial assets of the debtor in the course of insolvency proceedings; (iii) Whether an individual creditor 
has  the  right  to  access  financial  information  about  the  debtor  during  insolvency  proceedings;  and  (iv) 
Whether an individual creditor can object to a decision of the court or of the insolvency representative to 
approve or reject claims against the debtor brought by the creditor itself and by other creditors.” 

130 

 
 
 
 
 
                                                 
insolvency by 7.5%pts, which the OECD indicated as missing in 8 Member States. This 
might give an idea on the importance of procedures for MSEs. 

The  estimates  in  EBA  reveal  that  both  the  ranking  of  claims  and  creditor  committees 
have  a  significant  impact  on  recovery  rates.  When  taken  at  face  value,  the  estimates 
suggest  that  the  absence  of  preferential  treatment  is  associated  with  a  1.5%  higher 
recovery  value  and  a  1.3%  shorter  time  to  recovery.  The  size  of  the  coefficients  is 
independent from whether the public sector or employees as preferred creditor group is 
looked  at.  The  EBA  (2020)  estimates  suggest  that  the  possibility  for  creditors  to 
influence  the  proceedings  through  creditor  committees  increases  the  recovery  value  of 
corporate  loans  by  6  %pts  and  reduce  the  time  to  recovery  by  2.5%.  This  is  a  much 
higher  impact  than  what  the  insolvency  experts  interviewed  by  Deloitte/Grimaldi 
indicated. 

Judicial capacity 

Differences  in  Member  States’  judicial  capacity  may  be  the  reason  why  there  is  no 
stronger  relationship  between  institutional  indicators  of  insolvency  as  “input  to  the 
insolvency process” and the recovery rates as outcome of the insolvency proceedings as 
shown in figure A4.10 and Table A.4.6 above. The strong contribution of country-fixed 
effects  in  Table  A4.6  underpints  the  notion  that  judicial  capacity  could  play  indeed  a 
role.228  

An analysis of judicial capacity in the context of insolvency proceedings is useful for two 
reasons.  

  First,  by  demonstrating  that  constrained  judicial  capacity  is  a  source  of  low 
recovery rates, it could establish a motivation for Member States to improve non-
legal framework conditions. Measures in the competence of Member States, that 
they  undertake  individually,  could,  for  example,  relate  to  setting  up  specialised 
courts  (or  court  chambers),  dedicated  exclusively  to  insolvency  proceedings,  or 
better  training  of  insolvency  judges.  In  addition,  there  could  also  be  additional 
measures that Member States can take building on recent EU law setting out rules 
for insolvency practitioners (e.g. on conflict of interest).  

  Second, the analysis of judicial capacity can sheds a light on the indirect effects 
of legal changes to insolvency proceedings on the capacity of courts to deal with 
them. Some measures discussed in this impact assessment would directly improve 
the  efficiency  and  effectiveness  of  national  judicial  systems  in  dealing  with 
insolvency  proceedings.  For  example,  an  earlier  start  of  proceedings  (due  to 
enhanced  duties  for  directors  to  file  for  insolvency)  as  well  as  better  means  to 
avoid asset misuse, and better means to trace the already misused assets,  should 
facilitate  (and  expedite)  the  work  of  courts  and  insolvency  practitioners.  The 
introduction  of  an  MSE  regime  may  lead  to  a  higher  workload  of  courts  and 
whereas it is not possible to quantify any of the cost savings stemming from the 
measure, it can be reasonably assumed that they will outweigh at least partly (if 
not entirely) the costs of the new MSE regime. 

228 See the high R2s in columns 3, 4 and 7 compared to those in columns without country-fixed effects. 

131 

 
 
                                                 
There is little literature on the effect on judicial capacity on the outcome of insolvency 
procedures.  

 

Iverson  (2018)  carried  out  ann  empirical  analysis  on  how  judicial  capacity 
impacts  on  recovery  rates  and  the  likelihood  of  whether  companies  are 
restructured  or  liquidated  case  load  with  US  data.  He  found  restructuring  more 
frequent and that the recovery value was significantly lower in busier courts.  
  EC (2019) retrieved information about judicial capacity through four questions of 
which two were numerical: The court cases per capita, the ratio of incoming over 
resolved  cases,  whether  there  are  specialised  courts  for  insolvency  cases  and 
whether  it  is  possible  to  communicate  electronically  with  courts  and  insolvency 
administrators.  Many  Member  States  did  not  give  indications  on  the  numerical 
questions.  Those  that  did  said  that  the  clearance  rate  was  close  to  90%.  20 
Member States indicated there were courts specialised in insolvency cases.  

  EBA  (2020)  did  not  report  court  capacity  a  significant  determinant  of  recovery 

rates or time.  

  The left-hand chart below suggests a  weak positive correlation  between judicial 
costs and recovery time. The right-hand chart below reveals that the notion of a 
linear positive  relationship  between judicial costs and judicial  capacity  does not 
appear when numbers from the EC benchmarking exercise are used instead of the  

Figure A4.17: Recovery time and legal costs in the World 
Bank insolvency indicators, 2020 

Figure  A4.18: 
recovery 
performance  for  SME  loans  in  the  EC  insolvency 
benchmarking exercise 

capacity 

Judical 

and 

Source: FISMA with World Bank Doing Business data. 

Source:  FISMA  with  data  from  EBA  (2020)  and  Steffek 
(2019). 

The  number  of  about  150,000  corporate  insolvency  cases  per  annum  in  Table  A4.1 
compares to about 40 million cases brought to court in the EU Member States each year, 
i.e.  less  than  0.4%.229  This  low  aggregate  number  hides  substantial  differences  across 
Member States. Using the ratio of both, the proportion of insolvency cases is on average 
1.4% across the EU Member States. There are two Member States where the proportion 
is much higher: Cyprus at about 12% and Luxembourg at 9%. Both Member States are 
known  to  the  the  domicile  to  numerous  holding  companies,  often  of  multinational 

229 40 million court cases is a broad approximation based on the numbers of criminal, civil, commercial, 
administrative and other cases reported to Eurostat. Not all Member States report and data is not complete 
over time  and types of court cases. It covers only  first instances.  A second data  source is the  EC Justice 
Scoreboard, which builds on data delivered by Member States to CEPEJ (2022). It does not cover criminal 
cases, lacks some Member States and shows different data than Eurostat for some Member States. 

132 

 
 
 
 
 
                                                 
character, which may be wound up more often than other enterprises.230 The average of 
the EU Member States without those two would be 1.1%.  

Insolvency  cases  seem  to  last  much  longer  and  therefore  be  costlier  than  other  cases. 
Although direct data on the costs or length of corporate insolvency cases is not available, 
the EBA data on the time to recovery indicates an average length of about 3 years across 
EU  Member  States,  the World  Bank  recovery  time  is  about  2.5  years  among  those  EU 
Member States where the data is derived for the case of a wound up corporation.231 This 
compares  to  an  average  of  0.71  years  in  the  time  to  resolve  a  non-criminal  in  the  first 
instance  according  to  the  EC  Justice  Scorebard.232  The  EC  Justice  Scoreboard  even 
reports numbers for the length of insolvency cases for a number of Member States. These 
data,  however,  refer  to  total  insolvency  cases,  i.e.  personal  and  corporate.  The  average 
was  514  days  in  2020  in  the  reporting  18  Member  States.233  This  disposition  time  was 
longest in Malta (3407 days), Czechia (1460) and Spain (1187). If one accepts the length 
of  proceedings  as  an  indicator  for  the  cost  of  a  judicial  process,  insolvency  procedures 
are about two times more expensive than other non-criminal court procedures. 

As  second  metric  for  the  efficiency  of  a  judicial  system,  CEPEJ  (2022)  uses  clearance 
rates  as  the  ratio  between  closed  and  incoming  cases.  This  metric  is  available  for  non-
criminal  cases  and  –  for  a  limited  subset  of  Member  States  –  for  insolvency  cases.  It 
shows that the average clearance rate of insolvency cases across the EU Member States 
was  108.6%  in  2020,  up  from  105.3%  in  2019.234  The  clearance  rates  were  close  to  or 
above  100%  in  most  Member  States  in  2020,  with  the  exceptions  of  Bulgaria  (89.2%) 
Malta  (42.9%)  and  Spain  (78.9%).  These  three  Member  States  had  also  higher  than 
average judicial costs in EBA 2020 (see Table above). Overall, the magnitude of judicial 
costs  and  time  to  recovery  appear  related.  More  efficient  organisation  of  judicial 
processes  could  bring  down  both  and  seem  to  be  particularly  valulabe  for  those  few 
Member States with low clearance rate to reduce their backlog. 

The table below summarises  these different  indicators of judicial efficiency  at  Member 
State level in order to identify where judicial systems are more stretched in general, more 
stretched  from  insolvency  cases  in  particular  and  where  therefore  changes  to  corporate 
insolvency regimes may led to bottlenecks. The colour code signals that an indicator is 
below  a  certain  threshold  considered  as  warranted,  i.e.  a  clearance  rate  below  100% 
means  the  court  system  was  not  able  to  cope  with  the  incoming  cases  in  a  year  and  a 
more than average disposition time unveils that cases take longer than in other Member 
States. The indicators stem from the EC JUST scoreboard and the CEPEJ (2022) study 

230  The  Luxembourgish  statistics  show  that  holding  companies  and  fonds  account  for  about  30%  of  the 
corporate insolvency cases. 
231 These were BG, EE, EL, HR, LV, LT, LU, HU and RO. 
232 There is no natural benchmark for the length of a court process at EU level. There is no 2019 data for 
six  Member  States,  including  DE.  The  length  varies  between  19  days  in  DK  and  882  days  in  CY.  The 
number  of  0.71  years  (equal  260  days)  was  derived  as  the  population  weighted  average  of  all  Member 
States  that  reported  data  for  2019.  The  simple  average  was  175  days.  The  weighted  average  is  higher 
because the two largest Member States in the panel had above-average disposition times  Data for 2020 are 
higher, due to the Covid crisis. 
233 See CEPEJ (2022), Table 3.5.1. The 382 days disposition time for insolvency cases compares to 365 for 
employment dismissal cases and 188 for litigious divorce cases in 2019. 
234 Not all Member States contributed data. 

133 

 
 
                                                 
underpinning it. Since the CEPEJ study documents wide differences in how numbers are 
reported, the cross-country comparision needs to be treated with caution. It provides an 
illustration  and  starting  point  for  more  detailed  research.  Obervations  are  missing  for 
some  Member  States  (DE,  EL,  PT)  The  Covid  crisis  may  furthermore  distort  the 
information from the 2020 observations, which are the most recent available to date. That 
said, the simple benchmarking exercise undertaken with the table below already suggests 
numerous valuable insights.  

Markedly low clearance rates in Cyprus, Ireland and Spain suggest that the general court 
system faces a tighter  work load relative to  other EU Member States.  In most Member 
States  the  clearance  rate  was  above  100%  in  2020  or  slightly  below.  In  some  of  them, 
however, the rate decline relative to one below 100 in the year before, suggesting a rising 
backlog: France, Malta, the Netherlands. In Cyprus, France, and Malta, the low clearance 
rate coincides with a longer duration of court cases.  

The clearance rate of insolvency cases was on higher average than for other non-criminal 
cases. In Ireland and Spain it was still very low in line with the hypothesis of tight court 
capacity in  general.  While there is  no data  for Cyprus, the very high recovery time  for 
corporate  and  SME  loans  in  the  EBA  benchmarking  exercise  suggest  the  situation  is 
similar in that Member State. The clearance rate for insolvency proceedings was also low 
in Belgium, Bulgaria and Malta, whereas the low rate in Hungary in 2019 contrasts with 
a very high rate in 2020.235 The low insolvency clearance rate in Malta is consistent with 
longer duration of insolvency proceedings. The indications are less clear cut for Belgium 
and Bulgaria.  

Based  on  these  two  metrics,  Cyprus,  Ireland,  Spain  and  Malta  were  identified  as  the 
Member  States  that  would  potentially  be  the  most  exposed  to  a  possible  negative 
consequence  from  the  MSE  regime  on  their  respective  court  capacity.  Spain  has, 
however, just introduced a special shortened insolvency procedure for micro-companies 
which is already available also for microcompanies with no assets. The EU MSE regime 
is  therefore  unlikely  to  lead  to  a  further  significant  impact  (beyond  that  from  the 
implementation of the national regime) on their judicial capacity.  

235 The absolute number of Hungarian insolvency cases reported in CEPEJ (2022) is much  lower than the 
number of corporate insolvency cases in Hungarian statistical office. 

134 

 
 
 
                                                 
Table A4.13 Metrics of judicial capacity to deal with insolvency cases in the EU Member States 

Nevertheless,  it  needs  to  be  stressed  that  the  heterogeneity  of  court  systems  across 
Member  States  and  the  existence  idiosyncratic  factors  prevent  strong  conclusions  from 
the exercise above. Two idiosynractic factors are worth highlighting.  

135 

 Non-criminal cases Insolvency cases Time to Recovery  Clearance rate Disposition time Clearance rate Disposition time Corp. SME  2019 2020 2019 2020 2019 2020 2019 2020 2019 2019 AT 100.4 99.7 58.6 63.2 100.5 120.4 144 149 1278 840 BE 100.8 98.1   NA 29 NA NA NA 1059 BG 99.1 100.9 93.2 107.5 100.2 89.2 237 281 1497 1424 HR 92.8 103.6 130.3 119.5 131.2 141.5 276 328 876 110 CY 97.9 88.3 882.4 1086.7 NA NA NA NA 803 1497 CZ 100.8 98.2 157.5 170.4 104 103.2 1201 1460 1862 1570 DK 100.6 100.8 18.8 17.3 99.9 128.1 345 296 621 1095 EE 100.0 101.3 31.5 24.8 98.7 97.3 96 54 402 730 FI 94.8 105.1 105.3 97.5 98.7 121.6 253 198 913 511 FR 99.4 93.6 387.8 554.4 105.6 147.5 NA NA 1825 1351 DE NA NA NA NA NA NA NA NA 2117 621 EL NA NA NA NA NA NA NA NA 475 548 HU 100.7 98.3 69.2 80.5 84.6 147.6 112 8 NA 657 IE 75.4 62.0 NA NA 84.1 105 NA NA 2373 2227 IT 103.3 102.6 367.2 471.5 101.4 101.2 111 143 1935 2336 LV 100.0 99.0 25.4 27.8 121.3 141.5 573 502 NA 803 LT 101.2 96.7 51.5 67.8 120.5 140.9 262 255 NA 1168 LU 92.6 95.2 NA 158.2 100 100 NA NA 511 694 MT 91.3 90.9 343.9 413.5 121.4 42.9 1031 3407 2081 1935 NL 99.6 98.5 79.7 91.0 NA NA NA NA 511 657 PL 90.2 104.3 111.2 109.9 94.6 99 130 105 73 438 PT NA NA NA NA 101.2 99.2 47 59 1132 1205 RO 100.2 96.7 151.7 185.5 115 112.8 331 399 1424 1387 SK 91.1 113.0 134.9 86.8 101.6 103.4 33 36 1387 913 SI 101.8 98.9 55.9 69.4 140.7 138.1 545 589 2555 1460 ES 93.6 89.8 274.3 348.8 86.1 78.9 1146 1187 840 1205 SE 100.4 102.2 138.4 123.3 NA 109.7 NA 305 657 219 AVG 97.0 97.4 174.7 203.4 105.3 108.6 381.8 513.7 1132 1132 BM 100 101 174.7 203.4 105.3 108.6 381.8 513.7 1132 1132 CBM 90 90 350.0 406.9 210.6 217.2 763.7 1027.5 2263 2263 Data in italics and smaller font considered not representative (DE and IE), insolvency cases cover corporate and personal insolvency, the recovery time relates to corporate (corp.) and SME loans. Clearance rate in % (concluded to incoming cases), disposition time and time to recovery in days, AVG = average, BM = benchmark (100% or average), CBM critical benchmark (90% or two times average). Observations weaker than benchmark in yellow and if weaker than critical benchmark in red. Source: CEPEJ (2022) for non-criminal and insolvency cases, EBA (2020) for time to recovery  
 
 
First, some Member States do not open an insolvency proceeding if the available assets 
are  lower  than  the  cost  of  the  proceedings.  This  practice  reduces  judicial  burden. 
Respondents to the public consultation pointed at Belgium, Germany, Spain, Greece and 
Italy  and  Austria  as  examples.  While  there  is  no  encompassing  data  overview,  the 
German  data  demonstrate  the  magnitude  of  this  phenomenon:  The  German  statistical 
office published detailed data about the distribution of insolvency cases across corporates 
in 2021, revealing inter alia that the majority of cases concern assets worth EUR 50,000 
to 250, 000, followed by those in the range 5000 to 50,000. The average claim per case 
was  EUR  3.5  million  in  that  year.  Almost  30%  of  the  insolvency  applications  were 
rejected, most often for those with claims below EUR 5,000. Between 5 and 10% of the 
applications were rejected even for claims above EUR 250,000.236 

Figure  A4.19:  Distribution  of  corporate 
applications 
Germany 2021 

in  dependence  of  predicted  claims 

insolvency 
in 

Figure  A4.20:  Share  of  rejected  corporate  insolvency 
in 
applications 
Germany 2021, in % 

in  dependence  of  predicted  claims 

Source: FISMA calculations with Destatis data. 

Source: FISMA calculations with Destatis data. 

Second, Member States may have different approaches how they allocate court capacity 
to different types of cases. Societal preferences, political and economic needs may have 
an  impact.  France  introduced  a  special  simplified  insolvency  procedure  for  MSEs  in 
2019. The coincidence of a low clearance rate for non-criminal cases and a high one for 
insolvenc  cases  may  reflect  that  France  allocated  more  court  capacity  to  deal  with 
insolvency cases to make the new MSE regime work. The profound improvements in the 
insolvency clearance rates in Hungary and Ireland between 2019 and 2020 may also be 
caused  by  a  reallocation  of  resources  to  insolvency  cases,  albeit  it  is  also  possible  that 
lower  insolvenc  cases  during  the  Covid  crisis  contributed  too.  Apart  from  these  two 
Member States and France, a strong increase in insolvency clearing rates, coinciding with 
a weakening of total clearance rate can be observed for Austria, Latvia and Lithuania. 

MSE loans 

Mirco and small firms are the backbone of the EU economy. The available data suggests 
they  face  two  adverse  effects.  First,  outcomes  from  insolvency  proceedings  tend  to  be 
poorer  for  smaller  than  for  larger  corporations.  Second,  in  the  Member  States  that 
practice the rejection of credit applications because the costs for the judicial outweigh the 
estimated  revenues,  small  firms  are  more  likely  to  find  their  application  rejected.  The 

236 The  share of rejected applications  was even  higher at 32% in Austria in 2021 according to KSV1870 
(2022). The average  expected claim of all applications was EUR 540,000 in 2021 and 1 million in 2020. 

136 

 
 
 
 
 
                                                 
benchmarking  study  by  EBA  (2020)  documents  evidence  of  the  first  effect:  Non-
performing SME loans were more frequent than corporate loans in. Banks reported more 
than 150,000 SME loans and 4500 corporate loans that were non-performing. The study 
found  that  the  benchmark  recovery  value  of  SME  loans  was  about  5  percentage  points 
lower than that of corporate loans for the EU average, but higher in 7 of the 18 Member 
States  for  which  both  numbers  could  be  established.The  recovery  time  was  broadly 
similar, with shorter time in 15 out of 26 Member States. Since the wind-down of a larger 
corporate  than  of  a  micro  enterprise  is  more  complex,  one  would  expect  that  it  takes 
longer. A longer recovery time for SME than for corporate loans could therefore indicate 
efficiency potentials from simpler procedures for small firms. Among the Member States 
for which this is the case are Member States with tight court capacity: Cyprus and Spain. 
Also Italy, Portugal and Luxembourg could have such efficiency potential. Judicial costs 
–  measured  in  %  of  the  recover  value  are  2.5  times  higher  for  SME  loans  than  for 
corporate  loans  (1.4  vs  3.5%)  in  relative  terms  for  the  EU  aggregate,  but  not  in  all 
Member States.  

The previous section already presented the issue that corporations find their application 
for  insolvency  rejected,  which  leads  their  creditors  to  retract  to  individual  enforcement 
procedures and increases the uncertainty for the debtor when he will be granted a second 
chance. Germany and the France follow different practices and both publish granular data 
to allow for a comparision.  

 

In  Germany,  corporations  with  up  to  10  employees  accounted  for  87.8%  of  all 
firms,  92%  of  the  insolvency  applications  and  31%  of  the  rejected  credit 
applications.  In  total  numbers:  4036  micro  firms  found  their  credit  application 
rejected  in  2021,  out  of  a  total  of  9500  total  corporate  insolvency  applications. 
The smaller the firm, the higher the ratio of rejection. 

  France introduced a new insolvency regime for MSEs in May 2019. A standard 
winding-up  procedure  lasts  on  average  2  and  a  half  years  while  the  simplified 
court-supervised winding-up procedure should lasts overall 1 year.237 Micro firms 
amount  for  96%  of  the  firm  population  and  94%  of  the  insolvency  cases.  Their 
share in total insolvency cases did not increase with the introduction of an MSE 
regime, the slight decline since then started in the months before the Covid crisis 
and accelerated during this crisis. In the months up to the end-2019, the share of 
insolvent  firms relative to exiting firms  also  declined. One could  have  expected 
that access to a simpler insolvency regime could increase this share. 

  Data  is  patchy  for  other  Member  States.  Greece  introduced  an  MSE  regime  in 
June 2021. There is not data yet to monitor the effect. 79% of the insolvent firms 
had  fewer  than  10  employees  in  Spain  2018-2020.  In  Austria,  32%  of  credit 
applications were rejected in 2021.238 

237  The  completion  of  a  simplified  procedure  takes  between  6  to  9  months  for  a  MSE  with  a  single 
employee and a net turnover of less than or equal to EUR 300 000. 
238 See KSV1870 (2022). 

137 

 
 
                                                 
Figure  A4.21:  Corporate  insolvencies  in  Germany  by 
number of employees, 2021 

Figure  A4.22:  Share  of  corporate  insolvencies  of  micro 
firms (less than 10 employees) in France  

Source: FISMA calculations with Destatis data 

Source: FISMA calculations with Banque de France data 

Granting  all  insolvent  corporations  access  to  insolvency  proceedings  could  pressurise 
judicial  capacity  since  the  recovered  assets  would  in  many  cases  not  be  sufficient  to 
cover  the  judicial  costs.  Any  quantification  of  the  effect  would  rely  on  strong 
assumptions and the combination of data from different sources. the best that can be done 
is to be transparent on the data and assumptions.  

  One of the assumptions can be derived from the indications of insolvency experts 
in  the  survey  by  Deloitte/Grimaldi  (2022).  They  point  to  time  respectively  cost 
savings  of  about  12%  from  the  introduction  of  an  MSE  regime.  This  is  still 
substantially below the shortening that the French MSE regime aims for, i.e. from 
2 to 1 year.  

  The EBA (2020) benchmarking exercise revealed judicial costs of 3.5% of SME’s 

nominal amount of outstanding debt.  

  The EBA does not report the outstanding debt of SMEs and the average amount 
of insolvency cases in Germany of EUR 3.5 million looks not representative for 
small  firms.  Eurostat’s  national  accounts  show  that  the  total  about  of  NFC  debt 
liabilities in the EU is EUR 18324 billion.239 A possibility to estimate the share of 
small  firms  consists  in  using  the  12%  share  that  small  coporate  loans  (  <  EUR 
250k) represent in total bank loans to NFC in the euro area according to the ECB 
MIR statistics. MSEs could therefore have outstanding debt of EUR 2200 billion.  
  According to the scenario analysis in IMF (2022), insolvent SMEs could account 
for up to 9% of overall SME debt. This number is consistent with the 8.8% share 
of  MSEs  (0  to  10  employees)  that  exited  on  average  in  the  EU  Member  States 
2019,  using  Eurostat  data.  The  large  discrepancy  between  the  number  of 
bankruptcy declarations and the number of market exits (100,000-150,000 versus 
2 million) however, suggests that not all firms that exit the market are insolvent. 
The  large  number  of  corporations  without  employees  or  single  employees  that 
exit  even  suggests  that  a  large  share  of  the  firms  that  exit  the  market  do  so 

239 NFC loan liabilities EU-27, 2020, non-consolidated. The sum of EUR 12,839 billion loan liabilities and 
5,486 other payables. Debt securities are not added because they are hardly used by very small firms.  

138 

 
 
 
 
 
 
                                                 
because the owner found employment or that the firm had fulfilled the purpose. 
Although it is speculative how many of the exiting firms are insolvent  and how 
many  not,  it  seems  a  conservative  estimate  that  at  least  one  third  of  the  exiting 
firms will not enter an insolvency procedure. 

  Under current conditions, one can assume that one third of the firms is rejected an 
insolvency proceeding, akin the share observed in Germany and Austria and that 
the  remaining  two  third  of  the  firms  the  judicial  costs  will  be  covered  by  the 
recovered value.  

Using the Deloitte/Grimaldi estimate of cost savings and the IMF estimate of exiting 
firms  for  the  upper  bound  and  the  French  50%  reduction  and  the  actual  share  of 
exiting  micro  firms  for  the  lower  bound,  an  increase  in  the  case  load  by  one  third 
from  the  introduction  of  an  MSE  regime  could  lead  to  higher  costs  for  the  public 
sector between EUR 900 million and 2000 million. This number is for the EU overall 
and represents an overestimation since not all Member States practice the rejection of 
insolvency applications. A prominent example is France. The table below shows the 
calculation for those Member States highlighted in Deloitte/Grimaldi (2022) as using 
this practice. They would encounter a rising case load and when taken together face 
additional  costs  between  EUR  550  milion  and  970  million.  Since  there  is  no  data 
about the number of rejected applications, except for Austria and Germany, the share 
of  those  two  Member  States  is  used  for  all  Member  States.  Greece  introduced  an 
MSE regime in 2021 and once data becomes available it should be possible to refine 
the estimate. 

Table  A4.14:  Assumptions  and  estimates  for  the  impact  of  resolving  asset-less  MSEs  in  a  simplified  insolvency 
procedure  

2 

1  NFC debt 
liabilities1) 
share of small 
loans 2) 
Judicial costs 3) 

3 
4a  Share of 

4b 
5 

exiting MSEs 4) 
lower bound 5) 
share insolvent 
assetless MSEs 
6) 
cost savings 
from MSE 
regime 7) 
6b  Higher bound 8) 

6a 

EU 

AT 

BE 

DE 

ES 

EL 

IT 

18324.9 

397.6 

862.8 

3463.8 

1499.1 

121.0 

1674.1 

0.12 
0.035 

0.09 
0.06 

0.0 
0.024 

0.09 
0.03 

0.1 
0.022 

0.05 
0.03 

0.1 
0.023 

0.04 
0.09 

0.3 
0.039 

0.14 
0.06 

0.1 
0.19 

0.09 
0.05 

0.2 
0.017 

0.07 
0.06 

0.33 

0.33 

0.33 

0.33 

0.33 

0.33 

0.33 

0.12 
0.5 

0.12 
0.12 
0.5 
0.5 
[1]*[2]*[3]*[4] *[5]*(1-[6]) 

0.12 
0.5 

0.12 
0.5 

0.12 
0.5 

0.12 
0.5 

8 
9 

0.003 
0.004 

0.914 
2.012 

lower bound9) 
upper bound9) 

0.011 
0.082 
0.145 
0.019 
1)  Loans  and  other  payables,  Estat  sectoral  national  accounts  in  EUR  billion,  2)  ECB  MIR,  loans 
smaller EUR 250,000 to total loans, 12/2020 except EL (04/2021), 3) EBA(2020), simple average 
2019; 4) Estat for firms with less than 10 employeees, 2019, except EL 2016, consistent with IMF 
(2022) projection, 5) two third of the previous column as ad hoc assumption 6) assumption based on 
data  in  DE  and  AT,  7)  assumption  based  on  insolvency  experts  in  Delotte/Grimaldi  (2022),  8) 
assumption based on the reduction in France from 2 years to 1 year. 9) in EUR billion. 

0.270 
0.475 

0.166 
0.292 

0.019 
0.034 

139 

 
 
 
 
 
This  calculation  assumes  that  there  is  no  cross-subsidisation  of  corporate  insolvency 
cases.  It  also  assumes  that  the  judicial  costs  reported  in  EBA  (2020)  are  sufficient  to 
cover the cost  of the insolvent proceedings  for firms that were  accepted  for insolvency 
procedures, i.e. that the public sector does neither carry additional costs for the running 
of insolvency  proceedings  financed by  tax payers.  It also implies that  the public sector 
will use the cost  savings from  the introduction of a simpler MSE insolvency  regime to 
boost its revenues. 

While the costs of an MSE regime can be substantial, it is, however, not certain whether 
these costs would not be outweighed by newly gained efficiencies of a more streamlined 
regime.  These  cost  savings  would  accrue  for  at  least  there  reasons.  First,  MSEs  that 
already have insolvency proceedings opened (or will open them in the future) before the 
court under the ordinary procedure would now be able to switch to a more alleviated and 
quicker one, saving the costs of judicial review. Secondly, the new regime may allow for 
a possibility for MSEs to have a full debt discharge in an out-of-court setting, e.g. before 
competent  administrative  authorities,  with  faster  and  cheaper  procedures.  Thirdly  and 
finally, the fact that currently insolvency proceedings are often not opened against MSEs 
does not mean they do not represent today a burden for courts and authorities. If there is 
no insolvency procedure, courts often have to deal with claims by creditors against that 
business,  sometimes  with  multiple  proceedings  instead  of  one  concentrated  and 
simplified insolvency procedure.  

4. The impact of changes in insolvency metrics on financial and economic variables 

This  section  analyses  how  changes  to  recovery  rates  will  feed  through  in  financial  and 
economic  developments,  applying  estimates  from  the  economic  literature  on  the  policy 
options at hand. The first section looks at the evidence on how the likelihood of business 
exits is affected since a change to insolvency regimes is expected to have an immediate 
effect  on  the  number  of  insolvencies.  The  second  section  reviews  how  changes  in 
insolvency  regimes  would  impact  the  availability  of  credit.  The  empirical  literature 
identified that better insolvency regimes improve corporates’ access to finance, but this 
result has been found with cross-country estimates that cover a large set of countries and 
must not necessarily hold for the group of EU Member States.  

The  academic  literature  used  legal  indicators  including  variables  that  cover  insolvency 
regimes and has  consistently been able to  explain them as  determinant  of financial and 
economic developments. Especially the creation of legal variables by the World Bank has 
initiated empirical research in this area and a number of researchers also used insolvency 
variables, largely in cross-country comparisons. Kliastkova and Savatier (2020) provide a 
survey  of  this  literature,  Closset  et  al  (2019)  also  report  case  studies  at  country  level. 
Although the World Bank Doing Business data has been discontinued, it still represents 
the  most  comprehensive  data  source.  It  covers  all  Member  States  and  contains 
observations ranging 2004-2020 for almost all EU Member States.240 The EBA recovery 
rates  used  in  the  previous  section  cover  only  one  year  and  observations  for  several 
Member States are not representative. Hence, when doing further analysis with a panel of 

240A panel with all EU Member States is complete for the years 2012-2020. Observations are missing for 
Luxembourg until 2006, Cyprus until 2008 and Malta until 2011. 

140 

 
 
                                                 
EU  Member  States  and  recognition  of  the  time  dimesion,  there  is  no  alternative  yet  to 
using the World Bank data. 

4.1  

Business exits and economic adjustment capacity 

The seminal  study  on legal structures  as determinant  of the occurrence of bankruptcies 
found  that  bankruptcies  are  higher  the  more  efficient  the  judicial  system  and  the  more 
market oriented the financial system.241 The number of bankruptcies are lower if the legal 
system combines a more efficient judicial system with stronger creditor rights. The more 
costly  and  lengthy  the  insolvency  procedures,  the  stronger  is  the  incentive  for  both 
debtors and creditors to keep a defaulting company afloat.242 Empirical analysis with EU 
data suggests that a more efficient insolvency regime as measured by a higher recovery 
rate  is  not  correlated  with  a  higher  rate  of  business  exit  or  more  jobs  lost  through 
business exits. If companies are in distress, however, a more efficient insolvency regime 
leads to a higher likelihood that they file for bankruptcy.  

This first results stems from the estimates reported below that tried to determine whether 
World Banks’ recovery rates can explain the variation of business birth rates, death rates 
and  persons  employed  in  exiting  companies  at  the  level  of  EU  Member  States  2004-
2019. The dependent variables are Eurostat numbers of  companies entering and exiting 
the  market,  and  persons  employed  in  exiting  companies,  relative  to  the  number 
respectively  employment  in  active  companies.243.  The  estimate  explains  only  a  small 
share  of  the  variation  in  business  exits  across  EU  Member  States  and  time.  Yet,  the 
recovery rate is significant at 5% level with a negative sign, indicating that an increase in 
the  recovery  rate  may  even  reduce  the  exit  rate  of  companies.  The  magnitude  of  the 
coefficient  suggests  the  effect  is  small,  but  at  least  not  positive.  The  World  Bank 
aggregate  institutional  indicator  did  not  turn  up  significant  when  taken  instead  for  the 
recovery rate in the estimate.  

241 See Claessens and Klapper (2005). 
242 See Jorda et al. (2020). 
243 The population are all firms except holding companies. This applies for the years 2007 to 2019, which is 
the  latest  observation  currently  covered  in  the  Eurostat  statistics.  For  the  years  2004-2007,  the  data 
excludes holding firms, public administration and community services; activities of households and extra-
territorial organizations. Control variables are GDP per capita, GDP growth, consumer price inflation, bank 
lending rates and dummies for the legal origin (Anglo-Saxon, French, Scandinavian).  

141 

 
 
 
                                                 
Table A4.15: Regression results – number of business exits and outcome of insolvency procedures 

(2) 

Dependent 
variable 

(1) 
Number  of  exiting  to  active 
companyie 

Business Exitij = Constant + ß1 * Recovery rateij + ß2 * Business exitij-1 + ß3 * Bank lending rate + μij 
(4) 
Share  of  exiting  companies 
with  more 
10 
employees 
-0.003 
0.002 

(9) 
(8) 
(7) 
Share  of  employment 
exiting companies 

-0.019 
0.008** 

-0.019 
0.008** 

-0.019 
0.008** 

-0.005 
0.002** 

-0.004 
0.002* 

-0.003 
0.002 

-0.003 
0.002 

than 

(3) 

(5) 

(6) 

-0.005 
0.002** 

in 

none 
0.621 
2005-
2019 
observations  340 
* significant at 10% level, ** significant at 5% level *** significant at 1% level; i, j per country i and year 
j. 

none 
0.725 
2005-
2019 
330 

none 
0.650 
2005-
2019 
268 

time 
0.788 
2005-
2019 
330 

time 
0.823 
2012-
2019 
195 

time 
0.681 
2012-
2019 
200 

time 
0.635 
2005-
2019 
340 

time 
0.662 
2005-
2019 
268 

time 
0.600 
2012-
2019 
192 

ß1 
SE of ß1 
Fixed 
effects 
R2 
Period 

The  result  that  companies  in  distress  are  more  likely  to  file  for  bankruptcy  the  more 
efficient the insolvency regime stems from new analysis by the European Commission’s 
Joint Research Centre (JRC).244 The study uses a large panel of companies from the EU 
Member States 2007-2018 with almost 50 million observations. It analyses in a first stage 
macroeconomic  and  company-specific  determinants  of  companies’  bankruptcy  and  in  a 
second  stage  whether  insolvency  indicators  have  an  impact  on  the  likelihood  that  a 
company is bankrupt. 245 Two insolvency indicators were used, the World Bank recovery 
rate and the World Bank time of insolvency proceedings, both yielding consistent results. 
For companies that are not in financial distress, the coefficient suggests a 10% pt higher 
recovery  rate  reduces  the  likelihood  of  failure  by  0.004%,  a  1  yeart  faster  recovery  by 
0.048%. Although the magnitude is small, the coefficients are significant at 5% level and 
despite  the  estimate  controls  for  the  sector  specific  bankruptcy  rate  and  other 
determinants  of corporat default.  For companies  in  distress,  i.e. with  negative equity in 
the  previous  year,  relative  to  healthier  firms,  the  JRC  estimates  suggest  that  the 
probability  of  default  in  the  short-run  is  larger  the  higher  the  judicial  efficiency  of 
insolvency  regimes.  Quantitatively, the estimated coefficients indicate that,  for firms  in 
distress,  a  10%  pt  higher  recovery  rate  increases  the  likelihood  of  failure  by  0.5%  pt 
relative to companies not in distress, and 1 year faster recovery time increases the relative 
probability  of  bankruptcy  by  1.4%  pt.  Furthermore,  the  descriptive  analysis  shows  that 
firms operating in countries with more efficient insolvency regimes are larger and more 
profitable,  suggesting  that  the  short  run  increase  in  bankruptcy  ultimately  improves 
resource allocation and productivity over the medium term..  

The  context  of  historically  high  corporate  debt  levels  and  a  substantial  share  of  EU 
companies  with  low  or  negative  profitability  led  to  research  on  how  the  efficiency  of 
insolvency  regimes  affects  economic  adjustment.  A  more  efficient  insolvency  regime 
speeds  up  economic  recovery  after  recessions  in  Jorda  et  al  (2020),  which  they  link  to 

244 See Fatica et al. (2022).  
245 Firms are considered bankrupt if their activity status is given as ”dissolved”, ”in liquidation”, ”inactive” 
or ”bankruptcy” or ”insolvency proceedings. They are considered as in distress when showing a negative 
equity. 

142 

 
 
 
 
                                                 
fewer  zombie  companies  holding  back  productivity  growth  in  countries  with  more 
efficient  insolvency procedures.246 Similarly,  Becker and  Ivashina  (2021) find  evidence 
that  the  number  bankruptcies  is  higher  in  years  with  negative  GDP  growth  when  the 
insolvency  regime  ranks  higher  whereas  such  cleansing  of  the  economy  is  absent  in 
countries with weaker insolvency scores. Empirical analysis by OECD staff find a crucial 
role  of  zombie  companies  in  weakening  the  adjustment  process.  Capital  blocked  in 
zombie companies is higher the weaker the insolvency regime, which slows down capital 
reallocation and ultimately the diffusion of technical progress and productivity growth.247 
Their  scenario  analysis  finds  that  market  exit  of  zombie  firms  would  boost  total  factor 
productivity by 0.7% and 1% in Italy and Spain and up to 0.5% in other countries.  The 
important role of insolvency regimes on the adjustment capacity of the economy is also 
supported by the empirical findings that insolvency regimes encourage entrepreneurship, 
the rate of new company entry and different proxies of economic adjustment.248 

4.2  

Credit volumes 

Banks  are the most common type of lenders to companies and  often enjoy a privileged 
treatment  in  insolvency  as  senior  creditors.  Nevertheless,  the  share  of  other  financial 
investors and inter-company loans in total credit provision to NFCs has been increasing 
over  the  last  years.249  The  recovery  value  of  the  insolvent  company’s  assets  in  an 
insolvency case is hence critical not only for banks, but also for an increasing number of 
other  (alternative)  providers  of  equity  and  debt  financing.  Furthermore,  value  recovery 
could  also  be  relevant  for  other  companies  such  as  suppliers,  including  many  SMEs. 
They expect to receive payments from other companies and count on providing services 
to  them.  They  often  suffer  from  their  trade  partner  becoming  insolvent,  what  is  known 
the insolvency domino effect). SME are disproportionately vulnerable to this effect.  

Since  a  more  efficient  insolvency  increases  the  value  a  creditor  receives  in  case  of  an 
insolvency, reduces the time it takes until the creditor receives this value, and/or reduces 
the  legal  costs  of  the  proceedings,  the  strengthening  of  insolvency  efficiency  should 
foster  credit  provision.  This  factor  should  not  be  undermined  by  the  higher  likelihood 
that distressed companies enter into bankruptcy found in the JRC study quoted above if 
the  shorter  and  more  efficient  insolvency  process  leads  to  a  higher  recovery  rate.  The 
seminal evidence that higher recovery rates would foster credit provision to the economy 
goes back to Djankov et al. (2008) in  a panel of 84 countries. Their estimate showed a 
positive  relationship  between  recovery  rates  and  the  provision  of  private  credit, 

246 See Andrew and Petroulakis (2019) or Djankov and Zhang (2021), see also Ben Hassinem et al. (2019) 
for  an  analysis  of  zombie  firms  and  insolvency  procedures  in  France,  and  Gouveia  and  Osterhod  (2018) 
and Nieto Carillo e al. (2022) for an analysis with Portuguese firms. 
247 Adalet McGowan, Andrews  and Millot (2017a and 2017b). See also Andrews and Petroulakis (2019) 
and Gouveia and Osterhold (2018) for research pointing to the result that insolvency frameworks are crucal 
for the exit of zombie firms and productivity growth in the economy. Acharyia et al (2009) find empirical 
evidence that leveraged firms innovate less. 
248 See Carcera et al. (2015) for the effect on entrepreneurship, Lee et al. (2011) on firm entry and Box A1 
in McGowan and Andrews (2018) for an analysis of economic adjustment. 
249  The  share  of  bank  loans  to  non-financial  corporations  in  the  euro  area  declined  from  above  50%  of 
corporate  loan  liabilities  in  2003-2012  to  43%  in  2020.  The  share  of  intra-firms  loans  measured  as  the 
difference between consolidated and non-consolidated loans in the sectoral accounts increased from below 
20% in 2003-2012 to 25%.  

143 

 
 
                                                 
controlling for the influence of GDP, GDP growth, inflation, legal origin and a variable 
that measures the quality of the legal system.250 The estimate suggests a 1 point increase 
in  the recovery rate could translate into a 0.5 to 0.6 higher private credit to  GDP ratio. 
Consistent with the results of Djankov et al, World Bank researchers recently produced 
the  left-hand  chart  below,  which  shows  a  high  correlation  between  recovery  rates  and 
credit provision to the private sector.251  

The chart on the right hand-side reproduces the World Bank chart, but with data for the 
EU  Member  States  and  using  the  debt  of  non-financial  corporations  (NFCs)  instead  of 
private credit. The focus on NFCs is more relevant for the case of this impact assessment 
than that of private credit because the focus of this initiative is on corporate insolvency. 
Moreover, the EU data allows a broader perspective than bank credit.  252 The picture is 
less conclusive than by the World Bank researchers. It reveals that the signs of positive 
correlation  are  clouded  by  the  outlying  observations  of  Malta  and  Luxembourg.  A  re-
estimation of the approach by Djankov et al. (2008) with annual corporate debt flows for 
the  EU  Member  States  2004-2020  also  shows  no  clear  pattern  that  could  be  used  for 
numerical scenarios. 

Figure  A4.23:  Recovery  rate  and  domestic  credit  to 
private sector 

Figure  A4.24:  Recovery  rate  and  debt  of  NFCs  in  EU 
Member States 2020 

Source: Uttamachandani et al. (2021). 

Source: FISMA with World Bank and Eurostat data. 

Causality  tests  undertaken  in  Deakin  et  al  (2017)  yielded  that  legal  variables  are 
impacting  on  the  credit  volume  and  not  vice  versa.  Their  estimates  show  that  the 
direction  of  the  impact  on  private  credit  volumes  depends  on  whether  legal  reforms 
reduce  the  likelihood  of  default  or  improve  creditors’  right  in  case  of  a  default.  The 
former  weaken  shareholders  position  vis-a-vis  the  creditors  and  lead  to  higher  private 
credit. The latter undermine the willingness of managers to provide collateral and lead to 
lower  private  credit.  The  researchers  ran  three  different  types  of  dynamic  models, 
finding,  however,  that  the  insolvency  variable  is  not  significant  in  the  superior  type  of 
model. Hence, they caution that the results are not definite.  

250 Days of contract enforcement. 
251 See Uttamachandani et al. (2021). 
252 Debt is calculated as loans, debt securities (bonds) and trade credit as liabilities on NFC balance sheet. 
Loan liabilities include loans from other counterpart than loans, for example inter-firm loans. Data taken 
from Eurostat’s sectoral financial accounts. 

144 

 
 
 
 
 
                                                 
Various  factors  suggest  that  there  may  not  be  a  simple  relationship  between  the 
efficiency  of  insolvency  regimes  and  credit  volumes.  Already  in  2008,  an  economic 
study  suggest  that  weak  credit  protection  induces  creditors  to  look  for  compensating 
measures,  in  particular  to  request  higher  collateral.253  The  observation  that  newer  data 
does  not  confirm  the  initial  findings  by  Djankov  et  al  (2008)  of  a  positive  relationship 
between  the  efficiency  of  insolvency  and  credit  volumes  might  also  be  linked  to  the 
concerns that corporate indebtedness has reached non-optimal levels.254 The high ratio of 
non-performing  bank  loans  in  the  past  years  suggests  that  actual  credit  levels  might  be 
higher  than  optimal  in  some  Member  States.  While  more  efficient  insolvency  regimes 
should support a higher sustainable level of corporate debt, it is not possible to determine 
the optimal level in the various Member States.  

4.3  

Capital costs 

While the evidence that more efficient  insolvency  regimes increase credit  supply is  not 
conclusive,  evidence  that  a  higher  recovery  rates  reduce  corporations’  costs  of  capital 
seems  more  robust.  It  is  economically  intuitive  that  a  higher  recovery  rate  reduces  the 
risk of an investment and therewith the risk premium imbedded in the capital costs. Two 
investigations  provide  empirical  support  and  their  estimates  provide  indications  for  the 
magnitude of the effect.  

First,  AFME  (2016)  found  a  significant  relationship  between  the  recovery  rate  and  the 
corporate  bond  spread.  When  taken  at  face  value,  a  1%  increase  in  the  recovery  rate 
would  reduce  the  bond  spread  by  3.7  basis  points.  Even  when  country-specific  fixed 
effects  are  controlled  for,  the  estimates  suggest  the  effect  would  still  be  positively 
significant, but only half that strong.255  

Second,  IMF  researchers  identified  that  insolvency  procedures  are  a  main  reason  why 
debt funding costs of companies vary widely in background notes for the IMF (2019a, b) 
exploration  of  CMU.  Differences  in  recovery  rates  explain  a  quarter  of  the  observed 
differences  in  the  interest  expenses  in  a  panel  of  companies  from  22  EU  Member 
States.256 In an estimate that controls for capital market developments and bank lending 
rates,  the  insolvency  indicator  has  a  larger  explanatory  power  for  the  remaining 
differences  in  corporate  funding  rates  than  other  obstacles  analysed.  Differences  in  the 
recover rate explain 6% of the dispersion in funding rates for unlisted firms and 2% for 
listed  firms.  The  scenario  analysis  of  a  convergence  of  recovery  rates  to  the  best 
performers yielded that funding costs would decline proportionally. A 1 percentage point 
increase in the variation of recovery rates translates into about 1 basis point reduction in 
the variation of debt interest costs.  

An inverse relationship between recovery rate and bank lending rates is also visible in the 
chart  below  across  the  EU  Member  States  in  2020.  More  detailed  statistical  estimates 
yielded a significant relationship between the recovery rate and the bank lending rate to 

253 See Davydenko and Franks (2008). 
254 See Jorda et al. (2020). 
255  Further  estimates  in  AFME  (2016)  with  the  World  Banks’  aggregate  insolvency  score  show  a  1 
percentage point increase in score is associated with a 27 basis points lower bond spread.  
256 The IMF researchers used interest expenses relative to debt as shown in corporate balance sheets’ in a 
sample of almost 16000 EU firms. 

145 

 
 
                                                 
corporates (1 to 5 years maturity) with a coefficient similar to the IMF estimations: A 1 
percent increase in the recovery rate would reduce the bank lending rate by 1 to 1.5 basis 
points if a number of macroeconomic variables is controlled for. The effect on the bank 
lending rate is more pronounced for the recovery time than for the recovery rate.257 

Figure A4.25: Bank lending rate and outcome of insolvency proceedings across EU Member States, 2020 

Source: FISMA with ECB and World Bank data. 

The estimates in the table below show a marginal immediate impact of the recovery rate 
and  recovery  time  on  the  bank  lending  rate,  using  World  Bank  indicators  for  the  EU 
Member States 2012-2020. The impact increases to 1 to 1.5 basis points of the recovery 
value when the long-term effect is considered. 

Table A4.16 Regression results: interest rates and outcome of insolvency proceedings  

Bank lending rate ij = Constant + ß * Insolvency ij +γ1 * government bond yield ij + γ2 * bank lending rate ij-1 
+ μij,  

Recovery rate 
0.467 
0.135*** 
-0.002 
0.001* 

Recovery time 
0.181 
0.070** 
0.059 
0.031* 

C 
SE of C 
ß 
SE of ß 
γ1 
SE of γ1 
γ2 
SE of γ2 
R2 
observations 

Recovery rate 
0.506 
0.141*** 
-0.003 
0.0015* 
0.042 
0.014*** 
0.781 
0.022*** 
0.92 
235 
The estimates cover the period 2012-2020, other macroeconomic control variables (GDP growth, inflation, 
output gap) did not turn out significant and have been dropped. The lagged endogenous variable was added 
to address autocorrelation of residuals. 

Recovery time 
0.218 
0.071*** 
0.065 
0.031** 
0.045 
0.014*** 
0.779 
0.022*** 
0.93 
235 

0.820 
0.017** 
0.92 
243 

0.820 
0.017 
0.92 
243 

257 The coefficient turns insignificant when both country and year-fixed effects are controlled for. 

146 

 
 
 
 
 
 
 
 
                                                 
The difference in the magnitude between the AFME and IMF estimates on the impact of 
changes to recovery rates on corporate funding costs could be due to different reactions 
on  corporate  bond  and  bank  lending  markets.  Becker  and  Josephson  (2016)  find  that 
higher recovery rates are associated with a higher share of bond relative to bank funding. 
The  share  of  bonds  in  companies  debt  funding  increases  by  5%-pts  when  the  recovery 
rate increases by 1 standard deviation in their sample, which translates into a rise of the 
bond share by 0.25 %-pts for a 1 percentage point increase in the recovery rate. In a new 
paper, Becker and Ivashina (20121) show that better insolvency fosters the development 
of private debt markets.  

Figure A4.26: Market funding and recovery rates across EU Member States, 2020 

Source: FISMA with World Bank doing business and Eurostat data. 

In view of the important role of bank credit for the financing of the European economy, 
the  impact  of  insolvency  regimes  on  bank  lending  appears  to  be  an  important 
transmission channel for the adjustment effect. In addition to the impact of insolvency on 
credit supply, insolvency regimes have an effect  on banks’ exposure to non-performing 
loans.  Experience  from  EU  countries  in  the  past  decade  revealed  that  countries  with 
weaker insolvency indicators witnessed a higher increase in non-performing loans during 
the  sovereign  debt  crisis  (Cucinelli  et  al  2018)  and  a  more  sluggish  reduction  after  the 
crisis. The reason for the former is likely that banks have an interest to  evergreen non-
performing loans when the outcome of the insolvency process is uncertain and lengthy.258 
The latter effect was found by studies done by IMF, ECB and Commission staff.259 Since 
high NPLs burden banks’ balance sheet, it is intuitive that they reduce bank’s capacity to 
lend.260  

258  Andrews  and  Petroulakis  (2019)  argue  that  the  insolvency  framework  affects  corporate  restructuring 
also  when  banks  are  healthy  because  they  have  fewer  incentives  to  start  the  process  of  liquidation  or 
restructuring if insolvency procedures are cumbersome. 
259 See Consolo et al (2018), Carcera et al (2015), and Aiyar et al. (2015). 
260 In addition to their capacity to move NPLs off-balance sheets through securitisation. 

147 

 
 
 
 
                                                 
4.4  

Cross-border investment and risk sharing 

The effects  of insolvency  regimes on cross border investment  should be  comparable to 
those of other institutional determinants such as investor protection, accounting standards 
or corporate governance for which the empirical literature established a significant link to 
the  strength  of  cross-border  investment.261  Legal  uncertainty  acts  as  the  main 
transmission channel to discourage foreign investment.  

The more dissimilar the insolvency system abroad is from that in the home country, the 
less can domestic experiences and those made in other jurisdictions be used to assess the 
expected  return  on  a  cross-border  investment  if  the  debtor  becomes  insolvent.  The 
consistent finding in empirical studies is that geographical distance and clusters of legal 
traditions262  are  important  determinants  of  cross-border  investments.  This  confirms  the 
notion that familiarity matters, suggesting that the more similar the rules, the lower the 
threshold to engage and undertake the necessary due diligence.263 Greater differences in 
substantive  insolvency  laws  make  it  more  costly  to  assess  the  risks  of  cross-border 
investments  compared  to  those  realised  in  a  home  Member  State.  High  information 
barriers with respect to claim procedures increase the costs of legal advice.264  

The  magnitude  of  information  and  learning  costs  that  cross-border  creditors  face  can 
however be approximated through the substantial home bias in investment, i.e. the under-
proportional  investment  in  cross-border  equity  and  debt.  Home  bias  is  evidenced  in  a 
large  body  of  empirical  research,  which  attributes  an  important  role  of  informational 
frictions and uncertainty avoidance in explaining it.265  

261  See  for  example  Giofre  (20014),  Poshakwalea  and  Thapa  (2011),  Ferreira  and  Miguel  (2011).  The 
legitimacy of using the results of these studies is supported by the finding in Jack (2018) that the World 
Banks’ legal rights index is correlated with recovery rates.  
262  This  is  covered  by  a  dummy  variable  if  the  home  or  destination  country  follows  an  Anglo-Saxon, 
Nordic, Latin or Germanic tradition or a dummy variable measuring a common legal origin. 
263  While  familiarity  appears  as  a  factor  separate  from  information  costs  in  Roque  Cortez  et  al.  (2014), 
empirical studies tend to cover them with similar variables. 
264 On top of other costs and risks, such as language support, translating terms, general standardisation of 
tools, access to information. For more, please see  the interviews with insolvency experts conducted by in 
the study conducted by Deloitte/Grimaldi (2022) on behalf of the Commission (Annex 4, Section 3). 
265  See  for  example,  Portes  and  Rey  (2005),  Aggarwal  et  al.  (2012).  Measures  of  home  bias  of  debt  and 
equity holdings are part of the CMU indicators. 

148 

 
 
                                                 
Figure A4.27: Intra EU home bias in equity 

Figure A4.28: Intra EU home bias in debt securities 

A declining home bias denotes improved market integration. Despite its decline 2015 to 2020, the home bias in equity 
remains substantial and much higher than for debt securities. The bars show the bottom and top 25% of the EU-27 
Member  States.  JRC  calculations.  For  an  explanation,  see  European  Commission,  Monitoring  progress  towards  a 
Capital Markets Union: a toolkit of indicators, SWD(2021) 544. 

Source: FISMA with JRC data. 

Different insolvency regimes are not only an obstacle for intra EU capital flows. Non-EU 
investors are equally facing a fragmented insolvency regime when they intend to invest 
in  the  EU,  which  creates  incentives  for  them  to  concentrate  on  larger  national  markets 
where  they  can  realise  scale  effects.  The  fragmentation  of  insolvency  systems 
disadvantages the catch up process of smaller local capital markets. Apart from limiting 
the  pool  of  capital  available  in  the  economy,  underrepresentation  of  cross-border 
creditors  reduces  the  competitive  pressure  on  domestic  market  actors,  with  adverse 
consequence for the efficiency of capital allocation and funding costs. 

Two  recent  empirical  studies  find  evidence  that  insolvency  regimes  have  a  significant 
effect  on  the  magnitude  of  cross-border  investment.266  According  to  the  results  in  IMF 
(2019),  the  better  the  insolvency  regime  in  destination  countries,  the  higher  are  cross-
border  asset  holdings  in  debt  and  total  portfolio  investment.  The  effect  is  sizeable, 
illustrated by the finding that cross-border portfolio assets would increase by 25% if the 
Italian insolvency score were to increase to the German one, i.e. by  about one standard 
deviation. The figure blow shows that an increase of recovery rates by 25% could lead to 
an increase of intra-EU cross-border portfolio asset holdings by 24%.  

More  efficient  insolvency  regimes  in  destination  countries  are  equally  a  significant 
determinant  of  cross-border  asset  holdings  in  Kliatskova  and  Savatier  (2020).  Their 
analysis  suggests  that  the  causality  runs  from  insolvency  to  cross-border  investment. 
Different  from  the  IMF  study  are  the  effects  stronger  for  equity  than  for  debt  holdings 
and  differ  across  the  institutional  sectors  holding  the  assets.  A  one  standard  deviation 
improvement in the insolvency indicator would yield 38% and 31% higher cross-border 

266 A third study is Jack (2018), who report insolvency to matter also for foreign direct investments, though 
without providing an empirical estimate. 

149 

 
 
 
 
 
                                                 
assets holdings of banks and households, respectively.267 That both studies use different 
data sources for measuring insolvency as well as cross border investment adds trust that 
the effect is material.268  

While these two studies provide empirical evidence that insolency rules are an obstacle to 
capital  market  integration  and  that  convergence  towards  more  efficient  insolvency 
proceedings would  foster cross-border investments,  an assessment of the  importance of 
insolvency necessitates a comparison with other investment barriers. The main challenge 
for  such  comparisons  is  the  need  to  find  suitable  numerical  indicators  for  other 
investment barriers. It is moreover questionable how comparable an improvement in for 
example  1  standard  deviation  in  the  recovery  rate  is  to  a  1  standard  deviation 
improvement in the time of law enforcement or in the tax rate or any other variable that 
covers  obstacles  to  cross-border  investment.  The  studies  below  endeavoured  such 
exercise,  concluding  consistently  that  insolvency  regimes  are  one  of  the  most  material 
obstacles to cross border investment.  

The analysis in IMF (2019a) shows that improvements in regulatory quality have an even 
larger impact on cross-border capital holdings than higher recovery rates.269 According to 
the  scenario  results,  the  combination  of  changes  to  insolvency  rules,  regulatory  quality 
and taxation would almost double the amount of cross-border asset holdings in the euro 
area (180% over the baseline in Figure A4.29).  

267  The  coefficient  did  not  turn  out  significant  for  non-financial  corporations  and  institutional  investors’ 
debt holdings. It was significant for all four sectors foreign equity holdings. 
268  IMF  (2019)  uses  the  World  Bank  insolvency  recovery  rates  and  the  IMF  Coordinated  International 
Investment  Portfolio  Survey,  Kliatskova  and  Savatier  (2020)  the  OECD  insolvency  data  and  the  ECB 
Security Holdings Statistics. 
269  The  indicator  of  regulatory  quality  used  is  from  the  Worldwide  Governance  Indicators  database 
(http://info.worldbank.org/governance/wgi/#home).  This  database  synthesises  the  views  of  various  other 
bodies about the quality of regulation, rule of law and other governance factors, without however a specific 
focus on financial regulation. 

150 

 
 
                                                 
Figure  A4.29:  Average  bilateral  portfolio  asset  holdings  after  lowering  obstacles  in  destination  countries  by  1 
standard deviation (USD millions). 

Notes: IMF staff estimates. For the insolvency indicator, 1 standard deviation equals 23.5 percentage points 
of the recovery rate. 
Source: IMF (2019a). 

Similar to Kliatskova and Savatier (2020) and consistent with IMF (2019a), Bremus and 
Kliatskova (2020) identify  bilateral  portfolio debt  holdings are smaller if  differences in 
insolvency  recovery  rates  are  larger.  The  estimated  coefficient  is  significant  for  banks 
and other financial corporations as holders of portfolio debt  securities, but  not  for non-
financial  actors.270  The  coefficient  is  also  not  signficiant  for  equity  holdings.  Control 
variables that are typically used in a gravity model such as size, distance, common legal 
origna  etc  turned  out  significant.  Additional  indicators  of  obstacles  to  cross-border 
investment are also significant, suggesting that they matter too. These are cross-country 
differences in the time to enforce a contract, coverage of credit registries and time to pay 
taxes. Differences in the strength of investor protection did not turn out significant. The 
magnitude  of  the  effects  of  differences  in  the  recovery  rate  and  differences  in  contract 
enforcement  are  broadly  equal,  suggesting  that  insolvency  and  legal  enforcement  are 
broadly equally important obstacles to cross-border investment.  

A  further  exercise  that  attempts  to  inform  about  the  the  relative  strength  of  various 
obstacle  of  cross-border  investment  is  covered  in  IMF  (2019a).  As  complement  to  the 
analysis  of  cross-border  asset  holdings  as  a  measure  of  capital  market  integration,  the 
second  analysis  focuses  on  the  impact  of  institutional  determinants  of  macroeconomic 
risk sharing. Macroeconomic risk sharing is a consequence of capital market integration 
and  other  factors.  It  describes  to  what  extent  a  decline  in  income  in  a  country  feeds 
through  into  lower  private  consumption.  If  there  is  no  risk  sharing,  GDP  and  private 
consumption  will  grow  in  tandem.  A  number  of  intervening  factors  may  however 

270 See Table 6 in Bremus and Kliatskova (2020). 

151 

 
 
 
                                                 
smoothen  the  impact  of  a  shock  to  GDP  on  consumption.271  The  standard  economic 
parameter  to  do  so  is  the  exchange  rate,  which  is  however  not  available  in  a  currency 
union  such  as  the  euro  area.  The  literature  on  risk  sharing  demonstrated  that  the 
proportion of risks that are shared across Member States is much smaller in the euro area 
than across the states of the US.272 It also shows that the difference between the euro area 
and  the  US  is  due  to  a  higher  contributions  of  cross-border  capital  income  and  –  to  a 
smaller extent –of cross-border fiscal transfers and credit markets in the US than in the 
euro area. 

The  analysis  in  IMF  (2019a)  identified  a  baseline  for  the  euro  area  in  which  75%  of  a 
negative shock to a country’s GDP is not shared, i.e. a shock leads to a strong decline in 
consumption.  Only  12%  of  the  shock  is  smoothed  through  a  higher  savings  (credit 
channel,  domestic  investment,  credit  from  abroad  and  revenues  from  sales  of  foreign 
assets) and capital income from abroad (capital market channel, income from profits and 
earnings abroad). A comparable improvement in different institutional indicators leads to 
different contributions of the risk sharing channels and reductions in the share of the risk 
that is not shared.273 An improvement in the recovery rate as insolvency indicator reduces 
the proportion of unshared risk more than other institutional reforms. It has in particular a 
strong  effect  on  the  credit  channel,  which  contributes  to  risk  smoothing  through 
investment  and  lending  abroad.  These  both  factors  have  an  intuitive  relationship  to  the 
efficiency of insolvency rules  

ECB  staff  performed  similar  estimates  to  substantiate  the  findings  in  the  2018  ECB’s 
Financial integration report.274 The results show a low degree of risk sharing in the euro 
area  and  small  contributions  of  the  credit  and  capital  channel  in  line  with  the  IMF 
estimates.  Further  analysis  identified  determinants  for  the  strength  of  both  channels: 
foreign bank penetration, financial literacy and trust for the credit channel;  more cross-
border investment by investment funds, private pensions and life insurance schemes for 
the  capital  channel.  The  empirical  analysis  identified  a  further  determinant  that  is 
common  to  both  channels:  “More  efficient  insolvency  frameworks  appear  to  be 
associated  with  higher  risk  sharing  via  both  the  capital  and  the  credit  channels  which 
persist at the European level.”275 ECB (2018) concludes “This empirical research finding 
shows  that  it  is  important  to  address  the  major  shortcomings  and  divergence  between 
insolvency  frameworks  which  persist  at  the  European  level.  This  would  require  taking 
measures  beyond  the  draft  Directive  on  Insolvency,  Restructuring  and  Second  Chance 

271  The  difference  between  GDP  and  gross  national  income  represents  the  investment  or  capital  income 
channel,  that  between  gross  national  income  and  gross  domestic  income  the  fiscal  channel,  that  between 
gross domestic national income and consumption the savings or credit channel. 
272 See for example, European Commission (2018), ECB (2018). 
273 The scenario assumes a decline in the z-score of different institutional indicators. The z score describes 
the  observation  of  a  country  relative  to  the  mean  of  all  countries,  with  the  scale  defined  through  the 
standard  deviation.  The  effect  of  a  standard  deviation  in  the  z  indicator  of  the  insolvency  indicator 
(recovery rate) can then be compared to a one standard-deviation change in z score of other institutional 
indicators.  
274 See ECB (2018) and Hartmann (2018). 
275 ECB (2018), p. 17. 

152 

 
 
                                                 
proposed  by  the  European  Commission  in  the  context  of  the  capital  markets  union 
agenda”.276 

Figure A.4. 30: Relative strength of barriers in influencing risk sharing 

Note: IMF staff estimates. The figure shows the impact of a 1 standard deviation reduction of five barriers 
to capital market integration on three channels of risk sharing in the euro area. The red field indicates the 
share of risk that would remain unshared across Member States. Recovery rates are the indicators used to 
cover insolvency regimes. 
Source:IMF (2019a). 

IMF  (2019a)  complemented  the  empirical  research  by  the  results  of  a  survey  sent  to 
financial market participants and national European market regulators to get views about 
capital  market  developments  and  deterrents  to  cross-border  investment.  Respondents 
were invited to score types of obstacles across Member States. The results shown in the 
figure below reveal that insolvency frameworks, next to data and regulatory quality was 
considered one of the most  pressing  challenge for the realisation of the Capital  Market 
Union. 

276  ECB  (2018),  p.  17.  See  also  Draghi  (2018):  “ECB  analysis  finds  that  where  insolvency  and  judicial 
frameworks are more efficient, risk-sharing through both capital and credit markets is higher.” 

153 

 
 
 
                                                 
Figure A4.31: Results of the CMU survey conducted by the IMF 

Source: IMF 2019a 

Table A4.17: Economic literature with empirical estimates using insolvency indicators. 

Sample 

Numerical result 

countries, 
84 
average 1999-2003 

A  10-point  increase  in  efficiency  is 
associated with a 5–6-point higher ratio 
of debt to GDP 

Source 

Used 
insolvency 
variable 

Djankov 
2008 

et 

al. 

Recovery 
(efficiency) 

rate 

Deakin et al 2017 

CBC 
protection 
insolvency index 

credit 
and 

Financial or 
macro variable 

Debt  to  GDP  ratio, 
for  other 
controls 
business 
doing 
variables, 
inflation, 
GDP  and  GDP/c 
legal 
growth,  and 
origin 
Credit  and  bank 
credit 

Closset et al. 2021  Dummy 

for 

Cost of debt finance 

AFME 
(2016)  

et 

al. 

IMF 2019 

restructuring 
reform 
World 
Bank 
recovery  rate and 
of 
strength 
insolvency 
framework (0-16) 

World 
recovery rates 

Bank 

Becker 
and 
Josephson (2016) 

Recovery 
rate 
and time from WB 

Consolo 
2018 

et 

al. 

synthetic 
index 
(simple  average 
of  getting  credits; 

4  countries  1970-
2005 

15  EU  Member 
States 2009-2014 

Bonds 
countries, 
2015 

from 

12 
2004-

Corporate 
spread 

bond 

Dispersion 
in 
interest  expenses  in 
%  of  outstanding 
debt  

Companys in 22 EU 
States 
Member 
2015 

loans 

to 
Ratio  of  bond 
in 
bank 
corporate 
funding, 
World  bank  bond 
market index 
Annual  change 
NFC debt 

in 

Companys  from  44 
countries 
2000-
2011 

40  countries  2003-
2016 

154 

in 

to  cut 

Direction  depends  on  whether  legal 
system strengthens creditors’ rights vis-
à-vis shareholders or managers” 
50  bps  higher  costs  of  debt  funding. 
Leads 
investment  and 
in 
employees pay by about 2% 
a  10% 
the  expected 
increase 
recovery  rate  can  reduce  corporate 
in 
bond  spreads  by  37  bps  (half 
estimate  with  country  dummies),  a  1pt 
rise  in  insolvency  score  reduces  the 
bond spread by 27 bps 
Differences  in  recovery  rate  explain 
24%  of  the  variation  in  debt  funding 
costs.  An  increase  in  the  recovery  rate 
to  the  UK  level  would  reduce  funding 
costs by 5 bps in DE, 11 bps in FR, 17 
in ES, 25 in IT, 53 in EL 
Coefficient  of  20-25  %pt.  a  one-
standard-deviation 
in 
bankruptcy recovery (22.6) corresponds 
to  increased  bond  issuance  by  5.6%  of 
assets 
Countries  with 
insolvency 
frameworks  deleverage  faster  and  are 
able  to  adjust  their  NPL  more  rapidly 

increase 

better 

 
 
 
than countries with weaker regimes  
A  1%  increase  in  the  recovery  rate 
reduces the change in corporate debt by 
0.0028 (= 0.28 %pts) 

in 

total 

times 

increase 

in  asset 

1  standard  deviation  improvement  in 
destination (IT to DE, or 23 ppts) yields 
1.25 
flow. 
Coefficient  0.0116  for  ln(portfolio  debt) 
and 00902 for ln(total) 
reverse  correlation;  The 
Assumes 
recovery rate is 54+ 0.6 GDP/c implying 
a  1%  higher  recovery  rate  corresponds 
to 1.7% higher GDP/c, largely driven by 
countries with lower GDP 
factor  productivity 
0.5%  higher 
growth from the reduction of congestion 
with zombie firms to the lowest level per 
industry 
a  1-point  difference 
insolvency 
restructuring  score  leads  to  7.4  to  9.9 
private deals difference  
A  reduction  in  recovery  time  by  1 
standard  deviation  is  associated  with  a 
10%  increase  in  new  company  entry, 
that  of  1  1  standard  deviation 
in 
recovery cost with 11.3%. 
A  1  %pt  higher  insolvency  score  is 
associated  with  a  0.75%pt  higher  self-
employment rate 
The  negative 
deleveraging  on  GDP  growth 
significantly 
superior insolvency scores 
creditor 
Stronger 
innovative activity in companys 
The  better  the  insolvency  score  the 
lower the share of zombie firms. 

impact  of  corporate 
is 
in  countries  with 

reduce 

rights 

lower 

recovery  of  debt 
in  insolvency;  (3) 
cost  of  enforcing 
contracts  and  (4) 
time  of  enforcing 
contracts 
from 
World Bank. 
Recovery 
2004-2017 
value 
insolv_v13 

rate 
Z 
of 

Cross  border  portfolio  assets,  i.e.  ln  of 
portfolio  debt  and  ln  of  portfolio  equity  and 
total (sum of both). 

et 

al 

Recovery rate 

GDP per capita 

IMF 2019 

Smrncka 
(2015) 

McGowan, 
Andrews,  Millot 
(2017)  

OECD indicator 

reduce  the  share  of  capital  sunk  in  zombie 
companies,  and 
technological 
diffusion. 

facilitate 

Becker 
Ivashina (2021) 

and 

aggregate 

WB 
insolvency index 

#  of  private  debt 
deals 

Lee et al. (2011) 

Carcera 
(2015) 

et 

al 

WB recovery time 
and judicial costs, 
for 
dummies 
institutional 
characteristics 
EC 2015 survey 

Entry 
of 
companies 

new 

non-

in 

Self-employment 
Change 
performing loans 
Corporate 
deleveraging 

EU  Member  States, 
UK  and  USA  2004-
2020 
29  countries  1990-
2008 

EU  Member  States 
2003-2010 
and 
2007-2012 

Acharya et al 2009  WB 

institutional 

Patents 

85 countries 

El  Ghoul  et  al 
(2021) 

indices 
WB 
indices 

institutional 

Share  of  zombie 
firms 

79 countries 20015-
2016 

155 

 
 
ANNEX 5: DETAILED DESCRIPTION OF INSOLVENCY BUILDING BLOCKS 

1. 

Introduction 

Insolvency  law  is  considered  to  be  a  cross-cutting  area  of  civil  law  that  always  has  to 
strike a delicate balance between the legitimate interests of creditors and debtors, as well 
as between those of different types of creditors. An efficient insolvency law should help 
to speedily and efficiently liquidate non-viable firms and restructure (within insolvency 
proceedings)  those  that  can  be  led  back  to  viability  and  thus  enable  them  to  continue 
operating.  

Insolvency  rules  should  also  preserve  the  value  that  can  be  received  by  creditors, 
shareholders, employees, tax authorities and other parties concerned, whilst ensuring an 
adequate balance of interests of different stakeholders. A good insolvency framework is a 
crucial pre-condition of credit, not only when the insolvency occurs, but also in relation 
to  incentivizing  investors  to  enter  into  a  credit/debt  contract.  At  the  same  time,  a  good 
insolvency  framework  leads  to  a  more  efficient  allocation  of  capital  within  and  across 
Member  States  and  facilitates  cross-border  investments  and  flows  of  market-based 
finance.  

This primary economic efficiency objective is complemented by specific "redistributive" 
goals  which  result  from  cultural  and  social  value  patterns  of  a  given  society.  The 
insolvency legislation therefore sets  out  conditions for initiating insolvency procedures, 
outlines  creditors’  and  debtors’  rights  and  obligations,  describes  the  role  of  courts,  and 
the steps and the timeframe to be followed once the procedure starts.  

In  a  cross-border  context,  each  of  the  States  involved  has  an  interest  in  regulating 
insolvency of an entrepreneur whose activities or assets are located at its territory. This 
brings an additional source of problems of competing national interests which cannot be 
resolved solely by determining the applicable law and jurisdiction277. In reality, in a non-
negligible  number  of  situations  more  than  one  law  and  jurisdiction  will  have  a 
competence  to  handle  the  cross-border  insolvency  in  question:  in  such  a  case  of 
multiplicity of laws applicable to a cross-border insolvency case, the differences between 
those overlapping laws will stand as a barrier to an effective solution of the cross-border 
insolvency case. 

However, the current EU law does not harmonise any of the core features of insolvency 
proceedings, which remain vastly different and represent a material obstacle to the single 
market for creation of the Capital Markets Union. Despite these differences, insolvency 
frameworks  in  EU  Member  States  are  composed  of  similar  building  blocks.  These 
building blocks comprise different sub-components and provide for varying solutions or 
rules to individual issues. 

277 

Such as in the cases of Croatian Agrokor and/or Italian Parmalat examples. 

156 

 
 
 
 
 
                                                 
Table A5.1: General description of insolvency frameworks in the EU Member States 

General insolvency framework 
AT  Austrian insolvency law is not confined to entrepreneurs. Capacity for insolvency is in fact defined 
as a part of legal capacity under private law. Indeed, any person who can hold rights and obligations 
has  capacity  for  insolvency.  There  is  only  one  type  of  standard  insolvency  proceedings  under 
Austrian law. Insolvency proceedings are known as bankruptcy proceedings, if no restructuring plan 
is  available  when  the  proceedings  are  opened.  Insolvency  proceedings  are  termed  reorganisation 
proceedings if a restructuring plan already exists when the proceedings are opened.  

BE  According to Art. 2 of the Book XX ‘Insolvency of undertakings’ of the Belgian Code of Economic 
Law  (BCEL),  insolvency  proceedings  are  ‘a  procedure  for  judicial  reorganization  by  mutual 
agreement or by collective agreement or by transfer under judicial authority or bankruptcy.’ 
Insolvency and over-indebtedness are objective factual conditions, which have legal definitions in 
the Bulgarian Commerce Act (BCA). 

BG 

HR  Under  the  Croatian  Bankruptcy  Law  (CBL),  there  are  two  general  regimes  for  debtors  that  are 
insolvent:  the  pre-bankruptcy  settlement  procedure,  and  bankruptcy  procedure  (ordinary  and 
shortened). 

CY  There  are  two  types  of  insolvency  proceedings:  Bankruptcy  and    Winding-up  (by  the  court,  by 
creditors, under the court’s supervision, receivership, arrangement or settlement or restructuring 
and examinership).  

CZ  The individual types of insolvency proceedings (bankruptcy, reorganisation, debt relief) differ from 
each  other  in  terms  of  the  entities  they  are  intended  for.  Insolvency  proceedings  are  judicial 
proceedings that address a debtor’s insolvency or impending insolvency and how to deal with it. 
The basic premise is therefore the existence of a state of insolvency or impending insolvency. 
DK  Bankruptcies  and  restructurings  (reorganisations)  are  governed  by  the  Danish  Bankruptcy  Act 
(DBA),  which  provides  for  the  following  regimes:    Restructuring;  Bankruptcy;    Rescheduling  of 
debt. The restructuring and bankruptcy regime is available to insolvent individuals as well as legal 
entities (companies), whereas the rescheduling of debt regime is only available to individuals. 
EE  Estonian  legislation  prescribes  three  different  insolvency  proceedings:  bankruptcy  proceedings, 
reorganisation  proceedings  and  debt  restructuring  proceedings.  Bankruptcy  proceedings  are 
governed  by  the  Bankruptcy  Act  (BA),  the  rules  covering  reorganisation  are  set  out  in  the 
Reorganisation Act (RA) and the debt restructuring rules are set out in the Debt Restructuring and 
Debt Protection Act (DPA).  
laws  regulate:  corporate  restructuring;  bankruptcy;  distraint;  and  
In  Finland, 
restructuring  of  private  debts.  For  companies,  Finnish  law  recognises  two  statutory  forms  of 
insolvency  proceedings,  corporate  restructuring  (i.e.  company  administration)  and  bankruptcy  (i.e. 
compulsory winding-up). 

insolvency 

FI 

FR  Any  person  exercising  a  commercial  or  craft  activity,  any  farmer,  any  other  natural  person 
exercising a self-employed activity, including a liberal profession, and any private law entity may be 
the  subject  of  safeguard,  judicial  reorganisation  or  judicial  liquidation  proceedings.  Safeguard 
proceedings  are  opened  if  the  debtor  is  experiencing  insurmountable  difficulties  but  has  not  yet 
reached the stage of cessation of payments.  
Insolvency proceedings are opened only on application, and not automatically by any public body. 
The  application  can  be  submitted  by  the  debtor  or  by  a  creditor.  The  Insolvency  Code  does  not 
provide  for  separate  types  of  proceedings  for  reorganisation  and  winding  up.  In  addition  to  the 
‘standard procedure’, the Code opens up the possibility of an insolvency plan as a path to winding 
up or as a path to reorganisation. 

DE 

EL  Greece  has  a  single,  unified  legal  framework  for  efficient  preventive  restructuring,  pre-insolvency 
and  insolvency  resolution  proceedings.  The  newly  enacted  Greek  Law  titled  ‘Debt  Settlement  and 
Facilitation  of  a  Second  Chance’  (Law  No.  4738/2020)  (the  Greek  Insolvency  Kaw  -  GIL)  comes 
into  effect  on  1  January  2021.  An  early  warning  electronic  mechanism  which  classifies  debtors  in 
three  (3)  insolvency  risk  levels,  low-medium-high  and  is  supervised  by  the  Special  Secretariat  for 
Private  Debt  Administration,  is  introduced  for  natural  and  legal  persons.  This  tool  will  be  able  to 
identify circumstances that could make the debtor insolvent. 
The procedures under GIL are: Out-of-Court debt settlement process (Articles 5–30) GIC 
Under the new Out-of-Court Debt Settlement mechanism (which replaces the procedure of existing 
Greek Law No. 4469/2017), individuals or legal entities, eligible to be declared insolvent, may apply 
for  extrajudicial  settlement  of  their  monetary  liabilities  to  the  Greek  State  or  financial  and  social 

157 

 
 
HU 

IE 

IT 

security institutions provided they do not fall under certain exemptions (e.g. 90% of a debtor’s 
liabilities being owed to a single institution). The process may also be initiated by creditors with an 
invitation  to  debtors  to  apply  within  45  days.  Out-of-court  settlement  applications  will  be  filed 
digitally  to  the  Special  Secretariat  for  the  Administration  of  Private  Debt  through  an  electronic 
platform. Insolvency resolution process (Individuals & Legal Entities) (Articles 75–196) 
In Hungary, the following insolvency proceedings are available as main proceedings: 
bankruptcy proceedings; liquidation proceeding; and  reorganization proceeding. 
Bankruptcy  proceeding  is  regulated  by  Act  XLIX  of  1991  on  bankruptcy  and  liquidation 
proceedings (the Bankruptcy Act). Bankruptcy is a voluntary procedure which can be initiated by the 
Hungarian debtor (company) by applying to the court for a moratorium over its payment obligations 
in order to reach a composition agreement (bankruptcy agreement) with its creditors and to 
continue as a going concern. If a composition agreement is reached in the bankruptcy proceedings, 
the  liabilities  of  the  debtor  may,  in  theory,  be  discharged  as  provided  for  in  the  bankruptcy 
agreement. However, in practice, this is very rarely the case. The debtor is not required to prove that 
it is insolvent or over-indebted to apply for bankruptcy proceeding. 
is  regulated  by  Government  Decree  345/2021.  (VI.  18.).The 
Reorganization  proceeding 
reorganization  procedure  is  a  civil  nonlitigation  proceeding.  It  is  a  temporary  option  for  the 
companies,  since  application  for  reorganization  proceedings  may  be  filed  with  the  court  until 
December 31, 2022. In terms of its purpose, the reorganization procedure is similar  to bankruptcy 
proceedings,  given  that  the  main  purpose  of  both  institutions  is  to  reorganize  a  debtor  company 
having difficulty with payment of its debts, i.e., to restore its solvency. Regarding its material scope, 
reorganization may only be initiated by business organizations registered in Hungary.  
Insolvency  proceedings  are  governed  by  the  Personal  Insolvency  Act  (PIA)  and  comprise  the 
following three arrangements:  Debt Relief Notice (DRN): for debts of up to €35,000 for people with 
virtually  no  assets  and  very  low  income;    Debt  Settlement  Arrangement  (DSA):  for  the  agreed 
settlement of unlimited unsecured debts over a period of up to five years (extendable to six years in 
certain  circumstances);    Personal  Insolvency  Arrangement  (PIA):  for  the  agreed  settlement  or 
restructuring of secured debt of up to €3 million (which can be increased by creditor agreement) and 
unlimited  unsecured  debt  over  a  period  of  up  to  six  years  (extendable  to  seven  years  in  certain 
circumstances). 
Bankruptcy  is  an  option  for  debtors  who,  due  to  their  circumstances,  do  not  meet  the  eligibility 
criteria for the abovementioned three debt solutions, or have previously entered into one of the debt 
solutions but the arrangement with the creditors proved to be unsustainable. As soon as a debtor is 
made bankrupt their unsecured debts are written off in full, however, all of their  assets become the 
property of the Official Assignee in Bankruptcy, who is the High Court appointed administrator of 
the bankruptcy estate. 
The objective prerequisite for the declaration of bankruptcy is the state of insolvency provided for in 
Art. 5 of the Italian Bankruptcy Law (IBL), which establishes that a person is in a state of insolvency 
if he is unable to regularly meet his obligations. Insolvency can be manifested by defaults or other 
external  facts  (e.g.  the  escape  of  the  entrepreneur  or  the  closure  of  the  premises  in  which  he 
exercised the activity), which demonstrate that the debtor is no longer able to meet his obligations. 
An entrepreneur who can only partially pay his debts is considered insolvent, as is an entrepreneur 
who  can  fulfil  his  obligations,  but  only  after  they  have  expired, or  in  an  irregular  manner  (e.g.  an 
entrepreneur who is forced to sell real estate to satisfy the company's creditors). 

LV  The insolvency proceedings of a natural person may be applied to a natural person who has been the 

Republic of Latvia for the last six months and who has financial difficulties (signs of insolvency).  

LT  Company insolvency is understood to be a state where a company is unable to meet its obligations 
(does not pay debts, does not perform work paid for in advance, etc.) and the overdue obligations of 
the company (debts, overdue work, etc.) exceed one half of the book value of its assets. 

LU  The  Grand Duchy of Luxembourg has eight  types of insolvency proceedings:  Three apply only to 
traders (natural and legal persons): Bankruptcy proceeding;  Composition with creditors to prevent 
bankruptcy; Administration proceedings. In addition to these proceedings, Luxembourg law (Article 
593  et  seq.  of  the  Commercial  Code)  provides  for  a  procedure  whereby  traders  can  obtain  the 
suspension of payments under certain conditions. A fourth procedure is open only to natural persons 
who are not traders: this is the over-indebtedness procedure. 
Insolvency  Proceedings  (Companies)  is  governed  by  Article  214(2)(a)(ii)  of  Chapter  386  of  the 
Companies Act (MCA) et seq.  

MT 

NL  A debtor who is in a situation where he has stopped to pay his due and demandable debts shall be 

158 

 
 
declared bankrupt by court order, rendered either upon his own request or upon the request of one or 
more  of  his  creditors.  Moreover,  the  bankruptcy  order  may  also  be  rendered  for  reasons  of  public 
interest or upon the request of the Public Prosecution Service. 

PL  The Bankruptcy Law identifies two independent grounds for the existence of a state of the debtor’s 

PT 

insolvency, known as the liquidity test and the balance-sheet test. 
Insolvency is a factual situation of insufficiency of assets of any legal subject (insufficiency which 
translates into the impossibility to comply with its due obligations) described by the Insolvency and 
Recovery Code (Código da Insolvência e da Recuperação de Empresas 
- CIRE), from which may derive the adoption of a recovery measure (in the case where the insolvent 
party is a company).  
Insolvency  procedure  is  initiated  by  submitting  an  insolvency  petition  in  the  insolvency  court  (the 
Tribunal  where  the  debtor  has  its  headquarter).  The  petition  may  be  filed  either  by  the  debtor 
through its representatives, or by any interested creditor meeting the legal conditions.  
Insolvency means that the debtor has excessive debt or is cash-flow insolvent.  
SK 
SI 
Insolvency is defined as a situation where  the debtor has been insolvent for a lengthy period of time. 
ES  The  law  lays  down  certain  subjective  and  objective  prerequisites  to  be  met  in  order  to  open 

RO 

SE 

insolvency proceedings. 
Insolvency  is  defined  as  a  situation  where  the  debtor  is  not  able  to  duly  pay  his  debts,  and  this 
inability is not of a temporary nature 

Source: Deloitte/Grimaldi (2022). 

2. 

Material elements of insolvency 

2.1  

Transaction avoidance 

Transaction  avoidance  is  a  standard  part  of  all  insolvency  regimes.  Transaction 
avoidance aims at protecting the insolvency estate by clawing back on different grounds 
assets, that were alienated in the vicinity of insolvency. Transaction avoidance rules are 
aimed  at  the  rescission  of,  or  the  compensation  for,  transactions  that  are  detrimental  to 
creditors and have been performed prior to the opening of insolvency proceedings, often 
in an unethical/fraudulent context.  

In the run-up to insolvency, transactions might happen that are done with the intention to 
save  certain  assets  from  being  auctioned  off  in  insolvency.  Prior  to  the  opening  of  the 
insolvency  procedure,  the  debtor  can  attribute  preferential  treatment  to  some  creditors. 
This  can  lead  to  transactions  with  parties  close  to  the  owner  or  manager  of  a  business, 
e.g. a spouse or an individual creditor with whom the business owner hopes to cooperate 
for  a  fresh  start  after  liquidation  of  the  business.  It  can  also  lead  to  transactions  with 
undervalued  prices.  In  order  to  ensure  that  all  the  debtor’s  assets  remain  available  to 
satisfy the creditors’ claims, national laws provide for avoidance actions. 

The  general  aim  of  the  avoidance  rules  is  to  protect  the  collective  scheme  from 
illegitimate alienation in the vicinity of insolvency.278 They aim to protect the insolvent 
estate by providing for rescinding or offsetting transactions that were made prior to the 
opening  of  insolvency  proceedings  with  a  fraudulent  intent.  They  define  the  powers 
granted  to  the  insolvency  practitioners  to  trace,  freeze,  confiscate  and  repatriate  assets 
belonging  to  the  insolvency  estate.  Transaction  avoidance  laws  are  a  standard  part  in 
insolvency regimes  and  seek to  enforce the principle of equal  treatment  of creditors by 
enabling the insolvency practitioner to challenge preferential treatment given to a creditor 

278  M  Bridge,  ‘Collectivity,  Management  of  Estates  and  Pari  Passu  in  Winding  up’  in  J  Armour  and  H 
Bennett (eds), Vulnerable Transactions in Corporate Insolvency (Hart 2003) 18. 

159 

 
 
                                                 
in  a  specific  period  prior  to  the  application  for,  or  opening  of,  insolvency  proceedings. 
Hence, the scope of the principle of equality is extended to include a period prior to the 
opening of insolvency proceedings.  

Avoidance rules can be categorised into279:  

(a) 

(b) 

(c) 

legal  acts  compromising  the  estate  of  the  debtor,  further  distinguishing  between 
transactions at an undervalue and transactions not an undervalue but detrimental 
to creditors;  

legal acts in which the counterparty is already a creditor, distinguishing between 
payments  of  undue  debts  and  payments  of  a  debt  due  at  the  time  and  in  the 
manner already agreed; and  

legal acts with the parties closely related to the debtors, including shareholders in 
view of the privileged position they have and closely related party.  

The  landscape  in  Member  States  is  very  differentiated,  in  all  aspects  of  the  conditions 
allowing for the avoidance of transactions:  

(i) 

the legal acts to be considered (types of avoidable transactions),  

(ii) 

the legal conditions (objective - subjective),  

(iii) 

the length and calculation of the “suspect periods", i.e. period within which such 
acts  can  be  challenged  (“limitation  periods”),  and  the  consequences  vary  from 
Member State to Member State.  

To  date,  EU  legislation  refers  the  regulation  of  such  procedures  to  the  national  law  of 
each  individual  Member  State.  Legal  doctrine  provides  for  multiple  and  different 
recommendations  for  the  possible  harmonisation  of  transaction  avoidance280.  Based  on 
research  carried  out,  the  most  promising  approach  appears  a  principle-based  approach 
and,  more  specifically  an  approach  based  on  the  principles  of  equal  treatment  of 
creditors, and protection of trust281. An option would be to introduce harmonized rules at 
EU  level  on  transaction  avoidance.  This  full  harmonisation  option  would  not  allow  for 
deviations  at  national  legislation  for  example  with  respect  to  the  exemptions  from  the 
scope  of  legal  acts  concerned  or  the  time  periods  It  would  deal  with  a  widely  known 
feature  of  insolvency  law,  where  divergences  between  Member  States  seem  to  be 
manageable.  

279 Rolef de Weijs, Towards an objective European rule on transaction avoidance in insolvencies, cit. 
280 Ex multis. Keay, A. Harmonisation of Avoidance Rules in European Union Insolvencies: The Critical 
Elements  in  Formulating  a  Scheme.  Northern  Ireland  Legal  Quarterly,  69  (2).  pp.  85-106.  ISSN  0029-
3105, (2018). M Bridge, ‘Collectivity, Management of Estates and Pari Passu in Winding up’ in J Armour 
and  H  Bennett  (eds),  Vulnerable  Transactions  in  Corporate  Insolvency  (Hart  2003)  18;  Rolef de Weijs, 
Towards 
insolvencies, 
avoidance 
on 
Centre for the Study of European Contract Law  Working Paper Series  No. 2011/06. 
281  Approach  adopted  in  the  following  studies:  REPORT  ON  TRANSACTIONS  AVOIDANCE  LAWS 
(CERIL  REPORT  2017/1),  26  September  2017,  Rebecca  Parry  in  Rebecca  Parry/James  Ayliffe/Sharif 
Shivji  (eds.),  Transaction  Avoidance  in  Insolvencies,  Oxford  University  Press,  2nd  edn.,  Oxford  2011, 
para. 2.20. 

transaction 

European 

objective 

rule 

an 

in 

160 

 
 
                                                 
While  honest  debtors  would  not  undertake  measures  to  hide  assets  or  divert  the 
company’s  at  the  brink  of  insolvency,  such  opportunistic  behaviour  at  the  expense  of 
creditors cannot be excluded in individual cases and has been observed in practice. Since 
this behaviour is  considered dishonest, other stakeholders and the general public would 
also  value  if  rules  on  transaction  avoidance  were  efficient.  Business  partners  of  the 
defaulting  company  would  also  benefit  in  their  role  as  creditors,  though  they  may  face 
reputational  costs  if  their  financial  relationships  to  the  company  become  subject  of 
scrutiny by courts or insolvency practitioners.  

Since the difference of rules on transaction avoidance make it costly for creditors to find 
out about the respective rules in other jurisdictions and to assess the prospects for claw-
back,  lower  diversity  of  these  rules  laws  foster  cross-border  business,  insolvency 
proceedings,  and  restructuring  efforts.  Stakeholders  signal  that  the  enforcement  of 
particular  cross-border  assets  and the detailed rules applied across Member States have 
led to differences in the amount that can be recovered and the time it takes to claw back 
assets. While insolvency practitioners are experienced in their own insolvency law, they 
normally have no detailed knowledge about the transactions avoidance law of the law of 
another Member State, which is applicable under certain circumstances to the transaction. 
They therefore have to commission legal opinions and to pay significant solicitor’s fees 
when preparing the decision to start litigation against the opponent.  

The harmonisation of transaction avoidance rules would be considered sensitive because 
of  the  relatedness  to  more  fundamental  principles  of  insolvency  law.  Such  links  exist 
with  respect  to  the  ranking  of  claims,  as  privileged  ordinary  creditors,  such  as  tax 
authorities,  are  in  some  Member  States  exempted  from  transaction  avoidance,  too. 
Modifications of transaction avoidance impacts legal certainty in civil transactions since 
counterparts risk that a transaction with a company is under a certain risk being unwound 
when that company is liquidated. If the transaction has taken place under very favourable 
conditions,  the  counterpart  risks  facing  reputation  effects  if  a  court  reviews  whether  it 
was engineered to the detriment of the creditors of the liquidated company. 

The principles of predictability or legal certainty and optimal realisation of the debtor’s 
assets can conflict and must be weighed against each other. There are limits to the extent 
the design and application of transaction rules can be based on objective criteria. While 
for example, an objective criterion may be designed for the consideration of payments of 
an undue debt, subjective criteria are needed in many instances both to protect competing 
interests and to properly consider acts intentionally prejudicing creditors’ rights. 

Important is also the interaction of avoidance actions with restructuring of the company. 
Restructuring efforts may be thwarted, since the parties involved must take into account 
that, if the restructuring fails, insolvency proceedings ensue and legal actions which were 
part  of  the  restructuring  plan  are  subject  to  claw  back  provisions282.  In  most  Member 
States,  “safe  harbour”  provisions  for  restructuring  measures  are  available,  yet  again, 

282 This statement is only valid to restructurings which are concluded outside the context of the preventive 
restructuring framework introduced by Title II of the Directive on Restructuring and Insolvency.  

161 

 
 
                                                 
these  “restructuring  privileges”  differ  widely  and  still  leave  room  for  significant  legal 
uncertainty283. 

Table A5.2: Transaction avoidance rules in EU Member States 

Transaction avoidance 
AT  Certain legal acts which have been undertaken before the insolvency proceedings were opened and 

which are detrimental to creditors are voidable (Sec 27 et seq. AIA). 
The  prerequisite  for  a  successful  challenge  is  for  the  legal  transaction  to  be  detrimental  to  the 
insolvency  creditors.  This  is  the  case  if  the  legal  act  caused  a  loss  of  satisfaction  for  the  other 
creditors, for instance by reducing the assets or increasing the liabilities.  A further condition for a 
successful challenge is that, as a result of the challenge, the prospects for satisfaction of the creditors 
are improved. 
Among the types of acts that can be subject to transaction avoidance are: 
 voidability on account of intention to disadvantage creditors (Sec 28, numbers 1-3, AIA); 
 voidability on account of squandering of assets (Sec 28, number 4, AIA); 
 voidability on account of disposals free of charge (Sec 29 AIA); 
 voidability on account of preferential treatment (Sec 30 AIA); 
 voidability on account of knowledge of insolvency (Sec 31 AIA) 
Insolvency occurs from the time of the declaratory judgment of bankruptcy. The judge may advance 
this date by six months, if serious and objective circumstances show that the payments have already 
ceased  before  the  judgment.  This  is  called  the  ‘suspect  period’.  The  trustee  in  bankruptcy  will  be 
able  to  call  into  question  transactions  that  occurred  within  this  time  limit  and  that  caused  any 
damage to the mass. The penalty consists of the transactions not being enforceable against the mass 
in bankruptcy. If the judge considers, at the request of the curator, that certain acts are ‘suspicious’ 
and are therefore not opposable to the mass, the person who has received the goods or has acquired 
them at a derisory price must return them to the mass. 

BE 

BG  BCA  provides  for  a  number  of  safeguards  that  protect  creditors  of  the  insolvency  estate  against 
actions  taken  and  transactions  entered  into  by  the  debtor  with  a  view  to  depleting  the  insolvency 
estate and harming creditors’ interests. The law introduces the concept of a  ‘suspect period’  — an 
irrefutable presumption that creditors’ interests have been harmed, if certain actions have been taken 
or  certain  transactions  have  been  entered  into  during  this  period.  The  suspect  period  commences 
from the date of insolvency or over indebtedness, but not earlier than one year before the petition for 
opening  insolvency  proceedings  was  filed,  and  ends  on  the  date  of  the  ruling  opening  insolvency 
proceedings. In other cases, it can extend to three years. 
A  number  of  transactions  become  automatically  void  under  article  646  BCA  (e.g.  settlement  of  a 
debt  incurred  before  the  ruling  opening  insolvency  proceedings,  pledge  or  mortgage  created  on  a 
right  or  an  asset  of  personal  property  from  the  insolvency  estate).  Other  transactions  can  be 
invalidated by the court (e.g. transactions for no consideration, transactions at undervalue etc.). 
HR  General: Legal acts undertaken prior to the opening of the bankruptcy proceedings that disrupt the 
uniform  settlement  of  bankruptcy  creditors  (causing  harm  to  creditors)  or  that  favour  certain 
creditors  over  others  (preferential  treatment  of  creditors)  may  be  contested  by  the  liquidator  on 
behalf of the debtor, and the creditors in bankruptcy. 
There are several types of transaction avoidance: 
Congruent settlement; 
 Non-congruent settlement; 
 Legal actions by which creditors are directly damaged; 
 Intentional damage; 
 Legal action free of charge or with an insignificant fee; 
 A loan which replaces capital; 
 Secret company. 
Congruent settlement: Legal acts adopted in the last three months prior to the filing of a motion for 

283  A  mapping  of  the  situation  in  the  laws  of  the  Member  States  can  be  found  in  the  ’Study  on  a  new 
approach  to  business  failure  and  insolvency,  Comparative  legal  analysis  of  the  Member  States’  relevant 
provisions and practices’, University of Leeds, 2016, pp. 178. The Study was ordered by the Commission, 
hereafter: Leeds Study.   

162 

 
 
                                                 
opening  of  the  bankruptcy  proceedings  /  after  the  filing  of  the  proposal  to  open  bankruptcy 
proceedings, which provides or allows a creditor security or satisfaction in a manner and at a time 
that is congruent with the substance of their rights, may be challenged if, at the time of the act, the 
debtor  was  insolvent,  and  the  creditor  knew  of  this  insolvency  /  knew  of  the  insolvency  or  of  the 
proposal for bankruptcy. 
Non-congruent settlement: A legal act that provides or allow security or satisfaction to a creditor that 
did not have the right to make a claim, or had no right to make a claim in that manner or at that time, 
may be contested: 
 if  it  was  undertaken  within  the  last  month  prior  to  the  filing  of  the  proposal  to  open  bankruptcy 
proceedings or after the 
proposal had been filed, or ; 
 if  it  was  undertaken  within  the  third  or  second  month  prior  to  the  filing  of  the  proposal  to  open 
bankruptcy proceedings and 
the debtor was insolvent at the time, or; 
 if the act was undertaken within the third or second month prior to the filing of the proposal to open 
bankruptcy proceedings and the creditor knew at the time the act was undertaken that it would cause 
harm to the bankruptcy creditors. 
Legal actions by which creditors are directly damaged 
A legal act of the debtor that directly results in harm to the creditors may be contested: 
 if  it  was  undertaken  within  three  months  prior  to  the  filing  of  the  proposal  to  open  bankruptcy 
proceedings,  if  the  debtor  was  insolvent  at  the  time  of  the  act  and  if  the  other  party  knew  of  the 
insolvency, or; 
 if  it  was  undertaken  after  the  proposal  to  open  bankruptcy  proceedings  had  been  filed  and  if  the 
other person knew, or ought to have known, at the time of the legal act, of the insolvency or of the 
proposal to open bankruptcy proceedings. 
Intentional damage: A legal act undertaken by the debtor during the last ten years prior to the filing 
of the proposal to open bankruptcy proceedings, or 
thereafter, with the intention of causing harm to creditors, may be contested if the other party knew 
of the debtor’s intent at the time of the act. 
Legal action free of charge or with an insignificant fee: 
A legal act of the debtor without compensation or with insignificant compensation may be contested 
unless  it  was  undertaken  four  years  prior  to  the  filing  of  the  proposal  to  open  bankruptcy 
proceedings. In the case of an occasional gift of insignificant value, the act may not be contested. 
A  loan  which  replaces  capital  A  legal  act  by  which  a  member  of  the  company  makes  a  claim  for 
repayment of loan used for substituting capital, or some similar claim is void: 
 if it provides security and if the act was undertaken within the last five years prior to the filing of 
the proposal to open bankruptcy proceedings or thereafter; 
 if it guarantees the settlement and if the act was undertaken in the last year prior to the filing of the 
proposal to open bankruptcy proceedings or thereafter. 
Secret company: The return of the stake of the silent partner in a company, in full or in part, or the 
waiving  of  their  share  of  the  incurred  loss,  in  full  or  in  part,  may  be  subject  to  challenge,  if  the 
contract on which such an act is based was concluded during the last year prior to the filing of the 
proposal to open bankruptcy proceedings against the company or thereafter. The same applies if the 
silent partner is wound up in accordance with the contract. 

CY  There are a number of provisions that may invalidate a charge granted by a company or any other 

disposition it has made, for example: 
 A charge that has not been properly registered is void against the liquidator and any creditor of the 
company (Sec 90(1), CCL) ; 
 Any act relating  to property  made  or done  by or against a company  within six  months  before the 
commencement  of  its  winding  up  may  be  deemed  a  fraudulent  preference  if  any  such  charge  or 
delivery or conveyance or assignment or otherwise is a fraudulent preference of one of its creditors 
and such act will be invalid (Sec 301, CCL); 
 Any gift, sale, pledge, mortgage or other transfer or disposal of any movable or immovable property 
made  by  any  person  with  the  intent  to  hinder  or  delay  his/her  creditors  from  recovering  from 
him/her. Under these circumstances, the debts will be deemed to be fraudulent, and will be invalid 
and  the  property  purported  to  be  transferred  or  otherwise  dealt  with  may  be  seized  and  sold  in 
satisfaction of any judgment debt due (Fraudulent Transfers Avoidance Law, Cap 62); 
 Where  any  part  of  the  property  of  a  company  which  is  being  wound  up  consists  of  immovable 

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property  burdened  with  onerous  covenants,  of  shares  or  stock  in  companies,  of  unprofitable 
contracts, or of any other property that is unsaleable, or not readily saleable, by reason of its binding 
the  company  to  the  performance  of  any  onerous  act  or  to  the  payment  of  any  sum  of  money,  the 
liquidator may disclaim the property (Sec 304, CCL). 

CZ  Legal  acts  by  the  debtor  to  reduce  the  chances  that  creditors  will  be  satisfied  or  to  favour  certain 
creditors over others are unenforceable. Any omission by the debtor in this respect is also treated as 
a legal act. There are three categories of such unenforceable acts: 
 legal acts without adequate consideration; 
 preferential legal acts resulting in a situation where one creditor, to the detriment of other creditors, 
receives greater satisfaction than they would otherwise have obtained in the bankruptcy proceedings; 
 legal acts where the debtor intentionally curtails the satisfaction of a creditor, if this intention was 
known to the counterparty or, in view of all of the circumstances, must have been known to it. 
The  unenforceability  of  the  debtor’s  legal  acts  is  established  by  an  insolvency  court  ruling  on  an 
action  brought  by  the  insolvency  practitioner  protesting  the  debtor’s  legal  acts  (an  action  to  set  a 
transaction aside). 
The insolvency practitioner may bring an action to set a transaction aside within one year from the 
date on which the insolvency decision takes effect. If an action is not brought within that time limit, 
the title to have a transaction set aside lapses. The debtor’s consideration from unenforceable legal 
acts forms part of the estate once the ruling upholding the action to set a transaction aside becomes 
final. 

DK  On  certain  conditions,  the  debtor’s  pre-insolvency  transactions  may  be  avoided  by  the  insolvent 
estate.  Avoidance  means  that  an  otherwise  valid  transaction  made  by  the  debtor  is  reversed  if  the 
transaction  in  question  has  defeated  the  assets  of  the  estate  or  increased  the  debtor’s  debt.  If  the 
trustee believes that that debtor’s actions are contrary to the avoidance rules of the DBA, the estate 
in  bankruptcy  must  no  later  than  12  months  from  the  issue  of  the  bankruptcy  order  institute  legal 
proceedings  against  the  third  party  or  creditor  that  was  given  preference  by  the  debtor’s  voidable 
transaction. 
The debtor’s voidable transactions under the DBA include: 
 gifts from the debtor; 
 payment of debt; 
 transactions giving preference to a creditor over the other creditors; 
 transactions  that  mean  that  the  debtor’s  assets  avoid  being  included  in  the  assets  of  the  estate  in 
bankruptcy; 
 transactions that mean that the debtor’s debt increases. 
If the trustee is successful in the claim for avoidance against a third party, the third party must give 
up and return the preference to the estate in bankruptcy that s/he has obtained through the debtor’s 
voidable transaction, but not more than the loss of the estate. 

FI 

EE  After bankruptcy is declared, any dispositions by the debtor with regard to objects forming part of 
the  bankruptcy  estate  are  null  and  void.  A  debtor  who  is  a  natural  person  may  dispose  of  the 
bankruptcy estate with the trustee’s consent. Any dispositions without the trustee’s consent are null 
and void. The court will revoke, by way of recovery procedure, any transaction or other act by the 
debtor  that  was  concluded  or  performed  before  bankruptcy  was  declared  and  that  damages  the 
creditors’ interests. If a transaction subject to recovery has been concluded or any other act subject to 
recovery  has  been  performed  during  the  period  from  the  appointment  of  an  interim  trustee  to  the 
declaration of bankruptcy, the transaction or act is deemed to have damaged the creditors’ interests. 
The RA sets out the general grounds for revocation of inappropriate and preferential transactions, as 
well  as  specific  grounds  for  revocation  of  certain  types  of  transactions.  The  RA  applies  in  all 
insolvency proceedings under Finnish law, as well as in foreclosure proceedings. 
A transaction or any other action can be revoked where it was made during the applicable suspect 
period before the filing of therelevant proceedings. Under the general grounds for revocation set in 
Section 5 of the Recovery Act, any action made within a five-year suspect period can be revoked if: 
 The action favours a creditor to the detriment of the other creditors, removes assets from the reach 
of the other creditors, or 
increases debt to the detriment of the other creditors; 
 The debtor company was insolvent when undertaking the action or became insolvent as a result of 
it; 
The action was improper or inappropriate, in particular from the point of view of the other creditors 
of the transacting party, and the counterparty of the transacting party knew, or should have known, 

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FR 

of the insolvency and the improper nature of the arrangement. 
Transactions that did not take place during the suspect period can only be revoked if they were made 
with  related  parties.  Under  the  RA,  a  related  party  means  a  party  closely  related  to  the  debtor 
company, including immediate family members, entities that have common (financial) interests (for 
example, due  to  shareholding or partnership), or persons that have a significant influence over the 
debtor due to a management or a supervisory status (RA, Section 3). For related parties, the above 
time limit is extended to two years. 
In  reorganisation  or  liquidation,  any  transaction  entered  into  during  the  suspect  period  (période 
suspecte)  can  be  subject  to  clawback  provisions.  The  suspect  period  runs  from  the  date  when  the 
company  is  deemed  insolvent,  and  can  be  backdated  by  the  court  by  up  to  18  months  before  the 
insolvency judgment. The act is void in relation to all and cancelled retroactively. 
There are twelve cases of compulsory nullity concerning irregular acts: 
 all acts transferring ownership of movable property or real estate free of charge; 
 any commutative contract in which the debtor’s obligations far exceed those of the other party; 
 any payment, by whatever method, for debts which are not due on the date of payment; 
 any payment of debts due, other than in cash, bills of exchange, bank transfers, transfer deeds or any 
other form of payment commonly accepted in business dealings; 
 any deposit or any consignment of sums made following the pledge of property, in the absence of a 
final court judgment; 
 any contractual mortgage, any legal mortgage, as well as a legal mortgage of spouses, and any right 
of lien or pledge created on the debtor’s assets for debts previously contracted; 
 any  preservation  measure,  unless  the  registration  or  writ  of  attachment  predates  the  cessation  of 
payment; 
 any authorisation and exercising of options by the employees of the business; 
 any transfer of goods or rights to a fiduciary estate, unless this transfer occurred as a guarantee for a 
debt contracted simultaneously; 
 any  amendment  to  a  trust  agreement  affecting  rights  or  assets  already  transferred  to  a  fiduciary 
estate to guarantee debts contracted prior to this amendment; 
 where the debtor is an individual entrepreneur  with  limited liability, any assignment or change  to 
the assignment of an asset, 
subject to the payment of income not assigned to the business activity, resulting in depletion of the 
assets covered by the proceedings in favour of another asset of this entrepreneur; 
 the notarial declaration of exemption from attachment made by the debtor. 
Any  payment  made,  or  any  transaction  entered  into  during  the  suspect  period  is  also  subject  to 
optional voidance, if proper evidence is brought before the court that, at the time of the payment or 
transaction,  the  contracting  party  knew  the  company's  insolvency.  When  dealing  with  intra-group 
transactions, this knowledge is presumed for companies belonging to the same corporate group. 
DE  To prevent actions detrimental to the creditors, any acquisition of assets belonging to the insolvency 
estate  after  the  opening  of  the  proceedings  is  in  principle  void,  whereas  the  acquisition  before  the 
opening  of  the  proceedings  of  assets  that  would  have  belonged  to  the  insolvency  estate  after  the 
opening of the proceedings is in principle valid, but can be  contested under certain  circumstances. 
Since the opening of the insolvency proceedings, the right of the debtor to dispose of his property is 
vested  in  the  insolvency  administrator.  Any  disposal  by  the  debtor  of  an  asset  belonging  to  the 
insolvency  estate  after  the  insolvency  proceedings  have  been  opened  is  in  principle  absolutely 
invalid (the main exception being where there is an acquisition in good faith of land, although this 
can  be  contested)  (Section  81(1),  first  sentence,  GIC).  Nor  is  there  any  acquisition  of  rights  to  an 
asset  belonging  to  the  insolvency  estate  if  the  debtor  has  disposed  of  an  asset  belonging  to  the 
insolvency estate before the insolvency proceedings are opened but the result occurs only after the 
proceedings  are  opened  (Section  91(1)  GIC)  (the  main  exception  being  an  acquisition  of  land, 
Section 91(2) GIC).  
Rights of security acquired as a result of enforcement proceedings during the last month preceding 
the  application  to  open  the  insolvency  proceedings,  or  after  such  application,  likewise  become 
legally ineffective once the insolvency proceedings are opened (Section 88(1) GIC). 
An acquisition from the insolvency estate before the proceedings are opened, unlike an acquisition 
after the proceedings are opened, is in principle valid, but can be contested under certain conditions 
(Sections  129  et  seq.  GIC).  This  right  to  contest  an  insolvent  debtor’s  transactions  is  of  decisive 
importance for the functioning of insolvency law, since it allows the insolvency administrator access 
to outflows from the debtor’s assets that took place before the insolvency proceedings are opened. It 

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can help greatly to increase the insolvency estate, and thus to ensure that insolvency law makes good 
on  its  claim  to  provide  equal  satisfaction  for  the  creditors  in  an  orderly  fashion  and  to  prevent 
preferential treatment of individual creditors. If the insolvency administrator successfully exercises a 
right  to  contest,  the  party  who  benefited  as  a  result  of  the  contested  transaction  must  return 
everything  that  has  been  withdrawn  from  the  insolvency  debtor’s  assets  by  the  transaction.  If  he 
cannot do so in kind, he has to pay compensation.  
The insolvency administrator can bring an action to enforce the right to restitution, and can rely on 
the right to restitution against any opposing claims brought by a creditor. If the recipient of a benefit 
under a contestable transaction restores the property received, any counterclaim he may have revives 
(Section 144 GIC). 

EL  Vulnerability of transactions is determined by reference to the date of cessation of payments, which 
is set by the bankruptcy court in its judgment declaring bankruptcy in respect of an insolvent debtor 
in accordance with the Insolvency Code. 'Cessation of payments' means the evidenced general and 
permanent inability of a debtor to pay its debts as they fall due. The date of cessation of payments 
so set by the court cannot fall earlier than two  years prior to the date of the issue of the judgment 
declaring bankruptcy. 
Under Article 117 of the Insolvency Code, certain acts carried out by the debtor during the suspect 
period (i.e., the period commencing on the date of cessation of payments and ending on the date of 
the declaration of bankruptcy by the court) are subject to compulsory rescission by the bankruptcy 
officer. These acts include: 
 any acts of the insolvent debtor carried out without consideration being received in return and that 
have the effect of reducing the value of the debtor's estate and any undervalue transactions entered 
into by the debtor (other than disposals made out of a moral or legal duty or as necessary to sustain 
the  debtor's  children,  provided  that  in  each  case  such  disposals  were  in  proportion  to  and  did  not 
deteriorate the debtor's financial condition); 
 any payment of debts that are not yet due and payable; 
 any repayment of due and payable debts not made by payment in cash or in the pre-agreed manner 
(other  than  voluntary  transfers  of  properties  to  credit  or  financial  institutions  in  or  towards 
repayment of due and payable debts); and  any security  interest created over the debtor's assets to 
secure a pre-existing debt whereby the debtor had not pre-agreed to grant such a security interest, or 
to secure a new debt replacing a pre-existing debt (but subject to the protection accorded to security 
interests in favour of banks pursuant to Legislative Decree 17.7./13.8.1923). 
In addition, under Article 118 of the Insolvency Code, certain acts carried out by the debtor during 
the  suspect  period,  which  are  not  subject  to  compulsory  rescission,  as  above,  may  be  subject  to 
rescission by the bankruptcy officer. Acts subject to challenge in this manner include: 
 any payment of debts that are due and payable, and 
 any transaction entered into by the debtor for consideration. 
This  applies  in  each  case  if  the  relevant  party  or  creditor  (as  the  case  may  be)  was  aware  of  the 
cessation of payments and that such payment or transaction is detrimental to the other creditors. For 
these  purposes,  deemed  knowledge  of  that  party  or  creditor  applies  in  respect  of  a  spouse,  close 
relative, founder, administrator, director, or manager of the debtor or, where that party or creditor is 
an  affiliate  of  the  debtor  within  the  meaning  of  Article  32  of  Law  4308/2014,  if  the  terms  of  the 
transaction manifestly deviate from normal market terms. 
Exceptionally, certain transactions may be vulnerable even if concluded earlier than the set date of 
cessation  of  payments.  Under  Article  119  of  the  Insolvency  Code,  acts  of  the  debtor  concluded 
within the five years immediately prior to the declaration of bankruptcy are subject to rescission, if 
the debtor intended the act to operate to the detriment of its creditors in general or to benefit certain 
creditors to the detriment of other creditors, and the relevant party was, at the time of the act, aware 
of the debtor's intention. 

HU  The  administrator  or  creditors  may  challenge  such  transactions  by  lodging  a  petition  and  may 
request  the  transaction  to  be  declared  invalid.  Any  assets  thus  returned  to  the  debtor  increase  the 
assets of the insolvent estate. Under Hungarian law, acts can be challenged within a term of 90 days 
before  an  imminent  insolvency.  For  transactions  with  the  intent  of  defrauding  creditors  the 
avoidance period is of 5 years. 
Insolvency Proceedings: The creditors do not have any right to seek reversal of any transactions or 
asset transfers prior to the commencement of the insolvency proceedings. However, if the debtor can 
be  considered  to  have  made  excessive  contributions  to  a  pension  fund,  the  creditor  may  seek 
financial relief from the courts. This may result in the court ordering that the fund provider issues a 

IE 

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IT 

full refund of the amount for distribution among the creditors party to the arrangement. 
Bankruptcy:  Previous  asset  transfers  and  payments  that  bankrupts  made  to  creditors  or  other 
individuals can be overturned under bankruptcy legislation. This includes situations where: 
 The bankrupt has paid an amount or transferred an asset to any creditor in preference to any other 
creditors to whom they owe a debt. The OA can seek to have such payments, made in the three years 
prior to the date of adjudication, reversed. If the OA is successful, the amount in question would be 
paid back into the bankruptcy estate for the benefit of all creditors; 
 The  bankrupt  has  transferred  or  gifted  an  asset  to  a  third  party  for  an  amount  less  than  the  fair 
market value. Upon successful application before the High Court by the OA, such transfers within 
three years prior to the date of adjudication can be voided 
and the shortfall would be paid into the bankruptcy estate for the benefit of all creditors; 
 The  bankrupt  has  transferred  an  asset  or  made  a  payment  which  can  be  considered  to  be  an 
‘avoidance transaction’, i.e. the bankrupt was intending to avoid having the asset or sum of money 
considered as part of their bankruptcy estate. Two time periods apply in these cases: 
 Any  such  transactions  made  three  years  prior  to  the  bankruptcy  can  be  reversed  by  the  OA  on 
successful application to the High Court, and; 
 Any such transactions made five years prior to the bankruptcy, provided that the bankrupt fails to 
prove they were solvent at the time of the transaction. 
Legal  acts  carried  out  by  the  insolvent  before  the  opening  of  the  insolvency  proceedings  can  be 
revoked if they were carried out within a certain period (one year or six months) before the opening 
of the proceedings. 
The  legal  references  relating  to  the  effects  of  legal  acts  carried  out  by  the  bankrupt  prior  to  the 
declaration of bankruptcy which are detrimental to the mass of creditors are contained in Article 64 
et seq. of the bankruptcy law. Article 64 of the bankruptcy law establishes the ineffectiveness against 
creditors  of  free  acts  carried  out  by  the  bankrupt  in  the  two  years  preceding  the  declaration  of 
bankruptcy, with the exception of gifts for use and acts carried out in fulfilment of a moral duty or in 
the public interest, but on condition that these gifts are proportionate to the donor's assets. 
Article 65 of the bankruptcy law sanctions with ineffectiveness payments made by the  bankrupt in 
the two  years preceding the declaration of bankruptcy and concerning debts due on the  day of the 
declaration of bankruptcy or later. 
Article 66 of the bankruptcy law extends to the trustee in bankruptcy the right to bring an ordinary 
revocatory action pursuant to article 2901 of the Civil Code, in order to obtain a declaration of the 
ineffectiveness  of  the  acts  carried  out  by  the  debtor  to  the  detriment  of  the  masses,  where  the 
objective and subjective conditions exist. 
Art. 67 of the bankruptcy law is the pivotal rule of the bankruptcy revocation regulations contained 
in Section III of the bankruptcy law since it represents the main instrument for protecting the ‘par 
condicio  creditorum’  and  compliance  with  the  prohibition  of  altering  the  legitimate  order  of 
privileges. 
The objective premise of the bankruptcy revocation action is the ‘eventus damni’, i.e. the very fact 
of  the  damage  to  the  ‘par  condicio  creditorum’,  which  can  be  linked,  by  legal  and  absolute 
presumption, to the removal of the asset from the estate following the act of disposal. 
The  bankruptcy  law  distinguishes,  with  regard  to  the  subjective  presupposition  of  the  revocation 
action, ‘normal’ acts from ‘abnormal’ acts, i.e. acts that can be carried out in the normal course of 
business activity from acts that, although they can be carried out in the course of business activity, 
have peculiarities that lead them to real anomalies in the entrepreneur's management. 
If  the  trustee  intends  to  apply  for  the  revocation  of  ‘normal’  acts  carried  out  by  the  debtor  in  the 
suspected  period,  he  must  prove  the  existence  of  the  subjective  condition  of  the  defendant's 
knowledge,  at  the  time  the  act  was  concluded,  of  the  debtor's  state  of  insolvency  (scientia 
decoctionis). If, on the other hand, the trustee acts to revoke an ‘abnormal’ act, then he does not have 
to provide any evidence of the scientia decoctionis, since the law presumes that the defendant who 
took  advantage  of  the  abnormal  act  was  aware  of  the  state  of  insolvency  of  the  debtor  who  later 
became bankrupt. 
For the purposes of the bankruptcy revocation, the liquidator must take into consideration only that 
part of the debtor's activity (payments, contracts, deeds, and the provision of guarantees) carried out 
in  a  period  that  the  law  considers  to  be  ‘suspicious’  and  that  corresponds  to  a  period  of  time 
preceding the date of the judgment declaring bankruptcy (or the date of a different order, in the 
event of the completion of bankruptcy proceedings). 
As a result of Decree-Law no. 35/2005, converted into Law no. 80/2005, the backward time limits 

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for the  exercise of the revocation action  were halved to two years for gratuitous acts, one  year for 
abnormal acts and six months for normal acts.  
As  regards  the  starting  date,  the  suspected  period  is  calculated  backwards  from  the  date  of 
publication of the declaration of bankruptcy in the company register, and not from the date of filing 
the  judgment  in  the  registry.  Pursuant  to  Article  44  of  the  Bankruptcy  Act,  on  the  other  hand,  all 
legal acts carried out by the bankrupt and payments made by him after the declaration of bankruptcy 
are  ineffective  against  creditors.  Payments  received  by  the  bankrupt  after  the  declaration  of 
bankruptcy will also be ineffective; Finally, acts of extraordinary administration carried out by the 
bankrupt  during  agreements  with  creditors  and  without  the  authorisation  of  the  court  are  null  and 
void. 

LV  Prerequisites  for  avoiding  a  transaction  are  losses  incurred  by  the  debtor  (such  as  in  the  case  of 
undervalue  transactions)  and  knowledge  of  losses  by  the  counterparty.  Knowledge  is  presumed  in 
the  case  of  transactions  concluded  with  related  persons.  In  addition,  the  law  vests  with  the 
insolvency  administrator  the  right  to  reclaim  payments  made  by  the  debtor  prematurely  within  six 
months  prior  to  insolvency,  if,  at  the  same  time,  other  payment  obligations  were  not  honoured  in 
time. 

LT  Any  transaction  by  the  debtor  that  infringes  upon  creditors’  rights  may  be  challenged  by  the 
assigned insolvency administrator or an individual creditor, on the basis of actio Pauliana  within a 
one-year period of limitation, which starts to run on the day when the transaction became known or 
should  have  become  known.  For  a  transaction  to  be  successfully  contested  on  the  basis  of  actio 
Pauliana, existence of all of the following conditions is necessary: 
 the creditor must have an indubitable and valid right of claim, i.e. the debtor must have either failed 
to fulfil his/her obligation entirely or must have fulfilled in improperly; 
 the transaction at issue must infringe the creditor’s rights. Creditors’ rights are infringed where the 
transaction renders the debtor insolvent or where a solvent debtor prioritises another creditor, or the 
transaction,  while  not  rendering  the  debtor  insolvent,  changes  (reduces)  the  debtor’s  ability  to 
discharge the obligation to the creditor, for instance, reduces the value of the debtor’s assets (such a 
situation may occur, for instance, when the price received for property sold is significantly below 
the market price); 
 the debtor was not obliged to enter into the disputed transaction; 
 the  debtor  did  not  act  in  good  faith,  because  he/she  knew  that  the  transaction  would  breach  the 
rights of the creditors; 
 the  third  party  that  concluded  the  bilateral  transaction  with  the  debtor  in  exchange  for  a 
compensation did not act in good faith. 
Additionally, at the time bankruptcy or restructuring, disposal of the debtor’s property is restricted 
by law and the debtor’s transactions concluded in violation of those restrictions are invalid as of the 
moment they were concluded. 

LU  To protect the interests of creditors, the period between the cessation of payments and the order is 
regarded  as  the  ‘suspect  period’.  Certain  acts  carried  out  during  this  period,  where  they  may  be 
detrimental to the rights of creditors, will be null and void. These involve in particular: 
 any acts in relation to  movable or immovable property that the bankrupt has sold at no cost or in 
return  for  payment  where  the  sale  price  is  clearly  much  lower  than  the  value  of  the  property  in 
question; 
 all  payments  made  in  cash  or  by  transfer,  sale,  offsetting  or  otherwise  for  debts  that  have  not  yet 
fallen due; 
 all payments made other than in cash or using commercial instruments for debts falling due; 
 any  mortgage  or  any  other  property  rights  granted  by  the  debtor  for  debts  contracted  before  the 
cessation of payments. 
Any acts carried out or payments  made in  fraud of creditors, i.e.  where done by the debtor in full 
knowledge of the detriment that this will cause to the creditor (i.e. by reducing the insolvency estate, 
not respecting the ranking of claims, etc.) are deemed null and void, whatever the date on which they 
occurred. 

MT  Prejudicial  transactions  to  creditors  should  address  transactions  undertaken  by  the  debtor  with  the 

intention to prejudice the creditors. Currently, the suspect period in Malta is six months 

NL  During bankruptcy proceedings, a liquidator may invoke the actio Pauliana to invalidate antecedent 
transactions  that  are  detrimental  to  the  insolvent  estate.  Clawback  generally  requires  prejudice, 
which  will  materialise  if  creditors  receive  a  lower  distribution  on  their  claims  as  a  result  of  a 
transaction. 

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Prejudice  would  typically  be  the  result  of  a  reduction  in  the  total  value  of  the  debtor's  estate  as  a 
result of a transaction (transactions at an undervalue) or as a result of a disturbance of the statutory 
waterfall of priorities when a company is already insolvent (preferences). The liquidator should look 
at the entire transaction (including beneficial aspects of the transaction) and, therefore, has no right 
to  cherry-pick  by  only  looking  at  one  particular  provision  of  a  document  as  a  clause  that  has  a 
negative impact on the recourse position of the joint creditors. If the disputed act was part of a set of 
transactions, the positive or negative effects of the combined set should also be considered. 
Where prejudice has been established, the right to challenge the prejudicial action depends on further 
circumstances. The avoidance of an act entered into without a pre-existing obligation to perform the 
relevant act requires that the debtor (and in the case of a transaction against consideration, also the 
counterparty) knew or should reasonably have known that such prejudice would materialise. 
Knowledge of a  mere chance that prejudice  may occur is insufficient to invoke the actio Pauliana. 
Knowledge  must  relate  to  a  reasonable  degree  of  likeliness  that  insolvency  proceedings  will  be 
opened, and that the insolvent estate contains a deficit. In certain cases, the onus of proof regarding 
knowledge of prejudice is reversed by law (e.g., in the event of certain transactions executed 
between related parties within a period of one year prior to the bankruptcy date). 
A compulsory or involuntary legal act, on the other hand, can only be avoided either in the event that 
the transaction occurred at a time when the counterparty knew or ought to have known that a petition 
was submitted for the commencement of insolvency proceedings against the debtor, or in the event 
of a concerted action by the debtor and the creditor aimed at facilitating preferential treatment of the 
latter (collusion). 
Finally,  set-off  effected  in  the  period  immediately  prior  to  the  commencement  of  insolvency 
proceedings  could  be  clawed  back  if  the  creditor  effecting  the  set-off  acted  in  bad  faith  when 
acquiring its claim or debt on which it relied when setting off. Bad faith is, notably, given when the 
creditor  knew  or  should  have  known  that  the  insolvency  could  reasonably  be  expected.  A  similar 
rule applies to the right of an account bank to exercise its pledge over monies standing to the credit 
of  bank  accounts  of  its  clients  (such  a  pledge  is  generally  stipulated  in  the  general  terms  and 
conditions used by the relevant account bank). The pledge cannot be exercised by account banks in 
relation to monies paid into the account at a time when the account bank is considered to be in bad 
faith (as defined above). 
In  bankruptcy  proceedings  the  legal  actions  performed  by  the  bankrupt  party  in  respect  of  the 
bankruptcy  estate  are  void.  Under  threat  of  nullity,  the  consent  of  the  creditors’  committee  is 
required for the following actions (Article 206 of the Bankruptcy Act): 
 the continued management of the enterprise by the receiver if it is to last more than three months 
after the declaration of bankruptcy; 
 waiving the sale of the enterprise as a whole; 
 the direct sale of the assets included in the bankruptcy estate; 
 contracting  loans  or  credits  and  encumbering  the  bankrupt  party’s  assets  with  limited  proprietary 
rights; 
 the  admission,  waiver  of  entering  into  a  composition  regarding  disputed  claims  and  bringing  a 
dispute before a court of arbitration. 
In restructuring proceedings, in accordance with Article 129 of the Restructuring Act, under pain of 
nullity the following actions by the debtor or the insolvency practitioner require the consent of the 
creditors’ committee: 
 encumbering  elements  of  the  composition  or  remedial  estate  with  a  mortgage,  pledge,  registered 
pledge or maritime mortgage 
in order to secure a claim not subject to composition; 
 the  transfer  of  the  ownership  of  an  object  or  a  right  in  order  to  secure  a  claim  not  subject  to 
composition; 
 encumbering elements of the composition or remedial estate with other rights; 
 contracting credits or loans; 
 concluding an agreement on the leasing of the debtor’s enterprise or of its organised part or another 
similar agreement; 
 the sale, by the debtor, of real property or other assets worth over PLN 500 000. 
The  insolvency  practitioner  may  institute  proceedings  to  declare  actions  invalid  and  other 
proceedings in which a claim is based on the invalidity of an action. 

PL 

PT  Acts  detrimental  to  the  insolvent  estate  performed  within  two  years  prior  to  the  date  of 
commencement of the insolvency proceedings  may be resolved (Article 120, no. 1 of CIRE). This 

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includes all those acts that diminish, frustrate, hinder, endanger, or delay the satisfaction of creditors 
(Article 120.2 of CIRE). 
The resolution presupposes bad faith of the third party. Bad faith is understood to be the knowledge 
that the debtor was in a situation of insolvency; of the prejudicial nature of the act and that, on that 
date, the  debtor was in an imminent  situation of insolvency; or of the beginning of the insolvency 
process (Article 120, nr. 5). In any case, the bad faith of the third party is presumed when the acts 
performed or omitted have occurred in the two years prior to the commencement of the insolvency 
proceedings and in which persons especially related to the insolvent, such as parents or children, 
participated or benefited from (Article 120, nr. 4). 
In  some  cases,  the  requirement  of  bad  faith  may  be  waived  (Article  121  of  the  CIRE).  There  are, 
therefore,  some  acts  which  are  resolvable  irrespective  of  any  requirement.  For  example,  the 
following are therefore resolvable: acts performed by the debtor free of charge in the two years prior 
to  the  commencement  of  insolvency  proceedings  (including  the  repudiation  of  an  inheritance  or 
legacy); bail, sureties, sureties, endorsements and credit mandates granted by the debtor during that 
period, which do not concern transactions or businesses of real interest to the debtor; onerous acts 
performed by the insolvent in the year prior to the commencement of the insolvency proceedings, in 
which he manifestly assumed more obligations than the counterparty. 

RO  The  following  acts  or  transactions  performed  by  the  debtor  can  be  annulled  in  order  to  return  the 

transferred assets or the value of other benefits provided: 
 acts  of  transfer  without  consideration  performed  in  the  two  years  prior  to  the  opening  of  the 
proceedings; sponsorships for humanitarian purposes are exempted; 
 unequal  transactions,  where  what  is  given  by  the  debtor  is  clearly  greater  than  what  is  received, 
performed in the six months prior to the opening of the proceedings; 
 acts  performed  in  the  two  years  prior  to  the  opening  of  the  proceedings  with  the  intention  on  all 
sides of preventing assets from being pursued by creditors, or of harming their rights in any other 
way; 
acts of transfer of ownership to a creditor for or towards the satisfaction of a prior debt, performed in 
the six months prior to the opening of the proceedings, if the amount which the creditor could obtain 
in the event of a winding-up of the debtor is below the value of the act of transfer of ownership; 
 the establishment of a right of preference in regard to an unsecured claim in the six months prior to 
the opening of the proceedings; 
 advance payment of debts which are made in the six months prior to the opening of the proceedings, 
if the due date was to have been a date after the opening of the proceedings; 
 acts of transfer or assumption of obligations performed by the debtor in the  two years prior to the 
opening  of  proceedings  with  the  intention  of  concealing  or  delaying  the  state  of  insolvency  or 
committing fraud against a creditor. 
The action for annulment can be brought against a constitutive act under property law or an act of 
transfer of ownership under property law if it is concluded by a  debtor in the  normal course of its 
day-to-day business. An application for the annulment of a constitutive act or of an act of transfer of 
ownership  will  be  entered  automatically  in  the  appropriate  public  registers.  After  the  insolvency 
proceedings have been opened, all acts, transactions and payments performed by the debtor after the 
opening of proceedings are automatically null and void, with the exception the ones required for the 
conduct  of  current  business,  ones  authorised  by  the  delegated  judge,  transactions  endorsed  by  the 
court-appointed administrator 

SK  The Bankruptcy Act legislates for acts detrimental to the creditor by making them ineffective under 
certain  conditions.  Ineffectiveness  only  has  consequences  if  the  debtor’s  acts  are  contested.  The 
insolvency practitioner and the creditors have the right to contest them, but a creditor only has this 
right if the insolvency practitioner does not act on the creditor’s request to contest a legal act within 
a reasonable time. 
The right to contest a legal act lapse if it is not exercised in respect of the debtor or in court within a 
year of bankruptcy being declared; the right to contest a legal act is only considered to have been 
exercised  in  respect  of  the  debtor  if  the  debtor  acknowledges  the  right  in  writing.  Under  the 
legislation,  legal  acts  from  which  entitlements  are  enforceable,  or  have  already  been  satisfied,  can 
also be contested. 
Creditors and the bankruptcy  administrator have  the right to contest a legal act of the debtor. Any 
legal  acts  can  be  contested  (including  omissions)  that  result  in  unequal  or  reduced  payment  of 
bankruptcy creditors or in placing a particular creditor in a more favourable position. 
Legal  acts  that  may  be  contested  in  bankruptcy  proceedings  are  those  that  were  committed  in  the 

SI 

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period from the last year before the submission of a petition to launch bankruptcy proceedings until 
the opening of bankruptcy proceedings. An unpaid legal act (or legal acts of disproportionately low 
counter value) can be contested when committed in the period starting 36 months before the 
submission  of  the  request  to  launch  bankruptcy  proceedings  and  ending  upon  the  opening  of 
bankruptcy proceedings. 
A lawsuit for voidability must be lodged within 12 months after a decision on opening bankruptcy 
proceedings  becomes  final.  It  is  not  possible  to  contest  legal  acts  performed  by  the  debtor  in 
bankruptcy during compulsory settlement proceedings, in accordance with legal rules applicable for 
conducting  the  debtor's  business  in  the  proceedings;  legal  acts  performed  by  the  debtor  in 
bankruptcy to pay creditor claims in the proportions, within the deadlines and at the interest rates set 
out in a confirmed compulsory settlement; and payments for bills of exchange or cheques if the other 
party had to receive a payment in order for the debtor in bankruptcy not to lose the right of recovery 
against another person obligated under the bill of exchange or cheque. 
Legal  acts  performed  by  the  debtor  to  pay  creditor  claims  or  to  perform  other  obligations  in 
accordance with a confirmed agreement on financial restructuring cannot be contested either. 
ES  The regulation of revocatory actions in insolvency proceedings is contained in Articles 226 et seq. of 
the Recast Text of the Insolvency  Law. These provisions have undergone  successive amendments, 
mainly in relation to the nature of the ‘protective mechanisms’ of the refinancing agreements. 
Article 226 contains the legal system for claw-back actions, based on a general clause declaring all 
acts  carried  out  by  the  debtor  that  are  ‘detrimental  to  the  assets  covered  by  the  proceedings’  as 
‘revocable’,  whether  or  not  there  was  ‘intention  to  mislead’.  In  order  to  safeguard  the  effects  of 
revocation, a specific period of time is established: the two years prior to the date of the insolvency 
order. 
The law opts for the establishment of a specific revocation period: two years dating back from the 
date  of  the  insolvency  order.  Actions  carried  out  during  the  ‘suspect  period’  by  the  debtor  are 
revocable if they are detrimental to the assets covered by the proceedings. Pecuniary detriment must 
be satisfactorily proven by the party making the complaint. However, given the difficulties normally 
entailed  in  proving  detrimental  acts,  the  Insolvency  Law  facilitates  bringing  actions  through  the 
establishment of a set of presumptions. As happens in other parts of the law, the presumptions may 
be irrebuttable or rebuttable. 
The pecuniary detriment is presumed irrebuttable in two cases: 
 when dealing with the free disposal of assets, except donations for use, and 
 when  dealing  with  payments  and  other  acts  settling  obligations  that  fall  due  after  the  insolvency 
order, unless  they are secured by collateral, in  which case  the  presumption  admits evidence to the 
contrary; 
The pecuniary detriment is presumed rebuttable in three cases: 
 when dealing with the disposal of assets against payment to persons with a special relationship with 
the insolvency debtor, 
 when  dealing  with  the  creation  of  charges  on  property  in  favour  of  pre-existing  obligations  or  in 
favour of new obligations incurred to replace the former, and 
 payments  or  other  acts  settling  obligations  secured  by  collateral  and  that  fall  due  after  the 
insolvency order. 
Legal  standing  to  bring  revocatory  actions  in  insolvency  proceedings  falls  to  the  administrator. 
However,  for  the  purpose  of  protecting  creditors  against  the  inactivity  of  administrators,  the  law 
provides  for  a  subsidiary  or  second  grade  legal  standing  for  creditors  that  have  urged  the 
administrator in writing to bring a revocatory action, if within a period of two months since the date 
of  the  request  the  action  is  not  brought  by  the  administrator.  The  law  contains  rules  aimed  at 
ensuring that administrators effectively carry out the role of ensuring that the assets covered by the 
proceedings  are  not  disposed  of.  For  actions  against  refinancing  agreements,  legal  standing  is 
exclusive to the administrator, excluding any subsidiary standing. 
In  order  to  protect  the  refinancing  agreements,  there  are  special  rules  resulting  from  recent 
legislative amendments, which define protective mechanisms that make these agreements (approved 
under certain conditions) resistant to revocatory actions. 

SE  An  act  can  be  reversed  if  it  improperly  favoured  a  certain  creditor  over  others,  or  if  the  creditors 
have been deprived of the debtor’s property, or if the debtor’s debts have increased, and if the debtor 
was insolvent or became insolvent as a result of the proceeding alone or as a result of the proceeding 
in combination  with other factors, and the other party  knew or should have  known that the debtor 
was insolvent and what the circumstances were that rendered the legal act improper. 

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Payment of a debt later than three months before the reference date  using a method other than the 
customary means of payment, or in advance, or of an amount that appreciably worsened the debtor’s 
financial  status,  can  be  reversed  unless  it  can  be  regarded  as  ordinary  in  the  circumstances.  If  the 
payment was made to one of the debtor’s family members prior to that date but later than two years 
before the reference date, it can be reversed unless it is shown that the debtor was not insolvent and 
did not become insolvent as a result of the act in question. 

Source: Deloitte/Grimaldi (2022). 

2.2 

Asset tracing  

Closely related to transaction avoidance, asset tracing is a “follow the money” tool, that 
enables courts, insolvency practitioners or parties that demonstrated a legitimate interest 
to  determine  and  locate  the  assets,  examine  the  revenue  generated  by  often  fraudulent 
activity, and follow its trail. “Asset tracing” is a legal process of identifying and locating 
misappropriated  assets  or  their  proceeds  (values)  belonging  to  the  debtor’s  estate.  It 
includes both  the preservation (freezing) of the  assets identified  and the repatriation (if 
the asset is to be found in another State).  284 The effectiveness of tools for asset tracing 
has  a  key  importance  in  the  maximisation  of  the  value  of  the  insolvency  estate. 
the  European  Preservation  Order  Procedure 
Insolvency  practitioners  can  use 
(“EAPO”)285 to trace and recover assets above at least in relation to detrimental payments 
the  debtor  made  to  third  parties.  However,  many  aspects  of  EAPO  implementation  are 
governed by national laws and the main use of the instrument appears limited to tracing 
banking accounts286.  

Consultations with stakeholders revealed problems if a cross-border element is implied, 
that is the asset is situated in another Member State than the one where the proceedings 
have been opened. In fact, recurring feedback from the stakeholder consultation was that 
the  means  available  for  insolvency  practitioners  to  trace  and  freeze  assets  belonging  to 
the estate in another Member State are insufficient or inadequate which often results in 
the dissipation of those assets by the time action is taken.  

Although  the  EU  Insolvency  Regulation287  ensures  that  the  powers  of  the  insolvency 
practitioners  have  cross-border  effects,  subject  to  certain  conditions,  exercising  these 
powers  encounters  difficulties  in  practice.  Stakeholders  pointed  out  that  essential 
information for the purpose of asset tracing are included in national registers, but these 
registers  are  either  not  accessible  and/or  are  not  comprehensible  by  the  insolvency 
practitioners (due to language barriers). Furthermore, information is not updated occur in 
practice.  

284  UNCITRAL, Civil  asset  tracing  and  recovery  in  insolvency  proceedings. Note  by  the  Secretariat, 4 
October 2021 (A/CN.9/WG.V/WP.175), § 29. See previously the Report of the Colloquium on Civil Asset 
Tracing  and  Recovery (Vienna,  6  December  2019)  (A/CN/9/1008).  The  documents  are  available  at 
www.uncitral.org. 
285  Regulation  (EU)  No  655/2014  of  the  European  Parliament  and  of  the  Council  of  15  May  2014 
establishing a European Account Preservation Order procedure to facilitate cross-border debt recovery in 
civil and commercial matters.  
286 Antonio Leandro, Asset Tracing and Recovery in European Cross-border Insolvency Proceedings, 21 
December 2021. 
287 EU Regulation 2015/848 of 20 May 2015 on Insolvency proceedings, hereafter EIR. 

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From  the  substantive  standpoint,  the  current  framework  implies  that  powers  of 
insolvency practitioners may not  include coercive measures if they are not  provided by 
the applicable law, unless ordered by a court of the specific Member State or the right to 
rule  on  legal  proceedings  or  disputes.  However,  both  the  recognition  of  the  powers  of 
insolvency practitioners to act in relation to the assets located in another Member State288 
and  the  recognition  of  injunction  and  interim  courts  orders289  are  well  established. 
Preservation  measures,  instead,  may  be  adopted  only  where  an  insolvency  practitioner 
has  been  appointed290  which  means  that  prior  to  the  commencement  of  the  insolvency 
proceedings provisional measures may be only ordered by the court upon the request of 
the debtor, creditors or third parties or the foreign representative291.   

Lastly, in respect to the publicity of the information regarding assets, there is a need to 
facilitate  and  speeding  up  the  process  of  tracing  assets  for  the  efficiency  of  insolvency 
proceedings,  in  compliance  with  fundamental  rights  and  data  protection  requirements, 
relying on IT tools. The EU has already taken significant steps: the EIR requires Member 
States to  establish insolvency registers interconnected via the European  e-Justice portal 
and  to  publish  certain  mandatory  information  establishing  the  insolvency  registers’ 
interconnection (“IRI”); the Business Registers Interconnection System (“BRIS”) aims at 
facilitating the access to information on EU companies for the public and ensure that all 
EU business registers can communicate to each other; the Beneficial ownership registers 
interconnection system (“BORIS”) serves as a central search service making available all 
information  related  to  the  beneficial  ownership  operating  as  a  decentralised  system 
interconnecting the national beneficial ownership registers of the Member States and the 
European  e-Justice  Portal  through  the  European  Central  Platform.  Lastly,  there  is  a 
Proposal for a Regulation on a computerized system for communication in cross-border 
civil  and  criminal  proceedings292  (e-Codex  system)  which  includes  both  the  into  its 
scope.  

288 France, Cass. Com. No. 17-16.200, Dalloz 2020, 1799, note R. Damman/A.Sallou. 
289  France,  Cass.  Civ.  No.  15-14.664,  Rev.  Sociétés  2017,  303  note  N.  Morelli.  See  R.  Damman/M. 
Guermonprez, BJE February 2018. 
290 Art. 52 EIR. 
291 Note of the Secretariat of the UNCITRAL Working Group V, 4 Ocotber 2021 (A/CN.9/WG.V/W) 
292 Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a 
computerised  system  for  communication  in  cross-border  civil  and  criminal  proceedings  (e-CODEX 
system), and amending Regulation (EU) 2018/1726, 2.12.2020. 

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Table  A.5.3:  Insolvency  practitioners  in  insolvency  proceedings  in  the  EU  Member  States,  powers  relating  to  asset 
tracing are underlined 

AT  Trustee in bankruptcy proceedings: 

 the practical conduct of the insolvency proceedings; 
 reviews the financial position of the debtor; 
 continues to run the business if it is not yet closed on opening the proceedings and no disadvantage 
from continuation arises 
for the creditors; 
 examines the claims lodged; 
 examines whether a restructuring plan is in the interests of the creditors and whether it is likely to 
be executable; 
 establishes and disposes of the assets; 
 administers and represents the insolvency estate; 
 exercises the right of challenge for the insolvency estate; 
 distributes the proceeds from the estate. 
Administrator in restructuring proceedings 
 supervises the debtor and the debtor’s business management; 
 grants  or  refuses  authorisation  for  legal  acts  which  are  not  carried  out  in  the  normal  course  of 
business; 
 represents the debtor in all matters in which the debtor does not have power of disposal; 
 ascertains the financial position of the debtor; 
 examines whether the restructuring plan is executable and whether reasons exist for withdrawal of 
possession; examines the claims lodged; 
 exercises the right of challenge for the insolvency estate. 

BE  General  

The concept of ‘insolvency practitioner’ (IP) is defined in Article I.22, 7° of the BCEL. 
Belgium  listed  persons  that,  under  national  law,  are  to  be  considered  as  insolvency  practitioners 
because  they  perform  at  least  one  of  the  tasks  listed  in  Article  2(5)  of  the  Regulation.  The  list 
includes: 
 the receiver; 
 the delegated judge; 
 the judicial representative; 
 the debt mediator; 
 the liquidator; 
 the provisional administrator. 
The core of the matter is set out in Article XX.20 of BCEL, which regulates the profile of insolvency 
practitioners,  the  insurance  of  their  professional  liability,  the  obligation  to  appear  on  the  lists  of 
practitioners  provided  for  by  the  law,  the  methods  for  determining  and  collecting  fees,  the 
procedures for increasing or replacing fees, the procedures for increasing their number or replacing 
them, as well as matters relating to the end of their mandate. 
Receiver  
The  day  on  which  the  bankruptcy  is  declared  by  the  Company  Court,  a  receiver  is  appointed  to 
assume  all  responsibilities  from  the  board  of  directors  and  other  corporate  organs.  The  court  has 
absolute  discretion  regarding  the  identity  and  the  number  of  receivers  appointed;  however,  the 
receiver  has  to  be  a  licensed  insolvency  practitioner  registered  on  the  list  of  receivers  held  by  the 
court.  For  bankruptcies  of  large  companies,  it  is  not  unusual  to  appoint  a  committee  of  receivers. 
The  receiver  has  full  control  over  the  company,  only  subject  to  the  oversight  of  the  court  and  the 
judge-commissioner. 
Delegated judge  
If the delegated judge is included among the insolvency practitioners listed in Annex B, this does not 
imply that he will be subject to the rules applied by Book XX to insolvency practitioners in general. 
His status (like that of the judge-commissioner, who is not included in Annex B) is different from 
that of  genuine insolvency practitioners. It is also apparent that  he is  not primarily responsible for 
any of the tasks listed in Article 2, 5 of Regulation 2015/848.  
Judicial representative  
The  judicial  representative  is,  in  the  context  of  a  judicial  reorganisation  by  transfer  under  judicial 

174 

 
 
 
authority, the person responsible for organising the transfer of all or part of the undertaking. In the 
context of a judicial reorganisation procedure by collective agreement, a judicial representative may 
be appointed to facilitate the conclusion of an amicable settlement. 

BG  Receivers  

Under Art. 655 of BCA, natural persons must fulfil certain conditions in order to become receivers 
(e.g. to have passed successfully the examination for acquiring qualification). The bankruptcy court 
shall appoint the receiver in bankruptcy elected by the first meeting of the creditors. The receiver in 
bankruptcy shall exercise his powers with the care of a prudent merchant. 
Under Art. 658 of BCA, the receiver in bankruptcy shall have the power to represent the undertaking 
and  to  manage  its  affairs.  This  include  (the  right  to  supervise  the  debtor’s  business,  to  obtain  and 
keep the books and handle the business correspondence, to make enquiries and identify the debtor’s 
assets, to request that contracts to which the debtor is a party be terminated, cancelled or annulled, to 
propose a recovery plan etc.). 
Liquidators 
Under  Art.  266  et  subseq.  of  the  BCA,  liquidators  must  be  registered  in  the  commercial  register. 
Liquidators shall bear the same liability for their activities related to the liquidation as the managers 
and the other executive bodies of the trade companies. The liquidator shall be obliged to exercise his 
competencies with the care of a diligent merchant. The liquidators shall be obliged to complete any 
pending transactions, to collect debts due, to convert the remaining company's property into cash and 
satisfy the creditors. 

HR  Trustee  

The trustee of the pre-bankruptcy proceeding is appointed by a decision of the court. The trustee has 
a number of duties, such as examining the business operations, the assets and liabilities of the debtor 
and  the  credibility  of  registered  claims.  Among  others,  he/she  may  contest  claims,  supervise  the 
business operations of the debtor and file complaints to the court in cases of breaches of the CBL. 
Liquidator  The  liquidator  in  bankruptcy  proceedings  is  selected  at  random  and  appointed  by  the 
court in the decision on opening bankruptcy proceedings. The liquidator is vested with the rights and 
obligations  of  the  corporate  bodies  of  the  debtor,  unless  otherwise  specified  in  the  CBL.  S/he  is 
obliged to put the accounting records in order, compile a preliminary cost estimate and send it to the 
committee  of  creditors  for  approval,  ensure  the  realisation  of  the  debtor's  claims,  to  prepare 
distribution  to  creditors  and  execute  distribution  after  approval,  to  deliver  a  final  account  to  the 
committee of creditors, to make subsequent distributions to creditors etc. 

CY  Compulsory winding-up by the court cases 

If  the  court  considers  it  appropriate,  it  can  appoint  a  temporary  liquidator,  for  the  period  after  the 
submission of the petition before it and before it delivers the order of the compulsory winding-up, to 
protect  the  company’s  assets.  The  powers  and  responsibilities  of  a  temporary  liquidator  are  those 
that  the  court  will  give  him  at  his  appointment.  The  liquidator  (not  a  temporary  one)  in  this 
procedure  has  to  ensure  that  the  company’s  assets  are  gathered,  realized,  and  distributed  to  the 
company’s creditors, and if there is a remainder to the people entitled to it. For this reason, he has 
the  power  to  proceed  with  almost  any  actions  necessary  to  do  this.  There  are  certain  actions  for 
which the liquidator needs the permission of the court or of the supervisory committee, and there are 
some other actions that remain vested to the  court (for instance the  preparation of the contributors 
list,  order  a  contributor  to  pay  etc).  The  powers  of  the  liquidator  in  compulsory  winding-up  are 
subject to the supervision and control of the court. 
Voluntary winding-up  
The liquidator in a voluntary  winding-up has all the powers and responsibilities that the liquidator 
has  in  compulsory  winding-up.  In  addition,  he  can  proceed  with  certain  actions  relating  to 
liquidation without the court’s or the supervisory committee’s permission, for which a liquidator in 
compulsory winding-up would need such permission. Moreover, he can perform some actions that in 
a  compulsory  winding-up  would  be  vested  to  the  court.  However,  there  remain  some  actions  for 
which the liquidator still needs the approval of the court or the supervisory committee. 
Winding-up under the court’s supervision 
The  liquidator’s  powers  and  responsibilities  remain  the  same  as  in  a  voluntary  winding-up,  unless 
the court imposes restrictions. 
Receivership  
The  powers and responsibilities of the  receiver depend on and are contained in the agreement that 
had been previously made by the debtor and the secured creditor. 
Examinership  

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The examiner has all the powers that are afforded to auditors. Moreover, s/he has the right to call for 
meetings  and  participate  in  them  and  to  take  measures  to  stop,  prevent  or  rectify  an 
action/omission/decision made by the company, or its creditors, or its members or its stakeholders, 
or by any other person, that is harmful to the company as a going concern. With the court’s approval 
he  can  verify  claims  against  the  company  and  reach  agreements  for  their  settlement.  His  most 
important task is to prepare proposals for a scheme of arrangement or settlement or restructuring, so 
that insolvency can be prevented and the viability of the company as a going concern secured. 

CZ  General Insolvency administrator General Insolvency administrator’s powers: 

 Review of the registered receivables; 
 Drafting the list of insolvency estate (assets); 
 Right to challenge insolvency debtor’s legal actions and payments in the period up to 5 years before 
commencement of the insolvency proceedings; 
 Notification of foreign EU creditors (in cooperation with insolvency court); 
 Cooperation with the creditors’ committee; 
 Informing creditors of the economic situation of the insolvency debtor; 
 Fulfilment of other duties imposed by the court in preliminary injunction; 
Insolvency administrator powers in bankruptcy 
 In general – all powers of the insolvency debtor’s management; 
 Administration of the assets; 
 Enforcement of the debtor’s receivables; 
 Sale of the assets; 
 Payments to the creditors; 
 Right to terminate the contracts; 
 Administration of accounting; 
Insolvency administrator powers in reorganisation 
 Supervision of the management of the company; 
 Supervision of fulfilment of the reorganisation plan. 

DK  The  trustee  has  to  sell  the  assets  of  the  bankrupt  and  investigate  the  dispositions  made  in  the 
company  and  thereby  recover  as  much  money  as  possible.  The  trustee  is  first  to  cover  his 
outstanding salary for his work and then the creditors will divide the rest according to the rules in the 
DBA. The trustee must manage the interests of the estate to the  widest extent possible, in order to 
ensure that the outcome of bankruptcy is as favourable as possible. 

EE  A trustee in bankruptcy enters into transactions relating to the bankruptcy estate and performs other 
acts.  The  rights  and  obligations  arising  as  a  result  of  the  trustee’s  actions  belong  to  the  debtor.  A 
trustee,  in  accordance  with  their  duties,  participates  in  court  as  a  party  to  disputes  relating  to  the 
bankruptcy estate in lieu of the debtor. 
The trustee has the following prerogatives: 
 determines the creditors’ claims, administers the bankruptcy estate, organises its formation and sale 
and satisfaction of the creditors’ claims out of the bankruptcy estate; 
 ascertains the causes of the  debtor’s insolvency and the  time  when the insolvency arose; arranges 
for the debtor’s business activities to continue, where necessary; 
 conducts the liquidation of the debtor who is a legal person, where necessary; 
 provides information to the creditors and the debtor in the cases prescribed by law; 
 reports  on  their  activities  and  provides  information  concerning  the  bankruptcy  proceedings  to  the 
court, the supervisory official and the bankruptcy committee; 
 performs other obligations provided for by law. 
If  the  debtor’s  insolvency  was  caused  by  a  grave  error  in  management,  the  trustee  is  required  to 
lodge a claim for damages against the person liable for the error immediately after sufficient grounds 
for lodging a claim become evident. In addition to the trustee’s rights provided for by law, a trustee 
also  has  the  rights  of  an  interim  trustee.  The  trustee  must  perform  their  obligations  with  the  care 
expected of a diligent and honest trustee and take into account the interests of all the creditors and 
the debtor. 
Trustee in bankruptcy  
The trustee has a central role in the administration of an estate in bankruptcy. The duties of the estate 
administrator  include  representing  the  insolvency  estate,  seeing  to  the  current  management  of  the 
estate, drawing up the estate inventory and the debtor description, receiving the lodgement of claims, 
and drawing up the draft disbursement list and the final disbursement list. The trustee also sees to the 
management  and  sale  of  assets  belonging  to  the  estate  and  disbursement  of  the  funds.  When 

FI 

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FR 

judicial  reorganisation  proceedings, 

bankruptcy starts, the debtor loses their authority over the assets of the insolvency estate. 
Insolvency practitioner 
The insolvency practitioner is responsible for realising the purpose of the restructuring proceedings 
and for protecting the interests of the creditors. The insolvency practitioner draws up a report of the 
debtors’ assets and liabilities and a proposal for a restructuring programme (some other parties, such 
as the  debtor, are also entitled to draw up their own proposal for a  restructuring programme). The 
insolvency practitioner also supervises the debtor’s activities. 
Judicial reorganisation  
Where safeguard or judicial reorganisation proceedings are opened, the debtor is not disinvested and 
continues  to  manage  his  business.  Under  safeguard  proceedings,  the  court  may  appoint  an 
administrator to supervise or assist the debtor in his business management, according to the mandate 
defined  by  the  court  in  the  judgment.  In  certain  cases  (businesses  with  at  least  20  employees  and 
turnover excluding taxes of at least EUR 3 million) that appointment is compulsory. 
Under 
the  court  may  also  appoint  an  administrator 
(administrateur  judiciaire)  who  will  assist  the  debtor  in  his  management  or  manage  the  business 
himself,  in  whole  or  in  part,  in  place  of  the  debtor.  That  appointment  is  compulsory  in  the  same 
cases as in safeguard proceedings. 
Judicial liquidation  
In  the  case  of  judicial  liquidation  proceedings,  the  debtor  is  divested  of  the  administration  and 
disposal  of  his  assets.  The  liquidator  (liquidateur)  exercises  his  rights  and  performs  actions  in 
relation to his business assets. The liquidator therefore undertakes the administration of his assets. 
General conditions  
Insolvency  practitioners  are  court-appointed  representatives  placed  under  the  supervision  of  the 
public prosecutor’s office and are members of regulated professions. These specialised professionals 
must be entered on national lists and meet strict conditions as to suitability and good character. 
Persons not entered on these lists, but with particular experience or qualifications in the light of the 
case, may also be designated. Insolvency practitioners are appointed by the court when proceedings 
are opened. Insolvency practitioners could incur civil and criminal liability under ordinary law. The 
practitioners’ fees are determined by scales fixed by decree; their remuneration under these scales is 
charged by the court to the debtor. 
Court-appointed administrator  
In  principle,  the  court  opening  safeguard  or  judicial  reorganisation  proceedings  appoints  an 
administrator, who may be proposed by the debtor under the safeguard proceedings or by the public 
prosecutor’s office. It is not compulsory to appoint an administrator if the debtor has a workforce of 
fewer than 20 employees and if his turnover excluding taxes is less than EUR 3 million. In the case 
of  accelerated  safeguard  and  accelerated  financial  safeguard  proceedings,  the  appointment  of  an 
administrator is always compulsory. 
Under safeguard proceedings, the debtor is not disinvested and continues to dispose of and manage 
his assets, unless the court decides otherwise. The court-appointed administrator, if one is appointed, 
supervises or assists the debtor in his business management, according to the mandate defined by the 
court. 
Under judicial reorganisation proceedings, the court-appointed administrator assists the debtor in his 
management or manages the business himself, in whole or in part, in place of the debtor. The court-
appointed administrator must take, or have the debtor take, the necessary measures to preserve the 
rights  of  the  business  against  its  debtors  and  the  necessary  measures  to  maintain  its  production 
capacity. 
The  court-appointed  administrator  is  vested  with  specific  powers,  such  as  operating  under  his 
signature the bank accounts of a debtor who has been prohibited from issuing cheques, requiring the 
continuation of current contracts and implementing the necessary redundancies. 
Court-appointed receiver  
It  is  compulsory  for  the  court  to  appoint  a  receiver  (mandataire  judiciaire)  in  any  collective 
proceedings. His task is to represent the creditors and their collective interests. He draws up the list 
of declared claims, including wage claims, with his proposals for admission, rejection or referral to 
the competent court, and forwards the list to the bankruptcy judge. 
Liquidator  
The court appoints a liquidator in the judicial liquidation order. The liquidator must verify the claims 
and realise the debtor’s assets in order to pay off creditors. He implements redundancies and may opt 
for  the  continuation  of  current  contracts.  He  represents  the  disinvested  debtor  and  thus  exercises 

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most of his rights and performs most of the actions relating to these assets during judicial liquidation 
proceedings. On the other hand, he may not exercise the debtor’s non-pecuniary rights  

DE  The insolvency administrator is the key player in the insolvency proceedings. Only natural persons, 
and  not  legal  persons,  can  be  appointed  as  insolvency  administrator  (Section  56(1),  first  sentence, 
GIC).  In  particular  lawyers,  accountants  or  tax  advisers  come  into  consideration  for  this 
appointment. 
With  the  opening  of  the  insolvency  proceedings,  the  right  to  manage  and  dispose  of  the  debtor’s 
property is vested in the insolvency administrator (Section 80(1) GIC). The insolvency administrator 
is required to clear the assets he finds on the opening of the insolvency proceedings of any items that 
are not the property of the debtor. He also has to transfer to the debtor’s assets items which belong to 
the debtor’s assets under liability law, but which were not yet entered among the debtor’s assets at 
the time insolvency proceedings were opened. 
The debtor’s assets determined in this way constitute the insolvency estate (Insolvenzmasse, Section 
35 GIC) which will be realised by the insolvency administrator and f om which the creditors will be 
satisfied. Further duties of the insolvency administrator include: 
 payment of wages to the employees of the insolvency debtor, 
 deciding  whether to continue or end pending  legal disputes (Sections 85 et seq. GIC) and how to 
deal with contracts which have not been fully performed (Sections 103 et seq. GIC), 
 drawing up a statement of assets and liabilities (Section 153(1), first sentence, GIC), 
contesting transactions entered into prior to the opening of insolvency proceedings that are likely to 
disadvantage the ordinary creditors (Sections 129 et seq. GIC). 
The  insolvency  administrator  is  subject  to  the  supervision  of  the  insolvency  court  (Section  58(1) 
GIC). If a creditors’ committee is set up, it supports and monitors the insolvency administrator in the 
performance of his duties (Section 69, first sentence, GIC).  
After the opening of the insolvency proceedings, when the right to dispose of the debtor’s property 
has been vested in the insolvency administrator, the administrator can in principle dispose freely of 
all  the  assets  belonging  to  the  insolvency  estate.  There  are  limits  on  transactions  of  particular 
importance,  such  as  the  sale  of  the  enterprise  or  the  entire  stock.  Transactions  of  particular 
importance such as these require the approval of the creditors’ meeting or the creditors’ committee. 
The fact that the approval requirement has been infringed, however, has no effect on outside parties, 
but  results  only  in  the  liability  of  the  administrator.  The  administrator  also  has  to  comply  with  a 
decision of the creditors’ meeting to wind up the enterprise or to continue in business (Sections 157 
and 159 GIC). 
If  the  insolvency  administrator  wrongfully  violates  the  obligations  incumbent  on  him  under  the 
Insolvency  Code,  he  is  liable  for  damages  to  all  parties  to  the  proceedings  (Section  60(1)  GIC). 
Section 60(1) of the Code provides: ‘The insolvency administrator shall be liable to compensate the 
damage suffered by any party to the proceedings if he wrongfully violates the duties incumbent on 
him  under  this  Code.  He  shall  conduct  himself  with  the  care  expected  of  a  proper  and  diligent 
insolvency administrator.’ 
The insolvency administrator is entitled to remuneration in consideration of the exercise of his office 
and to reimbursement of appropriate expenses (Section 63(1), first sentence, GIC). The remuneration 
is regulated in the Insolvency Law Remuneration Regulation (Insolvenzrechtsvergütungsverordnung 
–  ‘InsVV’)  and  is  determined  according  to  the  value  of  the  insolvency  estate  at  the  time  the 
insolvency proceedings come to an end. The Regulation provides for graduated standard rates, which 
may,  however,  be  increased  according  to  the  scale  and  difficulty  of  the  duties  of  the  insolvency 
administrator. 

EL  General  

The  insolvency  practitioners  perform  specific  tasks  related  to  debt  adjustment  and  second  chance 
under Law 4738/2020. They must be registered in the Registry of Insolvency Practitioners. 
The  granting,  renewal  and  revocation  of  the  license  to  Insolvency  Practitioners  is  given  by  the 
Insolvency Administration Commission which was established on 21.4.2021 and operates within the 
Ministry of Finance under the supervision of the Special Secretariat for 
Private Debt Management. 
Corporate debt adjustment through the out-of-court mechanism  
In cases of corporate debt adjustment through the out-of-court mechanism: 
They work for the benefit of companies in order to achieve the settlement of their debts to the State, 
relieving the public officials of the creditors of the relevant responsibility. To this end, they provide 
an opinion that: 

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 that  the  assessment  of  the  restructuring  agreement  provides  for  a  recovery  at  least  equal  to  the 
recovery in the event of the debtor's bankruptcy (and therefore that the State will not be worse off 
than it would be in the event of the debtor's bankruptcy); 
 that the implementation of the restructuring agreement allows the viable operation of the company 
or makes it solvent, that the conditions, rules and restrictions of the debt arrangement with the State 
are met (e.g. that the conditions for debt writeoff are fulfilled). 
Corporate debt restructuring  
Insolvency  Practitioners  are  appointed  by  the  court  as  special  representatives  with  the  power  to 
exercise  some  or  all  of  the  powers  of  the  administration  of  the  company  in  debt  restructuring 
proceedings. They may also be selected by banks and loan managers to give their reasoned opinion 
in order to obtain the consent of the State and social security institutions to multilateral restructuring 
agreements for amounts owed to them exceeding EUR 1,5 million, etc. 
Second chance cases  
They are appointed by the court as receivers, with the power to sell all or part of the debtor's assets 
and subsequently distribute the resulting amounts to creditors. 

HU  Bankruptcy trustee  

The  court  appoints  a  bankruptcy  trustee,  who  shall  monitor  the  debtor’s  business  activities  with  a 
view to protect the creditors’ 
interests and to prepare for the composition with creditors. 
Accordingly, the bankruptcy trustee shall: 
 review  the  debtor’s  financial  standing,  which  may  entail  inspection  of  the  debtor’s  books,  assets, 
and liabilities, contracts, and 
current  accounts,  requesting  information  from  the  directors  of  the  economic  operator,  from  the 
supreme body, supervisory 
board members and the auditor, and - in the case of a recognized group of companies governed by 
the Companies Act from 
the dominant member -, shall inform the creditors regarding his findings; 
 carry out - assisted by the debtor - the tasks relating to the registration and categorization of claims ; 
 approve  and  endorse  -any  financial  commitment  of  the  debtor  after  the  time  of  the  opening  of 
bankruptcy proceedings; 
 advise the debtor to enforce its claims and shall oversee the way it is executed, and in the event of 
the debtor’s failure to 
comply shall notify the supreme body, the supervisory board and the auditor thereof; 
 contest, at its discretion, any contract or legal statement the debtor has made in the absence of his 
approval or endorsement, 
and  shall  initiate  or  open  proceedings  for  the  recovery  of  any  payments  effected  unlawfully  or 
arising out of or in connection 
with  any  unlawful  claim,  as  well  as  proceedings  for  the  restoration  of  the  situation  that  existed 
previously; 
 categorize the registered claims and inform the creditors about the registration and categorization of 
their claims; 
 exercise joint power of representation and joint right of disposition over the current accounts in the 
case the court orders it, 
or if the majority of the creditors may make the extension of the deferral period conditional on the 
debtor granting the trustee 
a joint right of representation or a joint right of disposal over the current accounts; 
 perform the tasks of initiating the extension of payment deferral. 
The  bankruptcy  trustee  shall  have  powers  to  approve  any  new  commitment  made  by  the  debtor. 
However, the bankruptcy trustee 
may grant approval for a commitment, or for a payment, if they serve the debtor’s interest in terms 
of operations, and for the 
preparation of composition arrangements, and may provide guarantees for such commitments only if 
agreed by the creditors 
representing the majority of the claims held by creditors with voting rights. 
The executive officers of a debtor, including its supreme body, shall exercise their respective rights 
only if it does not violate the 
powers vested in the bankruptcy trustee. The court shall impose a financial penalty on the executive 
officer of the debtor between 

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100,000 and 500,000 Hungarian forints for any breach of his statutory obligation to cooperate with 
the bankruptcy trustee. 
Liquidator  
A liquidator may only be an organization of which a member (shareholder) is known and in which a 
member  (shareholder)  does  not  have  a  direct  or  indirect  shareholding,  who  is  resident  in  a  state 
specified in the regulation on the publication of the list of noncooperating states or in which the law 
does not require the tax liability corresponding to corporation tax - not including a State party to the 
Agreement on the European Economic Area, or the prescribed tax rate is not more than 10 percent. 
The liquidator shall appoint a liquidator officer to carry out the liquidation of the debtor who has no 
criminal record, is not subject to a prohibition on engaging in the activity of liquidator, is not subject 
to a conflict of interest or meets the conditions set out in the Bankruptcy Act. This also applies to the 
person carrying out the tasks of bankruptcy trustee. 
The rights of the owner(s) of the debtor, as defined in other regulations, shall cease as of the time of 
the  opening  of  liquidation  proceedings.  As  of  the  time  of  the  opening  of  liquidation  only  the 
liquidator  shall  be  authorized  to  make  any  legal  statements  inconnection  with  the  assets  of  the 
debtor. 
In order to perform his duties, the liquidator may enter the debtor's premises and inspect any of its 
assets.  The  debtor  is  obliged  to  open  its  closed  areas  immediately  upon  the  liquidator's  call  and 
provide information on the existence and location of its property (furniture and other movables). 
The executive officer of the debtor may be subject to a  fine of up to 50 % of his income received 
from the debtor in question in the year preceding the time of the opening of liquidation proceedings, 
or up to 2.000.000 Hungarian forints, if his income cannot be determined,  for failure to cooperate 
with the liquidator. 
The liquidator shall analyse the financial standing of the economic operator and the claims against it. 
If  the  creditors  have  formed  a  creditors’  committee  the  liquidator  shall  be  required  to  obtain  the 
consent of the committee for continuing business operations of the debtor. The same rule applies if 
the creditors have selected a creditors’ representative. 
The  liquidator  may  lease  or  transfer  the  debtor's  assets  only  with  the  approval  of  the  creditors 
'committee or the creditors' representative or two-thirds of the creditors to a person or entity who, at 
the  time  of  order  of  liquidation  or  within  one  year,  was  the  executive  officer  of  the  debtor,  or  the 
debtor's sole or majority owner. 
The liquidator shall have powers to terminate, with immediate effect, the contracts concluded by the 
debtor, or to rescind from the contract if neither of the parties rendered any services. Any claim that 
is due to the other party owing to the above may be enforced by notifying the liquidator within forty 
days from the date when the rescission or termination was communicated. 
From  the  commencement  date  of  the  liquidation  -  within  the  framework  of  the  law,  the  collective 
agreement  and  the  internal  regulations  and  employment  contracts  -  the  liquidator  exercises  the 
employer's  rights  and  fulfils  the  obligations.  The  liquidator  collects  the  debtor's  claims  when  they 
fall  due,  enforces  its  claims  and  sells  its  assets.  The  liquidator  is  obliged  to  take  care  of  the 
protection  of  the  debtor's  property  during  the  liquidation  proceeding.  The  liquidator  is  obliged  to 
ensure the preservation of the debtor's records and documents. 
The  liquidator  shall  act  with  the  due  diligence  expected  of  the  person  holding  such  office.  He  is 
liable  for  damages  caused  by  a  breach  of  his  obligations  under  the  rules  of  civil  liability.  The 
liquidator  is  liable  for  the  debtor's  assets  existing  at  the  commencement  of  the  liquidation  or 
acquired during the liquidation. 
One  of  the  liquidators'  due  diligence  is  that  if  an  unlawful  asset  withdrawal  from  the  debtor  has 
taken place in the period before the insolvency of the debtor has been declared, and the  liquidator 
considers  that  action  against  such  unlawful  withdrawal  may  increase  the  liquidity  of  the  debtor,  it 
must initiate proceedings to reclaim such asset, and inform the creditors' committee. 
 Reorganization expert  
The  assistance  of  a  reorganization  expert  is  mandatory  in  the  reorganization  proceeding.  Only  the 
National Reorganization Non-Profit Limited Liability Company may act as a reorganization expert. 
The  reorganization  expert  shall  immediately  review  the  financial  situation  of  the  debtor  after  the 
commencement  of  the  reorganization  proceeding  and  shall  be  informed  of  all  circumstances 
affecting the planned reorganization.  
The  reorganization  expert is involved in negotiating the reorganization plan  with creditors. During 
the  reorganization,  the  senior  executive  of  the  company  is  obliged  to  co-operate  with  the 
reorganization  expert,  facilitate  the  performance  of  his  duties  and  provide  him  with  all  the 

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information and documents necessary for the performance of his duties. 
During  the  reorganization,  the  executive  officer  of  the  company  is  obliged  to  report  to  the 
reorganization expert on the fulfilment or challenging of debts due during the moratorium period, the 
necessary  measures  that  have  been  taken  to  enforce  the  company's  claims,  as  well  as  and  if  the 
company  is  in  arrears  of  more  than  20  days  with  its  payment  obligations  not  covered  by  the 
moratorium. 
The  reorganization  expert  may  get  acquainted  with  the  data  and  documents  of  the  company 
containing business secrets and other private secrets for the purpose necessary for the performance 
of  his  duties,  the  exercise  of  his  rights  and  the  fulfilment  of  his  obligations.  The  reorganization 
expert is entitled to make a statement to the creditor providing new or temporary financing about the 
investment risk of the company's situation and the reorganization plan. As part of the reorganization 
plan,  creditors  may  stipulate  that  the  reorganization  expert  will  monitor  the  implementation  of  the 
reorganization  plan  and  report  to  the  creditors,  and  the  company  must  tolerate  the  control  and 
cooperate with the reorganization expert. 
If  the  reorganization  plan  requires  the  reorganization  expert  to  monitor  the  implementation  of  the 
plan,  the  reorganization  expert  has  an  obligation  to  report  to  the  decision-making  body  of  the 
company  and  to  the  creditors  involved  in  the  reorganization  plan.  It  shall  immediately  notify  the 
decision-making  body,  the  supervisory  board  and  the  auditor  of  the  undertaking,  as  well  as  the 
interim or new financiers, if the undertaking is in arrears with its payment obligations for more than 
30 days or if it fails to take action to enforce its claims. 

IE  General  

The PI Act creates a new profession regulated by the ISI, which falls into two categories: 
 Approved Intermediaries (AIs): a person or corporate body authorised by the ISI to support debtors 
who  wish  to  make  an  application  for  a  DRN;  Personal  Insolvency  Practitioners  (PIPs):  a  person 
authorised  by  the  ISI  to  act  as  liaison  between  the  debtor and  their  creditor(s)  for  the  purposes  of 
securing a DSA or PIA. A PIP is legally obliged to act in compliance with the PI Act and associated 
regulations. 
Insolvency Proceedings  
A  PIP,  when  engaged  by  a  debtor,  will  act  as  a  negotiator  between  the  debtor  and  their  creditors. 
PIPs  are  bound  by  legislation  to  act  in  the  best  interests  of  both  the  debtor  and  the  creditor(s), 
therefore they are obliged to formulate the best possible arrangement for all parties concerned in an 
insolvency arrangement. 
The role and functions of a PIP include: 
 Engaging with a debtor who is contemplating making a proposal for an insolvency arrangement; 
 Accepting the appointment to act as insolvency practitioner; 
 Reviewing the Prescribed Financial Statement (PFS) prepared by the debtor and providing advices 
to  the  debtor  on  options  and  their  eligibility  to  make  a  proposal  for  a  debt  settlement  or  personal 
insolvency arrangement; 
 Satisfying themselves that the financial information provided to them by the debtor is accurate and 
complete; 
 Providing  an  opinion,  based  on  the  criteria  set  out  in  legislation,  as  to  which  type  of  insolvency 
arrangement (DSA or PIA) best suits the debtor’s situation; 
 Providing information relating to the procedure chosen, the general effect of, and the likely costs of 
becoming a party to an insolvency arrangement; 
 Applying on behalf of the debtor for a Protective Certificate (PC); 
 Notifying all creditors of the PC, PIP appointment, enclosing a copy of the debtor’s PFS; 
 Preparing  a  proposal  to  creditors  and  convening  a  statutory  meeting  of  creditors  to  consider  and 
vote upon the proposal; 
 Where a proposal is approved, notifying the ISI and all creditors of the outcome; 
Once approved by court or on a court review, operating the terms of the arrangement including the 
collection of funds from the debtor and payment to creditors over the duration of the arrangement; 
 Monitoring the arrangement throughout its lifetime; 
 Carrying out a review of the arrangement on at least an annual basis; 
 In  insolvency  proceedings,  the  debtor’s  role  is  to  participate  honestly  in  the  process,  agree  to  the 
arrangement negotiated by their PIP and meet the required terms of the arrangement. 
Bankruptcy  
On adjudication in bankruptcy, all assets divest from the bankrupt and vest in the Official Assignee 
(OA)  in  Bankruptcy.  The  OA  is  an  independent  statutory  officer  whose  role  is  to  administer 

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bankruptcy  estates  and  manage  the  Bankruptcy  Division  of  the  ISI.In  Ireland,  a  private  individual 
can be appointed as trustee in bankruptcy to replace the High Court Official Assignee in Bankruptcy 
(OA). In practice, such appointments are extremely rare. The Bankruptcy Act does not specify any 
qualifications for such appointments. The debtor’s powers in bankruptcy are limited to being able to 
apply to the High  Court to challenge certain decisions of  the  OA. The debtor has an obligation  to 
comply  with requests  made by the  OAs office  with regard to the administration of the bankruptcy 
estate. 

IT  Curatore 

The  insolvency  practitioner  (curatore)  has  the  power/duty  to  manage  the  assets,  sell  them,  and 
distribute  the  proceeds  to  the  creditors.  The  curator  is  appointed  by  the  judgment  declaring  the 
bankruptcy,  or  in  case  of  replacement  and  revocation  by  court  decree.  The  law  requires  certain 
positive requisites in order to be  appointed. In fact,  the  following  may be called upon to carry out 
these functions pursuant to Article 28 IBL: 
 lawyers, accountants and bookkeepers; 
 associated professional studios or companies between professionals; 
 those  who  have  carried  out  functions  of  administration,  management  and  control  in  joint  stock 
companies. 
Liquidator  
The liquidator is called upon to carry out the following tasks: 
 to affix the seals on the bankrupt's assets and draw up the inventory; 
 draw up the first information report on the causes of the economic breakdown; 
 draw up, every 6 months, a report summarizing the activities carried out ; 
 draw up the balance sheet for the bankrupt's last financial year; 
 examine applications for admission to the liabilities; 
 attend the hearing for the discussion of the statement of liabilities; 
 examine applications for admission to the liabilities which are submitted late; 
 to present a request to the court which orders the non-prosecution of the statement of liabilities due 
to insufficient realization of assets; 
 prepare a liquidation plan; 
 submit a statement of available funds every 4 months; 
 present a management report; promote the closure of the bankruptcy; 
 propose  to  the  delegated  judge,  in  order  to  obtain  authorization,  the  leasing  of  the  bankrupt's 
company or company branches to third parties. 

LV  An  administrator  shall  be  appointed  by  a  court  on  the  basis  of  a  nomination  by  the  Insolvency 
Administration  immediately  after  the  initiation  of  an  insolvency  matter.  The  Insolvency 
Administration chooses and recommends one administrator candidate by the principle of accident. 
An administrator has many duties according to the Latvian Law. He or she shall: 
 Ensure that the insolvency proceeding proceeds lawfully and effectively; 
 Assume  the  property,  documentation  and  seal  of  the  debtor  until  termination  of  the  insolvency 
proceedings or the entering 
into of a settlement; 
 Administer the property of the debtor during the insolvency proceedings and ensure its maintenance 
until the termination of the insolvency proceedings and the payment of money intended to cover the 
costs of administration and debts, or the entering into of a settlement; 
 Ascertain  the  causes  of  actual  insolvency  and  provide  his  or  her  opinion  regarding  them  to  the 
creditors’ meeting and the court; 
 File to the Insolvency Administration information and documents about insolvency proceedings in 
accordance with the Insolvency Administration’s requirements, etc. 

LT  Bankruptcy proceedings  

Under  corporate  bankruptcy  proceedings,  the  appointed  bankruptcy  administrator  takes  over  the 
company’s  management,  disposes  of  its  estate,  organises  the  sale  of  the  estate  and  settles  with 
creditors  using  the  proceeds,  and  takes  any  steps  necessary  to  wind  up  the  company.  The  key 
functions of the corporate bankruptcy administrator are as follows: 
 to represent the company and to defend its interests and those of all its creditors; 
 to take over the management of the company in bankruptcy and the bankruptcy estate; 
 to  terminate  company  contracts  that  will  no  longer  be  implemented  (including  contracts  with 
members of the management bodies and staff); 
to apply for money from the Guarantee Fund in order settle up with creditors/employees; 

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 where necessary, to enter into temporary work or service contracts required for the purposes of the 
bankruptcy procedure; 
 to verify the creditors’ claims filed and to submit the list of these for approval by the court; 
 to oversee the business operations of the company in bankruptcy; 
 to check the company’s transactions entered into over the three-year period prior to the institution of 
the bankruptcy proceedings; 
to  dispute  the  company’s  transactions  in  court  if  they  are  contrary  to  the  company’s  operating 
objectives and may have contributed to the company’s inability to pay its creditors; 
where justified, to apply to the court to have the bankruptcy declared intentional; 
 to convene creditor meetings; 
 to draft activity reports and to submit them to the meeting of creditors; 
 to compile and deliver the company’s annual and intermediate financial statements; 
 to implement the decisions of the court and the creditors’ meeting; 
 to provide information on the bankruptcy procedure; 
 to organise the sale of the bankrupt company’s assets; 
 to use the funds obtained in the course of the bankruptcy procedure to settle up with the creditors; 
 to perform any actions necessary to wind up and unregister the company. 
Restructuring proceedings  
In the case of a company restructuring, the assigned restructuring administrator acts as a professional 
consultant and independent person in control of the restructuring procedures. The key functions of 
the restructuring administrator are as follows: 
 to  contribute  to  the  drafting  and  consideration  of  the  company’s  restructuring  plan  and  to  take 
measures  to  ensure  that  the  restructuring  plan  is  drafted,  submitted  for  approval  and  implemented 
within the deadlines set by the court; 
 to prepare a written conclusion on the feasibility of the draft restructuring plan; 
 to oversee the activities of the management bodies of the  company being restructured in as far as 
they relate to the implementation of the restructuring plan, to notify the members of the company's 
management bodies of iv) the shortcomings found in their activities and set a deadline for rectifying 
these, and to apply to the court for removal of the management bodies of the company; 
 to  convene  meetings  of  the  company’s  members,  owners  of  the  representatives  of  the  body 
exercising  the  rights  and  obligations  of  the  owner  of  a  State  or  municipal  enterprise  and  to 
participate in those meetings without voting rights; 
 to  supply  information  concerning  the  restructuring  proceedings  and  to  inform  the  court  about  the 
progress of the restructuring plan. 
The  restructuring  administrator,  together  with  the  management  bodies  of  the  company  being 
restructured, are responsible for the implementation of the court-approved restructuring plan. In the 
case of bankruptcy of a natural person, the assigned bankruptcy administrator disposes of the assets 
of the natural person organises their sale, and uses the proceeds to settle with the creditors. The key 
functions of the natural person bankruptcy administrator are as follows: 
 to dispose of the assets of the natural person and the funds in the deposit account; 
 to keep the accounts of all the funds received by the natural person and of the use thereof;  
 to organise the sale of the natural person's assets and settle up with the creditors; 
 to convene creditor meetings and take part in them without voting rights; 
 to  provide  information  on  the  bankruptcy  procedure  for  the  natural  person  and  to  deliver  the 
restoration plan implementation report; 
 to initiate amendments to the solvency restoration plan; 
to represent the natural person in proceedings for recovery of assets on behalf of the natural person 
in bankruptcy and take action to recover debts from the debtors; 
 to defend the rights and legitimate interests of the natural person and all creditors; 
 to evaluate the expediency of a natural person’s self-employment and/or farming activities. 

LU  Trustees in a bankruptcy represent both the bankrupt person and the body of their creditors. In this 
dual  capacity,  they  not  only  are  responsible  for  administering  the  bankrupt’s  assets,  but  are  also 
authorised  to  monitor,  as  claimants  or  defendants,  all  actions  that  seek  to  preserve  the  assets  that 
must be used as security for the creditors, and also to recover or increase those assets in the common 
interests of the latter. The trustee  may bring any actions in respect of the common security for the 
creditors, consisting of the bankrupt’s assets seek to recover, protect or liquidate those assets. 

MT  Winding up proceedings  

The insolvency practitioner in a winding up by the court shall, have the power: 

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 to sell the movable and immovable property, including any right, of the company by public auction 
or private agreement with power to transfer the whole or any part thereof; 
 to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts and other 
documents; 
 to raise on the security of the assets of the company any money requisite; 
 to  appoint  a  mandatory  to  act  for  him  in  his  capacity  as  insolvency  practitioner  for  particular 
purposes. 
Reorganisation proceedings  
In Reorganization Proceedings, during the period that a recovery  (reorganization) order is in force, 
the  company  shall  continue  to  carry  on  its  normal  activities  under  the  management  of  the  special 
controller.  The  special  controller  needs  to  be  an  individual  who  the  Court  has  ascertained  to  its 
satisfaction  that  he/she  enjoys  proven  competence  and  experience  in  the  management  of  business 
enterprises,  is  qualified  and  willing  to  accept  the  appointment,  and  has  no  conflict  of  interest  in 
relation to his appointment. The special controller has the authority to: 
 take into his custody or under his control all the property of the company and he shall thenceforth 
be responsible to manage and supervise its activities, business and property; 
 after informing the Court, to remove any director of the company and to appoint any individual to 
serve as a manager; 
 engage  persons  for  the  provision  of  professional  or  administrative  services,  and  commit  the 
company to the payment of their respective fees or charges; and  to call any meeting of the members 
or creditors of the company. 
Bankruptcy proceedings  
In case of Bankruptcy, the special controller has the power to: 
 take possession of all the bankrupts’ property and rights of any kind belonging to the bankrupt; 
 take all the necessary steps to preserve the rights of the bankrupt against his debtors; 
 register in the Public Registry any hypothec affecting the property of the debtors of the bankrupt. 
Within one month from the delivery of the judgment of bankruptcy, s/he shall make up an inventory 
of the bankrupt’s property 

PL 

NL  The court will appoint an administrator. The debtor must inform the administrator about everything 
that might be relevant for its situation. Often the administrator will end debtor’s business and sell its 
company's assets. 
In bankruptcy proceedings, after the declaration of bankruptcy the receiver draws up an inventory, 
estimates  the  bankruptcy  estate  and  drafts  a  liquidation  plan.  The  liquidation  plan  defines  the 
proposed manner of selling the bankrupt party’s assets, in particular the enterprise, the time of the 
sale,  an  estimate  of  expenditure  and  the  economic  rationale  for  the  continuation  of  the  business 
activity (Article 306 of the Bankruptcy Act). After drawing up the inventory and financial report or 
after submitting a general written report the receiver liquidates the bankruptcy estate (Article 308 of 
the Bankruptcy Act). After the liquidation the receiver may continue to manage the bankrupt party’s 
enterprise if a composition with the creditors is possible or if it is possible to sell the whole of the 
bankrupt party’s enterprise or organised parts thereof (Article 312 of the Bankruptcy Act). 

PT  General  

According to Article 2 of the Statute of the Judicial Administrator (Law No. 22/2013, February 26) 
‘the  judicial  administrator  is  the  person  in  charge  of  the  supervision  and  guidance  of  the  acts 
integrating  the  special  revitalization  process,  as  well  as  the  management  or  liquidation  of  the 
insolvent estate under the insolvency proceeding, being competent to perform all the acts committed 
by this statute and by the law.’ As follows from Art.2, no. 2 of CIRE, the judicial administrator may 
have three different designations, depending on the functions he performs in the proceedings: 
Insolvency administrator  
In  view  of  the  lack  of  confidence  in  the  debtor's  administrative  capacity,  which  the  debtor's 
insolvency  naturally  implies,  it  is  necessary  to  appoint  an  insolvency  administrator,  i.e.,  an 
autonomous  administrator  of  the  debtor,  who  has,  among  other  duties  (Article  55  of  CIRE),  the 
powers to administer the insolvent estate. Thus, with the judgment of declaration of insolvency, the 
CIRE  requires  the  appointment  of  an  ‘Insolvency  Administrator’  or  reappointment  of  the 
‘Provisional  Judicial  Administrator’,  whose  role,  in  collaboration  and  under  the  supervision  of  the 
judge  and  the  creditors'  committee  (if  any,  since  it  is  an  optional  body  in  the  process),  is  to 
administer the insolvent estate, proceeding with the recovery of the company or its liquidation. 
Provisional Judicial administrator  
In the special revitalization process (PER) and in the special process for payment agreement (PEAP), 

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having as competencies, according to Article 33 of CIRE,  the maintenance and preservation of the 
debtor's assets, providing for the continuity of the company's operation, unless he considers that the 
suspension  of  activity  is  more  advantageous  to  the  interests  of  creditors  and  such  measure  is 
authorized by the judge. The provisional judicial administrator is thus only in charge of assisting the 
debtor in the administration of his assets. 
Fiduciary  
During the assignment period (5 years) regarding the discharge of the remaining liabilities, after the 
granting and opening of the process for the discharge of the remaining liabilities (Art.235 et seq. of 
CIRE),  the  Trustee  is  appointed  as  Fiduciary  acting  only  as  a  supervisor  of  the  process,  verifying 
that the insolvent who requested the discharge of his liabilities complies with the plan determined by 
the Court and not having any executive power, as results from Art.241 of CIRE, under the heading 
‘Functions’. 

RO  The authorities and responsibilities of the Romanian insolvency practitioners arise, in the first place, 
from  the  provisions  of  the  Government  Emergency  Ordinance  no.  86/2006  on  the  organization  of 
their  activity.  Under  the  applicable  rules,  insolvency  practitioners  have  a  number  of  powers  and 
responsibilities  both  in  insolvency  prevention  and  in  bankruptcy  proceedings;  moreover  the 
Insolvency  Office  Holders  (IOHs)  also  play  an  important  role  in  the  ordinary  procedures  for  the 
dissolution and the liquidation of companies according to the Companies Law no. 31/1990. 
The Government Emergency Ordinance no. 86/2006 specifies the functions of IOHs, as follows: 
 the Judicial Administrator is the insolvency practitioner appointed to fulfil duties provided both by 
law or assigned by the court during the observation period and the reorganization procedure; 
 the Judicial Liquidator is the insolvency practitioner appointed to control the debtor's activity within 
the bankruptcy procedure and to perform other duties provided by the law or assigned by the court; 
 the  Composition  Administrator  is  the  insolvency  practitioner  appointed  to  perform  the  tasks 
provided by the law or assigned 
by the court, within the preventive composition procedure; 
 The  ‘ad  hoc  agent’  (in  Romanian  language  ‘Mandatarul  ad  hoc’)  is  the  insolvency  practitioner 
appointed to perform the tasks set out by the law or the ones assigned by the court, within the out-of-
court settlement with creditors procedure. 

SK  General duties  

Insolvency  practitioner  primarily  manages  the  assets  subject  to  bankruptcy  proceedings,  realises 
them and uses the proceeds to pay the debtor’s creditors. When the  bankruptcy order is  made, the 
debtor’s  right  to  dispose  of  assets  subject  to  bankruptcy  proceedings  and  the  right  to  act  on  the 
debtor’s behalf in matters concerning these assets pass to the insolvency practitioner, who now acts 
in the name and for the account of the debtor. 
Insolvency practitioners’ duties are to: 
 produce a list of assets in the bankruptcy estate and disposes of them (i.e. the assets subject to the 
bankruptcy proceedings); 
 terminate certain contracts; 
 realise  the  assets  from  the  estate,  pays  the  costs  of  the  bankruptcy  proceedings,  proposes  the 
distribution schedule for the proceeds, and subsequently implements it; 
 if the bankruptcy proceedings use a payment schedule, to draft the payment schedule and submits it 
to the court for approval. 
Role in case of reorganisation  
In case of reorganisation, the insolvency practitioner’s main role is to draft the reorganisation plan in 
collaboration with the debtor and the creditors. S/his duties are to: 
 examine the claims lodged and establishes or denies them; 
 supervise the debtor. 
Receiver  
In  accordance  with  the  provisions  of  ZFPPIPP  the  receiver  shall  be  a  body  in  insolvency 
proceedings,  executing  its  competencies  and  tasks  in  such  proceedings,  stipulated  by  an  Act,  with 
the aim of protecting and realising the interests of creditors. In insolvency proceedings, the receiver 
shall  conduct  the  operations  of  the  insolvent  debtor  according  to  the  needs  of  the  procedure,  and 
represent him: 
 in procedural and other legal actions in relation to testing claims, to rights to separate satisfaction 
and exclusion rights; 
 in procedural and other acts in relation to rebutting the legal actions of the insolvent debtor; 
 in legal transactions and other acts necessary for the realisation of the bankruptcy estate; 

SI 

185 

 
 
 in realisation of the right to dispose of the claim and other rights acquired by an insolvent debtor as 
legal consequences of the initiation of bankruptcy proceedings, and; 
 in other legal transactions which the insolvent debtor may carry out pursuant to ZFPPIPP. 
The receiver shall perform his tasks and competencies in accordance with ZFPPIPP and regulations 
issued on the basis thereof, other acts which apply for an insolvent debtor, and regulations issued on 
the basis thereof and the rules of the profession of persons who execute operations for other persons 
as mandataries. In performing his tasks and competencies, the receiver shall act conscientiously 
and  fairly,  with  a  corresponding  professional  care,  and  so  as  to  protect  and realise  the  interests  of 
creditors, which shall be the guide in executing such tasks and competencies. 
The receiver shall treat creditors who are in an equal position vis-a-vis the insolvent debtor, equally 
and shall not enable or allow that individual creditors in the procedure achieve priority payment or 
other benefits to the detriment of other creditors who are in an equal position vis-a-vis the insolvent 
debtor,  or  that  other  persons  obtain  the  insolvent  debtor’s  assets  which  belong  to  the  bankruptcy 
estate without providing for an equivalent counter performance, or other benefits to the detriment of 
the bankruptcy estate which are not in accordance with acts, regulations and rules of the profession 
mentioned above. 
The receiver shall prepare a regular report on the conduct of the procedure every three months. The 
receiver shall submit a regular report to the court in compulsory settlement proceedings within eight 
days, and in bankruptcy proceedings within one month following the end of the period to which the 
report refers. 
Upon a request by the court or creditors’ committee, the receiver shall submit a written report on a 
certain matter significant for the conduct of the procedure, or protection, or realisation of interests of 
creditors  in  such  procedure  (extraordinary  report),  within  eight  days  following  the  receipt  of  the 
request, unless a longer time limit for submission is determined in the request. 
A presiding judge shall instruct the receiver on the work which are obligatory for him. 
Liability of the receiver  
The  receiver  shall  be  liable  to  creditors  for  any  damages  incurred  as  a  result  of  a  violation  of  his 
obligations.  The  receiver  shall  be  liable  to  creditors  for  the  damages  referred  to  in  the  previous 
sentence,  caused  in  an  individual  insolvency  proceeding,  up  to  five  times  the  amount  of  entitled 
remuneration from such procedure, but not less than EUR 5,000. 

ES  The  functions  of  the  insolvency  administrator  are  limited  by  the  type  of  insolvency  proceeding  in 
which  he  acts,  so  that  in  the  case  of  a  compulsory  insolvency  proceeding  the  administrator  will 
replace the debtor in the exercise of his powers of administration and disposal of the estate, while in 
the case of a voluntary insolvency proceeding his actions will be limited to simple intervention in the 
functions of the company's management board, whose actions will be subject to his consent. 
The  administrator  is  a  necessary  person  that  assists  the  judge  and  is  entrusted  with  managing  the 
insolvency  proceedings.  Once  insolvency  proceedings  have  been  opened,  the  judge  orders  the 
initiation  of  phase  two  of  the  proceedings,  which  includes  everything  relating  to  the  appointment, 
provisions governing, powers and responsibilities of the administrator. The administrator is chosen 
from among the natural and legal persons voluntarily registered in the Public Insolvency Register in 
accordance with the conditions established by law. 
Insolvency practitioner has a series of duties, such as: 
 duties of a procedural nature; 
 duties relating to the debtor or its governing bodies; 
 duties regarding labour matters; 
 duties relating to creditors’ rights; 
 report and evaluation duties; 
 duties relating to the realisation or liquidation of assets; 
 secretarial duties. 
Their most important duty is to submit the report provided for in Article 292, to which they must add 
an asset inventory proposal and the list of creditors 

SE  Bankruptcy  

Once a bankruptcy decision is announced, the debtor loses control of any property pertaining to the 
bankruptcy estate. The debtor may not enter into any obligations that might be invoked during the 
bankruptcy.  There  are  some  exemptions.  During  the  bankruptcy  process  the  bankruptcy  estate  is 
represented by the administrator. The administrator is appointed by the district court, and must have 
the  special  knowledge  and  experience  required  for  the  task,  and  be  suitable  for  the  task  in  other 
respects. A person employed by a court may not be appointed as an administrator. A person may not 

186 

 
 
be appointed as an administrator if they have a conflict of interest. 
Business reorganisation  
A business reorganisation officer must have the special knowledge and experience required for the 
task, must have the confidence of the creditors, and must be suitable for the task in other respects. 
The business reorganisation officer investigates the debtor’s financial standing and, in consultation 
with the debtor, draws up a plan setting out how the aims of the reorganisation are to be achieved. 
The plan must be supplied to the court and to the creditors. The business reorganisation officer may 
engage expert assistance. 
The debtor is required to provide the business reorganisation officer with all information concerning 
his  or  her  financial  circumstances  that  is  relevant  to  the  restructuring  of  the  business.  The  debtor 
must  follow  the  business  reorganisation  officer’s  instructions  concerning  the  manner  in  which  the 
business is to be run. There are some legal acts that the debtor cannot perform without the business 
reorganisation  officer’s  consent.  These  include  paying  debts  that  arose  prior  to  the  decision, 
undertaking new obligations, and transferring or pledging property of substantial importance for the 
debtor’s  business.  If  the  debtor  fails  to  fulfil  these  obligations,  however,  the  legal  act  in  question 
remains valid. 

Source: Deloitte/Grimaldi (2022). 

2.3 

Duties of directors (and liabilities) of companies to file for insolvency 

Directors owe a series of duties to the companies to which they are appointed. Overall, 
beside their general  duties, directors are subject  to  other duties  enshrined in  insolvency 
law, such as  fraudulent  trading  and wrongful trading.293 Directors of companies have a 
duty to act in the best interests of the company, seeking to avoid insolvency and in the 
“likelihood  of  insolvency”,  directors  should  change  their  point  of  view  and  consider 
within  their  duties  also  the  interests  of  the  creditors.294  Specifically,  if  there  is  a 
likelihood of insolvency, directors need to: 

(a) 

(b) 

(c) 

(d) 

take immediate steps to minimize the loss for creditors, workers, shareholders;  

have due regard to the interests of creditors and other stakeholders;  

take reasonable steps to avoid insolvency; and  

avoid  deliberate  or  grossly  negligent  conduct  that  threatens  the  viability  of 
business.  

In  the  event  of  a  “serious  loss  of  the  subscribed  capital”,  directors  have  the  duty  to 
convene  the  shareholders'  meeting  to  take  the  best  appropriate  action  (Article  58  of 
Company  Law  Directive  (EU)  2017/1132).  For  example,  the  German  public  company 
legislation  provides  a  duty  for  the  directors  if  “upon  preparation  of  the  annual  balance 
sheet  or  an  interim  balance  sheet  it  becomes  apparent,  or  if  in  the  exercise  of  proper 
judgment, it must be assumed that company has incurred a loss equal to one half of the 

293 Carsten Gerner Beuerle and Edmund – Philipp Schuster, „The evolving Structure of Directors’ Duty in 
Europe“ (2014) European Business Organisation Law review 15, p. 224 
294  World  Bank  Principle  B.2.  clearly  states  that  “Laws  governing  directors’  obligations  in  the  period 
approaching  insolvency  should  promote  responsible  corporate  behaviour  while  fostering  reasonable  risk 
taking and encouraging business reorganization. The law should provide appropriate remedies for breach 
of  directors’  obligations,  which  may  be  enforced  after  insolvency  proceedings  have  commenced.  The 
World Bank, Principles for Effective Insolvency and Creditor/Debtor regimes, 2021. 

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share  capital,  the  management  board  shall  promptly  call  a  shareholders’  meeting  and 
advise the meeting thereof”.295  

In  case  of  non-compliance  with  such  obligation  to  file  for  insolvency  within  a 
predetermined  maximum  time  limit,  directors  could  be  held  personally  liable  for  the 
losses  incurred  by  creditors  as  a  result  of  the  delay  in  the  opening  of  the  insolvency 
procedure  as  compared  to  a  timely  filing.  The  nature  of  the  liability  varies  across 
Member  States  and  will  usually  involve,  at  least,  civil  liability  to  creditors  for  loss  of 
company  assets/funds  that  resulted  from  failing  to  file  for  insolvency  on  time.  In 
jurisdictions where the obligation of directors does not change with the advent of vicinity 
to insolvency, directors are not free to act as they wish. Many of these jurisdictions - in 
fact - provide that director can be held liable for a form of wrongful trading, i.e., if the 
director  continues to  operate the company  without  mitigating the to minimize losses to 
creditors296.  In  other  jurisdictions,  while  directors  of  a  company  are  not  subject  to 
specific  corporate  or  bankruptcy  law  restrictions,  they  can  be  held  liable  for  wrongful 
trading by creditors of the company. For example, in the Netherlands, directors could be 
subject to tort action by a creditor with whom they contracted on behalf of the company 
when the directors knew or should have known that  the company would not  be able to 
meet its obligations to the creditor or have sufficient assets to discharge the obligation to 
the creditor297. 

Even where commonalities exist, the concrete solutions diverge: e.g. when the company 
meets the conditions of being insolvent, duties of the directors vary in the Member States 
as to the type of action they have to take, the time limits within which they have to act or 
the consequences they face in case of breaching this duty (e.g. civil liability for damages 
of the creditors. Where jurisdictions place less emphasis on shareholders and more on a 
range of stakeholders, if a company is on the verge of insolvency, it has been suggested 
that it could be left to the courts to balance the interests of stakeholders and consider the 
financial position of the company298. 

The conduct of the directors in the vicinity of insolvency is key in terms of influencing 
the  prospects  of  value  maximization  and  recovery  rate  in  the  concrete  proceedings. 
Differences  in  national  laws  add  to  legal  uncertainty  for  cross  border  investors. 
Differences  in  the  duties  and  liability  of  directors  can  also  incentivise  companies  to 
engage in forum shopping, i.e. relocating the company’s centre of main interest (COMI) 
shortly before the commencement of insolvency  proceedings with  the aim  to  achieve  a 
more lenient treatment under the new applicable law.  

Concretely,  an  alerting  mechanism  to  induce  more  cognitive  behaviour  for  directors 
(thereby  justifying  eventual  sanctions  against  reckless/wrongful  behaviour)  could  be 

295 Aktiengesetz article 92(1) 
296 Article 2394 and 2086 Italian civil Code.  
297 The relevant rule in the Netherlands is called the “Beklamel-rule” and named after the case that decided 
that  directors  could  be  liable  on  the  basis  discussed  in  the  article:  C.  Garner-Beuerle,  P.  Paech  and  E. 
Schuster, “Study on Directors’ Duties and Liability” April 2013, London, LSE, and prepared for the EC, at 
p351. 
298  Alessandra  Zanardo  “Fiduciary  Duties  of  Directors  of  Insolvent  Corporations:  A  comparative 
Perspectives” (2018) Chicago-Kent Law review 93. 

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introduced  and/or  a  shift  of  fiduciary  duty  to  be  owed  to  the  creditors  of  the  debtor 
(instead  of  the  shareholders)  when  the  debtor  is  insolvent  or  insolvency  is  imminent. 
Such  a  rule  would  be  challenging  as  conflicting  existing  approaches  of  national 
company/insolvency laws. 

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Table A5.4: Rules on directors’ duties in EU Member States 

AT 

BE 

If  the  managing  directors  (or  certain  other  legal  representatives)  of  the  entity  fail  to  file  for  the 
commencement of insolvency proceedings in time, they face exposure to claims by creditors and the 
insolvent entity. Under the Austrian Company Reorganisation Act, managing directors are liable vis-
à-vis the  company  for liabilities not covered by the  eventual insolvency estate if,  within the last 2 
years before the insolvency filing, they: 
 have received a report from the company’s auditor stating that the equity ratio (Eigenmittelquote) is 
less  than  8%  and  the  notional  debt  repayment  period  (fiktive  Schuldentilgungsdauer)  exceeds  15 
years,  and  they  have  not  immediately  filed  for  reorganisation  proceedings  or  have  not  properly 
continued them, or; 
 have not prepared annual financial statements, or have not done so in a timely manner, or have not 
immediately commissioned the auditor to audit the annual financial statements. 
In case the company is declared bankrupt, the directors can be held liable: 
 for a part or all the debts of the bankruptcy, if it can be demonstrated that they made a gross error 
that contributed to the bankruptcy; 
for a part or all debts of the bankruptcy, if the directors did not file for bankruptcy although it was 
clear  that  there  was  no  reasonable  prospect  of  continuing  the  activities  and  avoiding  a  bankruptcy 
(wrongful trading); 
 for certain social and tax debts, if the directors during the last 5 years prior to the bankruptcy were 
involved in at least two other bankruptcies in which there were unpaid social and tax debts. 

BG  There are no specific provisions with regards to liability and the responsibilities of directors during 
insolvency  proceedings.  General  rules  apply.  According  to  Art.  237  of  the  BCA,  ‘the  members  of 
the  boards  shall  be  obliged  to  perform  their  functions  with  the  care  of  a  diligent  merchant  in  the 
interest  of  the  company  and  all  stockholders.’  Under  Art.  240  of  the  BCA,  the  members  of  the 
boards shall be jointly and severally liable for any damages caused through a fault of theirs. 

HR  The CBL rendered more stringent rules on directors' liability for insolvency related duties, i.e. for a 
timely  filing  of  the  petition  to  open  bankruptcy  proceedings.  Directors  are  required  to  initiate 
bankruptcy proceedings within 21 days from the moment the bankruptcy reason occurred. 
In certain cases the liquidator, supervisory board members and each shareholder are also required, to 
file  request  for  opening  bankruptcy  proceeding.  Failure  to  initiate  bankruptcy  proceedings  when 
required  is  considered  a  criminal  offence  under  the  Croatian  law.  Furthermore,  failure  to  initiate 
bankruptcy proceedings within the set time frame by the responsible person means he/she shall be 
personally  liable  for  damages  caused  to  creditors  for  failure  to  fulfil  his/her  duty.  There  are  no 
obligations to initiate pre-bankruptcy or extraordinary administration proceedings. 
If, during liquidation, a director is proved to be involved in fraudulent trading under Section 311 of 
the CCL or some other offence (such as misappropriation of assets under section 312 of the CCL), 
the court may make an order for him/her to be personally liable for the company's debts or to pay 
compensation. However, in the absence of severe misconduct such as this, there are no provisions 
for lifting the corporate veil. 

CY 

CZ  The management of the debtor is under a duty to file an insolvency petition on behalf of the debtor 
without  undue  delay  after  it  learns  or  with  due  diligence  ought  to  have  learnt  about  the  debtor's 
insolvency. The management  (the executives and directors) is personally liable for a failure to file 
the  insolvency  petition  on  time.  The  law  gives  a  presumption  that  the  damage  that  a  creditor  is 
entitled to recover corresponds to the entire unsatisfied portion of the creditors' claims. The liability 
is strict, and mitigation is possible only if the defendant proves that the delay had no adverse effect 
on the extent of the creditor's satisfaction or if the petition was not filed due to circumstances beyond 
the defendant's control. 

DK  Once  a  company  reaches  the  point-of-no-return,  its  management  has  an  obligation  to  cease  the 
operations  of  the  company,  ensure  the  equal  treatment  of  creditors  and  initiate  the  necessary 
insolvency proceedings. If it  is considered gross negligence on the part of  management  to allow a 
company to continue trading beyond the point-of-no-return, then management can be held liable for 
any losses suffered by creditors as a result thereof. Such a claim against management can be brought 
by  either  the  trustee  or  an  affected  creditor.  Also,  if  management  is  deemed  to  have  grossly 
mismanaged  its  duties,  it  risks  being  put  into  bankruptcy  quarantine  –  i.e.,  prohibited  from 
participating  in  the  management  of  any  limited  liability  company  for  a  given  timeframe  (usually 
three years). 

190 
EE  Members of the management board or of a body substituting for the management board are liable for 

 
 
FI 

the failure to submit a bankruptcy petition. 
The general duties of the board of directors and the managing director of the company (together the 
‘Management’) are set out in the Companies Act (CA). According to the CA, the board of directors 
of a debtor company has a general duty of care towards the company’s stakeholders (CA, Chapter 1, 
Section 8). In addition, the board of directors is responsible, together with the managing director, for 
ensuring that the company’s accounting and financial affairs of the company have been arranged in 
accordance with the law and in a reliable manner (CA, Chapter 6, Sections 2 and 17). 
The managing director must provide information on the company’s financial standing to the board of 
directors,  which,  in  accordance  with  the  general  duty  of  care,  shall  assess  the  need  to  file  for 
insolvency proceedings in the event of the  company being  in  financial distress. Trading should be 
discontinued  where  continuing  is  likely  to  worsen  the  company’s  financial  distress  or  cause 
insolvency.  In  addition,  the  board  of  directors  has  an  obligation  to  act  in  case  the  shareholders’ 
equity  is  adversely  impacted  (CA,  Chapter  6,  Section  2).  When  considering  the  interests  of  the 
company and its stakeholders, the company’s management should also take into account the interests 
of the company’s creditors to a certain extent. 
According  to  the  CA  (CA,  Chapter  22,  Section  1),  members  of  the  board  of  directors  and  the 
managing director may become personally liable for the loss or damage caused to the stakeholders 
by  a  delay  or  failure  to  file  for  insolvency.  A  member  of  the  board  of  directors  may  be  held 
personally liable for a wilful or negligent breach of the general duty of care or the company’s articles 
of association. In a distressed situation, actions by the board of directors that diminish the assets or 
increase  the  liabilities  of  the  company  without  a  business  rationale,  are  particularly  susceptible  to 
trigger liability. 

FR  Liability  can  arise  where,  as  a  result  of  management  errors,  a  company's  assets  do  not  cover  its 
debts. An action for mismanagement (other than mere negligence), which only applies in liquidation 
proceedings, can lead to an insolvent company's management being liable for all or part of its debts. 
This  liability  can  extend  to  formally  appointed  directors  or  managers  with  representation  powers, 
and  to  any  individual  or  entity  that  is  not  officially  a  director  or  manager  but,  that  repeatedly 
influenced  the  company's  management  or  strategic  decisions  (that  is,  shadow  (de  facto) 
directors/managers). 
In addition, directors (or de facto directors/managers) found liable for certain specific breaches can 
be (independent of any liability action or criminal prosecution based on the same facts): 
 Forced to assign their equity interest in the company. 
 Prohibited from managing any business for up to 15 years and holding any public office for up to 
five years. 
Breaches include: 
 Using the company's assets or credit for their own benefit, or the benefit of another corporate entity 
in which they have a direct or indirect interest; 
 Using the company to conduct and conceal business transactions for their own benefit; 
 Carrying out business activities at a loss to further their own interests, knowing that this would lead 
to the company's insolvency; 
 Fraudulently embezzling or concealing all or part of the company's assets; 
 Fraudulently increasing the company's debts. 
If a company is insolvent, its managing director is generally not liable for the company's debts, with 
the following exceptions: 
 Suretyship, guarantee, or other contractual obligation; 
 Liability  for  payments  made  after  illiquidity  or  over-indebtedness.  A  managing  director  will  be 
liable towards the insolvency estate for any payments made by the company to third parties after the 
company has become illiquid or over-indebted (section 15b, GIC). The insolvency administrator (or 
in the case of self-administration, the custodian) can bring a claim against the managing director to 
recover the money paid. The background for this liability is that on illiquidity or over-indebtedness, 
the managing director must file an insolvency petition without undue delay (at the latest, three weeks 
after the commencement of illiquidity or six weeks after the commencement of over-indebtedness). 
The  liability  for  payments  made  after  illiquidity  or  over-indebtedness  is  subject  to  very  limited, 
narrow exceptions; 
 Liability for payments to shareholders resulting in illiquidity or over-indebtedness of the company; 
 Delayed  filing  of  insolvency  petition.  If  a  managing  director  fails  to  file  an  insolvency  petition 
without  undue delay, they are liable for both payments  made after illiquidity or over-indebtedness 
and any decreases in insolvency quotas; 

DE 

191 

 
 
 Preservation  of  capital.  A  managing  director  is  liable  towards  the  insolvency  estate  for  unlawful 
repayments of capital. 
Exceptions apply if the payment is made under a profit transfer agreement covered by a collectible 
claim for repayment against the shareholder or made in respect of repayment of a shareholder loan; 
 Duties of care. A  managing  director is liable towards the  insolvency estate if they  fail to act with 
due care in managing the company's affairs. For example, a managing director must: 
 comply with applicable laws, by-laws and articles of association (Satzung); 
 ensure  proper organisation of the company, including compliance of the company  with applicable 
laws; 
 carefully  prepare  all  business  decisions  in  advance,  being  aware  of  any  risks,  and  of  financial 
impact,  and  of  alternatives,  and  compile  the  necessary  documentation  in  advance  (business 
judgement  rule,  as  understood  under  German  law).    In  practice,  however,  a  defence  based  on  the 
business  judgement  rule  will  often  not  be  successful  because  one  or  more  of  the  prerequisites  can 
often not be proven because they were not fulfilled or documented in advance; 
 supervise any developments which may jeopardise the company's survival. 
Embezzlement of company's assets; 
 Tort. A person who, in a manner contrary to public policy, intentionally inflicts damage on another 
person or company is liable to the other person or company to make compensation for the damage; 
 Tax  debts.  A  managing  director  is  liable  to  the  tax  authorities  for  any  failure  of  the  company  to 
settle tax obligations when due, if they acted wilfully or through gross negligence; 
 Employees' share of social security premiums. A managing director is liable to the social insurance 
authorities for any failure of the company to pay employees' share of social security premiums; 
 Deception  regarding  illiquidity.  A  managing  director  is  liable  towards  a  contract  partner  if  the 
contract partner (for example, a supplier) is deceived about the company's illiquidity. 
Specific  duties  are  provided  for  under  the  Insolvency  Code  for  the  members  of  the  board  of 
directors. Failure to file (or delay in filing) for bankruptcy upon cessation of payments exposes the 
directors to personal liability. The same applies if bankruptcy results from gross negligence or wilful 
misconduct of the directors, while the directors are further exposed to criminal liability in the event 
of  loss-making  or  extraordinarily  risky  transactions,  inappropriate  borrowings,  misleading  or 
incomplete  company  books  and  records,  failure  to  prepare  and  approve  financial  statements  or 
inventories as required by law, undue disposals or deterioration of assets, or preferential payments to 
the detriment of other creditors. Furthermore, the directors have personal and criminal liability in the 
event of tax indebtedness, in accordance with tax legislation. 

EL 

HU  The  liquidator  or  the  creditors  may  lodge  lawsuits  against  the  debtor’s  former  directors  for  their 
activities  which  were  detrimental  to  the  interests  of  the  creditors  on  the  grounds  that  the  former 
directors  did  not  carry  out  their  managerial  functions,  taking  into  account  the  creditors’  interests 
when a situation with the threat of insolvency arose, leading to a decrease in the economic operator’s 
assets, or frustrated the full satisfaction of the creditors’ claims or neglected to settle environmental 
charges.  If  this  is  proven,  the  former  director  of  the  debtor  must  compensate  the  creditors  for  the 
damage thus caused. 

IE  Directors  or  officers  can  be  liable  for  the  debts  of  an  insolvent  company  in  the  following 

circumstances: 
 Reckless trading. Personal liability can arise if, in the course of winding up a company, it appears 
that any person was, while an officer of the company, knowingly a party to the carrying on of any 
business  of  the  company  in  a  reckless  manner.  Liability  can  also  apply  to  directors  who  ought  to 
have known that these actions were reckless; 
 Misfeasance.  Where  it  appears  that  a  director  or  other  party  has  misapplied  the  assets  of  the 
company or been guilty of ‘misfeasance’ or breach of duty or breach of trust, the court can compel 
him  to  restore  such  assets  or  to  provide  the  company  with  compensation  in  respect  of  such 
misapplication of its assets. This provision is not confined to directors and officers of a company but 
applies to any person who has taken part in the formation or promotion of the company. It is also not 
limited to insolvent procedures; 
 Fraudulent trading. Where a person is knowingly a party to the carrying on of a business with intent 
to  defraud  creditors  of  the  company  or  any  other  person,  or  for  any  other  fraudulent  purpose,  that 
person will be guilty of an offence; 
 Failure to keep proper books and records. A director or officer of an insolvent company can be held 
personally liable for debts of the company where they have failed to keep proper books and records 
and  where  that  failure  has  contributed  to  the  company's  inability  to  pay  its  debts  as  they  fell  due, 

192 

 
 
IT 

caused  uncertainty  as  to  the  assets  and  liabilities  of  the  company,  or  has  impeded  the  orderly 
winding-up of the company. 
There is no way that directors can be held liable for a company's debts. They are liable for personal 
debts arising from liability actions that can be brought against them by: 
 The company, when directors are in breach of their fiduciary duties; 
 The company's creditors, when directors are in breach of their duty to preserve the integrity of the 
company's assets to the extent that they are no longer sufficient to satisfy the creditors; 
 A  single  shareholder  and/or  third  party,  whose  personal  assets  were  damaged  by  the  directors' 
misconduct.  
Liability  actions  against  directors  are  brought  by  the  bankruptcy  trustee,  when  the  company  is 
declared bankrupt. 

LV  Directors must take care about safeguarding the assets for the creditors as well as timely apply for 
insolvency  of  the  company.  Additionally,  both  directors  and  any  other  responsible  representative 
must be able to transfer the books and assets of the company to the insolvency administrator, should 
insolvency proceedings of the company be started. 
The  directors  who  are  management  board  members  are  jointly  liable  for  losses  caused  to  the 
company in case they fail to transfer the books to the insolvency administrator, or, if the condition of 
the books does not allow to obtain a clear understanding of the company’s transactions and assets in 
the three years prior to the commencement of insolvency proceedings. The Insolvency Law contains 
a presumption that the losses are in the amount of the accepted principal claims of the creditors. 
In  Lithuanian  case  law  and  doctrine,  the  general  obligation  to  initiate  insolvency  proceedings  in  a 
timely manner is regarded as an imperative duty of the director, and failure to comply with this duty 
is unlawful inaction that may cause damage and therefore incur a director’s civil liability. This is a 
clear element of the liability for delaying insolvency proceedings doctrine. 

LT 

LU  Directors’ duties in case of bankruptcy 

The managing director is declared negligent bankrupter if: 
 their personal expenditure are deemed excessive, or; 
 they  have  spent  large  sums  of  money  in  gambling,  or  in  fictitious  stock  exchange  transactions  or 
with the intention of delaying their bankruptcy, they: 
 made purchases to resell at a loss; or 
 engaged in ruinous borrowing to raise money; or 
 cannot justify the use of assets and funds; or 
 if, after the cessation of payments, they have paid or favoured a creditor to the detriment of the pool 
of creditors. 
A managing director manager may also be declared negligent bankrupter if s/he: 
 have contracted for the account of others, without receiving any value in exchange; 
 are declared bankrupt, without having fulfilled the obligations of a previous scheme of composition; 
 have not made an admission of cessation of payments within the time limit; 
 have been absent without authorisation from the examining magistrate; 
 have not kept their accounts in accordance with the law. 
Duties of Managers of Public - Limited Companies 
The managers of public limited companies (SA) may still be sentenced as a negligent bankrupter if 
they: 
 do not provide the information requested by the examining magistrate or the trustee; or 
 provide inaccurate information. 
Bankrupt of the managing director 
The managing director is declared fraudulent bankrupter if s/he: 
 remove  company  accounts  or  other  accounting  documents,  or  fraudulently  alter  their  content;  or 
misappropriate or conceal part of their assets; or 
 fraudulently acknowledge that they owe amounts that are not owed. 
If a director mismanages the company in a way that endangers the good governance of the company 
or  fails  to  adequately  supervise  and  act  as  the  bonus  paterfamilias  while  managing  the  company’s 
affairs, he would be personally liable for the damages ensued by the company. 
Directors can be liable for the following acts under the MCA: 
 Duty to file for insolvency; 
 Fraudulent preference; 
 Duty to keep proper accounting records; 
 Fraudulent or wrongful trading. 

MT 

193 

 
 
Article  329A  of  the  MCA  provides  that  where  the  Directors  become  aware  that  the  company  is 
unable to pay its debts or is imminently likely to become unable to pay its debts, they shall convene 
a General Meeting of the company to review the company’s position and to determine the next steps 
that should be taken. 
Under MCA, any act which dispossesses the property or rights of the company made in the period of 
6 months prior to the dissolution of the Company, shall be deemed as fraudulent preference against 
its creditors if it is made gratuitously or at an undervalue or if preference to any creditor is given. 
Directors may incur liability when proper accounting records are not kept by the insolvent company 
under Art. 314 of the MCA. 
Fraudulent trading is defined as carrying out acts with the intention to defraud: 
 creditors of the company; or 
 creditors of any other person; or 
 for any fraudulent purpose. 
Under Maltese law, directors can be subjected to the following sanctions: 
 Disqualification  –  under  Art.  320  MCA,  if  the  director  is  found  guilty  in  terms  of  Section  312 
(delinquent directors), (fraudulent trading) and (wrongful trading) and consequently ordered by the 
court to make a contribution to the assets of the company or declared personally liable for the debts 
of the company, is subject to a disqualification order; 
 Liability in tort – direct liability if the director is involved in fraud or other crimes; 
 Criminal liability; 
 Administrative fines – for failure to inform the Registrar regarding a resolution for the dissolution 
and voluntary winding up of a company 

NL  Only a few managerial duties are described in the Dutch law. An example is the standard of care that 
the  director  should  observe  towards  the  company.  A  director  may  be  held  liable  by  the  company 
itself – or, in case of bankruptcy, by the trustee − for the damages suffered by that company when he 
acts contrary to his obligations and the damages are a result of that mismanagement. 
The director is obliged to  perform to the best of his abilities in the interest of the company and as 
could be reasonably expected from a competent and qualified director under the same circumstances. 
For liability to be accepted there must be a serious personal reproach/fault on the side of the director. 
All relevant facts and circumstances must be taken in account. 
Not  every  imperfection  or  mistake  leads  to  liability:  the  director  is  granted  a  certain  degree  of 
latitude. In principle, collective responsibility entails that all directors are severally and jointly liable 
for failure, although individual directors do have the opportunity to exculpate themselves when held 
liable. For exculpation the director must show  that  he  is  not to blame  for the  mismanagement and 
that  he  has  not  been  negligent  in  taking  measures  to  avert  the  negative  consequences  of  the 
mismanagement.  
The  board  of  directors  may  also  be  discharged  by  the  general  meeting  of  shareholders,  lifting  the 
directors  from  (internal)  liability  with  regard  to  the  management  in  the  period  relevant  to  the 
discharge. The discharge only relates to the  facts that are  officially  known to the general  meeting. 
An example of improper performance is entering into irresponsible financial transactions involving 
great  financial  risks.  Another  example  of  internal  liability  may  apply  when  a  director  forces  a 
company to lend a large amount to a third party without stipulating security and/or interest and the 
third party subsequently goes bankrupt. 

PL  Directors are responsible for any damage caused as a result of their failure to file a petition within 
the  applicable  time  limit,  unless  they  are  not  at  fault.  It  is  presumed  that  this  damage  covers  the 
amount of unsatisfied creditor receivables toward the company. 
Members  of  the  management  board  may  also  be  subject  to  specific  liability  consisting  of  a 
prohibition on holding managerial positions or conducting business activity for a period of 1 to 10 
years in the case of, inter alia, a wilful failure to file for bankruptcy in the event of the company’s 
insolvency. 

PT  Directors are also legally required to apply for a declaration of insolvency on behalf of the company 
within 30 days of the date on which directors become aware of, or ought to have become aware of, 
the insolvency situation 

RO  There is liability for wrongdoing committed before the proceedings are opened. Corporate officers 
and directors are personally liable if they have committed one of the following acts, if it resulted in 
the insolvency: 
 they used the goods or credits of the legal person for their own benefit or for that of another person; 
 they carried out the activities of production, trade or provision of services in personal interest, under 

194 

 
 
SK 

the cover of the legal person; 
 they ordered, in personal interest, the continuation of an activity that obviously led the legal person 
to the cessation of ayments; 
 they  kept  fictitious  accounts,  made  some  accounting  documents  disappear  or  did  not  keep  the 
accounts  as  required  in  accordance  with  the  law.  In  the  case  of  non-delivery  of  the  accounting 
documents to the judicial administrator or the judicial liquidator, both the fault and the causal link 
between the deed and the damage are presumed, the presumption being relative; 
 they  have  misappropriated  or  concealed  a  part  of  the  legal  person’s  assets  or  have  fictitiously 
increased its liabilities; 
 they used ruinous means to procure funds for the legal person to delay the cessation of payments; 
 in the month preceding the cessation of payments, they have paid or are willing to pay in a manner 
that favours one creditor to the detriment of the other creditors; or 
 any  other  deed  committed  intentionally  that  contributed  to  the  debtor’s  state  of  insolvency,  as 
ascertained according to the provisions the law. 
In  general,  directors  are  liable  for  damage  caused  to  the  company  as  a  result  of  a  breach  of  their 
duties, whether in cases of financial distress or not. For the liability to arise there has to be: 
 a breach of a duty under the law or incorporation documents of the company; 
 damage incurred by the company; and  
 a causal link between the breach and the damage incurred by the company. 
A  breach  of  duty  can  be  based  on  a  director’s  action  or  omission.  The  breach  does  not  require  a 
culpable  act  (i.e.  negligence  or  intent  of  a  director).  The  law  provides  for  a  rebuttable  legal 
presumption  that  a  director  has  breached  their  duties.  This  means  that  unlike  in  standard  damage 
claims,  where the claimant  would bear the  burden of proof regarding the breach, in the  event of a 
breach of duties the burden of proof rests on the director, who must substantiate that the duties were 
not breached. 
There are several legal provisions that create directors’ liability in the case of financial distress. For 
instance, if a director found out or, considering all circumstances, could find out that the company is 
in crisis (i.e. if the company is insolvent or at risk of insolvency), the director is obliged to procure 
all reasonably necessary steps to overcome the crisis. Further, directors may not distribute dividends 
or  other  distributions  to  shareholders  if,  considering  all  circumstances,  it  causes  insolvency  of  the 
company  and  the  company’s  equity  to  be  lower  than  its  share  capital  plus  reserve  funds. 
Furthermore, there are a number of other cases of specific personal liability of directors which are 
discussed in the following parts of this survey 

SI  When  a  company  becomes  insolvent  management  must,  within  one  month,  draft  a  report  on  its 
financial  position  and  its  opinion  of  its  chances  of  restructuring  and,  based  on  this  report  and  the 
likelihood  of  successful  restructuring,  either  financially  restructure  the  company  or  petition  for 
bankruptcy (after which, the supervisory board must opine on such report within five working days). 
If  the  management  or  the  supervisory  board  of  the  company  fails  to  fulfil  their  respective  duties, 
their  individual  members  will  be  jointly  and  severally  liable  to  the  creditors  for  any  damages 
incurred  by  the  creditors  due  to  the  members'  failure  to  achieve  complete  payment  in  bankruptcy 
proceedings.  The  ZFPPIPP  provides  specific  rules  on  damage  liability,  amount  of  damages, 
exemptions and limitations of the liability, enforcement of claims and more. 

ES  The  failure  to  take  reasonable  steps  to  minimise  losses  to  creditors  may  violate  the  duties  and 
responsibilities of directors. Article 164(1) of the Insolvency  Act provides that the insolvency  will 
be  found  to  be  negligent  when  the  insolvency  has  been  originated  or  aggravated  with  bad  faith  or 
gross negligence on the part of the company's directors or liquidators (or any person holding such a 
position  in  the  two-year  period  before  the  filing  of  the  insolvency  petition).  If  the  insolvency  is 
found to be negligent, the directors can be held liable for ‘bankruptcy liability’, that is the liability to 
cover the deficit between the assets and the liabilities. 
In addition, if directors violate their duties by misappropriating corporate assets, the insolvency will 
be declared negligent, and the directors would be subject to bankruptcy liability. Article 164(2.4) of 
the Insolvency Act provides that the insolvency  will be found to be negligent when the debtor has 
taken all or part of his assets to the detriment of his creditors, or had carried out any act that delays, 
makes difficult or impedes the efficiency of a seizure of assets in any kind of enforcement action. 

SE  Where there is reason to believe that the shareholders’ equity is less than one-half of the registered 
share  capital  or  if  it  has  been  shown  during  execution  of  a  distraint  order  that  the  company  lacks 
attachable  assets,  the  board  of  directors  is  obliged  to  prepare  immediately  a  balance  sheet  of  the 
company for liquidation purposes. 

195 

 
 
Directors  must  issue  a  notice  of  a  general  meeting  if  the  balance  sheet  shows  that  shareholders’ 
equity is less than one-half of the registered share capital. If a second balance sheet, prepared within 
a set time limit, shows that the shareholders’ equity still does not exceed one-half of the registered 
share capital, the board of directors has a duty to petition the court for a liquidation order. 
Should  the  board  of  directors  fail  to  prepare  the  balance  sheet  (to  convene  the  initial  general 
meeting) or to petition the court for a  liquidation order  within  set time limits, the directors can be 
jointly  and  severally  liable  for  the  obligations  incurred  by  the  company  during  the  period  of  such 
failure to act, unless a director can prove that he or she was not negligent. 

Source: Deloitte/Grimaldi (2022). 

2.4 

  Pre-packs 

Piece-meal asset liquidation of the insolvency estate or its restructuring or reorganization, 
usually  in  the  form  of  sale  of  businesses  in  insolvency  on  “a  going  concern  basis”, 
including  pre-package  sales  (‘pre-packs’).  A  sale  on  a  going  concern  basis  means  a 
liquidation of a debtor by the sale of the whole or a significant part of the business as an 
operating and functioning entity as opposed to the so-called piece-meal liquidation under 
which individual assets of the business are sold separately. The opposite of this approach 
of transferring assets is the so-called piece-meal liquidation, consisting of a sale in which 
"individual assets of the business are sold separately", a sale that may come into play in 
the event of a business liquidation.  

A  pre-pack  sale  means  a  sale  on  a  going  concern  basis  under  a  contract  which  is 
negotiated confidentially prior to the commencement of an insolvency procedure without 
consultation of all creditors and followed by a very short formal insolvency proceeding in 
which the pre-negotiated sale and settlement is confirmed. 

A  ‘pre-pack’  describes  a  sale  of  all  or  part  of  the  business,  negotiated  before  filing  for 
insolvency and in secrecy, followed by a liquidation procedure where the court quickly 
distributes  the  proceeds  from  the  sale  to  the  creditors.  The  availability  of  a  pre-pack 
procedure  maximises  value  preservation  in  the  sale  as  a  going  concern,  which  tend  to 
result  in  a  much  higher  price  being  paid  by  a  purchaser  than  sales  on  a  break-up  or 
piecemeal basis299. 

Usually, there are two  methods based on which the transfer of business activities takes 
place,  i.e.  either  by  transferring  the  shares  of  the  company  running  the  business,  or  by 
selling  the  entire  business  or  a  substantial  part  thereof  (a  substantial  part  of  the  assets, 
including contractual positions and liabilities, goodwill, etc.). The transfer of a business 
or  a  business  branch  can  also  be  used  as  a  tool  for  restructuring  or  reorganising  the 
business300.  The  purpose  of  such  a  transfer  would  be  to  keep  the  business  running,  by 

299  U.S.  Congressional  report  on  the  measures  that  led  to  the  US  Bankruptcy  Code  makes  the  common 
sense point that “assets that are used for production in the industry for which they were designed are more 
valuable than those same assets sold for scrap” HR Rep No 595, 95th Congress, Ist Sess 220 (1977). 
300  UNCITRAL  uses  the  term  reorganization  as  well,  to  which  the  following  definition  applies:  “a 
reorganisation is the process whereby the financial well-being and viability of a debtor’s business can be 
restored  and  the  business  can  continue  to  operate,  using  various  means  possibly  including  debt 

196 

 
 
 
 
                                                 
 
separating the activities, that can still be profitable, from the debtor while the latter shall 
be left with those activities that are not viable anymore.  

Through  a  prepack,  the  sale  of  the  business  (as  a  going  concern)  will  take  place  at  the 
very  start  of  the  proceedings,  right  (or  very  shortly)  after  the  opening  of  the  formal 
liquidation  proceedings.  This  can  be  achieved,  because  the  complete  preparation  of  the 
actual  business  sale  (i.e.  the  marketing  of  the  business  and  the  negotiation  with  the 
possible  buyer)  takes  place  –  usually  in  a  confidential  manner  –  before  the  formal 
opening of the proceedings, under the steering of a ‘silent administrator’.  

The procedure consists of an accelerated winding-up procedure, which allows for the sale 
of the debtor's  business  (in whole or in  part),  as a  going concern, to  the highest  bidder 
selected during a competitive sale procedure ("preparation Phase") preceding the formal 
opening of the liquidation ("winding-up Phase")301. This liquidation procedure is without 
prejudice  to  the  other  aspects  of  the  insolvency  law,  i.e.  the  ranking  of  claims  and 
distributional rules, that continue to apply as long as they are compatible.  

The  ‘prepack  procedure’  is  considered  a  liquidation  procedure  and  is  acknowledged 
under  Annex  A  of  EIR.  Furthermore,  based  on  Council  Directive  2001/23/EC  of  12 
March  2001,  the  pre-pack  is  also  considered  as  a  bankruptcy  or  insolvency  procedure 
initiated with  a view to  liquidating the assets of  the transferor under the  supervision  of 
the competent public authority. In the context of bankruptcy practice in Europe, sales on 
a  going  concern  basis  were  already  regulated  in  several  Member  States  already  in 
2003302.  These  sales  on  a  going  concern  basis  are  governed  differently  in  different 
Member  States  depending  on  whether  or  not  bankruptcy  law  prevails  and,  therefore, 
whether  or  not  the  sale  of  an  asset  takes  place  in  the  context  of  formal  insolvency 
proceedings. 

Pre-packs sales are a fast and efficient way to recover value for creditors/investors. They 
can  increase  the  recovery  value  by  selling  parts  of  the  defaulting  company  early  on, 
thereby reducing the deterioration of the asset values. While the instrument seems most 
commonly used to restructure a company and spin of the viable from unviable business 
lines, they can also play a useful role in liquidations.303 There may still be business lines 
that are viable and assets that worthy, so their early realisation and transfer in a package 
could maximise the recovery value.  

Unlike in a restructuring case, the position of the debtor should not matter if a pre-pack is 
used  during  the  winding  down  of  the  company.  All  creditors  should  benefit  from  the 

forgiveness, debt rescheduling, debt-equity conversions and, our focus in this chapter, sale of the business 
(or parts of it) as a going concern”.  
301 ELI Instrument – Rescue of Business in Insolvency Law, cit., Recommendation 7.03. 
302 The principles of European insolvency law (2003) under Section 12.1 provide that: “If and to the extent 
that there is no reorganisation, the administrator converts the debtor’s assets into money and distributes it 
among  the  creditors.  The  assets  can  be  realised  separately  or  together,  whether  or  not  as  a  going 
concern”. The Leeds Study (2016) lists France, the Netherlands, Greece, Ireland and Slovenia and the ELI 
2017 Instrument ’Rescue on Business in Insolvency Law’ adds Germany and Italy to the list. 
303 Schoenfeld (2020) found however that the financial situation is an important determinant of consent on 
pre-packs  and  financial  performance  tend  to  be  poor  in  an  analysis  of  restructuring  cases  in  the  Czech 
Republic. 

197 

 
 
                                                                                                                                                 
higher  recovery  value  realised  through  pre-packs.  The  survival  of  individual  business 
lines  as  going  concern  would  also  be  in  the  interest  of  other  stakeholders  such  as 
employees  or  public  authorities.  Smaller  and  also  foreign  creditors  may  however  be 
concerned  that  larger  and  domestic  creditors  will  have  a  key  role  in  determining  the 
conditions under the pre-pack takes place, possibly even taken over viable business lines 
or  assets  at  a  price  favourable  to  them.304  Foreign  creditors  may  see  themselves 
disadvantaged  if  rules  governing  the  pre-pack  are  non-transparent  and  accountability  is 
unclear. Comparable rules on pre-packs would be to their advantage and could encourage 
their cross-border lending activity.  

Pre-packs are build on the insight that there is likely to be a substantial saving of cost and 
convenience  if  a  debtor  minimises  the  time  that  it  spends  in  formal  insolvency 
procedures.  The  longer  and  more  drawn  out  the  procedure,  the  greater  the  costs  and 
expenses  that  are  likely  to  be  incurred.  Further  to  the  sales  on  a  going  concern  basis 
another instrument may be envisaged in cases where there is a risk that the value of the 
debtor's  assets  will  decrease  significantly  in  a  short  period  of  time305,  i.e.  the  prepack 
sales. In events where there are situations such as to ensure that the direct appointment is 
not  detrimental  to  creditors'  interests,  Member  States  may  either  allow  debtors  and/or 
creditors  (or  creditors'  committees)  to  directly  choose  the  advisor  without  the 
involvement  of  a  court  or  allow  the  insolvency  practitioner  to  directly  authorise  and 
execute the sale of the assets without the involvement of a court.  

Member  States  shall  ensure  that  insolvency  practitioner  participating  in  pre-pack 
procedures  have  relevant  experience  and  expertise,  retain  liability  in  case  of  failure  to 
perform their duties and receive appropriate remuneration, proportionate to their potential 
responsibilities306. On the other hand, the Court shall have exclusive jurisdiction over any 
dispute  arising  in  the  course  of  the  pre-pack  procedure,  any  action  against  the  advisor 
subsequently  appointed  as  the  insolvency  practitioner  and  over  urgent  operational 
measures  that  may  be  instrumental  to  the  success  of  the  pre-pack  procedure,  such  as 
termination or amendment of employment agreements. Member States shall ensure that, 
during the preparation phase, the pre-pack applicant should be entitled to apply for a stay 
or  moratorium  of  enforcement  measures307  also  in  order  to  facilitate  the  Pre-pack 
procedure and provided that the advisor approves such an application for a stay. 

The  2019  Directive  on  Restructuring  and  Insolvency  lists  the  sale  of  the  business  as  a 
going  concern  as  one  of  the  measures  of  ‘restructuring’,  but  this  is  just  offered  as  an 
option for Member States, depending on their laws, and is not harmonised. Furthermore, 
in the preventive restructuring framework such a sale forms part of the restructuring plan 
and the legal entity usually is kept (is not liquidated). The pre-pack liquidation procedure 
is, therefore, a new solution, for which there is a demand on the side of the stakeholders. 

304 These points are also made as major disadvantages of pre-packs in Cormack et al. (2016). 
305 ELI Instrument – Rescue of Business in Insolvency Law, cit., Recommendation 7.02. 
306 ELI Instrument – Rescue of Business in Insolvency Law, cit., Recommendation 7.04. 
307 As provided for in Articles 6 and 7 of Directive 2019/1023 

198 

 
 
                                                 
Table A5.5: Prepack rules and practices in the EU Member States 

AT 

BE 

BG 
HR 

CY 

CZ 

DK 

EE 
FI 

FR 

DE 

EL 
HU 
IE 

Under the new draft legislation308 (entered in force in July 2021), Austria will implement the 
pre-pack  sales  via  a  ‘simplified’  restructuring  plan  proceeding.  According  to  the  draft,  the 
debtor agrees the restructuring measures (potentially including sale of assets/business and debt 
cut) and  – together  with the required  majority of  financial  creditors  – applies for the  court's 
approval of the restructuring plan. 
Not existent.  But the Business Continuity Act (BCA) of 2009 provides debtors in a state of 
financial crisis with three tools apt to reorganise their business, i.e.: (i) an amicable settlement; 
(ii)  a  collective  reorganisation  plan  or  (iii)  a  transfer  of  the  enterprise  or  of  its  activities,  in 
whole or in part, to third parties under court supervision (Leeds) 
Not existent.   
Pre-bankruptcy  agreement  exists  and  operates  in  a  reversed  manner  –  pre-bankruptcy  court 
proceedings  are  opened  and  aim  at  the  conclusion  of  a  pre-bankruptcy  settlement  with  the 
creditors  outside  of  bankruptcy  proceedings,  which  will  enable  the  reorganisation  of  the 
debtor. However, the court is involved – it verifies whether the conditions for confirmation of 
pre-bankruptcy arrangement have been met. 
Pre-packaged  sales  are  not  common  in  Cyprus  though  they  may  be  implemented  through 
receivership. 
The option of pre-packed insolvency (‘pre-pack’) is perceived as a fast and effective way of 
reorganisation in the Czech Republic. Reorganisations, in general, are subject to the size and 
other  constraints  set  out  in  Section  316  Article  4  of  the  Czech  Republic  Insolvency  Law 
(CRIL).  The  pre-pack  is  the  only  case  in  which  these  criteria  do  not  have  to  be  met,  which 
means that the reorganisation procedure is also open to SMEs when their creditors agree with 
the  rehabilitation  procedure  and  a  suggested  reorganisation  plan.  The  pre-pack  prepares  the 
ground for further derogations in distressed companies’ behaviour and has the advantage that 
the  creditors  already  agree  with  the  suggested  reorganisation  plan  before  the  insolvency 
proposal.  This  avoids  the  negotiation  processes  during  the  insolvency  proceedings  and  can 
potentially shorten the insolvency proceedings and achieve other positive effects. 
Pre-packed sales are allowed, but the trustee must ensure that the sale is made on arm’s-length 
terms. 
No information 
Not  existent.  Distressed  debtors  and  their  creditors  may  enter  into  voluntary  contractual 
agreements  out  of  the  court  proceedings.  However,  the  contract  must  focus  on  debt 
restructuring (ex: extending the repayment period or cutting the outstanding amount). 
The  law  of  22  October  2010  on  banking  and  financial  regulations,  effective  as  of  1  March 
2011, and its implementing decree of 3 March 2011, created a type of accelerated safeguard 
inspired  by  the  US  Chapter  11  pre-pack.  The  purpose  of  this  expedited  financial  safeguard 
process (sauvegarde financière accélérée) is to restructure financial debt in a very short time 
frame, assuming the consent of at least two-thirds of financial creditors and of bondholders. 
Not existent per se. So-called prepacked plans in a German context are insolvency plans that 
are  planned  and  created  before  the  debtor  files  a  request  for  insolvency.  Usually,  they  are 
submitted together with the petition to open insolvency proceedings. 
Pre-packs business recovery process is available contingent to court ratification 
Not existent. 
The usage of pre-pack insolvency sales is less developed in Ireland than in other jurisdictions, 
but  there  has  been  an  increasing  number  of  asset  sales  structured  through  pre-pack 
receiverships. 
In  Ireland  there  are  no  corresponding  rules  or  guidelines  in  general  usage,  although  some 
insolvency  professionals  follow  the  Statements  of  Insolvency  Practice  guidelines.  In  the 
absence of detailed rules, the critical standard for the appointed insolvency office holder is to 
ensure that he obtains the best price possible for the assets at the time of sale.  Provided the 
insolvency  office  holder  complies  with  this  test  and  adheres  to  the  highest  professional 
standards,  there  is  no  barrier  to  effecting  a  pre-pack  sale  in  a  manner  which  stands  up  to 
scrutiny and which will allay the concerns of creditors.  

308 The Restructuring Code (Restrukturierungsordnung). 

199 

 
 
                                                 
 
IT 

LV 
LT 
LU 
MT 

NL 

PL 

PT 
RO 

SK 
SI 
ES 

Pre-packed plans provide for the sale or lease of the debtor’s assets to a third-party investor, 
based on agreements reached by the debtor and the third-party investor prior to filing. Should 
the assets be sold to a third party different from the original investor as a consequence of the 
competitive procedure above mentioned, the latter has the right to be reimbursed for the costs 
incurred in connection with the agreement reached with the debtor up to an amount equal to 
three per cent of the price of the assets agreed therein. 
No information available 
There are no pre-pack sales identified in the Lithuanian law 
No information found. 
Pre-packs  are  not  formally  codified  under  Maltese  law,  and  practice  has  thus  far  not 
necessitated their judicial recognition. However, the local legislative  architecture may indeed 
be  stretched  to  accommodate  pre-packs;  if  pre-packs  were  to  enter  into  vogue  locally  as  a 
result of developments in the Maltese restructuring market, they could be sanctioned under the 
CRP or the compromise or arrangement restructuring route. 
Since pre-packs thrive on speed of execution and minimal court involvement, the CRP would 
seem to be the more appropriate route for their execution. Where all required consents to the 
pre-pack are solicited before entry into the CRP, the issuance of the company recovery order 
(approving  the  pre-packaged  sale)  may  take  place  shortly  after,  and,  in  any  event,  within  a 
maximum of 20 days of the CRP application being filed. 
There  would  be  no  plausible  grounds  for  a  putting  a  pre-packaged  restructuring  plan  to 
creditor or member meetings and subsequently applying to the courts to sanction its outcome 
under  the  compromise  or  arrangement  option,  unless  such  option  is  necessary  to  overcome 
hold-out within an impaired debt tranche. 
In  Netherlands  there  is  the  option  of  a  pre-packaged  bankruptcy  filing.  Before  filing  for 
bankruptcy  or  suspension  of  payment,  the  company’s  management,  shareholder  or  (third 
party) investor and/or purchaser prepare a plan to acquire or sell certain parts of the business 
out of the (bankrupt) estate and continue business in another company standing at the ready. 
Following  the  preparation  of  such  plan,  the  court  may  be  asked  to  appoint  a  ‘silent 
administrator’ prior to the request  for bankruptcy (or suspension of payment) to ensure that 
the pre-pack plan is acceptable to the administrator and the bankruptcy judge.  
A debtor that has become insolvent can also find a buyer for its assets on its own. The debtor 
can then file a bankruptcy petition along with an application for approval of the terms of sale 
of the enterprise—known as a ‘pre-pack.’ It is also possible to file a pre-pack application after 
filing of the bankruptcy petition. A pre-pack application may also be filed by an in personam 
creditor  of  the  debtor.  A  pre-pack  consists  of  a  sale  of  the  assets  of  an  insolvent  debtor, 
approved  by  the  court,  but  negotiated  and  prepared  prior  to  the  declaration  of  the  debtor’s 
bankruptcy. This  procedure  allows  an  investor  to  quickly  acquire  the  assets  of  an  insolvent 
company,  relatively  soon  after  the  declaration  of  bankruptcy,  unlike  the  time-consuming 
acquisition of assets  under the standard conditions of bankruptcy procedure. In the pre-pack 
procedure, it is possible to acquire the debtor’s enterprise, an organised part of the enterprise, 
or a set of assets constituting a significant portion of the enterprise. A sale made in the form of 
a  pre-pack  has  the  effects  of  a  sale  in  execution  (acquisition  free  of  encumbrances  on  the 
assets or debts of the debtor). 
There are no pre-pack procedures. 
Pre-pack  administrations  are  not  regulated  under  Romanian  law.  The  sale  of  assets  in 
distressed  M&A  transactions  is  stricter  once  the  target  has  entered  insolvency.  Insolvency 
proceedings  are  highly  regulated  under  Romanian  law,  and  involve  various  approvals  and 
confirmations that must be obtained from the creditors’ assembly and the court of law prior to 
implementing it: In case of bankruptcy, the assets will be evaluated by an authorised valuator 
and  the  creditors  committee  must  approve  the  valuation  reports  as  well  as  the  type  of  sale 
(direct negotiation, auction or a combination of the two) and the sale regulation. 
There are no rules concerning pre-pack sales in Slovakia 
Pre-package sales are not foreseen by Slovenian law. [some use according to Leeds] 
For the time being, there is no specific legal regulation of this figure in the Spanish legislation. 
But from the actions already carried out, the following structure can be observed: 
First, there is a preliminary phase. During this phase, the entrepreneur must inform the Court 
of the opening of  negotiations  with its creditors. Then,  it  must communicate that operations 
are being carried out regarding the sale of production units. An independent expert appointed 

200 

 
 
by  the  company  will  be  in  charge  of  carrying  out  the  sale  of  the  production  units.  This 
independent expert will also be in charge of ensuring compliance with the law and providing 
transparency to the process.  Once the insolvency proceedings are declared, this independent 
expert will become the insolvency administrator. 
The  second  phase  is  the  judicial  phase  of  authorization  and  implementation  of  the  pre-pack 
operations. This will be done through Article 530 of the Consolidated Text of the Insolvency 
Law. This determines that the debtor must present a liquidation plan with a proposal for the 
acquisition  of  the  productive  unit.  Subsequently,  the  judge  will  agree  the  opening  of  the 
liquidation phase. 
Pre-packaged sales are possible in practice and is not uncommon. However, a pre-pack and its 
commercial terms will always be reviewed by the official receiver in  subsequent bankruptcy 
proceedings, thus with a risk of being set aside. Also, with little transparency and no creditor 
consultation  pre-packs  have  been  debated,  and  still  are,  especially  where  the  business/assets 
are sold to someone connected to the debtor. When doing a prepack sale, it is recommended to 
obtain a third-party valuation of the property sold, to avoid a sale at undervalue which can be 
criticized and potentially challenged. 

SE 

Source: Deloitte/Grimaldi (2022). 

3. 

Procedural elements of insolvency 

3.1 

  Opening of insolvency 

Under insolvency frameworks of Member States there are different  understandings  and 
definitions  of  when  a  business  should  be  obliged  to  undergo  insolvency  proceedings. 
Systems  diverge  considerably  between  Member  States  that  equate  insolvency  with 
illiquidity  (inability  to  pay  debts  when  they  fall  due)  and  Member  States  which  (in 
addition  also)  consider  a  company  insolvent  if  it  is  over-indebted  on  the  basis  of  a 
balance sheet analysis.   

There  are  typically  two  insolvency  tests  under  national  law  to  kick  off  an  insolvency 
proceeding:  cash  flow  (i.e.  a  company  cannot  pay  its  debts  as  they  become  due)  and 
balance sheet (i.e. the value of a company’s liabilities outweigh the value of its assets). In 
practice  it  is,  however,  not  easy  to  determine  whether  either  or  both  of  these  tests  are 
satisfied. What often causes difficulties is how one deals with contingent and prospective 
liabilities  and  assets.  That  means  that  in  reality  there  could  be  as  many  as  27  different 
answers to the question of whether a business is (in)solvent.  

In  practice,  however,  it  is  often  not  easy  to  determine  whether  the  opening  of  the 
insolvency test requires that either or both of these tests need to be satisfied. According 
to UNCITRAL, insolvency occurs “when a debtor is generally unable to pay its debts as 
they mature or when its liabilities exceed the value of its assets”309. This can happen due 
to a company making a bad investment, misjudging business risk, or making mistakes in 
pricing.  However,  general  market  changes  or  an  economic  downturn  can  also  drive  a 
company to  insolvency.  Thus, the reasons  that in the abstract  can lead to  a situation of 
insolvency can be both internal (for instance bad management of funds) to the company 
and external (for instance disruptive change in the markets). 

The 2019 Restructuring and Insolvency Directive leaves it up to Member States whether 
they wish to require that companies seeking the advantages of a restructuring (including a 

309  Uncitral,  United  Nations  Commission  on  International  Trade  Law,  Legislative  Guide  on  Insolvency 
Law, 2005. 

201 

 
 
 
                                                 
moratorium  on  debt  payments)  need  to  undergo  a  viability  test  to  determine  whether  a 
restructuring  is  likely  to  have  more  than  short-term  effects  and  to  avoid  ‘zombie’ 
companies.  It  was  not  possible  to  agree  on  a  mandatory  viability  test  in  the  2019 
Restructuring  and  Insolvency  Directive,  let  alone  define  what  it  should  look  like.  This 
Directive  is  now  being  transposed  by  Member  States  (many  of  which  requested  an 
extension of the transposition deadline by July 2022). 

In a competitive economy, companies that are not economically viable (e.g. because their 
business idea has lost its appeal to the market) should exit the market to allow for the re-
attribution of resources to more innovative companies. One avenue to ensure the timely 
initiation  of  insolvency  proceedings  could  be  to  explore  a  common  definition  of  the 
prerequisites  when  insolvency  proceedings  should  be  commenced.  It  needs  to  be  noted 
however that so far it has been considered too difficult to bring about a harmonisation of 
the notion of insolvency or likelihood of insolvency and even the European  Insolvency 
Regulation  determining  international  jurisdiction  and  the  applicable  law  in  insolvency 
matters  refrains  from  such  a  common  definition.  Also  it  could  be  explored  to  which 
extent the information on the insolvency trigger should be made available in an investor-
friendly  format  on  e-Justice  portal  (see  below).  This  would  contribute  to  the  investor’s 
ex-ante  awareness  of  the  insolvency  proceeding,  allowing  her/him  to  factor  this  in  the 
cost of capital. 

The pronounced differences in insolvency triggers across Member States imply learning 
costs  for  foreign  creditors.  These  are  likely  higher  the  more  discretionary  and  less 
explicit the trigger is defined and the more different definitions and concepts are in the 
destination  of  the  investment  from  the  location  of  the  investor.  A  well-defined  trigger 
reduces  uncertainty  to  creditors  and  in  particular  to  foreign  investors,  who  would  have 
lower learning costs if triggers are similar or based on a common terminology.  

Creditors may face disadvantages from a well-defined trigger if they are accountable to 
ultimate investors and/or supervisors and therewith under pressure to correct their asset 
valuations once the trigger is reached. Such loss of discretionary judgment may however 
be  beneficial  for  ultimate  investors  and  financial  stability.  Debtors  would  benefit  from 
clarity primarily in the run up to insolvency. A clear trigger would augment the debtors’ 
problems once the threshold is reached because it inflicts reputational damage and will in 
many cases cut off the company from new financing. This accelerates the need to wind 
down the company and takes away any possibility that it can remain a going concern.  

The setting of a clear trigger for the start of the process that leads to the liquidation of the 
company  may  however  reduce  the  impact  of  such  reputational  effects  in  the  pre-
insolvency  phase.  In  the  presence  of  a  well-defined  trigger,  both  creditor  and  debtor 
would  be  able  to  assess  under  which  conditions  an  insolvency  process  starts,  which 
should create incentives for debtors to react pre-emptively as well as for creditors to seek 
solutions  before  courts  get  involved.  This  helps  avoid  that  the  start  of  an  insolvency 
procedure  is  postponed,  which  means  the  beginning  of  protective  measures  (avoidance 
actions,  treatment  of  all  creditors),  use  of  outside  expertise  (insolvency  practitioners, 
viability  assessment),  initiates  the  search  for  a  definite  solution  (creditors  committee). 
Since the insolvency triggers have a direct impact on the opportunity of debtors to access 
appropriate tools preserving the value of their business or ensuring an orderly exit from 

202 

 
 
the  market,  divergences  in  laws  obviously  influence  the  performance  level  of  the 
insolvency frameworks. 

Table A5.6: Insolvency triggers in EU Member States 

AT  The  commencement of any proceeding under the Austrian  Insolvency  Act (AIA) is dependent on 
the  existence  of  certain  factual  predicates.    In  the  case  of  corporate  entities,  these  are:  illiquidity 
(cash flow insolvency or zahlungsunfähig; Sec 66, para 1 of the AIA); over-indebtedness (balance 
sheet insolvency or überschuldet; Sec 67, para 1 of the AIA).  

BE  The two conditions for opening insolvency proceeding are: (i) the persistent failure to pay its debts, 
and;  (ii)  the  company  has  lost  the  confidence  of  its  creditors  (Art.  XX.99  BCEL).  A  company  is 
deemed to have generally lost all creditworthiness when it can show that it cannot receive credit on 
the  market  (typically  with  financial  institutions)  at  reasonable  conditions  for  an  amount  that  is 
sufficient to pay the company’s debts as they fall due. 

BG  There are two triggers for insolvency proceedings: (i) insolvency (inability to pay), and; (ii) over-
indebtedness (of a limited liability company, a joint-stock company or a limited stock partnership).  
These  triggers  are  not  cumulative.  Insolvency  and  over-indebtedness  are  objective  factual 
conditions, which have legal definitions in the Bulgarian Commerce Act (BCA). Under Art 608 of 
the  BCA,  insolvency  is  assumed  when  the  debtor  has  stopped  his  payments  and  may  be  present 
when the  debtor has paid or is in position to pay partially or in full only the claims of individual 
creditors.  According  to  Art  742  of  the  BCA,  a  trade  company  shall  be  deemed  overindebted, 
provided its assets are insufficient to meet its financial liabilities 
Insolvency  incurs  when  a  debtor:  (i)  becomes  insolvent  (incapable  of  payment),  or;  (ii)  becomes 
over-indebted.  A debtor shall be deemed insolvent (incapable of payment) if, in the Register of the 
order of priority of payment  liabilities kept by the Croatian Financial  Agency, it has one or more 
registered  unsettled  liabilities,  due  for  more  than  60  days,  for  which  there  is  a  valid  basis  for 
payment.  A debtor is considered to be over-indebted if the value of his assets does not  cover the 
existing obligations.  

HR 

CY  According  to  Cyprus  Company  Law  (CCL),  a  company  will  be  deemed  to  be  insolvent  if  (i)  the 
company  fails to pay for  more than 3  weeks a debt of  more  than  five thousand euros, or; (ii)  the 
company fails to execute in full a judgement/order/decree given by the court in favour of a creditor 
of the company, or; (iii) the  court is satisfied that the  company is unable to pay its debts as they 
become due, taking into account the company’s future or possible obligations, or (iv) the court is 
satisfied that the value of the company’s assets is less than its debts, taking not account future or 
possible debts. 

CZ  A debtor is insolvent if (these are cumulative conditions): (I) the debtor has multiple creditors; (ii) 
the debtor has pecuniary liabilities that are more than 30 days overdue; (iii) is not able to perform 
those commitments. 

DK  Pursuant to the DBA, a debtor is insolvent when it is unable to meet its liabilities as and when they 
fall due, unless such inability must be deemed to be only temporary. The final decision is based on 
an assessment of the debtor’s liquidity (a cash flow test). The fact that the debtor’s liabilities exceed 
its assets is not generally of importance. 

EE  The first main precondition for the opening of bankruptcy proceedings is the fact that the debtor is 
insolvent. A debtor is insolvent if the debtor is unable to satisfy the creditors’ claims and, due to the 
debtor’s financial situation, that inability is not temporary. 
The  Finnish  Bankruptcy  Act  provides  that  a  debtor  who  cannot  repay  his  or  her  debts  can  be 
declared bankrupt  
Judicial liquidation proceedings are opened when the business has reached the stage of cessation of 
payments and when judicial reorganisation is clearly impossible. 

FR 

FI 

DE  The general reason for opening insolvency proceedings is inability to pay. There is inability to pay 
if  a  debtor  is  not  in  a  position  to  meet  payment  obligations  that  have  fallen  due;  insolvency  is 
presumed  as  a  rule  if  the  debtor  has  stopped  payments  (Section  17(2)  of  the  German  Insolvency 
Code - GIC). If the debtor is a legal person or a company in which none of the partners is a natural 
person with unlimited liability, proceedings may also be opened on grounds of over-indebtedness. 
There is over-indebtedness if the debtor’s assets no longer cover the existing liabilities, unless it is 
highly likely in the circumstances that the enterprise will continue in being for the next 12 months 
(Section 19(2) GIC) 

EL  Under the Insolvency Code, bankruptcy proceedings commence by a declaration of the court on the 

203 

 
 
application of any creditor, the debtor or the attorney general, if the debtor has ceased payments in 
the sense that it is generally and permanently unable to pay its debts as they fall due. In respect of 
simplified bankruptcy proceedings, cessation of payments is deemed to have occurred if the debtor 
does  not  pay  the  due  amounts  towards  the  state,  the  social  security  funds  or  credit  or  financial 
institutions for an amount of at least 60 per cent of the total amount due and for a period of at least 
six months, and if the non-performing debt or debts exceed in aggregate the amount of €30,000. 

HU  The court will declare that a debtor is insolvent and order the liquidation proceeding, when: (i) the 
debtor has not repaid or disputed (in writing) an acknowledged or undisputed debt, arising out of 
contract,  within  20  days  of  the  debt’s  maturity  and  upon  a  subsequent  written  payment  demand 
from the creditor; or (ii) the debtor failed to repay its debt within its maturity as stated by the court's 
definitive  judgement;  (iii) judicial  enforcement  proceedings  against  the  debtor  were  unsuccessful; 
(iv) the debtor has breached the obligations it has undertaken under a composition entered into with 
its  creditors  in  previous  bankruptcy  or  liquidation  proceedings;  (v) the  court  terminated  the 
previous bankruptcy proceedings; (vi) in the proceedings initiated by the debtor or the liquidator, 
the debts of the debtor exceed his assets, or the debtor could not or will not be able to satisfy his 
debts  (debts)  at  the  due  date,  and  in  the  proceedings  initiated  by  the  liquidator,  the  members 
(owners)  of  the  debtor  business  organization  do  not  declare  their  commitment  to  provide  the 
resources necessary for the payment of debts. 
The primary condition for opening personal insolvency proceedings is that the debtor is insolvent, 
i.e. they are unable to meet their debts as they come due.  The nature and extent of the debts and the 
debtor’s income then determines which of the three arrangement types is appropriate: DRN, DSA 
or PIA. 
The objective prerequisite for the declaration of bankruptcy is the state of insolvency provided for 
in  Art.  5  of  the    Italian  Bankruptcy  Law  (IBL),  which  establishes  that  a  person  is  in  a  state  of 
insolvency  if  he  is  unable  to  regularly  meet  his  obligations.  Insolvency  can  be  manifested  by 
defaults or other external facts (e.g. the escape of the entrepreneur or the closure of the premises in 
which  he  exercised  the  activity),  which  demonstrate  that  the  debtor  is  no  longer  able  to  meet  his 
obligations. An entrepreneur who can only partially pay his debts is considered insolvent, as is an 
entrepreneur  who  can  fulfil  his  obligations,  but  only  after  they  have  expired,  or  in  an  irregular 
manner (e.g. an entrepreneur who is forced to sell real estate to satisfy the company's creditors). 

IT 

IE 

LV  The insolvency proceedings of a natural person may be applied to a natural person who has been 
the  Republic  of  Latvia  for  the  last  six  months  and  who  has  financial  difficulties  (signs  of 
insolvency): (i)  There is no possibility of settling debts of a total of more than EUR 5000 for which 
the deadline has entered into; (ii) on the basis of verifiable circumstances, it will not be possible for 
that  person  to  settle  debts  above  EUR  10  000  for  which  the  deadline  is  set  to  expire  within  one 
year. 

LT  Bankruptcy proceedings may be brought against a legal person where the court has determined the 
existence  of  at  least  one  of  the  following  circumstances:    (i) the  company  is  insolvent;  (ii)  the 
company is late in making payments relating to employment relationships to its employees; (iii) the 
company is or will be unable to meet its obligations. In addition, company insolvency is understood 
to  be  a  state  where  a  company  is  unable  to  meet  its  obligations  (does  not  pay  debts,  does  not 
perform work paid for in advance, etc.) and the overdue obligations of the company (debts, overdue 
work, etc.) exceed one half of the book value of its assets. 

MT 

LU  According to the law of Luxembourg, the conditions needed to open an insolvency proceeding are: 
(i) Status of trader ; (ii) cessation of payments: it means that unquestionable debts due for payment 
(e.g. wages, social security, etc.) are unpaid, with term or contingent debts and natural obligations 
not being sufficient; (iii) loss of creditworthiness (the trader can no longer obtain credit from banks, 
suppliers or creditors). 
Insolvency Proceedings (Companies)  conditions: according to article 214(2)(a)(ii) of Chapter 386 
of the Companies Act (MCA), the company shall be deemed to be unable to pay its debts: (i) if a 
debt due by the company has remained unsatisfied in whole or in part after twenty-four weeks from 
the enforcement of an executive title against the company by any of the executive acts specified in 
article 273 of the Code of Organization and Civil Procedure; or (ii) if it is proved to the satisfaction 
of the court that the company is unable to pay its debts, account being taken also of contingent and 
prospective liabilities of the company. 

NL  A debtor who is in a situation where he has stopped to pay his due and demandable debts shall be 
declared bankrupt by court order, rendered either upon his own request or upon the request of one 
or more of his creditors. Moreover, the bankruptcy order may also be rendered for reasons of public 

204 

 
 
interest or upon the request of the Public Prosecution Service. In practice this means, although not 
formally  required,  that  such  creditor  must  not  only  submit  his  own  claim(s),  but  he  has  to  make 
plausible  as  well  that  the  debtor  is  in  default  of  performing  at  least  one  other  claim  of  another 
creditor ('supporting claim'). Only then the court is able to asses that the debtor has stopped to pay 
his due and demandable debts. So it is not possible for a creditor to lodge a petition for bankruptcy 
when  the  debtor  only  fails  to  comply  with  this  creditor's  claim(s).  In  such  event  the  creditor  can 
only  try  to  acquire  an  enforceable  judgment  against  the  debtor  (to  be  obtained  after  normal 
proceedings)  which  makes  him  entitled  to  foreclose  the  debtor's  property,  from  which  he, 
subsequently, may recover his claim(s). 
The Bankruptcy Law identifies two independent grounds for the existence of a state of the debtor’s 
insolvency, known as the liquidity test and the balance-sheet test. ad 1: The essence of the liquidity 
test, which is the most common grounds for insolvency, is the debtor’s loss of the ability to perform 
its  monetary obligations as they come due. The Bankruptcy  Law provides  for a presumption that 
the  liquidity  test  is  met  if  the  debtor’s  delay  in  performing  monetary  obligations  exceeds  three 
months.    Ad  2:  The  balance-sheet  test  provides,  in  turn,  that  a  debtor  that  is  a  legal  person,  a 
commercial  partnership,  or  other  organisational  unit  (with  certain  exceptions)  is  also  insolvent 
when the value of the debtor’s monetary obligations exceeds the value of the debtor’s assets over a 
period exceeding 24 months.   
Insolvency is a factual situation of insufficiency of assets of any legal subject (insufficiency which 
translates into the impossibility to comply with its due obligations) described by the Insolvency and 
Recovery Code (Código da Insolvência e da  Recuperação  de  Empresas  –  CIRE). In other  words, 
insolvency is characterised as the impossibility to comply with the generality of the due obligations 
of an individual or legal entity, and this situation may be current (incapacity to comply with the due 
obligations)  or  imminent  (situation  of  potential  incapacity  to  generate  cash  flow  to  cover  the 
liabilities). 

PL 

PT 

SK 

RO  Any  company  is  entitled  to  petition  for  insolvency  in  Tribunal  as  soon  as  it  determines  that  it 
is/soon will be unable to perform payment of its current/or future debt exceeding the threshold of 
RON  50,000  (approx.  EUR  10,000).  At  the  same  time,  any  creditor  of  a  company  may  file  an 
insolvency  petition  in  court  if  its  receivables  against  that  company  exceed  the  aforementioned 
threshold  and  are  overdue  for  more  than  60  days.  The  debtor  may  defend  against  the  creditor’s 
petition indicating that even if the above conditions are met, it has sufficient liquidity. 
In certain cases, the court may decide to oblige the petitioning creditor to pay a bond of up to 10% 
of  the  value  of  his  claim  (but  not  exceeding  the  sum  of  RON  40,000  equivalent  EUR  8,000)  in 
order  to  cover  any  damages  incurred  by  the  debtor  in  case  the  creditor’s  petition  is  without 
sufficient grounds. 
Insolvency  means  that  the  debtor  has  excessive  debt  or  is  cash-flow  insolvent.  A  debtor  has 
excessive  debt  if  the  debtor  is  obliged  to  keep  accounts  in  accordance  with  the  applicable 
legislation  (Act  No  431/2002  on  accountancy),  has  more  than  one  creditor,  and  the  value  of  the 
debtor’s  liabilities  is  greater  than  the  value  of  the  debtor’s  assets.  A  legal  person  is  cash-flow 
insolvent if it is more than 30 days overdue with the payment of two or more financial liabilities to 
more than one creditor. A natural person is cash-flow insolvent if he or she is unable to pay at least 
one financial liability 180 days after payment was due. 
Insolvency is defined as a situation where: (i) the debtor has been insolvent for a lengthy period of 
time  because  it  was  unable  to  pay  all  of  its  obligations  due  in  that  period;  or  (ii) the  debtor  has 
become long-term insolvent because the value of its property is less than the sum of its obligations 
(over-indebtedness),  or  because  the  loss  of  the  debtor  capital  company  together  with  the  loss 
brought  forward  in  the  current  year  exceeds  half  of  the  share  capital,  and  the  losses  cannot  be 
covered by profit brought forward or from reserves. 
The  law  lays  down  certain  subjective  and  objective  prerequisites  to  be  met  in  order  to  open 
insolvency proceedings: (i) Subjective prerequisite: any debtor can be declared insolvent, whether a 
natural  or  legal  person,  an  entrepreneur  or  a  consumer,  (ii)  Objective  prerequisite:  the  debtor’s 
insolvency, defined as the inability to pay its liabilities on a regular basis. 
Insolvency  is  defined  as  a  situation  where  the  debtor  is  not  able  to  duly  pay  his  debts,  and  this 
inability is not of a temporary nature. 

ES 

SE 

SI 

Source: Deloitte/Grimaldi (2022). 

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3.2 

Special insolvency regime for micro- and small enterprises 

Micro-  and  small  enterprises  (MSEs)  rarely  use  formal  insolvency  proceedings 
voluntarily, and when they do it, it is almost inevitably too late to preserve their value. 
For micro and small companies (MSEs), the costs of proceedings can easily exceed the 
value  of  the  estate.  This  is  part  of  the  reason  why  MSEs  are  often  not  wound  down 
properly  but  remain  in  limbo.  There  is  extensive  evidence  that  traditional  national 
insolvency  frameworks  are  of  no  (or  little)  use  for  micro-  and  small  enterprises. 
Traditional  insolvency  proceedings  are  too  costly  for  such  debtors,  compared  to  the 
assets at hand belonging to the insolvency estate, or often simply not accessible to them 
(due to the lack of assets covering such costs). 

Indeed,  traditionally,  special  treatment  for  the  so-called  “small  and  medium-sized 
enterprises”  has  always  been  highly  recommended,  for  instance,  providing  for  a 
simplified  application  of  restructuring  or  insolvency  proceedings.  Indeed,  beyond  such 
response by legislators, legal practice has underlined the need for the enterprises that do 
not meet certain thresholds to establish a preferred channel, due to their sizes.  

A  closer  look  at  our  analysis  reveals  that  existing  national  regulations  limit  such 
privileges to businesses that do not exceed certain thresholds. While these thresholds are 
different  across  jurisdictions,  the  overall  picture  reveals  that  a  special  treatment  is 
commonly  only  available  for  small,  but  not  for  medium  sized  businesses.  Indeed,  for 
medium  sized  businesses  common  insolvency  and  restructuring  rules  and  procedures 
appear designed and applicable (although with some differences in the different member 
State).  

These MSEs rarely use formal insolvency proceedings voluntarily, and when they do it, it 
is almost inevitably too late to preserve their value. This is, because: 

(i) 

(ii) 

in the vast majority of cases, micro and small debtors have very little knowledge 
of their legal position, seek legal advice too late;  

financial  information  available  to  SMEs  is  often  poor,  which  hinders  early 
awareness of the financial distress, but also  

(iii) 

affects the ability of creditors to monitor the debtor;  

(iv) 

 most  small  businesses  are  family-run  and  constitute  the  family’s  only  source  of 
income,  and 
insolvency 
proceedings remains significant.310 

the  reputational  stigma  associated  with  formal 

The main motivation of a dedicated MSE insolvency regime would be to reduce the costs 
of the procedure as reaction to the observation that traditional insolvency procedures are 
heavy and lead to legal costs that many defaulting MSEs are not able to cover.311 Many 
MSEs  are  managed  by  entrepreneurs,  which  may  cause  a  higher  risk  of  opportunistic 

310  “Best  practices  in  European  restructuring”,  edited  by  L.  Stanghellini,  R.  Mokal,  C.  Paulus,  I.  Tirado, 
2018, p 233 et seq. This Final Report of the project  “Contractualised distress resolution in the shadow of 
the law” was funded from the European Commission Grant JUST/2014/JCOO/AG/CIVI/7627. 
311 See Guerra-Martinez (2021) for an analysis of the specific issues of MSE insolvency regimes discussed 
in this paragraph. 

206 

 
 
                                                 
behaviour than if the company is managed by an employed manager. The entrepreneur’s 
emotional  attachment  to  the  company  may  furthermore  generate  a  behavioural  bias 
towards keeping even a non-viable company alive as long as possible, which reduces the 
recovery  value.  It  also  blocks  production  factors  from  a  more  productive  use  in  other 
companies.  

Creditors of MSEs may also be small and uninformed, implying that legal advice could 
be relatively costly for both creditors and debtors. Foreign investors may be less exposed 
to  MSEs given their lower transaction value compared to  larger companies. There may 
however be cases, especially in very innovative companies that are prepared to pay high 
risk  premia  where  foreign  creditors  find  interest.  Given  the  general  public  interest  in 
MSEs,  there  is  a  broader  interest  in  making  insolvency  regimes  also  useful  for  MSEs. 
Since  the  bankruptcy  of  a  MSE  has  direct  consequences  for  the  entrepreneur, 
interdependency with rules on second chance or debt discharge is a general concern. 

The circumstance that domestic insolvency frameworks are not adapted properly to treat 
insolvent micro- and small enterprises represents a lost opportunity for the economy, by 
depriving  those  businesses  from  an  orderly  exit  (if  unviable)  or  from  a  sensible 
restructuring (if viable), and due to the sheer size of the community of such enterprises – 
to the internal market.   

A simplification of rules as regards MSEs means a set of derogations from ordinary rules 
where  such  rules  are  considered  overly  cumbersome  for  the  purposes  of  MSEs,  rather 
than  of  a  new  separate  procedure.  Deviations  from  the  general  rules  may  include,  for 
example, access to orderly proceedings regardless of assets available to cover the costs; 
easy entry conditions; lowered complexity and duration of the procedures; postponement 
of  the  payment  of  procedural  costs;  the  possible  public  funding  of  procedural  costs; 
rational  creditors’  passivity  be  considered  as  approval  to  decisions;  administration  of 
procedures mainly out-of-court; use of mandatory templates and of IT tools312; providing 
for a very short periods of a stay of a plan proposal.  

More flexibility often means less safeguards for vulnerable stakeholders, which includes 
tort (i.e. involuntary) creditors and cross-border creditors (not likely to be numerous with 
these  enterprises,  though).  It  needs  to  be  noted  that  the  2019  Restructuring  Directive 
already provides for debt discharge for entrepreneurs. The overall trend, set by the World 
Bank,  UNCITRAL  or  the  United  States  is  to  simplify  insolvency  proceedings  for 
MSEs313. 

312 UNCITRAL recently adopted legislative recommendations for this purpose (as part 5 of its legislative 
guide). 
313 European Law Institute 2017 Instrument on insolvency law includes a specific chapter dedicated to this 
topic and relevant recommendations in this sense. US adopted federal legislation in 2019 – Small Business 
Reorganization Act (SBRA) which modified Chapter 11 of the Bankruptcy Code and which introduces a 
simplified  sub-procedure  to  the  famous  Chapter  11  of  the  US  Bankruptcy  Code  for  small  and  medium 
enterprises. (first feedback from practice is positive).   

207 

 
 
 
                                                 
Table A5.7: Existence of special rules for SMEs in EU Member States  

AT  Not existent. 
BE 

In  Belgium,  in  the  framework  of  the  transposition  of  the  EU  Directive  2019/1023,  the  Federal 
Parliament commissioned a group of experts to submit a transposition text for legislative approval. 
In the framework of the  discussions in this expert group, the question of the  treatment of SMEs is 
central and is being debated. Initially, it was planned to not apply the exemption for SMEs in Article 
9(4)(3)  of  Directive  2019/1023,  but  recent  discussions  have  brought  this  issue  back  into  the 
spotlight. 

BG  Not existent 
HR  Currently, Croatian legislative framework does not provide for a specific treatment of SMEs. Special 
treatment has been reserved at this stage only for the companies of systemic importance for Republic 
of Croatia under the Law on the procedure of extraordinary administration in commercial companies 
of systemic importance for Republic of Croatia141. Companies of systemic importance are defined 
as  joint  stock  companies  (dionička  društva),  excluding  credit  and  financial  institutions,  who 
cumulatively meet the following criteria: average of more than 5,000 employees in a calendar year, 
including  its  affiliated  companies,  and    debt  of  more  than  HRK  7,500,000,000  (approx.  EUR  1 
billion), including its affiliated companies. 

CY  There is no specific treatment of SMEs in insolvency regimes, except in the coordinated repayment 
plan,  which  is  only  available  to  company’s  employing  less  than  10  persons  (this  is  the  only 
requirement). 

CZ  There are no special treatments for SMEs. 
DK  Not existent 
EE  No special rules for SMEs. 
FI 

There are no provisions on specific treatment of small and medium-sized enterprises (SMEs) within 
the Finnish insolvency regimes and the provisions on restructuring and bankruptcy proceedings are 
applicable to all Finnish entities regardless of their size. 

DE 

FR  No  information  regarding  a  special  insolvency  procedure  for  SMEs. There  is  a  simplified  form  of 
liquidation proceedings available for SMEs, which last for a maximum of 6 or 12 months, depending 
on the size. 
If the debtor is a small enterprise and does not have the financial means to hire a practitioner in the 
field of restructuring, there is the possibility of a ‘light’ version of restructuring proceedings (that is, 
a  restructuring  moderator  (Sanierungsmoderator),  who  will  negotiate  the  restructuring  settlement 
agreement with the relevant creditors). This will require the confirmation by the rest ructuring 
court, but unlike the restructuring plan itself, it cannot be forced upon dissenting creditors. 

EL  The  new  Bankruptcy  Code  provides  for  important  amendments  to  the  liquidation  of  small 
companies. The law identifies small and medium-sized entities as those that meet at least two of the 
following criteria: 
 assets or property up to EUR 350 000 (from EUR150 000 that was until now), 
 have a turnover amounting up to EUR 700 000 (from EUR 200 000 until now), and 
 employ up to 10 people on average (from 5 persons until now). 
 In  case  of  individuals  the  asset  criterion  applies  to  the  property  of  each  individual  ('small-scale 
bankruptcies').  The  application  for  the  declaration  of  small-scale  bankruptcies  is  submitted 
electronically  to  the  Electronic  Solvency  Register.  Thirty  days  after  the  publication  of  the 
application  in  the  Registry  and  unless  an  intervention  against  the  application  is  submitted,  the 
application  is  accepted  by  the  Bankruptcy  Court.  The  rapporteur  and  liquidator  are  appointed  as 
well.  The  debtor  loses  the  right  to  enjoy  the  benefits  of  a  hearing,  where  he  can  present  his 
arguments in a timely manner. Announcement of the creditors' claims must take place within three 
months of publication of the court's decision. Based on estimates by Institute of Small Companies-
GSEBEE, 81% of small and medium-sized enterprises are potentially included in the new fast track 
bankruptcy regime, based on turnover (data from FHW GSEBEE climate survey July 2020). 
Insolvency regulations in Hungary are not different for large or small or medium-sized enterprises. 
The  distinction  is  not  justified  either,  as  each  enterprise  operates  according  to  the  same  principles 
and their organization is subject to similar rules. 

HU 

IE  Not existent 
IT 

There  is  a  derogatory  regime  -  an  ‘early  warning’  procedure,  aimed  at  detecting  deterioration  in  a 
business at an early stage and thereby signalling to the debtor the need to act as a matter of urgency 
in order to: avoid insolvency; and continue its business activities. 

208 

 
 
In general terms, the early warning procedure is an out-of-court procedure characterised by privacy 
and  confidentiality.  However,  SMEs  can  apply  to  the  court  to  obtain  certain  protective  measures 
such as a stay from enforcement actions by the SMEs’ creditors for a period of up to six months. 
The  agreement  entered  into  at  the  end  of  the  early  warning  procedure  has  the  same  effect  as  a 
recovery  plan  underlying  a  voluntary  composition  agreement,  thus  exempting  restructuring  related 
transactions from insolvency avoidance actions 
LV  There are no special rules for SMEs in Latvia. 
LT  There are no specific rules concerning the insolvency of SMEs. 
LU  Not found 
MT  The  liquidation  proceedings  in  Malta  are  all  designed  for  Small  and  Medium  Enterprises  (SMEs) 

because in Malta, over 95% of the companies are considered as SMEs 

NL  Not existent. 
PL  The current Polish Restructuring Law and the Bankruptcy law do not provide for a special treatment 

PT 

of micro and SMEs. 
SMEs  are  the  focus  of  the  Special  Recovery  Proceedings  (Processo  Especial  de  Revitalização  – 
PER), which is found in  CIRE. It was through this logic of ‘preventive restructuring’ that the PER 
was created to try to ‘save’ SMEs. In relation to SMEs, about insolvency proceedings, in addition to 
CIRE,  the  Extrajudicial  Business  Recovery  Regime  (RERE),  and  the  Business  Recovery 
Ombudsman  (MRE)  should  be  considered.  The  RERE  is  an  instrument  through  which  a  debtor 
(except  for  natural  persons  who  are  not  business  owners)  in  a  difficult  economic  situation  or  of 
eminent  insolvency  may  enter  into  negotiations  with  all  or  some  of  its  creditors  with  a  view  to 
reaching an agreement - voluntary, free-content and, as a rule, confidential - tending to its recovery. 
During a transitional period of 18 months from the date of its entry into force, debtors who are in a 
situation of insolvency, assessed under the terms of the CIRE, may resort to the RERE. 

RO  Currently, there are no special tools or procedures used to help SMEs. 
SK  No provisions found. 
SI 

Special  rules  for  compulsory  settlement  proceedings  over  small,  medium  or  large-sized  company, 
imposed  in  section  4.8  of  the  Financial  Operations,  Insolvency  Proceedings  and  Compulsory 
Winding-up Act (ZFPPIPP) regulate the following matters: 
 the process of appointing insolvency practitioners in compulsory settlement proceedings, 
 the creditor’s proposal to initiate compulsory settlement proceedings, 
 financial restructuring measures, lodging and testing of claims and value of collateral, 
 re-compulsory  settlement  proceedings  after  final  confirmation  of  compulsory  settlement 
proceedings, 
 creditors’ agent. 

ES  There are no specific rules for SMEs 
SE  No specific rules for SMEs. 
Source: Deloitte/Grimaldi (2022). 

4. 

Distributional elements of insolvency 

4.1 

  Ranking of claims 

The notion of ranking of claims determines which class of creditors gets paid first from 
the  proceeds  of  a  liquidation.  It  also  impacts  on  any  restructuring  negotiation  to  avoid 
insolvency, since it is the background against which creditors assess their options.  

Regarding  the  issue  of  ranking  of  claims,  insolvency  law’s  core  principle  is  that  the 
distribution  of  the  remaining  value  follows  a  system  of  priority  established  by  law  and 
separating  between  different  classes  of  creditors  whereby  one  can  only  proceed  to 
payments on the claims of a lower class if the claims of the higher class have been fully 
satisfied.  The  treatment  of  secured  creditors  in  insolvency  is  often  also  discussed  as  a 
matter of ranking. Their position is determined by national property law. The regime of 
how  assets  can  be  given  as  collateral  with  legal  certainty  is  an  important  feature  for 
businesses  to  obtain  financing  in  an  economy.  This  feature  is  thus  one  of  the  most 

209 

 
 
relevant  elements in the creditors’ ranking in the CMU context.  Bank loans are usually 
secured (with collateral).  

The  issue  of  ranking  claims  can  be  resolved  in  as  many  ways  as  there  are  purposes  of 
insolvency  law.  A  simple  comparison  highlights  this  interrelationship:  In  France,  the 
purpose of insolvency law is, among other things, but above all, to save as many jobs as 
possible, whereas in Germany the equivalent purpose. 

The ranking of claims increases uncertainty for investors as they cannot know how much 
of the residual value of the company can be distributed among those creditors that do not 
enjoy  preferential  treatment.  When  a  company  is  wound  down,  employees,  tax 
authorities and other public authorities including those administering the procedure often 
enjoy preferential treatment that puts them on top of other creditors. 

The  ranking  of  claims  tends  to  be  complex,  which  make  the  outcome  very  difficult  to 
anticipate for foreign investors since they may have neither a good understanding of the 
rules in the destination country, how they area applied and how large the share of these 
preferential creditors could be. They have therefore little possibility to assess the impact 
of creditor ranking on the recovery value and the recovery time.  

The rules on ranking of claims, and in particular those related to the protection of secured 
credits, are of particular importance for foreign investors when they try to anticipate the 
risks  attached  to  their  investments,  as  these  affect  the  expected  recovery  rates. 
Divergences  in  this  area  may  thus  have  a  significant  impact  on  the  cost  of  lending  to 
reflect such risks, and – in certain cases – may serve as a deterrent from engagement for 
investors.  

The  principle  of  pari  passu  (alternatively:  par  condicio  creditorum)  constitutes  a 
fundamental  principle  of  equity  which  implies  that  in  a  common  situation  (such  as  an 
insolvency procedure) where the debtor's existing assets are insufficient to satisfy all his 
creditors in full, losses are shared proportionally and equitably. However, this principle 
has rarely - if ever - been applied without friction. The history of insolvency law can be 
written in terms of an ongoing struggle for privileged status, i.e., a higher rank. 

In many Member States, vulnerable creditor groups such as employees rank first. In other 
Member States, employees’ rights are protected by social security systems, including e.g. 
funds  to  pay  outstanding  wages.  Outstanding  taxes  make  up  the  bulk  of  the  claims  in 
many insolvency proceedings, in particular for SMEs, and in some Member States, they 
rank  first  (aka  the  fiscal  privilege).  They  also  stand  in  the  way  of  many  restructurings 
because the administration does not have discretion to forgive tax debts.  

More specifically insolvency regimes respect security rights arrangements of the debtor 
as  long  as  they  are  permitted  under  local  civil/contract  law  and  do  not  constitute  a 
fraudulent transfer of assets under respective insolvency law provisions. Indeed, secured 
transactions play a key role in a well-functioning market economy and discrepancies and 

210 

 
 
uncertainties  in  the  legal  framework  governing  security  rights  are  the  main  reasons  for 
the high costs and unavailability of credit314. 

Post-commencement preferences are justified on the basis of a specific legitimate interest 
defined in  advance to allow each creditor to calculate ex ante their risks  in view of the 
legal  position  in  a  possible  future  insolvency  of  their  debtor.  Thus,  to  ensure  a  proper 
functioning of the market, having regards to the creditors’ perspective, what matters is to 
identify  which  are  the  legitimate  interests  which  justify  these  preferences  interference 
with  the  pre-commencement  entitlements.  It  is  obvious  that  these  legitimate  interests 
have to be identified in the interests of all the creditors in so far they provide a priority 
over the ordinary claims (i.e., so called super -priority). 

The first legitimate interest is to guarantee orderly procedures by securing the payment of 
costs  of  proceedings.  The  proper  and  correct  functioning  of  the  systems  ultimate 
safeguards the interests and rights of all the stakeholders. Administrative expenses (i.e., 
claims  resulting  from  the  debtors’  estate)  should  be  granted  with  a  priority  as  well 
considering that they are costs resulting from the efforts to organise and orderly liquidate 
all assets in the estate or reorganise the debtor’s business in the interest of all creditors.  
The second legitimate interest is in securing the going concern (in a going concern sale as 
well as in a piecemeal auction process, i.e., prepack sale) which is possible only of if the 
assets  forming  the  business  are  not  torn  apart  at  the  outset  of  proceedings  by  secured 
creditors who enforces their pre-commencement entitlements. In effect, a going concern 
sale  or  a  prepack  sale  usually  means  a  higher  return  for  creditors  than  the  receivables 
from a piecemeal liquidation. 

Lastly, a further legitimate interest may be identified in the protection of interim and/or 
new financing  as  far as  it sustains  the restructuring proceedings or the sales as a  going 
concern (see para below on treatment of interim or new financing). As of today, claims 
from  interim  finance  enjoy  the  priority  of  administrative  expenses,  which  means  they 
usually rank  ahead of pre-commencement creditors, but  not  affect  the rights  of secured 
creditors.  In  Belgium,  however,  interim  finance  may  rank  ahead  of  secured  creditors. 
when  and  to  the  extent  that  secured  creditors  have  benefited  from  such  finance 
themselves.  In  France,  for  example,  a  super-priority  is  reported  meaning  that  claims 
deriving  from  new  finance  arrangements  in  a  safeguard  proceeding  or  a  judicial 
reorganization  even  rank  above  other  secured  and  unsecured  creditors.  In  Italy,  in 
arrangement  with  creditors  and  in  debt  restructuring  agreements,  both  interim  and  new 
finance – consequential to these agreements – are ranked ahead of secured creditors.   

Where securing the claim induces creditors to invest more funds, ultimately encouraging 
the credit system, providing super-priorities not grounded in the interests of all creditors 
makes  it  extremely  difficult  to  ex  ante  assess  the  extent  of  super-preferred  claims  and, 
thus,  almost  impossible  to  precisely  calculate  credit  risks  which  usually  makes  credit 
more expensive. 

Table A5.8 Rules and practices in EU Member States on the ranking of creditors 

Types of creditors 

Ranking 

314 World Bank, Principles for Effective Insolvency and Creditor/Debtor Regimes, cit. See  principles A2; 
A3. 

211 

 
 
 
                                                 
AT 

secured  (or  preferential), 
and  unsecured creditors.  

BE 

BG 

Under  Art.  2  of  BCEL, 
the  following  categories 
can  be 
of 
creditors 
each 
distinguished, 
subsequent 
category 
holding  a  lower  priority 
against the previous one: 
  Preferential creditors: 

  Special privilege, 
  General 

privilege,  

  ordinary creditors. 

several 

Creditors  are  divided 
into 
classes 
according  to  Art.  722 of 
each 
BCA, 
the 
subsequent  class  having 
a  lower  priority  against 
the previous one: 
  Secured 

creditors 
(mortgage,  property 
subject to lien etc.); 
  Privileged  creditors: 

employment, 
bankruptcy costs etc.; 
  Unsecured creditors. 

Priority claims are defined as claims against the insolvency estate that are 
satisfied prior to all other insolvency creditors. Priority claims are reduced 
to certain kinds of claims and include:  
  costs of the proceedings,  
  costs regarding administration, sustainment and supply of the insolvency 

estate, 

  claims of the employees for current salary, 
  claims in connection with the termination of certain kinds of employees, 

claims resulting from the fulfilment of certain contracts,  

  claims based on transactions processed by the insolvency administrator,  
  claims based on unjust enrichment of the insolvency estate, and  
  compensation  for  the  members  of  privileged  associations  for  the 

protection of creditors’ rights.  

Filing priority claims with the insolvency court separately is not required. 
These claims are filed directly with the insolvency administrator. 
The  competing  claims  to  the  estate  in  bankruptcy  occur  automatically 
under  law.  The  bankrupt  debtor's  assets  are  used  exclusively  to  satisfy 
creditors existing on the day of bankruptcy and whose claim is fixed on the 
day of bankruptcy. In principle, an equal distribution among the creditors 
will take place, except when the regime of mortgages and liens allows for 
derogations.  When  a  bankrupt's  property  is  realised,  liens  and  mortgages 
entitle  the  lien  holder  to  be  paid  preferentially  from  the  proceeds  with 
priority over other unsecured creditors. 
The  ‘debts  of  the  bankruptcy  estate’  (management  costs  and  expenses, 
taxes,  environmental  debts,  debts  arising  from  the  trustee  in  bankruptcy's 
initiatives or quasi-contracts) constitute preferential claims on the estate in 
bankruptcy. 

The following procedure for settling claims by way of making distributions 
from  the  estate  converted  into  money,  stipulated  in  Article  722  of  the 
Commerce Act, is followed: 
  claims  secured  by  a  pledge  or  mortgage,  garnishment  or  distraint, 
registered in accordance with the Liens Act  — from the proceeds from 
security realisation; 

  claims in respect of which the right to lien is exercised — from the value 

of the asset subject to lien; 

  expenses  incurred  in  the  insolvency  proceedings  (stamp  duty  payable 
upon filing and all other expenses incurred until the entry into force of 
the ruling opening insolvency proceedings; the receiver’s remuneration; 
the  claims  of  workers  and  employees  when  the  debtor’s  enterprise  has 
not  ceased  trading;  the  costs incurred on  augmentation,  administration, 
valuation and distribution of the insolvency estate; and the maintenance 
payments in favour of the debtor and their family); 

  claims arising from employment contracts that existed before insolvency 

proceedings were opened; 

  statutory compensation payable to third parties by the debtor; 
  public-law debts to the central government or municipalities, including 
but  not  limited  to  those  arising  from  taxes,  customs  duties,  fees  and 
mandatory social security contributions, if they arose before the date on 
which insolvency proceedings were opened; 

  claims that arose after the commencement of insolvency and unpaid by 

the respective due date; 

  any 

remaining  unsecured  claims 

that  arose  before 

insolvency 

proceedings were opened; 

  statutory or contractual interest on unsecured debts due after the date on 

which insolvency proceedings were opened; 

  loans granted to the debtor by a business partner or shareholder; 
  donations; 
  the expenses incurred by the creditors in connection with the insolvency 
proceedings,  except  for  the  expenses  under  Article  629b  of  the 
Commerce Act (prepaid initial litigation expenses). 

HR 

As 

a 

general 

rule,  Pursuant to the CBL, claims and their creditors are ranked respectively as it 

212 

 
 
bankruptcy  creditors  are 
classified 
in  payment 
ranks  according  to  their 
claims.  Creditors 
of 
subsequent 
payment 
rank  cannot  be  settled 
until  the  creditors  from 
the  previous  rank  have 
been  completely  settled. 
Creditors  of  the  same 
payment  rank  will  be 
settled  proportionally  to 
their claims.  

 

 

follows: 

  bankruptcy estate – claims of the bankruptcy estate include bankruptcy 
proceedings  costs  and  other  claims  of  the  bankruptcy  estate  (attorney 
claims etc.); 

  creditors  with  separate  satisfactory  right–  are  not  bankruptcy  creditors 
and they may request extraction of objects to which they are entitled out 
of the bankruptcy estate;  

  secured creditors– their claims are satisfied from secured assets. Secured 
creditors  are  also  bankruptcy  creditors  only  if  the  debtor  is  personally 
liable  to  them,  and  they  are  entitled  to  satisfy  their  claims  from  the 
bankruptcy estate only if they waived their right of satisfaction from the 
secured assets or are unable to do so; 

  regular  bankruptcy  creditors–  are  unsubordinated  and  unsecured 
creditors  whose  claims  are  classified  into  ranks  depending  on  the 
particular claim as follows:  

first  rank  –  claims  of  employees  and  of  former  employees  of  the 
bankruptcy debtor which arose from employment until the opening 
of the bankruptcy proceedings and certain related claims,  
second rank – all the other claims towards the bankruptcy debtor, 
except for the subordinated claims, 

  subordinated bankruptcy creditors– are the last in line for settlement and 

their rank within the group depends on the type of their claim. 

CY 

In  Cyprus,  creditors  are 
divided in: 
  secured creditors; 
  preferential  creditors, 

The  order  of  distribution  of  assets  in  all  forms  of  winding-up  and  in 
receivership is as follows: 
  the costs of the winding-up; 
  the  preferential  debts. Preferential  claims  are  defined  in  section 300 of 

and; 

the Companies Law and comprise: 

  unsecured creditors. 

 

 

 

 

CZ 

are 

three 

There 
categories of creditors: 
  secured creditors; 
  preferential  creditors; 
insolvency 
state 

e.g. 
administrator, 
authorities, 
employees,  suppliers 
delivering 
their 
supply  after  decision 
on insolvency; 

  unsecured creditors. 

all  government  and  local  taxes  and  duties  due  at  the  date  of 
liquidation and having become due and payable within 12 months 
before  that  date  and,  in  the  case  of  assessed  taxes,  not  exceeding 
one year's assessment; 
all  sums  due  to  employees,  including  wages,  up  to  one  year's 
accrued  holiday  pay,  deductions  from  wages  (such  as  provident 
fund contributions) and compensation for injury. 
Claims  of  employees  who  are  shareholders  or  directors  may  not 
rank as preferential depending on the nature of the shareholding or 
directorship (section 300(1), Companies Law, Cap. 113). 
A  person  who  has  advanced  funds  to  pay  employees  will  have  a 
subrogated  preferential  claim  to  the  extent  that  the  employees' 
direct  preferential  claims  have  been  diminished  because  of  the 
advances (Sec 300(2), CCL). 
  any amount secured by a floating charge; 
  the unsecured ordinary creditors; 
  any deferred debts such as sums due to members in respect of dividends 

declared but not paid; 

  any  share  capital  of  the  company.  Where  there  are  different  classes  of 
share capital, such as preference shares, their respective rankings will be 
determined by the terms on which they were issued. 

After the decision approving the final report becomes final, the insolvency 
practitioner  submits  a  draft  order  on  the  distribution  of  the  estate  to  the 
insolvency  court,  stating  how  much  should  be  paid  for  each  claim  in  the 
revised list of registered claims. On that basis, the insolvency court  issues 
an  order  on  the  distribution  of  the  estate,  in  which  it  determines  the 
amounts  to  be  paid  to  creditors.  All  creditors  included  in  the  distribution 
schedule  are  satisfied  in  proportion  to  the  ascertained  amount  of  their 
claim.  Before  the  distribution,  as  yet  unpaid  claims  which  may  be  met  at 
any time during the bankruptcy proceedings are met, specifically: 
  claims against the estate  – the cash expenses and fee of the insolvency 
practitioner, costs associated with the maintenance and administration of 
the debtor’s estate, taxes, charges, social security contributions, the state 
employment  policy  contribution,  public  health  insurance  contributions, 
etc.; 

213 

 
 
 
 
DK 

EE 

FI 

FR 

secured 

Danish  insolvency  law 
does not divide creditors 
into  classes,  apart  from 
and 
(fully) 
unsecured 
creditors. 
Creditors  with  valid  and 
enforceable  security  do 
not  form  part  of 
the 
ranking. However, if the 
security  does  not  fully 
cover  a  creditor’s  claim, 
they  are  viewed  as  an 
unsecured  creditor 
in 
relation to the unsecured 
part of their claim.  
The creditors are divided 
into: 
  secured creditors; 
  unsecured creditors. 

three 

classes 

typical 
The 
are 
creditor 
secured 
creditors, 
unsecured  creditors  and 
floating charge holders. 

Creditors  are  divided 
into: 
  preferential  creditors 
and 
rights), 

(both 
preferential 
or; 

secured 

thus 

  unsecured creditors. 
A  creditor  may 
have preferential status: 
  because  he 
in 
possession 
a 
guarantee  granted  by 
his debtor or obtained 

is 
of 

  equivalent  claims  –  the  labour-law  claims  of  the  debtor’s  employees, 
creditors’  claims  to  compensation  for  damage  to  health,  government 
claims, etc.; 
  secured claims. 
The order of priority of the creditors is governed by the DBA. The order is 
the following: 
  Costs and fees related to the administration of the estate; 
  Costs  related  to  a  vain  restructuring  attempt  or  vain  attempts  at  an 
overall arrangement with the debtor’s creditors prior to the bankruptcy; 

  Employees’ claims; 
  Duties  on  goods  that  are  subject  to  duty,  e.g.  alcoholic  and  tobacco 

goods; 

  Unsecured creditors, e.g. an ordinary receivable based on an invoice, tax 

and VAT claims etc.; 

  Claims  for  interest  after  the  issue  of  the  bankruptcy  order,  gifts  and 

fines. 

Before money is paid on the basis of distribution ratios, payments relating 
to  bankruptcy  proceedings  are  made  out  of  the  bankruptcy  estate  in  the 
following order: 
  claims arising from the consequences of exclusion or recovery of assets; 
  maintenance support payable to the debtor and their dependants; 
  consolidated obligations; 
  costs and expenses incurred in the bankruptcy proceedings. 
After these payments have been made, the creditors’ claims are satisfied in 
the following order: 
  admitted claims secured by a pledge; 
  other admitted claims that were lodged within the term set; 
  other  claims  that  were  not  lodged  within  the  term  set,  but  that  were 

admitted. 

According to Ranking Act, the priority order of creditors is, as follows: 
  Secured creditors to the extent of the value of the secured asset; 
  Preferential  claims:  court  fees,  the  bankruptcy  trustee’s  fees,  debt 

incurred during the proceedings, i.e. after the court’s decision;   

  Priority claims: creditors holding a business mortgage; 
  The claims that are satisfied last according to the Act on the Ranking of 

Claims are: 

  interest  and  penalty  for  late  payment  for  the  period  after  the 

commencement of the bankruptcy; 

  certain public penalties imposed on the debtor as a result of a criminal 

offense or illegal proceedings; 

  a claim based on a bond issued by the debtor company if the terms of the 
loan provide a lower priority than the other obligations of the issuer; 
  a claim based on a loan that may be paid with its interest in the event of 

bankruptcy only with a lower priority to all other creditors; and  
  a claim based on the Gift Promises Act (625/1947, as amended). 
Preferential creditors are not all equal. Where several preferential creditors 
compete,  they  are  paid  in  an  order  fixed  by  law,  but  still  before  the 
unsecured creditors. 
The unsecured creditors are paid from the debtor’s remaining assets, after 
payment  of  the  preferential  creditors.  The  distribution  is  carried  out  on  a 
pro rata basis. 
The following ranking is applicable: 
  ‘Super preference’ of wage claims: payment of remuneration for the last 

60 days of work prior to the judgment opening the proceedings; 

  Court  costs duly  arising  after  the  judgment  opening  the proceedings  to 
meet  the  requirements  of  conducting  the  proceedings:  costs  relating  to 
preservation, realisation of assets and distribution of proceeds among the 
creditors  (inventory  and  advertising  costs,  remuneration  of  court-

214 

 
 
 
 
from a court decision, 
or 

  because  a  preferential 
right  is  conferred  on 
him by law due to his 
status. 

appointed representatives, etc.); 

  Claims guaranteed by the conciliation preference: benefits creditors who 
provide a fresh injection of cash or supply new goods or services with a 
view to ensuring the continuation and survival of the business; 

  Preference of claims arising after the judgment opening the proceedings: 
claims arising to meet the requirements of conducting the proceedings or 
of  provisional  maintenance  of  the  business,  or  claims  arising  in 
exchange  for  goods  or  services  supplied  to  the  debtor  during  the 
maintenance of the business or to perform a current contract maintained 
by the liquidator, or claims arising for the everyday needs of the debtor 
who is a natural person; 

  Claims guaranteed by the general preference of employees: payment of 
the remuneration for six months of work prior to the judgment opening 
the proceedings; 

DE 

Creditors  are  divided 
into: 
  secured creditors;  
  unsecured 

creditors; 

and  

  subordinated 
creditors. 

  Claims guaranteed by a special preference or by a mortgage; 
  Unsecured claims. 
In  regular 
procedures  with  an 
contributories rank as follows on a debtor's insolvency: 
  Owners. Any assets, which belong to third parties, must be surrendered 

in 
insolvency  plan  (Insolvenzplan),  creditors  and 

insolvency  proceedings  (Regelinsolvenz)  as  well  as 

to these owners; 

  Secured  creditors  (immovable  property). A  land  charge  or  mortgage 

holder has a claim for foreclosure; 

the  sale  proceeds  of  the  relevant  assets.  An 

  Secured  creditors  (movable  assets,  and  claims). Secured  debts  are  paid 
using 
insolvency 
administrator  is  generally  entitled  to  sell  such  encumbered  assets  to  a 
third  party  free  from  encumbrances,  or  to  collect  such  encumbered 
claims.  The  insolvency  administrator  disburses  the  proceeds  to  the 
secured  creditor  up  to  a  maximum  amount  of  the  secured  claim,  and 
he/she will withhold a standard fee of 9% from the respective proceeds 
for the insolvency estate. Any surplus in excess of the secured claim will 
remain  with  the  insolvency  estate  and  will  become  available  to  other 
creditors; 

the  preliminary 

  Expenses/costs  of  insolvency  proceedings. This  includes  court  fees  for 
the insolvency proceedings, remuneration earned and expenses incurred 
insolvency 
by 
administrator  and  the  members  of  the  creditors'  committee.  The 
expenses/costs  of  insolvency  proceedings  rank  in  higher  priority  to  all 
other debts (including employees); 

administrator, 

insolvency 

the 

  Insolvency estate creditors. These are claims entitled to full satisfaction 
and  include,  for  example,  claims  resulting  from  new  contracts  entered 
into by the insolvency administrator with third parties, such as suppliers; 
  Insolvency creditors. All unsecured creditors (including employees) who 
registered their claims in writing with the insolvency administrator and 
whose claims have seen no objection by the insolvency administrator or 
an  insolvency  creditor.  Insolvency  creditors  will  receive  payment  on  a 
pro rata basis; 

  Subordinated creditors. Subordinated claims are (among others): 

 

 

claims  for  payment  of  interest  accrued  after  the  opening  of 
insolvency proceedings; 
costs  incurred  by  individual  insolvency  creditors  due  to  their 
participation in the insolvency proceedings; 
claims for repayment of shareholder loans or similar claims. 
  Claims  subordinated  by  agreement. Such  claims  rank  behind  statutory 

 

subordinated claims; 

  Shareholders. Any remaining surplus will be distributed to the debtor, or 

in the case of companies, to the shareholders. 

EL 

Articles  975–978  of  the 
Code  of  Civil  Procedure 
specific 
include 
provisions 
the 
priority  of  claims  of 

on 

The  distinction  between  claims  with  a  general  privilege,  claims  with  a 
special  privilege  and  unsecured  claims  is  critical  in  the  context  of 
distribution of the proceeds of liquidation of the assets over which security 
has been created. Claims with a general or special privilege are satisfied in 
priority over unsecured claims. 

215 

 
 
 
 
creditors  and  distinguish 
between:  
  claims  with  a  general 
privilege, 
which 
applies  by  operation 
of  law  and  concerns, 
among  others,  claims 
on  account  of  valued 
added  tax  and  other 
claims 
taxes, 
of 
public 
law  entities, 
claims  of  employees 
and  social  security 
funds;  

  claims  with  a  special 
which 
privilege, 
include 
of 
secured creditors; and  

those 

  unsecured claims. 

Creditors  are  divided 
into: 
  secured creditors; 
  unsecured creditors. 

HU 

IE 

Creditors  are  divided 
into: 
  preferential creditors; 

Under Article 977 of the Greek Code of Civil Procedure, if there are only 
claims  with  a  general  privilege  and  claims  with  a  special  privilege,  the 
former may only be satisfied up to one-third of the proceeds of liquidation 
of the bankruptcy estate.  
If there are claims of all three categories, those with a general privilege are 
satisfied up to 25 per cent, those with a special privilege are satisfied up to 
65  per  cent  and  unsecured  claims  are  satisfied  up  to  10  per  cent  of  the 
proceeds of liquidation of the bankruptcy estate.  
If  there  are  no  claims  with  a  special  privilege,  those  with  a  general 
privilege are satisfied up to 70 per cent and unsecured claims are satisfied 
up to 30 per cent of the proceeds of liquidation of the bankruptcy estate.  
If there are only claims with a special privilege and unsecured claims, those 
with a special privilege are satisfied up to 90 per cent and unsecured claims 
are  satisfied  up  to  10  per  cent  of  the  proceeds  of  liquidation  of  the 
bankruptcy estate. 

The order of payment of creditors is as follows: 
  the costs of liquidation; 
  the unsatisfied part of the pledged receivables (secured claim) incurred 
before  the  commencement  date  of  the  liquidation  up  to  the  amount  of 
the  sales  revenue  of  the  pledged  property  excluding  VAT,  so  that  the 
amount deducted at the time of payment to the pledgee and the amount 
set aside for debts shall be used to pay the pledged receivables; 

  alimony,  life  annuity,  compensation  annuity,  mining  supplement,  and 
cash benefits paid to a member of an agricultural cooperative in lieu of 
backyard  land  or  crops,  which  are  due  to  the  holder  for  the  rest  of  his 
life;  

  other  claims  of  private  persons  arising  from  a  non-economic  activity, 
other  than  claims  based  on  a  bond  (including,  in  particular,  claims 
arising  from  defective  performance,  damages,  including  the  amount 
quantified  by  the  liquidator  in  the  ordinary  course  of  business-related 
warranty  or  guarantee  obligations),  the  claims  of  small  and  micro 
enterprises,  primary  agricultural  producers  and  the  claims  of  the 
Common Fund of Cooperative Credit Institutions based on the fact that 
the  Common  Fund  of  Cooperative  Credit  Institution  has  become  the 
legal successor of the depositors with the insured deposit or the holder 
of their claims; 

  overdue  social  security  contributions  and  private  pension  fund 
membership fees, taxes and public debts collectable as taxes, as well as 
grants  from  other  international  sources  based  on  repayable  public 
finances, the European Union or an international agreement, as well as 
utilities  and  condominium  costs  and  claims  on  the  Cooperative  Credit 
Institutions'  Common  Fund  for  Equity,  other  than  those  referred  to  in 
point (d); 

  claims of other unsecured creditors; 
  default interest and default penalties irrespectively of the date and legal 
ground of their arising, as well as debts of a surcharge and fine; and 
  claims owed to directors, executive position employees of the debtor or 
by  their  spouses  or  close  relatives,  or  claims  of  companies  under  the 
influence  of  the  debtor,  claims  originating  from  agreements  without 
consideration  and  claims  owed  to  a  member  (shareholder)  having  a 
majority influence in the debtor (excluding mandatory  minimum  wage, 
wage  and  salary  claims  not  exceeding  twice  the  guaranteed  wage  and 
not exceeding six months' average wage in the case of an employee paid 
exclusively for performance pay). 

Preferential  Debt:  In  Personal  Insolvency  Arrangements  (PIA)  and  Debt 
Settlement Arrangements (DSA), preferential debts are paid per the terms 
of  the  agreement,  and  in  bankruptcy  preferential  debts  rank  directly  after 
bankruptcy  fees  and  any  costs  or  expenses  incurred  by  the  Official 

216 

 
 
 
 
  secured creditors; 
  unsecured creditors 

Assignee (OA) when dealing with the bankruptcy estate.  
Debts that are considered to be preferential are: 
  Certain  amounts  due  to  the  Revenue  Commissioners,  such  as  Income 

Tax, Capital Gains Tax, VAT, PAYE/PRSI etc.; 

  Certain  Local  Authority  Rates  incurred  in  the  12  months  prior  to  the 
the  arrangement 

debtor’s  date  of  adjudication  or  entering 
(commencement date). This includes local council rates and charges; 
  Wages or salaries owed to any employees of the debtor for the 4 months 

into 

previous to the commencement date; 

  Any  pension-related,  holiday-related  or  sick  absence  pay  due  to  these 

employees.  

Secured Debt: In a PIA, the secured creditor is bound by the terms of the 
agreement. In a normal PIA the secured lender is paid out of the debtor’s 
income  at  whatever  figure  is  agreed  to  in  the  arrangement.  The  debtor’s 
remaining monthly income, if any, after the debtor’s RLEs and PIP’s fees 
are deducted is paid to their unsecured creditors by way of dividend. 
Bankruptcy does not affect the rights of a secured creditor. Such a creditor 
may take one of the following three options with regard their secured debt: 
  Rely  on  their  security  –  this  means  they  effectively  stay  outside  the 

bankruptcy; 

  Realise or value their security and claim for the shortfall (if any)  – the 
creditor  will  calculate  the  fair  market  value  of  the  secured  asset  and 
subtract  this  from  the  total  owing.  The  resultant  shortfall  (if  any)  is 
admitted  into the bankruptcy  estate  as  an  unsecured  claim.  During  this 
process, the secured creditor may sell the asset in question; 

  Abandon their security – the secured creditor has an option to abandon 
their security entirely and have their claim admitted into the bankruptcy 
estate as an unsecured claim. 

Unsecured Debt: In both a PIA and a DSA, the debts of unsecured creditors 
are  settled  under  the  agreed  terms  of  the  arrangement.  In  a  DRN  if  a 
person’s  circumstances  improve  during  the  supervision  period,  s/he  must 
tell  the  ISI  and depending  on the  level  of  change,  may  be  asked  to  make 
some contribution to what he/she owes. 
The  claims  of  unsecured  creditors  of  a  bankruptcy  estate  are  ranked 
equally.  Their  debts  are  settled  with  the  disbursement  of  any  funds  that 
remain  after  bankruptcy  fees,  OA  expenses  and  preferential  debts  have 
been settled. 
Article  111  of  the  IBL  lays  down  preference  criteria  for  the  method  of 
liquidation  of  these  claims.  According  to  that  article,  the  sums  obtained 
from the liquidation must be disbursed in the following order: 
  to mortgage and pledge claims, in order to the liquidation of the secured 

assets; 

  senior-ranked claims; 
  other creditors who have a right of pre-emption; 
  unsecured creditors. 
Senior-ranked  claims  must  be  satisfied  in  their  entirety,  provided  that  the 
assets are sufficient, but even for these there may be causes of pre-emption, 
which  must  be  taken  into  account  in  their  liquidation.  Such  claims  are 
those so defined by law (e.g. in the case of the provisional exercise of the 
business by the bankrupt). 
If  the  assets  are  insufficient,  senior-ranked  claims  must  be  distributed 
according  to  the  criteria  of  graduation  and  proportionality,  in  accordance 
with the order assigned by the law (Article 111-bis, IBL). 
Article  111-  bis  makes  an  exception  to  this  principle,  stating  that  ‘the 
proceeds from the liquidation of assets subject to pledge and mortgage for 
the  part  intended  for  secured  creditors’  cannot  be  allocated  to  satisfy 
senior-ranked claims.’ 
As  regards  preferential  creditors,  which  may  be  either  creditors  with  a 
general or special lien (Article 2745 et seq. of the Civil Code) or creditors 
secured by a pledge or mortgage, the reference article is 111-quater of the 
Bankruptcy Law and Articles 54 and 55 of the Bankruptcy Law.  
In particular, claims secured by a general lien have a right of pre-emption 
for the capital, expenses and interest, within the limits set out in Articles 54 

217 

IT 

Creditors  are  divided 
into: 
  secured creditors and  
  unsecured creditors. 
There 
are 
categories of claims: 
  senior-ranked claims; 
  secured  claims, 
i.e. 

three 

claims with priority; 

  unsecured, 

i.e. 

unsecured claims. 

 
 
 
and 55, on the price obtained from the liquidation of the movable assets, on 
which  they  compete  in  a  single  ranking  with  claims  secured  by  a  special 
lien  on  movable  assets,  according  to  the  degree  provided  for  by  law. 
Claims  secured  by  mortgage  and  lien  and  those  secured  by  special 
privilege shall have a right of pre-emption for the principal, expenses and 
interest,  within  the  limits  set  out  in  Articles  54  and  55,  on  the  price 
obtained from the assets pledged as collateral. 
If  the  security  has  not  yet  been  realized,  or  for  the  part  for  which  they 
remain unsatisfied by the security, they shall participate in the distribution 
of  the  assets  in  the  same  manner  and  in  competition  with  the  unsecured, 
that is to say in proportion to the amount of the claim for which they have 
been admitted. 

Information not available. 
Bankruptcies,  creditors’  claims  are  satisfied  in  two  stages.  At  the  first  stage,  creditors’  claims  are  paid 
without  the  interest  and  default  penalties;  interest  and  penalties  are  paid  at  the  second  stage.  At  each 
stage, the creditor’s claims of each lower rank are satisfied after the creditor’s claims of the superior rank 
in  the  respective  stage  have  been  completely  satisfied.  If  the  assets  are  insufficient  to  fully  satisfy  the 
claims of one rank in one stage, the said claims are to be satisfied in proportion to the amount due to each 
creditor. 
  First-rank claims are employee claims arising out of the employment relationship; claims for damage 
compensation due to mutilation or other bodily injury, contraction of an occupational disease or death 
as  a  result  of  an  accident  at  work;  and  claims  of  agricultural  businesses  requesting  payment  for 
agricultural products sold; 

  Second-rank claims are claims in respect of taxes and other contributions to State and social insurance 
budgets and compulsory health insurance contributions; in respect of money borrowed on behalf of the 
State and loans secured by a guarantee provided by the State or a guarantee institution vouched for by 
the State; and in respect of support granted from European Union funds and State budget funds. 

All other claims from creditors are third-rank claims. 
Some creditors with a security or preferential claim are paid first. Preferential creditors are ranked in a 
legal  order  that  is  public  policy  (property  landlords,  mortgagees,  creditors  with  securities  over  the 
business capital and, in particular, the public treasury in the broadest sense). 
In general, the trustee refers to Articles 2096 to 2098, 2101 and 2102 of the Civil Code (Code civil). The 
net  assets  available  to  unsecured  creditors  must  be  distributed  on  a  pro  rata  basis  in  accordance  with 
Article 561(1) of the Commercial Code. 
Once the trustee knows the amount of the fees set by the court, has ranked the preferential creditors and 
knows  the  amount  left  to  be  distributed  between  the  unsecured  creditors,  he/she  draws  up  an  asset 
distribution plan that is submitted in the first instance to the official receiver. In accordance with Article 
533 of the Commercial Code, the trustee invites all creditors to the presentation of accounts meeting by 
registered letter, to which he/she attaches a copy of the asset distribution plan. 
Under Maltese legislation there is no definite list of ranking of creditors, since ranking is not found in a 
specific legislation but is found in various legislation. The legislation which deals with ranking of claims 
can: be found in    
  Article 302 of Chapter 386 MCA states that in the winding up of a company the assets of which are 
insufficient  to  meet  the  liabilities,  the  rights of  secured  and  unsecured  creditors  and the priority  and 
ranking of their debts shall be regulated by the law for the time being in force; 

  Article 535 of Chapter 13 MCA also states that creditors having pledges, privileges or hypothecs shall 

be ranked according to the law for the time being in force. 

In both cases the law states that ranking of debt shall be regulated by the law for the time being in force.                                                                                                                                                   
Various specific laws which grant priorities to certain claims, as is the case with the Value Added Tax 
Act, the Employment and Industrial Relations Act, and the Social Security Act. 
A leading principle of Dutch bankruptcy law is the paritas creditorum (pari passum), which means that 
all  creditors  have  an  equal  right  to  the  debtor’s  assets  and  that  the  proceeds  of  the  bankrupt  estate  are 
distributed  among  them  pro  rata  parte.  However,  there  are  creditors  to  whom  the  principle  of  paritas 
creditorum (pari passum) does not apply: 
  Creditors that hold a security interest; and 
  Creditors that have a preference by virtue of law. 
Therefore, the paritas creditorum (pari passum) applies to those who have an unsecured claim and do not 
have a right of preference, i.e. the ordinary creditors share pro rata parte in the amount available to them. 
A further exception can be made for subordinated claims. 
The claims to be paid out of the bankruptcy estate fall into the following categories: 
  the first category  - claims under an employment relationship for the period before the declaration of 
bankruptcy (applies mutatis mutandis to the claims of the Fund for Guaranteed Employee Benefits for 
the repayment, out of the bankruptcy estate, of benefits paid out to the bankrupt party’s employees) ; 

218 

LV 
LT 

LU 

MT 

NL 

PL 

 
 
PT 

  the second category - other claims, if not met in other categories, in particular taxes and public levies 

as well as other claims in respect of social insurance contributions; 

  the  third  category  -  interest  on  claims  included  in  the  categories  above,  in  the  order  in  which  the 
principal  amounts  are  paid  as  well  as  court  and  administrative  fines  and  claims  regarding  donations 
and legacies; 

  the  fourth  category  -  partners’  or  shareholders’  claims  regarding  a  loan  or  another  legal  act  with 
similar  effects,  especially  the  supply  of  goods  on  deferred  terms  to  the  bankrupt  party  that  was  a 
capital company in the five years preceding the declaration of bankruptcy, with interest. 

The sum falling to the creditor is counted first of all towards the main claim, then to interest and other 
collateral claims, with the costs of proceedings being covered at the end. 
Claims secured with a mortgage, pledge, registered pledge, fiscal pledge and maritime mortgage as well 
as rights expiring according to the provisions of the Act and the effects of disclosing personal rights and 
claims encumbering real property, a right to perpetual usufruct, a cooperative member’s ownership right 
to  residential  premises  or  a  sea-going  vessel  entered  in  the  shipping  register,  are  met  out  of  the  sum 
obtained  through  the  liquidation of  the  encumbered  party  minus  the  costs  of  liquidating  that  party  and 
other costs of bankruptcy proceedings in an amount no higher than a tenth of the sum obtained through 
the liquidation; however, the deducted part of the costs of bankruptcy proceedings cannot be higher than 
the part corresponding to the proportion of the value of the encumbered object to the value of the total 
bankruptcy estate.  
Those claims and rights are met in the order of their priority. If the sum obtained through the liquidation 
of the encumbered party is used to meet both claims secured by a mortgage and expiring rights as well as 
personal rights and claims, the priority depends on the moment as which the entry of a mortgage, right or 
claim in the land and mortgage register begins to have effect. 
The  graduation  of  claims  and  corresponding  hierarchy  or  priority  of  payment  shall  take  place  in  the 
following order: 
  secured claims; 
  privileged claims 
  common claims; and 
  subordinated claims. 
The  secured  claims:  Secured  claims  are  the  ones  that  benefit  from  real  guarantees,  including  special 
credit  privileges,  up  to  the  value  of  the  assets  subject  to  the  guarantee,  are  paid.  Secured  credits  are 
credits benefiting from: mortgage, pledge, special credit privileges, right of retention, among others. 
Secured  credits  are  only  paid  with  the proceeds of  the  sale  of  the  assets  encumbered  by  the  guarantee, 
after: 
  deduction of the costs of the respective settlement (payment of any commissions to auctioneers, costs 
of notarial acts such as the execution of the public deed or the authentication instrument, etc.) and; 

  deducting 10% of the sale proceeds to pay the insolvent estate's debts. 
Privileged claims: In second place and, if the balance remains, the privileged credits are paid, which are 
the  credits  that  benefit  from  general,  movable  or  immovable  privileges  of  credit.  General  preferential 
claims are those that apply to the generality of the debtor's assets. 
Only  claims  that  benefit  from  general  preferential  claims  are  classified  as  preferential  claims  and  not 
those  that  benefit  from  special  preferential  claims,  which  are  those  that  are  over  specific  assets  of  the 
debtor. In effect, special preferential claims are considered as real guarantees and are therefore classified 
as secured claims. 
Common claims: In the third place and if the balance subsists, the common claims are paid, which are the 
claims  that  do  not  benefit  from  real  guarantees  (secured  claims),  nor  from  general  privileges  of  credit 
(privileged claims), nor do they qualify as subordinated claims. 
Thus, common claims are, for example: 
  credits that benefit only from personal guarantees, such as surety and personal guarantee; 
  credits that, despite benefiting from a real security, have not been able to be paid with the value of the 

sale of the secured asset, as mentioned above under the heading ‘1st place, secured credits’; 

  credits whose real security had been extinguished upon the declaration of insolvency (this is the case 

of some general and special privileges of the State, among others); 

  claims whose security in rem is completely removed in the context of insolvency proceedings. This is 
the case of claims secured by a real guarantee of a procedural nature, such as seizure, attachment and 
judicial mortgage. 

Subordinated  claims:  In  4th  and  last  place,  if  a  balance  still  remains  (which  is  very  unlikely), 
subordinated claims are paid. Subordinated claims are, for example: 
  claims held by persons especially related to the debtor, whether a natural or legal person; or the, 
  claims for shareholder loans held by the partners of private limited companies or single partner limited 

companies, among others. 

RO 

The funds obtained from the sale of assets and rights from the debtor’s estate which are secured in favour 

219 

 
 
SK 

SI 

ES 

of the creditor on a preferential basis will be distributed in the following order: 
  fees, stamp duties and any other expenditure arising out of the sale of the assets concerned, including 
expenses  required  for  the  conservation  and  administration  of  those  assets,  expenses  incurred  by  the 
creditor under the forced recovery procedure, claims of utilities suppliers which arise after the opening 
of the procedure, and remuneration due to persons employed in the common interest of all creditors on 
the date of distribution, which will be borne on a pro rata basis in proportion to the value of all the 
debtor’s assets; 

  claims  of  creditors  enjoying  preference  that  arise  during  the  insolvency  proceedings;  these  claims 

include capital, interest and other ancillaries, where applicable; 

  claims  of  creditors  enjoying  preference,  including  the  entire  capital,  interest,  and  increases  and 
penalties  of  any  kind.  If  the  sums  realised  from  the  sale  of  these  assets  is  insufficient  for  the  full 
payment of the claims concerned, the creditors have an unsecured or public budget claim, as the case 
may be, for the difference, which will be ranked with the other claims in the appropriate category. If, 
after  the  payment  of  the  sums  referred  to  previously,  a  surplus  remains,  it  will  be  deposited  by  the 
court-appointed liquidator in the account of the debtor’s estate.. 

of 

bankruptcy 
In 
the 
proceedings, 
the 
distribution 
proceeds 
varies 
according  to  the  type  of 
creditor:  
  secured creditors,  
  unsecured creditors,  
  creditors 

with 
subordinated claims,  
  contractual  penalties 
and 
from 
claims 
creditors related to the 
debtor. 

A  creditor  may  lodge  all  claims  against  the  debtor,  including  claims  that 
are not yet due for payment. A secured claim (with a security interest in the 
debtor’s assets) can also be lodged. A secured claim a creditor has against a 
person other than the debtor can be lodged if the security interest concerns 
the  debtor’s  assets  (there  are  certain  restrictions  on  satisfaction  in  such 
cases); if such a claim is not lodged, it is treated as a weaker claim against 
the estate. 
Future claims and contingent claims can also be lodged. Claims that are not 
lodged  by  means  of  an  application  are  called  claims  against  the  estate. 
They are divided into claims against the general estate and claims against a 
separate estate (secured with a security interest). 
The insolvency practitioner satisfies claims against the general estate on an 
ongoing  basis;  if  claims  of  the  same  ranking  against  the  general  estate 
cannot be fully satisfied, they are satisfied proportionally. 

Claims against a separate estate relate to the separate estate. The insolvency 
practitioner satisfies claims against the separate estate on an ongoing basis; if 
claims  of  the  same  ranking  against  the  separate  estate  cannot  be  fully 
satisfied, they are satisfied proportionally. 

The  level  of  priority  of  creditors  in  insolvency  proceedings  is  determined  in  ZFPPIPP  (in  descending 
order) is:  
  creditors with secured claims (creditors with a right to separate satisfaction) and exclusionary creditors 

(creditor with an exclusion right),  

  creditors with unsecured priority claims (salaries, compensations, taxes etc.),  
  creditors with unsecured ordinary claims and,  
creditors with unsecured subordinated claims. 
Once  insolvency  proceedings  are  opened,  the  claims  of  all  of  the  creditors,  whether  unsecured  or 
preferential  are  included  among  the  debtor’s  liabilities.  The  purpose  here,  based  on  the  principles  of 
parcondicio creditorum (pari passu) and compliance with the ‘dividend law’, is to give all claims equal 
treatment in the context of the debtor’s verified insolvency and when it comes to settling all of its debts. 
There is a difference in creditors and their respective claims:  
Claims with special preference (Article 270) include:  
  Claims  secured  with  a  real  estate  mortgage,  a  chattel  mortgage,  or  with  a  registered  lien  on  the 

mortgaged or pledged assets or rights; 

  Claims secured by the pledging of income from encumbered property; 
  Loan  claims  on  fixed  assets,  including  the  claims  of  workers  on  the  objects  manufactured  by  them 

while they are the property or in the possession of the debtor; 

  Claims on financial lease payments or purchase at fixed prices of movable or immovable assets, to the 
benefit of the lessors or sellers and, if applicable, the financial backers, on assets leased or sold with 
reservation of title, with a prohibition on disposal or with a condition subsequent in the case of non-
payment; 

  Claims guaranteed with securities represented in account entries, on the encumbered securities; 
  Claims secured by a pledge established in public documents, on pledged assets or rights that are in the 

possession of the creditor or of a third party. 

Claims with general preference (Article 280) include: 
  Wage claims; 
  The amounts corresponding to tax and social security withholdings owed by the debtor in compliance 

with a legal obligation; 

220 

 
 
 
  Claims  of  natural  persons  arising  from  freelance  work  and  those  that  correspond  to  authors  for  the 
assignment  of  the  exploitation  rights  of  works  subject  to  intellectual  property  protection,  accrued 
during the six months prior to the insolvency order; 

  Tax claims and other public law claims. This preferential right may be applied to up to 50 % of the 
overall claims of the tax authority and the overall claims of the social security system, respectively; 

  Claims for non-contractual civil liability; 
  Claims arising from new cash income granted in the context of a refinancing agreement that meets the 
conditions  laid  down  in  Article  71(6)  and  of  the  amount  not  recognised  as  a  claim  against  the 
insolvency estate; 

  Up  to  50  %  of  the  amount  of  the  claims  held  by  the  creditor  that  applied  for  the  insolvency 

proceedings and which are not considered subordinate. 

Subordinate claims (Article 281) include: 
  Claims  that  have  been  communicated  late,  except  where  these  relate  to  claims  under  forced 

recognition or due to court decisions; 

   Claims that, on the basis of contractual agreement, are subordinated; 
  Claims for surcharges and interest; 
   Claims for fines and penalties; 
   Claims held by any persons with a special relationship with the debtor under the terms established in 

this Law; 

  Claims arising from revocatory actions due to a person having been declared to have acted in bad faith 

in the contested act; 

  Claims  arising  from  contracts  with  reciprocal  obligations  or,  in  the  case  of  reinstatement,  in  the 

situations laid down in the provision. 

The  Preference  Act  regulates  the  entitlements  of  the  creditors  to  receive  payment  in  the  event  of 
bankruptcy. Creditor with preference is either special or general.  
A special preference relates to certain property (examples being a right of pledge, a right of retention, or 
a mortgage on immovable property).  
A general preference relates to all property included in the debtor’s bankruptcy estate.  
A  special  preference  takes  precedence  over  a  general  preference.  Any  claims  that  do  not  enjoy  a 
preference have the same rights among themselves. It may also have been provided in an agreement that 
a creditor is entitled to payment only after all other creditors have been satisfied 
A preference continues in being even if the claim is transferred or attached or otherwise passes to another 
party. If a claim enjoys a special preference with respect to certain property, but the property in question 
is insufficient to satisfy the claim, the remainder is treated as a claim without preference. 

SE 

Source: Deloitte/Grimaldi (2022) 

4.2 

  Creditor committees 

In all insolvency proceedings, it is essential to ensure a fair balance between the interests 
of  the  debtor's  business  and  those  of  the  relevant  creditors.  In  order  to  ensure  that  the 
common  interest  of  creditors  is  adequately  protected  (and,  therefore,  regardless  of 
individual subjective positions that are protected based on the ranking of claims), almost 
all Member States provide for the establishment of committees representing creditors315. 
These committees are responsible for verifying that collective insolvency or restructuring 
proceedings  are  managed  in  a  way  that  protects  their  interests  and  ensures  the 
involvement  of  individual  creditors,  who  might  otherwise  not  participate  in  the 
proceedings  due  to  their  lack  of  importance  in  the  decision-making  process.  Although 
creditors' committees are provided for in almost all Member States, the rules for them do 

315    The  establishment  of  committees  is  left  to  the  decision  of  the  general  meeting  of  creditors,  which 
expresses its will, to the debtor or to the Court, to have its interests represented by such a committee. The 
establishment of such a committee has no purpose in the event that the insolvency office holder is able to 
adequately guarantee the interests of the creditors, and in all cases where participation of such a committee 
is  not  justified  by  the  complexity  of  the  procedure  (e.g.  in  case  of  restructuring  procedures  regarding 
SMEs).  ELI  Instrument  -  Rescue  of  Business  in  Insolvency  Law,  Wessels,  Madaus,  Boon,  6  September 
2017, paragraph 4.4.3, no. 438. 

221 

 
 
                                                 
not appear to be standardized, either in terms of their constitution and composition, or in 
terms of their powers and voting rules. 

Creditors can be a diverse group and creditors’ committees can help make their interests 
heard in an insolvency proceeding, including minority creditors lending cross-border, as 
well as allow for decision-making. If given a proper mandate, a creditors’ committee can 
help especially cross-border creditors exercise their rights and ensure their fair treatment, 
hence make cross-border lending more attractive. The role given to creditors’ committees 
in an insolvency regime is directly linked with the roles attributed to other actors (courts, 
insolvency  practitioners)  –  and  ensure  altogether  the  appropriate  balance  between  the 
interests of creditors and debtors.  

It  is  widely  recognised  that  the  interests  of  relevant  creditors  may  be  best  served  by 
coordinating their response to a debtor in financial difficulty through the establishment of 
(at  least)  one  representative  committee  of  creditors.316  The  establishment  of  such  a 
committee  is  held  to  facilitate  the  active  participation  of  creditors  in  insolvency 
proceedings,  and  to  ensure  fairness  and  integrity  of  proceedings.317  Creditors’ 
committees  also  contribute  significantly  to  the  supervision  of  the  activity  of  the 
insolvency practitioner or so-called ‘debtor in possession’, considering the progress and 
quality of their work while at the same time avoiding wasteful interferences.  

Rules  relating  to  creditors’  committees  in  insolvency  proceedings  are  very  different 
across Member States, these rules diverge as to the role attributed to the committees, the 
grounds for establishing them, their structure, form, powers, majority requirements etc.318 
These differences result in various levels of the actual input the creditors may have in the 
development of the insolvency procedure.  

However,  irrespective  of  any  differences  in  individual  national  laws,  an  adequate 
participation  of  committees  in  insolvency  and  restructuring  proceedings  appears  to  be 
necessary for the purpose of maximising the recovery. At the same time, the participation 
of  committees  in  proceedings  should  not  hamper  swiftness  of  the  proceedings.  In  fact, 
being  an  instrument  apt  to  guarantee  one  of  the  subjective  positions  involved,  i.e.  the 
creditors’  position,  its  existence  shall  be  adequately  balanced  with  the  other  subjective 
positions  involved  and,  more  generally,  with  the  effectiveness  of  the  procedure.  In  this 
sense, it is  worth  mentioning that there are those rules that tend to  exclude or limit  the 
presence  of  such  a  body  when  the  company  is  small  and/or  the  number  of  creditors  is 
limited. In such cases, the position of the creditors does not require any guarantee body, 
as it is already subject to protection by ordinary means.  

Creditors’  committees  help  find  solutions  that  maximise  the  recovery  value,  but  could 
give rise to hold out problems and delays. The existence of creditor committees widens 
the options of what can be done with the defaulted company, increasing the probability of 
remaining a going concern or selling assets at higher values to some creditors. Creditor 

316  Principles  of  European  Insolvency  Law  (2003),  Principle  2.4;  see  also  INSOL  International  Workout 
Principles II (2017), Principle 4, and Asian Bankers Association’s Workout Guidelines (2013) for informal 
workouts. 
317  UNCITRAL  Legislative  Guide  (2004),  Recommendation  129,  and  World  Bank  Principles  (2016), 
Principle C7.1 
318 See mapping of these differences in Leeds Study, pp. 192.   

222 

 
 
                                                 
committees  allow  creditors  to  cooperate,  which  is  important  given  that  multi-creditor 
lending relationships are common in the EU.319 Negotiations with creditors can be costly 
for both the debtor and the insolvency practitioner tasked to liquidate a company.  

Creditors  may  have  different  views  about  the  best  way  forward,  face  collective  action 
problems  and  can  generate  holdout  problems  that  may  prevent  the  insolvency 
practitioners  from  achieving  an  agreement  that  maximises  the  collective  interest  of  all 
creditors.  Foreign 
language  barriers  and 
unfamiliarity  with  the  proceedings.  Unless  they  hold  a  sizeable  claim  against  the 
defaulting  company,  foreign  creditors  are  likely  to  face  information  disadvantages  and 
are  less  familiar  with  the  position  of  other  creditors,  therewith  face  a  higher  threat  of 
collusion. Well-specified rules are therefore important for them.  

investors  may  feel  disadvantaged  by 

A further cost element originates from the activities required to recover some value from 
a  defaulting  investment,  such  as  representation  in  a  creditor  committee  and  the 
bargaining with the debtor, other creditors and insolvency practitioners. Foreign lenders’ 
lack  of  familiarity  with  the  rules  may  also  raise  concerns  about  having  one’s  interests 
adequately  represented  in  the  process.  Representation  in  creditor  committees  is  more 
costly for foreign investors and bargaining with other foreign creditors is more difficult 
for them. 

Table A5.9 Rules and practices in EU Member States on creditors’ committees 

AT 

A  creditors’  committee  is  not  necessarily  to  be  always  appointed  in  insolvency  proceedings.  In  some 
case is mandatory and in general where it seems advisable on account of the nature or the particular 
scale of the business. If the sale or lease of the business or part of the business is pending (Sec 117(1), 
number 1, AIA), a creditors’ committee must always be appointed. It serves to supervise and assist the 
insolvency  administrator  (Sec  89(1)  AIA).  The  administrator  must  consult  the  creditors’  committee  in 
respect of important arrangements (Sec 114(1) AIA). For certain important transactions (e.g. sale of the 
business), the consent of the creditors’ committee is a precondition for validity. A creditors’ committee 
consists of three to  seven members. The appointment is made  by the court of  its own motion  or on 
application. Not only creditors, but also other natural or legal persons may be appointed as members. 

BE 

General 

Voting rights 

Creditors’  committees  are  not  defined.  However,  creditors  influence  certain 
aspects during proceedings as an assembly. For example, under  Art. XX.37 of the 
BCEL,  all  creditors  or  at  least  two  of  them  may  accept  the  debtor’s  proposal  to 
conclude  an  amicable  agreement.  They  can  also  cast  a  vote  upon  the 
reorganization plan, in accordance with Arts. XX.67 to XX.83. of the BCEL.  
According  to  Art.  XX.78  of  the  BCEL,  ‘the  reorganization  plan  is  deemed  to  have 
been approved by the creditors when it obtains the favourable vote of the majority 
of  them,  represented  by  their  claims  and  half  of  all  the  sums  due  in  principal 
(double  majority).’  The  creditor  can  take  part  in  the  vote  in  person,  by  written 
power of attorney, deposited in the register, or through their lawyer who can act 
without  a  special  power  of  attorney.  For  the  calculation  of  the  majorities,  the 
creditors  and  the  amounts  due  appearing  on  the  list  of  creditors  filed  by  the 
debtor in accordance with article XX.77 (only the suspended creditors whose plan 
affects the rights can take part in the vote) are taken into account, as well as the 
in 
creditors  whose  claims  have  subsequently  been  provisionally  admitted 
application of Articles XX.68 and XX.69. Creditors who did not take part in the vote 
and the claims they hold are not considered for the calculation of majorities. 

319  The  analysis  of  bank  data  by  Fell  et  al  (2021)  reveal  that  large  firms  have  on  average  2.7  lenders, 
medium  size  enterprises 2.5 and small  firms on average 2.1. Moreover, their data  shows that  multi-bank 
credit relationships are overrepresented in non-performing loans. 

223 

 
 
 
 
                                                 
BG 

Appointment 

According  to  Art.  672  of  the  BCA,  the  first  meeting  of  creditors  shall  elect  a 
creditors’ committee comprising at least three and not more than nine members. 
The creditors’ committee must comprise members who represent the secured and 
non-secured  creditors,  except  those  referred  to  in  Article  616  2co  of  the 
Commerce Act. 
The creditors’ committee duties are (Art 681 BCA): 

 

 

 

to  assist  and  supervises  the  actions  of  the  receiver  in  relation  to  the 
management of the debtor’s assets;                                                                                                     
to conduct checks on the commercial records of the debtor and available 
cash funds;  
to  give  opinions  on  the  continuation  of  the  business  of  the  debtor’s 
enterprise  and  on  the  remuneration  of  the  provisional  and  ex  officio 
receiver,  the  actions  taken  in  relation  to  estate  conversion  into  cash  and 
on the liability of the receiver in other cases.  

Meeting of 
creditors 

Under Art. 677 of the BCA, the meeting of creditors shall: 

  hear a report of the receiver in bankruptcy about his activities; 
  hear a report of the creditors' committee; 
  elect a receiver in bankruptcy, if none has been elected; in such case Art. 

672, Para 2 shall apply; 

  pass  a  resolution  for  the  removal  of  the  receiver  in  bankruptcy  and  his 

Meeting of 
creditors 
voting rights 

HR 

Appointment 

Powers 

substitution; 

  determine  the  amount  of  the  current  remuneration  of  the  receiver  in 
bankruptcy,  any  alteration  thereof,  as  well  as  the  amount  of  his  final 
remuneration; 

  elect  a  creditors'  committee,  if  none  has  been  elected,  or  change  its 

members; 

  propose to the court the amount of the support money for the debtor and 

his family; 

  determine  the  order  and  the  way  of  conversion  of  the  property  of  the 
debtor into cash, the method and terms for evaluation of the property, the 
choice of assessors and the determination of their remuneration. 
According to Art, 676 BCA, the meeting of creditors shall be held, regardless of the 
number of persons present and  shall  be chaired  by the judge responsible for the 
case.  Resolutions  shall  be  passed  by  simple  majority,  unless  the  law  prescribes 
otherwise. 
Creditors  committee  can  be  appointed  by  the  court,  prior  to  the  first  hearing  of 
creditors. Creditors with the claims with in the highest amount and creditors with 
small  claims  must  both  be  represented  in  the  committee  of  creditors.  Also,  a 
representative  of  the  debtor’s  former  employees  must  be  represented  in  the 
committee of creditors unless they as creditors participate in the proceedings with 
insignificant claims. 
Creditors  with  the  right  to  seek  separate  satisfaction  (razlučni  vjerovnici)  and 
persons  who  are  not  creditors,  but  who  might  contribute  to  the  work  of  the 
committee  with  their  expert  knowledge,  may  be  appointed  members  of  the 
committee of creditors. 
The  committee  of  creditors  must  have  an  odd  number  of  members,  nine  at  the 
most.  If  the  number  of  creditors  is  less  than  five,  all  creditors  are  awarded  the 
powers of the committee of creditors. 
The committee of creditors must oversee the liquidator and aid them in pursuit of 
business  activities,  as  well  as  monitor  operations  pursuant  to  Article  217  of  the 
CBL,  examine  the  books  and  other  records  related  to  the  business,  and  order 
verification of turnover and the amount of cash. 
Among its responsibilities, the committee can:  

 

 

 

examine  reports  by  the  liquidator  on  the  course  of  the  bankruptcy 
proceedings and on the condition of the bankruptcy estate; 
review business ledgers and the entire documentation that has been taken 
over by the liquidator; 
lodge objections with the court against acts of the liquidator; 

224 

 
 
 
 
 

 

 

grant approval of the cost estimates for the bankruptcy proceedings; 
give  the  court  an  opinion  on  liquidation  of  the  debtor's  assets,  at  the 
request of the court; 
give  the  court  an  opinion  on  the  continuation  of  ongoing  business 
operations or on the activities of the debtor, at the request of the court; 
give  the  court  an  opinion  on  recognition  of  justified  losses  that  were 
established in the inventory of assets, at the request of the court. 

CY 

Creditors  may  appoint  a  ‘supervisory  committee’  if  they  wish  to  do  so.  There  are  certain  actions  for 
which  the  liquidator  needs  the  permission  from  the  court  or  from  the  supervisory  committee,  and 
there  are  some  other  actions  that  remain  vested  with  the  court  (for  instance  the  preparation  of  the 
contributors list, order a contributor to pay etc.). In addition, a board of creditors may vote upon the 
company’s winding up during the voluntary winding-up by creditors procedure. 

CZ 

General 

Creditor  bodies  are:  the  creditors’  meeting;  the  creditors’  committee  (or  the 
creditors’ representative). 

Creditors’ 
meeting 

Creditors’ 
committee 

The  creditors’  meeting  is  responsible  for  electing  and  removing  members  and 
alternate  members  of  the  creditors’  committee  (or  a  creditors’  representative). 
The creditors’ meeting may reserve for its competence anything falling within the 
remit of creditor bodies. If no creditors’ committee or creditors’ representative is 
appointed,  the  creditors’  meeting  acts  in  that  capacity  instead,  unless  otherwise 
provided by law. 
If  more  than  50  creditors  are  registered,  the  creditors’  meeting  must  set  up  a 
creditors’ committee. If it is not obliged to do this, a creditors’ representative may 
take the place of the committee. 
The  creditors’  committee  exercises  the  powers  of  creditor  bodies,  except  in 
matters that are within the remit of the creditors’ meeting or have been reserved 
by  the  creditors’  meeting  for  its  own  competence.  In  particular,  the  creditors’ 
committee  supervises  the  insolvency  practitioner’s  activities  and  is  entitled  to 
submit  proposals  to  the  insolvency  court  regarding  the  insolvency  proceedings. 
The  creditors’  committee  protects  the  common  interest  of  creditors  and,  in 
cooperation with the insolvency practitioner, helps to achieve the purpose of the 
insolvency  proceedings.  The  provisions  on  creditors’  committees  apply  mutatis 
mutandis to creditors’ representatives. 

DK 

EE 

FI 

In bankruptcy proceedings, a qualified minority of creditors may require the formation of a creditors’ 
committee, consisting of up to three members.  
The  insolvency  court  decides  how  the  members  of  such  a  committee  are  to  be  elected,  in  order  to 
ensure a diverse representation of the general body of creditors. 
The  trustee  must  inform  the  creditors’  committee  of  any  significant  actions  taken  and  of  any 
particularly significant actions that are planned to be taken, unless doing so would be detrimental for 
the estate. 
The creditors’ committee is strictly of an advisory nature to the trustee and the insolvency court, and 
has no special powers. 
In addition, where a consensual restructuring is feasible, major creditors can form an ad hoc ‘steering 
committee’,  as  the  success  of  the  restructuring  is  dependent  upon  all  creditors  acceding  to  the 
restructuring plan. 
Not  per  se.  There  is  a  general  meeting  of  creditors,  who  participates  in  the  conduct  of  bankruptcy 
proceedings  
The general meeting of creditors can decide to elect a ‘bankruptcy committee’.  
In  accordance  with  BA,  the  bankruptcy  committee  shall  protect  the  interests  of  all  the  creditors, 
monitor  the  activities  of  the  trustee  and  perform  other  duties  provided  by  law  in  bankruptcy 
proceedings. 
General 

The  most  important  decision-making  body  is  the  creditors’  meeting,  but  other 
decision-making procedures may also be applied. 
The court may appoint a committee of creditors to represent the creditors and to 
act as an advisory body to assist the insolvency practitioner in the performance of 
their duties. 

225 

 
 
Voting rights 

The  committee  represents  all  groups  of  creditors,  and  its  duties  are  to  assist  the 
insolvency  practitioner  in  the  performance  of  their  duties  and  to  monitor  the 
activities of the insolvency practitioner on behalf of the creditors. The committee 
makes its decisions by simple majority. 
Under  Sec  52  of  the  Restructuring  Act  (RA),  the  restructuring  programme  is 
confirmed  by  a  majority  vote  in  each  class  of  creditors.  The  programme  may  be 
confirmed even if minority creditors vote against it. Generally, a class of creditors 
is  deemed  to  have  approved  the  restructuring  programme,  if  the  programme  is 
supported by: 

  more  than  50%  of  the  creditors  that  took  part  in  the  vote  in  a  class  of 

creditors; and 

  creditors  representing  more  than  50%  of  the  total  monetary  value  of  the 

claims represented in the vote for that class of creditors. 

Where  the  debtor  has  a  workforce  of  more  than  150  employees  and  turnover  exceeding  EUR  20 
million,  a  creditors’  committee  is  set  up  which  will  give  its  opinion  on  the  draft  plans  to  clear  the 
liabilities. The court may also decide to apply these provisions below those thresholds. 
The creditors’ committees convene  different categories of creditors at separate meetings in order to 
submit to them proposals which they will be able to discuss and on which they will decide collectively, 
i.e. minority creditors will have to abide by the decision of majority creditors. 
There  is  a  credit  institutions  committee  composed  of  finance  companies  and  credit  or  similar 
institutions,  and  a  committee  composed  of  the  principal  suppliers  of  goods  or  services.  Where  there 
are  bondholders,  a  general  meeting  of  all  creditors  holding  bonds  issued  in  France  or  abroad  is 
convened in order to discuss the draft plan adopted by the creditors’ committees. 
Creditors’ committees must be consulted by the court-appointed administrator on the draft plan and 
vote in favour of a plan before the court can take its decision. 
Where  creditors’  committees  exist,  any  creditor  who  is  a  member  of  a  committee  can  propose 
alternatives to the draft plan presented by the debtor. 
General 

FR 

DE 

is 

involved 

The Insolvency Code grants considerable influence over the insolvency proceedings 
to the creditors.  
The  creditors  exercise  their  rights  through  the  creditors’  meeting  (Sections  74  et 
seq.  GIC)  or  a  creditors’  committee  (Gläubigerausschuss)  that  may  optionally  be 
set up by the creditors’ meeting (Sections 68 et seq. GIC).  
Whereas  the  creditors’  meeting  is  the  central  body  through  which  the  creditors 
take  their  decisions,  the  creditors’  committee  is  a  body  through  which  they 
exercise  supervision.  The  creditors’  meeting  is  convened  by  the  insolvency  court 
(Section 74(1), first sentence, GIC), which also chairs it (Section 76(1) GIC).  
All  preferred  creditors,  all  ordinary  creditors,  the  insolvency  administrator,  the 
members  of  the  creditors’  committee  and  the  debtor  are  entitled  to  attend  the 
creditors’ meeting (Section 74(1), second sentence, GIC). If an enterprise exceeds 
certain  size  criteria,  the  insolvency  court  has  to  appoint  a  provisional  creditors’ 
committee  even  before  the  opening  of  the  insolvency  proceedings  (Section  22a 
GIC).  This  committee 
insolvency 
administrator  and  plays  a  role  in  any  decision  on  the  ordering  of  debtor-in-
possession management (Sections 56a and 270b(3) GIC). 
Decisions  of  the  creditors’  meeting  are  in  principle  adopted  by  simple  majority, 
with the majority being decided not by the number of votes, but by the sum of the 
claims held by the creditors voting (Section 76(2) GIC). 
Not existent. 
For  creditors’  meetings,  in  order  to  conclude  an  agreement  on  Pre-insolvency 
business  recovery  process,  50%  consent  of  each  category  of creditors  is  required 
(secured and other claims), with the possibility of bypassing these majorities under 
certain  conditions.  Creditors’  consent  can  also  be  provided  through  electronic 
voting. 
Creditors may form creditors’ committees or elect a representative of the creditors 
with  whom  the  liquidator  must  consult  and  whom  the  liquidator  is  obliged  to 
inform  and  whose  implicit  or  explicit  consent  must  be  obtained  for  certain 
measures. 
If the creditors have formed a creditors’ committee the liquidator shall be required 
to obtain the consent of the committee for continuing business operations of the 
debtor.  The  same  rule  applies  if  the  creditors  have  selected  a  creditors’ 

in  the  appointment  of  the 

226 

rights 

Voting 
creditors’ 
meeting 
General 
Voting rights 

EL 

HU 

General 

 
 
Voting rights 

representative. 
The liquidator may lease or transfer the debtor's assets only with the approval of 
the  creditors  'committee  or  the  creditors'  representative  or  two-thirds  of  the 
creditors  to  a  person  or  entity  who,  at  the  time  of  order  of  liquidation  or  within 
one year, was the executive officer of the debtor, or the debtor's sole or majority 
owner. 

Not  existent.  However,  in  certain  liquidations  there  is  a  requirement  for  the  creditors  to  form  a 
committee  of  inspection  which  consists  of  representatives  of  the  creditor  group.  The  committee  of 
inspection  has  a  supervisory  role  (once  reserved  to  the  High  Court)  in  the  conduct  of  the  liquidation 
and has the power to authorise certain acts of the liquidator and the liquidator's remuneration, costs 
and expenses. 
The creditors' committee is composed of three or five creditors and appointed by the delegated judge, 
after hearing the curator and the creditors. The appointment is made within 30 days of the bankruptcy 
sentence, and within 10 days of the appointment the committee appoints the chairman. The creditors' 
committee performs:  

  Management functions: 

  authorizes all acts of extraordinary administration to be carried out by the curator; 
  authorizes  the  new  curator  to  propose  the  action  of  responsibility  against  the 

revoked curator; 

  authorizes the receiver to take over pending contracts in place of the bankrupt; 
  approves the liquidation program presented by the liquidator. 

  Advisory functions: 
 
in all cases provided for by law (necessary advisory activity); 
  when the court deems it appropriate (possible advisory activity). 

  Control functions: 

  must endorse the register kept by the liquidator ; 
  may  make  comments  on  the  summary  report  on  the  activities  carried  out  and 

drawn up every 6 months by the receiver;  

  has the right to view any deed or document contained in the bankruptcy file;  
 

is informed by the receiver on the outcome of the sales carried out. 

There  is  no  creditors’  committee.  Other  key  players  in  insolvency  proceedings  in  Latvia  are  the 
insolvency  court  (and  the  insolvency  judge),  the  insolvency  administrator,  creditors  acting  at  a 
creditors’  meeting,  the  debtor’s  representative,  the  insolvency  administration  and  the  Latvian 
Association of Certified Administrators.  
Creditors  convene  at  a  general  assembly  to  decide  on  the  establishment  (and  members)  of  the 
creditors’ committee, to investigate any creditors’ complaints regarding the conduct of the insolvency 
administrator, to request any reports from the insolvency administrator and to determine the level of 
the insolvency administrator’s fees.  
The  creditors’  committee  supervises  the  activities  of  the  insolvency  administrator  and  protects  the 
interest of the creditors. Its rights and duties, as a general rule, are established by creditors as a whole 
at their general meeting. 
General 

IE 

IT 

LV 

LT 

LU 

On  the  basis  of  the  debtor's  proposed  composition,  the  juge  délégué  issues  a 
notice to attend to the creditors by means of a publication in the daily newspapers 
and  by  registered  letter  at  least  8  days  before  the  meeting  is  held.  The  juge 
délégué ensures that the composition procedure is carried out correctly and chairs 
the meeting of creditors. On the day of the meeting, the  juge délégué reports on 
the state of the debtor's affairs. The debtor then presents the proposed scheme of 
composition directly to the creditors. The creditors are then invited to declare the 
amount of their claims in writing and to declare whether or not they agree to the 
composition.  The  composition  may  only  be  established  with  the  approval  of  the 
majority of the creditors, representing 3/4 of the total claims accepted definitively 
or provisionally. A creditor may be represented by an authorised representative. 
Creditors  who  are  unable  to  present  themselves  beforehand  may  submit  any 
claims  to  the  court  clerk,  along  with  the  supporting  documentation,  during  the 
week  following  the  meeting  of  creditors  and  prior  to  the  final  deliberation 
meeting. They will then be required to accept or refuse the composition. Following 
the  meeting  of  creditors,  the  court  convenes  another  meeting  in  order  to 
definitively approve the composition. 
A  successful  application  requires  the  consent  of  a  majority  of  creditors 
representing 75% of the outstanding debt. Creditors with claims which are secured 

Voting rights 

227 

 
 
MT 

NL 

PL 

PT 

RO 

by  priority  rights,  mortgages  or  pledges  can  only  vote  if  they  waive  those  rights. 
The  court  will  not  ratify  the  application  if  the  legal  provisions  are  not  met  or  for 
reasons of public interest or the interests of creditors. If the court deems that the 
conditions are not met, it declares the company bankrupt. 

No  creditors’  committee  exists  per  se.  A  creditors’  meeting  does  exists  and  has  the  following 
responsibilities. In a court winding up, creditors can make submissions to the court on the hearing of a 
winding-up  application.  In  a  creditors’  voluntary  winding  up,  following  the  resolution  for  winding  up, 
the  directors  must  call  a  meeting  of  the  creditors  and  submit  to  them  a  full  statement  detailing  the 
position  of  the  company’s  affairs,  together  with  a  list  of  the  company’s  creditors  and  the  estimated 
amount  of  their  claims.  The  creditors  may  also  nominate  the  liquidator.  If  the  creditors  and  the 
company  nominate  different  persons,  the  person  nominated  by  the  creditors  will  be  liquidator.  The 
creditors may also form a liquidation committee. 
If the winding up continues for more than 12 months, the liquidator must summon a general meeting 
of  the  company  and  a  meeting  of  the  creditors  at  the  end  of  the  first  12-month  period  and  each 
succeeding  12-month  period,  during  which  he  or  she  must  submit  an  account  of  his  or  her  acts  and 
dealings and the conduct of the winding up during the preceding 12 months, including a summary of 
receipts and expenditure. 
If  desired  by  the  creditors,  the  court  may  nominate  a  committee  of  creditors  to  advise  the  trustee. 
However, the trustee is not bound by the committee's recommendations. In practice, the nomination 
of a creditors’ committee is uncommon. 
The participation of the creditors in the bankruptcy proceedings is governed by Articles 189-213 of the 
Bankruptcy Act. Creditors whose claims have been admitted are entitled to  take part in the creditors’ 
meeting and vote. 
The  bankruptcy  judge,  acting ex  officio or  on  request,  establishes  the  creditors’  committee  and 
appoints and dismisses its members. The committee assists the receiver, controls his actions, examines 
the  state  of  the  funds  forming  the  bankruptcy  estate,  grants  permission  for  actions  that  may  be 
performed only with the permission from the creditors’ committee and expresses its opinion on other 
matters  if  requested  by  the  bankruptcy  judge  or  receiver.  The  creditors’  committee  may  request  the 
bankrupt  party  or  the  receiver  to  provide  clarification  and  it  may  examine  books  and  documents 
concerning the bankruptcy in so far as that does not infringe business confidentiality. 
Once  the  insolvency  proceedings  are  held  open,  the  court  shall  appoint  the  members  of  a  creditors’ 
committee,  comprising  between  three  and  five  creditors  representing  different  ranking  claims, 
presided  over  by  the  debtor’s  major  creditor.  This  committee  shall  cooperate  with  the  insolvency 
administrator and is responsible for supervising the performance of the duties of the latter. 
After the first meeting has been convened the delegated judge and then the creditors may appoint a 
creditors  committee,  which  is  made  up,  depending  on  the  number  of  creditors,  of  three  or  five 
creditors  from  among  those  with  the  right  to  vote,  with  preference  claims,  budgetary  claims  and 
unsecured claims in order of value. The creditors’ committee (comitetul creditorilor) has the following 
terms of reference: 

 

 

 

 

 
 

to review the debtor’s situation and to issue recommendations to the creditors’ meeting with 
regard to the continuation of the debtor's business and proposed reorganisation plans; 
to  negotiate  terms  of  appointment  with  the  administrator  or  liquidator  whom  the  creditors 
wish to see appointed by the court; 
to  take  notice  of  the  reports  prepared  by  the  court-appointed  administrator  or  liquidator,  to 
review them and, where applicable, to file objections thereto; 
to prepare reports to be presented at the creditors’ meeting in regard to the measures taken 
by  the  court-appointed  administrator  or  liquidator  and  their  effects,  and  to  propose  other 
measures, giving reasons; 
to request the removal of the debtor’s right to manage its affairs; 
to file legal actions for the annulment of certain fraudulent acts or transactions performed by 
the debtor to the detriment of creditors when such legal actions have not been brought by the 
court-appointed administrator or liquidator. 

228 

 
 
SK 

Duties 
powers 

and 

Committee’s duties: 

 

instructs  and  makes  recommendations  to  the  insolvency  practitioner 
concerning managing the assets, running the debtor’s enterprise or a part 
thereof, and realising the assets. This also includes hiring out the assets or 
a  substantial  part  thereof  (with  restrictions  when  the  enterprise  is  in 
operation). 

  concludes  an  agreement  on  the  temporary  provision  of  funds 

in 

connection with running the debtor’s enterprise; 

  continues the running of the enterprise if the debtor is a particular type of 

financial institution; 

  establishing a lien on the debtor’s assets; 
  concludes  an  agreement 

in  connection  with  running  the  debtor’s 
enterprise,  in  which  the  insolvency  practitioner  undertakes  to  continue 
performance beyond a particular time period or a particular percentage of 
turnover; 

SI 

The creditors' committee shall be formed: 

 
 

in compulsory settlement proceedings, and; 
in  bankruptcy  proceedings,  if  the  formation  of  a  creditors'  committee  is  requested  by  the 
creditors. 

The number of members of the creditors' committee shall be determined by the court. The number of 
members of the creditors' committee must be odd and may not be less than three, unless the number 
of creditors is less than three, and not more than 11. In determining the  number of members of the 
creditors' committee, the court must take into account the total number of creditors. 
The number of members of the creditors' committee shall be determined by the court: 

 

 

if it is competent to decide on the appointment of the members of the creditors 'committee: by 
a decision appointing the creditors' committee, 
if the members of the creditors' committee are elected by the creditors: by a decision on the 
election of the creditors' committee. 

In compulsory settlement proceedings, the court appoints the members of the creditors' committee by 
a decision on the institution of these proceedings. The court must appoint creditors as members who 
are the holders of ordinary claims against the debtor in highest total amount. 
In  general,  creditors  are  represented  in  the  creditors'  committee,  which  will  be  considered  validly 
constituted when the following quorum is reached: 

  claims for an amount of at least half of the ordinary aggregate liabilities; or 
  creditors  who  represent  at  least  half  of  the  class  of  claims  that  could  be  affected  by  the 

contents of the proposed Company Voluntary agreement (CVA). 

In case of Business Reorganisation, the committee consists of no more than three members. In some 
cases, employees will also have the right to appoint a representative as an additional  member of the 
committee. The court may appoint further members if there are particular grounds for doing so. The 
business  reorganisation  officer  must  consult  the  creditors’  committee  with  regard  to  matters  of 
importance if there is nothing to prevent this. In Bankruptcy the  creditors have no formal role in the 
bankruptcy procedure. The administrator must consult creditors that are particularly affected if there is 
nothing to prevent this. The creditor are also entitled to receive information from the administrator, 
and  to  attend  the  taking  of  the  oath,  for  example.  A  creditor  may  request  that  a  supervisor  be 
appointed to monitor the administration of the bankruptcy estate on the creditor’s behalf. 

ES 

SE 

Source: Deloitte/Grimaldi (2022). 

229 

 
 
 
ANNEX  6:  RECENT  INSOLVENCY-RELATED  REFORMS  IN  MEMBER 
STATES 

Insolvency reforms in the Member States were often implemented in the context of either 
an  economic  adjustment  programme  or 
targeted  country  specific 
recommendations in the European Semester context. The reforms described below extend 
beyond in-court corporate insolvency proceedings and in many cases also covers reforms 
to restructuring and out-of-court enforcement procedures.  

following 

1.  Insolvency  reforms 

introduced 

in  the  context  of  economic  adjustment 

programmes of Greece, Portugal, Cyprus, Romania and Latvia320.  

limited  results321.  Given 

In  Greece,  a  series  of  legislative  initiatives  taken  in  2015-2018  improved  collateral 
auction procedures and introduced the option and, soon after that, the mandatory conduct 
of electronic auctions for foreclosures of movable and immovable property, while setting 
up  a  mechanism  for  out-of-court  debt  settlement  for  indebted  businesses  and 
professionals,  with 
implementation  of 
foreclosures  and  insolvency  procedures  remained  fragmentary  and  complicated  and  the 
relevant conduct of judiciary procedures overly lengthy, a new integrated corporate and 
personal insolvency framework was adopted in October 2020 and fully entered into force 
in June 2021. Pre-bankruptcy proceedings are available under the new code, including an 
automated  out  of  court  process  and  a  prepack  business  recovery  process  contingent  to 
court  ratification.  The  platforms  under  the  new  insolvency  framework  have  started 
gradually bearing results, particularly with respect to out-of-court settlements and further 
improvements are continuously being developed.  

the  actual 

that 

In Portugal, the amendment of the insolvency law was introduced in spring 2012. Later 
in  the  year,  both  in-court  fast-track  mechanisms  and  out-of-court  tools  were  made 
operational  to  facilitate  the  solution  of  the  insolvency  cases.  However,  the  insolvency 
framework  required  further  amendments  to  improve  the  corporates'  rescue  and 
restructuring process. As a result, it was followed-up in the European Semester process: 
Portugal  has  received  country  specific  recommendations  (CSRs)  linked  to  these  issues 
(2014,  2017,  2018,  2019),  following  its  exit  from  the  Programme.  As  a  consequence, 
further amendments have been introduced in the insolvency framework. In 2017, the use 
of  electronic  means  was  broadened,  while  the  possibility  of  creditors  to  choose  the 
insolvency  practitioner  was  restricted  to  complex  cases.  In  2022,  Law  9/2022  was 
adopted  in  January  and  entered  into  force  in  April,  which  aims  at  simplifying  the 
insolvency and civil enforcement judicial procedures. The amendments to the insolvency 
code, in particular, are expected to simplify the processing of verification and ranking of 
creditor claims. Furthermore, the creditor rights will be strengthened with the revision of 
the  preferential  regime  for  the  right  of  retention  in  relation  to  mortgage  credit.  Other 

320  In  the  case  of  Romania  and  Latvia,  reforms  were  enacted  in  the  context  of  the  Balance  of  payments  assistance 
programmes of 2013-2015 and 2009-2011 respectively. 
321  In  parallel,  various  amendments  were  introduced  throughout  the  Greek  programs  to  the  problematic  personal 
insolvency law, which was initially adopted in 2010 with the intention to enable the restructuring of personal debt and 
protect vulnerable primary residence owners but resulted in procedural abuses by strategic defaulters. 

230 

 
 
 
                                                 
legislative procedures are also scheduled to enter into force in the coming months and are 
expected to streamline and speed up insolvency processes in Portugal. The revision of the 
legal framework for insolvency and recovery forms also part of a wider reform envisaged 
under the country’s national Recovery and Resilience Plan. 

In  Cyprus,  a  legislative  package  with  regard  to  the  insolvency  and  foreclosure 
procedures  was  introduced  in  2015  but  once  again,  amendments  were  required.  As  a 
result,  a  new  legislative  package  was  introduced  in  July  2018  in  order  to  make  the 
measures more effective. E-auctions were introduced in 2019 but additional amendments, 
which were introduced in 2019 and entered into force in 2020, may create some delays in 
the  foreclosure  process  for  new  NPLs.  The  need  for  further  improvements  was  also 
reflected in  the CSRs received by Cyprus following its exit from  the program  in  2016, 
2017 and 2018. More recently, the Recovery and Resilience Plan of Cyprus has included 
a  reform  to  reinforce  and  strengthen  the  insolvency  framework  by  enhancing  the 
functionality of existing systems and introducing new ones in order to create efficiencies 
through automation. 

Romania adopted a new law regarding insolvency and bankruptcy in June 2014 while in 
May  2015  a  new  personal  insolvency  law  was  introduced,  which  entered  into  force  in 
December 2015, drawing upon good international practices and including more balanced 
provisions for both debtors and creditors.  

In  Latvia,  a  new  insolvency  law  came  into  force  in  2010,  concerning  both  legal  and 
natural  persons, following international  best  practices. The law was further amended in 
2015,  in  an  effort  to  reduce  the  length  of  insolvency  proceedings,  when  electronic 
auctions were introduced. A revision in the legal framework in 2016 aimed at improving 
the accountability and public oversight of insolvency administrators, in line with country 
specific recommendations (CSRs) received by Latvia in the period 2013-2015, following 
its exit from the balance of payments assistance program. 

2. Insolvency reforms introduced in the European Semester context 

The  push  for  streamlining  insolvency  procedures  has  not  been  associated  only  with 
countries  under  a  macroeconomic  adjustment  program.  Several  countries  facing 
challenges  with  their  stock  of  non-performing  loans  received  country  specific 
recommendations  (CSRs) in  the past to  expressly  enhance the efficiency and speed of 
their insolvency and recovery proceedings and facilitate debt restructuring and/or out‐of‐
court settlement. Apart from countries already mentioned above, these included Croatia 
(2014, 2015), Bulgaria (2014-2018, 2020), Italy (2016-2018322), Slovenia (2013, 2014), 
Spain (2013, 2014) and Hungary (2014), without taking into account CSRs referring to 
the  need  to  enhance  the  efficiency  of  the  judicial  system  as  a  whole.  This  has  led  to 
certain  insolvency  reforms  being  implemented  in  many  of  these  Member  States.  For 
example: 

  In  Croatia  the  Bankruptcy  Act  (BA)  is  the  main  law  governing  the  insolvency  of 
businesses  (including  individual  entrepreneurs)  in  Croatia  and  came  into  force  in 

322  A  reference  to  insolvency  is  also  included  in  the  2019  CSR4  for  Italy:  “Reduce  the  length  of  civil  trials  at  all 
instances by enforcing and streamlining procedural rules, including those under consideration by the legislator and with 
a special focus on insolvency regimes.[…]” 

231 

 
 
                                                 
2015. The adopted BA also improved the pre-insolvency procedure. More recently, 
the Recovery and Resilience Plan of Croatia has included a reform to amend in 2022 
the Bankruptcy Act and the Consumer Insolvency Act with the aim to ensure greater 
efficiency of insolvency proceedings.    

  Bulgaria has introduced new legislation on business restructuring which entered into 
force on 1 July 2017, although some important elements remain missing. To tackle 
with those, a Roadmap on the insolvency and stabilisation framework for bankruptcy 
was adopted in June 2019, aiming for an amendment of the Commercial Law and the 
relevant  by-laws323.  However,  the  work  on  the  legislative  amendments  to  the 
Commercial  Act  and  other  relevant  primary  and  secondary  legislation  in  line  with 
the  requirements  of  Directive  (ЕС)  2019/1023  is  still  ongoing.  The  Bulgarian 
authorities  have  committed  to  complete  this  reform  by  July  2022,  in  line  with 
Bulgaria’s commitments following its ERM II entry. This has also been reflected as 
a distinct reform in the country’s national Recovery and Resilience Plan. 

  Slovenia completed the reform of its insolvency framework in 2014, allowing more 

restructuring opportunities to companies in financial difficulties.  

  Hungary reformed its personal insolvency legislation in 2015 in order to address the 
issue  of  personal  over-indebtedness  and  to  protect  the  home  of  indebted  persons 
from enforcement.  

  In  Italy,  alternative  in-court  and  out-of-court  workout  arrangements  had  been 
introduced  over  the  previous  years,  with  a  rather  muted  impact.  The  government 
finalised  in  early  2019  the  reform  of  the  insolvency  framework  but  its  entry  into 
force  was  postponed  to  2022  due  to  the  impact  of  the  pandemic.  Further 
improvements in the insolvency framework were incorporated as a deliverable under 
the  Italian  Recovery  and  Resilience  Plan,  following  a  staggered  approach.  A  new 
out-of-court  settlement  arrangement  was  introduced,  the  so  called  “Composizione 
negoziata”.  The  new  arrangement  introduces  the  possibility  for  the  entrepreneur  to 
use  an  independent  expert  to  propose  a  negotiated  procedure  with  creditors. 
Moreover,  between  August  and  December  2021,  Italy  took  various  legislative  and 
administrative decisions to flank the new out-of-court settlement arrangement. As a 
result, an online platform for the out-of-court resolution of disputes was put in place 
in November 2021, allowing exchanges of documents between debtors and creditors, 
and  pre-approved  automated  restructuring  procedures  were  introduced  for  debts 
below EUR 30.000.   

  Because of the financial crisis, Spain reformed its bankruptcy code four times (once 
in 2009, once in 2012 and twice in 2014) with the aim of decreasing the duration of 
bankruptcy  procedures  and  increasing  the  percentage  of  successful  reorganisations. 
In  2015  another  reform  of  the  code  was  approved  with  the  purpose  of  solving  the 
over-indebtedness  problems  of  individuals,  by  granting  them  a  second  chance  by 

323  The  planned  legislative  changes  included  the  introduction  of  early  warning  systems  for  businesses  and  debt 
forgiveness procedures for entrepreneurs, easy and fast access to insolvency proceedings, stabilisation procedures for 
legal entities and entrepreneurs, accelerated procedures for small businesses and shortened procedural deadlines in the 
insolvency proceedings. 

232 

 
 
                                                 
means  of  the  cancellation  of  the  debts  that  they  are  unable  to  pay  if  some 
requirements are met. More recently, Spain has included in its national Recovery and 
Resilience  Plan  further  changes  to  the  Insolvency  Law,  to  be  completed  in  2022, 
which  aim  to  set-up  a  more  efficient  second  chance  procedure  for  natural  persons, 
allowing for debt relief without prior liquidation of the insolvent party's  assets, and 
at  the  same  time  establish  a  swifter  and  more  cost-efficient  special  procedure  for 
micro SMEs, fully processed by electronic means. 

  Malta324  reformed  its  insolvency  legal  framework  in  2017  in  order  to  reduce  the 
costs  and  duration  of  relevant  procedures  and  increase  the  availability  of  qualified 
practitioners.  It  adopted  legislative  measures  to  facilitate  company  restructurings, 
allowed for a Second Chance for honest directors who have concurred with the law 
and  introduced  voluntary  mediation  procedures  in  insolvency,  so  that  professional 
mediators  could  amicably  resolve  matters,  if  agreed  by  at  least  60%  of  the 
companies’  creditors.  There  are  also  legislative  measures  to  facilitate  company 
restructurings.  

3.  Insolvency  reforms  announced  in  introduced  in  Member  States’  Recovery  and 

Resilience Plans 

The  table  below  lists  what  Member  States  committed  to  undertake  in  the  area  of 
insolvency in their recovery and resilience plans. Many of the reform elements relate to 
the  transposition  of  the Restructuring  Directive  (EU  2019/1023),  the  creation  of  early 
warning tools, out-of-court procedures and areas out of scope of the EU initiative such 
as  regulation  of  insolvency  practitioners  and  specialisation  of  courts.  The  right-hand 
column  informs  about  reform  measures  that  cover  items  in  direction  of  the  measures 
pursued with this initiative.  

BG 

EL 

ES 

HR 

the 

the 

targeted 

scope  of 

the  profession  of 

 Measures  outside 
harmonisation 
Transposition  of  Directive  (EU)  2019/1023,  provide  for 
stricter  regulation  of 
insolvency 
practitioners,  early  warning  tools,  legal  guarantees  for 
traders to register the actual management addresses when 
registering companies. 
Upgrade  of  the  early  warning  and  the  preventive  debt 
restructuring mechanism 
A  more  efficient  second  chance  procedure  for  natural 
persons, allowing for debt relief without prior liquidation 
of  the  insolvent  party's  assets,  restructuring  plans  as  a 
new pre-insolvency instrument 
Amendments  to  the  Bankruptcy  Act  and  the  Consumer 
Insolvency  Act  which  shall  ensure  greater  efficiency  of 
insolvency  proceedings, 
system  of 
organization and appointment of insolvency practitioners 
and  supervision  of  the  performance  of  the  service, 

improve 

the 

Measures in a similar direction 

Use of electronic means in insolvency, 
restructuring  and  discharge  of  debt 
procedures,  duties  of  the  directors  in 
case of likelihood of insolvency 

Digitalisation 

Establish  a  special  procedure  for 
micro SMEs 

Amendment  of  Article  212  of  the 
Bankruptcy  Act  relating  to  avoidance 
proceedings 

324 Malta received in 2013 a Country Specific Recommendation on the overall efficiency of the judicial system, which 
included, for example, a reference to the need for speedier resolution of insolvency cases. 

233 

 
 
 
 
                                                 
IT 

implement  Directive  (EU)  2019/1023  (Restructuring 
Directive)  
Review  out-of-court  settlement  arrangements;  put  in 
place  early  warning  mechanisms  and  access 
to 
information  prior  to  the  insolvency  phase;  shift  towards 
specialisation  of  courts  (commercial  law,  insolvency 
division/chamber)  as  well  as  pre-court  institutions  to 
manage  insolvency  proceedings  in  insolvency;  allow 
secured  creditors  to  be  paid  first  (before  tax  claims  and 
employee  claims);  allow  businesses  to  grant  a  non-
possessory security right.  

CY  Modernising  the  Cyprus  Companies  Law  by  using  best 
practices  from  other  common  law  jurisdictions,  the  law 
review  shall  include  the  insolvency  proceedings  under 
the  Companies  Law,  which 
are  Liquidations, 
Receivership and Examinership. 
A  digital  tool  (a  wizard)  helping  to  draw  up  a 
restructuring plan of a company 

LT 

Digitalisation  of 
insolvency proceedings 

restructuring  and 

to 

Insolvency  portal,  a  digital  tool  (a 
wizard) helping in the process of asset 
valuation 
international 
apply 
valuation  standards  by  providing  best 
practices,  examples  and  explanations 
in  one  place;  a 
to  perform 
comparisons  of  asset  and  transaction 
valuation 
Establishment  of  purely  electronic 
proceedings  strengthening  of  the  role 
of insolvency practitioners 

tool 

PT 

SK 

In  and  out-of-court  settlements,  legal  framework  for 
voluntary  administrative  arbitrage,  and  the  creation  of 
specialised  chambers  in  superior  courts,  review  of  the 
legal  framework  strengthening  the  rights  of  the  lender, 
and  introduce  compulsory  partial  apportionment  in 
specific cases 
Early warning tools and specialisation in business courts  Digitalisation 

234 

 
 
 
 
 
 
ANNEX 7: SME TEST 

1.  Identification of affected business 

SMEs  are  within  the  scope  of  this  legislative  initiative  and  would  be  impacted 
directly and indirectly since they face a hightened  risk of failure, which may lead 
to a business being wound down through an insolvency procedure.  

Problems (2.12), 
drivers (2.3.2) and 
options (5.2) 

Stakeholders’ 
perspective (section 
2.1.3) 

SMEs constitute a large part of the enterprise population and have a higher exit rate 
than  larger  enterprises.  The  discrepancy  between  exit  and  insolvency  statistics, 
which are sourced from different reporting entities, suggest that only a small share 
of  business  exits  are  due  to  insolvency  and  this  is  likely  also  the  case  for  SMEs. 
For  example,  the  large  number  of  business  exits  of  firms  that  have  no  employee 
suggests that many firm are closed because the entrepreneur found employment or 
the firm had fulfilled its function.  

While data on SMEs as subjects of insolvency proceedings is scarce, the available 
observations  from  Member  States  suggest  that  80  to  95%  of  all  insolvency  cases 
concern  entities  with  fewer  than  10  employees  (data  from  DE,  ES,  FR  and  SE). 
99.5% of insolvency cases in France concern SME if the definition of a firm with 
less than 250 employees is  used, 100% in Sweden. For other Member States, the 
number could not be found 

2.  Consultation of SME Stakeholders 

Efforts have been made to consult SMEs (and insolvency experts well-acquainted 
with their situation) through the consultation and study. Specific outreach to SMEs 
was not done as this was considered too time-consuming in the light of very little, 
if any, negative impacts expected and positive impacts  materialising for resource-
strained SMEs that are in the process of business exit, which would likely not have 
capacity to interact with the Commission services. 

Only  one  business  association  that  represents  SME  interests  participated  in  the 
public  consultation.  It  expressed  the  status  quo  as  representing  a  problem  that 
warranted  policy  action  and  flagged  most  of  the  issues  addressed  through  this 
initiative  as  obstacles  (rating  of  5  on  a  scale  0  to  5).  The  submission  of  this 
association  was  more  supportive  to  the  initiative  than  those  of  other  business 
associations.  Another  business  association  that  represents  business  at  large, 
including  many  SMEs  was  less  critical  on  the  status  quo  and  the  need  for  policy 
action,  but  emphasised  it  would  “favour  of  a  sound  insolvency  framework  that 
strengthens the position of SMEs regarding recovery.”  

The  low  participation  of  SMEs  in  the  consultation  could  also  to  some  degree  be 
interpreted  as  a  sign  that  SMEs  generally  have  little  or  no  (sophisticated) 
knowledge  of  insolvency  proceedings  since  their  details  and  complexities  exceed 
their capacities to assess burden and costs and most currently do not make use of 
such  procedings.  The  smaller  a  company  the  more  cumbersome  insolvency 
proceedings become and the proposal to introduce a specific insolvency regime for 
MSEs  aims  to  address  this  issue.  Since  this  proposal  for  an  MSE  regime  was 
developed  at  a  rather  late  stage,  it  did  not  feature  in  the  public  consultation. 
Members  of  the  Expert  Group  with  experience  on  SME  insolvencies  however 
supported this element. 

235 

 
 
 
 
Impacts (sections 
6.1.2, 6.13 and 6.2.3, 
annex 4 [section on 
MSE loans]) 

3.  Assessment of the impact on SMEs 

The  conditions  under  which  SMEs  are  wound  down  has  an  impact  on  their 
recovery  value as gone concern as  well as on their financing conditions and their 
capacity  to  build  business  relationships  when  solvent.  The  initiative  would 
primarily  improve  the  business  environment  for  SMEs.  By  increasing  expected 
recovery  rates  for  creditors  exposed  to  SMEs  and  other  businesses,  the  initiative 
would  reduce  perceived  risk  of  investing  in  SMEs,  which  is  expected  to  be 
reflected in lower funding costs for SMEs, ceteris paribus.  

Meanhile, the initiative does not impose obligations or compliance costs for SMEs 
that  are  economically  active  and  simplifies  procedures  for  those  who  face 
insolvency.  Entrepreneurs  would  benefit  from  a  quicker  realisation  of  a  second 
chance, i.e. to be discharged from the debts of the previous undertaking and make a 
fresh start. 

The  cross-border  dimension  related  to  access  to  funding  from  non-domestic 
sources  is  likely  to  be  relevant  for  only  some  SMEs.  Foreign  creditors  invest  in 
small  firms  only  rarely  and  tend  to  focus  on  innovative  enterprises  with  high 
growth  potential.  While  debt  issuance  of  medium-sized  firm  is  negligible,  some 
issue  shares,  which  are  also  held  by  foreign  investors,  which  take  into 
consideration how the firm is wound down when deciding on their investment. 

The  initiative  aims  to  introduce  a  special  procedure  for  MSEs  to  facilitate  and 
speed up their winding down. This would lower judicial costs and shorten the time 
for  the  second  chance.  The  MSE  regime  would  moreover  support  the  orderly 
winding down of “asset-less” MSEs, addressing the issue that some Member States 
reject access to an insolvency proceeding if the projected recovery value is below 
the judicial costs.  

The  impact  assessment  used  SME  specific  information  to  the  extent  they  were 
available,  for  example  recovery  rates,  time  and  judicial  costs  of  SME  loans  from 
the EBA benchmark exercise and indications by insolvency practitioners about the 
cost savings of an MSE insolvency regime.  

Specific  analysis  covers  the  benefits  and  costs  of  such  a  dedicated  insolvency 
regime for MSEs. It finds that cost savings for insolvent SMEs are 12% according 
to  the  survey  for  those  that  have  access  to  insolvency  proceedings.  While  the 
possibility for asset-less MSEs to access insolvency proceedings will be beneficial, 
it  can  entail  costs  for  the  public  sector,  for  which  a  range  was  estimated  using  a 
number of assumptions. 

4.  Minimising negative impacts on SMEs 

The absence of compliance costs and the overall beneficial effects for SMEs  made 
it unnecessary to design mitigating measures for SMEs  

236 

 
 
 
 
 
 
 
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