The European Union preventive restructuring framework: A hole in one?

• Author: Line Langkjaer,David Christoph Ehmke,Emilie Ghio,Gert‐Jan Boon,Jennifer L.L. Gant
• DOI: http://doi.org/10.1002/iir.1344
• Published date: 01 June 2019
• Date: 01 June 2019

RESEARCH ARTICLE

The European Union preventive restructuring

framework: A hole in one?

David Christoph Ehmke

1

| Jennifer L.L. Gant

2

| Gert-Jan Boon

3

|

Line Langkjaer

4

| Emilie Ghio

5

1

Kammergericht, Berlin, Germany

2

JCOERE Project, University College Cork,

Cork, Ireland

3

Department of Company Law, Leiden Law

School, Leiden, The Netherlands

4

Department of Law, University of Aarhus,

Aarhus, Denmark

5

School of Law, Birmingham City

University, Birmingham, UK

Correspondence

David Christoph Ehmke, Berlin, Germany.

Email: david.ehmke@web.de

Abstract

While traditionally (Continental) Europe has not been

known for an in particular debtor- or restructuring-friendly

insolvency practice, in recent decades, important reforms

were implemented that would foster restructurings in

Europe. In this article, we comparatively look a the status

quo of insolvency and restructuring practice in five

different European countries (Denmark, France, Germany,

Netherlands, UK). We place our observations into the

context of the preventive restructuring directive, to be

implemented within the next two years after its publication

on 26 June 2019. The directive leaves quite some room

implementation, from a watered-down restructuring tool

with high access threshold to a pre-insolvency debtor-

friendly US-style restructuring procedure.

1|INTRODUCTION

The perception of insolvency and restructuring law in Europe has been subject to significant changes

in recent years, with a fresh breeze coming from national reforms, topped by a radical and substantive

reform as reflected in the European Union (EU) Directive on restructuring and insolvency

(“Directive”).

1

For decades, the (continental) European understanding of insolvency was merciless.

1

Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventiverestr ucturing

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 (Directiveon restr ucturingand

insolvency) OJ L 172. This article, derived from a comparative study on the occasion of the 10th anniversary of the INSOL

Europe Younger Academics Networkof Insolvency Law was written at a time only the confirmed text was available but has

been updated to reflect the provisions of the Directive as adopted.

Received: 31 January 2019 Revised: 27 June 2019 Accepted: 8 July 2019

DOI: 10.1002/iir.1344

© 2019 INSOL International and John Wiley & Sons, Ltd

184 Int Insolv Rev. 2019;28:184–209.wileyonlinelibrary.com/journal/iir

The troubled debtor's directors were threatened with strict liability and, in some jurisdictions, even

criminal punishment for a failure to file for an insolvency procedure. This would almost always lead

to the dissolution of the debtor and the (piece-meal) liquidation of its assets. The stigma of

insolvency was firmly attached to the insolvent debtor.

Compared with the United States,

2

it has taken some time for the European paradigm of

insolvency and restructuring procedures to accept that they should be a tool to facilitate a going-

concern rehabilitation of the business and to grant the debtor a second chance for the benefit of value

maximisation. Legal reforms in the recent years were aimed at establishing a more restr ucturing-

friendly culture in Europe, espousing a rescue culture for insolvency frameworks.

3

The underlying

proposition is that a timely and cooperative restructuring, incentivised by carrots rather than sticks,

should create a surplus in contrast to a delayed in-court insolvency procedure, a surplus that could be

shared among the parties involved.

In this article, following a short description of the background of the Directive in Section 2, an

analytical overview of the state of the art of restructuring practice in five European countries

(Denmark, France, Germany, the Netherlands, and the United Kingdom) will be provided in Section

3, prior to which the key elements necessary for a successful restructuring will be extracted and

explained. These key elements also reflect the main obstacles to be overcome in agreeing the contents

and approach in the Directive and its eventual legislative counterpart as is demonstrated in a

comparative review of the position in Section 4. In Section 5, an analysis of the findings set out

herein linked to the Directive is given, followed by a brief conclusion and commentary on the issues

present as seen from the authors' points of view.

2|THE EU DIRECTIVE ON A PREVENTIVE

RESTRUCTURING FRAMEWORK

Improving the ability of companies to restructure at an early stage has been a focus of the rescue

culture since it was introduced. The financial crisis of 2007/2008 brought this into sharp relief as

corporate insolvency became rampant, with a high attrition rate across the EU of businesses failing to

recover from their financial difficulties. The years that followed saw many reforms among the

Member States, leading to divergences in the approach to restructuring, preventive or otherwise.

In 2014, the EU was

facing the biggest economic crisis in its history leading to record numbers of

bankruptcies in most Member States,

4

2

The U.S. Chapter 11 Bankruptcy Code (reorganisation proceeding) was introduced in 1978. It introduced the debtor-in-

possession model, which has inspired legislators across the world. For the international take of Chapter 11, see, for instance,

Bob Wessels and Rolef de Weijs(eds), International Contributions to the Reform of Chapter 11 U.S. Bankruptcy Code

(European and International Insolvency Law Studies Volume2) (Eleven International Publishing 2015).

3

See Bob Wessels, “On the future of European Insolvency Law”inRebecca Parr y (ed), EuropeanInsolvency Law: Prospects

for Reform (INSOL Europe 2014), 131–158; Gert-Jan Boon and Stephan Madaus, “Toward a European Business Rescue

Culture”in Jan Adriaanse and Jean-Pierre van der Rest (eds), Turnaround Management and Bankruptcy: A Research

Companion (Routledge Advances in Management and Business Studies)(Routledge 2016), 238–258.

4

Commission Staff Working Document Executive Summary and Impact Assessment SWD(2014) 62 final Accompanying the

document Commission Recommendation on a new approach to business failureand insolvency C(2014) 1500 final, 2.

EHMKE ET AL.185