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EU proposal for a directive harmonising certain aspects of insolvency laws
Further adjustments planned after implementation of the EU Restructuring Directive
In December 2022, the EU Commission presented a new Proposal for a Directive harmonising certain aspects of insolvency law aimed at consistently advancing efforts to create a single European legal space in insolvency law. The draft focuses on 5 regulatory areas for which minimum requirements for national insolvency law are set. Two of these areas, namely so-called ‘pre-pack’ liquidation proceedings and a simplified liquidation procedure for insolvent microenterprises, are instruments previously unknown to German insolvency law.
Guidelines on avoidance actions and creditors’ committees
The provisions on minimum standards for the formation of creditors’ committees and on avoidance actions bear the German signature. The regulations provided for in this respect mostly correspond to the current legal situation in Germany.
Improving the ability to track assets
With regard to the detection of a debtor’s assets, the draft directive provides for improved possibilities for cross-border asset tracing. A new asset register is to be created for this purpose, or access to existing registers is to be facilitated. In particular, this should make it much easier to track assets across borders and to track a debtor’s assets across the EU.
New ‘pre-pack’ liquidation procedure
What is completely new from a German point of view is the idea of making restructuring by transfer easier by anchoring a so-called ‘pre-pack‘ liquidation procedure in the national legal systems. The intention is, even before the commencement of insolvency proceedings, to be able to initiate the sale of a company by way of an asset deal in the insolvency proceedings opened later, with the exclusion of the assumption of old liabilities.
The draft directive goes into great detail here. At the debtor’s request, a so-called “monitor” is to be appointed, who will also be appointed insolvency administrator in the subsequent proceedings. He or she is to support the sales process as described in detail, which includes, for example, the provision that in the case of only one offer, it is assumed that this is customary for the market and appropriate, and that persons close to the debtor are given priority to the acquisition of the insolvent company or parts thereof. Particularly painful for affected creditors is the retention of suppliers in their supply contracts, when vital for the company or the acquired part of it, in the form of a contractual obligation with the transferee, which goes beyond the stabilisation order successfully criticised by PASCHEN in the design of the German StaRUG procedure. The only exception provided is where a direct competitor of the creditor is concerned.
Simplified liquidation procedure for microenterprises
Finally, for reasons of efficiency and simplification, the draft provides for special insolvency proceedings for (micro)enterprises employing fewer than 10 people with annual turnover or a balance sheet total of no more than €2 million. A standardised and digitalised procedure is to be possible for such companies in the event of insolvency. In these cases, an administrator should only be appointed as an exception if debtors, creditors or a group of creditors so request and the costs can be covered from the existing pool or are advanced by the applicant. In these cases, a challenge should only take place in exceptional cases and the assets of the insolvent company should normally be sold via an online auction. However, the debtor should – as before – obtain residual debt relief.
Significance of the draft for creditors
From a creditor’s point of view, there is every reason to actively participate in the further discussion of the draft. For example, from a practical point of view, there is a considerable risk that the proposals on the procedures for microenterprises will be misunderstood as an invitation to abuse. This also applies to the idea of preferential treatment of related parties and the design of the ‘pre-pack’ liquidation procedure as a pre-bankruptcy ‘secret negotiation’, in which it must also be ensured that the creditor interests in connection with the contractual obligation are not sacrificed at all costs to the desire to further expand the restructuring possibilities. We at PASCHEN will support you critically throughout the further discussion and keep you informed.