## 1. Early warning systems and access to information ## Source details **Canonical URL:** [1. Early warning systems and access to information](https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021152-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2021/english/wpiea2021152-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2021/english/wpiea2021152-print-pdf.pdf.json) --- ### Context and role within the Directive - Directive adopted on June 20, 2019. - Directive number: 2019/1023. - Follows Recommendation number: 2014/135/EU and a proposal for a Directive presented in November 2016. - Directive requires member states to have an early warning system but does not define “early warning system” and provides only examples of elements, producing a variety of implementation options. ### Purpose and expected benefits - Early identification of debt distress aims to prevent insolvency by allowing remedial action at the earliest possible stage. - Expected benefits if adequately implemented: - Alleviate the burden on the court system. - Offer more restructuring opportunities for viable enterprises. - Help minimize the impact of crises (notably in the context of the COVID-19 pandemic) on the financial system. - Particularly necessary for SMEs and micro- and small enterprises. ### Two models of early warning systems - Model a) Self-assessment tool: - Tools for entrepreneurs to assess economic situation (example: simple software application on a public website producing a preliminary diagnostic from basic business data using financial and operational ratios). - Should be combined with support and advice from public institutions, commercial or professional associations. - Model b) Intervention mechanism: - Detection plus a cascade of interventions under external supervision (auditor communications, board/shareholder escalation, mediation or court intervention, creditor and public creditor triggers). - Public creditors (tax and social security authorities) often detect distress early; incentives or duties to act may be used. ### Design choices and trade-offs - Key choices: - Which model to adopt (self-assessment vs. intervention). - Which indicators trigger an alarm. - How the early warning system connects with formal or informal insolvency/debt restructuring mechanisms. - Trade-offs: - Creditor protection versus debtor protection. - Cost-saving/flexibility versus legal safeguards. - Technical choices must fit with other areas of national law not harmonized by the Directive. ### Indicators for early warnings - Types of indicators member states may choose: - Concepts: risks to continuity of the business. - Specific crisis indicators: combinations of financial ratios calibrated by sector or enterprise type. - Simple indicators: defaults, particularly of tax and social security obligations. - Examples of possible indicators: - working capital / total assets - retained earnings / total assets - earnings before interest and taxes / total assets - market value of equity / book value of total liabilities (only relevant for listed companies) - sales / total assets - interest coverage ratio - debt/earnings ratio ### Confidentiality and connection with insolvency - When disconnected from formal insolvency, early warning systems can preserve confidentiality by issuing alerts and offering advisory services. - Early warning can be connected with mediation or out-of-court restructuring while preserving confidentiality. - Interventionist systems may establish obligations to commence insolvency or preventive restructuring proceedings unless remedial action is taken. ### Practical implementation considerations - Implementing only one element (e.g., advisory services alone) is unlikely to create an effective system. - To be effective, member states must: - Choose a coherent model. - Define clear indicators for alarms. - Establish connections with insolvency and restructuring mechanisms. - Divergent implementations may produce differing restructuring models across member states and affect access to credit and cross-border outcomes. *Source: wpiea2021152-print-pdf - 1. Early warning systems and access to information* ### 2. Preventive restructuring ### Overview and objectives - Preventive restructuring procedures = pre-insolvency procedures enabling enterprises to restructure debt without full court intervention. - Objective: maximize use of hybrid restructuring combining judicial actions with debtor-creditors negotiation. - EC estimated one quarter of insolvency cases in the EU involved creditors and debtors in more than one-member state (EC, 2014). ### Major structural implementation options - Introduce a single pre-insolvency procedure (new procedure alongside liquidation and reorganization). - Introduce a single pre-insolvency procedure plus targeted amendments to existing reorganization procedure. - Introduce Directive’s rules throughout several restructuring procedures (selective features; may increase cross-border complexity and forum-shopping). - Merge pre-insolvency with existing reorganization procedures (risk: may not reduce judicial intervention). - Replace member’s reorganization procedure with the pre-insolvency procedure (risk: eliminates reorganization option). ### Scope and eligibility options - Apply Directive to financial institutions (permitted) — concern: debtor-in-possession design may be inadequate for financial institutions. - Limit application to legal persons — effect: dramatically narrows scope and may exclude sole proprietors. - Extend to groups of companies — requires coordination rules across companies and procedures. - Special rules for SMEs — Directive refers to “national definitions of SMEs”. - Debts that may be excluded from restructuring: workers’ claims, alimony, tort claims. ### Access and “likelihood of insolvency” - Access required only where there is a “likelihood of insolvency” (term not defined; left to national law). - Timing divergence across member states reduces harmonization. - Possible test: conclusion that the company may not be able to pay its debts within the next six months. - Framework can be extended to non-financial difficulties giving rise to a “real and serious” threat to ability to pay. - Examples of non-financial shocks: (i) loss of a major contract; (ii) a large tort claim; (iii) a pandemic. - Member states may add entry barriers: history of fraud, past use limits, and a “viability” test. - Access must be available upon request by debtors; member states may permit creditors or workers’ representatives to request access with variant consent rules (possible restriction for SMEs). ### Debtor in possession and insolvency practitioner role - Directive requires debtor to remain totally—or at least in part—in control of assets and operations. - Appointment of an insolvency practitioner mandatory at least where: - (i) a general stay of enforcement actions is granted and authority decides practitioner is necessary; - (ii) a judge/authority needs to approve a restructuring plan with a “cross-class” cram down; - (iii) requested by the debtor or by a majority of creditors (who should bear the cost). - Practitioner role limited to assisting negotiation and drafting; member states may expand oversight (supervision, partial control, transaction approval). ### Stay of creditor actions — scope, duration, lifting - Purpose: encourage early restructuring while preventing moral hazard and protecting creditors’ contractual rights. - Scope options: - General stay (all creditors) or limited stay (affected creditor classes or certain creditors). - ConfidentiaI stay option to limit knowledge to affected creditors. - National laws may exclude certain claims from the stay in “well-defined” circumstances. - Duration: - Initial period: no more than four months. - Possible systems: - Shortest: stay of one month starting with commencement, no extensions. - Longer: stay begins with debtor’s request, lasts for 4 months and can be extended until a total of 12 months. - Directive maximum period of twelve months (including extensions). - Lifting the stay: - May be lifted when it no longer supports negotiations, debtor/practitioner requests, one or more creditors unfairly prejudiced, or stay causes debtor’s insolvency. - Member states may set minimum non-liftable periods and require creditors have opportunity to be heard. - Effects on secured creditors and contracts: - Directive does not set specific rules for secured creditors; member states may limit duration of stay, allow secured creditor to lift stay, or protect value of encumbered assets. - Stay may prevent withholding performance or termination/acceleration of essential executory contracts; ipso facto clauses may not be enforced (except for financial contracts and financial collateral arrangements). - Safeguards such as judicial revision and compensatory measures are recommended. ### Restructuring plans — preparation, contents, voting and safeguards - Plan preparation: - Debtor initiates plan; creditors and insolvency practitioners may be allowed to submit alternative plans (states may set thresholds or deadlines). - Plan contents and valuation: - Plan generally covers all pre-restructuring debts; Directive allows option to include claims arising after application. - Public creditors may be excluded from cancellation of claims. - Valuation is fundamental but costly; options exist to require expert opinion or to exempt micro and small enterprises from full valuation. - Viability analysis: - Not mandated by Directive; member states can require validation or expert input. - Sale of the business: - Directive allows sale of business in a restructuring plan. - Voting and classes: - Affected parties vote; unaffected creditors (paid in full) do not vote. - Member states can exclude shareholders, subordinated creditors, related parties from voting. - Options on class formation, quorum, participation; majority threshold for approval cannot be higher than 75 percent (states choose within range). - Special classes permitted: workers’ claims, small suppliers. - Option to exempt SMEs from class formation; alternatives include separate counts for secured vs unsecured when computing the general vote. - Cross-class cram-down: - Directive allows multiple designs (e.g., one class in favor; limited number of classes; majority of classes; supermajority). - Safeguards: - Best interest of creditors’ test ensures no creditor is worse off than in liquidation. - Absolute priority rule prevents junior distributions if dissenting senior class not paid in full; relative priority is an optional alternative with weaker creditor protection. - “Payment in full” definitions may vary; some states define payment in full as payment within a maximum of three months of confirmation of the plan. - Treatment of shareholders: - Options: integrate shareholders as last class subject to voting or exclude shareholders from voting while preventing them from blocking plan implementation. - Debtor representation may be by management board or by a majority of shareholders, consistent with national company law. *Source: wpiea2021152-print-pdf - 2. Preventive restructuring* ### 3. Plans that affect the rights of dissenting parties ### Confirmation, feasibility and valuation - Most plans affecting dissenting parties will need confirmation. - Directive maintains a feasibility requirement for confirmation; courts/authorities may reject non-feasible plans. - Feasibility assessment need not be ex officio; member states may define circumstances rendering plans not feasible to limit interference. - Valuation disputes are a major litigation risk; valuation evidence may be submitted by an expert, creditor, or third party. - Administrative and judicial authorities should encourage consensus to avoid expensive valuation litigation. ### Appeals and effects of confirmation - Rules on appeals against confirmation are discretionary for member states; Directive does not include a general principle on availability of appeals. - Appeals should not suspend execution of the plan (optional under the Directive). - Plan generally binds affected parties who were “involved” in adoption of the plan; member states define “involved” and rules for unknown or non-participating creditors. - Future creditors are generally excluded from plan effects. ### New finance (interim and post-plan financing) - Interim financing may be needed to continue operations during restructuring negotiations; new financing may be required for plan implementation. - Directive requires member states to ensure both new and interim financing are adequately protected: - Protection from being declared void, voidable or unenforceable. - Protection for grantors against civil, administrative or criminal liability when financing is detrimental to general body of creditors. - Directive allows member states discretion on priority for new/interim financing in subsequent insolvency; priority may be granted but is not mandated. - Options to limit protections to financing included in a confirmed plan or to interim financing subject to ex ante control. - Directive allows exclusion of interim financing protections when provided after debtor is unable to pay debts as they fall due. ### Duties of directors approaching insolvency - Directive sets out steps directors should take to minimize losses and avoid insolvency (seek professional advice, protect assets, consider business structure, avoid risky avoidance-prone transactions, continue trade where appropriate, negotiate with creditors, enter preventive restructuring). - Where there is a likelihood of insolvency, directors must protect legitimate interests of creditors and have due regard to creditors, other stakeholders, equity holders, need to avoid insolvency, and avoid deliberate or grossly negligent conduct. - Directive does not establish a hierarchy among stakeholders; member states define liability standards and trigger points. - Trigger definition (“likelihood of insolvency”) will vary across member states, leading to implementation divergence. ### Discharge and second chance for entrepreneurs - Directive highlights second chance and a full discharge after a reasonable period for honest insolvent entrepreneurs. - Directive includes a maximum discharge period capped at three years, with member state implementation detail: - In repayment-plan procedures, three-year limit commences from decision to confirm the plan or start of implementation. - In procedures without a repayment plan, discharge period should start, at the latest, from the decision to open the procedure by a judicial/administrative authority or from establishment of the insolvency estate. - In combined procedures, three-year limit should start, at the latest, from confirmation of the repayment plan or its implementation. - Member states may provide for longer discharge periods or restrict discharge in cases of abuse, dishonesty, repeat applications, or when entrepreneur’s primary residence is safeguarded. - Member states decide scope of persons covered, treatment of consumer debts, and whether debtor must request discharge or receive it automatically. - Member states must provide a process to verify that debtor fulfilled conditions for discharge. *Source: wpiea2021152-print-pdf - 1. Plans that affect the rights of dissenting parties* ### 4. Institutional aspects ### Judicial and administrative authorities - Directive mandates training and necessary expertise for authorities dealing with preventive restructuring, insolvency and discharge of debt. - Specialization recommended: specialized independent judges with adequate training, expertise, and ethical standards to ensure swift hearings and decisions. - Flexibility on timing of training: on-the-job or prior to appointment. - No requirement that judicial members deal exclusively with restructuring, insolvency and discharge matters. ### Insolvency practitioners (IPs) - Directive sets minimum standards for training, appointing, remunerating, and supervising practitioners: - Eligibility and training must be clear and ensure necessary expertise. - Appointment should consider practitioner experience and case specifics; removal possible in conflicts of interest. - Supervision must ensure impartiality and independence, with accountability measures for failure. - Remuneration governed by rules consistent with efficient resolution and procedures for disputes. - Development and adherence to codes of conduct may be encouraged. ### Electronic communications and data collection - Electronic means promoted for filing claims, restructuring/repayment plans, notifications to creditors, and challenges/appeals. - Member states may require creditor consent before electronic notifications. - Annual data collection required for each of restructuring, insolvency, and discharge procedures: - (i) number of procedures applied for, opened, pending, or closed; - (ii) average length of procedures from submission/opening to closures; - (iii) number of applications for restructuring procedures declared inadmissible, rejected or withdrawn; - (iii) number of other procedures broken down by types of outcome. - Data on number of debtors subject to procedures who had a restructuring plan confirmed under a previous restructuring procedure within the three years prior to submission/opening. - Optional data categories include average cost per procedure, recovery rates for secured/unsecured creditors, number of entrepreneurs launching a new business after discharge, number of job losses linked to restructuring/insolvency. - Directive limits initial proposal’s mandatory data collection and allows representative sampling techniques. - Member states encouraged to collect and aggregate all listed data and to go beyond them; core indicators highlighted: time, cost and recovery rate. ### Institutional recommendations and risks - Build specialized capacity, rationalize multiple data sources, and balance costs of data collection against costs of insufficient information. - Ignoring practical performance of the insolvency system can render legal reforms ineffective. *Source: wpiea2021152-print-pdf - 5. Institutional aspects* ### 5. Annex: Table of implementation options (high-level inventory) - General options: broaden or restrict scope (financial entities; natural persons; legal persons; groups of companies), exclude certain debts, introduce one or several procedures, assign competence to courts or administrative authorities, use SME definitions. - Early warning and support tools: use Directive examples; IT for notifications; public or private development; support for employees’ representatives. - Access: barriers (accounting violations, deficient information, viability filter), frequency limits, involvement of judicial authority, creditor/worker application options. - Debtor control: expand mandatory appointment of IPs to increase creditor rights. - Stay of creditors’ actions: general vs limited stay; duration and extensions up to maximum of twelve months; lifting grounds and safeguards. - Restructuring plan options: sale as going concern; expert valuation; alternative plans by creditors/IPs; class composition rules; majority thresholds up to 75 percent; cram-down designs; absolute vs relative priority; valuation and appeal rules. - New finance: protection and priority options; ex ante controls; limit protections when debtor is insolvent. - Directors’ duties: use Directive rules or align with national law; possible specification of stakeholder hierarchy. - Discharge options: define insolvency (e.g., over-indebtedness); single or multiple procedures; burdens of proof; exclude certain debts; set discharge periods and conditions. - Institutional measures: training and qualification options for judges and IPs; selection and supervision models for IPs; mandatory or optional electronic systems. - Data collection: collect optional data, use sampling, include breakdowns. *Source: ANNEX 1. TABLE OF IMPLEMENTATION OPTIONS UNDER THE DIRECTIVE (wpiea2021152-print-pdf)* *Source: wpiea2021152-print-pdf* ### 1. Early warning systems and access to information __________________________________5 ### 1. Early warning systems and access to information ### Context and role within the Directive - The European Directive 2019/1023 on restructuring and insolvency was adopted on June 20, 2019. - The Directive establishes minimum standards for preventive debt restructuring mechanisms, debt discharge for entrepreneurs, and a limited subset of other insolvency issues. - The Directive follows Recommendation 2014/135/EU and a proposal for a Directive presented in November 2016. - The Directive requires member states to have an early warning system but provides minimal content and multiple implementation options, producing a “puzzling variety of diverging options.” ### Purpose and expected benefits of early warning systems - Early warning mechanisms increase restructuring options and opportunities for the survival of the enterprise, and are particularly necessary for SMEs. - Early identification of debt distress aims to prevent insolvency by allowing remedial action at the earliest possible stage. - Adequate implementation could: - Alleviate the burden on the court system. - Offer more restructuring opportunities for viable enterprises. - Help minimize the impact of crises (notably in the context of the COVID-19 pandemic) on the financial system. ### Directive requirements and optional elements - The Directive requires countries to have an early warning system but: - Does not define “early warning system.” - Includes only examples of elements; member states must implement one or several of the mechanisms listed as examples. - Examples of elements listed in the Directive: - Alert mechanisms when the debtor has not made certain types of payments; - Advisory services provided by public or private organizations; - Incentives under national law for third parties with relevant information, such as accountants, tax and social security authorities, to flag to the debtor a negative development. ### Two models of early warning systems (Box 1) - Model a) Early warning system as a self-assessment tool: - Tools for entrepreneurs (especially micro- and small enterprises) to assess economic situation. - Implementation example: simple software application on a public website producing a preliminary diagnostic from basic business data using a combination of financial and operational ratios. - Should be combined with support and advice from public institutions, commercial or professional associations. - Model b) Early warning system as an intervention mechanism: - Goes beyond detection to include a cascade of interventions under external supervision. - Example interventions and trigger pathways described in the Directive: - Auditor observation that the going concern assumption is at risk prompts auditor communication with management; lack of management response can lead to communications with the board or shareholders’ meeting, and ultimately intervention by mediation mechanisms or courts. - Minority shareholders or trade unions may raise concerns with management; lack of adequate reaction can trigger intervention by enterprise organs or mediation bodies. - Creditor actions connected to the use of alternative dispute resolution. - Public creditors (tax and social security authorities) often detect distress early because enterprises delay those payments first; systems may incentivize public creditors to act by imposing a duty to act or by threatening loss of preferential treatment if they remain passive. ### Design choices and policy trade-offs - Key policy choices for member states include: - Which model to adopt (self-assessment vs. intervention mechanism). - Which indicators will trigger an alarm or warning. - The connection between the early warning system and formal or informal insolvency/debt restructuring mechanisms. - Trade-offs fall into broad categories: - Options that increase creditor protection versus options that increase debtor protection. - Options that save costs and add flexibility versus those that increase legal safeguards. - Technical choices that must fit with other areas of national law not harmonized by the Directive. ### Indicators for early warnings - Member states must choose indicators that trigger an alarm regarding the enterprise’s economic health. - Possible indicator types: - Concepts such as risks to the continuity of the business. - Specific crisis indicators based on combinations of financial ratios, calibrated by sector or enterprise type. - Simple indicators such as defaults, particularly of tax and social security obligations. ### Connections with insolvency and debt restructuring - Confidentiality considerations: - Early warning systems are valued for confidentiality; when disconnected from formal insolvency, they can preserve confidentiality by issuing alerts and offering advisory services. - Early warning can be connected with mediation or out-of-court restructuring while preserving confidentiality. - Interventionist options: - Systems may establish an obligation to commence insolvency or preventive restructuring proceedings unless remedial action is taken. - This approach aligns with imposing directors’ duties to prevent insolvency (see Section 3 of the source). ### Practical implications and implementation considerations - Implementing only one element of the Directive’s examples (e.g., providing advisory services alone) is unlikely to create an effective early warning system. - To be effective, member states must: - Choose a coherent model (self-assessment or intervention). - Define clear indicators for alarms. - Establish how the early warning system connects with insolvency and restructuring mechanisms. - Effective design can influence access to credit, creditor protection, debtor treatment, and cross-border outcomes; divergent implementations may produce differing restructuring models across member states. ### Key numeric and dated references (preserved exactly) - Directive adopted on June 20, 2019. - Directive number: 2019/1023. - Recommendation number: 2014/135/EU. - Proposal for a Directive presented in November 2016. *Source: wpiea2021152-print-pdf - 1. Early warning systems and access to information* ### 2. Preventive restructuring ### 2. Preventive restructuring ### Overview - Preventive restructuring procedures are the main building block of the Directive, enabling enterprises to restructure debt without full court intervention and before insolvency (a “pre-insolvency procedure”). - Objective: maximize use of hybrid restructuring combining judicial actions with debtor-creditors negotiation (see Tollenaar, 2019). - The Directive offers a large range of policy and technical options with potentially far-reaching consequences. - The EC’s impact assessment noted that some European countries do not allow restructuring before insolvency (EC, 2016) and that there are major differences among member states on restructuring aspects. - Cross-border element: the EC estimated that one quarter of insolvency cases in the EU involved creditors and debtors in more than one-member state (EC, 2014). Divergences in restructuring mechanisms affect credit intermediation (Banking Union) and raising capital across the EU (Capital Markets Union). ### Examples of possible early-warning indicators (from source text) - working capital / total assets (liquidity) - retained earnings / total assets (profitability) - earnings before interest and taxes / total assets (efficiency and viability) - market value of equity / book value of total liabilities (only relevant for listed companies) - sales / total assets (activity ratio) - interest coverage ratio (ability of the enterprise to service the interest of its loans) - debt/earnings ratio (leverage) ### Options for implementing the Directive (major structural choices) - Introduce a single pre-insolvency procedure (or adapt an existing one). - Aligns with the original thinking behind the Directive. - New procedure stands side by side with existing national insolvency procedures (liquidation and reorganization). - Distinction remains in degree of judicial intervention and interference with creditors’ and third parties’ rights, higher in reorganization. - Introduce a single pre-insolvency procedure plus targeted amendments to existing reorganization procedure. - Broader and more complex reform; can ensure consistency between pre-insolvency and reorganization procedures. - Introduce the Directive’s rules throughout several restructuring procedures. - Accommodates member states with multiple restructuring procedures. - States can select different Directive features (e.g., procedure only for financial debts; confidential stay of creditor actions). - Different recognition regimes can be used, affecting cross-border use (Restructuring procedures may be classified under Insolvency Regulation (Regulation (EU) 2015/848) or as commercial proceedings under the Brussels Regulation (Regulation (EU) 1215/2012); see Skauradszun and Nijnens, 2019; Eidenmüller, 2019). - Increases complexity and can generate cross-border distortions; may create forum-shopping dynamics. - Merge the pre-insolvency procedure with existing reorganization procedures. - Risk: may not achieve reduced judicial intervention objectives. - Replace the member’s reorganization procedure with the pre-insolvency procedure. - Risk: eliminates reorganization option, removing a solution for enterprises needing more fundamental business-structure changes under closer judicial supervision. ### Control of restructuring procedures - Can be assigned to judicial or administrative authorities. - Efficiency argument: in some member states administrative authorities may better facilitate and oversee restructuring negotiations (see Cahir and Quinn, 2020). - Constitutional question: extent administrative authorities can decide on private law issues and how their actions are subject to court control must be analyzed under national law. ### Scope options (broaden or narrow application) - Financial institutions: - Directive allows member states to apply its rules to financial entities. - Concern: pre-insolvency design, with debtor-in-possession emphasis, may be inadequate for financial institutions and pose supervisory risks. - Legal persons: - Option to limit application to legal persons. - Effect: dramatically narrows scope and excludes micro- and small enterprises under sole or family ownership. - Groups of companies: - Option to extend application to groups of companies (see Zhang, 2019). - Requires special rules for coordination of procedures across companies, including national and foreign procedures. - SMEs: - Directive contemplates special rules for SMEs; some special rules are expressly mentioned. - Directive refers to “national definitions of SMEs”, which may dilute harmonization; states could follow European definitions and deviate only for powerful reasons (see McCarthy, 2020). - Debts excluded from restructuring: - Member states may limit debts subject to restructuring: existing and future claims of workers (existing or former); alimony; and tort claims. - Excluding alimony presupposes application to natural persons. - Excluding workers’ claims is consistent with out-of-court practice (workers’ claims are small and can complicate negotiations). - Broad exclusion of tort claims could be excessive; states could exclude specific tort categories (e.g., claims derived from death and bodily harm). ### Access to preventive restructuring procedures - Access should be relatively easy to allow early-stage restructuring but balanced to prevent moral hazard. - The Directive requires procedures to be available only where there is a “likelihood of insolvency”; the term is not defined and is left to national implementing law. - Recitals: concept ensures process is not commenced too early (risk of abuse, e.g., to clear all debts and use the automatic stay) nor too late (ineffective when company has stopped making payments). - Directive defines only the moment when there is no longer a “likelihood of insolvency”: the moment at which, under national law, the debtor is defined as being insolvent. - Because definitions of insolvency vary, the timing of when a business is considered to have a “likelihood” of insolvency will differ across member states, reducing harmonization. - Theoretically, there is always a “likelihood” of insolvency even if currently solvent; member states must balance enabling rescue of distressed businesses and preventing moral hazard. - One approach: reference a time period prior to insolvency (example left incomplete in the source text). *Source: 2. Preventive restructuring (wpiea2021152-print-pdf)* ### conclusion that the company may not be able to pay its debts within a certain period (e.g., within ### wpiea2021152-print-pdf - conclusion that the company may not be able to pay its debts within a certain period (e.g., within ### Likelihood of insolvency test and scope - Test may be based on a conclusion that the company may not be able to pay its debts within the next six months. - Framework can be extended to non-financial difficulties that give rise to a “real and serious” threat to actual or future ability to pay. - Relevant time frame for non-financial threats may extend to a period of several months or even longer to account for threats to going-concern status. - Examples of significant non-financial shocks: (i) loss of a major contract; (ii) a large tort claim; (iii) a pandemic. - Broader scope increases possibility of procedural abuse and may necessitate early judicial intervention or other oversight. ### Access and entry barriers - Member states may add additional barriers: history of fraud, past use of the procedure, and a test of “viability”. - Discretion to introduce barriers means jurisdictions can be more restrictive (reducing moral hazard) or more permissive (increasing moral hazard). - Example: debtors sentenced for serious breaches of accounting/bookkeeping obligations may access procedures only after corrective measures. - Restrictions can limit number of times a debtor can access preventive restructuring within a certain period. - “Viability test” considerations: - Full viability analysis as entry requirement is likely too costly and complex. - If maintained, purpose should be to exclude debtors with no prospect of viability and be carried out without serious detriment to debtor’s assets. - Simple eligibility evidence could include production of evidence of positive earnings in the past fiscal years. - Some states may prioritize ease of access over creditor protection and omit a viability test. - Procedure must be available upon request by debtors; member states can also permit access by creditors or workers’ representatives with variant options for requiring debtor consent, including special consent rules for SME debtors. ### Debtor in possession and role of insolvency practitioner - Directive requires debtors accessing preventive restructuring procedures to remain totally—or at least in part—in control of assets and day-to-day operations. - Appointment of an insolvency practitioner is mandatory at least where: - (i) a general stay of enforcement actions is granted and authority decides practitioner is necessary; - (ii) a judge/authority needs to approve a restructuring plan with a “cross-class” cram down; - (iii) where requested by the debtor or by a majority of creditors (who should then bear the cost). - Role of practitioner in these cases is limited to assisting debtor and creditor in negotiating and drafting the plan. - Member states may expand practitioner oversight (supervise actions, partial control, approve transactions outside normal operations), increasing creditor protection but reducing ease of use and blurring restructuring vs reorganization. ### Stay of creditor actions — objectives and trade-offs - Stay aims to encourage early restructuring while preventing moral hazard; must be designed to protect creditors’ contractual rights. - Directive requires that debtors may benefit from a stay to support negotiation of a restructuring plan. - Special care needed in pre-insolvency where only a “likelihood” of insolvency exists, to avoid use of stay merely to delay creditors. Scope of the stay - Member states choose whether stay is: - General (applying to all creditors) or - Limited to affected creditors or only certain classes of creditors (e.g., financial creditors). - Unaffected creditors should be exempt and paid in full on contractual terms. - National laws may exclude certain claims from the stay in “well-defined” circumstances where enforcement is not likely to jeopardize restructuring or would unfairly prejudice creditors. - Confidential stay option exists to limit knowledge of the stay to affected creditors; this can preserve relationships but raises transparency concerns. Duration of the stay - Initial period of the stay should be no more than four months. - Possible systems include: - Shortest: stay of one month starting with commencement and no extensions. - Longer: stay begins with debtor’s request, lasts for 4 months and can be extended until a total of 12 months. - Extensions may be allowed subject to conditions: progress on the restructuring plan, affected parties not unfairly prejudiced, and insolvency proceedings not opened. - Total period of the stay (including extensions) should be limited; Directive provides for a maximum period of twelve months. Lifting the stay - Stay may be lifted when: - (i) it no longer fulfils the objective of supporting negotiations (e.g., blocking creditors do not support continuation); - (ii) debtor or insolvency practitioner requests lifting; - (iii) one or more creditors or classes would be unfairly prejudiced by the stay; - (iv) the stay gives rise to the insolvency of the debtor. - Member states may establish a period during which stay cannot be lifted and may limit lifting to situations where creditors have had an opportunity to be heard. - Directive allows commencement of insolvency cases during the stay in some options. Effects on secured creditors and contracts - Directive does not set specific rules for secured creditors; member states may introduce protections such as limiting duration of stay, allowing secured creditor to lift stay, or measures to protect value of encumbered assets. - Options that extend stay to third-party guarantees or security interests could undermine access to credit. - During stay, creditors to which the stay applies may not withhold performance or terminate, accelerate, or modify essential executory contracts (e.g., lease, license, long-term supply, franchise agreements). - Ipso facto clauses may not be enforced (except for financial contracts and financial collateral arrangements). - Member states should establish safeguards such as judicial revision and compensatory measures; extending stay to non-essential contracts increases complexity and litigation risk. ### Restructuring plans — design choices and trade-offs Overall trade-offs - Key challenge: maximize legal flexibility without full judicial intervention of reorganization. - Directive’s rules are complex and more similar to reorganization; member states choose degree of functionality/flexibility versus cost/complexity and balance of rights between creditors, debtors, and shareholders. Plan preparation - Debtor has initiative to prepare plan; Directive allows conditions for creditors and insolvency practitioners to submit alternative plans. - States may set deadlines after which creditors or practitioners may present plans; may require thresholds (e.g., holding a certain percentage of liabilities). - Allowing creditor-submitted plans increases flexibility and creditor protection but reduces debtor control and may deter use. Contents of the plan - Member states can supplement minimum contents, at cost of higher complexity and cost. - General principle: plan covers all debts pre-restructuring; Directive allows option to include claims arising after application, which omits a clear “cut-off” date and creates complications. - Public creditors: member states may exclude full or partial cancellation of claims of a public institutional creditor with privileged status; useful where public debts are substantial but reduces functionality. - Valuation requirements: - Valuation is fundamental but costly for small enterprises. - Option to include expert opinion on asset value; absence may allow debtor to underestimate liquidation value. - Potential trade-off: exempt micro and small enterprises from valuation while maintaining it for medium and large enterprises. - Viability analysis: - Directive does not mandate viability analysis as part of the plan; member states can require validation of debtor’s statement of feasibility. - Options include drafting or validation by external experts or insolvency practitioners. - Reasonable to exempt micro and small enterprises from full viability analysis and use basic profitability indicators instead. - Sale of the business: - Directive allows option of sale of the business in a restructuring plan, facilitating “rescue of the business” as opposed to the entity. - This option may deter debtors from using restructuring procedure. Voting by classes and required majorities - Affected parties have right to vote; unaffected creditors (paid in full) do not vote. - Directive allows exclusion of shareholders, subordinated creditors, and related parties with conflict of interest. - Member states can set flexible rules for formation of classes but must avoid debtor manipulation (gerrymandering). - Class formation controls can be ex ante (before vote) or ex post (as part of confirmation); use of insolvency professional to form classes is an option. - Special class options: - Separate class for workers’ claims is permitted. - Special class for small suppliers is permitted; unclear definition of “small suppliers”. - Splitting secured and unsecured portions of loans is optional in Directive though necessary for safeguards (e.g., liquidation test); valuations are necessary for efficient restructuring. - SMEs: - Member states can exempt SMEs from formation of classes to reduce costs and complexity, but may be better targeted to micro and small enterprises. - Alternatives include separate counts for secured vs unsecured creditors when computing general vote. - Quorum and participation: - Member states may set participation quorum; Directive does not specify if quorum can be general or per class. - Too demanding quorum risks rendering opportunity illusory; lack of quorum risks circumstantial majorities. - Majority thresholds: - Member states select majority for plan approval but threshold cannot be higher than 75 percent. - Range between 50 percent plus one and 75 percent materially affects ease of restructuring. - Option exists to add requirement of a majority in number within the class to prevent majority creditor abuse. Cross-class cram-down - Directive allows multiple options for design; unavailable option is unanimous consent of all classes. - Options include requiring: - One class in favor (as in US Chapter 11); - A limited number of classes (e.g., two or three) in favor; - Majority of classes in favor; - Supermajority of classes in favor. Safeguards: Best interest of creditors’ test and absolute/relative priority - Directive includes class voting, cram-down, and safeguards: best interest of creditors’ test and the absolute priority rule (with relative priority as an option). - Best interest of creditors’ test: - Protects individual creditors by ensuring no creditor receives less under the plan than in liquidation. - Baseline liquidation value can be piecemeal liquidation or sale as a going concern; going-concern sale is a higher baseline and often more appropriate. - Absolute priority rule: - Protects classes by preventing distributions to junior classes if a dissenting senior class is not paid in full. - Especially relevant between unsecured creditors and equity holders. - Relative priority option: - Treats dissenting classes at least as favorably as other classes of same rank; allows junior classes some consideration. - Example risk: a dissenting majority of unsecured creditors could receive a 26 percent payment while shareholders keep 25 percent of equity. - Relative priority reduces creditor protection and advantages equity owners strategically. - Recommended approach: incorporate absolute priority with targeted exceptions “necessary in order to achieve the aims of the restructuring plan and where the restructuring plan does not unfairly prejudice the rights or interests of any affected parties”. - Example exception: “new value” where owners provide new resources. - “Payment in full” concept: - Member states can define to exclude fully paid creditors from safeguards; Directive allows variation including timing of payment and protection of principal and collateral. - Some member states define payment in full as payment within a maximum of three months of confirmation of the plan. - Long payment delays (e.g., one or two years) for “payment in full” would be questionable. Treatment of shareholders and owners - Options: - Integrate shareholders as last class of claimants subject to class voting and possible cram-down; aligns with treating shareholders as residual claimants. - Exclude shareholders from class voting; then ensure shareholders cannot unreasonably prevent adoption or implementation of plan. - If shareholders are integrated in a class, debtor’s consent requirement on the restructuring plan should not be applied generally; debtor consent requirement may be restricted to SMEs or micro and small enterprises. - Directive allows states to attribute representation of the debtor to “the legal person’s management board” or to “a certain majority of shareholders or equity holders” consistent with national company law. Confirmation and appeal - Directive recognizes restructuring plans can be effective immediately without formal confirmation. - Confirmation by court or administrative authority is required at least in the cases listed in the Directive (text ends before listing those cases). *Source: https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021152-print-pdf.pdf* ### 1. Plans that affect the rights of dissenting parties ### 1. Plans that affect the rights of dissenting parties ### Confirmation and feasibility - Most plans will need to be confirmed because many plans will fall under the first category (plans that affect the rights of dissenting parties), and possibly also under the second one (plans that provide for new financing). - Member states can include additional cases for compulsory confirmation, although it is unclear whether adding more cases would be useful. - The Directive maintains a feasibility requirement for confirmation; member states can provide more clarity on this requirement. - The Directive expressly states that courts or administrative authorities should have the power to reject confirmation of plans where those plans are not feasible. - Courts or administrative authorities may not always have the necessary resources to assess feasibility. - Although the feasibility requirement is not optional, member states can decide that such an assessment need not be made ex officio. - Member states can define conditions under which a plan would be considered not feasible, for example: - specify circumstances where plans cannot be implemented because of legal obstacles; - specify circumstances where assumptions for the plan are obviously impossible. - Restricting the concept of feasibility can prevent interference with the confirmation process. ### Valuation, litigation risk, and procedural design - The Directive’s framework seeks to reduce controversies over valuation. - Valuation is fundamental in restructuring and reorganization proceedings can be saddled with litigation over valuation issues. - Courts or administrative authorities will only decide on valuation when there is a challenge based on: - violation of the best interests of creditors’ test; or - violation of the absolute (or relative) priority rule. - Litigation over valuation is particularly expensive due to the need to engage experts and because valuation is a hypothetical exercise described as a “guess compounded by an estimate.” - Administrative and judicial authorities should encourage consensus to avoid litigation over valuation issues. - The Directive allows valuation decisions to be based on a valuation submitted by an expert, a creditor, or a third party. - States may align the regime for valuation decisions with their national frameworks for similar disputes, which often rely on expert reports. - The Directive allows member states to establish special rules on valuation (for instance, reference to valuation standards), including rules on the burden of proof. ### Appeals against confirmation - Member states should consider rules for appeals against confirmation, balancing protection of parties and continuation of the plan. - The rules on appeals leave numerous options for member states; the Directive does not include a general principle on availability of appeals. - Appeals should not suspend execution of the plan, but this is optional under the Directive. ### Effects of the plan (scope of binding effect) - The plan should generally bind all affected parties. - The Directive limits effects to “the affected parties that were involved in the adoption of the plan,” introducing two concepts: - “affected parties”: those whose rights are reduced by the plan; and - “involved parties”: parties adequately notified and who have participated in the restructuring procedure. - Member states may determine the concept of “involved party,” including rules for unknown creditors or creditors with future claims. - Member states may decide how to treat creditors who were notified correctly but did not participate. - Future creditors are generally excluded from the effects of restructuring. ### New finance (interim and post-plan financing) - Availability of financing is a key attribute of any successful restructuring plan. - Interim financing may be needed initially to continue operations while restructuring negotiations occur (to cover operating costs: payments to crucial suppliers, employees, rent, etc.). - Financing may also be required later for implementation of the restructuring plan (new financing). - Without creditor forbearance or financing, rescuing potentially viable businesses may be impossible. - Risks of post-petition finance require clear legal treatment to provide certainty and incentives for grantors. - Creditors will inject financing only if they have certainty that their credit will be sufficiently protected and prioritized relative to other claims. - The need for new finance must be balanced against increased risks for pre-existing creditors (de Weijs and Baltjes, 2018). - As a general principle, the Directive requires member states to ensure that both new and interim financing are adequately protected.7 - Minimum protections in any subsequent insolvency include: - protection for new and interim financing from being declared void, voidable or unenforceable; and - protection for grantors of such financing against civil, administrative or criminal liability when based on the financing being detrimental to the general body of creditors. - The Directive provides many options that will likely result in divergence in scope and coverage of these protections across member states. - The Directive does not preclude excluding these protections on other grounds set by national law (e.g., fraud, bad faith, conflict of interests in related party transactions).8 - The Directive allows limitation of minimum protections to new/interim financing that meets certain requirements, for example: - new financing included in a restructuring plan confirmed by a judicial or administrative authority; and - interim financing subject to ex ante control. - The Directive allows exclusion of interim financing granted after the debtor has become unable to pay debts as they fall due from these protections. - Unlike the original proposal, the Directive leaves the issue of priority to member states’ discretion: - member states may provide grantors of new or interim financing with priority in subsequent insolvency procedures relative to other creditors that would otherwise have superior or equal claims; - the Directive acknowledges that encouraging new lenders may require incentives such as priority at least over unsecured claims; - this contrasts with the original proposal which required member states to rank new and interim financing at least senior to ordinary unsecured creditors’ claims. - States need to consider the trade-off between flexibility and safeguards: - court authorization is one way to manage post-petition finance risks, but must be weighed against urgency and value-added of court involvement; - reorganization procedures may require court authorization or creditor consent for post-petition finance, but the number of required authorizations should be minimized given urgency; - a hierarchical approach to authorization may be tied to security/priority, level of finance, and stance of creditors; - the debtor is usually better placed to assess financing needs than the court; - authorizations could be tied to priority granted, level of financing, and creditors’ stance; - restructuring may need more flexibility than reorganization procedures and offer fewer opportunities for judicial control; - alternative safeguards (independent experts, administrative authorities) may be considered. ### Duties of directors (approaching insolvency) - Duties of directors in the period approaching insolvency aim to protect stakeholders from managerial decisions that may harm the debtor’s estate, but may also limit directors’ actions and discourage reasonable business judgment and risks beneficial to restructuring. - The Directive sets out steps directors should take to minimize losses and avoid insolvency, including: - seeking professional advice (e.g., use of early warning tools); - protecting company assets to maximize value and avoid loss of key assets; - considering business structure and functions to examine viability and reduce expenditure; - avoiding commitment to transactions likely to be subject to avoidance unless there is appropriate business justification; - continuing to trade where appropriate to maximize going concern value; - holding negotiations with creditors; - entering preventive restructuring procedures. - Where there is a likelihood of insolvency, the Directive requires directors to protect the legitimate interests of creditors and, as a minimum, to have due regard to: - the interest of creditors, other stakeholders and equity holders; - the need to take steps to avoid insolvency; and - the need to avoid deliberate or grossly negligent conduct that threatens viability of the business. - The Directive does not establish any hierarchy among stakeholders; member states determine this. - The duties largely restate general company law and insolvency law principles and are meant to guide judiciary in assessing directors’ potential liability in insolvency cases. - Member states could implement duties by ensuring judicial/administrative authorities take these duties into account when assessing breaches of duty of care. - Implementation challenges and divergence across member states are likely because: - the Directive does not define “likelihood of insolvency,” so trigger points will vary; - member states determine what constitutes a violation of directors’ duties and the type of liability to be imposed; - examples of issues left to member states include resignation at time of distress, contracting debt pre-insolvency, and effect of successful plan negotiation on liability. - The key element in determining liability should be absence of deliberate or grossly negligent actions; directors should not be dissuaded from exercising reasonable business judgment or taking warranted risks. - Restructuring and insolvency rules need coordination with company law; the Directive provides broad policy direction rather than detailed rules, so differences between member states’ regimes are likely to persist. ### Discharge and second chance for entrepreneurs - The Directive highlights the importance of a second chance for entrepreneurs, noting evidence that entrepreneurs who have become insolvent have more chances of success the next time. - The Directive notes the need for honest insolvent or over-indebted entrepreneurs to benefit from a full discharge after a reasonable period, allowing a second chance (recital and 2014 Recommendation context). - Entrepreneurs would not effectively benefit from a second chance if they had to go through separate business and consumer insolvency procedures with different access conditions and discharge periods; the Directive advises applying discharge guidance also to consumer debts. - The Directive notes divergence across EU member states in discharge approaches (variation in length of discharge periods, conditions for granting discharge, and disqualification orders) and potential relocation of entrepreneurs to jurisdictions with more favorable discharge terms. - Despite harmonization goals, the Directive offers options to member states rather than strict rules: - ‘insolvency’ remains defined by national law and could take the form of “over-indebtedness,” resulting in divergent approaches; - the insolvency procedure to achieve discharge is not standardized: options include a repayment plan procedure, liquidation, or a combination; - member states may require the debtor to request a discharge or may make discharge automatic at the end of the insolvency procedure.10 - The Directive includes a seemingly definitive three-year cap on the maximum period of discharge, but implementation details allow variation: - the discharge period is capped at a maximum of three years, but states can opt for shorter periods and possibly vary periods between different procedures; - in a procedure including a repayment plan, the three-year limit should commence from the date of the decision by a judicial or administrative authority to confirm the plan, or the start of implementation of the plan; - in procedures without a repayment plan, the discharge period should start, at the latest, from the date when a decision to open the procedure is taken by a judicial or administrative authority,11 or the date of establishment of the insolvency estate;12 - in combined realization-and-repayment procedures, the discharge period should start, at the latest, from the date the repayment plan is confirmed by a court or starts being implemented (for example, from the first instalment), but could start earlier; - differences in member state choices and court efficiency mean variation in how quickly a debtor receives a discharge. - Member states may provide for longer discharge periods or restrict discharge in certain cases, e.g., repeat applications, abusive applications, cases where the cost of the procedure is not covered, and cases where derogation is necessary to balance debtor and creditor rights. - The Directive permits longer discharge periods in certain cases, notably if the entrepreneur’s primary residence is safeguarded from liquidation. - Scope of persons covered may vary between member states: - the Directive does not require inclusion of consumer debts in the insolvency procedure, though coordination of business and consumer debts is encouraged; - member states may require the trade/business/craft/profession to have ceased, potentially precluding use of a repayment plan and making liquidation the sole option. - The list of debts excluded from discharge is not standardized; member states may exclude certain debts altogether or restrict access or impose longer discharge periods for them. - Derogations (denying or restricting access to discharge) may be necessary where the debtor is dishonest or has acted in bad faith, but the Directive lacks specific guidance and allows member states considerable latitude. - The Directive does not require a presumption of honesty/good faith; member states may require entrepreneurs to prove compliance with obligations to benefit from discharge. - Compliance obligations that member states may require could include obligations to maximize returns to creditors or general obligations to generate income or assets. - Member states are required to provide a process (judicial or administrative) to verify that the debtor has fulfilled conditions for obtaining a discharge. *Source: wpiea2021152-print-pdf - 1. Plans that affect the rights of dissenting parties* ### 5. Institutional aspects ### 5. Institutional aspects ### Judicial or administrative authorities - Main institutions: judicial system (including courts or administrative authorities that perform adjudicative functions) and insolvency administrators. - Current practice: In many European countries, insolvency matters are still handled by courts or judges that exercise general civil jurisdiction. - Need for specialization: - Complexity and time-sensitive nature of insolvency proceedings call for specialized independent judges with adequate training and expertise and particularly high ethical and professional standards. - These qualifications are key to ensuring that court hearings can be held swiftly and that decisions are rendered quickly. - The greater the discretion the law confers upon the court, the more important these qualifications are for the outcome and efficiency of the proceedings. - Directive requirements and flexibilities: - The Directive mandates that judicial and administrative authorities dealing with procedures concerning preventive restructuring, insolvency and discharge of debt receive suitable training and have the necessary expertise for effectively performing their functions. - Timing of training: there could be flexibility as to the timing of the training in that it could be on-the-job training, during the exercise of the duties or, prior to appointment to such duties. - The Directive notes that creation of specialized courts and appointment of specialized judges can help improve legal certainty and effectiveness, but clarifies there is no requirement that members of a judicial authority have to deal exclusively with matters concerning restructuring, insolvency and discharge of debt. ### Insolvency practitioners - The Directive sets forth minimum standards for training, appointing, remunerating, and supervising insolvency representatives. Specifically: - Eligibility and training: - Member states are required to ensure that practitioners receive suitable training and have the necessary expertise for their responsibilities. - Conditions for eligibility, as well as the process for the appointment, removal and resignation of practitioners must be clear, transparent and fair. - Appointment: - In appointing a practitioner for a particular case, due consideration is given to the practitioner's experience and expertise, and to the specific features of the case. - Practitioners may be removed in case of objections by parties regarding conflict of interests. - Supervision: - Practitioners must be supervised with a view to ensuring that their services are provided in an effective and competent way and that the practitioners act impartially and independently. - Measures for the accountability of practitioners who have failed in their duties are also required to be established. - Remuneration: - Member states are required to ensure that the remuneration of practitioners is governed by rules that are consistent with the objective of an efficient resolution of procedures and that appropriate procedures are in place to resolve any disputes over remuneration. - Code of Conduct: - The Directive states that the development of and adherence to codes of conduct by practitioners may be encouraged by member states. ### Electronic communications - The Directive seeks to promote the use of electronic means of communication to boost efficiency. - It establishes a minimum set of actions that may be performed using electronic means of communication, specifically: - filing of claims, - restructuring or repayment plans, - notifications to creditors, and - challenges and appeals. - Member states may provide that notifications to creditors can only be performed electronically if the creditor concerned has previously consented to electronic communication. ### Data collection - Rationale: - Collection of data is fundamental for assessment and design of efficient and effective insolvency systems. - Hard data is essential for evidence-based policymaking; relevant data provides the empirical foundation for the identification of issues and formulation of changes to the law. - Even in the most advanced economies, there is a need to increase the quality of insolvency-related information to conduct meaningful evaluation. - Directive requirements (annual, with respect to each of the restructuring, insolvency, and discharge of debt procedures): - (i) the number of procedures applied for, opened, pending, or closed; - (ii) the average length of procedures from submission/opening to closures; - (iii) the number of applications for restructuring procedures that were declared inadmissible, rejected or withdrawn; and - (iii) the number of other procedures broken down by types of outcome. - Data on the number of debtors subject to restructuring/insolvency procedures which had a restructuring plan confirmed under a previous restructuring procedure within the three years prior to the submission of the application/opening of the procedure. - Optional data categories (left to member state discretion) include: - the average cost of each procedure; - the average recovery rates for secured, unsecured and other types of creditors; - the number of entrepreneurs launching a new business after a discharge; and - the number of job losses linked to restructuring and insolvency procedures. - Changes from initial proposal: - Data categories required to be collected under the Directive have been limited compared to the initial proposal. - Option for collection and aggregation through sample techniques has been introduced. - Originally envisaged mandatory data—collection on the average cost of each procedure, the recovery rates for secured and unsecured creditors, as well as the number of procedures with zero or not more than two percent total recovery rate—was scaled back. - Member states now have the option to collect mandatory or voluntary data categories through a sample technique that is representative in terms of size and diversity. - Risks and recommendations: - The voluntary data categories and sampling techniques could lead to significant variation in data collected across member states, complicating comparability and completeness. - Member states are encouraged to collect and aggregate all the data categories under the Directive and to go beyond these data items. - Core indicators of time, cost and recovery rate are highlighted as highly relevant measures of insolvency system efficiency. - Additional useful data items: for instance, the number of insolvency cases closed because of lack of assets. - Collect a wide range of information to understand interactions between the legal system and economic and social reality, extracting data along different stages of insolvency procedures by appropriate designation of data collection points. - Consider costs of data collection against costs of not having such systems; capacity and budgetary constraints should not become insurmountable barriers. - Build on existing infrastructure and rationalize multiple data sources to simplify mechanisms and produce better-quality information. - Ignoring practical performance of the insolvency system can have severe economic consequences; lack of data may render legal reforms ineffective. ### Conclusion - The Directive on Restructuring and Insolvency is a welcome first step in the convergence of EU insolvency frameworks, addressing early warnings, restructuring procedures, institutional aspects, and data collection. - Potential improvements from adequate implementation: - Introduces a procedure allowing comprehensive restructuring of enterprises with reduced court intervention. - Debtor-in-possession regime and stay of creditor actions incentivize enterprises to approach the procedure before financial situations are desperate. - Cross-class cram-down improves possibilities of reaching restructuring agreements. - Flexible restructuring procedures can increase recovery possibilities for distressed enterprises, particularly in countries that may experience a wave of insolvencies as a result of the current crisis, since they reduce the need for extensive judicial intervention. - Introduction of early warning systems, establishment of a fresh start policy for individual entrepreneurs, and improvement of institutional frameworks and data collection systems can strengthen European insolvency regimes. - Tradeoffs and cautions: - Implementation options present key tradeoffs with respect to (i) creditor versus debtor protection and (ii) flexibility and cost savings versus increased legal safeguards. - Certain options could have negative effects for credit protection and should be carefully evaluated, including: - long stays of creditor actions without sufficient safeguards; - interference with contractual relationships; - not splitting secured claims into their secured and unsecured portions; - adopting relative priority in the approval of restructuring plans; - not providing sufficient protection to new financing. - Some options may blur the line between restructuring procedures and reorganization. - Harmonization limits and future analysis: - Differences in European restructuring and insolvency regimes will persist after implementation despite the Directive's harmonization aim. - Harmonization of insolvency laws is a complex challenge only achievable in the long term. - Member states will use different options reflecting preferences for flexibility, controls, costs, and protection of debtors and creditors; attention should be paid to cumulative effects and consistency of choices. - Diverging implementation can result in competition among member states, with uncertain outcomes (a “race to the top” or a “race to the bottom”). *Source: wpiea2021152-print-pdf - 5. Institutional aspects* ### ANNEX 1. TABLE OF IMPLEMENTATION OPTIONS UNDER THE DIRECTIVE ### ANNEX 1. TABLE OF IMPLEMENTATION OPTIONS UNDER THE DIRECTIVE ### General options - Application to financial entities — art. 1.3 — Effect: broaden scope - Application of discharge procedures to natural persons who are not entrepreneurs — art. 1.4; rec. 21 — Effect: Broaden scope - Application of preventive restructuring only to legal persons — art. 1.4 — Effect: Restrict scope - Application of preventive restructuring to groups of companies — rec. 24 — Effect: Broaden scope - Exclusion of certain debts from preventive restructuring (workers’ claims, alimony, tort claims) — art. 1.5 — Effect: Restrict scope - Introduce one or several restructuring procedures — art. 4 — Effect: Structural option - Assign competences over restructuring procedures to courts or to an administrative authority — Effect: Institutional - Use a definition of SME and apply different rules in several cases, as allowed by the Directive — rec.18 — Effect: Simplification, reduction of harmonization ### Early warning and support tools - Use one or more tools among those included as examples in the Directive — art. 3.1 — Effect: Flexible content - Use of IT for notifications and communications — Art. 3.1 — Effect: Reduce cost; increase effectiveness - Development by member states or by the private sector — rec. 22 — Effect: Institutional - Provide support to employees’ representatives to assess the economic situation of the debtor — Art. 3.5 — Effect: Workers’ rights ### Access to the restructuring procedure - Provide that debtors with serious accounting violations may only access restructuring if corrective measures are taken — art. 4; rec. 27 — Effect: Barriers to entry - Restrict access to debtors with deficient financial information — rec. 27 — Effect: Barriers to entry - Use a viability filter (i.e., clearly non-viable enterprises will not have access to restructuring) — art. 4 — Effect: Barriers to entry - If there is a viability filter, impose the costs of proving compliance with the test on the debtor — rec.26 — Effect: Costs - Allow preventive restructuring also for cases of non-financial difficulties — rec. 28 — Effect: Expand access - Limit the frequency of access (i.e., number of consecutive applications, period between one application and another) — art. 4 — Effect: Barriers to entry - Limit the involvement of a judicial or administrative authority to where it is necessary — art. 4.6 — Effect: Streamline the process - Allowing the application by creditors or workers with the debtor’s agreement — art. 4 — Effect: Balance of rights debtor/creditors - Restrict the requirement of the debtor’s agreement to SMEs — rec. 29 — Effect: Differentiated treatment for SME debtors ### Debtor in possession; control of the debtor - Add more cases to the mandatory ones in the Directive for the appointment of an insolvency practitioner to control the debtor — art. 5.2; 5.3; rec. 30 — Effect: Increase creditor rights - Add more cases where appointment is mandatory (institutional option) — Effect: Increase creditor rights ### Stay of creditors’ actions - Add the possibility of refusing the stay where it is not necessary or where it would not achieve its objective; possible grounds (lack of support by required majorities of creditors; or the debtor is unable to pay its debts as they fall due) — art. 6.1 — Effect: Increase creditor rights - Establish (on a rebuttable basis) presumptions for the presence of grounds for the refusal of the stay — rec. 33 — Effect: Increase creditor rights - General stay (applicable to all creditors) or limited (applicable to one or more creditors, informed of the stay or the plan) — art. 6.3 — Effect: Decrease or increase creditor rights - Allow the stay to apply to the benefit of a third-party security provider (e.g. guarantors, collateral givers) as well — art. 1.4, rec. 32 — Effect: Decrease creditor rights - Exclude certain claims from the stay — art. 6.4, rec. 34 — Effect: Increase rights of certain creditors; improve functionality - Apply the stay to workers claims when these are covered by guarantees — art. 6.5, rec. 61 — Effect: Improve functionality; no prejudice to workers - Allow the stay to affect the interest due on claims — rec. 25 — Effect: Decrease creditor rights - Reduce the maximum period of 4 months for the initial stay — art. 6.6 — Effect: Increase creditor rights - Extend the stay, with conditions, up to a maximum of 12 months; define who is entitled to request the extension — art. 6.7 — Effect: Potentially decrease creditor rights. Increased functionality. - Provide for an indefinite stay where the debtor becomes insolvent under national law — rec. 35 — Effect: Connection with national insolvency law - Include a short interim stay for the period where the decision on access is pending — rec. 35 — Effect: Decrease creditor rights; Increase functionality - Lift the stay when creditors are unfairly prejudiced, when a creditor becomes insolvent because of the stay, or when the stay no longer fulfils the objective of supporting the negotiations — art. 6.9; rec. 36 — Effect: Increase creditor rights - Lifting the stay for unfair prejudice for one or more creditors or for all creditors (and establish who is entitled to request the lifting of the stay) — rec. 37 — Effect: Increase creditor rights - Limit the cases of lifting the stay to situations where creditors have not had the opportunity to be heard — art. 6.9 — Effect: Decrease creditor rights - Provide a minimum period for which the stay cannot be lifted — art. 6.9 — Effect: Decrease creditor rights - Allow the commencement of insolvency procedures during the stay, provided that the courts/authorities can suspend the insolvency case when it is not in the general interest of creditors — art. 7.3 — Effect: Increase creditor rights - Allow the request to commence an insolvency case by the public prosecutor — rec. 38 — Effect: Protection of public interest - Suspend the obligation of the debtor to pay the claims that came into existence before commencement of the restructuring procedure — rec. 39 — Effect: Preservation of relative positions of creditors - Introduce safeguards for creditors affected by the effects of the stay on essential contracts — art. 7.4 — Effect: Increase creditor rights - Extend the stay to other executory contracts that are not essential — art. 7.4 — Effect: Decrease third-party rights - Provide that the stay does not apply to netting and close out of non-financial contract — art. 7.6; rec. 94 — Effect: Increase rights of certain creditors - Provide that the suspension of the debtor’s obligation to file an insolvency procedure due to the stay may be derogated at the request of public authorities acting in the general interest — rec. 38 — Effect: Protection of public interest ### Restructuring plan: content, voting, confirmation, valuation - Indicate that restructuring also includes the sale of the business as a going concern — art. 2.1.1 — Effect: Increase functionality; reduce incentives for debtor - Require additional explanations in the restructuring plan — rec. 42 — Effect: Increase creditor rights; Increase costs - Require an expert opinion regarding the value of assets — rec. 42 — Effect: Increase creditor rights; Increase costs - Establish that the statement of reasons of the restructuring plan needs to be made or validated by an external expert or by an Insolvency Practitioner (IP) — art. 8.1.h — Effect: Increase creditor rights; Increase costs - Allow the possibility that creditors and IPs submit alternative plans — art. 9.1 — Effect: Increase creditor rights; increase functionality - Include claims that fall due or that come into existence after the submission of an application to open a preventive restructuring procedure in the restructuring — rec. 25 — Effect: Increase functionality; increase complexity - Exclude from the right to vote any of the following categories: equity holders, subordinated creditors, or related parties with a conflict of interests — art. 9.3 — Effect: Changes balance of power in the procedure - Permit equity-holders to have a right to vote on the restructuring plan — rec. 57 — Effect: Changes balance of power in the procedure - Use national law criteria to determine who are “affected parties” — art. 2.1.2 — Effect: Unclear whether there is any other option. - Introduce a participation threshold for the vote — rec. 47 — Effect: Decreased functionality; increased safeguards - Decide not to impose a full or partial cancellation of the claims of a public institutional creditor with a privileged status — rec. 52 — Effect: Increased protection for public creditors - Create a separate class for workers — art. 9.4; rec. 44 and 62 — Effect: Increased protection for workers - Create a separate class for small suppliers — rec. 44 — Effect: Increased protection for a special class of creditors - Eliminate the obligation to create classes for SMEs — art. 9.4 — Effect: Simplification - Establish rules for contested claims in the allocation of voting rights — rec. 46 — Effect: Increased functionality; increased complexity - Establish the confirmation of the formation of classes at an earlier stage, before the vote — art. 9.5; rec. 46 — Effect: Increased complexity and cost; higher reliability - Divide secured claims into secured and unsecured parts — rec. 44 — Effect: Increased functionality; better balancing of rights - Use a majority in number of creditors in addition to the required majority in amount of claims — art. 9.6; rec. 47 — Effect: Increased minority protection; reduced functionality - Establish specific notification requirements to creditors regarding class composition — rec. 51 — Effect: Increased cost and complexity; higher reliability - Establish the time frame for the notification to creditors — rec. 51 — Effect: If there are specific requirements, the option becomes necessary - Establish provisions for the treatment of unknown claims — rec. 51 — Effect: Increased functionality - Provide that non-affected parties are informed about the restructuring plan — rec. 51 — Effect: Increased reliability. Increased complexity. - Set the majority for the approval of a restructuring agreement (at or below the maximum of 75 percent) — art. 9.6 — Effect: Selection of the threshold is a trade-off between functionality and minority protection - Replace the voting requirement with an agreement — art. 9.7; rec. 43 — Effect: Increased functionality - Add more cases where confirmation of the plan is required, beyond those established in the Directive — art. 10.1; rec. 48 — Effect: Increased rigidity - Add more conditions to confirmation (beyond those required) — art. 10.2; rec. 50 — Effect: Increased rigidity - Design the cram-down requiring a majority of classes voting in favor of the plan; one class; or several classes — art. 11.1 — Effect: Selection of the number of classes in favor of the plan is a trade-off between functionality and minority protection - Require that the assessment of viability is done by the judicial or administrative authority ex officio — rec. 50 — Effect: Increased cost and complexity. Increased reliability. - Limit the requirement of the debtor’s agreement with the plan to SMES — art. 11.1 — Effect: Special treatment for SMEs - If requiring the consent of the debtor for adoption or confirmation of the plan, establish that the debtor is represented by the legal person’s management board or by a certain majority of shareholders or equity holders — rec. 53 — Effect: Increased clarity. - Introduce absolute priority or relative priority, with the possibility of including exceptions to absolute priority — art. 11.1; 11.2; rec. 55, rec. 56 — Effect: Increase or decrease creditor rights - Establish conditions to determine “payment in full” (timing and alternative payments) — rec. 56 — Effect: Possibility to decrease creditor rights - Define the elements of the best interests of creditors test, comparing the outcome in the plan with a) a piecemeal liquidation; b) a going concern liquidation; or c) “the next best alternative scenario” — art. 2; rec. 52 — Effect: Going concern liquidation increases creditor rights, while piecemeal liquidation reduces them. “Next best alternative scenario” lacks clarity. - If public creditors have priorities, provide that the plan cannot impose a full or partial cancellation of their claims — rec. 52 — Effect: Increase protection of public creditors - Introduce measures to avoid that shareholders block the approval or implementation of the restructuring plan — art. 12.3 — Effect: Increase functionality - Allow a valuation challenge to be lodged in the context of an appeal against a decision on confirmation — art. 14.3 — Effect: Increase creditor rights - Allow the decision of the judicial or administrative authority on valuation to be based on a valuation submitted by an expert, a creditor, or a third party — rec. 63 — Effect: Increase reliability; increase costs - Establish special rules for valuation, including rules on burden of proof — rec. 63 — Effect: Increase or decrease creditor rights - Determine the concept of “involved creditors” — rec. 64 — Effect: More than an option, it is a necessity. Different definitions will imply different levels of protection for creditors - Establish rules for the treatment of creditors who were notified correctly but did not participate in the process — rec. 64 — Effect: Completeness of the regime - Allow the appeal of a decision on the confirmation of a restructuring plan issued by a judicial authority; establish the grounds for appeal — rec. 65 — Effect: Increase or decrease creditor rights. Increase or decrease functionality - Allow the modification of the plan in case an appeal is upheld — rec. 65 — Effect: Increased functionality and flexibility. Potential reduction of creditor rights - Suspend the execution of the restructuring plan when there is an appeal — art. 15.3 — Effect: Increased functionality; reduced rights of parties. - Grant monetary compensation to the appealing party in some cases — art. 15.4; rec. 65 — Effect: Increased functionality ### New finance; protection and priority - Limit the protection of interim finance to cases where plans are adopted or confirmed — rec. 68 — Effect: Increased security; reduced flexibility - Introduce ex ante controls for interim financing — rec. 68 — Effect: Increased security; reduced flexibility - Provide priority to new finance — art. 17.4 — Effect: Increased functionality - Limit the protection of new finance or restructuring transactions to the cases where financial assistance has been subject to confirmation or ex ante control — art. 18.2 — Effect: Increased security; reduced flexibility - Establish a point in time prior to the opening of the procedure from which certain fees and costs benefit from protection against avoidance; for other payments and workers’ wages, establish that point at the opening of the procedure — rec. 69 — Effect: Increased security for finance providers - Exclude protection of new finance granted after the debtor is insolvent — art. 18.3 — Effect: Increased security; reduced flexibility - Include more transactions under the protective rules — art. 18.4 — Effect: Increased flexibility; reduced security ### Directors’ duties - Use the rules included in the Directive to establish directors’ liability — rec. 71 — Effect: Completeness; or connection with national law - Establish a hierarchy among the different parties whose interests need to be taken into account by directors — rec. 71 — Effect: Increased specificity. Increased complexity. ### Discharge of debts and personal insolvency - Define insolvency as over-indebtedness — rec. 73 — Effect: Connection with national law - Establish one procedure or several procedures for discharge — art. 20.1 — Effect: connection with national law - Require the debtor to request discharge — rec. 73 — Effect: Increased complexity; less favorable for debtors - Request the realization of assets, a repayment plan, or a combination of both — rec. 75 — Effect: Structural option – results in very different procedures, more or less favorable to debtors and creditors - Set different periods for discharge for different procedures — rec. 75 — Effect: Depends on the periods set for each procedure. - Set an earlier time than the confirmation of the repayment plan for the calculation of the discharge period — rec. 75 — Effect: More favorable to debtors - Establish that the concept of “opening of procedure” does not include preliminary measures — rec. 76 — Effect: Less favorable to debtors - Allow the insolvency estate to be formed without a formal decision — rec. 76 — Effect: Reduced complexity - Separate the request for discharge from the realization of assets in a liquidation procedure — rec. 77 — Effect: Reduced complexity; more favorable to debtors - Establish rules on the burden of proof regarding discharge — rec. 77; rec. 78 — Effect: Improve or worsen the position of debtors - Extend the discharge provisions to natural persons who are not entrepreneurs — art. 1 — Effect: Increased scope - Require that the economic activity of the debtor has ceased in order to access a discharge procedure — art. 20.1 — Effect: Connection with national law - Allow the debtor to continue the activity; if so, establish that a new insolvency procedure can be opened for that debtor — rec. 84 — Effect: Connection with national law - Maintain or introduce provisions allowing judicial or administrative authorities to verify that the debtor has fulfilled its obligations to get a discharge — art. 21.1; rec. 82 — Effect: Increased cost and complexity; curb abuse - Exclude discharge when the debtor has not complied with certain obligations — rec. 79 — Effect: Increased complexity; curb abuse - Provide that the discharge does not stop the insolvency procedure — art. 21.2 — Effect: Increased functionality - Maintain or introduce provisions denying or restricting access to discharge, or revoking discharge — art. 23.1; 23.2; 23.3; rec. 80 — Effect: Less favorable treatment for debtors; curb abuse - Provide for longer discharge or disqualification periods in some cases — art. 23.1; 23.2; 23.3 — Effect: Less favorable treatment for debtors; curb abuse - Request the debtor to submit a new application for a new license after disqualification — rec. 83 — Effect: Less favorable treatment for debtors - Exclude some debts from discharge — art. 23.4; rec. 81 — Effect: Less favorable treatment for debtors; special protection of special claims - Provide for the adjustment of repayment obligations where there are significant changes in the financial situation of the debtor — rec. 74 — Effect: Readjust the balance between creditors and debtors; increased complexity and functionality - Require that the repayment plan is supported by a majority of creditors — rec. 74 — Effect: Increased creditor protection; less favorable treatment of debtors - Allow debtors to start a new activity during the implementation of the repayment plan — rec. 74 — Effect: Connection with national law - Provide for longer or indefinite disqualification periods in certain cases — art. 23.5 — Effect: Less favorable treatment for debtors; curb abuse - Separate professional and personal debts, in coordinated procedures — art. 24.2; rec. 84 — Effect: Connection with national law ### Institutional framework: practitioners, courts, electronic systems - Establish training and experience as a prerequisite for judicial and administrative authorities, or allow to acquire training and experience in the exercise of their functions or other relevant duties — rec. 85 — Effect: Alternative models for qualification - Create specialized courts or chambers; appoint specialized judges; or concentrate jurisdiction in a limited number of courts or administrative authorities — rec. 86 — Effect: Alternative models for specialization - Prioritize insolvency cases over other cases — rec. 86 — Effect: Increased functionality - Allow practitioners to acquire suitable training, qualifications and expertise while practicing their profession — rec. 87 — Effect: Alternative model for qualification - Establish that training of IPs is provided by the state or by professional associations or other bodies — rec. 87 — Effect: Public or private models of training - Indicate who selects the insolvency practitioner (e.g. a debtor, creditor, creditor’s committee); and if it needs to be approved by a judicial or administrative authority — rec. 88 — Effect: Alternative selection models - Indicate means of objection to the selection of insolvency practitioner, or means to request the replacement of the insolvency practitioner — rec. 88 — Effect: Increased protection of parties - Provide that IPs are selected from list or pools pre-approved by a judicial or administrative authority — rec. 88 — Effect: Selection model with increased reliability - Establish random selection of IPs — rec. 88 — Effect: Selection model to prevent integrity issues; reduction of suitability of IPs. - Set up a special authority to supervise IPs — rec. 89 — Effect: Increased supervision - Create new professions or qualifications for IPs — rec. 89 — Effect: Increased qualification; reduced eligibility - Extend the provisions on the training and supervision of insolvency practitioners to other practitioners — rec. 89 — Effect: Increased qualification; reduced eligibility - Prioritize disputes over IPs remuneration over other disputes — rec. 89 — Effect: Unclear foundation - Encourage the adoption of codes of conduct for insolvency practitioners — art. 27.3 — Effect: Increased integrity - Establish mandatory use of electronic systems — rec. 91 — Effect: Reduced cost; risk of barrier to access - Allow or request the use of electronic means of communication for more cases than those included in the Directive — art. 28 — Effect: Reduced cost; risk of barrier to access - Provide that notifications can only be performed electronically if the creditor has previously consented to it — rec. 90 — Effect: Increased protection for creditors ### Data collection and statistics - Collect the optional data included in the Directive — art. 29.3 — Effect: More coverage; higher cost - Use samples to collect statistical data on restructuring and insolvency — art. 29.5 — Effect: Less cost; less reliability - Include a breakdown of procedures concluded before confirmation — rec. 92 — Effect: More coverage; higher cost *Source: ANNEX 1. TABLE OF IMPLEMENTATION OPTIONS UNDER THE DIRECTIVE (wpiea2021152-print-pdf).* ### REFERENCES ### REFERENCES ### Major themes covered - Preventive restructuring frameworks and the EU Preventive Restructuring Directive: - Arias Varona F.J., Niemi J., Hupli T., 2020, “Discharge and entrepreneurship in the preventive restructuring directive”, Int. Insolv. Rev.; 29, 8–31. - Ballerini, G., 2020, “The priorities dilemma in the EU preventive restructuring directive: Absolute or relative priority rule?” Int. Insolvency Rev. 20 November 2020; https://doi.org/10.1002/iir.1399 - Ehmke D.C., Gant J.L.L., Boon G., Langkjaer L., and Ghio E. 2019, “The European Union preventive restructuring framework: A hole in one?” Int. Insolv. Rev. 28, 1–26. - McCarthy, J. A., 2020, “Class Apart: The Relevance of the EU Preventive Restructuring Directive for Small and Medium Enterprises”. Eur. Bus. Org. Law Rev. - Zhang, D., 2019, “Preventive Restructuring Frameworks: A Possible Solution for Financially Distressed Multinational Corporate Groups in the EU”, Eur. Bus. Org. Law Rev. 20, 285–318. - Priority rules, creditor protection, and distributional effects: - de Weijs R.J., Jonkers A.L. and Malakotipour M., 2019, ‘The Imminent Distortion of European Insolvency Law: How the European Union Erodes the Basic Fabric of Private Law by Allowing ‘Relative Priority’ (RPR)’, Centre for the Study of European Contract Law Working Paper Series No. 2019-05. - de Weijs R, J., Jonkers A, Malakotipour M., 2019b, “A reply to Professor Madaus ‘The new European Relative Priority from the Preventive Restructuring Directive—The end of European Insolvency Law?”, 15 March 2019. https://corporatefinancelab.org - Seymour, J. M. and Schwarcz, S. L., 2021, “Corporate Restructuring under Relative and Absolute Priority Default Rules: A Comparative Assessment”, Duke Law School Public Law & Legal Theory Series No. 2019-84; U. ILL. L. REV., Forthcoming, Vol. 2021, No. 1. - Ballerini, G., 2020 (see above). - Early warning, interim financing, and out-of-court restructuring: - Balp, G., 2019, “Early Warning Tools at the Crossroads of Insolvency Law and Company Law”, Global Jurist Vol. 19; Issue 2, 22 Jan 2019. - de Weijs, R.J., and Baltjes, M., 2018, “Opening the Door for the Opportunistic Use of Interim Financing: A Critical Assessment of the EU Draft Directive on Preventive Restructuring Frameworks”, Int. Insolv. Rev., Vol. 27: 223–254. - Garrido, J. M., 2012, Out-of-court Debt Restructuring, A World Bank Study, Washington DC. - Carpus Carcea, M., Ciriaci, D., Cuerpo, C., Lorenzani, D., and Pontuch, P., 2015, The Economic Impact of Rescue and Recovery Frameworks in the EU, EC, European Economy Discussion Paper 004. - Procedural aspects, classes, stays, and cross-border coordination: - Cahir, B., and Quinn, M., 2020, Procedural aspects, Insol Europe Guidance Note, London. - Richter, T., and Thery, A., 2020, Claims, Classes, Voting, Confirmation and the Cross-Class Cram-Down, Insol Europe Guidance Note, London. - Schuijling, B., 2020, Stay of individual enforcement actions, Insol Europe Guidance Note, London. - Skauradszun, D., and Nijnens, W., 2019, “Brussels Ia or EIR Recast? The Allocation of Preventive Restructuring Frameworks”, International Corporate Rescue, Vol. 16, Issue 4, 193. - JCOERE Consortium, 2019, Report 1: Identifying substantive and procedural rules in preventive restructuring frameworks including the Preventive Restructuring Directive which may be incompatible with judicial co-operation obligations, Cork: JCOERE Project, University College Cork. Available at https://www.ucc.ie/en/jcoere/research/report1/ - Law-and-economics, comparative, and doctrinal analyses: - Eidenmüller, H., 2017, “Contracting for a European Insolvency Regime”, Eur Bus Org Law Rev 18, 273–304. - Eidenmüller, H., 2019, “The Rise and Fall of Regulatory Competition in Corporate Insolvency Law in the European Union”, Eur. Bus. Org. Law Rev. 20, 547–566. - Rotaru, V., 2019, The Restructuring Directive: a functional law and economics analysis from a French law perspective, Droit & Croissance / Rules for Growth Institute, Paris, France. - Tollenaar, N., 2019, Pre-Insolvency Proceedings: A Normative Foundation and Framework, Oxford University Press. - National perspectives, confidentiality, and specific country analyses: - Gassner, G., and Wabl, G., 2019, “The new EU Directive on restructuring and insolvency and its implications for Austria”, Insolvency and Restructuring International Vol 13 No 2, 5. - Vermeille, S., 2018, Perverse effects of the absolute rule of confidentiality applicable to French amicable settlement procedures serving as preventive restructuring frameworks, Droit et croissance/ Rules for Growth, Paris. - Vermeille, S., and Rotaru, V., 2019, La directive Restructuration: un texte sans socle intellectuel cohérent, mais une opportunité unique pour la France, Droit et croissance/ Rules for Growth, Paris. - Rotaru, V., 2019 (see above). ### Data, policy instruments, and IMF/EC contributions - IMF and EC analytical and policy-oriented pieces cited: - Bhatia, A. V., Mitra, S., Weber, A., Aiyar, S., Antoun de Almeida, L., Cuervo, C., Oliveira Santos, A., Gudmundsson, T., 2019, A Capital Market Union for Europe, IMF SDN 19/07. - Bergthaler. W., and Garrido, J., 2019, Corporate Insolvency and Debt Enforcement in the EU, Note 6, Background Notes for IMF SDN 19/07, 70-73. - Garrido, J. M. (dir.), Bergthaler, W., DeLong, C., Johnson, J., Rasekh, A., Rosha, A., and Stetsenko, N., 2019, “The Use of Data in Assessing and Designing Insolvency Systems”, IMF WP 19/27, https://www.imf.org/en/Publications/WP/Issues/2019/02/04/The-Use-of-Data-in-Assessing-and-Designing-Insolvency-Systems-46549 - Liu, Y., Garrido, J., and DeLong, C., 2020, Private Debt Resolution in the Wake of the Pandemic, Special Series on COVID-19, International Monetary Fund. https://www.imf.org/~/media/Files/Publications/covid19-special-notes/en-special-series-on-covid-19-private-debt-resolution-measures-in-the-wake-of-the-pandemic.ashx - European Commission (EC), 2014, Impact Assessment accompanying the Commission Recommendation on a New Approach to Business Failure and Insolvency, SWD (2014) 61 final. - EC, 2016, Impact Assessment accompanying the document “Proposal for a Directive of the European Parliament and the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU, {COM (2016) 723 final}. ### Practical guidance and practitioner-oriented notes - Guidance notes, best practices, and practitioner analyses: - Stanghellini, L., Mokal, R., Paulus, C., and Tirado, I., 2018, Best Practices in European Restructuring: Contractualised Distress Resolution in the Shadow of the Law, Wolters Kluwer. - Tollenaar, N., 2017, “The European Commission’s Proposal for a Directive on Preventive Restructuring Proceedings”, 30 Insolvency Intelligence, 65. - McCormack, G., 2017, “Corporate Restructuring Law – A second chance for Europe?”, European Law Review, 42(4), 532-561. - Eidenmüller, H., 2017 and 2019 entries (see above). *Source: wpiea2021152-print-pdf - REFERENCES* --- _Source: https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021152-print-pdf.pdf_