Restructuring the European Business Enterprise: The EU Commission Recommendation on a New Approach to Business Failure and Insolvency

By Horst Eidenmueller and Kristin van Zwieten, University of Oxford

In 2014, the European Commission issued a recommendation on the design of restructuring laws in EU Member States (the “Restructuring Recommendation,” or RR). It was followed in 2015 by the enactment of a recast version of the European Insolvency Regulation (EIR). These initiatives were intended to be complementary: the former was designed to improve the procedures available under national law for the restructuring of business debtor liabilities; the latter to improve the efficacy of these procedures in cross-border cases. Both initiatives have been driven by the view that the existing legal infrastructure for (cross-border) business restructurings in Europe is inadequate.

In this paper, we critically review the RR and put it into the context of the reform of the EIR. We find that although the two initiatives were intended to be complementary, they do not dovetail perfectly: procedures of the kind contemplated in the RR will not necessarily be eligible to fall within the scope of the recast EIR, so as to benefit from its rules on recognition and enforcement in cross-border cases.

In relation to the RR, we find that the Commission is right to push towards some level of harmonisation in Member States’ restructuring laws – regulatory competition is not a sensible regulatory alternative. However, we criticise both the methodology and scope of the RR, which leaves significant room for residual diversity in Member States’ laws, and ignores the complicated interaction between Member States’ existing insolvency laws and the restructuring procedures contemplated by the Commission.

We also take issue with some of the substantive recommendations made for the design of such procedures, arguing that the Commission wrongly requires evidence of financial difficulties or a likelihood of insolvency as the entry test, and that the process it contemplates is susceptible to abuse by sophisticated financial creditors at the expense of outside creditors and/or the debtor. We propose an efficient debtor-in-possession (DIP) regime as an alternative that could be initiated regardless of a firm’s solvency provided that it is economically viable and that the filing is not abusive.

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