The draft directive, presented in November 2016, establishing a single legal framework to deal with the insolvency of businesses (see EUROPE 11673) still has a long way to go before it is adopted. That is what came out of the discussions of EU justice ministers on Friday 8 December after they were asked to give their views on three key principles of the proposal: the viability of the debtor, cross-class cram-down and second chance for honest entrepreneurs.
After the meeting, Justice Commissioner Věra Jourová suggested that, after hearing about the need for flexibility 28 times, much work remains to be done.
The member states urged that greater flexibility be built into the proposal, underlining that it should not undermine national insolvency frameworks which work well.
Test of debtor viability. The Estonian Presidency of the Council proposed, as a starting point, bringing flexibility to the Commission proposal by giving member states the option of introducing or retaining a test of the viability of the debtor in their national law as long as its purpose is to exclude debtors with no prospect of viability and can be carried out without detriment to the debtor’s assets.
In the discussions, a consensus seemed to be forming even though some member states felt that the debate on the nature of the test needed to be further deepened. Germany would even go further and make this test compulsory for all member states.
Cross-class cram-down. Opinion is divided on the principle of a mechanism to guarantee that creditors and a dissenting minority of shareholders cannot impede adoption of the restructuring plan of a viable company.
The member states whose national systems do not have any such mechanisms expressed a degree of reticence, stressing that further technical-level work on this issue is required.
Belgium expressed its firm opposition, stating that, under its national law, there is only one class of creditors and fearing that compulsory introduction of a mechanism such as this might upset the balance of its system. The Czech Republic, which already has a similar mechanism within its legal framework, said that the added value of harmonising the mechanism across the EU would be limited. Luxembourg and Slovenia argued for the mechanism’s remaining optional.
Second chance for honest entrepreneurs. The requirement that member states allow the possibility in their national laws for indebted entrepreneurs to have their debts discharged after a defined period not exceeding three years will no doubt prove to be one of the main points of contention among the member states.
At this point, only Poland, Sweden, Latvia and Spain have come out in favour of a three-year maximum period. Others, such as Denmark, Ireland and Germany, have already made it clear that they want a longer period whereas Slovakia, Slovenia and the Czech Republic have proposed a period of five years. Lastly, some member states, including Malta and Hungary, took the view that there has not been enough discussion for any thought to be given to the length of the discharge period. (Original version in French by Marion Fontana)