On Wednesday 26 September, the ambassadors of the member states of the EU (Coreper) gave their blessing to the compromise text on the proposed directive establishing a single legal framework to deal with corporate insolvency (see EUROPE 11673), a European diplomat has confirmed. The text will be put before the European justice ministers for adoption at their meeting of 11 October.
Readers may recall that the member states had already agreed, in June of this year (see EUROPE 12033), on a 'partial general approach' relating only to Titles III (second chance for entrepreneurs), IV (measures to increase the effectiveness of proceedings), V (monitoring procedures) and various definitions in Title I, for instance the definitions of “entrepreneur” and “debt forgiveness”.
In a document dated 24 September, the Austrian Presidency of the Council of the EU tabled a compromise covering the whole of the text, on the basis of earlier ministerial discussions (see EUROPE 11922).
Debtor viability test. On access to a preventative restructuring framework, the text adopts the proposal of giving the member states the option to introduce or maintain debtor viability tests in their national laws, as long as the evaluation aims to exclude debtors with no prospect of viability and can be carried out without harming the assets of the debtor (see EUROPE 12023).
Temporary suspension of procedures. On the proposal to allow temporary respite for the debtor, in the form of a suspension from proceedings, to support the success of negotiations on the restructuring plan, the compromise text stipulates a maximum period of four months, which may be extended by a judicial or administrative authority up to 12 months.
However, the text stresses that as these are maximum limits, the member states are authorised to introduce shorter suspensions.
Readers may recall that the European Parliament, which reached its negotiating position in July (see EUROPE 12054), set the same maximum period, with the option to extend for up to ten months.
As regards the lifting of the suspension by a court, the Austrian compromise provides for this option if the suspension no longer responds to the initial objectives, when it creates unfair damage to the creditors or if provided for by national law.
The member states are also authorised to limit the possibility to apply for the suspension to be lifted when creditors have not had the option to be heard.
Cross-class cram-down. The principal of a mechanism aiming to ensure that dissenting creditors and minority shareholders cannot hinder the adoption of the restructuring plan of a viable company was the subject of considerable differences of opinion, particularly as this is a novelty for many member states.
To respond to the concerns expressed, the Presidency has also proposed to give member states the option to introduce a relative priority rule to protect dissenting classes of creditors when using this type of mechanism. This option requires the categories of dissenting voters to be treated at least as favourably as any other category of the same rank - if applying the normal classification of priorities under national liquidation law - and more favourably than any lower category.
Although certain member states feel this solution does not offer much flexibility, the Presidency nonetheless reported that it won the support of a broad majority. (Original version in French by Marion Fontana)