The Justice Council, which took place in Brussels on Friday 7 March opened with a policy debate about a proposed directive to harmonise certain aspects of insolvency law. This initiative, which is part of the Capital Markets Union action plan, aims to simplify the legal framework for cross-border investors faced with different sets of national regulations.
The ministers mainly discussed the introduction of pre-negotiated transfer procedures, known as ‘pre-pack proceedings’, in all Member States. The aim is to organise the sale of a company in difficulty before pre-pack proceedings are formally opened, in order to ensure continuity of the company and maximise value for creditors.
The automatic transfer of executory contracts from the debtor to the buyer without the consent of the debtor’s counterparty has crystallised the debates.
The Minister of Justice, Adam Bodnar, who chaired the meeting, said at the outset: “We need a solid framework that guarantees fair, predictable and effective pre-pack proceedings in all Member States”.
The aim is to “strike a balance between the justified limits of contractual freedom and the interests of the other parties”.
The German minister, Volker Wissing, opposed the automatic transfer of contracts, arguing that “the freedom of those who wish to choose their contractual partner should be protected”.
He also noted that when contracts and legal relationships are transferred as part of a sale, the economic results are the same as in the case of restructuring. However, the same guarantees are not provided for the parties concerned. The mechanism also jeopardises workers’ rights, particularly in the event of company transfers.
Belgium’s Permanent Representative to the EU, Peter Moors, nevertheless defended the automatic transfer of contracts, saying that “it is essential that contracts that are necessary for the continuation of the business are automatically transferred. The automatic nature of the transfer is at the heart of the pre-pack proceedings”.
Spain’s Minister of Justice, Felix Bolaños García, explained the benefits of the scheme for safeguarding jobs: “We believe it is essential to ensure that the business can be maintained as a going concern, as this creates benefits for all market operators”.
In addition, countries such as Finland and Slovenia have expressed reservations about the infringement of contractual freedom.
According to the Finnish Minister of Justice, Leena Meri, “these transactions fall under freedom of contract (...) We don’t need legislation on the automatic transfer of contracts”.
The European Commissioner for Justice, Michael McGrath, pointed out that “freedom of contract is not absolute in nature”, citing national examples of existing restrictions.
Finally, the issue of Title VI, relating to the simplified liquidation of micro-businesses, was also discussed.
Ireland, Sweden and the Netherlands argued for it to be abolished, while Italy and France remained in favour.
France’s permanent representative, Philippe Léglise-Costa, said “SMEs represent a major part of the industrial fabric of Member States. We need simple, uniform, Europe-wide rules”.
The Polish Presidency of the Council of the EU is committed to continuing technical work in order to reach a compromise on this text, upon which a partial political agreement was reached last December (see EUROPE 13545/1), under the Hungarian Presidency. (Original version in French by Nithya Paquiry)