As part of the ongoing capital markets union project to better integrate the EU’s financial systems, on Thursday 12 June in Luxembourg, European justice ministers reached a political agreement in principle (‘general approach’) on the proposal for a directive harmonising certain aspects of company insolvency law.
This compromise will allow interinstitutional negotiations to begin with the European Parliament.
According to Poland’s Minister of Justice, Adam Bodnar, who chaired the meeting, this is a major step forward, in that “this law represents an important advance in making the EU more attractive to investors”.
And he points out that the current divergences between national regimes can limit “investment decisions”.
The directive is expected to reduce these barriers by introducing common minimum standards, in particular through the widespread use of so-called ‘pre-pack’ mechanisms. This system enables the sale of a company to be prepared in advance, before pre-pack proceedings are formally opened, in order to maximise the value of its assets.
The European Commissioner for Justice, Michael McGrath, stressed that this mechanism makes it possible to sell a business as part of a liquidation procedure while protecting creditors. This is accompanied by the possibility of automatically transferring certain so-called “executory” contracts, essential to the continuation of the business, to the purchaser without the consent of the co-contractor. It is therefore a sensitive measure, but one that is backed up by contractual guarantees.
In addition, the text provides for the creation of creditors’ committees, in certain circumstances, to better involve creditors, especially the smaller ones, in the proceedings.
However, the EU Council has provided for a degree of flexibility to enable this obligation to be limited to companies of a significant size.
Several countries, including Belgium, have called for this measure to remain optional, while others, such as Lithuania and Italy, have seen it as an opportunity to improve the transparency and predictability of proceedings.
The directive also includes an emergency clause (Title IX), which draws lessons from the Covid-19 pandemic by authorising Member States to temporarily derogate from certain rules to prevent the systemic effects of massive insolvencies.
The Polish Presidency has stated that such a clause could also prove useful in the event of future economic shocks linked to climatic or geopolitical crises.
However, the compromise no longer includes the creation of a simplified winding-up procedure for micro-enterprises, initially provided for in Title VI. While some countries, such as Ireland, Finland and the Netherlands, welcomed this measure, other delegations, including France and Portugal, expressed their regret in a joint statement in which they felt that such a measure could have strengthened the competitiveness of this category of players.
Proposed in December 2022 (see EUROPE 13079/2) as part of the capital markets union package, the directive is intended to address the difficulties associated with the diversity of national insolvency regimes. The EU Council believes that it will reduce costs and legal uncertainty for cross-border investors. The Council can now begin discussions with the European Parliament (see EUROPE 13619/4).
See the ‘general approach’: https://aeur.eu/f/haz (Original version in French by Nithya Paquiry)