Snapshot on the status of implementation of the EU Restructuring Directive in selected Member States and the new English scheme
Through the EU Restructuring Directive of 20 June 2019 (EUR 2019/1023, “Directive“), the European Union has imposed an obligation on the EU Member States to offer a more attractive and flexible restructuring scheme in their respective local law. The initial deadline to do so had been 17 July 2021. Only a handful of countries (most notably Germany and The Netherlands) had implemented the Directive within the initial deadline, whilst many other countries made use of the possibility to ask for a one year extension.
In April 2021, we published an overview of the status of implementation as the initial deadline approached (please see our newsletter here). In the last year, a number of additional countries have proceeded with implementation. Our latest update provides an update in key jurisdictions.
The Directive was in part a reaction to the forum shopping phenomenon observed with continental European companies in a financial crisis to restructure their debt under an English scheme of arrangement. The scheme of arrangement, which is not an insolvency process, offers the possibility to implement debt restructuring on the basis of a majority decision by the creditors. Under these rules, a single “hold-out” creditor is unable to block a reasonable restructuring plan if the majority of creditors approves it. Many European countries did not offer such a valuable possibility outside of an insolvency procedure. In many cases, insolvencies are value-destructive and lower the prospects of recovery for creditors.
For these reasons, the Directive made it mandatory for EU Member States to offer a “preventive restructuring framework” (“Framework“) for companies in a financially distressed situation when there is a likelihood of insolvency, with a view to preventing the insolvency and ensuring the viability of the company. Distressed companies should be given the possibility to restructure their debt under the protection of individual enforcement actions on the basis of the majority of the creditors’ decisions. Moreover, according to the Directive, new financing, interim financing and other restructuring-related transactions should be protected against avoidance actions in case the restructuring fails and the companies still file for insolvency.
Click the link below to read a high-level summary of the current status of the Directive’s implementation process in key jurisdictions.