Successful conclusion of trilogue negotiations.

On 19 November, the Danish Council Presidency and the European Parliament’s negotiators reached a provisional agreement on an EU directive harmonising certain aspects of insolvency law. Greater convergence of national insolvency frameworks is intended to make the EU more attractive for investors. At present, investors are required to take into account up to 27 different national insolvency regimes, whose divergent rules can lead to distortions of competition. Under the new EU insolvency framework, Member States will be required to apply the same (minimum) standards.

Objective: integrated European capital markets

The new standards focus primarily on measures aimed at maximising the value of the insolvency estate and increasing the efficiency of insolvency proceedings. This is intended to prevent unjustified depletion of the insolvency estate by the debtor and to facilitate asset tracing by insolvency practitioners. To this end, Member States will be required to designate courts or authorities that, upon request by an insolvency practitioner, may access centralised national account registers or databases. This will ensure that insolvency practitioners from other Member States have access to relevant asset-related information.

Simplified procedures

The directive also introduces a pre-pack procedure. This allows contracts that are essential for the continuation of the business to be transferred automatically from the debtor to the purchaser of the undertaking, without the consent of the debtor’s contractual counterparties. At the same time, it must be ensured that national social and collective labour rights of workers are not adversely affected.

Common rules for directors, creditors and transparency

In addition, the obligation of directors to file for insolvency in a timely manner is harmonised. Directors will be required to submit an application within three months of becoming aware of the company’s financial distress. The directive also introduces harmonised rules on creditors’ committees, which Member States will be required to establish. While creditors’ committees will in principle be mandatory, Member States may limit their application to large enterprises. To enhance transparency, Member States will furthermore be obliged to prepare an information sheet containing practical information on the key features of their national insolvency laws.

Avoidance actions: exemption for social security contributions

During the trilogue negotiations, the European Parliament strongly advocated for an exemption of social security institutions from avoidance actions. The background is that contributions paid to social security schemes may be clawed back by insolvency practitioners and added to the insolvency estate, thereby no longer being available for the performance of their intended social functions. In the trilogue, the proposal was critically discussed in light of concerns that such an exemption could imply a hierarchy of claims. Ultimately, however, consensus on this exemption was reached.

Next steps

Following the approval of the trilogue outcome by the Parliament’s Committee on Legal Affairs on 19 November, the agreement must still be formally adopted by the European Parliament and the Council. The directive will then be published in the Official Journal of the European Union. Member States will subsequently have two years and nine months to transpose the directive into national law.