Restructuring Directive in EU. Is it a revolution
or just a development?
14 czerwca 2019

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For a long time, the need to harmonize the law on insolvency has been widely recognized. The United Nations Commission on International Trade Law (UNCITRAL), recognizing the importance of this field of law, developed legislative recommendations regarding bankruptcy and restructuring law. They are included in the following documents: Legislative Guide on Insolvency Law, consisting of two substantive parts: Part One. Designing the Key Objectives and Structure of Effective and Efficient Insolvency Law and Part Two. Core Provisions for an Effective and Efficient Insolvency Law (New York 2005) and finally in the UNCITRAL Legislative Guide on Insolvency Law. Part three: Treatment of enterprise groups in insolvency (New York 2012). The recommendations of UNCITRAL do not aim to become an explicit element of a given legal order. They rather express proposals for the desired legal solutions in the area of ​​bankruptcy law. They can also become a starting point for discussions on the shape of bankruptcy law. Importantly, UNCITRAL recommendations refer primarily to issues related to the national bankruptcy law, and thus to the complex of material, procedural and systemic norms (in the scope of organization of the judiciary).

 

UNCITRAL defines the main objectives of modern and effective bankruptcy and restructuring law. These include ensuring legal certainty in the market to support economic stability and economic growth; maximizing the value of assets; maintaining a balance between liquidation and restructuring (according to UNCITRAL, modern bankruptcy law should provide for restructuring and liquidation procedures); ensuring equal treatment of creditors with a similar legal situation (the so-called pari passu principle); ensuring timely, efficient and impartial insolvency; providing a transparent and predictable bankruptcy law that provides incentives for collecting and providing information; recognition of existing creditors' rights and establishing transparent rules for the order of satisfaction of debts.

 

The global standard of bankruptcy law is the easy availability of the creditor to the bankruptcy law procedures, regardless of whether they are aimed at liquidation or restructuring.

 

The unification trends of the law on insolvency are also visible in the European Union.

 

It is worth noting the Commission's recommendation of 12 March 2014 on a new approach to failure in business and insolvency (2014/135 / EU), Of. Jour.. EU L 74/65. As set out above in recital 1, the objective of the Recommendation is to ensure that profitable companies in financial difficulties, irrespective of where they are located within the Union, have access to national insolvency frameworks that enable restructuring at an early stage to prevent their insolvency, thus ensuring the maximization of total value for creditors, employees, owners and for the whole economy. The recommendation also aims to enable honest entrepreneurs who have been declared bankruptcy to take a second chance within the Union. "Another document that should also be mentioned is the European Parliament Resolution of 15 November 2011 containing recommendations to the Commission on bankruptcy proceedings in the context of company law in the EU,

 

European Commission in a written statement dated November 22, 2016 COM (2016) 723 final, 2016/0359 (COD) submitted a proposal for the adoption of a Directive of the European Parliament and Council concerning the legal framework for preventive restructuring, second chance and measures to increase the effectiveness of restructuring, bankruptcy and redemption proceedings and amending Directive 2012/30 / EU (hereinafter called “Restructuring Directive”).

 

At the session on 28/03/2019 The European Parliament adopted the text of the Restructuring Directive at first reading. http://www.europarl.europa.eu/doceo/document/TA-8-2019-0321_EN.html#title1.

 

The general objective of the research is - firstly - a critical analysis of the provisions of the draft Restructuring Directive, the course of legislative work (including, inter alia, submitted opinions to the draft), and finally the final version of the legal act. The aim of the research is also to identify areas of restructuring law which are not covered by the scope of the Restructuring Directive, and which - in the long run - would require harmonization (critical analysis of de lege ferenda applications). Secondly, a part of the research, should be the issue of the impact of the Restructuring Directive on the Polish Restructuring Law. Critical analysis will cover possible directions of implementation of the Restructuring Directive to Polish law. In the absence of coming Restructuring Directive into force, the substitute aim of the research will be to analyze the need and possibilities of approximation (harmonization) of the restructuring law of the Member States in the future. See. R. Adamus, Uniform European Restructuring Law de lege ferenda, in: Impact of Europeanisation of law on commercial law institutions, edited by J. Kruczalak - Jankowska, Warsaw 2013, pp. 451 - 460, R. Adamus, Contract law and bankruptcy law according to recommendations of UNCITRAL, Rejent no. 6/2013, pp. 9-26, R. Adamus, World Bankruptcy Law standards and the interests of the bank as a bankrupt bankrupt, Monitor Prawa Bankowego No. 5/2013, pp. 61-74, R. Adamus, Problems of the Uniform bankruptcy law and European Union law, Przegląd Ustawodawstwa Gospodarczego, No. 10/2014, pp. 2-11, R. Adamus, Restructuring law. Commentary, ed. 2, Warsaw 2019, pp. 7-8. H. Eidenmuller, The Oxford Handbook of Corporate Law and Governance, edited by J.N. Gordon, W.-G Ringe Oxford University Press, 2018, p. 1036, G. Lo Schiavo, The Role of Financial Stability in EU Law and Policy, Kluwer Law International B.V., 2016, p. 217, R. de Weijs, M. Baltjes, Opening the Door for the Opportunistic. Use of Interim Financing: A Critical Assessment of the EU. A Directive on Preventive Rest Frameworks, International Insolvency Review May 2018.

 

The main objective of the Restructuring Directive is to eliminate the biggest obstacles that arise from the differences in the Member States' restructuring and bankruptcy laws and seriously hamper the free movement of capital. The legislative ratio legis is that all Member States should have the main principles for an effective preventive and second chance framework and measures that would make it possible to increase the efficiency of any insolvency proceedings by reducing, improving their quality and reducing their costs, etc. It is difficult to overestimate the importance of this legal act for the economy. In the opinion of the project promoters, such a legal framework is intended, in particular, to increase investment opportunities and job creation opportunities in the common market, reduce unnecessary liquidation of viable enterprises, avoid unnecessary job losses, reduce the growth of troubled loans, facilitate cross-border restructuring, reduce costs and increase opportunities Re-launch of operations by honest entrepreneurs (statement of the European Commission of November 22, 2016. COM (2016) 723 final, 2016/0359 (COD).

 

The Restructuring Directive aims to develop a culture of saving enterprises in the EU. The rules regarding company restructuring and shareholders’ rights will first and foremost have a preventive effect, the rules for declaring acts ineffective, managers established as part of bankruptcy proceedings and judicial and administrative authorities will contribute to the recovery of debts, and second chance rules for debt relief. In addition to economic profits, the proposed changes will have positive social effects. (statement of the European Commission of November 22, 2016. COM (2016) 723 final, 2016/0359 (COD)) From the point of view of the current Polish regulation (in particular referring to the conversion model of receivables for shares), it is important that the Restructuring Directive puts a lot of emphasis on the rights of shareholders of the restructured company.

 

It should be underlined that the Restructuring Directive identifies common objectives, in the form of general principles or, where appropriate, targeted detailed rules. On the one hand, the Restructuring Directive is to contribute to achieving the necessary coherence of the legal framework throughout the EU. On the other hand, the Restructuring Directive at the same time provides Member States with expected flexibility in the field of achieving objectives by applying general principles and targeted rules in a manner that is appropriate due to national circumstances (statement of the European Commission of November 22, 2016. COM (2016) 723 final, 2016/0359 (COD).

 

From the Polish law perspective, it is important that it had been stressed that some Member States already have elements of a well-functioning legal framework (inter alia in Poland). The aim of the Restructuring Directive is not to intervene where good solutions exist, but to set up a common EU-wide framework to ensure effective restructuring and a second chance and efficient procedures at both national and cross-border levels. (statement of the European Commission of November 22, 2016. COM (2016) 723 final, 2016/0359 (COD).

 

The thesis has been put forward that the stimulation of job creation and growth in Europe requires a more developed corporate rescue culture that will support the restructuring and continuation of profitable businesses, while enabling the quick liquidation of those enterprises that have no chance of survival, and gives honest enterprises in a difficult situation, a second chance. The directive is to constitute an important step towards such a change in culture (statement of the European Commission of November 22, 2016. COM (2016) 723 final, 2016/0359 (COD).

 

A detailed research goal is to assess whether the proposed detailed solutions of specific legal provisions correspond to the adopted initial assumptions. Another hypothesis is the scope of necessary changes in the Polish restructuring law for the implementation of the Restructuring Directive.

 

In the preamble of the Restructuring Directive, it was pointed out that currently in Europe more than half of entrepreneurs do not work for more than five years. In such circumstances the legal system has a significant impact on economic relations. So-called second chance policy implemented by modern legislation allows to avoid bankruptcy and create economic reactivation of entrepreneurs. In this way, the loss of extremely valuable potential is avoided.

 

Good restructuring law is a remedy for the difficult time of structural crisis as well as a valuable tool during the general bull market.

 

What is really important, by virtue of Restructuring Directive the whole philosophy of law on insolvency changes in a very decisive way.

 

According to the preamble of the Restructuring Directive, there are serious differences between Member States’ law regarding the availability of a second chance. This fact may encourage overly indebted entrepreneurs to move to another country to benefit from shorter periods or more attractive debt cancellations, which increases legal uncertainty and increases the cost of debt recovery for creditors (forum shopping). In addition, the effects of bankruptcy, in particular social stigma, legal effects, such as depriving entrepreneurs of the right to take up and doing business, and the continuing inability to repay debt are important disincentives for entrepreneurs wishing to start a business or take a second chance, even if there is evidence that entrepreneurs who have previously declared bankruptcy are more likely to succeed in doing business. Therefore, by virtue of the Restructuring Directive, necessary steps should be taken to reduce the adverse effects of excessive indebtedness and bankruptcy for entrepreneurs, in particular by introducing the possibility of a full debt cancellation after a certain period of time and by shortening the period of operating ban imposed due to the debtor's over-indebtedness.

 

 

Regulating the restructuring issues at the level of the European Union directive will also be an important step to approximate the law of the Member States in the field of restructuring. The Restructuring Directive will necessitate changes to the "young" Polish Restructuring Law.

 

Therefore, the Restructuring Directive is a milestone step - in the cross-border dimension - in the development of the restructuring law.

 

It should be stresses that the Restructuring Directive consists of three separate main parts: a preventive restructuring framework (Title II) and a second chance for entrepreneurs (Title III) and measures to increase the effectiveness of measures for restructuring, bankruptcy and second chances (Title IV). In fact Titles I, IV, V and VI have a typical horizontal range (statement of the European Commission of November 22, 2016. COM (2016) 723 final, 2016/0359 (COD).

 

Title I “General provisions”: contains typical provisions on the scope of application, both subject and subjective, several definitions and a provision on the availability of early warning instruments for debtors, both legal persons and natural persons engaged in commercial, business or professional activities – entrepreneurs (statement of the European Commission of November 22, 2016. COM (2016) 723 final, 2016/0359 (COD).

 

Title II Legal framework for preventive restructuring: introduces common basic elements of the preventive restructuring framework in order to provide debtors in financial difficulties with both legal and physical persons effective access to procedures facilitating early negotiations on restructuring plans, their acceptance by creditors and possible confirmation by a judicial or administrative body. (statement of the European Commission of November 22, 2016. COM (2016) 723 final, 2016/0359 (COD).

 

Admittedly, the provisions of Title III are limited to traders (entrepreneurs), but it expressly states that Member States may extend these provisions to all natural persons to ensure consistent treatment of private debt. In several Member States (for example in Poland), there is practically no distinction between private debts which arose in the course of an economic activity and debts which have not arisen in the course of such activities. Nothing in this Restructuring Directive indicates that such a distinction is appropriate or should be made. The Directive encourages Member States to apply the same second chance rules to all individuals (statement of the European Commission of November 22, 2016. COM (2016) 723 final, 2016/0359 (COD).

 

The essential content of the Restructuring Directive is based on four directional issues:

  1. a preventive restructuring framework;
  2. a second chance for entrepreneurs;
  3. measures to increase the effectiveness of measures for restructuring, bankruptcy and second chances;
  4. other issues requiring harmonization.

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