Implementation of EU Restructuring Directive – Room for policy decisions?

The clock for implementation of the Restructuring Directive has started to tick, and we expect that – at least in those EU Member States where no preventive restructuring framework is available yet – restructuring specialists employed with credit institutions will be invited to express their views in the context of national legislative proceedings.

The Restructuring Directive¹ leaves several important matters up for determination by Member States – some of which are close (or tantamount) to policy decisions. For instance:

• the 'likelihood of insolvency' and 'viability' (i.e. benchmarks qualifying a debtor for access to a preventive restructuring framework) could, in principle, be defined either (A) in substantive/corporate finance terms (e.g. by reference to a liquidity or balance sheet test), or (B) procedurally/by reference to business judgment (demonstrated e.g. in the form of support to the opening of a preventive restructuring proceeding expressed by a sufficient quantum of affected lenders); in in terms of policy choices, the first option would appear to favour legal certainty and predictability and the second would translate into increased flexibility;
• similarly, when defining the scope of 'restructuring measures' (i.e. changes to the composition of debtor's assets/liabilities which become binding on the debtor and the relevant stakeholders if supported by the requisite majority), the national legislator will likely face a trade-off between (A) introducing a broad toolbox – addressing the unpredictable nature of restructuring scenarios – and (B) ease of execution (as complex measures may require substantive involvement on the part of court/public authority);
• also, when imposing mandatory involvement of 'gatekeepers' (national courts and/or administrative authorities), and crafting the confidentiality regime applicable to preventive restructurings, the national legislators will pivot between (A) the wish to preserve general market transparency, and (B) the need to minimise disruption to the business of the debtor seeking to resort to a preventive restructuring (which may result from unwanted negative publicity prompted by e.g. the requirement that the opening of a preventive restructuring process must be made public).

Helpfully, some experience in this respect is already available in the region: certain Member States have – ahead of adoption of the Restructuring Directive – implemented similar (or functionally equivalent) regimes. We invite readers to take a look at the snapshot in the insolvency and restructuring section.

¹'Restructuring Directive' means: Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132