BAKGRUNN (fra kommisjonsforslaget)

This initiative, announced in September 2020, is part of the Commission’s priority to advance the Capital Markets Union (CMU), a key project to further financial and economic integration in the European Union 1 .

The lack of harmonised insolvency regimes has long been identified as one of the key obstacles to the freedom of capital movement in the EU and to greater integration of the EU’s capital markets. In 2015, the European Parliament, the Council, the Commission and the European Central Bank (ECB) jointly identified insolvency law as a key area for achieving a ‘true’ CMU 2 . This has also been the consistent view of international institutions, such as the International Monetary Fund (IMF) and numerous think tanks. In 2019, the IMF identified insolvency practices as one of ‘the three key barriers to greater capital market integration in Europe’, alongside transparency and regulatory quality. The ECB has repeatedly stressed the need “to address the major shortcomings and divergence between insolvency frameworks [..] beyond the draft Directive on Insolvency, Restructuring and Second Chance since ‘more efficient and harmonised insolvency laws [alongside other measures] can improve certainty for investors, reduce costs and facilitate cross-border investments, while also making risk capital more attractive and accessible to companies 3 .

Insolvency rules are fragmented along national lines. As a result, they deliver different outcomes across Member States, and in particular they have different degrees of efficiency in terms of the time it takes to liquidate a company and the value that can eventually be recovered. In some Member States, this leads to lengthy insolvency procedures and a low average recovery value in liquidation cases. Differences in national regimes also create legal uncertainty as regards the outcomes of insolvency proceedings and lead to higher information and learning costs for cross-border creditors compared to those who only operate domestically.

Outcomes of insolvency procedures differ substantially across Member States, with the average recovery time ranging from 0.6 to 7 years and judicial costs ranging between 0 to above 10%. The average of recovery values of corporate loans in the EU was 40% of the amount outstanding at the time of the default and 34% for small and medium-sized enterprises (SMEs) as of 2018 4 . Low recovery values, long insolvency procedures and high costs for the procedures do not only have an impact on the efficiency of a company’s liquidation. They are also a primary consideration for investors or creditors when determining the level of the risk premium they expect to recoup in an investment. The less efficient the insolvency regime is, the higher the premium investors would charge, everything else being constant. A high-risk premium increases the cost of capital for the company and, if the risk is particularly high, dissuades investors from providing credit. This in turn limits the choice of funding available to the company and more generally limits its ability to source affordable funding to expand its operations.

10 to 20 per cent of the 120,000 to 150,000 annual insolvency cases in the EU contained a cross-border provision of credit. Diverging insolvency regimes across the EU represent a particular problem for cross-border investors, who have to potentially consider 27 different insolvency regimes when assessing an investment opportunity outside their home Member State. The playing field is not level, with similar investments in Member States with more efficient insolvency regimes being seen as more attractive than in Member States with less efficient insolvency regimes, thus creating a significant obstacle to the cross-border flow of capital and to the functioning of the single market for capital in the EU. Companies in Member States with more efficient insolvency frameworks are also likely to get access to cheaper funding, putting them at a competitive advantage compared to companies from other Member States. Moreover, divergent insolvency regimes across Member States dissuade investors from considering investments in Member States whose legal systems those investors are less familiar with. This is particularly the case for those investors who lack the resources to assess 27 different insolvency regimes. This reduces the overall potential for cross-border investment in the EU, limiting the depth and breadth of the EU capital markets and undermining the overall success of the CMU project.

The ongoing energy crisis and the limited fiscal space for public subsidies may result in an increase in business exits in the future. More companies may experience conditions where their debt level turns out to be unsustainable. Moreover, the latest economic developments show that the EU economy is still vulnerable to sizeable economic shocks and distress. If the latter were to happen, more efficient and better-aligned insolvency rules in the EU would increase the absorption capacity of such shocks. They would also help limit the negative impact (and costs for investors) of disorderly winding-down operations. In the baseline scenario, insolvency cases will continue to challenge the capacity of judicial systems, but no solutions would be implemented to address the problems of long and inefficient proceedings, lower recovery values and ultimately lower credit provision and structural adjustment in the economy.

The absence of more convergence in insolvency regimes will mean that the level of cross-border investment and cross-border business relationships would not reach its potential.

Action at EU level is needed to substantially reduce the fragmentation of insolvency regimes. It would support the convergence of targeted elements of Member States’ insolvency rules and create common standards across all Member States, thus facilitating cross-border investment.

Measures at EU level would ensure a level playing field and avoid distortions of cross-border investment decisions caused by lack of information about and differences in the designs of insolvency regimes. This would help to facilitate cross-border investments and competition while protecting the orderly functioning of the single market. Since divergences in insolvency regimes are a key obstacle to cross-border investment, addressing this obstacle is crucial to realising a single market for capital in the EU.

Consistency with existing policy provisions in the policy area

This proposal is fully coherent with other EU pieces of legislation in the policy area, notably the Directive (EU) 2019/1023 of the European Parliament and of the Council 5 and Regulation (EU) 2015/848 of the European Parliament and of the Council) 6 , as it addresses problems, which the other existing legislations do not tackle. This EU action therefore addresses a genuine legislative gap.

Directive (EU) 2019/1023 is an instrument of targeted harmonisation, which focused on two specific types of procedure: pre-insolvency procedures; and debt discharge procedures for failed entrepreneurs. Both procedures were new and had been absent from the national insolvency frameworks of the majority of the Member States. Preventive restructuring procedures (Title II of Directive (EU) 2019/1023) are schemes which are available for debtors in financial distress before they become insolvent, i.e. when there is only a likelihood of insolvency. They are based on the fact that there is a much greater chance of saving ailing businesses when tools for restructuring their debts are accessible to them at a very early stage, before they become definitively insolvent. The minimum harmonisation standards of Directive (EU) 2019/1023 on the preventive restructuring frameworks only apply to businesses that are not yet insolvent and pursue the very aim of avoiding insolvency proceedings for businesses that can still be returned to viability. They do not address the situation where a business becomes insolvent and has to undergo insolvency proceedings. Similarly, the minimum standards on the second chance for failed entrepreneurs (Title III of Directive (EU) 2019/1023) do not address the way insolvency proceedings are conducted. They instead relate to the discharge of debts for insolvent entrepreneurs as a consequence of insolvency and could be described as a regulation of post-insolvency effects that, however, does not harmonise insolvency law itself.

Regulation EU) 2015/848 was adopted on the legal basis for judicial cooperation in civil and commercial matters (Article 81 TFEU) 7 . Regulation (EU) 2015/848 introduced uniform rules on international jurisdiction and applicable law that – for cases of cross-border insolvency – determined in which Member State the insolvency proceedings have to be opened and which law is to be applied. In parallel, there were uniform rules that ensured that the judgments taken by the courts having jurisdiction in these cases are recognized, and if needed, enforced in the territory of all Member States. Regulation EU) 2015/848 has no impact on the content of national insolvency law. It determines the applicable law but does not prescribe any features or minimum standards for that law. Therefore, it does not address the divergences across the Member States’ insolvency laws (and the resulting problems and costs).       

Consistency with other Union policies

This Proposal is fully coherent with the Commission’s priority of advancing the CMU and, in particular, with Action 11 of the CMU Action Plan and the subsequent Commission Communication on the CMU. The CMU Action Plan from 2020 8 announced that the Commission would take a legislative or non-legislative initiative for minimum harmonisation or increased convergence in targeted areas of non-bank corporate insolvency law to make the outcomes of insolvency proceedings more predictable. On 15 September 2021, in her letter of intent 9 aaddressed to the Parliament and the Presidency of the Council, President Von der Leyen announced an initiative on harmonising certain aspects of substantive law on insolvency proceedings, which has been included in the 2022 Commission work programme 10 . The Commission Communication on the CMU, published in November 2021, announced a forthcoming Directive, possibly complemented by a Commission Recommendation, in the area of corporate insolvency 11 .

The proposal is also fully coherent with the targeted country specific recommendations in the European Semester context to improve the efficiency and speed of national insolvency regimes, which have led to insolvency reforms in some Member States.  

The proposal is also coherent with Council Directive 2001/23/EC 12 , as it does not interfere with the principle that employees do not keep their rights when the transfer is undertaken as part of insolvency proceedings. Article 5(1) of Directive 2001/23/EC in particular states that, unless Member States provide otherwise, Articles 3 and 4 on the safeguarding of employees’ rights in the case of a transfer of ownership of a company shall not apply where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the transferor’s assets and are under the supervision of a competent public authority. The proposal is fully coherent with this provision when regulating ‘pre-pack proceedings’ 13 . In line with the judgement by the Court of Justice of the European Union in the ‘Heiploeg’ case 14 , this proposal clarifies in particular that the liquidation phase of pre-pack proceedings must be considered as a bankruptcy or insolvency proceeding instituted with a view to the liquidation of the assets of the transferor under the supervision of a competent public authority for the purpose of Article 5(1) of Directive 2001/23/EC.

The proposal is also coherent with the Directive 2004/35/EC of the European Parliament and of the Council 15 , which aims to limit the accumulation of environmental liabilities and to ensure compliance with the ‘polluter pays’ principle. Directive 2004/35/EC obliges Member States to take measures to encourage the development of financial security instruments and markets by the appropriate economic and financial operators, including financial mechanisms in case of insolvency, with the aim of enabling operators to use financial guarantees to cover their responsibilities under Directive 2004/35/EC. These mechanisms aim to ensure that claims will be served even in cases where the debtor becomes insolvent. The proposal does not interfere with those measures under Directive 2004/35/EC. On the contrary, a more efficient insolvency framework would support a speedier and more effective recovery of asset value overall and hence would facilitate the compensation for environmental claims against an insolvent company even without having recourse to financial security instruments, in full consistence with the aims of Directive 2004/35/EC.

Finally, this proposal will help more entrepreneurs benefit from debt discharge, as insolvency procedures against microenterprises will be initiated more easily and conducted in a more efficient manner. This is in line with the objective of the SME relief package announced by President Von der Leyen in September 2022 in her State of the Union speech.