Since the global financial crisis, insolvency and restructuring law have been at the forefront of law reform initiatives in Europe and elsewhere. The specific topic of business rescue ranks top on the insolvency law related agenda of both the EU and national legislators faced by a rapid growth of insolvencies, which clearly highlighted the importance of efficient mechanisms for dealing with financially distressed, but viable businesses. For the European Law Institute (ELI), this fuelled the momentum to launch an in-depth project on furthering the rescue of such businesses across Europe. The European Law Institute, established in 2011, is an independent non-profit organisation established to initiate, conduct and facilitate research, make recommendations and provide practical guidance in the field of European legal development.
The aim of the project was to design (elements of) a legal framework that will enable the further development of coherent and functional rules for business rescue in Europe. This includes certain statutory procedures that could better enable parties to negotiate solutions where a business becomes financially distressed. Such a framework also includes rules to determine in which procedures and under which conditions a restructuring plan can be imposed upon creditors and other stakeholders despite their lack of consent.
The project had a broad scope and extended to consider frameworks that can be used by (non-financial) businesses out of court, and in a pre-insolvency context. The ELI appointed us as reporters. We were challenged to extend and deepen current thinking on corporate business rescue. As Europe stands at the doorstep of approximating existing insolvency and restructuring laws, we worked to develop a coherent system for the benefit of all involved stakeholders.
In the first week of September 2017, during the General Assembly and Annual Conference of the ELI in Vienna, the report ‘Rescue of Business in Insolvency Law’, was approved as an official ELI Instrument. The report consists of 115 recommendations explained on more than 375 pages. The report contains recommendations on a variety of themes affected by the rescue of financially distressed businesses. The report’s ten chapters cover: (1) Actors and procedural design, (2) Financing a rescue, (3) Executory contracts, (4) Ranking of creditor claims; governance role of creditors, (5) Labour, benefit and pension issues, (6) Avoidance transactions in out-of-court workouts and pre-insolvency procedures and possible safe harbours, (7) Sales on a going-concern basis, (8) Rescue plan issues: procedure and structure; distributional issues, (9) Corporate group issues, and (10) Special arrangements for small and medium-sized enterprises (SMEs) including natural persons (but not consumers). The report also includes a glossary of terms and expressions commonly used in restructuring and insolvency matters.
The report draws on National Inventory and Normative reports by National Correspondents (NCs) from 13 EU countries. In addition, Gert-Jan Boon, University of Leiden, prepared an inventory report on international recommendations from standard-setting organisations, such as UNCITRAL, the World Bank, the American Bankruptcy Institute or the Nordic-Baltic Business Rescue Recommendations, under the guidance of the reporters. Based primarily on these detailed reports, the second stage of the project consisted of drafting the ELI Instrument on Business Rescue.
We feel that the report is timely and may have a significant and positive impact on the harmonisation efforts of the European Commission as laid down in the November 2016 Proposal for a Directive on preventive restructuring frameworks. The proposals suggested in the report are intended to present tools for better regulation in the EU, developed in the spirit of providing a coherent, dynamic, flexible and responsive European legislative framework for business rescue. Mindful of the European Commission’s commitment to better legal drafting, the report’s proposals are formulated as comprehensibly, clearly, and as consistently as possible. Still, the recommendations are not designed to be overly prescriptive regarding specific outcomes, given the need for commercial flexibility and in recognition of the fact that parties will bargain in the ‘shadow of insolvency law’. The report is addressed to the European Union, Member States of the EU, insolvency practitioners and judges, as well as scholars.