By Caitlyn Buchanan, 23rd August 2022
The European Union (Preventive Restructuring) Regulations 2022 recently came into effect with the intention of reducing barriers to cross-border investment and reducing the cost of insolvency while supporting efforts to reduce non-performing loans. EU member states were given until the 17th of July 2022 to transpose the Directive (EU) 2019/1023, amending the existing restructuring and insolvency frameworks. The minimum rules for preventative restructuring frameworks have been provided in order to remove barriers across the EU.
Objectives of EU Preventive Restructuring
The European Parliament brought in these regulations to ensure that EU viable enterprises who come into financially difficult situations have access to effective national preventive restructuring frameworks. These systems will ensure that viable entities can continue to operate and maintain employment. Implementation will result in an EU-wide framework that ensures effective restructuring processes at both a national and cross-border level.
Early Warning System and Director’s Duties
A major aspect of the Preventive Restructuring Regulations is the implementation of an early warning system and the Director’s duty to identify circumstances that could result in insolvency. Assistance will be provided to help debtors identify these circumstances allowing them to quickly take preventive actions.
This will result in many jurisdictions updating the Director’s Duties within their respective company Acts, requiring Directors to act in the interest of creditors, shareholders, and obligors. This is likely to include a requirement for directors to notify creditors during the period approaching insolvency.
Key Provisions for all EU States
The Preventive Restructuring Regulations sets out new rules which aim to create streamlined insolvency and restructuring processes across the EU. The following key measures are required:
- Preventive restructuring frameworks: Debtors will have access to preventive measures via a restructuring framework that enables restructuring. Restructuring could prevent insolvency and ensure the viability of the company or entity; this will allow business activity to continue and will protect the jobs provided by the entity. Restructuring frameworks will be available at the request of creditors and the employees’ representatives.
- Facilitating negotiations on preventive restructuring plans: In certain cases, a practitioner in the field of restructuring will be appointed to help in drafting a preventative restructuring plan.
- Restructuring plans: The new rules detail the following elements that must be included in a restructuring plan; a description of the economic situation, the affected parties, party classes, terms of the plan, etc.
- Stay of individual enforcement actions: A ‘stay of individual enforcement actions’ means that a temporary suspension may be granted by a judicial or administrative authority. Debtors may benefit from a ‘stay of individual enforcement actions’ to allow negotiations of a restructuring plan in the preventive restructuring framework. The initial duration of a ‘stay of individual enforcement actions’ will be limited to no more than four months.
- Discharge of debt: Entrepreneurs who are over-indebted will have access to at least one procedure that can lead to a full discharge of their debt after a maximum period of 3 years. The conditions to the discharge of debt are set out within the directive.
Once each EU Member State has implemented the European Union (Preventive Restructuring) Regulations 2022 into their national laws, entities are likely to see more support and assistance to prevent insolvency. Companies operating across borders will benefit from a unified approach to preventing insolvency across the EU.
If you have any questions regarding how to prevent the insolvency of an EU entity or if you need assistance registering a company in the EU, please contact the experts at Euro Company Formations. Contact us today or call + 353 (0) 1 6461627 to get started!