Commission welcomes political agreement on the proposal to harmonise certain corporate insolvency rules across the EU

The European Commission welcomes the provisional political agreement between the European Parliament and the Council on new rules to harmonise certain corporate insolvency rules across the EU, which the Commission proposed in December 2022. The new Directive aims at encouraging cross-border investment within the EU’s Single Market through targeted harmonisation of insolvency proceedings. In more detail, the new rules will target the three key dimensions of insolvency law: (i) the recovery of assets from the liquidated insolvency estate; (ii) the efficiency of procedures; and (iii) the predictable and fair distribution of recovered value among creditors. Several elements in the Directive improve the position of the creditors in insolvency proceedings, for example: harmonised standards on transaction avoidance will ensure the integrity of the business assets in the vicinity of insolvency; rules on asset tracing will provide for effective tools for insolvency courts or insolvency practitioners to locate and recover assets belonging to the insolvency estate; and creditors’ committees will protect the interests of the general body of creditors in complex insolvency proceedings. The Directive also includes innovative tools, in particular the so called “pre-pack proceedings’. These will complement national insolvency regimes with a modern and efficient mechanism that enables the sale of the business on a going concern basis in the context of liquidation proceedings. Selling a business on a going concern basis generates more proceeds for all creditors (compared to a scenario where the assets of the debtor have to be sold piece-by-piece), but it also contributes to preserving employment by keeping the business operational. The Council and European Parliament must now formally adopt [yesterday’s] political agreement. The Directive will enter into force 20 days after publication in the Official Journal. Member States will then have 2 years and nine months to transpose the Directive into national law.  More information can be found online.