New EU Proposal on Restructuring, what are the plans?

On November 22nd, 2016, the European Commission has launched a proposal on new uniform insolvency legislation. According to the Commission, companies in Europe should have more possibilities to re-launch their business. The new legislation aims to provide more possibilities to prevent bankruptcies. By doing so, employment would be maintained, creditors would face less depreciations on their assets and investors would be more willing to lend money to ailing businesses. The proposed law could be considered as Europe’s version of the American ‘Chapter 11”-procedure.

The Commission proposes a ‘time-out’ of 4 months with a maximum of one year for ailing businesses. During this time-out period, companies don’t need to pay off their debts and would be enabled to negotiate its debts with its creditors. After three years, all previous debt, if not paid-off yet according to the agreement, will be forgiven automatically.

The ailing business could also look for another investor to enable a successful re-launch during this time-out. These new investors would be granted additional protection as opposed to the prior investors. How this additional protection would look like, is unclear for the moment.

For now, the Commission has only drafted the plans. Consequences for the Netherlands will become clear when the plans are further carried out. Still, the proposed guideline is a rather interesting development, as the Netherlands is already drafting a proposal on this topic (WCO II), We keep an eye out on further developments and keep you posted.