Editorial | Restructuring Directive
- Gamechanger or damp squib? It is a project that has been two years in the making - the implementation of the Restructuring Directive. In force since June 2019, the Restructuring Directive required implementation into national laws, with the option of a one-year extension, by 17 July 2021. The COVID crisis and the ensuing economic turmoil has added urgency to the project that seeks to make it easier for businesses to pre-emptively restructure their liabilities. However, governments have had their hands full with short-term troubleshooting and did not focus on the implementation of the Restructuring Directive. While most countries imposed some sort of moratorium on the repayment of loans and some even altered their insolvency laws to prevent a "wave" of insolvencies, only two countries, Austria and Hungary, have implemented the Restructuring Directive on time. In Bulgaria, Slovenia and Romania drafts were published but have not yet been adopted. The other countries have either formally postponed the implementation or have simply missed the deadline.
- The Restructuring Directive provides for exciting and extremely useful concepts for out-ofcourt restructurings. The challenge is to embed these concepts in national law without creating too many hurdles for companies to make use of the new tools. For countries where out-of-court restructurings have not yet been established in practice, such as Romania, the new law will be a real chance to improve the local restructuring culture. But laws itself are not sufficient; market participants have to accept and use them. So, I urge you all: Use it or lose it!
An overview of the current status of the implementation of the Restructuring Directive (EU) 2019/1023 in CEE is below:
Austria
- The Restructuring Directive has been implemented in the
new Restructuring Code (Restrukturierungsordnung)
accompanied by some amendments in Austrian insolvency law. It
entered into force in July 2021 and offers an additional judicial
restructuring option besides insolvency proceedings and out-ofcourt
restructurings. If insolvency is likely, a debtor may use
restructuring proceedings including all the tools as stipulated in
the Restructuring Directive. It also introduces the possibility of
fast-track "simplified restructuring proceedings". Under
certain circumstances, the consent of refusing financial creditors
(representing up to 25 % of the total financial liabilities) to a
restructuring agreement negotiated prior to the opening of
simplified restructuring proceedings can be replaced by a court
confirmation.
Philipp Wetter
Bulgaria
- Bulgaria did not meet the deadline for implementation
due to the current political instability. A draft
implementing bill was published on the government's webpage in
February 2021 and is expected to be submitted for voting once a
working parliament is established. We believe the draft bill does
not fully transpose the Restructuring Directive. Furthermore, it
does not address the major drawback of the current pre-insolvency
restructuring procedure that is practically impossible to commence.
Thus, courts regularly hold that there is no "threat of
over-indebtedness" (as a prerequisite for restructuring) but
actual over-indebtedness requiring the opening of insolvency. So
more flexible criteria are needed to ensure actual commencement of
the procedure.
Tsvetan Krumov
Croatia
- According to the annual plan of legislative activities, the
responsibilities for implementing the Restructuring Directive were
delegated to the Ministry of Justice and Public Administration. The
implementation process is not yet at full speed; however, it will
be done through amending both the Insolvency Act and the Consumer
Insolvency Act. A first draft bill is expected to be available in
September 2021.
Ozren Kobsa
Czech Republic
- The process of implementing the Restructuring Directive
in the Czech Republic was split into two streams: (i)
discharge of debts relating to individuals only, which will be
implemented by an amendment to the Insolvency Act (the bill is
currently still in the legislative process); and (ii) the legal
framework for preventive restructuring itself, i.e. relating to
corporate clients, which will be implemented by a separate act -
this first legislative proposal was released on 30 July 2021.
Natalie Rosova
Hungary
- Hungary has implemented the Restructuring Directive. It
will enter into force on 1 July 2022 and introduce an
out-of-court restructuring tool to strengthen enterprises and the
position of their creditors in the Hungarian market. The debtor is
free to decide which creditor it wishes to involve and with which
it must agree on the reorganisation plan, while the moratorium
applies only to those creditors. The aim of the restructuring
procedure is to agree on a restructuring plan with these creditors.
The restructuring plan must be adopted by a majority of votes in
each class of creditors involved and it is binding on all creditors
involved. If the creditors do not reach consensus at the vote or
the court does not approve the restructuring plan, the
restructuring procedure is deemed unsuccessful and the moratorium
will be lifted. Nevertheless, that failure does not warrant
insolvency proceedings being initiated against the debtor, which
should give debtors enough comfort to turn to this restructuring
tool.
Gergely Szaloki
Poland
- Poland has not yet implemented the Restructuring Directive.
Poland asked for a one-year extension and intends to finalise the
implementation process by 17 July 2022. The government has been
carrying out public consultations and set up a working group tasked
with drafting the new legislation. It is worth noting that Poland
already has a modern restructuring framework providing for four
different preventive restructuring proceedings that offer many
features provided in the Restructuring Directive, such as group
voting, stay of enforcement actions or cross-class clamp-down.
However, the Restructuring Directive will significantly affect
secured claims. They will mandatorily participate in the
restructuring, while for now the restructuring of those claims
requires, in principle, the claim holder's consent. It is
possible that the government may want to use the implementation of
the Restructuring Directive as an opportunity for a more general
overhaul of the restructuring law and to modify the existing rules
beyond the requirements of the Restructuring Directive.
Daniel Radwanski
Romania
- The draft bill was released on 19 March 2021.
The revised draft bill was published on the Ministry of
Justice's website on 2 June 2021 and requires approval of the
Economic and Social Council and Legislative Council. As a next
step, the government should approve the draft bill and send it to
the Parliament. The most important amendments are the abolishing of
the ad hoc authorisation (mandatul ad hoc) and the introduction of
the Restructuring Agreement Procedure (Procedura Acordului de
Restructurare), an out-of-court negotiation of an agreement
proposed by the debtor. The debtors can decide which categories of
receivables remain outside the restructuring (unaffected
claims).
Iustin Armașu
Slovakia
- The bill implementing the Restructuring Directive is
still being prepared by the Ministry of Justice of the Slovak
Republic. The preparation materials have not yet been
published - the bill is currently undergoing an internal commenting
proceeding. It is expected that the bill will enter the
inter-ministerial commenting proceedings and become publicly
available by the end of August 2021.
Alexandra Adamicková
Slovenia
- Ipso facto clause limitations may apply under the new
Slovenian Insolvency Act. The draft legislation
transposing the Restructuring Directive - currently in the
legislative pipeline without a concrete timeline - provides for a
statutory override of the ipso facto clauses in the "essential
contracts". According to the proposal, the counterparties to
such contracts will not be able to withhold performance, terminate
or detrimentally modify these contracts solely on the account of
the debtor's insolvency or the likelihood thereof,
notwithstanding the contractual regulation. Given the broad
definition of "essential contracts" (i.e. those necessary
for the continuation of day-to-day operations) - seemingly
expanding on Art. 7(4) of the Restructuring Directive - without any
express carve-outs, the exact scope of the statutory restriction,
notably regarding financial contracts, is yet to be
clarified.
Peter Gorae
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