The European Pre-pack: Safeguarding Value Beyond Liquidation

The persistent fragmentation of national insolvency laws across Europe has for years fuelled legal uncertainty, affecting the cost of capital and the stability of the EU single market. Directive (EU) 2026/799 introduces the legal concept of the pre-pack to address a frustration familiar to market participants: seeing viable business entities broken up due to the failure of the insolvency system to synchronise the timing of the crisis with that of a market which withdraws disproportionately quickly at the first sign of insolvency.

A two-stage procedure

The pre-pack procedure consists of a two-stage process. The preparation phase (initiated by the debtor facing probable insolvency) aims to identify a purchaser through a competitive and transparent process supervised by an independent administrator. The liquidation phase follows, during which the competent authority approves the sale within a compressed timeframe (a maximum of three months for any residual auctions), using the offer already selected as a “stalking horse”.

The “best satisfaction” test

The sale is legitimate only if it guarantees creditors an outcome no worse than that of insolvency proceedings, considering the potential outcomes of actions for avoidance, compensation, and recovery. To preserve value, the Directive provides for the automatic transfer of essential contracts to the purchaser without the counterparty’s consent, balanced by exceptions for competitors and the protection of intellectual property.

Critical issues: between moral hazard and the utopia of confidentiality

Despite the advantages, the mechanism has its grey areas. The speed of the procedure risks producing only apparent competition, making it difficult to reach a broad range of investors and reflect the best market price. Furthermore, confidentiality during the preparatory phase often seems utopian: the need for protective measures or a competitive auction for the sale inherently entails publicising the company’s current state, thereby making its crisis situation public knowledge. The risk of moral hazard to related parties in sales remains high, requiring rigorous safeguards to ensure the pre-pack does not become an evasive shortcut to the detriment of creditors.

The challenge of appropriate corporate governance structures

In Italy, the implementation (by 22 January 2029) will need to be integrated with the Crisis Code, avoiding overlaps with negotiated settlements and composition with creditors. However, the effectiveness of the instrument will depend on corporate culture. Only organisations that have fully integrated the so-called “adequate corporate governance arrangements” (pursuant to Article 2086 of the Italian Civil Code) as a permanent safeguard will be able to sustain the speed of the due diligence required to turn the European promise into operational reality.