Does the European Commission’s latest proposal for a directive on the harmonization of insolvency law promote insolvency abuse?

In a current proposal of the European Commission for a directive of the European Parliament and of the Council on the harmonization of certain aspects of insolvency law [COM (2022) 702 final] of December 7th, 2022 (“Harmonization Directive Proposal”), in an effort to create an integrated EU capital market, an attempt is made to harmonize the insolvency law of the individual Member States in several areas of insolvency law, whereby the planned procedural simplifications for the insolvency of microenterprises are particularly irritating.

Subject of the Commission’s proposal:

• Regulated areas of insolvency law
• Harmonization of the right of avoidance (Art. 4 ff)
• Measures to determine assets that belong to the insolvency estate (Article 13 et seq.)
• “Pre-pack proceedings” (Art. 19 ff)
• Obligation to file for insolvency and liability for delaying insolvency (Art. 36 f)
• Procedural simplifications for the insolvency of microenterprises (Art. 38 ff)
• Provisions for creditors’ committees (Art. 58 et seq.)
• Factsheet (Art. 68) on key information on national insolvency law

Liquidation of insolvent microenterprises (Art. 38-57)

The regulations are intended to create faster, simpler and more affordable procedures for microenterprises.

It initially appears to be problematic that microenterprises are defined as follows according to Commission Recommendation 203/361/EC:

• fewer than 10 employees
• annual turnover or annual balance sheet not exceeding EUR 2 million.

It should be noted that the Austrian corporate structure is strongly characterized by small and medium-sized enterprises (SMEs). As things currently stand, this means that the majority of corporate insolvencies would fall under these regulations.

It initially appears problematic that an insolvency administrator is to be appointed only upon application (Art. 39). Although creditors are entitled to apply, they must bear the costs of the insolvency administrator if there is a lack of assets.

In proceedings without an insolvency administrator, the debtor, who is to be granted self-administration to an extent not previously available under Austrian law, determines the claim independently unless individual creditors express concerns or the court refuses to determine the claim (Article 46). It is questionable how individual creditors should become aware of grounds for contestation if no insolvency administrator has been appointed.

Furthermore, in insolvency administrator-free proceedings, the sale of the debtor’s company or parts thereof by the debtor – who may not be represented – is conceivable.

Finally, proceedings can be terminated without an insolvency quota being distributed (Article 49), although the current content of the proposal raises the question of whether debt relief of a corporation should be possible without a minimum quota.

Outlook

The regulations outlined above should lead to a fundamental reconsideration of at least the proposal on the liquidation of insolvent microenterprises. The key stakeholders in insolvency, such as creditor protection associations and banks, should strive to exert their influence on the European Commission’s standard-setting process in order to at least “prevent the worst…”.

On April 20th, 2023, Thomas Kurz gave a lecture on this topic to Austrian reorganization and restructuring experts from the banking sector as part of an online seminar for imh GmbH.

If you have any further questions on this topic, please do not hesitate to contact our experts Thomas Kurz and Michael Haiböck from the Insolvency Law and Corporate Reorganization Team.

Disclaimer

This article is for general information only and does not replace legal advice. Haslinger / Nagele Rechtsanwälte GmbH assumes no liability for the content and correctness of this article.

 

24. April 2023

 

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