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Restructuring Directive: A game changer for restructurings?

In view of the adverse economic consequences of the COVID-19 pandemic and once governmental support programmes come to an end, many expect a "wave of insolvencies" to commence in 2021. So it comes just in time that EU Member States must implement (most of) the Directive (EU) 2019/1023 on restructuring and insolvency (Restructuring Directive) until July 2021 (with an extension option for up to one year).

The Restructuring Directive establishes uniform rules for preventive restructuring frameworks that aim at avoiding (the stigma of) insolvency proceedings.  

Preventive restructurings enable debtors in financial difficulties to avoid insolvency proceedings and to continue their businesses on the basis of an agreed restructuring plan. The adoption of that restructuring plan requires the vote of the majority (usually 75%) of affected creditors.

The Restructuring Directive provides a diverse toolkit for preventive restructurings. Key features of preventive restructuring frameworks include the suspension of creditor enforcement actions and of the obligation to file for insolvency. Also, ipso facto clauses (that permit contract termination or modification on insolvency) will be overridden. Most importantly, the Restructuring Directive provides for (cross-class) cramdown and certain protections for new and interim financings.

If implemented wisely in national laws, the new restructuring frameworks could be real game changers for restructurings in the European Union.

Member States have started working on transposing the Restructuring Directive into national laws since 2019. Whereas in some Member States preventive restructuring frameworks have already been in in place since quite a time, most Member States are required to create a completely new legal framework for preventive restructurings.

See below the status of the implementation of the Restructuring Directive in CEE as of 1 April 2021: