Best Practices in European Restructuring - Contractualised Distress Resolution in the Shadow of the Law

Abstract

The general trend away from traditional, formal insolvency proceedings opens up a vast area to private ordering, with all the associated opportunities and risks. The transition can be less costly if the resulting uncertainty is reduced to a minimum. This presents national legislators with a delicate challenge. They should not be overly prescriptive and should effectively delegate decision-making to stakeholders and expert professionals, who are likely to be better informed and better incentivised. At the same time, the law must provide for information to flow where needed and for the creation of optimal incentives.

Against this background, guidance on best practices can be of great value. It may assist policymaking in one jurisdiction by drawing attention to successes and failures in others, and it may allow professionals, advisors, debtors, creditors and courts to find common ground in the formulation of high-quality distress resolution plans and in distinguishing viable and non-viable distressed debtors.

Based on extensive empirical research in four European Union states, this book takes up the challenge of unearthing and crystallising some of the most critical best practices in the various stages of a distress resolution process. Drawing on these best practices, it provides lawmakers with several ‘Policy Recommendations’, and other key stakeholders with a set of ‘Guidelines’.

Of particular interest will be development of a relative priority rule (recently recommended by the European Council for incorporation in the draft directive on preventive restructuring); and discussion of the utility of a duty to file versus one to avoid wrongful trading; crisis events and early warning indicators; fairness in plan formulation, voting, examination, and confirmation; class formation and ‘cram-down’ issues; the goals, contents, and structure of high-quality plans; the role of professional advisors; negotiation best practices; the impact of prudential rules on NPLs on banks’ behaviour in corporate workouts; and plan implementation and monitoring. Special attention is given to the particular needs of micro, small, and medium enterprises.

Note: This is the primary output of the research project 'Contractualised Distress Resolution in the Shadow of the Law', which has been made possible by the European Commission Grant JUST/2014/JCOO/AG/CIVI/7627. The project was undertaken with the financial support of the Justice Programme of the European Union. The resulting output is the sole responsibility of the contributors and can in no way be taken to reflect the views of the European Commission.

Keywords: Business Restructuring, Rescue, Preventive Proceedings, Pre-Insolvency Processes, Best Practices, Policy Recommendations

JEL Classification: D23, K19, K22, K39