Restructuring v Reorganization – To be or not to be…

Restructuring v Reorganization – To be or not to be…

“If the facts do not change the theory, change the facts…” – Albert Einstein

Under the title “Early restructuring and a second chance for entrepreneurs”, the European Commission adopted on 22 November 2016, a project for a European Directive aiming towards the harmonization of insolvency law between member states, in regard to bankruptcy preemptive measures, with the goal of reviving SEMs.
The context for this project is that over 200,000 companies are made insolvent each year, leading to over 1.7 million people losing their jobs.

Going beyond the ideas that this directive takes into account; those of economic recovery of member states by stimulating cooperation on an inter-European level, we find ourselves taking an in-depth analysis on the European Commission focusing on harmonization and unification of insolvency laws within member states. This initiative is not new, nor is the modus operandi novel, but the result; the project for a European Directive, is meant to be just the first step, promising to change the nature of insolvency procedure; refocusing from a judicial procedure that aims to cover the claims of creditors, to a procedure which is even more judicial focused with the final goal of reviving companies that find themselves in difficulty or insolvent.

What is revolutionary about these ideas and especially, what is the context in which the Directive aims to fulfill its purpose? Although not directly included in the project, its principles which the member states are going to have to respect when it comes to harmonization of their respective procedures, are that prior to the insolvency becoming imminent, the company in financial difficulty will be obligated to act responsibly by undergoing a restructuring phase, with the agreement of its’ creditors.

There are two ways in which the creditors can act more responsibly in the view of the European Commission. The first, is to the make the unsecured creditors semi-secured by giving an aspect of security against the stocks delivered and unpaid (in effect these creditors are going to benefit from the lien of the value of stocks, being entitled to either recover the stocks or their value). This initiative should, in principle, lead to a more responsible approach from creditors, who in turn are not going to be left with impecunious claims and can continue to trade.

The second way would be to rank the fiscal claims in a lower echelon, in order to make the fiscal authorities more responsible and focused on seeing the restructuring plan brought to a satisfactory conclusion. Furthermore, the fiscal authorities will benefit indirectly from the first example above, as the creditors continue to trade and thus able to pay taxes.

The present project aims for now, are just to create a framework for the principles that the member states are going have to take into consideration when implementing the restructuring procedure (where such procedures are not yet available).

Radical changes to the insolvency law are going to need substantial subsequent modifications of fiscal, labor and commercial laws in each member state. Even the European Commission adds that these key elements are to be left for future reforms and are not part of the current project for the Directive.

For further details contact:

Dragos Ramniceanu
dragos.ramniceanu@deleanu.ro
www.deleanu.ro

Tel + 40-21-201 66 85