2Insolvency, Restructuring and Second Chances for Business and Entrepreneurs
Summary and Committee’s Conclusions
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Committee’s assessment |
Legally important |
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Not cleared from scrutiny; further information requested |
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Document details |
(a) Proposed Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU; (b) Opinion of the European Central Bank on proposal (a). |
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Legal base |
(a) Articles 53 and 114 TFEU; ordinary legislative procedure; QMV; (b)— |
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Department |
Business, Energy and Industrial Strategy |
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Document Numbers |
(a) (38313), 14875/16 + ADDs 1–2, COM (16) 723; (b) (38828), 10182/17,— |
2.1Existing EU insolvency legislation—the 2002 EC Regulation on Insolvency Proceedings and the 2015 recast EU Regulation on Insolvency Proceedings (which came into effect on 26 June 2017)—provides a framework for mutual recognition and judicial co-operation of cross-border insolvency proceedings within the EU. The regulations do not harmonise national insolvency laws and there are wide-ranging differences between Member States’ insolvency regimes.
2.2In November 2016 the Commission published document (a), a proposal for a Directive to harmonise aspects of insolvency laws across the EU to support business rescue and a second chance for entrepreneurs. It has since been the subject of our predecessors’ scrutiny. The aim of the proposed Directive is to ensure that Member States have effective restructuring procedures in place to help viable businesses in distress to survive, allow honest entrepreneurs to have a second chance after failure and reduce differences in restructuring and insolvency regimes across the EU. A summary of the proposal’s main provisions is provided in our predecessor’s previous Reports and outlined in paragraph 2.9 of our last Report of 13 November.4
2.3Document (b) is an Opinion of the European Central Bank (ECB) on the proposal. A summary of the Opinion was provided in paragraphs 2.12–13 of that same Report.5
2.4Last time we considered these documents, the Government told us that it seems very unlikely that the UK would have to implement the proposed Directive before Brexit given the anticipated Brexit timetable. However, turning to document (b), the Government considered that the push from the ECB for more harmonisation might cause difficulties for the UK if it were to “implement the Directive”. It welcomed the suggestion that Member States follow the UNCITRAL Model Law on Cross-Border Insolvency because that would make recognition of cross-border insolvency proceedings easier after Brexit and/or a transition period.
2.5In response, we asked the Government whether the UK might still have to implement the proposed Directive, once adopted, in the event of a two-year transition period. We also asked about the possibility of voluntary alignment with proposal (a) once adopted, after Brexit and/or a transition period. Finally, we drew the House’s attention to another Report considered at the same time. This included general comment from the Government on the question of how cross-border insolvencies will be governed by UK law and the domestic law of each Member State after Brexit in terms of jurisdictional issues and enforcement of orders and judgments. The Report related to a document which has now been cleared from scrutiny6 but we refer the House to the very helpful letter from Andrew Griffiths, Minister for Small Business, Consumers and Corporate Responsibility in response to our Report dated 12 January 2018.7
2.6The Minister now writes in a separate letter with an update on the negotiations of proposal (a) and with response to our questions.
2.7We thank the Minister for his letter. We look forward to hearing more from him in due course on further progress in the negotiations of proposal (a) during the Bulgarian Presidency. From what the Minister says, the Member States are some way from being able to agree a General Approach. But we would ask that we are given plenty of advance information of any such development, including any draft texts where possible. Despite Brexit, this remains a significant proposal in terms of the overall insolvency law landscape across the EU which could affect UK businesses trading into the EU post Brexit/transition.
2.8We retain draw these documents under scrutiny and draw them and this chapter to the attention of the Business, Energy and Industrial Strategy Committee.
Full details of the documents
Proposed Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU: (38313), 14875/16+ ADDs 1–2, COM(16) 723; (b) Opinion of the European Central Bank on proposal (a): (38828), 10182/17, COM(17) 723.
The Minister’s letter of 12 January 2018 on documents (a) and (b)
2.9The Minister for Small Business, Consumers and Corporate Responsibility (Andrew Griffiths) first provides an update. He says that since the last Government update of 25 August the Estonian Presidency has made “considerable progress in taking work forward on the draft Directive”.
2.10He describes progress as follows:
- The Council Working Group finished its first read-through of the proposal in November.
- In December JHA Council, Ministers held a policy debate on three important principles:
- the ability of Member States to introduce a viability test for access to a stay of enforcement action from creditors when a restructuring plan is being negotiated;
- cross-class cram down (the involuntary imposition of a restructuring plan on dissenting creditors who voted against it); and
- a maximum discharge period from insolvency for honest entrepreneurs of three years.
- While the UK generally supports these principles (subject to agreement of technical details), other Member States were divided on cross-class cram down and the maximum discharge period.
- Before the end of December and its Presidency, Estonia circulated a revised draft of the Directive incorporating drafting amendments emerging from Council working group meetings.
- Work will continue on the revised text under the new Bulgarian Presidency.
2.11The Minister comments that:
“The UK will continue to play a constructive and active part in these ongoing discussions to ensure that that the proposal delivers on its objectives, as improving the prospects for business rescue in the EU will benefit UK creditors, lenders and investors.”
2.12In response to the Committee’s question about the impact of an implementation period or transitional arrangements, the Minister says that while it is unlikely the UK would be required to implement the draft Directive, ”the terms of any implementation/transitional EU withdrawal period are subject to further negotiation, and so at present it is not possible to say whether this will definitely be the case”.
2.13Addressing our other question about voluntary alignment “once the UK is free of any obligation to implement it”, the Minister responds that:
“The UK Government consulted in 2016 on reforms to the corporate insolvency regime, which are broadly similar to the draft Directive’s provisions for a preventive restructuring framework.”
Previous Committee Reports
(a) and (b): First Report HC 301–i (2017–19), chapter 2 (13 November 2017); (a) Thirty-fourth Report HC 71–xxxii (2016–17), chapter 2 (8 March 2017); Twenty-sixth Report HC 71–xxiv (2016–17), chapter 2 (18 January 2017).
4 First Report HC 301–i (2017–19), chapter 2 (13 November 2017).
5 See footnote above.
6 Proposed Regulation replacing Annex A to Regulation (EU) 2015/848 on insolvency proceedings: (38963), 11667/17 + ADD 1, COM(17) 422. See our Seventh Report, HC 301–vii (2017–19), chapter 9 (19 December 2017).
7 Letter from the Minister for Small Business, Consumers and Corporate Responsibility (Andrew Griffiths MP) to Sir William Cash MP Chair of the European Scrutiny Committee dated 12 January 2018, Cabinet Office website
2 February 2018