2Insolvency, Restructuring and Second Chances for Businesses and Entrepreneurs
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Committee’s assessment |
Legally and politically important |
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Not cleared from scrutiny; further information requested; but scrutiny waiver granted for a general approach sought in the JHA Council of 11–12 October on proposal (a); drawn to the attention of the Business, Energy and Industrial Strategy Committee |
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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 |
Summary and Committee’s conclusions
2.1This proposed Directive (document (a)) aims to harmonise aspects of insolvency laws across the EU to support business rescue and afford a second chance to entrepreneurs. It is a significant first attempt by the EU to harmonise national insolvency laws, with previous insolvency measures providing for mutual recognition and judicial cooperation on cross-border insolvency proceedings.45 Document (b) is an opinion of the European Central Bank on the proposal.
2.2The full background to this proposal, a summary of its provisions and how these have changed during negotiations in the Council can be found in our previous Reports on this proposal, together with a summary of the Opinion.
2.3We have been previously reassured by the Government that it is unlikely that the UK would be required to implement the proposed Directive before the end of the proposed transition/implementation period (31 December 2020). The text was revised during the 2017 Estonian Presidency to allow Member States three years before having to implement the proposal (once adopted) into national law. So even if the proposal was adopted at the end of this year, it would not have to be implemented until 2021. This would be after the transition/implementation period, when EU law would no longer apply to the UK under the terms of the proposed Withdrawal Agreement.46
2.4In a letter of 24 August the Minister for Small Business, Consumers and Corporate Responsibility (Kelly Tolhurst) informs us that the Austrian Presidency is aiming for a general approach on the proposed Directive at the Justice and Home Affairs (JHA) Council of 11–12 October. This will cover the three remaining Titles of the Directive, which were not covered by the earlier partial general approach, that is Titles I—General Provisions, Title II—Preventive Restructuring Frameworks, Title VI—Final Provisions.
2.5Given the intervention of the Conference recess, the Minister explains that she will not be able to update the Committee nearer the time of the general approach. She therefore requests a scrutiny waiver now to enable UK Ministers to actively participate in discussions in the Council while our scrutiny reserve is lifted. In support of that request, she also explains that there have been UK-driven improvements to the text during the last and current Presidency, including:
- greater protection for creditors who vote against a restructuring plan; and
- greater flexibility for courts in applying ‘cross-class cram down’ (the imposition of a restructuring plan against classes of creditors who voted against the proposed plan) where it is necessary to achieve the aims of the restructuring plan and where the plan does not unfairly prejudice the rights and interests of creditors.
2.6However, the Government has particular, outstanding concerns about how the most recently circulated text of Titles I and II could interact with international agreements and other legal instruments. It will therefore continue to work with all concerned to “an acceptable package of measures that delivers the best possible outcomes for encouraging business rescue, balanced with fair treatment for creditors”.
2.7Irrespective of any impact of the proposal on the UK in terms of its future relationship with the EU, the Minister repeats a point made by her predecessor that the Government will shortly set out its response to the consultation on corporate insolvency, which proposed measures similar to those in document (a).
2.8We thank the Minister for her letter. In our view, this proposed Directive remains important for the UK and so it remains important for the UK to be able to influence its direction and content. Even though it is unlikely that the UK will have to implement it before the end of the planned transition/implementation period, we are aware that:
- the Government has been consulting on reform of the UK’s own insolvency law which may embrace aspects of this proposal;
- some future common ground between UK and EU substantive insolvency law could helpfully complement cooperation on cross-border insolvency process that the Government seeks as stated in paragraph 148 of the White Paper at paragraph 148:
“The UK is …keen to explore a new bilateral agreement with the EU, which would cover a coherent package of rules on jurisdiction, choice of jurisdiction, applicable law, and recognition and enforcement of judgments in civil, commercial, insolvency and family matters. This would seek to build on the principles established in the Lugano Convention and subsequent developments at EU level in civil judicial cooperation between the UK and Member States. This would also reflect the long history of cooperation in this field based on mutual trust in each other’s legal systems”;
- it will assist the UK’s future relationship with the EU if the proposed Directive is as compatible as possible with existing international instruments in the insolvency field.
2.9We would therefore not wish to tie the Government’s hands during the Conference recess. We are prepared to grant a scrutiny waiver for a general approach on the proposed Directive expected at the JHA Council of 11–12 October to enable the UK to engage fully and freely in Council discussions to achieve an outcome favourable to UK’s future relationship with the EU. We request that the Minister update us as soon as possible after that Council meeting, summarising the text agreed and supplying us with a copy. When she provides an update, we ask her to be more specific about the concerns she mentions about the interaction of the proposed Directive with international agreements and to highlight where the UK would be needing to fall back on any of those agreements in the event of a non-negotiated exit from the EU. We assume that she may have in mind some of the UNCITRAL47 texts but wait for her clarification.
2.10We draw this chapter and documents to the attention of the Business, Energy and Industrial Strategy Committee.
Full details of the documents:
(a) Proposal for a Directive of the European Parliament and the Council 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.
Previous Committee Reports
(a) and (b): Twenty-ninth Report HC 301–xxviii (2017–19), chapter 3, (23 May 2018);Twelfth Report HC 301–xii (2017–19), chapter 2 (31 January 2018); 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).
45 Most of the provisions in the 2015 recast EU Regulation 2015/848 on Insolvency Proceedings started to apply to Member States from 26 June 2017.
46 Draft Withdrawal Agreement, 19 March 2018
47 UNCITRAL stands for the United Nations Commission on International Trade Law
Published: 18 September 2018