News overview

Business Rescue Report adopted by ELI

On 6 September 2017, during the General Assembly and Annual Conference of the European Law Institute (ELI), the report ‘Rescue of Business in Insolvency Law’ was presented and subsequently approved by an overwhelming majority. The Report’s ten Chapters contains recommendations on a variety of themes affected by the rescue of financially distressed businesses. In total, the Report consists of some 115 recommendations explained on more than 375 pages.

Topics of the study

The Report’s ten chapters cover: (1) Actors and procedural design, (2) Financing a rescue, (3) Executory contracts, (4) Ranking of creditor claims; governance role of creditors, (5) Labour, benefit and pension issues, (6) Avoidance transactions in out-of-court workouts and pre-insolvency procedures and possible safe harbours, (7) Sales on a going-concern basis, (8) Rescue plan issues: procedure and structure; distributional issues, (9) Corporate group issues, and (10) Special arrangements for small and medium-sized enterprises (SMEs) including natural persons (but not consumers). The Report also includes a glossary of terms and expressions commonly used in restructuring and insolvency matters.

Background

Since the global financial crisis, insolvency and restructuring law have been at the forefront of law reform initiatives in Europe and elsewhere. The specific topic of business rescue appears to rank top on the insolvency law related agenda of both the European Union (EU) and national legislators faced by a growth of insolvency related business problems, which clearly highlighted the importance of efficient mechanisms for dealing with distressed, but viable businesses. For the European Law Institute, this fuelled the momentum to launch an in-depth project on furthering the rescue of such businesses across Europe.

The process toward the Business Rescue Report

The first stage comprised the drafting of National Inventory and Normative reports by National Correspondents (NCs) from 13 EU countries. In addition, Gert-Jan Boon, University of Leiden, prepared an inventory report on international recommendations from standard-setting organisations, such as UNCITRAL, the World Bank, the American Bankruptcy Institute or the Nordic-Baltic Business Rescue Recommendations, under the supervision of the Reporters.

Based primarily on these detailed reports, the second stage consisted of drafting the ELI Instrument on Business Rescue (‘ELI Business Rescue Report’) that elaborates recommendations for a legal framework enabling the further development of coherent and functional rules for business rescue in Europe. After the Project Team finalised the draft Instrument early 2017, ELI Fellows and Members of the ELI Council voted to approve the ‘ELI Business Rescue Report’ at the ELI General Assembly, representing ELI Members, and Annual Conference in Vienna (Austria) on 6 September 2017 with no objection.

Aim of the project outcome

The topics addressed in the Report are intended to present a tool for better regulation in the EU, developed in the spirit of providing a coherent, dynamic, flexible and responsive European legislative framework for business rescue. Mindful of the European Commission’s commitment to better legal drafting, the Report’s proposals are formulated as comprehensibly, clearly, and as consistently as possible. Still, the recommendations are not designed to be overly prescriptive of specific outcomes, given the need for commercial flexibility and in recognition of the fact that parties will bargain in the ‘shadow of insolvency law’. The Report is addressed to the European Union, Member States of the EU, insolvency practitioners and judges, as well as scholars. The targeted group many times flows explicitly from the text of a recommendation or the context in which such a recommendation is developed and presented. The Reporters cherish the belief that the report will assist in taking a next, decisive step in the evolutionary process of the European side of business rescue and insolvency law.

Download the report

Available at SSRN: https://ssrn.com/abstract=3032309,

Available at ELI: http://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/Instrument_INSOLVENCY.pdf.

The suggested citation is: Wessels, Bob and Madaus, Stephan, Business Rescue in Insolvency Law – an Instrument of the European Law Institute (September 6, 2017).

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