The directive on preventive restructuring frameworks Prof. Dr. Christoph Thole, Dipl.-Kfm. Direktor des Instituts für Verfahrensrecht und Insolvenzrecht und des Instituts für Europäisches und Internationales Insolvenzrecht

Agenda The concept of the directive In particular: The restructuring plan German perspectives Discussion © Prof. Dr. Christoph Thole

The concept of the directive Premise: Avoiding insolvency proceedings Debtor-oriented At what costs? Availability: likelihood of insolvency To be defined by national law Recital 24: A restructuring framework should be available before a debtor becomes insolvent under national law, namely before the debtor fulfils the conditions under national law for entering collective insolvency proceedings, which normally entail a total divestment of the debtor and the appointment of a liquidator Stay of individual enforcement actions (and the obligation to file) 4 months or even up to 12 months Exception for obligation to file for insolvency on the grounds of inability to pay Why a stay? Stay can be made dependant on viability test Stay can be general or limited to certain creditors

The concept of the directive The restructuring plan Resembles the German insolvency plan Cram-down No collective proceeding, court involvement restricted Debtor in possession and the Practioner in the field of restructuring PIFOR: supposed to supervise the restructuring Needs to be independent

The goals of the directive To limit non-performing loans To enable banks and creditors to get rid off NPL To incentivize distressed debt investors to buy Harmonisation of national laws An illusion – more than 70 options for national legislators

Forum Shopping and law competition Directive: cf. Recital 13 and 14: EIR and COMI principle applicable But: Member States are not required to opt for notification under Annex A If not, recognition under Brussels Ia-reg. or autonomous law? Directive leads to law competition instead of harmonisation

The restructuring plan Content: restructuring as defined by art. 2 para. 1 no. 1 (including asset deal) Inter alia: Description of the causes of the difficulties Description of the estimated financial flows of the debtor, if provided for by national law a statement of reasons which explains why the restructuring plan has a reasonable prospect of preventing the insolvency of the debtor and ensuring the viability of the business, including the necessary pre-conditions for the success of the plan. Member States may require that that statement of reasons be made or validated either by an external expert or by the practitioner in the field of restructuring if such a practitioner is appointed. More details as required by art 8

The restructuring plan Procedure and adoption: Voting in classes of creditors Majority of the amounts of claims of affected creditors (not more than 75%) Member States may require majority of heads Member States may, i.a., exclude equity holders and subordinated creditors Generally: Member States may exclude affection of employees‘ rights Votings rights may be examined ex ante by court Confirmation by the court if best interest of creditors-test is complied with (no creditor worse off), valuation by experts Appeal against confirmation or rejection of confirmation

The restructuring plan Cross-class cram down Concept of the directive: majority of one single class sufficient to cram down other classes, if, i.a. dissenting voting classes of affected creditors are treated at least as favourably as any other class of the same rank and more favourably than any junior class (relative priority) Member States may opt for absolute priority, i.e. may provide that the claims of affected creditors in a dissenting voting class are satisfied in full by the same or equivalent means where a more junior class is to receive any payment or keep any interest under the restructuring plan Equity holders: Left out completely Or included in the plan, thus having voting rights (but subject to cross-class cram down)

German perspectives (my opinion) No need to make major changes, because insolvency procedure is not too bad Should be included in the context of the insolvency law (Insolvenz-und Restrukturierungsordnung), specialised insolvency courts Likelihood of insolvency means likelihood of inability to pay (§ 18 InsO) Germany should restrict availability by introducing viability test (examination by the PIFOR instead of by the court) and limit the access of debtors where their books and records are incomplete or deficient to a degree that makes it impossible to ascertain the business and financial situation of the debtors (recital 27) Parallels to the insolvency plan procedure Equity holders: to be included in the restructuring framework Relative or absolute priority: Connection with § 245 InsO No need to get rid off obligation to file due to over-indebtedness

Thanks for your attention. Prof. Dr. Christoph Thole, Dipl.-Kfm. Institut für Verfahrensrecht und Insolvenzrecht Albertus-Magnus-Platz 50923 Köln christoph.thole@uni-koeln.de