1. The Stay Procedure in the proposed Directive
Professor Jennifer Payne, University of Oxford

2. Introduction -A restructuring moratorium can be beneficial
-it can prevent creditors disrupting the restructuring by asserting their claims against the company
-it can enable the business and assets of financially distressed but viable companies being kept together long enough for the restructuring to be effected
-They involve significant creditor constraints and bring dangers for creditors, in particular
-they may be used by managers to prop up unviable businesses
-they can be used by managers of viable businesses to “shake off” liabilities that they are capable of meeting
-Any legislation introducing a statutory stay needs to balance these concerns

3. The Stay Procedure in the proposed Directive: Overview
-Stay of individual enforcement actions to be made available by MS to debtors undergoing restructuring: Art 6(1)
-all creditors to be included but MS decide if it should be general or limited (Art 6(2))
-effect on employee claims (Art 6(3))
-Scope
-temporary suspension of the right to enforce a claim by creditor against debtor: Art 2(4)
-a general stay prevents creditors opening insolvency procedures: Art 7(2)
-obligation on debtor to file for insolvency suspended: Art 7(1), but see Art 7(3)
-effect on executory contracts: Art 7(4)-(5) See Prof Ignacio Tirado’s comments
-Maximum duration: no more than 4 months (Art 6(4)) but extendable to twelve months by judicial or administrative authorities at request of debtor or creditors: Art 6(5)-(7)
-The stay may be lifted in whole or part by judicial or administrative authorities: Art 6(8), Art 6(9)

4. Comments on the proposed Directive
The level of detail
-Much of the detail of the provisions in the proposed Directive is missing or unclear
-In part this is because much of the detail of how the stay will operate is left to Member States to determine (eg Art 6(2))
-much will depend on the decisions taken by MS
-In part this is because key concepts and terms lack clarity
-Eg what does a “stay of individual enforcement actions” (Art 7, Art 2(4)) encompass?
-Eg will the stay apply to guarantors?

5. Comments on the proposed Directive
The relevant triggers
-Art 6(1) simply states that debtors should have the benefit of the stay “if and to the extent such a stay is necessary to support the negotiations of a restructuring plan”
-No requirement that debtors should demonstrate from the outset that there is a reasonable prospect that the restructuring can be agreed with its creditors (cf where debtors seek to extend the stay: Art 6(6))
-What is to prevent managers of an unviable company using the moratorium?
-no requirement for the managers to demonstrate eg that they have sufficient funds to carry on business during the moratorium
-no requirement for a supervisor to have oversight of the business during the moratorium
-What about managers of a viable company using it to shake off the liabilities that it can service (but would prefer not to)?
-no requirement that the company be insolvent, or for insolvency to be imminent, to make use of the stay
-How are stays to be commenced?

6. Comments on the proposed Directive
The role of the court
-In general the proposed Directive seeks to minimise the role of “judicial or administrative authorities” in the restructuring process
-this is a concern given the significant creditor constraints that the proposed Directive introduces
-The stay procedure is one of those areas in which the proposed Directive acknowledges that “judicial or administrative authorities” do need to be involved:
Arts 6(2), 6(5)-(6), 6(8), 6(9)
-There is a lack of clarity in some respects
-Eg how are courts to determine whether to extend the stay beyond the 4 month maximum period in Arts 6(5)-(6). What does “relevant progress” mean? How will the court deem that there is a “strong likelihood” that the plan will be adopted?
-Courts can play an important role in protecting creditor rights