The European Commission is supervising the implementation of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt (“the 2019 Directive”) by Member States. As of 20th November 2021, only three Member States officially notified the complete transposition within their jurisdiction. The remaining 24 Member States have taken advantage of the possibility to extend the deadline for implementation of 17th July 2021 by one year in accordance with Article 34 (2) of the Directive in case of particular difficulties, generally invoking the Covid pandemic as a reason for such difficulties. However, even a number of the latter Member States have already implemented at least certain aspects of the Directive, for instance in relation to early warning mechanisms (as in Germany and Italy). Such delay in the implementation of the Directive is not expected to have a significant impact on the harmonization process.

The Commission is responsible for making sure that all EU Member States properly transpose and apply EU law. In this role as ‘guardian of the treaties’, the Commission has enforcement powers wherever an EU Member State does not at all or does not fully incorporate a Directive into its national law by the set deadline or has not applied EU law correctly in its transposing legislation.

Each Directive contains a deadline for transposition. By that date, EU Member States have to formally notify the text of the national implementing measures, which incorporate the provisions of the Directive into their legislation, to the Commission. The Commission then checks whether they are complete and comply with the obligations laid down by the Directive [1]. To the extent appropriate, the Commission takes advantage of the various committees and expert groups already in place, as well as the valuable support of European agencies, to foster implementation and assess how legislation is implemented in practice. In many cases – and this will include the 2019 Directive – the Commission also contracts out an evaluation of the transposing legislation in all Member States to serves as a basis for its own assessment.

The Commission may open an infringement procedure for ‘non communication’ (where no transposition of a Directive, or of parts of it, has been notified at all) as well as in the case of an incorrect transposition of a Directive. Article 258 TFEU stipulates that where the Commission considers that a Member State has failed to fulfil an obligation under the Treaties it shall deliver a reasoned opinion after giving the State concerned the opportunity to submit its observations (in response to a so-called Letter of Formal Notice) and before referring the matter to the Court of Justice for the formal finding of an infringement under Article 260 TFEU. During this process, there is ample opportunity to discuss possible infringements of EU law, including through high-level bilateral meetings between the Commission and Member States.

On an annual basis, the Commission publishes a report highlighting the year’s main developments in terms of monitoring the application of EU law and reviewing the performance of Member States in relation to key instruments [2]. This report is also sent to the European Parliament and to national authorities

Annexes A and B to Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) (‘the Insolvency Regulation’) list the designations given in the national law of the Member States to the insolvency proceedings and to the insolvency practitioners to which that Regulation applies. Annex A lists the insolvency proceedings referred to in point (4) of Article 2 of the Insolvency Regulation and Annex B lists the insolvency practitioners referred to in point  of that Article.

The 2019 Directive requires Member States to put in place preventive (pre-insolvency) restructuring procedures which comply with certain minimum principles of effectiveness. It is without prejudice to the Insolvency Regulation whose scope also extends to proceedings, which provide for restructuring of a debtor at a stage where there is only a likelihood of insolvency, and to proceedings which leave the debtor fully or partially in control of its assets and affairs [3]. 

Against that background, the 2019 Directive does not change the approach taken in the Insolvency Regulation of allowing Member States to maintain or introduce pre-insolvency restructuring procedures which do not fulfil the conditions for notification under Annex A to that Regulation, for example because they do not meet the publicity requirements. However, although the 2019 Directive does not require that procedures within its scope fulfil all the conditions for notification under that Annex, it aims to facilitate the cross-border recognition of those procedures and the recognition and enforceability of judgments under the Insolvency Regulation [4] and therefore encourages Member States to transpose their obligations by means of national procedures which also qualify for Annex A to the Insolvency Regulation.

This said, currently legislative proceedings are underway to amend Annexes A and B to the Insolvency Regulation for a number of Member States in view of recent changes to their domestic insolvency law introducing new types of insolvency proceedings or insolvency practitioners, partially also introducing preventive restructuring procedures following Directive 2019/1023 which meet the requirements of the Insolvency Regulation. Due to the choice of the EU legislator in the Insolvency Regulation, such adjustments cannot be made in a simplified fashion by implementing or delegated acts adopted by the Commission but require a full ordinary legislative procedure in accordance with the Treaty of Lisbon. The main characteristic of the ordinary legislative procedure is the adoption of legislation jointly and on an equal footing by Parliament and the Council. It starts with a legislative proposal from the Commission (normally for a Regulation, Directive or Decision) and consists of up to three readings, with the possibility for the co-legislators to agree on a joint text - and thereby conclude the procedure - at any reading [5]. After an assessment of the compliance of the changes notified by certain Member States ((the Netherlands, Italy, Lithuania, Cyprus, Poland, Germany, Hungary and Austria) with the requirements for being included in Annexes A and B of the Insolvency Regulation, the European Commission adopted a proposal for a Regulation on 11 May 2021 aimed at amending the annexes accordingly. Regulation (EU) 2021/2260 of the European Parliament and of The Council was adopted by the co-legislators on 15 December 2021 and was published in the Official Journal on 20 December 2021 and is effective from the twentieth day following that of its publication in the Official Journal of the European Union and, therefore, from 9 January 2022.

As soon as other Member States implement the 2019 Directive within their domestic laws, further notifications are expected to be requested and, therefore, further amendments of Annex A and B are certain to follow [6].

Furthermore, by 2027 the entire Insolvency Regulation on cross border insolvency shall be subject to review on the basis of a Commission report on its application[ 8]. A study on the issue of abusive forum shopping, which was due on 27 June 2020 [7], is currently in progress.

Following the above mentioned 2019 Directive, a further initiative aimed at harmonizing insolvency law is currently under preparation for adoption in the course of the year 2022 in the context of the efforts to complete the so-called capital markets union (CMU), a  fully functioning single market for capital approved in 2015 to get money – investments and savings – flowing across the EU so that it can benefit consumers, investors, and companies, regardless of where they are located [9]. The CMU aims at providing businesses with a greater choice of funding at lower costs and provide SMEs in particular with the financing they need; supporting the economic recovery post-Covid-19 and create jobs; offering new opportunities for savers and investors; creating a more inclusive and resilient economy; helping Europe deliver on its new green deal and on the digital agenda; reinforcing the EU’s global competitiveness and autonomy; making the financial system more resilient so it can better adapt to the UK’s departure from the EU. 

Given the persistent significant barriers to a well-functioning CMU in many areas, including insolvency laws, on 24 September 2020 the Commission adopted a new CMU action plan [10], set out 16 legislative and non-legislative measures to deliver on three main objectives and, specifically, support a green, inclusive and resilient economic recovery; make the EU an even safer place to save and invest long-term; integrate national capital markets into a genuine single market. These measures included one specifically dedicated to making the outcomes of insolvency proceedings more predictable through a legislative or non-legislative initiative for minimum harmonization or increased convergence in targeted areas of non-bank insolvency law [11].

The stark divergence between national insolvency regimes is considered as a long-standing structural barrier to cross-border investment. Divergent and sometimes inefficient national regimes make it difficult for cross-border investors to anticipate the length and outcome of value recovery proceedings in cases of bankruptcy, rendering it difficult to adequately price the risks, in particular for debt instruments. Harmonization of certain targeted areas of national insolvency rules or their convergence could enhance legal certainty; whereby regular monitoring of the efficiency of national insolvency regimes would allow Member States to benchmark their insolvency regimes against those in other Member States and encourage the Member States with underperforming regimes to reform them. 

In the 2020 CMU action plan, the Commission committed to propose a legislative or non-legislative initiative for minimum harmonization or increased convergence in targeted areas of core non-bank insolvency; and to explore, together with the European Banking Authority, possibilities to enhance data reporting to allow for a regular assessment of the effectiveness of national loan enforcement regimes.

Following a public consultation on insolvency laws (closed in March 2021), on 25 November 2021 the Commission announced in a further Communication on the CMU Action Plan [12] that it will propose an initiative by the third quarter that will seek to harmonize targeted aspects of the corporate insolvency framework and procedures. Subject to an impact assessment, the Commission will propose a Directive. The exact scope of this Directive proposal will be subject to further discussions with Member States and the European Parliament. This Directive proposal could be complemented by a Commission Recommendation.

An independent Group of Experts assists the Commission in the preparation of a potential legislative proposal containing minimum standards for a harmonized insolvency law in the EU. The Group is helping the Commission to consider among others the following issues: the scope of the new instrument, in view of the objective of facilitating the free movement of capital in the internal market; common definitions; common principles and rules in the area of formal insolvency procedures (e.g. filing of claims, conditions for accessing the procedures, avoidance actions, ranking of claims, special rules for micro and small enterprises); duties of directors in the vicinity of insolvency; other measures aiming at enhancing the efficiency of insolvency proceedings and reducing their costs and length, including in relation to training and qualifications of judges and insolvency practitioners. The group has been divided into several sub-groups which are working on clusters of these topics and are developing proposals for the consideration of the whole group. The results of the work of the Group will feed into the process of the Commission selecting the issues that are considered appropriate for harmonization and setting out the proposed rules for common standards.