After the EU Member States have largely ignored the 2014 recommendations on the introduction of pre-trial insolvency proceeding, the Directorate-General for Justice and Consumers has taken action.  The Directorate-General published a so-called roadmap on 3 March 2016.pursuant to the Action Plan of 30 September 2015 which is directed towards creating a unified European capital market,

The internet-based public consultation opened by the Commission on 23 March 2016 has lasted for 12 weeks now, giving all participants the possibility to comment on the necessary standards and principles. A conference on this subject has also been announced for 12 July 2016.

The roadmap goes beyond what was already known. The essential elements of the reform are the following:

• Uniform pre-trial proceedings under the protective shield of a restructuring court,
• Appointment of a moderator, if necessary; the owners of the company should retain control their business,
• Possibility of creating a temporary moratorium,
• Clarification of questions about the scope of a restructuring plan for this stage of the proceedings, the protection of minority interests and the proof that there are no grounds for insolvency.

It is clear that this proposal (as well as the ESUG) will only be available to those companies, where grounds for insolvency do not yet exist, i.e. where there is at most an imminent threat of illiquidity.

The European Union would also like to introduce minimum standards in the following areas:

• Obligations of a managing director during a crisis and legal consequences of a breach of duty,
• Ranking of insolvency claims and regulations about setting aside transactions,
• Minimum standards for qualifications and professional practice of an insolvency administrator,
• Investor protection related to securities held in trust

The German ESUG already contains many of the abovementioned rules. In contrast, the English Scheme of Arrangement, which is very popular among German companies, does not meet these requirements due to the rapidity of the procedure. In the case of ESUG it should be noted that it is always necessary to open formal insolvency proceedings. Current deliberations on reform aim to avoid this situation. Time will show if the planned proceedings are also affordable for the middle class. A substantial barrier to the success of ESUG is still exorbitant costs (e.g. the confirmation according to Sec. 270a Germany Insolvency Act (Insolvenzordnung, "InsO")), which are often more than small and medium size enterprises in a crisis can bear. In the European (pre-trial) version, the concept is to move the determination whether insolvency exists from the courts to third parties so that the costs will be comparable.

The Directorate-General is currently consulting with so-called “private experts” about concrete terms of draft legislation (http://hbfm.link/364). The current plan is to finalize the draft legislation by the end of this year. How realistic this schedule is remains to be seen.

Ansgar Hain, Attorney at Law and insolvency administrator
Berlin

Svetlana Charushnikova, Attorney at Law
Berlin