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The Directive requires fundamental change for some Member States, who must make substantial amendments to their laws. Other States, however, have more robust starting points and there is considerable optionality for States in translating the provisions of the Directive into their national laws. In respect of many provisions, States are presented with different implementation options. It may be that more than one version of the Directive will become part of the national law in a particular country. One version may be particularly suitable for use by domestic firms, and small and medium-sized enterprises (SMEs). Another version, however, may be specifically designed for larger enterprises and, in particular, for foreign firms and those transacting business across international frontiers. The harmonisation agenda manifested in the Directive is more of the minimum harmonisation, rather than maximum harmonisation, variety. Notwithstanding national implementation of the Directive, there will still be considerable variety in the restructuring and insolvency laws of Member States.

The Directive contains major elements of the US Chapter 11 reorganisation plan procedure. In the event of a “likelihood of insolvency”, the debtor may put forward a restructuring plan to all or some of its creditors and/or shareholders. In the course of the negotiations and restructuring process, the debtor remains in control of the company’s business and the negotiations may be reinforced by a stay on individual enforcement actions. The affected parties vote on the plan in classes and the relevant court will examine the fairness of the plan process and the outcomes envisaged. Creditors are given a “baseline” level of protection in that they should be no worse off under the plan than they would be in a liquidation or any other “next best alternative” scenario if the restructuring plan was not confirmed.

The Directive requires EU Member States to introduce a US-style cross-class cram-down mechanism, which allows the court to bind a dissenting class to the plan. This element was not a feature in most existing restructuring laws in EU Member States, including the UK, even though the UK scheme of arrangement procedure appears to have inspired certain elements of the Directive115.

The text of the Directive agreed upon in the EU decision making process is in many ways a compromise and it leaves Member States with ample room for different options in the implementation process. For instance, Member States might choose to introduce a viability-test; allow time-limited extensions to the stay on individual enforcement actions; supplement the “majority in value” test laid down in the Directive with a headcount-test in their national voting thresholds. Member States may also set down a definition of “likelihood of insolvency” and also set out criteria for class composition. The freedom open to Member States was enhanced in the rules about cross-class cram-down plans.

In the original 2016 directive proposal, there was provision for an “absolute priority rule” (“APR”) that was similar to its US counterpart. It required that a dissenting class of creditors should be paid in full before any value could be distributed to a lower ranking class. The APR ensured that liquidation priority was respected but responding to a perception that a US APR standard was too rigid, the final text of the Restructuring Directive contains somewhat softer edges. It permits derogations from APR where this is necessary (i) necessary to achieve the aims of the restructuring plan and (ii) such derogations do not unfairly prejudice the rights or interests of any affected parties.

Moreover, at an advanced stage in the EU legislative process, in addition to modified APR, an alternative relative priority standard was put forward for Member States to adopt as a restructuring paradigm. Variations of this approach were advocated by some academic research groups rule but the approach has also encountered strong academic opposition. Under “relative priority” in the Directive, a dissenting class can be bound by a plan, as long as this class is treated “more favourably” than any lower ranking class. This approach permits plans that distribute value to shareholders without paying certain creditors in full, or to unsecured creditors at the expense of preferential creditors. Some critics argue the relative priority standard will introduce greater unpredictability and legal uncertainty for investors. This may hinder the free flow of capital and undermine the EU’s desire to pursue a true capital markets union. But in defence of relative priority, it can be argued that companies are not intended to be actually insolvent when they enter the restructuring process, and therefore it is fair that existing shareholders should receive some stake in the restructured business.

There is considerable leeway afforded EU Member States in the implementation of the Directive and considerable differences between national restructuring frameworks will continue to exist and persist. A propos France it has been argued that “French insolvency law remains internationally known for the comparatively low level of protection afforded to the interests of creditors in comparison to those of other stakeholders. As a result, France ranks quite low regarding the ‘strength of its insolvency framework’ in international and comparative studies, because of the limited role of creditors in restructuring proceedings. Transposing the Directive therefore provides a unique occasion for France to reform its preventive restructuring landscape to rebalance the protection afforded to different stakeholders interests”116.

Perceived disparities in national law are likely to incentivise forum shopping. The applicable private international law framework is somewhat uncertain since Member States may, but are not obliged, to list their new or revised restructuring framework or frameworks under Annex A of the recast European Insolvency Regulation117 thereby ensuring automatic EU wide recognition118. If the Insolvency Regulation applies119, then the debtor’s centre of main interests (COMI) will determine jurisdiction to open insolvency proceedings120 and the recognition in other EU Member States of such proceedings and judgments stemming from such proceedings121. COMI however, is still a malleable enough concept to permit a degree of forum shopping122.

In the new forum shopping world, the choice taken by Member States in respect of absolute priority or relative priority, may be a crucial factor to bear in mind when addressing restructuring possibilities. The economic interest of senior creditors suggest that they will push for a country in which their absolute priority rights will be respected, whereas shareholders in financially distressed companies are likely to press for a country where their prospects of keeping a stake in the company are much higher and this may in countries that have a relative priority standard. This seems contrary to the policy articulated in the Insolvency Regulation of avoiding incentives for parties to move their COMI from one Member State to another so as to obtain a more favourable legal position123. But the Regulation may have done more to encourage forum shopping than to prevent it. In the new post-European Restructuring Directive world, the options and possibilities increase even further.

Some other caveats are also worth noting. Professor Bork, for example, has argued that “[h]armonising insolvency law by avoiding insolvencies is a clear manifestation of the current ‘restructuring hype’ and it carries with it the danger of investing maximum energy into a solution that is only helpful in a minority of cases”124. In this connection, the COVID-19 pandemic has revealed some of the limits of the EU’s harmonisation efforts. Restructuring solutions are likely to work in only a minority of cases and general, across the board medicine, may be more appropriate in curing the overall ills of an economy.

(1) For a comprehensive analysis of the Directive see Gerard McCormack, The European Restructuring Directive (Elgar Publishing, 2021).

(2) Commission Recommendation C(2014) 1500 final of 12.3.2014 on a new approach to business failure and insolvency [2014] OJ L 74/65. See also the Commission Communication “A New European Approach to Business Failure and Insolvency” COM (2012) 742. For discussion of the recommendation see, inter alia, G. McCormack, “Business restructuring law in Europe: making a fresh start” (2017) 17 Journal of Corporate Law Studies 1; Stephan Madaus, “The EU Recommendation on Business Rescue: Only Another Statement or a Cause for Legislative Action across Europe?” (2014) Insolvency Intelligence 81; Horst Eidenmuller and Kristin van Zweiten, “Restructuring the European Business Enterprise: The EU Commission Recommendation on a New Approach to Business Failure and Insolvency” (2015) 16 European Business Organization Law Review 625.

(3) European Commission, Directorate-General Justice & Consumers of the European Commission, “Evaluation of the implementation of the ECR 2014, 2 & 5”. See also European Commission, Directorate-General Justice (A1), 2016/JUST/025 – Insolvency II, Inception Impact Assessment, 3 March 2016, 7.

(4) On the general merits of EU, rather than national, initiatives see, for example, H. Eidenmüller, “Abuse of Law in the Context of European Insolvency Law” (2009) 6 European Company and Financial Law Review 1; J. Armour, “Who Should Make Corporate Law: EC Legislation versus Regulatory Competition” (2005) European Corporate Governance Institute, Law Working Paper No. 54/2005. For general discussions on the phenomenon of regulatory competition in the EU, see for example H. Birkmose, “Regulatory Competition and the European Harmonisation Process” (2006) 17 European Business Law 1075; S. Deakin, “Legal Diversity and Regulatory Competition: Which model for Europe?” (2006) 12 European Law Journal 440; and “Is Regulatory Competition the Future for European Integration?” (2006) 13 Swedish Economic Policy Review 71.

(5) For an overview of insolvency law reforms, see The World Bank Doing Business, “Business Reforms in Resolving Insolvency” https://www.doingbusiness.org/en/reforms/overview/topic/resolving-insolvency accessed 12 April 2021.

(6) For a full discussion of Chapter 11 in its historical context, see the American Bankruptcy Institute (ABI) Commission to Study the Reform of Chapter Full Report - online: www.commission.abi.org/full-report.

(7) C. Paulus, “A. Vision of the European Insolvency Law” (2008) 17 Norton Journal of Bankruptcy Law and Practice 607, 611.

(8) There is probably no universally recognised definition of “security” or “security rights” but it is generally taken as meaning a right over property to ensure the payment of money or the performance of some other obligation. The property over which security is taken is referred to as “secured” or “collateralised”.

(9) UNCITRAL, “Draft Legislative Guide on Secured Transactions – Report of the Secretary General – Background Remarks (A/CN.9/WG.VI/WP.2)”, at para. 2 (2002) https://undocs.org/en/A/CN.9/WG.VI/WP.2.

(10) See generally J. Armour, A. Menezes, M. Uttamchandani and K. van Zwieten, “How do creditor rights matter for debt finance? A review of empirical evidence” in F. Dahan (ed.) Research handbook on secured financing in commercial transactions (2015, Edward Elgar, Cheltenham), chapter 1. See also World Bank Building Effective Insolvency Systems – A report from the Working Group on Debtor-Creditor Regimes (1999) at p. 3 and see generally D. Arner, Financial Stability, Economic Growth and the Role of Law (New York, CUP, 2007).

(11) See generally J. Stiglitz and A. Weiss “Credit Rationing in Markets with Imperfect Information” (1981) 71 American Economic Review 393; G. Akerlof “The Market for “Lemons”: Qualitative Uncertainty and the Market Mechanism” (1970) 84 Quarterly Journal of Economics 488; O. Hart and J. Moore “Default and Renegotiation: A. Dynamic Model of Debt” (1998) 113 Quarterly Journal of Economics 1.

(12) See Directive (EU) 2019/1023 Article 6(8): “The total duration of the stay of individual enforcement actions, including extensions and renewals, shall not exceed 12 months. Where Member States choose to implement this Directive by means of one or more procedures or measures which do not fulfil the conditions for notification under Annex A to Regulation (EU) 2015/848, the total duration of the stay under such procedures shall be limited to no more than four months if the centre of main interests of the debtor has been transferred from another Member State within a three-month period prior to the filing of a request for the opening of preventive restructuring proceedings”.

(13) On the latter Convention see the article by one of its main architects, M. Balz, “The European Convention on Insolvency Proceedings” (1996) 70 American Bankruptcy Law Journal 485. In the early 1990s the idea of a European Community Bankruptcy Convention was discussed among the EC Member States and eventually signed by all the States in 1996 with the exception of the UK. The UK withheld its signature as retaliation for the treatment suffered during the “beef war” when the importation of UK beef was banned by certain Member States, although it also appears that there were concerns about the special position of Gibraltar in the context of the Convention; on this see generally I Fletcher, Insolvency in Private International Law (Oxford, OUP, 2nd ed, 2005), pp. 354-357. But the concept of cross-border cooperation among EU Member States was later revived and it was decided to proceed by way of a Regulation on insolvency proceedings.

(14) Essentially this means the law of the State where the law is located.

(15) Formerly Article 5 Regulation 1346/2000.

(16) Case C-557/13, [2015] Bus LR 855 at [38]-[40]. See also Case C-649/13 Nortel Networks SA v Rogeau [2015] 2 BCLC 349, which implies that, in certain circumstances, two or more courts might have concurrent jurisdiction to rule on the location of assets on the basis of the rules set out in Article 2. The court noted that both courts will apply the same set of rules –thereby minimising the risk of incompatible judgments– and also suggested that the Article 2 establishes a hierarchy of rules that must be applied (para. 54).

(17) EC Council document 6500/96, DRS 8 CFC. The report can also be found at aei.pitt.edu/952.

(18) Para. 100 of the report.

(19) Ibid., para.101.

(20) Case C-195/15 SCI Senior Home ECLI:EU:C:2016:804.

(21) Case C-195/15 SCI Senior Home at para. 18.

(22) Ibid., para. 29.

(23) Ibid., para. 30.

(24) Ibid., para.102.

(25) Ibid., para. 103.

(26) Article 8(2)(a).

(27) Article 8(2)(b). “Guaranteed” would seem to mean “secured” and “guarantee” would seem to mean “security”.

(28) Article 8(2)(c).

(29) Article 8(2)(d).

(30) Leading cases on the floating charge include Re Brumark Investments Ltd [2001] UKPC 28; [2001] 2 AC 710 and Re Spectrum Plus Ltd [2005] UKHL 41; [2005] 2 AC 680.

(31) For a somewhat differently nuanced statement, see p. 209 of the United Nations Commission on International Trade Law (UNCITRAL) Legislative Guide on Insolvency, (United Nations: New York, 2005) (“The purpose of reorganization is to maximize the possible eventual return to creditors, providing a better result than if the debtor were to be liquidated and to preserve viable businesses as a means of preserving jobs for employees and trade for suppliers. With different constituents involved in reorganization proceedings, each may have different views of how the various objectives can best be achieved”).

(32) Directive (EU) 2019/1023 Article 5.

(33) Ibid., at article 5(3). For criticism see Horst Eidenmüller, “The Rise and Fall of Regulatory Competition in Corporate Insolvency Law in the European Union” (2019) 20 EBOR 547 at pp. 559-560 (“This requirement restricts contractual freedom, reduces flexibility and makes the restructuring process more complicated and costly. Engaging advisors or experts should have been left to the participating stakeholders…”).

(34) Directive (EU) 2019/1023 at article 6(1).

(35) Ibid., at article 6(6).

(36) Ibid., at article 6(8).

(37) Ibid., at article (3).

(38) Case C-85/12 [2013] All ER (D) 301.

(39) M. Virgós and F. Garcimartín, The European Insolvency Regulation: Law and Practice (Kluwer, 2004) at p. 76.

(40) See Recommendation 50 of the UNCITRAL Legislative Guide on Insolvency.

(41) See HR Rep No. 595, 95th Congress, Ist Session 339 (1977).

(42) For discussion see generally American Bankruptcy Institute (ABI) Commission to Study the Reform of Chapter Full Report at pp. 70-71 and available at www.commission.abi.org/full-report/. See in particular the statement at p. 71 “the Commission agreed that, for purposes of determining adequate protection …, a secured creditor’s interest in the debtor’s property should be determined based on the “foreclosure value” of such interest, instead of more commonly used valuation standards such as liquidation value and going concern value. The foreclosure standard is meant to capture the value of the secured creditor’s interest as of the petition date (i.e., the value that a secured creditor’s state law foreclosure efforts would produce if the automatic stay were lifted or the bankruptcy case had not been filed)”.

(43) (1935) 75 F2d 941 at 942.

(44) See Article 6(9)(c).

(45) Article 6(5).

(46) Article 6(4)(b).

(47) Article 6(7)(b).

(48) Article 6(9) final paragraph.

(49) Article 6(9) and see also Article 6(8) limiting the total duration of the stay to 12 months.

(50) See Recital 34 referring also to uncompensated loss or depreciation of collateral.

(51) United Timbers Association of Texas v Timbers of Inwood Forest Associates Ltd (1988) 484 US 365.

(52) For criticism of the pre Inwoods state of affairs see D. Baird and T. Jackson, “Corporate Reorganizations and the Treatment of Diverse Ownership Interests: A Comment on Adequate Protection of Secured Creditors in Bankruptcy” (1984) 51 U Chi L Rev 97 at 126-127: “A Chapter 11 proceeding typically buys time for the managers, the shareholders, and other junior owners at the expense of the more senior ones”.

(53) (1988) 484 US 365 at 375-376.

(54) See Pegasus Agency Inc v Grammatikakis (1996) 101 F 3d 882.

(55) Article 6(9)(a).

(56) See generally David Milman, “Moratoria on Enforcement Rights: Revisiting Corporate Rescue” [2004] Conv 89.

(57) See T.H. Jackson, Logic and Limits of Bankruptcy Law (Cambridge MA, Harvard University Press, 1986) at p. 189: “A rule that forces general creditors and shareholders to give secured creditors the full value of their claims (including compensation for the time value of money) imposes the cost of a decision to reorganize the firm entirely on the junior classes, who already stand to benefit if the firm succeeds. As a consequence, they have incentives that approximate those of a sole owner, and their decision about how to deploy the debtor’s assets will not be distorted by self-interest”.

(58) Ibid., at articles 9(4) and 10.

(59) Ibid., at article 11.

(60) For a general discussion of the issues see J. Payne, “Debt Restructuring in English Law: Lessons From the United States and the Need for Reform” (2014) 130 Law Quarterly Review 282. It should be noted that, in the U.K., The Insolvency Service, A Review of the Corporate Insolvency Framework at p. 23, 9.9 (May 2016) states (“The cram-down of a rescue plan onto “out of the money” creditors is currently possible in the UK only through a costly mix of using a scheme of arrangement and an administration. The Government believes that developing a more sophisticated restructuring process with the ability to “cram-down” may facilitate more restructurings, and the subsequent survival of the corporate entity as a going concern”.). The position was changed in the UK with the introduction of restructuring plans (schemes of arrangement under the new Part 26A UK Companies Act) in the Corporate Insolvency and Governance which was rushed through the UK Parliament in early summer 2020 as an intended response to the COVID 19 crisis.

(61) Article 2(6) does not explicitly address whether the test should be satisfied also with respect to a dissenting creditor within a consenting class.

(62) For a discussion of different valuations and the correct approach to adopt in a restructuring context see N. Tollenaar, Pre-Insolvency Proceedings – A Normative Foundation and Framework (Oxford, OUP, 2019) pp. 99-113.

(63) Directive (EU) 2019/1023 at recital 50. See also L. Stanghellini, R. Mokal, C. Paulus and I Tirado eds Best Practices in European Restructuring: Contextualised Distress Resolution in the Shadow of the Law (Milano: Wolters Kluwer, 2018) at p. 183 (“While there is obviously nothing wrong per se in the practice of requesting plan examinations for purposes other than increasing transparency in negotiations, it does create additional costs for an already distressed debtor, hence damaging the interests of non-participating stakeholders”).

(64) US Bankruptcy code, at s 1129)(7)(A)(ii).

(65) Ibid., section 1129(b)(i) (“the court, on request of the proponent of the plan, shall confirm the plan … if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan”).

(66) See Section 1129(b)(2)(A) US Bankruptcy Code.

(67) But for a suggestion that the “absolute priority” principle in the US is less absolute than it might superficially appear see Mark Roe and Frederick Tung, “Breaking bankruptcy priority: How rent-seeking upends the creditors’ bargain” (2013) 99 Virginia Law Review 1235 and also Stephen Lubben, “The Overstated Absolute Priority Rule” (2016) 21 Fordham Journal of Financial and Corporate Law 581.

(68) See Bruce Markell, “Owners, Auctions, and Absolute Priority in Bankruptcy Reorganizations” (1991) 44 Stan L Rev 69 at 123 arguing that this priority scheme is recognized as “the cornerstone of reorganization practice and theory”.

(69) Czyzewski v Jevic Holding Corp, 580 US, 137 Supreme Court 973. For an analysis see Jonathan Lipson, “The Secret Life of Priority: Corporate Reorganization after JEVIC”, (2018) 93 Washington Law Review 645.

(70) US Bankruptcy Code, supra, at s 725.

(71) Ibid., ss 507 and 726.

(72) Ibid., ss 725, 726.

(73) Ibid., ss 1129(a)(7), 1129(b)(2).

(74) See generally Douglas Baird, “Priority Matters: Absolute Priority, Relative Priority and the Costs of Bankruptcy”, (2016) 165 U Penn L Rev 785; Anthony J. Casey, “The Creditors’ Bargain and Option-Preservation Priority in Chapter 11”, (2011) 78 U Chi L Rev 759; Edward Janger, “The Logic and Limits of Liens”, (2015) U Ill L Rev 589.

(75) See Stephen Lubben, “The Overstated Absolute Priority Rule”, (2016) 21 Fordham J Corp & Fin L 581 and see also National Bankruptcy Review Commission Report Bankruptcy: The Next Twenty Years (1997) at p. 566, online: https://govinfo.library.unt.edu/nbrc/reportcont.html.

(76) Directive (EU) 2019/823, supra, at Article 11(1)(d).

(77) See European Council, “Directive on business insolvency: Council agrees its position”, Council of the EU Press Release (October 10, 2018) online: <https://www.consilium.europa.eu/en/press/press-releases/2018/10/11/directive-on-business-insolvency-council-agrees-its-position/>.See also “Proposal for a Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30. Confirmation of the final compromise text with a view to agreement”, 15556/18, 2016/0359 (COD), at article 11.

For a detailed analysis of the evolution of the Directive through its various iterations see generally JCOERE Consortium (Judicial Co-operation Supporting Economic Recovery in Europe), “Identifying substantive and procedural rules in preventive restructuring frameworks including the Preventive Restructuring Directive which may be incompatible with judicial cooperation obligations” (2019) Report 1: Chapter 3, online: https://www.ucc.ie/en/media/projectsandcentres/jcoereproject/bannerimages/Chapter3FINALPDF.pdf.

(78) See generally Confirmation of the final compromise text, supra.

(79) But for criticism see Rolef de Weijs, Aart Jonkers and Maryam Malakotipour, “The Imminent Distortion of European Insolvency Law: How the European Union Erodes the Basic Fabric of Private Law by Allowing ‘Relative Priority’ (RPR)”, Amsterdam Law School Research Paper No. 2019-10, online: https://europeanlawblog.eu/2019/03/15/the-imminent-distortion-of-european-private-company-and-insolvency-law-by-the-introduction-of-relative-priority-european-style/. See also Rolef de Weijs, “Harmonization of European Insolvency Law: Preventing Insolvency Law from Turning against Creditors by Upholding the Debt–Equity Divide”, (2018) 15 European Company and Financial Law Review 403– 444 and Rolef de Weijs and Meren Baltjes, “Opening the Door for the Opportunistic Use of Interim Financing: A Critical Assessment of the EU Draft Directive on Preventive Restructuring Frameworks” (2018) 27 International Insolvency Review 223-254.

(80) See generally Giulia Ballerini, “The priorities dilemma in the EU preventive restructuring directive: Absolute or relative priority rule?” (2021) 30 International Insolvency Review 34-53; Axel Krohn,

“Rethinking priority: The dawn of the relative priority rule and the new ‘best interests of creditors’ test in the European Union” (2021) 30 International Insolvency Review 75-95.

(81) Ibid., at recital 57 about Member States “not making the adoption of a restructuring plan conditional on the agreement of equity holders that, upon a valuation of the enterprise, would not receive any payment or other consideration if the normal ranking of liquidation priorities were applied”.

(82) Ibid., at Article 14(2).

(83) American Bankruptcy Institute Full Report at pp. 207-224.

(84) Ibid., at p. 207.

(85) See generally Sarah Paterson, “Rethinking Corporate Bankruptcy Theory in the Twenty-First Century” (2016) 37 Oxford Journal of Legal Studies 697; Sarah Paterson, “Bargaining in Financial Restructuring: Market Norms, Legal Rights and Regulatory Standards” (2014) 14 Journal of Corporate Law Studies.

(86) For a discussion of the underlying principles see Stephan Madaus, “Leaving the Shadows of US Bankruptcy Law: A Proposal to Divide the Realms of Insolvency and Restructuring Law”, (2018) 19 EBOR 615 particularly section 5.2. See also Best Practices in European Restructuring: Contextualised Distress Resolution in the Shadow of the Law (Milano: Wolters Kluwer, 2018) at pp. 45-47 but for a somewhat different perspective see also pp. 32-33.

(87) For example, in the SGL Carbon Corporation 200 F3d 154 (3rd Cir 1999), the court dismissed the company’s Chapter 11 case because of bad faith demonstrated by a lack of “reorganization purpose”.

(88) European Convention on Human Rights, Protocol 1 at Article 1 provides: “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties”. The European Court of Human Rights in Sporrong and Lönnroth v Sweden (1983) 5 EHRR 35 at para. 61 said that it “must determine whether a fair balance was struck between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights”. See also James v United Kingdom (1986) 8 EHRR 123 at para. 37; Lithgow v United Kingdom (1986) 8 EHRR 329 at para. 106 and see generally Ting Xu, “A law-and-community approach to compensation for takings of property under the European Convention on Human Rights” (2019) 39 Legal Studies 398-414.

(89) See http://www.bobwessels.nl/blog/2019-03-doc10-the-full-version-of-my-reply-to-professor-de-weijs-et-al/.

(90) See Rolef de Weijs, Aart Jonkers and Maryam Malakotipour, “The Imminent Distortion of European Insolvency Law: How the European Union Erodes the Basic Fabric of Private Law by Allowing “Relative Priority” (RPR)”, Amsterdam Law School Research Paper No. 2019-10 online: https://europeanlawblog.eu/2019/03/15/the-imminent-distortion-of-european-private-company-and-insolvency-law-by-the-introduction-of-relative-priority-european-style/. See also Rolef de Weijs, “Harmonization of European Insolvency Law: Preventing Insolvency Law from Turning against Creditors by Upholding the Debt–Equity Divide”, (2018) 15 European Company and Financial Law Review at pp. 403-444 and Rolef de Weijs and Meren Baltjes, “Opening the Door for the Opportunistic Use of Interim Financing: A Critical Assessment of the EU Draft Directive on Preventive Restructuring Frameworks”, (2018) 27 International Insolvency Review at pp. 223-254.

(91) Nicolaes Tollenaar, “The European Commission’s Proposal for a Directive on Preventive Restructuring Proceedings”, (2017) 30 Insolvency Intelligence 5. See also Horst Eidenmüller, “Contracting for a European insolvency regime” (2017) 18 EBOR 273-304.

(92) See Horst Eidenmüller, “The Rise and Fall of Regulatory Competition in Corporate Insolvency Law in the European Union” (2019) 20 EBOR 547 at 559: “The idea that a complicated plan confirmation process including “cross-class cram-downs” (Articles 8 et seq.) could be suitable for restructuring SMEs is far-fetched. A process that aims to achieve this must be simple and quick, and a bargaining process amongst stakeholder classes –which includes shareholders (Article 12)– coupled with a complicated voting and confirmation system is just the opposite”.

(93) Small Business Reorganization Act, 11 U.S.C ss. 1181-1195 (Pub. L No. 116-54). For an analysis of the Act and the background to its enactment see E.J. Janger, “The U.S. small business bankruptcy amendments: A global model for reform?” (2020) 29 International Insolvency Review 254.

(94) On the Act see the US Congressional testimony online: https://www.congress.gov/event/116th-congress/house-event/109657 and in particular the statement by the ABI Commission Co-Chair, Robert Keach, “Chapter 11 doesn’t work for small and medium-sized businesses because the Bankruptcy Code …(d) makes it difficult for a small business owner to maintain an ownership interest in the business under the current Chapter 11”. It should be noted that the relevant liability threshold was amended (temporarily) by the Coronavirus Aid Relief and Economic Security Act P.L. 116-136, H.R. 748 (2020) passed as a result of the COVID-19 crisis.

(95) (1988) 485 US 197.

(96) See generally Giulia Ballerini, “The priorities dilemma in the EU preventive restructuring directive: Absolute or relative priority rule?” (2021) 30 International Insolvency Review 34 text accompanying footnote 157.

(97) See Directive (EU) 2019/823 at recitals 55 and 56.

(98) Ibid., at article 11(2).

(99) For a comprehensive analysis see the INSOL Special Report by Gerard McCormack, Permanent changes to the UK’s corporate restructuring and insolvency laws in the wake of COVID-19 (London, INSOL International, October 2020).

(100) UK Companies Act 2006, s 901D.

(101) Possibly an alternative plan or a sale of the business rather than a liquidation/administration.

(102) See Parliamentary Explanatory Notes at para. 205 “When determining the ‘relevant alternative’ the court should consider what would be most likely to occur in relation to the company if the restructuring plan were not sanctioned” and available at https://publications.parliament.uk/pa/bills/lbill/58-01/113/5801113en.pdf.

(103) Re DeepOcean 1 UK Limited [2021] EWHC 138 (Ch) (28 January 2021).

(104) Re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch) (12 May 2021).

(105) Ibid., para. 242. See also Riz Mokal in two articles on Part 26A in Butterworths Journal of International Banking and Financial Law in December 2020 (“The two conditions for the Part 26A cram down”) and January 2021 (“The court’s discretion in relation to the Part 26A cram down”).

(106) (1999) 526 US 434.

(107) Re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch) (12 May 2021), para. 289.

(108) See generally J. Payne and J. Sarra, “Tripping the Light Fantastic: A Comparative Analysis of the European Commission’s Proposals for New and Interim Financing of Insolvent Businesses” (2018) 27 International Insolvency Review 178.

(109) Article 2(8).

(110) Article 2(7).

(111) Articles 17(1)(b) and 1(1) as well as recital 67.

(112) See generally R Bork, “Transactions at an Undervalue: A Comparison of English and German Law” (2014) 14 Journal of Corporate Law Studies 453; and for a UK/US comparison see G McCormack, “Swelling Corporate Assets: Changing What Is on the Menu” (2006) 6 Journal of Corporate Law Studies 39.

(113) See also Recommendation 67 of the UNCITRAL Legislative Guide on Insolvency which suggests that new finance may trump existing security interests if certain conditions are met including: (i) existing security interest holders were given the opportunity of being heard; (ii) the debtor can show that it cannot obtain the finance in any other way, and (iii) the interests of existing secured creditors will be protected.

(114) Article 17(4).

(115) See generally H Eidenmüller, “Comparative Corporate Insolvency Law” in JN Gordon and WG Ringe The Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2018) at p. 1003; Horst Eidenmüller, “The Rise and Fall of Regulatory Competition in Corporate Insolvency Law in the European Union” (2019) 20 EBOR 547.It should be noted that the Corporate Insolvency and Governance Act 2020 has introduced new restructuring procedures in the UK including “Part 26A” schemes of arrangement with provision for cross-class creditor cram-down.

(116) See generally E. Ghio, “Transposing the preventive restructuring directive 2019 into French insolvency law: Rethinking the role of the judge and rebalancing creditors’ rights” (2021) 30 International Insolvency Review 54 at 55 (footnotes omitted).

(117) European Council, Regulation 2015/848 L141/19 which replaces Regulation 1346/2000.

(118) See recital 13 of the preamble to the Directive, supra.

(119) It should be noted that insolvency judgments and orders from courts (though not from administrative tribunals) may also be recognised and enforced in other EU Member States pursuant to the Brussels 1 Regulation on Jurisdiction and enforcement of judgments Regulation (EU) No. 1215/2012 - rather than pursuant to the Insolvency Regulation and see generally Dominik Skauradszun and Walter Nijnens, “Brussels 1a or EIR recast? The allocation of Preventive Restructuring Frameworks” (2019) 16 International Corporate Rescue 193. See the judgment of the Court of Justice of the European Union in the Pula Parking Case C-551/15 (2017) at para. 54 (“Compliance with the principle of mutual trust … which underlies that regulation requires, in particular, that judgments the enforcement of which is sought in another Member State have been delivered in court proceedings offering guarantees of independence and impartiality and in compliance with the principle of audi alteram partem”).

(120) Regulation 2015/848, supra, footnote 93 at article 3.

(121) Ibid., at articles 19, 20 and 32.

(122) See e.g. the judgment of the CJEU in Eurofood IFSC Ltd (2006) Case C-341/04 ECR I 3813 and Gerard McCormack, “Jurisdictional Competition and Forum Shopping in Insolvency Proceedings” (2009) 68 Cambridge Law Journal 169-197.

(123) Regulation 2015/848, at recital 5 which characterises this practice as “forum shopping” though recital 29 appears to distinguish between “good” forum shopping and fraudulent or “abusive” forum shopping by stating that the Regulation should contain measures to prevent the latter.

(124) R. Bork, “Preventive Restructuring Frameworks: A ‘Comedy of Errors’ or ‘All’s Well That Ends Well’?” (2017) 14 International Corporate Rescue 417, 419.