Coronavirus (COVID-19)—A nucleus for significant reform

Coronavirus (COVID-19)—A nucleus for significant reform

On 1 September 2020, the European Bank for Reconstruction and Development (EBRD) launched an insolvency assessment on formal business reorganisation procedures in partnership with the United Nations Commission On International Trade Law (UNCITRAL), the International Law Development Organisation, INSOL Europe and INSOL International and in co-operation with the European Commission. Catherine Bridge Zoller, senior counsel at EBRD, provides further details of the project and how you can get involved.

What is the EBRD assessment?

The EBRD assessment is conducted by the Legal Transition Team, a small team of lawyers who are part of the Office of the General Counsel and work on legal reform and capacity building projects that support EBRD’s investments.

Assessments are at the centre of the EBRD’s efforts to foster investor-friendly, transparent and predictable legal environments. They are regularly carried out by the EBRD Legal Transition Team in commercially important legal fields to help highlight areas where a country’s legal or institutional framework needs improvement. While assessments are not transaction specific, they aim to identify the reforms that are needed to support the transactions managed by lawyers within the banking teams of the Office of the General Counsel.

In the current economic environment, the EBRD assessment is of utmost importance. Many businesses around the world have been severely affected by the coronavirus pandemic. While some businesses will be able to agree on a restructuring with their creditors, others will require formal legislative tools, including a moratorium on creditor action, to negotiate and agree a restructuring. Many will need further liquidity. There is general agreement that the crisis is particularly hard on small and medium sized enterprises, because of their small operating margins and lack of reserves to withstand the downturn in business activity without government support. The crisis is also especially challenging for emerging economies with limited resources and without a developed legal infrastructure that supports business.

Who can participate in the assessment?

The EBRD assessment will cover all economies where the EBRD invests and will extend to countries outside the EBRD regions for benchmarking purposes. The assessment includes an online questionnaire, targeted at respondents with a legal background in restructuring and insolvency, to collect information on the state of business reorganisation frameworks in a given jurisdiction. The questionnaire is open to the public and can be accessed on the new EBRD assessment website. The questionnaire is also accompanied by a short survey on non-performing loans (NPL) addressed to financial institutions and their advisors to identify potential obstacles for NPL resolution in the banking sector, which will suffer a deterioration in loan portfolios as a result of the economic crisis. We are inviting respondents with relevant knowledge to participate in the assessment. The questionnaire will remain open until 31 October 2020.

What is the aim of the assessment?

The EBRD assessment on business reorganisation is expected to uncover many areas for improvement of national insolvency legislation and greater harmonisation with international standards of best practice. Many countries still have old-fashioned insolvency systems that are geared towards liquidation and closure of the business rather than to helping debtors to survive. Weaknesses in formal reorganisation procedures have a negative impact on informal, out-of-court restructuring, since there is no credible threat or majority creditor led alternative to a fully consensual deal. Even in more advanced economies within the EU, there are significant gaps in formal reorganisation frameworks that can undermine the prospects of a successful business restructuring. For example, in some countries secured creditors are not required to be part of a reorganisation procedure and can enforce their security without restriction. Alternatively, it may be impossible under national legislation to compromise secured creditor claims within a reorganisation procedure without secured creditor consent, effectively resulting in a veto by individual creditor.

Within the EU, the culture around business reorganisation procedures will change significantly following a new Directive 2019/1023 on preventive restructuring (the Directive), published in June 2019. The Directive highlights a number of key features of any legislative framework that seeks to promote business rescue, including a requirement for there to be a procedure that allows the debtor to remain in possession, a moratorium on all creditor action (including enforcement of any security by secured creditors) to support the restructuring and protection for new financing provided in the context of a restructuring. The Directive is an ambitious effort to shift the emphasis of insolvency systems in favour of early, pre-insolvency restructuring. While the Directive is inspired by Chapter 11 of the United States Bankruptcy Code (not reported by LexisNexis® UK), it has certain notable differences. It is a minimum harmonisation measure and will not result in a uniformly applicable approach to restructuring across the EU. However, the flexibility of the Directive and the fact that it is based on concepts and high level principles means that it can be useful for national authorities outside the EU, who are considering longer term reforms to their insolvency legislation to support businesses. The EBRD Legal Transition Team has been able to draw upon the Directive and its experience of transposition of the Directive in Hungary and Latvia for the purpose of the assessment. In parallel, we have updated our Core Principles of an Effective Insolvency System in consultation with INSOL Europe, the World Bank and UNCITRAL, to reflect the greater emphasis on business restructuring. These principles provide a high level overview of the standards that insolvency systems should meet. The coronavirus pandemic has brought many challenges to society and the economy. Its effects in certain area, including work and digitalisation, may be long-lasting. For policymakers working in the field of insolvency and debt restructuring, the crisis offers an opportunity for significant reform. Much needs to be done in the EBRD regions to strengthen national reorganisation frameworks and to provide businesses and their creditors with the tools to achieve a successful restructuring. The EBRD assessment will help national authorities to think beyond emergency short-term legislation to the longer-term reforms necessary to help businesses return to viability and to protect jobs. Final country results and a cross-jurisdictional analysis will be published on the EBRD assessment website in the first quarter of 2020.


The Legal Transitions Team at EBRD is offering a series of free webinars. The latest webinar ‘Restructuring in the Covid-19 era: Overcoming regional roadblocks’ chaired by Philip Wood, CBE, QC (Hon) is available to view on demand here.

Catherine Bridge Zoller is a senior counsel in the Legal Transition Team at EBRD.

By ‘reorganisation procedures’ EBRD understand any legislative procedure(s) for restoring financial stability of a business, including any early, preventive or pre-packaged reorganisation procedure or general reorganisation-type insolvency procedure, which involves the restructuring of the debtor’s assets and liabilities or any other part of its capital structure.

The economies covered by the assessment where the EBRD invests include Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Egypt, Estonia, Georgia, Greece, Hungary, Jordan, Kazakhstan, Kosovo, Kyrgyz Republic, Latvia, Lebanon, Lithuania, Moldova, Mongolia, Montenegro, Morocco, North Macedonia, Poland, Romania, Russia, Serbia, Slovak Republic, Slovenia, Tajikistan, Tunisia, Turkey, Turkmenistan, Ukraine, Uzbekistan, West Bank and Gaza.

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About the author:

Anna joined the Restructuring and Insolvency team at Lexis®PSL in August 2013 from Berwin Leighton Paisner where she was a senior associate in the Restructuring Team.

Anna has worked on a number of large scale restructurings primarily in the UK market acting on behalf of lending institutions.

Recent transactions include the restructuring of a UK hotel chain and the administration sale of part of the Connaught group. Anna has also spent time on secondment at The Royal Bank of Scotland and trained at Clifford Chance qualifying in 2007.