Insol Europe report - Study on a new approach to business failure and insolvency

Original Report: Report on a new approach to business failure

 Who?

Insol Europe is an independent organisation of lawyers, accountants, academics and judges specialising in insolvency law. It supports research, procures international co-operation and assists at developing standards in insolvency law and practice.

 The Report

The study was commissioned to provide information on restructuring mechanisms already available in all member states, their main features, effective use, rate of success, cost to the debtor and length.

It provides the facts collected across the 28 member states in an Annex, and the report provides an analysis of this data, together with recommendations of the experts for an early preventive restructuring mechanism.

Different kinds of insolvency proceedings

The uniform and/or shared definition of ‘pre-insolvency proceedings’ poses a number of problems due to the differences and divergencies in the domestic laws of the member states.

The study

Areas covered by the study include the following:

• pre-insolvency proceedings—these are opened because the debtor is in financial difficulties but without any prior insolvency test, and involve the applicability of special rules of insolvency law. They include:

—confidential procedures, which will usually be proceedings in which the debtor tries to reach agreement with the creditors with the assistance of an expert or insolvency practitioner

—public pre-insolvency proceedings in which a supervisor, administrator or liquidator is appointed or which take place under the supervision of a court and which are opened without an insolvency test. The opening of these proceedings is public

• full insolvency proceedings—opened after the insolvency test has been carried out and the court has determined that the debtor is insolvent. They are either ‘debtor-in-possession’ (DIP) proceedings or proceedings conducted by a liquidator

• DIP proceedings—pre-insolvency proceedings or full insolvency proceedings in which the debtor is not divested of the assets but administers his or her assets under supervision by a court or a court appointed supervisor. They are designed to avoid liquidation and facilitate restructuring.

The report also outlines recommendations for preventive pre-insolvency proceedings, along with supporting measures. In order to assure the effectiveness of an early rescue mechanism, it is imperative to implement measures which ensure that trading of the debtor can continue unimpaired. This applies in particular to confidential proceedings.

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