The Changing Framework of Insolvency Law in the European Union: Step Toward Greater Convergence and Preventive Restructuring

Insolvency law in the European Union has undergone substantial evolution in recent years. The changes reflect a broader shift in legal and policy thinking, away from a liquidation-centric approach and toward corporate rescue, early intervention, and cross-border coordination.

As economic conditions across the EU continue to present challenges for businesses, insolvency frameworks are increasingly recognized as critical tools not only for managing financial distress, but also for safeguarding economic resilience, protecting jobs, and maintaining trust in the internal market.

The Role of the EIR Recast: Foundations of Cross-Border Cooperation

The Recast European Insolvency Regulation (Regulation (EU) 2015/848) remains the cornerstone of cross-border insolvency within the EU. In force since June 2017, it applies to all Member States except Denmark, and governs key aspects such as:

• Jurisdiction over main and secondary proceedings;
• Recognition and enforcement of insolvency decisions across borders;
• Coordination between courts and insolvency practitioners;
• Interconnected national insolvency registers, which enhance transparency.

The EIR Recast introduced important innovations, including group coordination proceedings and COMI (centre of main interests) clarifications to reduce forum shopping. While procedural in nature, it plays a vital role in ensuring predictability and legal certainty in insolvency proceedings involving cross-border elements.

Directive 2019/1023: A Shift Toward Preventive Restructuring

The Directive (EU) 2019/1023 on Preventive Restructuring Frameworks marked a significant policy shift at the EU level. Its objectives are to:

• Enable viable businesses in financial distress to restructure at an early stage;
• Reduce the stigma of insolvency by offering a second chance;
• Improve the efficiency of insolvency, restructuring, and discharge procedures.

Key innovations under the Directive include:

• A debtor-in-possession model to retain control during restructuring;
• A stay of individual enforcement actions to create breathing space;
• A requirement for cross-class cram-down mechanisms;
• Enhanced safeguards for creditors and employees.

Most Member States have completed or are in the final stages of transposing the Directive. However, implementation varies in scope and ambition, raising questions about the degree of practical harmonization achieved to date.

Toward Further Harmonisation: The 2022 Proposal for an Insolvency Directive

In December 2022, the European Commission published a Proposal for a Directive on the harmonisation of certain aspects of insolvency law, aiming to address continued fragmentation in national insolvency regimes. The proposal focuses on:

• Avoidance actions and suspect periods;
• Asset tracing and recovery tools;
• Standardised pre-pack proceedings;
• Clearer rules on director responsibilities in the vicinity of insolvency;
• Simplified winding-up procedures for microenterprises;
• Greater transparency of creditor ranking.

If adopted, this Directive would represent a major step toward substantive harmonisation, thus complementing the procedural coordination established by the EIR Recast.

Practical Implications for Businesses and Practitioners

For legal practitioners, insolvency advisors, and corporate stakeholders, these developments underscore several key trends:

1. Shift from liquidation to rescue: There is a growing policy consensus that preserving viable businesses through restructuring is preferable to liquidation.
2. Cross-border complexity: As cross-border business activity increases, so does the relevance of instruments like the EIR Recast.
3. Preventive action and early warning: Businesses must monitor financial health and seek restructuring solutions before formal insolvency.
4. Legal adaptability: Practitioners must stay agile and informed as Member States introduce or revise restructuring frameworks.
5. Harmonisation vs. legal tradition: Balancing EU goals with national legal cultures remains a practical challenge, particularly in civil law jurisdictions.

Conclusion

Insolvency law in the EU is no longer a matter of last resort for failing companies, rather it is an active policy area at the heart of economic governance. The interplay between the EIR Recast, the Preventive Restructuring Directive, and the 2022 harmonisation proposal, reflects the EU’s commitment to building a coherent and modern insolvency framework that supports early intervention, legal certainty, and economic sustainability.

Ivan Todorović

Partner

ivan.todorovic@prlegal.rs; legal@prlegal.rs;