A new EU directive aims to streamline insolvency procedures across member states, promising faster cross-border resolutions, stronger creditor involvement and a more predictable environment for investors. But the rules may not take effect until 2028.
The Council of the European Union has agreed on its position on a directive to harmonise certain aspects of national insolvency laws. The aim is to reduce legal fragmentation and make the EU a more attractive destination for cross-border and foreign investment.
Different national rules present hurdles for investors operating in more than one EU country. The new directive is designed to bring national regimes closer and strengthen the EU’s capital markets union.
Polish Minister of Justice, Adam Bodnar, commented: “This law is an important step forward to make the EU more attractive for investors. It can be a drawback to investment decisions when insolvency laws deviate too much between member states and with this law we will cut down on these divergences.”
At present, insolvency rules vary widely between EU member states. This creates uncertainty for investors and complicates businesses operating in multiple jurisdictions. Procedures, creditor rights, and restructuring options can differ from country to country, making it difficult to plan ahead or recover value from distressed businesses.
The proposed directive aims to address these inconsistencies by introducing common rules on key elements such as pre-packs and creditor representation, while still allowing member states some national flexibility.
One of the main changes is the introduction of a standardised pre-pack mechanism across all member states. Under this approach, the sale of a debtor’s business, or part of it, is negotiated before formal insolvency proceedings begin. The transaction can then be completed quickly once the proceedings are officially opened.
The new rules also allow for the automatic transfer of essential contracts to the buyer, without requiring the consent of the original contracting party. Some safeguards have been included to protect contractual rights.
In some instances, the directive also proposes a more formal role for creditors through the mandatory introduction of creditors’ committees. These committees are intended to improve creditor engagement, particularly for those with limited resources or located in other countries.
The composition, duties, and personal liability of the committee members will be aligned across member states. Governments will have the option to restrict this requirement to large enterprises.
The Council’s agreement clears the way for negotiations with the European Parliament, which will begin once the Parliament has adopted its own position.
The legislative process is expected to continue into 2026. Once a final agreement is reached, the directive will be formally adopted and published in the EU’s Official Journal. Member states will have 18 to 24 months to implement the rules nationally.
This means the new insolvency rules are unlikely to take effect before late 2027 or early 2028.
