New EU Directive on insolvency law close to the finish line – Council and Parliament pave the way for trilogue negotiations

Almost three years ago, on 7 December 2022, the European Commission published a proposal for a Directive on the harmonisation of certain aspects of insolvency law (COM (2022) 702 final) (the "CommissionProposal"). The aim of the initiative is to further harmonise insolvency proceedings within the European Union. This project is embedded in other measures for the further developmentment of the EU Capital Markets Union.

We have already dealt with the Commission Proposal  in detail elsewhere. Since the end of May, the position of the Council of the European Union is known and summarised in theGeneral Approach(the "Council’s GA"). A little later, at the beginning of July, also the Position of the European Parliament (the "EP Position") was published.

In this article, we summarise the most relevant changes compared to the Commission Proposal, focusing in particular on insolvency avoidance law, duty of directors and the pre-pack proceedings. Since the legislative process is still ongoing, we will not go into all the details. It is noticeable that the positions of the Council and the Parliament differ in many ways – where relevant, we point out differences.

1. Changes compared to the Commission Proposal

1.1. Directive brings "only" minimum harmonisation

Both the Council’s GA and the EP Position emphasise that a minimum harmonisation is intended. Member States are therefore in principle free to adopt stricter or more far-reaching legislation, as long as it complies with EU law. At the same time, the definitions in Article 2 highlight that, for the purposes of the Directive, the terms "insolvency" and "directors" shall be understood in accordance with national law and will therefore not be further harmonised. Thus, these ‘hot topics’ are still not being addressed.

1.2. Avoidance actions (Title II)

• In terms of avoidance actions, a few wordings and details have been adjusted compared to the Commission Proposal, but essentially the provisions remain unchanged.
• Both in the Council's GA and in the EP Position, avoidance actions due to creditor preference in the case of congruent satisfactions or collateralisation in Article 6 (2) were "softened" to the effect that only actual knowledge of the debtor's insolvency should lead to the legal acts being voidable, but not "merely" negligent ignorance of the creditor. The Austrian provisions of §§ 30, 31 of the Austrian Insolvency Code are stricter. Because it is a minimum harmonisation, Austria is likely to retain these provisions, but could of course also align itself with the less strict standard of the Directive.
• For legal acts intentionally detrimental to creditors under Article 8, the Council's GA shortened the period for challenging the legal act from four to two years, also upon initiative of Austria (Eriksson, ZIK 2025/7). The EP Position calls for a period of three years.
• The three-year statute of limitation for avoidance actions (calculated from the opening of insolvency), which was still provided for in the Commission Proposal, was dropped in the Council's GA. Thus, any contradictions to the one-year period under § 43 (2) of the Austrian Insolvency Code would no longer be an issue. However, the EP Position still provides for such three-year period.
• Overall, our assessment remains that the avoidance provisions, if they come into force, would not trigger any significant need for change in Austria.

1.3. Pre-pack proceedings (Title IV)

• The regulations on the pre-pack proceedings (in the Council's GA the name was changed to a pre-pack mechanism) are mostly unchanged compared to the Proposal. However, Council and Parliament have included some clarifications and (creditor) protection mechanisms.
   
  • Both the Council's GA and the EP Position wish to restrict access to the preparation phase insofar as there must be at least a likelihood of insolvency of the company (the Council's GA, however, gives the Member States the choice of whether this condition is implemented).
  • Creditorprotection is to be strengthened by several measures. In particular, the best-interest-of-creditors test must be met, which, according to the EP Position, should explicitly include not only a piecemeal liquidation but also the sale of the business, or a part thereof, as a going concern, or, according to the Council’s GA (if provided for by the Member States), the next-best-alternative scenario.
  • According to the EP Opinion, it must be ensured that the debtor remains in possessionduring the preparation phase.
  • While the Commission Proposal provided that debtors must benefit from a stay of individual enforcement actions during the preparation phase, the Council’s GA now only provides for this optionally. According to the EP Position, the stay should continue to be mandatory for the Member States to implement, which in our opinion is to be welcomed.
  • Much discussion around the Commission Proposal focused on the provision that executory contracts which are necessary for the continuation of the business should automatically be assigned to the acquirer, particularly without consent of the counterparty. Both Council and Parliament now provide for possibilities to make the assignment dependent on the consent of the counterparty under certain circumstances. The Council's GA also provides for the possibility of a right of termination for the counterparty.
  • According to the Council's GA, necessary interim financing should be facilitated and Member States shall therefore ensure that such financing is not declared void, voidable or unenforceable. Such financing should also not lead to civil, administrative or criminal liability of the financier arising from a creditor disadvantage. However, the Member States can provide for an ex ante control in this regard.
     
• Also after involvement of the Parliament and the Council, pre-pack proceedings would still require a number of changes in Austria law. However, as already stated in our Blog to the Commission Proposal, a combination with the current Austrian insolvency law system seems still quite possible.

1.4. Directors’ duties (Title V)

• There was criticism from some Member States regarding the directors’ duty to submit a request for the opening of insolvency proceedings within three months of becoming aware of insolvency, as provided for in the Commission Proposal. Not all Member States provide for or support such a concept of a duty to file for insolvency, as it e.g. already exists in Austria or Germany. It is therefore not surprising that both Council and Parliament are calling for adjustments in this point.
• In Article 36a of Council’s GA, the dutyhas been "softened" twice.
   
  • Member States may provide that the duty is fulfilled by informing the public of the company’s insolvency through a notification in a public register within the same period, so that creditors can then file for insolvency (para 2a); and
  • much more relevant in practice: Member States may provide that directors may also take measures that are designed to avoid damage for the creditors of the insolvent company and ensure a level of protection of the general body of creditors that is equivalent to the protection provided by the duty to file (para 3). The nature of such equivalent measures remains unclear and could lead to legal uncertainty.
     
• The EP Position also contains similar proposals which should only apply to directors who are personally liable for the entire company liabilities, though.
• Under Austrian law, such provisions on a duty to file would not necessitate any changes. If the adjustments required in the Council’s GA are implemented, it can be assumed that even in Member States currently not providing for an explicit duty to file, no significant changes would be required.

1.5. Winding up of insolvent microenterprises (Title VI)

• Given numerous concerns expressed in this context, the decision of the Council and also the Parliament to completely delete the provisions on the simplified winding up proceedings of insolvent microenterprises does not come as a complete surprise. In addition to concerns about the practical applicability and possible impact on existing national systems, uncertainties regarding the concept of "microenterprises " and the scope of the procedure were also decisive. Looking at Austrian insolvency proceedings, which work very well and efficiently especially for small and micro enterprises, this is good news.
• However, the EP Position provides in Article 3a that the Member States should ensure that microenterprises also have access to insolvency proceedings if the debtor has no assets or the assets are unsufficient to cover the costs of the proceedings (including costs of the insolvency administrator). If implemented, this could lead to changes in Austrian insolvency law which provides that insolvency proceedings can only be initiated if there are sufficient funds or assets to cover at least the initial costs.

1.6. Miscellaneous

Council and Parliament have also proposed some adjustments to the other Titles. Apart from Title VI (see before), however, all Titles remained in the text.

2. Conclusion and outlook

As with the last EU initiative in the restructuring and insolvency context, Directive (EU) 2019/1023, the negotiations at EU level seem to bring several compromises and amendments in order to take into account the main concerns from the Member States. The Member States are therefore likely to have some room for manoeuvre in implementing a new Directive – this at the expense of deeper harmonisation. Also this time, it seems that fundamental and essential aspects such as the meaning of the term "insolvency" remain non-harmonised. 

Based on the statements now available, the planned Directive would likely only have limited impact on existing Austrian insolvency law. While other Member States may have more work to do (e.g. in terms of avoidance actions or directors’ duties), in Austria, the pre-pack proceedings will probably lead to the most need for change.

Now that Council and Parliament have both published their positions in quick succession, there seems to be momentum at EU level that could also lead to a quick conclusion of the upcoming trilogue negotiations. Many observers expect the adoption of the new Directive as early as the beginning of 2026. It remains to be seen how long the Member States will then have to implement it. While the Commission Proposal provided for a two-year implementation period, the Council calls for three years and the Parliament calls for only one year. Nevertheless, the new Directive appears to be close to the finish line.

Please note: This blog is for general information purposes only and in no way constitutes legal advice from Binder Grösswang Rechtsanwälte GmbH. The blog cannot replace individual legal advice. Binder Grösswang Rechtsanwälte GmbH accepts no liability of any kind for the content and accuracy of the blog.