Preventive Restructuring Frameworks: A Possible Solution for Financially Distressed Multinational Corporate Groups in the EU

Abstract

The difficulties of the effective rescue of multinational corporate groups (MCGs) in the EU have long been recognized. The limitations of the existing MCG rescue solutions, including substantive consolidation, procedural consolidation and procedural cooperation, mean that there is no panacea for preserving the value of financially distressed MCGs for creditors. It seems that a possible way to preserve the value of the MCGs worth rescuing is to avoid their free-fall insolvency at an early stage. In practice, many pan-EU groups decide to use English schemes of arrangement to stave off group-wide insolvency. This phenomenon corresponds to the recent European Commission's proposal for a Directive on preventive restructuring frameworks (PRFs) which aims to provide Member States with a minimum harmonization of restructuring tools to rescue financially distressed companies and to avoid their insolvency. Also, the new EU Regulation on insolvency proceedings has expended its scope to incorporate preventive restructuring procedures. This article will explore how preventive restructuring frameworks can work as a supplementary solution to preserve value for MCGs and examine whether this may improve the undesirable status quo.

Restructuring and Insolvency in Europe: Policy Options in the Implementation of the EU Directive

“…-Groups of companies: Member states have the option to extend the application of the restructuring procedure to groups of companies (see Zhang, 2019). Application of the preventive restructuring procedure to groups of companies requires the introduction of special rules for the coordination of procedures relating to the different companies belonging to the groups, including both national and foreign procedures.…”