February 22, 2016
Weil Gotshal & Manges has jointly produced a new report into European insolvency law reform with AFME and Frontier Economics, entitled “The Potential Economic Gains from Reforming Insolvency Law in Europe.” The report was submitted to the European Commission on February 22, 2016. The research shows that European insolvency law reform could boost GDP output and create jobs across Europe.
Currently, national European insolvency laws vary in many respects. These differences can have a range of negative effects on financial markets and the real economy, including:
- increasing uncertainty among investors;
- discouraging cross-border investment;
- discouraging the timely restructuring of viable companies in financial difficulty; and
- making it harder to address the high levels of non-performing loans (NPLs) in the European banking system.
To address these negative effects the report recommends the adoption of minimum standards for insolvency laws across Europe, and in particular:
- the introduction of a statutory stay to enable quick and effective restructurings;
- granting super-priority status to new financing to provide working capital to a distressed company;
- giving creditors stronger rights to propose viable restructuring plans; and
- requiring national insolvency agencies to publicly report on outcomes.
The economic impact of insolvency reform in Europe is a relatively new area of research and the amount of economic evidence that has been collated so far is quite limited. The study seeks to increase the evidence base by using market data in order to test the impact of the quality of national insolvency frameworks on corporate bond yields.
The report also contains an overview of current national insolvency regimes in France, Germany, Italy, Spain, the UK, the Netherlands and Luxembourg, as well as case studies relating to recent cross-border insolvency procedures and recent reforms at a national level.