The Council agreed its position, or general approach, on an EU directive harmonising certain aspects of insolvence law on Thursday. The Union thus moves, after years of fragmentation, toward unified bankruptcy standards – but gaps remain. 

The Council adopted its position on a directive to harmonise core aspects of bankruptcy law on Thursday, aiming to lure cross-border investors by streamlining the liquidation of failed firms and the rescue of viable ones. Yet the deal, forged after three years of negotiations, remains a fragile compromise – one that exposes both the promise and limits of EU integration. 

Cross-border investments will become easier

The push traces back to the EU’s 2020 Capital Markets Union (CMU) Action Plan, which identified disparate insolvency rules as a critical barrier to cross-border investment. With national regimes varying wildly – from creditor priorities to timelines for asset recovery – investors faced costly uncertainty. The Commission’s 2022 proposal sought “minimum harmonisation” in three areas: asset recovery, procedural efficiency, and fair creditor payouts. 

Key measures include granting insolvency practitioners access to pan-EU bank account and beneficial ownership registers, accelerating asset tracing. Directors must now file for bankruptcy within three months of detecting financial distress – a rule meant to curb value destruction, though member states can waive it if equivalent creditor safeguards exist. Microenterprises gain simplified winding-down procedures, while creditors receive standardized “factsheets” demystifying national rules. 

The core reforms

The directive’s flagship innovation is the EU-wide rollout of pre-pack insolvencies, allowing firms to negotiate asset sales before formal proceedings begin. Essential contracts (e.g., supplier agreements) can transfer to buyers without counterparty consent – a provision the European Economic and Social Committee (EESC) called “double-edged.” While pre-packs aim to preserve business continuity, the EESC warned in March 2023 that forcing suppliers to honour transferred contracts risks “undermining contractual freedom.” The Council countered with safeguards: transfers can be blocked if “manifestly unfair,” and micro-firms may opt out. 

This law cuts down divergences holding back investment. Adam Bodnar, Poland’s justice minister

Equally contentious are creditor committees, now mandatory for larger insolvencies. These panels standardise creditor representation, rights, and liability rules – a nod to small players often sidelined by cross-border complexity. Yet flexibility remains: states may limit committees to big firms, and dissenting creditors can abstain. 

Road to (partial) harmony

The legislative journey began turbulently. The Commission’s 2022 draft faced immediate pushback over its omission of harmonised insolvency triggers and claim hierarchies – flaws the EESC called “glaring gaps.” Parliament’s Legal Affairs Committee, led by Emil Radev (EPP/BUL), inherited the dossier in 2023 after the departure of Pascal Arimont (EPP/BEL). Divisions deepened as the Economic Committee, under René Repasi (S&D/GER), pushed for stricter creditor oversight, while the Internal Market Committee refused to weigh in at all. 

The Council’s December 2024 compromise papered over cracks. Member states agreed to share insolvency data but retained discretion on key definitions. Directors’ duties were softened with opt-outs, and pre-pack safeguards diluted. “This is harmonisation à la carte,” grumbled one NGO advocate. 

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What next?

With the Council’s position set, the baton passes to Parliament, where Mr Radev must reconcile competing visions. The EESC’s plea to mandate supplier consent in pre-packs – a step the current text avoids – will test lawmakers’ appetite for rigidity. Meanwhile, critics warn that without uniform rules on insolvency triggers (e.g., when exactly a firm is deemed bankrupt), fragmentation will persist. 

An evaluation looms in five years, but for investors, the directive’s success hinges on two metrics: recovery rates and time-to-resolution. If harmonisation trims the current one to three-year insolvency timelines – a key CMU goal – cross-border capital flows could surge. If not, the EU’s capital markets will remain a patchwork in all but name. 

As Adam Bodnar, Poland’s justice minister, declared: “This law is an important step forward to make the EU more attractive for investors. It cuts down divergences holding back investment. It cuts down divergences holding back investment.” True enough – but whether it cuts deep enough remains to be seen.