On 7 December 2022, the European Commission published its “Proposal for a Directive of the European Parliament and of the Council harmonising certain aspects of insolvency law“. The Proposal is published when the previous Directive dealing with insolvency law (Directive 2019/1023 on preventive restructuring frameworks) is still in the process of being transposed to all EU Member States.

The scope of the new Proposal is broad and covers:

• avoidance actions; 
• the tracing of assets belonging to the insolvency estate; 
• pre-pack proceedings; 
• the duty of directors to submit a request for the opening of insolvency proceedings; 
• simplified winding-up proceedings for microenterprises; 
• the drawing-up of a key information factsheet by Member States on certain elements of their national law on insolvency proceedings. 

Title III of the Directive covers the tracing of assets belonging to the insolvency estate

In this respect, it is worth mentioning that the Proposal has been published less than 10 days before UNCITRAL’s Group V on Insolvency Law meets in Vienna, on 16 December 2022, to discuss a similar initiative about asset tracing and recovery in insolvency proceedings (three years after a first Colloquium at UNCITRAL kicked-off the discussion).

This coincidence proves the importance that asset tracing and recovery is gaining in the international arena. It is expected that, as a result of the meeting, UNCITRAL will also issue a legislative text containing recommendations on the subject.

More powers for insolvency practitioners

On any case, according to the Explanatory Memorandum of the Proposal, the new Directive should aim “to maximize the recovery of value from the insolvent company for creditors”. For this purpose, “the provisions on avoidance actions and asset tracing mutually reinforce each other”. They do so by “introducing a minimum set of harmonized conditions for exercising avoidance actions” and also by giving more powers for insolvency practitioners, by granting them access to:

• Bank account information
• Beneficial ownership information
• Certain national asset registers, including those from other Member States.

A “targeted intervention”

The Explanatory Memoradum also mentions that Title III is a “targeted intervention”, to be put in context of the Regulation (EU) 2015/848, establishing that insolvency practitioners may exercise also in other Member States the powers conferred on them by the law of the Member State where the main insolvency proceedings have been opened.

In such regard, the Proposal grants more powers to insolvency practitioners than those they currently have in most EU Member States. For example, the powers of insolvency practitioners to access beneficial ownership registries is unheard of in most EU jurisdictions for domestic insolvency proceedings, let alone those with cross-border ramifications.

On other fronts, an intervention seems indeed recommendable to harmonize the right to access bank account information. To this end, the Proposal requires all Member States to designate, among its courts competent in insolvency matters, the courts empowered to access and search its national centralized bank account registry pursuant to Directive 2015/849, on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.

This provision might be a little redundant in the jurisdictions, like Spain, who already gave courts general access to a national database of bank accounts well before Directive 2015/849 was enacted. Having said that, by requiring Members States to designate courts empowered to access and search its national centralized bank account registry, the Proposal solves the issue of the competent court to provide such access to the insolvency practitioner appointed in the Member State where the main insolvency proceedings has been opened. This will certainly be of help to insolvency practitioners willing to use this asset tracing tool.

EU Member States should be more “UNCITRAL-friendly”, too

As mentioned, the UNCITRAL is currently considering putting together a similar proposal regarding asset tracing and recovery tools in insolvency proceedings. The work by UNCITRAL could lead to the publishing of a Model Law on the topic or, on any case, of a text recommending the enactment of asset tracing and recovery tools in insolvency proceedings.

The parallel work undertaken by UNCITRAL should be a wake-up call for many EU Member States whose laws are not all adapted to the works already performed by UNCITRAL in insolvency law – namely, the UNCITRAL Model Law on Cross-Border Insolvency and the UNCITRAL Model Law on Insolvency Related Judgments. These Model Laws, in a way, overlap with the similar EU instruments also existing on those same subject matters, with the important difference that many EU Member States (like Spain) do not have the same rules for insolvency proceedings opened in non-EU countries (like the USA, UK, LATAM, etc.) than those they have for those same proceedings coming from other EU Member States. This generates an asymmetry and, at the same time, a “fortress Europe” effect, which means that insolvency proceedings opened in non-EU jurisdictions are exposed to a “19th century-style” treatment that is detrimental for the ties of EU Members States with many of their other important commercial partners worldwide. Let’s hope that this gap will be overcome by having many EU Member States adopting the UNCITRAL Model Laws on insolvency law soon.