Directive (EU) 2026 / 799 (the “Directive”) was proposed by the Commission on 7 December 2022, together with other measures intended to further develop the EU’s capital markets union. The Directive represents the culmination of a legislative process that began with the European Commission’s proposal of 7 December 2022 and marks another step toward greater harmonisation of substantive insolvency law across the European Union.

Member states have until 22 January 2029 to transpose the 2026 Directive and the Directive grants Member States discretion to adopt or maintain laws providing greater protection than that prescribed.

Objectives

The stated lack of harmonised insolvency regimes has consistently been identified as a barrier to cross-border investments. A 2015 report of the Council, the European Parliament, the Commission and the European Central Bank concluded that insolvency law was a key area for achieving a “true” capital markets union and that more harmonised insolvency rules contribute to improved certainty and cost reductions for investors.

Key Changes to the Irish Insolvency Regime
1) Avoidance Actions

The Directive establishes harmonised standards for the avoidance of transactions that are detrimental to the general body of creditors. The Directive provides that Member States shall ensure that legal acts which have been perfected prior to the opening of insolvency proceedings to the detriment of the general body of creditors are void, voidable or unenforceable. These standards are similar to pre-existing provisions concerning fraudulent dispositions and unfair preferences under the Irish regime.

2) Asset Tracing

Historically cross border asset tracing can present many challenges to insolvency office holders: ownership and asset registers are often disconnected; data is often not machine-readable; access to some registers is mediated through case-by-case requests and data protection considerations often increase time and costs associated with cross boarder asset tracing.

The Directive introduces provisions to ensure that insolvency courts and insolvency office holders have effective tools for locating and recovering assets belonging to the insolvency estate. The Directive provides that designated Courts or administrative bodies may obtain direct access to:

  1. Bank account information;
  2. Beneficial ownership data;
  3. Land registers;
  4. Movable property registers including registers of vehicles, ships and aircrafts;
  5. Registers of donations;
  6. Mortgage registers;
  7. Registers or databases containing information on the ownership of securities, such as central securities depositories, as defined in Article 2 of Regulation (EU) No 909/2014;
  8. Registers of pledges, including lease agreements, and of sale-purchase agreements with retention of title;
  9. Registers containing property seizure acts;
  10. Registers of intellectual property rights, including patent and trademark registers.

Member States shall ensure that insolvency practitioners, regardless of the Member State in which they have been appointed, have direct and expeditious access to information necessary for the purpose of identifying and tracing assets belonging to the insolvency estate, in accordance with conditions provided for by national law.

These provisions address a longstanding practical challenge in cross-border insolvencies: the difficulty of identifying and securing assets that debtors may have dispersed across multiple jurisdictions.

3) Pre-Pack Proceedings

Ireland currently has no formal statutory framework for pre-pack sales although pre-pack arrangements have often been employed in practice.

The Directive introduces a two-phase mechanism for the sale of a business as a going concern for debtors that are likely to become insolvent. The rationale underpinning this mechanism is that a pre-arranged sale of the business as a going concern generates more proceeds for creditors compared to a piecemeal sale of assets and preserves employment.

The mechanism must include:

  1. A preparation phase, during which debtors entering pre-pack proceedings remain in control of their assets and day-to-day operations while an independent monitor is appointed to oversee the sales process which is conducted by public auction. A stay on enforcement will apply during this phase.
  2. A liquidation phase, during which the court opens insolvency proceedings and approves the sale.
4) Directors’ Duty to Request Opening of Insolvency Proceedings

Irish law does not currently impose an express, positive duty on directors to file for insolvency within a specified timeframe.

The Directive expands on the existing duty of directors under Irish law to open insolvency proceedings promptly by imposing a new duty on directors to “submit a request for the opening of insolvency proceedings” within three months of having become aware, or being reasonably expected to have become aware, that the company is insolvent.

The objective is to minimise potential losses to creditors arising from the depletion of asset values that occurs when directors delay filing for insolvency after the company has become insolvent or is likely to become insolvent.

Member States must ensure that directors who do not comply with this duty are held personally liable for the resulting damage caused to creditors. The Directive provides that the duty may be suspended if directors take measures that are designed to avoid damage to creditors and which ensure an equivalent level of creditor protection as the requirement to open insolvency proceedings within three months provides.

5) Creditors’ Committees

Under the Directive, the establishment of a creditors’ committee must be permitted once insolvency proceedings are opened. A committee is to be established when the general meeting of creditors so decides or requests, or, where national law does not provide for a general meeting, when creditors request in accordance with national law. This will require only minor amendments to the current Irish position.

Conclusion

For Ireland, while the scope of the implementing legislation remains to be seen, the Directive will require meaningful legislative reform. Practitioners, creditors, and other stakeholders should begin familiarising themselves with the Directive’s requirements and monitoring the development of transposing legislation.

For more information or assistance with queries relating to the Directive, please contact John Fitzgerald or Alex Henderson.

No items found.