The new European harmonisation of insolvency: where insolvency law is heading
Insolvency has ceased to be a strictly national phenomenon. From Regulation (EU) 2015/848 on insolvency proceedings, which harmonises jurisdiction, recognition and applicable law, to Directive (EU) 2019/1023 on preventive restructuring frameworks, discharge of debt and disqualifications, the European Union has been building a common “law of business distress”. The new directive adopted in 2026, aimed at harmonising certain substantive aspects of insolvency proceedings, does not start from scratch: it builds on that existing framework and extends it to matters such as avoidance actions, asset tracing, pre-pack, directors' duties and creditor involvement. Rather than an article-by-article commentary, what matters is understanding what Europe is seeking to bring closer together, which areas may be affected in the coming years and why these questions form part of a trend towards European insolvency systems that are increasingly connected.
1.From conflict-of-laws harmonisation to substantive harmonisation
Until now, the core of European harmonisation in insolvency has been a matter of conflict of laws and of procedure. Regulation (EU) 2015/848, which replaced Regulation (EC) 1346/2000, lays down the rules on jurisdiction, recognition and enforcement of decisions, applicable law and cooperation in cross-border proceedings. Article 3 determines jurisdiction by reference to the debtor's centre of main interests, and article 7 establishes the lex concursus as the law applicable to the proceedings and to their effects, setting out in detail the matters it covers: debtors capable of being subject to insolvency, the composition of the estate, the powers of the debtor and of the insolvency practitioner, set-off, effects on current contracts, effects on individual enforcement actions, the recognition and treatment of claims, the distribution of the proceeds of realisation, the ranking of claims, the conditions for and the effects of the closure of the proceedings and the rules on the voidness, voidability or unenforceability of acts detrimental to the general body of creditors.
Directive (EU) 2019/1023, for its part, introduces a first level of substantive harmonisation in three areas: early warning systems, preventive restructuring frameworks and discharge of debt for entrepreneurs. Article 3 requires Member States to ensure that the debtor has access to early warning tools that make it possible to detect circumstances capable of giving rise to imminent insolvency and to alert the debtor to the need to act without delay. Article 4 requires debtors facing imminent insolvency to have access to preventive restructuring frameworks enabling them to restructure in order to avoid insolvency and to ensure their viability. Article 19 imposes specific obligations on company directors where insolvency is imminent, requiring them to have due regard to the interests of creditors, shareholders and other stakeholders, the need to take steps to avoid insolvency and the need to avoid wilful misconduct or gross negligence that jeopardises the viability of the business.
The new 2026 directive forms part of that evolution, but it goes a step further: it is no longer confined to harmonising access to preventive restructuring or to discharge of debt, but addresses substantive aspects of the insolvency proceedings themselves, with the aim of reducing the differences that still exist between national legal systems and which, according to the Commission, generate uncertainty, additional costs and obstacles to the free movement of capital and to freedom of establishment.
2.Avoidance actions and protection of restructuring transactions
One of the areas in which substantive harmonisation is most needed is that of avoidance actions. Article 7.2 m) of Regulation (EU) 2015/848 refers to the lex concursus to determine the rules relating to the voidness, annulment or unenforceability of acts detrimental to the general body of creditors. This has given rise to a wide diversity of national claw-back regimes, with differences in time limits, preconditions, presumptions of detriment and protection of particular transactions. Directive (EU) 2019/1023 had already introduced a first measure of harmonisation in this field, by requiring in article 18 that Member States ensure the protection of transactions that are reasonable and immediately necessary for the negotiation and implementation of a restructuring plan against actions for voidness, voidability or unenforceability on grounds of detriment to the general body of creditors, unless further grounds are present.
The new 2026 directive takes this line further, seeking a balance between the need to claw back into the insolvency estate detrimental acts carried out during the suspect period and the need to protect legitimate restructuring transactions. Experience with Directive 2019/1023 and with its transposition in legal systems such as the Spanish one, where article 667 of the “texto refundido de la Ley Concursal” —Spain's consolidated Insolvency Act— protects interim financing, new financing and transactions that are reasonable and necessary for the negotiation and implementation of court-confirmed plans against avoidance actions where the claims affected represent at least fifty-one per cent of the liabilities, has shown that legal certainty in this field is key if creditors and investors are to take part in restructurings without fearing that their transactions will later be set aside.
The harmonisation being pursued does not consist in imposing a single model of avoidance action, but in setting minimum standards of protection for certain categories of transaction, in particular those connected with preventive restructurings and with sales of business units, and in bringing closer together the criteria on suspect periods, presumptions of detriment and the treatment of acts involving related parties. The case law of the Court of Justice of the European Union on jurisdiction to hear actions to set transactions aside, such as the Seagon and Schmid judgments, has reinforced the idea that these actions are “annexed” to the insolvency proceedings and must be concentrated before the courts of the State in which those proceedings were opened, but substantive diversity remains considerable. The new directive seeks to reduce that diversity in essentials.
3.Asset tracing and cross-border recovery
Another axis of harmonisation is asset tracing and cross-border recovery. Regulation (EU) 2015/848 already contains rules on the location of assets for the purpose of determining the insolvency estate in main and secondary proceedings, and the case law of the Court of Justice has interpreted those rules in cases such as Nortel, which concerned the jurisdiction of the courts of the secondary proceedings to determine which of the debtor's assets were subject to those proceedings and the law applicable to making that determination. The Court held that the courts of the State in which the secondary proceedings were opened have jurisdiction, on an alternative basis to those of the main proceedings, to determine the assets subject to the effects of those proceedings, and that the location of the assets must be established in accordance with the uniform rules of the Regulation, which distinguish between tangible property, property or rights subject to registration, and claims.
The new 2026 directive builds on these developments in order to move towards harmonisation of asset tracing and asset recovery techniques, particularly where there has been fraud, concealment or international dispersal of assets. The Commission has identified asset tracing and recovery as an area in which the absence of common standards hampers the effectiveness of cross-border insolvency proceedings and encourages opportunistic behaviour. Coordination with UNCITRAL's work on asset tracing and recovery in insolvency and with the European rules on confiscation and asset recovery in criminal matters forms part of this trend.
4.Pre-pack and fast sales of business units
The pre-pack, understood as the confidential preparation of a sale of a business or business unit before the formal opening of insolvency proceedings, followed by a short procedure in which the pre-negotiated sale is approved and carried out, is another of the elements that the new 2026 directive seeks to harmonise. Comparative experience, particularly in the United Kingdom and the Netherlands, has shown the advantages and the risks of this instrument. In the United Kingdom, “pre-pack administration” allows the company's directors to appoint an insolvency practitioner to negotiate with preferential creditors and proceed to the automatic sale of a business unit without any need for prior court approval. In the Netherlands, the “Dutch pre-pack” has been developed through case law, with the appointment of a prospective trustee who prepares the sale before the declaration of bankruptcy.
The case law of the Court of Justice has had occasion to rule on the pre-pack in relation to Directive 2001/23/EC on transfers of undertakings and employees' rights. In Smallsteps (judgment of 22 June 2017, C126/16), the Court held that a Dutch pre-pack did not meet the conditions of article 5.1 of the Directive for disapplying the protection of employees, because it was not governed by statute and its principal purpose was the continuation of the business, not the liquidation of assets. In a later case, Heiploeg (judgment of 28 April 2022, C237/20), the Court qualified that position, holding that a pre-pack could fall within the exception if it was governed by statutory or regulatory provisions and its principal objective was liquidation, even where a going-concern sale was used in order to maximise value.
The new 2026 directive takes up these lessons and seeks to establish a common framework for the pre-pack, defining its essential elements, the safeguards of transparency and of protection for creditors and employees, and the conditions for its compatibility with Directive 2001/23. The aim is to prevent the pre-pack from becoming an instrument for circumventing employment rights or for arbitrarily selecting creditors and, at the same time, to make use of its potential to preserve business units and jobs by means of swift and orderly sales.
5.Directors' duties in the vicinity of insolvency
The duties of company directors in the vicinity of insolvency are another field in which European harmonisation began with Directive 2019/1023 and is taken further by the new 2026 directive. Article 19 of Directive 2019/1023 requires Member States to ensure that, where insolvency is imminent, directors have due regard to the interests of creditors, shareholders and other stakeholders, the need to take steps to avoid insolvency and the need to avoid wilful misconduct or gross negligence that jeopardises the viability of the business. That provision forms part of a broader debate on the “insolvency exception” and the “trust fund doctrine” in systems such as that of the United States, and on the “wrongful trading” of section 214 of the English Insolvency Act, which penalises directors who continue trading when there is no reasonable prospect of avoiding insolvency.
The new 2026 directive, in connection with the proposal for a directive of 7 December 2022 on harmonising certain aspects of insolvency law, moves towards setting minimum standards on the duty to apply for the opening of insolvency proceedings when the entity becomes insolvent, on liability for failing to do so and on the consideration of creditors' interests in decision-making in the vicinity of insolvency. The idea is not to impose a single model of directors' liability, but to avoid situations in which a failure to react, or the taking of decisions clearly detrimental to creditors, goes unpunished and, at the same time, not to discourage entrepreneurship or to penalise business failure excessively.
6.Creditor involvement and participation in the restructuring
Creditor involvement in restructuring and insolvency proceedings is another axis of harmonisation. Directive 2019/1023 had already laid down principles on the classification of creditors into classes, the majorities required to approve restructuring plans, the possibility of cramming down dissenting classes through “cross-class cram-down” mechanisms and the protection of dissenting creditors through the best-interests-of-creditors test. The new 2026 directive extends these principles to certain aspects of the insolvency proceedings, seeking greater consistency between the pre-insolvency restructuring phase and the insolvency phase of composition with creditors or liquidation.
The trend is clear: creditors are ceasing to be mere passive parties who lodge their claims and await the outcome of the insolvency proceedings, and are becoming actors who take part in shaping the solutions, whether by approving restructuring plans, negotiating compositions or agreeing to sales of business units. Harmonisation seeks to ensure that this participation is organised in an orderly manner, with clear rules on information, voting, majorities and protection of minorities, and that no situations arise of unjustified blocking by creditors with disproportionate veto power.
7.Conclusion: towards a more connected and functional European insolvency law
The new 2026 directive on harmonising certain aspects of insolvency proceedings does not mean the creation of a “European insolvency code” or the disappearance of national legal systems, but it does mark an important step towards more connected and functional insolvency systems. The combination of the conflict-of-laws rules of Regulation (EU) 2015/848, the substantive principles of Directive (EU) 2019/1023 and the new rules on avoidance actions, asset tracing, pre-pack, directors' duties and creditor involvement shapes a framework in which national differences are reduced in essentials and in which practitioners can act with greater predictability in cross-border situations.
For Spanish insolvency law, this harmonisation means reviewing and adjusting institutions such as the insolvency avoidance action, the transfer of business units, the pre-pack governed by articles 224 bis et seq. of the consolidated text, the duties of directors in the vicinity of insolvency and creditor participation in restructuring plans and compositions. The direction of travel is clear: an insolvency law less focused on liquidation and more oriented towards the preservation of value and jobs, more attentive to the cross-border dimension and more integrated into a European legal space in which business distress is managed with common tools. Harmonisation does not remove the need for national insolvency technique, but it does require that technique to be developed in constant dialogue with EU law and with the case law of the Court of Justice, which has become a central actor in shaping European insolvency law.
