IPThe Proposal for a Directive on Preventive Restructuring Frameworks (November 2016) introduced a new figure in the insolvency and restructuring arena: the practitioner in the field of restructuring or PIFOR.

This note highlights the key similarities and differences between these professionals and (i) the ‘insolvency practitioners’ as defined by the 2015 EU Regulation on Cross-Border Insolvency Proceedings (recast) and (ii) the ‘liquidators’ as defined by the 2000 version of that regulation.

This note assumes that the key objective of the proposed directive is to achieve greater substantive harmonization of substantive insolvency practices and laws between the Member States. It therefore tests whether this assumption is valid with reference to the newly introduced notion of PIFOR.

It concludes, however, that the proposal fall short of the mark, since the new definition of PIFOR is unlikely to be interpreted in the same way across all the Member States.

In addition to that, this note highlights other issues associated with the proposed notion of PIFOR: (i) the uncertainty associated with the definition and its scope, and (ii) the possible relaxation of professional and ethical standards as a result of the competition between IPs and PIFORs.

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As announced at the Commission’s conference on “Convergence of Insolvency Frameworks within the European Union – The Way Forward”, Vera Jourová, EU Commissioner for Justice, Consumers and Gender Equality has recently presented (November 2016) a proposal for a new directive in the field of insolvency law.

The new directive, titled “Proposal for a Directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU[1] (‘2016 Proposed Directive’), consists of 47 recitals and 36 Articles on 55 pages. It is a follow up of the 2014 “Commission Recommendation on a New Approach to Business Failure and Insolvency[2], whose level of implementation by the Member States has been evaluated as not entirely satisfactory in a report commissioned one year after its publication[3].

The proposal has to be seen in the context of the Juncker Plan, the Action Plan on Building a Capital Markets Union and the Single Market Strategy, all aiming at the strengthening of Europe’s Economy and the stimulation of investments in Europe. It has also to be considered in light of the existing EU harmonization mechanisms in the field of insolvency proceedings: the “Council Regulation (EC) No. 1346/2000 on Insolvency Proceedings[4] (‘2000 EC Regulation’), and the “Regulation (EU) 2015/848 of the European Parliament and of the Council on Insolvency Proceedings (recast)[5] (‘2015 EU Regulation’, which will enter into force on 26 June 2017).

Whereas the 2000 EC Regulation (and its 2015 recast version) deal with issues of jurisdiction, applicable law, recognition and enforcement of insolvency decisions, as well as coordination of cross-border insolvency procedures, the 2016 Proposed Directive lays down rules on: (a) preventive restructuring procedures; (b) procedures leading to a discharge of debts incurred by over-indebted entrepreneurs; (c) measures to increase the efficiency of preventive restructuring, discharge and insolvency procedures.

The purpose of the 2016 Proposed Directive is to direct Member States to harmonize their substantive insolvency laws on the above-mentioned issues. It is therefore meant to redress the main issue in which the 2014 Recommendation proved to be wanting: promoting a common approach to preventive restructuring.

To determine if the 2016 Proposed Directive is up to the expectations, this article compares the newly introduced notion of ‘practitioner in the field of restructuring’ (‘PIFOR’) to the definition of ‘insolvency practitioner’ (‘IP’) in the 2015 EU Regulation and that of liquidator in the 2000 EC Regulation.

Since the original notion of liquidator has been criticised for being too narrow, and for not considering the inconsistencies in the qualification procedures in the Member States, this note aims at determining if the suggested amendments really represent an improvement over the existing status quo.

It concludes that, despite their ambitious objectives (especially with reference to the 2016 Proposed Directive), they fall short of the mark.

The minimum harmonization approach has proven unfit to provide comprehensive solutions when it comes to the definition of common qualification and selection criteria, as well as uniform professional standards. Additionally, the newly enacted legislative measures add a degree of uncertainty in the definition and scope of the professional people and bodies interested by their implementation. This note therefore proves that, in pursuing substantive harmonization of insolvency practices, the European legislator should favour detailed regulations over nebulous directives.

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Structure of the Note

Formal insolvency and preventive restructuring procedures need to be supervised, co-ordinated or even conducted by a person other than the debtor. If the 2000 EC Regulation allocated these functions to the liquidator, the 2015 EU Regulation relies on insolvency practitioners, while the 2016 Proposed Directive introduces the novel expression of practitioner in the field of restructuring.

This note explains these concepts, their evolution and how changes in the language mirror a development in the duties and roles of the professionals involved in the different insolvency proceedings regulated by these European laws. It proves that the variations in the statutory language are not casual, since the three definitions refer to diverse yet sometimes overlapping categories of professionals.

After having analysed the implications of this preliminary finding, this note observes that the more uncertain scope of the PIFOR notion as opposed to that of IP and liquidator, as well as the lacking of any uniform qualification, eligibility and selection criteria to become either PIFOR or IP, do little to improve over the current situation.

To conclude, if the purpose of the proposed legislative initiative is to address the unsatisfactory implementation rates achieved by the 2014 Recommendations, it might be appropriate to abandon the minimum harmonization approach in favour of more substantive and substantial uniformed changes to Member States’ insolvency laws.

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From ‘Liquidators’ to ‘IPs’

The 2000 EC Regulation mentions only a specific category of insolvency professionals: the ‘liquidator’. According to art. 2(b) of the regulation, liquidators may be either persons or bodies whose duties under national insolvency laws include to administer or liquidate the assets of the ailing debtor, or to supervise the administration of its affairs.

It is clear from this explanation that in some Member States the European notion of ‘liquidator’ does not match the national one. In fact, it is frequently the case that “European” liquidators exercise their duties and have responsibilities in relation to a large number of insolvency proceedings, not simply liquidations. A fact which has been acknowledged by the European legislator, since the 2000 EC Regulation applies to the proceedings listed in two annexes, which include a significant number of formal restructuring procedures[6].

The 2000 EC Regulation regulates the powers (art. 18) and the duties (art. 31 and 40) of the liquidators, and it prescribes detailed rules for proving the appointment in foreign, main or secondary proceedings (art. 19). It does not enumerate, however, any specific requirements neither for harmonizing the Member States’ appointment or qualifying procedures, nor for determining common standards and ethical rules that liquidators should comply with in carrying out their duties. This is primarily due to the conflict of law nature of the 2000 EC Regulation, which is more interested in determining jurisdictional matters, rather than in harmonizing domestic insolvency provisions.

A list of the liquidators, who match the criteria set out in the 2000 EC Regulation – and, in particular, under article 2(b) – is provided in Annex C. This list has been periodically updated according to the changes introduced in the laws of the Member States.

No question has ever been raised before the European Court of Justice on the meaning, scope and interpretation of the notion of ‘liquidator’. It has always been assumed by the interested parties that the list provided by the 2000 EC Regulation under Annex C represented the only, exclusive and exhaustive terms of reference to determine if a person or a body could be considered a ‘liquidator’ under European law. However, proposals for harmonising the status of liquidators have been advanced in the past, both by the European Parliament[7] and by other European bodies[8].

Instead of following the recommendations mentioned above, the drafters of the new 2015 EU Regulation opted for replacing the ‘liquidator’ with the notion of ‘insolvency practitioner’.

The notion of ‘insolvency practitioner’ (‘IP’) proposed by the 2015 EU Regulation is substantially dissimilar from the previous European notion of ‘liquidator’. It follows some of the above-mentioned recommendations from the Parliament and the EESC: it suggests that these professionals should be “appropriately regulated and authorised to act” and that “the national regulatory framework should provide for proper arrangements to deal with potential conflicts of interest” (recital 21). Nevertheless, the 2015 EU Regulation fails to introduce or even suggest a substantive harmonization of the procedures and requirements for qualifying a person or a body as IP (primarily because that was not the purpose of the recast regulation, which is still concerned with private international law issues).

IPs carry out additional functions when compared to the old European liquidators. On top of the duties enumerated in the old version of the European regulation, under art. 2(5) of the 2015 EU Regulation they are now required to:

(i) verify and admit claims submitted in insolvency proceedings; (ii) represent the collective interest of the creditors; (iii) administer, either in full or in part, assets of which the debtor has been divested.

Similar to the old 2000 EC Regulation – which extended liquidators’ powers and duties to the professionals temporarily appointed to that role prior to the opening of the insolvency proceeding – the 2015 sibling equalizes permanent to non-permanent IPs, i.e. practitioners who exercise the functions described in the regulation only on an interim basis[9].

It cannot be questioned, therefore, that the number and scope of regulated persons and bodies that can be involved in insolvency proceedings governed by the EU law has significantly increased over the past. For instance, with reference to Italy, while under the 2000 EC Regulation only ‘curatore’ and ‘commissario’ could be qualified as ‘liquidators’, the 2015 EU Regulation includes five more professionals and an independent body. Similar changes can be observed for virtually all other Member States.

Furthermore, the new approach may prove to be problematic for at least two additional reasons: (i) the uncertainty around the notion and concept of ‘body’, tied with the observation that (ii) the list of professionals provided in Annex B of the 2015 EU Regulation may not be considered ‘exhaustive’ by the commentators.

The first observation stems from the fact that, as for the previous version of the regulation, there is no definition of the term ‘body’. However, unlike the previous version of the regulation, some administrative and regulatory authorities are expressly mentioned in Annex B. These include the Insolvency Service in Ireland (but not in the United Kingdom), as well as the ‘Organismo di composizione della crisi nella procedura di composizione della crisi da sovraindebitamento del consumatore’ in Italy. No common criterion is provided to determine which bodies should be included in the list, and which not. Is it appropriate to leave this determination to the discretion of the Member States?

The examples mentioned above seem to demonstrate a lack of any uniformity in the determination of the bodies that can be included in the list of ‘insolvency professionals’. This brought some commentators to conclude that nothing has changed from the previous version, and that the notion simply refers to legal persons – as opposed to single professionals – who are authorised to act as IPs under existing, national laws[10]. Others, on the other hand, question whether that was really the intention of the drafters. They propose a wider notion, and conclude that the statutory definition of IP is wide enough to include national courts where such courts are, according to its domestic law, performing functions relating to the administration of the debtor’s assets[11].

As for the second criticism, it is to be observed that, while recital 21 of the 2015 EU Regulation expressly clarifies that the list of procedures listed in Annex A is to be considered “exhaustive”, the same cannot be said for the list of professionals enumerated in Annex B. Coupled with the remarks on the blurred notion of ‘body’, this circumstance determines a potential degree for uncertainty in the application of the recast regulation.

To sum up, under the previous version of the insolvency regulation the European notion of ‘liquidator’ did not correspond to national ones but was sufficiently certain in its scope. The 2015 recast may have modified and widened the notion, in an effort to include a larger and more uniform category of professionals. However, this may have introduced further elements of uncertainty.

Similarly, no significant improvements have been introduced to harmonize the selection and appointment criteria of these professionals at national level. Because of the increased number of people and bodies that can now be appointed as ‘IPs’ in European cross-border insolvency procedures, there is an augmented risk that lack of adequate professionalism, independence and expertise may hinder the achievement of the objectives set out in the recast regulation.

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From ‘IPs’ to ‘PIFORs’

Despite having widened the number of professionals and bodies who can be appointed as IPs in EU cross-border insolvency proceedings, the 2015 EU Regulation still restricted the category of IPs to regulated professionals and bodies. This is no longer be the case under the proposed notion of ‘practitioner in the field of restructuring’ (‘PIFOR’) introduced by the 2016 Proposed Directive.

The wider subject matter and scope of the 2016 Proposed Directive[12] and the European Commission’s intention not only to harmonize conflict of law rules, but also substantive insolvency provisions resulted in focusing on preventive restructuring plans where the appointment of an IP is not always mandatory. This also resulted in dealing with ancillary matters, such as the notion and scope of IPs.

In an effort to reach uniform and harmonized solutions, the 2016 Proposed Directive suggests the use of the notion of PIFOR as opposed to ‘insolvency practitioner’ to identify the people and bodies who may take a leading role in facilitating, organizing or supervising restructuring plans. Under art. 2(15), PIFORs can be persons or bodies appointed

to carry out one or more of the following tasks: (a) to assist the debtor or the creditors in drafting or negotiating a restructuring plan; (b) to supervise the activity of the debtor during the negotiations on a restructuring plan and report to a judicial or administrative authority; (c) to take partial control over the assets or affairs of the debtor during negotiations”.

While articles 25 – 27 set out more detailed eligibility and selection criteria, their determination is still entirely left to the authority (and discretion) of the Member States. It is highly unlikely, therefore, that the Member States will adopt similar solutions, given the diversity of legal and cultural backgrounds of their legal systems.

Furthermore, the eligibility to become PIFORs is no longer restricted to members of regulated professions. Consequently, some of the potential candidates for these roles can be subject to more lenient code of conducts or disciplinary supervision (if any) than others. In other words, an element of domestic competition (between autonomous categories of professionals) adds on the persisting cross-border competition (between non-harmonized qualification procedures for professionals from different Member States). A circumstance, which may negatively affect the achievement of the outcomes envisaged by the European legislator, as well as the confidence of the public in these professionals.

While on one hand the definition provided by the 2016 Proposed Directive may appear too wide (to the extent that there is no proposed list of PIFORs attached to the document), on the other it seems to be too narrow. In fact, the 2016 Proposed Directive qualifies as PIFOR only those persons and bodies who carry out the tasks specified above following their appointment by judicial or administrative authorities in preventive restructuring procedures. It is unclear whether the duties and responsibilities set out in the 2016 Proposed Directive apply to PIFORs even before their formal appointment.

Finally, the 2016 Proposed Directive does not specify neither if an exhaustive list of these preventive restructuring procedures is envisaged or will be provided in the future, nor the notion of ‘administrative authority’. For instance, can a creditors’ committee be considered an administrative authority or, for a body to acquire that qualification, some regulatory power is needed?

This paragraph demonstrated that the differences between IPs and PIFORs are substantive and substantial. PIFORs are an entirely different “animal in the restructuring and insolvency zoo, […] a new kid on the block[13].

While not all PIFORs are IPs, it appears that the opposite is true. This raises questions of unfair competition among professionals. Regulated ones are generally more expensive than non-regulated practitioners. However, they generally offer a higher degree of experience and expertise, and they are subject to more extensive supervision and training from their regulatory and representative bodies.

While the 2016 Proposed Directive imposes the same obligations on regulated and non-regulated professionals, it is fathomable that the enforcement of the new rules greatly depends on effective monitoring and control systems to detect any non-compliance with the prescribed requirements. There are reasons to doubt that this would systematically occur for PIFORs in all Member States.

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The Way Forward

While both the 2015 EU Regulation and the 2016 Proposed Directive represent a significant improvement over the existing status quo, some of their provisions raise significant concerns, that need to be addressed at the earliest convenience.

This paper has highlighted two primary reasons of unease for the newly introduced notions of ‘insolvency practitioner’ and ‘practitioner in the field of restructuring’: the scope of these notions, and the lack of harmonised and uniform criteria for the appointment of these professionals.

The first of this issue represents a minor reason of concern with reference to the notion of ‘insolvency practitioner’. It is submitted that the European definition is substantially similar to the notion commonly and widely adopted in common law countries, and potential uncertainties – at least with reference to personal, as opposed to legal bodies – can be raised to and decided by the CJEU. On the other hand, due to the significantly wider scope of the definition, uncertainties are potentially more disruptive and problematic with reference to the notion of ‘practitioner in the field of restructuring’.

The lack of sufficiently precise and detailed criteria for the qualification and appointment of both IPs and PIFORs is an entirely different matter. Especially with reference to large corporate cases, there is the urgent need to ensure that practitioners appointed in different Member States have a similar degree of expertise. Harmonising the qualification, eligibility and selection criteria represents the first and no longer escapable step to achieve a more level playing field in the European Union, as well as to strengthen the common market and Europe’s attractiveness for foreign companies.

Finally, the potential competition between IPs and PIFORs in preventive restructuring procedures may lead to a relaxation of professional standards in these cases, as well as to a race-to-the-bottom in the definition of the eligibility criteria and the evaluation of professional standards for both regulated and unregulated professions.

This note assumes that if we want to grant a second chance to honest but unfortunate entrepreneurs, or to viable but financially distressed firms, it is essential to count on an experienced and informed category of turnaround professionals. As a result, regulation in the field should not primarily aim at devising cheaper and faster ways to overcome, rectius sidestep obstacles. The need for an independent, competent and expert body of professionals cannot be ignored.

This note therefore demonstrates that only by ensuring that preventive restructuring and insolvency proceedings are administered by equally capable professionals in all Member States it is reasonable to expect the achievement of the objectives of strengthening Europe’s economy and the stimulation of investments in Europe devised by the Juncker Plan, the Action Plan on Building a Capital Markets Union and the Single Market Strategy.

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[1] 22/11/2016, COM/2016/0723 final – 2016/0359 (COD), available at: <> [last viewed: 27 March 2017].

[2] 12/3/2014, C(2014) 1500 final, available at: <> [last viewed: 27 March 2017].

[3] Evaluation of the implementation of the Commission Recommendation of 12.3.2014 on a new approach to business failure and insolvency, 30.9.2015, available at: <> [last viewed: 27 March 2017]

[4] Available at: <> [last viewed: 27 March 2017].

[5] Available at: <> [last viewed: 27 March 2017]

[6] Restructuring procedures are included in Annex C, while winding up proceedings are listed under Annex B.

[7] European Parliament resolution of 15.11.2011 – 2011/2006 (INI).

[8] See Almeida Freire, ‘Opinion of the European Economic and Social Committee (EESC) on the ‘Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee – A new European approach to business failure and insolvency’ – COM(2012) 742 final and on the ‘Proposal for a regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1346/2000 on insolvency proceedings’ – COM(2012) 744 final – 2012/0360 (COD)’ 2013 Official Journal of the European Union C 271/55.

According to the Opinion, the EESC urged the Commission to harmonise the status and powers of the liquidators. In particular: (i) the liquidator should be approved by a competent authority of a Member State or appointed by a court of competent jurisdiction of a Member State, should be of good repute and should have the educational background needed for the performance of his/her duties; (ii) s/he should be competent and qualified to assess the situation of the debtor’s entity and to take over management duties for the company; (iii) s/he should be empowered to use appropriate priority procedures to recover monies owing to companies, in advance of settlement with creditors and as an alternative to transfers of claims; (iv) s/he should be independent of the creditors and other stakeholders in the insolvency proceedings; and (v) in the event of a conflict of interest, the liquidator should resign from his/her office.

[9] See recital 15, and art. 2(5).

[10] Jessica Schmidt, in Peter Mankowski, Michael Müller and Jessica Schmidt (eds), EuInsVO 2015. Europäische Insolvenzverordnung 2015. Kommentar (C.H. Beck: 2016).

[11] Bob Wessels, ‘If you’re the IP, I’m the Pifor’, available at: <> [last viewed: 27 March 2017].

[12] Under art. 1 of the 2016 Proposed Directive, it should lay “down rules on: (a) preventive restructuring procedures available for debtors in financial difficulty when there is a likelihood of insolvency; (b) procedures leading to a discharge of debts incurred by over-indebted entrepreneurs and allowing them to take up a new activity; (c) measures to increase the efficiency of the procedures referred to in point (a) and (b) as well as of insolvency procedures”.

[13] Bob Wessels, ‘If you’re the IP, I’m the Pifor’, available at: <> [last viewed: 27 March 2017].