EU Insolvency Law: Member States Move Closer to Harmonisation

On 12 June 2025, the Council of the EU announced that member states have agreed on a general approach to a directive aimed at bringing national insolvency standards closer together. This draft directive is designed to make the EU more attractive to foreign and cross-border investors by reducing the legal uncertainties and complexities associated with differing national insolvency laws. 

The harmonisation of EU insolvency laws has been an evolving process, with member states gradually aligning their national frameworks to create a more predictable and efficient system. Back in December 2024 an agreement was reached on key provisions such as avoidance actions, which prevent debtors from diminishing the insolvency estate by challenging transactions made before insolvency proceedings commence. Transactions that benefit a creditor, involve inadequate consideration, or intentionally harm creditors can be voided if perfected within specific timeframes before insolvency is requested.

Another critical aspect is the tracing of assets, where designated courts or authorities will be able to  access national centralised bank account registers to identify assets that should belong to the insolvency estate. This measure aims to improve transparency and ensure creditors receive fair value from insolvency proceedings. Additionally, the duties of directors have been a hot topic where compromise was reached in December 2024. The draft directive will specify that while directors must file for insolvency within three months of recognising financial distress, exceptions exist where proactive measures are taken to protect creditors. More details on the lead up to the current stage of the draft directive and earlier discussions can be found in our previous blog.

Earlier discussions on the draft directive were marked by member states’ concerns about the flexibility that the text provides for insolvency proceedings at national level. The agreement in December 2024 tried to reflect a balance between the wish for harmonisation at EU level and the national calls for flexibility.

In this latest agreement, the more sensitive parts of the harmonisation where member states previously failed to reach consensus, have now also been decided. This means  that a decisive shift towards a more unified insolvency framework across the EU has taken place. These provisions are: 

• Pre-pack mechanism - one of the notable inclusions is the introduction of a pre-pack mechanism across all member states. This mechanism allows for the preparation and negotiation of the sale of a debtor's business before the formal opening of insolvency proceedings along with provisions for the automatic transfer of essential executory contracts under controlled safeguards. The aim is to expedite the sale process and maximise the value obtained from the sale.

• Creditors' Committees - the draft directive mandates the establishment of creditors' committees in certain circumstances. These committees are intended to enhance the involvement of creditors in the insolvency process, ensuring their interests are adequately represented. The directive harmonises the composition, rights, and duties of these committees across member states.

What will happen next?

With the Council's position now established, the next step is for negotiations to commence with the European Parliament. The European Parliament will need to agree on its final position, which may take place before Summer 2025. The negotiations will aim to finalise the directive, paving the way for its implementation across the EU. Once adopted, member states will need to implement the agreed provisions into their national legal frameworks, ensuring a more cohesive insolvency system across the EU.