Over-promising Rescue: Pre-Pack Sales Under the New Insolvency Directive

Abstract

The new Directive harmonising certain aspects of insolvency law introduces pre-packaged sales ('pre-packs') as a two-phase mechanism to facilitate going concern sales of distressed businesses, with the stated aim of improving creditor recoveries and access to finance for European firms. This article argues that the Directive's pre-pack framework is flawed on two distinct but related grounds. First, as a matter of design, the procedure is ill-suited to achieve its own stated objectives. The mandatory appointment of a monitor imposes disproportionate burdens on the debtor, whereas the best-interests-of-creditors test is superfluous and disruptive in the context of an actual market sale, where competitive mechanisms already perform the valuation function it purports to serve. In addition, the restrictions on credit bidding discourage the very constituencies best placed to submit informed bids creating a non-competitive bidding environment. Second, the rationale for EU-level intervention is ambiguous, at best. The Directive's reliance on the ECJ's Heiploeg ruling conflates a narrow interpretive question about the TUPE Directive's bankruptcy exception with a broader structural problem, and its own provisions on the relationship between the two instruments are inherently contradictory and unclear. The policy objective of supporting European firms is equally unconvincing, as the characteristics of most European micro and small enterprises (MSEs) render them structurally ill-suited for pre-pack procedures. Finally, in a field as commercially sensitive as insolvency law, further legislative change, coming on the heels of the implementation Preventive Restructuring Directive, introduces legal uncertainty at precisely the moment when stability and predictability is most needed.