In the aftermath of Covid-19, many companies in Europe had an urgent need to restructure their business following a temporary period of financial distress, and thereby avoiding formal insolvency. In this context, it is increasingly relevant that in 2019 the European Union adopted the EU Directive on Restructuring and Insolvency. The Directive is to be transposed into national legislation by the 27 Member States by 17 July 2021. Several Member States have already adopted the Directive into their national legislation, and others are expected to follow soon.
In light of the new Directive, two important valuation concepts come into play: (i) the liquidation value; and (ii) the reorganisation/going-concern value. The complexities in these two valuation concepts can lead to disputes arising due to the conflict of interests between different stakeholders. In particular, determining a hypothetical going-concern value as part of a restructuring plan often leads to fierce debate between stakeholders given that economic claims on the value of a reorganised debtor may have to be waived. Furthermore, there is inherent uncertainty in estimating a hypothetical going-concern value as compared to the observable cash distribution amount in the liquidation value.
Objective of the Directive
The objective of the Directive is twofold. Firstly, it aims to minimise discrepancies between Member States concerning the range of restructuring tools available to debtors in financial distress. Secondly, the Directive aims to prevent the insolvency of viable businesses, and preserve the value inherent in these businesses, by facilitating early access to preventive restructuring frameworks. To achieve these overarching goals, the Directive introduces several tools such as the “cross-class cram-down”, which allows a restructuring plan to be confirmed by a judicial or administrative authority even if the plan is not approved by all classes of creditors, subject to several conditions. These new tools will facilitate debtors in: (i) restructuring their business; (ii) minimising the risk of dissenting creditors obstructing a fair and realistic restructuring; and (iii) aligning the restructuring process across all EU member states.
Mitigating valuation disputes in this context is one of the research initiatives of the IVSC Europe Board, and in particular, how professional standards can contribute to this. On 9 June 2021, leading European professionals in the fields of insolvency, restructuring, academia, and valuation, came together to discuss this topic and share valuable insights.
- Professor Reinout Vriesendorp – Professor of Insolvency Law, Leiden University and Lawyer/Partner at De Brauw Blackstone Westbroek (Netherlands)
- Carole Abbey – Directrice groupe Caisse des Dépôts (France)
- Adrian Thery – Partner, Garrigues (Spain)
- Sebastian Philip - FTI Consulting (Germany)
- Lionel Spizzichino - Avocat à la Cour, Willkie Farr & Gallagher LLP (France)
You can listen back to this discussion above.