Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, second chance and measures to increase the effectiveness of write-off, insolvency and restructuring proceedings is the first European standard with a harmonizing purpose in this area. It entered into force on 16 July 2019.

Broadly speaking, this (EU) Directive aims to ensure that viable companies and entrepreneurs in financial difficulties have access to effective national preventive restructuring frameworks to enable them to continue their business.

This is intended to allow insolvent or over-indebted entrepreneurs in such a situation, who can prove their good faith, to enjoy full discharge of their debts (Benefit of discharge of unsatisfied liabilities, or “BEPI”) after a reasonable period of time through simplified debt restructuring procedures under their respective national insolvency laws, which would provide them with a real “second chance”.

In this sense, the (EU) Directive clearly and expressly advocates improving the efficiency of restructuring, insolvency and debt discharge procedures, in order to reduce their duration as much as possible, so that the insolvent entrepreneur can in a way “start from scratch” as soon as possible, in a real, total and effective manner. Therefore, the maximum time limit for obtaining debt relief is set at a maximum of 3 years.

In addition, the (EU) Directive regulates the suspension of individual foreclosures in order to promote the negotiation of a restructuring plan within a framework of preventive restructuring, as well as the consequences of such a plan, and also prioritizes the fact that the planned restructuring must allow debtors in financial difficulties to continue their business activity, in whole or in part, in order to avoid as far as possible the so-called ‘business mortality’, with the disastrous consequences that this entails, at all levels.

Another important point of the (EU) Directive relates to “non-condemnable” debts: in this sense, the Directive allows Member States to exclude certain types of debts from the benefit of exoneration of unsatisfied liabilities (BEPI), such as secured debts, maintenance debts or debts arising from criminal sanctions. However, this is not the case for debts claimed by public administrations (basically fiscal or tax debts and Social Security debts), which has caused – and is causing – much controversy in some Member States, such as Spain, whose current insolvency system and regulation of second chance mechanisms (Law 25/2015, of 28 July, on second chance mechanisms, reduction of the financial burden and other social measures; Royal Decree-Law 16/2020, of 28 April, on procedural and organizational measures to deal with the Covid-19 in the field of the Administration of Justice; and Royal Legislative Decree 1/2020, of May 5, approving the revised text of the Insolvency Act), specifically excludes debts of public origin from the benefit of exemption granted by EU regulations, which is a clear contradiction (not to say infringement) of the mandatory EU legal system.

On the other hand, the Directive justifies in principle the need for the so-called ‘second chance’ as a tool to promote entrepreneurship, and in this sense, the Member States’ duty to adapt is limited to procedures referring to entrepreneurs.  However, this does not mean that the EU intends to exclude consumers and individuals in general from this policy, and although it does not make it compulsory for Member States to legislate in this sense, it does expressly recommend that consumers and individuals can benefit from a system equivalent to that of entrepreneurs.