The EU directive to harmonise insolvency law has arrived

The EU’s long-awaited directive to harmonise insolvency laws has finally been published. Member States have until 22 January 2029 to amend their laws as may be necessary. Our Restructuring & Insolvency team explores why the directive will result in some significant changes to Irish law.

What you need to know

• The EU published a Directive to harmonise certain aspects of insolvency law across Member States on 1 April 2026.
• Member States have until 22 January 2029 to amend their laws to transpose the Directive.
• The affected core areas include: a duty on directors to request the initiation of insolvency proceedings; avoidance actions; pre-pack proceedings; asset tracing; and creditors’ committees.
• From an Irish perspective, the most significant change could be requiring a director to request insolvency proceedings within three months of becoming aware, or being reasonably expected to have become aware, of an insolvency situation. There is, however, potential to tweak this change during transposition.

In recent years, the EU has sought to further develop its capital markets union, with the stated aim of increasing cross-border investments. It has identified several barriers, including differing insolvency regimes across Member States. Harmonisation of insolvency law is seen as a contributor to certainty and cost reductions for investors, and reducing the requirement to navigate differing and conflicting insolvency regimes between the Member States.[1]

Overview

The latest development in this process is Directive (EU) 2026/799, sometimes referred to as “Insol III”. Member States have until 22 January 2029 to accommodate its provisions in their laws, regarding both personal and corporate insolvency.

Most of the Directive applies to “entrepreneurs”. It does not apply to:

• natural persons who are not entrepreneurs;
• financial institutions such as banks or insurance companies;
• public bodies; and
• a range of other enterprises.

The Directive is a minimum harmonisation directive and Member States have wide discretion to exceed its requirements in some areas.

Key provisions

Many of the key provisions mirror existing provisions of Irish law, but with different names.

Director’s duty to request initiation of insolvency proceedings

The most controversial element of the Directive is a new duty on directors to “submit a request for the opening of insolvency proceedings” within three months of having become aware, or being reasonably expected to have become aware, that the company is insolvent within the meaning of the applicable Member State national law. This requirement, driven in particular by Germany, was correctly viewed by many commentators as cutting across corporate rescue laws. Including, in particular the Irish examinership process and indeed the EU’s own Preventive Restructuring Directive .

Member States have discretion to allow directors to comply with this duty by informing the public through notification in a “public register,” within three months. Member States may also provide that the duty will be “suspended” if the directors take “measures that are designed to avoid damage to the creditors” and which “ensure a level of protection for the general body of creditors that is equivalent to the protection provided” by the duty. Member States must make directors liable in some instances for damage caused to creditors by any failure to discharge this duty. However a defence may be available if it can be objectively demonstrated that the measures taken were “reasonably likely” to secure an equal or better outcome for creditors.

From an Irish perspective, this is probably the most significant and unwelcome development.

Irish courts have consistently held that:

• it is not in the interests of the community that directors must always wind up a company whenever it appears there is a significant risk that it will become unable to pay its debts, and
• in order to make a finding of reckless trading on the part of a director, what is required is that a director knew or ought to have known that his actions or those of the company would cause loss to creditors.

Accordingly, companies can, and do, continue to trade while verging on cash flow insolvency and often trade while balance sheet insolvent and can do so provided they do not materially worsen the position of creditors.

Moreover, many start-up companies are funded, at least in part, using some form of convertible loan note. In these situations, it is usually the intention of the lender that the money loaned be used effectively as share capital and that the company trade while balance sheet insolvent.

It is expected that Ireland will take full advantage of the discretions afforded to Member States to avoid the need to wind up growth companies that trade through technical insolvencies or companies that may face temporary or short-term financial difficulties. but which can successfully emerge from those difficulties with or without formal restructuring. The likely avenue for this will be to adjust the applicable definition of “insolvency”, which remains at the discretion of Member States, and limit it to “cash flow insolvency”.

Avoidance actions

“Avoidance actions” mirror existing provisions regarding fraudulent dispositions and unfair preferences, but with shorter look back periods. It is likely that minimal if any changes will be made to the Irish legal regime as a result of these provisions.

Asset tracing

The Directive requires Member States to nominate courts or administrative bodies which have been authorised to access and “directly and immediately” search bank account registers nationally and on a cross-border basis, and for such relief to be available to insolvency practitioners upon request when doing so would be necessary to identify and trace assets. It is likely that an appropriate administrative body rather than a court would be nominated in Ireland.

Member States must also ensure that insolvency practitioners have “timely access” to beneficial ownership data[2] – including name, month and year of birth, country of residence, nationality, and, if applicable, the nature and extent of the beneficial interest held – and to provide such access without alerting the entity or beneficial owner concerned and to have equal access to certain registers and courts, irrespective of the Member State in which they stand appointed.

Pre-pack proceedings

Member States are required to ensure that two-phase pre-pack proceedings are available for debtors that are “likely to become” insolvent and have discretion as to whether to make them available to insolvent debtors.

Pre-pack proceedings do not affect pre-pack receiverships except that a stay on receivership may be available, as with examinership.

Pre-pack proceedings are in effect a debtor in possession winding up. At one level they are analogous to examinership proceedings except that the end point is the sale of the business rather than its survival.

Under the preparation phase, an independent monitor for the transaction is appointed to help identify a buyer. The sale must proceed with a process that is “competitive, transparent and fair and meets market standards” (under which the monitor has certain obligations) or by means of a public auction of no more than three months duration. During this phase, the debtor must be able to avail of a stay of individual enforcement actions.

The monitor is to be fixed with liability for any damage caused to creditors by his or her intentional or negligent failures.

If the matter progresses to a liquidation phase, Member States must ensure that a court authorises a sale if:

• the acquirer is proposed by the independent monitor;
• the sale is concluded by a public auction; or
• creditors have approved the sale to the best bidder as proposed by the independent monitor.

As regards secured creditors, the Directive provides:

“Member States shall ensure that security interests or other encumbrances are released in the course of the pre-pack proceedings in accordance with the same requirements that would apply in insolvency proceedings under national law. Member States whose law makes the release of security interests conditional upon the consent of holders of secured claims in insolvency proceedings may provide that such consent is not required in the course of the pre-pack proceedings.”

Security interests are not released in winding up proceedings in Ireland. Examinership proposals cannot be unfair to secured creditors, i.e., they must get the value of the secured assets. It remains to be seen how this provision is transposed.

The Directive also requires Member States to implement various measures to address going concern value. At a minimum, executory contracts necessary for the continuation of the business shall be assigned to the buyer and the buyer must acquire the business free of debts and liabilities, subject to certain exceptions. Otherwise, Member States may introduce other measures, including allowing for the possibility of requiring the consent of the debtor’s counterparty in some executory contracts prior to assignment.

In an Irish scenario the pre-pack appears to be a solution looking for a problem. It is difficult to envisage many scenarios over the past 20 years where creditors or investors would have done better had this mechanism been available. Moreover, the stamp duty implications of asset sales in a pre-pack would need to be considered.

Creditors’ committees

The Directive has some provisions regarding creditors’ committees, most of which are broadly aligned with existing Irish law, however the following provision is problematic:

“Member States shall ensure that the members of creditors’ committees represent the interests of the whole body of creditors and act in good faith when carrying out the functions of the committee.”

When creditors’ committees are formed, the creditors’ representatives are generally: one or two large creditors, a representative of the employees and a representative of the general body of unsecured creditors. Frankly, there would likely be difficulties in persuading anybody to join a creditors’ committee if they were individually required to represent the whole body of creditors, who naturally fall into distinct classes.

Comment

From the perspective of investors in and lenders to Irish companies, the Directive offers little and raises some concerns.

The tracing provisions of the Directive are to be welcomed, albeit that, in most instances, difficult to trace assets are not held in, or through, EU Member States.

The provisions regarding the avoidance of transactions and creditors’ committees are, if appropriately transposed, essentially neutral.

The duty to file insolvency proceedings within a confined timeframe may have a negative impact and result in companies that could be saved going into liquidation. It may also require the restructuring of the financing of some companies, for instance those funded by certain loan notes, and it is to be hoped that draft transposing measures will be available in a timely manner to enable this, if required.

The pre-pack insolvency proceedings appear unlikely to affect any significant number of insolvencies in Ireland. The costs of these proceedings appear likely to be at least as high as examinership, which appears likely to be more attractive in almost all instances, and we have had pre-pack examinerships in Ireland. Ireland also has schemes of arrangement, which appear likely in most instances to be capable of achieving almost anything that could be achieved in a pre-pack liquidation but via a well-established path, which therefore has more certainty for the parties.

Contact our Restructuring & Insolvency team

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[1] 12 June 2025 press release, “EU insolvency law: member states agree position on bringing national insolvency standards closer”: https://www.consilium.europa.eu/en/press/press-releases/2025/06/12/eu-insolvency-law-member-states-agree-position-on-bringing-national-insolvency-standards-closer/#:~:text=Background,reductions%20for%20(foreign)%20investors.

[2] In reality this appears to simply restore the position pre the Sovim judgment, which restricted access to beneficial ownership based on GDPR, see: See Paul Egan, "Who Are You?" Law Society Gazette (July 2023).