Upstreaming rescue and the challenge for reforming the European insolvency regulation

The concept of upstream rescue entered the vocabulary of the insolvency practitioner sometime in the 1980s. The simple idea is that rescue of the entity or its business should occur at a point much earlier than the moment in time it becomes susceptible to the formal procedures of insolvency, for which it would normally qualify by entering into a state of insolvency. This would tend to occur when the debtor ceased to be able to make payments to its creditors and meet those liabilities, which, once contingent and possibly unquantified, were now certain and had fallen due. Rescue itself is a concept that first came to prominence in the 1970s with the enactment of Chapter 11 of the United States Bankruptcy Code in 1978 (“Chapter 11”), although disputes as to who may have “invented” rescue exist making claims to its earlier discovery. In that light, although the European Insolvency Regulation (“EIR”), which was adopted in 2000, makes provision for rescue-type proceedings, it does not mention their upstream versions, often referred to as “pre-insolvency proceedings”. Since the EIR came into force, however, changes in the domestic law of member states have meant that pre-insolvency proceedings have now become the norm in many jurisdictions. In the light of recent proposals for amendments to the EIR, this article looks at how developments in domestic law and the rise of the pre-insolvency procedure have become integrated within the proposed changes to the text