The final version of the Directive (EU) 2019/1023 on Restructuring and Insolvency provides for a new rule to assess the fairness of the distribution of value under a plan if an affected class of creditors voted against the plan: the Relative Priority Rule (RPR). It is provided in art. 11 (1) (c) stating that one of the conditions to confirm a plan over the veto of a class is that the plan
‘ensures that dissenting voting classes of affected creditors are treated at least as favourably as any other class of the same rank and more favourably than any junior class’.
As an alternative to the RPR, art. 11 (2) allows Member States to implement an Absolute Priority Rule (APR) stating that the plan must ensure
‘the claims of affected creditors in a dissenting voting class are satisfied in full by the same or equivalent means where a more junior class is to receive any payment or keep any interest under the restructuring plan.’
As a result, all Member States are faced with the choice of either implementing the RPR or the APR when implementing the Directive into their local restructuring laws.
While the APR represents a concept that has been a part of US law for 80 years and German law for 20 years, the idea of an RPR is not just new. It has also not yet been explained extensively by scholars. If Member States consider implementing such a concept, they would probably like to know how it works and what it needs to work best.
The following quick guide aims at providing this assistance:
(An updated version correcting three typos was posted on Jan. 20 at 14:55 CET.)