Abstract
European insolvency frameworks have improved considerably over recent years. However, they still lag best practice in terms of both creditor recovery and the ability to restructure complex firms. Moreover, they tend to push restructuring out of court or to foreign jurisdictions and potentially generate “zombie” firms. In this ASC Insight, we argue that insolvency frameworks across the EU could be improved further through additional reforms, leading to better outcomes for insolvent firms and enhanced financial stability. Such reforms could provide a significant boost to the European capital markets union and counter a current trend of relying on non-European jurisdictions to resolve insolvency. An effective insolvency framework must aim to restructure viable firms to preserve their going-concern value, while also liquidating non-viable firms to free up resources for more productive uses. Key components of an effective regime are the capacity to make optimal decisions regarding liquidation or continuation, the protection of operational value through measures such as automatic stays and the flexible handling of contractual obligations, and recourse to cramdown mechanisms to avoid inefficient hold-up by individual creditors. We detail potential areas for reform that would enhance these aspects of European insolvency frameworks. To address these opportunities for reform, we propose the introduction of an EU-wide opt-in insolvency framework, building on the concept of a “28th regime” at the European level (see European Commission, 2025). Given the significant challenges associated with harmonising insolvency laws across diverse jurisdictions and the complexities of implementation across many countries, a new EU-wide system could significantly accelerate reforms towards an effective insolvency framework. Operating alongside existing national regimes, this system would offer a uniform, predictable and efficient restructuring process for firms that elect to participate while allowing others to retain their current national procedures. The proposed framework would improve creditor recoveries, reduce unnecessary losses and strengthen EU capital markets. We view such a reform as essential for addressing the EU’s substantial investment needs, including those related to infrastructure, defence and the green transition.