Effects of the Stay of Individual Enforcement Actions on Secured Creditors in Restructuring Proceedings

The stay of individual enforcement actions is one of the essential tools in the restructuring framework. However, the imposition of a stay affects numerous creditors, especially secured ones. Although the adoption of the Restructuring Directive (EU) 2019/1023 aimed to promote a rescue culture in Europe, policymakers also viewed its provisions through the prism of balancing the interests of debtors and creditors. This article compares the European Union and United States rescue frameworks, analysing whether the stay in these jurisdictions is (i) automatic or dependent on the court’s discretion, (ii) temporary or lasting within the whole period of restructuring, (iii) encompassing all secured creditors or enabling certain categories to lift the stay, and (iv) protective of the collateral market value during the stay (i.e., value-neutral). As a central point in this article, the author concludes that Directive (EU) 2019/1023 prescribes a short period of stay (up to 4 months), and that this relatively short duration was intended by the EU policymaker to hedge against the risk of collateral depreciation for secured creditors. Other means to protect the collateral value, as it stands today, are not provided in the Restructuring Directive and are left to be introduced in the Member States’ national laws. In contrast, Chapter 11 of the US Bankruptcy Code prescribes a stay that lasts until the end of the reorganisation case, but establishes the mechanisms to protect the decreased collateral value (e.g., by providing additional security, cash payments to cover the drop in value, or elevating the amount of secured creditors’ claim, uncovered by collateral, to the administrative expense, etc.).