The draft Directive on credit servicers, credit purchasers
and the recovery of collateral (NPL Directive) from
2018 proposed two principal measures in relation
to the reduction of NPLs: a framework for the
secondary market for NPLs, and an accelerated
extrajudicial collateral enforcement (AECE) procedure.
Subsequently, the Council of the EU decided to split it
into two parts, each concerning one of the mechanisms
of the original NPL Directive.
Under the revised mechanism for the AECE procedure,
creditors should be, under certain circumstances
authorized, in an enforcement event, to either
appropriate collateral or sell it through public auction
or private sale. If both possibilities are made available
by Member States, credit institutions may have an
improved possibility to maximize the economic potential
of the collateral, however, due to the quite broad
implementation discretion for national regulators,
the true impact of the AECE procedures remains for the
time being questionable.
As part of a package of measures aimed at improving
the high ratios of NPLs, the European Commission
proposed the NPL Directive in 2018. However, as
reaching agreement on the entirety of the directive
proved to be more difficult than expected, the Council
of the EU decided to split the NPL Directive into two
parts, each dealing with one of the mechanisms.
The Permanent Representatives Committee (COREPER)
approved the Council’s mandate for negotiations with
the European Parliament on the secondary markets
part in March 2019 and they approved the mandate
in relation to the AECE procedure in November 2019.
This article focuses on the AECE procedure contained
in Directive COM/2018/0135 final – 2018/063 (COD)
(the AECE Directive).
Proposed next steps
The proposed new mechanism for the AECE procedure
needs to be agreed between a credit institution and a
business borrower up front in a written agreement, or
in a notarized format where national law so provides.
Where the borrower defaults on the loan, the creditor
would have to notify the borrower of its intention to
begin the AECE procedure and give the borrower a
predetermined amount of time to settle the outstanding
debt. An independent valuer would have to carry out a
valuation of the collateral specifically for the purposes of
the enforcement event.
Depending on the method of enforcement selected,
the creditor would either sell the collateral by private
sale or public auction, or appropriate it by a transfer
of ownership. It is up to each Member State to decide whether to adopt one or both of these methods of
enforcement. In an acknowledgment of the rules
governing the secondary market in NPLs, the proposal
prescribes that where a secured credit agreement with a
clause providing for the AECE procedure is transferred,
the transferee will be able to also make use of the
The provisions of the AECE Directive would be without
prejudice to the national legal protection offered to the
parties involved in enforcement proceedings and to
the regulations regarding insolvency proceedings and
accordingly should be considered to be an additional
enforcement tool, but appropriate measures against
abusive challenges by business borrowers should be put
in place by Member States.
While Member States of the EU have diverging views
on forfeiture agreements and many – based on
Roman law traditions even restrict such forfeitures to
a large extent (lex commissoria), i.e. where the secured
creditor may keep the collateral in place of the secured
liabilities, in general, they are much less restrictive
when it comes to business borrowers. Thus, the AECE
Directive would not drastically change the substantive
position of business borrowers laid down by many
existing national laws.
It is important to note that because the proposal
requires the agreement in writing or a notarized format,
the AECE procedure will most likely, potentially impact
future NPLs, as it is difficult to imagine that the existing debtors, with the exception of a voluntary restructuring
scenario, will be willing to renegotiate the terms of
enforcement of the collateral to their detriment.
Because Member States are free to choose one method
of enforcement under the AECE directive and there are
certain specifics that apply to each method, such as with
the valuation requirement, the combination of existing
national laws and the choice of the enforcement method
will determine, the extent of advantage emanating from
the AECE procedure.
In addition, the varying national laws regarding the
right to challenge the AECE procedure may result in
significantly different length of proceedings across
various Member States. For insolvent debtors, a stay
of enforcement proceedings imposed by the start
of insolvency proceedings may even prevent AECE
procedures even completely.
Moreover, if the choice of the enforcement method
and other specifics vary among Member States, the
effectiveness of the transfer of credit agreements
subject to the AECE procedure may also be impaired.
In view of this, it is difficult to assess the extent of
harmonization and the true efficiency of the AECE
procedure in advance, however it will most likely impact
only Member States with currently less efficient national