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EU to revamp insolvency regime to help more businesses avoid closure

In a recent speech to the Legal Affairs Committee and EU Affairs Committee, Commissioner Věra Jourová told the attendees that the European Commission is planning an update of the EU’s insolvency regime.

The aim of the revamp is to make it easier for ‘preventive restructuring frameworks’ to be implemented to enable viable companies to avoid insolvency and to make starting new businesses less personally risky for entrepreneurs.

Ms Jourová stated:

“I would like to refer to a new initiative on business insolvency that we will soon adopt. It will be focused on preventive restructuring frameworks for viable companies and a second chance … for entrepreneurs. 200,000 firms go bankrupt every year in the EU. This causes a loss of 1.7 million jobs each year. 49 percent of Europeans say they would not start a business because of fear of failure. The fear of social stigma and inability to pay off debts is stronger in Europe than in other parts of the world. Moreover, debt discharge periods are much longer in Europe.

“Too many viable companies, especially those operating cross-border, are not able to restructure early enough. Data shows that preventive restructuring allows business continuity and ensures the highest recovery rates for creditors.

“We have already revised the EU Insolvency Regulation that will apply from June 2017. That Regulation deals with cross-border procedural law aspects.

“Our [next] aim is to harmonise key principles and deliver minimum standards of substantive insolvency law across the EU. This will not be a tight jacket to regulate the details of national law procedures. We leave the concrete implementation of the principles to Member States in full respect of subsidiarity.

“Our initiative builds on the Recommendation of March 2014 on a new approach to business failure and insolvency. Its implementation has been patchy, even in Member States that started reforming their insolvency laws.

“We have worked with Member States to improve their insolvency frameworks also under the European Semester. However, there are limits to how much can be achieved through these methods.

“Converged restructuring laws would give greater legal certainty to cross-border investors in the EU. It would encourage timely restructuring of viable companies in financial distress.”


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