European Commission proposes new approach to business insolvency in Europe: promoting early restructuring to support growth and protect jobs. The European Commission is for the first time presenting a set of European rules on business insolvency.

 

Main Elements

The proposed Directive focuses on three main elements:

  • Common principles on the use of early restructuring frameworks, that will help companies continue their activity and preserve jobs.
  • Targeted measures for Member States to increase the efficiency of insolvency, restructuring and discharge procedures, which will reduce the excessive length and costs of procedures in many Member States. That results in legal uncertainty for creditors and investors and low recovery rates of unpaid debts.
  • Rules to allow entrepreneurs to benefit from a second chance. They will be fully discharged of their debt after a maximum period of 3 years. Currently, half of Europeans say they would not start a business due to fear of failure.

 

New Rules

The new rules will observe the following msin principle in order to ensure insolvency and restructuring frameworks are efficient and also  consistent throughout the EU:

  • Training, specialisation of practitioners and courts, and also the use of technology (e.g. notifications to creditors, online filing of claims) will significantly improve the efficiency and length of insolvency, restructuring and second chance procedures.
  • Companies in financial difficulties (especially SMEs) will have access to early warning tools in order to detect a deteriorating business situation and ensure restructuring at an early stage.
  • New financing will be specifically protected increasing the chances of a successful restructuring.
  • Flexible preventive restructuring frameworks will simplify lengthy, complex and costly court proceedings. Additionaly, where necessary, national courts have to be involved to safeguard the interests of stakeholders.
  • Dissenting minority creditors and shareholders will not be able to block restructuring plans on one hand. On the other hand their legitimate interests will be safeguarded.
  • The debtor will benefit from a time-limited” breathing space” of a maximum of four months from enforcement action to facilitate negotiations and also successful restructuring.
  •  Workers will enjoy full labour law protection in accordance with the existing EU legislation throughout the preventive restructuring procedures.

 

Source

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