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Giving honest businesses a second chance: European Parliament committee backs Commission's insolvency proposal

European Commission - MEMO/13/1164   17/12/2013

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European Commission

MEMO

Brussels, 17 December 2013

Giving honest businesses a second chance: European Parliament committee backs Commission's insolvency proposal

A key European Parliament committee has today supported a European Commission proposal to modernise Europe’s rules on cross-border business insolvency, helping to give otherwise viable businesses a 'second chance'. The Legal Affairs Committee (JURI) voted by 20 votes in favour, 1 against and 3 abstentions to back the Commission's proposal which will throw businesses hit by the economic crisis a lifeline. The proposed modernisation of the EU’s Insolvency rules – the Regulation in force at present dates from 2000 – is a key first step to bringing EU insolvency law into the 21st century (IP/12/1354, MEMO/12/969). The new rules which were proposed by the Commission in December 2012 will shift the focus away from liquidation towards a new approach helping businesses overcome financial difficulties, while at the same time protecting creditors' rights to get their money back.

"We need to lend a helping hand to our businesses when the going is rough. The first option for viable businesses in financial difficulty should be to keep afloat rather than liquidating," said Vice-President Viviane Reding, the EU's Justice Commissioner. "That is why we need to update our current rules on cross-border insolvency to give honest businesses and their employees a second chance. I am grateful for the support of the JURI committee and its rapporteur, Mr Lehne, and will continue working closely with the European Parliament and Ministers in the Council so that these new insolvency rules are adopted swiftly. Businesses are waiting and we have no time to lose."

The new rules will increase the efficiency and effectiveness of cross-border insolvency proceedings, affecting an estimated 50 000 companies and 1.7 million jobs across the EU every year. This is a first step towards an EU "rescue and recovery" culture to help companies and individuals in financial difficulties.

Next steps: The proposed modernisation of EU insolvency law is now expected to pass to the European Parliament’s plenary session for a vote next year and to the Council of the EU for adoption during 2014.

Background

Insolvencies are a fact of life in a dynamic, modern economy. Around half of enterprises survive less than five years, and around 200 000 firms go bankrupt in the EU each year. This means that some 600 companies in Europe go bust every day. A quarter of these bankruptcies have a cross-border element. But evidence suggests that failed entrepreneurs learn from their mistakes and are generally more successful the second time around. Up to 18% of all entrepreneurs who go on to be successful have failed in their first venture. It is therefore essential to have modern laws and efficient procedures in place to help businesses, which have sufficient economic substance, overcome financial difficulties and to get a "second chance".

The revision of the EU Insolvency Regulation seeks to modernise the existing rules so that they support the restructuring of business in difficulties and create a business-friendly environment. Creditors' interests can also be served by a restructuring, as it can mean that they are more likely to get back their money which might otherwise be lost in a winding-up.

It will also increase legal certainty, by providing clear rules to determine jurisdiction, and ensuring that when a debtor is faced with insolvency proceedings in several Member States, the courts handling the different proceedings work closely with one another. Information to creditors will be improved by obliging Member States to publish key decisions – about the opening of insolvency proceedings, for example. All in all, these changes will improve the efficiency and effectiveness of cross-border insolvency proceedings.

This proposal is also intended as a first step towards an EU "rescue and recovery" culture in cases of companies and individuals in financial difficulties more generally. In the future, there could be separate rules for honest entrepreneurs and for cases where the bankruptcy was fraudulent or irresponsible. That is why on 5 July 2013, the Commission launched a public consultation on a European approach to business failure and insolvency, putting the focus on the differences in national insolvency law and seeking views from stakeholders on areas where approximation of national insolvency law could bring benefits (IP/13/655). In the case of honest bankruptcies, a shortened discharge period in relation to debts and the legal restrictions stemming from bankruptcy would make sure entrepreneurship does not end up as a "life-sentence" should a business go bust, for example.

European Insolvency Law is laid down in Regulation (EC) No 1346/2000 on insolvency proceedings (the “Insolvency Regulation”), which applies since 31 May 2002. The Regulation contains rules on jurisdiction, recognition and applicable law and provides for the coordination of insolvency proceedings opened in several Member States. The Regulation applies whenever the debtor has assets or creditors in more than one Member State.

For more information

MEMO/12/969

European Commission – Insolvency proceedings:

http://ec.europa.eu/justice/civil/commercial/insolvency/index_en.htm

Homepage of Viviane Reding, Vice-President of the European Commission and EU Commissioner for Justice:

http://ec.europa.eu/reding

Follow the Vice-President on Twitter: @VivianeRedingEU

Follow EU Justice on Twitter: @EU_Justice


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