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European Commission

MEMO

Brussels, 06 June 2014

Modern insolvency rules: EU Ministers back Commission proposal to give honest businesses a second chance

Today, national ministers in the Justice Council backed the Commission's proposal to modernise European rules on cross-border insolvency (IP/12/1354). The modernised Insolvency Regulation will provide a new approach to help businesses overcome financial difficulties, shifting the focus away from liquidation, while protecting creditors' right to get their money back.

"Today's agreement in the Council brings Europe one step closer to providing better conditions for businesses and creditors alike," said Vice-President Viviane Reding, the EU's Justice Commissioner. "Small and medium-sized enterprises are the backbone of the EU's economy. Europe needs a ‘rescue and recovery’ culture for viable businesses – the modernised insolvency rules will facilitate a fresh start. The changes will allow for increased entrepreneurship in Europe, boosting growth and jobs. Citizens can also rest assured that when their employer faces financial difficulties, the business will stand a better chance of survival."

Every year in the EU, cross-border insolvency proceedings affect an estimated 50 000 companies - meaning every year 1.7 million jobs are at stake. About one in four bankruptcies in the EU have a cross-border element. The European Commission is therefore pushing initiatives in the area of justice policy that can foster growth in Europe. The modernisation of cross-border insolvency rules forms just part of this strategy.

Concretely, the new Regulation will:

  • make it easier to restructure a business in a cross-border context: more businesses will be saved from liquidation. Restructuring groups of companies will also be easier. In turn, this will save more jobs and help foster entrepreneurship in Europe. Creditors will also benefit because the chances that they get their money back will increase if the business continues;

  • help creditors get their money back. The new rules are set to be a "win-win situation" for both businesses and creditors - businesses get a second chance and creditors are more likely to obtain their money than during liquidation;

  • increase legal certainty and provide clear rules to determine jurisdiction. When a debtor is faced with insolvency proceedings in several Member States, the courts handling the different proceedings will work closely with one another;

  • improve information to creditors by obliging Member States to publish key information on insolvency proceedings in electronic insolvency registers, publicly accessible via the internet. Such changes will improve the efficiency and effectiveness of cross-border insolvency proceedings.

In February 2014, the European Parliament backed the European Commission's proposal on cross-border insolvency rules (MEMO/14/88) with an overwhelming majority (580 for, 69 against and 19 abstentions). The Justice Council includes the main elements of the European Parliament's position by introducing group coordination proceedings for insolvent members of groups of companies.

Next steps: The European Parliament, the Council of Ministers and the Commission will now engage in negotiations to reach an agreement on a final text. The adoption of the modernised Insolvency Regulation is expected by the end of the year.

Background

The European Insolvency Regulation (Regulation (EC) No 1346/2000 on insolvency proceedings) has been applying since 31 May 2002, which means that the current rules date back to 2000. Benefitting from ten years of experience, the new rules proposed by the Commission on 12 December 2012 aimed to modernise the Insolvency Regulation by:

  • bringing restructuring procedures within its scope;

  • establishing an interconnection between insolvency registers in all the Member States;

  • proposing a framework to efficiently deal with procedures involving cross-border groups of companies;

  • avoiding the opening of secondary proceedings by taking into account the interests of local creditors in so called synthetic proceedings;

The updated insolvency rules mark an important step towards implementing an EU rescue culture in cases of companies and individuals in financial difficulties. Together with the Commission's Recommendation of 12 March 2014 on a new approach to business failure and insolvency (IP/14/254), the modernised Insolvency Regulation will truly bring insolvency law in Europe in line with the 21st century.

For more information

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

Commission proposal – press pack:

http://ec.europa.eu/justice/newsroom/civil/news/121212_en.htm

European Commission Recommendation (12th March 2014) on a new approach to rescue business and give honest entrepreneurs a second chance:

http://ec.europa.eu/justice/newsroom/civil/news/140312_en.htm

European Commission – Insolvency proceedings:

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

Follow EU Justice on Twitter: @EU_Justice


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