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Strasbourg, 5 February 2014
Insolvency: European Parliament backs Commission proposal to give viable businesses a 'second chance'
The European Parliament has today backed with an overwhelming majority (580 for, 69 against and 19 abstentions) the European Commission's proposal to modernise Europe’s rules on cross-border insolvency (IP/12/1354). The strong endorsement by the members of the European Parliament means the Commission’s proposal has now been approved by one of the European Union’s two co-legislators. Member States in the Council now need to reach agreement on the draft law, amongst themselves and with the European Parliament, in order for it to enter the EU's statute book. The plenary vote follows a clear endorsement for the Commission’s initiative from the Parliament’s leading Legal Affairs Committee (JURI) on 17 December 2013 (MEMO/13/1164) as well as a first positive orientation debate by Justice Ministers in the December Council.
"Europe needs modern rules on cross-border insolvency to help service our economic engine. The first option for viable businesses should be to stay afloat rather than liquidating. I am glad to see that the European Parliament agrees," said Vice-President Viviane Reding, the EU's Justice Commissioner. "I want to thank the Members of the European Parliament, and particularly its rapporteur, Klaus-Heiner Lehne for their support. I will continue working closely with the European Parliament and Ministers in the Council so that the modernised insolvency rules are adopted swiftly. Businesses are waiting and we have no time to lose."
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 to overcome financial difficulties, while at the same time protecting creditors' rights to get their money back. The proposed law 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. Today's European Parliament vote endorsed the main elements of the Commission's proposal, particularly as regards:
Next steps: In order to become law, the Commission's proposal needs to be adopted jointly by the European Parliament and by the EU Member States in the Council (which votes by qualified majority). The Council, which decides on this file on an equal footing with the European Parliament, has welcomed the Commission proposal, but is still in the process of discussing the draft law. It is expected that Ministers will be able to reach a general agreement at their meeting in June.
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
European Commission – Insolvency proceedings:
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