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Viviane Reding

Vice-President of the European Commission, EU Justice Commissioner

Taking Insolvency Law into the 21st Century to Ensure Justice for Growth

1st European Insolvency & Restructuring Congress

Brussels, 9 February 2012

Dear Dr Piepenburg, Dear Mr Lehne, Ladies and gentlemen,

I am very pleased to address you today on the reform of the Insolvency Regulation. This is an issue of the utmost importance for the Single Market in these economically difficult times.

At the informal European Council on 30 January, our Heads of State and Government had a very positive discussion, led by President Barroso, on boosting our economy. The emphasis was quite rightly placed on growth: the Union's role in creating a sound basis for sustainable growth, while pushing for fiscal consolidation.

In these times, we must all make our contribution. As Justice Commissioner, I am committed to putting growth at the heart of the Justice agenda. It is of key importance that we do much more to exploit the full potential of the Single Market, and to make European and national regulation sensitive to the needs of businesses, in particular, small businesses, which form the backbone of our economy. That means taking proper account of the fact that in this time of financial crisis, the flow of payments between businesses and their customers does not run as smoothly or as quickly as in the past.

In other words, the current debt crisis is not only about the Euro, sovereign debt and bank failures - it is about people. It is about jobs and the future of businesses, big and small. And the response at EU level is not only about national budgets and restructuring of the banking sector. Our response must be to rehabilitate and strengthen businesses. We must give companies the means to survive the crisis and have a fresh start if necessary. But we must also think beyond the crisis – and help businesses to operate efficiently in the long term.

Small companies represent 99% of the 20 million enterprises in the EU. Today, 5 million small companies operate across borders. Transactions in the Single Market should be as easy as domestic transactions. And if a company is in trouble financially, it should be just as easy to get help cross-border as domestically.

According to a study, some 600 companies in Europe went into liquidation every day in 2010. This means that a total of 220,000 businesses went bust in 2010 alone. This trend is confirmed in 2011 as recent data for Belgium shows: over 10,000 enterprises filed for bankruptcy in Belgium in 2011, an increase of almost 6% compared to 2010. This is a worrying trend. But what can we do about it? How can we help companies that are in difficulty, and how can we save jobs?

I think the EU institutions and national governments can help in this situation. Insolvency law must be adapted, so that when a company is in trouble this should no longer mean that the business is shut down and liquidated. When a company is in trouble, we need to make sure it gets a second chance, so that people keep their jobs. The experts call it rehabilitation and reorganisation of a company.

The EU's Insolvency Regulation of 2000 does not accommodate the concepts of rehabilitation and reorganisation. The Insolvency Regulation of 2000 still reflects national insolvency law as it existed in the 1990s. But thinking and practical experience have evolved, in particular on how to promote the survival of businesses. On the contrary, the Insolvency Regulation forces them to liquidate under certain circumstances.

The EU Insolvency Regulation was adopted in a context that is no longer valid today. For example, the current Regulation doesn’t deal with cross- border groups of companies, and it lacks an effective mechanism for transparency and creditor participation.

We must now focus on the fresh start that allows good honest businesses the chance to survive these difficult economic times.

The Insolvency Regulation has proved to be very useful over the years, but it now needs a face-lift.

First, we have to assess the efficiency of the current Regulation. To what extent has the initial objective been achieved, "to avoid forum shopping"? Second, we must ensure that the Regulation is consistent with other EU policies and legislation – I would mention developments in banking law, company law, and the rights of employees as well as entrepreneurs.

Furthermore, we want to bring EU insolvency legislation in line with national best practices and the UNCITRAL Model Law on cross-border insolvencies.

Third, the Regulation should enter into the internet era. With e-Justice, any court in the EU will have access to insolvency registers in other Member States. The Commission is supporting a pilot project with 9 Member States for the interconnection of these registers. Beyond that, the e-filing of claims would present advantages to liquidators and foreign creditors.

In general, the question has to be, after such a long period of application, how does the Regulation need updating? For example to reflect the reality of cross-border groups of companies, or to clarify certain definitions, or to be sufficiently flexible to respond to the needs of both debtors and creditors, and the practitioners who are called upon to apply the rules.

That is why over the coming months, I will have cause to turn to those who have experience in this field, the professionals who have applied and interpreted the Regulation, to make sure that we use this opportunity to improve the Insolvency Regulation.

That will also mean taking on board the work invested by the Court of Justice, which has handed down 8 judgments since the Insolvency Regulation came in force, with another five cases pending.

The Commission Work Programme for 2012 stresses that the Commission will address in the course of this year the existing EU law on insolvency and the way in which it can be modernised. Providing a modernised framework for handling insolvency issues is an essential part of a comprehensive and coordinated reaction to the economic crisis.

A modern insolvency law is essential for financial stability and efficiency of the financial system. It is an essential part of a modern Single Market. A modern insolvency law helps good companies to survive, it encourages entrepreneurs to take risks, it affects the terms on which lenders will lend. And if necessary, it provides an orderly way for businesses to close down. A modern system of insolvency law will help fuel the economy. A modern insolvency system benefits society in ways not available in a "liquidation only" system. It allows for a greater return for creditors, for the saving of jobs, for suppliers to keep their customers, and for owners to retain a viable company.

The European Parliament has made its valuable contribution to the reform debate on insolvency law. In a resolution in November 2011, MEPs identified a number of ways in which the European Union might improve the working of insolvency proceedings through the adoption of harmonised rules. This included the revision of the present Insolvency Regulation. I wish to thank Klaus-Heine Lehne in particular, for his relentless efforts on the insolvency reform.

Of course, there are several wider issues of insolvency law and their impact on growth, investment and legal certainty for businesses in the internal market raised by Mr Lehne in his report. I am also looking at a specific insolvency case in one Member State which highlights the challenges that uncertainties surrounding the operation of an insolvency law system can pose to companies who wish to make use of our internal market. It will therefore come as no surprise that I want to make the further work on insolvency a priority over the coming 9 months, and I will work closely with my colleagues Vice-President Rehn and Commissioner Barnier on these matters.

Dr Piepenburg, Mr Lehne, Ladies and Gentlemen,

A recent study carried out for the Commission concludes that most national legislation and the absence of pro-active governmental policies hinder second chances for re-starters. When, if not now, under the pressure of the crisis, would we address this? Now is the time to move forward for a modern insolvency law.

I am sure you will bring all your expertise and creativity to the debate, both in today's workshops and in tomorrow's plenary. Your views and insights into insolvency law are invaluable to us. Let us take insolvency law into the 21st century.

I wish you a very successful congress.

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