Speech - Modern insolvency rules to give businesses a second chance
European Commission - SPEECH/12/945 12/12/2012
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Vice-President of the European Commission, EU Justice Commissioner
Modern insolvency rules to give businesses a second chance
Press Conference: Modern insolvency rules to give businesses a second chance / Strasbourg
12 December 2012
I am here today to tell you about a proposal which the Commission has just adopted which will bring relief to businesses around Europe.
We all know that businesses are essential for growth and jobs, but setting one up – and keeping it going – is tough, especially in today’s economic climate. Around half of businesses do not survive beyond their first five years, meaning that there are around 200,000 firms going bankrupt across the European Union each year. And perhaps most importantly, 1.7 million jobs are lost to insolvencies every year.
We have had European rules to manage cross-border business insolvencies since 2000. These rules are there for a reason and affect a quarter of European companies. But with a decade of experience, we have reviewed how the rules work in practice, and found that they are currently too oriented towards liquidation, rather than restructuring companies so they can stay in business.
For companies that have short-term difficulties paying their debts, we want to give them and their employees a second chance. And we are not talking about only large, multinational firms here. There are more than one million SMEs in Europe which have subsidiaries or joint ventures abroad.
That is why we are today proposing to modernise this regulation so that the rules support the restructuring of business in difficulties and create a business-friendly environment. This is particularly important in times of crisis: we need to lend a helping hand to our businesses when the going is rough.
Shifting the focus to restructuring can also serve creditors because restructuring a business that owes them money can mean that they are more likely to get their money back – money that might otherwise be lost in a winding-up.
This would also bring the rules up to date with developments in some national insolvency laws. Some EU countries have now tried and tested pre-insolvency and hybrid proceedings with great success. We are drawing the lessons from their experience and want to help solvent companies to restructure themselves right from the pre-insolvency stage.
We want to increase legal certainty for companies, 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. This will help put an end to 'forum shopping' by companies.
We will also help make sure that creditors are properly informed about proceedings. Let me give you an example of why this matters: an Italian creditor had not been informed in time by French authorities that there was an insolvency proceeding on-going and missed the deadline to lodge a complaint – effectively robbing the creditor of his rights.
We will make sure this does not happen again by obliging Member States to publish key decisions – about the opening of insolvency proceedings, for example. Most Member States have online registers but this should be the case in ALL 27 Member States so that this court information can be easily accessed throughout the EU. These registers should be interconnected.
All in all, these changes will improve the efficiency and effectiveness of cross-border insolvency proceedings, affecting around 50,000 European businesses a year.
This is a first step towards an EU "rescue and recovery" culture to help companies and individuals in financial difficulties.
In the future, there could be separate rules for honest entrepreneurs and for cases where the bankruptcy was fraudulent or irresponsible.
When an honest entrepreneur goes bankrupt, 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.
We should not be stifling innovation: one failure should not stop any future entrepreneurial activity but should be seen as an opportunity for learning and improving. Research shows that 'second starters' are more successful and survive longer than average start-ups; they grow faster and employ more workers.
Failed entrepreneurs also 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 failed in their first venture.
And we should not forget our SMEs – who represent 99% of all businesses in the EU! Restructuring can be extremely costly for them. In the future we could have alternative procedures – such as out of court mechanisms – specially for SMEs. One size does not necessarily fit all – procedures should be proportionate to the size of the business.
These are steps forward I, and my colleague Vice-President Tajani, who sadly could not make it today, will explore in detail over the coming months. We will launch a public consultation to gather views on the way forward. In the meantime I hope the European Parliament and the Council will not delay in adopting the review of the Regulation so that we can lend a helping hand to our businesses when they need it the most.