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Common insolvency principles proposed across EU
In March the European Commission (EC) set out a series of “common principles” for national insolvency procedures for businesses in financial difficulty, with the objective of shifting the focus away from liquidation towards encouraging viable business restructure at an early …
In March the European Commission (EC) set out a series of “common principles” for national insolvency procedures for businesses in financial difficulty, with the objective of shifting the focus away from liquidation towards encouraging viable business restructure at an early stage in order to prevent insolvency.
With around 200,000 businesses across the EU facing insolvency and 1.7 million individuals losing their jobs each year as a result, the Commission wants to give viable enterprises the opportunity to restructure and stay in business.
According to the EC, reforming national insolvency rules would create a “win-win” situation, keeping viable firms in business and safeguarding jobs whilst at the same time improving the environment for creditors, who will be able to recover a higher proportion of their investment than if the debtor had simply gone bust.
The recommendations aim to allow the firms in difficulty to request a temporary stay of up to four months which could be renewed up to a maximum of 12 months before creditors can launch enforcement proceedings, giving them the time to adopt a restructuring plan. In addition, post-bankruptcy, “honest entrepreneurs” should be given a second chance because evidence shows that they are more successful the second time around.
The recommendation follows a public consultation in 2013 on a European approach to insolvency and a proposal to revise existing EU rules on cross-border insolvencies, which recently received the approval of the European Parliament. The EC has given member states one year to put the “appropriate measures” in place and will assess their progress after 18 months.
Our experts at Royds can provide tailored solutions in line with the latest legislation for businesses and individuals who may be at risk of insolvency.