Both the United Kingdom and Ireland have announced their decision to join the Commission’s proposal to modernise current EU rules on cross border insolvency, which date from 2000.

 

The new rules aim to shift focus away from liquidation and develop a new approach to helping businesses overcome financial difficulties, all the while protecting creditors’ right to get their money back. They will also increase the efficiency and effectiveness of cross-border insolvency proceedings, affecting an estimated 50 000 companies across the EU every year.

“With 200,000 firms going bankrupt across the European Union 1.7 million jobs being lost to insolvencies every year, there’s no time to waste in getting these new rules in place,” said Vice-President Viviane Reding, the EU’s Justice Commissioner. “I am glad to see that both the UK and Ireland have recognised the importance of developing a new, more business-friendly legal environment which focuses on getting businesses back on their feet when the going is rough.”

Businesses are essential to creating prosperity and jobs, but setting one up – and keeping it going – is tough, especially in today’s economic climate. Around half of enterprises survive less than five years. 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. 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 Commission has therefore proposed to modernise the Regulation so that the rules support the restructuring of business in difficulties and create a business-friendly environment. Moving 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. The new rules will also 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.

In order to become law, the Commission’s proposal now needs to be adopted by the European Parliament and by the EU Member States in the Council. The Council held a good first discussion on the proposal in January