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From the Brussels Office

16 January 17

Recent developments in the EU: business insolvency proposal

On 22 November the Commission finally published its long-awaited proposal on business insolvency, as foreseen by the Capital Markets Union initiative. The proposal presents a set of European rules on business insolvency aimed at promoting early restructuring to promote growth and protect jobs.

The proposed directive focuses on three key elements: (1) common principles on the use of early restructuring frameworks, which will help companies continue their activity and preserve jobs; (2) rules to allow entrepreneurs to benefit from a second chance, as they will be fully discharged of their debt after a maximum period of three years: currently, half of Europeans say they would not start a business because of fear of failure; and (3) targeted measures for member states to increase the efficiency of insolvency, restructuring and discharge procedures, reducing the excessive length and costs of procedures in many member states, which result in legal uncertainty for creditors and investors and low recovery rates of unpaid debts.

The initiative seeks to increase the opportunities for companies in financial difficulties to restructure early on to prevent bankruptcy and avoid laying off staff. It also aims to ensure entrepreneurs get a second chance at doing business after a bankruptcy. Together, this should lead to more effective and efficient insolvency procedures throughout the EU.

The proposal will now be allocated to a European Parliament committee. Separately, a Council working party will begin working on the dossier. The UK Law Societies will be closely monitoring the ongoing developments and reporting on them as they progress. 

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