The challenges of harmonising insolvencies and restructurings

The challenges of harmonising insolvencies and restructurings

What harmonisation provisions have the European Commission recommended and what is their legal status?

Original news
Press Release: European Commission recommends new approach to rescue businesses and give honest entrepreneurs a second chance, LNB News 12/03/2014 100

The European Commission has set out a series of common principles for national insolvency procedures for businesses in financial difficulties. The objective is to shift the focus away from liquidation towards encouraging viable businesses to restructure at an early stage to prevent insolvency. With around 200,000 businesses across the EU facing insolvency and 1.7 million people losing their jobs each year as a result, the Commission wants to give viable enterprises the opportunity to restructure and stay in business. The Recommendation follows a public consultation last year on a European approach to insolvency (IP/13/655), and a proposal to revise existing EU rules on cross-border insolvencies, which recently received the approval of the European Parliament (MEMO/14/88).

What has the European Commission proposed?

On 12 March 2014, the European Commission issued a recommendation containing detailed provisions seeking to harmonise insolvencies and restructurings throughout the EU (the Recommendation) (for the full text, see Commission Recommendation on a new approach to business failure and insolvency).

General harmonisation is also supported by the European Parliament and the Organisation of Economic Cooperation and Development (OECD). The Recommendation takes into account the findings of INSOL Europe's Study on a new approach to business failure and insolvency—Comparative legal analysis of the member states' relevant provisions and practices.

The Recommendation asks member states to:

• facilitate the restructuring of businesses in financial difficulties at an early stage, before starting formal insolvency proceedings, and without lengthy or costly procedures to help limit recourse to liquidation
• allow debtors to restructure their business without needing to formally open court proceedings
• give businesses in financial difficulties the possibility to request a temporary stay of up to four months (renewable up to a maximum of 12 months) to adopt a restructuring plan before creditors can launch enforcement

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.