18 December 2014 by

Honest businesses given a ‘second chance’ by new EU insolvency rules

Businesses hit by the economic crisis will be given a ‘second chance’ under new insolvency rules proposed by the European Commission. Evidence suggests that failed entrepreneurs learn from their mistakes and are generally more successful the second time around. The new proposals therefore aim to bring the existing cross-border insolvency in line with thetwenty first century business environment.

These proposed changes mark an important step towards implementing an EU rescue culture for companies and individuals in financial difficulties. This will be achieved by shifting focus away from liquidation, while protecting  creditors rights to get their money back.

Essentially, the new rules will:

  • make the process of restructuring a business and groups of companies easier. It is believed that this will save jobs and promote entrepreneurship in Europe as more businesses are saved from liquidation.
  • help creditors get their money back. The new rules are set to be a “win-win situation” for both businesses and creditors. With businesses getting a second chance, the creditors are more likely to obtain their money if the business continues rather than during liquidation;
  • increase legal certainty and provide clear rules to determine jurisdiction. EU rules would be extended to cover an additional 19 national commercial and personal insolvency mechanisms under the new regime. On that basis, when a debtor is faced with insolvency proceedings in several Member States, the courts handling the different proceedings will work closely with one another; and
  • improve information to creditors by obliging Member States to publish key information on insolvency proceedings in electronic insolvency registers, publicly accessible via the internet. Such changes will improve the efficiency and effectiveness of cross-border insolvency proceedings.

All the measures mentioned here are just proposals at this stage and will require legislation to be passed but they are a positive step towards the continued strengthening of the economy.

If you have any questions relating to company law, please contact Mira Qerasaj or 020 7288 4762 or MiraQerasaj@boltburdon.co.uk

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