Harmonising Insolvency Laws in the Euro Area: Rationale, Stock-Taking and Challenges. What role for the Eurogroup?

13-07-2016

There are four distinct areas where harmonising national insolvency frameworks can improve the functioning of the single market and the stability of the Euro area. Early restructuring of businesses, bank resolution, cross-border insolvency and NPL management rely on common features of local insolvency frameworks, which can affect their legal certainty and functioning. To promote a more entrepreneurial spirit, a pan-European framework for early restructuring of business could offer a true second chance for entrepreneurs. To benefit from a capital markets union, insolvency frameworks would also need to remove sources of cost unpredictability in cross-border insolvency procedures, which are often hidden in national insolvency laws or not sufficiently dealt with in the current EU framework. This report makes a contribution to define areas for further action. Measures, moreover, to harmonise insolvency laws can produce positive impacts on the banking union, with the harmonisation of hierarchies of claims in particular for the functioning of the resolution mechanism. Finally, the diffusion of best practices on credit recovery procedures can help to improve the management of NPLs via fostering liquidity in secondary markets.

There are four distinct areas where harmonising national insolvency frameworks can improve the functioning of the single market and the stability of the Euro area. Early restructuring of businesses, bank resolution, cross-border insolvency and NPL management rely on common features of local insolvency frameworks, which can affect their legal certainty and functioning. To promote a more entrepreneurial spirit, a pan-European framework for early restructuring of business could offer a true second chance for entrepreneurs. To benefit from a capital markets union, insolvency frameworks would also need to remove sources of cost unpredictability in cross-border insolvency procedures, which are often hidden in national insolvency laws or not sufficiently dealt with in the current EU framework. This report makes a contribution to define areas for further action. Measures, moreover, to harmonise insolvency laws can produce positive impacts on the banking union, with the harmonisation of hierarchies of claims in particular for the functioning of the resolution mechanism. Finally, the diffusion of best practices on credit recovery procedures can help to improve the management of NPLs via fostering liquidity in secondary markets.