BUSINESS INSOLVENCY

In “Legal Affairs - JURI”

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For a brief overview of the key points of the adopted text and its significance for the citizen, please see the corresponding summary note.

In 2012 the Commission proposed a recast of the Insolvency Regulation (dating back to 2000) with the aim of addressing the cross-border aspects of insolvency in the EU. The main purpose of the reform was to provide clear rules to identify the proper jurisdiction and applicable law for a given debtor’s insolvency proceedings and mandatory recognition of those proceedings in other EU Member States. The recast regulation was adopted in 2015. It covers not only bankruptcy, but also hybrid and pre-insolvency proceedings, as well as debt discharges and debt adjustments for natural persons (consumers and sole traders). Furthermore, in order to promote transparency, it requires all Member States to establish insolvency registers that are to be interconnected via the e-Justice portal. There are also new rules on group insolvency and rules allowing for the coordination of proceedings regarding the companies within the group.

In 2014, the Commission published a recommendation (the Insolvency Recommendation) on a new approach to business failure and insolvency, encouraging Member States to implement early restructuring procedures and allowing entrepreneurs a 'second chance'. The recommendation sets out common principles for national insolvency procedures for businesses as well as measures aimed at reducing the length and cost of proceedings for SMEs. Member States were supposed to implement the Insolvency Recommendation by 14 March 2015. However, while it is clear that the recommendation provided a useful focus for those Member States undertaking reforms in the area of insolvency, an assessment carried out by the Commission in the framework of the economic analysis accompanying the capital markets union action plan of September 2015, has shown that it has only been partially implemented.

Therefore, as a follow-up to the recommendation, on 21 November 2016 the Commission published a proposal for a directive on business insolvency, which aims at providing new legal tools to rescue viable businesses in distress and give honest but bankrupt entrepreneurs a second chance. The proposal focuses on three key elements: common principles on early restructuring tools, which would help companies continue their activity and preserve jobs; rules to allow entrepreneurs to benefit from a second chance through discharge of debt; targeted measures for Member States to increase the efficiency of insolvency, restructuring and discharge procedures.

This initiative is a key deliverable under the Capital Markets Union Action Plan. It will contribute to removing important barriers to the development of capital markets in the EU by providing legal certainty to cross-border investors. It will also make a substantial contribution to financial stability by envisaging efficient restructuring procedures which may prevent businesses from defaulting on their loans to banks and will help addressing the issue of high levels of non-performing loans that might hinder the ability of EU banks to finance the real economy.

The Commission's insolvency initiative should be seen in the context of an earlier Parliament own-initiative resolution from 2011, where it pointed out the importance of removing disparities between national insolvency laws to reduce obstacles for companies with cross-border activities and highlighted that insolvency law should be a tool for the rescue of companies at EU level. The Parliament also recognized that, despite there is no legal basis for pursuing a full harmonization, there are areas of insolvency law where more convergence is achievable and worthwhile, also from an employment law perspective.

The European Parliament's Committee on Legal affairs (JURI) appointed Angelika Niebler (EPP, Germany) as rapporteur for this file. The rapporteur presented her draft report on 25 September 2017. Amendments were tabled in November 2017. The Committee voted on the report on 2 July 2018 and tabled it for the September plenary, which confirmed the mandate to enter inter institutional negotiations.

In its Conclusions of 5 December 2016 on tackling bottlenecks to investment, the ECOFIN Council recognized that well-functioning insolvency frameworks support economic growth and financial stability. It pointed out that clear rules for cross-border proceedings and reduced differences in insolvency systems across countries are beneficial for cross-border investment. The ECOFIN also acknowledged that important bottlenecks created by inefficient insolvency frameworks may comprise low recovery rates for claimholders and a lack of effective and efficient restructuring proceedings.

The objectives of the proposed directive received, in principle, broad support from Ministers during the informal Justice and Home Affairs (JAI) Council meeting  held on 27 January 2017. The JAI held a first policy debate on the proposed directive on 8 and 9 June 2017 and, on that occasion, endorsed a set of principles on some key issues for future work. A second policy debate was held in December 2017. Several compromise texts were discussed between December 2017 (Estonian Presidency) and April 2018 (Bulgarian Presidency). On 15 May 2018 JAI Ministers achieved agreement on Titles III, IV and V and relevant recitals (‘partial general approach’). An agreement covering the whole proposal ('general approach') was finally reached on 11 October 2018.

Inter institutional negotiations started in October 2018 and a political agreement was reached on 12 December 2018. Parliament voted on adopting the amended proposal during its March II 2019 plenary session. Council adopted it on 6 June. The final act was signed on 20 June 2019 and published on the Official Journal on 26 June 2019.

 

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Author: Carla Stamegna, Members' Research Service, legislative-train@europarl.europa.eu

As of 20/10/2022.