Proposal for a Directive harmonising certain aspects of insolvency law
The very divergent insolvency rules in the EU are often mentioned as a significant obstacle to the further development of the Capital Markets Union. They deliver different outcomes across Member States, and in particular they have different degrees of efficiency in terms of the time it takes to liquidate a company and the value that can eventually be recovered.
This proposal aims at encouraging cross border investment within the single market through targeted harmonisation of insolvency proceedings.
More in detail, the proposal targets the three key dimensions of insolvency law: (i) the recovery of assets from the liquidated insolvency estate; (ii) the efficiency of procedures; and (iii) the predictable and fair distribution of recovered value among creditors. It provides for:
- Minimum set of harmonised conditions for exercising avoidance actions.
- Strengthening asset traceability through improved access by insolvency practitioners to asset registers, including in a cross-border setting.
- Provisions to introduce so called ‘pre-pack’ liquidation procedures.
- Provisions on a duty of directors to timely file for insolvency to avoid potential asset value losses for creditors.
- Simplified liquidation procedure for insolvent microenterprises.
- Requirements for improving the representation of creditors’ interests in the proceedings through creditors’ committees.
- Enhanced transparency for creditors on the key features of national insolvency regimes, including on the rules governing insolvency triggers and the ranking of claims.
See relevant activities concerning this initiative: Insolvency laws: increasing convergence of national laws to encourage cross-border investment
Restructuring and Second Chance Directive
The EU adopted in June 2019 the Restructuring and Second Chance Directive that would allow viable business in distress to be rescued and honest but bankrupt individuals to be given a second chance.
Directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures
Insolvency and the internal market
Companies and individuals in the EU are increasingly extending their business activities to new EU countries. If they become insolvent, this can directly affect the proper functioning of the internal market.
The Council set up the first common framework for insolvency proceedings in Europe, a regulation on insolvency proceedings.
These rules on cross-border insolvency have been updated and modernised in 2015. The new rules shift focus away from liquidation, helping businesses overcome financial difficulties, all the while protecting creditors' right to get their money back.
The newregulation entered into application on 26 June 2017.
Increasing convergence of national laws to encourage cross-border investment
Efficient insolvency laws are one of the key criteria for investors to decide on whether to invest across borders. Increasing confidence in cross-border financing will boost the Union’s capital markets.
This initiative will address the main discrepancies in national corporate (non-bank) insolvency laws, which have been recognised as obstacles to a well-functioning Capital Markets Union. It will consider the legitimate interests of all creditor groups, from investors and the public purse to employees and consumers.
See relevant activities concerning this initiative: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12592-Insolvency-laws-increasing-convergence-of-national-laws-to-encourage-cross-border-investment
Research and key documents
This comparative study on substantive insolvency law throughout the EU also includes an analysis of the 2014 recommendation on a new approach to business failure and insolvency.
Key policy documents
Capital markets union action plan:
Action plan on building a capital markets union, COM(2015) 468 final, 30.9.2015 (Insolvency on pp. 24-25)
Economic analysis accompanying the action plan on building a capital markets union - SWD(2015) 183 final, 30.9.2015 (insolvency on pp. 73-78)
Feedback on the green paper "Building a capital markets union" SWD(2015) 184 final, 30.9.2015 (Insolvency on pp. 59-60)
Communication - Upgrading the single market: more opportunities for people and business, COM(2015) 550 final, 28.10.2015 (Insolvency on p. 6)
Communication – Towards the completion of the banking union COM(2015) 587 final, 24.11.2015 (Insolvency on p. 10)
Green paper on retail financial services – better products, more choice, and greater opportunities for consumers and businesses, COM(2015) 630 final, 10.12.2015 (Insolvency on p. 25)
'Five Presidents' Report': completing Europe's economic and monetary union, 22.6.2015