European Commission seeks views on revising decade-old insolvency law

In a new consultation, running until June, the Commission is asking for wide-ranging feedback on the existing rules. The Insolvency Regulation, which sets out how corporate and individual insolvencies should be coordinated in cross-border cases, came into force in 2000 and applies whenever a debtor has assets or creditors in more than one member state.

EU Justice Commissioner Viviane Reding said that a modern insolvency law was "essential" for financial stability in the single market.

"A modern insolvency law will help fuel the economy as it will help give economically solid businesses, which are in short term financial difficulties, a second chance," she said. "It is an essential part of a modern Single Market and encourages entrepreneurs to take risks. And, if necessary, it provides an orderly way for businesses to close down. That is why we are consulting businesses as well as lawyers, judicial authorities and the public at large."

The European Parliament published a report recommending revisions to the Insolvency Regulation, particularly with regards to coordinating insolvency proceedings involving corporate groups, in October 2011. The report also recommended harmonising certain aspects of insolvency law and company law, and the creation of a central EU register for insolvency cases.

Around half of all corporate enterprises survive less than five years, with a total of 220,000 businesses going into liquidation in the EU in 2010, according to Commission figures. Although stressing that the 2000 rules had "improved legal certainty and facilitated judicial cooperation" in cross-border insolvency cases, it added that "important developments in national insolvency law and considerable changes in the economic and political environment" had prompted the review, which forms part of the EU's 2020 Growth Strategy.

Even small companies are increasingly operating cross-border, the Commission said, while larger companies are tending towards incorporation in international groups and have access to capital in the global financial markets. This move towards a more globalised presence, as well as recent economic stability, has resulted in a changing business environment with an increased risk of financial difficulties.

Many European countries have introduced less formal insolvency procedures since the Insolvency Regulation came into force, including pre-insolvency or hybrid schemes which allow struggling companies to continue to operate while protecting them from creditors, the Commission said.