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Europe proposes changes to bankruptcy rules

The European Commission has proposed changes to insolvency measures that would allow companies to restructure earlier and potentially prevent bankruptcy. 23 Nov 2016

Under the proposed new rules a business would be given up to four months "breathing space" from enforcement actions from creditors to give it time to negotiate debt restructuring, the Commission said.

Minority creditors and shareholders should not be able to block restructuring plans, although their "legitimate interests" will be protected, it said, while workers will "enjoy full labour protection" throughout the restructuring process".

Early-warning tools would help companies to identify a deteriorating business situation more quickly and begin restructuring earlier, the Commission said.

Court proceedings, which are currently lengthy, complex and costly, need to be simplified, the Commission said.

The new measures would lead to more effective and efficient insolvency procedures across the EU, and give entrepreneurs a "second chance after a bankruptcy", it said.

Commissioner for justice, consumers and gender equality Věra Jourová said: "Every year in the EU 200,000 firms go bankrupt, which results in 1.7 million job losses. This could often be avoided if we had more efficient insolvency and restructuring procedures. It is time to give entrepreneurs a second chance to restart a business through a full discharge of their debts within a maximum of three years."

Insolvency expert Nick Gavin-Brown of Pinsent Masons, the law firm behind Out-Law.com said: "The proposals are the EU’s first attempt to harmonise insolvency laws across member states rather than just ensuring recognition of individual member proceedings, which has logical benefits for the functioning of the single market."

"The wider move towards more debtor-friendly, US-style proceedings is a trend also being following by the UK in its own recent corporate insolvency framework consultation, which has been encouraged by the World Bank’s focus on debtor-friendly provisions when ranking jurisdictions in terms of the best places to do business. It remains to be seen how any new EU regime works alongside any new UK regime once Brexit has concluded," he said.