The European Commission has proposed a new set of European rules on business insolvency that it says will increase the opportunities for companies in financial difficulties to restructure early on so as to prevent bankruptcy and avoid job losses.
According to the Commission, the proposed Directive will also ensure that entrepreneurs get a second chance at doing business after a bankruptcy and will lead to more effective and efficient insolvency procedures throughout the EU.
"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,” explained Commissioner for Justice, Consumers and Gender Equality, Vera Jourová. “It is high time to give entrepreneurs a second chance to restart a business through a full discharge of their debts within a maximum three years."
The proposed Directive focuses on three key elements:
- Common principles on the use of early restructuring frameworks, which will help companies continue their activity and preserve jobs.
- Rules to allow entrepreneurs to benefit from a second chance, as they will be fully discharged of their debt after a maximum period of three years. Currently, half of Europeans say they would not start a business because of fear of failure.
- Targeted measures for Member States to increase the efficiency of insolvency, restructuring and discharge procedures. This will reduce the excessive length and costs of procedures in many Member States, which results in legal uncertainty for creditors and investors and low recovery rates of unpaid debts.
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