European Commission's Insolvency proposal: good but needs more punch for MSMEs20 March 2017
by ESBA -- last modified 20 March 2017
On 22 November 2016, the European Commission presented its proposal for a Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU.
On 22 November 2016, the European Commission presented its proposal for a Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU. It comes as part of the Capital Markets Union (CMU) Action Plan from 2015 and the Single Market Strategy. Its objectives are to reduce the most significant barriers to free flow of capital stemming from the different insolvency regimes in EU Member States and to reduce the number of non-performing loans. It aims to introduce a set of key principles, and where deemed necessary, targeted rules governing restructuring and second chance frameworks as well as measures reducing the length and cost of insolvency proceedings themselves. Further, it aims to address issues pertaining to the rescue culture in the EU with a focus on prevention, value recovery and debt discharge in insolvency cases.
ESBA welcomes the initiative, as it would have a positive impact on SMEs through a few of its key aspects. As debtors, the early warning provisions resonate very well with ESBA's objectives and our participation in a Commission approved consortium on the establishment of a European-wide early warning system called Early Warning Europe. It is important to allow small and micro enterprises to access professional expert advice and clear information in order to avoid liquidation. In many cases, companies that are saved by Early Warning would have gone bankrupt unnecessarily. Furthermore, the proposed 3 year duration of the discharge period (the time after which over-indebted entrepreneurs may be fully discharged from their debts) would lead to an improvement in the current situation in many Member States, and fosters entrepreneurship, promoting a second chance culture which is invaluable for innovation and economic growth.
For small and micro enterprises as creditors, the proposal does not fulfil its full potential. The current version of the proposal stresses the necessity to make more of the debt recoverable by small companies, however does not address the root cause of the issue – the ranking of claims. In line with ESBA's own initiative paper on insolvency, which will be presented at the SME Envoy Meeting in Bratislava today, we argue that a change in the priority of claims would lead to a more certain business environment throughout the supply chain and minimize the risks of "domino insolvencies".
The European Small Business Alliance (ESBA) is a non-party political group, which cares for small business entrepreneurs and the self-employed and represents them through targeted EU advocacy and profiling activities.
European Small Business Alliance (ESBA)