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Ministers reach political agreement on business restructuring rules

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Ministers reach political agreement on business restructuring rules

Photo © endostock - Fotolia

(LUXEMBOURG) - A new approach to business insolvency in Europe, agreed Thursday by EU justice ministers, will help companies in financial difficulties to restructure early on to prevent bankruptcy and avoid laying off staff.

The Directive on insolvency, restructuring and second chance also gives reputable bankrupt entrepreneurs a second chance, and introduces measures to increase the efficiency of restructuring, insolvency and discharge procedures.

With 1.7 million people losing their jobs every year because their company goes bankrup, the EU needs "robust insolvency rules in place across the EU to reduce the number of bankruptcies, and ensure that reputable entrepreneurs are offered a second chance," said Austria's justice minister Josef Moser, for the EU presidency.

The Commission's proposal focuses on three key elements: common principles on preventive restructuring frameworks, rules to allow entrepreneurs to benefit from a second chance, and targeted measures for Member States to increase the efficiency of insolvency, restructuring and discharge procedures.

The position of the Council keeps all the main elements of the initial Commission proposal. But it also provides more flexibility to member states to adapt the new legislation to their existing frameworks.

In particular, the Council has amended the provisions on:

  • the involvement of judges: while keeping the objective of having quicker insolvency procedures, the Council's position provides for more flexibility for member states to decide on when and where the involvement of judges is made mandatory;
  • the duration of the stay of individual enforcement actions: while keeping the durations proposed by the Commission (i.e. 4 months maximum for the initial duration), the Council introduces the possibility of a longer period for courts to confirm particularly complex plans;
  • the cross-class cram-down: while the rules defined in the proposal are kept, member states have decided on more flexibility at national level to set the conditions needed to carry out a prior valuation of a business, as well as the rules determining when a creditor class can be crammed down.

Welcoming the provisional agreement, Justice Commissioner Vera Jourova said she believes the proposal "will make a big difference for our businesses, for their investors, employees and the society as a whole. Honest entrepreneurs should be able to have a second chance, instead of being penalised for failing in their first business attempt."

With the European Parliament having already adopted its position, negotiations between the 3 institutions can start soon. The objective of the institutions is to reach a political agreement before the 2019 European elections.

Factsheet published at the time of the 
Commission proposal

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