EU sets out new approach to help companies in financial trouble and give budding entrepreneurs a second chance.
Every year around 200,000 companies across the EU face the prospect of bankruptcy, costing 1.7 million people their livelihoods as a result. More needs to be done to ensure failing companies can restructure at an early stage and stay in business.
Reforming national insolvency will be good for all concerned. Not only will it protect viable businesses and safeguard jobs, it will reduce risks for investors, improve returns for creditors and encourage cross-border investment.
To achieve a more consistent system, the EU is recommending national governments put in place measures that help businesses restructure at an early stage, rather than pushing them towards liquidation as is often the case. These measures [68 KB] include:
Early restructuring is not currently possible in several EU countries; and where it is procedures can be inefficient or costly, reducing incentives for companies to stay afloat.
Such discrepancies between EU countries have an impact on the recovery rates of cross-border creditors, investment decisions, and the restructuring of groups of companies.
A more consistent EU approach would reduce the risks of investing in another country and improve returns for creditors in case of bankruptcy. Standardising the way debts are managed will also give entrepreneurs the chance to try again. Indeed evidence shows they are more successful second time around.
The EU is asking national governments to put in place appropriate measures within 1 year. The Commission will assess the progress made and evaluate whether further measures are needed.
A new package of measures to modernise current cross-border insolvency rules has already been approved by the European Parliament and must now be agreed by national ministers in the EU Council.