Internal Market, Industry, Entrepreneurship and SMEs

Insolvency prevention and second chance

Insolvency prevention and second chance

A well-functioning and efficient insolvency framework are key ingredients of the dynamic business environment. Viable companies facing financial difficulties require early warning mechanisms and preventive restructuring frameworks to help them avoid bankruptcy. If a company can no longer be rescued, honest entrepreneurs who went bankrupt should still be offered a second chance.

The European Commission’s actions

  • in 2016, the Commission proposed a Directive on preventive restructuring frameworks and second chance, providing early warning mechanisms and supporting second chance policies by setting the discharge period to a maximum of three years
  • the Competitiveness Council in May 2011 made a recommendation to limit the discharge time and debt settlement for honest entrepreneurs after bankruptcy to a maximum of three years by 2013
  • the Commission monitors and helps EU countries developing this policy framework by making second chance as a policy priority

Support tools for entrepreneurs

The Commission has co-financed a 3-year pilot project, The early warning Europe tool (EWE), to lay the groundwork for the early warning mechanisms in the EU countries. The early warning mechanism aims to provide impartial and confidential assistance to

  • ensure that a viable company can identify problems and stabilise its situation
  • suggest the necessary changes that will bring a company back on track or ensure honest and quick closure of a company if there no other options
  • help change the general perception of business failure and second starters (they learn from failure).

EU countries can benefit from the expertise, tools and solutions developed by the EWE project in its pilot phase when establishing the early warning mechanisms provided for in the Directive.

Supporting documents