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Assisting companies - especially SMEs, the backbone of Europe’s economy - in financial distress to prevent insolvency, and providing a second chance to honest bankrupt entrepreneurs are vital to re-boost growth and investments in the EU.
In November 2016, the EC published a proposal on preventive restructuring frameworks and second chance for entrepreneurs, which aims to address these two goals. The legislative debate has just started. In order to shed more light on this important initiative and to discuss the way it should be carried forward, ACCA, BusinessEurope, and UEAPME, under the auspices of the Maltese Presidency of the Council of the EU, organised a lively multistakeholders debate that discussed what’s in the insolvency proposals for SMEs.
The discussions revealed that the EC proposal - and its holistic approach - is generally welcomed by stakeholders, who commended the preparatory work being undertook before its publication. However, the debate also showed that insolvency is a complex area, deeply rooted in national legal traditions, which raises numerous challenges.
John Cullen, ACCA Council member & Partner, Menzies said: 'Across the EU as a whole, we currently observe a significant variance in survival rates of struggling businesses, from 5 to 80% of businesses entering formal insolvency processes. This means that the European Commission and the co-legislators could usefully act to improve these rates by harmonising the existing insolvency regimes, using features and best practices from the member states showing the best survival and growth rates.
'The Directive is especially intended to benefit less resourceful SMEs, a welcomed objective. But it also raises challenges and concerns, as insolvency rules affect a plethora of stakeholders (creditors, debtors, shareholders, courts, etc.), and are deeply intertwined with many other areas of law. It is vital that all stakeholders join forces to help design a fair and balanced preventive restructuring and second chance framework.'