22 February 2016

AFME: EU insolvency law reform could boost growth and jobs across Europe

The research, produced in cooperation with Frontier Economics and Weil Gotshal & Manges LLP, hows that improvements in insolvency frameworks across the EU could increase GDP by between €41 and €78 billion. The research also estimates that total EU employment could increase by between 600,000 and 1.2 million jobs.

The report, entitled “Potential economic gains from reforming insolvency law in Europe”, finds that much of the absolute gains from insolvency reform could flow to Italy, Spain and France. Countries such as Greece, Hungary and Romania stand to gain most in relative terms; adding 2% to long-term GDP if they can bring their insolvency regime up to the European average.

Simon Lewis, Chief Executive of AFME, said: “Closer convergence of EU insolvency rules would help to build a truly integrated Capital Markets Union, benefiting investors and providing greater flexibility for companies. Our research highlights the scale of the potential economic prize. With the Commission due to propose a legislative initiative on business insolvency later this year, we hope that this report will make a positive contribution to the policy debate.”

In its action plan on CMU, the Commission has highlighted that adopting minimum standards for insolvency law across Europe would help to alleviate these negative effects. In this respect, AFME’s report recommends:

• a Chapter 11-type stay of proceedings to enable quick and effective restructuring.
• granting super-priority status to new financing to provide working capital to a distressed company;
• giving creditors stronger rights to propose viable restructuring plans; and
• requiring national insolvency agencies to publicly report on outcomes.

Andrew Wilkinson, Head of European Restructuring at Weil, said: “The catalysing effect that insolvency law reform could have on stimulating recovery in the EU economy by providing an improved legal framework for banks to tackle NPLs and reallocate capital to prospering businesses underscores the significant macro-economic benefits that could be achieved by Commission-led legislative reform in this area.”

The report also contains an overview of current national insolvency regimes in France, Germany, Italy, Spain, the UK, the Netherlands and Luxembourg, as well as case studies relating to recent cross-border insolvency procedures and recent reforms at national level.

Full report

© AFME