ACCA generally supports the second chance approach to insolvency, but calls for clearer definitions and a balanced approach.
ACCA fully endorses the two main objectives of the new EC proposal. The first is ensuring that any viable enterprise in financial difficulties located in the EU can have access to national preventive insolvency frameworks enabling its early restructuring, with a view to preventing insolvency. The second is giving honest bankrupt entrepreneurs a second chance, particularly important for less resourceful small businesses.
John Cullen, ACCA council member and insolvency practitioner at Menzies LLP said: ‘We currently observe a significant variance in survival rates of struggling businesses across the EU, from 5 to 80% of businesses entering formal insolvency processes. That certainly suggests the Commission could usefully act to improve survival rates by harmonising the existing insolvency regimes, using features and best practices from the most advanced member states. In addition, this proposal seems to be well aligned with the EC‘s mainstreamed objective to reduce the costs of doing business in the EU.’
For the global accountancy body, the EU executive rightly identified that efficient insolvency frameworks would provide a better assessment of the risks linked to lending and borrowing decisions. It would also facilitate the adjustment for over-indebted firms, reducing economic and social costs involved in their deleveraging process. ACCA also welcomes the proposal to put in place financial planning and management trainings for small entrepreneurs, to help detecting, solving and preventing financial problems at an early stage.
Jason Piper, ACCA’s head of business law explained: ‘The earlier financial difficulties can be identified and addressed, the greater the likelihood of a better outcome for society as a whole. We fully share the Commission’s view that a to avoid running the risk of misuse of the procedure, the financial difficulties of the debtor must be likely to lead to its insolvency, while the restructuring plan must be capable of preventing the insolvency of the debtor and ensuring the viability of the business. Accountants have an important role to play in this process, as they are uniquely positioned with an understanding of commercial, legal and financial issues which contribute to the success of a business as a whole. In particular, accountants should be well equipped for the role of mediator foreseen by the EU Commission.
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