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Law Society criticises EU insolvency rule changes 31 January 2014

The European parliament’s changes to EU insolvency rules would ‘contradict the objective of rescue,’ the president of the Law Society of England and Wales has claimed.

Nicholas Fluck wrote to the vice-president of the European Commission to reject the changes put forward by the Commission in December 2012 to extend cross-border insolvencies to rescue proceedings.

Fluck said: “The Parliament’s changes fundamentally contradict the objective of rescue.

“In an economic crisis this is illogical. Rescuing a company rather than liquidating it works to the benefit of both debtors and creditors and it helps safeguard jobs and growth.”

Out of court proceedings have been removed from the scope of the EU legislation, and a three-month ‘look-back’ period has been introduced to allow companies to exercise their right to free movement subject to the laws of the originating member state.

Fluck said: “Excluding out of court proceedings undermines the global efforts by the World Bank, IMF and the European Commission to promote and rescue companies as these types of proceedings are both cheaper and faster than court-driven ones.

“Keeping a business afloat secures jobs and promotes the interests of creditors.

“In the UK, where out of court proceedings form a crucial part of insolvency laws, the recovery rate is among the highest in the world, returning 88.6 cents on the dollar to creditors.

“Subjecting companies that operate cross-border to the rules of another member state to where they are based at the time of entering into insolvency proceedings creates a great deal of legal uncertainty by not knowing exactly which country’s laws they fall under.

“This could prevent them from exercising their right to move cross-border and start rescue proceedings.

“This kind of a barrier to free movement raises the question of whether this is in line with the treaties.”

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