The European Commission (EC) has announced a series of “common principles” for national insolvency processes across its member states.
The main objective is to move away from liquidation and encourage businesses to “restructure at an early stage so as to prevent insolvency.”
The recommendation aims to allow businesses in financial difficulties the possibility to request a temporary stay of up to four months (renewable up to a maximum of 12 months) to adopt a restructuring plan before creditors can launch enforcement proceedings.
Viviane Reding, justice commissioner for the EU, said: “Businesses are essential to creating prosperity and jobs, but setting one up – and keeping it going – is tough, especially in today’s economic climate.
“With a growing number of firms facing financial difficulties across Europe, we need to rethink our approach to company insolvencies. Henry Ford’s first automobile company went out of business after 18 months, but he went on to found one of the most successful companies in the world.
“We should not be stifling innovation – if at first an honest entrepreneur does not succeed, he or she should be able to try again. Our insolvency rules should facilitate a fresh start.”
“Honest entrepreneurs” would also be given a “second chance because evidence shows that they are more successful the second time around”, by discharging debts within a maximum of three years.
Antonio Tajani, EU Commissioner for Enterprise and Industry, said: “We need to put in place an efficient mechanism that would allow a distinction between honest and dishonest entrepreneurs as this is fundamental to reduce the current stigma of bankruptcy.
“This distinction should help eliminate discrimination against those entrepreneurs who are non-fraudulent bankrupts, so that they become eligible for any existing market support available for starting a new business.”
The recommendation adopted yesterday (12 March) follows a public consultation last year on a European approach to insolvency and a proposal to revise existing EU rules on cross-border insolvencies, which recently received the approval of the European Parliament.
The EC have given member states to put “appropriate measures” in place within one year and will assess progress after 18 months.