New EU insolvency rules enter into force
They aim at facilitating debt recovery in cross-border proceedings
30 June, 2017
New rules on cross-border insolvency proceedings, first proposed in 2012 and adopted by EU legislators in 2015 to facilitate debt recovery, entered last Monday into force throughout the Union, the EU press service reported. The new rules aim at facilitating debt recovery in cross-border insolvency proceedings. They will make it easier for businesses to restructure and for creditors to get their money back, by ensuring that collective procedures for cross-border debt recovery are effective and efficient.
The Regulation focuses on resolving the conflicts of jurisdiction and laws in cross-border insolvency proceedings. It also ensures the recognition of insolvency-related judgements across the EU. According to Justice Commissioner Vera Jourova, the new regulation would prevent “bankruptcy” tourism. “With the proposed new rules on restructuring and second chances, the insolvency framework will remove barriers for investments and support honest entrepreneurs,” she pointed out. “Businesses who need to restructure should not be hampered by conflicts over which national rules apply, nor should national borders be an obstacle for creditors to recover their claims” First VP Frans Timmermans added.
The new rules have a wider scope and apply to a wider range of national restructuring proceedings. Certain modern and efficient types of national restructuring proceedings were not covered by the old set of rules, meaning that they could not be used in cross-border cases. It will now be possible to use the modern national restructuring proceedings to rescue businesses or recover money from debtors in other EU countries.
They also aim at increasing legal certainty and safeguards against bankruptcy tourism. If a debtor relocates shortly before filing for insolvency, the court will have to carefully look into all circumstances of the case to see that the relocation is genuine and not to take advantage of more lenient bankruptcy rules. The court will have to check that the debtor is not acting as a “bankruptcy tourist”.
The new rules avoid as well “secondary proceedings”. This will make it easier to restructure companies in a cross-border context. The rules at the same time also provide for safeguards guaranteeing the interests of local creditors. They introduce framework for group insolvency proceedings. This will increase the efficiency of insolvency proceedings involving different members of a group of companies. In turn, this will increase the chances of rescuing the group as a whole.
By the summer of 2019 there will be an EU-wide interconnection of electronic national insolvency registers. This will make it easier to obtain information on insolvency proceedings in other EU countries.