A breakdown of the EU’s proposed Insolvency Regime, as part of its Capital Markets Union plan.

EU insolvency regulations to date have largely concentrated on cross-border insolvencies and questions of private international law, such as opening secondary bankruptcy proceedings when primary bankruptcy proceedings are already under way in a different Member State. The Commission now seeks greater harmonisation, addressing the question of when, where and how insolvency proceedings should be opened in the EU.

Less punitive insolvency regimes have been supported by the Commission for a while now, with a January 2011 Report entitled “A Second Chance for Entrepreneurs: prevention of bankruptcy, simplification of bankruptcy procedures and support for a fresh start”. This Report highlighted the potential benefits of removing the social stigma attached to bankruptcy, and supporting a fresh start for honest entrepreneurs who fall within the 50% of enterprises which do not survive beyond their first five years. It suggested that “discharge periods have a very pronounced effect on levels of entrepreneurship”, that a discharge period of between one and three years would be a reasonable target and that any debtor contribution beyond this would be unreasonable. Currently there are divergent discharge periods in the various Member States, with the UK being amongst the more forgiving.

In June the Commission organised a high level Second Chance Conference with Member States and stakeholders, to discuss issues with the current regime. The conference explored methods of supporting enterprises and entrepreneurs in distress, the concept of a second chance for honest but failed entrepreneurs, as well as the current legal framework, access to finance for second chances and support and advisory services for failed entrepreneurs. Discussion at that conference centred on taking a more risk friendly approach to bankruptcies, viewing failure as a chance rather than a problem, and separating businesses suffering temporary financial difficulties from those with more fundamental problems which should be liquidated. The Commission is likely to push for further harmonisation measures in this area under its CMU programme and both the Action Plan and the Commission Work Programme for 2016 confirm that new proposals are planned for as early as 2016. We understand furthermore that the Commission plans to use UK legislation as a model.