New rules facilitating cross-border insolvency proceedings enters into force
Yesterday, the new rules on cross-border insolvency proceedings, proposed by the Commission in 2012 and adopted by the EU legislators in 2015, came into force throughout the European Union.
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 judgments across the EU.
European Commission First Vice-President Timmermans said:""In a real internal market 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. These new rules will support companies and investment through increased legal certainty. We will need to go further and adopt common EU rules to make sure companies restructure early, as already proposed by the Commission."
Commissioner Věra Jourová, EU Commissioner for Justice, Consumers and Gender Equality, said: "The new Insolvency Regulation will facilitate cross-border insolvency within the EU and prevent from "bankruptcy" tourism. With the proposed new rules on restructuring and second chances, the insolvency framework will remove barriers for investments and support honest entrepreneurs."
Key features of the new rules
- Wider scope: The new rules 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.
- Increased 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".
- Increased chances to rescue companies: The new rules avoid "secondary proceedings" (proceedings opened by courts in an EU country other than the one where the company's registered office is based). 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.
- Group insolvency proceedings: The new rules 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.
- Linking insolvency registers: 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.
The European Commission put forward a proposal in 2012 updating the 2000 Regulation to improve the application some of its provisions, so as to enhance the effective administration of cross-border insolvency proceedings. This proposal was adopted by the European Parliament and the Council of the European Union on 20 May 2015 and came into force yesterday.
In 2014, the Commission has also issued a Recommendation on restructuring and second chance. When the Commission reviewed the implementation of the Recommendation by Member States, it became clear that rules still diverge and remain inefficient in some countries.
This is why the European Commission proposed a Directive on business insolvency in November 2016, which focuses on facilitating early restructuring and second chance.
These two legal instruments – the new Insolvency Regulation and the proposed Directive – will create a coherent framework supporting growth and entrepreneurs.
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