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Speech (by video message) from Commissioner Elisa Ferreira for the Early Warning Europe Day 2022 (04 November 2022).

"Check against delivery"

Dear participants,

Work obligations have prevented me from being with you today. But I very much wanted to say a few words, so thank you for allowing me to send this video.

As European Commissioner for Cohesion and Reforms, I am keenly aware of the importance of Small and Medium Enterprises (SMEs). They represent more than half of Europe's value added, and collectively employ nearly 90 million people, two-thirds of persons employed.

But, as you know, SMEs today face high energy prices, supply shortages, labour shortages and interest rate rises.

Only last week I have proposed new measures to further flexibilise Cohesion Policy to support SMEs and workers, particularly affected by the high energy prices.

For all these reasons, Europe needs, more than ever, early warning tools and alert mechanisms to identify SMEs and entrepreneurs in distress.

We must have efficient and effective mechanisms, everywhere in Europe, to catch them early and avoid unnecessary bankruptcies. So my thanks to the conference organisers. Your topic could not be more timely and it could not be more crucial.

The tools you are developing are like financial fire alarms, containing the flames of insolvency while they are still small and manageable and before the blaze consumes a viable business.

Your work builds on the Early Warning Europe project launched by the European Commission in 2016, as well as on DG REFORM's support to Member States in the field of preventive restructuring and second chances.

Today, as you bring together policymakers, entrepreneurs and experts, I would like to outline 3 key challenges.

The first challenge is to develop a culture of restructuring in every part of Europe. Actions that focus on rescuing viable companies and putting them back on track.

As you know, SMEs in financial difficulty may be economically viable, but do not have the resources to cope with high restructuring costs. And efficient restructuring procedures are currently only available in very few Member States.

The restructuring directive is playing a major role, levelling the playing field across the EU, in terms of access to recovery processes and finance. This is a crucial condition for a working capital markets union, and for the preservation of SMEs and jobs in every part of Europe.

Since 2018, DG REFORM has supported 25 projects in the area of insolvency, covering 16 Member States.

Fourteen of these projects were directly linked with the transposition of the Restructuring Directive. Nine of them included the design and set-up of efficient and effective early warning tools.

But these technical support projects have demonstrated the challenges of transposing the directive.

In several Member States, debt restructuring, business rescue and out-of-court reorganizations are practically non-existent. And most of the key operators, including courts, insolvency practitioners, debtors and creditors, lack the necessary skills to rescue viable debtors.

The second challenge is to provide state of the art, digital tools.

Time and costs are of the essence, and these tools reduce both time and costs. But very few Member States have successful digital tools, and most national authorities lack the in-house skills to create them.

Artificial intelligence can be used to create pre-filled balance sheets according to multiple variables including sector, size, and number of employees. Significant deviations from such model templates could help detect financial distress at a very early stage.

This underlines the crucial role of reliable data. But, as you know, in most Member States, the relevant data is collected in an uncoordinated manner by several different authorities often with obsolete technology.

The Technical Support Instrument has supported 2 projects concerning data tools, testing their effectiveness by observing companies in the real world, especially in the years after they were restructured, reorganised or rescued.

We need more such trials, more data, and more digitalisation.

The third challenge is regionalisation. Awareness raising is a crucial element of a culture of restructuring. But it is not easy to reach out to SMEs and entrepreneurs, especially when cities and business hubs are geographically scattered.

The role of regions is crucial, and experience shows that support to debtors tends to be better administered at this level.

Four Member States have requested help from the Technical Support Instrument to identify, assess and reconsider their multiple regional initiatives.

And a key future priority is to raise awareness among regional authorities and especially regional chambers of commerce. As well as providing specialised training and expanding the EU network of mentors.

And this is where I will conclude. In the future, we will use the Technical Support Instrument to enhance the skills and knowledge of all players, to set up courts specialised in debt restructuring, and to train tax and social security agencies, who are often the first to notice financial distress.

For each of these areas, peer-to-peer study visits and exchanges will tap into the experience of more advanced Member States. And we want to help provide expertise for digitalisation and artificial intelligence.

But we in the European Commission cannot do this work alone. Indeed as this conference proves we are not working alone. And in fact we will rely heavily on your expertise:

First, to help develop the EU network of mentors. This kind of expertise is essential, both for successful restructuring and for successful second chances.

Second to help EU and national policy makers to develop artificial intelligence and data tools.

Third, to raise awareness and help develop a culture of restructuring and second chances, especially at the regional level.

SMEs are the bedrock of Europe's success. We will rely on them to get us through the energy crisis, and we will rely on them to make a success of the green and digital transition. In these difficult times, we must keep viable firms afloat, and we must give viable entrepreneurs a second chance.

We rely on you, and your expertise. I wish you a fruitful discussion.