The government is seeking views on proposals by the European Commission to create a new ‘rescue and recovery’ approach to insolvency across the EU by giving viable businesses a second chance when facing financial difficulties cross-border
One of the more contentious issues highlighted by the Insolvency Service consultation is the use of terminology in the proposals is incompatible.
The government 'seeks to understand whether any of the terms used in the recommendation are unclear, or problematic, from a UK perspective. In particular, two concepts that have been highlighted as potentially conflicting with the current UK position are the EU interpretation of the use of the following terms:
a) an honest bankrupt; and
b) a second chance.
In the government's view, 'the UK system already makes some distinction between bankruptcy cases. If a bankrupt’s behaviour is deemed to have been dishonest or blameworthy, they can be made subject to a Bankruptcy Restriction Order (BRO). This can extend some of the conditions of bankruptcy for up to fifteen years and the BRO is placed on a public register'.
In March 2014 the European Commission issued a recommendation that member states should put in place a framework that enables ‘the efficient restructuring of viable enterprises in financial difficulty’ and which would ‘give honest entrepreneurs a second chance’.
At the time, the Commission said: ‘The discrepancies between national restructuring frameworks, and between the national rules giving honest entrepreneurs a second chance lead to increased costs and uncertainty in assessing the risks of investing in another member state, fragment conditions for access to credit and result in different recovery rates for creditors. They make the design and adoption of consistent restructuring plans for cross-border groups of companies more difficult.’
It has set out minimum standards for how it suggests this new approach could be achieved. The Insolvency Service is now asking industry experts and other stakeholders for their views on these standards.
The consultation, which closes on 17 March, is examining two main questions. The first is whether implementation of the minimum standards set out in the recommendation, by member states, would really have the effect the Commission desires and, secondly, how the UK currently compares against the minimum standards set out.
Details of the call for evidence are here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/401329/Call_for_evidence_on_European_Commission_Recommendation_on_a_new_approach_to_business_failure_and_insolvency.pdf
Submissions should be sent to [email protected]
