As we reported late last year the EC (European Council) announced changes to allow for what it calls “preventive restructuring”, particularly aimed at SMEs and at harmonising insolvency practice across the EU member states.
The aim of the proposals from the European Parliament and the EC was to help businesses to restructure in time, so that jobs can be saved and value preserved, and to support entrepreneurs whose businesses had failed to recover and try again.
In June this year, the ECB published what it called an opinion on the directive, after noting that it had not been consulted but was exercising its right to comment on “matters in its fields of competence.
The opinion welcomed what it saw as the main object of the proposed changes, to promote common standards and reduce barriers to the flow of capital across borders, but it called for more ambitious action in the efforts towards harmonisation.
It highlights what it considers the two important potential risks in insolvency proceedings: the failure to adequately balance the creditor-debtor relationship and risks and the need to protect and maximise value “for the benefit of all interested parties and the economy in general”.
It argues that “A failure to adequately balance the rights of creditors and debtors could lead to adverse and unintended consequences”.
One of these, it opines, is that the greater transparency and uniformity that would result from the proposals could foster distressed debt markets across the EU, where they are currently “more domestically focussed”. This, it says, would be a concern given current EU banks’ high levels of non-performing loans.
While supporting the use of formal and informal procedures in restructuring initiatives, the ECB would also like to see a code of best practice established to be adopted by all member states.
As an aid to greater clarity, the bank has suggested some amendments to the EC’s proposed wording.