UK’s proposals for restructuring businesses spread to EU

bankruptcy imageIn July this year we reported on proposals by the UK’s Insolvency Service for new legislation that would stimulate earlier intervention in companies in financial difficulties.

This month the European Commission (EC) would appear to have followed suit by announcing a similar initiative.

Both sets of proposals have similarities with the US Bankruptcy Chapter 11 system as a court process for corporate bankruptcy protection.

Among the UK proposals put forward for consultation were a three-month moratorium to prevent enforcement or legal actions by creditors, allowing for a breathing space for rescue plans to be prepared and considered and for businesses to continue trading during any restructuring and protecting continued supply of essential goods or services without being held “hostage” by suppliers.

The deadline for responses to the consultation on UK proposals expired in September 2016 and of the responses reported, more than two thirds supported the idea of the moratorium. The Government is now assessing the results.

The EC follows suit

The EC proposals are very similar to those proposed for the UK and aim to allow what it calls “preventive restructuring”, particularly aimed at SMEs and at harmonising insolvency practice across the EU member states.

EC First Vice-President Frans Timmermans said: “We want to help businesses to restructure in time, so that jobs can be saved and value preserved. We also want to support entrepreneurs who do fail to get back on their feet quicker, get out there and try again wiser.”

The EC proposals, now out for consultation, also identify the need for earlier intervention and action for companies in difficulty and also include a moratorium from enforcement action to allow for restructuring negotiations and protection from individual creditors trying to seize assets.

The proposals, according to commentators, are part of EC efforts to organise capital across Europe and seek to remove obstacles to the free flow of capital across borders.

Alignment of the UK and EU initiatives may be overtaken by the UK’s decision to leave the EU following the referendum in favour of Brexit but the proposals are still relevant for business and the restructuring industry.

Both initiatives, if introduced, should provide SMEs in UK or EU with at least some confidence that if they get into financial difficulties their efforts to restructure will not be further inhibited by complex negotiations with creditors and suppliers despite the different insolvency regimes throughout the EU.

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