Big shake-up in business insolvency rules looming



Deep reforms are designed to give trouble-hit firms the chance to restructure early and increase confidence among current and budding entrepreneurs. We take a look at what’s on the slate.

Big changes to European countries’ insolvency laws are on the horizon. The European Commission envisages a bloc-wide business landscape where it’s easier for companies - especially small ones - to bounce back from failure, where member states must legislate for the early restructuring of businesses in trouble and where entrepreneurs who’ve made mistakes are given a second chance.

Pulling together the EU’s varied strands of insolvency rules into one central, harmonious package is the aim, and it’s hoped the shake-up will boost entrepreneurship, reduce the number of firms going into liquidation, bring down legal fees, create jobs and give people thinking of starting a business the confidence to do just that.

All in all, it represents a real culture change when it comes to European attitudes towards doing business. And this will all happen quite quickly too - by 2018.

In a nutshell, the European Commission’s new directive on corporate insolvency reform is looking like this:

1. Increase opportunities for firms in financial trouble to restructure early, avoiding bankruptcy and shedding staff.
2. Give entrepreneurs a ‘second chance’ at doing business after going bankrupt by discharging them of their debt after three years at the most (in some countries right now, it’s 10 years).
3. Simplify court proceedings, increasing the efficiency of insolvency.
4. Give firms - especially SMEs - early warning tools to spot signs of financial problems.
5. Let debtors have ‘breathing space’ from enforcement action (four months maximum) so they can negotiate and restructure.
6. Protect new finance to increase the chances of successful restructuring.

Cultural shift
The EU wants to spur economic growth and see job growth across the bloc, and it thinks a modern insolvency and business restructuring system will help achieve this.

“Every year in the EU, 200,000 firms go bankrupt; which results in 1.7 million job losses,” the EU’s justice commissioner Vera Jourova said.

The EU says too many businesses are going into liquidation that, in fact, could have been saved through restructuring. What’s more, nearly half of Europeans (49 per cent) say they’re put off from starting a business because of the fear of failure, the social stigma associated with it and problems paying off debts.

“This could often be avoided if we had more efficient insolvency and restructuring procedures. It is high time to give entrepreneurs a second chance to restart a business,” Jourova added.

Andrew Tate, president of recovery body R3, welcomed the reforms. “The focus on early advice and restructuring in the new directive is welcome. The earlier companies seek advice about their problems, the more likely that businesses and jobs can be saved,” he said.

“Of course, the introduction of the directive is complicated by Brexit. There is still no clear timetable for when the UK will leave the EU, so while we expect the government to start work to ensure the UK is compliant with the directive, we don’t know how long the directive will apply for.”

Chapter 11-style procedures
Actually, these deep reforms will move European insolvency proceedings much more in line with the rules and regulations over the pond. There, failure isn’t such a dirty word. “One of the facets of the US start-up culture that Europeans often look at quite enviously is the ease with which people start one business, fail, start another and eventually get it right,” Michael Collins, chief executive of lobby group Invest Europe, told the Wall Street Journal.

“In Europe, it’s been the case that a failure is culturally frowned upon and actually has long-term financial implications for the entrepreneur.” Many others have noted how the reforms mirror the chapter 11 procedures in the States.

The proposals, now in the legislative process, will work to standardise insolvency rules across the EU. Perhaps more importantly, they will breathe new life into business activity and offer a helping hand to those who need it. In this way, the new rules will, to a degree, ‘normalise’ business failure in Europe, turning it into an opportunity, not The End.

Latest Businesses in Administration

Businesses in Liquidation

How to buy a business out of administration


Share this article



Latest Businesses for Sale

IT Infrastructure Service Provider
North West, UK

Solutions are offered on-site or hosted in the cloud, with the company delivering robust and reliable infrastructure environments, upon which its clients and partners can rely. Services include hosting and IT, with a complementary range of products a...

Asking Price: Offers Invited
Turnover: £763,000

LEASEHOLD


Freight Forwarding Company via Road, Air & Sea
UK Wide

Benefits from a knowledgeable, approachable and loyal workforce, capable of running the business without the shareholders’ input. Operates from leasehold premises. Our clients are offering the business for sale to pursue other, unrelated interests. O...

Asking Price: Offers Invited
Turnover: £1,500,000

LEASEHOLD


Homeware Products in Kitchenware for Mass-Market Retailers
South of England, UK Wide

Provides an extensive range of 900 products, many of which as an exclusive distributor, owing to its strong relationships with suppliers. Operates from leasehold premises based in South England. Offers invited.

Asking Price: Offers Invited
Turnover: £6,000,000

LEASEHOLD



View more businesses for sale

Search Insights

Free guide: 10 Biggest Buyer Mistakes

Sign up to receive our acquisition alert emails to get your FREE guide

Email


Want access to the latest businesses for sale?

Business Sale Report is your complete solution to finding great acquisition opportunities.

Join today to receive:

  • Comprehensive range of businesses for sale
  • Make direct contact with business sellers or their intermediaries
  • Access to all UK administrations, liquidations and winding-up petitions
  • Daily email alerts for the latest businesses for sale & distressed notifications
  • Business Sale Report publication posted to you every month
  • Advertise your acquisition requirements on our "business wanted" section

All this and much more, including the latest M&A news and exclusive resources