European Union backs cross-border insolvency proposals

by Rachael Singh

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06 Feb 2014

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THE EUROPEAN UNION has backed proposals to change cross-border insolvency rules, in a vote yesterday.

Part of the proposals, which were put forward in December 2012, include the introduction of a web-based insolvency register for all insolvent businesses and negating the need to open several insolvency cases in each country for the same business. 

Member states in the council now need to reach an agreement on the draft law, between themselves and the European Parliament, before it can be entered into the EU statute book.

"Europe needs modern rules on cross-border insolvency to help service our economic engine. The first option for viable businesses should be to stay afloat rather than liquidating. I am glad to see that the European Parliament agrees," said vice-president Viviane Reding, the EU's justice commissioner.

"I will continue working closely with the European parliament and ministers in the council so that the modernised insolvency rules are adopted swiftly. Businesses are waiting and we have no time to lose."

The Council is still in the process of discussing the draft law. It is expected that ministers will be able to reach a general agreement at their meeting in June.

Nearly 600 businesses enter insolvency every day across Europe, with about a quarter having a cross-border element.

It is hoped that the proposals will bring greater legal clarification where a debtor owes money to several creditors throughout Europe. Courts handling different proceedings in various member states will work closer together and decisions will be published to ensure ease of understanding across the continent.

"While we welcome the European Parliament and Commission's interest in promoting a rescue culture across Europe, it is important that the final proposals don't go for a lowest common denominator approach," said insolvency practitioner trade body, R3, vice-president Giles Frampton.

"The existing European regulations have been very sensible in their operation to date, so too much modification would be unwelcome.

"Once the details have been tweaked, we will be in a better position to judge the impact that the renewed regulations could have. Of course, the UK has the option to opt out of these regulations, but we very much hope it would not come to that."

In October 2012 the UK Supreme Court ruled that foreign court judgements on insolvency matters could not be enforced in other jurisdictions. The decision sent practitioners reeling - due to the added cost of having to bring legal proceedings in every jurisdiction.

Members of the profession said they were shocked by the decision with some claiming it has sent cross-border insolvency rules back 30 years. The decision could potentially lead to different courts making different decisions based on the same facts.

Sara Benbow, barrister at Hardwicke Chambers, said:"The greatest impact of the new scheme is likely to be the increased range of options, flexibility, co-operation and transparency available both to insolvent businesses with interests in multiple member states and to the practitioners and creditors dealing with them."

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