European Parliament Pushing Insolvency Law Consistency, Real Changes Still Far Off?

An overwhelming majority of the European Parliament voted this to support a tentative European Commission proposal calling for streamlined and consistent cross-border business insolvency laws throughout the 28-member bloc. Still, there are experts who are tempering optimism that such rules could become a reality anytime in the near future.

The Parliament, on a 580 to 69 vote (19 abstentions), backed a Commission plan for insolvency laws that are designed to shift more toward allowing and fostering business restructuring during troubled financial times over the current system, which purposefully or inadvertently pushes liquidation as the most likely outcome. The key provisions of the new insolvency laws, if passed when language is finalized are as follows: extending the rules that cover rescue proceedings, creating an EU-wide insolvency registry, reducing the opening of multiple insolvency proceedings against one company and clarifying rules when dealing with the insolvency of groups of companies.

“Europe needs modern rules on cross-border insolvency to help service our economic engine,” said European Commission Vice President and EU Justice Commissioner Viviane Reding. “The first option for viable businesses should be to stay afloat rather than liquidating.”

The theory behind the effort, on paper, appears unassailable. Such a series of laws, if functional, would greatly reduce risk in dealing with EU-based businesses. However, the realities could prove to be vastly different. To wit, many FCIB contacts believe there likely will be too many obstacles in the form of state-to-state legal differences for such a plan to go into effect within many of the EU’s member states.

“That’s always a problem here,” said Freddy van Den Spiegel, chief economist and director of public affairs at BNP Paribas Fortis . “Contract law is not harmonized. As soon as you touch contract law, you have unintended consequences. Indeed it will be difficult.” Van Den Spiegel said there are further-along efforts to make rules consistent in sectors including insurance and pensions, and those are progressing slowly and problematically because of the issues involved with navigating the diversity in laws and accepted practices throughout the EU.

- Brian Shappell, CBA, CICP, NACM Staff writer.

More on this topic will be available in next week’s edition of eNews at Van Den Spiegel will be among the speakers at May’s FCIB Annual International Credit & Risk Management Summit in Munich. For more information or to register, click here.

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