European Parliament approves draft Insolvency Regulation

By an overwhelming majority representing more than 85%, the European Parliament has this week voted in favour of the Commission's December 2012 proposals to amend the European Regulation on Insolvency Proceedings (1346/2000).

The draft Regulation, which still requires consideration by the Council, would amend the European Regulation on Insolvency Proceedings (1346/2000), changing the emphasis from liquidation towards rescue and recovery. Insolvent cross-border businesses are an inevitable part of modern economies, but people whose businesses fail often do better in future. Therefore it seeks to help businesses overcome financial difficulties and facilitate second chances whilst protecting creditors’ rights to recover money.

The proposals would:

1. Extend European Regulations to any restructuring or debt-discharge process where the assets and affairs of the debtor are controlled or supervised by the Court. In England and Wales this may include Schemes of Arrangement under Part 26 of the Companies Act 2006, but other member states provide more extensive options.
2. Tighten the jurisdictional process so that the correct forum is identified early, all interested parties can be heard, and all related matters can be addressed together.
3. Require flexibility in secondary proceedings and greater co-operation between national courts and liquidators.
4. Increase publicity, including connected national insolvency registers available online.
5. Standardise forms to notify creditors and start proceedings.
6. Improve co-ordination of insolvency proceedings involving group companies.

Reaction has been positive amongst UK insolvency specialists, but this is not the end. The Commission is considering a European Entrepreneurship Plan and greater standardisation of insolvency/restructuring process across member states, including country-specific recommendations for amendment of domestic insolvency laws.