New insolvency plans backed by UK

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The UK is backing EU plans to overhaul rules on cross-border company insolvencies, it was announced by the European Commission today.

The proposals are designed to help businesses overcome financial difficulties more easily, but also aim protect the rights of creditors in their search for money if companies are liquidated.

The Commission hopes the overhaul will increase the efficiency and effectiveness of cross-border insolvencies which, it estimates, affects 50,000 companies in the EU every year.

EU Vice President Viviane Reding said: “With 200,000 firms going bankrupt across the European Union, and 1.7 million jobs being lost to insolvencies every year, there’s no time to waste in getting these new rules in place.

“I am glad to see that both the UK and Ireland have recognised the importance of developing a new, more business-friendly legal environment which focuses on getting businesses back on their feet when the going is rough.”

A quarter of bankruptcies have a cross-border element, but the Commission says evidence suggests failed entrepreneurs learn from their mistakes and are more successful the second time around.

It says it is ‘therefore essential to have modern laws and efficient procedures in place to help businesses, which have sufficient economic substance, overcome financial difficulties’.

“Moving the focus to restructuring can also serve creditors because restructuring a business that owes them money can mean that they are more likely to get their money back – money that might otherwise be lost in a winding-up,” a statement from the Commission read.

It will be some time before the proposals could come into force as it needs to be adopted by the European Parliament and individual member states. The first steps towards this were taken with a council of ministers discussion in January.

Whether struggling companies do have ‘sufficient substance’ to merit help will always be open to debate, while some fear that propping up businesses can have a detrimental affect. See our advice on how to protect yourself against ‘zombie’ businesses.

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