European Commission consults on the key barriers to more effective insolvency and debt restructuring frameworks across the EU.
A key element of the Capital Markets Union (CMU) action plan was tackling the current inefficiencies and inconsistencies in national corporate insolvency laws that make it harder for investors to assess risk, particularly across borders. Debt restructuring, for viable businesses, and ‘second chances’ for entrepreneurs whose businesses legitimately fail are also areas where more commonality between national approaches are seen to be beneficial to building more dynamic capital markets. This consultation follows previous attempts to address differences through 'recommendations', which have seen limited take-up. Full proposals are expected later in the year.
Taken in the broader context of CMU and its important goals to boost levels of investment and remove barriers to cross-border flows of finance, it is positive that the Commission is tackling this difficult issue. A debate on insolvency laws needs to reflect wider perspectives across financial regulation, investor protection, corporate reporting and transparency, which this consultation is trying to do.
In KPMG member firms experience investors primarily want certainty of treatment and consistency of application in insolvency. However, across Europe the jurisprudence of member states, specific national laws, socio-economic constructs and cultural differences often make certainty and consistency difficult. These deep-rooted differences, outside of the scope of the insolvency framework, make any attempt to fully harmonize insolvency laws problematic. An approach that might weaken the well-functioning approaches in some countries would not be welcome. However, a framework that raises overall standards by defining common principles and creating some practical common tools, such as forms and templates, would greatly improve the current position.
In KPMG's submission to the Commission’s consultation we took views from across our European insolvency practices to try and help bring different country perspectives. CMU promised to try and tackle the difficult issues that were inhibiting the growth of capital markets, the Commission is delivering on this by looking at insolvency laws, but finding a common path across Europe will be difficult.