European Union governments and the European Parliament have reached a provisional agreement to harmonise insolvency laws across the 27-nation bloc. The EU Council stated the move aims to make it easier to invest across the EU and foster a more liquid EU capital market. Work on harmonising key aspects of the different national bankruptcy laws has been ongoing for a decade, facing hurdles such as differing legal cultures and conflicts between ministries. The new directive seeks to address these long-standing issues.
Previously, varying insolvency laws resulted in recovery times for investors ranging from seven months to seven years, with judicial costs varying widely. Institutions like the International Monetary Fund and the European Central Bank have identified the lack of harmonised insolvency law as a significant barrier to greater capital market integration in Europe. The agreement mandates that EU countries apply consistent standards to prevent companies from concealing assets before bankruptcy, and allows authorities to reverse transactions that unfairly reduce creditor recoveries.
The agreement also facilitates easier access to bank account registers for insolvency practitioners through a shared system. They will have the ability to check beneficial ownership and access other national databases to help locate assets. Furthermore, company directors will be required to file for insolvency within three months of recognising serious financial trouble, a duty that may be suspended if alternative steps are taken to protect creditors.
Under the new directive, each EU member state will publish a factsheet explaining its insolvency laws in English, French, German, and its native language. These factsheets will be accessible via the EU’s e-Justice Portal, aiming to reduce risks associated with cross-border investments. The provisional agreement requires formal adoption by both the Council of EU governments and the European Parliament, after which EU countries will have approximately two years and nine months to incorporate the agreement into their national legislation.
