Convergence of insolvency frameworks within the European Union

In 2014 the EU determined upon a new approach to insolvency law, to which its member states were to aim. The broad approach was to encourage entrepreneurial conduct, to attend to struggling businesses earlier, and the employees, and to diminish the stigma associated with business failure. The need for efficient recycling of assets was a focus.

Australia is following suit, although its issues are at a different level, and we don’t have the quality of economic and financial analysis to either substantiate particular reforms, or validate them later.

A major analysis of the EU members’ insolvency law was conducted by the University of Leeds, its report being completed, and provided to the European Commission, in January 2016.

That report was released by the EC on 11 July 2016, the day before the ‘convergence’ meeting on 12 July in Brussels held by the EC on ideas for reform that would feed into the final proposal to be taken to the European Parliament later this year.

The meeting was attended by over 200 interested parties, from across Europe, and England, Scotland, and Ireland; and Australia. The U.K. insolvency Service was represented, along with European regulators and financiers.

Issues common to those in Australia were debated – the harmonisation needed for domestic EU insolvency laws, including a standard insolvency definition; needed changes in community perceptions of debt, with Europe culturally divided between east and west; the need for protected debtor finance; the protection of employee rights, with deemed insolvency a needed concept; the need to ensure the integrity of the process, with secured property rights and proper asset valuations. Aspects of debtor in possession models were raised; and options for no or limited judicial involvement.

The need for prevention of abuse was strongly argued.

In personal insolvency, there was a questioning of the ‘honest entrepreneur’ description, of the separation of business and consumer bankruptcies; a highlighting of the mental and societal health issues involved, and the reality of limited dishonest conduct and the need for (compulsory) business health checks.

An increased emphasis on economic outcomes, and testing, was raised.

As to the insolvency profession, there was seen to be a need for greater use of technology, training, education and universal codes of professional conduct; properly based remuneration; and a focus on independence across member states. Judicial training was also a focus.

The European Commission is issuing a directive following this consultation, on 26 October 2016.

More on this meeting, and issues that should be considered in Australia, shortly.

The INSOL Academics conference in London – 13-15 July – is examining these and other issues.