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European Commission announces plans to reform business restructuring and insolvency rules

Brussels’ new proposals on bankruptcy protection will mean for small businesses in the UK.

When a UK business is struggling, the choices can seem restricted to insolvency procedures that do not always provide the required solutions and are often forced on the business owner by the creditors. To avoid insolvency can mean entering into arrangements with creditors together with possible refinancing, but that sector has become increasingly difficult over the last few years.

The courts can order a small business to be assigned a liquidator if it has proven that the company cannot pay its debts, or that it is just and equitable to liquidate the company’s assets, sometimes forcing companies into bankruptcy where some consider whether they have a chance of survival if other alternatives are available.

In light of the positive critique of the Bankruptcy Chapter 11 system used in the United States, Brussels has announced proposals to reform the current business restructuring and insolvency rules throughout Europe. The proposal is to increase the legal protection that small and medium sized businesses have against creditors to try to reduce the closure of businesses that do have potential.

This is a step in the right direction for the progress and development of the Capital Market Union (CMU), which is part of the European Commission’s plan to organise capital across Europe. CMU seeks to remove obstacles to the free flow of capital across borders and so harmonising aspects of national insolvency laws across Europe will be a priority. This unification is a bold step that would require all member states of the EU to adhere to the terms and so could face contest in the European Parliament. A number of individual nations have already expressed their intention to protect their own insolvency laws and oppose change.

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