A well-functioning and efficient insolvency framework are key ingredients of the dynamic business environment. Viable companies facing financial difficulties require early warning mechanisms and preventive restructuring frameworks to help them avoid bankruptcy. If a company can no longer be rescued, honest entrepreneurs who went bankrupt should still be offered a second chance.
The European Commission’s actions
- in 2022, the Commission proposed a Directive to harmonise insolvency law, including simplified winding-up proceedings for insolvent microenterprises to ensure an orderly liquidation, even for microenterprises without assets, through a streamlined and cost-effective process, reducing administrative burdens
- the Commission’s Directive on preventive restructuring frameworks and second chance, in force since 2019, provides early warning tools for companies in financial difficulties and supports second chance policies by setting the discharge period to a maximum of three years.
- the Competitiveness Council in May 2011 made a recommendation to limit the discharge time and debt settlement for honest entrepreneurs after bankruptcy to a maximum of three years by 2013
- the Commission monitors and helps EU countries developing this policy framework by making second chance as a policy priority
Support tools for entrepreneurs
As a follow-up to the early warning Europe (EWE) project, in 2021, the Commission launched a three-year project, the Early Warning Europe Mentor Academy (EWEMA). It mobilises mentors across Europe, trains them, and ensures expertise exchange while linking them with other European and national networks providing services to SMEs.
The learning programme developed by EWEMA for mentors looking to extend their knowledge and understanding of the key issues being faced by SMEs at risk of failure will be available at the learning platform: EU Academy once the project is completed (November 2024).
In 2016, the Commission co-financed a three-year pilot project, Early Warning Europe (EWE), to lay the groundwork for the early warning mechanisms in the EU countries. The early warning mechanism aims to provide impartial and confidential assistance to
- ensure that a viable company can identify problems and stabilise its situation
- suggest the necessary changes that will bring a company back on track or ensure honest and quick closure of a company if there are no other options
- help change the general perception of business failure and second starters (they learn from failure).
EU countries can benefit from the expertise, tools and solutions developed by the EWE project in its pilot phase when establishing the early warning mechanisms provided for in the Directive.
Supporting documents
- Insolvency Frameworks across the EU: Challenges after COVID-19, 2023
- Enhancing Insolvency Frameworks to support economic renewal, OECD Working Paper, co-financed by the European Commission, December 2022
- Study on a new approach to business failure and insolvency, Comparative legal analysis of the Member States’ relevant provisions and practices, Directorate-General for Justice and Consumers, 2016
- Study on Bankruptcy and second chance for honest bankrupt entrepreneurs, 2014
- Report - A second chance for entrepreneurs (1 MB)
- Study on 'Business Dynamics': start-ups, business transfers and bankruptcy (4 MB)