The Directive (EU) 2019/1023 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on procedures concerning restructuring, insolvency and discharge of debt has been adopted 2019 by the European Commission (EC).
But what is beyond this unwieldy title?
In layman’s words: “The initiative is about providing new legal tools to rescue viable businesses in distress and given honest but bankrupt entrepreneurs a second chance”.
It focuses on three core elements:
- Common principles on early restructuring tools,
- rules to allow entrepreneurs to benefit from a second chance through discharge of debt,
- targeted measures for Member States to increase the efficiency of insolvency, restructuring and discharge procedures.
The overall objective is to reduce the most significant barriers to the free flow of capital stemming from differences in Member States' restructuring and insolvency frameworks, and to enhance the rescue culture in the EU based on the principle of second chance.” (Source: ESO).
Early Warning Europe, a project co-funded by EU’s Programme for the Competitiveness of SMEs (COSME) provides a good example on how the Directive could take concrete form in the different Member States while providing a clear European added-value in terms of shared knowledge. Early Warning Europe provides free, impartial and confidential counselling to companies in distress. Such an early intervention can:
- Help prevent bankruptcy and its consequences, including job-losses,
- guide companies through a fast and transparent bankruptcy process when this is the best solution for the company and its owner,
- mitigate the economic risk for suppliers and clients,
- alleviate personal and social effects on employees and business owners.
How does it work?
The company in need can reach an Early Warning specialist consultant in one of the project's partner organisations for a first assessment. The partner organisations also organise local information events to provide opportunities for a first contact.
Following the assessment, the consultant and the company agree on a general action plan. Based on the plan, a volunteer advisor can be assigned to support the company in planning and restructuring. The volunteer advisors are senior business people with in-depth knowledge of turnaround management and other specific business areas. The Early Warning consultants follow the process closely, coordinating with the volunteer advisor until the company is well on track for survival or is assisted to close down, keeping in mind the entrepreneur’s possible wish for a second start.
Although the project did formally end in December 2019, the project partners have managed to keep the services operating in their home countries or regions: Belgium, Denmark, Germany, Greece, Italy, Poland and Spain.
As confirmed by Morten Møller, Early Warning Europe’s project manager, several further countries such as Croatia, Finland, Hungary, Lithuania, Luxembourg and Slovenia are preparing to set up the Early Warning mechanism. The ultimate goal of the project is to establish Early Warning support mechanisms in all EU Member States.
As highlighted by Morten Møller: “New policy makers are welcome to contact me and join the initiative and learn from our experience in order to setup fast efficient early warning systems in their countries. We have already made all the mistakes and can rapidly transfer our experience!”
The Early Warning Europe website already offers a detailed manual for public or private sector organisations considering or planning to establish an Early Warning Mechanism.
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