Proposal to Harmonise Insolvency Frameworks Across the EU - What's in Store for SMEs?

On 7 December 2022, the European Commission released its Proposal for a Directive of the European Parliament and the Council harmonising certain aspects of insolvency law (the “Insolvency Directive”) with the aim to create common standards and improve the efficiency and effectiveness of formal insolvencies across EU member states.

“If adopted, the combined measures proposed in the Insolvency Directive may have a profound impact on the way insolvencies are resolved in a number of EU member states, with a corresponding impact on credit-related metrics such as recovery timings, ultimate recoveries, and default statistics due to a faster recognition and more efficient resolution of companies in financial distress,” said Stephan Rompf, Vice President of European Structured Credit at DBRS Morningstar.

This commentary focuses on the aspects of the Insolvency Directive that are directly targeted at small and medium-size enterprises (SMEs) and discusses the potential benefits and (dis-) advantages that the introduction of the Insolvency Directive may entail.