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EU evaluates more unified insolvency laws in the face of wave of bankruptcies

Por Jan Strupczewski

BRUSSELS, Apr 16 (Reuters) – Euro zone finance ministers discussed on Friday how to improve and make insolvency laws more similar in the 19-nation bloc, to be more prepared for a wave of bankruptcies expected when it retires. emergency government support to businesses.

Insolvency laws differ between countries, making it more difficult for the euro zone to deal with the problem. The issue threatens to hamper economic growth, as the assets of insolvent companies remain frozen during lengthy legal processes, rather than quickly returning to the economy.

“Well-functioning insolvency frameworks can make a huge difference to recovery,” Chief Minister Paschal Donohoe told a news conference.

The expected increase in corporate bankruptcies will increase the amount of bad loans at banks as the post-pandemic economic recovery begins and governments begin to withdraw programs that keep many nonviable businesses on life support.

“Differences between countries’ insolvency regimes lead to the fragmentation of EU capital markets. This convergence is also important to avoid the accumulation of bad loans in the coming months and for future crises,” said the commissioner of European economy, Paolo Gentiloni, at a press conference.

“We intend to take an initiative to improve the convergence of insolvency laws,” he added.

In a note for ministers’ discussion, the Commission said that national insolvency regimes in the EU differ in design and practical application when it comes to balancing the interests of the creditor and the debtor, the priority given to employees , public services or tax authorities.

There is not even a single definition of insolvency or when a company must go through formal insolvency proceedings. There are also no common rules on the replenishment of insolvency assets, their tracing, the classification of claims, including the position of secured creditors or judicial capacity, the Commission said.

Unifying the laws would involve the justice ministries, which would add an additional layer of difficulty, which is why the ministers for now agreed on a more realistic path to strengthen the system in other ways than through changes to the laws.

“Today’s discussion showed support for additional non-legislative measures to help our frameworks converge, and we agreed to re-examine this issue,” said Donohoe.

Such non-legislative measures would involve ensuring that each country’s judicial systems are adequately resourced and that pending cases in court are tolerable, in addition to establishing EU criteria.

(Report by Jan Strupczewski, Edited in Spanish by Ricardo Figueroa)

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