ACCA welcomes the new EC Directive on preventive restructuring frameworks and second chance for entrepreneurs

ACCA (the Association of Chartered Certified Accountants) generally supports the second chance approach to insolvency, but calls for clearer definitions and a balanced approach.

ACCA fully endorses the two main objectives of the new EC proposal. The first is ensuring that any viable enterprise in financial difficulties located in the EU can have access to national preventive insolvency frameworks enabling its early restructuring, with a view to preventing insolvency. The second is giving honest bankrupt entrepreneurs a second chance, particularly important for less resourceful small businesses.

John Cullen, ACCA Council member and insolvency practitioner at Menzies LLP said: “we currently observe a significant variance in survival rates of struggling businesses across the EU, from 5 to 80% of businesses entering formal insolvency processes. That certainly suggests the Commission could usefully act to improve survival rates by harmonising the existing insolvency regimes, using features and best practices from the most advanced member states.  In addition, this proposal seems to be well aligned with the EC‘s mainstreamed objective to reduce the costs of doing business in the EU. ”.

For the global accountancy body, the EU executive rightly identified that efficient insolvency frameworks would provide a better assessment of the risks linked to lending and borrowing decisions. It would also facilitate the adjustment for over-indebted firms, reducing economic and social costs involved in their deleveraging process. ACCA also welcomes the proposal to put in place financial planning and management trainings for small entrepreneurs, to help detecting, solving and preventing financial problems at an early stage.

Jason Piper, ACCA’s Head of Business Law explained: the earlier financial difficulties can be identified and addressed, the greater the likelihood of a better outcome for society as a whole. We fully share the Commission’s view that a to avoid running the risk of misuse  of the procedure, the financial difficulties of the debtor must be likely to lead to its insolvency, while  the restructuring plan must be capable of preventing the insolvency of the debtor and ensuring the viability of the business. Accountants have an important role to play in this process, as they are uniquely positioned with an understanding of commercial, legal and financial issues which contribute to the success of a business as a whole. In particular, accountants should be well equipped for the role of mediator foreseen by the EU Commission.” 

“We also welcome the Commission’s call for automatic early warning systems for business in financial difficulty. However, for them to work, it will be crucial to put serious work into awareness raising and dissemination actions. Information campaigns or online portals with information on prevention could work and should not be too heavy to put in place”, Jason Piper added.

However, the global accountancy body warns that there is a need for clarification regarding the interaction of the terms “insolvency practitioner”, “restructuring adviser” “mediator” and “supervisor”.

Jason Piper stressed :“There should be more clarity around the definition of who can be a mediator and who can be a supervisor, what their respective roles are within the class “restructuring advisers”, and how they are distinct from the role of” insolvency practitioners.” “Restructuring advisor” is a recognised qualification in the US; is the Commission proposing a similar concept for us to develop in the EU? If so then professional accountants could deliver a real added value from their unique perspective, blending commercial knowhow with an understanding of the regulatory requirements”.

“We also believe that it is important to promote specialisation of courts and pre-restructuring and insolvency training for judges, and to ensure minimum standards for insolvency practitioners”, Jason Piper pointed out.

More specifically on the second chance aspect, the Commission makes “access to discharge”  available to debtors –ie  they no longer owe the money-  unless some evidence of dishonesty. 

John Cullen commented:  “Several fundamental principles have been created: a debtor can have discharge after three years; he does not have to pay back a certain amount of his debt if he is not able to do so; and a debtor is automatically discharged without the need to make an application to Court.  Whilst in some countries this is already happening, it will be brand new in others.  The cycle of never ending debt will be broken in the Eurozone. This is important. Both from a moral perspective, but also to provide the entrepreneur a chance to be rehabilitated and go back into the economy.”

For ACCA, restructuring cannot come at any cost:  it is crucial to balance “second chance” with the interests of creditors.

John Cullen stressed: take for example stays, during which creditors will not be able to take action against the company or terminate contracts. They provide debtors breathing space to restructure, and can  be renewed for up to 4 months. In complex matters, the stay may be extended for up to 12 months.  But who can afford not to be paid for that time?  Also, what if the supplier is unable to supply the goods contractually and cannot terminate or amend the contract? There should be some mechanism to stop debtors applying for a stay because of a subsequent financial problem if they have applied for one recently. The mediator/adviser role is in control of the restructuring plan during the stay.  They need not be an insolvency practitioner. But  how will they be held to account if they get it wrong?  What is to stop mischief during the stay if these people are not properly qualified and regulated?” John Cullen wonders.

“The proposal is a good start, but it needs further clarification. ACCA, BusinessEurope and UEAPME will hold a joint event end of February to raise further awareness on the proposal and have a constructive dialogue with EU decision-Makers and stakeholders. This  will hopefully help inform the debate”, John Cullen concluded.

-ENDS-

For media enquiries, contact:

Cecile Bonino, tel: +32 (0) 2 286 11 37 or cecile.bonino@accaglobal.com

Notes to Editors

About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. It offers business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

ACCA supports its 188,000 members and 480,000 students in 181 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 95 offices and centres and more than 7,110 Approved Employers worldwide, who provide high standards of employee learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence.

Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. It believes that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. ACCA’s core values are aligned to the needs of employers in all sectors and it ensures that through its range of qualifications, it prepares accountants for business. ACCA seeks to open up the profession to people of all backgrounds and remove artificial barriers, innovating its qualifications and delivery to meet the diverse needs of trainee professionals and their employers. More information is here: www.accaglobal.com