The EU proposes a standard of bankruptcy the american style – Investing.com Spain

By Francesco Guarascio

BRUSSELS (Reuters) – companies could get more space to breathe and restructure their debts in times of crisis, under a draft European Union legislation submitted Tuesday, inspired in the insolvency laws of the united States, with the goal to avoid bankruptcy and save jobs.

In an attempt to encourage ‘start-ups’ to take risks, the proposal would make it easier for european entrepreneurs to get a second chance after the failure of a business, as happens in the US.

The president-elect of the USA, Donald Trump, is one of the leading figures who has benefited from the rules of insolvency, known as “Chapter 11″, which allowed him to relaunch her real estate business after being on the verge of bankruptcy in 1990.

“We were inspired by the american system but we were inspired by Trump”, said a senior official of the EU, describing the ability of the entrepreneur republican to benefit from the insolvency rules “are used in a very professional Chapter 11″.

the standards proposed by the European Commission would allow companies in trouble to stop paying suppliers and banks while restructuring their debts during a “period of relief” of four months, extendable to a maximum of one year in exceptional cases.

Trump restructured a bank loan of several billions of dollars after the stock market crash of 1987 that hit the real estate market of New York and he was close to declaring bankruptcy.

“Every year, 200.000 companies from the EU enter into bankruptcy, that is 1.7 million jobs lost. Often could be avoided if we had a few processes of insolvency and restructuring more effective,” said the Justice commissioner of the EU’s Vera Jourova.

The proposal would allow the entrepreneurs to repay your debt in a period of three years after the bankruptcy, a much shorter period than the current in many european states. In Germany, an employer is bankrupt has to wait seven years.

The proposal will have to be approved by the states, which until now have been protected strongly their powers under the insolvency laws, and shown little appetite to support the common standards of the EU. The Commission emphasized that the measures more lenient would only apply to employers “honest”.

To boost the ‘start-ups’ in Europe, the Commission has decided to create a “fund of funds” venture capital-backed by 400 million euros of european money in an attempt to increase the funding of innovative business and risk-taking.

does LESS DELINQUENCY?

The proposal also plans to help the banks to reduce delinquency, which has skyrocketed in some countries of the euro zone since the global financial crisis, when it broke down many companies.

The loans doubtful almost totaled 1 billion euros last year in the major banks in the euro zone. Between 2007 and 2015, the delinquencies have tripled in Italy to nearly 18 percent, the highest level in the euro zone after Greece. Almost went up five times in Portugal, and seven times in Spain, according to data from the World Bank.

The plans of the Commission include giving banks greater power to pressure companies in trouble to restructure and might trigger the process with early warnings.

banks could also overcome other creditors in voting, a process that is not contemplated in most countries of the EU, which require unanimity to restructure.

The corporate restructuring should be carried out by mediators, professionals and non-national courts which in some countries extend much in time, increasing costs and uncertainties for business.