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Economy 29 Aug 2017

In search of new legislation to keep businesses from going bankrupt

BBVA has participated in a public hearing in the European Parliament, organized by the Committee on Legal Affairs (JURI). The aim of the hearing was to allow stakeholders to share their insights into the directive’s insolvency proposal with the MEPs. BBVA was the only representative of the financial sector, a fact that attests to the bank’s relevance for EU institutions on these matters.

The proposal for a directive on preventive restructuring frameworks, second chance mechanisms and measures to increase the effectiveness of remission, insolvency and restructuring procedures is one of the key elements of the capital markets union and the single market.

Inefficiencies and differences in national insolvency frameworks create obstacles to the free flow of capital in the EU. This measure is expected to contribute to the removal of significant barriers that hinder the development of EU capital markets by offering legal certainty to cross-border investors and companies.

Ms. Leticia GAYO, BBVA Spain, Head of Risk and Banking Business Legal Services appeared as speaker in this public hearing, alongside SME representatives (LucHendrickx, UEAPME), labor unions (Peter Scherrer, ETUC) and two insolvency practitioners (Axel Bierbach and Valérie Leloup-Thomas).

During her presentation, Leticia Gayo said that Spain has been a pioneer in adopting the Commission's recommendation on a new approach to insolvency and business failure. She then described BBVA’s position with respect to the proposal: The institution thinks it is a positive initiative, although some points could be improved.

Among the aspects already incorporated into Spanish law, she noted the importance of defining a variety of judicial and extrajudicial procedures; offering adequate protection to creditors willing to refinance the debtor in difficulty; the potential suspension of enforcement actions  for a short but sufficiently effective period; or the existence of a second opportunity for entrepreneurs, in case of good faith of the debtor and with a minimum requirement of payment.

According to BBVA's Head of Risk and Banking Business Legal Services, some of the main points of the proposal that should be reconsidered are: Increased judicial intervention in restructuring processes, formation of classes based on agreements between creditors (instead of legal criteria) or  the unclear incorporation of the absolute priority rule, a principle according to which a superior category of creditors must be paid in full before a more junior category can receive any payment. All this could result in a decrease in the effectiveness of restructuring processes.She also questioned the approach under which the proposal had been developed, focusing excessively on large corporations.

Goals of the proposal

The main purpose of the proposal is to increase the opportunities for the timely restructuring of companies struggling financially to prevent them from filing for bankruptcy and avoid redundancies; ensure that entrepreneurs have a second chance to develop their activities after a bankruptcy; and to promote more effective and efficient insolvency proceedings across the EU.

In addition, it can contribute to financial stability by reducing default levels on bank loans and addressing the problem of the high level of non-performing loans in the EU banking sector. This, in turn, should allow banks to grant more loans to consumers and businesses.

BBVA has been actively contributing to the legislative process of this proposal since its inception.In addition to providing responses to European consultations on the directive proposal, it has participated in working groups of European Associations (EBF and AFME) and promoted a nation-wide sectorial position through the Spanish Banking Association.