European Commission hopes to harmonise insolvency laws

Leaseurope responded to the recent consultation on this topic, raising concerns over the practicability

The European Commission launched a consultation on their plans to enhance convergence between national insolvency laws, in order to encourage cross-border business investment. They are considering extending the debtor protections already in place within the Insolvency Directive, which currently only applies to SMEs and entrepreneurs, to corporates and larger businesses.

In our response to the consultation, Leaseurope outlined the reasons our members do not support this extended harmonization. For example, we believe that differences in jurisdictions’ insolvency laws often exist for a number of very valid reasons, such as variation in the legal process surrounding insolvency, and differences in the criteria businesses must meet before becoming insolvent. We also noted that the harmonization of insolvency laws in a way that strongly favours the debtor could have a negative impact on the availability of leasing products, since not being able to rely on reclaiming an asset when a debtor is unable to make repayments will ultimately make leasing companies more hesitant to enter into contracts, particularly with entities with low credit ratings.

As the legal owner of the leased asset, leasing companies need to be confident in their ability to reclaim their assets in default situations in order for their business model to function well. Any interference in the ability to exercise ownership rights ultimately undermines legal certainty, forcing leasing companies to continue to uphold their side of a contract when the other party to the contract (the debtor) is unable to fulfil their obligations.

The European Commission will now be analysing the consultation responses and finalising their views and plans later this year.