Business insolvencies in Europe: amendments to legal procedures temporarily postpone due dates

The economic consequences of the COVID-19 pandemic are of an unprecedented scale in Europe. The twin supply-demand shock has resulted in the halting of production (at least partially) in many companies as employees cannot go to work and in a fall in consumption because of mobility restrictions. The decline in revenues has deteriorated companies’ cash positions, fostering an increase in payment delays – and, ultimately, payment defaults.

Many European countries have temporarily amended the legal framework of default procedures to deal with the crisis

In most European countries, payment defaults must be reported to the competent authority within a given deadline by the company director, who would otherwise be held personally liable. The authority will then initiate insolvency proceedings. However, in order to simultaneously protect the structure and the recovery capacity of their economies once the pandemic is under control, the vast majority of European governments have taken two major steps: the implementation of measures to support corporate cash flow – such as deferrals (or cancellations) of social security contributions and taxes, or state guarantees on loans granted by banks – and temporarily amending the legal framework that regulates insolvency proceedings.

Business insolvencies in Europe: amendments to legal procedures temporarily postpone due dates