The concept of a fresh start in the discharge of debt procedure in European Union insolvency law
| Published date | 01 October 2023 |
| DOI | http://doi.org/10.1177/1023263X231217107 |
| Author | Remigijus Jokubauskas |
| Date | 01 October 2023 |
The concept of a fresh start in
the discharge of debt procedure
in European Union insolvency
law
Remigijus Jokubauskas*
Abstract
A fresh start is the essence of personal insolvency proceedings. In the last few decades, policy-
makersintheUnitedStatesofAmericaandEuropeancountrieshavefocusedonestablishing
effective and efficient insolvency proceedings which would address the particular needs of insolv-
ent natural persons. Previously, personal insolvency proceedings aimed to address the social and
economic problems of insolvent debtors (consumers) which were not able to meet their finan-
cial obligations in time. However, the latest developments in this area reveal that specificrules
should be established in insolvency law to tackle the insolvency problems of individuals who
incur most of their debts from economic activities (entrepreneurs’insolvency). The adoption
of the Directive on Restructuring and Insolvency is the first attempt in European Union law
to counter the challenges of the insolvency of entrepreneurs. This article analyses the main ele-
ments of a fresh star t in European Union i nsolvency law, how this phenomenon has evolved and
whether the European Union insolvency law provides an effective fresh start for insolvent
entrepreneurs.
Keywords
Fresh start, EU insolvency law, discharge of debts, personal insolvency proceedings, law
1. Introduction
Insolvency law in the business law of the United States of America (hereinafter –US) and European
Union (hereinafter –EU) was developed to encourage people to create businesses, hire employees,
*
Mykolas Romeris University, Vilnius, Lithuania
Corresponding author:
Remigijus Jokubauskas, Mykolas Romeris University, Ateities str. 20, Vilnius, Lithuania.
Email: remigijus@jokubauskas.org
Article
Maastricht Journal of European and
Comparative Law
2023, Vol. 30(5) 597–622
© The Author(s) 2023
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DOI: 10.1177/1023263X231217107
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pay taxes and thus contribute to the improvement of the economy as a whole.
1
The extensive use of
credit for small businesses provides more chances for entrepreneurs to pursue economic activities
without establishing legal entities.
2
The possibility to conduct business without the establishment of
a legal entity (incorporation) is a tempting solution to avoid complicated corporate governance
issues, such as minimum share capital, and allows entrepreneurs to use simplified accountancy
and financial reports and other related matters. This also allows entrepreneurs to more easily transfer
their economic activities to a country with a more favourable business regime. Nevertheless, despite
its flexibility of governance, entrepreneurship is fragile to economic turbulence in the market.
3
Effective insolvency laws should provide a fresh start (a second chance) to a debtor to pursue
economic activities when insolvency proceedings are accomplished.
4
The fresh start of an insolvent
entrepreneur is one of the core requirements for effective insolvency proceedings.
5
In case a busi-
ness fails, the individual behind it should be able to move on with their life without living in shame
or poverty.
The need to grant an entrepreneur a discharge from debts and support his/her reintegration into
business does not fall under the traditional canons of corporate insolvency law. Corporate insolv-
ency proceedings aim to liquidate a company promptly and satisfy creditors’claims from the pro-
ceeds of the realization of assets in case of bankruptcy proceedings. If a company is solvent (viable),
restructuring proceedings should be commenced which facilitate negotiations between creditors and
a debtor, and the viability of a debtor is restored by implementing a restructuring plan. However,
insolvency proceedings of natural persons, due to their specific subject (a debtor is a natural
person) and the surrounding social and economic peculiarities, raise questions: What is the goal
of this process? What are the economic and social goals of granting the right to discharge of
debts to a natural person (an entrepreneur)? Is the purpose of this process only to release a
debtor from the payment of debts –or, on the contrary, is it intended to ensure the greatest possible
satisfaction of creditors’claims?
With the adoption of the Directive on Restructuring and Insolvency (hereinafter –the Directive),
6
the discharge of debt of individuals (consumers and entrepreneurs) was not harmonized in EU law.
However, the need for the harmonization of insolvency proceedings concerning individuals engaging
in economic activities (entrepreneurs) has been on the agenda of the EU legislator for a long time,
7
and the adoption of the Directive represents a new European approach to businesses’failure and
1. M. Kowalska, ‘Entrepreneurship and its Role from the European Union Perspective’,31Working Papers Institute of
International Business University of Gdañsk (2012); D.M. Primo and W.S. Green, ‘Bankruptcy Law and
Entrepreneurship’,1Entrepreneurship Research Journal (2011).
2. B. Wlodarczyk et al., ‘The Impact of Credit Availability on Small and Medium Companies’,5Entrepreneurship and
Sustainability Issues (2018).
3. For instance, a recent study found that during the COVID-19 pandemic small and medium enterprise insolvency risk
increased, on average, by around 21%. O. Kaya, ‘Insolvency Risk of European SMEs during Pandemic’(2021).
4. UNCITRAL Legislative Guide on Insolvency Law Part five: Insolvency law for micro and small enterprises (2022);
Report on the Treatment of MSME Insolvency, World Bank (2017).
5. A. Gurrea-Martínez, ‘Implementing an Insolvency Framework for Micro and Small Firms’,30International Insolvency
Review (2021).
6. Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring
frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concern-
ing restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 [2019] OJ L 172.
7. European Commission, ‘Overcoming the Stigma of Business Failure –for a Second Chance Policy; Implementing the
Lisbon Partnership for Growth and Jobs’2007 COM(2007) 584 final; Communication ‘A Small Business Act for
Europe’(SBA) COM(2008) 394 final.
598 Maastricht Journal of European and Comparative Law 30(5)
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