Second Chance in Cyprus · Rationale for a second chance policy in the EU Lessons learned from the SBA Second Chance Principler 1.7 million jobs are lost in the EU due to bankruptcy

“Second Chance in Europe: Lessons learned from theassessments on policy progress in the implementation of the recommendations of theSmall Business Act”

Olivia-Kelly LONKEU

Manager – Economic development & Innovation

July 2019

PwC

A Small Business Act for Europe (SBA)

2

10 July 2019Lessons learned from the SBA Second Chance Principle

Access to finance

Single market

Skills & innovation

Environment

Internationalisation

State aid & public procurement

‘Responsive administration’

‘Second Chance’

Entrepreneurship

Think Small First

The European Commission’s flagship policy to support SMEs, composed of the following 10 principles:

SBA for Europe

Source: European Commission

PwC

Rationale for a second chance policy in the EU

Lessons learned from the SBA Second Chance Principler

1.7 millionjobs are lost in the EU due to bankruptcy

European Commission

200,000EU businesses facing insolvency every year

European Commission

50%of new businesses close in the first 5 years of operation. 40% close in the first three years.

European Commission

55%of Cypriots would not start a business if it might fail compared with 38% at EU level

Global Entrepreneurship Report

Companies founded by re-starters have higher turnover and employment growth. European Commission

10 July 2019

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PwC

Small Business Act -Principle 2:

"Ensure that honest entrepreneurs who have faced bankruptcy quickly get a second chance"

PwC10 July 2019

Lessons learned from the SBA Second Chance Principle

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promote a positive attitude in society towards

giving entrepreneurs a fresh start

enable the completion of all legal procedures

to wind up a business, in the case of non-

fraudulent bankruptcy, within a year

ensure that re-starters are treated on an equal

footing with new start-ups

EU recommendations: SBA principle Second Chance

Source: European Commission

PwC

EU SME Performance Review

European Commission’s main tool to monitor and assess countries' progress in implementing the Small Business Act

Lessons learned from the SBA Second Chance Principle 10 July 2019

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SBA Country

Fact Sheets

Annual Report on

EU SMEs

Background document

of the Annual Report

on EU SMEs

PwC

EU MS performance under SBA ‘Second chance’ recommendations


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Are legal bankruptcy

procedures completed

within a year and is

discharged from

bankruptcy in maximum

three years?

Is there the possibility of

automatic discharge for

honest entrepreneurs

after liquidation (or fast-

track and specific

procedures in place for

SMEs)?

Are there early warning

and help-desk

mechanisms in place to

prevent entrepreneurs

from going into

bankruptcy?

Are re-starters treated

on an equal footing with

new start-ups?

10 MS 15 MS11 MS 13 MS

Source: European Commission, 2018 EU SBA Fact Sheet & Scoreboard

PwC

Policy progress per SBA Principle (2011-2018)Second chance Principle: the lowest degree of policy activity


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0 100 200 300 400 500 600 700

1. Entrepreneurship

2. Second Chance

3. Think Small First

4. Responsive admin

5. State aid & Public procurement

6. Access to finance

7. Single market

8. Skills & innovation

9. Environment

10. Internationalisation

2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018

SBA policy progress for EU-28 (2011 – 2018) Policy measures implemented (2011 – 2018)

16%

3%

7%

12%

5%17%

2%

23%

6%

9%

1. Entrepreneurship

2. Second Chance

3. Think Small First

4. Responsive admin

5. State aid & Public procurement

6. Access to finance

7. Single market

8. Skills & innovation

9. Environment

10. Internationalisation


PwC

addd

SBA policy measures at EU-28-level for ‘Second chance’(2011 – Q1/2018)


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2011

/2012

2012

/2013

2013

/2014

2014

/2015

2015

/2016

2016

/2017

2017

/2018

Promote positive attitude

towards restarters4 5 1 2 1 1 2

Ensure bankruptcy

procedures take just 1

year

4 0 3 4 1 4 4

Limit discharge time and

debt settlement to 3 years1 1 1 4 3 1 0

Ensure restarters are

treated equally1 2 0 1 1 2 1

Other 11 2 10 6 7 4 7


0

5

10

15

20

25

30

35

40

45

50

Promote positive attitudetowards restarters

Ensure bankruptcyprocedures take just 1 year

Limit discharge time anddebt settlement to 3 years

Ensure restarters aretreated equally

Other

Chart Title

2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018

SBA policy measures - EU-28

No

. of

ado

pte

d/i

mp

lem

en

ted

po

licy

me

asu

res

PwC

Title of the measure Country

• Insolvency Amending Law • Austria

• Federal: Corporate insolvency measures

• Federal: Business continuity reform to make businesses more efficient and effective

• Regional (Wallonia): Early warning scan

• Belgium

• Unemployment benefits for independents • France

• Debt solutions to Social Security Institutions

• Simplified debt settlement procedure of companies not exceeding in total the amount of fifty thousand euros (50.000 €) under their

affiliation to Law 4469/2017

• Extrajudicial Debt Settlement mechanism for enterprises and other provisions

• Greece

• Early restructuring and second chance • Hungary

• Reform of the rules on corporate crisis and insolvency procedures • Italy

• The new qualification exam of bankruptcy administrators • Lithuania

• Access to public aid for SMEs in restructure

• Early Warning!

• Poland

• New extra-judicial mechanisms for companies recovery • Portugal

• Prevention law • Romania

• Business Health Tool • Spain

• New powers to give greater protection to staff and small suppliers in insolvent businesses • United Kingdom

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Source: European Commission, SME Performance Review, Policy database 2017/2018

Examples of policy measures 2017/2018

PwC

While

is not the worst-

performing SBA

principle at EU-level,

there has been moderate

progress achieved

since 2008

Overview of EU28 MS’ progress per ‘Second chance’ indicators


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PwC

Overview of EU-28 MS’ performance and progress over time under ‘Second chance’ SBA principle (2008-2018)


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PwC

Ranking of ‘second chance’ enabling environmentsat EU level (2008-2018)


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Focus on Cyprus:A below EU average performancewith moderate progress since 2008

Source: European Commission, 2018 SBA Fact Sheet for Cyprus

PwC

Trends in number of business bankruptcies and other forms of involuntary business cessations in selected MS (2007-2014)


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Source: LE Europe based on Eurostat

PwC

Analysis on the impact of bankruptcy regime on level of entrepreneurship and creation of new businesses (2015)

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• the availability of discharge (yes or no)• time to discharge (i.e. length of discharge period –when no discharge is

possible, the authors use average life expectancy as a proxy)• the generosity of the exemptions • impact on the bankrupt’s civil and economic rights • the level of difficulty a debtor faces in achieving discharge by agreement with

creditors

Punitive bankruptcy regime:• makes if more difficult to re-start after bankruptcy• deters would-be entrepreneurs because of consequences of

potential failure

• Length of discharge period has a substantial (negative) impact on entrepreneurship and the creation of new firms

Finding of the

statistical analysis

Updated Armour

and Cunnings

study (2008)

Features of the national bankruptcy regime of interest:

PwC

What would be the impact of implementing second chance in the EU28 economy?Key findings from the study


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Source: LE Europe based on Eurostat

Percentage increase in the

number of new enterprises

if the discharge period is

reduced to 3 years in

Member States where the

discharge period is currently

greater than 3 years

High impact:

CY, EL, HU, IT, LT, MT, PT, RO

www.pwc.lu

Thank you

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Olivia-Kelly Lonkeu

Manager

T: +352 49 48 48 4186

M: +352 621 334 186

[email protected]

Documents

Second Chance in Cyprus · Rationale for a second chance policy in the EU Lessons learned from the SBA Second Chance Principler 1.7 million jobs are lost in the EU due to bankruptcy